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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

Commission File No. 1-10348

PRECISION CASTPARTS CORP.
(Exact name of registrant as specified in its charter)

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes     X     No            

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.            

Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes     X     No            

The aggregate market value of voting stock held by non-affiliates of the Registrant as of September 26, 2004, was $3,892,818,146.

As of the close of business on June 8, 2005, the Registrant had 66,278,094 shares of Common Stock, without par value, outstanding.

Portions of the Registrant's Proxy Statement to be filed in connection with the 2005 Annual Meeting of Shareholders are incorporated by reference in Part III.

Precision Castparts Corp. & Subsidiaries

PART I

ITEM 1. BUSINESS

    Precision Castparts Corp. ("PCC" or "the Company"), a worldwide manufacturer of complex metal components and products, provides high-quality investment castings, forgings, and fasteners/fastener systems for critical aerospace and industrial gas turbine applications. The Company also provides: investment castings and forgings for general industrial, automotive, armament, medical and other applications; fasteners for automotive and general industrial markets; specialty alloys, waxes and metal processing solutions for the investment casting industry; refiner plates, screen cylinders, refiner rebuilds and other products for the pulp and paper industry; metal-injection-molded and ThixoFormed™ parts for automotive and other markets; metal-matrix-composite components for the electronics, transportation and communications industries; sewer systems; utility systems; and metalworking tools for the fastener market and other applications.

Products and Markets

    We manufacture complex metal components and products in four principal business segments: Investment Cast Products, Forged Products, Fastener Products and Industrial Products. Each of these four business segments is described below.

Investment Cast Products

    Our Investment Cast Products segment includes our subsidiaries PCC Structurals and PCC Airfoils. These operations manufacture investment castings for aircraft engines, industrial gas turbine ("IGT") engines, airframes, medical prostheses and other industrial applications primarily in the aerospace and power generation markets. The segment also includes the Specialty Materials and Alloys Group ("SMAG") operations, which provides alloys and waxes to PCC's investment casting operations, as well as to other companies with investment casting operations. The Investment Cast Products segment accounted for approximately 47 percent of our sales in fiscal 2005.

    We are the market leader in manufacturing large, complex structural investment castings, and we are the leading manufacturer of airfoil investment castings used in jet aircraft engines. We manufacture investment castings for every jet aircraft engine program in production or under development by our key customers. We are also the market leader in manufacturing structural and airfoil investment castings for IGT and aeroderivative engines used for electric power generation, and we have expanded into the structural airframe and armament markets. In addition, we make investment castings for use in the automotive, medical prosthesis, satellite launch vehicle and general industrial markets.

    Investment casting technology involves a technical, multi-step process that uses ceramic molds in the manufacture of metal components with more complex shapes, closer tolerances and finer surface finishes than parts manufactured using other casting methods. The investment casting process begins with the creation of a wax pattern of the part to be cast, along with pathways through which molten metal flows into the ceramic mold. A ceramic shell is then formed around the wax pattern, followed by removal of the wax from the ceramic shell by melting and draining the wax. Finally, molten metal is poured into the ceramic shell, the shell is removed after the metal cools, and the part undergoes final processing and inspection.

    Because of the complexity of the manufacturing process and the application of proprietary technologies, we believe we are currently one of the few manufacturers that can consistently produce the largest complex structural investment castings in quantities sufficient to meet our customers' quality and delivery requirements. Our emphasis on low-cost, high-quality products and timely delivery has enabled us to become the leading supplier of structural and airfoil castings for jet aircraft and IGT engines and to expand into the structural airframe and armament markets.

    The commercial aerospace market cycle is a critical determinant of demand for our precision investment casting products. In fiscal 2002, the major economies of the United States and Europe began to slow, and, with the terrorist attacks on September 11, 2001, air travel declined significantly, resulting in several large bankruptcies and weak financial conditions for other commercial airline companies. This situation reduced demand for our commercial aerospace products, offset partially by military production, which increased in the aftermath of September 11. At the outset of fiscal 2005, however, the commercial replacement market began a vigorous and sustained recovery, followed by growth in deliveries of commercial aircraft, driven by higher production rates at Airbus and Boeing.

    Large jet aircraft engines are manufactured by a small number of suppliers, including General Electric, Pratt & Whitney, Rolls-Royce and several joint ventures. As a result, we believe a high level of customer service and strong, long-term customer relationships will continue to be important to achieving our goals. We have been supplying castings for jet engines to GE for more than 40 years, and we have been supplying Pratt & Whitney (a division of United Technologies) with castings for more than 30 years for its military and commercial jet engines. In addition, we have supplied small structural investment castings to Rolls-Royce for nearly 25 years and large, structural castings for nearly 20 years, most recently for use in its Trent series of jet aircraft engines. As we have been able to cast larger and more complex parts, manufacturers of large jet aircraft engines have made increasing use of our structural castings.

Aerospace Structural Castings

    Our structural castings business includes the largest diameter stainless steel, nickel-based superalloy and titanium investment castings in the world, as well as a variety of smaller structural castings. These castings are stationary components that form portions of the fan, compressor, combustor and turbine sections of a jet aircraft engine, where strength and structural integrity are critical. Structural investment castings are sold primarily as original equipment to jet aircraft engine manufacturers.

    We believe that trends in the manufacturing of aircraft jet engines will continue to increase our revenue per engine. As the design of new generation aircraft engines has emphasized increased thrust, higher fuel efficiency and reduction of noise and exhaust emissions, engine operating temperatures and pressures have increased. These conditions require the use of engine parts made of alloys that are able to withstand extreme operating conditions and provide an optimum strength-to-weight ratio. Many of these alloys are particularly suited for use in the investment castings we manufacture. In addition, titanium, a metal with a lower melting temperature than stainless steel or superalloys, is used in all but the hottest parts of the engine because of its considerable weight savings. Titanium is an exceptionally difficult metal to cast because of its reactivity to other elements. However, we have developed the necessary technology and manufacturing processes to cast large, complex investment castings in titanium alloys. Many new generation engines, which are expected to be built through the next

Precision Castparts Corp. & Subsidiaries    1

decade and beyond, make significantly greater use of our products than did previous engine designs.

    We have also expanded into the structural airframes market through the production of airframe components manufactured primarily from titanium and aluminum alloys. Aircraft manufacturers have shown substantial interest in using investment castings for airframe applications such as titanium aileron and flap hinges, pylons (engine mounts), wing spars and wing ribs, as well as aluminum alloy nacelle segments (thrust reversers), cascades, aircraft access doors, electronic boxes and pump housings for hydraulic and fuel systems.

Aerospace Airfoil Castings

    We manufacture precision cast airfoils, which include the stationary vanes and rotating blades used in the turbine section of jet aircraft engines. This part of the engine is considered the "hot" section, where temperatures may exceed 2,400 degrees Fahrenheit. These conditions require use of special nickel-based superalloys and special casting techniques to manufacture airfoil castings with internal cooling passages that provide both high performance and longer engine life.

    We use various casting technologies to produce turbine airfoils. We employ conventional casting processes to produce equiaxed airfoil castings, in which the metal grains are oriented randomly throughout the casting. A more advanced process enables us to produce directionally solidified ("DS") airfoil castings, in which the metal grains are aligned longitudinally. This alignment decreases the internal stress on the weakest portion of a metal part where the various grains adjoin, thereby providing increased strength and improved efficiencies in engine performance over equiaxed parts. An even more advanced process enables us to produce single crystal ("SX") airfoil castings, which consist of one large superalloy crystal without grain boundaries. SX castings provide greater strength and performance characteristics than either equiaxed or DS castings, as well as longer engine life.

    As engine sizes grow to generate greater thrust for larger aircraft, the turbine sections of these engines must work harder and burn hotter. As a result, the major aircraft engine manufacturers have increasingly been designing their engines with a greater number of DS and SX blades. The DS and SX cast airfoils we build, with their complex cooling passages, have been instrumental in enabling these engines to operate at higher temperatures. SX cast airfoils are used in both new and redesigned engines where performance requirements are higher.

    The demand for aerospace airfoil castings is determined primarily by the number and type of engines required for new jet aircraft, the intervals between hot section maintenance, driven by engine cycles (takeoffs and landings), and the inventory levels of replacement parts maintained by the principal jet aircraft engine manufacturers and repair centers. A jet engine's airfoil components have shorter useful lives than structural investment castings and are replaced periodically during engine maintenance. As a result, our sales of aerospace airfoil castings are less affected by the cyclical patterns of the aerospace industry than are our sales of structural investment castings. The timing for replacement of aerospace airfoil castings principally depends on engine cycles and the expected life of the airfoil casting. Based upon information from our major customers, we believe that more than half of our sales of airfoil castings used in aircraft turbine engines are replacement parts.

IGT Castings

    In fiscal 1994, we began to focus on the manufacture of investment castings for IGT engines. We targeted this market because (1) the performance and reliability standards we have developed in the manufacture of aerospace castings were applicable to the manufacture of IGT castings, (2) the worldwide market for IGT castings was large and growing, and (3) there were a small number of suppliers in this market. Due to recent contractual gains, our market share has increased significantly, and we believe we are the leading supplier of investment castings used in IGT engines. Domestic IGT production began declining in calendar 2001 due to weak economic conditions and falling demand for power generation capacity. However, vigorous aftermarket activity began to emerge in fiscal 2005, as IGT engines delivered before the decline now require overhaul and replacement of critical components. Also in fiscal 2005, PCC's IGT business benefited from continued market share gains and the beginning stages of a recovery in OEM deliveries. Our IGT products consist of airfoil castings and high-temperature combustion hardware used in large, land-based gas turbines designed for electrical power generation. In addition, we manufacture structural and airfoil castings for aeroderivative gas turbine engines, which are also used for power generation, as well as for other commercial and military land and marine-based applications.

