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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(MARK ONE)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED MARCH 28, 1999
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ______________ TO ______________
COMMISSION FILE NO. 1-10348
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PRECISION CASTPARTS CORP.
(Exact name of registrant as specified in its charter)
OREGON 93-0460598
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) No.)
4650 S.W. MACADAM AVE., SUITE 440 97201-4254
PORTLAND, OR 97201 (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (503) 417-4800
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
COMMON STOCK, NEW YORK STOCK EXCHANGE
WITHOUT PAR VALUE
SERIES A PREFERRED STOCK NEW YORK STOCK EXCHANGE
PURCHASE RIGHTS
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. /X/
The aggregate market value of voting stock held by non-affiliates of the
registrant as of June 16, 1999 was $1,032,922,463.
As of the close of business on June 16, 1999, Registrant had 24,484,088 shares
of Common Stock, without par value, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Exhibit 13, the "Financial Section of the 1999 Annual Report to Shareholders of
Precision Castparts Corp." for the year ended March 28, 1999 is incorporated by
reference in Parts II and IV and appended hereto.
Portions of the Registrant's Proxy Statement dated June 28, 1999 in connection
with the 1999 Annual Meeting of Shareholders are incorporated by reference in
Part III.
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FORM 10-K
ANNUAL REPORT
TABLE OF CONTENTS
PAGE
-----
PART I
Item 1. BUSINESS......................................................................... 1
Products and Markets............................................................. 1
Sales and Distribution........................................................... 9
Major Customers.................................................................. 10
Backlog.......................................................................... 11
Competition...................................................................... 11
Research and Development......................................................... 11
Employees........................................................................ 12
Patents and Trade Secrets........................................................ 12
Materials and Supplies........................................................... 12
Government Regulations........................................................... 12
International Operations......................................................... 12
Environmental Compliance......................................................... 13
Forward Looking Statements....................................................... 14
Item 2. PROPERTIES....................................................................... 14
Item 3. LEGAL PROCEEDINGS................................................................ 15
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.............................. 15
Executive Officers of the Registrant............................................. 15
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS............ 17
Item 6. SELECTED FINANCIAL DATA.......................................................... 17
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS..................................................................... 17
Item 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK....................... 17
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA...................................... 18
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE..................................................................... 18
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT............................... 19
Item 11. EXECUTIVE COMPENSATION........................................................... 19
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT................... 19
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................................... 19
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.................. 20
Signatures....................................................................... 22
Financial Statement Schedule..................................................... 23
Report of Independent Accountants................................................ 24
PART I
ITEM 1. BUSINESS
Precision Castparts Corp. ("PCC" or the "Company") is a worldwide
manufacturer of complex metal components and products. The Company is the market
leader in manufacturing large, complex structural investment castings and is the
leading manufacturer of airfoil castings used in jet aircraft engines. In
addition, the Company has expanded into the industrial gas turbine ("IGT"),
structural airframe, fluid management, industrial metalworking tools and
machines and other metal products markets.
PRODUCTS AND MARKETS
The Company's manufacturing of complex metal components and products
includes operations in three principal business segments: Precision Alloy
Products, Fluid Management Products and Industrial Products.
PRECISION ALLOY PRODUCTS
The Precision Alloy Products segment includes PCC Structurals, Inc., PCC
Airfoils, Inc. and Advanced Forming Technology, Inc. (AFT). PCC Structurals and
PCC Airfoils manufacture investment castings for aircraft engines, IGT,
airframes, medical prostheses, and other industrial applications. AFT
manufactures metal-injection molded, metal-matrix-composite and Thixoformed-TM-
components for a wide variety of automotive, electronic, firearm, medical and
consumer applications.
INVESTMENT CASTINGS
The Company is the market leader in manufacturing large, complex structural
investment castings and is the leading manufacturer of airfoil castings used in
jet aircraft engines. The Company manufactures investment castings for every
available jet aircraft engine program in production or under development by its
key customers. The Company is leveraging its experience and expertise in large,
complex structural and airfoil investment castings to manufacture castings for
IGT engines used for electric power generation and is expanding into the
structural airframe market. In addition, the Company makes investment castings
for use in the automotive, medical prostheses, satellite launch vehicle and
general industrial markets.
Because of the complexity of the manufacturing process and the application
of proprietary technologies, the Company believes it currently is the only
manufacturer that can consistently produce the largest complex structural
investment castings in quantities sufficient to meet its customers' quality and
delivery requirements. The Company's emphasis on low cost, high quality products
and timeliness of delivery has enabled it to become one of the leading suppliers
of structural and airfoil castings for jet aircraft engines, to increase its
market share of IGT castings and to expand into the structural airframe market.
The Company's 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
involves the creation of a wax pattern of the part to be cast, along with
pathways through which molten metal flows into the ceramic mold; formation of a
ceramic shell around the wax pattern followed by removal of the wax from the
ceramic shell by melting and draining the wax; pouring of molten metal into the
ceramic shell; shell removal; and final processing and inspection.
Trends in the commercial aerospace market are a critical determinant of
demand for the Company's precision investment casting products. Beginning in
1995, demand for investment castings strengthened, primarily due to increased
demand from the commercial aerospace industry, which had been in a cyclical
downturn since 1991. However, during fiscal 1999, the Company experienced
softening in the commercial aerospace market as worldwide aircraft production
reached its peak, due in part
1
to the decline in wide-body aircraft orders for the Asian market where depressed
economic conditions have curbed spending for new aircraft.
Large jet aircraft engines are manufactured by a small number of suppliers,
including General Electric ("GE"), Pratt & Whitney, Rolls-Royce ("R-R"), and
several joint ventures. As a result, the Company believes a high level of
customer service and strong long-term customer relationships will continue to be
important to achieving its goals. The Company has been supplying castings for
jet engines to GE for more than 25 years and has been supplying Pratt & Whitney
with castings for more than 20 years for its military jet engines and more than
15 years for its commercial jet engines. In addition, the Company has supplied
small structural investment castings to R-R for more than 10 years and has more
recently begun supplying R-R with large, structural castings for use in its new
Trent series of aircraft jet engines. As the Company has been able to cast
larger and more complex parts, manufacturers of large jet aircraft engines have
made increasing use of the Company's structural castings.
The following table identifies major jet aircraft engines currently in
production that incorporate investment castings produced by the Company.
GE PRATT & WHITNEY R-R JOINT VENTURES
Boeing
717 BR715(1)
737-300/400/500 CFM56-3(2)
737-NG CFM56-7(2)
747-400 CF6-80C2 PW4000, 4168, RB211-524
4056, 4060
757-200/300 PW2000, 2040, RB211-535
2037, 2043
757-PF PW2040, 2042,
2043
767-200/300/400 ER CF6-80C2/A/C PW4000, 4168 RB211-524G
4173
777-200/300/X GE90 PW4000, 4084, Trent 800, 8104
4088, 4090, 4098
C-17 F117
F-15 F100
F-18 F404, F414
Airbus Industrie
A300-600/B2/B4 CF6-80C/C2 PW4000
A310-200/300 CF6-80A1/C2 PW4000
A319/A320/A321 CFM56-5A/B(2)
V2500, V2530,
V2533(3)
A330-200/300 CF6-80E1/E2 PW4168 Trent 700, 772
A340-200/300/800 CFM56-5C(2)
A340-500/600 Trent 500
Lockheed Martin
F-16 F100, F110 F100
F-22 F119
(1) Represents engines produced by BMW Roll-Royce AeroEngines, a joint venture
of BMW and R-R.
