**SECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

 

**FORM 10-Q**

 

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

 

**For theQuarter Ended September 26, 2004**

**CommissionFile No. 1-10348**

 

**Precision Castparts Corp.**

 

**An OregonCorporation**

IRS EmployerIdentification No. **93-0460598**

**4650 S.W.Macadam Avenue**

**Suite 440**

**Portland,Oregon 97239-4254**

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

 

Indicate by checkmark whether the registrant (1) hasfiled all reports required to be filed by Section 13 or 15(d) of the SecuritiesExchange Act of 1934 during the preceding 12 months (or for such shorter periodthat the registrant was required to file such reports), and (2) has beensubject to such filing requirements for the past 90 days.

 

Yes   ý  No   o

 

Indicate by check markwhether the registrant is an accelerated filer (as defined in Exchange Act Rule12b-2).

 

Yes   ý  No   o

 

Number of shares of Common Stock, no par value,outstanding as of October 29, 2004: 65,150,330

 

Note:     This10-Q was filed electronically via EDGAR with the Securities and ExchangeCommission.

 

 

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**PART 1: FINANCIAL INFORMATION**

 

**Item 1.  Financial Statements**

 

**Precision Castparts Corp. andSubsidiaries**

**Consolidated Statements of Operations**

**(Unaudited)**

**(In millions, except per share data)**

 
| ** **                                          | ** ** | **Three Months Ended** | ** ** |
|-----------------------------------------------------|------------|------------------------|------------|
| ** **                                          | ** ** | **9/26/04**            | ** ** | **9/28/03** | ** ** |
|                                                |       |                   |       |   |   |
| Net sales                                           |       | $                      | 697.5      |   | $ | 412.5 |   |
| Cost of goods sold                                  |       | 537.3                  |       | 314.9 |   |
| Selling and administrative expenses                 |       | 59.4                   |       | 33.6 |   |
| Provision for restructuring                         |       | —                 |       | 8.4 |   |
| Interest expense, net                               |       | 14.8                   |       | 12.5 |   |
|                                                |       |                   |       |   |   |
| Income before income taxes and minority  interest   |       | 86.0                   |       | 43.1 |   |
| Income tax expense                                  |       | 28.5                   |       | 15.7 |   |
| Minority interest                                   |       | (0.3                   | )          | (0.1 | ) |
|                                                |       |                   |       |   |   |
| Net income from continuing operations               |       | 57.2                   |       | 27.3 |   |
| Net loss from discontinued operations               |       | (240.2                 | )          | (12.8 | ) |
|                                                |       |                   |       |   |   |
| Net (loss) income                                   |       | $                      | (183.0     | ) | $ | 14.5 |   |
|                                                |       |                   |       |   |   |
| Net income (loss) per common share – basic:    |       |                   |       |   |   |
| Net income from continuing operations               |       | $                      | 0.88       |   | $ | 0.52 |   |
| Net loss from discontinued operations               |       | (3.70                  | )          | (0.25 | ) |
|                                                |       |                   |       |   |   |
|                                                |       | $                      | (2.82      | ) | $ | 0.27 |   |
|                                                |       |                   |       |   |   |
| Net income (loss) per common share –  diluted: |       |                   |       |   |   |
| Net income from continuing operations               |       | $                      | 0.86       |   | $ | 0.51 |   |
| Net loss from discontinued operations               |       | (3.62                  | )          | (0.24 | ) |
|                                                |       |                   |       |   |   |
|                                                |       | $                      | (2.76      | )  | $ | 0.27 |   |
|                                                |       |                   |       |   |   |
| Average common shares outstanding:                  |       |                   |       |   |   |
| Basic                                               |       | 64.9                   |       | 52.9 |   |
| Diluted                                             |       | 66.2                   |       | 54.0 |   |

* *

*See Notes to the Interim Consolidated FinancialStatements on page 6.*

 

2

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| ** **                                              | ** ** | **Six Months Ended** | ** ** |
|---------------------------------------------------------|------------|----------------------|------------|
| ** **                                              | ** ** | **9/26/04**          | ** ** | **9/28/03** | ** ** |
|                                                    |       |                 |       |   |   |
| Net sales                                               |       | $                    | 1,365.6    |   | $ | 825.9 |   |
| Cost of goods sold                                      |       | 1,056.3              |       | 638.4 |   |
| Selling and administrative expenses                     |       | 118.0                |       | 59.6 |   |
| Provision for restructuring                             |       | —               |       | 8.4 |   |
| Interest expense, net                                   |       | 29.4                 |       | 25.4 |   |
|                                                    |       |                 |       |   |   |
| Income before income taxes and minority  interest       |       | 161.9                |       | 94.1 |   |
| Income tax expense                                      |       | 53.4                 |       | 33.7 |   |
| Minority interest in earnings of  consolidated entities |       | (0.8                 | )          | (0.3 | ) |
|                                                    |       |                 |       |   |   |
| Net income from continuing operations                   |       | 107.7                |       | 60.1 |   |
| Net loss from discontinued operations                   |       | (237.1               | )          | (11.3 | ) |
|                                                    |       |                 |       |   |   |
| Net (loss) income                                       |       | $                    | (129.4     | ) | $ | 48.8 |   |
|                                                    |       |                 |       |   |   |
| Net income (loss) per common share – basic:        |       |                 |       |   |   |
| Net income from continuing operations                   |       | $                    | 1.66       |   | $ | 1.14 |   |
| Net loss from discontinued operations                   |       | (3.66                | )          | (0.22 | ) |
|                                                    |       | $                    | (2.00      | )  | $ | 0.92 |   |
|                                                    |       |                 |       |   |   |
| Net income (loss) per common share –  diluted:     |       |                 |       |   |   |
| Net income from continuing operations                   |       | $                    | 1.63       |   | $ | 1.12 |   |
| Net loss from discontinued operations                   |       | (3.59                | )          | (0.21 | ) |
|                                                    |       | $                    | (1.96      | )  | $ | 0.91 |   |
|                                                    |       |                 |       |   |   |
| Average common shares outstanding:                      |       |                 |       |   |   |
| Basic                                                   |       | 64.8                 |       | 52.9 |   |
| Diluted                                                 |       | 66.0                 |       | 53.8 |   |

 

*See Notes to the Interim Consolidated FinancialStatements on page 6.*

 

3

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**Precision Castparts Corp. and Subsidiaries**

**Consolidated Balance Sheets**

**(In millions)**

 
| ** **                                            | ** ** | **(Unaudited)** | ** ** | ** **  | ** ** |
|-------------------------------------------------------|------------|-----------------|------------|-------------|------------|
| ** **                                            | ** ** | **9/26/04**     | ** ** | **3/28/04** | ** ** |
| ASSETS                                                |       |            |       |        |       |
| Current assets:                                       |       |            |       |        |       |
| Cash and cash equivalents                             |       | $               | 162.2      |        | $          | 80.3 |   |
| Receivables, net                                      |       | 426.4           |       | 389.0       |       |
| Inventories                                           |       | 480.4           |       | 453.6       |       |
| Prepaid expenses                                      |       | 13.8            |       | 16.3        |       |
| Income tax receivable                                 |       | 4.7             |       | 29.0        |       |
| Deferred income taxes                                 |       | 47.7            |       | 50.8        |       |
| Discontinued operations                               |       | 158.6           |       | 168.5       |       |
| Total current assets                                  |       | 1,293.8         |       | 1,187.5     |       |
|                                                  |       |            |       |        |       |
| Property, plant and equipment, at cost                |       | 1,236.5         |       | 1,219.1     |       |
| Less - accumulated depreciation                       |       | (557.3          | )          | (514.7      | )          |
| Net property, plant and equipment                     |       | 679.2           |       | 704.4       |       |
|                                                  |       |            |       |        |       |
| Goodwill, net                                         |       | 1,416.7         |       | 1,401.8     |       |
| Acquired intangible assets, net                       |       | 5.7             |       | 6.1         |       |
| Deferred income taxes                                 |       | 19.1            |       | 23.3        |       |
| Other assets                                          |       | 86.5            |       | 88.9        |       |
| Discontinued operations                               |       | 105.3           |       | 344.2       |       |
|                                                  |       |            |       |        |       |
|                                                  |       | $               | 3,606.3    |        | $          | 3,756.2 |   |
|                                                  |       |            |       |        |       |
| LIABILITIES AND SHAREHOLDERS’ INVESTMENT         |       |            |       |        |       |
| Current liabilities:                                  |       |            |       |        |       |
| Short-term borrowings                                 |       | $               | 7.7        |        | $          | 14.8 |   |
| Long-term debt currently due                          |       | 278.8           |       | 238.5       |       |
| Accounts payable                                      |       | 300.5           |       | 255.2       |       |
| Accrued liabilities                                   |       | 309.5           |       | 284.3       |       |
| Income taxes payable                                  |       | 35.0            |       | 34.3        |       |
| Discontinued operations                               |       | 27.6            |       | 85.7        |       |
| Total current liabilities                             |       | 959.1           |       | 912.8       |       |
|                                                  |       |            |       |        |       |
| Long-term debt                                        |       | 767.7           |       | 823.0       |       |
| Pension and other postretirement benefit  obligations |       | 215.0           |       | 230.4       |       |
| Other long-term liabilities                           |       | 52.4            |       | 52.3        |       |
| Discontinued operations                               |       | 21.7            |       | 23.1        |       |
| Total liabilities                                     |       | 2,015.9         |       | 2,041.6     |       |
|                                                  |       |            |       |        |       |
| Shareholders’ investment:                        |       |            |       |        |       |
| Common stock                                          |       | 65.0            |       | 64.7        |       |
| Paid-in capital                                       |       | 726.9           |       | 717.7       |       |
| Retained earnings                                     |       | 828.0           |       | 961.2       |       |
| Accumulated comprehensive loss:                       |       |            |       |        |       |
| Foreign currency translation                          |       | 47.8            |       | 48.4        |       |
| Derivatives qualifying as hedges                      |       | —          |       | (0.1        | )          |
| Minimum pension liability                             |       | (77.3           | )          | (77.3       | )          |
| Total shareholders’ investment                   |       | 1,590.4         |       | 1,714.6     |       |
|                                                  |       |            |       |        |       |
|                                                  |       | $               | 3,606.3    |        | $          | 3,756.2 |   |
|                                                       |            |                 |            |             |            |  |  |  |

 

*See Notes to the InterimConsolidated Financial Statements on page 6.*

 

4

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**Precision Castparts Corp. and Subsidiaries**

**Consolidated Statements of Cash Flows**

**(Unaudited)**

**(In millions)**

 
| ** **                                                                                            | ** ** | **Six Months Ended** | ** ** |
|-------------------------------------------------------------------------------------------------------|------------|----------------------|------------|
| ** **                                                                                            | ** ** | **9/26/04**          | ** ** | **9/28/03** | ** ** |
|                                                                                                  |       |                 |       |   |   |
| Cash flows from operating activities:                                                                 |       |                 |       |   |   |
| Net income from continuing operations                                                                 |       | $                    | 107.7      |   | $ | 60.1 |   |
| Non-cash items included in income:                                                                    |       |                 |       |   |   |
| Depreciation and amortization                                                                         |       | 47.0                 |       | 36.4 |   |
| Deferred income taxes                                                                                 |       | 14.1                 |       | 1.1 |   |
| Tax benefit from stock option exercises                                                               |       | 2.8                  |       | 1.2 |   |
| Changes in assets and liabilities,  excluding effects of acquisitions and dispositions of businesses: |       |                 |       |   |   |
| Receivables                                                                                           |       | (37.4                | )          | 1.6 |   |
| Inventories                                                                                           |       | (28.0                | )          | (18.6 | ) |
| Other current assets                                                                                  |       | 26.8                 |       | 19.6 |   |
| Payables, accruals and current taxes                                                                  |       | 3.0                  |       | (17.0 | ) |
| Other non-current assets and liabilities                                                              |       | (19.0                | )          | (13.7 | ) |
| Net cash provided by operating activities                                                             |       | 117.0                |       | 70.7 |   |
|                                                                                                  |       |                 |       |   |   |
| Cash flows from investing activities:                                                                 |       |                 |       |   |   |
| Capital expenditures                                                                                  |       | (25.4                | )          | (23.1 | ) |
| Acquisitions of businesses                                                                            |       | (1.4                 | )          | — |   |
| Proceeds from sales of businesses                                                                     |       | —               |       | 14.3 |   |
| Other                                                                                                 |       | 1.2                  |       | 3.4 |   |
| Net cash used by investing activities                                                                 |       | (25.6                | )          | (5.4 | ) |
|                                                                                                  |       |                 |       |   |   |
| Cash flows from financing activities:                                                                 |       |                 |       |   |   |
| Net change in short-term borrowings                                                                   |       | (5.0                 | )          | (23.4 | ) |
| Repayment of long-term debt                                                                           |       | (15.0                | )          | (40.0 | ) |
| Proceeds from exercise of stock options                                                               |       | 6.7                  |       | 4.9 |   |
| Cash dividends                                                                                        |       | (3.8                 | )          | (3.1 | ) |
| Other                                                                                                 |       | 1.7                  |       | (5.1 | ) |
| Net cash used by financing activities                                                                 |       | (15.4                | )          | (66.7 | ) |
|                                                                                                  |       |                 |       |   |   |
| Effect of exchange rate changes on cash and  cash equivalents                                         |       | 1.9                  |       | (0.1 | ) |
| Net cash provided by discontinued  operations                                                         |       | 4.0                  |       | 3.4 |   |
|                                                                                                  |       |                 |       |   |   |
| Net increase in cash and cash equivalents                                                             |       | 81.9                 |       | 1.9 |   |
| Cash and cash equivalents at beginning of  period                                                     |       | 80.3                 |       | 28.7 |   |
|                                                                                                  |       |                 |       |   |   |
| Cash and cash equivalents at end of period                                                            |       | $                    | 162.2      |   | $ | 30.6 |   |

 

*See Notes to the Interim Consolidated FinancialStatements on page 6.*

 

5

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**Notes to the Interim Consolidated FinancialStatements**

(Unaudited)

(In millions, except share and per share data)

 

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

 

The interim consolidated financial statements havebeen prepared by Precision Castparts Corp. (“PCC” or the “Company”), withoutaudit and subject to year-end adjustment, in accordance with generally acceptedaccounting principles, except that certain information and footnote disclosuresmade in the latest annual report have been condensed or omitted for the interimstatements.  Certain costs are estimatedfor the full year and allocated in interim periods based on estimates ofoperating time expired, benefit received, or activity associated with theinterim period.  The consolidatedfinancial statements reflect all adjustments, which are, in the opinion ofmanagement, necessary for a fair representation of the results for the interimperiods.  All adjustments are of a normalrecurring nature.  Certainreclassifications have been made to prior year amounts to conform to thecurrent year presentation.

