**SECURITIES AND EXCHANGECOMMISSION**

**Washington, D.C. 20549**

 

**FORM 10-Q**

 

**Quarterly Report Under Section 13or 15(d)of the Securities Exchange Act of 1934**

 

**For theQuarter Ended January 2, 2005**

 

**Commission File No. 1-10348**

 

**PrecisionCastparts Corp.**

 

**An Oregon Corporation**

**IRS Employer Identification No. 93-0460598**

**4650 S.W. Macadam Avenue**

**Suite 440**

**Portland, Oregon 97239-4254**

**Telephone: (503) 417-4800**

 

Indicate bycheckmark whether the registrant (1) has filed all reports required to be filedby Section 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days.

 

| Yes | ý | No | o |
|-----|--------|----|---|

 

Indicate by check mark whether the registrant is an accelerated filer(as defined in Exchange Act Rule 12b-2).

 

| Yes | ý | No | o |
|-----|--------|----|---|

 

Number of sharesof Common Stock, no par value, outstanding as of February 4, 2005: 66,067,860

 

Note:                   This 10-Q wasfiled electronically via EDGAR with the Securities and Exchange Commission.

 

 

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**PART1:  FINANCIAL INFORMATION**

 

**Item1.  Financial Statements**

 

**PrecisionCastparts Corp. and Subsidiaries**

**ConsolidatedStatements of Operations**

**(Unaudited)**

**(Inmillions, except per share data)**

 
| ** **                                        | ** ** | **Three Months Ended** | ** ** |
|---------------------------------------------------|------------|------------------------|------------|
| ** **                                        | ** ** | **1/02/05**            | ** ** | **12/28/03** | ** ** |
|                                              |       |                   |       |   |   |
| Net sales                                         |       | $                      | 743.9      |   | $ | 450.2 |   |
| Cost of  goods sold                               |       | 575.8                  |       | 348.6 |   |
| Selling and  administrative expenses              |       | 58.8                   |       | 37.3 |   |
| Other  expense                                    |       | —                 |       | 11.2 |   |
| Interest  expense, net                            |       | 14.3                   |       | 12.8 |   |
|                                              |       |                   |       |   |   |
| Income before  income taxes and minority interest |       | 95.0                   |       | 40.3 |   |
| Income tax  expense                               |       | 32.7                   |       | 14.0 |   |
| Minority  interest                                |       | (0.2                   | )          | (0.6 | ) |
|                                              |       |                   |       |   |   |
| Net income  from continuing operations            |       | 62.1                   |       | 25.7 |   |
| Net (loss)  income from discontinued operations   |       | (0.4                   | )          | 2.1 |   |
|                                              |       |                   |       |   |   |
| Net income                                        |       | $                      | 61.7       |   | $ | 27.8 |   |
|                                              |       |                   |       |   |   |
| Net income  (loss) per common share – basic: |       |                   |       |   |   |
| Net income  from continuing operations            |       | $                      | 0.95       |   | $ | 0.46 |   |
| Net (loss)  income from discontinued operations   |       | (0.01                  | )          | 0.04 |   |
|                                              |       |                   |       |   |   |
|                                              |       | $                      | 0.94       |   | $ | 0.50 |   |
|                                              |       |                   |       |   |   |
| Net income  per common share – diluted:      |       |                   |       |   |   |
| Net income  from continuing operations            |       | $                      | 0.93       |   | $ | 0.45 |   |
| Net income  from discontinued operations          |       | —                 |       | 0.04 |   |
|                                              |       |                   |       |   |   |
|                                              |       | $                      | 0.93       |   | $ | 0.49 |   |
|                                              |       |                   |       |   |   |
| Average  common shares outstanding:               |       |                   |       |   |   |
| Basic                                             |       | 65.4                   |       | 55.6 |   |
| Diluted                                           |       | 66.6                   |       | 56.9 |   |

 

*See Notesto the Interim Consolidated Financial Statements on page 6.*

 

2

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| ** **                                              | ** ** | **Nine Months Ended** | ** ** |
|---------------------------------------------------------|------------|-----------------------|------------|
| ** **                                              | ** ** | **1/02/05**           | ** ** | **12/28/03** | ** ** |
|                                                    |       |                  |       |   |   |
| Net sales                                               |       | $                     | 2,109.5    |   | $ | 1,276.1 |   |
| Cost of  goods sold                                     |       | 1,632.1               |       | 987.0 |   |
| Selling and  administrative expenses                    |       | 176.8                 |       | 96.9 |   |
| Provision  for restructuring                            |       | —                |       | 8.4 |   |
| Other  expense                                          |       | —                |       | 11.2 |   |
| Interest  expense, net                                  |       | 43.7                  |       | 38.2 |   |
|                                                    |       |                  |       |   |   |
| Income  before income taxes and minority interest       |       | 256.9                 |       | 134.4 |   |
| Income tax  expense                                     |       | 86.1                  |       | 47.7 |   |
| Minority  interest in earnings of consolidated entities |       | (1.0                  | )          | (0.9 | ) |
|                                                    |       |                  |       |   |   |
| Net income  from continuing operations                  |       | 169.8                 |       | 85.8 |   |
| Net loss  from discontinued operations                  |       | (237.5                | )          | (9.2 | ) |
|                                                    |       |                  |       |   |   |
| Net (loss)  income                                      |       | $                     | (67.7      | ) | $ | 76.6 |   |
|                                                    |       |                  |       |   |   |
| Net income  (loss) per common share – basic:       |       |                  |       |   |   |
| Net income  from continuing operations                  |       | $                     | 2.61       |   | $ | 1.59 |   |
| Net loss  from discontinued operations                  |       | (3.65                 | )          | (0.17 | ) |
|                                                    |       | $                     | (1.04      | ) | $ | 1.42 |   |
|                                                    |       |                  |       |   |   |
| Net income  (loss) per common share – diluted:     |       |                  |       |   |   |
| Net income  from continuing operations                  |       | $                     | 2.56       |   | $ | 1.56 |   |
| Net loss  from discontinued operations                  |       | (3.58                 | )          | (0.16 | ) |
|                                                    |       | $                     | (1.02      | ) | $ | 1.40 |   |
|                                                    |       |                  |       |   |   |
| Average  common shares outstanding:                     |       |                  |       |   |   |
| Basic                                                   |       | 65.0                  |       | 53.8 |   |
| Diluted                                                 |       | 66.2                  |       | 54.9 |   |

 

*See Notesto the Interim Consolidated Financial Statements on page 6.*

 

3

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**PrecisionCastparts Corp. and Subsidiaries**

**ConsolidatedBalance Sheets**

**(Inmillions)**

 
| ** **                                            | ** ** | **(Unaudited)** | ** ** | ** **  | ** ** |
|-------------------------------------------------------|------------|-----------------|------------|-------------|------------|
| ** **                                            | ** ** | **1/02/05**     | ** ** | **3/28/04** | ** ** |
| ASSETS                                                |       |            |       |        |       |
| Current assets:                                       |       |            |       |        |       |
| Cash and  cash equivalents                            |       | $               | 396.9      |        | $          | 80.3 |   |
| Receivables,  net                                     |       | 371.3           |       | 389.0       |       |
| Inventories                                           |       | 501.6           |       | 453.6       |       |
| Prepaid  expenses                                     |       | 18.8            |       | 16.3        |       |
| Income tax  receivable                                |       | —          |       | 29.0        |       |
| Deferred  income taxes                                |       | 50.4            |       | 50.8        |       |
| Discontinued  operations                              |       | 75.6            |       | 168.5       |       |
| Total  current assets                                 |       | 1,414.6         |       | 1,187.5     |       |
|                                                  |       |            |       |        |       |
| Property,  plant and equipment, at cost               |       | 1,259.4         |       | 1,219.1     |       |
| Less -  accumulated depreciation                      |       | (583.0          | )          | (514.7      | )          |
| Net  property, plant and equipment                    |       | 676.4           |       | 704.4       |       |
|                                                  |       |            |       |        |       |
| Goodwill,  net                                        |       | 1,436.0         |       | 1,401.8     |       |
| Acquired  intangible assets, net                      |       | 5.4             |       | 6.1         |       |
| Deferred  income taxes                                |       | 15.8            |       | 23.3        |       |
| Other assets                                          |       | 96.1            |       | 88.9        |       |
| Discontinued  operations                              |       | 57.9            |       | 344.2       |       |
|                                                  |       |            |       |        |       |
|                                                  |       | $               | 3,702.2    |        | $          | 3,756.2 |   |
|                                                  |       |            |       |        |       |
| LIABILITIES  AND SHAREHOLDERS’ INVESTMENT        |       |            |       |        |       |
| Current  liabilities:                                 |       |            |       |        |       |
| Short-term  borrowings                                |       | $               | 6.0        |        | $          | 14.8 |   |
| Long-term  debt currently due                         |       | 299.0           |       | 238.5       |       |
| Accounts  payable                                     |       | 262.6           |       | 255.2       |       |
| Accrued  liabilities                                  |       | 306.7           |       | 284.3       |       |
| Income taxes  payable                                 |       | 49.9            |       | 34.3        |       |
| Discontinued  operations                              |       | 33.7            |       | 85.7        |       |
| Total  current liabilities                            |       | 957.9           |       | 912.8       |       |
|                                                  |       |            |       |        |       |
| Long-term  debt                                       |       | 747.1           |       | 823.0       |       |
| Pension and  other postretirement benefit obligations |       | 212.6           |       | 230.4       |       |
| Other  long-term liabilities                          |       | 53.1            |       | 52.3        |       |
| Discontinued  operations                              |       | 18.0            |       | 23.1        |       |
| Total  liabilities                                    |       | 1,988.7         |       | 2,041.6     |       |
|                                                  |       |            |       |        |       |
| Shareholders’  investment:                       |       |            |       |        |       |
| Common stock                                          |       | 65.7            |       | 64.7        |       |
| Paid-in  capital                                      |       | 753.7           |       | 717.7       |       |
| Retained  earnings                                    |       | 887.7           |       | 961.2       |       |
| Accumulated  comprehensive loss:                      |       |            |       |        |       |
| Foreign  currency translation                         |       | 81.8            |       | 48.4        |       |
| Derivatives  qualifying as hedges                     |       | 1.9             |       | (0.1        | )          |
| Minimum  pension liability                            |       | (77.3           | )          | (77.3       | )          |
| Total  shareholders’ investment                  |       | 1,713.5         |       | 1,714.6     |       |
|                                                  |       |            |       |        |       |
|                                                  |       | $               | 3,702.2    |        | $          | 3,756.2 |   |

 

*See Notes to the Interim Consolidated Financial Statements on page 6.*

 

4

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**PrecisionCastparts Corp. and Subsidiaries**

**ConsolidatedStatements of Cash Flows**

**(Unaudited)**

**(Inmillions)**

 
| ** **                                                                                             | ** ** | **Nine Months Ended** | ** ** |
|--------------------------------------------------------------------------------------------------------|------------|-----------------------|------------|
| ** **                                                                                             | ** ** | **1/02/05**           | ** ** | **12/28/03** | ** ** |
|                                                                                                   |       |                  |       |   |   |
| Cash flows  from operating activities:                                                                 |       |                  |       |   |   |
| Net income  from continuing operations                                                                 |       | $                     | 169.8      |   | $ | 85.8 |   |
| Non-cash  items included in income:                                                                    |       |                  |       |   |   |
| Depreciation  and amortization                                                                         |       | 72.0                  |       | 55.8 |   |
| Deferred  income taxes                                                                                 |       | 17.1                  |       | 5.2 |   |
| Tax benefit  from stock option exercises                                                               |       | 11.8                  |       | 11.7 |   |
| Changes in  assets and liabilities, excluding effects of acquisitions and dispositions of  businesses: |       |                  |       |   |   |
| Receivables                                                                                            |       | (4.5                  | )          | 10.3 |   |
| Inventories                                                                                            |       | (48.4                 | )          | (24.5 | ) |
| Other  current assets                                                                                  |       | 26.5                  |       | 19.7 |   |
| Payables,  accruals and current taxes                                                                  |       | 38.9                  |       | (33.0 | ) |
| Other non-current  assets and liabilities                                                              |       | (31.1                 | )          | (36.7 | ) |
| Net cash  provided by operating activities                                                             |       | 252.1                 |       | 94.3 |   |
|                                                                                                   |       |                  |       |   |   |
| Cash flows  from investing activities:                                                                 |       |                  |       |   |   |
| Capital  expenditures                                                                                  |       | (38.6                 | )          | (33.7 | ) |
| Acquisitions  of businesses                                                                            |       | (1.4                  | )          | (280.9 | ) |
| Proceeds from  sales of businesses                                                                     |       | 116.0                 |       | 23.5 |   |
| Other                                                                                                  |       | 4.2                   |       | 6.2 |   |
| Net cash  provided (used) by investing activities                                                      |       | 80.2                  |       | (284.9 | ) |
|                                                                                                   |       |                  |       |   |   |
| Cash flows  from financing activities:                                                                 |       |                  |       |   |   |
| Net change  in short-term borrowings                                                                   |       | (5.8                  | )          | (51.9 | ) |
| Issuance of  long-term debt                                                                            |       | —                |       | 500.0 |   |
| Repayment of  long-term debt                                                                           |       | (15.4                 | )          | (260.0 | ) |
| Proceeds  from exercise of stock options                                                               |       | 25.2                  |       | 37.0 |   |
| Cash  dividends                                                                                        |       | (5.8                  | )          | (4.8 | ) |
| Other                                                                                                  |       | (8.8                  | )          | (23.2 | ) |
| Net cash  (used) provided by financing activities                                                      |       | (10.6                 | )          | 197.1 |   |
|                                                                                                   |       |                  |       |   |   |
| Effect of  exchange rate changes on cash and cash equivalents                                          |       | 4.3                   |       | 1.1 |   |
| Net cash  (used) provided by discontinued operations                                                   |       | (9.4                  | )          | 11.3 |   |
|                                                                                                   |       |                  |       |   |   |
| Net increase  in cash and cash equivalents                                                             |       | 316.6                 |       | 18.9 |   |
| Cash and  cash equivalents at beginning of period                                                      |       | 80.3                  |       | 28.7 |   |
|                                                                                                   |       |                  |       |   |   |
| Cash and  cash equivalents at end of period                                                            |       | $                     | 396.9      |   | $ | 47.6 |   |

 

*See Notesto the Interim Consolidated Financial Statements on page 6.*

 

5

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**Notes tothe Interim Consolidated Financial Statements**

(Unaudited)

(In millions,except share and per share data)

 

**(1)****                                 Basisof Presentation**

 

The interimconsolidated financial statements have been prepared by Precision CastpartsCorp. (“PCC” or the “Company”), without audit and subject to year-end adjustment,in accordance with generally accepted accounting principles, except thatcertain information and footnote disclosures made in the latest annual reporthave been condensed or omitted for the interim statements.  Certain costs are estimated for the full yearand allocated in interim periods based on estimates of operating time expired,benefit received, or activity associated with the interim period.  The consolidated financial statements reflectall adjustments, which are, in the opinion of management, necessary for a fairrepresentation of the results for the interim periods.  All adjustments are of a normal recurringnature.  Certain reclassifications havebeen made to prior year amounts to conform to the current year presentation.