    IGT manufacturers have significantly improved the efficiency and reduced the pollution profiles of industrial gas turbines, principally by incorporating advanced components in new engines as well as in refurbished and upgraded turbines in the field. We have leveraged our DS and SX airfoil casting knowledge from the aerospace market into the IGT market to produce blades and vanes that are better able to withstand the extreme heat and stresses of new higher-temperature gas turbines. IGT engines are built with investment castings that are similar, but generally larger, than blades and vanes we manufacture for the aerospace market. Because of their size, IGT airfoils are generally more difficult to cast than smaller aerospace airfoils with the same properties.

    Since industrial gas turbines are primarily used in electrical power generation, castings sales for new IGT engines are tied to the growth of global electricity consumption, while demand for replacement parts depends on the size and usage rate of the installed base.

Other Investment Casting Products

    Our strategy for profitable growth also includes the pursuit of other opportunities for our existing investment casting technology. We have been expanding the application of our investment casting technology in the medical prosthesis, automotive, satellite and general industrial markets by manufacturing such products as artificial hips and knees, turbocharger wheels, parts for satellite launch vehicles and impellers for pumps and compressors. In addition, we are manufacturing an increasing number of large titanium components for armament systems, including the BAE lightweight howitzer, which entered full-scale production in fiscal 2005.

Specialty Materials and Alloys

    With the acquisition of SPS Technologies, we were able to realize valuable vertical integration opportunities, particularly in the area of the investment casting supply chain. SMAG provides alloys and waxes to the Company's investment casting operations, as well as to other companies with investment casting or other

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foundry operations. SMAG is comprised of Cannon Muskegon, M. Argüeso & Company ("Argüeso"), and Greenville Metals, Inc.

    Cannon Muskegon produces several patented and trademarked alloys formulated specifically for the casting of directionally solidified and single crystal airfoils that operate in high-temperature, high-stress engine environments. Cannon Muskegon supplies alloys to us, as well as other companies with investment casting operations. The alloys produced by Cannon Muskegon also serve such diverse markets as medical, recreational and general industrial.

    Argüeso manufactures advanced technology investment casting wax blends for us and other companies with investment casting operations. In addition, Argüeso serves the machining industry with Rigidax® tooling compound, a patented product used to prevent part vibration or movement during a machining operation.

    Greenville Metals, Inc. provides metallurgical process solutions and services worldwide for us and other companies that require the melting and processing of specialty alloys. Major markets include specialty alloy producers and foundries, permanent magnet and powder metal manufacturers and other industries with special metallurgical requirements.

Forged Products

    We are among the leading manufacturers of forged products for the aerospace and power generation markets. Forged Products' aerospace and IGT sales are primarily derived from the same large engine customers served by the Investment Cast Products segment, with additional aerospace sales to manufacturers of landing gear and other airframe components. Similarly, the dynamics of the aerospace and power generation markets, as described in the Investment Cast Products section above, are virtually the same for Forged Products. The Forged Products segment accounted for approximately 22 percent of our sales in fiscal 2005.

    We manufacture forged components from sophisticated titanium and nickel-based alloys for jet engines, including fan discs, compressor discs, turbine discs, seals, spacers, shafts, hubs and cases. Our airframe structural components are used on both commercial and military aircraft and include landing gear beams, bulkheads, wing structures, engine mounts, struts and tail flaps and housings. These parts are made of titanium, steel or other alloys. We provide forged products for use in power plants worldwide, as well as in oil and gas industry applications. These products include discs, spacers and valve components for land-based steam turbine and industrial gas turbine engines, as well as shafts, cases and compressor and turbine discs for marine gas engines. We also produce a variety of mechanical and structural tubular forged products, primarily in the form of extruded seamless pipe, for the domestic and international energy markets, which include nuclear and fossil-fueled power plants, co-generation projects and retrofit and life-extension applications. The backlog for seamless pipe, driven primarily by coal-fired power plant installations in China, grew dramatically in fiscal 2005. For naval defense applications, we supply forged components for propulsion systems on nuclear submarines and aircraft carriers, as well as forgings for pumps, valves and structural applications.

    Our forging business, which employs seven different manufacturing processes, involves heating titanium, steel or high-temperature nickel alloys, and then shaping them through pressing or extrusion, using hydraulic and mechanical presses with capacities ranging up to 55,000 tons. The process employed is determined based on the raw materials and the product application. The seven manufacturing processes are summarized below:

Open-Die Forging – In this process, the metal is pressed between dies that never completely surround the metal, thus allowing it to be observed during the process. This manufacturing method is used to create relatively simple, preliminary shapes to be processed further by closed-die forging.

Closed-Die Forging – Closed-die forging involves pressing heated metal into required shapes and sizes determined by machined impressions in specially prepared dies that completely surround the metal. This process allows the metal to flow more easily within the die cavity and, thus, produces forgings with superior surface finish and tighter tolerances, with enhanced repeatability of the part shape.

Hammer Forging – This form of closed-die forging uses multiple impact blows to shape a component between specially contoured dies. Forging hammers can be classified into two main types: single action and counterblow. Our counterblow hammers, which couple upper and lower ram movement to produce the impact forces required for large components, can offer improved near-net-shape capability compared to conventional press forging. Hammer forging is one of the oldest forging processes; however, computer-controlled technology has enabled the process to meet modern manufacturing requirements.

Conventional/Multi-Ram – The closed-die, multi-ram process, which is employed on our 20,000 and 30,000 ton presses, enables us to produce complex forgings with multiple cavities, such as valve bodies, in a single heating and pressing cycle. Dies may be split on either a vertical or a horizontal plane, and shaped punches may be operated by side rams, piercing rams or both. This process also optimizes grain flow and uniformity of deformation and reduces machining requirements.

Isothermal Forging – Isothermal forging is a closed-die process in which the dies are heated to the same temperature as the metal being forged, typically in excess of 1,900 degrees Fahrenheit. Because the dies may oxidize at these elevated temperatures, this process is performed in a vacuum or inert gas atmosphere. Our isothermal press produces near-net shape components, requiring less machining by our customers.

Extrusion – The extrusion process is capable of producing thick-wall, seamless pipe, with outside diameters of up to 48 inches and a wall thickness from 0.5 inches up to 7 inches for applications in the power generation and oil and gas industry, including tension leg platforms, riser systems and production manifolds. Our 35,000-ton vertical extrusion press is one of the largest and most advanced in the world. In addition to solid metals, powdered materials can be compacted and extruded into forging billets with this press, and more recently, we are using the press to convert nickel-based alloy ingots into billets.

Ring rolling – Ring rolling begins by cutting a billet to length depending upon the volume of the finished ring, then heating the billet, typically to temperatures in excess of 3,000 degrees Fahrenheit, and using the open die forging process to produce a rough-ring shape, or preform, resembling a pancake. This "pancake" is then reheated and placed over a mandrel on the ring mill, which applies radial and axial pressure to the wall of the ring, causing it to grow in diameter. Different tooling shapes may be used at this point to create contour forged rings. At the

Precision Castparts Corp. & Subsidiaries    3

completion of the rolling process, expanders are used to size the ring to its final dimensions.

    We believe that we are the world leader in producing forged rotating components for use in jet aircraft engines. These parts are forged from ingots, which are converted to billets in our cogging and extrusion presses and from metal powders (primarily nickel alloys) that are produced, consolidated and extruded into billets entirely in our own facilities.

Fastener Products

    With the acquisition of SPS Technologies, Inc., we have become a leading developer and manufacturer of highly engineered fasteners, fastener systems and precision components, primarily for critical aerospace and automotive applications. More than 50 percent of Fastener Products sales come from the same aerospace customer base already served by our Investment Cast Products and Forged Products segments. In this regard, Fastener Products is subject to many of the same market forces as these other two segments. The balance of the segment's sales derives from automotive and general industrial markets, including farm machinery, construction equipment, machine tools, medical equipment, appliances and recreation. The Fastener Products segment accounted for approximately 24 percent of our sales in fiscal 2005.

    Fastener manufacturing begins with wire or metal bar of various diameters, which is cut into fastener blanks of prescribed lengths and then heat treated. Using highly engineered tools and thread dies, the fastener blanks are then formed into complex head shapes and thread configurations to meet exacting customer requirements.

    Our aerospace fasteners are manufactured from nickel and titanium alloys and are used on airframes, jet engines, aircraft wheels and brakes and landing gear assemblies. They are found in such flight- and safety-critical areas as the wing-to-fuselage, the stabilizers-to-fuselage, and the engine-to-wing connections on an aircraft, and the airfoil-to-disc and disc-to-shaft connections on a jet engine. These fasteners are not only incorporated in new aircraft builds but are also integrally involved in the replacement cycle, particularly in aircraft engine and wheel and brake applications. The product line includes a variety of bolts, nuts, plate nuts, inserts, washers and other precision components. While the fasteners are produced to demanding customer designs, we continue to be active in developing several trademarked alloys for applications requiring high strength, elevated temperature, corrosion resistance and/or lighter weight. These include MULTIPHASE® and AEREX® nickel-based alloys and the SPS TITAN® family of titanium alloys.