 

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

 

The Company accounts for stock-basedemployee compensation in accordance with the provisions of APB Opinion No. 25, “Accountingfor Stock Issued 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** | ** ** | **Six Months Ended** | ** ** |
|-----------------------------------------------------------------------------------------------------------|------------|------------------------|------------|----------------------|------------|
| ** **                                                                                                | ** ** | **9/26/04**            | ** ** | **9/28/03**          | ** ** | **9/26/04** | ** ** | **9/28/03** | ** ** |
|                                                                                                      |       |                   |       |                 |       |   |   |   |   |
| Net (loss) income as reported                                                                             |       | $                      | (183.0     | )                    | $          | 14.5 |   | $ | (129.4 | ) | $ | 48.8 |   |
| Deduct: Stock-based compensation, net of  tax, as determined under fair value based method for all awards |       | (2.1                   | )          | (1.7                 | )          | (4.2 | ) | (5.4 | ) |
|                                                                                                      |       |                   |       |                 |       |   |   |   |   |
| Pro forma net (loss) income                                                                               |       | $                      | (185.1     | )                    | $          | 12.8 |   | $ | (133.6 | ) | $ | 43.4 |   |
|                                                                                                      |       |                   |       |                 |       |   |   |   |   |
| Net (loss) income per share – basic:                                                                 |       |                   |       |                 |       |   |   |   |   |
| Reported                                                                                                  |       | $                      | (2.82      | )                    | $          | 0.27 |   | $ | (2.00 | ) | $ | 0.92 |   |
| Pro forma                                                                                                 |       | $                      | (2.85      | )                    | $          | 0.24 |   | $ | (2.06 | ) | $ | 0.82 |   |
|                                                                                                      |       |                   |       |                 |       |   |   |   |   |
| Net (loss) income per share – diluted:                                                               |       |                   |       |                 |       |   |   |   |   |
| Reported                                                                                                  |       | $                      | (2.76      | )                    | $          | 0.27 |   | $ | (1.96 | ) | $ | 0.91 |   |
| Pro forma                                                                                                 |       | $                      | (2.80      | )                    | $          | 0.24 |   | $ | (2.02 | ) | $ | 0.81 |   |

 

6

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

 

OnDecember 9, 2003, PCC acquired 100 percent of the outstandingshares of common stock of SPS Technologies, Inc. (“SPS”).  The results of SPS’s operations have beenincluded in the consolidated financial statements since that date.  The aggregate purchase price was $728.8million, which included $294.2 million of cash, PCC common stock valued at $425.1million, and $9.5 million of cash paid for transaction fees.  The value of the 9.3 million shares of commonstock issued was determined based on the quoted market price of PCC’s commonstock on and around the date of the close of the transaction.

 

SPS is a supplier of fastenersand other metal products to the aerospace, automotive, and general industrialand other markets.  SPS’s former Specialty Materials and Alloys groupoperates as part of the Investment Cast Products segment.  A new segment, Fastener Products, comprisesmost of SPS’s former Aerospace Fasteners and Engineered Fasteners groups.  SPS’s former tool group operates as part ofthe Industrial Products segment.  Inaddition, three former SPS businesses – Magnetics, Mohawk, and Dacar – wereclassified as held for sale in the third quarter of fiscal 2004, and theirresults are included in discontinued operations.

 

The following summarizes theestimated fair values of the assets acquired and liabilities assumed at thedate of acquisition.  Since the date ofacquisition, the allocated goodwill increased by $8.1 million, primarily due torevised estimates of the fair value of the businesses classified as held forsale.

 
| ** **                                        | ** ** | **12/9/03** | ** ** |
|---------------------------------------------------|------------|-------------|------------|
|                                              |       |        |       |
| Current  assets                                   |       | $           | 354.7      |   |
| Property,  plant and equipment                    |       | 214.5       |       |
| Goodwill                                          |       | 645.4       |       |
| Intangible  assets                                |       | 6.3         |       |
| Other assets                                      |       | 19.8        |       |
| Total assets acquired                             |       | 1,240.7     |       |
| Notes  payable and current portion long-term debt |       | 19.4        |       |
| Other  current liabilities                        |       | 188.4       |       |
| Long-term  debt                                   |       | 186.7       |       |
| Other  long-term liabilities                      |       | 117.4       |       |
| Total liabilities assumed                         |       | 511.9       |       |
|                                              |       |        |       |
| Net assets acquired                               |       | $           | 728.8      |   |

 

The $6.3 million of acquired intangibleassets includes the following:

 
| ** **                    | ** ** | ** ** | ** ** | **Weighted-**   | ** ** |
|-------------------------------|------------|------------|------------|-----------------|------------|
| ** **                    | ** ** | ** ** | ** ** | **Average**     | ** ** |
| ** **                    | ** ** | **Amount** | ** ** | **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 $645.4 million of goodwillwas assigned to the Company’s segments as follows:

 
| Investment Cast Products |   | $      | 170.0  |   |
|--------------------------|--------|--------|--------|--------|
| Fastener Products        |   | 436.8  |   |
| Industrial Products      |   | 22.3   |   |
| Businesses held for sale |   | 16.3   |   |
|                     |   |   |   |
|                     |   | $      | 645.4  |   |

 

The goodwill is not deductiblefor tax purposes.

 

The following represents thepro forma results of the ongoing operations for PCC and SPS for the three andsix months ended September 28, 2003 as though the acquisition of SPS hadoccurred at the beginning of the period. The pro forma information is not necessarily indicative of the resultsthat would have occurred had the acquisition been completed at the beginning ofthe periods presented, nor is it necessarily indicative of future results.

 
| ** **                                 | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|--------------------------------------------|------------|------------------------|------------|----------------------|------------|
| ** **                                 | ** ** | **9/26/04**            | ** ** | **9/28/03**          | ** ** | **9/26/04** | ** ** | **9/28/03** | ** ** |
|                                       |       |                   |       |                 |       |   |   |   |   |
| Net sales                                  |       | $                      | 697.5      |                 | $          | 638.2 |   | $ | 1,365.6 |   | $ | 1,293.6 |   |
|                                       |       |                   |       |                 |       |   |   |   |   |
| Net (loss) income                          |       | $                      | (183.0     | )                    | $          | 19.9 |   | $ | (129.4 | ) | $ | 60.9 |   |
|                                       |       |                   |       |                 |       |   |   |   |   |
| Net (loss) income per share – basic   |       | $                      | (2.82      | )                    | $          | 0.32 |   | $ | (2.00 | ) | $ | 0.98 |   |
|                                       |       |                   |       |                 |       |   |   |   |   |
| Net (loss) income per share – diluted |       | $                      | (2.76      | )                    | $          | 0.31 |   | $ | (1.96 | ) | $ | 0.97 |   |

 

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

 

In the second quarter of fiscal2005, the Company entered into agreements to sell the pumps and valvesbusinesses of PCC Flow Technologies and reclassified the businesses held forsale from the Fluid Management Products segment to discontinuedoperations.  It was determined that thesebusinesses did not fit with the Company’s core competencies and strategicobjectives.  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 in the second quarter of fiscal 2005 resulted in a charge of $245.0million in the current quarter, of which $219.1 million was associated with thewrite-down of goodwill.  The remainderrelated to the write-down of inventory, other amortizable assets and machineryand equipment to fair value less cost to sell. Approximately $240.0 million of the charge was non-cash.

 

In the third quarter of fiscal2004, three businesses acquired in the SPS transaction-Magnetics, Mohawk, andDacar-were classified as held for sale and their results were included indiscontinued operations. They were classified as discontinued operationsbecause they were deemed to be non-core to the Company.  Dacar was sold in late September 2004 and theMagnetics and Mohawk businesses are currently being marketed.

 

In the second quarter of fiscal2004, the Company decided to sell Newmans, a valve distribution company of PCCFlow Technologies. It was determined that Newmans’ distribution business didnot fit with PCC’s manufacturing-focused operations and was not performing tothe Company’s expectations. The Company’s decision to sell Newmans resulted ina charge of $19.2 million related to the write-down of remaining inventory andproperty, plant and equipment to fair value less cost to sell, the write-downof account receivable and other current assets to net realizable value, and incrementalcosts directly related to the closure or sale of the businesses, such aspension, 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 incurredcharges associated with the closure or sale of certain businesses of PCC FlowTechnologies and the Industrial Products segment. The PCC Olofsson and Eldoradomachine businesses were closed and the Eldorado gundrill tooling business wassold. In addition, the Company sold its controlling interest in DesignTechnologies International (“DTI”) and certain intangible assets of Olofsson tominority shareholders of DTI. The closure or sale of these operations was inresponse to a steady and continual decline in the machine tool industry. Inaddition, PCC closed STW Composites (“STW”) as it was deemed to be a non-corebusiness to PCC. PCC also entered into agreements to sell Barber Industries andFastener Engineers & Lewis Machine (“FELM”) and began activelymarketing PCC Superior Fabrication for sale in the fourth quarter. BarberIndustries and FELM were both sold during the first quarter and PCC SuperiorFabrication was sold in the fourth quarter of fiscal 2004. The performance ofthese businesses was not consistent with the Company’s long-term strategy forprofitable growth.

 

The operating results of thesebusinesses are presented in the Company’s Consolidated Statements of Income asdiscontinued operations, net of income tax, and all prior periods have beenreclassified. The components of discontinued operations for the periodspresented are as follows:

 
| ** **                                                                         | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|------------------------------------------------------------------------------------|------------|------------------------|------------|----------------------|------------|
| ** **                                                                         | ** ** | **9/26/04**            | ** ** | **9/28/03**          | ** ** | **9/26/04** | ** ** | **9/28/03** | ** ** |
|                                                                               |       |                   |       |                 |       |   |   |   |   |
| Net sales                                                                          |       | $                      | 98.6       |                 | $          | 71.5 |   | $ | 198.1 |   | $ | 142.6 |   |
| Cost of goods sold                                                                 |       | 75.5                   |       | 55.2                 |       | 152.8 |   | 108.1 |   |
| Selling and administrative expenses                                                |       | 15.3                   |       | 15.7                 |       | 31.9 |   | 30.0 |   |
| Interest expense                                                                   |       | 0.1                    |       | —               |       | 0.2 |   | — |   |
| Restructuring                                                                      |       | —                 |       | 0.1                  |       | — |   | 0.1 |   |
|                                                                               |       |                   |       |                 |       |   |   |   |   |
| Net income from discontinued operations before  income taxes and minority interest |       | 7.7                    |       | 0.5                  |       | 13.2 |   | 4.4 |   |
| Income tax expense                                                                 |       | 2.8                    |       | 0.6                  |       | 4.8 |   | 2.8 |   |
| Minority Interest                                                                  |       | —                 |       | —               |       | — |   | (0.1 | ) |
|                                                                               |       |                   |       |                 |       |   |   |   |   |
| Net income (loss) from discontinued operations                                     |       | 4.9                    |       | (0.1                 | )          | 8.4 |   | 1.5 |   |
|                                                                               |       |                   |       |                 |       |   |   |   |   |
| Loss on disposal                                                                   |       | 245.1                  |       | 12.7                 |       | 245.5 |   | 12.8 |   |
|                                                                               |       |                   |       |                 |       |   |   |   |   |
| Net loss from discontinued operations                                              |       | $                      | (240.2     | )                    | $          | (12.8 | ) | $ | (237.1 | ) | $ | (11.3 | ) |

 

9

----

 

The following major classes of assets and liabilitiesare included in discontinued operations in the Consolidated Balance Sheetsafter adjustment for write-downs to fair value less cost to sell:

 
| ** **                             | ** ** | **9/26/04** | ** ** | **3/28/04** | ** ** |
|----------------------------------------|------------|-------------|------------|-------------|------------|
|                                   |       |        |       |        |       |
| Assets of discontinued operations      |       |        |       |        |       |
| Current assets                         |       | $           | 158.6      |        | $          | 168.5 |   |
| Net property, plant and equipment      |       | 86.0        |       | 92.8        |       |
| Other assets                           |       | 19.3        |       | 251.4       |       |
|                                   |       |        |       |        |       |
|                                   |       | $           | 263.9      |        | $          | 512.7 |   |
|                                   |       |        |       |        |       |
| Liabilities of discontinued operations |       |        |       |        |       |
| Short-term borrowings                  |       | $           | —     |        | $          | 0.9 |   |
| Long-term debt currently due           |       | —      |       | 0.1         |       |
| Other current liabilities              |       | 27.6        |       | 84.7        |       |
| Long-term debt                         |       | —      |       | 0.2         |       |
| Other liabilities                      |       | 21.7        |       | 22.9        |       |
|                                   |       |        |       |        |       |
|                                   |       | $           | 49.3       |        | $          | 108.8 |   |

 

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

 

No charges related torestructuring activities were recorded in the first or second quarters offiscal 2005.  During fiscal 2004, PCCrecorded provisions for restructuring and impairment of long-lived assetstotaling $10.9 million.  These chargesare summarized below:

 

TheCompany recorded $8.4 million of restructuring charges in the second quarter offiscal 2004 primarily for severance associated with headcount reductions ofapproximately 435 employees at PCC’s investment castings operations in theUnited Kingdom and the Company’s forging operations in the United Kingdom andHouston, Texas.  The reductions were in response to reduced demand forcommercial aerospace and industrial gas turbine products.