 

**(2)****                                 Stock-based compensation**

 

The Company accounts for stock-based employee compensation inaccordance with the provisions of APB Opinion No. 25, “Accounting for StockIssued to Employees,” and related interpretations.  No stock-based employee compensation cost isreflected in net income, as all stock options are granted with exercise pricesequal to the market value of the underlying common stock on the grantdates.  The following table illustratesthe effect on net income and earnings per share if the Company had elected torecognize compensation expense based on the fair value of the stock optionsgranted at the grant dates as prescribed by SFAS No. 123, “Accounting forStock-Based Compensation.”

 
| ** **                                                                                                 | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended** | ** ** |
|------------------------------------------------------------------------------------------------------------|------------|------------------------|------------|-----------------------|------------|
| ** **                                                                                                 | ** ** | **1/02/05**            | ** ** | **12/28/03**          | ** ** | **1/02/05** | ** ** | **12/28/03** | ** ** |
|                                                                                                       |       |                   |       |                  |       |   |   |   |   |
| Net income  (loss) as reported                                                                             |       | $                      | 61.7       |                  | $          | 27.8 |   | $ | (67.7 | ) | $ | 76.6 |   |
| Deduct:  Stock-based compensation, net of tax, as determined under fair value based  method for all awards |       | (2.4                   | )          | (1.9                  | )          | (6.6 | ) | (5.2 | ) |
|                                                                                                       |       |                   |       |                  |       |   |   |   |   |
| Pro forma  net income (loss)                                                                               |       | $                      | 59.3       |                  | $          | 25.9 |   | $ | (74.3 | ) | $ | 71.4 |   |
|                                                                                                       |       |                   |       |                  |       |   |   |   |   |
| Net income  (loss) per share – basic:                                                                 |       |                   |       |                  |       |   |   |   |   |
| Reported                                                                                                   |       | $                      | 0.94       |                  | $          | 0.50 |   | $ | (1.04 | ) | $ | 1.42 |   |
| Pro forma                                                                                                  |       | $                      | 0.91       |                  | $          | 0.47 |   | $ | (1.14 | ) | $ | 1.33 |   |
|                                                                                                       |       |                   |       |                  |       |   |   |   |   |
| Net income  (loss) per share – diluted:                                                               |       |                   |       |                  |       |   |   |   |   |
| Reported                                                                                                   |       | $                      | 0.93       |                  | $          | 0.49 |   | $ | (1.02 | ) | $ | 1.40 |   |
| Pro forma                                                                                                  |       | $                      | 0.89       |                  | $          | 0.46 |   | $ | (1.12 | ) | $ | 1.30 |   |

 

6

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**(3)****                                 Acquisition**

 

On December 9, 2003, PCC acquired 100percent of the outstanding shares of common stock of SPS Technologies, Inc. (“SPS”).  The results of SPS’s operations have beenincluded in the consolidated financial statements since that date.

 

SPS is a supplier of fasteners and other metal products to theaerospace, automotive, and general industrial and other markets.  SPS’sformer Specialty Materials and Alloys group operates as part of the InvestmentCast Products segment.  A new segment,Fastener Products, comprises most of SPS’s former Aerospace Fasteners andEngineered Fasteners groups.  SPS’sformer tool group operates as part of the Industrial Products segment.  In addition, three former SPS businesses –Magnetics, Mohawk, and Dacar – were classified as held for sale in the thirdquarter of fiscal 2004, and their results have been included in discontinuedoperations.  Dacar was sold in late September 2004and the Magnetics business was sold in January 2005.  The Mohawk business is currently beingmarketed.  See Note 4 – DiscontinuedOperations.

 

The following summarizes the estimated fair values of the assetsacquired and liabilities assumed at the date of acquisition.  Since fiscal year end, the allocated goodwillincreased by $15.9 million, primarily due to revised estimates of the fairvalue of the businesses classified as held for sale.

 
| ** **                                        | ** ** | **12/9/03** | ** ** |
|---------------------------------------------------|------------|-------------|------------|
|                                              |       |        |       |
| Current  assets                                   |       | $           | 356.6      |   |
| Property,  plant and equipment                    |       | 217.1       |       |
| Goodwill                                          |       | 653.2       |       |
| Intangible  assets                                |       | 6.3         |       |
| Other assets                                      |       | 19.8        |       |
| Total assets  acquired                            |       | 1,253.0     |       |
| Notes  payable and current portion long-term debt |       | 19.4        |       |
| Other current  liabilities                        |       | 191.7       |       |
| Long-term  debt                                   |       | 186.7       |       |
| Other  long-term liabilities                      |       | 117.4       |       |
| Total  liabilities assumed                        |       | 515.2       |       |
|                                              |       |        |       |
| Net assets  acquired                              |       | $           | 737.8      |   |

 

The $6.3 million of acquired intangible assets includes the following:

 
| ** **                     | ** ** | **Amount** | ** ** | **Weighted-  Average  Useful Life** | ** ** |
|--------------------------------|------------|------------|------------|-------------------------------------|------------|
|                           |       |       |       |                                |       |
| Patents                        |       | $          | 3.0        |                                | 8.0 years  |   |
| Proprietary  Technology        |       | 2.3        |       | 15.0 years                          |       |
| Tradenames                     |       | 0.8        |       | 15.0 years                          |       |
| Long-term  customer agreements |       | 0.2        |       | 1.8 years                           |       |
|                           |       |       |       |                                |       |
|                           |       | $          | 6.3        |                                |       |   |

 

7

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The $653.2 million of goodwill was assigned to the Company’s segmentsas follows:

 
| Investment  Cast Products |   | $      | 171.6  |   |
|---------------------------|--------|--------|--------|--------|
| Fastener  Products        |   | 440.1  |   |
| Industrial  Products      |   | 24.3   |   |
| Businesses  held for sale |   | 17.2   |   |
|                      |   |   |   |
|                      |   | $      | 653.2  |   |

 

The goodwill is not deductible for tax purposes.

 

**(4)****                                 DiscontinuedOperations**

 

In the second quarter of fiscal 2005, the Company entered intoagreements to sell all of the pumps and valves businesses of PCC FlowTechnologies, with the exception of E-One. The businesses held for sale were reclassified from the Fluid ManagementProducts segment to discontinued operations. The E-One sewer and detection system operation of the Fluid ManagementProducts segment was retained and is now included in the Industrial Productssegment.  All of the pumps and valvesbusinesses, with the exception of PCC Eurovalves, were sold in the thirdquarter of fiscal 2005.  PCC Eurovalvescontinues to be marketed.  PCC’s decisionto sell the pumps and valves businesses in the second quarter of fiscal 2005resulted in a charge of $245.0 million, of which $219.1 million was associatedwith the write-down of goodwill.  Theremainder related to the write-down of inventory, other amortizable assets andmachinery and equipment to fair value less cost to sell.  Approximately $240.0 million of the chargewas non-cash.

 

In the third quarter of fiscal 2004, three businesses acquired in theSPS transaction-Magnetics, Mohawk, and Dacar-were classified as held for saleand their results were included in discontinued operations. They wereclassified as discontinued operations because they were deemed to be non-coreto the Company.  Dacar was sold in late September 2004,Magnetics was sold in January 2005, and Mohawk continues to be marketed.

 

In the second quarter of fiscal 2004, the Company decided to sellNewmans, a valve distribution company of PCC Flow Technologies. It wasdetermined that Newmans’ distribution business did not fit with PCC’smanufacturing-focused operations and was not performing to the Company’s expectations.The Company’s decision to sell Newmans resulted in a charge of $19.2 millionrelated to the write-down of remaining inventory and property, plant andequipment to fair value less cost to sell, the write-down of account receivableand other current assets to net realizable value, and incremental costsdirectly related to the closure or sale of the businesses, such as pension,severance and lease termination costs. The Newmans business was sold in the third quarter of fiscal 2004.

 

8

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In fiscal 2003, PCC incurred charges associated with the closure orsale of certain businesses of PCC Flow Technologies and the Industrial Productssegment. The PCC Olofsson and Eldorado machine businesses were closed and theEldorado gundrill tooling business was sold. In addition, the Company sold itscontrolling interest in Design Technologies International (“DTI”) and certainintangible assets of Olofsson to minority shareholders of DTI. The closure orsale of these operations was in response to a steady and continual decline inthe machine tool industry. In addition, PCC closed STW Composites (“STW”) as itwas deemed to be a non-core business to PCC. PCC also entered into agreementsto sell Barber Industries and Fastener Engineers & Lewis Machine (“FELM”)and began actively marketing PCC Superior Fabrication for sale in the fourthquarter. Barber Industries and FELM were both sold during the first quarter andPCC Superior Fabrication was sold in the fourth quarter of fiscal 2004. Theperformance of these businesses was not consistent with the Company’s long-termstrategy for profitable growth.

 

The operating results of these businesses are presented in the Company’sConsolidated Statements of Income as discontinued operations, net of incometax, and all prior periods have been reclassified. The components ofdiscontinued operations for the periods presented are as follows:

 
| ** **                                                                         | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended** | ** ** |
|------------------------------------------------------------------------------------|------------|------------------------|------------|-----------------------|------------|
| ** **                                                                         | ** ** | **1/02/05**            | ** ** | **12/28/03**          | ** ** | **1/02/05** | ** ** | **12/28/03** | ** ** |
|                                                                               |       |                   |       |                  |       |   |   |   |   |
| Net sales                                                                          |       | $                      | 77.0       |                  | $          | 80.2 |   | $ | 275.1 |   | $ | 222.8 |   |
| Cost of  goods sold                                                                |       | 60.4                   |       | 60.4                  |       | 213.2 |   | 168.5 |   |
| Selling and  administrative expenses                                               |       | 12.7                   |       | 18.1                  |       | 44.6 |   | 48.1 |   |
| Interest  expense                                                                  |       | 0.4                    |       | —                |       | 0.6 |   | — |   |
| Restructuring                                                                      |       | —                 |       | —                |       | — |   | 0.1 |   |
|                                                                               |       |                   |       |                  |       |   |   |   |   |
| Net income  from discontinued operations before income taxes and minority interest |       | 3.5                    |       | 1.7                   |       | 16.7 |   | 6.1 |   |
| Income tax  expense                                                                |       | 3.9                    |       | (0.6                  | )          | 8.7 |   | 2.2 |   |
| Minority  Interest                                                                 |       | (0.3                   | )          | —                |       | (0.3 | ) | (0.1 | ) |
|                                                                               |       |                   |       |                  |       |   |   |   |   |
| Net (loss)  income from discontinued operations                                    |       | (0.7                   | )          | 2.3                   |       | 7.7 |   | 3.8 |   |
|                                                                               |       |                   |       |                  |       |   |   |   |   |
| Income  (loss) on disposal                                                         |       | 0.3                    |       | (0.2                  | )          | (245.2 | ) | (13.0 | ) |
|                                                                               |       |                   |       |                  |       |   |   |   |   |
| Net (loss)  income from discontinued operations                                    |       | $                      | (0.4       | )                     | $          | 2.1 |   | $ | (237.5 | ) | $ | (9.2 | ) |

 

9

----

 

The followingmajor classes of assets and liabilities are included in discontinued operationsin the Consolidated Balance Sheets after adjustment for write-downs to fairvalue less cost to sell:

 
| ** **                              | ** ** | **1/02/05** | ** ** | **3/28/04** | ** ** |
|-----------------------------------------|------------|-------------|------------|-------------|------------|
| Assets of  discontinued operations      |       |        |       |        |       |
| Current  assets                         |       | $           | 75.6       |        | $          | 168.5 |   |
| Net  property, plant and equipment      |       | 39.9        |       | 92.8        |       |
| Other assets                            |       | 18.0        |       | 251.4       |       |
|                                    |       |        |       |        |       |
|                                    |       | $           | 133.5      |        | $          | 512.7 |   |
|                                    |       |        |       |        |       |
| Liabilities  of discontinued operations |       |        |       |        |       |
| Short-term  borrowings                  |       | $           | —     |        | $          | 0.9 |   |
| Long-term  debt currently due           |       | —      |       | 0.1         |       |
| Other  current liabilities              |       | 33.7        |       | 84.7        |       |
| Long-term  debt                         |       | —      |       | 0.2         |       |
| Other  liabilities                      |       | 18.0        |       | 22.9        |       |
|                                    |       |        |       |        |       |
|                                    |       | $           | 51.7       |        | $          | 108.8 |   |

 

**(5)****                                 RestructuringCharges**

 

No charges related to restructuringactivities have been recorded in the first three quarters of fiscal 2005.  During fiscal 2004, PCC recorded provisionsfor restructuring and impairment of long-lived assets totaling $10.9million.  These charges are summarizedbelow:

 

The Company recorded $8.4 million ofrestructuring charges in the second quarter of fiscal 2004 primarily forseverance associated with headcount reductions of approximately 435 employeesat PCC’s investment castings operations in the United Kingdom and the Company’sforging operations in the United Kingdom and Houston, Texas.  Thereductions were in response to reduced demand for commercial aerospace andindustrial gas turbine products.

 

The Company recorded $0.3 million ofrestructuring charges in the fourth quarter of fiscal 2004 to provide forseverance associated with the consolidation of the Reed-Rico thread-rollingfacility in Holden, Massachusetts, into the newly acquired SPS thread-rollingoperations in Shannon, Ireland.  Therestructuring plans called for termination of approximately 100 employees throughthe second quarter of fiscal 2005.  Inconjunction with the consolidation of the Reed-Rico and SPS thread-rollingoperations, equipment at Reed-Rico was written down to net realizable value,resulting in an impairment charge of $2.2 million.

