XNYS:PCP Precision Castparts Corp Annual Report 10-K Filing - 4/1/2012

Effective Date 4/1/2012

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark one)
S
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the Fiscal Year Ended April 1, 2012
or
£
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the Transition Period From                          to                     
Commission File Number 1-10348
PRECISION CASTPARTS CORP.
(Exact name of registrant as specified in its charter)
Oregon
93-0460598
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
 
 
4650 S.W. Macadam Ave., Suite 400
Portland, OR
97239-4262
(Address of principal executive offices)
(Zip Code)
Registrant’s telephone number, including area code: (503) 946-4800
Securities registered pursuant to Section 12(b) of the Act:
 
 
Title of each class
Name of each exchange on which registered
Common Stock, without par value
New York Stock Exchange
Series A Preferred Stock Purchase Rights
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes x  No £
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes £  No x
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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  £
Indicate by check mark whether the registrant is 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 £        Smaller reporting company £
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes £  No x
The aggregate market value of common equity held by non-affiliates of the Registrant as of October 2, 2011, was $22,408,661,685.
As of the close of business on May 17, 2012, the Registrant had 145,312,030 shares of Common Stock, without par value, outstanding.
Portions of the Registrant’s Proxy Statement to be filed in connection with the 2012 Annual Meeting of Shareholders are incorporated by reference in Part III.



TABLE OF CONTENTS
  
Page
 
ITEM 4. MINE SAFETY DISCLOSURES
 
 
 
 
 
 
 
 
 




PART I

ITEM 1.
BUSINESS    
Precision Castparts Corp. (“PCC”, “the Company”, or “we”), a worldwide manufacturer of complex metal components and products, provides high-quality investment castings, forgings and fasteners/fastener systems for critical aerospace and industrial gas turbine (“IGT”) applications. We also provide aerostructures for the aerospace industry; investment castings and forgings for general industrial, armament, medical and other applications; nickel alloys in all standard mill forms from large ingots and billets to plate, sheet, strip, tubing, bar and wire, as well as cobalt alloys, for the aerospace, chemical processing, oil and gas, pollution control and other industries; seamless pipe for coal-fired, industrial gas turbine, and nuclear power plants, as well as oil and gas applications; revert management solutions; fasteners for automotive and general industrial markets; specialty alloys for the investment casting industry; refiner plates, screen cylinders and other products for the pulp and paper industry; grinder pumps and affiliated components for low pressure sewer systems; critical auxiliary equipment and gas monitoring systems for the power generation industry; and metalworking tools for the fastener market and other applications.

Products and Markets
We manufacture complex metal components and products in three principal business segments: Investment Cast Products, Forged Products and Fastener Products. Each of these three business segments is described below.
Investment Cast Products
Our Investment Cast Products segment manufactures investment castings for aircraft engines, IGT engines, airframes, medical prostheses, armament, unmanned aerial vehicles and other industrial applications. The segment also provides alloys to PCC’s investment casting operations, as well as to other investment casting companies. The Investment Cast Products segment accounted for approximately 32 percent of our sales in fiscal 2012.
We are the market leader in manufacturing large, complex structural investment castings, and we are the leading manufacturer of airfoil investment castings used in jet aircraft engines. We manufacture investment castings for every jet aircraft engine program in production or under development by our key customers. We are also the market leader in manufacturing structural and airfoil investment castings for IGT and aeroderivative engines used for electric power generation and other applications, and we have expanded into the structural airframe and armament markets. In addition, we make investment castings for use in the medical prosthesis, satellite launch vehicle and general industrial markets.
Investment casting technology involves a technical, multi-step process that uses ceramic molds in the manufacture of metal components with more complex shapes, closer tolerances and finer surface finishes than parts manufactured using other casting methods. The investment casting process begins with the creation of a wax pattern of the part to be cast, along with wax gates and risers to create pathways through which molten metal can flow throughout the ceramic mold. A ceramic shell is then formed around the wax pattern, followed by melting and draining the wax from the shell. Finally, molten metal is poured into the shell, which is removed after the metal cools, and the part undergoes final processing and inspection.
Because of the complexity of the manufacturing process and the application of proprietary technologies, we are currently one of the few manufacturers that can consistently produce the largest, complex structural investment castings in quantities sufficient to meet our customers’ quality and delivery requirements. Our emphasis on low-cost, high-quality products and timely delivery has enabled us to become the leading supplier of structural and airfoil castings for jet aircraft and IGT engines and to expand into the structural airframe and armament markets.
The commercial aerospace market cycle is a critical determinant of demand for our precision investment casting products. Our aerospace sales are currently consistent with commercial aircraft production rates and are expected to increase steadily as base rates ramp further over the next few years, along with an acceleration in Boeing 787 production.
Large jet aircraft engines are manufactured by a small number of suppliers, including General Electric (“GE”), Pratt & Whitney (a division of United Technologies Co.), Rolls-Royce and several joint venture partners. With this highly concentrated and sophisticated customer base, we believe a high level of customer service and strong, long-term customer relationships will continue to be important to achieving our goals. We have been supplying castings for jet engines to GE for more than 45 years, and we have been supplying Pratt & Whitney with castings for its jet engines for more than 35 years. In addition, we have supplied small structural investment castings to Rolls-Royce for approximately 30 years and large structural castings for approximately 25 years, most recently for use in its Trent series of jet aircraft engines. As we have been able to cast larger and more complex parts, manufacturers of large jet aircraft engines have made increasing use of our structural castings.