 

TheCompany recorded $0.3 million of restructuring charges in the fourth quarter offiscal 2004 to provide for severance associated with the consolidation of theReed-Rico thread-rolling facility in Holden, Massachusetts, into the newlyacquired SPS thread-rolling operations in Shannon, Ireland.  The restructuring plans called fortermination of approximately 100 employees through the second quarter of fiscal2005.  In conjunction with theconsolidation of the Reed-Rico and SPS thread-rolling operations, equipment atReed-Rico was written down to net realizable value, resulting in an impairmentcharge of $2.2 million.

 

Thefollowing table provides a rollforward of amounts included in accruedliabilities for restructuring reserves:

 
| ** ** | ** ** | **Balance at  3/28/04** | ** ** | **Cash  payments** | ** ** | **Non-cash  adjustments** | ** ** | **Balance at  9/26/04** | ** ** |
|------------|------------|-------------------------|------------|--------------------|------------|---------------------------|------------|-------------------------|------------|
| Severance  |       | $                       | 4.7        |               | $          | (2.0                      | )          | $                       | (0.3       | ) | $ | 2.4 |   |
| Other      |       | 0.3                     |       | —             |       | —                    |       | 0.3                     |       |
|       |       |                    |       |               |       |                      |       |                    |       |
|       |       | $                       | 5.0        |               | $          | (2.0                      | )          | $                       | (0.3       | ) | $ | 2.7 |   |

 

10

----

 

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

 

Inventories consisted of the following:

 
| ** **                 | ** ** | **9/26/04** | ** ** | **3/28/04** | ** ** |
|----------------------------|------------|-------------|------------|-------------|------------|
|                       |       |        |       |        |       |
| Finished goods             |       | $           | 127.1      |        | $          | 136.1 |   |
| Work-in-process            |       | 210.8       |       | 186.2       |       |
| Raw materials and supplies |       | 115.5       |       | 103.6       |       |
|                       |       | 453.4       |       | 425.9       |       |
| LIFO provision             |       | 27.0        |       | 27.7        |       |
|                       |       |        |       |        |       |
| Total inventory            |       | $           | 480.4      |        | $          | 453.6 |   |

 

**(7)****              Goodwill andAcquired Intangibles**

 

Effective April 1, 2002, the Company adopted Statementof Financial Accounting Standards (“SFAS”) No. 142, “Goodwill and OtherIntangible Assets.”  This statementchanged the accounting for goodwill and indefinite-lived intangible assets froman amortization approach to an impairment-only approach.  The SFAS No. 142 goodwill impairment model isa two-step approach that must be completed at least annually.  The first step of the model requires acomparison of the book value of net assets to the estimated fair value of therelated 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 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 other than for the pumps and valves businesses of PCC Flow Technologies.  As a result, no write-down for impairment of goodwill was required except for the write-down of goodwill associated with the decision to sell the pumps and valves businesses of PCC Flow Technologies.  See Note 4 for further discussion.

 

The changes in the carrying amount of goodwill byreportable segment for the six months ended September 26, 2004, were asfollows:

 
| ** **               | ** ** | **Balance at  3/28/04** | ** ** | **Acquired** | ** ** | **Currency  Translation  and Other** | ** ** | **Balance at  9/26/04** | ** ** |
|--------------------------|------------|-------------------------|------------|--------------|------------|--------------------------------------|------------|-------------------------|------------|
|                     |       |                    |       |         |       |                                 |       |                    |       |
| Investment Cast Products |       | $                       | 296.5      |         | $          | 0.8                                  |       | $                       | (0.1       | ) | $ | 297.2 |   |
| Forged Products          |       | 512.0                   |       | 1.0          |       | (1.3                                 | )          | 511.7                   |       |
| Fastener Products        |       | 424.0                   |       | 14.4         |       | —                               |       | 438.4                   |       |
| Industrial Products      |       | 169.3                   |       | —       |       | 0.1                                  |       | 169.4                   |       |
|                     |       |                    |       |         |       |                                 |       |                    |       |
| Total                    |       | $                       | 1,401.8    |         | $          | 16.2                                 |       | $                       | (1.3       | ) | $ | 1,416.7 |   |
|                          |            |                         |            |              |            |                                      |            |                         |            |  |  |  |  |  |

 

11

----

 

The gross carrying amount and accumulated amortizationof the Company’s acquired intangible assets were as follows:

 
| ** **                    | ** ** | **9/26/04**                 | ** ** | **3/28/04**                   | ** ** |
|-------------------------------|------------|-----------------------------|------------|-------------------------------|------------|
| ** **                    | ** ** | **Gross  Carrying  Amount** | ** ** | **Accumulated  Amortization** | ** ** | **Gross  Carrying  Amount** | ** ** | **Accumulated  Amortization** | ** ** |
|                          |       |                        |       |                          |       |   |   |   |   |
| Patents                       |       | $                           | 3.0        |                          | $          | 0.5 |   | $ | 3.0 |   | $ | 0.2 |   |
| Proprietary technology        |       | 2.4                         |       | 0.1                           |       | 2.4 |   | 0.1 |   |
| Tradenames                    |       | 0.8                         |       | —                        |       | 0.8 |   | — |   |
| Long-term customer agreements |       | 0.2                         |       | 0.1                           |       | 0.2 |   | — |   |
|                          |       |                        |       |                          |       |   |   |   |   |
|                          |       | $                           | 6.4        |                          | $          | 0.7 |   | $ | 6.4 |   | $ | 0.3 |   |

 

Amortization expense for acquired intangible assetsduring the second quarter of fiscal 2005 was $0.2 million.  Amortization expense related to finite-livedintangible assets is projected to total $0.9 million for fiscal 2005.  Projected amortization expense for thesucceeding five fiscal years is as follows:

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

 

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

 

In the ordinary course of business, the Companywarrants its products against defects in design, materials and workmanship overvarious time periods.  The warrantyaccrual as of September 26, 2004 and March 28, 2004 is immaterial to thefinancial position of the Company, and the change in the accrual for thecurrent quarter is immaterial to the Company’s results of operations and cashflows.

 

In conjunction with certain transactions, primarilydivestitures, the Company may provide routine indemnifications (e.g., retentionof previously existing environmental and tax liabilities) with terms that rangein duration and often are not explicitly defined.  Where appropriate, an obligation for suchindemnifications is recorded as a liability. Because the obligated amounts of these types of indemnifications oftenare not explicitly stated, the overall maximum amount of the obligation undersuch 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 numberof shares outstanding used to compute earnings per share were as follows:

 
| ** **                                    | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|-----------------------------------------------|------------|------------------------|------------|----------------------|------------|
| ** **                                    | ** ** | **9/26/04**            | ** ** | **9/28/03**          | ** ** | **9/26/04** | ** ** | **9/28/03** | ** ** |
|                                          |       |                   |       |                 |       |   |   |   |   |
| Basic weighted average shares outstanding     |       | 64.9                   |       | 52.9                 |       | 64.8 |   | 52.9 |   |
| Dilutive stock options                        |       | 1.3                    |       | 1.1                  |       | 1.2 |   | 0.9 |   |
| Average  shares outstanding assuming dilution |       | 66.2                   |       | 54.0                 |       | 66.0 |   | 53.8 |   |

 

Basic earnings per share are calculated based on theweighted average number of shares outstanding. Diluted earnings per share are computed based on that same number ofshares plus additional dilutive shares representing stock distributable understock option and employee stock purchase plans computed using the treasurystock method.

 

For the three and six months ending September 26,2004, stock options to purchase 0.02 and 0.9 million shares of common stock,respectively, were not dilutive.  Forboth the three and six months ended September 28, 2003, stock options topurchase 0.9 shares of common stock were not dilutive.  These shares were excluded from thecomputation of diluted earnings per share because to do so would have beenantidilutive.  These options could bedilutive in the future.

 

**(10)****       Comprehensive (Loss) Income**

 

Comprehensive (loss) income consisted of thefollowing:

 
| ** **                                                          | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|---------------------------------------------------------------------|------------|------------------------|------------|----------------------|------------|
| ** **                                                          | ** ** | **9/26/04**            | ** ** | **9/28/03**          | ** ** | **9/26/04** | ** ** | **9/28/03** | ** ** |
|                                                                |       |                   |       |                 |       |   |   |   |   |
| Net (loss) income                                                   |       | $                      | (183.0     | )                    | $          | 14.5 |   | $ | (129.4 | ) | $ | 48.8 |   |
|                                                                |       |                   |       |                 |       |   |   |   |   |
| Other comprehensive income (loss), net of  tax:                     |       |                   |       |                 |       |   |   |   |   |
|                                                                |       |                   |       |                 |       |   |   |   |   |
| Foreign currency translation adjustments                            |       | (0.3                   | )          | 6.3                  |       | (0.6 | ) | 21.9 |   |
|                                                                |       |                   |       |                 |       |   |   |   |   |
| Unrealized gain (loss) on derivatives:                              |       |                   |       |                 |       |   |   |   |   |
| Periodic revaluations, net of income tax of  $0, $0, $0 and $0.3    |       | —                 |       | 0.1                  |       | — |   | (0.7 | ) |
| Reclassified to income, net of income  tax of $0, $0.6, $0 and $1.2 |       | (0.1                   | )          | 1.7                  |       | (0.1 | ) | 3.3 |   |
|                                                                |       | (0.1                   | )          | 1.8                  |       | (0.1 | ) | 2.6 |   |
|                                                                |       |                   |       |                 |       |   |   |   |   |
| Total comprehensive (loss) income                                   |       | $                      | (183.4     | )                    | $          | 22.6 |   | $ | (130.1 | ) | $ | 73.3 |   |

 

13

----

 

**(11)****       Pensions and Other Postretirement Benefit Plans**

 

TheCompany and its subsidiaries sponsor many domestic and foreign defined benefitpension plans.  In addition, the Companyoffers postretirement medical benefits for certain eligible employees. Theseplans are more fully described in the “Notes to the Consolidated FinancialStatements” included in the Company’s Annual Report on Form 10-K for the yearended March 28, 2004.

 

The net periodic benefit costfor the Company’s pension plans consisted of the following components:

 
| ** **                         | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|------------------------------------|------------|------------------------|------------|----------------------|------------|
| ** **                         | ** ** | **9/26/04**            | ** ** | **9/28/03**          | ** ** | **9/26/04** | ** ** | **9/28/03** | ** ** |
|                               |       |                   |       |                 |       |   |   |   |   |
| Service cost                       |       | $                      | 6.3        |                 | $          | 5.0 |   | $ | 14.0 |   | $ | 10.0 |   |
| Interest cost                      |       | 13.0                   |       | 11.1                 |       | 27.8 |   | 22.2 |   |
| Expected return on plan assets     |       | (12.8                  | )          | (9.7                 | )          | (27.4 | ) | (19.4 | ) |
| Recognized net actuarial loss      |       | 2.5                    |       | 2.1                  |       | 5.2 |   | 4.2 |   |
| Amortization of prior service cost |       | 0.3                    |       | 0.3                  |       | 0.7 |   | 0.6 |   |
| Settlement/curtailment loss        |       | —                 |       | 1.0                  |       | — |   | 2.0 |   |
|                               |       |                   |       |                 |       |   |   |   |   |
| Net periodic benefit cost          |       | $                      | 9.3        |                 | $          | 9.8 |   | $ | 20.3 |   | $ | 19.6 |   |

 

The net periodic benefit costof postretirement benefits other than pensions consisted of the followingcomponents:

 
| ** **                | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|---------------------------|------------|------------------------|------------|----------------------|------------|
| ** **                | ** ** | **9/26/04**            | ** ** | **9/28/03**          | ** ** | **9/26/04** | ** ** | **9/28/03** | ** ** |
|                      |       |                   |       |                 |       |   |   |   |   |
| Service cost              |       | $                      | 0.1        |                 | $          | 0.1 |   | $ | 0.2 |   | $ | 0.2 |   |
| Interest cost             |       | 0.9                    |       | 1.1                  |       | 2.1 |   | 2.2 |   |
|                      |       |                   |       |                 |       |   |   |   |   |
| Net periodic benefit cost |       | $                      | 1.0        |                 | $          | 1.2 |   | $ | 2.3 |   | $ | 2.4 |   |

 

The Company madecontributions of $19.5 million to the defined benefit pension plans during thesecond quarter of fiscal year 2005. Projected contributions are expected to total approximately $90 millionfor fiscal year 2005.