 

The following table provides a rollforwardof amounts included in accrued liabilities for restructuring reserves:

 
| ** ** | ** ** | **Balance at  3/28/04** | ** ** | **Cash  payments** | ** ** | **Non-cash  adjustments** | ** ** | **Balance at  1/02/05** | ** ** |
|------------|------------|-------------------------|------------|--------------------|------------|---------------------------|------------|-------------------------|------------|
| Severance  |       | $                       | 4.7        |               | $          | (2.3                      | )          | $                       | (0.3       | ) | $ | 2.1 |   |
| Other      |       | 0.3                     |       | (0.2               | )          | —                    |       | 0.1                     |       |
|       |       |                    |       |               |       |                      |       |                    |       |
|       |       | $                       | 5.0        |               | $          | (2.5                      | )          | $                       | (0.3       | ) | $ | 2.2 |   |

 

10

----

 

**(6)****                                 Inventories**

 

Inventoriesconsisted of the following:

 
| ** **                  | ** ** | **1/02/05** | ** ** | **3/28/04** | ** ** |
|-----------------------------|------------|-------------|------------|-------------|------------|
|                        |       |        |       |        |       |
| Finished  goods             |       | $           | 137.6      |        | $          | 136.1 |   |
| Work-in-process             |       | 217.8       |       | 186.2       |       |
| Raw  materials and supplies |       | 120.3       |       | 103.6       |       |
|                        |       | 475.7       |       | 425.9       |       |
| LIFO  provision             |       | 25.9        |       | 27.7        |       |
|                        |       |        |       |        |       |
| Total  inventory            |       | $           | 501.6      |        | $          | 453.6 |   |

 

**(7)****                                 Goodwilland Acquired Intangibles**

 

Effective April 1,2002, the Company adopted Statement of Financial Accounting Standards (“SFAS”)No. 142, “Goodwill and Other Intangible Assets.”  This statement changed the accounting forgoodwill and indefinite-lived intangible assets from an amortization approachto an impairment-only approach.  The SFASNo. 142 goodwill impairment model is a two-step approach that must be completedat least annually.  The first step of themodel requires a comparison of the book value of net assets to the estimatedfair value of the related operations that have goodwill assigned to them.  If fair value is determined to be less thanbook value, a second step is performed to compute the amount ofimpairment.  In this process, the fairvalue of goodwill is determined, based in part on the fair value of theoperations used in the first step.  Thefair value of goodwill is then compared to its carrying value.  If the fair value of goodwill is less thanthe carrying value, the shortfall represents the amount of goodwill impairment.

 

The Company completed its annual goodwill assessment test during the second quarter of fiscal 2005, and it was determined that the fair value of the related operations was greater than book value and that there was no impairment of goodwill.  The subsequent decision to sell the pumps and valves businesses of PCC Flow Technologies resulted in a write-down of goodwill totaling $219.0 million in the second quarter of fiscal 2005.  See Note 4 for further discussion.

 

The changes in thecarrying amount of goodwill by reportable segment for the nine months ended January 2,2005, were as follows:

 
| ** **                | ** ** | **Balance at  3/28/04** | ** ** | **Acquired** | ** ** | **Currency  Translation  and Other** | ** ** | **Balance at  1/02/05** | ** ** |
|---------------------------|------------|-------------------------|------------|--------------|------------|--------------------------------------|------------|-------------------------|------------|
|                      |       |                    |       |         |       |                                 |       |                    |       |
| Investment  Cast Products |       | $                       | 296.5      |         | $          | 2.4                                  |       | $                       | 0.9        |   | $ | 299.8 |   |
| Forged  Products          |       | 512.0                   |       | 1.0          |       | 7.2                                  |       | 520.2                   |       |
| Fastener Products         |       | 424.0                   |       | 17.7         |       | 2.7                                  |       | 444.4                   |       |
| Industrial  Products      |       | 169.3                   |       | 2.0          |       | 0.3                                  |       | 171.6                   |       |
|                      |       |                    |       |         |       |                                 |       |                    |       |
| Total                     |       | $                       | 1,401.8    |         | $          | 23.1                                 |       | $                       | 11.1       |   | $ | 1,436.0 |   |

 

11

----

 

The gross carryingamount and accumulated amortization of the Company’s acquired intangible assetswere as follows:

 
| ** **                     | ** ** | **1/02/05**                 | ** ** | **3/28/04**                   | ** ** |
|--------------------------------|------------|-----------------------------|------------|-------------------------------|------------|
| ** **                     | ** ** | **Gross  Carrying  Amount** | ** ** | **Accumulated  Amortization** | ** ** | **Gross  Carrying  Amount** | ** ** | **Accumulated  Amortization** | ** ** |
|                           |       |                        |       |                          |       |   |   |   |   |
| Patents                        |       | $                           | 3.0        |                          | $          | 0.6 |   | $ | 3.0 |   | $ | 0.2 |   |
| Proprietary  technology        |       | 2.4                         |       | 0.2                           |       | 2.4 |   | 0.1 |   |
| Tradenames                     |       | 0.8                         |       | 0.1                           |       | 0.8 |   | — |   |
| Long-term  customer agreements |       | 0.2                         |       | 0.1                           |       | 0.2 |   | — |   |
|                           |       |                        |       |                          |       |   |   |   |   |
|                           |       | $                           | 6.4        |                          | $          | 1.0 |   | $ | 6.4 |   | $ | 0.3 |   |

 

Amortizationexpense for acquired intangible assets was $0.3 million and $0.7 million forthe three and nine months ended January 2, 2005, respectively.  Amortization expense related to finite-livedintangible assets is projected to total $1.0 million for fiscal 2005.  Projected amortization expense for thesucceeding five fiscal years is as follows:

 
| **Fiscal Year** | ** ** | **Estimated  Amortization  Expense** | ** ** |
|-----------------|------------|--------------------------------------|------------|
| 2006            |       | $                                    | 0.7        |   |
| 2007            |       | $                                    | 0.6        |   |
| 2008            |       | $                                    | 0.5        |   |
| 2009            |       | $                                    | 0.4        |   |
| 2010            |       | $                                    | 0.4        |   |

 

**(8)****                                 Guarantees**

 

In the ordinarycourse of business, the Company warrants its products against defects indesign, materials and workmanship over various time periods.  The warranty accrual as of January 2,2005 and March 28, 2004 is immaterial to the financial position of theCompany, and the change in the accrual for the current quarter is immaterial tothe Company’s results of operations and cash flows.

 

In conjunctionwith certain transactions, primarily divestitures, the Company may provideroutine indemnifications (e.g., retention of previously existing environmentaland tax liabilities) with terms that range in duration and often are notexplicitly defined.  Where appropriate,an obligation for such indemnifications is recorded as a liability.  Because the obligated amounts of these types ofindemnifications often are not explicitly stated, the overall maximum amount ofthe obligation under such indemnifications cannot be reasonably estimated.  Other than obligations recorded asliabilities at the time of divestiture, the Company has not historically madesignificant payments for these indemnifications.

 

12

----

 

**(9)****                                 Earningsper share**

 

The weighted average number of shares outstanding used to computeearnings per share were as follows:

 
| ** **                                    | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended** | ** ** |
|-----------------------------------------------|------------|------------------------|------------|-----------------------|------------|
| ** **                                    | ** ** | **1/02/05**            | ** ** | **12/28/03**          | ** ** | **1/02/05** | ** ** | **12/28/03** | ** ** |
|                                          |       |                   |       |                  |       |   |   |   |   |
| Basic  weighted average shares outstanding    |       | 65.4                   |       | 55.6                  |       | 65.0 |   | 53.8 |   |
| Dilutive  stock options                       |       | 1.2                    |       | 1.3                   |       | 1.2 |   | 1.1 |   |
| Average  shares outstanding assuming dilution |       | 66.6                   |       | 56.9                  |       | 66.2 |   | 54.9 |   |

 

Basic earnings pershare are calculated based on the weighted average number of sharesoutstanding.  Diluted earnings per shareare computed based on that same number of shares plus additional dilutiveshares representing stock distributable under stock option and employee stockpurchase plans computed using the treasury stock method.

 

For the three andnine months ending January 2, 2005, stock options to purchase zero and 0.2million shares of common stock, respectively, were not dilutive.  For the three and nine months ended December 28,2003, stock options to purchase zero and 1.0 million shares of common stockwere not dilutive.  These shares wereexcluded from the computation of diluted earnings per share because to do sowould have been antidilutive.  Theseoptions could be dilutive in the future.

 

**(10)****                          ComprehensiveIncome (Loss)**

 

Comprehensiveincome (loss) consisted of the following:

 
| ** **                                                           | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended** | ** ** |
|----------------------------------------------------------------------|------------|------------------------|------------|-----------------------|------------|
| ** **                                                           | ** ** | **1/02/05**            | ** ** | **12/28/03**          | ** ** | **1/02/05** | ** ** | **12/28/03** | ** ** |
|                                                                 |       |                   |       |                  |       |   |   |   |   |
| Net income  (loss)                                                   |       | $                      | 61.7       |                  | $          | 27.8 |   | $ | (67.7 | ) | $ | 76.6 |   |
|                                                                 |       |                   |       |                  |       |   |   |   |   |
| Other  comprehensive income (loss), net of tax:                      |       |                   |       |                  |       |   |   |   |   |
|                                                                 |       |                   |       |                  |       |   |   |   |   |
| Foreign  currency translation adjustments                            |       | 34.0                   |       | 25.6                  |       | 33.4 |   | 47.5 |   |
|                                                                 |       |                   |       |                  |       |   |   |   |   |
| Unrealized  gain (loss) on derivatives:                              |       |                   |       |                  |       |   |   |   |   |
| Periodic  revaluations, net of income tax of $0.7, $0, $0.7 and $0.2 |       | 1.8                    |       | 0.1                   |       | 1.8 |   | (0.6 | ) |
| Reclassified  to income, net of income tax of $0, $2.0, $0 and $3.4  |       | 0.1                    |       | 6.3                   |       | 0.2 |   | 9.6 |   |
|                                                                 |       | 1.9                    |       | 6.4                   |       | 2.0 |   | 9.0 |   |
|                                                                 |       |                   |       |                  |       |   |   |   |   |
| Total  comprehensive income (loss)                                   |       | $                      | 97.6       |                  | $          | 59.8 |   | $ | (32.3 | ) | $ | 133.1 |   |

 

13

----

 

**(11)****                          Pensionsand Other Postretirement Benefit Plans**

 

The Company and its subsidiaries sponsor manydomestic and foreign defined benefit pension plans.  In addition, the Company offerspostretirement medical benefits for certain eligible employees. These plans aremore fully described in the “Notes to the Consolidated Financial Statements”included in the Company’s Annual Report on Form 10-K for the year ended March 28,2004.

 

The net periodic benefit cost for the Company’s pension plans consistedof the following components:

 
| ** **                          | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended** | ** ** |
|-------------------------------------|------------|------------------------|------------|-----------------------|------------|
| ** **                          | ** ** | **1/02/05**            | ** ** | **12/28/03**          | ** ** | **1/02/05** | ** ** | **12/28/03** | ** ** |
|                                |       |                   |       |                  |       |   |   |   |   |
| Service cost                        |       | $                      | 8.5        |                  | $          | 5.0 |   | $ | 22.5 |   | $ | 15.0 |   |
| Interest  cost                      |       | 16.6                   |       | 11.1                  |       | 44.4 |   | 33.3 |   |
| Expected  return on plan assets     |       | (16.5                  | )          | (9.7                  | )          | (43.9 | ) | (29.1 | ) |
| Recognized  net actuarial loss      |       | 3.0                    |       | 2.1                   |       | 8.2 |   | 6.3 |   |
| Amortization  of prior service cost |       | 0.4                    |       | 0.3                   |       | 1.1 |   | 0.9 |   |
| Settlement/curtailment  loss        |       | —                 |       | 1.0                   |       | — |   | 3.0 |   |
|                                |       |                   |       |                  |       |   |   |   |   |
| Net periodic  benefit cost          |       | $                      | 12.0       |                  | $          | 9.8 |   | $ | 32.3 |   | $ | 29.4 |   |

 

The net periodic benefit cost of postretirement benefits other thanpensions consisted of the following components:

 
| ** **                 | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended** | ** ** |
|----------------------------|------------|------------------------|------------|-----------------------|------------|
| ** **                 | ** ** | **1/02/05**            | ** ** | **12/28/03**          | ** ** | **1/02/05** | ** ** | **12/28/03** | ** ** |
|                       |       |                   |       |                  |       |   |   |   |   |
| Service cost               |       | $                      | 0.1        |                  | $          | 0.1 |   | $ | 0.3 |   | $ | 0.3 |   |
| Interest  cost             |       | 1.1                    |       | 1.1                   |       | 3.2 |   | 3.3 |   |
|                       |       |                   |       |                  |       |   |   |   |   |
| Net periodic  benefit cost |       | $                      | 1.2        |                  | $          | 1.2 |   | $ | 3.5 |   | $ | 3.6 |   |

 

The Company’s net periodic benefit costs for the three and nine monthperiods ended January 2, 2005 have been reduced to account for the effectsof the Medicare Prescription Drug, Improvement and Modernization Act of 2003(the Act).  See Note 12 – New Accounting Pronouncements.

 

The Company made contributions of $20.9 million and $58.2 million to thedefined benefit pension plans during the three and nine months ended January 2,2005, respectively.  Projectedcontributions are expected to total approximately $90 million for fiscal year2005.

 

**(12)****                          NewAccounting Pronouncements**

 

In November 2004, the Financial Accounting Standards Board (“FASB”)issued Statement of Financial Accounting Standards (SFAS) No. 151, “InventoryCosts, an amendment of ARB No. 43, Chapter 4”. SFAS No. 151 clarifies thatabnormal inventory costs such as costs of idle facilities, excess freight andhandling costs, and wasted materials (spoilage) are required to be recognizedas current period charges. The provisions of SFAS No. 151 are effective for ourfiscal year beginning April 4, 2006. We are currently evaluating the provisionsof SFAS No. 151 and do not expect that the adoption will have a material impacton our consolidated financial position or results of operations.

 

On December 16, 2004, the FASB finalized SFAS No. 123R, “Share Based Payment,” which will be effective for interim or annual reporting periods beginning after June 15, 2005.  The new standard will require the Company to expense stock options and the FASB believes the use of a binomial lattice model for option valuation is capable of more fully reflecting certain characteristics of employee share options.  PCC has commenced an analysis to understand how using a binomial lattice model could impact the valuation of our options.  The effect of expensing stock options on our results of operations using the Black- Scholes model is presented in Note 2 - Stock-Based Compensation.

 

14

----

 

The Medicare Prescription Drug,Improvements and Modernization Act of 2003 (The Act) was signed into law in December 2003. The Act introduces a prescription drug benefit under Medicare (Medicare PartD), as well as a federal subsidy to sponsors of retiree health care benefitplans that provide a prescription drug benefit that is at least actuariallyequivalent to Medicare Part D.  In May 2004, the FASB issued StaffPosition (FSP) No. 106-2, “Accounting and Disclosure Requirements Related tothe Medicare Prescription Drug, Improvement and Modernization Act of 2003.” This FSP supercedes FSP No. 106-1 and is effective for interim or annual periodsbeginning after June 15, 2004. The effect on the APBO will be accountedfor as an actuarial experience gain to be amortized into income over theaverage remaining service period of plan participants.  As permitted byFSP 106-2, we have elected to account for the impact of this benefitprospectively beginning in the three months ended June 27, 2004.  Theadoption of FSP 106-2 reduced our accumulated postretirement benefit obligationby $6.7 million.  Our estimated net periodic benefit cost after the adoptionof FSP 106-2 was reduced by approximately $1.0 million for fiscal year 2005. The $1.0 million reduction in annual cost includes $0.4 million and $0.6million in interest cost and amortization of recognized actuarial losses,respectively.   See Note 11 – Pension andOther Postretirement Benefit Plans.