    Our engineered fasteners, manufactured from a variety of steel, nickel, and titanium alloys are used in automotive applications, including power trains; suspensions; steering, airbag, and seating systems; and chassis assemblies. These products have also penetrated other markets requiring proven strength, close dimensional tolerance, and high reliability, such as diesel, mining, construction, heavy truck and niche general industrial applications. We have developed a broad range of technically advanced proprietary products under the brand names of UNBRAKO®, FLEXLOC®, DURLOK® and DURLOK II®, TORX®, TRU-FLEX®, TAPTITE® and MAThread™.

    In March 2005, we completed the acquisition of Air Industries Corporation ("AIC"), a leading manufacturer of airframe fasteners, which include bolts, pins and screws made from titanium and nickel-based alloys. AIC's significant presence in structural airframe bolts and its expertise in titanium fastener products greatly expanded our manufacturing capabilities and the range of fastener product families we can offer to our customers.

Industrial Products

    The Industrial Products segment includes our subsidiaries J&L Fiber Services, Advanced Forming Technology ("AFT"), Environmental One ("E/One") and the PCC Precision Tool Group ("PTG"). J&L Fiber Services produces refiner plates and screen cylinders for use in the pulp and paper industry and rebuilds refiner equipment that is used in the pulping process. AFT manufactures metal-injection-molded, metal-matrix-composite and ThixoFormed™ components for numerous industrial applications. E/One produces low pressure sewer systems for residential and commercial applications and monitoring units utilized in the power generation industry. PTG manufactures a broad range of thread-rolling dies, trimming dies, punches and pins, and steel and carbide forging tools for fastener production, principally for the automotive, aerospace and general industrial and other applications. The Industrial Products segment accounted for approximately 7 percent of our sales in fiscal 2005.

Refiner Plates and Screen Cylinders

    We are the world leader in the design, manufacture and sale of refiner plates to the pulp and paper production markets. Refiner plates, which are highly engineered metal castings, are an integral part of the wood pulping process. Refiner plates separate wood chips into component fibers as pulp is transported through the system. The design of the refiner plate affects the ultimate quality of the paper produced. In addition, we manufacture conventional and rebuildable screen cylinders. Screen cylinders are metal filtering devices that separate the usable wood fiber from undesirable elements in the pulp slurry mix. We also rebuild refiner equipment that is used in the pulping process. Approximately 95 percent of J&L Fiber Services' sales are derived from replacement parts.

Metal-Injection-Molded, Metal-Matrix-Composite and ThixoFormed™ Components

    We are the largest producer of powdered metal parts manufactured by the metal-injection-molding ("MIM") process. In addition, we manufacture advanced technology, lightweight, net-shape, metal-matrix-composite parts that are made by combining aluminum and silicon carbide ("AlSiC," a registered trademark of the Company) using a patented pressure-infiltration-casting process. We have also expanded into ThixoForming™, an advanced technology alternative to conventional die casting, in which materials such as magnesium are injected in a semi-solid (thixotropic) state into a mold under vacuum conditions. The result is a high-density, complex component with superior materials properties and precise dimensional tolerances as compared to a die-cast part. We believe these businesses have the potential for rapid growth and complement our core competencies in metals, precision metalworking and the management of complex manufacturing processes.

    The MIM process is particularly well-suited to high volume production of small, complicated metal parts for numerous industries, including automotive, power tools, firearms, computer peripherals, medical instruments and electronics. Metal-matrix-composite parts, which have high thermal conductivity and tightly controlled thermal expansion characteristics, are used in electronic applications that require heat dissipation and are used in

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automotive, telecommunication, transportation, aerospace and computer products. ThixoFormed™ components are used in automotive, electronic and other consumer products. We believe our broad range of products and high standards of craftsmanship offer growth opportunities in numerous industry applications.

Sewer Systems and Utility Systems

    We are the leading manufacturer of advanced technology sewer systems that provide an alternative to traditional gravity sewers. Gravity systems must be accurately placed and bedded along a continuous downward grade, usually involving a large main and major excavation costs to install. E/One's low-pressure sewer systems require only a shallow trench and small two-to-four-inch-diameter piping, providing application flexibility for septic tank replacement and installation in terrains where gravity systems will not function. In addition, our E/One utility systems provide condition monitoring and predictive maintenance for electric utilities and independent power producers. These products range from critical gas monitoring units to peripheral auxiliaries associated with generator gas cooling and seal oil systems.

Metalworking Tools

    The Precision Tool Group, which is comprised of Reed-Rico®, Hi-Life Tools, Howell Penncraft and Forming Tool Management ("FTM") business units, manufactures and supplies consumable, precision tools to worldwide markets. Our products encompass the complete range of tools required by fastener and special-formed parts manufacturers in the aerospace, automotive and general industrial sectors. Major products include thread-rolling dies, trimming dies, punches and pins, and steel and carbide forging tools. Our comprehensive range of tooling is manufactured in a variety of materials, heat treatment and surface treatment combinations to optimize tool life and "tool ownership" costs for our customers. Our tooling business includes product lines manufactured under the names Reed-Rico®, Astro Punch®, Howell Penncraft, Hi-Life Tools and Titan®.

Sales and Distribution

    We sell our complex metal components and products into four major market areas: aerospace, power generation, automotive and general industrial and other. The percentage of sales to these markets is shown below for fiscal years 2005, 2004 and 2003.

    Our sales to the aerospace market of $1,609.8 million in fiscal 2005 increased 36 percent from $1,184.5 million in fiscal 2004. Sales to the aerospace market as a percentage of total net sales, however, decreased from 62 percent in fiscal 2004 to 55 percent in fiscal 2005.

    Our sales of investment castings products and forged products are made through direct sales personnel located in each business operation and through field sales representatives located at U.S. and international locations near our major customers. Our fastener products and services are sold by a direct sales and marketing staff and through a worldwide network of independent sales representatives and distributors. Industrial metalworking tools and machines and other metal products are sold by both internal sales forces and sales representatives in the U.S., Europe, Asia, Australia and Latin America. Due to the sophisticated nature of our products, our sales efforts require technical personnel to work closely with customers to identify and assist in the development of new and modified products and to provide other services that are necessary to obtain new and repeat orders.

Precision Castparts Corp. & Subsidiaries    5

Major Customers

    Sales to General Electric were 16.5 percent, 22.2 percent and 29.1 percent of total sales in fiscal 2005, 2004 and 2003, respectively, as follows:

    No other customer accounted for more than 10 percent of total sales; however, United Technologies and Rolls Royce are also considered our key customers and the loss of their business could have a material adverse effect on the Company's financial results.

Backlog

    The backlog of unfilled orders believed to be firm at the end of each of our last three fiscal years was $2,344.4 million as of April 3, 2005, $1,517.5 million as of March 28, 2004, and $1,073.2 million as of March 30, 2003. The majority of the backlog is for sales to aerospace customers in the Investment Cast Products, Forged Products and Fastener Products segments. Approximately 80 percent of the Company's backlog is expected to be filled within the next fiscal year.

    The majority of sales to customers are made on individual purchase orders. Most of our orders are subject to termination by the customer upon payment of the cost of work in process plus a related profit factor. Historically, we have not experienced significant order cancellations.

Competition

    We are subject to substantial competition in all of the markets we serve. Components and products similar to those made by us can be made by competitors using either the same types of manufacturing processes or other forms of manufacturing. Although we believe our manufacturing processes, technology and experience provide advantages to our customers, such as high quality, competitive prices and physical properties that often meet more stringent demands, alternative forms of manufacturing can be used to produce many of the components and products we make. Despite intense competition, we believe we are the number one or two supplier in most of our principal markets. Several factors, including long-standing customer relationships, technical expertise, state-of-the-art facilities and dedicated employees, aid us in maintaining our competitive advantages.

    In the Investment Cast Products segment, our principal competitor is Howmet, a subsidiary of Alcoa Inc. Howmet produces stainless steel, superalloy, aluminum and titanium investment castings principally for the aerospace and IGT markets. We believe that Howmet is capable of producing investment castings comparable to all but the largest and most complex of our structural investment castings. We also believe Howmet has the financial and technical resources to produce structural castings as large and complex as those produced by us, should they decide to do so. In addition, Pacific Cast Technologies (PCT), a subsidiary of Ladish Co., manufactures large titanium investment castings for jet engine and airframe applications. Many other companies throughout the world also produce stainless steel, superalloy, aluminum or titanium investment castings, and some of these companies currently compete with us in the aerospace and other markets. Others are capable of competing with us if they choose to do so.

    In the Forged Products segment, our largest competitors are Ladish Co., Fortech, S.A. and Thyssen AG for aerospace turbine products, Alcoa Corporation and Schultz Steel Company for aerospace structural products, and Mannesmann A.G. and Sumitomo Corporation for energy products. In the future, we may face increased competition from international companies as customers seek lower cost sources of supply.

    International competition in the forging and casting processes may also increase in the future as a result of strategic alliances among aircraft prime contractors and foreign companies, particularly where "offset" or "local content" requirements create purchase obligations with respect to products manufactured in or directed to a particular country. Competition is often intense among the companies currently involved in the industry. We continue to strive to maintain competitive advantages with high quality products, low-cost manufacturing, excellent customer service and delivery and expertise in engineering and production.

    In the Fastener Products segment, we compete with a large number of companies based primarily on technology, price, service, product quality and performance. Of these companies, we consider Alcoa, LISI, and McKecknie to be our leading competitors. We believe that we maintain our strong market position through our high-quality product performance and service to our customers.