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Aerospace Structural Castings
Our structural castings business manufactures the largest diameter stainless steel, nickel-based superalloy and titanium investment castings in the world, as well as a variety of medium and small structural castings. These castings are stationary components that form portions of the fan, compressor, combustor and turbine sections of a jet aircraft engine, where strength and structural integrity are critical. Structural investment castings are sold primarily as original equipment to jet aircraft engine manufacturers.
We believe that trends in the manufacturing of aircraft jet engines will continue to increase our revenue per engine. As the design of new generation aircraft engines has emphasized increased thrust, higher fuel efficiency and reduction of noise and exhaust emissions, engine operating temperatures and pressures have increased. These conditions require the use of engine parts made of alloys that are able to withstand extreme operating conditions and provide an optimum strength-to-weight ratio. Many of these alloys are particularly suited for use in the investment castings we manufacture. In addition, titanium, a metal with a lower melting temperature than stainless steel or superalloys, is used in all but the hottest parts of the engine because of its considerable weight savings. Titanium is an exceptionally difficult metal to cast because of its reaction with other elements. However, we have developed the advanced technology and manufacturing processes to cast large, complex investment castings in titanium alloys. Many new generation engines, which are expected to be built through the next decade and beyond, make significantly greater use of our products than did previous engine designs.
We have also expanded into the structural airframes market through the production of components manufactured primarily from titanium and aluminum alloys. Aircraft manufacturers have shown substantial interest in using investment castings for airframe applications such as titanium aileron and flap hinges, pylons (engine mounts), heat shields, wing spars and wing ribs, as well as aluminum alloy nacelle segments (thrust reversers), cascades, aircraft access doors, electronic boxes and pump housings for hydraulic and fuel systems.
Aerospace Airfoil Castings
We manufacture precision cast airfoils, such as the stationary vanes and rotating blades used in the turbine section of jet aircraft engines. This part of the engine is considered the “hot section,” where temperatures may exceed 2,400 degrees Fahrenheit. These conditions require use of special nickel-based superalloys and state-of-the-art casting techniques to manufacture airfoil castings with internal cooling passages that enable the airfoils to operate in an environment with temperatures higher than the melting point of the metal of which they are made.
We use various casting technologies to manufacture turbine airfoils. A conventional casting process enables us to produce equiaxed airfoil castings, in which the metal grains are oriented randomly throughout the casting. A more advanced process enables us to produce directionally solidified (“DS”) airfoil castings, in which the metal grains are aligned longitudinally. This alignment decreases the internal stress on the weakest portion of a metal part where the various grains adjoin, thereby providing increased strength and improved efficiencies in engine performance over equiaxed parts. An even more advanced process enables us to produce single crystal (“SX”) airfoil castings, which consist of one large superalloy crystal without grain boundaries. SX castings provide greater strength and performance characteristics than either equiaxed or DS castings, as well as longer engine life. In addition, we have developed a process to manufacture titanium aluminide blades, the first use of lightweight titanium in the hot section of an aircraft engine. These airfoils are being incorporated into the GenX engine for the Boeing 787.
As engines grow to generate greater thrust for larger aircraft, the turbine sections of these engines must work harder and burn hotter. As a result, the major aircraft engine manufacturers have increasingly been designing their engines with a greater number of DS and SX blades. The DS and SX cast airfoils we produce, with their complex cooling passages, have been instrumental in enabling these engines to operate at higher temperatures. SX cast airfoils are used in both new and redesigned engines where performance requirements are higher.
The demand for aerospace airfoil castings is determined primarily by the number and type of engines required for new jet aircraft; the intervals between hot section maintenance, which are driven by engine cycles (takeoffs and landings); and the inventory levels of replacement parts maintained by the principal jet aircraft engine manufacturers, repair centers and airlines. A jet engine’s airfoil components have shorter useful lives than structural investment castings and are replaced periodically during engine maintenance. As a result, our sales of aerospace airfoil castings are less affected by the cyclical patterns of the aerospace industry than are our sales of structural investment castings. The timing for replacement of aerospace airfoil castings principally depends on engine cycles and the expected life of the airfoil casting. We believe that approximately half of our sales of airfoil castings used in aircraft turbine engines are replacement parts.