 

**(12)****       New Accounting Pronouncements**

 

Thereare no new accounting standards that have not been adopted by the Company.

 

14

----

 

**(13)****       Segment Information**

 

The Company’s operations are classified into fourreportable business segments: Investment Cast Products, Forged Products,Fastener Products and Industrial Products. The change from five reportable segments to four reportable segments inthe current quarter is the result of the reclassification of the former FluidManagement Products segment to discontinued operations and the transfer ofE-One to the Industrial Products segment for all periods presented.  The Company’s four reportable businesssegments are identified separately based on fundamental differences in theiroperations.

 
| ** **                                        | ** ** | **Three Months Ended** | ** ** |
|---------------------------------------------------|------------|------------------------|------------|
| ** **                                        | ** ** | **9/26/04**            | ** ** | **9/28/03** | ** ** |
| Net sales:                                        |       |                   |       |   |   |
| Investment Cast Products                          |       | $                      | 326.3      |   | $ | 247.0 |   |
| Forged Products                                   |       | 147.3                  |       | 121.8 |   |
| Fastener Products                                 |       | 165.1                  |       | — |   |
| Industrial Products                               |       | 58.8                   |       | 43.7 |   |
| Total net sales                                   |       | $                      | 697.5      |   | $ | 412.5 |   |
|                                              |       |                   |       |   |   |
| Operating income (loss):                          |       |                   |       |   |   |
| Investment Cast Products                          |       | $                      | 61.0       |   | $ | 47.0 |   |
| Forged Products                                   |       | 18.7                   |       | 15.8 |   |
| Fastener Products                                 |       | 21.4                   |       | — |   |
| Industrial Products                               |       | 10.7                   |       | 8.2 |   |
| Corporate expense                                 |       | (11.0                  | )          | (7.0 | ) |
|                                              |       |                   |       |   |   |
| Total operating income                            |       | 100.8                  |       | 64.0 |   |
|                                              |       |                   |       |   |   |
| Provision for restructuring                       |       | —                 |       | 8.4 |   |
|                                              |       |                   |       |   |   |
| Interest expense, net                             |       | 14.8                   |       | 12.5 |   |
|                                              |       |                   |       |   |   |
| Income before income taxes and minority  interest |       | $                      | 86.0       |   | $ | 43.1 |   |

 
| ** **                                        | ** ** | **Six Months Ended** | ** ** |
|---------------------------------------------------|------------|----------------------|------------|
| ** **                                        | ** ** | **9/26/04**          | ** ** | **9/28/03** | ** ** |
| Net sales:                                        |       |                 |       |   |   |
| Investment Cast Products                          |       | $                    | 629.7      |   | $ | 491.5 |   |
| Forged Products                                   |       | 292.4                |       | 248.1 |   |
| Fastener Products                                 |       | 329.2                |       | — |   |
| Industrial Products                               |       | 114.3                |       | 86.3 |   |
| Total net sales                                   |       | $                    | 1,365.6    |   | $ | 825.9 |   |
|                                              |       |                 |       |   |   |
| Operating income (loss):                          |       |                 |       |   |   |
| Investment Cast Products                          |       | $                    | 116.0      |   | $ | 90.4 |   |
| Forged Products                                   |       | 37.1                 |       | 32.0 |   |
| Fastener Products                                 |       | 38.0                 |       | — |   |
| Industrial Products                               |       | 20.0                 |       | 15.7 |   |
| Corporate expense                                 |       | (19.8                | )          | (10.2 | ) |
|                                              |       |                 |       |   |   |
| Total operating income                            |       | 191.3                |       | 127.9 |   |
|                                              |       |                 |       |   |   |
| Provision for restructuring                       |       | —               |       | 8.4 |   |
|                                              |       |                 |       |   |   |
| Interest expense, net                             |       | 29.4                 |       | 25.4 |   |
| Income before income taxes and minority  interest |       | $                    | 161.9      |   | $ | 94.1 |   |
|                                                   |            |                      |            |  |  |  |  |  |  |

 

15

----

 
| ** **               | ** ** | **9/26/04** | ** ** | **3/28/04** | ** ** |
|--------------------------|------------|-------------|------------|-------------|------------|
| Total assets:            |       |        |       |        |       |
| Investment Cast Products |       | $           | 812.5      |        | $          | 776.5 |   |
| Forged Products          |       | 926.6       |       | 911.8       |       |
| Fastener Products        |       | 834.1       |       | 850.2       |       |
| Industrial Products      |       | 337.8       |       | 327.9       |       |
| Corporate                |       | 418.1       |       | 367.9       |       |
| Discontinued operations  |       | 277.2       |       | 521.9       |       |
| Total assets             |       | $           | 3,606.3    |        | $          | 3,756.2 |   |
|                          |            |             |            |             |            |  |  |  |  |

 

**(14)****       Condensed Consolidating Financial Statements**

 

Certain of the Company’s subsidiaries guarantee theCompany’s following registered securities: $200 million 5.6% Senior Notes due2013, $200 million 8.75% Senior Notes due 2005 and $150 million 6.75% SeniorNotes due 2007.  The following condensedconsolidating financial statements present, in separate columns, financialinformation for (i) Precision Castparts Corp. (on a parent only basis) with itsinvestment in its subsidiaries recorded under the equity method, (ii) guarantorsubsidiaries that guarantee the Company’s public and private notes and bankcredit facilities, 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 aconsolidated basis, and (v) the Company on a consolidated basis, in each caseas of September 26, 2004 and March 28, 2004 and for the three and six monthsended September 26, 2004 and September 28, 2003.  The Notes are fully andunconditionally guaranteed on a joint and several basis by each guarantor subsidiary. The guarantor subsidiaries include the Company’s domestic subsidiaries withinthe Investment Cast Products, Forged Products, Fastener Products and IndustrialProducts segments that are 100% owned, directly or indirectly, by the Companywithin the meaning of Rule 3-10(h)(1) of Regulation S-X.  There areno contractual restrictions limiting transfers of cash from guarantor and non-guarantor subsidiaries to the Company.  The condensed consolidatingfinancial statements are presented herein, rather than separate financialstatements for each of the guarantor subsidiaries, because management believesthat separate financial statements relating to the guarantor subsidiaries arenot material to investors.

 

16

----

 

Condensed ConsolidatingStatements of Income

Three Months EndedSeptember 26, 2004

(Unaudited)
| ** **                                             | ** ** | **Precision  Castparts  Corp.** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-  Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Total** | ** ** |
|--------------------------------------------------------|------------|---------------------------------|------------|-----------------------------|------------|-----------------------------------|------------|------------------|------------|-----------|------------|
|                                                   |       |                            |       |                        |       |                              |       |             |       |      |       |
| Net sales                                              |       | $                               | —     |                        | $          | 554.6                             |       | $                | 155.8      |      | $          | (12.9 | ) | $ | 697.5 |   |
| Cost of goods sold                                     |       | —                          |       | 423.6                       |       | 126.6                             |       | (12.9            | )          | 537.3     |       |
| Selling and administrative expenses                    |       | 10.9                            |       | 35.1                        |       | 13.4                              |       | —           |       | 59.4      |       |
| Other (income) expense                                 |       | (2.5                            | )          | —                      |       | 2.5                               |       | —           |       | —    |       |
| Interest expense (income), net                         |       | 6.6                             |       | 10.3                        |       | (2.1                              | )          | —           |       | 14.8      |       |
| Equity in earnings of subsidiaries                     |       | 171.6                           |       | 4.3                         |       | —                            |       | (175.9           | )          | —    |       |
|                                                   |       |                            |       |                        |       |                              |       |             |       |      |       |
| Income (loss) before income tax and minority  interest |       | (186.6                          | )          | 81.3                        |       | 15.4                              |       | 175.9            |       | 86.0      |       |
| Income tax (benefit) expense                           |       | (3.6                            | )          | 30.1                        |       | 2.0                               |       | —           |       | 28.5      |       |
| Minority interest                                      |       | —                          |       | —                      |       | (0.3                              | )          | —           |       | (0.3      | )          |
|                                                   |       |                            |       |                        |       |                              |       |             |       |      |       |
| Net income (loss) from continuing  operations          |       | (183.0                          | )          | 51.2                        |       | 13.1                              |       | 175.9            |       | 57.2      |       |
|                                                   |       |                            |       |                        |       |                              |       |             |       |      |       |
| Net loss from discontinued operations                  |       | —                          |       | (0.1                        | )          | (240.1                            | )          | —           |       | (240.2    | )          |
|                                                   |       |                            |       |                        |       |                              |       |             |       |      |       |
| Net (loss) income                                      |       | $                               | (183.0     | )                           | $          | 51.1                              |       | $                | (227.0     | )         | $          | 175.9 |   | $ | (183.0 | ) |

 

17

----

 

Condensed ConsolidatingStatements of Income

Three Months EndedSeptember 28, 2003

(Unaudited)

 
| ** **                                   | ** ** | **Precision** | ** ** | ** **       | ** ** | **Non-**         | ** ** | ** **       | ** ** | ** ** | ** ** |
|----------------------------------------------|------------|---------------|------------|------------------|------------|------------------|------------|------------------|------------|------------|------------|
| ** **                                   | ** ** | **Castparts** | ** ** | **Guarantor**    | ** ** | **Guarantor**    | ** ** | ** **       | ** ** | ** ** | ** ** |
| ** **                                   | ** ** | **Corp.**     | ** ** | **Subsidiaries** | ** ** | **Subsidiaries** | ** ** | **Eliminations** | ** ** | **Total**  | ** ** |
|                                         |       |          |       |             |       |             |       |             |       |       |       |
| Net sales                                    |       | $             | —     |             | $          | 342.5            |       | $                | 71.9       |       | $          | (1.9 | ) | $ | 412.5 |   |
| Cost of goods sold                           |       | —        |       | 257.7            |       | 59.1             |       | (1.9             | )          | 314.9      |       |
| Selling and administrative expenses          |       | 7.0           |       | 18.9             |       | 7.7              |       | —           |       | 33.6       |       |
| Provision for restructuring                  |       | —        |       | (0.2             | )          | 8.6              |       | —           |       | 8.4        |       |
| Other (income) expense                       |       | (1.9          | )          | —           |       | 1.9              |       | —           |       | —     |       |
| Interest expense (income), net               |       | 3.2           |       | 10.2             |       | (0.9             | )          | —           |       | 12.5       |       |
| Equity in earnings of subsidiaries           |       | (14.6         | )          | 2.7              |       | —           |       | 11.9             |       | —     |       |
|                                         |       |          |       |             |       |             |       |             |       |       |       |
| Income (loss) before Income taxes            |       | 6.3           |       | 53.2             |       | (4.5             | )          | (11.9            | )          | 43.1       |       |
| Income tax (benefit) expense                 |       | (8.2          | )          | 23.9             |       | —           |       | —           |       | 15.7       |       |
| Minority interest                            |       | —        |       | —           |       | (0.1             | )          | —           |       | (0.1       | )          |
|                                         |       |          |       |             |       |             |       |             |       |       |       |
| Net income (loss) from continuing operations |       | 14.5          |       | 29.3             |       | (4.6             | )          | (11.9            | )          | 27.3       |       |
|                                         |       |          |       |             |       |             |       |             |       |       |       |
| Net loss from discontinued operations        |       | —        |       | —           |       | (12.8            | )          | —           |       | (12.8      | )          |
|                                         |       |          |       |             |       |             |       |             |       |       |       |
| Net income (loss)                            |       | $             | 14.5       |             | $          | 29.3             |       | $                | (17.4      | )          | $          | (11.9 | ) | $ | 14.5 |   |

 

18

----

 