    In the Industrial Products segment, we compete with a large number of companies in each of the markets served. The major competitive factors affecting these other business areas include product design and quality, performance characteristics, pricing and product availability.

Research and Development

    We have departments involved in research and development at PCC Structurals, PCC Airfoils, SMAG, Wyman-Gordon, and Fastener Products, as well as within the Industrial Products segment. The research and development effort at these locations is directed at the technical aspects of developing new and improved manufacturing processes. These research and development expenditures amounted to $5.2 million in fiscal 2005, $5.0 million in fiscal 2004 and $5.0 million in fiscal 2003. A substantial amount of our technological capability is the result of engineering work and experimentation performed on the shop floor in connection with process development and production of new parts. This engineering work and experimentation is charged to the cost of production and is not included in research and development expenditures.

Employees

    At April 3, 2005, we had approximately 15,400 employees within our four segments, including approximately 7,400 employees in the Investment Cast Products segment, 2,000 employees in the Forged Products segment, 4,200 employees in the Fasteners segment and 1,400 employees in the Industrial Products segment. In addition, we had 44 employees in corporate functions and 356 employees in businesses that are held for sale. Approximately 23 percent of these employees are affiliated with unions or covered by collective bargaining agreements. We expect to negotiate one collective bargaining agreement affecting less than 3 percent of the workforce during fiscal 2006. Management

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believes that labor relations in the Company have generally been satisfactory.

Patents and Trade Secrets

    From time to time, we seek U.S. and foreign patent protection on certain of our processes and products. We have also federally registered several of our trademarks in the U.S. We do not view patents or trademarks as materially important to our business as a whole. We also have rights and obligations under various license agreements. We receive no significant royalty income from patents.

Materials & Supplies

    We use a number of raw materials in our products, including certain metals such as cobalt, titanium, nickel, tantalum and molybdenum, which are found in only a few parts of the world. These metals are required for the alloys used in our investment casting, forged and fastener products. The availability and costs of these metals may be influenced by private or governmental cartels, changes in world politics, unstable governments in exporting nations and inflation. Similarly, supplies of the tool-grade steel we use may also be subject to variations in availability and cost. We have escalation clauses for nickel and other metals in certain of our long-term contracts with major customers. Shortages of and price increases for certain raw materials we use have occurred in the past and may occur in the future. Future shortages or price fluctuations in raw materials could have a material adverse effect on us.

Government Regulations

    Certain of our products are manufactured and sold under U.S. government contracts or subcontracts. Consequently, we are directly and indirectly subject to various federal rules, regulations and orders applicable to government contractors. Violation of applicable government rules and regulations could result in civil liability, in cancellation or suspension of existing contracts or in ineligibility for future contracts or subcontracts funded in whole or in part with federal funds.

International Operations

    We purchase products from and supply products to businesses located outside the U.S. We have also been expanding our international activities during the past several years, primarily through acquisitions and the development of foreign subsidiaries. This expansion is part of our strategy to acquire and develop businesses that complement our core competencies, provide low cost manufacturing, have strong growth prospects and maintain leading positions in their respective market niches. Certain risks are inherent in international operations, including the risk of government-financed competition, changes in trade policies, tariff regulations, the relative stability of certain foreign currencies and difficulties in obtaining U.S. export and import licenses. Information with respect to sales and assets by geographic location is included in "Item 8. Notes to the Consolidated Financial Statements."

Environmental Compliance

    The Company is subject to various federal and state environmental laws concerning, among other things, water discharges, air emissions, waste management, toxic use reduction and environmental cleanup. Environmental laws and regulations have changed rapidly in recent years. It is likely that we will be subject to increasingly stringent environmental standards in the future (particularly under air quality and water quality laws) and that we will be required to make additional expenditures, which could be significant, relating to environmental matters on an ongoing basis. We also own properties, or conduct or have conducted operations at properties, where hazardous materials have been used for many years, including during periods before careful management of these materials was required or generally believed to be necessary. Consequently, we are subject to environmental laws that impose liability for historical releases of hazardous substances.

    Our financial statements include reserves for future costs arising from environmental issues relating to our properties and operations. Our actual future expenditures, however, relating to compliance and cleanup of environmental conditions at our properties cannot be conclusively determined. At April 3, 2005, we had accrued aggregate environmental reserves of approximately $37.5 million. We believe these reserves are adequate to cover the cost of remedial measures that may eventually be required by environmental authorities with respect to known environmental matters.

    The Company has been named as a potentially responsible party ("PRP") at sites identified by the Environmental Protection Agency ("EPA") and state regulatory agencies for investigation and remediation under the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA") and similar state statutes. Under CERCLA, and under similar state statutes, PRPs are jointly and severally liable, and therefore, the Company is potentially liable to the government or third parties for the full cost of remediating contamination at the Company's facilities or former facilities or at third-party sites where the Company has been designated a PRP. In the unlikely event that the Company is required to fully fund the remediation of a site, the statutory framework would allow the Company to pursue rights of contribution from other PRPs. The Company has been identified as a PRP at the following federally designated Superfund sites: Lipari Landfill, Gloucester, New Jersey; Boarhead Farms, Bridgeton, Pennsylvania; Operating Industries, Monterey Park, California; Casmalia Resources Site, Casmalia, California; Pasco Sanitary Landfill, Pasco, Washington; Harvey GRQ Site, Harvey, Illinois; and Peterson-Puritan Site, Cumberland, Rhode Island. We are also a designated PRP in several state lead sites, including at the Company's facility in North Grafton, Massachusetts.

    The Company has notified its insurers of potential environmental cleanup liabilities at various facilities, including the Superfund Sites identified above, and has asserted that it is entitled to recover its defense and indemnity costs incurred, and to be incurred, under certain historic insurance policies. During 2002, the Company settled its defense and indemnity claims with Wyman-Gordon's primary carrier. The Company did not settle any defense or indemnity claims against Wyman-Gordon's excess carriers. The Company has also asserted indemnity claims against third-parties for certain sites and we expect to recover a portion of our losses with respect to these sites.

    By letter dated March 11, 2004, the California Attorney General's Office informed the Company that it was pursuing an enforcement action on behalf of the California Department of Toxic Substances Control ("DTSC") for alleged violations of the California Hazardous Waste Control Law, the California Health and Safety Code, and the rules implementing those laws. DTSC identified the alleged violations during a December 2002 inspection of the Company's facility in Santa Ana, California. In May 2005, the Company paid $400,000 to settle the DTSC's claims.

Precision Castparts Corp. & Subsidiaries    7

Forward-Looking Statements

    Information included within this Form 10K describing the projected growth and future results and events constitutes forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results in future periods may differ materially from the forward-looking statements because of a number of risks and uncertainties, including but not limited to fluctuations in the aerospace, power generation, automotive, and other general industrial cycles; the relative success of the Company's entry into new markets; competitive pricing; the financial viability of the Company's significant customers; the availability and cost of energy, materials, supplies, and insurance; the cost of pension and postretirement medical benefits; equipment failures; relations with the Company's employees; the Company's ability to manage its operating costs and to integrate acquired businesses in an effective manner; governmental regulations and environmental matters; risks associated with international operations and world economies; the relative stability of certain foreign currencies; and implementation of new technologies and process improvements. Any forward-looking statements should be considered in light of these factors. The Company undertakes no obligation to publicly release any forward- looking information to reflect anticipated or unanticipated events or circumstances after the date of this document.

Available Information

    The Company's financial information (annual report, 10-K, 10-Q, proxy) filed with the Securities and Exchange Commission, as well as current reports on Form 8-K, quarterly earnings releases, the Audit Committee Charter, the Nominating and Corporate Governance Charter, the Compensation Committee Charter, Corporate Governance Guidelines and the Code of Business Conduct and Ethics (the code of ethics that applies to the Registrants' principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions) may be received free of charge by calling Investor Relations at (503) 417-4850 or sending an email to info@precastcorp.com. This information may also be downloaded from the PCC Corporate Center at www.precast.com.

ITEM 2. PROPERTIES

    Our manufacturing plants and administrative offices, along with certain information concerning the products and facilities are as follows:

    We believe our principal properties include facilities suitable and adequate for our present needs for the manufacture of our products. We continue to expand our manufacturing capacity to meet anticipated market demand for our products; see "Item 7. Management's Discussion and Analysis."

ITEM 3. LEGAL PROCEEDINGS

    For a description of claims relating to environmental matters, see "Item 1. Business-Environmental Compliance."

    Various lawsuits arising during the normal course of business are pending against us. In the opinion of management, the outcome of these lawsuits will have no significant effect on our consolidated financial position, results of operations, cash flows or business.

    Like many other industrial companies in recent years, we are a defendant in lawsuits alleging personal injury as a result of exposure to chemicals and particulates, including asbestos, integrated into our premises and processes and certain historical products. The particulates at issue are no longer incorporated in any currently manufactured products and we have implemented safety protocols to reduce exposure to chemicals and remaining particulates in the workplace. To date, we have been dismissed from a number of these suits and have settled a number of others. Based on the information available to us as of the date of filing of this report, we believe, based on our review of the facts and the law, that the potential exposure from the resolution of any or all of these matters will not have a material adverse effect on the Company's results of operations, financial condition or liquidity.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

    Not applicable.

8    Precision Castparts Corp. & Subsidiaries

ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT^(a)

^(a)  The officers serve for a term of one year and until their successors are elected. Unless otherwise indicated, all positions have been held for the last five years.

