SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

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

 

For the Quarter Ended January 2, 2005

 

Commission File No. 1-10348

 

Precision Castparts Corp.

 

An Oregon Corporation

IRS Employer Identification No. 93-0460598

4650 S.W. Macadam Avenue

Suite 440

Portland, Oregon 97239-4254

Telephone: (503) 417-4800

 

Indicate by checkmark 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.

 

 

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

 

 

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

 

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

 

 

PART 1:  FINANCIAL INFORMATION

 

Item 1.  Financial Statements

 

Precision Castparts Corp. and Subsidiaries

Consolidated Statements of Operations

(Unaudited)

(In millions, except per share data)

 

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

 

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

 

2

 

 

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

 

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

 

3

 

Precision Castparts Corp. and Subsidiaries

Consolidated Balance Sheets

(In millions)

 

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

 

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

 

4

 

Precision Castparts Corp. and Subsidiaries

Consolidated Statements of Cash Flows

(Unaudited)

(In millions)

 

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

 

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

 

5

 

Notes to the Interim Consolidated Financial Statements

(Unaudited)

(In millions, except share and per share data)

 

(1)                                 Basis of Presentation

 

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

 

(2)                                 Stock-based compensation

 

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

 

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

 

6

 

(3)                                 Acquisition

 

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

 

SPS is a supplier of fasteners and other metal products to the aerospace, automotive, and general industrial and other markets.  SPS’s former Specialty Materials and Alloys group operates as part of the Investment Cast Products segment.  A new segment, Fastener Products, comprises most of SPS’s former Aerospace Fasteners and Engineered Fasteners groups.  SPS’s former tool group operates as part of the Industrial Products segment.  In addition, three former SPS businesses – Magnetics, Mohawk, and Dacar – were classified as held for sale in the third quarter of fiscal 2004, and their results have been included in discontinued operations.  Dacar was sold in late September 2004 and the Magnetics business was sold in January 2005.  The Mohawk business is currently being marketed.  See Note 4 – Discontinued Operations.

 

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

 

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

 

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

 

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

 

7

 

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

 

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

 

The goodwill is not deductible for tax purposes.

 

(4)                                 Discontinued Operations

 

In the second quarter of fiscal 2005, the Company entered into agreements 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 sewer and detection system operation of the Fluid Management Products segment 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 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.

 

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 late September 2004, Magnetics was sold in January 2005, and Mohawk continues to be marketed.

 

In the second quarter of fiscal 2004, the Company decided to 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 related to the write-down of remaining inventory and property, plant and equipment to fair value less cost to sell, the write-down of account 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.  The Newmans business was sold in the third quarter of fiscal 2004.

 

8

 

In fiscal 2003, PCC incurred charges associated with the closure or sale of certain businesses of PCC Flow Technologies and 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 agreements to sell Barber Industries and Fastener Engineers & Lewis Machine (“FELM”) and began actively marketing PCC Superior Fabrication for sale in the fourth quarter. Barber Industries and FELM were both sold during the first quarter and PCC Superior Fabrication was sold in the fourth quarter of fiscal 2004. The performance of these businesses was not consistent with the Company’s long-term strategy for profitable growth.

 

The 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. The components of discontinued operations for the periods presented are as follows:

 

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

 

9

 

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

 

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

 

(5)                                 Restructuring Charges

 

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

 

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

 

The Company recorded $0.3 million of restructuring charges in the fourth quarter of fiscal 2004 to provide for severance associated with the consolidation of the Reed-Rico thread-rolling facility in Holden, Massachusetts, into the newly acquired SPS thread-rolling operations in Shannon, Ireland.  The restructuring plans called for termination of approximately 100 employees through the second quarter of fiscal 2005.  In conjunction with the consolidation of the Reed-Rico and SPS thread-rolling operations, equipment at Reed-Rico was written down to net realizable value, resulting in an impairment charge of $2.2 million.

 

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

 

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

 

10

 

(6)                                 Inventories

 

Inventories consisted of the following:

 

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

 

(7)                                 Goodwill and Acquired Intangibles

 

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

 

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

 

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

 

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

 

11

 

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

 

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

 

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

 

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

 

(8)                                 Guarantees

 

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

 

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

 

12

 

(9)                                 Earnings per share

 

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

 

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

 

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

 

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

 

(10)                          Comprehensive Income (Loss)

 

Comprehensive income (loss) consisted of the following:

 

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

 

13

 

(11)                          Pensions and Other Postretirement Benefit Plans

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

(12)                          New Accounting Pronouncements

 

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 4, 2006. We are currently evaluating the provisions of SFAS No. 151 and do not expect that the adoption will have a material impact on our consolidated financial position or results of operations.

 

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

 

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