2
(2) Represents engines of CFM International ("CFMI"), a joint venture of GE and
Snecma, a major French aerospace company. CFMI has used the Company's
castings in its CFM56 jet engines for more than 20 years.
(3) Represents engines produced by International Aero Engines ("IAE"), a joint
venture of Pratt & Whitney, R-R, Motoren-und Turbinen-Union, Fiat Avio and
Japanese Aero Engine Corporation.
AEROSPACE STRUCTURAL CASTINGS
The Company's structural castings business includes the largest diameter
stainless steel, nickel-based superalloys 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, combustion
and turbine sections of the jet aircraft engine, where strength and structural
integrity are critical. Structural investment castings are sold primarily as
original equipment to jet aircraft engine manufacturers.
The Company believes that trends in the manufacturing of aircraft jet
engines will continue to increase PCC's revenues 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 these extreme operating
conditions and provide an optimum strength-to-weight ratio. Many of these alloys
are particularly suited to investment casting. 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 the considerable weight
savings. Titanium is an exceptionally difficult metal to cast because of its
reactivity to other elements. The Company, however, has developed the necessary
technology and manufacturing processes to cast large, complex investment
castings in titanium alloys. Many of these new generation engines, which are
expected to be built through the next decade and beyond, make significantly
greater use of the Company's products than did prior engine designs. The Company
manufactures structural investment castings for all three jet aircraft engines
used on the newer Boeing 777 aircraft, and is the sole supplier of structural
investment castings for the GE90 jet engine. PCC also manufactures, for the new
R-R Trent series of engines, the intermediate case and the tail bearing housing.
These are the largest structural investment castings for jet aircraft engines in
the world.
AEROSPACE AIRFOIL CASTINGS
The Company manufactures precision cast airfoils, which include the
stationary vanes and rotating blades used in the turbine section of aircraft jet
engines. This engine section is considered the "hot" section, where temperatures
may exceed 2,400 degrees Fahrenheit. These conditions require use of superalloys
and special casting techniques to manufacture airfoil castings with internal
cooling passageways that provide both high performance and longer engine life.
The Company uses various casting technologies to produce its turbine
airfoils. Conventional casting processes are employed to produce equiaxed
airfoil castings, in which the metal grains are oriented randomly throughout the
casting. A more advanced process enables the Company 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 the Company 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.
3
As engine sizes grow to generate greater thrust for larger aircraft, and the
turbine sections of these engines must work harder and burn hotter, the major
aircraft engine manufacturers have increasingly been designing their engines
with DS and SX blades. The DS and SX cast airfoils, with their complex cooling
passages, have been instrumental in enabling these engines to operate at gas
temperatures frequently in excess of 2,400 degrees Fahrenheit. SX cast airfoils
are used both in new and redesigned engines, particularly in jet engines used in
military applications where performance requirements are higher and blade life
is shorter than in commercial engines.
The demand for aerospace airfoil castings is determined primarily by the
number and type of engines required for new jet aircraft, the frequency of
engine repairs 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, the
Company's sales of aerospace airfoil castings are less affected by the cyclical
patterns of the aerospace industry than are the Company's sales of structural
investment castings. The replacement market for aerospace airfoil castings
principally depends on the engine's time in service and the expected life of the
airfoil casting. Based upon estimates provided by its major customers, the
Company believes that approximately 50 percent of its sales of cast airfoils are
used as replacement parts.
INDUSTRIAL GAS TURBINES
In fiscal 1994, the Company began to focus on the manufacture of airfoil
castings for industrial gas turbine engines. The Company targeted this market
because it believes (i) the performance and reliability standards PCC has
developed in the manufacture of aerospace airfoil castings are applicable to the
manufacture of IGT airfoils, (ii) the worldwide market is large, approximately
$500 million, and (iii) the market was principally serviced by a single
supplier. The Company's IGT products consist of airfoil castings used in large,
land-based gas turbines designed for electrical power generation. In addition,
the Company manufactures structural and airfoil castings for aircraft-derivative
gas turbine engines which are used for power generation as well as other land
and marine-based applications. Sales of aircraft-derivative gas turbine products
are reported in the general industrial and other market area and are not
combined with IGT product sales. See Sales and Distribution section of this
report.
IGT manufacturers have significantly improved the efficiency and reduced the
pollution profiles of industrial gas turbines, principally by incorporating
component-level advances which are included not only in new engines but also in
the refurbishing and upgrading of existing turbines. PCC has leveraged its DS
and SX airfoil casting knowledge from the aerospace market into the IGT market
to produce IGT blades and vanes which are better able to withstand the extreme
heat and stresses of the new higher-temperature gas turbines. IGT engines are
built with investment castings that are similar, but generally larger, than
blades and vanes manufactured by the Company for the aerospace market. Because
of their size, IGT airfoils are more difficult to cast than smaller aerospace
airfoils with the same properties.
Since industrial gas turbines are primarily used in electrical power
generation, casting sales for new industrial gas turbine 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. Gas turbine power
generation has several advantages over other power-generation methods, such as
coal and nuclear-powered facilities, including lower average capital cost,
shorter installation and regulatory approval time, ease of adding a new
industrial gas turbine engine to an existing power plant to increase output and
the clean-burning characteristics of natural gas. The Company believes these
advantages have led to increased demand for gas turbine engines.
4
OTHER INVESTMENT CASTING PRODUCTS
The Company's strategy for profitable growth also includes the pursuit of
new opportunities for the Company's existing investment casting technology. The
Company has been expanding the application of its investment casting technology
in the automotive, medical prostheses, satellite and general industrial markets
by manufacturing such products as turbocharger wheels, artificial hips and
knees, parts for satellite launch vehicles and impellers for pumps and
compressors. The Company is also expanding into the structural airframes market.
Aircraft manufacturers have begun to show substantial interest in using
investment castings for airframe applications such as aileron and flap hinges,
pylons and wing spurs and ribs.
OTHER ALLOY PRODUCTS
The Company is the largest producer of powdered metal parts manufactured by
metal-injection-molding ("MIM"), and is a leading manufacturer of tungsten
carbide cutting tools and wear parts. In addition, the Company manufactures
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. The Company has also expanded into
Thixoforming-TM-, an advanced technology alternative to conventional die casting
in which materials such as magnesium, aluminum and zinc 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. The Company
believes these businesses have the potential for rapid growth and complement the
Company's 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 computer
peripherals, medical, electronics, automotive, power tools and firearms.
Tungsten carbide cutting tools and wear parts, which are manufactured by the
Company using a powdered metal press and sinter process, are sold to various
industrial markets. Metal-matrix-composite parts, which have high thermal
conductivity and tightly controlled thermal expansion characteristics, are used
in electronic applications that require heat dissipation, such as automotive,
telecommunication, aerospace and computer products. Thixoformed-TM- components
are used in automotive, electronic and other consumer products. The Company
believes the broad range of products and highest standards of craftsmanship
offer growth opportunities in numerous industry applications.
Precision Alloy Products accounted for approximately 65 percent of the
Company's net sales in fiscal 1999, with a substantial majority of these
products sold to the aerospace market.
FLUID MANAGEMENT PRODUCTS
The Fluid Management Products segment includes all of the businesses within
PCC Flow Technologies, Inc. The Company entered the fluid management market in
July 1996 with the acquisition of the NEWFLO Corporation. Subsequent
acquisitions, which include Crown Pumps, OIC Valves, Baronshire Engineering,
Environment/One, TBV and Sterom, have enabled PCC Flow Technologies to further
expand its product lines and markets.
