PRECISION CASTPARTS CORP - FORM 10-Q

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EX-31.1 - SECTION 302 CEO CERTIFICATION - PRECISION CASTPARTS CORP	pcp2014062910-qex311.htm
EX-32.2 - SECTION 906 CFO CERTIFICATION - PRECISION CASTPARTS CORP	pcp2014062910-qex322.htm
EX-32.1 - SECTION 906 CEO CERTIFICATION - PRECISION CASTPARTS CORP	pcp2014062910-qex321.htm
EX-31.2 - SECTION 302 CFO CERTIFICATION - PRECISION CASTPARTS CORP	pcp2014062910-qex312.htm
EXCEL - IDEA: XBRL DOCUMENT - PRECISION CASTPARTS CORP	Financial_Report.xls

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended June 29, 2014

Commission File Number 1-10348




Precision Castparts Corp.


	An Oregon Corporation IRS Employer Identification No. 93-0460598 4650 S.W. Macadam Avenue Suite 400 Portland, Oregon 97239-4262 Telephone: (503) 946-4800

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 whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). [x] Yes [ ] No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer	[x]	Accelerated filer	[ ]
Non-accelerated filer	[ ] (Do not check if a smaller reporting company)	Smaller reporting company	[ ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [x]

Number of shares of Common Stock, no par value, outstanding as of July 31, 2014: 143,473,660

PART I. FINANCIAL INFORMATION



Item 1.	Financial Statements

Precision Castparts Corp. and Subsidiaries

Condensed Consolidated Statements of Income

(Unaudited)

(In millions, except per share data)



	Three Months Ended
	6/29/14			6/30/13
Net sales	$	2,528		$	2,367
Costs and expenses:
Cost of goods sold	1,634			1,570
Selling and administrative expenses	158			153
Interest expense	17			20
Interest income	(1		)	(1		)
Total costs and expenses	1,808			1,742
Income before income tax expense and equity in earnings of unconsolidated affiliates	720			625
Income tax expense	(237		)	(200		)
Equity in earnings of unconsolidated affiliates	—			1
Net income from continuing operations	483			426
Net (loss) income from discontinued operations	(1		)	12
Net income	482			438
Net loss (income) attributable to noncontrolling interests	1			(2		)
Net income attributable to Precision Castparts Corp. (“PCC”)	$	483		$	436
Net income per common share attributable to PCC shareholders - basic:
Net income from continuing operations	$	3.34		$	2.90
Net (loss) income from discontinued operations	(0.01		)	0.08
Net income per share	$	3.33		$	2.98
Net income per common share attributable to PCC shareholders - diluted:
Net income from continuing operations	$	3.32		$	2.88
Net (loss) income from discontinued operations	(0.01		)	0.08
Net income per share	$	3.31		$	2.96
Weighted average common shares outstanding:
Basic	144.9			146.2
Diluted	145.9			147.1

See Notes to the Condensed Consolidated Financial Statements.

Precision Castparts Corp. and Subsidiaries

Condensed Consolidated Statements of Comprehensive Income

(Unaudited)

(In millions)



	Three Months Ended
	6/29/14			6/30/13
Net income	$	482		$	438
Other comprehensive income (loss) ("OCI"), net of tax:
Foreign currency translation adjustments	40			6
Unrealized loss on available-for-sale securities (net of income tax benefit of $2 and $6, respectively)	(10		)	(9		)
Gain (loss) on derivatives:
Unrealized gain (loss) due to periodic revaluations (net of income tax expense of $0 in both periods)	3			(1		)
Less: reclassification adjustment for gains included in net income (net of income tax expense of $0 in both periods)	(2		)	—
Other comprehensive income (loss), net of tax	31			(4		)
Total comprehensive loss (income) attributable to noncontrolling interests	2			(2		)
Total comprehensive income attributable to PCC	$	515		$	432

See Notes to the Condensed Consolidated Financial Statements.

Precision Castparts Corp. and Subsidiaries

Condensed Consolidated Balance Sheets

(Unaudited)

(In millions)



	6/29/14			3/30/14
Assets
Current assets:
Cash and cash equivalents	$	373		$	361
Receivables, net	1,656			1,578
Inventories	3,599			3,438
Prepaid expenses and other current assets	87			106
Income tax receivable	—			4
Deferred income taxes	6			11
Discontinued operations	9			9
Total current assets	5,730			5,507
Property, plant and equipment, at cost	4,141			3,989
Accumulated depreciation	(1,746		)	(1,680		)
Net property, plant and equipment	2,395			2,309
Goodwill	6,828			6,624
Acquired intangible assets, net	3,810			3,440
Investment in unconsolidated affiliates	416			416
Other assets	271			263
Discontinued operations	25			27
	$	19,475		$	18,586
Liabilities and Equity
Current liabilities:
Long-term debt currently due and short-term borrowings	$	3		$	2
Accounts payable	978			1,047
Accrued liabilities	557			556
Income tax payable	164			—
Discontinued operations	3			3
Total current liabilities	1,705			1,608
Long-term debt	3,910			3,569
Pension and other postretirement benefit obligations	444			442
Other long-term liabilities	684			605
Deferred income taxes	916			947
Discontinued operations	2			2
Commitments and contingencies (See Notes)
Equity:
Preferred stock	—			—
Common stock	145			145
Paid-in capital	1,380			1,487
Retained earnings	10,651			10,172
Accumulated other comprehensive loss	(387		)	(418		)
Total PCC shareholders' equity	11,789			11,386
Noncontrolling interest	25			27
Total equity	11,814			11,413
	$	19,475		$	18,586

See Notes to the Condensed Consolidated Financial Statements.

Precision Castparts Corp. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(In millions)



	Three Months Ended
	6/29/14			6/30/13
Operating activities:
Net income	$	482		$	438
Net loss (income) from discontinued operations	1			(12		)
Non-cash items:
Depreciation and amortization	79			70
Deferred income taxes	29			9
Stock-based compensation expense	15			16
Excess tax benefits from share-based payment arrangements	(7		)	(4		)
Other non-cash adjustments	(5		)	4
Changes in assets and liabilities, excluding effects of acquisitions and dispositions of businesses:
Receivables	(47		)	47
Inventories	(90		)	(123		)
Prepaid expenses and other current assets	9			9
Income tax receivable and payable	175			152
Payables and accruals	(133		)	(68		)
Pension and other postretirement benefit plans	(1		)	(49		)
Dividends from equity method investments	—			28
Other non-current assets and liabilities	(30		)	(1		)
Net cash used by operating activities of discontinued operations	(1		)	(2		)
Net cash provided by operating activities	476			514
Investing activities:
Acquisitions of businesses, net of cash acquired	(625		)	(2		)
Capital expenditures	(76		)	(82		)
Dispositions of businesses	15			64
Other investing activities, net	5			(15		)
Net cash used by investing activities	(681		)	(35		)
Financing activities:
Net change in commercial paper borrowings	342			(421		)
Common stock issued	29			16
Excess tax benefits from share-based payment arrangements	7			4
Repurchase of common stock	(159		)	(63		)
Cash dividends	(4		)	(4		)
Other financing activities, net	(1		)	—
Net cash provided (used) by financing activities	214			(468		)
Effect of exchange rate changes on cash and cash equivalents	3			2
Net increase in cash and cash equivalents	12			13
Cash and cash equivalents at beginning of period	361			280
Cash and cash equivalents at end of period	$	373		$	293

See Notes to the Condensed Consolidated Financial Statements.

Notes to the Condensed Consolidated Financial Statements

(Unaudited)

(In millions, except share and per share data)

(1) Basis of Presentation

The condensed consolidated financial statements have been prepared by Precision Castparts Corp. (“PCC”, the “Company”, or “we”), without audit and are subject to year-end adjustment, in accordance with accounting principles generally accepted in the United States of America ("GAAP"), except that certain information and footnote disclosures made in the latest annual report on Form 10-K have been condensed or omitted for the interim statements. Certain costs are estimated for the full year and allocated into interim periods based on estimates of operating time expired, benefit received, or activity associated with the interim period. The condensed consolidated financial statements reflect all adjustments which are, in the opinion of management, necessary for a fair presentation of the results for the interim periods. The year-end condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America.

(2) Acquisitions

Fiscal 2015

On April 25, 2014, we acquired Aerospace Dynamics International ("ADI") for approximately $625 million. ADI is one of the premier suppliers in the aerospace industry, operating a wide range of high-speed machining centers. ADI has developed particular expertise in large complex components, hard-metal machining, and critical assemblies. ADI is located in Valencia, California, and employs approximately 625 people. The ADI acquisition was an asset purchase for tax purposes and operates as part of the Airframe Products segment.

Fiscal 2014

During the second quarter of fiscal 2014, we completed two small acquisitions in the Airframe Products segment.

On October 31, 2013, we acquired Permaswage SAS ("Permaswage"), a world-leading designer and manufacturer of aerospace fluid fittings, for approximately $600 million in cash, funded by commercial paper borrowings. Permaswage's primary focus is the design and manufacture of permanent fittings used in fluid conveyance systems for airframe applications, as well as related installation tooling. The company operates manufacturing locations in Gardena, California; Paris, France; and Suzhou, China. The Permaswage acquisition was a stock purchase for tax purposes and operates as part of the Airframe Products segment.

During the third quarter of fiscal 2014, we completed two additional small acquisitions in the Forged Products segment.

During the fourth quarter of fiscal 2014, we completed two small acquisitions in the Forged Products and Airframe Products segments.

The purchase price allocations for the acquisitions noted above are subject to further refinement. The impact of the acquisitions above is not material to our consolidated results of operations; consequently, pro forma information has not been included.

The above business acquisitions were accounted for under the acquisition method of accounting and, accordingly, the results of operations have been included in the Consolidated Statements of Income since the acquisition date.

(3) Discontinued Operations

During the first quarter of fiscal 2014, we decided to divest a small non-core business in the Airframe Products segment and reclassified it to discontinued operations.