 

**(13)****                          SegmentInformation**

 

The Company’soperations are classified into four reportable business segments: InvestmentCast Products, Forged Products, Fastener Products and Industrial Products.  The change from five reportable segments tofour reportable segments in the current year is the result of thereclassification of the former Fluid Management Products segment todiscontinued operations and the transfer of E-One to the Industrial Productssegment for all periods presented.  TheCompany’s four reportable business segments are identified separately based onfundamental differences in their operations.

 
| ** **                                        | ** ** | **Three Months Ended** | ** ** |
|---------------------------------------------------|------------|------------------------|------------|
| ** **                                        | ** ** | **1/02/05**            | ** ** | **12/28/03** | ** ** |
| Net sales:                                        |       |                   |       |   |   |
| Investment  Cast Products                         |       | $                      | 350.7      |   | $ | 254.5 |   |
| Forged  Products                                  |       | 155.7                  |       | 118.8 |   |
| Fastener  Products                                |       | 175.3                  |       | 30.4 |   |
| Industrial  Products                              |       | 62.2                   |       | 46.5 |   |
| Total net  sales                                  |       | $                      | 743.9      |   | $ | 450.2 |   |
|                                              |       |                   |       |   |   |
| Operating  income (loss):                         |       |                   |       |   |   |
| Investment  Cast Products                         |       | $                      | 67.1       |   | $ | 46.8 |   |
| Forged  Products                                  |       | 18.2                   |       | 15.6 |   |
| Fastener  Products                                |       | 23.8                   |       | 1.4 |   |
| Industrial  Products                              |       | 11.5                   |       | 8.3 |   |
| Corporate  expense                                |       | (11.3                  | )          | (7.8 | ) |
|                                              |       |                   |       |   |   |
| Total  operating income                           |       | 109.3                  |       | 64.3 |   |
|                                              |       |                   |       |   |   |
| Other  expense                                    |       | —                 |       | 11.2 |   |
|                                              |       |                   |       |   |   |
| Interest  expense, net                            |       | 14.3                   |       | 12.8 |   |
|                                              |       |                   |       |   |   |
| Income  before income taxes and minority interest |       | $                      | 95.0       |   | $ | 40.3 |   |

 

15

----

 
| ** **                                        | ** ** | **Nine Months Ended** | ** ** |
|---------------------------------------------------|------------|-----------------------|------------|
| ** **                                        | ** ** | **1/02/05**           | ** ** | **12/28/03** | ** ** |
| Net sales:                                        |       |                  |       |   |   |
| Investment  Cast Products                         |       | $                     | 980.4      |   | $ | 746.0 |   |
| Forged  Products                                  |       | 448.1                 |       | 366.9 |   |
| Fastener  Products                                |       | 504.5                 |       | 30.4 |   |
| Industrial  Products                              |       | 176.5                 |       | 132.8 |   |
| Total net  sales                                  |       | $                     | 2,109.5    |   | $ | 1,276.1 |   |
|                                              |       |                  |       |   |   |
| Operating  income (loss):                         |       |                  |       |   |   |
| Investment  Cast Products                         |       | $                     | 183.1      |   | $ | 137.2 |   |
| Forged  Products                                  |       | 55.3                  |       | 47.6 |   |
| Fastener  Products                                |       | 61.8                  |       | 1.4 |   |
| Industrial  Products                              |       | 31.5                  |       | 24.0 |   |
| Corporate  expense                                |       | (31.1                 | )          | (18.0 | ) |
|                                              |       |                  |       |   |   |
| Total  operating income                           |       | 300.6                 |       | 192.2 |   |
|                                              |       |                  |       |   |   |
| Provision  for restructuring                      |       | —                |       | 8.4 |   |
|                                              |       |                  |       |   |   |
| Other  expense                                    |       | —                |       | 11.2 |   |
|                                              |       |                  |       |   |   |
| Interest  expense, net                            |       | 43.7                  |       | 38.2 |   |
|                                              |       |                  |       |   |   |
| Income  before income taxes and minority interest |       | $                     | 256.9      |   | $ | 134.4 |   |

 
| ** **                | ** ** | **1/02/05** | ** ** | **3/28/04** | ** ** |
|---------------------------|------------|-------------|------------|-------------|------------|
| Total  assets:            |       |        |       |        |       |
| Investment  Cast Products |       | $           | 814.7      |        | $          | 776.5 |   |
| Forged  Products          |       | 933.1       |       | 911.8       |       |
| Fastener  Products        |       | 842.4       |       | 850.2       |       |
| Industrial  Products      |       | 333.6       |       | 327.9       |       |
| Corporate                 |       | 644.9       |       | 367.9       |       |
| Discontinued  operations  |       | 133.5       |       | 521.9       |       |
| Total assets              |       | $           | 3,702.2    |        | $          | 3,756.2 |   |

 

16

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**(14)****                          SubsequentEvents**

 

On January 25, 2005, the Company entered into definitiveagreements to acquire the shares of Air Industries Corporation (AIC) and theassets of Air Tuf Products, Inc. for $194.0 million in cash.  Founded in 1951, AIC is a leadingmanufacturer of airframe fasteners, which include bolts, pins, and screws madefrom titanium and nickel-based alloys. The transaction, which is subject to regulatory approvals, is expectedto close in the fourth quarter of fiscal 2005. PCC will fund the acquisition with cash on hand.

 

During January, 2005, the Company amended its bank credit facility toreduce the spread applicable to LIBOR borrowings.   The applicablespreads, as revised, range from 0.625% to 1.75%, depending upon credit ratingsreceived from Moody’s and S & P.  Based on current credit ratings,interest rates on borrowings under the amended bank credit facility will bereduced from LIBOR + 1.25% to LIBOR + 1.00%. The amendment also revised the amortization schedule of principalrepayments on the $300 million term loan included in the bank credit facility.  The following schedule provides theCompany’s aggregate long-term debt maturities in each of the next five fiscalyears as previously reported and as revised to reflect this amendment:

 
| **Fiscal Year** | ** ** | **Previous** | ** ** | **Current** | ** ** |
|-----------------|------------|--------------|------------|-------------|------------|
|            |       |         |       |        |       |
| 2005            |       | $            | 238.5      |        | $          | 223.5 |   |
| 2006            |       | $            | 98.6       |        | $          | 38.6 |   |
| 2007            |       | $            | 98.5       |        | $          | 42.3 |   |
| 2008            |       | $            | 248.8      |        | $          | 206.3 |   |
| 2009            |       | $            | 79.0       |        | $          | 252.7 |   |

 

**(15)****                          CondensedConsolidating Financial Statements**

 

Certain of theCompany’s subsidiaries guarantee the Company’s following registered securities:$200 million 5.6% Senior Notes due 2013, $200 million 8.75% Senior Notes due2005 and $150 million 6.75% Senior Notes due 2007.  The following condensed consolidatingfinancial statements present, in separate columns, financial information for(i) Precision Castparts Corp. (on a parent only basis) with its investment inits subsidiaries recorded under the equity method, (ii) guarantor subsidiariesthat guarantee the Company’s public and private notes and bank creditfacilities, on a combined basis, with any investments in non-guarantorsubsidiaries recorded under the equity method, (iii) direct and indirectnon-guarantor subsidiaries on a combined basis, (iv) the eliminations necessaryto arrive at the information for the Company and its subsidiaries on a consolidatedbasis, and (v) the Company on a consolidated basis, in each case as of January 2,2005 and March 28, 2004 and for the three and nine months ended January 2,2005 and December 28, 2003.  The Notes are fully and unconditionallyguaranteed on a joint and several basis by each guarantor subsidiary.  Theguarantor subsidiaries include substantially all of the Company’s domesticsubsidiaries within the Investment Cast Products, Forged Products, FastenerProducts and Industrial Products segments that are 100% owned, directly orindirectly, by the Company within the meaning of Rule 3-10(h)(1) ofRegulation S-X.  There are no contractual restrictions limiting transfersof cash from guarantor and non- guarantor subsidiaries to the Company.  Thecondensed consolidating financial statements are presented herein, rather thanseparate financial statements for each of the guarantor subsidiaries, becausemanagement believes that separate financial statements relating to theguarantor subsidiaries are not material to investors.

 

17

----

 

Condensed Consolidating Statements of Income

Three Months Ended January 2, 2005

(Unaudited)

 
| ** **                                             | ** ** | **Precision  Castparts  Corp.** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-  Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Total** | ** ** |
|--------------------------------------------------------|------------|---------------------------------|------------|-----------------------------|------------|-----------------------------------|------------|------------------|------------|-----------|------------|
|                                                   |       |                            |       |                        |       |                              |       |             |       |      |       |
| Net sales                                              |       | $                               | —     |                        | $          | 585.2                             |       | $                | 178.2      |      | $          | (19.5 | ) | $ | 743.9 |   |
| Cost of  goods sold                                    |       | —                          |       | 448.7                       |       | 146.6                             |       | (19.5            | )          | 575.8     |       |
| Selling and  administrative expenses                   |       | 11.2                            |       | 35.3                        |       | 12.3                              |       | —           |       | 58.8      |       |
| Provision  for restructuring                           |       | —                          |       | 0.1                         |       | (0.1                              | )          | —           |       | —    |       |
| Other  (income) expense                                |       | (2.9                            | )          | (0.2                        | )          | 3.1                               |       | —           |       | —    |       |
| Interest  expense (income), net                        |       | 4.1                             |       | 13.3                        |       | (3.1                              | )          | —           |       | 14.3      |       |
| Equity in  earnings of subsidiaries                    |       | (62.1                           | )          | 4.7                         |       | —                            |       | 57.4             |       | —    |       |
|                                                   |       |                            |       |                        |       |                              |       |             |       |      |       |
| Income  (loss) before income tax and minority interest |       | 49.7                            |       | 83.3                        |       | 19.4                              |       | (57.4            | )          | 95.0      |       |
| Income tax  (benefit) expense                          |       | (12.0                           | )          | 27.0                        |       | 17.7                              |       | —           |       | 32.7      |       |
| Minority  interest                                     |       | —                          |       | —                      |       | (0.2                              | )          | —           |       | (0.2      | )          |
|                                                   |       |                            |       |                        |       |                              |       |             |       |      |       |
| Net income  (loss) from continuing operations          |       | 61.7                            |       | 56.3                        |       | 1.5                               |       | (57.4            | )          | 62.1      |       |
|                                                   |       |                            |       |                        |       |                              |       |             |       |      |       |
| Net loss  from discontinued operations                 |       | —                          |       | —                      |       | (0.4                              | )          | —           |       | (0.4      | )          |
|                                                   |       |                            |       |                        |       |                              |       |             |       |      |       |
| Net income  (loss)                                     |       | $                               | 61.7       |                        | $          | 56.3                              |       | $                | 1.1        |      | $          | (57.4 | ) | $ | 61.7 |   |

 

18

----

 

Condensed ConsolidatingStatements of Income

Three Months Ended December 28,2003

(Unaudited)

 
| ** **                                             | ** ** | **Precision  Castparts  Corp.** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-  Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Total** | ** ** |
|--------------------------------------------------------|------------|---------------------------------|------------|-----------------------------|------------|-----------------------------------|------------|------------------|------------|-----------|------------|
|                                                   |       |                            |       |                        |       |                              |       |             |       |      |       |
| Net sales                                              |       | $                               | —     |                        | $          | 368.0                             |       | $                | 87.0       |      | $          | (4.8 | ) | $ | 450.2 |   |
| Cost of  goods sold                                    |       | —                          |       | 279.7                       |       | 73.7                              |       | (4.8             | )          | 348.6     |       |
| Selling and  administrative expenses                   |       | 7.8                             |       | 21.4                        |       | 8.1                               |       | —           |       | 37.3      |       |
| Other  expense (income)                                |       | 8.7                             |       | —                      |       | 2.5                               |       | —           |       | 11.2      |       |
| Interest  expense (income), net                        |       | 4.1                             |       | 9.4                         |       | (0.7                              | )          | —           |       | 12.8      |       |
| Equity in  earnings of subsidiaries                    |       | (36.4                           | )          | 4.1                         |       | —                            |       | 32.3             |       | —    |       |
|                                                   |       |                            |       |                        |       |                              |       |             |       |      |       |
| Income  (loss) before income tax and minority interest |       | 15.8                            |       | 53.4                        |       | 3.4                               |       | (32.3            | )          | 40.3      |       |
| Income tax  (benefit) expense                          |       | (12.0                           | )          | 23.5                        |       | 2.5                               |       | —           |       | 14.0      |       |
| Minority  interest                                     |       | —                          |       | —                      |       | (0.6                              | )          | —           |       | (0.6      | )          |
|                                                   |       |                            |       |                        |       |                              |       |             |       |      |       |
| Net income  (loss) from continuing operations          |       | 27.8                            |       | 29.9                        |       | 0.3                               |       | (32.3            | )          | 25.7      |       |
|                                                   |       |                            |       |                        |       |                              |       |             |       |      |       |
| Net income  from discontinued operations               |       | —                          |       | 0.2                         |       | 1.9                               |       | —           |       | 2.1       |       |
|                                                   |       |                            |       |                        |       |                              |       |             |       |      |       |
| Net income  (loss)                                     |       | $                               | 27.8       |                        | $          | 30.1                              |       | $                | 2.2        |      | $          | (32.3 | ) | $ | 27.8 |   |

 

19

----

 

CondensedConsolidating Statements of Income

Nine Months Ended January 2,2005

(Unaudited)

 
| ** **                                                 | ** ** | **Precision  Castparts  Corp.** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-  Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Total** | ** ** |
|------------------------------------------------------------|------------|---------------------------------|------------|-----------------------------|------------|-----------------------------------|------------|------------------|------------|-----------|------------|
|                                                       |       |                            |       |                        |       |                              |       |             |       |      |       |
| Net sales                                                  |       | $                               | —     |                        | $          | 1,669.5                           |       | $                | 486.8      |      | $          | (46.8 | ) | $ | 2,109.5 |   |
| Cost of  goods sold                                        |       | —                          |       | 1,281.6                     |       | 397.3                             |       | (46.8            | )          | 1,632.1   |       |
| Selling and  administrative expenses                       |       | 31.0                            |       | 106.8                       |       | 39.0                              |       | —           |       | 176.8     |       |
| Provision  for restructuring                               |       | —                          |       | 0.1                         |       | (0.1                              | )          | —           |       | —    |       |
| Other  (income) expense                                    |       | (8.2                            | )          | (0.2                        | )          | 8.4                               |       | —           |       | —    |       |
| Interest  expense (income), net                            |       | 17.4                            |       | 33.3                        |       | (7.0                              | )          | —           |       | 43.7      |       |
| Equity in  earnings of subsidiaries                        |       | 51.8                            |       | 11.1                        |       | —                            |       | (62.9            | )          | —    |       |
|                                                       |       |                            |       |                        |       |                              |       |             |       |      |       |
| Net (loss)  income before income tax and minority interest |       | (92.0                           | )          | 236.8                       |       | 49.2                              |       | 62.9             |       | 256.9     |       |
| Income tax  (benefit) expense                              |       | (24.3                           | )          | 86.4                        |       | 24.0                              |       | —           |       | 86.1      |       |
| Minority  interest                                         |       | —                          |       | —                      |       | (1.0                              | )          | —           |       | (1.0      | )          |
|                                                       |       |                            |       |                        |       |                              |       |             |       |      |       |
| Net (loss)  income from continuing operations              |       | (67.7                           | )          | 150.4                       |       | 24.2                              |       | 62.9             |       | 169.8     |       |
|                                                       |       |                            |       |                        |       |                              |       |             |       |      |       |
| Net loss  from discontinued operations                     |       | —                          |       | (0.1                        | )          | (237.4                            | )          | —           |       | (237.5    | )          |
|                                                       |       |                            |       |                        |       |                              |       |             |       |      |       |
| Net (loss)  income                                         |       | $                               | (67.7      | )                           | $          | 150.3                             |       | $                | (213.2     | )         | $          | 62.9 |   | $ | (67.7 | ) |

