**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

**FORM 10-Q**

 

**Quarterly Report Under Section 13or 15(d)**

**of the Securities Exchange Act of1934**

** **

**For the Quarter Ended July 3, 2005**

 

**Commission File No. 1-10348**

 

**Precision Castparts Corp.**

 

**An Oregon Corporation**

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

**4650 S.W. Macadam Avenue**

**Suite 440**

**Portland, Oregon 97239-4254**

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

 

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

 

Yes   ý     No   o

 

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

 

Yes   ý     No   o

 

Numberof shares of Common Stock, no par value, outstanding as of August 4, 2005:66,436,867

 

Note:      This 10-Q was filed electronically viaEDGAR with the Securities and Exchange Commission.

 

 

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**PART 1:  FINANCIALINFORMATION**

 

**Item 1.  FinancialStatements**

 

PrecisionCastparts Corp. and Subsidiaries

ConsolidatedStatements of Income

(Unaudited)

(Inmillions, except share and per share data)

 
| ** **                                        | ** ** | **Three Months Ended** | ** ** |
|---------------------------------------------------|------------|------------------------|------------|
| ** **                                        | ** ** | **7/03/05**            | ** ** | **6/27/04** | ** ** |
|                                              |       |                   |       |   |   |
| Net sales                                         |       | $                      | 854.6      |   | $ | 668.1 |   |
| Cost of goods sold                                |       | 662.3                  |       | 519.0 |   |
| Selling and administrative expenses               |       | 63.8                   |       | 58.6 |   |
| Interest expense, net                             |       | 10.6                   |       | 14.6 |   |
|                                              |       |                   |       |   |   |
| Income before income taxes and minority  interest |       | 117.9                  |       | 75.9 |   |
| Income tax expense                                |       | 39.9                   |       | 24.9 |   |
| Minority interest                                 |       | (0.3                   | )          | (0.5 | ) |
|                                              |       |                   |       |   |   |
| Net income from continuing operations             |       | 77.7                   |       | 50.5 |   |
| (Loss) income from discontinued operations        |       | (0.3                   | )          | 3.1 |   |
|                                              |       |                   |       |   |   |
| Net income                                        |       | $                      | 77.4       |   | $ | 53.6 |   |
|                                              |       |                   |       |   |   |
| Net income per common share – basic:         |       |                   |       |   |   |
| Net income from continuing operations             |       | $                      | 1.17       |   | $ | 0.78 |   |
| Net income from discontinued operations           |       | —                 |       | 0.05 |   |
|                                              |       | $                      | 1.17       |   | $ | 0.83 |   |
|                                              |       |                   |       |   |   |   |   |
| Net income per common share – diluted:       |       |                   |       |   |   |
| Net income from continuing operations             |       | $                      | 1.15       |   | $ | 0.77 |   |
| Net income from discontinued operations           |       | —                 |       | 0.04 |   |
|                                              |       | $                      | 1.15       |   | $ | 0.81 |   |
|                                              |       |                   |       |   |   |   |   |
| Average common shares outstanding:                |       |                   |       |   |   |
| Basic                                             |       | 66.2                   |       | 64.7 |   |
| Diluted                                           |       | 67.4                   |       | 65.8 |   |

 

*SeeNotes to the Interim Consolidated Financial Statements on page 5.*

 

2

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Precision Castparts Corp. and Subsidiaries

Consolidated Balance Sheets

(In millions)

 
| ** **                                            | ** ** | **(Unaudited)** | ** ** | ** **  | ** ** |
|-------------------------------------------------------|------------|-----------------|------------|-------------|------------|
| ** **                                            | ** ** | **7/03/05**     | ** ** | **4/03/05** | ** ** |
| ASSETS                                                |       |            |       |        |       |
| Current assets:                                       |       |            |       |        |       |
| Cash and cash equivalents                             |       | $               | 160.1      |        | $          | 153.9 |   |
| Receivables, net                                      |       | 424.6           |       | 408.2       |       |
| Inventories                                           |       | 554.3           |       | 531.3       |       |
| Prepaid expenses                                      |       | 14.2            |       | 17.5        |       |
| Income tax receivable                                 |       | —          |       | 9.3         |       |
| Deferred income taxes                                 |       | 55.9            |       | 55.0        |       |
| Discontinued operations                               |       | 32.0            |       | 37.9        |       |
| Total current assets                                  |       | 1,241.1         |       | 1,213.1     |       |
|                                                  |       |            |       |        |       |
| Property, plant and equipment, at cost                |       | 1,279.4         |       | 1,294.4     |       |
| Less - accumulated depreciation                       |       | (602.6          | )          | (601.9      | )          |
| Net property, plant and equipment                     |       | 676.8           |       | 692.5       |       |
|                                                  |       |            |       |        |       |
| Goodwill, net                                         |       | 1,580.0         |       | 1,576.1     |       |
| Acquired intangible assets, net                       |       | 5.0             |       | 5.2         |       |
| Deferred income taxes                                 |       | 14.7            |       | 16.8        |       |
| Other assets                                          |       | 115.7           |       | 103.2       |       |
| Discontinued operations                               |       | 10.1            |       | 18.1        |       |
|                                                  |       |            |       |        |       |
|                                                  |       | $               | 3,643.4    |        | $          | 3,625.0 |   |
| LIABILITIES AND SHAREHOLDERS’ INVESTMENT         |       |            |       |        |       |
| Current liabilities:                                  |       |            |       |        |       |
| Short-term borrowings                                 |       | $               | 6.0        |        | $          | 6.0 |   |
| Long-term debt currently due                          |       | 38.3            |       | 38.3        |       |
| Accounts payable                                      |       | 313.6           |       | 312.4       |       |
| Accrued liabilities                                   |       | 304.4           |       | 320.3       |       |
| Income taxes payable                                  |       | 81.5            |       | 89.4        |       |
| Discontinued operations                               |       | 12.1            |       | 13.3        |       |
| Total current liabilities                             |       | 755.9           |       | 779.7       |       |
|                                                  |       |            |       |        |       |
| Long-term debt                                        |       | 784.2           |       | 798.7       |       |
| Pension and other postretirement benefit  obligations |       | 200.8           |       | 205.5       |       |
| Other long-term liabilities                           |       | 57.4            |       | 55.7        |       |
| Discontinued operations                               |       | 3.7             |       | 5.0         |       |
| Total liabilities                                     |       | 1,802.0         |       | 1,844.6     |       |
|                                                  |       |            |       |        |       |
| Shareholders’ investment:                        |       |            |       |        |       |
| Common stock                                          |       | 66.3            |       | 66.2        |       |
| Paid-in capital                                       |       | 779.5           |       | 773.4       |       |
| Retained earnings                                     |       | 1,027.2         |       | 951.8       |       |
| Accumulated comprehensive loss:                       |       |            |       |        |       |
| Foreign currency translation                          |       | 55.0            |       | 72.3        |       |
| Derivatives qualifying as hedges                      |       | (2.0            | )          | 0.6         |       |
| Minimum pension liability                             |       | (84.6           | )          | (83.9       | )          |
| Total shareholders’ investment                   |       | 1,841.4         |       | 1,780.4     |       |
|                                                  |       |            |       |        |       |
|                                                  |       | $               | 3,643.4    |        | $          | 3,625.0 |   |

 

*See Notes to the Interim Consolidated FinancialStatements on page 5.*

 

3

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PrecisionCastparts Corp. and Subsidiaries

ConsolidatedStatements of Cash Flows

(Unaudited)

(Inmillions)

 
| ** **                                                                                            | ** ** | **Three Months Ended** | ** ** |
|-------------------------------------------------------------------------------------------------------|------------|------------------------|------------|
| ** **                                                                                            | ** ** | **7/03/05**            | ** ** | **6/27/04** | ** ** |
| ** **                                                                                            | ** ** | ** **             | ** ** | ** ** | ** ** |
| Cash flows from operating activities:                                                                 |       |                   |       |   |   |
| Net income from continuing operations                                                                 |       | $                      | 77.7       |   | $ | 50.5 |   |
| Non-cash items included in income:                                                                    |       |                   |       |   |   |
| Depreciation and amortization                                                                         |       | 25.2                   |       | 24.4 |   |
| Deferred income taxes                                                                                 |       | 9.2                    |       | (0.2 | ) |
| Tax benefit from stock option exercises                                                               |       | 2.6                    |       | 1.2 |   |
| Changes in assets and liabilities,  excluding effects of acquisitions and dispositions of businesses: |       |                   |       |   |   |
| Receivables                                                                                           |       | (15.7                  | )          | (9.3 | ) |
| Inventories                                                                                           |       | (26.0                  | )          | (30.1 | ) |
| Other current assets                                                                                  |       | 12.6                   |       | 3.3 |   |
| Payables, accruals and current taxes                                                                  |       | (29.7                  | )          | 17.3 |   |
| Retirement benefit obligations                                                                        |       | (16.0                  | )          | (4.7 | ) |
| Other non-current assets and liabilities                                                              |       | 0.6                    |       | (0.4 | ) |
| Net cash provided by operating activities                                                             |       | 40.5                   |       | 52.0 |   |
|                                                                                                  |       |                   |       |   |   |
| Cash flows from investing activities:                                                                 |       |                   |       |   |   |
| Acquisitions of businesses                                                                            |       | (2.5                   | )          | — |   |
| Capital expenditures                                                                                  |       | (16.7                  | )          | (13.9 | ) |
| Dispositions of businesses and other                                                                  |       | 4.1                    |       | (0.7 | ) |
| Net cash used by investing activities                                                                 |       | (15.1                  | )          | (14.6 | ) |
|                                                                                                  |       |                   |       |   |   |
| Cash flows from financing activities:                                                                 |       |                   |       |   |   |
| Net change in short-term borrowings                                                                   |       | —                 |       | (3.6 | ) |
| Repayment of long-term debt                                                                           |       | (14.5                  | )          | (0.9 | ) |
| Proceeds from exercise of stock options                                                               |       | 3.6                    |       | 3.1 |   |
| Cash dividends                                                                                        |       | (2.0                   | )          | (1.9 | ) |
| Other                                                                                                 |       | (1.0                   | )          | 10.7 |   |
| Net cash (used) provided by financing  activities                                                     |       | (13.9                  | )          | 7.4 |   |
|                                                                                                  |       |                   |       |   |   |
| Effect of exchange rate changes on cash and  cash equivalents                                         |       | (3.5                   | )          | (0.3 | ) |
| Net cash used by discontinued operations                                                              |       | (1.8                   | )          | (0.8 | ) |
|                                                                                                  |       |                   |       |   |   |
| Net increase in cash and cash equivalents                                                             |       | 6.2                    |       | 43.7 |   |
| Cash and cash equivalents at beginning of  period                                                     |       | 153.9                  |       | 80.3 |   |
|                                                                                                  |       |                   |       |   |   |
| Cash and cash equivalents at end of period                                                            |       | $                      | 160.1      |   | $ | 124.0 |   |