During the fourth quarter of fiscal 2012, we decided to divest a small non-core business in the Airframe Products segment and reclassified it to discontinued operations. The sale of the business was completed in the first quarter of fiscal 2014. The transaction resulted in a gain of approximately $14 million (net of tax) and cash proceeds of $63 million. For tax purposes, the sale generated a capital loss that was offset by a valuation allowance.

During the first quarter of fiscal 2011, we decided to divest a small non-core business in the Airframe Products segment and reclassified it to discontinued operations. The sale of the business was completed in the second quarter of fiscal 2013. The transaction resulted in a loss of less than $1 million (net of tax) and proceeds of $25 million in cash and an unsecured, subordinated, convertible promissory note in the principal amount of $18 million. It was due on August 7, 2017 and paid interest quarterly based on the 5-year Treasury Note Constant Maturity Rate. The note, which allowed for early payment, was repaid in the first quarter of fiscal 2015.

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



	Three Months Ended
	6/29/14			6/30/13
Net sales	$	4		$	10
Cost of goods sold	3			10
Selling and administrative expenses	1			1
Loss from operations before income taxes	—			(1		)
Income tax expense	—			—
Loss from operations	—			(1		)
(Loss) gain on disposal and other expenses, net of $0 tax expense in both periods	(1		)	13
Net (loss) income from discontinued operations	$	(1	)	$	12

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



	6/29/14		3/30/14
Assets of discontinued operations:
Current assets	$	9	$	9
Net property, plant and equipment	12		14
Other assets	13		13
	$	34	$	36
Liabilities of discontinued operations:
Current liabilities	$	3	$	3
Long-term debt	1		1
Other long-term liabilities	1		1
	$	5	$	5

(4) Inventories

Inventories consisted of the following:



	6/29/14		3/30/14
Finished goods	$	517	$	496
Work-in-process	1,421		1,332
Raw materials and supplies	1,043		1,039
	2,981		2,867
Excess of LIFO cost over current cost	618		571
Total inventory	$	3,599	$	3,438

(5) Goodwill and Acquired Intangibles

We perform our annual goodwill and indefinite-lived intangible assets impairment testing during the second quarter of each fiscal year. For fiscal 2014, it was determined that the fair value of the related reporting units was greater than book value and that there was no impairment of goodwill. Furthermore, it was determined that the fair value of indefinite-lived intangible assets was greater than the carrying value and that there was no impairment of indefinite-lived intangible assets.

The changes in the carrying amount of goodwill by reportable segment for the three months ended June 29, 2014 were as follows:



	Balance at				Adjustments, Currency Translation and Other¹		Balance at
	3/30/14		Acquired		Adjustments, Currency Translation and Other¹		6/29/14
Investment Cast Products	$	339	$	—	$	—	$	339
Forged Products	3,677		—		13		3,690
Airframe Products	2,608		184		7		2,799
Total	$	6,624	$	184	$	20	$	6,828

¹ Includes adjustments to the purchase price allocations of Permaswage and several other small acquisitions.

The gross carrying amount and accumulated amortization of our acquired intangible assets were as follows:



	June 29, 2014							March 30, 2014
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Amortizable intangible assets:
Patents	$	13	$	(10	)	$	3	$	13	$	(10	)	$	3
Proprietary technology	2		(2		)	—		2		(2		)	—
Long-term customer relationships	500		(72		)	428		499		(63		)	436
Backlog	56		(34		)	22		56		(32		)	24
Revenue sharing agreements	29		(2		)	27		29		(2		)	27
	$	600	$	(120	)	480		$	599	$	(109	)	490
Unamortizable intangible assets:
Tradenames						705							657
Long-term customer relationships						2,625							2,293
Acquired intangibles, net						$	3,810						$	3,440

Amortization expense for finite-lived intangible assets for the three months ended June 29, 2014 and June 30, 2013 was $11 million and $9 million, respectively. Amortization expense related to finite-lived intangible assets is projected to total $44 million for fiscal 2015. Amortization expense related to finite-lived intangible assets for fiscal 2014 was $41 million. Projected amortization expense for the succeeding five fiscal years is as follows:



Fiscal Year	Estimated Amortization Expense
2016	$	40
2017	35
2018	28
2019	28
2020	28

The amortization will change in future periods if other intangible assets are acquired, existing intangibles are disposed, impairments are recognized or the preliminary valuations as part of our purchase price allocations are refined.

(6) Financing Arrangements

Long-term debt is summarized as follows:



	06/29/14		03/30/14
0.70% Senior Notes due fiscal 2016 ($500 face value less unamortized discount of $0 and $0)	500		500
1.25% Senior Notes due fiscal 2018 ($1,000 face value less unamortized discount of $1 and $1)	999		999
2.50% Senior Notes due fiscal 2023 ($1,000 face value less unamortized discount of $5 and $5)	995		995
3.90% Senior Notes due fiscal 2043 ($500 face value less unamortized discount of $3 and $3)	497		497
Commercial paper	912		570
Other	10		10
	3,913		3,571
Less: Long-term debt currently due	3		2
Total	$	3,910	$	3,569

Long-term debt maturing in each of the next five fiscal years, excluding the discount and premium, is as follows:



Fiscal	Debt
2015	$	2
2016	507
2017	1
2018	1,000
2019	912
Thereafter	1,500
Total	$	3,922

On December 16, 2013, we entered into a 364-day, $1.0 billion revolving credit facility maturing December, 2014 (the “364-Day Credit Agreement”), unless converted into a one-year term loan at the option of the Company at the end of the revolving period. The 364-Day Credit Agreement replaces the prior 364-day credit agreement that expired December, 2013. The 364-Day Credit Agreement contains customary representations and warranties, events of default, and financial and other covenants.

On December 16, 2013, we entered into a five-year, $1.0 billion revolving credit facility (the "New Credit Agreement") (with a $500 million increase option, subject to approval of the lenders) maturing December 2018, unless extended pursuant to two 364-day extension options. On the same day, we terminated the prior credit agreement maturing November 30, 2016. The New Credit Agreement contains customary representations and warranties, events of default, and financial and other covenants. The 364-Day and New Credit Agreement may be referred to collectively as the "Credit Agreements." We had not borrowed funds under the Credit Agreements as of June 29, 2014.

On December 17, 2012, we entered into an underwriting agreement with a group of investment banks for the issuance and sale by the Company of $3.0 billion aggregate principal amount of notes (collectively, the “Notes”) as follows: $500 million of 0.70% Senior Notes due 2015 (the "2015 Notes"); $1.0 billion of 1.25% Senior Notes due 2018 (the "2018 Notes"); $1.0 billion of 2.50% Senior Notes due 2023 (the "2023 Notes"); and $500 million of 3.90% Senior Notes due 2043 (the "2043 Notes").

The Notes are unsecured senior obligations of the Company and rank equally with all of the other existing and future senior, unsecured and unsubordinated debt of the Company. The Company pays interest on the 2015 Notes on June 20 and December 20 of each year and pays interest on the 2018 Notes, the 2023 Notes and the 2043 Notes on January 15 and July 15 of each year.

Historically, we have issued commercial paper as a method of raising short-term liquidity. We believe we continue to have the ability to issue commercial paper and have issued commercial paper to fund acquisitions and short-term cash requirements in recent quarters. As of June 29, 2014, the amount of commercial paper borrowings outstanding was $912 million and the weighted average interest rate was 0.1%. For the three months ended June 29, 2014, the average amount of commercial paper borrowings outstanding was $1,059 million and the weighted average interest rate was 0.2%. For the three months ended June 30, 2013, the average amount of commercial paper borrowings outstanding was $454 million and the weighted average interest rate was 0.2%. During the first three months of fiscal 2015, the largest daily balance of outstanding commercial paper borrowings was $1,295 million. We do not have purchase commitments from buyers for our commercial paper; therefore, our ability to issue commercial paper is subject to market demand.

The maximum amount that can be borrowed under our Credit Agreements and commercial paper program is $2.0 billion. Our unused borrowing capacity as of June 29, 2014 was $1,088 million due to our outstanding commercial paper borrowings of $912 million.

Our financial covenant requirement and actual ratio as of June 29, 2014 was as follows:



	Covenant Requirement		Actual
Consolidated leverage ratio¹	65.0%	(maximum)	24.9%



¹		Terms are defined in the Credit Agreements.

As of June 29, 2014, we were in compliance with the financial covenant in the Credit Agreements.

(7) Earnings per Share and Shareholders' Equity

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



	Three Months Ended
	6/29/14			6/30/13
Amounts attributable to PCC shareholders:
Net income from continuing operations	$	484		$	424
Net (loss) income from discontinued operations	(1		)	12
Net income attributable to PCC shareholders	$	483		$	436



	Three Months Ended
	6/29/14	6/30/13
Weighted average shares outstanding-basic	144.9	146.2
Effect of dilutive stock-based compensation plans	1.0	0.9
Weighted average shares outstanding-dilutive	145.9	147.1

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 (if any) representing stock distributable under stock option, employee stock purchase, deferred stock unit and phantom stock plans computed using the treasury stock method.

For the three months ended June 29, 2014 and June 30, 2013, stock options to purchase 1.0 million and 1.3 million shares of common stock were excluded from the computation of diluted earnings per share, respectively, because they would have been antidilutive. These options could be dilutive in the future.

Share repurchase program

On January 24, 2013, the Board of Directors approved a $750 million program to repurchase shares of the Company's common stock. On August 13, 2013, the Board of Directors approved an additional $750 million for the Company's stock repurchase program, effective immediately and continuing through June 30, 2015. Repurchases under the Company's program may be made in open market or privately negotiated transactions in compliance with Securities and Exchange Commission Rule 10b-18, subject to market conditions, applicable legal requirements, and other relevant factors. This share repurchase program does not obligate PCC to acquire any particular amount of common stock, and it may be suspended at any time at the Company's discretion.