The Company designs, manufactures, markets and services a broad range of
high quality, precision industrial fluid management products, including fluid
handling industrial valves, industrial pumps and fluid measuring instruments.
The Company's finished fluid management products are manufactured primarily from
castings, forging and fabricated steel parts. These products are sold worldwide
to a wide range of end-user markets under well-established brand names,
including: General Valve, NEWCO, TECHNO, Barber, Baronshire, TBV, OIC and Sterom
valves; Johnston, PACO, E/One and Crown pumps; and Water Specialties, Penberthy
and Gilco measuring instruments.
5
The manufacturing process for fluid management products requires knowledge
of multiple metalforming and processing technologies, including casting,
machining, welding, heat treating, assembly and processing of metal components.
Testing procedures, material management and traceability, and quality control
are also important aspects of the Company's operations.
The Company uses its substantial knowledge of international fluid management
technologies, complex metal component manufacturing and its end-user markets to
develop engineered valves, pumps and instruments that the Company believes
provide customer benefits superior to those of other manufacturers. Many of the
products offered by the Company are customized to end-user requirements or
designed for specialized applications. The Company's maintenance, repair and
service centers, extensive distribution network and inventory of products enable
it to provide responsive service and timely deliveries to customers, thereby
enhancing the marketability of the Company's products. The Company believes its
brand names, quality products and responsive service network also lead to repeat
orders, stable demand and customer loyalty.
VALVES
The Company manufactures and markets specialty industrial and general
purpose valves, fittings and flanges, principally for the chemical, refining,
energy, pulp and paper and marine markets. The Company's valve products consist
primarily of multi-turn industrial valves, check valves, quarter turn industrial
ball and plug valves, double block and bleed dual expanding plug valves,
four-way diverter valves and valve operators, stainless steel butterfly valves
and corrosion-resistant titanium ball valves. Many of the Company's valves are
manufactured under contract by ISO 9001-qualified overseas suppliers to precise
industry and end-user standards and specifications. The valve designs are
developed and modified by the Company's engineering staff for particular
applications as determined by market conditions and end-user specification. The
Company markets its valve products under several brand names, including General
Valve, NEWCO, TECHNO, Barber, Baronshire, TBV, OIC and Sterom. The Company
believes its General Valve positive shut-off, double block and bleed valve and
its Technocheck hinged check valves are among the most technologically advanced
products sold in the fluid control market.
PUMPS
The Company manufactures and markets a complete line of general purpose and
specialty pumps for power, cogeneration, geothermal, municipal, residential and
industrial (including petroleum, chemical, mining, marine and pulp and paper)
applications. The Company also supplies repair parts and service for pumps. The
Company's pump products consist primarily of single and double suction
centrifugal pumps, submersible and non-clog pumps, booster pump systems,
vertical turbine, mixed flow and axial flow pumps and grinder pumps. The Company
is one of the few pump manufacturers that produces large vertical pumps over 36
inches in diameter. The capacities of certain of the Company's pumps extend up
to heads of 3,400 feet and flows up to 230,000 gallons per minute. The Company
markets its pump products under several brand names, including Johnston, PACO,
Crown and E/One. The Company believes its Johnston vertical turbine pumps, its
PACO booster systems and "Smart Pumps" and its E/One low pressure sewer systems
are among the leading products sold in the fluid handling market.
INSTRUMENTS
The Company manufactures, markets and distributes propeller meters and fluid
measurement equipment for the municipal, irrigation and industrial markets. The
Company manufactures five types of propeller meters (main line, low pressure,
open flow, vertical flow and high pressure) and three general types of
measurement devices that are used to read, record and transmit data generated by
the meters. The Company's meters and fluid measurement devices are designed to
handle a wide range of
6
fluids, such as fresh or salt water, treated waste water, diesel and jet fuel,
bore hole slurry, light oils, food processing fluids and slurries, and other
liquid and chemical applications. Meters are sold in 44 different models varying
in size from 1.5 inches to 120 inches, in service pressures up to 3,000 pounds
per square inch, in flow rates from 4 to 300,000 gallons per minute and in
operating temperature ranges from 35 to 350 degrees Fahrenheit. The Company
markets its fluid measurement products under several brand names, including
Water Specialties, Penberthy and Gilco. The Company believes its Water
Specialties line of propeller meters is one of the leading products in the fluid
measurement market primarily due to its superior product design and
manufacturing.
SERVICES
The Company maintains a number of service and repair facilities as well as
stocking warehouses in the U.S. and Canada which provide aftermarket
maintenance, repair, pre-sale modification services and inventory availability
for the Company's large installed base of fluid management products, as well as
repair and replacement of fluid management products of other manufacturers. The
market for replacement units, repair parts and repair services generally offers
the Company higher margins and is less dependent on industry economic conditions
than the market for equipment for new industrial facilities. The Company
believes approximately 43 percent of its sales of fluid management products are
derived from after-market service and repair activities.
Fluid management products accounted for approximately 21 percent of the
Company's net sales in fiscal 1999 and were sold primarily to the general
industrial and energy markets.
INDUSTRIAL PRODUCTS
The Industrial Products segment includes PCC Specialty Products, Inc. and
J&L Fiber Services, Inc. PCC Specialty Products manufactures a broad range of
cold-forming header and threader tools and gundrills, and manufactures machines
for vertical and horizontal boring, fastener production and gundrilling,
principally for automotive and other machine tool applications. The tooling
business includes product lines manufactured by Reed-Rico-Registered Trademark-,
Astro Punch-Registered Trademark- and Eldorado. The machines business includes
product lines manufactured by Olofsson, PCC Pittler,
Reed-Rico-Registered Trademark- and Eldorado. J&L Fiber Services produces
refiner plates and screen cylinders for use in the pulp and paper industry.
The Company maintains the number one or two position in its served markets
for industrial metalworking tools and has leading market positions in the
manufacture of metalworking machines for general industrial markets. The Company
entered these markets in March 1995 with the acquisition of Quamco, Inc. The
Company has since increased its presence in the industrial metalworking tools
and machines markets with three additional acquisitions since 1995. The
acquisitions of Olofsson and Astro Punch-Registered Trademark-, both acquired in
fiscal 1997, and PCC Pittler, acquired in fiscal 1998, complemented the
Company's capabilities as a leading manufacturer of highly engineered industrial
metalworking tools and machines. Also, in fiscal 1998, the Company acquired J&L
Fiber Services, Inc., a manufacturer of metal refiner plates and screen
cylinders for the pulp and paper industry.
The Company believes it has been able to maintain its leading market
positions due to the quality of its products, the continued development of new
technologies, brand name recognition and excellent customer service.
METALWORKING TOOLS
The Company designs, manufactures and distributes a wide variety of
precision metalworking tools to industrial companies that serve the automotive,
appliance, construction, farm equipment, medical and aerospace industries. The
Company's industrial metalworking tools consist primarily of heading, threading
and gundrilling tools. The Company markets its heading and threading tools,
which are used to form a variety of fasteners and threaded parts, under the
Reed-Rico-Registered Trademark- and Astro Punch-Registered Trademark- brand
7
names. The Company's gundrilling tools, which are distributed under the Eldorado
brand name, are used to drill precision holes to very close tolerances in such
products as turbine engines, engine blocks, cylinder heads, transmission shafts,
connecting rods and medical prostheses.