 

*SeeNotes to the Interim Consolidated Financial Statements on page 5.*

 

4

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**Notes to the Interim Consolidated Financial Statements**

(Unaudited)

(Inmillions, except share and per share data)

 

**(1)           Basis ofPresentation**

 

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

 

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

 

The Company accounts for stock-based employee compensation in accordancewith the provisions of APB Opinion No. 25, “Accounting for Stock Issued toEmployees,” and related interpretations. No stock-based employee compensation cost is reflected in net income, asall stock options are granted with exercise prices equal to the market value ofthe underlying common stock on the grant dates. The following table illustrates the effect on net income and earningsper share if the Company had elected to recognize compensation expense based onthe fair value of the stock options granted at the grant dates as prescribed bySFAS Nos. 123 and 148, “Accounting for Stock-Based Compensation.”

 
| ** **                                                                                                | ** ** | **Three Months Ended** | ** ** |
|-----------------------------------------------------------------------------------------------------------|------------|------------------------|------------|
| ** **                                                                                                | ** ** | **7/03/05**            | ** ** | **6/27/04** | ** ** |
|                                                                                                      |       |                   |       |   |   |
| Net income as reported                                                                                    |       | $                      | 77.4       |   | $ | 53.6 |   |
| Deduct: Stock-based compensation, net of  tax, as determined under fair value based method for all awards |       | (2.7                   | )          | (2.1 | ) |
|                                                                                                      |       |                   |       |   |   |
| Pro forma net income                                                                                      |       | $                      | 74.7       |   | $ | 51.5 |   |
|                                                                                                      |       |                   |       |   |   |
| Net income per share – basic:                                                                        |       |                   |       |   |   |
| Reported                                                                                                  |       | $                      | 1.17       |   | $ | 0.83 |   |
| Pro forma                                                                                                 |       | $                      | 1.13       |   | $ | 0.80 |   |
|                                                                                                      |       |                   |       |   |   |   |   |
| Net income per share – diluted:                                                                      |       |                   |       |   |   |
| Reported                                                                                                  |       | $                      | 1.15       |   | $ | 0.81 |   |
| Pro forma                                                                                                 |       | $                      | 1.11       |   | $ | 0.78 |   |

 

5

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

 

On March 8, 2005, PCC acquired 100 percent of the outstanding shares ofcommon stock of Air Industries Corporation (“AIC”), a leading manufacturer ofairframe fasteners, which include bolts, pins, and screws made from titaniumand nickel-based alloys.  The results ofAIC’s operations have been included within the Fastener Products segment in theconsolidated financial statements since that date.  The acquisition of AIC is expected to expandPCC’s manufacturing capabilities and the range of fastener product families theCompany can offer to its customers.  Theacquisition was funded with $193.3 million of cash on hand, which is subject tofinal adjustment.  Goodwill relating tothis transaction of $152.7 million is assigned to the Fastener Product segmentand is deductible for tax purposes.  Theimpact of this acquisition was not material to the Company’s results ofoperations; consequently, pro forma information is not presented.

 

The following table summarizes the estimated fair values of the assetsacquired and liabilities assumed at the date of acquisition.  PCC was in the process of finalizing theallocation of the purchase price as of July 3, 2005; thus, the allocation shownbelow is preliminary and subject to further refinement.

 
| ** **                                      | ** ** | **3/08/05** | ** ** |
|-------------------------------------------------|------------|-------------|------------|
|                                            |       |        |       |
| Current assets                                  |       | $           | 30.3       |   |
| Property, plant and equipment                   |       | 24.8        |       |
| Goodwill                                        |       | 152.7       |       |
| Total assets acquired                           |       | 207.8       |       |
| Accounts payable and other current  liabilities |       | 4.3         |       |
| Other long-term liabilities                     |       | 4.6         |       |
| Total liabilities assumed                       |       | 8.9         |       |
|                                            |       |        |       |
| Net assets acquired                             |       | $           | 198.9      |   |

 

6

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**(4)****                                ****Discontinued Operations**

 

Inthe second quarter of fiscal 2005, the Company decided to sell all of the pumpsand valves businesses of PCC Flow Technologies, with the exception ofE/One.  The businesses held for sale werereclassified from the Fluid Management Products segment to discontinued operations.  The E/One business was retained and is nowincluded in the Industrial Products segment. With the exception of PCC Eurovalves, the sale of the pumps and valvesbusinesses of PCC Flow Technologies was completed in the third quarter offiscal 2005.  PCC Eurovalves, which islocated in The Netherlands, continues to be marketed.  PCC’s decision to sell the pumps and valvesbusinesses in the second quarter of fiscal 2005 resulted in a charge of $245.0million, of which $219.1 million was associated with the write-down ofgoodwill.  The remainder related to thewrite-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. Subsequent to the second quarter of fiscal 2005, the Company recordedadditional write-downs related to the disposition of the pumps and valvesbusinesses, bringing the total net loss on disposal to $248.3 million throughJuly 3, 2005.

 

Inthe third quarter of fiscal 2004, three businesses acquired in the SPStransaction – Magnetics, Mohawk, and Dacar – were classified as held for saleand their results were included in discontinued operations.  They were classified as discontinued operationsbecause they were deemed to be non-core to the Company.  Dacar was sold in the third quarter of fiscal2005, Magnetics was sold in the fourth quarter of fiscal 2005, and Mohawk wassold in the first quarter of fiscal 2006.

 

These businesses meet the criteria as a component of an entity under SFASNo. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.”Accordingly, any operating results of these businesses are presented in theCompany’s Consolidated Statements of Income as discontinued operations, net ofincome tax, and all prior periods have been reclassified. The components ofdiscontinued operations for the periods presented are as follows:

 
| ** **                                      | ** ** | **Three Months Ended** | ** ** |
|-------------------------------------------------|------------|------------------------|------------|
| ** **                                      | ** ** | **7/03/05**            | ** ** | **6/27/04** | ** ** |
| Net sales                                       |       | $                      | 13.3       |   | $ | 99.6 |   |
| Cost of goods sold                              |       | 10.7                   |       | 77.4 |   |
| Selling and administrative expenses             |       | 2.1                    |       | 16.6 |   |
| Interest expense                                |       | —                 |       | 0.1 |   |
| Net income from operations before income  taxes |       | 0.5                    |       | 5.5 |   |
| Income tax expense                              |       | 0.2                    |       | 2.0 |   |
| Net income from operations                      |       | 0.3                    |       | 3.5 |   |
| Net loss on disposal                            |       | (0.6                   | )          | (0.4 | ) |
| Net (loss) income from discontinued  operations |       | $                      | (0.3       | ) | $ | 3.1 |   |

 

7

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Includedin the Consolidated Balance Sheets are the following major classes of assetsand liabilities associated with the discontinued operations after adjustmentfor write-downs to fair value less cost to sell:

 
| ** **                             | ** ** | **7/03/05** | ** ** | **4/03/05** | ** ** |
|----------------------------------------|------------|-------------|------------|-------------|------------|
| Assets of discontinued operations      |       |        |       |        |       |
| Current assets                         |       | $           | 32.0       |        | $          | 37.9 |   |
| Net property, plant and equipment      |       | 10.0        |       | 12.9        |       |
| Other assets                           |       | 0.1         |       | 5.2         |       |
|                                   |       |        |       |        |       |
|                                   |       | $           | 42.1       |        | $          | 56.0 |   |
|                                   |       |        |       |        |       |   |   |
| Liabilities of discontinued operations |       |        |       |        |       |
| Other current liabilities              |       | $           | 12.1       |        | $          | 13.3 |   |
| Other liabilities                      |       | 3.7         |       | 5.0         |       |
|                                   |       |        |       |        |       |
|                                   |       | $           | 15.8       |        | $          | 18.3 |   |

 

**(5)           RestructuringCharges**

 

No charges related to restructuring activities were recorded in thefirst quarter of fiscal 2006 or the first quarter of fiscal 2005.  During the fourth quarter of fiscal 2005, PCCrecorded provisions for restructuring and impairment of long-lived assetstotaling $1.6 million, principally related to additional costs associated witha business that was closed several years ago.