During the three months ended June 29, 2014, the Company repurchased 637,000 shares under this program at an average price paid per share of $249.24 for an aggregate purchase price of $159 million. As of June 29, 2014, the Company had repurchased 3,235,500 shares under this program for an aggregate purchase price of $739 million.

(8) Stock-based Compensation

During the three months ended June 29, 2014 and June 30, 2013, we recorded stock-based compensation expense under our stock option, employee stock purchase, deferred stock unit and deferred compensation plans. A detailed description of the awards under these plans and the respective accounting treatment is included in the “Notes to the Consolidated Financial Statements” included in our Annual Report on Form 10-K for the year ended March 30, 2014.

The following table sets forth total stock-based compensation expense and related tax benefit recognized in our Condensed Consolidated Statements of Income:



	Three Months Ended
	6/29/14			6/30/13
Cost of goods sold	$	4		$	4
Selling and administrative expenses	11			12
Stock-based compensation expense before income taxes	15			16
Income tax benefit	(4		)	(5		)
Total stock-based compensation expense after income taxes	$	11		$	11

(9) Accumulated Other Comprehensive Income (Loss)

Accumulated other comprehensive loss consists of cumulative unrealized foreign currency translation adjustments, pension and postretirement obligations, unrealized gains (losses) on certain derivative instruments, and unrealized gains (losses) on available-for-sale securities. Changes in accumulated other comprehensive income (loss) ("AOCI") by component, net of tax, for the three months ended June 29, 2014 were as follows:



	Cumulative unrealized foreign currency translation gains (losses)		Pension and postretirement obligations			Unrealized gain (loss) on derivatives			Unrealized (loss) gain on available-for-sale securities			Total
Balance at March 30, 2014	$	69	$	(483	)	$	6		$	(10	)	$	(418	)
OCI before reclassifications	40		—			3			(10		)	33
Amounts reclassified from AOCI¹	—		—			(2		)	—			(2		)
Net current period OCI	40		—			1			(10		)	31
Balance at June 29, 2014	$	109	$	(483	)	$	7		$	(20	)	$	(387	)



¹		Reclassifications out of AOCI for the three months ended June 29, 2014 were not significant.

(10) Derivatives and Hedging Activities

We hold and issue derivative financial instruments for the purpose of hedging the risks of certain identifiable and anticipated transactions and to protect our investments in foreign subsidiaries. In general, the types of risks hedged are those relating to the variability of future earnings and cash flows caused by movements in foreign currency exchange rates and changes in commodity prices and interest rates. We document our risk management strategy and hedge effectiveness at the inception of and during the term of each hedge.

Derivative financial instruments are recorded in the financial statements and measured at fair value. Changes in the fair value of derivative financial instruments are either recognized periodically in income or shareholders' equity (as a component of accumulated other comprehensive income (loss)), depending on whether the derivative is being used to hedge changes in fair value, cash flows, or a net investment in a foreign operation. In the normal course of business we execute the following types of hedge transactions:

Fair value hedges

We have sales and purchase commitments denominated in foreign currencies. Foreign currency derivative instruments are used to hedge against the risk of change in the fair value of these commitments attributable to fluctuations in exchange rates. We also have exposure to fluctuations in interest rates. Interest rate derivative instruments may be used to hedge against the risk of changes in the fair value of fixed rate borrowings attributable to changes in interest rates. Changes in the fair value of the derivative instrument are offset in the income statement by changes in the fair value of the item being hedged.

Net investment hedges

We may use foreign currency derivative instruments to hedge net investments in certain foreign subsidiaries whose functional currency is the local currency. The effective portion of the gains and losses on net investment hedge transactions are reported in cumulative translation adjustment as a component of shareholders' equity.

Cash flow hedges

We have exposure to fluctuations in foreign currency exchange rates. Foreign currency forward contracts and options are used to hedge the variability in cash flows from forecast receipts or expenditures denominated in currencies other than the functional currency. We also have exposure to fluctuations in commodity prices. Commodity derivative instruments may be used to hedge against the variability in cash flows from forecasted commodity purchases. For cash flow hedge transactions, the effective portion of changes in the fair value of the derivative instruments are reported in accumulated other comprehensive income (loss). The gains and losses on cash flow hedge transactions that are reported in accumulated other comprehensive income (loss) are reclassified to earnings in the periods in which earnings are affected by the variability of the cash flows of the hedged item. The ineffective portions of all hedges are recognized in current period earnings.

We formally assess, both at the hedge's inception and on an ongoing basis, whether the derivatives that are designated as hedging instruments have been highly effective in offsetting changes in the cash flows of hedged items and whether those derivatives may be expected to remain highly effective in future periods. When it is determined that a derivative is not, or has ceased to be, highly effective as a hedge, we discontinue hedge accounting prospectively.

As of June 29, 2014, there were $6 million of deferred net gains (pre-tax) relating to derivative activity in accumulated other comprehensive loss that are expected to be transferred to net earnings over the next twelve months when the forecasted transactions actually occur. As of June 29, 2014, the maximum term over which we are hedging exposures to the variability of cash flows for all forecasted and recorded transactions is 15 months. The amount of net notional foreign exchange contracts outstanding as of June 29, 2014 was approximately $690 million. We believe that there is no significant credit risk associated with the potential failure of any counterparty to perform under the terms of any derivative financial instrument.

Derivative instruments are measured at fair value within the Condensed Consolidated Balance Sheet either as assets or liabilities. As of June 29, 2014, accounts receivable included foreign exchange contracts of $9 million and accounts payable included foreign exchange contracts of $3 million. As of March 30, 2014, accounts receivable included foreign exchange contracts of $9 million and accounts payable included foreign exchange contracts of $4 million.

For the three months ended June 29, 2014 and June 30, 2013, we recognized $3 million of gains and less than $1 million of losses, respectively, in the Condensed Consolidated Statements of Income for derivatives designated as hedging instruments. For the three months ended June 29, 2014 and June 30, 2013, we recognized $2 million and $7 million of gains, respectively, in the Condensed Consolidated Statements of Income for derivatives not designated as hedging instruments. The ineffective portion of gains and losses relating to derivatives designated as hedging instruments in either period was not significant.

(11) Fair Value Measurements

Fair value guidance within GAAP defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. Fair value guidance defines fair value as the exchange price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Fair value guidance also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The guidance describes three levels of inputs that may be used to measure fair value:



Level 1	Quoted prices in active markets for identical assets or liabilities.
Level 2	Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3	Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The following table presents the assets and liabilities measured at fair value on a recurring basis as of June 29, 2014:



	Fair Value Measurements Using						Assets/Liabilities at Fair Value
	Level 1		Level 2		Level 3		Assets/Liabilities at Fair Value
Assets:
Available for sale securities	$	34	$	—	$	—	$	34
Derivative instruments	$	—	$	9	$	—	$	9
Liabilities:
Derivative instruments	$	—	$	3	$	—	$	3

The following table presents the assets and liabilities measured at fair value on a recurring basis as of March 30, 2014:



	Fair Value Measurements Using						Assets/Liabilities at Fair Value
	Level 1		Level 2		Level 3		Assets/Liabilities at Fair Value
Assets:
Trading securities	$	52	$	—	$	—	$	52
Available for sale securities	$	46	$	—	$	—	$	46
Derivative instruments	$	—	$	9	$	—	$	9
Liabilities:
Derivative instruments	$	—	$	4	$	—	$	4

Trading securities consist of money market funds, commercial paper, and other highly liquid short-term instruments with maturities of three months or less at the time of purchase. These investments are readily convertible to cash with market value approximating cost. There were no transfers between Level 1 and Level 2 fair value measurements during the first three months of fiscal 2015 or fiscal 2014.

Available for sale securities consist of investments in shares of publicly traded companies which were acquired through the purchase of TIMET. All available for sale securities are carried at fair value using quoted prices in active markets. Any unrealized gains or losses on these securities are recognized through other comprehensive income.

Derivative instruments consist of fair value hedges, net investment hedges, and cash flow hedges. At various times, we use derivative financial instruments to limit exposure to changes in foreign currency exchange rates, interest rates and prices of strategic raw materials. Foreign exchange, interest rate and commodity derivative instruments' fair values are determined using pricing models with inputs that are observable in the market or can be derived principally from, or corroborated by, observable market data. There were no changes in our valuation techniques used to measure assets and liabilities at fair value on a recurring basis.

We estimate that the fair value of our long-term fixed rate debt instruments was $2,944 million compared to a book value of $2,997 million at June 29, 2014. At March 30, 2014, the estimated fair value of our long-term fixed rate debt instruments was $2,900 million compared to a book value of $2,996 million. The fair value of long-term fixed rate debt was estimated using a combination of observable trades and quoted prices on such debt, as well as observable market data for comparable instruments. Long-term fixed rate debt would be classified as Level 2 within the fair value hierarchy if it were measured at fair value. The estimated fair value of our miscellaneous long-term debt approximates book value.

(12) Pensions and Other Postretirement Benefit Plans

We sponsor many domestic and foreign defined benefit pension plans. In addition, we offer postretirement medical benefits for certain eligible employees. These plans are more fully described in the “Notes to Consolidated Financial Statements” included in our Annual Report on Form 10-K for the fiscal year ended March 30, 2014.

The net periodic pension cost for our pension plans consisted of the following components:



	Three Months Ended
	6/29/14			6/30/13
Service cost	$	12		$	13
Interest cost	29			26
Expected return on plan assets	(41		)	(41		)
Amortization of net actuarial loss	11			13
Amortization of prior service cost	1			1
Net periodic pension cost	$	12		$	12

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



	Three Months Ended
	6/29/14		6/30/13
Service cost	$	—	$	—
Interest cost	2		2
Amortization of net actuarial loss	—		—
Amortization of prior service cost	—		—
Net periodic benefit cost	$	2	$	2

During the three months ended June 29, 2014, we contributed $18 million to the defined benefit pension plans, of which $6 million was voluntary. During the three months ended June 30, 2013, we contributed $63 million to the defined benefit pension plans, of which $50 million was voluntary. We expect to contribute approximately $12 million of additional required contributions in fiscal 2015, for total contributions to the defined benefit pension plans of approximately $30 million in fiscal 2015. Including contributions in the first three months of fiscal 2015, we expect to contribute a total of approximately $7 million to the other postretirement benefit plans during fiscal 2015.