METALWORKING MACHINES
The Company designs, manufactures and distributes several types of
metalworking machines primarily for the automotive industry. The Company's
industrial metalworking machines include threading machines and attachments,
gundrilling machines and computer-controlled specialized machine systems for
boring and turning applications. The Company markets its threading machines and
attachments, which are used to form a variety of threaded parts and fasteners,
under the Reed-Rico-Registered Trademark- and Hartford-Registered Trademark-
brand names. The Company's gundrilling machines, like its gundrilling tools, are
distributed under the Eldorado brand name. The Company's specialized machine
systems for boring and turning processes are sold under the Olofsson and PCC
Pittler brand names.
REFINER PLATES AND SCREEN CYLINDERS
The Company is also the world leader in the design, manufacture and sale of
refiner plates to the pulp and paper production markets under the J&L Fiber
Services brand name. Refiner plates, which are highly engineered metal castings,
are an integral part of the wood pulping process. Refiner plates not only
transport pulp through the system, but also perform critical work on the pulp
that affects the ultimate quality of the paper produced. In addition, the
Company manufactures conventional and rebuildable screen cylinders which are
metal filtering devices inside pressure vessels that separate the usable wood
fiber from undesirable elements in the pulp slurry mix. Over 90% of J&L Fiber
Services' sales are used as replacement parts.
The Industrial Products segment accounted for approximately 14 percent of
the Company's net sales in fiscal 1999 and were sold primarily to the general
industrial, automotive and pulp and paper markets.
8
SALES AND DISTRIBUTION
The Company sells its complex metal components and products into six major
market areas: aerospace, general industrial and other, energy, industrial gas
turbines, automotive, and pulp & paper. The relative size of sales to these
markets is shown below for fiscal years 1999, 1998 and 1997.
FISCAL 1999
Net Sales $1,471.9 million
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
FISCAL 1999
Net Sales $1,471.9
million
Aerospace 51%
General Industrial and Other 23%
Energy 8%
Industrial Gas Turbine 7%
Automotive 6%
Pulp & Paper 5%
51% Aerospace
23% General Industrial and Other
8% Energy
7% Industrial Gas Turbine
6% Automotive
5% Pulp & Paper
FISCAL 1998
Net Sales $1,316.7 million
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
FISCAL 1998
Net Sales $1,316.7
million
Aerospace 53%
General Industrial and Other 24%
Energy 9%
Industrial Gas Turbine 5%
Automotive 7%
Pulp & Paper 2%
53% Aerospace
24% General Industrial and Other
9% Energy
5% Industrial Gas Turbine
7% Automotive
2% Pulp & Paper
9
FISCAL 1997
Net Sales $972.8 million
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
FISCAL 1997
Net Sales $972.8
million
Aerospace 53%
General Industrial and Other 25%
Energy 8%
Industrial Gas Turbine 7%
Automotive 7%
Pulp & Paper 0%
53% Aerospace
25% General Industrial and Other
8% Energy
7% Industrial Gas Turbine
7% Automotive
- % Pulp & Paper
The Company's sales to the aerospace market of $746.2 million in fiscal 1999
increased 8 percent from $693.8 million in fiscal 1998. Sales to the aerospace
market as a percentage of total net sales, however, declined slightly from 53
percent in fiscal 1998 to 51 percent in fiscal 1999, reflecting higher growth in
the IGT and pulp and paper markets. During the latter part of fiscal 1999, sales
of aircraft engine components for original equipment applications (OEM) declined
as the aerospace cycle moved towards its peak. The Company believes its
diversification into IGT, general industrial, energy, automotive and pulp and
paper markets will help mitigate the adverse impact of the current downturn in
the aerospace cycle. In addition, the Company's expansion into structural
airframe components and the expected growth in airfoil replacement parts to
support a larger worldwide fleet of aircraft is expected to mitigate the impact
of a soft aerospace market.
The Company's sales of investment castings are made through a relatively
small number of direct sales personnel located in each business operation and
through field sales representatives located at U.S. and international locations
near the Company's major customers. Industrial metalworking tools, industrial
metalworking machines and other metal products are sold by both the Company's
sales forces and sales representatives in the U.S., Europe, Asia and Latin
America. The Company's fluid management products and services are also sold by a
direct sales and marketing staff and through a worldwide network of independent
sales representatives and distributors. Due to the sophisticated nature of the
Company's products, the Company's 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.
MAJOR CUSTOMERS
The Precision Alloy Products segment had net sales to General Electric and
Pratt & Whitney as follows (amounts in millions):
FISCAL
-------------------------------
1999 1998 1997
--------- --------- ---------
General Electric..................................................................... $ 162.2 $ 159.2 $ 150.5
Pratt & Whitney...................................................................... $ 139.8 $ 152.8 $ 125.2
10
No other customer accounted for more than 10 percent of net sales.
BACKLOG
The backlog of unfilled orders believed to be firm at the end of each of the
Company's last three fiscal years was $719.9 million as of March 28, 1999,
$795.8 million as of March 29, 1998 and $739.0 million as of March 30, 1997. The
majority of the backlog is for sales to aerospace customers in the Precision
Alloy Product segment. The decrease in fiscal 1999 backlog is primarily due to
decreased orders from aerospace customers.
The majority of sales to customers are made on individual purchase orders.
Most of the Company's orders are subject to termination by the customer upon
payment of the cost of work in process plus a related profit factor.
Historically, the Company has not experienced significant order cancellations.
COMPETITION
The Company is subject to substantial competition in all of the markets it
serves. Components and products similar to those made by the Company can be made
by competitors using either the same types of manufacturing processes or other
forms of manufacturing. Although the Company believes its manufacturing
processes, technology and experience provide advantages to its 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 made by the Company. Despite intense
competition, the Company believes it is the number one or two supplier in most
of its principal markets. Several factors, including long-standing customer
relationships, technical expertise, state-of-the-art facilities and dedicated
employees, aid the Company in maintaining its competitive advantages.
In its Precision Alloy Products segment, the Company's principal competitor
is Howmet International, Inc. ("Howmet"). Howmet produces stainless steel,
superalloy and titanium investment castings principally for the aerospace and
IGT markets. Although the Company is the market leader for cast airfoils used in
jet aircraft engines, Howmet is believed to hold in excess of 50 percent of the
total market for cast airfoils, principally due to its substantial position in
the industrial gas turbine market. The Company believes that Howmet is capable
of producing structural castings comparable to all but the largest and most
complex of the Company's structural investment castings. The Company also
believes Howmet has the financial and technical resources to produce structural
castings as large and complex as those produced by the Company, should it decide
to do so. A large number of other companies throughout the world also produce
stainless steel, superalloy or titanium investment castings. Many of these
companies currently compete with the Company in the aerospace and other markets,
while others are capable of competing with the Company if they choose to do so.
In the Fluid Management Products and Industrial Products segments, the
Company generally competes 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
The Company maintains separate research and development departments at PCC
Structurals, PCC Airfoils and PCC Flow Technologies. The research and
development effort at these locations is directed at the scientific aspects of
developing new and improved manufacturing processes. These research and
development expenditures amounted to $4.0 million in 1999, $2.9 million in 1998
and $2.6 million in
11
1997, with the majority of the amounts attributable to the Precision Alloy
Products segment. A substantial amount of the Company's technological capability
is the result of engineering work and experimentation performed 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 March 28, 1999, the Company employed 12,335 people, including 7,632
people in the Precision Alloy Products segment, 3,312 people in the Fluid
Management Products segment, 1,369 people in the Industrial Products segment and
22 people in corporate functions. Approximately 32 percent of these employees
have union affiliation or are covered by collective bargaining agreements. The
Company is expected to negotiate four union contracts or collective bargaining
agreements affecting 16% of the workforce during fiscal 2000. Management
believes that labor relations in the Company have generally been satisfactory.