 

The following tableprovides a rollforward of amounts included in accrued liabilities forrestructuring reserves:

 
| ** ** | ** ** | **Balance at** | ** ** | **Cash**     | ** ** | **Non-cash**    | ** ** | **Balance at** | ** ** |
|------------|------------|----------------|------------|--------------|------------|-----------------|------------|----------------|------------|
| ** ** | ** ** | **4/03/05**    | ** ** | **payments** | ** ** | **adjustments** | ** ** | **7/03/05**    | ** ** |
| Severance  |       | $              | 2.0        |         | $          | —          |       | $              | 0.1        |   | $ | 2.1 |   |
|            |            |                |            |              |            |                 |            |                |            |  |  |  |  |

 

**(6)           Inventories**

 

Inventoriesconsisted of the following:

 
| ** **                 | ** ** | **7/03/05** | ** ** | **4/03/05** | ** ** |
|----------------------------|------------|-------------|------------|-------------|------------|
|                       |       |        |       |        |       |
| Finished goods             |       | $           | 150.4      |        | $          | 149.0 |   |
| Work-in-process            |       | 256.7       |       | 243.7       |       |
| Raw materials and supplies |       | 125.5       |       | 116.4       |       |
|                       |       | 532.6       |       | 509.1       |       |
| LIFO provision             |       | 21.7        |       | 22.2        |       |
|                       |       |        |       |        |       |
| Total inventory            |       | $           | 554.3      |        | $          | 531.3 |   |

 

8

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**(7)          ****Goodwill and AcquiredIntangibles**

 

Effective April 1, 2002, the Company adopted Statement of FinancialAccounting Standards (“SFAS”) No. 142, “Goodwill and Other Intangible Assets,”under which goodwill is no longer amortized but is tested for impairment usinga fair value method.   There were notriggering events during the first quarter of fiscal 2006 requiring a goodwillimpairment test in accordance with SFAS No. 142.

 

The Company completed its annual goodwill assessment test during thesecond quarter of fiscal 2005, and it was determined that the fair value of therelated operations was greater than book value and that there was no impairmentof goodwill.  The subsequent decision tosell the pumps and valves businesses of PCC Flow Technologies in two separatetransactions and to retain E/One, which was part of PCC Flow Technologies,resulted in a write-down of goodwill totaling $219.1 million in the secondquarter of fiscal 2005.  Refer to the“Discontinued Operations” footnote for further discussion.

 

Thechanges in the carrying amount of goodwill by reportable segment for the threemonths ended July 3, 2005, were as follows:

 
| ** **               | ** ** | ** **     | ** ** | ** **   | ** ** | **Currency**    | ** ** | ** **     | ** ** |
|--------------------------|------------|----------------|------------|--------------|------------|-----------------|------------|----------------|------------|
| ** **               | ** ** | **Balance at** | ** ** | ** **   | ** ** | **Translation** | ** ** | **Balance at** | ** ** |
| ** **               | ** ** | **4/03/05**    | ** ** | **Acquired** | ** ** | **and Other**   | ** ** | **7/03/05**    | ** ** |
| ** **               | ** ** | ** **     | ** ** | ** **   | ** ** | ** **      | ** ** | ** **     | ** ** |
| Investment Cast Products |       | $              | 299.5      |         | $          | —          |       | $              | (0.7       | ) | $ | 298.8 |   |
| Forged Products          |       | 519.0          |       | —       |       | (5.9            | )          | 513.1          |       |
| Fastener Products        |       | 586.2          |       | 10.3         |       | —          |       | 596.5          |       |
| Industrial Products      |       | 171.4          |       | —       |       | 0.2             |       | 171.6          |       |
|                     |       |           |       |         |       |            |       |           |       |
| Total                    |       | $              | 1,576.1    |         | $          | 10.3            |       | $              | (6.4       | ) | $ | 1,580.0 |   |

 

Thegross carrying amount and accumulated amortization of the Company’s acquiredintangible assets were as follows:

 
| ** **                    | ** ** | **7/03/05**  | ** ** | **4/03/05**      | ** ** |
|-------------------------------|------------|--------------|------------|------------------|------------|
| ** **                    | ** ** | **Gross**    | ** ** | ** **       | ** ** | **Gross** | ** ** | ** ** | ** ** |
| ** **                    | ** ** | **Carrying** | ** ** | **Accumulated**  | ** ** | **Carrying** | ** ** | **Accumulated** | ** ** |
| ** **                    | ** ** | **Amount**   | ** ** | **Amortization** | ** ** | **Amount** | ** ** | **Amortization** | ** ** |
| Patents                       |       | $            | 3.0        |             | $          | 0.9 |   | $ | 3.0 |   | $ | 0.8 |   |
| Proprietary technology        |       | 2.4          |       | 0.3              |       | 2.4 |   | 0.2 |   |
| Tradenames                    |       | 0.8          |       | 0.1              |       | 0.8 |   | 0.1 |   |
| Long-term customer agreements |       | 0.2          |       | 0.1              |       | 0.2 |   | 0.1 |   |
|                          |       |         |       |             |       |   |   |   |   |
|                          |       | $            | 6.4        |             | $          | 1.4 |   | $ | 6.4 |   | $ | 1.2 |   |

 

9

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Amortizationexpense for acquired intangible assets during the first quarter of fiscal 2006was $0.2 million.  Amortization expenserelated to finite-lived intangible assets is projected to total $0.7 millionfor fiscal 2006.  Projected amortizationexpense for the succeeding five fiscal years is as follows:

 
| ** **      | ** ** | **Estimated**    | ** ** |
|-----------------|------------|------------------|------------|
| ** **      | ** ** | **Amortization** | ** ** |
| **Fiscal Year** | ** ** | **Expense**      | ** ** |
| 2007            |       | $                | 0.6        |   |
| 2008            |       | $                | 0.5        |   |
| 2009            |       | $                | 0.4        |   |
| 2010            |       | $                | 0.4        |   |
| 2011            |       | $                | 0.3        |   |

 

**(8)           Guarantees**

 

Inthe ordinary course of business, the Company warrants certain of its productsagainst defects in design, materials and workmanship over various timeperiods.  The warranty accrual as of July3, 2005 and April 3, 2005 is immaterial to the financial position of theCompany, and the change in the accrual for the current quarter is immaterial tothe Company’s results of operations and cash flows.

 

Inconjunction with certain transactions, primarily divestitures, the Company mayprovide routine indemnifications (e.g., retention of previously existingenvironmental and tax liabilities) with terms that range in duration and oftenare not explicitly defined.  Whereappropriate, an obligation for such indemnifications is recorded as aliability.  Because the obligated amountsof these types of indemnifications often are not explicitly stated, the overallmaximum amount of the obligation under such indemnifications cannot bereasonably estimated.  Other thanobligations recorded as liabilities at the time of divestiture, the Company hasnot historically made significant payments for these indemnifications.

 

**(9)           Earningsper share**

 

The weighted average number of shares outstandingused to compute earnings per share were as follows:

 
| ** **                                   | ** ** | **Three Months Ended** | ** ** |
|----------------------------------------------|------------|------------------------|------------|
| ** **                                   | ** ** | **7/03/05**            | ** ** | **6/27/04** | ** ** |
| ** **                                   | ** ** | ** **             | ** ** | ** ** | ** ** |
| Basic weighted average shares outstanding    |       | 66.2                   |       | 64.7 |   |
| Dilutive stock options                       |       | 1.2                    |       | 1.1 |   |
| Average shares outstanding assuming dilution |       | 67.4                   |       | 65.8 |   |

 

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

 

Forthe three months ending June 27, 2004, stock options to purchase 0.9 millionshares of common stock were excluded from the computation of diluted earningsper share because to do so would have been antidilutive.  These options could be dilutive in thefuture.

 

10

----

 

**(10)      ComprehensiveIncome**

 

Comprehensiveincome consisted of the following:

 
| ** **                                                                                                                | ** ** | **Three Months Ended** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------|------------|------------------------|------------|
| ** **                                                                                                                | ** ** | **7/03/05**            | ** ** | **6/27/04** | ** ** |
|                                                                                                                      |       |                   |       |   |   |
| Net income                                                                                                                |       | $                      | 77.4       |   | $ | 53.6 |   |
| Other comprehensive income (loss), net of  tax:                                                                           |       |                   |       |   |   |
| Unrealized translation adjustments                                                                                        |       | (17.3                  | )          | (0.3 | ) |
| Minimum pension liability                                                                                                 |       | (0.7                   | )          | — |   |
| Unrealized gain (loss) on derivatives:                                                                                    |       |                   |       |   |   |
| Periodic revaluations (net of income tax of  $1.2 and $0.0, respectively)                                                 |       | (3.3                   | )          | — |   |
| Reclassification to net income of  previously deferred gains and loss (net of income tax of $0.3 and $0.0,  respectively) |       | 0.7                    |       | — |   |
| Other comprehensive loss                                                                                                  |       | (20.6                  | )          | (0.3 | ) |
|                                                                                                                      |       |                   |       |   |   |
| Total comprehensive income                                                                                                |       | $                      | 56.8       |   | $ | 53.3 |   |

 

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

 

The Company and its subsidiaries sponsor manydomestic and foreign defined benefit pension plans.  In addition, the Company offerspostretirement medical benefits for certain eligible employees. These plans aremore fully described in the “Notes to the Consolidated Financial Statements”included in the Company’s Annual Report on Form 10-K for the year ended April3, 2005.