Condensed ConsolidatingStatements of Income

Six Months EndedSeptember 26, 2004

(Unaudited)

 
| ** **                                             | ** ** | **Precision** | ** ** | ** **       | ** ** | **Non-**         | ** ** | ** **       | ** ** | ** ** | ** ** |
|--------------------------------------------------------|------------|---------------|------------|------------------|------------|------------------|------------|------------------|------------|------------|------------|
| ** **                                             | ** ** | **Castparts** | ** ** | **Guarantor**    | ** ** | **Guarantor**    | ** ** | ** **       | ** ** | ** ** | ** ** |
| ** **                                             | ** ** | **Corp.**     | ** ** | **Subsidiaries** | ** ** | **Subsidiaries** | ** ** | **Eliminations** | ** ** | **Total**  | ** ** |
|                                                   |       |          |       |             |       |             |       |             |       |       |       |
| Net sales                                              |       | $             | —     |             | $          | 1,084.3          |       | $                | 308.6      |       | $          | (27.3 | ) | $ | 1,365.6 |   |
| Cost of goods sold                                     |       | —        |       | 832.9            |       | 250.7            |       | (27.3            | )          | 1,056.3    |       |
| Selling and administrative expenses                    |       | 19.8          |       | 71.5             |       | 26.7             |       | —           |       | 118.0      |       |
| Other (income) expense                                 |       | (5.3          | )          | —           |       | 5.3              |       | —           |       | —     |       |
| Interest expense (income), net                         |       | 13.3          |       | 20.0             |       | (3.9             | )          | —           |       | 29.4       |       |
| Equity in earnings of subsidiaries                     |       | 113.9         |       | 6.4              |       | —           |       | (120.3           | )          | —     |       |
|                                                   |       |          |       |             |       |             |       |             |       |       |       |
| Income (loss) before income tax and  minority interest |       | (141.7        | )          | 153.5            |       | 29.8             |       | 120.3            |       | 161.9      |       |
|                                                   |       |          |       |             |       |             |       |             |       |       |       |
| Income tax (benefit) expense                           |       | (12.3         | )          | 59.4             |       | 6.3              |       | —           |       | 53.4       |       |
| Minority interest                                      |       | —        |       | —           |       | (0.8             | )          | —           |       | (0.8       | )          |
|                                                   |       |          |       |             |       |             |       |             |       |       |       |
| Net income (loss) from continuing  operations          |       | (129.4        | )          | 94.1             |       | 22.7             |       | 120.3            |       | 107.7      |       |
|                                                   |       |          |       |             |       |             |       |             |       |       |       |
| Net loss from discontinued operations                  |       | —        |       | (0.1             | )          | (237.0           | )          | —           |       | (237.1     | )          |
|                                                   |       |          |       |             |       |             |       |             |       |       |       |
| Net (loss) income                                      |       | $             | (129.4     | )                | $          | 94.0             |       | $                | (214.3     | )          | $          | 120.3 |   | $ | (129.4 | ) |

 

19

----

 

Condensed ConsolidatingStatements of Income

Six Months EndedSeptember 28, 2003

(Unaudited)

 
| ** **                                               | ** ** | **Precision** | ** ** | ** **       | ** ** | **Non-**         | ** ** | ** **       | ** ** | ** ** | ** ** |
|----------------------------------------------------------|------------|---------------|------------|------------------|------------|------------------|------------|------------------|------------|------------|------------|
| ** **                                               | ** ** | **Castparts** | ** ** | **Guarantor**    | ** ** | **Guarantor**    | ** ** | ** **       | ** ** | ** ** | ** ** |
| ** **                                               | ** ** | **Corp.**     | ** ** | **Subsidiaries** | ** ** | **Subsidiaries** | ** ** | **Eliminations** | ** ** | **Total**  | ** ** |
|                                                     |       |          |       |             |       |             |       |             |       |       |       |
| Net sales                                                |       | $             | —     |             | $          | 679.4            |       | $                | 150.9      |       | $          | (4.4 | ) | $ | 825.9 |   |
| Cost of goods sold                                       |       | —        |       | 516.9            |       | 125.9            |       | (4.4             | )          | 638.4      |       |
| Selling and administrative expenses                      |       | 10.2          |       | 34.6             |       | 14.8             |       | —           |       | 59.6       |       |
| Provision for restructuring                              |       | —        |       | (0.2             | )          | 8.6              |       | —           |       | 8.4        |       |
| Other (income) expense                                   |       | (5.2          | )          | —           |       | 5.2              |       | —           |       | —     |       |
| Interest expense (income), net                           |       | 7.4           |       | 20.3             |       | (2.3             | )          | —           |       | 25.4       |       |
| Equity in earnings of subsidiaries                       |       | (49.5         | )          | 7.5              |       | —           |       | 42.0             |       | —     |       |
|                                                     |       |          |       |             |       |             |       |             |       |       |       |
| Income (loss) before income taxes and  minority interest |       | 37.1          |       | 100.3            |       | (1.3             | )          | (42.0            | )          | 94.1       |       |
| Income tax (benefit) expense                             |       | (11.7         | )          | 47.2             |       | (1.8             | )          | —           |       | 33.7       |       |
| Minority interest                                        |       | —        |       | —           |       | (0.3             | )          | —           |       | (0.3       | )          |
|                                                     |       |          |       |             |       |             |       |             |       |       |       |
| Net income (loss) from continuing  operations            |       | 48.8          |       | 53.1             |       | 0.2              |       | (42.0            | )          | 60.1       |       |
|                                                     |       |          |       |             |       |             |       |             |       |       |       |
| Net loss from discontinued operations                    |       | —        |       | (0.1             | )          | (11.2            | )          | —           |       | (11.3      | )          |
|                                                     |       |          |       |             |       |             |       |             |       |       |       |
| Net income (loss)                                        |       | $             | 48.8       |             | $          | 53.0             |       | $                | (11.0      | )          | $          | (42.0 | ) | $ | 48.8 |   |

 

20

----

 

Condensed ConsolidatingBalance Sheets

September26, 2004

(Unaudited)

 
| ** **                                           | ** ** | **Precision** | ** ** | ** **       | ** ** | **Non-**         | ** ** | ** **       | ** ** | ** ** | ** ** |
|------------------------------------------------------|------------|---------------|------------|------------------|------------|------------------|------------|------------------|------------|------------|------------|
| ** **                                           | ** ** | **Castparts** | ** ** | **Guarantor**    | ** ** | **Guarantor**    | ** ** | ** **       | ** ** | ** ** | ** ** |
| ** **                                           | ** ** | **Corp.**     | ** ** | **Subsidiaries** | ** ** | **Subsidiaries** | ** ** | **Eliminations** | ** ** | **Total**  | ** ** |
| **Assets**                                           |       |          |       |             |       |             |       |             |       |       |       |
| Current assets:                                      |       |          |       |             |       |             |       |             |       |       |       |
| Cash and cash equivalents                            |       | $             | 82.8       |             | $          | 3.4              |       | $                | 76.0       |       | $          | — |   | $ | 162.2 |   |
| Receivables                                          |       | 256.1         |       | 111.7            |       | 298.5            |       | (239.9           | )          | 426.4      |       |
| Inventories                                          |       | —        |       | 344.7            |       | 135.7            |       | —           |       | 480.4      |       |
| Prepaid expenses                                     |       | —        |       | 7.5              |       | 6.3              |       | —           |       | 13.8       |       |
| Income tax receivable                                |       | 4.8           |       | 8.3              |       | 4.6              |       | (13.0            | )          | 4.7        |       |
| Deferred income taxes                                |       | 2.4           |       | 50.5             |       | —           |       | (5.2             | )          | 47.7       |       |
| Discontinued operations                              |       | —        |       | 0.1              |       | 158.5            |       | —           |       | 158.6      |       |
|                                                 |       |          |       |             |       |             |       |             |       |       |       |
| Total current assets                                 |       | 346.1         |       | 526.2            |       | 679.6            |       | (258.1           | )          | 1,293.8    |       |
|                                                 |       |          |       |             |       |             |       |             |       |       |       |
| Property, plant and equipment, net                   |       | 1.2           |       | 465.5            |       | 212.5            |       | —           |       | 679.2      |       |
| Goodwill, net                                        |       | —        |       | 1,004.0          |       | 412.7            |       | —           |       | 1,416.7    |       |
| Deferred income taxes                                |       | 46.0          |       | —           |       | 49.4             |       | (76.3            | )          | 19.1       |       |
| Investments in subsidiaries                          |       | 2,300.2       |       | 294.5            |       | —           |       | (2,594.7         | )          | —     |       |
| Other assets                                         |       | 72.1          |       | 13.1             |       | 7.0              |       | —           |       | 92.2       |       |
| Discontinued operations                              |       | —        |       | 0.9              |       | 104.4            |       | —           |       | 105.3      |       |
|                                                 |       |          |       |             |       |             |       |             |       |       |       |
|                                                 |       | $             | 2,765.6    |             | $          | 2,304.2          |       | $                | 1,465.6    |       | $          | (2,929.1 | ) | $ | 3,606.3 |   |
|                                                 |       |          |       |             |       |             |       |             |       |       |       |
| **Liabilities and Shareholders Investment**          |       |          |       |             |       |             |       |             |       |       |       |
| Current liabilities:                                 |       |          |       |             |       |             |       |             |       |       |       |
| Short-term borrowings                                |       | $             | —     |             | $          | —           |       | $                | 7.7        |       | $          | — |   | $ | 7.7 |   |
| Long-term debt currently due                         |       | 276.8         |       | 0.6              |       | 1.4              |       | —           |       | 278.8      |       |
| Accounts payable                                     |       | 3.3           |       | 324.7            |       | 177.9            |       | (205.4           | )          | 300.5      |       |
| Accrued liabilities                                  |       | 30.4          |       | 185.8            |       | 94.4             |       | (1.1             | )          | 309.5      |       |
| Income taxes payable                                 |       | 48.0          |       | —           |       | —           |       | (13.0            | )          | 35.0       |       |
| Deferred income taxes                                |       | —        |       | —           |       | 5.2              |       | (5.2             | )          | —     |       |
| Discontinued operations                              |       | —        |       | 13.6             |       | 48.5             |       | (34.5            | )          | 27.6       |       |
|                                                 |       |          |       |             |       |             |       |             |       |       |       |
| Total current liabilities                            |       | 358.5         |       | 524.7            |       | 335.1            |       | (259.2           | )          | 959.1      |       |
|                                                 |       |          |       |             |       |             |       |             |       |       |       |
| Long-term debt                                       |       | 747.5         |       | 10.7             |       | 9.5              |       | —           |       | 767.7      |       |
| Pension and other postretirement benefit obligations |       | 64.0          |       | 93.5             |       | 57.5             |       | —           |       | 215.0      |       |
| Deferred tax liability                               |       | 5.2           |       | 71.1             |       | 7.8              |       | (76.3            | )          | 7.8        |       |
| Other long-term liabilities                          |       | —        |       | 35.7             |       | 8.9              |       | —           |       | 44.6       |       |
| Discontinued operations                              |       | —        |       | —           |       | 21.7             |       | —           |       | 21.7       |       |
|                                                 |       |          |       |             |       |             |       |             |       |       |       |
| Shareholders’ investment:                       |       |          |       |             |       |             |       |             |       |       |       |
| Common stock and paid-in capital                     |       | 791.9         |       | 1,644.1          |       | 1,074.7          |       | (2,718.8         | )          | 791.9      |       |
| Retained earnings                                    |       | 828.0         |       | (31.6            | )          | (69.4            | )          | 101.0            |       | 828.0      |       |
| Accumulated other comprehensive loss                 |       | (29.5         | )          | (44.0            | )          | 19.8             |       | 24.2             |       | (29.5      | )          |
|                                                 |       |          |       |             |       |             |       |             |       |       |       |
| Total shareholders’ investment                  |       | 1,590.4       |       | 1,568.5          |       | 1,025.1          |       | (2,593.6         | )          | 1,590.4    |       |
|                                                 |       |          |       |             |       |             |       |             |       |       |       |
|                                                 |       | $             | 2,765.6    |             | $          | 2,304.2          |       | $                | 1,465.6    |       | $          | (2,929.1 | ) | $ | 3,606.3 |   |

 

21

----

 

CondensedConsolidating Balance Sheets

March28 2004

 
| ** **                                            | ** ** | **Precision** | ** ** | ** **       | ** ** | **Non-**         | ** ** | ** **       | ** ** | ** ** | ** ** |
|-------------------------------------------------------|------------|---------------|------------|------------------|------------|------------------|------------|------------------|------------|------------|------------|
| ** **                                            | ** ** | **Castparts** | ** ** | **Guarantor**    | ** ** | **Guarantor**    | ** ** | ** **       | ** ** | ** ** | ** ** |
| ** **                                            | ** ** | **Corp.**     | ** ** | **Subsidiaries** | ** ** | **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 |   |

 

22

----

 