PATENTS AND TRADE SECRETS
From time to time the Company seeks U.S. and foreign patent protection on
certain of its processes and products. The Company has also federally registered
several of its trademarks in the U.S. The Company does not view patents or
trademarks as materially important to the Company's business as a whole. The
Company also has rights and obligations under various license agreements. The
Company receives no significant royalty income from patents.
MATERIALS & SUPPLIES
The Company uses a number of raw materials in its products, including
certain metals such as cobalt, titanium, nickel and molybdenum, which are found
in only a few parts of the world. These metals are required for the alloys used
in the Company's precision investment castings. 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 tool grade steel used by the Company may also be subject
to variation in availability and cost. The Company enters into option contracts
to hedge the price of nickel and has escalation clauses in certain of its
long-term contracts with major customers. Shortages of, and price increases for,
certain raw materials used by the Company 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 the Company.
GOVERNMENT REGULATIONS
Certain of the Company's products are manufactured and sold under U.S.
government contracts or subcontracts. Consequently, the Company is 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
The Company is both a purchaser of products from, and supplier to,
businesses located outside of the U.S. 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. The Company has been expanding its international activities during the
past several years, primarily through acquisitions and the development of
foreign subsidiaries.
12
ENVIRONMENTAL COMPLIANCE
The Company generates certain waste materials that must be disposed of,
including certain materials for which disposal requires compliance with
environmental protection laws and regulations. The Company conducts its
operations at industrial sites where hazardous materials have been managed for
many years, including periods before careful management of these materials was
required or generally believed to be necessary. Consequently, the Company is
subject to various environmental laws that impose compliance obligations and can
create liability for historical releases of hazardous substances.
During the period 1970-1973, the Company contracted for disposal of certain
industrial waste at the Pasco Landfill located near Pasco, Washington. The
Washington State Department of Ecology ("Ecology") notified the Company that it
had determined that the Company is a Potentially Liable Party ("PLP") for the
contamination at Pasco Landfill Superfund Site. The Company has joined with
other PLPs that sent industrial wastes to the site, as well as with the owners,
operators and other PLPs, to fund investigation of the site and development of a
remediation proposal. The Company is part of a group of industrial generators
who are negotiating settlement with other PLPs and Ecology to conduct remedial
action at the site. The Company's costs are currently being paid by its
insurers.
In 1989, the Oregon Health Division ("Health Division") alleged that the
Company discharged low level radioactive material to the Portland City sewer in
violation of the Company's radioactive materials license. The City of Portland
also has alleged that the discharges violated the Company's discharge permit.
Although the Company contested the alleged violations, it undertook extensive
cleaning of portions of the sewer system under a consent agreement with the City
and the Health Division. The extent to which other investigation or remedial
work may be necessary, however, is unknown.
As a result of inspections conducted in 1995 at the Company's former
Merriman operations, the Massachusetts Department of Environmental Protection
("MDEP") has taken enforcement action against PCC Specialty Products, Inc. for
alleged violations of certain environmental laws relating to waste management.
PCC Specialty Products, Inc. has negotiated a settlement with the MDEP for most
of the alleged violations and believes the outstanding alleged violations can be
settled for an immaterial amount. PCC Specialty Products, Inc. has entered an
Administrative Consent Order with the MDEP pursuant to which it is conducting
investigations of contamination of the Merriman facility. The extent to which
these investigations will lead to requirements for remedial action is not yet
known.
PCC Specialty Products, Inc. is investigating contamination at its facility
in Holden, Massachusetts. This investigation is proceeding under requirements of
Massachusetts law, and the MDEP has not taken any enforcement action. The extent
to which these investigations will lead to requirements for remedial action is
not yet known.
The Connecticut Department of Environmental Protection ("CDEP") has required
PCC Specialty Products, Inc. to undertake remedial action at its former
Contromatics facility. Remedial systems are in place and were supplemented in
1997 at CDEP's request. Whether or not additional remedial action is necessary
will depend upon pending evaluations of the new remedial systems.
In 1998, the Company successfully arbitrated and settled indemnity claims it
asserted against the former shareholders of Quamco, Inc. with respect to the PCC
Specialty Products, Inc. matters described above. The Company has established
reserves for matters described above with the settlement proceeds.
Carmet Company is investigating the extent of chlorinated solvents
contamination recently discovered in the soil and groundwater at its plant in
Bad Axe, Michigan. Whether or not remediation will be necessary is not yet
determined and Carmet may have defenses to liability contamination. The Company
has asserted an indemnity claim against the former shareholders of Carmet for
recovery from an escrow account for all, or a portion of the costs, associated
with this and certain other environmental matters. The former shareholders have
disputed this indemnity claim and the claim is unresolved.
13
In 1998, the Company acquired Sterom, S.A., from the Romanian government. As
part of this acquisition, the Company committed to invest up to $3.6 million
over five years to investigate and cleanup contamination at the facility and to
improve environmental controls at Sterom. The Company obtained a purchase price
adjustment to fund a substantial portion of these commitments.
FORWARD-LOOKING STATEMENTS
Information included within this section relating to projected growth and
future results and events constitutes forward-looking statements, within the
meaning of the Private Securities Litigation Reform Act of 1995. Actual results
in future periods may differ materially from the forward-looking statements
because of a number of risks and uncertainties, including but not limited to
fluctuations in the aerospace and general industrial cycles; the relative
success of the Company's entry into new markets, including the rapid ramp-up of
production for industrial gas turbine and airframe components; competitive
pricing; the availability and cost of materials and supplies; relations with the
Company's employees; the Company's ability to manage its operating costs and to
integrate acquired businesses in an effective manner; governmental regulations
and environmental matters; risks associated with international operations and
world economies; the relative stability of certain foreign currencies; timely,
effective and cost-efficient introduction of hardware and software to address
the Year 2000 issue; and implementation of new technologies. Any forward-looking
statements should be considered in light of these factors. The Company
undertakes no obligation to publicly release any forward-looking information to
reflect anticipated or unanticipated events or circumstances after the date of
this document.
ITEM 2. PROPERTIES
The Company's manufacturing plants and administrative offices, along with
certain information concerning the products and facilities are as follows:
BUILDING SPACE (SQ. FT.)
NO. OF ----------------------------------
DIVISION FACILITIES LEASED OWNED TOTAL
- ----------------------------------------------------------------- ------------- ---------- ---------- ----------
Executive & Corporate Offices
Domestic....................................................... 1 7,500 -- 7,500
Foreign........................................................ -- -- -- --
Precision Alloy Products
Domestic....................................................... 26 388,200 2,040,200 2,428,400
Foreign........................................................ 4 153,000 326,000 479,000
Fluid Management Products
Domestic....................................................... 31 532,400 820,500 1,352,900
Foreign........................................................ 14 74,400 550,200 624,600
Industrial Products
Domestic....................................................... 18 257,000 755,300 1,012,300
Foreign........................................................ 3 253,100 -- 253,100
Total Company
Domestic....................................................... 76 1,185,100 3,616,000 4,801,100
Foreign........................................................ 21 480,500 876,200 1,356,700
--
---------- ---------- ----------
Total............................................................ 97 1,665,600 4,492,200 6,157,800
--
--
---------- ---------- ----------
---------- ---------- ----------
The Company continues to expand its manufacturing capacity to meet
anticipated market demand for its products. See "Management's Discussion and
Analysis," in Exhibit 13, the "Financial Section of the 1999 Annual Report to
Shareholders of Precision Castparts Corp."