 

The net periodic benefit cost for the Company’spension plans consisted of the following components:

 
| ** **                         | ** ** | ** **           | ** ** | ** **                  | ** ** | **Other**   | ** ** |
|------------------------------------|------------|----------------------|------------|-----------------------------|------------|-------------|------------|
| ** **                         | ** ** | **Pension Benefits** | ** ** | **Postretirement Benefits** | ** ** |
| ** **                         | ** ** | **7/03/05**          | ** ** | **6/27/04**                 | ** ** | **7/03/05** | ** ** | **6/27/04** | ** ** |
|                               |       |                 |       |                        |       |        |       |   |   |
| Service cost                       |       | $                    | 8.2        |                        | $          | 7.7         |       | $ | 0.1 |   | $ | 0.1 |   |
| Interest cost                      |       | 16.3                 |       | 14.8                        |       | 1.0         |       | 1.2 |   |
| Expected return on plan assets     |       | (18.0                | )          | (14.6                       | )          | —      |       | — |   |
| Recognized net actuarial loss      |       | 3.4                  |       | 2.7                         |       | 0.3         |       | — |   |
| Amortization of prior service cost |       | 0.7                  |       | 0.4                         |       | (0.1        | )          | — |   |
|                               |       |                 |       |                        |       |        |       |   |   |
| Net periodic benefit cost          |       | $                    | 10.6       |                        | $          | 11.0        |       | $ | 1.3 |   | $ | 1.3 |   |

 

The Company made contributions of $23.0 million, ofwhich $16.4 million were voluntary, to the defined benefit pension plans duringthe first quarter of fiscal year 2006. Projected contributions are expected to total approximately $82.0million for fiscal year 2006, of which $67.0 million will be voluntary.

 

**(12)         NewAccounting Pronouncements**

 

In June 2005, the Financial Accounting Standards Board (“FASB”) issuedStatement of Financial Accounting Standards (SFAS) No. 154, “Accounting Changesand Error Corrections.”  This statementrevises the reporting requirements related to changes in accounting principlesor adoption of new accounting pronouncements. This statement is effective forfiscal years beginning after December 15, 2005. The Company is required toadopt the provisions of SFAS 154, as applicable, beginning in fiscal 2007 anddoes not anticipate this pronouncement to have a material impact on theconsolidated financial statements.

 

11

----

 

**(13)         SegmentInformation**

 

TheCompany’s operations are classified into four reportable business segments:Investment Cast Products, Forged Products, Fastener Products and IndustrialProducts.  The Company’s four reportablebusiness segments are identified separately based on fundamental differences intheir operations.

 
| ** **                                        | ** ** | **Three Months Ended** | ** ** |
|---------------------------------------------------|------------|------------------------|------------|
| ** **                                        | ** ** | **7/03/05**            | ** ** | **6/27/04** | ** ** |
|                                              |       |                   |       |   |   |
| Net sales:                                        |       |                   |       |   |   |
| Investment Cast Products                          |       | $                      | 387.3      |   | $ | 303.4 |   |
| Forged Products                                   |       | 204.0                  |       | 145.1 |   |
| Fastener Products                                 |       | 202.6                  |       | 164.1 |   |
| Industrial Products                               |       | 60.7                   |       | 55.5 |   |
|                                              |       |                   |       |   |   |
| Total net sales                                   |       | $                      | 854.6      |   | $ | 668.1 |   |
|                                              |       |                   |       |   |   |
| Operating income (loss):                          |       |                   |       |   |   |
| Investment Cast Products                          |       | $                      | 74.6       |   | $ | 55.0 |   |
| Forged Products                                   |       | 22.8                   |       | 18.4 |   |
| Fastener Products                                 |       | 31.1                   |       | 16.6 |   |
| Industrial Products                               |       | 11.7                   |       | 9.3 |   |
| Corporate expense                                 |       | (11.7                  | )          | (8.8 | ) |
|                                              |       |                   |       |   |   |
| Total operating income                            |       | 128.5                  |       | 90.5 |   |
|                                              |       |                   |       |   |   |
| Interest expense, net                             |       | 10.6                   |       | 14.6 |   |
|                                              |       |                   |       |   |   |
| Income before income taxes and minority  interest |       | $                      | 117.9      |   | $ | 75.9 |   |

 

**(14)         CondensedConsolidating Financial Statements**

 

Certainof the Company’s subsidiaries guarantee the Company’s following registeredsecurities: $200 million 5.6% Senior Notes due 2013 and $150 million 6.75%Senior Notes due 2007.  The followingcondensed consolidating financial statements present, in separate columns,financial information for (i) Precision Castparts Corp. (on a parent onlybasis) with its investment in its subsidiaries recorded under the equitymethod, (ii) guarantor subsidiaries that guarantee the Company’s public and privatenotes and bank credit facilities, on a combined basis, with any investments innon-guarantor subsidiaries recorded under the equity method, (iii) direct andindirect non-guarantor subsidiaries on a combined basis, (iv) the eliminationsnecessary to arrive at the information for the Company and its subsidiaries ona consolidated basis, and (v) the Company on a consolidated basis, in each caseas of July 3, 2005 and April 3, 2005 and for the three months ended July 3,2005 and June 27, 2004.  The Notes are fully and unconditionallyguaranteed on a joint and several basis by each guarantor subsidiary.  Theguarantor subsidiaries include substantially all of the Company’s domesticsubsidiaries within the Investment Cast Products, Forged Products, FastenerProducts and Industrial Products segments that are 100% owned, directly orindirectly, by the Company within the meaning of Rule 3-10(h)(1) ofRegulation S-X.  There are no contractual restrictions limiting transfersof cash from guarantor and non- guarantor subsidiaries to the Company. The condensed consolidating financial statements are presented herein, ratherthan separate financial statements for each of the guarantor subsidiaries,because management believes that separate financial statements relating to theguarantor subsidiaries are not material to investors.

 

12

----

 

CondensedConsolidating Statements of Income

ThreeMonths Ended July 3, 2005

(Unaudited)

 
| ** **                                             | ** ** | **Precision** | ** ** | ** **       | ** ** | **Non-**         | ** ** | ** **       | ** ** | ** ** | ** ** |
|--------------------------------------------------------|------------|---------------|------------|------------------|------------|------------------|------------|------------------|------------|------------|------------|
| ** **                                             | ** ** | **Castparts** | ** ** | **Guarantor**    | ** ** | **Guarantor**    | ** ** | ** **       | ** ** | ** ** | ** ** |
| ** **                                             | ** ** | **Corp.**     | ** ** | **Subsidiaries** | ** ** | **Subsidiaries** | ** ** | **Eliminations** | ** ** | **Total**  | ** ** |
|                                                   |       |          |       |             |       |             |       |             |       |       |       |
| Net sales                                              |       | $             | —     |             | $          | 682.0            |       | $                | 193.5      |       | $          | (20.9 | ) | $ | 854.6 |   |
| Cost of goods sold                                     |       | —        |       | 524.8            |       | 158.4            |       | (20.9            | )          | 662.3      |       |
| Selling and administrative expenses                    |       | 11.7          |       | 37.9             |       | 14.2             |       | —           |       | 63.8       |       |
| Other (income) expense                                 |       | (0.6          | )          | —           |       | 0.6              |       | —           |       | —     |       |
| Interest (income) expense, net                         |       | (1.7          | )          | 17.1             |       | (4.8             | )          | —           |       | 10.6       |       |
| Equity in earnings of subsidiaries                     |       | (86.2         | )          | 2.5              |       | —           |       | 83.7             |       | —     |       |
|                                                   |       |          |       |             |       |             |       |             |       |       |       |
| Income (loss) before income tax and minority  interest |       | 76.8          |       | 99.7             |       | 25.1             |       | (83.7            | )          | 117.9      |       |
| Income tax (benefit) expense                           |       | (0.6          | )          | 30.3             |       | 10.2             |       | —           |       | 39.9       |       |
| Minority interest                                      |       | —        |       | —           |       | (0.3             | )          | —           |       | (0.3       | )          |
|                                                   |       |          |       |             |       |             |       |             |       |       |       |
| Net income (loss) from continuing  operations          |       | 77.4          |       | 69.4             |       | 14.6             |       | (83.7            | )          | 77.7       |       |
|                                                   |       |          |       |             |       |             |       |             |       |       |       |
| Net loss from discontinued operations                  |       | —        |       | —           |       | (0.3             | )          | —           |       | (0.3       | )          |
|                                                   |       |          |       |             |       |             |       |             |       |       |       |
| Net income (loss)                                      |       | $             | 77.4       |             | $          | 69.4             |       | $                | 14.3       |       | $          | (83.7 | ) | $ | 77.4 |   |

 

13

----

 

CondensedConsolidating Statements of Income

ThreeMonths Ended June 27, 2004

(Unaudited)

 
| ** **                                             | ** ** | **Precision** | ** ** | ** **       | ** ** | **Non-**         | ** ** | ** **       | ** ** | ** ** | ** ** |
|--------------------------------------------------------|------------|---------------|------------|------------------|------------|------------------|------------|------------------|------------|------------|------------|
| ** **                                             | ** ** | **Castparts** | ** ** | **Guarantor**    | ** ** | **Guarantor**    | ** ** | ** **       | ** ** | ** ** | ** ** |
| ** **                                             | ** ** | **Corp.**     | ** ** | **Subsidiaries** | ** ** | **Subsidiaries** | ** ** | **Eliminations** | ** ** | **Total**  | ** ** |
|                                                   |       |          |       |             |       |             |       |             |       |       |       |
| Net sales                                              |       | $             | —     |             | $          | 529.7            |       | $                | 152.8      |       | $          | (14.4 | ) | $ | 668.1 |   |
| Cost of goods sold                                     |       | —        |       | 409.3            |       | 124.1            |       | (14.4            | )          | 519.0      |       |
| Selling and administrative expenses                    |       | 8.9           |       | 36.4             |       | 13.3             |       | —           |       | 58.6       |       |
| Other (income) expense                                 |       | (2.8          | )          | —           |       | 2.8              |       | —           |       | —     |       |
| Interest expense (income), net                         |       | 6.7           |       | 9.7              |       | (1.8             | )          | —           |       | 14.6       |       |
| Equity in earnings of subsidiaries                     |       | (57.7         | )          | 2.1              |       | —           |       | 55.6             |       | —     |       |
|                                                   |       |          |       |             |       |             |       |             |       |       |       |
| Income (loss) before income tax and  minority interest |       | 44.9          |       | 72.2             |       | 14.4             |       | (55.6            | )          | 75.9       |       |
| Income tax (benefit) expense                           |       | (8.7          | )          | 29.3             |       | 4.3              |       | —           |       | 24.9       |       |
| Minority interest                                      |       | —        |       | —           |       | (0.5             | )          | —           |       | (0.5       | )          |
|                                                   |       |          |       |             |       |             |       |             |       |       |       |
| Net income (loss) from continuing  operations          |       | 53.6          |       | 42.9             |       | 9.6              |       | (55.6            | )          | 50.5       |       |
|                                                   |       |          |       |             |       |             |       |             |       |       |       |
| Net income from discontinued operations                |       | —        |       | —           |       | 3.1              |       | —           |       | 3.1        |       |
|                                                   |       |          |       |             |       |             |       |             |       |       |       |
| Net income (loss)                                      |       | $             | 53.6       |             | $          | 42.9             |       | $                | 12.7       |       | $          | (55.6 | ) | $ | 53.6 |   |