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IGT Castings
In fiscal 1995, we began to manufacture investment castings for IGT engines. Due to contractual gains over the past several years, our market share has increased significantly, and we are now the leading supplier of investment castings used in IGT engines. Since the worldwide recession, beginning in the fall of 2008, IGT demand has been relatively weak due to the cancellation or delay of major infrastructure projects. However, by the end of fiscal 2011, aftermarket shipments began to pick up, and original equipment manufacturer ("OEM") activity began to pick up slightly in fiscal 2012, which should continue into next year as OEMs' shipment schedules favor turbines with higher PCC content. IGTs have been the most preferred power source over the past 20 years, and OEMs expect that trend to continue due to the availability of natural gas, overall efficiency of operation, and relative speed/ease of installation. In addition to IGT components, we manufacture structural and airfoil castings for aeroderivative gas turbine engines, which are also used for power generation, as well as for other commercial and military land and marine-based applications.
IGT manufacturers have significantly improved the efficiency and reduced the emissions profiles of industrial gas turbines, principally by incorporating advanced components in new engines as well as in refurbished and upgraded turbines in the field. We have leveraged our DS and SX airfoil casting knowledge from the aerospace market into the IGT market to produce blades and vanes that are better able to withstand the extreme heat and stresses of new higher-temperature gas turbines. IGT engines are built with investment castings that are similar, but generally larger, than the blades and vanes we manufacture for the aerospace market. Because of their size, IGT airfoils are usually more difficult to cast than smaller aerospace airfoils with the same properties.
Since industrial gas turbines are primarily used in electrical power generation, castings sales for new IGT engines are tied to the growth of global electricity consumption, while demand for replacement parts depends on the size and utilization rate of the installed base.
Other Investment Casting Products
Our strategy for profitable growth also includes the pursuit of other opportunities for our existing investment casting technology. We have expanded the application of our investment casting technology in the medical prosthesis, unmanned aerial vehicles (“UAV”), and general industrial markets by manufacturing such products as artificial hips and knees, landing gear struts and engine inlets for UAVs and impellers for pumps and compressors. In addition, we manufacture large titanium components for armament systems, including the BAE lightweight howitzer.
Internal Alloy-Making Capability
Operations within our Investment Cast Products segment produce alloys primarily used by PCC and other manufacturers of investment castings. Several of these alloys are patented and trademarked, specifically formulated for the casting of directionally solidified and single crystal airfoils that operate in high-temperature, high-stress engine environments. This operation supplements our other ingot-making furnaces located in Portland, Oregon, and Minerva, Ohio, and our internal supply of nickel-based alloy for investment casting is managed through this group of facilities. The alloys produced also serve such diverse markets as medical, recreational and general industrial.
Forged Products
We are among the leading manufacturers of forged components for the aerospace and power generation markets. Forged Products’ aerospace and IGT sales are primarily derived from the same large engine customers served by the Investment Cast Products segment, with additional aerospace sales to manufacturers of landing gear and airframes. Therefore, the dynamics of the aerospace and IGT markets, as described in the Investment Cast Products section above, are virtually the same for Forged Products. In addition, we manufacture high performance nickel-based alloys used to produce forged components for aerospace and non-aerospace markets, which include products for the power generation and oil and gas industries, and other products for oil and gas, chemical processing, pollution control and other industrial applications. The Forged Products segment accounted for approximately 44 percent of our sales in fiscal 2012.
Forged Components
We manufacture forged components from sophisticated titanium and nickel-based alloys for jet engines, including fan discs, compressor discs, turbine discs, seals, spacers, shafts, hubs and cases. Our airframe structural components, made of titanium, steel and other alloys, are used on both commercial and military aircraft and include landing gear beams, bulkheads, wing structures, engine mounts, struts and tail flaps and housings. We also produce a variety of mechanical and structural tubular forged products from steel and nickel, primarily in the form of extruded, seamless pipe and tubulars, for the domestic and international energy markets, which include coal, industrial gas turbine, and nuclear power plants, co-generation projects,