14
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 the Company. In the opinion of management, the outcome of these lawsuits
will have no significant effect on PCC's consolidated financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
EXECUTIVE OFFICERS OF THE REGISTRANT (A)
OFFICER POSITION HELD
NAME SINCE AGE WITH THE REGISTRANT
- --------------------------------------------------------- ---------- --- ------------------------------------
William C. McCormick..................................... (b) 1985 65 Chairman and
Chief Executive Officer
William D. Larsson....................................... (c) 1980 54 Vice President and
Chief Financial Officer
Mark Donegan............................................. (d) 1992 42 Executive Vice President and
President--PCC Structurals, Inc.
Peter G. Waite........................................... (e) 1980 55 Executive Vice President and
President--PCC Airfoils, Inc.
David W. Norris.......................................... (f) 1996 47 Executive Vice President and
President--PCC Flow Technologies,
Inc.
Greg M. Delaney.......................................... (g) 1998 44 Executive Vice President and
President--PCC Specialty Products,
Inc.
Dennis L. Konkol......................................... (h) 1997 40 President--J&L Fiber Services, Inc.
Istvan F.K. Vamos........................................ (i) 1997 32 President--Advanced Forming
Technology, Inc.
James A. Johnson......................................... (j) 1996 58 Treasurer and
Assistant Secretary
Mark R. Roskopf.......................................... (k) 1999 37 Director of Corporate Taxes and
Assistant Secretary
Shawn R. Hagel........................................... (l) 1997 34 Corporate Controller and
Assistant Secretary
- ------------------------
a) The officers serve for a term of one year and until their successors are
elected.
b) Elected Chairman in 1994, Chief Executive Officer in 1991 and Director in
1986.
c) Elected Vice President and Chief Financial Officer in 1993.
d) Elected Executive Vice President and President--PCC Structurals, Inc. in
1992.
e) Elected Executive Vice President and President--PCC Airfoils, Inc. in 1986.
15
f) Elected Executive Vice President and President--PCC Flow Technologies, Inc.
in 1996.
g) Elected Executive Vice President and President--PCC Specialty Products, Inc.
in 1998.
h) Elected President--J&L Fiber Services, Inc. in 1997.
i) Elected President--Advanced Forming Technology, Inc. in 1997.
j) Elected Treasurer in 1993 and Assistant Secretary in 1996.
k) Elected Director of Corporate Taxes in 1999 and Assistant Secretary in 1999.
l) Elected Corporate Controller and Assistant Secretary in 1997.
16
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
As of June 8, 1999 there were 3,800 shareholders of record of the Company's
common stock. The Company's 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. Additional
information with respect to Market for the Registrant's Common Stock and Related
Stockholder Matters, including dividends, is incorporated herein by reference to
the Five-Year Summary of Selected Financial Data and the Quarterly Financial
Information in Exhibit 13, the "Financial Section of the 1999 Annual Report to
Shareholders of Precision Castparts Corp." The Company expects to continue to
pay quarterly cash dividends, subject to its earnings, financial condition and
other factors.
ITEM 6. SELECTED FINANCIAL DATA
Information with respect to Selected Financial Data is incorporated herein
by reference to the "Five-Year Summary of Selected Financial Data" in Exhibit
13, the "Financial Section of the 1999 Annual Report to Shareholders of
Precision Castparts Corp."
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Information with respect to Management's Discussion and Analysis of
Financial Condition and Results of Operations is incorporated herein by
reference to "Management's Discussion and Analysis" in Exhibit 13, the
"Financial Section of the 1999 Annual Report to Shareholders of Precision
Castparts Corp."
Information included in "Management's Discussion & Analysis" in Exhibit 13,
the "Financial Section of the 1999 Annual Report to Shareholders of Precision
Castparts Corp." describing the segments relating to projected growth and future
results and events constitutes forward-looking statements, within the meaning of
the Private Securities Litigation Reform Act of 1995. Actual results in future
periods may differ materially from the forward-looking statements because of a
number of risks and uncertainties, including but not limited to fluctuations in
the aerospace and general industrial cycles; the relative success of the
Company's entry into new markets, including the rapid ramp-up of production for
industrial gas turbine and airframe components; competitive pricing; the
availability and cost of materials and supplies; relations with the Company's
employees; the Company's ability to manage its operating costs and to integrate
acquired businesses in an effective manner; governmental regulations and
environmental matters; risks associated with international operations and world
economies; the relative stability of certain foreign currencies; timely,
effective and cost-efficient introduction of hardware and software to address
the Year 2000 issue; and implementation of new technologies. Any forward-looking
statements should be considered in light of these factors. The Company
undertakes no obligation to publicly release any forward-looking information to
reflect anticipated or unanticipated events or circumstances after the date of
this document.
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
17
OF SIGNIFICANT ACCOUNTING POLICIES," "FAIR VALUE OF FINANCIAL INSTRUMENTS,"
"FINANCING ARRANGEMENTS" and "SUBSEQUENT EVENTS" notes in Exhibit 13, the
"Financial Section of the 1999 Annual Report to Shareholders of Precision
Castparts Corp."
INTEREST RATE RISK
As discussed in the "SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES" and
"FINANCING ARRANGEMENTS" notes in Exhibit 13, the Company was committed to
interest rate swaps on a term loan and a revolving credit facility at March 28,
1999, as well as an interest rate cap at March 29, 1998. If market rates would
have averaged 10 percent higher than actual levels in either fiscal 1999 or
fiscal 1998, 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.
As discussed in the "SUBSEQUENT EVENTS" note in Exhibit 13, subsequent to
year end, the Company entered into a swap agreement to fix the borrowing rate on
approximately 50 percent of new committed bank facilities as well as an interest
rate lock contract to hedge the Treasury rate for the intended issue of
medium-term debt securities, all in conjunction with the pending acquisition of
Wyman-Gordon Company. The gain or loss on these contracts will be deferred and
recognized over the life of the debt issue. If the Company does not proceed with
the intended debt issue, the gain or loss on termination of the interest rate
lock contracts will be recognized in current period net income. The potential
loss in fair value on such financial instruments from a hypothetical 10 percent
adverse change in the respective interest rates would not be material to the
financial position of the Company.
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"
note, the Company had several foreign currency hedges in place at March 28, 1999
and March 29, 1998 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 1999 or fiscal 1998.
MATERIAL COST RISK
As discussed in the "SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES" note, the
Company had entered into agreements to hedge the purchase price of nickel metal
at March 28, 1999 and March 29, 1998. If market rates would have averaged 10
percent higher than actual levels in either fiscal 1999 or 1998, the effect on
the Company's cost of sales and net earnings, after considering the effects of
the hedge agreements, would not have been material.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Information with respect to Financial Statements and Supplementary Data is
incorporated herein by reference to pages 1 through 37 of Exhibit 13, the
"Financial Section of the 1999 Annual Report to Shareholders of Precision
Castparts Corp."