 

14

----

 

Condensed Consolidating Balance Sheets

July 3, 2005

(Unaudited)

 
| ** **                                            | ** ** | **Precision** | ** ** | ** **       | ** ** | **Non-**         | ** ** | ** **       | ** ** | ** ** | ** ** |
|-------------------------------------------------------|------------|---------------|------------|------------------|------------|------------------|------------|------------------|------------|------------|------------|
| ** **                                            | ** ** | **Castparts** | ** ** | **Guarantor**    | ** ** | **Guarantor**    | ** ** | ** **       | ** ** | ** ** | ** ** |
| ** **                                            | ** ** | **Corp.**     | ** ** | **Subsidiaries** | ** ** | **Subsidiaries** | ** ** | **Eliminations** | ** ** | **Total**  | ** ** |
|                                                  |       |          |       |             |       |             |       |             |       |       |       |
| **Assets**                                            |       |          |       |             |       |             |       |             |       |       |       |
| Current assets:                                       |       |          |       |             |       |             |       |             |       |       |       |
| Cash and cash equivalents                             |       | $             | 84.8       |             | $          | 4.0              |       | $                | 71.3       |       | $          | — |   | $ | 160.1 |   |
| Receivables                                           |       | —        |       | 325.7            |       | 353.6            |       | (254.7           | )          | 424.6      |       |
| Inventories                                           |       | —        |       | 405.8            |       | 148.5            |       | —           |       | 554.3      |       |
| Prepaid expenses                                      |       | —        |       | 8.5              |       | 5.7              |       | —           |       | 14.2       |       |
| Deferred income taxes                                 |       | —        |       | 45.2             |       | 11.1             |       | (0.4             | )          | 55.9       |       |
| Discontinued operations                               |       | —        |       | 13.9             |       | 52.2             |       | (34.1            | )          | 32.0       |       |
|                                                  |       |          |       |             |       |             |       |             |       |       |       |
| Total current assets                                  |       | 84.8          |       | 803.1            |       | 642.4            |       | (289.2           | )          | 1,241.1    |       |
|                                                  |       |          |       |             |       |             |       |             |       |       |       |
| Property, plant and equipment, net                    |       | 2.2           |       | 466.3            |       | 208.3            |       | —           |       | 676.8      |       |
| Goodwill, net                                         |       | —        |       | 1,159.4          |       | 420.6            |       | —           |       | 1,580.0    |       |
| Deferred income taxes                                 |       | 10.0          |       | —           |       | 32.0             |       | (27.3            | )          | 14.7       |       |
| Investments in subsidiaries                           |       | 2,688.1       |       | 284.9            |       | —           |       | (2,973.0         | )          | —     |       |
| Other assets                                          |       | 91.1          |       | 19.8             |       | 9.8              |       | —           |       | 120.7      |       |
| Discontinued operations                               |       | —        |       | —           |       | 10.1             |       | —           |       | 10.1       |       |
|                                                  |       |          |       |             |       |             |       |             |       |       |       |
|                                                  |       | $             | 2,876.2    |             | $          | 2,733.5          |       | $                | 1,323.2    |       | $          | (3,289.5 | ) | $ | 3,643.4 |   |
| ** **                                            |       |          |       |             |       |             |       |             |       |       |       |
| **Liabilities and Shareholders Investment**           |       |          |       |             |       |             |       |             |       |       |       |
| Current liabilities:                                  |       |          |       |             |       |             |       |             |       |       |       |
| Short-term borrowings                                 |       | $             | —     |             | $          | —           |       | $                | 6.0        |       | $          | — |   | $ | 6.0 |   |
| Long-term debt currently due                          |       | 35.2          |       | 1.1              |       | 2.0              |       | —           |       | 38.3       |       |
| Accounts payable                                      |       | 84.5          |       | 351.8            |       | 166.1            |       | (288.8           | )          | 313.6      |       |
| Accrued liabilities                                   |       | 22.5          |       | 236.4            |       | 46.6             |       | (1.1             | )          | 304.4      |       |
| Income taxes payable                                  |       | 59.6          |       | (3.6             | )          | 25.5             |       | —           |       | 81.5       |       |
| Deferred income taxes                                 |       | 0.4           |       | —           |       | —           |       | (0.4             | )          | —     |       |
| Discontinued operations                               |       | —        |       | 1.9              |       | 10.2             |       | —           |       | 12.1       |       |
|                                                  |       |          |       |             |       |             |       |             |       |       |       |
| Total current liabilities                             |       | 202.2         |       | 587.6            |       | 256.4            |       | (290.3           | )          | 755.9      |       |
|                                                  |       |          |       |             |       |             |       |             |       |       |       |
| Long-term debt                                        |       | 766.9         |       | 9.8              |       | 7.5              |       | —           |       | 784.2      |       |
| Pension and other postretirement benefit  obligations |       | 65.7          |       | 72.8             |       | 62.3             |       | —           |       | 200.8      |       |
| Deferred tax liability                                |       | —        |       | 27.3             |       | —           |       | (27.3            | )          | —     |       |
| Other long-term liabilities                           |       | —        |       | 36.9             |       | 20.5             |       | —           |       | 57.4       |       |
| Discontinued operations                               |       | —        |       | 0.6              |       | 3.1              |       | —           |       | 3.7        |       |
|                                                  |       |          |       |             |       |             |       |             |       |       |       |
| Shareholders’ investment:                        |       |          |       |             |       |             |       |             |       |       |       |
| Common stock and paid-in capital                      |       | 845.8         |       | 1,838.7          |       | 977.4            |       | (2,816.1         | )          | 845.8      |       |
| Retained earnings                                     |       | 1,027.2       |       | 214.3            |       | (31.6            | )          | (182.7           | )          | 1,027.2    |       |
| Accumulated other comprehensive loss                  |       | (31.6         | )          | (54.5            | )          | 27.6             |       | 26.9             |       | (31.6      | )          |
|                                                  |       |          |       |             |       |             |       |             |       |       |       |
| Total shareholders’ investment                   |       | 1,841.4       |       | 1,998.5          |       | 973.4            |       | (2,971.9         | )          | 1,841.4    |       |
|                                                  |       |          |       |             |       |             |       |             |       |       |       |
|                                                  |       | $             | 2,876.2    |             | $          | 2,733.5          |       | $                | 1,323.2    |       | $          | (3,289.5 | ) | $ | 3,643.4 |   |

 

15

----

 

Condensed Consolidating Balance Sheets

April 3, 2005

(Unaudited)