Condensed ConsolidatingStatements of Cash Flows

Six Months Ended September26, 2004

(Unaudited)

 
| ** **                                                    | ** ** | **Precision** | ** ** | ** **       | ** ** | **Non-**         | ** ** | ** **       | ** ** | ** ** | ** ** |
|---------------------------------------------------------------|------------|---------------|------------|------------------|------------|------------------|------------|------------------|------------|------------|------------|
| ** **                                                    | ** ** | **Castparts** | ** ** | **Guarantor**    | ** ** | **Guarantor**    | ** ** | ** **       | ** ** | ** ** | ** ** |
| ** **                                                    | ** ** | **Corp.**     | ** ** | **Subsidiaries** | ** ** | **Subsidiaries** | ** ** | **Eliminations** | ** ** | **Total**  | ** ** |
|                                                          |       |          |       |             |       |             |       |             |       |       |       |
| Net cash provided (used) by operating  activities             |       | $             | 61.5       |             | $          | 38.0             |       | $                | 30.0       |       | $          | (12.5 | ) | $ | 117.0 |   |
|                                                          |       |          |       |             |       |             |       |             |       |       |       |
| Capital expenditures                                          |       | (0.5          | )          | (17.8            | )          | (7.1             | )          | —           |       | (25.4      | )          |
| Acquisitions of businesses                                    |       | —        |       | —           |       | (1.4             | )          | —           |       | (1.4       | )          |
| Investments in subsidiaries                                   |       | (1.9          | )          | (17.0            | )          | 18.9             |       | —           |       | —     |       |
| Other investing activities, net                               |       | —        |       | (1.7             | )          | 2.9              |       | —           |       | 1.2        |       |
|                                                          |       |          |       |             |       |             |       |             |       |       |       |
| Net cash (used) provided by investing  activities             |       | (2.4          | )          | (36.5            | )          | 13.3             |       | —           |       | (25.6      | )          |
|                                                          |       |          |       |             |       |             |       |             |       |       |       |
| Net change in short-term borrowings                           |       | —        |       | —           |       | (5.0             | )          | —           |       | (5.0       | )          |
| Repayment of long-term debt                                   |       | (12.6         | )          | (0.5             | )          | (1.9             | )          | —           |       | (15.0      | )          |
| Proceeds from exercise of stock options                       |       | 6.7           |       | —           |       | —           |       | —           |       | 6.7        |       |
| Cash dividends                                                |       | (3.8          | )          | —           |       | —           |       | —           |       | (3.8       | )          |
| Other financing activities, net                               |       | 0.2           |       | 2.4              |       | (13.4            | )          | 12.5             |       | 1.7        |       |
|                                                          |       |          |       |             |       |             |       |             |       |       |       |
| Net cash (used) provided by financing  activities             |       | (9.5          | )          | 1.9              |       | (20.3            | )          | 12.5             |       | (15.4      | )          |
|                                                          |       |          |       |             |       |             |       |             |       |       |       |
| Effect of exchange rate changes on cash and  cash equivalents |       | —        |       | —           |       | 1.9              |       | —           |       | 1.9        |       |
|                                                          |       |          |       |             |       |             |       |             |       |       |       |
| Net cash used by discontinued operations                      |       | —        |       | —           |       | 4.0              |       | —           |       | 4.0        |       |
|                                                          |       |          |       |             |       |             |       |             |       |       |       |
| Net increase in cash and cash equivalents                     |       | 49.6          |       | 3.4              |       | 28.9             |       | —           |       | 81.9       |       |
|                                                          |       |          |       |             |       |             |       |             |       |       |       |
| Cash and cash equivalents at beginning of  year               |       | 33.2          |       | —           |       | 47.1             |       | —           |       | 80.3       |       |
|                                                          |       |          |       |             |       |             |       |             |       |       |       |
| Cash and cash equivalents at end of year                      |       | $             | 82.8       |             | $          | 3.4              |       | $                | 76.0       |       | $          | — |   | $ | 162.2 |   |

 

23

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Condensed ConsolidatingStatements of Cash Flows

Six Months EndedSeptember 28, 2003

(Unaudited)

 
| ** **                                                    | ** ** | **Precision** | ** ** | ** **       | ** ** | **Non-**         | ** ** | ** **       | ** ** | ** ** | ** ** |
|---------------------------------------------------------------|------------|---------------|------------|------------------|------------|------------------|------------|------------------|------------|------------|------------|
| ** **                                                    | ** ** | **Castparts** | ** ** | **Guarantor**    | ** ** | **Guarantor**    | ** ** | ** **       | ** ** | ** ** | ** ** |
| ** **                                                    | ** ** | **Corp.**     | ** ** | **Subsidiaries** | ** ** | **Subsidiaries** | ** ** | **Eliminations** | ** ** | **Total**  | ** ** |
|                                                          |       |          |       |             |       |             |       |             |       |       |       |
| Net cash provided (used) by operating  activities             |       | $             | 34.9       |             | $          | 59.9             |       | $                | 37.0       |       | $          | (61.1 | ) | $ | 70.7 |   |
|                                                          |       |          |       |             |       |             |       |             |       |       |       |
| Capital expenditures                                          |       | (0.2          | )          | (14.9            | )          | (8.0             | )          | —           |       | (23.1      | )          |
| Investments in subsidiaries                                   |       | —        |       | (42.0            | )          | —           |       | 42.0             |       | —     |       |
| Other                                                         |       | 14.3          |       | —           |       | 3.4              |       | —           |       | 17.7       |       |
|                                                          |       |          |       |             |       |             |       |             |       |       |       |
| Net cash provided (used) by investing  activities             |       | 14.1          |       | (56.9            | )          | (4.6             | )          | 42.0             |       | (5.4       | )          |
|                                                          |       |          |       |             |       |             |       |             |       |       |       |
| Repayment of long-term debt                                   |       | (40.0         | )          | —           |       | —           |       | —           |       | (40.0      | )          |
| Net change in short-term borrowings                           |       | —        |       | —           |       | (23.4            | )          | —           |       | (23.4      | )          |
| Common stock issued                                           |       | 4.9           |       | (3.8             | )          | 11.3             |       | (7.5             | )          | 4.9        |       |
| Cash dividends                                                |       | (3.1          | )          | —           |       | —           |       | —           |       | (3.1       | )          |
| Other                                                         |       | (11.6         | )          | 2.6              |       | (22.7            | )          | 26.6             |       | (5.1       | )          |
|                                                          |       |          |       |             |       |             |       |             |       |       |       |
| Net cash (used) provided by financing  activities             |       | (49.8         | )          | (1.2             | )          | (34.8            | )          | 19.1             |       | (66.7      | )          |
|                                                          |       |          |       |             |       |             |       |             |       |       |       |
| Effect of exchange rate changes on cash and  cash equivalents |       | —        |       | —           |       | (0.1             | )          | —           |       | (0.1       | )          |
|                                                          |       |          |       |             |       |             |       |             |       |       |       |
| Net cash provided (used) by discontinued  operations          |       | —        |       | 0.1              |       | 3.3              |       | —           |       | 3.4        |       |
|                                                          |       |          |       |             |       |             |       |             |       |       |       |
| Net (decrease) increase in cash and cash  equivalents         |       | (0.8          | )          | 1.9              |       | 0.8              |       | —           |       | 1.9        |       |
|                                                          |       |          |       |             |       |             |       |             |       |       |       |
| Cash and cash equivalents at beginning of  year               |       | 7.5           |       | 0.1              |       | 21.1             |       | —           |       | 28.7       |       |
|                                                          |       |          |       |             |       |             |       |             |       |       |       |
| Cash and cash equivalents at end of year                      |       | $             | 6.7        |             | $          | 2.0              |       | $                | 21.9       |       | $          | — |   | $ | 30.6 |   |

 

24

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**Item 2.****                     Management’sDiscussion and Analysis of Financial Condition and Results of Operations**

 

**Consolidated Results of Operations - ComparisonBetween Three Months Ended September 26, 2004 and September 28, 2003**

 
| ** **                                                      | ** ** | **Three Months Ended** | ** ** | **Inc/(Dec)** | ** ** |
|-----------------------------------------------------------------|------------|------------------------|------------|---------------|------------|
| ** **                                                      | ** ** | **9/26/04**            | ** ** | **9/28/03**   | ** ** | **$** | ** ** | **%** | ** ** |
|                                                            |       |                   |       |          |       |   |   |   |   |   |   |   |
| Net sales                                                       |       | $                      | 697.5      |          | $          | 412.5 |   | $ | 285.0 |   | 69.1 | % |
| Cost of goods sold                                              |       | 537.3                  |       | 314.9         |       | 222.4 |   | 70.6 |   |
| Selling and administrative expenses                             |       | 59.4                   |       | 33.6          |       | 25.8 |   | 76.8 |   |
| Provision for restructuring                                     |       | —                 |       | 8.4           |       | (8.4 | ) | n/a |   |
| Interest expense, net                                           |       | 14.8                   |       | 12.5          |       | 2.3 |   | 18.4 |   |
| Income before income taxes and minority  interest               |       | 86.0                   |       | 43.1          |       | 42.9 |   | 99.5 |   |
| Income tax expense                                              |       | 28.5                   |       | 15.7          |       | 12.8 |   | 81.5 |   |
| *Effective tax rate*                                            | * *   | *33.1*                 | *%*        | *36.4*        | %          |   |   |   |   |
| Minority interest                                               |       | (0.3                   | )          | (0.1          | )          | (0.2 | ) | (200.0 | ) |
| Net income from continuing operations                           |       | 57.2                   |       | 27.3          |       | 29.9 |   | 109.5 |   |
| Net loss from discontinued operations                           |       | (240.2                 | )          | (12.8         | )          | (227.4 | ) | (1,776.6 | ) |
| Net (loss) income                                               |       | $                      | (183.0     | )             | $          | 14.5 |   | $ | (197.5 | ) | (1,362.1 | )% |
| Net income per share from continuing  operations – diluted |       | $                      | 0.86       |          | 0.51       |   | $ | 0.35 |   | 68.6 | % |
| Net loss per share from discontinued  operations – diluted |       | (3.62                  | )          | (0.24         | )          | (3.38 | ) | (1,408.3 | ) |
| Net (loss) income per share - diluted                           |       | $                      | (2.76      | )             | $          | 0.27 |   | $ | (3.03 | ) | (1,122.2 | )% |

 

Sales for the second quarter of fiscal 2005 were$697.5 million, up $285.0 million, or 69.1 percent from $412.5 million in thesame quarter last year.  The addition ofthe SPS businesses contributed to the increase in sales, as well as improvedeconomic conditions in the aerospace and power generation markets, which led toincreased sales in the Investment Cast Products and Forged Productssegments.  According to JSA Research,commercial aircraft deliveries are forecast to increase approximately 13percent in calendar year 2005 from calendar year 2004 compared with decliningdeliveries since calendar year 2001.  Inaddition, continued expansion of the Company’s metal injection moldingtechnology in the automotive sector and strength in the pulp and paper marketcontributed to higher sales in the Industrial Products segment.

 

Net income from continuing operations for the secondquarter of fiscal 2005 was $57.2 million, or $0.86 per share (diluted).  By comparison, net income from continuingoperations for the second quarter of fiscal 2004 was $27.3 million, or $0.51per share (diluted).  Net loss (afterdiscontinued operations) for the second quarter of fiscal 2005 was $183.0 million,or $2.76 per share (diluted), compared with net income of $14.5 million, or$0.27 per share (diluted), in the same period last year.  The net loss for the current quarter includeda charge of $245.0 million, or $3.70 per share (diluted), in connection withthe Company’s decision to sell the pumps and valves businesses of PCC FlowTechnologies.

 

***Interest and IncomeTax***

 

Net interest expense for the second quarter of fiscal2005 was $14.8 million, compared with $12.5 million for the second quarter lastyear. The higher expense is primarily due to higher debt levels compared to thesame quarter last year as a result of debt issued to finance the acquisition ofSPS.

 

The effective tax rate for the first quarter of fiscal2005 was 33.1 percent, 3.3 percentage points lower than the 36.4 percent effectiverate in the same quarter last year.  Thisimprovement is primarily due to the implementation of tax strategies related toprior year restructuring activities in Europe.

 

25

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***Restructuring***

 

The Company recorded $8.4 million of restructuringcharges in the second quarter of fiscal 2004 primarily for severance associatedwith headcount reductions at PCC’s investment casting operations in the UnitedKingdom and the Company’s forging operations in the United Kingdom and Houston,Texas.  The reductions were in responseto reduced demand for commercial aerospace and industrial gas turbine products.

 

The Company continuously assesses its cost structureto ensure that operations are properly sized for prevailing marketconditions.  In connection with thesereviews, no plans have been approved to incur restructuring charges in fiscal2005.

 

***DiscontinuedOperations***

 

Net loss from discontinued operations was $240.2million, or $3.62 per share (diluted), in the second quarter of fiscal 2005compared with a net loss of $12.8 million, or $0.24 per share (diluted), in thesame quarter last year.  In the secondquarter of fiscal 2005, the Company entered into agreements to sell the pumpsand valves businesses of PCC Flow Technologies and reclassified the businessesheld for sale from the Fluid Management Products segment to discontinuedoperations.  It was determined that thesebusinesses did not fit with the Company’s core competencies and strategicobjectives.  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 valvesbusiness in the second quarter resulted in a charge of $245.0 million, or $3.70per share (diluted), of which $219.0 million was associated with the write-downof goodwill.  The remainder related tothe write-down of inventory, other amortizable assets and machinery and equipmentto fair value less cost to sell.  Approximately$240.0 million of the charge was non-cash.

 

In connection with the SPS acquisition, threebusinesses – Magnetics, Mohawk, and Dacar – were classified as held for sale inthe third quarter of fiscal 2004.  Dacarwas sold in late September 2004 and the Magnetics and Mohawk businesses arecurrently being marketed.

 

The charge to discontinued operations in the secondquarter of last year principally reflects the write-down of assets at Newmans,a business unit of PCC Flow Technologies that was sold in December 2003.