^(b)   Elected Chairman in 2003 and Chief Executive Officer in 2002. Previously was elected Executive Vice President in 1992. Named President–Wyman-Gordon in 1999. Previously served as President–PCC Structurals.

^(c)   Elected Vice President–Finance in 1980. Named Vice President and Chief Financial Officer in 1993. Elected Senior Vice President in 2000.

^(d)  Elected Executive Vice President and President–PCC Flow Technologies in 2002. Prior to joining PCC in 2001 as Vice President of Strategic Planning and Business Development–PCC Flow Technologies, he was President of DeZURIK, a subsidiary of SPX Corporation, which manufactures industrial control valves. Prior to 2000, he held the position of Vice President of Marketing and Research and Development for the same company.

^(e)   Elected Senior Vice President and President–PCC Structurals in 2004. Previously served as Vice President of PCC Structurals large parts business operations.

^(f)   Elected Senior Vice President and President–Fastener Products Division in 2004. Previously, he was Vice President in charge of PCC Structurals' small structural business operations.

^(g)   Elected Senior Vice President and President–Industrial Products Division in 2004. He was named President of PCC's Industrial Products business in March 2003. Previously, he was President of J&L Fiber Services.

^(h)  Elected Senior Vice President and President–Wyman Gordon in 2005. Previously served as the President of Wyman-Gordon Forgings West.

⁽ⁱ⁾   Elected Vice President–Regulatory and Legal Affairs and Secretary in 2000.

^(j)   Elected Corporate Controller and Assistant Secretary in 1997 and Vice President in 2000. Previously served as Corporate Financial Reporting Manager.

^(k)   Elected Treasurer and Assistant Secretary in 1999 and Vice President in 2000.

^(l)   Elected Director of Corporate Taxes and Assistant Secretary in 1999 and Vice President–Corporate Taxes in 2000.

^(m) Elected Chief Information Officer and Vice President in 2000. Previously served as Director of Airframe Development and Research and Development at PCC Structurals.

⁽ⁿ⁾  Elected Vice President–Strategic Planning and Corporate Development in 2004. Prior to joining PCC, he was a Vice President in investment banking with Goldman Sachs & Co.

Precision Castparts Corp. & Subsidiaries    9

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

    As of April 3, 2005, there were 5,633 shareholders of record of our common stock. Our common stock is listed on the New York Stock Exchange under the symbol PCP. It is also traded on the Chicago Stock Exchange, the Pacific Stock Exchange and the Philadelphia Stock Exchange. For information concerning the high and low closing prices of PCC common stock, refer to the Quarterly Financial Information table in Item 8. Notes to Consolidated Financial Statements. We expect to continue to pay quarterly cash dividends, subject to our earnings, financial condition and other factors.

10    Precision Castparts Corp. & Subsidiaries

ITEM 6. SELECTED FINANCIAL DATA

Five-Year Summary of Selected Financial Data

⁽¹⁾ Includes capital expenditures of discontinued operations

⁽²⁾ Includes employees of discontinued operations

Precision Castparts Corp. & Subsidiaries    11

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Business overview

    Fiscal 2005 was a very successful year on multiple fronts for Precision Castparts Corp ("PCC" or "the Company"). Spurred by the addition of SPS Technologies ("SPS"), which was acquired in the third quarter of fiscal 2004, and by vigorous growth in PCC's core aerospace and power generation markets, PCC delivered strong operating results and attained record levels in sales, operating income, net income and earnings per share from continuing operations.

    The successful integration of SPS was a significant contributor to the strong performance achieved in fiscal 2005. During the year, the acquired SPS operations rapidly realized substantial synergies and operating margin improvement, and in the fourth quarter, the fastener operations of SPS were bolstered by new opportunities from the acquisition of Air Industries Corporation ("AIC"). AIC's significant market presence in structural airframe bolts and expertise in manufacturing titanium fastener products greatly expands the manufacturing capabilities and range of products that the Fastener Products segment can offer to its customers. AIC's fiscal 2005 operating results, which included only three weeks of activity in the fourth quarter, were immediately accretive to earnings. In addition to the strong performance from the SPS operations, leverage from improving market conditions and increased market shares, coupled with on-going cost take-outs throughout the Company, helped PCC's pre-SPS acquisition base businesses achieve excellent operating results during the year, despite strong headwinds from higher raw material costs and contractual price reductions.

    Also during the year, the Company divested substantially all of its non-core pumps and valves businesses that were part of the now discontinued Fluid Management Products segment, as well as certain non-core businesses from the SPS acquisition. These divestitures, which generated $164.2 million of cash, will enable the Company to focus more attention and resources on its core markets and businesses. The Company also retired $200 million of 8.75 percent debt in the fourth quarter, which drove the debt-to-capitalization ratio from 38.6 percent at the end of fiscal 2004 to 32.1 percent at the end of fiscal 2005. With a strengthening credit profile, PCC is well positioned to take advantage of opportunities for growth in fiscal 2006 and beyond.

    Looking ahead to fiscal 2006, the stage is set for another strong year. Not only will PCC benefit in fiscal 2006 from the recovery of OEM build rates in both the aerospace and power generation markets, the Company will also benefit from the impact of continuing strong aftermarket sales, market share gains and expansion of PCC's technologies into new markets. PCC also expects to achieve continuing performance improvements from its operations throughout the year. With these favorable conditions, the Company anticipates that overall growth in sales and earnings during the upcoming year will out pace forecasted industry growth rates for the aerospace, power generation and automotive markets.

    Total sales for fiscal 2005 were $2,919.0 million, an increase of $1,005.9 million, or 53 percent from fiscal 2004 sales of $1,913.1 million. The former SPS businesses contributed a full year of sales in fiscal 2005 compared to 17 weeks in fiscal 2004. Total aerospace sales increased 36% over fiscal 2004 levels, while as a percent of total sales, fiscal 2005 aerospace sales declined to 55% compared to 62% in fiscal 2004. Power generation sales increased 54 percent over fiscal 2004 levels, and increased from 17 percent of total sales in fiscal 2004 to 18 percent of total sales in fiscal 2005. Sales to the general industrial and other markets grew by 78 percent, and the automotive market grew by 166%, primarily due to a full year of sales from the SPS operations. A recovery in commercial aircraft deliveries, coupled with strong aftermarket sales and increased market share gains in the aerospace and power generation markets led to increased sales in the Investment Cast Products and Forged Products segments. According to JSA Research as of October 2004, commercial aircraft deliveries were forecasted to increase approximately 13 percent in calendar year 2005 from calendar year 2004 compared with declining deliveries since calendar year 2001. Because of manufacturing lead times

12    Precision Castparts Corp. & Subsidiaries

required to support aircraft deliveries, PCC began realizing these calendar 2005 forecasted increases during its fiscal 2005. In addition, continued growth in the seamless pipe market in the Forged Products segment, and expansion of the Company's metal injection molding technology in the automotive sector and strength in the pulp and paper market contributed to higher sales in the Industrial Products segment.

    Cost of goods sold was $2,265.4 million, or 78 percent of sales, in fiscal 2005 as compared to $1,484.9 million, or 78 percent of sales, in fiscal 2004. The flat year-over-year percentage reflects the impact of leverage from higher sales volume and improved operating efficiencies, offset by increased raw material costs and lower sales prices in fiscal 2005.

    Selling and administrative expenses were $233.3 million, or 8 percent of sales, in fiscal 2005 compared to $154.0 million, or 8 percent of sales, in fiscal 2004. The flat year over year percentage was due to a full year of SPS' results, which has higher SG&A as a percent of sales than PCC's base businesses, offset by the leverage from higher sales volume.

    Net income from continuing operations for fiscal 2005 was $239.5 million, or $3.60 per share (diluted), which included restructuring and asset impairment charges totaling $0.02 per share (diluted). By comparison, net income from continuing operations for fiscal 2004 was $126.9 million, or $2.20 per share (diluted), which included restructuring and impairment charges totaling $0.13 per share (diluted), and other expense associated with financing the SPS acquisition of $0.12 per share. Fiscal 2005 net loss after discontinued operations was $1.7 million, or a net loss of $0.03 per share (diluted), compared with net income of $117.9 million, or $2.05 per share (diluted) in fiscal 2004. The fiscal 2005 net loss includes charges totaling $248.0 million, or $3.73 per share (diluted), related to the disposition of the pumps and valves businesses.

Business acquisitions

    On March 8, 2005, PCC acquired 100 percent of the outstanding shares of common stock of Air Industries Corporation ("AIC") for $190.7 million paid in cash. AIC is a leading manufacturer of airframe fasteners, which include bolts, pins, and screws made from titanium and nickel-based alloys. This acquisition is expected to significantly enhance PCC's presence in the aerospace fastener market by expanding the range of fastener products offered to PCC's aerospace customers. AIC will operate as part of the Fastener Products segment.

    On December 9, 2003, PCC acquired 100 percent of the outstanding shares of common stock of SPS Technologies, Inc. SPS was acquired to strengthen and build upon the Company's core businesses, technologies and customer relationships. In addition, SPS' complementary manufacturing processes provide the Company with opportunities to enhance efficiencies and reduce costs. The aggregate purchase price was $728.8 million, which included $294.2 million of cash, PCC common stock valued at $425.1 million and $9.5 million of cash paid for transaction fees. In addition, SPS paid $39.3 million for change of control payments and transaction fees as of the close of the transaction. The value of the 9.3 million shares of PCC common stock issued in connection with the acquisition was determined based on the quoted market price of PCC's common stock on and around the date of the close of the transaction.