(13) Commitments and Contingencies

Various lawsuits arising during the normal course of business are pending against us. In the opinion of management, the outcome of these lawsuits, either individually or in the aggregate, will not have a material effect on our consolidated financial position, results of operations or cash flows.

PCC Environmental Matters

PCC continues to participate in environmental assessments and cleanups at several locations. These include currently owned and/or operating facilities and adjoining properties, previously owned or operated facilities and adjoining properties and waste sites, including Superfund (Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA")) sites.

A liability is recorded for environmental remediation on an undiscounted basis when a cleanup program becomes probable and the costs or damages can be reasonably estimated. As assessments and cleanups proceed, the liability is adjusted based on progress made in determining the extent of remedial actions and related costs and damages. The liability can change substantially due to factors such as the nature and extent of contamination, changes in remedial requirements, the allocation of costs among potentially responsible parties as well as other third parties, and technological changes, among others. The amounts of any such adjustments could have a material adverse effect on our results of operations in a given period.

The Company's environmental liability balance was $514 million and $525 million at June 29, 2014 and March 30, 2014, of which $51 million and $61 million was classified as a current liability, respectively, and generally reflects the best estimate of the costs or range of costs to remediate identified environmental conditions for which costs can be reasonably estimated. If no point in a range of costs is a better estimate than others, the low end of the range of costs is accrued. The estimated upper end of the range of reasonably possible environmental costs exceeded amounts accrued by approximately $400 million at June 29, 2014. Actual future losses may be lower or higher given the uncertainties regarding the status of laws, regulations, enforcement policies, the impact of potentially responsible parties, technology and information related to individual sites.

soils and the construction of a slurry wall and groundwater extraction system to treat contaminated groundwater as well as other remedial actions. Although it is anticipated that significant remediation will be completed within the next two to three years, it is expected that a substantial portion of the TIMET environmental accruals will be expended over the next 45 years. Expenditures related to these remedial actions and for resolving TIMET's other environmental liabilities will be applied against existing liabilities. As the remedial actions are implemented at these sites, the liabilities will be adjusted based on the progress made in determining the extent of contamination and the extent of required remediation. While the existing liability generally represents our current best estimate of the costs or range of costs of resolving the identified environmental liabilities, these costs may change substantially due to factors such as the nature and extent of contamination, changes in legal and remedial requirements, the allocation of costs among potentially responsible parties as well as other third parties, and technological changes, among others.

(14) New Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) issued guidance on revenue from contracts with customers. The guidance outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes the most current revenue recognition guidance. The guidance is effective for the Company beginning the first quarter of fiscal 2018. The Company is in the process of determining the impact of this guidance on our consolidated financial position, results of operations, and cash flows.

In April 2014, the FASB issued guidance that changes the criteria for reporting discontinued operations while enhancing disclosures in this area. Under the new guidance, only disposals representing a strategic shift in operations should be presented as discontinued operations. The guidance is effective for the Company beginning the first quarter of fiscal 2016 with early adoption permitted. The adoption of this guidance is not expected to have a significant impact on our consolidated financial position, results of operations, or cash flows.

In July 2013, the FASB issued guidance on the presentation of unrecognized tax benefits when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. The guidance requires entities to present an unrecognized tax benefit netted against certain deferred tax assets when specific requirements are met. The guidance was effective for the Company beginning the first quarter of fiscal 2015. The adoption of this guidance did not have a significant impact on our consolidated financial position, results of operations, or cash flows.

In March 2013, the FASB issued guidance to address the accounting for the cumulative translation adjustment when a parent entity sells or transfers either a subsidiary or a group of assets within a foreign entity. The guidance was effective for the Company beginning the first quarter of fiscal 2015 and was applied prospectively. The adoption of this guidance did not have a significant impact on our consolidated financial position, results of operations, or cash flows.

(15) Segment Information

Information regarding segments is presented in accordance with segment disclosure guidance. Based on the criteria outlined in this guidance, our operations are classified into three reportable business segments: Investment Cast Products, Forged Products and Airframe Products.



	Three Months Ended
	6/29/14			6/30/13
Net sales:
Investment Cast Products	$	625		$	616
Forged Products	1,096			1,065
Airframe Products	807			686
Consolidated net sales	$	2,528		$	2,367
Segment operating income (loss):
Investment Cast Products	$	224		$	213
Forged Products	308			267
Airframe Products	242			205
Corporate expenses	(38		)	(41		)
Total segment operating income	736			644
Interest expense	17			20
Interest income	(1		)	(1		)
Consolidated income before income tax expense and equity in earnings of unconsolidated affiliates	$	720		$	625



Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations

Consolidated Results of Operations - Comparison Between Three Months Ended June 29, 2014 and June 30, 2013



	Three Months Ended						Increase/(Decrease)
(in millions, except per share and per pound data)	6/29/14			6/30/13			$			%
Net sales	$	2,528		$	2,367		$	161		7	%
Costs and expenses:
Cost of goods sold	1,634			1,570			64			4
Selling and administrative expenses	158			153			5			3
Interest expense, net	16			19			(3		)	(16	)
Total costs and expenses	1,808			1,742			66			4
Income before income tax expense and equity in earnings of unconsolidated affiliates	720			625			95			15
Income tax expense	(237		)	(200		)	(37		)	(19	)
Effective tax rate	32.9		%	32.0		%
Equity in earnings of unconsolidated affiliates	—			1			(1		)	(100	)
Net income from continuing operations	483			426			57			13
Net (loss) income from discontinued operations	(1		)	12			(13		)	(108	)
Net income	482			438			44			10
Less: Net loss (income) attributable to noncontrolling interests	1			(2		)	3			150
Net income attributable to Precision Castparts Corp. (“PCC”)	$	483		$	436		$	47		11	%
Net income per common share attributable to PCC shareholders - diluted:
Net income per share from continuing operations	$	3.32		$	2.88		$	0.44		15	%
Net (loss) income per share from discontinued operations	(0.01		)	0.08			(0.09		)	(113	)
Net income per share	$	3.31		$	2.96		$	0.35		12	%



Average market price of key metals (per pound)	Three Months Ended				Increase/(Decrease)
Average market price of key metals (per pound)	6/29/14		6/30/13		$		%
Nickel	$	8.38	$	6.82	$	1.56	23	%
London Metal Exchange¹
Titanium	$	2.73	$	1.93	$	0.80	41	%
Ti 6-4 bulk, Metalprices.com
Cobalt	$	14.21	$	13.42	$	0.79	6	%
Metal Bulletin COFM.8 Index¹



¹	Source: Bloomberg



Intercompany sales¹	Three Months Ended				Increase/(Decrease)
Intercompany sales¹	6/29/14		6/30/13		$			%
Investment Cast Products²	$	68	$	73	$	(5	)	(7	)%
Forged Products³	495		409		86			21	%
Airframe Products⁴	66		43		23			53	%
Total intercompany sales	$	629	$	525	$	104		20	%



¹	Intercompany sales consist of each segment's total intercompany sales, including intercompany sales within a segment and between segments.
²	Investment Cast Products: Includes sales between segments of $10 million and $12 million for the first three months of fiscal 2015 and 2014, respectively.
³	Forged Products: Includes sales between segments of $28 million and $29 million for the first three months of fiscal 2015 and 2014, respectively.
⁴	Airframe Products: Includes sales between segments of $1 million for both the first three months of fiscal 2015 and 2014.

Sales for the first three months of fiscal 2015 were $2,528 million, an increase of $161 million, or 7%, from $2,367 million in the same period last year. The current period includes the contribution from seven businesses acquired in fiscal 2014 and one business acquired in the first three months of fiscal 2015 that were not included in the prior year. Metal pricing and pass-through negatively impacted organic growth by approximately 2% year over year. The decline in external selling prices of nickel alloy from the Forged Products segment's three primary nickel conversion mills and the falling price of other alloys negatively impacted external sales by approximately $50 million in the current period versus a year ago. Although nickel prices increased 23%, as reported on the London Metal Exchange (LME), compared to the same period last year, external selling prices of nickel alloy decreased due to nickel buy forwards and order lead times. Contractual material pass-through pricing increased sales by $63 million in the first three months of fiscal 2015, compared to $67 million in the first three months of fiscal 2014. Contractual material pass-through pricing adjustments are calculated based on average market prices of key metals as shown in the above table in trailing periods ranging from approximately one to twelve months.

Including the impact of acquisitions, aerospace sales increased 9% from the prior year, primarily within our Airframe Products segment. Commercial aircraft production rates continue to drive steady demand for airframe and engine components. The increase in commercial and regional/business jet aerospace sales was partially offset by a decline in military demand. Sales to our power markets increased 8% over the prior year, primarily as a result of higher seamless interconnect pipe sales. IGT sales, including both spares and OEM activity, maintained solid levels. General industrial and other sales decreased 6%, primarily in the military non-aerospace sector.

Based on data from The Airline Monitor as of June 2014, Boeing and Airbus aircraft deliveries are expected to moderately increase through calendar year 2014 as compared to 2013. Due to manufacturing lead times and scheduled build rates, our production volumes are approximately three to six months ahead of aircraft deliveries for mature programs. The Airline Monitor is projecting further growth in aircraft deliveries in calendar year 2015, and therefore we anticipate that our aerospace sales will continue to increase in fiscal 2015 compared to fiscal 2014.