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
18
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information with respect to Directors of the Company is incorporated herein
by reference to "Proposal 1: Election of Directors" continuing through "Report
of the Compensation Committee on Executive Compensation" in the Company's Proxy
Statement dated June 28, 1999 for the 1999 Annual Meeting of Shareholders of the
Registrant. The information required by this item with respect to the Company's
executive officers follows Part I, Item 4 of this document.
ITEM 11. EXECUTIVE COMPENSATION
Information with respect to Executive Compensation is incorporated herein by
reference to "Compensation of Executive Officers" in the Proxy Statement dated
June 28, 1999 for the 1999 Annual Meeting of Shareholders of the Registrant.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information with respect to Security Ownership of Certain Beneficial Owners
and Management is incorporated herein by reference to "Security Ownership of
Certain Beneficial Owners" and "Security Ownership of Directors and Executive
Officers" in the Proxy Statement dated June 28, 1999 for the 1999 Annual Meeting
of Shareholders of the Registrant.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information with respect to Certain Relationships and Related Transactions
is incorporated herein by reference to "Board Compensation, Attendance and
Committees" in the Proxy Statement dated June 28, 1999 for the 1999 Annual
Meeting of Shareholders of the Registrant.
19
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(A)(1) FINANCIAL STATEMENTS
The following financial statements incorporated by reference from Exhibit
13, the "Financial Section of the 1999 Annual Report to Shareholders of
Precision Castparts Corp." are filed as part of this report.
PAGE IN EXHIBIT 13,
THE "FINANCIAL SECTION
OF THE 1999 ANNUAL REPORT
TO SHAREHOLDERS
OF PRECISION CASTPARTS
STATEMENT CORP."*
- ---------------------------------------------------------------- -----------------------------
Consolidated Statements of Income............................... 11
Consolidated Balance Sheets..................................... 12
Consolidated Statements of Cash Flows........................... 13
Consolidated Statements of Shareholders' Investment............. 14
Consolidated Statements of Comprehensive Income................. 15
Notes to Financial Statements................................... 16
Report of Independent Accountants............................... 34
(A)(2) FINANCIAL STATEMENT SCHEDULE
The following schedule is filed as part of this report:
Schedule II--Valuation and Qualifying Accounts
Report of Independent Accountants on Financial Statement Schedule
(A)(3) EXHIBITS
(3)A -- Restated Articles of Incorporation of Precision Castparts Corp. as
amended (Incorporated herein by reference to Exhibit 3 in the Form
10-Q, Filed February 10, 1999.) (File number 1-10348)
(3)B -- Bylaws of Precision Castparts Corp. (Incorporated herein by reference
to Exhibit 3.2 in the Form 8A/A, Amendment No. 3, Filed September 27,
1996.) (File number 1-10348)
(4)A -- Indenture dated December 17, 1997 between the First National Bank of
Chicago as Trustee and Precision Castparts Corp. (Incorporated herein
by reference to Exhibit (4)A in the Form 10-K dated June 26, 1998.)
(File number 1-10348)
(10)A -- Precision Castparts Corp. Revised and Restated Stock Incentive Plan
as amended. (Incorporated herein by reference to Exhibit (10)A in the
Form 10-K dated April 3, 1994.) (File number 1-10348)
(10)B -- Precision Castparts Corp. Non-Employee Directors' Stock Option Plan.
(Incorporated herein by reference to Item 6(a), Exhibit (10)B in the
Form 10-Q dated August 8, 1997.) (File number 1-10348)
(10)C -- Precision Castparts Corp. 1994 Stock Incentive Plan. (Incorporated
herein by reference to Appendix A in Registrant's June 20, 1994 Proxy
Statement to Shareholders.) (File number 1-10348)
20
(10)D -- Precision Castparts Corp. Nonemployee Directors' Deferred
Compensation Plan dated January 1, 1995. (Incorporated herein by
reference to Exhibit (10)D in the Form 10-K dated April 2, 1995.)
(File number 1-10348)
(10)E -- Precision Castparts Corp. Executive Deferred Compensation Plan dated
January 1, 1995 (Incorporated herein by reference to Exhibit (10)E in
the Form 10-K dated April 2, 1995.) (File number 1-10348)
(10)F -- Bank of America Credit Agreement Dated July 31, 1996 among Precision
Castparts Corp.; Certain of its Subsidiaries; Bank of America
National Trust and Savings Association, as Agent; Letter of Credit
Issuing Bank; and The Other Financial Institutions Party Hereto
Arranged by BA Securities, Inc. (Incorporated herein by reference to
Exhibit (10)H in the Form 10-Q dated October 25, 1996.) (File number
1-10348)
(10)G -- Precision Castparts Corp. Executive Performance Compensation Plan.
(Incorporated herein by reference to Item 6(a), Exhibit (10)G in the
Form 10-Q dated August 8, 1997.) (File number 1-10348)
(10)H -- Compensation Arrangement between Precision Castparts Corp. and
Gregory M. Delaney. (Incorporated herein by reference to Exhibit
(10)H in the Form 10-K dated June 26, 1998.) (File number 1-10348)
(10)I -- Form of Change of Control Agreement and Indemnity Agreement for
Officers and Executives of Precision Castparts Corp. (Incorporated
herein by reference to Exhibit (10)I in the Form 10-K dated June 27,
1997.) (File number 1-10348)
(10)J -- Form of Employment Agreement, dated as of April 2, 1997 between
Precision Castparts Corp. and Steven C. Riedel. (Incorporated herein
by reference to Exhibit (10)J in the Form 10-K dated June 27, 1997.)
(File number 1-10348)
(10)K -- Precision Castparts Corp. Supplemental Executive Retirement Program
1998, dated January 1, 1998. (Incorporated herein by reference to
Exhibit (10)K in the Form 10-K dated June 26, 1998.) (File number
1-10348)
(10)L -- Precision Castparts Corp. 1998 Employee Stock Purchase Plan
(Incorporated herein by reference to Item 6(a), Exhibit (10)L in the
Form 10-Q dated August 8, 1997.) (File number 1-10348)
(11) -- Calculation of Earnings Per Share for the Year Ended March 28, 1999*
(13) -- Financial Section of the 1999 Annual Report to Shareholders of
Precision Castparts Corp. for the Year Ended March 28, 1999
(21) -- Subsidiaries of Precision Castparts Corp.
(23) -- Consent of Independent Accountants
(27) -- Financial Data Schedule
(B) REPORTS ON FORM 8-K
The Company filed a Form 8-K dated December 3, 1998, regarding the
adoption of a shareholder rights plan.
(C) SEE (A)(3) ABOVE.
(D) SEE (A)(2) ABOVE.
- ------------------------
* Information required to be presented in Exhibit 11 is incorporated
herein by reference to the "EARNINGS PER SHARE" note in Exhibit 13, the
"Financial Section of the 1999 Annual Report to Shareholders of Precision
Castparts Corp."
21
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
PRECISION CASTPARTS CORP.
By: /s/ WILLIAM C. MCCORMICK
-----------------------------------------
William C. McCormick
CHAIRMAN OF THE BOARD, DIRECTOR AND CHIEF
EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant in the capacities and on the dates indicated.
SIGNATURE TITLE
- ------------------------------ --------------------------
As officers or directors of
PRECISION CASTPARTS CORP.