    SPS is a supplier of fasteners and other metal products to the aerospace, automotive, and general industrial markets. SPS' former Specialty Materials and Alloys group now operates as part of the Investment Cast Products segment. A new segment, Fastener Products, was established and comprises SPS' former Aerospace Fasteners and Engineered Fasteners groups. SPS' former tool group now operates as part of the Industrial Products segment. In addition, three former SPS businesses–Dacar, which was sold in the third quarter of fiscal 2005, Magnetics, which was sold in the fourth quarter of fiscal 2005 and Mohawk, which was sold subsequent to the end of fiscal 2005—were classified as held for sale in the third quarter of fiscal 2004, and their results were included in discontinued operations until their disposition.

Discontinued operations

    The Company's financial statements were significantly impacted by activities relating to the planned divestiture of a number of PCC's businesses. These businesses have been accounted for under SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." Accordingly, any operating results of these businesses are presented in the Company's Consolidated Statements of Income as discontinued operations, net of income tax, and all prior periods have been reclassified.

Fiscal 2005

    In the second quarter of fiscal 2005, the Company decided to sell all of the pumps and valves businesses of PCC Flow Technologies, with the exception of E/One. The businesses held for sale were reclassified from the Fluid Management Products segment to discontinued operations. The E/One business was retained and is now included in the Industrial Products segment. All of the pumps and valves businesses, with the exception of PCC Eurovalves, were sold in the third quarter of fiscal 2005. PCC Eurovalves, which is located in The Netherlands, continues to be marketed. PCC's decision to sell the pumps and valves businesses in the second quarter of fiscal 2005 resulted in a charge of $245.0 million, of which $219.1 million was associated with the write-down of goodwill. The remainder related to the write-down of inventory, other amortizable assets and machinery and equipment to fair value less cost to sell. Approximately $240.0 million of the charge was non-cash. Subsequent to the second quarter, the Company recorded additional write-downs related to the disposition of the pumps and valves businesses, bringing the total net loss on disposal to $248.0 million.

Fiscal 2004

    In the third quarter of fiscal 2004, three businesses acquired in the SPS transaction–Magnetics, Mohawk, and Dacar–were classified as held for sale and their results were included in discontinued operations. They were classified as discontinued operations because they were deemed to be non-core to the Company. Dacar was sold in the third quarter of fiscal 2005, Magnetics was sold in the fourth quarter of fiscal 2005, and Mohawk was sold in April 2005, subsequent to fiscal year-end.

    In the second quarter of fiscal 2004, the Company incurred asset impairment and disposal charges associated with its decision to sell Newmans, a valve distribution company of PCC Flow Technologies. It was determined that Newmans' distribution business did not fit with PCC's manufacturing-focused operations and was not performing to the Company's expectations. The Company's decision to sell Newmans resulted in a charge of $19.2 million, principally related to the write-down of assets to net realizable value. The Newmans business was sold in the third quarter of fiscal 2004.

Precision Castparts Corp. & Subsidiaries    13

Fiscal 2003

    In fiscal 2003, PCC incurred charges associated with the closure or sale of certain businesses of the Industrial Products segment and PCC Flow Technologies. Within the Industrial Products segment, the PCC Olofsson and Eldorado machine businesses were closed and the Eldorado gundrill tooling business was sold. In addition, the Company sold its controlling interest in Design Technologies International ("DTI") and certain intangible assets of Olofsson to minority shareholders of DTI. The closure or sale of these operations was in response to a steady and continual decline in the machine tool industry. In addition, PCC closed STW Composites ("STW") as it was deemed to be a non-core business to PCC. PCC also entered into an agreement to sell Fastener Engineers & Lewis Machine ("FELM") and began actively marketing PCC Superior Fabrication for sale in the fourth quarter. FELM was sold during the first quarter and PCC Superior Fabrication was sold in the fourth quarter of fiscal 2004. Within PCC Flow Technologies, the Company began marketing Barber Industries in the fourth quarter of fiscal 2003 and sold the business in the fourth quarter of fiscal 2004. The Company recorded disposal expenses in fiscal 2003 totaling $42.4 million related to the write-down of remaining inventory and property, plant and equipment to fair value less cost to sell, the write-down of accounts receivable and other current assets to net realizable value, and incremental costs directly related to the closure or sale of the businesses, such as pension, severance and lease termination costs.

Restructuring, asset impairment and other non-recurring charges

    The following table provides significant components of amounts recorded in the Consolidated Statements of Income related to the Company's restructuring and asset impairment charges.

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

    During the fourth quarter of fiscal 2005, PCC recorded provisions for restructuring and impairment of long-lived assets totaling $1.6 million, principally related to additional costs associated with a business that was closed several years ago. The tax-effected impact of these charges was $1.1 million, or $0.02 per share (diluted).

    Taking into consideration current and forecasted conditions in markets served by the Company, PCC regularly assesses its cost structure to ensure that operations are properly sized for prevailing market conditions. Based on the Company's most recent assessment, there are no current plans to restructure operations in fiscal 2006.

Other expense (income)

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

Outlook

    The Company expects that the aerospace and power generation markets will continue to strengthen in fiscal 2006 as aircraft build-rates increase and industrial gas turbine businesses recover, coupled with continued market share gains and strong demand in China for seamless pipe. Continued market share gains and expansion of PCC's technologies in the automotive market will also improve sales in fiscal 2006, while other markets served by the Company are expected to be relatively flat, or slightly improved from fiscal 2005. Overall, sales are expected to grow by approximately 10-15 percent from fiscal 2005. The Company anticipates its overall growth in fiscal 2006 will exceed forecasted industry OEM build rates for the aerospace, power generation and automotive markets as a result of increased aftermarket business, continued market share gains and expansion of PCC's technologies into new markets. Operating margins, as a percent of sales, are expected to show modest improvement over fiscal 2005 levels principally due to leverage from higher sales volume and improved operating performance, tempered somewhat by the impact of expected increases in zero-margin pass-through of higher metal costs.

Financial results by segment

    PCC has organized the Company's business segments along its four major product lines and reports financial results in the following four segments: Investment Cast Products, Forged Products, Fastener Products and Industrial Products. Operating income amounts discussed below exclude restructuring and asset impairment charges.

14    Precision Castparts Corp. & Subsidiaries

Investment Cast Products

    The Investment Cast Products segment includes PCC Structurals, PCC Airfoils, and the Specialty Materials and Alloys Group ("SMAG"), which was acquired with SPS in the third quarter of fiscal 2004. These businesses manufacture investment castings, or provide materials and alloys, for aircraft engines, industrial gas turbine (IGT) engines, airframes, armaments, medical prostheses and other industrial applications.

Fiscal 2005 compared with fiscal 2004

    The Investment Cast Products segment reported fiscal 2005 sales of $1,360.6 million and operating income of $256.0 million, or 19 percent of sales. Fiscal 2005 sales increased 30 percent from the prior year's sales of $1,042.8 million, and operating income increased by 34 percent over the prior year's operating income of $190.4 million, or 18 percent of sales. The SMAG businesses contributed a full year of results in fiscal 2005 compared to 17 weeks in fiscal 2004. The increase in sales of the base businesses was driven by continued recovery in the power generation and aerospace markets, with solid aftermarket growth as well as market share gains. The increase in operating income principally reflected the impact of the higher sales volume and operating improvements, partially offset by lower selling prices and higher raw material costs, mainly nickel and cobalt, which have increased approximately 25 percent and 40 percent, respectively, on the London Metal Exchange (LME) and Metal Bulletin COFM.8 Index (Bloomberg) compared to fiscal 2004. The improvement in operating margins as a percentage of sales was mainly due to the leverage from the higher sales volume and improved manufacturing performance, partially offset by the impact of lower selling prices, higher raw material costs and pass-through pricing.

    The Investment Cast Products segment anticipates higher sales associated with the Aerospace and Power Generation markets in fiscal 2006. Operating margins, as a percent of sales, are expected to improve in fiscal 2006 as a result of leverage from the higher sales volume and continued improvements in operating efficiencies, partially offset by the impact of pass-through pricing.

Fiscal 2004 compared with fiscal 2003

    The Investment Cast Products segment reported fiscal 2004 sales of $1,042.8 million and operating income of $190.4 million, or 18 percent of sales. Fiscal 2004 sales decreased 3 percent from the prior year's $1,071.3 million, and operating income decreased by 10 percent over the prior year's $210.7 million, or 20 percent of sales. The addition of SPS' SMAG businesses in December 2003 contributed $40.4 million of sales and $6.4 million of operating income, or 16 percent of sales, to fiscal 2004 results. The overall sales decline compared to fiscal 2003 was due to continued weakness in both the aerospace and power generation markets, combined with the impact of price reductions. Despite the sales decline and higher raw material costs compared to fiscal 2003, the Investment Cast Products segment was able to achieve solid operating margins due to continued aggressive cost takeout throughout its operations and improvements in manufacturing performance.

Forged Products

    The Forged Products segment consists of the forging operations of Wyman-Gordon. Forged Products' sales to the aerospace and power generation markets are derived primarily from the same large engine customers served by the Investment Cast Products segment, with additional aerospace sales going to manufacturers of landing gear and other airframe components. The Forged Products segment also produces seamless pipe for the power generation and the oil and gas industries.