 

26

----

 

**Results of Operations by Segment – ComparisonBetween Three Months Ended September 26, 2004 and September 28, 2003**

 
| ** **                                        | ** ** | **Three Months Ended** | ** ** | **Inc/(Dec)** | ** ** |
|---------------------------------------------------|------------|------------------------|------------|---------------|------------|
| ** **                                        | ** ** | **9/26/04**            | ** ** | **9/28/03**   | ** ** | **$** | ** ** | **%** | ** ** |
| Net sales:                                        |       |                   |       |          |       |   |   |   |   |
| Investment Cast Products                          |       | $                      | 326.3      |          | $          | 247.0 |   | $ | 79.3 |   | 32.1 | % |
| Forged Products                                   |       | 147.3                  |       | 121.8         |       | 25.5 |   | 20.9 |   |
| Fastener Products                                 |       | 165.1                  |       | —        |       | 165.1 |   | n/a |   |
| Industrial Products                               |       | 58.8                   |       | 43.7          |       | 15.1 |   | 34.6 |   |
| Consolidated net sales                            |       | $                      | 697.5      |          | $          | 412.5 |   | $ | 285.0 |   | 69.1 | % |
| Operating income (loss):                          |       |                   |       |          |       |   |   |   |   |
| Investment Cast Products                          |       | $                      | 61.0       |          | $          | 47.0 |   | $ | 14.0 |   | 29.8 | % |
| *% of sales*                                      | * *   | *18.7*                 | *%*        | *19.0*        | %          |   |   |   |   |
| Forged Products                                   |       | 18.7                   |       | 15.8          |       | 2.9 |   | 18.4 |   |
| *% of sales*                                      | * *   | *12.7*                 | *%*        | *13.0*        | %          |   |   |   |   |
| Fastener Products                                 |       | 21.4                   |       | —        |       | 21.4 |   | n/a |   |
| *% of sales*                                      | * *   | *13.0*                 | *%*        | *na*          |       |   |   |   |   |
| Industrial Products                               |       | 10.7                   |       | 8.2           |       | 2.5 |   | 30.5 |   |
| *% of sales*                                      | * *   | *18.2*                 | *%*        | *18.8*        | %          |   |   |   |   |
| Corporate expense                                 |       | (11.0                  | )          | (7.0          | )          | (4.0 | ) | 57.1 |   |
| Consolidated segment operating income             |       | 100.8                  |       | 64.0          |       | 36.8 |   | 57.5 | % |
| *% of sales*                                      | * *   | *14.5*                 | *%*        | *15.5*        | %          |   |   |   |   |
| Provision for restructuring                       |       | —                 |       | 8.4           |       |   |   |   |   |
| Interest expense, net                             |       | 14.8                   |       | 12.5          |       |   |   |   |   |
| Income before income taxes and minority  interest |       | $                      | 86.0       |          | $          | 43.1 |   |   |   |   |   |

 

***Investment CastProducts***

 

Investment Cast Products’ sales increased 32.1 percentfrom $247.0 million in the second quarter of fiscal 2004 to $326.3 million thisyear.  Operating income increased 29.8percent from $47.0 million in the second quarter of fiscal 2004 to $61.0million in the same quarter this year, while operating income as a percent ofsales decreased slightly from 19.0 percent to 18.7 percent of sales.  The segment’s sales benefited from theaddition of the SPS Specialty Materials and Alloys Group (“SMAG”), which wasacquired in December 2003, as well as continued recovery in the aerospace andIGT aftermarket sectors.  The operatingincome improvement reflected the impact of the higher sales volume, partiallyoffset by higher raw material prices, mainly nickel and cobalt, which haveincreased approximately 50 percent and 130 percent, respectively, on the LondonMetal Exchange (LME) and Metal Bulletin COFM.8 Index (Bloomberg) compared tothe same quarter last year.  The slightdecline in operating margins was mainly due to the incorporation of the lower-marginSPS business and the impact of higher raw material prices, partially offset byleverage from higher sales volumes in the base businesses.

 

Sales within this segment areexpected to benefit from improving conditions in the aerospace and power generationmarkets through the remainder of fiscal 2005. The leverage from higher volumes should result in measured improvementin operating margins through the remainder of fiscal 2005.

 

27

----

 

***Forged Products***

 

Forged Products’ sales were $147.3 million for thequarter, an increase of 20.9 percent, compared to sales of $121.8 million inthe second quarter of fiscal 2004. Operating income increased 18.4 percent from $15.8 million in the secondquarter of fiscal 2004 to $18.7 million in the same quarter this year, whileoperating income as a percent of sales decreased slightly from 13.0 percent to12.7 percent of sales.  The higher saleswere primarily due to increased demand for aerospace products and continued penetrationinto the Chinese power generation market with higher sales of extrudedpipe.  Operating income as a percent ofsales benefited in the current quarter from the higher volume, but was lowerthan last year due to higher material costs, mainly nickel and titanium, whichhave increased approximately 50 percent and 6 percent, respectively, on the LMEand Metal Bulletin TI1225 Index (Bloomberg) since the second quarter of fiscal2004.  The second quarter of fiscal 2004included a $6.8 million benefit to operating income for settlement of anagreement between Wyman-Gordon and a metal supplier.

 

Sales for the remainder offiscal 2005 within the Forged Products segment are expected to benefit fromstrong demand for seamless pipe used for energy plant construction, as well ascontinued improvement in the aerospace after-market.  While operating income will benefit from thehigher sales volume, operating income as a percent of sales will be tempereddue to the impact of higher material costs.

 

***Fastener Products***

 

TheFastener Products segment is primarily comprised of SPS’s former AerospaceFasteners and Engineered Fasteners groups that were acquired in December2003.  The segment reported $165.1million of sales with operating income of $21.4 million, or 13.0 percent ofsales, in the second quarter of fiscal 2005. The segment is being favorably impacted by strong aerospace aftermarketsales and continues to benefit from opportunities for market share gainsat major aerospace customers, partially offset by a seasonal decrease inautomotive sales.  Cost take-outs andimproved manufacturing processes have significantly improved operating marginssince the acquisition of SPS.  Synergiesare larger than originally planned and are being achieved sooner than expected.

 

Saleswithin this segment are expected to grow during the remainder of fiscal 2005,and operating margins should improve in future quarters due to continuingrealization of synergies, cost take-outs and leverage from increased sales.

 

***Industrial Products***

 

Industrial Products’ sales of $58.8 million for thesecond quarter of fiscal 2005 increased 34.6 percent from $43.7 million in thesame period last year.  Operating incomeimproved to $10.7 million in the second quarter of fiscal 2005 compared with$8.2 million in the same period last year. Although operating income improved, operating income as a percent ofsales declined to 18.2 percent in the second quarter of fiscal 2005 from 18.8percent in the same period last year. The increase in sales compared to last year reflects the addition ofsales from SPS’ Precision Tool Group, improving conditions in the aerospace andpulp and paper markets, as well as higher automotive sales to the Europeanmarket due to expansion of the Company’s metal injection molding technology.  The decline in operating margin as a percentof sales compared to the second quarter of fiscal 2004 is primarily due to theaddition of the SPS Precision Tool Group, which has lower margins compared to thebase businesses, plus the impact of increased administrative costs, partiallyoffset by leverage from the higher sales volumes in the base businesses.

 

The Industrial Products segmentis expected to benefit from the consolidation of the Reed-Rico and the SPStooling businesses, which will increase PCC’s worldwide share of the fastenertooling market.  Operating margins areexpected to increase as a result of improved cost structures and leverage fromhigher volume.

 

28

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**Consolidated Results of Operations - ComparisonBetween Six Months Ended September 26, 2004 and September 28, 2003**

 
| ** **                                                      | ** ** | **Six Months Ended** | ** ** | **Inc/(Dec)** | ** ** |
|-----------------------------------------------------------------|------------|----------------------|------------|---------------|------------|
| ** **                                                      | ** ** | **9/26/04**          | ** ** | **9/28/03**   | ** ** | **$** | ** ** | **%** | ** ** |
|                                                            |       |                 |       |          |       |   |   |   |   |   |   |   |
| Net sales                                                       |       | $                    | 1,365.6    |          | $          | 825.9 |   | $ | 539.7 |   | 65.3 | % |
| Cost of goods sold                                              |       | 1,056.3              |       | 638.4         |       | 417.9 |   | 65.5 |   |
| Selling and administrative expenses                             |       | 118.0                |       | 59.6          |       | 58.4 |   | 98.0 |   |
| Provision for restructuring                                     |       | —               |       | 8.4           |       | (8.4 | ) | n/a |   |
| Interest expense, net                                           |       | 29.4                 |       | 25.4          |       | 4.0 |   | 15.7 |   |
| Income before income taxes and minority  interest               |       | 161.9                |       | 94.1          |       | 67.8 |   | 72.1 |   |
| Income tax expense                                              |       | 53.4                 |       | 33.7          |       | 19.7 |   | 58.5 |   |
| *Effective tax rate*                                            | * *   | *33.0*               | *%*        | *35.8*        | *%*        |   |   |   |   |
| Minority interest                                               |       | (0.8                 | )          | (0.3          | )          | (0.5 | ) | (166.7 | ) |
| Net income from continuing operations                           |       | 107.7                |       | 60.1          |       | 47.6 |   | 79.2 |   |
| Net loss from discontinued operations                           |       | (237.1               | )          | (11.3         | )          | (225.8 | ) | (1,998.2 | ) |
| Net (loss) income                                               |       | $                    | (129.4     | )             | $          | 48.8 |   | $ | (178.2 | ) | (365.2 | )% |
| Net income per share from continuing  operations – diluted |       | $                    | 1.63       |          | 1.12       |   | $ | 0.51 |   | 45.5 | % |
| Net loss per share from discontinued  operations – diluted |       | (3.59                | )          | (0.21         | )          | (3.38 | ) | (1,609.5 | ) |
| Net (loss) income per share - diluted                           |       | $                    | (1.96      | )             | $          | 0.91 |   | $ | (2.87 | ) | (315.4 | )% |

 

Sales for the first six months of fiscal 2005 were$1,365.6 million, an increase of 65.3 percent from $825.9 million in the sameperiod last year.  The addition of theSPS businesses contributed to the increase in sales, as well as improvedeconomic conditions in the aerospace and power generation markets, which led toincreased sales in the Investment Cast Products and Forged Productssegments.  According to JSA Research,commercial aircraft deliveries are forecast to increase approximately 13percent in calendar year 2005 from calendar year 2004 compared to decliningdeliveries since calendar year 2001.  Inaddition, continued expansion of the Company’s metal injection moldingtechnology in the automotive sector and strength in the pulp and paper marketcontributed to higher sales in the Industrial Products segment.

 

Net income from continuing operations for the firstsix months of fiscal 2005 was $107.7 million, or $1.63 per share(diluted).  By comparison, net incomefrom continuing operations for the first six months of fiscal 2004 was $60.1million, or $1.12 per share (diluted), which included restructuring charges of$8.4 million, or $0.10 per share.  Netloss for the first six months of fiscal 2005 was $129.4 million, or $1.96 pershare (diluted), compared with net income of $48.8 million, or $0.91 per share(diluted), in the same period last year. The net loss for the current period included a charge of $245.0 million,or $3.70 per share (diluted), in connection with the Company’s decision to sellthe pumps and valves businesses of PCC Flow Technologies.

 

***Interest and IncomeTax***

 

Net interest expense for the six months endedSeptember 28, 2004 was $29.4 million, as compared with $25.4 million for thesame period last year.  The higherexpense is primarily due to higher debt levels compared to the same quarterlast year as a result of debt issued to finance the acquisition of SPS.

 

The effective tax rate for the first six months offiscal 2005 was 33.0 percent, as compared with 35.8 percent for the six monthsended September 28, 2003.  Thisimprovement is primarily due to the implementation of tax strategies related toprior year restructuring activities in Europe.

 

29

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***Restructuring***

 

The Company recorded $8.4 million of restructuringcharges in the second quarter of fiscal 2004 primarily for severance associatedwith headcount reductions at PCC’s investment casting operations in the UnitedKingdom and the Company’s forging operations in the United Kingdom and Houston,Texas.  The reductions were in responseto reduced demand for commercial aerospace and industrial gas turbine products.

 

The Company continuously assesses its cost structureto ensure that operations are properly sized for prevailing marketconditions.  In connection with thesereviews, no plans have been approved to incur charges for restructuring infiscal 2005.

 

***DiscontinuedOperations***

 

Net loss from discontinuedoperations was $237.1 million, or $3.59 per share (diluted), for the six monthsended September 28, 2004 compared with a net loss of $11.3 million, or $0.21per share diluted), in the same period last year.  In the second quarter of fiscal 2005, theCompany entered into agreements to sell the pumps and valves businesses of PCCFlow Technologies and reclassified the businesses held for sale from the FluidManagement Products segment to discontinued operations.  It was determined that these businesses didnot fit with the Company’s core competencies and strategic objectives.  The E-One sewer and detection systemoperation of the Fluid Management Products segment was retained and is nowincluded in the Industrial Products segment. PCC’s decision to sell the pumps and valves businesses resulted in acharge of $245.0 million, or $3.71 per share (diluted), in the first six monthsof fiscal 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.  Approximately $240.0million of the charge was non-cash.

 

In connection with the SPSacquisition, three businesses – Magnetics, Mohawk, and Dacar – were classifiedas held for sale in the third quarter of fiscal 2004.  Dacar was sold in late September 2004 and theMagnetics and Mohawk businesses are currently being marketed.

 

The charge to discontinuedoperations in the second quarter of last year principally reflects thewrite-down of assets at Newmans, a business unit of PCC Flow Technologies thatwas sold in December 2003.