 
| ** **                                            | ** ** | **Precision** | ** ** | ** **       | ** ** | **Non-**         | ** ** | ** **       | ** ** | ** ** | ** ** |
|-------------------------------------------------------|------------|---------------|------------|------------------|------------|------------------|------------|------------------|------------|------------|------------|
| ** **                                            | ** ** | **Castparts** | ** ** | **Guarantor**    | ** ** | **Guarantor**    | ** ** | ** **       | ** ** | ** ** | ** ** |
| ** **                                            | ** ** | **Corp.**     | ** ** | **Subsidiaries** | ** ** | **Subsidiaries** | ** ** | **Eliminations** | ** ** | **Total**  | ** ** |
|                                                  |       |          |       |             |       |             |       |             |       |       |       |
| **Assets**                                            |       |          |       |             |       |             |       |             |       |       |       |
| Current assets:                                       |       |          |       |             |       |             |       |             |       |       |       |
| Cash and cash equivalents                             |       | $             | 84.4       |             | $          | 2.5              |       | $                | 67.0       |       | $          | — |   | 153.9 |   |
| Receivables                                           |       | 0.1           |       | 293.3            |       | 358.0            |       | (243.2           | )          | 408.2      |       |
| Inventories                                           |       | —        |       | 381.6            |       | 149.7            |       | —           |       | 531.3      |       |
| Prepaid expenses                                      |       | 4.1           |       | 3.4              |       | 10.0             |       | —           |       | 17.5       |       |
| Income tax receivable                                 |       | 9.3           |       | —           |       | 0.2              |       | (0.2             | )          | 9.3        |       |
| Deferred income taxes                                 |       | —        |       | 45.2             |       | 10.2             |       | (0.4             | )          | 55.0       |       |
| Discontinued operations                               |       | —        |       | 13.6             |       | 49.9             |       | (25.6            | )          | 37.9       |       |
|                                                  |       |          |       |             |       |             |       |             |       |       |       |
| Total current assets                                  |       | 97.9          |       | 739.6            |       | 645.0            |       | (269.4           | )          | 1,213.1    |       |
|                                                  |       |          |       |             |       |             |       |             |       |       |       |
| Property, plant and equipment, net                    |       | 2.5           |       | 472.7            |       | 217.3            |       | —           |       | 692.5      |       |
| Goodwill, net                                         |       | —        |       | 1,152.1          |       | 424.0            |       | —           |       | 1,576.1    |       |
| Deferred income taxes                                 |       | 20.2          |       | —           |       | 23.9             |       | (27.3            | )          | 16.8       |       |
| Investments in subsidiaries                           |       | 2,620.1       |       | 287.4            |       | —           |       | (2,907.5         | )          | —     |       |
| Other assets                                          |       | 79.2          |       | 20.4             |       | 8.8              |       | —           |       | 108.4      |       |
| Discontinued operations                               |       | —        |       | —           |       | 18.1             |       | —           |       | 18.1       |       |
|                                                  |       |          |       |             |       |             |       |             |       |       |       |
|                                                  |       | $             | 2,819.9    |             | $          | 2,672.2          |       | $                | 1,337.1    |       | $          | (3,204.2 | ) | $ | 3,625.0 |   |
|                                                  |       |          |       |             |       |             |       |             |       |       |       |
| **Liabilities and Shareholders Investment**           |       |          |       |             |       |             |       |             |       |       |       |
| Current liabilities:                                  |       |          |       |             |       |             |       |             |       |       |       |
| Short-term borrowings                                 |       | $             | —     |             | $          | —           |       | $                | 6.0        |       | $          | — |   | $ | 6.0 |   |
| Long-term debt currently due                          |       | 35.3          |       | 1.1              |       | 1.9              |       | —           |       | 38.3       |       |
| Accounts payable                                      |       | 71.1          |       | 348.9            |       | 161.2            |       | (268.8           | )          | 312.4      |       |
| Accrued liabilities                                   |       | 32.6          |       | 211.7            |       | 77.1             |       | (1.1             | )          | 320.3      |       |
| Income taxes payable                                  |       | 69.6          |       | —           |       | 20.0             |       | (0.2             | )          | 89.4       |       |
| Deferred income taxes                                 |       | 0.4           |       | —           |       | —           |       | (0.4             | )          | —     |       |
| Discontinued operations                               |       | —        |       | —           |       | 13.3             |       | —           |       | 13.3       |       |
|                                                  |       |          |       |             |       |             |       |             |       |       |       |
| Total current liabilities                             |       | 209.0         |       | 561.7            |       | 279.5            |       | (270.5           | )          | 779.7      |       |
|                                                  |       |          |       |             |       |             |       |             |       |       |       |
| Long-term debt                                        |       | 780.6         |       | 10.0             |       | 8.1              |       | —           |       | 798.7      |       |
| Deferred income taxes                                 |       | —        |       | 27.3             |       | —           |       | (27.3            | )          | —     |       |
| Pension and other postretirement benefit  obligations |       | 49.9          |       | 109.5            |       | 46.1             |       | —           |       | 205.5      |       |
| Other long-term liabilities                           |       | —        |       | 36.4             |       | 19.3             |       | —           |       | 55.7       |       |
| Discontinued operations                               |       | —        |       | —           |       | 5.0              |       | —           |       | 5.0        |       |
|                                                  |       |          |       |             |       |             |       |             |       |       |       |
| Shareholders’ investment:                        |       |          |       |             |       |             |       |             |       |       |       |
| Common stock and paid-in capital                      |       | 839.6         |       | 1,836.9          |       | 978.7            |       | (2,815.6         | )          | 839.6      |       |
| Retained earnings                                     |       | 951.8         |       | 144.9            |       | (45.9            | )          | (99.0            | )          | 951.8      |       |
| Accumulated other comprehensive loss                  |       | (11.0         | )          | (54.5            | )          | 46.3             |       | 8.2              |       | (11.0      | )          |
|                                                  |       |          |       |             |       |             |       |             |       |       |       |
| Total shareholders investment                         |       | 1,780.4       |       | 1,927.3          |       | 979.1            |       | (2,906.4         | )          | 1,780.4    |       |
|                                                  |       |          |       |             |       |             |       |             |       |       |       |
|                                                  |       | $             | 2,819.9    |             | $          | 2,672.2          |       | $                | 1,337.1    |       | $          | (3,204.2 | ) | $ | 3,625.0 |   |

 

16

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CondensedConsolidating Statements of Cash Flows

ThreeMonths Ended July 3, 2005

(Unaudited)

 
| ** **                                                    | ** ** | **Precision** | ** ** | ** **       | ** ** | **Non-**         | ** ** | ** **       | ** ** | ** ** | ** ** |
|---------------------------------------------------------------|------------|---------------|------------|------------------|------------|------------------|------------|------------------|------------|------------|------------|
| ** **                                                    | ** ** | **Castparts** | ** ** | **Guarantor**    | ** ** | **Guarantor**    | ** ** | ** **       | ** ** | ** ** | ** ** |
| ** **                                                    | ** ** | **Corp.**     | ** ** | **Subsidiaries** | ** ** | **Subsidiaries** | ** ** | **Eliminations** | ** ** | **Total**  | ** ** |
|                                                          |       |          |       |             |       |             |       |             |       |       |       |
| Net cash provided (used) by operating  activities             |       | $             | 16.2       |             | $          | 7.8              |       | $                | 20.8       |       | $          | (4.3 | ) | $ | 40.5 |   |
|                                                          |       |          |       |             |       |             |       |             |       |       |       |
| Acquisitions of businesses                                    |       | (2.5          | )          | —           |       | —           |       | —           |       | (2.5       | )          |
| Capital expenditures                                          |       | —        |       | (11.9            | )          | (4.8             | )          | —           |       | (16.7      | )          |
| Dispositions of businesses and other                          |       | 2.6           |       | 1.5              |       | —           |       | —           |       | 4.1        |       |
|                                                          |       |          |       |             |       |             |       |             |       |       |       |
| Net cash provided (used) by investing  activities             |       | 0.1           |       | (10.4            | )          | (4.8             | )          | —           |       | (15.1      | )          |
|                                                          |       |          |       |             |       |             |       |             |       |       |       |
| Repayment of long-term debt                                   |       | (13.8         | )          | (0.2             | )          | (0.5             | )          | —           |       | (14.5      | )          |
| Proceeds from exercise of stock options                       |       | 3.6           |       | —           |       | —           |       | —           |       | 3.6        |       |
| Cash dividends                                                |       | (2.0          | )          | —           |       | —           |       | —           |       | (2.0       | )          |
| Other financing activities, net                               |       | (3.7          | )          | 4.4              |       | (6.0             | )          | 4.3              |       | (1.0       | )          |
|                                                          |       |          |       |             |       |             |       |             |       |       |       |
| Net cash (used) provided by financing  activities             |       | (15.9         | )          | 4.2              |       | (6.5             | )          | 4.3              |       | (13.9      | )          |
|                                                          |       |          |       |             |       |             |       |             |       |       |       |
| Effect of exchange rate changes on cash and  cash equivalents |       | —        |       | —           |       | (3.5             | )          | —           |       | (3.5       | )          |
| Net cash used by discontinued operations                      |       | —        |       | (0.1             | )          | (1.7             | )          | —           |       | (1.8       | )          |
|                                                          |       |          |       |             |       |             |       |             |       |       |       |
| Net increase in cash and cash equivalents                     |       | 0.4           |       | 1.5              |       | 4.3              |       | —           |       | 6.2        |       |
|                                                          |       |          |       |             |       |             |       |             |       |       |       |
| Cash and cash equivalents at beginning of  year               |       | 84.4          |       | 2.5              |       | 67.0             |       | —           |       | 153.9      |       |
|                                                          |       |          |       |             |       |             |       |             |       |       |       |
| Cash and cash equivalents at end of year                      |       | $             | 84.8       |             | $          | 4.0              |       | $                | 71.3       |       | $          | — |   | $ | 160.1 |   |

 

17

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CondensedConsolidating Statements of Cash Flows

ThreeMonths Ended June 27, 2004

(Unaudited)