 

20

----

 

Condensed ConsolidatingStatements of Income

Nine Months Ended December 28,2003

(Unaudited)

 
| ** **                                             | ** ** | **Precision  Castparts  Corp.** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-  Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Total** | ** ** |
|--------------------------------------------------------|------------|---------------------------------|------------|-----------------------------|------------|-----------------------------------|------------|------------------|------------|-----------|------------|
|                                                   |       |                            |       |                        |       |                              |       |             |       |      |       |
| Net sales                                              |       | $                               | —     |                        | $          | 1,047.4                           |       | $                | 237.9      |      | $          | (9.2 | ) | $ | 1,276.1 |   |
| Cost of  goods sold                                    |       | —                          |       | 796.6                       |       | 199.6                             |       | (9.2             | )          | 987.0     |       |
| Selling and  administrative expenses                   |       | 18.0                            |       | 56.0                        |       | 22.9                              |       | —           |       | 96.9      |       |
| Provision  for restructuring                           |       | —                          |       | (0.2                        | )          | 8.6                               |       | —           |       | 8.4       |       |
| Other  expense                                         |       | 3.5                             |       | —                      |       | 7.7                               |       | —           |       | 11.2      |       |
| Interest  expense (income), net                        |       | 11.5                            |       | 29.7                        |       | (3.0                              | )          | —           |       | 38.2      |       |
| Equity in  earnings of subsidiaries                    |       | (85.9                           | )          | 11.6                        |       | —                            |       | 74.3             |       | —    |       |
|                                                   |       |                            |       |                        |       |                              |       |             |       |      |       |
| Income  (loss) before income tax and minority interest |       | 52.9                            |       | 153.7                       |       | 2.1                               |       | (74.3            | )          | 134.4     |       |
| Income tax  (benefit) expense                          |       | (23.7                           | )          | 70.7                        |       | 0.7                               |       | —           |       | 47.7      |       |
| Minority  interest                                     |       | —                          |       | —                      |       | (0.9                              | )          | —           |       | (0.9      | )          |
|                                                   |       |                            |       |                        |       |                              |       |             |       |      |       |
| Net income  (loss) from continuing operations          |       | 76.6                            |       | 83.0                        |       | 0.5                               |       | (74.3            | )          | 85.8      |       |
|                                                   |       |                            |       |                        |       |                              |       |             |       |      |       |
| Net income  (loss) from discontinued operations        |       | —                          |       | 0.1                         |       | (9.3                              | )          | —           |       | (9.2      | )          |
|                                                   |       |                            |       |                        |       |                              |       |             |       |      |       |
| Net income  (loss)                                     |       | $                               | 76.6       |                        | $          | 83.1                              |       | $                | (8.8       | )         | $          | (74.3 | ) | $ | 76.6 |   |

 

21

----

 

Condensed Consolidating Balance Sheets

January 2,2005

(Unaudited)

 
| ** **                                            | ** ** | **Precision  Castparts  Corp.** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-  Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Total**  | ** ** |
|-------------------------------------------------------|------------|---------------------------------|------------|-----------------------------|------------|-----------------------------------|------------|------------------|------------|------------|------------|
| **Assets**                                            | ** ** | ** **                      | ** ** | ** **                  | ** ** | ** **                        | ** ** | ** **       | ** ** | ** ** | ** ** |
| Current  assets:                                      |       |                            |       |                        |       |                              |       |             |       |       |       |
| Cash and  cash equivalents                            |       | $                               | 314.4      |                        | $          | 3.2                               |       | $                | 79.3       |       | $          | — |   | $ | 396.9 |   |
| Receivables                                           |       | 37.8                            |       | 78.5                        |       | 307.7                             |       | (52.7            | )          | 371.3      |       |
| Inventories                                           |       | —                          |       | 351.9                       |       | 149.7                             |       | —           |       | 501.6      |       |
| Prepaid  expenses                                     |       | 3.5                             |       | 5.6                         |       | 9.7                               |       | —           |       | 18.8       |       |
| Income tax  receivable                                |       | —                          |       | —                      |       | 0.7                               |       | (0.7             | )          | —     |       |
| Deferred  income taxes                                |       | 2.4                             |       | 45.9                        |       | 2.1                               |       | —           |       | 50.4       |       |
| Discontinued  operations                              |       | —                          |       | 0.3                         |       | 75.3                              |       | —           |       | 75.6       |       |
|                                                  |       |                            |       |                        |       |                              |       |             |       |       |       |
| Total  current assets                                 |       | 358.1                           |       | 485.4                       |       | 624.5                             |       | (53.4            | )          | 1,414.6    |       |
|                                                  |       |                            |       |                        |       |                              |       |             |       |       |       |
| Property,  plant and equipment, net                   |       | 1.3                             |       | 454.0                       |       | 221.1                             |       | —           |       | 676.4      |       |
| Goodwill,  net                                        |       | —                          |       | 1,009.7                     |       | 426.3                             |       | —           |       | 1,436.0    |       |
| Deferred  income taxes                                |       | 40.8                            |       | —                      |       | 41.4                              |       | (66.4            | )          | 15.8       |       |
| Investments  in subsidiaries                          |       | 2,391.9                         |       | 288.5                       |       | —                            |       | (2,680.4         | )          | —     |       |
| Other assets                                          |       | 81.1                            |       | 7.0                         |       | 13.4                              |       | —           |       | 101.5      |       |
| Discontinued  operations                              |       | —                          |       | 0.9                         |       | 57.0                              |       | —           |       | 57.9       |       |
|                                                  |       |                            |       |                        |       |                              |       |             |       |       |       |
|                                                  |       | $                               | 2,873.2    |                        | $          | 2,245.5                           |       | $                | 1,383.7    |       | $          | (2,800.2 | ) | $ | 3,702.2 |   |
| **Liabilities  and Shareholders Investment**          | ** ** | ** **                      | ** ** | ** **                  | ** ** | ** **                        | ** ** | ** **       | ** ** | ** ** | ** ** |
| Current  liabilities:                                 |       |                            |       |                        |       |                              |       |             |       |       |       |
| Short-term  borrowings                                |       | $                               | —     |                        | $          | —                            |       | $                | 6.0        |       | $          | — |   | $ | 6.0 |   |
| Long-term  debt currently due                         |       | 296.5                           |       | 0.6                         |       | 1.9                               |       | —           |       | 299.0      |       |
| Accounts  payable                                     |       | 5.2                             |       | 208.2                       |       | 101.9                             |       | (52.7            | )          | 262.6      |       |
| Accrued  liabilities                                  |       | 28.8                            |       | 200.9                       |       | 78.1                              |       | (1.1             | )          | 306.7      |       |
| Income taxes  payable                                 |       | 41.2                            |       | 10.0                        |       | (0.6                              | )          | (0.7             | )          | 49.9       |       |
| Discontinued  operations                              |       | —                          |       | —                      |       | 33.7                              |       | —           |       | 33.7       |       |
|                                                  |       |                            |       |                        |       |                              |       |             |       |       |       |
| Total  current liabilities                            |       | 371.7                           |       | 419.7                       |       | 221.0                             |       | (54.5            | )          | 957.9      |       |
|                                                  |       |                            |       |                        |       |                              |       |             |       |       |       |
| Long-term  debt                                       |       | 727.8                           |       | 10.6                        |       | 8.7                               |       | —           |       | 747.1      |       |
| Pension and  other postretirement benefit obligations |       | 60.2                            |       | 89.9                        |       | 62.5                              |       | —           |       | 212.6      |       |
| Deferred tax  liability                               |       | —                          |       | 66.4                        |       | —                            |       | (66.4            | )          | —     |       |
| Other  long-term liabilities                          |       | —                          |       | 34.2                        |       | 18.9                              |       | —           |       | 53.1       |       |
| Discontinued  operations                              |       | —                          |       | —                      |       | 18.0                              |       | —           |       | 18.0       |       |
|                                                  |       |                            |       |                        |       |                              |       |             |       |       |       |
| Shareholders’  investment:                       |       |                            |       |                        |       |                              |       |             |       |       |       |
| Common stock  and paid-in capital                     |       | 819.4                           |       | 1,644.1                     |       | 1,069.1                           |       | (2,713.2         | )          | 819.4      |       |
| Retained  earnings                                    |       | 887.7                           |       | 24.7                        |       | (68.3                             | )          | 43.6             |       | 887.7      |       |
| Accumulated  other comprehensive loss                 |       | 6.4                             |       | (44.1                       | )          | 53.8                              |       | (9.7             | )          | 6.4        |       |
|                                                  |       |                            |       |                        |       |                              |       |             |       |       |       |
| Total  shareholders’ investment                  |       | 1,713.5                         |       | 1,624.7                     |       | 1,054.6                           |       | (2,679.3         | )          | 1,713.5    |       |
|                                                  |       |                            |       |                        |       |                              |       |             |       |       |       |
|                                                  |       | $                               | 2,873.2    |                        | $          | 2,245.5                           |       | $                | 1,383.7    |       | $          | (2,800.2 | ) | $ | 3,702.2 |   |

 

22

----

 

CondensedConsolidating Balance Sheets

March 28,2004

 
| ** **                                            | ** ** | **Precision  Castparts  Corp.** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-  Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Total**  | ** ** |
|-------------------------------------------------------|------------|---------------------------------|------------|-----------------------------|------------|-----------------------------------|------------|------------------|------------|------------|------------|
| ** **                                            | ** ** | ** **                      | ** ** | ** **                  | ** ** | ** **                        | ** ** | ** **       | ** ** | ** ** | ** ** |
| **Assets**                                            | ** ** | ** **                      | ** ** | ** **                  | ** ** | ** **                        | ** ** | ** **       | ** ** | ** ** | ** ** |
| Current  assets:                                      |       |                            |       |                        |       |                              |       |             |       |       |       |
| Cash and  cash equivalents                            |       | $                               | 33.2       |                        | $          | —                            |       | $                | 47.1       |       | $          | — |   | 80.3 |   |
| Receivables                                           |       | 315.1                           |       | 87.8                        |       | 283.7                             |       | (297.6           | )          | 389.0      |       |
| Inventories                                           |       | —                          |       | 329.9                       |       | 123.7                             |       | —           |       | 453.6      |       |
| Prepaid  expenses                                     |       | 3.3                             |       | 3.6                         |       | 9.4                               |       | —           |       | 16.3       |       |
| Income tax  receivable                                |       | 29.0                            |       | 8.4                         |       | —                            |       | (8.4             | )          | 29.0       |       |
| Deferred income  taxes                                |       | —                          |       | 52.3                        |       | 5.1                               |       | (6.6             | )          | 50.8       |       |
| Discontinued  operations                              |       | —                          |       | 2.2                         |       | 166.3                             |       | —           |       | 168.5      |       |
|                                                  |       |                            |       |                        |       |                              |       |             |       |       |       |
| Total  current assets                                 |       | 380.6                           |       | 484.2                       |       | 635.3                             |       | (312.6           | )          | 1,187.5    |       |
|                                                  |       |                            |       |                        |       |                              |       |             |       |       |       |
| Property,  plant and equipment, net                   |       | 0.9                             |       | 478.5                       |       | 225.0                             |       | —           |       | 704.4      |       |
| Goodwill,  net                                        |       | —                          |       | 1,001.9                     |       | 399.9                             |       | —           |       | 1,401.8    |       |
| Deferred  income taxes                                |       | 34.2                            |       | —                      |       | 62.4                              |       | (73.3            | )          | 23.3       |       |
| Investments  in subsidiaries                          |       | 2,412.9                         |       | 283.9                       |       | —                            |       | (2,696.8         | )          | —     |       |
| Other assets                                          |       | 73.2                            |       | 13.8                        |       | 8.0                               |       | —           |       | 95.0       |       |
| Discontinued  operations                              |       | —                          |       | 2.7                         |       | 341.5                             |       | —           |       | 344.2      |       |
|                                                  |       |                            |       |                        |       |                              |       |             |       |       |       |
|                                                  |       | $                               | 2,901.8    |                        | $          | 2,265.0                           |       | $                | 1,672.1    |       | $          | (3,082.7 | ) | $ | 3,756.2 |   |
| ** **                                            | ** ** | ** **                      | ** ** | ** **                  | ** ** | ** **                        | ** ** | ** **       | ** ** | ** ** | ** ** |
| **Liabilities  and Shareholders Investment**          | ** ** | ** **                      | ** ** | ** **                  | ** ** | ** **                        | ** ** | ** **       | ** ** | ** ** | ** ** |
| Current  liabilities:                                 |       |                            |       |                        |       |                              |       |             |       |       |       |
| Short-term  borrowings                                |       | $                               | —     |                        | $          | —                            |       | $                | 14.8       |       | $          | — |   | $ | 14.8 |   |
| Long-term  debt currently due                         |       | 235.9                           |       | 0.6                         |       | 2.0                               |       | —           |       | 238.5      |       |
| Accounts  payable                                     |       | 3.4                             |       | 367.8                       |       | 141.1                             |       | (257.1           | )          | 255.2      |       |
| Accrued  liabilities                                  |       | 31.5                            |       | 179.2                       |       | 74.7                              |       | (1.1             | )          | 284.3      |       |
| Income taxes  payable                                 |       | 39.6                            |       | —                      |       | 3.1                               |       | (8.4             | )          | 34.3       |       |
| Deferred  income taxes                                |       | 6.6                             |       | —                      |       | —                            |       | (6.6             | )          | —     |       |
| Discontinued  operations                              |       | —                          |       | 16.0                        |       | 110.2                             |       | (40.5            | )          | 85.7       |       |
|                                                  |       |                            |       |                        |       |                              |       |             |       |       |       |
| Total  current liabilities                            |       | 317.0                           |       | 563.6                       |       | 345.9                             |       | (313.7           | )          | 912.8      |       |
|                                                  |       |                            |       |                        |       |                              |       |             |       |       |       |
| Long-term  debt                                       |       | 801.0                           |       | 11.3                        |       | 10.7                              |       | —           |       | 823.0      |       |
| Pension and  other postretirement benefit obligations |       | 69.2                            |       | 102.7                       |       | 58.5                              |       | —           |       | 230.4      |       |
| Deferred  income taxes                                |       | —                          |       | 73.3                        |       | —                            |       | (73.3            | )          | —     |       |
| Other  long-term liabilities                          |       | —                          |       | 39.9                        |       | 12.4                              |       | —           |       | 52.3       |       |
| Discontinued  operations                              |       | —                          |       | —                      |       | 23.1                              |       | —           |       | 23.1       |       |
|                                                  |       |                            |       |                        |       |                              |       |             |       |       |       |
| Shareholders’  investment:                       |       |                            |       |                        |       |                              |       |             |       |       |       |
| Common stock  and paid-in capital                     |       | 782.4                           |       | 1,644.1                     |       | 1,055.8                           |       | (2,699.9         | )          | 782.4      |       |
| Retained  earnings                                    |       | 961.2                           |       | (125.6                      | )          | 144.9                             |       | (19.3            | )          | 961.2      |       |
| Accumulated  other comprehensive loss                 |       | (29.0                           | )          | (44.3                       | )          | 20.8                              |       | 23.5             |       | (29.0      | )          |
|                                                  |       |                            |       |                        |       |                              |       |             |       |       |       |
| Total  shareholders investment                        |       | 1,714.6                         |       | 1,474.2                     |       | 1,221.5                           |       | (2,695.7         | )          | 1,714.6    |       |
|                                                  |       |                            |       |                        |       |                              |       |             |       |       |       |
|                                                  |       | $                               | 2,901.8    |                        | $          | 2,265.0                           |       | $                | 1,672.1    |       | $          | (3,082.7 | ) | $ | 3,756.2 |   |