Net income from continuing operations attributable to PCC for the first three months of fiscal 2015 was $484 million, or $3.32 per share (diluted) compared to net income from continuing operations attributable to PCC for the first three months of fiscal 2014 of $424 million, or $2.88 per share (diluted). Net income attributable to PCC (including discontinued operations) for the first three months of fiscal 2015 was $483 million, or $3.31 per share (diluted), compared with net income attributable to PCC of $436 million, or $2.96 per share (diluted), in the same period last year.

Interest and Income Tax

Interest expense for the first three months of fiscal 2015 was $17 million, compared with $20 million for the first three months of last year. On September 30, 2013, we exercised the make-whole early prepayment option and redeemed all $200 million of the 5.60% Senior Notes then outstanding, and therefore incurred interest expense associated with that debt in the prior year. Interest income was $1 million for both the first three months of fiscal 2015 and fiscal 2014.

The effective tax rate for the first three months of fiscal 2015 was 32.9%, compared to 32.0% for the same period last year. The higher effective rate in the current period is primarily due to reduced benefits from nonrecurring adjustments to prior year tax assets and liabilities, and the federal research and development tax credit and controlled foreign corporation look-through, which expired effective December 31, 2013 and March 30, 2014, respectively. The preceding factors were partially offset by increased benefits from lower state taxes and earnings taxed at rates lower than the U.S. statutory rate.

Acquisitions

Fiscal 2015

Fiscal 2014

During the second quarter of fiscal 2014, we completed two small acquisitions in the Airframe Products segment.

During the third quarter of fiscal 2014, we completed two additional small acquisitions in the Forged Products segment.

During the fourth quarter of fiscal 2014, we completed two small acquisitions in the Forged Products and Airframe Products segments.

The purchase price allocations for the acquisitions noted above are subject to further refinement.

Discontinued Operations

Net loss from discontinued operations was $1 million, or $0.01 per share (diluted), for the first three months of fiscal 2015 compared with net income of $12 million, or $0.08 per share (diluted), in the same period last year. Net income or loss from discontinued operations represents the results of operations of entities that have been disposed of, or are classified as held for sale in accordance with discontinued operations guidance. The net loss from discontinued operations in the current period was primarily due to costs associated with shutting down the affected facilities.

Results of Operations by Segment - Comparison Between Three Months Ended June 29, 2014 and June 30, 2013



(in millions)	Three Months Ended						Increase/(Decrease)
(in millions)	6/29/14			6/30/13			$		%
Net sales:
Investment Cast Products	$	625		$	616		$	9	1	%
Forged Products	1,096			1,065			31		3
Airframe Products	807			686			121		18
Consolidated net sales	$	2,528		$	2,367		$	161	7	%
Segment operating income (loss):
Investment Cast Products	$	224		$	213		$	11	5	%
% of sales	35.8		%	34.6		%
Forged Products	308			267			41		15
% of sales	28.1		%	25.1		%
Airframe Products	242			205			37		18
% of sales	30.0		%	29.9		%
Corporate expenses	(38		)	(41		)	3		7
Total segment operating income	736			644			$	92	14	%
% of sales	29.1		%	27.2		%
Interest expense, net	16			19
Consolidated income before income tax expense and equity in earnings of unconsolidated affiliates	$	720		$	625

Investment Cast Products

Investment Cast Products' sales were $625 million for the first three months of fiscal 2015, compared to sales of $616 million in the first three months of fiscal 2014, an increase of $9 million. Year over year, continued strength in the large commercial aerospace market yielded an approximate 5% sales increase as the segment continued to see solid aerospace schedules in line with the current levels of base commercial aircraft production rates. However, growth was offset by continued weak demand in military and regional/business jet markets. IGT sales, which grew approximately 5% year over year, benefited from solid demand for spares sales and upgrade programs, offsetting lower overall OEM turbine output. General industrial and other sales were basically flat as a result of higher sales to the automotive and medical sectors, offset by lower sales to the non-aerospace military sector.

Operating income was $224 million for the first three months of fiscal 2015, an increase of $11 million from $213 million in the first three months of fiscal 2014. Operating income as a percent of sales for the first three months of fiscal 2015 increased to 35.8% from 34.6% of sales in the same period last year. The segment's operating income as a percent of sales increased by 1.2 percentage points over the prior year. Investment Cast Products continued to deliver solid performance by improving material usage and lowering variable costs. Contractual pricing related to pass-through of increased material costs was approximately $13 million in the first three months of fiscal 2015, compared to approximately $18 million in the same period last year. Contractual material pass-through pricing diluted operating margins by 0.8 percentage points in the first three months of fiscal 2015 compared to 1.0 percentage point in the first three months of fiscal 2014.

The Investment Cast Products segment has solid content on most major aircraft production platforms. Sales gains are

expected to be driven by acceleration of the new development engines for re-engined narrow-body programs, for which we provide substantial value per aircraft. The Boeing 787 step up from 10 to 12 aircraft per month should provide further upside. Based on the strong incoming IGT orders during the first quarter, we expect IGT growth to resume for the balance of this fiscal year and into fiscal 2016. Additional sources of opportunity for growth include upgrades to existing turbines and share gains on new high-efficiency platforms.

Forged Products

Forged Products' sales were $1,096 million for the first three months of fiscal 2015, compared to sales of $1,065 million in the first three months of fiscal 2014, an increase of $31 million. Results for the first three months of fiscal 2015 include contributions from three small acquisitions in fiscal 2014. The segment experienced an approximate 2% improvement in aerospace sales year over year, with higher regional/business jet sales and flat large commercial and military sales. Similar to the Investment Cast Products segment, aerospace OEM business continues to be aligned with current commercial aircraft production rates. In power markets, IGT sales grew by approximately 10%, despite lower OEM turbine production. In addition, interconnect pipe sales showed an approximate 50% increase year over year. Oil and gas shipments decreased by approximately 9% in the first three months of fiscal 2015, compared to a very strong shipping profile a year ago. General industrial and other sales decreased approximately 5% compared to the prior year, primarily due to lower sales to the mining and non-aerospace military sectors. Lower market-driven pricing of raw material inputs had a significant negative impact on the segment's year-over-year sales. The decline in external selling prices of nickel alloy from the segment's three primary nickel conversion mills and the falling price of other alloys negatively impacted external sales by approximately $50 million in the first three months of fiscal 2015 versus a year ago. Although nickel prices increased 23%, as reported on the London Metal Exchange (LME), compared to the same period last year, external selling prices of nickel alloy decreased due to nickel buy forwards and order lead times. Contractual material pass-through pricing contributed approximately $48 million of sales in the first three months of fiscal 2015 compared to approximately $47 million of sales in the same period last year (also included in market changes discussed above).

Operating income was $308 million for the first three months of fiscal 2015, an increase of $41 million from $267 million in the first three months of fiscal 2014. Operating income as a percent of sales for the first three months of fiscal 2015 increased to 28.1% from 25.1% of sales in the same period last year. Operating income as a percent of sales increased 3.0 percentage points compared to a year ago, due in part to operational improvements that are being implemented at TIMET. Now into the second year of integration, TIMET further improved its performance on operational metrics and delivered greater value by accelerating vertical integration, increasing revert utilization, and driving higher throughput from market share gains over its assets. The segment also benefited from several small adjustments, including reductions in a contingent purchase price obligation and an employment-related liability, and receipt of an insurance recovery. In addition, the segment’s base businesses demonstrated their ability to leverage increased volume effectively across their operations. Contractual pass-through of higher raw material costs diluted operating margins by 1.3 percentage points in the first three months of fiscal 2015 compared to 1.1 percentage points in the same period a year ago.

The Forged Products segment is well-positioned to benefit from further upside from large commercial aerospace

programs and the acceleration of the new re-engined narrow-body platforms. Share gains at TIMET are expected to drive volume growth starting in the second half of fiscal 2015. Within the power markets, we anticipate interconnect pipe sales growth accelerating in the second half of fiscal 2015. In the oil and gas market, we are winning sizeable new orders that leverage our unique capabilities, and we anticipate that shipments will ramp up over the next twelve months and beyond. Second quarter results will be negatively impacted by the normal scheduled forging press outages for maintenance and capability enhancements, and European holidays.

Airframe Products

Airframe Products' sales were $807 million for the first three months of fiscal 2015, compared to sales of $686 million in the first three months of fiscal 2014, an increase of $121 million. Results for the first three months of fiscal 2015 include contributions from Permaswage and three small acquisitions in fiscal 2014 and the results of ADI for two months. Aerospace sales, which grew approximately 22% year over year, still reflected a disconnect of one to one-and-a-half aircraft between Boeing 787 build rates and fastener shipments. During the quarter, the segment saw a significant boost in customer ordering patterns, with heightened demand for key components and more aggressive shipment schedules. General industrial and other sales decreased approximately 11% when compared to the prior year, primarily due to decreases in the automotive, construction and industrial process sectors.

Operating income was $242 million for the first three months of fiscal 2015, an increase of $37 million from $205 million in the first three months of fiscal 2014. Operating income as a percent of sales for the first three months of fiscal 2015 increased to 30.0% from 29.9% of sales in the same period last year. The Airframe Products segment made further progress in improving its performance through continued solid leverage of increased volumes and improvements in variable cost in its base businesses, while rapidly integrating its newer acquisitions to deliver operating margins closer to the segment average.

Order rates accelerated in the first quarter in the Airframe Products segment as a result of increased demand on commercial OEM platforms, such as the Boeing 787. These higher volumes, along with further share gains, are driving the segment’s operations to take steps now to be ready for the increased production that we anticipate later this fiscal year. Our aerostructures businesses secured strong market share during the quarter and are planning production schedules to effectively meet the higher volume levels in the year ahead. Operating performance is expected to continue to benefit as base businesses improve key metrics and recent acquisitions deliver performance improvements. The acquisition of ADI, which closed in the first quarter, has been a key focus of our strategy and we expect the same rapid integration and accelerated performance we have seen from our other recent acquisitions.