Fiscal 2005 compared with fiscal 2004

    The Forged Products segment reported fiscal 2005 sales of $631.7 million and operating income of $76.1 million, or 12 percent of sales. Fiscal 2005 sales increased 26 percent from the prior year's sales of $502.4 million, and operating income increased by 18 percent over the prior year's operating income of $64.7 million, or 13 percent of sales. The increase in sales includes approximately $18.8 million of higher prices related to pass-through of increased nickel costs. The volume increase was due to heavy demand for aerospace components as well as continued demand for seamless pipe to the power generation market in China. Operating income as a percent of sales benefited in the current year from the higher volume, but was lower than last year due to higher material costs, mainly nickel and titanium, which have increased approximately 25 percent and 135 percent, respectively, on the LME (Bloomberg) and TI 6-4 Bulk Weldables Index (metalprices.com) since fiscal 2004.

    Sales in fiscal 2006 within this segment are expected to benefit from continued growth in the aerospace market and continued growth in extruded pipe sales, as well as recovery in the industrial gas turbine market. Operating income is expected to benefit from the higher sales volume and the favorable impact of contract terms that allow for pass-through pricing of higher material costs. While these recoveries will increase segment revenues and protect

Precision Castparts Corp. & Subsidiaries    15

operating income, they will have a dampening effect on related improvements in operating income as a percentage of sales.

Fiscal 2004 compared with fiscal 2003

    The Forged Products segment reported sales of $502.4 million for fiscal 2004, a decrease of $64.5 million, with operating income of $64.7 million, or 13 percent of sales, a decrease of $16.8 million from the fiscal 2003 level of $81.5 million, or 14 percent of sales. The sales decline was due to reduced demand for commercial aerospace products as well as products for the power generation market, partially offset by increased demand for military aerospace products. Operating margins within this segment are significantly impacted by the deleveraging effect of the sales decline due to the capital-intensive nature of the forging business. Higher raw material costs, as well as price concessions, also reduced operating margins. Cost reductions and benefits from settlement of a supply agreement between Wyman-Gordon and Timet helped to partially offset the impact of these items.

Fastener Products

    The Fastener Products segment includes SPS' former Aerospace Fasteners and Engineered Fasteners groups that were acquired in December 2003. The businesses that comprise this segment produce fasteners, fastener systems and components for critical applications in the aerospace, automotive and industrial machinery markets.

Fiscal 2005 compared with fiscal 2004

    The Fastener Products segment reported fiscal 2005 sales of $691.3 million and operating income of $88.3 million, or 13 percent of sales. Fiscal 2005 sales increased $510.0 million from the prior year's sales of $181.3 million, and operating income increased $74.8 million over the prior year's operating income of $13.5 million, or 7 percent of sales. Fiscal 2004 included approximately 17 weeks of activity since PCC acquired SPS on December 9, 2003. The segment was favorably affected by strong aerospace sales and continues to benefit from market share gains at major aerospace customers. Cost take-outs and stream-lined manufacturing processes have significantly improved operating margins as a percent of sales since the acquisition of SPS.

    Sales within the Fastener Products segment will continue to grow during fiscal 2006 as a result of improving conditions in the aerospace industry, market share gains and a full year of sales from AIC. Operating income as a percentage of sales should also improve due to continuing realization of synergies, cost take-outs and leverage from higher sales.

Fiscal 2004 compared with fiscal 2003

    The Fastener Products segment recorded sales of $181.3 million of sales and operating income of $13.5 million, or 7 percent of sales, for the year, which included approximately 17 weeks of activity since PCC acquired SPS on December 9, 2003. Since its acquisition, the Fastener Products segment has rapidly achieved cost reductions and synergies, while also increasing market share in airframe and aircraft engine sectors and opening-up share gain opportunities with major automotive customers.

Industrial Products

    The Industrial Products segment includes J&L Fiber Services, Advanced Forming Technology (AFT), E/One and the Precision Tool Group. J&L Fiber Services produces refiner plates and screen cylinders for use in the pulp and paper industry and rebuilds refiner equipment that is used in the pulping process. AFT manufactures metal-injection-moldings, metal-matrix- composites, and ThixoFormed™ components for numerous industrial applications. E/One manufactures low-pressure sewer systems and detection systems for the power generation industry. The PCC Precision Tool Group, which consists of Reed-Rico and the SPS tool group, manufactures a broad range of cold-forming header and threader tools and dies.

Fiscal 2005 compared with fiscal 2004

    The Industrial Products segment's sales increased by 26 percent, from $186.6 million in fiscal 2004 to $235.4 million in fiscal 2005, and its operating income increased from $32.5 million, or 17 percent of sales, to $42.5 million, or 18 percent of sales. The sales increase reflects the addition of sales from SPS' Precision Tool Group, market share gains in the automotive industry, and improved conditions in the aerospace and pulp and paper markets. Operating margins, as a percent of sales, benefited from the higher volume, coupled with increased production at low-cost manufacturing facilities in Hungary and India, partially offset by the impact of adding the SPS businesses, which have lower operating margins.

    In fiscal 2006, sales within this segment should continue to benefit from the consolidation of the Reed-Rico and the SPS tool businesses, which will increase PCC's worldwide share of the fastener tooling market. Operating margins are also expected to increase as a result of improved cost structures and leverage from higher volume.

16    Precision Castparts Corp. & Subsidiaries

Fiscal 2004 compared with fiscal 2003

    The Industrial Products segment's sales increased by 10 percent, from $170.3 million in fiscal 2003 to $186.6 million in fiscal 2004, and its operating income increased from $25.3 million, or 15 percent of sales, to $32.5 million, or 17 percent of sales. The increase in sales was due to the addition of SPS' tool group, which contributed $9.4 million of sales, as well as improved market conditions in the automotive sector. Operating margins benefited from the higher volume, coupled with new product introductions, increased productivity and successful ramp-up of production at low-cost manufacturing facilities in Hungary and India, partially offset by the impact of adding the SPS businesses, which have lower margins.

Interest and taxes

    Net interest expense in fiscal 2005 was $56.6 million, as compared with $53.3 million in fiscal 2004. The higher interest expense resulted from higher average debt levels and higher effective borrowing rates during fiscal 2005 compared to fiscal 2004.

    The effective tax rate for fiscal 2005 was 33 percent, compared with 35 percent in fiscal 2004. The lower tax rate in fiscal 2005 is principally due to recognition of $4.0 million of tax benefits related to the write-off of intercompany loans and due to increased earnings in jurisdictions with lower tax rates.

Liquidity and capital resources

    Total assets of $3,625.0 million at April 3, 2005, represented a $130.5 million decrease from the $3,755.5 million balance at March 28, 2004, reflecting the write-off of the pumps and valves businesses, partially offset by the acquisition of AIC, higher inventory and accounts receivable balances to support improved business conditions and higher cash balances. Total capitalization at April 3, 2005, was $2,623.4 million, consisting of $843.0 million of debt and $1,780.4 million of equity. The debt-to-capital ratio decreased from 38.6% at the end of fiscal 2004 to 32.1% at April 3, 2005.

    Cash requirements for the year included debt payments of $230.3 million, including $200.0 million for the repayment of the Company's 8.75 percent public note due in March 2005, $190.7 million for the acquisition of AIC, $93.4 million of pension contributions ($60.0 million were voluntary), $61.7 million for capital expenditures, $7.7 million for dividends and $10.9 million for discontinued operations. These requirements were funded by $239.5 million of net income from continuing operations adjusted for $97.0 million of depreciation and amortization, $23.7 million of deferred income taxes, $59.9 million for decreased working capital, $164.2 million of proceeds from the sale of the pumps and valves businesses of PCC Flow Technologies and the Magnetics business, $41.2 million from the sale of common stock through ESPP purchases and stock option exercises, and $42.8 million from other activities. The ending cash balance at April 3, 2005 was $153.9 million, up $73.6 million from the fiscal 2004 ending balance.

    Capital spending of $61.7 million in fiscal 2005 principally provided for equipment maintenance and upgrades, capacity expansion and cost reduction projects. The capital spending plan for fiscal 2006, which is approximately $50.0 million higher than spending in fiscal 2005, provides for cost reduction, capacity expansion, equipment maintenance and upgrades, and safety projects throughout the company.

    Management believes that the Company can fund requirements for working capital, pension and other postretirement benefit obligations, capital spending, cash dividends, scheduled repayment of debt and potential acquisitions from cash generated from operations, borrowing from existing or new bank credit facilities, issuance of public or privately placed debt securities, or the issuance of equity instruments.

Contractual obligations and commercial commitments

    The Company is obligated to make future payments under various contracts such as debt agreements and lease agreements. The following table represents the Company's contractual cash obligations as of April 3, 2005 (in millions) and the estimated timing of future cash payments:

⁽¹⁾ Interest on variable-rate debt is based on current prevailing interest rates.

The table above excludes estimated required cash contributions to the Company's qualified pension plans totaling approximately $89.5 million over the next five years: $15.2 million in fiscal 2006, $12.0 million in fiscal 2007, $15.4 million in fiscal 2008, $24.1 million in fiscal 2009 and $22.8 million in fiscal 2010. The Company also has benefit payments due under its non-qualified pension and other post-retirement benefit plans that are not required to be funded in advance, but are pay-as-you-go. See the pension and other postretirement benefit plans footnote to the Consolidated Financial Statements for additional information.