 
| ** **                                                    | ** ** | **Precision** | ** ** | ** **       | ** ** | **Non-**         | ** ** | ** **       | ** ** | ** ** | ** ** |
|---------------------------------------------------------------|------------|---------------|------------|------------------|------------|------------------|------------|------------------|------------|------------|------------|
| ** **                                                    | ** ** | **Castparts** | ** ** | **Guarantor**    | ** ** | **Guarantor**    | ** ** | ** **       | ** ** | ** ** | ** ** |
| ** **                                                    | ** ** | **Corp.**     | ** ** | **Subsidiaries** | ** ** | **Subsidiaries** | ** ** | **Eliminations** | ** ** | **Total**  | ** ** |
|                                                          |       |          |       |             |       |             |       |             |       |       |       |
| Net cash provided (used) by operating  activities             |       | $             | 21.6       |             | $          | 23.2             |       | $                | 18.0       |       | $          | (10.8 | ) | $ | 52.0 |   |
|                                                          |       |          |       |             |       |             |       |             |       |       |       |
| Capital expenditures                                          |       | (0.3          | )          | (9.8             | )          | (3.8             | )          | —           |       | (13.9      | )          |
| Investments in subsidiaries                                   |       | 4.5           |       | (10.5            | )          | 6.0              |       | —           |       | —     |       |
| Proceeds from sale of discontinued  operations                |       |          |       |             |       |             |       |             |       |       |       |
| Other investing activities, net                               |       | —        |       | (2.9             | )          | 2.2              |       | —           |       | (0.7       | )          |
|                                                          |       |          |       |             |       |             |       |             |       |       |       |
| Net cash provided (used) by investing  activities             |       | 4.2           |       | (23.2            | )          | 4.4              |       | —           |       | (14.6      | )          |
|                                                          |       |          |       |             |       |             |       |             |       |       |       |
| Net change in short-term borrowings                           |       | —        |       | —           |       | (3.6             | )          | —           |       | (3.6       | )          |
| Repayment of long-term debt                                   |       | —        |       | (0.6             | )          | (0.3             | )          | —           |       | (0.9       | )          |
| Proceeds from exercise of stock options                       |       | 3.1           |       | —           |       | —           |       | —           |       | 3.1        |       |
| Cash dividends                                                |       | (1.9          | )          | —           |       | —           |       | —           |       | (1.9       | )          |
| Other financing activities, net                               |       | 0.1           |       | 0.6              |       | (0.8             | )          | 10.8             |       | 10.7       |       |
|                                                          |       |          |       |             |       |             |       |             |       |       |       |
| Net cash provided (used) by financing  activities             |       | 1.3           |       | —           |       | (4.7             | )          | 10.8             |       | 7.4        |       |
|                                                          |       |          |       |             |       |             |       |             |       |       |       |
| Effect of exchange rate changes on cash and  cash equivalents |       | —        |       | —           |       | (0.3             | )          | —           |       | (0.3       | )          |
|                                                          |       |          |       |             |       |             |       |             |       |       |       |
| Net cash used by discontinued operations                      |       | —        |       | —           |       | (0.8             | )          | —           |       | (0.8       | )          |
|                                                          |       |          |       |             |       |             |       |             |       |       |       |
| Net increase in cash and cash equivalents                     |       | 27.1          |       | —           |       | 16.6             |       | —           |       | 43.7       |       |
|                                                          |       |          |       |             |       |             |       |             |       |       |       |
| Cash and cash equivalents at beginning of  year               |       | 33.2          |       | —           |       | 47.1             |       | —           |       | 80.3       |       |
|                                                          |       |          |       |             |       |             |       |             |       |       |       |
| Cash and cash equivalents at end of year                      |       | $             | 60.3       |             | $          | —           |       | $                | 63.7       |       | $          | — |   | $ | 124.0 |   |

 

18

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**Item2.        Management’s Discussion andAnalysis of Financial Condition and Results of Operations**

 

**ConsolidatedResults of Operations - Comparison Between Three Months Ended July 3, 2005 andJune 27, 2004**

 
| ** **                                                        | ** ** | **Three Months Ended** | ** ** | **Inc/(Dec)** | ** ** |
|-------------------------------------------------------------------|------------|------------------------|------------|---------------|------------|
| ** **                                                        | ** ** | **7/03/05**            | ** ** | **06/27/04**  | ** ** | **$** | ** ** | **%** | ** ** |
|                                                              |       |                   |       |          |       |   |   |   |   |
| Net sales                                                         |       | $                      | 854.6      |          | $          | 668.1 |   | $ | 186.5 |   | 27.9 | % |
| Cost of goods sold                                                |       | 662.3                  |       | 519.0         |       | 143.3 |   | 27.6 |   |
| Selling and administrative expenses                               |       | 63.8                   |       | 58.6          |       | 5.2 |   | 8.9 |   |
| Interest expense, net                                             |       | 10.6                   |       | 14.6          |       | (4.0 | ) | (27.4 | ) |
| Income before income taxes and minority  interest                 |       | 117.9                  |       | 75.9          |       | 42.0 |   | 55.3 |   |
| Income tax expense                                                |       | 39.9                   |       | 24.9          |       | 15.0 |   | 60.2 |   |
| *Effective tax rate*                                              | * *   | *33.8*                 | *%*        | *32.8*        | %          |   |   |   |   |
| Minority interest                                                 |       | (0.3                   | )          | (0.5          | )          | 0.2 |   | 40.0 |   |
| Net income from continuing operations                             |       | 77.7                   |       | 50.5          |       | 27.2 |   | 53.9 |   |
| Net (loss) income from discontinued  operations                   |       | (0.3                   | )          | 3.1           |       | (3.4 | ) | (109.7 | ) |
| Net income                                                        |       | $                      | 77.4       |          | $          | 53.6 |   | $ | 23.8 |   | 44.4 | % |
| Net income per share from continuing  operations – diluted   |       | $                      | 1.15       |          | $          | 0.77 |   | $ | 0.38 |   | 49.4 | % |
| Net income per share from discontinued  operations – diluted |       | —                 |       | 0.04          |       | (0.04 | ) | n/a |   |
| Net income per share - diluted                                    |       | $                      | 1.15       |          | $          | 0.81 |   | $ | 0.34 |   | 42.0 | % |

 

Salesfor the first quarter of fiscal 2006 were $854.6 million, up $186.5 million, or27.9 percent from $668.1 million in the same quarter last year.  Improved economic conditions in the aerospaceand power generation markets led to increased sales in the Investment CastProducts, Forged Products and Fastener Products segments.  According to JSA Research as of October 2004,commercial aircraft deliveries were forecasted to increase approximately 13percent in calendar year 2005 from calendar year 2004 compared with decliningdeliveries since calendar year 2001. Because of manufacturing lead times required to support aircraftdeliveries, PCC began realizing these calendar 2005 forecasted increases in thelatter half of fiscal 2005.  In addition,continued growth in the seamless pipe market led to increased sales in theForged Products segment, and continued expansion of the Company’s metalinjection molding technology in the automotive sector and strength in the pulpand paper market contributed to higher sales in the Industrial Productssegment.

 

Netincome from continuing operations for the first quarter of fiscal 2006 was$77.7 million, or $1.15 per share (diluted). By comparison, net income from continuing operations for the firstquarter of fiscal 2005 was $50.5 million, or $0.77 per share (diluted).  Net income (after discontinued operations)for the first quarter of fiscal 2006 was $77.4 million, or $1.15 per share(diluted), compared with net income of $53.6 million, or $0.81 per share(diluted), in the same period last year.

 

***Interest and Income Tax***

 

Netinterest expense for the first quarter of fiscal 2006 was $10.6 million,compared with $14.6 million for the first quarter last year. The lower expenseis primarily due to lower debt levels, partially offset by higher interestrates compared to the same quarter last year.

 

Theeffective tax rate for the first quarter of fiscal 2006 was 33.8 percent, 1.0 percentagepoint higher than the 32.8 percent effective rate in the same quarter lastyear.  The increase in the effective taxrate is primarily due to increased earnings in jurisdictions with higher taxrates.

 

19

----

 

***Restructuring***

 

Taking into consideration current and forecasted conditions in marketsserved by the Company, PCC regularly assesses its cost structure to ensure thatoperations are properly sized for prevailing market conditions.  Based on the Company’s most recentassessment, there are no current plans to restructure operations in fiscal2006.

 

***Discontinued Operations***

 

Inthe second quarter of fiscal 2005, the Company entered into agreements to sellall of the pumps and valves businesses of PCC Flow Technologies with theexception of E-One.  The businesses heldfor sale were reclassified from the Fluid Management Products segment todiscontinued operations.  The E-One businesswas retained and is now included in the Industrial Products segment.  With the exception of PCC Eurovalves, thesale of the pumps and valves businesses of PCC Flow Technologies was completedin the third quarter of fiscal 2005.  PCCEurovalves, which is located in The Netherlands, continues to be marketed.

 

Inconnection with the SPS acquisition, three businesses – Magnetics, Mohawk, andDacar – were classified as held for sale in the third quarter of fiscal2004.  Dacar was sold in late September2004, Magnetics was sold in January 2005, and Mohawk was sold in April 2005.

 

Thenet loss from discontinued operations was $0.3 million in the first quarter offiscal 2006 compared with net income of $3.1 million, or $0.04 per share(diluted), in the same quarter last year. The net loss from discontinued operations in the current quarterconsists primarily of operating results from PCC Eurovalves, Magnetics andMohawk.  Net income from discontinuedoperations in the first quarter of last year principally reflects operatingresults from the pumps and valves businesses of PCC Flow Technologies.

 

20

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**Resultsof Operations by Segment – Comparison Between Three Months Ended July 3, 2005and June 27, 2004**

 
| ** **                                        | ** ** | **Three Months Ended** | ** ** | **Inc/(Dec)** | ** ** |
|---------------------------------------------------|------------|------------------------|------------|---------------|------------|
| ** **                                        | ** ** | **07/03/05**           | ** ** | **06/27/04**  | ** ** | **$** | ** ** | **%** | ** ** |
| ** **                                        | ** ** | ** **             | ** ** | ** **    | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net sales:                                        |       |                   |       |          |       |   |   |   |   |
| Investment Cast Products                          |       | $                      | 387.3      |          | $          | 303.4 |   | $ | 83.9 |   | 27.7 | % |
| Forged Products                                   |       | 204.0                  |       | 145.1         |       | 58.9 |   | 40.6 |   |
| Fastener Products                                 |       | 202.6                  |       | 164.1         |       | 38.5 |   | 23.5 |   |
| Industrial Products                               |       | 60.7                   |       | 55.5          |       | 5.2 |   | 9.4 |   |
| Consolidated net sales                            |       | $                      | 854.6      |          | $          | 668.1 |   | $ | 186.5 |   | 27.9 | % |
| Operating income (loss):                          |       |                   |       |          |       |   |   |   |   |
| Investment Cast Products                          |       | $                      | 74.6       |          | $          | 55.0 |   | $ | 19.6 |   | 35.6 | % |
| *% of sales*                                      | * *   | *19.3*                 | *%*        | *18.1*        | %          |   |   |   |   |
| Forged Products                                   |       | 22.8                   |       | 18.4          |       | 4.4 |   | 23.9 |   |
| *% of sales*                                      | * *   | *11.2*                 | *%*        | *12.7*        | %          |   |   |   |   |
| Fastener Products                                 |       | 31.1                   |       | 16.6          |       | 14.5 |   | 87.3 |   |
| *% of sales*                                      | * *   | *15.4*                 | *%*        | *10.1*        | %          |   |   |   |   |
| Industrial Products                               |       | 11.7                   |       | 9.3           |       | 2.4 |   | 25.8 |   |
| *% of sales*                                      | * *   | *19.3*                 | *%*        | *16.8*        | %          |   |   |   |   |
| Corporate expense                                 |       | (11.7                  | )          | (8.8          | )          | (2.9 | ) | (33.0 | ) |
| Consolidated segment operating income             |       | 128.5                  |       | 90.5          |       | 38.0 |   | 42.0 | % |
| *% of sales*                                      | * *   | *15.0*                 | *%*        | *13.5*        | %          |   |   |   |   |
| Interest expense, net                             |       | 10.6                   |       | 14.6          |       |   |   |   |   |
| Income before income taxes and minority  interest |       | $                      | 117.9      |          | $          | 75.9 |   |   |   |   |   |