Changes in Financial Condition and Liquidity

Total assets of $19,475 million at June 29, 2014 represented an $889 million increase from the $18,586 million balance at March 30, 2014. The increase in total assets principally reflects cash generated from operations during the first three months of fiscal 2015 totaling $476 million and tangible and intangible assets acquired with the purchase of ADI, which was funded by commercial paper borrowings, partially offset by the repurchase of common stock.

Total capitalization at June 29, 2014 was $15,703 million, consisting of $3,914 million of total debt and $11,789 million of PCC shareholders' equity. The debt-to-capitalization ratio increased to 24.9% at June 29, 2014 from 23.9% at the end of fiscal 2014, reflecting additional commercial paper borrowings to fund the acquisition of ADI, partially offset by the impact of increased equity from net income.

Cash as of June 29, 2014 was $373 million, an increase of $12 million from the end of fiscal 2014. Total debt was $3,914 million, an increase of $342 million from the end of fiscal 2014. The net change in cash and debt primarily reflects cash paid to acquire businesses (net of cash acquired) of $625 million, stock repurchases of $159 million and capital expenditures of $76 million, partially offset by cash generated by operations for the first three months of fiscal 2015 of $476 million and cash received from the dispositions of businesses of $15 million.

We expect our baseline capital expenditures for fiscal 2015 to be modestly higher than fiscal 2014 based on our current forecasts. These expenditures will be targeted for new buildings and facility expansions to increase capacity, and new equipment purchases and refurbishments, primarily in the Forged Products and Airframe Products segments.

In the first three months of fiscal 2015, we contributed $18 million to our defined benefit pension plans, of which $6 million was voluntary. We expect to contribute approximately $12 million of additional required contributions in fiscal 2015, for total contributions to the defined benefit pension plans of approximately $30 million in fiscal 2015. Including contributions in the first three months of fiscal 2015, we expect to contribute a total of approximately $7 million to other postretirement benefit plans during fiscal 2015.

Our international operations hold cash that is denominated in foreign currencies. We manage our worldwide cash

requirements by evaluating the available funds from our various subsidiaries and the cost effectiveness of accessing those

funds. The repatriation of cash from our foreign subsidiaries could have an adverse effect on our effective tax rate. U.S. taxes have not been provided on the cumulative earnings of non-U.S. affiliates and associated companies. Our intention is to reinvest these earnings indefinitely.

On December 16, 2013, we entered into a five-year, $1.0 billion revolving credit facility (the "New Credit Agreement") (with a $500 million increase option, subject to approval of the lenders) maturing December 2018, unless extended pursuant to two 364-day extension options. On the same day, we terminated the prior credit agreement maturing November 30, 2016. The New Credit Agreement contains customary representations and warranties, events of default, and financial and other covenants. The 364-Day and New Credit Agreements may be referred to collectively as the "Credit Agreements." We had not borrowed funds under the Credit Agreements as of June 29, 2014.

We do not anticipate any changes in our ability to borrow under our current credit facilities, but changes in the financial condition of the participating financial institutions could negatively impact our ability to borrow funds in the future. Should that circumstance arise, we believe that we would be able to arrange any needed financing, although we are not able to predict what the terms of any such borrowings would be, or the source of the borrowed funds.

Our financial covenant requirement and actual ratio as of June 29, 2014 was as follows:



	Covenant Requirement		Actual
Consolidated leverage ratio¹	65.0%	(maximum)	24.9%



¹	Terms are defined in the Credit Agreements.

As of June 29, 2014, we were in compliance with the financial covenant in the Credit Agreements.

We believe we will be able to meet our short and longer-term liquidity needs for working capital, pension and other postretirement benefit obligations, capital spending, cash dividends, scheduled repayment of debt and potential acquisitions with the cash generated from operations, the issuance of commercial paper, borrowing from our Credit Agreements or new bank credit facilities, the issuance of public or privately placed debt securities, or the issuance of equity instruments.

Environmental Costs

Total environmental liabilities accrued at June 29, 2014 and March 30, 2014 were $514 million and $525 million, respectively. The estimated future costs for known environmental remediation requirements are accrued on an undiscounted basis when it is probable that a liability has been incurred, and the amount of remediation costs can be reasonably estimated. When only a range of amounts is established, and no amount within the range is better than another, the minimum amount of the range is recorded. The estimated upper end of the range of reasonably possible environmental costs exceeded amounts accrued by approximately $400 million at June 29, 2014. Actual future losses may be lower or higher given the uncertainties regarding the status of laws, regulations, enforcement policies, the impact of potentially responsible parties, technology and information related to individual sites.

Recoveries of environmental remediation costs from other parties are recorded as assets when collection is probable. Adjustments to our accruals may be necessary to reflect new information as investigation and remediation efforts proceed. The amounts of any such adjustments could have a material adverse effect on our results of operations in a given period.

Due to the nature of its historical operations, TIMET has significant environmental liabilities at its titanium manufacturing plants. It has for many years, under the oversight of government agencies, conducted investigations of the soil and groundwater contamination at its plant sites. TIMET has initiated remedial actions at its properties, including the capping of former on-site landfills, removal of contaminated sediments from on-site surface impoundments, remediation of contaminated soils and the construction of a slurry wall and groundwater extraction system to treat contaminated groundwater as well as other remedial actions. Although it is anticipated that significant remediation will be completed within the next two to three years, it is expected that a substantial portion of the TIMET environmental accruals will be expended over the next 45 years. Expenditures related to these remedial actions and for resolving TIMET's other environmental liabilities will be applied against existing liabilities. As the remedial actions are implemented at these sites, the liabilities will be adjusted based on the progress made in determining the extent of contamination and the extent of required remediation. While the existing liability generally represents our current best estimate of the costs or range of costs of resolving the identified environmental liabilities, these costs may change substantially due to factors such as the nature and extent of contamination, changes in legal and remedial requirements, the allocation of costs among potentially responsible parties as well as other third parties, and technological changes, among others.

Critical Accounting Policies

For a discussion of our critical accounting policies, see “Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations” in our Form 10-K filed on May 29, 2014.

Forward-Looking Statements

Information included within this Form 10-Q describing the projected growth and future results and events constitutes forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results in future periods may differ materially from the forward-looking statements because of a number of risks and uncertainties, including but not limited to fluctuations in the aerospace, power generation, and general industrial cycles; the relative success of our entry into new markets; competitive pricing; the financial viability of our significant customers; the concentration of a substantial portion of our business with a relatively small number of key customers; the impact on the Company of customer or supplier labor disputes; demand, timing and market acceptance of new commercial and military programs, including the Boeing 787, and our ability to accelerate production levels to timely match order increases on new or existing programs; the availability and cost of energy, raw materials, supplies, and insurance; the cost of pension and postretirement medical benefits; equipment failures; product liability claims; cybersecurity threats; relations with our employees; our ability to manage our operating costs and to integrate acquired businesses in an effective manner, including the ability to realize expected synergies; the timing of new acquisitions; misappropriation of our intellectual property rights; governmental regulations and environmental matters; risks associated with international operations and world economies; the relative stability of certain foreign currencies; the impact of adverse weather conditions or natural disasters; the availability and cost of financing; and implementation of new technologies and process improvements. Any forward-looking statements should be considered in light of these factors. We undertake no obligation to update any forward-looking information to reflect anticipated or unanticipated events or circumstances after the date of this document.



Item 3.	Quantitative and Qualitative Disclosures About Market Risk

There have been no material changes to our market risk exposure since March 30, 2014.



Item 4.	Controls and Procedures

PCC management, including the Chief Executive Officer and Chief Financial Officer, have conducted an evaluation of the effectiveness of disclosure controls and procedures as of the end of the period covered by this report pursuant to Exchange Act Rule 13a-15(b). Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that the disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in reports filed with the Securities and Exchange Commission is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, and is accumulated and communicated to Company management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. There have been no changes in internal control over financial reporting that occurred during the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

PART II. OTHER INFORMATION



Item 1.	Legal Proceedings

In April 2009, as a result of EPA inspections, EPA issued a Notice of Violation ("Notice") to TIMET alleging that TIMET had violated certain provisions of the Resource Conservation and Recovery Act and the Toxic Substances Control Act at its Henderson, Nevada plant. Since 2009, TIMET has been working cooperatively to address issues identified in the Notice. In April 2014, TIMET and EPA agreed to settle the Notice, and in July 2014, TIMET paid $14 million in civil penalties for the alleged violations. The amount was previously accrued in purchase accounting. Under the settlement, TIMET will perform certain required actions to demonstrate that the operations are in compliance.



Item 1A.	Risk Factors

Our growth strategy includes business and capital equipment acquisitions with associated risks.

Our growth strategy includes the acquisition of strategic operations and capital equipment. We have completed a number of acquisition transactions in recent years. We expect that we will continue to seek acquisitions of complementary businesses, products, capital equipment and technologies to add products and services for our core customer base and for related markets, and will also continue to expand each of our businesses geographically. The success of the completed transactions will depend on our ability to integrate assets and personnel and to apply our manufacturing processes and controls to the acquired businesses. Although our acquisition strategy generally emphasizes the retention of key management of the acquired businesses and an ability of the acquired business to continue to operate independently, various changes may be required to integrate the

acquired businesses into our operations, to assimilate new employees and to implement reporting, monitoring and forecasting procedures. Business and capital equipment acquisitions entail a number of other risks, including as applicable:


•	inaccurate assessment of liabilities;


•	entry into markets in which we may have limited or no experience;


•	diversion of management's attention from our existing businesses;


•	difficulties in realizing projected efficiencies, synergies, installation schedules and cost savings;


•	decrease in our cash or an increase in our indebtedness and a limitation in our ability to access additional capital


	when needed; and


•	risks associated with investments where we do not have full operational control.