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retrofit and life-extension applications, as well as nickel casing and tubulars for the oil and gas industry. For naval defense applications, we supply forged components for propulsion systems on nuclear submarines and aircraft carriers, as well as forgings for pumps, valves and structural applications.
Our forging segment, which employs seven different manufacturing processes, involves heating high-temperature nickel alloys, titanium or steel and then shaping them through pressing or extrusion, using hydraulic and mechanical presses with capacities ranging up to 55,000 tons. The process employed is determined based on the raw materials and the product application. The seven manufacturing processes are summarized below:
Open-Die Forging—In this process, the metal is pressed between dies that never completely surround the metal, thus allowing it to be observed during the process. This manufacturing method is used to create relatively simple, preliminary shapes to be processed further by closed-die forging.
Closed-Die Forging—Closed-die forging involves pressing heated metal into shapes and sizes determined by machined impressions in specially prepared dies that completely surround the metal. This process allows the metal to flow more easily within the die cavity and thus produces forgings with superior surface finish and tighter tolerances, with enhanced repeatability of the part shape.
Hammer Forging—This form of closed-die forging uses multiple impact blows to shape a component between specially contoured dies. Forging hammers can be classified into two main types: single action and counterblow. Our counterblow hammers, which couple upper and lower ram movement to produce the impact forces required for large components, can offer improved near-net-shape capability compared to conventional press forging. Hammer forging is one of the oldest forging processes; however, computer-controlled technology has enabled the process to meet modern manufacturing requirements.
Conventional/Multi-Ram—The closed-die, multi-ram process, which is employed on our 20,000 and 30,000 ton presses, enables us to produce complex forgings with multiple cavities, such as valve bodies, in a single heating and pressing cycle. Dies may be split on either a vertical or a horizontal plane, and shaped punches may be operated by side rams, piercing rams or both. This process also optimizes grain flow and uniformity of deformation and reduces machining requirements.
Isothermal Forging—Isothermal forging is a closed-die process in which the dies are heated to the same temperature as the metal being forged, typically in excess of 1,900 degrees Fahrenheit. Because the dies may oxidize at these elevated temperatures, this process is performed in a vacuum or inert gas atmosphere. Our isothermal press produces near-net shape components, requiring less machining by our customers.
Extrusion—The extrusion process is capable of producing thick-wall, seamless pipe, with outside diameters of up to 48 inches and a wall thickness from 0.5 inches up to 7 inches for applications in the power generation and oil and gas industries, including main steam lines, hot re-treat lines, and other high-stress/high-temperature fluid transmission systems. Our 35,000-ton vertical extrusion press is one of the largest and most advanced in the world. In addition to solid metals, powdered materials can be compacted and extruded into forging billets with this press.
Ring Rolling—The radial ring-rolling process thins the wall thickness and thus enlarges the inside and outside diameter of a rough ring blank, which is generally made by upsetting and piercing a solid piece of metal in an open or closed-die forging press. In the ring-rolling process, tonnage is applied to the wall of the blank between a mandrel on the inside diameter and a work-roll on the outside diameter. The outer work-roll rotates the ring and progressively reduces the wall thickness. In radial-axial ring rolling, two additional rollers apply tonnage on the end faces of the ring to control the ring height.
On July 14, 2011 , we acquired the rings operations of Unison Engine Components ("Tru-Form") from GE Aviation, an operating unit of GE. Tru-Form is a leader in the manufacture of flash-welded and cold-rolled rings for jet engine and gas turbine applications, including spacer rings, combustion casings and liners, low pressure turbine casings, and fan cases. The innovative Tru-Form cold-rolling process produces a near-net-shaped part from a flash-welded ring, reducing material and machining costs and enabling the production of more complex part shapes. Tru-Form operations are located in Wilkes-Barre and Mountaintop, Pennsylvania, and Tyseley, England.
On July 22, 2011 , we acquired the assets of the Rollmet business ("Rollmet") from Rockwell Collins. Rollmet has developed a unique cold-roll extrusion process to manufacture precision thin wall pipe across a range of materials, including nickel alloys, stainless steel, aluminum, and carbon steel. Rollmet's products are utilized in a variety of oil and gas applications, as well as motor cases for missile programs. Rollmet operates one facility in Irvine, California.
We believe that we are the world leader in producing forged rotating components for use in jet aircraft engines. These parts are forged from billets (ingots converted in our cogging and extrusion presses) and from metal powders (primarily nickel alloys) that are produced, consolidated and extruded into billets entirely in our own facilities. In addition, we purchase billets from outside metal suppliers.
High-Performance Forging Alloys
We believe that we are the world’s largest and most diversified producer of high-performance nickel-based alloys, supplying more than 5,000 customers. Our alloys, which provide high-temperature strength and corrosion resistance, as well as