 

***Investment Cast Products***

 

InvestmentCast Products’ sales increased 27.7 percent from $303.4 million in the firstquarter of fiscal 2005 to $387.3 million this year.  Operating income increased 35.6 percent from$55.0 million in the first quarter of fiscal 2005 to $74.6 million in the samequarter this year.  Operating income as apercent of sales also increased from 18.1 percent to 19.3 percent ofsales.  The increase in sales was drivenby continued recovery in the power generation and aerospace markets, with solidaftermarket growth as well as market share gains.  The increase in operating income reflectedthe impact of the higher sales volume and operating improvements, partiallyoffset by lower selling prices and higher raw material costs, mainly nickel andtitanium, which have increased approximately 30 percent and 120 percent,respectively, on the London Metal Exchange (LME) and TI 6-4 Bulk WeldablesIndex (metalprices.com) compared to the same quarter last year.  The improvement in operating margins as apercentage of sales was mainly due to the leverage from higher sales volumesand improved manufacturing performance, partially offset by the impact of lowerselling prices, higher raw material costs and pass-through pricing.

 

Sales within this segment are expected to continue to benefit fromimproved conditions in the aerospace and power generation markets through theremainder of fiscal 2006.  Operatingmargins as a percent of sales are also expected to continue to improve infiscal 2006 as a result of leverage from higher sales volume and continuedimprovements in operating efficiencies, partially offset by the impact ofpass-through pricing.

 

21

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***Forged Products***

 

ForgedProducts’ sales were $204.0 million for the quarter, an increase of 40.6percent, compared to sales of $145.1 million in the first quarter of fiscal2005.  Operating income increased 23.9percent from $18.4 million in the first quarter of fiscal 2005 to $22.8 millionin the same quarter this year, while operating income as a percent of sales decreasedfrom 12.7 percent to 11.2 percent.  Whilethe increase in sales includes approximately $21.0 million of higher pricesrelated to pass-through of higher material costs, the remaining volume increase($37.9 million) was principally due to increased demand for aerospace productsand continued penetration into the Chinese power generation market with highersales of extruded pipe.  Operating incomeas a percent of sales benefited in the current quarter from the higher volume,but was lower than last year due to higher material costs, mainly nickel andtitanium, which have increased approximately 30 percent and 120 percent,respectively, on the LME and TI 6-4 Bulk Weldables Index (metalprices.com)since the first quarter of fiscal 2005, and by dilution resulting frompass-through pricing.

 

Sales and operating income for the remainder of fiscal 2006 within theForged Products segment are expected to benefit from continued growth in theaerospace and industrial gas turbine markets, as well as continued growth inextruded pipe sales.

 

***Fastener Products***

 

The Fastener Productssegment reported $202.6 million of sales with operating income of $31.1million, or 15.4 percent of sales, in the first quarter of fiscal 2006,compared to sales of $164.1 million and operating income of $16.6 million, or10.1 percent of sales, in the first quarter of fiscal 2005.  The increase in sales was due to the additionof Air Industries Corp., which was acquired in March 2005, and the favorableimpact of strong aerospace sales.  Operatingincome as a percent of sales benefited from the higher sales volume and theimpact of continued cost take-outs and stream-lined manufacturing processes.

 

Sales within this segmentare expected to continue to grow during the remainder of fiscal 2006 as aresult of improved conditions in the aerospace industry and market sharegains.  Operating income as apercentage of sales should also improve due to continuing realization of synergies, costtake-outs and leverage from higher sales.

 

***Industrial Products***

 

IndustrialProducts’ sales of $60.7 million for the first quarter of fiscal 2006 increased9.4 percent from $55.5 million in the same period last year.  Operating income improved to $11.7 million inthe first quarter of fiscal 2006 compared with $9.3 million in the same periodlast year.  Operating income as a percentof sales improved to 19.3 percent in the first quarter of fiscal 2006 from 16.8percent in the same period last year. The increase in sales compared to last year reflects market share gainsin the automotive industry, and improving conditions in the aerospace and pulpand paper markets.  The improvement inoperating margin as a percent of sales compared to the first quarter of fiscal2005 is primarily due to leverage from the higher sales volume, as well asbenefits realized from increased production at low-cost manufacturingfacilities in Hungary and India.

 

The Industrial Products segment is expected to continue to benefit fromthe consolidation of the Reed-Rico and the SPS tool businesses, which willincrease PCC’s worldwide share of the fastener tooling market.  Operating income as a percentage of sales isexpected to continue to increase through fiscal 2006 as a result of improvedcost structures and leverage from higher volume.

 

22

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**Changesin Financial Condition and Liquidity**

 

Totalassets of $3,643.4 million at July 3, 2005 represented an $18.4 millionincrease from the $3,625.0 million balance at April 3, 2005.  This increase principally reflects highercash balances and working capital assets required to support expected revenuegrowth.  Total capitalization at July 3,2005 was $2,669.9 million, consisting of $828.5 million of debt and $1,841.4million of equity. The debt-to-capitalization ratio improved to 31.0 percentfrom 32.1 percent at the end of fiscal 2005 and 37.7 percent at June 27, 2004.

 

Cashas of July 3, 2005 was $160.1 million, up $6.2 million from the end of fiscal2005, and total debt was $828.5 million, down $14.5 million since the end offiscal 2005, together reflecting total positive cash flow of $20.7 millionduring the first three months of fiscal 2006. The increase in cash flow was principally due to $114.7 million of netincome from continuing operations, adjusted for $25.2 million of depreciationand amortization and $11.8 million of deferred taxes, and $3.6 million from thesale of common stock through stock option exercises.  Cash requirements for the first three monthsof fiscal 2006 included $64.4 million for increased working capital, $16.7million for capital expenditures, $2.0 million for dividends, $1.8 million fordiscontinued operations and $12.7 million for other activities, including $23.0million of pension contributions, of which $16.4 million were voluntary.

 

Capitalspending during fiscal 2006, which is expected to exceed fiscal 2005 capitalspending by approximately $50.0 million, will principally provide for equipmentmaintenance and upgrades, capacity expansion, and safety and cost reductionprojects.  Company contributions to itsdefined benefit pension plans are expected to be approximately $82.0 millionduring fiscal 2006, of which $67.0 million will be voluntary.

 

Managementbelieves that the Company can fund requirements for working capital, pensionand other postretirement benefit obligations, capital spending, cash dividends,scheduled repayment of debt and potential acquisitions from cash generated fromoperations, borrowing from existing or new bank credit facilities, issuance ofpublic or privately placed debt securities, or the issuance of equityinstruments.

 

**Forward-Looking Statements**

 

Information included within this Form 10-Q 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 future periods may differ materially from theforward-looking statements because of a number of risks and uncertainties,including but not limited to fluctuations in the aerospace, power generation,automotive, and other general industrial cycles; the relative success of theCompany’s entry into new markets; competitive pricing; the financial viabilityof the Company’s significant customers; the availability and cost of energy,materials, supplies, and insurance, the cost of pension and postretirementmedical benefits; equipment failures; relations with the Company’s employees;the Company’s ability to manage its operating costs and to integrate acquiredbusinesses in an effective manner; governmental regulations and environmentalmatters; risks associated with international operations and world economies;the relative stability of certain foreign currencies; and implementation of newtechnologies and process improvements. Any forward-looking statements should 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.  Quantitativeand Qualitative Disclosures About Market Risk**

 

Therehave been no material changes to the Company’s market risk exposure since April3, 2005.

 

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**Item 4. Controls and Procedures**

 

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

 

**PART II.  OTHERINFORMATION**

 

**Item 1.  LegalProceedings**

 

None.

 

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

 

None.

 

**Item 3.  Defaults UponSenior Securities**

 

None.

 

**Item 4.    Submission ofMatters to a Vote of Security Holders**

 

None.

 

**Item 5.  OtherInformation**

 

None.

 

**Item 6.  Exhibits**

 

(a) 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.

 

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SIGNATURE

 

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

 

 
|                   | PRECISION  CASTPARTS CORP.                                                                        |
|------------------------|---------------------------------------------------------------------------------------------------|
|                   | Registrant                                                                                        |
|                   |                                                                                              |
|                   |                                                                                              |
| DATE:  August 12, 2005 | /s/  William D. Larsson                                                                           |   |
|                   | William  D. Larsson                                                                               |
|                   | Senior  Vice President and  Chief Financial Officer  (Principal Financial and Accounting Officer) |

 

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