 

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**Results of Operations by Segment – ComparisonBetween Six Months Ended September 26, 2004 and September 28, 2003**

 
| ** **                                        | ** ** | **Six Months Ended** | *** *** | **Inc/(Dec)** | ** **   |
|---------------------------------------------------|------------|----------------------|--------------|---------------|--------------|
| ** **                                        | ** ** | **9/26/04**          | ** **   | **9/28/03**   | *** *** | **$** | ** ** | **%** | ** ** |
|                                              |       |                 |         |          | * *     |   |   |   |   |
| Net sales:                                        |       |                 |         |          | * *     |   |   |   |   |
| Investment Cast Products                          |       | $                    | 629.7        |          | $            | 491.5 | * * | $ | 138.2 |   | 28.1 | % |
| Forged Products                                   |       | 292.4                |         | 248.1         | * *     | 44.3 |   | 17.9 |   |
| Fastener Products                                 |       | 329.2                |         | —        | * *     | 329.2 |   | n/a |   |
| Industrial Products                               |       | 114.3                |         | 86.3          | * *     | 28.0 |   | 32.4 |   |
| Consolidated net sales                            |       | $                    | 1,365.6      |          | $            | 825.9 | * * | $ | 539.7 |   | 65.3 | % |
| Operating income (loss):                          |       |                 |         |          | * *     |   |   |   |   |
| Investment Cast Products                          |       | $                    | 116.0        |          | $            | 90.4 | * * | $ | 25.6 |   | 28.3 | % |
| *% of sales*                                      | * *   | *18.4*               | *%*          | *18.4*        | *%*          |   |   |   |   |
| Forged Products                                   |       | 37.1                 |         | 32.0          | * *     | 5.1 |   | 15.9 |   |
| *% of sales*                                      | * *   | *12.7*               | *%*          | *12.9*        | *%*          |   |   |   |   |
| Fastener Products                                 |       | 38.0                 |         | —        | * *     | 38.0 |   | n/a |   |
| *% of sales*                                      | * *   | *11.5*               | *%*          | *na*          | * *     |   |   |   |   |
| Industrial Products                               |       | 20.0                 |         | 15.7          | * *     | 4.3 |   | 27.4 |   |
| *% of sales*                                      | * *   | *17.5*               | *%*          | *18.2*        | *%*          |   |   |   |   |
| Corporate expense                                 |       | (19.8                | )            | (10.2         | *)*          | (9.6 | ) | (94.1 | ) |
| Consolidated segment operating income             |       | 191.3                |         | 127.9         | * *     | 63.4 |   | 49.6 | % |
| *% of sales*                                      | * *   | *14.0*               | *%*          | *15.5*        | *%*          |   |   |   |   |
| Provision for restructuring                       |       | —               |         | 8.4           | * *     |   |   |   |   |
| Interest expense, net                             |       | 29.4                 |         | 25.4          | * *     |   |   |   |   |
| Income before income taxes and minority  interest |       | $                    | 161.9        |          | $            | 94.1 | * * |   |   |   |   |

 

***Investment Cast Products***

 

Investment Cast Products’ sales increased by 28.1percent, from $491.5 million in the first six months of fiscal 2004 to $629.7million this year.  Operating income forthe segment increased by 28.3 percent, from $90.4 million, or 18.4 percent ofsales, a year ago to $116.0 million, or 18.4 percent of sales, in the first sixmonths of fiscal 2005.  The segment’ssales benefited from the addition of the SPS Specialty Materials and AlloysGroup (“SMAG”), which was acquired in December 2003, as well as recoveringdemand from the aerospace and IGT aftermarket sectors.  The operating income improvement reflectedthe impact of the higher sales volume, partially offset by higher raw materialprices, mainly nickel and cobalt, which have increased approximately 50 percentand 145 percent, respectively, on the London Metal Exchange (LME) and MetalBulletin COFM.8 Index (Bloomberg) compared to the same six-month period lastyear.  The favorable impact on operatingmargins from the higher sales was offset by incorporation of the lower-marginSPS business and the impact of higher raw material prices.

 

***Forged Products***

 

Forged Products’ sales were $292.4 million for thefirst six months of fiscal 2005, an increase of 17.9 percent, compared to salesof $248.1 million in the same period last year. Operating income increased 15.9 percent from $32.0 million, or 12.9 percentof sales, in the first six months of fiscal 2004 to $37.1 million, or 12.7percent of sales, this year.  The highersales were primarily due to increased demand for aerospace products andcontinued penetration into the Chinese power generation market with highersales of extruded pipe.  Operating incomeas a percent of sales benefited from the higher volume, but was lower than lastyear due to higher material costs, mainly nickel and titanium, which haveincreased approximately 50 percent and 6 percent, respectively, on the LME andMetal Bulletin TI1225 Index (Bloomberg) since the first half of fiscal2004.  The first half of fiscal 2004included a $6.8 million benefit for settlement of an agreement betweenWyman-Gordon and a metal supplier.

 

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***Fastener Products***

 

TheFastener Products segment is primarily comprised of SPS’s former AerospaceFasteners and Engineered Fasteners groups that were acquired in December2003.  The segment reported $329.2million of sales with operating income of $38.0 million, or 11.5 percent ofsales, in the first half of fiscal 2005. The segment is being favorably impacted by strong aerospace aftermarketsales and continues to benefit from opportunities for market share gainsat major aerospace customers, partially offset by a seasonal decrease inautomotive sales.  Cost take-outs andimproved manufacturing processes have significantly improved operating marginssince the acquisition of SPS.  Synergiesare larger than originally planned and are being achieved sooner than expected.

 

***Industrial Products***

 

Industrial Products’ sales of $114.3 million for thefirst six months of fiscal 2005 increased $28.0 million, or 32.4 percent, from$86.3 million in the comparable prior year period.  Operating income was $20.0 million, or 17.5percent of sales, in the first six months of fiscal 2005, $4.3 million higherthan operating income of $15.7 million, or 18.2 percent of sales, in the sameperiod last year.  The sales increasereflects the addition of sales from SPS’ Precision Tool Group, improvingconditions in the aerospace market, as well as improvement in automotive salesto the European market due to expansion of the Company’s metal injectionmolding technology.  The decline inoperating income as a percent of sales compared to the first six months offiscal 2004 is primarily due to the addition of the SPS Precision Tool Group,which has lower margins compared to the base businesses, plus the impact ofincreased administrative costs, partially offset by leverage from the higher salesvolumes in the base businesses.

 

**Contractual Obligations and Commitments**

** **

There have been no significant changes in contractualobligations and commitments since previously disclosed in the annual report on Form10K.

 

**Changes in Financial Condition and Liquidity**

 

Total assets of $3,606.3 million at September 26, 2004represented a $149.9 million decrease from the $3,756.2 million balance atMarch 28, 2004.  Total capitalization atSeptember 26, 2004 was $2,644.6 million, consisting of $1,054.2 million of debtand $1,590.4 million of equity. The debt-to-capitalization ratio increased to39.9 percent from 37.7 percent at June 27, 2004 and 38.6 percent at the end offiscal 2004.  The higherdebt-to-capitalization ratio in the current quarter was caused by the reductionin retained earnings associated with the Company’s decision to sell the pumpsand valves businesses of PCC Flow Technologies.

 

Cash as of September 26, 2004 was $162.2 million, up$81.9 million from the end of fiscal 2004, and total debt was $1,054.2 million,down $23.3 million since the end of fiscal 2004, together reflecting positivecash flow of $105.2 million during the first six months of fiscal 2005.  Cash requirements for the first six months offiscal 2005 included $25.4 million for capital expenditures, $35.6 million forincreased working capital, $3.8 million for dividends, $1.4 million to buy theremaining interest in a consolidated joint venture, $4.0 million fromdiscontinued operations and $19.0 million for other operating activities,including $37.7 million of pension contributions ($30.0 million werevoluntary).  These requirements wereprincipally funded from $107.7 million of net income from continuing operationsadjusted for $47.0 million of depreciation and amortization and $16.9 millionof deferred taxes, $6.7 million from the sale of common stock through stockoption exercises and $4.8 million from other activities.

 

Capital spending during fiscal 2005 is expected to beslightly lower than capital spending in fiscal 2004, and will principallyprovide for maintenance, expansion, safety and cost reduction projects.  Company contributions to its defined benefitpension plans are expected to be approximately $90.0 million during fiscal2005, of which $60.0 million is voluntary.

 

Management believes that the Company can fundrequirements for working capital, pension and other postretirement benefitobligations, capital spending, cash dividends and potential acquisitions fromcash generated from operations, borrowing from existing or new bank creditfacilities, issuance of public or privately placed debt securities, or theissuance of equity securities.

 

 

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**Forward-Looking Statements**

 

Information included within this filing describing theprojected growth and future results and events constitutes forward-lookingstatements, within the meaning of the Private Securities Litigation Reform Actof 1995.  Actual results in futureperiods may differ materially from the forward-looking statements because of anumber of risks and uncertainties, including but not limited to fluctuations inthe aerospace, power generation, automotive, and other general industrialcycles; the relative success of the Company’s entry into new markets;competitive pricing; the financial viability of the Company’s significantcustomers; the availability and cost of energy, materials, supplies, andinsurance; the cost of pension benefits; equipment failures; relations with theCompany’s employees; the Company’s ability to manage its operating costs and tointegrate acquired businesses in an effective manner; governmental regulationsand environmental matters; risks associated with international operations andworld economies; the relative stability of certain foreign currencies; andimplementation of new technologies and process improvements.  Any forward-looking statements should beconsidered in light of these factors. The Company undertakes no obligation topublicly release any forward-looking information to reflect anticipated orunanticipated events or circumstances after the date of this document.

 

**Item 3.  Quantitative and Qualitative DisclosuresAbout Market Risk**

 

There have been no material changes to the Company’smarket risk exposure since March 28, 2004.

 

**Item 4.Controls and Procedures**

 

PCC Management, including the Chief Executive Officerand Chief Financial Officer, have conducted an evaluation of the effectivenessof disclosure controls and procedures as of the end of the period covered bythis report pursuant to Exchange Act Rule 13a-15(b).  Based on that evaluation, the Chief ExecutiveOfficer and Chief Financial Officer have concluded that the disclosure controlsand procedures are effective to ensure that information required to bedisclosed by the Company in reports filed with the Securities and ExchangeCommission is recorded, processed, summarized and reported on a timelybasis.  There have been no changes ininternal control over financial reporting that occurred during the last fiscalquarter that has materially effected, or is reasonably likely to materiallyaffect, the Company’s internal control over financial reporting.

 

**PART II.  OTHER INFORMATION**

 

**Item 1.  Legal Proceedings**

 

None.

 

**Item 2.  Unregistered Sales of Equity Securities andUse of Proceeds**

 

None.

 

**Item 3.  Defaults Upon Senior Securities**

 

None.

 

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**Item 4.  Submission of Matters to a Vote of SecurityHolders and Issuer Purchases of Securities**

 

(a)          TheCompany held its Annual Meeting of Shareholders on August 11, 2004.

 

(b)         TheShareholders voted as follows on the following matters:

 

1.               Electionof Directors.  The voting results foreach nominee is as follows:

 
| **Nominee**          | ** ** | **Votes For** | ** ** | **Votes Withheld** |
|----------------------|------------|---------------|------------|--------------------|
| Peter R. Bridenbaugh |       | 57,278,333    |       | 1,535,895          |
| Steven G. Rothmeier  |       | 58,602,249    |       | 211,979            |
| J. Frank Travis      |       | 58,597,399    |       | 216,829            |

 

Mr. Bridenbaugh,Mr. Rothmeier and Mr. Travis were elected to serve three-year terms.

 

2                  Ratificationof the appointment of Pricewaterhouse Coopers LLP as Independent Accountants.  The voting result is as follows:

 
| **Votes For** | ** ** | **Votes Withheld** |
|---------------|------------|--------------------|
| 58,155,706    |       | 658,522            |

 

**Item 5.  Other Information**

 

None.

 

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**Item 6.  Exhibits**

 

Exhibits

 

31.1                           Certificationof the Chief Executive Officer pursuant to Section 302 of the Sarbanes-OxleyAct of 2002.

 

31.2                           Certificationof the Chief Financial Officer pursuant to Section 302 of the Sarbanes-OxleyAct of 2002.

 

32.1                           Certificationof the Chief Executive Officer pursuant to Section 906 of the Sarbanes-OxleyAct of 2002.

 

32.2                           Certificationof the Chief Financial Officer pursuant to Section 906 of the Sarbanes-OxleyAct of 2002.

 

SIGNATURE

 

Pursuant to the requirements of the SecuritiesExchange Act of 1934, the registrant has duly caused this report to be signedon its behalf by the undersigned thereunto duly authorized.

 

 
|                   | PRECISION CASTPARTS CORP.                    |
|------------------------|----------------------------------------------|
|                   | Registrant                                   |
|                   |                                         |
|                   |                                         |
| DATE: November 5, 2004 | /s/ William D. Larsson                       |   |
|                   | William D. Larsson                           |
|                   | Senior Vice President and                    |
|                   | Chief Financial Officer                      |
|                   | (Principal Financial and Accounting Officer) |

 

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