Critical accounting policies

    The Company has identified the policies below as critical to PCC's business operations and the understanding of its results of operations. The impact and any associated risks related to these policies on PCC's business operations are discussed throughout the Management's Discussion and Analysis where such policies affect reported and expected financial results. For a detailed discussion on the application of these and other significant accounting policies, see the Notes to the Consolidated Financial Statements of this Annual Report. Note that the preparation of this Annual Report requires management to make estimates and assumptions that affect the reported amount of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results may differ from those estimates.

Revenue recognition

    The Company recognizes revenue when the earnings process is complete. This generally occurs when products are shipped to the customer in accordance with the contract or purchase order, ownership and risk of loss have passed to the customer,

Precision Castparts Corp. & Subsidiaries    17

collectibility is reasonably assured, and pricing is fixed and determinable. In instances where title does not pass to the customer upon shipment, the Company recognizes revenue upon delivery or customer acceptance, depending on terms of the sales agreement. Service sales, representing aftermarket repair and maintenance and engineering activities, are recognized as services are performed. Shipping and handling costs billed to customers are included in revenue.

Accounts receivable reserve

    The Company evaluates the collectibility of its accounts receivable based on a combination of factors. In circumstances where PCC is aware of a customer's inability to meet its financial obligations (e.g., bankruptcy filings), a specific reserve for bad debts against amounts due is recorded to reduce the receivable to the amount the Company reasonably expects will be collected. In addition, the Company records reserves for bad debts based on other quantitative measures, which include the analysis of historical write-offs and the age of outstanding receivables. The establishment of reserves requires the use of judgment and assumptions regarding the potential for losses on receivable balances. Although the Company considers these balances adequate and proper, changes in economic conditions in the markets in which the Company operates could have a material effect on the required reserve balances.

Valuation of inventories

    All inventories are stated at the lower of the cost to purchase or manufacture the inventory or the current estimated market value of the inventory. Cost for work in process and metal inventories at a significant number of the Company's operations is determined on a last-in, first-out ("LIFO") basis. The average inventory cost method is utilized for most other inventories. The Company regularly reviews inventory quantities on hand and records a provision for excess or obsolete inventory equal to the difference between the cost of the inventory and the estimated market value based upon assumptions about future demand and market conditions. If actual future demand or market conditions are less favorable than those projected by management, additional inventory write-downs may be required. Therefore, although management makes every effort to ensure the accuracy of forecast demand, any significant unanticipated changes in demand could have a significant impact on the value of PCC's inventories and reported operating results.

Goodwill and acquired intangibles

    From time to time, the Company acquires businesses in purchase transactions that typically result in the recognition of goodwill and other intangible assets, which may affect the amount of future period amortization expense and possible impairment charges. The determination of the value of such intangible assets requires management to make estimates and assumptions that affect the consolidated financial statements.

Recently issued accounting standards

    In November 2004, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards (SFAS) No. 151, "Inventory Costs, an amendment of ARB No. 43, Chapter 4." SFAS No. 151 clarifies that abnormal inventory costs such as costs of idle facilities, excess freight and handling costs, and wasted materials (spoilage) are required to be recognized as current period charges. The provisions of SFAS No. 151 are effective for our fiscal year beginning April 3, 2006. The Company does not expect that the adoption will have a material impact on our consolidated financial position or results of operations.

    In December 2004, the FASB finalized SFAS No. 123 (revised 2004) ("123R), "Share Based Payment." SFAS No. 123R requires that the compensation cost relating to share-based payment transactions be recognized in financial statements, with the cost measured based on the estimated fair value of the equity or liability instruments issued. SFAS No. 123R allows for either prospective recognition of compensation expense or retrospective recognition, which may be back to the original issuance of SFAS No. 123 or in the year of adoption. The effective date of SFAS No. 123R is the first quarter of the first fiscal year beginning after June 15, 2005, which is PCC's first quarter of fiscal 2007. PCC is currently evaluating these transition methods and the methodology to be used when adopting this statement. See "Stock-based compensation" in the Notes to Consolidated Financial Statements.

    In December 2004, the FASB issued FASB Staff Position 109-1 (FSP 109-1) and 109-2 (FSP 109-2). FSP 109-1 provides guidance on the application of SFAS 109, "Accounting for Income Taxes", with regard to the tax deduction on qualified production activities provision within H.R. 4520 The American Jobs Creation Act of 2004 (Act) that was enacted on October 22, 2004. FSP 109-2 provides guidance on a special one-time dividends received deduction on the repatriation of certain foreign earnings to qualifying U.S. taxpayers. The Act contains numerous provisions related to corporate and international taxation including repeal of the Extraterritorial Income (ETI) regime, creation of a new Domestic Production Activities (DPA) deduction and a temporary dividends received deduction related to repatriation of foreign earnings. The Act contains various effective dates and transition periods related to its provisions. Under the guidance provided in FSP 109-1 the new DPA deduction will be treated as a "special deduction" as described in SFAS 109. As such, the special deduction has no effect on the Company's deferred tax assets and liabilities existing at the enactment date. Rather, the impact of this deduction will be reported in the period in which the deduction is claimed on our income tax return. The repeal of ETI is transitioned in, effective with sales after January 1, 2005. The impact of this change was not material on our effective income tax rate for fiscal 2005. The replacement with a DPA deduction was not in effect for PCC fiscal year ended April 3, 2005 and therefore, did not affect our income tax provision for the year ended April 3, 2005. We do not expect the net effect of the phase-out of the ETI deduction and phase-in of the new DPA deduction to result in a material impact on our effective income tax rate in fiscal 2006. Under the guidance provided by FSP 109-2, the Financial Accounting Standards Board acknowledged that, due to the proximity of the Act's enactment date to many companies' year-ends and the fact that numerous provisions within the Act are complex and pending further regulatory guidance, many companies may not be in a position to assess the impact of the Act on their plans for repatriation or reinvestment of foreign earnings. Therefore, the FSP provided companies with a practical exception to the permanent reinvestment standards of SFAS 109 and APB No. 23 by providing additional time to determine the amount of earnings, if any, that they intend to repatriate under the Act's provisions. The company is not yet in a position to decide whether, and to what extent, foreign earnings may be repatriated to the U.S. Therefore, under the guidance provided in FSP 109-2, no deferred tax liability has been recorded in connection with the repatriation provisions of

18    Precision Castparts Corp. & Subsidiaries

the Act. We are currently analyzing the impact of the temporary dividends received deduction provisions contained in the Act.

Forward-looking statements

    Information included within this Form 10K describing the projected growth and future results and events constitutes forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results in future periods may differ materially from the forward-looking statements because of a number of risks and uncertainties, including but not limited to fluctuations in the aerospace, power generation, automotive, and other general industrial cycles; the relative success of the Company's entry into new markets; competitive pricing; the financial viability of the Company's significant customers; the availability and cost of energy, materials, supplies, and insurance, the cost of pension and postretirement medical benefits; equipment failures; relations with the Company's employees; the Company's ability to manage its operating costs and to integrate acquired businesses in an effective manner; governmental regulations and environmental matters; risks associated with international operations and world economies; the relative stability of certain foreign currencies; and implementation of new technologies and process improvements. Any forward-looking statements should be considered in light of these factors. The Company undertakes no obligation to publicly release any forward- looking information to reflect anticipated or unanticipated events or circumstances after the date of this document.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

    At various times, the Company uses derivative financial instruments to limit exposure to changes in foreign currency exchange rates, interest rates and prices of strategic raw materials. Fluctuations in the market values of such derivative instruments are generally offset by reciprocal changes in the underlying economic exposures that the instruments are intended to hedge. Because derivative instruments are used solely as hedges and not for speculative trading purposes, they do not represent incremental risk to the Company. For further discussion of derivative financial instruments, refer to the "Summary of Significant Accounting Policies," "Fair Value of Financial Instruments" and "Financing Arrangements" sections in "Item 8. Notes to Consolidated Financial Statements."

Interest Rate Risk

    The Company has variable rate debt obligations that expose the Company to interest rate risk. During the third quarter of fiscal 2004, the Company terminated an interest rate swap that fixed the interest rate on a portion of the outstanding borrowings under its terminated bank credit facility. If market interest rates had averaged 10 percent higher than actual levels in fiscal 2005 or 2004, the effect on the Company's interest expense and net income, after considering the effects of the interest rate swap contracts and interest rate cap, would not have been material.

Foreign Currency Risk

    The majority of the Company's revenue, expense and capital purchasing activities are transacted in U.S. dollars; however, the Company is exposed to fluctuations in foreign currencies for transactions denominated in other currencies. As discussed in the "Summary of Significant Accounting Policies" in the Notes to Consolidated Financial Statements, the Company had foreign currency hedges in place at April 3, 2005 and March 28, 2004 to reduce such exposure. The potential loss in fair value on such financial instruments from a hypothetical 10 percent adverse change in quoted foreign currency exchange rates would not have been material to the financial position of the Company as of the end of fiscal 2005 or fiscal 2004.

Material Cost Risk

    As discussed in the "Summary of Significant Accounting Policies" in the Notes to Consolidated Financial Statements, the Company had entered into long-term supply agreements to fix the purchase price of strategic raw materials at April 3, 2005 and March 28, 2004. In addition, PCC had escalation clauses related to raw material pricing in certain of the Company's contracts at April 3, 2005 and March 28, 2004. If market rates had averaged 10 percent higher than actual levels in either fiscal 2005 or 2004, the effect on the Company's cost of sales and net earnings, after considering the effects of these agreements and contracts, would not have been material.

Precision Castparts Corp. & Subsidiaries    19

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Consolidated Statements of Income