Our failure to adequately address these acquisition risks could cause us to incur increased expenses or to fail to realize the benefits we anticipated from the transactions.

We operate in cyclical markets.

A significant portion of our revenues are derived from the highly cyclical aerospace and power generation markets. Our sales to the aerospace industry constituted 68 percent of our total sales in fiscal 2014. Our sales to the power market constituted 18 percent of our total sales in fiscal 2014.

The commercial aerospace industry is historically driven by the demand from commercial airlines for new aircraft. The U.S. and international commercial aviation industries continue to face challenges arising from competitive pressures and fuel costs. Demand for commercial aircraft is influenced by airline industry profitability, trends in airline passenger traffic, the state of U.S. and world economies, the ability of aircraft purchasers to obtain required financing and numerous other factors including the effects of terrorism, health and safety concerns and environmental constraints imposed upon aircraft operators. The military aerospace cycle is highly dependent on U.S. and foreign government funding; however, it is also driven by the effects of terrorism, a changing global political environment, U.S. foreign policy, the retirement of older aircraft and technological improvements to new engines. Accordingly, the timing, duration and severity of cyclical upturns and downturns cannot be forecast with certainty. Downturns or reductions in demand could have a material adverse effect on our business.

The power generation market is also cyclical in nature. Demand for power generation products is global and is affected by the state of the U.S. and world economies, the availability of financing to power generation project sponsors, the political environments of numerous countries and environmental constraints imposed upon power project operators. The availability of fuels and related prices also have a large impact on demand. Reductions in demand for our power generation products could have a material adverse effect on our business.

We also sell products and services to customers in the oil and gas, automotive, chemical and petrochemical, medical, industrial process, and other general industrial markets. Each of these markets is cyclical in nature. Customer demand for our products or services in these markets may fluctuate widely depending upon U.S. and world economic conditions, the availability of financing and industry-specific factors. Cyclical declines or sustained weakness in any of these markets could have a material adverse effect on our business.

Our business is dependent on a small number of direct and indirect customers.

A substantial portion of our business is conducted with a relatively small number of large direct and indirect customers, including General Electric Company, United Technologies Corporation, Rolls Royce plc, Airbus and The Boeing Company. General Electric accounted for approximately 13 percent of our total sales for fiscal 2014. No other customer directly accounted for more than 10 percent of total sales; however, Boeing, Airbus, Rolls Royce and United Technologies are also considered key customers. A financial hardship experienced by any one of these key customers, the loss of any of them or a reduction in or substantial delay of orders from any of them could have a material adverse effect on our business.

In addition, a significant portion of our aerospace products are ultimately used in the production of new commercial aircraft. There are only two primary manufacturers of large commercial aircraft in the world, Boeing and Airbus. A significant portion of our aerospace sales are dependent on the number of new aircraft built by these two manufacturers, which is in turn dependent on a number of factors over which we have little or no control. Those factors include the demand for new aircraft from airlines around the globe and factors that impact manufacturing capabilities, such as the availability of raw materials and manufactured components, changes in the regulatory environment and labor relations between the aircraft manufacturers and their work forces. A significant interruption or slowdown in the number of new aircraft built by aircraft manufacturers could have a material adverse effect on our business.

Sales to the military sector constituted approximately 11 percent of our fiscal 2014 sales. Defense spending is subject to appropriations and to political pressures that influence which programs are funded and which are canceled. Reductions in

domestic or foreign defense budgets or military aircraft procurement, delays in funding or reprioritization of government spending away from defense programs in which we participate could adversely affect our business.

Our business depends, in part, on the success of new commercial and military aircraft programs and our ability to accelerate production levels to timely match order increases on new or existing programs.

The success of our business will depend, in part, on the success of new commercial and military aircraft programs including the Boeing 787, Boeing 737Max, Boeing 777X, Airbus A350, Airbus A320neo, Airbus A330neo and F-35 programs. We are currently under contract to supply components for a number of new commercial, general aviation and military aircraft programs. These new programs as well as certain existing aircraft programs are scheduled to have production increases over the next several years. Our failure to accelerate production levels to timely match these order increases could have a material adverse effect on our business. Cancellation, reductions or delays of orders or contracts by our customers on any of these programs, or regulatory or certification-related groundings or other delays to any new aircraft programs or to the scheduled production increases for existing aircraft programs, could also have a material adverse effect on our business.

The competitive nature of our business results in pressure for price concessions to our customers and increased pressure to reduce our costs.

We are subject to substantial competition in all of the markets we serve, and we expect this competition to continue. As a result, we have made significant long-term price concessions to our customers in the aerospace and power generation markets from time to time, and we expect customer pressure for further long-term price concessions to continue. Maintenance of our market share will depend, in part, on our ability to sustain a cost structure that enables us to be cost-competitive. If we are unable to adjust our costs relative to our pricing, our profitability will suffer. Our effectiveness in managing our cost structure will be a key determinant of future profitability and competitiveness.

Our business is dependent on a number of raw materials that are subject to volatility in price and availability.

We use a number of raw materials in our products, including certain metals such as nickel, titanium, cobalt, tantalum and molybdenum, various rare earth elements, and titanium-containing feedstock ore (natural rutile and upgraded ilmenite), which are found in only a few parts of the world, are available from a limited number of suppliers and, in some cases, are considered conflict minerals for U.S. regulatory purposes if originating in certain countries. The availability and costs of these metals and elements may be influenced by private or government cartels, changes in world politics or regulatory requirements, labor relations between the producers and their work forces, unstable governments in exporting nations, export quotas imposed by governments in countries with rare earth element supplies, market forces of supply and demand, and inflation. These raw materials are required for the alloys or processes used or manufactured in our investment cast products, forged products and airframe products segments. We have escalation clauses for nickel, titanium and other metals in a number of our long-term contracts with major customers, but we are not usually able to fully offset the effects of changes in raw material costs. We also employ “price-in-effect” metal pricing in our alloy production businesses to lock-in the current cost of metal at the time of production or time of shipment. The ability of key metal suppliers to meet quality and delivery requirements can also impact our ability to meet commitments to customers. Future shortages (either to us or our customers) or price fluctuations in raw materials could result in decreased sales or margins or otherwise adversely affect our business. The enactment of new or increased import duties on raw materials imported by us could also increase the costs to us of obtaining the raw materials and might adversely affect our business.

Our business is affected by federal rules, regulations and orders applicable to government contractors.

A number of our products are manufactured and sold under U.S. government contracts or subcontracts. Consequently, we are directly and indirectly subject to various federal rules, regulations and orders applicable to government contractors. From time to time, we are also subject to government inquiries and investigations of our business practices due to our participation in government programs. These inquiries and investigations are costly and consuming of internal resources. 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, any of which could have a material adverse effect on our business.

Our business is subject to environmental regulations and related liabilities and liabilities associated with chemicals and substances in the workplace.

We are subject to various federal, state and foreign environmental laws and regulations concerning, among other things, water discharges, air emissions, hazardous material and waste management and environmental cleanup. Environmental laws and regulations continue to evolve and we may become subject to increasingly stringent environmental standards in the future, particularly under air quality and water quality laws and standards related to climate change issues, such as reporting of greenhouse gas emissions. We are required to comply with environmental laws and the terms and conditions of environmental

permits required for our operations. Failure to comply with these laws or permits could result in fines and penalties, interruption of manufacturing operations or the need to install pollution control equipment that could be costly. We also may be required to make additional expenditures, which could be significant, relating to environmental matters on an ongoing basis. We also own properties, or conduct or have conducted operations at properties, where hazardous materials have been used for many years, including during periods before careful management of these materials was required or generally believed to be necessary. Consequently, we will continue to be subject to environmental laws that impose liability for historical releases of hazardous substances.

Our financial statements include estimated liabilities for future costs arising from environmental issues relating to our properties and operations. Our accruals for known environmental liabilities represent our best estimate of our probable future obligations for the investigation and remediation of known contaminated sites. Our accruals include asserted and unasserted claims. The estimates of our environmental costs are based on currently available facts, present laws and regulations and current technology and take into consideration our prior experience in site investigation and remediation, the data available for each site and the professional judgment of our environmental specialists and consultants. Although recorded liabilities include our best estimate of all probable costs, our total costs for the final settlement of each site cannot be predicted with certainty due to the variety of factors that make potential costs associated with contaminated sites inherently uncertain, such as the nature and extent of site contamination, available remediation alternatives, the extent to which remedial actions will be required, the time period over which costs will be incurred, the number and economic viability of other responsible parties and whether we have any opportunity of contribution from third parties, including recovery from insurance policies. In addition, sites that are in the early stages of investigation are subject to greater uncertainties than mature sites that are close to completion. Although the sites we identify vary across the spectrum, a majority of our sites could be considered at an early stage of the investigation and remediation process. Therefore, our cost estimates and the accruals associated with those sites are subject to greater uncertainties. Environmental contingent liabilities are often resolved over a long period of time, and the timing of expenditures depends on a number of factors that vary by site. We expect that we will expend present accruals over many years, and that remediation of all currently known sites will be completed within 45 years. We cannot ensure that our estimated liabilities are adequate to cover the total cost of remedial measures that may eventually be required by environmental authorities with respect to known environmental matters or the cost of claims that may be asserted in the future with respect to environmental matters about which we are not yet aware. Accordingly, the costs of environmental remediation or claims may exceed the amounts accrued.

We have been named as a PRP at sites identified by the EPA and state regulatory agencies for investigation and remediation under CERCLA and similar state statutes. In the environmental remediation context, potentially responsible parties may be subject to an allocation process to determine liability, and therefore we may be potentially liable to the government or third parties for an allocated portion or full cost of remediating contamination at our facilities or former facilities or at third-party sites where we have been designated a PRP. In estimating our current liabilities for environmental matters, we have assumed that we will not bear the entire cost of remediation of every site to the exclusion of other PRPs who may also be liable. It is also possible that we will be designated a PRP at additional sites in the future.