 

23

----

 

Condensed Consolidating Statementsof Cash Flows

Nine Months Ended January 2,2005

(Unaudited)

 
| ** **                                                    | ** ** | **Precision  Castparts  Corp.** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-  Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Total** | ** ** |
|---------------------------------------------------------------|------------|---------------------------------|------------|-----------------------------|------------|-----------------------------------|------------|------------------|------------|-----------|------------|
|                                                          |       |                            |       |                        |       |                              |       |             |       |      |       |
| Net cash  provided (used) by operating activities             |       | $                               | 158.8      |                        | $          | 44.4                              |       | $                | 55.7       |      | $          | (6.8 | ) | $ | 252.1 |   |
|                                                          |       |                            |       |                        |       |                              |       |             |       |      |       |
| Capital  expenditures                                         |       | (0.8                            | )          | (26.5                       | )          | (11.3                             | )          | —           |       | (38.6     | )          |
| Acquisitions  of businesses                                   |       | —                          |       | —                      |       | (1.4                              | )          | —           |       | (1.4      | )          |
| Proceeds  from sale of business                               |       | 116.0                           |       | —                      |       | —                            |       | —           |       | 116.0     |       |
| Other  investing activities, net                              |       | (1.8                            | )          | (14.9                       | )          | 3.4                               |       | 17.5             |       | 4.2       |       |
|                                                          |       |                            |       |                        |       |                              |       |             |       |      |       |
| Net cash  provided (used) by investing activities             |       | 113.4                           |       | (41.4                       | )          | (9.3                              | )          | 17.5             |       | 80.2      |       |
|                                                          |       |                            |       |                        |       |                              |       |             |       |      |       |
| Net change  in short-term borrowings                          |       | —                          |       | —                      |       | (5.8                              | )          | —           |       | (5.8      | )          |
| Repayment of  long-term debt                                  |       | (12.6                           | )          | (0.6                        | )          | (2.2                              | )          | —           |       | (15.4     | )          |
| Proceeds  from exercise of stock options                      |       | 25.2                            |       | —                      |       | —                            |       | —           |       | 25.2      |       |
| Cash  dividends                                               |       | (5.8                            | )          | —                      |       | —                            |       | —           |       | (5.8      | )          |
| Other  financing activities, net                              |       | 2.2                             |       | 0.8                         |       | (1.1                              | )          | (10.7            | )          | (8.8      | )          |
|                                                          |       |                            |       |                        |       |                              |       |             |       |      |       |
| Net cash  provided (used) by financing activities             |       | 9.0                             |       | 0.2                         |       | (9.1                              | )          | (10.7            | )          | (10.6     | )          |
|                                                          |       |                            |       |                        |       |                              |       |             |       |      |       |
| Effect of  exchange rate changes on cash and cash equivalents |       | —                          |       | —                      |       | 4.3                               |       | —           |       | 4.3       |       |
|                                                          |       |                            |       |                        |       |                              |       |             |       |      |       |
| Net cash  used by discontinued operations                     |       | —                          |       | —                      |       | (9.4                              | )          | —           |       | (9.4      | )          |
|                                                          |       |                            |       |                        |       |                              |       |             |       |      |       |
| Net increase  in cash and cash equivalents                    |       | 281.2                           |       | 3.2                         |       | 32.2                              |       | —           |       | 316.6     |       |
|                                                          |       |                            |       |                        |       |                              |       |             |       |      |       |
| Cash and  cash equivalents at beginning of year               |       | 33.2                            |       | —                      |       | 47.1                              |       | —           |       | 80.3      |       |
|                                                          |       |                            |       |                        |       |                              |       |             |       |      |       |
| Cash and  cash equivalents at end of year                     |       | $                               | 314.4      |                        | $          | 3.2                               |       | $                | 79.3       |      | $          | — |   | $ | 396.9 |   |

 

24

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Condensed ConsolidatingStatements of Cash Flows

Nine Months Ended December 28,2003

(Unaudited)

 
| ** **                                                    | ** ** | **Precision  Castparts  Corp.** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-  Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Total** | ** ** |
|---------------------------------------------------------------|------------|---------------------------------|------------|-----------------------------|------------|-----------------------------------|------------|------------------|------------|-----------|------------|
|                                                          |       |                            |       |                        |       |                              |       |             |       |      |       |
| Net cash  provided by operating activities                    |       | $                               | 16.0       |                        | $          | 21.8                              |       | $                | 9.2        |      | $          | 47.3 |   | $ | 94.3 |   |
|                                                          |       |                            |       |                        |       |                              |       |             |       |      |       |
| Capital  expenditures                                         |       | (0.2                            | )          | (20.6                       | )          | (12.9                             | )          | —           |       | (33.7     | )          |
| Acquisitions  of businesses                                   |       | (280.9                          | )          | —                      |       | —                            |       | —           |       | (280.9    | )          |
| Investments  in subsidiaries                                  |       | (5.8                            | )          | (7.5                        | )          | 13.3                              |       | —           |       | —    |       |
| Proceeds  from sale of discontinued operations                |       | 23.5                            |       | —                      |       | —                            |       | —           |       | 23.5      |       |
| Other                                                         |       | —                          |       | —                      |       | 6.2                               |       | —           |       | 6.2       |       |
|                                                          |       |                            |       |                        |       |                              |       |             |       |      |       |
| Net cash  (used) provided by investing activities             |       | (263.4                          | )          | (28.1                       | )          | 6.6                               |       | —           |       | (284.9    | )          |
|                                                          |       |                            |       |                        |       |                              |       |             |       |      |       |
| Net change  in short-term borrowings                          |       | —                          |       | —                      |       | (51.9                             | )          | —           |       | (51.9     | )          |
| Issuance of  long-term debt                                   |       | 500.0                           |       | —                      |       | —                            |       | —           |       | 500.0     |       |
| Repayment of  long-term debt                                  |       | (260.0                          | )          | —                      |       | —                            |       | —           |       | (260.0    | )          |
| Common stock  issued                                          |       | 37.0                            |       | —                      |       | —                            |       | —           |       | 37.0      |       |
| Cash  dividends                                               |       | (4.8                            | )          | —                      |       | —                            |       | —           |       | (4.8      | )          |
| Other                                                         |       | (23.0                           | )          | 6.1                         |       | 41.0                              |       | (47.3            | )          | (23.2     | )          |
|                                                          |       |                            |       |                        |       |                              |       |             |       |      |       |
| Net cash  provided (used) by financing activities             |       | 249.2                           |       | 6.1                         |       | (10.9                             | )          | (47.3            | )          | 197.1     |       |
|                                                          |       |                            |       |                        |       |                              |       |             |       |      |       |
| Effect of  exchange rate changes on cash and cash equivalents |       | —                          |       | —                      |       | 1.1                               |       | —           |       | 1.1       |       |
|                                                          |       |                            |       |                        |       |                              |       |             |       |      |       |
| Net cash  provided by discontinued operations                 |       | —                          |       | 0.1                         |       | 11.2                              |       | —           |       | 11.3      |       |
|                                                          |       |                            |       |                        |       |                              |       |             |       |      |       |
| Net increase  (decrease) in cash and cash equivalents         |       | 1.8                             |       | (0.1                        | )          | 17.2                              |       | —           |       | 18.9      |       |
|                                                          |       |                            |       |                        |       |                              |       |             |       |      |       |
| Cash and  cash equivalents at beginning of year               |       | 7.5                             |       | 0.1                         |       | 21.1                              |       | —           |       | 28.7      |       |
|                                                          |       |                            |       |                        |       |                              |       |             |       |      |       |
| Cash and  cash equivalents at end of year                     |       | $                               | 9.3        |                        | $          | —                            |       | $                | 38.3       |      | $          | — |   | $ | 47.6 |   |

 

25

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**Item 2.****          ****Management’s Discussion and Analysis of Financial Condition and Resultsof Operations**

 

**Consolidated Results of Operations - ComparisonBetween Three Months Ended January 2, 2005 and December 28, 2003**

 
| ** **                                                        | ** ** | **Three Months Ended** | ** ** | **Inc/(Dec)** | ** ** |
|-------------------------------------------------------------------|------------|------------------------|------------|---------------|------------|
| ** **                                                        | ** ** | **1/02/05**            | ** ** | **12/28/03**  | ** ** | **$** | ** ** | **%** | ** ** |
|                                                              |       |                   |       |          |       |   |   |   |   |
| Net sales                                                         |       | $                      | 743.9      |          | $          | 450.2 |   | $ | 293.7 |   | 65.2 | % |
| Cost of  goods sold                                               |       | 575.8                  |       | 348.6         |       | 227.2 |   | 65.2 |   |
| Selling and  administrative expenses                              |       | 58.8                   |       | 37.3          |       | 21.5 |   | 57.6 |   |
| Other  expense                                                    |       | —                 |       | 11.2          |       | (11.2 | ) | n/a |   |
| Interest  expense, net                                            |       | 14.3                   |       | 12.8          |       | 1.5 |   | 11.7 |   |
| Income  before income taxes and minority interest                 |       | 95.0                   |       | 40.3          |       | 54.7 |   | 135.7 |   |
| Income tax  expense                                               |       | 32.7                   |       | 14.0          |       | 18.7 |   | 133.6 |   |
| *Effective  tax rate*                                             | * *   | *34.4*                 | *%*        | *34.7*        | *%*        | * * | * * | * * | * * |
| Minority  interest                                                |       | (0.2                   | )          | (0.6          | )          | 0.4 |   | 66.7 |   |
| Net income  from continuing operations                            |       | 62.1                   |       | 25.7          |       | 36.4 |   | 141.6 |   |
| Net (loss)  income from discontinued operations                   |       | (0.4                   | )          | 2.1           |       | (2.5 | ) | (119.0 | ) |
| Net income                                                        |       | $                      | 61.7       |          | $          | 27.8 |   | $ | 33.9 |   | 121.9 | % |
| Net income  per share from continuing operations – diluted   |       | $                      | 0.93       |          | 0.45       |   | $ | 0.48 |   | 106.7 | % |
| Net income  per share from discontinued operations – diluted |       | —                 |       | 0.04          |       | (0.04 | ) | n/a |   |
| Net income  per share - diluted                                   |       | $                      | 0.93       |          | $          | 0.49 |   | $ | 0.44 |   | 89.8 | % |

 

Salesfor the third quarter of fiscal 2005 were $743.9 million, up $293.7 million, or65.2 percent from $450.2 million in the same quarter last year.  Approximately 60 percent of the increase insales is due to the inclusion of a full quarter of results from the SPSbusinesses in the third quarter of fiscal 2005 as compared to 19 days in thesame period in the prior year.  Inaddition, improved economic conditions in the aerospace and power generationmarkets led to increased sales in the Investment Cast Products and ForgedProducts segments.  According to JSAResearch as of October 2004, commercial aircraft deliveries are forecastto increase approximately 13 percent in calendar year 2005 from calendar year2004 compared with declining deliveries since calendar year 2001.  In addition, continued expansion of theCompany’s metal injection molding technology in the automotive sector andstrength in the pulp and paper market contributed to higher sales in theIndustrial Products segment.

 

Netincome from continuing operations for the third quarter of fiscal 2005 was$62.1 million, or $0.93 per share (diluted). By comparison, net income from continuing operations for the third quarterof fiscal 2004 was $25.7 million, or $0.45 per share (diluted), which includedother expense related to financing the SPS acquisition of $11.2 million, or$0.12 per share.  Net income (afterdiscontinued operations) for the third quarter of fiscal 2005 was $61.7million, or $0.93 per share (diluted), compared with net income of $27.8million, or $0.49 per share (diluted), in the same period last year.

 

***Other Expense***

 

Otherexpense of $11.2 million was recorded in the third quarter of fiscal 2004 to reflectthe write-off of unamortized bank fees ($2.8 million) from early termination ofbank credit facilities and the termination of an interest rate swap ($8.4million) associated with debt refinancing, both in connection with the SPSacquisition.

 

26

----

 

***Interest and Income Tax***

 

Netinterest expense for the third quarter of fiscal 2005 was $14.3 million,compared with $12.8 million for the third quarter last year. The higher expenseis primarily due to higher debt levels compared to the same quarter last yearas a result of debt issued in December 2003 to finance the acquisition ofSPS.

 

Theeffective tax rate for the third quarter of fiscal 2005 was 34.4 percent, 0.3percentage points lower than the 34.7 percent effective rate in the samequarter last year.  This improvement isprimarily due to the implementation of tax strategies related to prior yearrestructuring activities in Europe, partially offset by increased earnings injurisdictions with higher tax rates.

 

***Restructuring***

 

TheCompany continuously assesses its cost structure to ensure that operations areproperly sized for prevailing market conditions.  In connection with these reviews, no planshave been approved that would result in charges for restructuring in fiscal2005.

 

***Discontinued Operations***

 

Netloss from discontinued operations was $0.4 million in the third quarter offiscal 2005 compared with net income of $2.1 million, or $0.04 per share(diluted), in the same quarter last year. In the second quarter of fiscal 2005, the Company entered intoagreements to sell all of the pumps and valves businesses of PCC FlowTechnologies with the exception of E-One. The businesses held for sale were reclassified from the Fluid ManagementProducts segment to discontinued operations. The E-One sewer and detection system operation of the Fluid ManagementProducts segment was retained and is now included in the Industrial Productssegment.  All of the pumps and valvesbusinesses, with the exception of PCC Eurovalves, were sold in the thirdquarter.  PCC Eurovalves continues to bemarketed.