/s/ WILLIAM C. MCCORMICK Chairman of the Board,
- ------------------------------ Director and Chief
William C. McCormick Executive Officer
Vice President and Chief
/s/ WILLIAM D. LARSSON Financial Officer
- ------------------------------ (Principal Financial and
William D. Larsson Accounting Officer)
/s/ PETER R. BRIDENBAUGH
- ------------------------------ Director
Peter R. Bridenbaugh
/s/ DEAN T. DUCRAY
- ------------------------------ Director
Dean T. DuCray
/s/ DON R. GRABER
- ------------------------------ Director
Don R. Graber
/s/ ROY M. MARVIN
- ------------------------------ Director
Roy M. Marvin
/s/ VERNON E. OECHSLE
- ------------------------------ Director
Vernon E. Oechsle
/s/ STEVEN G. ROTHMEIER
- ------------------------------ Director
Steven G. Rothmeier
22
SCHEDULE II
PRECISION CASTPARTS CORP. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED
(000'S OMITTED)
COLUMN C
------------------------
COLUMN B ADDITIONS COLUMN E
----------- ------------------------ -----------
COLUMN A BALANCE AT CHARGED TO COLUMN D BALANCE AT
- --------------------------------------------------- BEGINNING COSTS AND BUSINESS ----------- END OF
CLASSIFICATION OF PERIOD EXPENSES ACQUISITIONS DEDUCTIONS PERIOD
- --------------------------------------------------- ----------- ----------- ----------- ----------- -----------
Deducted from assets to which they apply:
Reserve for doubtful accounts:
March 30, 1997................................... $ 1,100 $ 900 $ 1,400 $ 800(1) $ 2,600
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
March 29, 1998................................... $ 2,600 $ 1,100 $ 700 $ 600(1) $ 3,800
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
March 28, 1999................................... $ 3,800 $ 500 $ 300 $ 1,200(1) $ 3,400
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Deferred tax asset valuation allowance:
March 30, 1997................................... $ 4,100 $ 500(2) $ 1,300 $ 2,400(3) $ 3,500
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
March 29, 1998................................... $ 3,500 $ -- $ -- $ 2,000(3) $ 1,500
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
March 28, 1999................................... $ 1,500 $ 1,200(2) $ -- $ -- $ 2,700
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
- ------------------------
(1) Write off of bad debts.
(2) Establishment of valuation allowances on capital-loss carryforwards or
operating loss carryforwards.
(3) Utilization of tax benefits under capital-loss or operating loss
carryforwards.
23
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
To the Board of Directors of Precision Castparts Corp.
Our audits of the consolidated financial statements referred to in our
report dated April 28, 1999 appearing on page 35 of the 1999 Annual Report to
Shareholders of Precision Castparts Corp. (which report and consolidated
financial statements are included as Exhibit 13 in this Annual Report on Form
10-K) also included an audit of the Financial Statement Schedule listed in Item
14(a)(2) of this Form 10-K. In our opinion, this Financial Statement Schedule
presents fairly, in all material respects, the information set forth therein
when read in conjunction with the related consolidated financial statements.
/s/ PRICEWATERHOUSECOOPERS LLP
--------------------------------------------------
PRICEWATERHOUSECOOPERS LLP
Portland, Oregon
April 28, 1999
24
INDEX TO EXHIBITS
EXHIBITS
(3)A -- Restated Articles of Incorporation of Precision Castparts Corp. as
amended (Incorporated herein by reference to Exhibit 3 in the Form
10-Q, Filed February 10, 1999.) (File number 1-10348)
(3)B -- Bylaws of Precision Castparts Corp. (Incorporated herein by reference
to Exhibit 3.2 in the Form 8A/A, Amendment No. 3, Filed September 27,
1996.) (File number 1-10348)
(4)A -- Indenture dated December 17, 1997 between the First National Bank of
Chicago as Trustee and Precision Castparts Corp. (Incorporated herein
by reference to Exhibit (4)A in the Form 10-K dated June 26, 1998.)
(File number 1-10348)
(10)A -- Precision Castparts Corp. Revised and Restated Stock Incentive Plan as
amended. (Incorporated herein by reference to Exhibit (10)A in the
Form 10-K dated April 3, 1994.) (File number 1-10348)
(10)B -- Precision Castparts Corp. Non-Employee Directors' Stock Option Plan.
(Incorporated herein by reference to Item 6(a), Exhibit (10)B in the
Form 10-Q dated August 8, 1997.) (File number 1-10348)
(10)C -- Precision Castparts Corp. 1994 Stock Incentive Plan. (Incorporated
herein by reference to Appendix A in Registrant's June 20, 1994 Proxy
Statement to Shareholders.) (File number 1-10348)
(10)D -- Precision Castparts Corp. Nonemployee Directors' Deferred Compensation
Plan dated January 1, 1995. (Incorporated herein by reference to
Exhibit (10)D in the Form 10-K dated April 2, 1995.) (File number
1-10348)
(10)E -- Precision Castparts Corp. Executive Deferred Compensation Plan dated
January 1, 1995 (Incorporated herein by reference to Exhibit (10)E in
the Form 10-K dated April 2, 1995.) (File number 1-10348)
(10)F -- Bank of America Credit Agreement Dated July 31, 1996 among Precision
Castparts Corp.; Certain of its Subsidiaries; Bank of America National
Trust and Savings Association, as Agent; Letter of Credit Issuing
Bank; and The Other Financial Institutions Party Hereto Arranged by BA
Securities, Inc. (Incorporated herein by reference to Exhibit (10)H in
the Form 10-Q dated October 25, 1996.) (File number1-10348)
(10)G -- Precision Castparts Corp. Executive Performance Compensation Plan.
(Incorporated herein by reference to Item 6(a), Exhibit (10)G in the
Form 10-Q dated August 8, 1997.) (File number 1-10348)
(10)H -- Compensation Arrangement between Precision Castparts Corp. and Gregory
M. Delaney. (Incorporated herein by reference to Exhibit (10)H in the
Form 10-K dated June 26, 1998.) (File number 1-10348)
(10)I -- Form of Change of Control Agreement and Indemnity Agreement for
Officers and Executives of Precision Castparts Corp. (Incorporated
herein by reference to Exhibit (10)I in the Form 10-K dated June 27,
1997.) (File number 1-10348)
25
(10)J -- Form of Employment Agreement, dated as of April 2, 1997 between
Precision Castparts Corp. and Steven C. Riedel. (Incorporated herein
by reference to Exhibit (10)J in the Form 10-K dated June 27, 1997.)
(File number 1-10348)
(10)K -- Precision Castparts Corp. Supplemental Executive Retirement Program
1998, dated January 1, 1998. (Incorporated herein by reference to
Exhibit (10)K in the Form 10-K dated June 26, 1998.) (File number
1-10348)
(10)L -- Precision Castparts Corp. 1998 Employee Stock Purchase Plan
(Incorporated herein by reference to Item 6(a), Exhibit (10)L in the
Form 10-Q dated August 8, 1997.) (File number 1-10348)
(11) -- Calculation of Earnings Per Share for the Year Ended March 28, 1999*
(13) -- Financial Section of the 1999 Annual Report to Shareholders of
Precision Castparts Corp. for the Year Ended March 28, 1999
(21) -- Subsidiaries of Precision Castparts Corp.
(23) -- Consent of Independent Accountants
(27) -- Financial Data Schedule
- ------------------------
* Information required to be presented in Exhibit 11 is incorporated herein by
reference to the "EARNINGS PER SHARE" note in Exhibit 13, the "Financial
Section of the 1999 Annual Report to Shareholders of Precision Castparts
Corp."
26