Like many other industrial companies in recent years, we are defendants in lawsuits alleging personal injury as a result of exposure to chemicals and substances in the workplace, including asbestos. To date, we have been dismissed from a number of these suits and have settled a number of others. The outcome of litigation such as this is difficult to predict, and a judicial decision unfavorable to us could be rendered, possibly having a material adverse effect on our business.

Our business is subject to risks associated with international operations.

We purchase products from and supply products to businesses located outside of the U.S. We also have significant operations located outside the U.S. In fiscal 2014, approximately 19 percent of our total sales were attributable to our non-U.S. subsidiaries. A number of risks inherent in international operations could have a material adverse effect on our results of operations, including:


•	fluctuations in U.S. dollar value arising from transactions denominated in foreign currencies and the translation of certain foreign currency subsidiary balances;


•	difficulties in staffing and managing multi-national operations;


•	general economic and political uncertainties and potential for social unrest in countries in which we or our customers operate;


•	limitations on our ability to enforce legal rights and remedies;


•	restrictions on the repatriation of funds;


•	changes in trade policies;


•	tariff regulations;


•	difficulties in obtaining export and import licenses;


•	the risk of government financed competition; and


•	compliance with a variety of international laws as well as U.S. and other laws affecting the activities of companies abroad.

A majority of our sales of extruded pipe for the power generation market have been exported to power generation customers in China and India. These sales are subject to the risks associated with international sales generally. In addition, changes in demand could result from a reduction of power plant build rates in China or India due to economic conditions or otherwise, or increased competition from local manufacturers who have cost advantages or who may be preferred suppliers, or effects of anti-dumping or other import duties. Also, with respect to China, Chinese commercial laws, regulations and interpretations applicable to non-Chinese market participants such as us are rapidly changing. These laws, regulations and interpretations could impose restrictions on our ownership or operations of our interests in China and have a material adverse effect on our business.

Any lower-than-expected rating of our bank debt and debt securities could adversely affect our business.

Two rating agencies, Moody's and Standard & Poor's, rate our debt securities. If the rating agencies were to reduce their current ratings, our interest expense may increase, and the terms of future borrowing arrangements may become more stringent or require additional credit support. Our ability to comply with covenants contained in the instruments governing our existing and future indebtedness may be affected by events and circumstances beyond our control. If we breach any of these covenants, one or more events of default, including cross-defaults between multiple components of our indebtedness, could result. These events of default could permit our creditors to declare all amounts owing to be immediately due and payable and terminate any commitments to make further extensions of credit, or could otherwise have a material adverse effect on our business.

Our production may be interrupted due to equipment failures or other events affecting our factories.

Our manufacturing processes depend on certain sophisticated and high-value equipment, such as some of our forging presses for which there may be only limited or no production alternatives. Unexpected failures of this equipment could result in production delays, revenue loss and significant repair costs. In addition, our factories rely on the availability of electrical power and natural gas, transportation for raw materials and finished products and employee access to our workplace that are subject to interruption in the event of severe weather conditions or other natural or manmade events. While we maintain backup resources to the extent practicable, a severe or prolonged equipment outage or other interruptive event affecting areas where we have significant manufacturing operations may result in loss of manufacturing or shipping days, which could have a material adverse effect on our business. Natural or manmade events that interrupt significant manufacturing operations of our customers also could have a material adverse effect on our business.

Failure to protect our intellectual property rights could adversely affect our business.

We rely on a combination of confidentiality, invention assignment and other types of agreements and trade secret, trademark, and patent law to establish, maintain, protect and enforce our intellectual property rights. Our efforts in regard to these measures may be inadequate, however, to prevent others from misappropriating our intellectual property rights. In addition, laws in some non-U.S. countries affecting intellectual property are uncertain in their application, which can affect the scope or enforceability of our intellectual property rights. Any of these events or factors could diminish or cause us to lose the competitive advantages associated with our intellectual property, which could have a material adverse effect on our business.

We could be faced with labor shortages, disruptions or stoppages if our relations with our employees were to deteriorate.

Our operations rely heavily on our skilled employees. Any labor shortage, disruption or stoppage caused by any deterioration in employee relations or difficulties in the renegotiation of labor contracts could reduce our operating margins and income. Approximately 23 percent of our employees are affiliated with unions or covered by collective bargaining agreements. Failure to negotiate a new labor agreement when required could result in a work stoppage. Although we believe that our labor relations have generally been satisfactory, it is possible that we could become subject to additional work rules imposed by agreements with labor unions, or that work stoppages or other labor disturbances could occur in the future, any of which could reduce our operating margins and income and place us at a disadvantage relative to non-union competitors.

Cybersecurity threats could disrupt our business and result in the loss of critical and confidential information.

We have experienced, and expect to continue to experience, cybersecurity threats, including threats to our information technology infrastructure and attempts to gain access to our confidential and proprietary information. Although we maintain information security policies and procedures to prevent, detect, and mitigate these threats, cybersecurity incidents, depending on their nature and scope, could potentially result in the misappropriation, destruction, corruption or unavailability of critical data and confidential or proprietary information (our own or that of third parties) and the disruption of business operations. The potential consequences of a material cybersecurity incident include reputational damage, litigation with third parties, theft

of intellectual property, and increased cybersecurity protection and remediation costs, which in turn could have a material adverse effect on our business.

Product liability and product warranty risks could adversely affect our operating results.

We produce many critical parts for commercial and military aircraft, for high-pressure applications in power plants and for oil and gas applications. Failure of our parts could give rise to substantial product liability claims. We maintain insurance addressing the risk of product liability claims arising from bodily injury or property damage (which generally does not include damages for pollution or environmental liability), but there can be no assurance that the insurance coverage will be adequate or will continue to be available on terms acceptable to us. We manufacture most of our parts to strict contractually-established standards and tolerances using complex manufacturing processes. If we fail to meet the contractual requirements for a product we may be subject to product warranty costs and claims. Product warranty costs are generally not insured.

We could be required to make additional contributions to our defined benefit pension and postretirement benefit plans as a result of adverse changes in interest rates and pension investments.

Our estimates of liabilities and expenses for pensions and other postretirement benefits incorporate significant assumptions including the rate used to discount the future estimated liability, the long-term rate of return on plan assets and assumptions relating to the employee workforce including salary increases, medical costs, retirement age and mortality. Our results of operations, liquidity or shareholders' equity in a particular period could be affected by a decline in the rate of return on plan assets, the rate used to discount the future estimated liabilities or changes in employee workforce assumptions. We may have to contribute more cash to various pension plans and record higher pension-related expenses in future periods as a result of decreases in the value of investments held by these plans or changes in discount rates or other pension assumptions.

A global recession or disruption in global financial markets could adversely affect us.

A global recession or disruption in the global financial markets presents risks and uncertainties that we cannot predict. During the recent recession, we saw a moderate decline in demand for our products due to global economic conditions. However, our access to credit to finance our operations was not materially limited. If recessionary economic conditions or financial market disruptions were to return, we would face risks that may include:


•	declines in revenues and profitability from reduced or delayed orders by our customers;


•	supply problems associated with any financial constraints faced by our suppliers;


•	restrictions on our access to short-term commercial paper borrowings or other credit sources;


•	reductions to our banking group or to our committed credit availability due to combinations or failures of financial institutions; and


•	increases in corporate tax rates to finance government spending programs.



Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds

ISSUER PURCHASES OF EQUITY SECURITIES

The following table provides information about purchases of our common stock during the quarter ended June 29, 2014:



Period	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs ⁽¹⁾	Maximum Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs ⁽¹⁾ (in millions)
3/31/14-5/4/14	—	$	—	2,598,500	$	920
5/5/14-6/1/14	637,000	$	249.24	3,235,500	$	761
6/2/14-6/29/14	—	$	—	3,235,500	$	761
Total	637,000	$	249.24	3,235,500	$	761

(1 ) On January 24, 2013, we publicly announced that our Board of Directors had authorized a program for the Company to purchase up to $750 million of

our Company's common stock. On August 13, 2013, the Board of Directors approved an additional $750 million for use in the Company's stock repurchase program, effective immediately and continuing through June 30, 2015.



Item 6.	Exhibits

(a) Exhibits



	10.13	Executive Deferred Compensation Plan, 2005 Restatement, as amended through Amendment No. 5(Incorporated herein by reference to Exhibit 10.13 to the Form 10-K filed May 29, 2014.)

	10.14	Nonemployee Directors’ Deferred Compensation Plan, 2005 Restatement, as amended through Amendment No. 5 (Incorporated herein by reference to Exhibit 10.14 to the Form 10-K filed May 29, 2014.)

	10.16	Supplemental Executive Retirement Program—Level One Plan—Ongoing, as amended through Amendment No. 3 (Incorporated herein by reference to Exhibit 10.16 to the Form 10-K filed May 29, 2014.)

	10.17	Supplemental Executive Retirement Program—Level Two Plan—Ongoing, as amended through Amendment No. 3 (Incorporated herein by reference to Exhibit 10.17 to the Form 10-K filed May 29, 2014.)

	10.20	Amended and Restated Time Sharing Agreement, dated May 27, 2014, between Precision Castparts Corp. and Mark Donegan (Incorporated herein by reference to Exhibit 10.20 to the Form 10-K filed May 29, 2014.)

	31.1	Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

	31.2	Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

	32.1	Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

	32.2	Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

	101.INS	XBRL Instance Document.

	101.SCH	XBRL Taxonomy Extension Schema Document.

	101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document.

	101.DEF	XBRL Taxonomy Extension Definition Linkbase Document.

	101.LAB	XBRL Taxonomy Extension Label Linkbase Document.

	101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document.

SIGNATURE

Pursuant to the requirements 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.

DATE:	August 7, 2014	/s/ Shawn R. Hagel
		Shawn R. Hagel Executive Vice President and Chief Financial Officer (Authorized Signatory and Principal Financial and Accounting Officer)

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