 

Thenet loss from discontinued operations in the current quarter consists primarilyof additional charges associated with the sale of the pumps and valvesbusinesses partially offset by the operating results of the remainingbusinesses held for sale.  Net incomefrom discontinued operations in the third quarter of last year principallyreflects net income of the pumps and valves businesses of PCC FlowTechnologies.

 

Inconnection with the SPS acquisition, three businesses – Magnetics, Mohawk, andDacar – were classified as held for sale in the third quarter of fiscal2004.  Dacar was sold in late September 2004,Magnetics was sold in January 2005, and Mohawk continues to be marketed.

 

27

----

 

**Results of Operations by Segment – ComparisonBetween Three Months Ended January 2, 2005 and December 28, 2003**

 
| ** **                                        | ** ** | **Three Months Ended** | ** ** | **Inc/(Dec)** | ** ** |
|---------------------------------------------------|------------|------------------------|------------|---------------|------------|
| ** **                                        | ** ** | **1/02/05**            | ** ** | **12/28/03**  | ** ** | **$** | ** ** | **%** | ** ** |
|                                              |       |                   |       |          |       |   |   |   |   |
| Net sales:                                        |       |                   |       |          |       |   |   |   |   |
| Investment  Cast Products                         |       | $                      | 350.7      |          | $          | 254.5 |   | $ | 96.2 |   | 37.8 | % |
| Forged  Products                                  |       | 155.7                  |       | 118.8         |       | 36.9 |   | 31.1 |   |
| Fastener  Products                                |       | 175.3                  |       | 30.4          |       | 144.9 |   | 476.6 |   |
| Industrial  Products                              |       | 62.2                   |       | 46.5          |       | 15.7 |   | 33.8 |   |
| Consolidated  net sales                           |       | $                      | 743.9      |          | $          | 450.2 |   | $ | 293.7 |   | 65.2 | % |
| Operating  income (loss):                         |       |                   |       |          |       |   |   |   |   |
| Investment  Cast Products                         |       | $                      | 67.1       |          | $          | 46.8 |   | $ | 20.3 |   | 43.4 | % |
| *% of  sales*                                     | * *   | *19.1*                 | *%*        | *18.4*        | *%*        | * * | * * | * * | * * |
| Forged  Products                                  |       | 18.2                   |       | 15.6          |       | 2.6 |   | 16.7 |   |
| *% of  sales*                                     | * *   | *11.7*                 | *%*        | *13.1*        | *%*        | * * | * * | * * | * * |
| Fastener  Products                                |       | 23.8                   |       | 1.4           |       | 22.4 |   | 1,600.0 |   |
| *% of  sales*                                     | * *   | *13.6*                 | *%*        | *4.6*         | *%*        | * * | * * | * * | * * |
| Industrial  Products                              |       | 11.5                   |       | 8.3           |       | 3.2 |   | 38.6 |   |
| *% of  sales*                                     | * *   | *18.5*                 | *%*        | *17.8*        | *%*        | * * | * * | * * | * * |
| Corporate  expense                                |       | (11.3                  | )          | (7.8          | )          | (3.5 | ) | (44.9 | ) |
| Consolidated  segment operating income            |       | 109.3                  |       | 64.3          |       | 45.0 |   | 70.0 | % |
| *% of  sales*                                     | * *   | *14.7*                 | *%*        | *14.3*        | *%*        | * * | * * | * * | * * |
| Provision  for restructuring                      |       | —                 |       | —        |       |   |   |   |   |
| Other  expense                                    |       | —                 |       | 11.2          |       |   |   |   |   |
| Interest  expense, net                            |       | 14.3                   |       | 12.8          |       |   |   |   |   |
| Income  before income taxes and minority interest |       | $                      | 95.0       |          | $          | 40.3 |   |   |   |   |   |

 

***Investment Cast Products***

 

InvestmentCast Products’ sales increased 37.8 percent from $254.5 million in the thirdquarter of fiscal 2004 to $350.7 million this year.  Operating income increased 43.4 percent from$46.8 million in the third quarter of fiscal 2004 to $67.1 million in the samequarter this year.  Operating income as apercent of sales also increased from 18.4 percent to 19.1 percent ofsales.  The segment’s sales benefitedfrom the addition of the SPS Specialty Materials and Alloys Group (“SMAG”),which was acquired in December 2003, and from increasing demand in theaerospace and IGT sectors.  The increasein operating income reflected the impact of the higher sales volume, partiallyoffset by lower selling prices and higher raw material prices, mainly nickeland cobalt, which have increased approximately 20 percent and 40 percent,respectively, on the London Metal Exchange (LME) and Metal Bulletin COFM.8Index (Bloomberg) compared to the same quarter last year.  The improvement in operating margins as apercentage of sales was mainly due to the leverage from higher sales volumes inthe base businesses, partially offset by the impact of lower selling prices andhigher raw material prices.

 

Sales within this segment are expected to continue to benefit from improvedconditions in the aerospace and power generation markets through the remainderof fiscal 2005.  The leverage from highervolumes should result in measured improvement in operating margins as apercentage of sales through the remainder of fiscal 2005.

 

28

----

 

***Forged Products***

 

ForgedProducts’ sales were $155.7 million for the quarter, an increase of 31.1percent, compared to sales of $118.8 million in the third quarter of fiscal2004.  Operating income increased 16.7percent from $15.6 million in the third quarter of fiscal 2004 to $18.2 millionin the same quarter this year, while operating income as a percent of salesdecreased from 13.1 percent to 11.7 percent. The higher sales were primarily due to increased demand for aerospaceproducts and continued penetration into the Chinese power generation marketwith higher sales of extruded pipe. Operating income as a percent of sales benefited in the current quarterfrom the higher volume, but was lower than last year due to higher materialcosts, mainly nickel and titanium, which have increased approximately 20percent and 7 percent, respectively, on the LME and Metal Bulletin TI1225 Index(Bloomberg) since the third quarter of fiscal 2004.

 

Sales for the remainder of fiscal 2005 within the Forged Productssegment are expected to benefit from strong demand for seamless pipe used forenergy plant construction, as well as continued improvement in the aerospacesector.  Operating income is expected tobenefit from the higher sales volume and the favorable impact of contract termsthat allow for pass-through pricing of higher material costs beginning in thefourth quarter of fiscal 2005 and continuing through fiscal 2006.  While these recoveries will increase segment revenuesand protect operating income, they will have a dampening effect on relatedimprovements in operating margins as a percentage of sales.

 

***Fastener Products***

 

The Fastener Productssegment is primarily comprised of SPS’s former Aerospace Fasteners andEngineered Fasteners groups that were acquired in December 2003.  The segment reported $175.3 million of saleswith operating income of $23.8 million, or 13.6 percent of sales, in the thirdquarter of fiscal 2005, compared to sales of $30.4 million and operating incomeof $1.4 million, or 4.6 percent of sales, in the third quarter of fiscal2004.  Last year’s quarterly resultsincluded only 19 days of operation.  Thesegment is being favorably impacted by strong aerospace sales and continues tobenefit from opportunities for market share gains at major aerospacecustomers, partially offset by a seasonal decrease in automotive sales.  Cost take-outs and improved manufacturingprocesses have significantly improved operating margins as a percentage ofsales since the acquisition of SPS. Synergies are larger than originally planned and are being achievedsooner than expected.

 

Sales within this segmentare expected to grow during the remainder of fiscal 2005, and operating marginsasa percentage of sales should also improve due to continuing realization of synergies, costtake-outs and leverage from increased sales.

 

***Industrial Products***

 

IndustrialProducts’ sales of $62.2 million for the third quarter of fiscal 2005 increased33.8 percent from $46.5 million in the same period last year.  Operating income improved to $11.5 million inthe third quarter of fiscal 2005 compared with $8.3 million in the same periodlast year.  Operating income as a percentof sales improved to 18.5 percent in the third quarter of fiscal 2005 from 17.8percent in the same period last year. The increase in sales compared to last year reflects a full quarter ofsales from SPS’ Precision Tool Group compared to 19 days in the same quarterlast year, market share gains in the automotive industry, and improvingconditions in the aerospace and pulp and paper markets.  The improvement in operating margin as apercent of sales compared to the third quarter of fiscal 2004 is primarily dueto the leverage from the higher sales volumes in the base businesses, as wellas benefits realized from integrating the SPS tool businesses with PCC’s tooloperations in the U.S. and India, partially offset by the impact of increasedadministrative costs.

 

The Industrial Products segment is expected to benefit from theconsolidation of the Reed-Rico and the SPS tool businesses, which will increasePCC’s worldwide share of the fastener tooling market.  Operating margins are expected to continue toincrease through fiscal 2005 as a result of improved cost structures andleverage from higher volume.

 

29

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**Consolidated Results of Operations - ComparisonBetween Nine Months Ended January 2, 2005 and December 28, 2003**

 
| ** **                                                      | ** ** | **Nine Months Ended** | ** ** | **Inc/(Dec)** | ** ** |
|-----------------------------------------------------------------|------------|-----------------------|------------|---------------|------------|
| ** **                                                      | ** ** | **1/02/05**           | ** ** | **12/28/03**  | ** ** | **$** | ** ** | **%** | ** ** |
|                                                            |       |                  |       |          |       |   |   |   |   |
| Net sales                                                       |       | $                     | 2,109.5    |          | $          | 1,276.1 |   | $ | 833.4 |   | 65.3 | % |
| Cost of  goods sold                                             |       | 1,632.1               |       | 987.0         |       | 645.1 |   | 65.4 |   |
| Selling and  administrative expenses                            |       | 176.8                 |       | 96.9          |       | 79.9 |   | 82.5 |   |
| Provision  for restructuring                                    |       | —                |       | 8.4           |       | (8.4 | ) | n/a |   |
| Other expense                                                   |       | —                |       | 11.2          |       | (11.2 | ) | n/a |   |
| Interest  expense, net                                          |       | 43.7                  |       | 38.2          |       | 5.5 |   | 14.4 |   |
| Income  before income taxes and minority interest               |       | 256.9                 |       | 134.4         |       | 122.5 |   | 91.1 |   |
| Income tax  expense                                             |       | 86.1                  |       | 47.7          |       | 38.4 |   | 80.5 |   |
| *Effective  tax rate*                                           | * *   | *33.5*                | *%*        | *35.5*        | *%*        | * * | * * | * * | * * |
| Minority  interest                                              |       | (1.0                  | )          | (0.9          | )          | (0.1 | ) | (11.1 | ) |
| Net income  from continuing operations                          |       | 169.8                 |       | 85.8          |       | 84.0 |   | 97.9 |   |
| Net loss  from discontinued operations                          |       | (237.5                | )          | (9.2          | )          | (228.3 | ) | (2,481.5 | ) |
| Net (loss)  income                                              |       | $                     | (67.7      | )             | $          | 76.6 |   | $ | (144.3 | ) | (188.4 | )% |
| Net income  per share from continuing operations – diluted |       | $                     | 2.56       |          | 1.56       |   | $ | 1.00 |   | 64.1 | % |
| Net loss per  share from discontinued operations – diluted |       | (3.58                 | )          | (0.16         | )          | (3.42 | ) | (2,137.5 | ) |
| Net (loss)  income per share - diluted                          |       | $                     | (1.02      | )             | $          | 1.40 |   | $ | (2.42 | ) | (172.9 | )% |

 

Salesfor the first nine months of fiscal 2005 were $2,109.5 million, an increase of65.3 percent from $1,276.1 million in the same period last year.  The addition of the SPS businessescontributed approximately 70 percent to the increase in sales, as well asimproved economic conditions in the aerospace and power generation markets,which led to increased sales in the Investment Cast Products and ForgedProducts segments.  According to JSAResearch as of October 2004, commercial aircraft deliveries are forecastto increase approximately 13 percent in calendar year 2005 from calendar year2004 compared to declining deliveries since calendar year 2001.  In addition, continued expansion of theCompany’s metal injection molding technology in the automotive sector andstrength in the pulp and paper market contributed to higher sales in theIndustrial Products segment.

 

Netincome from continuing operations for the first nine months of fiscal 2005 was$169.8 million, or $2.56 per share (diluted). By comparison, net income from continuing operations for the first ninemonths of fiscal 2004 was $85.8 million, or $1.56 per share (diluted), whichincluded restructuring charges of $8.4 million, or $0.10 per share, and otherexpense related to financing the SPS acquisition of $11.2 million, or $0.13 pershare.  Net loss for the first ninemonths of fiscal 2005 was $67.7 million, or $1.02 per share (diluted), comparedwith net income of $76.6 million, or $1.40 per share (diluted), in the sameperiod last year.

 

***Restructuring***

 

TheCompany recorded $8.4 million of restructuring charges in the second quarter offiscal 2004 primarily for severance associated with headcount reductions at PCC’sinvestment casting operations in the United Kingdom and the Company’s forging operationsin the United Kingdom and Houston, Texas. The reductions were in response to reduced demand for commercialaerospace and industrial gas turbine products.

 

TheCompany continuously assesses its cost structure to ensure that operations areproperly sized for prevailing market conditions.  In connection with these reviews, no planshave been approved that would result in charges for restructuring in fiscal2005.

 

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***Other Expense***

 

Otherexpense of $11.2 million was recorded in the third quarter of fiscal 2004 toreflect the write-off of unamortized bank fees ($2.8 million) from earlytermination of bank credit facilities and the termination of an interest rateswap ($8.4 million) associated with debt refinancing, both in connection withthe SPS acquisition.

 

***Interest and Income Tax***

 

Netinterest expense for the nine months ended January 2, 2005 was $43.7million, as compared with $38.2 million for the same period last year.  The higher expense is primarily due to higherdebt levels compared to the same period last year as a result of debt issued inDecember 2003 to finance the acquisition of SPS.

 

Theeffective tax rate for the first nine months of fiscal 2005 was 33.5 percent,as compared with 35.5 percent for the nine months ended December 28,2003.  This improvement is primarily dueto the implementation of tax strategies related to prior year restructuringactivities in Europe, partially offset by increased earnings in jurisdictionswith higher tax rates.

 

***Discontinued Operations***

 

Net loss from discontinued operations was $237.5 million, or $3.58 pershare (diluted), for the nine months ended January 2, 2005 compared with anet loss of $9.2 million, or $0.16 per share (diluted), in the same period lastyear.  In the second quarter of fiscal2005, the Company entered into agreements to sell all of the pumps and valvesbusinesses of PCC Flow Technologies, with the exception of E-One.  The businesses held for sale werereclassified from the Fluid Management Products segment to discontinuedoperations.  The E-One sewer anddetection system operation of the Fluid Management Products segment wasretained and is now included in the Industrial Products segment.  PCC’s decision to sell the pumps and valvesbusinesses resulted in a charge of $245.0 million in the second quarter offiscal 2005.  Of this charge, $219.0million was associated with the write-down of goodwill.  The remainder related to the write-down ofinventory, other amortizable assets and machinery and equipment to fair valueless cost to sell.  All of the pumps andvalves businesses, with the exception of PCC Eurovalves, were sold in the thirdquarter.  PCC Eurovalves continues to bemarketed.

 

The charge to discontinued operations in the first nine months offiscal 2004 principally reflects the write-down of assets at Newmans, abusiness unit of PCC Flow Technologies that was sold in December 2003.

 

In connection with the SPS acquisition, three businesses – Magnetics,Mohawk, and Dacar – were classified as held for sale in the third quarter offiscal 2004.  Dacar was sold in late September 2004,Magnetics was sold in January 2005, and Mohawk continues to be marketed.

 

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**Results of Operations by Segment – ComparisonBetween Nine Months Ended January 2, 2005 and December 28, 2003**

 
| ** **                                        | ** ** | **Nine Months Ended** | ** ** | **Inc/(Dec)** | ** ** |
|---------------------------------------------------|------------|-----------------------|------------|---------------|------------|
| ** **                                        | ** ** | **1/02/05**           | ** ** | **12/28/03**  | ** ** | **$** | ** ** | **%** | ** ** |
|                                              |       |                  |       |          |       |   |   |   |   |
| Net sales:                                        |       |                  |       |          |       |   |   |   |   |
| Investment  Cast Products                         |       | $                     | 980.4      |          | $          | 746.0 |   | $ | 234.4 |   | 31.4 | % |
| Forged  Products                                  |       | 448.1                 |       | 366.9         |       | 81.2 |   | 22.1 |   |
| Fastener  Products                                |       | 504.5                 |       | 30.4          |       | 474.1 |   | 1,559.5 |   |
| Industrial  Products                              |       | 176.5                 |       | 132.8         |       | 43.7 |   | 32.9 |   |
| Consolidated  net sales                           |       | $                     | 2,109.5    |          | $          | 1,276.1 |   | $ | 833.4 |   | 65.3 | % |
| Operating  income (loss):                         |       |                  |       |          |       |   |   |   |   |
| Investment  Cast Products                         |       | $                     | 183.1      |          | $          | 137.2 |   | $ | 45.9 |   | 33.5 | % |
| *% of  sales*                                     | * *   | *18.7*                | *%*        | *18.4*        | *%*        | * * | * * | * * | * * |
| Forged  Products                                  |       | 55.3                  |       | 47.6          |       | 7.7 |   | 16.2 |   |
| *% of  sales*                                     | * *   | *12.3*                | *%*        | *13.0*        | *%*        | * * | * * | * * | * * |
| Fastener  Products                                |       | 61.8                  |       | 1.4           |       | 60.4 |   | 4,314.3 |   |
| *% of  sales*                                     | * *   | *12.2*                | *%*        | *4.6*         | *%*        | * * | * * | * * | * * |
| Industrial  Products                              |       | 31.5                  |       | 24.0          |       | 7.5 |   | 31.3 |   |
| *% of  sales*                                     | * *   | *17.8*                | *%*        | *18.1*        | *%*        | * * | * * | * * | * * |
| Corporate  expense                                |       | (31.1                 | )          | (18.0         | )          | (13.1 | ) | (72.8 | ) |
| Consolidated  segment operating income            |       | 300.6                 |       | 192.2         |       | 108.4 |   | 56.4 | % |
| *% of  sales*                                     | * *   | *14.2*                | *%*        | *15.1*        | *%*        | * * | * * | * * | * * |
| Provision  for restructuring                      |       | —                |       | 8.4           |       |   |   |   |   |
| Other  expense                                    |       | —                |       | 11.2          |       |   |   |   |   |
| Interest  expense, net                            |       | 43.7                  |       | 38.2          |       |   |   |   |   |
| Income  before income taxes and minority interest |       | $                     | 256.9      |          | $          | 134.4 |   |   |   |   |   |

 

***InvestmentCast Products***

 

InvestmentCast Products’ sales increased by 31.4 percent, from $746.0 million in thefirst nine months of fiscal 2004 to $980.4 million this year.  Operating income for the segment increased by33.5 percent, from $137.2 million, or 18.4 percent of sales, a year ago to$183.1 million, or 18.7 percent of sales, in the first nine months of fiscal2005.  The segment’s sales benefited fromthe addition of the SPS Specialty Materials and Alloys Group (“SMAG”), whichwas acquired in December 2003, and from increasing demand from theaerospace and IGT aftermarket sectors.  The operating income improvement reflected theimpact of the higher sales volume, partially offset by higher raw materialprices, mainly nickel and cobalt, which have increased approximately 35 percentand 100 percent, respectively, on the London Metal Exchange (LME) and MetalBulletin COFM.8 Index (Bloomberg) compared to the same nine-month period lastyear.  The favorable impact on operatingmargins as a percent of sales from the higher sales was partially offset by theimpact of lower prices and higher raw material prices.

 

***Forged Products***

 

ForgedProducts’ sales were $448.1 million for the first nine months of fiscal 2005,an increase of 22.1 percent, compared to sales of $366.9 million in the sameperiod last year.  Operating incomeincreased 16.2 percent from $47.6 million, or 13.0 percent of sales, in thefirst nine months of fiscal 2004 to $55.3 million, or 12.3 percent of sales,this year.  The higher sales wereprimarily due to increased demand for aerospace products and continuedpenetration into the Chinese power generation market with higher sales ofextruded pipe.  Operating income as apercent of sales benefited from the higher volume, but was lower than last yeardue to higher material costs, mainly nickel and titanium, which have increasedapproximately 35 percent and 7 percent, respectively, on the LME and MetalBulletin TI1225 Index (Bloomberg) since the first nine months of fiscal2004.  The first nine months of fiscal2004 included a $6.8 million benefit for settlement of an agreement betweenWyman-Gordon and a metal supplier.

 

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***Fastener Products***

 

The Fastener Productssegment is primarily comprised of SPS’s former Aerospace Fasteners andEngineered Fasteners groups that were acquired in December 2003.  The segment reported $504.5 million of saleswith operating income of $61.8 million, or 12.2 percent of sales, in the firstnine months of fiscal 2005 compared to $30.4 million of sales with operatingincome of $1.4 million, or 4.6 percent of sales, in the same period lastyear.  Last year’s results included only19 days of operation.  The segment isbeing favorably impacted by strong aerospace sales and continues to benefitfromopportunities for market share gains at major aerospace customers, partiallyoffset by a seasonal decrease in automotive sales.  Cost take-outs and improved manufacturingprocesses have significantly improved operating margins as a percent of salessince the acquisition of SPS.  Synergiesare larger than originally planned and are being achieved sooner than expected.

 

***IndustrialProducts***

 

IndustrialProducts’ sales of $176.5 million for the first nine months of fiscal 2005increased $43.7 million, or 32.9 percent, from $132.8 million in the comparableprior year period.  Operating income was$31.5 million, or 17.8 percent of sales, in the first nine months of fiscal2005, $7.5 million higher than operating income of $24.0 million, or 18.1percent of sales, in the same period last year. The sales increase reflects the addition of sales from SPS’ PrecisionTool Group, market share gains in the automotive industry, and improvingconditions in the aerospace and pulp and paper markets.  The decline in operating income as a percentof sales compared to the first nine months of fiscal 2004 is primarily due tothe addition of the SPS Precision Tool Group, which has lower margins comparedto the base businesses, plus the impact of increased administrative costs,partially offset by leverage from the higher sales volumes in the basebusinesses as well as benefits realized from integrating the SPS toolbusinesses with PCC’s tool operations in the U.S. and India.

 

**Contractual Obligations and Commitments**

 

During January, 2005, the Company amended its bank credit facility toreduce the spread applicable to LIBOR borrowings.   The applicablespreads, as revised, range from 0.625% to 1.75%, depending upon credit ratingsreceived from Moody’s and S & P.  Based on current credit ratings,interest rates on borrowings under the revised bank credit facility will bereduced from LIBOR + 1.25% to LIBOR + 1.00%. The amendment also revised the amortization schedule of principalrepayments on the $300 million term loan included in the bank creditfacility.  The following schedule providesthe Company’s aggregate long-term debt maturities in each of the next fivefiscal years as previously reported and as revised to reflect this amendment:

 
| **Fiscal Year** | ** ** | **Previous** | ** ** | **Current** | ** ** |
|-----------------|------------|--------------|------------|-------------|------------|
|            |       |         |       |        |       |
| 2005            |       | $            | 238.5      |        | $          | 223.5 |   |
| 2006            |       | $            | 98.6       |        | $          | 38.6 |   |
| 2007            |       | $            | 98.5       |        | $          | 42.3 |   |
| 2008            |       | $            | 248.8      |        | $          | 206.3 |   |
| 2009            |       | $            | 79.0       |        | $          | 252.7 |   |

 

**Subsequent Event**

 

On January 25, 2005, the Company entered into definitiveagreements to acquire the shares of Air Industries Corporation (AIC) and theassets of Air Tuf Products, Inc. for $194.0 million in cash.  Founded in 1951, AIC is a leadingmanufacturer of airframe fasteners, which include bolts, pins, and screws madefrom titanium and nickel-based alloys. The transaction, which is subject to regulatory approvals, is expectedto close in the fourth quarter of fiscal 2005. PCC will fund the acquisition with cash on hand.

 

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**Changes in Financial Condition and Liquidity**

 

Totalassets of $3,702.2 million at January 2, 2005 represented a $54.0 milliondecrease from the $3,756.2 million balance at March 28, 2004.  Total capitalization at January 2, 2005was $2,765.6 million, consisting of $1,052.1 million of debt and $1,713.5million of equity. The debt-to-capitalization ratio improved to 38.0 percentfrom 39.9 percent at September 28, 2004 and 38.6 percent at the end offiscal 2004.

 

Cashas of January 2, 2005 was $396.9 million, up $316.6 million from the endof fiscal 2004, and total debt was $1,052.1 million, down $25.4 million sincethe end of fiscal 2004, together reflecting positive cash flow of $342.0million during the first nine months of fiscal 2005.  The increase in cash flow was principally dueto $169.8 million of net income from continuing operations adjusted for $72.0million of depreciation and amortization and $28.9 million of deferred taxes,$116.0 million of proceeds from the sale of the pumps and valves businesses ofPCC Flow Technologies, $25.2 million from the sale of common stock throughstock option exercises, and $12.5 million from decreased working capital.  Cash requirements for the first nine monthsof fiscal 2005 included $38.6 million for capital expenditures, $5.8 millionfor dividends, $1.4 million to buy the remaining interest in a consolidatedjoint venture, $9.4 million from discontinued operations and $31.4 million forother activities, including $58.2 million of pension contributions, of which$45.0 million were voluntary.

 

TheCompany expects to use existing cash balances to pay off $200 million of 8.75%public notes and to acquire Air Industries Corporation and the assets of AirTuf Products, Inc. for $194.0 million in the fourth quarter of fiscal2005.  Capital spending during fiscal2005, which is expected to be slightly higher than capital spending in fiscal2004, will principally provide for maintenance, expansion, safety and costreduction projects.  Companycontributions to its defined benefit pension plans are expected to beapproximately $90.0 million during fiscal 2005, of which $60.0 million will bevoluntary.

 

Managementbelieves that the Company can fund requirements for working capital, pensionand other postretirement benefit obligations, capital spending, cash dividendsand potential acquisitions from cash generated from operations, borrowing fromexisting or new bank credit facilities, issuance of public or privately placeddebt securities, or the issuance of equity securities.

 

**Forward-Looking Statements**

 

Informationincluded within this filing describing the projected growth and future resultsand events constitutes forward-looking statements, within the meaning of thePrivate Securities Litigation Reform Act of 1995.  Actual results in future periods may differmaterially from the forward-looking statements because of a number of risks anduncertainties, including but not limited to fluctuations in the aerospace,power generation, automotive, and other general industrial cycles; the relativesuccess of the Company’s entry into new markets; competitive pricing; thefinancial viability of the Company’s significant customers; the availabilityand cost of energy, materials, supplies, and insurance; the cost of pensionbenefits; equipment failures; relations with the Company’s employees; theCompany’s ability to manage its operating costs and to integrate acquiredbusinesses in an effective manner; governmental regulations and environmentalmatters; risks associated with international operations and world economies;the relative stability of certain foreign currencies; and implementation of newtechnologies and process improvements. Any forward-looking statements should be considered in light of thesefactors. The Company undertakes no obligation to publicly release anyforward-looking information to reflect anticipated or unanticipated events orcircumstances after the date of this document.

 

**Item 3.  Quantitativeand Qualitative Disclosures About Market Risk**

 

Therehave been no material changes to the Company’s market risk exposure since March 28,2004.

 

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**Item 4. Controls and Procedures**

 

PCCManagement, including the Chief Executive Officer and Chief Financial Officer,have conducted an evaluation of the effectiveness of disclosure controls andprocedures as of the end of the period covered by this report pursuant toExchange Act Rule 13a-15(b).  Based onthat evaluation, the Chief Executive Officer and Chief Financial Officer haveconcluded that the disclosure controls and procedures are effective to ensurethat information required to be disclosed by the Company in reports filed withthe Securities and Exchange Commission is recorded, processed, summarized andreported on a timely basis.  There havebeen no changes in internal control over financial reporting that occurredduring the last fiscal quarter that has materially effected, or is reasonablylikely to materially affect, the Company’s internal control over financialreporting.

 

**PART II.  OTHERINFORMATION**

 

**Item 1.  LegalProceedings**

 

None.

 

**Item 2.  UnregisteredSale of Equity Securities and Use of Proceeds**

 

None.

 

**Item 3.  Defaults UponSenior Securities**

 

None.

 

**Item 4.****          ****Submission of Matters toa Vote of Security Holders and Issuer Purchases of Securities**

 

None.

 

**Item 5.  OtherInformation**

 

None.

 

**Item 6.  Exhibits**

 

(a) Exhibits

 

31.1                           Certificationof the Chief Executive Officer pursuant to Section 302 of theSarbanes-Oxley Act of 2002.

 

31.2                           Certificationof the Chief Financial Officer pursuant to Section 302 of theSarbanes-Oxley Act of 2002.

 

32.1                           Certificationof the Chief Executive Officer pursuant to Section 906 of theSarbanes-Oxley Act of 2002.

 

32.2                           Certificationof the Chief Financial Officer pursuant to Section 906 of theSarbanes-Oxley Act of 2002.

 

10.1                           Amendment toCredit Agreement

 

(b)Reports on Form 8-K

 

Current Report on Form 8-K dated January 1, 2005(Item 1.01)

Current Report on Form 8-K dated January 18,2005 (Item 2.02)

Current Report on Form 8-K dated January 25,2005 (Item 8.01)

 

 

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SIGNATURE

 

Pursuantto the requirements of the Securities Exchange Act of 1934, the registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly authorized.

 

 
|                          | PRECISION  CASTPARTS CORP.                    |
|-------------------------------|-----------------------------------------------|
|                          | Registrant                                    |
|                          |                                          |
|                          |                                          |
| DATE:  February 11, 2005 | /s/  William D. Larsson                       |   |
|                          | William  D. Larsson                           |
|                          | Senior  Vice President and                    |
|                          | Chief  Financial Officer                      |
|                          | (Principal  Financial and Accounting Officer) |

 

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