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toughness and strength in certain embrittling environments, are principally used to manufacture forged components required in the most technically demanding industries and applications. Power and commercial and military aerospace represent the largest markets served; other markets served include high performance, nickel-based alloys for oil & gas, chemical & petrochemical processing, thermal processing, electrical and heating elements, and marine and welding applications.
Our alloying processes utilize electric arc, air induction and vacuum induction melting furnaces, while a few specialized alloys are made using a mechanical alloying process. Refining facilities include furnaces for argon-oxygen-decarburization, vacuum arc remelting and electroslag remelting. Our major hot finishing processes include rotary forging, plate rolling, bar rolling, press forging and extrusion of seamless tubulars and shapes. Cold finishing processes include cold rolled sheet and strip, tube and pipe pilgering, cold drawing of bar and wire, and cold drawing and rolling of pipe and tubulars. We produce nickel alloys in all standard mill forms from large ingots and billets to plate, sheet, strip, tubing, bar and wire, the latter of which includes core and filler wires for welding products. Our alloys are classified into unique families recognized worldwide and are sold under such trademarks as INCONEL®, INCOLOY®, MONEL®, NIMONIC®, UDIMET®, BRIGHTRAY® and NILO®.
Revert Management
We are the market leader in providing nickel superalloy and titanium revert management solutions for the aerospace, oil and gas, and IGT markets. Revert includes metal chips, casting gates, bar ends, forging flash and other byproducts from forging, casting, and fastener manufacturing processes that can be re-melted and reused. Our infrastructure and capabilities create a closed loop system for the retention and reuse of internally-generated revert. We also provide metallurgical process solutions and services worldwide for our use and for other companies that require the melting and processing of specialty alloys. Major markets include specialty alloy producers and foundries, powder metal manufacturers and other industries with special metallurgical requirements.
Fastener Products
We are a leading developer and manufacturer of highly engineered fasteners, fastener systems, aerostructures, and precision components, primarily for critical aerospace applications. A large part of our Fastener Products sales come from the same aerospace customer base served by our Investment Cast Products and Forged Products segments. In this regard, Fastener Products is subject to many of the same market forces as these other two segments. The balance of the segment’s sales is derived from construction, automotive, heavy truck and general industrial markets, including farm machinery, mining and construction equipment, shipbuilding, machine tools, medical equipment, appliances and recreation. The Fastener Products segment accounted for approximately 24 percent of our sales in fiscal 2012.
Fastener manufacturing generally begins with metal alloy wire or bar of various diameters, which is then generally cut into fastener blanks of prescribed lengths, formed using highly engineered tools into complex head shapes and dimensional configurations, heat-treated to desired properties, and then thread-rolled to meet exacting customer requirements.
Our aerospace fasteners and related components are manufactured from a variety of nickel, titanium, aluminum and steel alloys and are used on airframes, jet engines, aircraft wheels and brakes, landing gear assemblies, floor boards, and hydraulic systems. They are found in such flight- and safety-critical areas as the wing-to-fuselage, the stabilizers-to-fuselage and the engine-to-wing joints on an aircraft, as well as the airfoil-to-disc and disc-to-shaft connections on a jet engine. These fasteners and related components are not only incorporated in new aircraft builds but are also integrally involved in the maintenance and replacement cycle, particularly in aircraft engine and wheel and brake applications. The product line includes a variety of bolts, sleeve bolts, nuts, nut plates, latches, expandable diameter fasteners, quick release pins, hydraulic fittings, bushings, inserts, collars, and other precision components, including but not limited to metallic and composite assemblies, and precision machined components for airframe applications. While the fasteners, aerostructures and related components are predominantly produced to demanding customer designs, we continue to be active in developing trademarked alloys for applications requiring high strength, elevated temperature, corrosion resistance and/or lighter weight. These include AEREX®, MULTIPHASE®, MP35N® and MP159® high-temperature nickel-based alloys.
We have also developed a variety of fasteners, related components and installation tools for use in aerospace and industrial applications requiring proven strength, close dimensional tolerances and high reliability. These technically advanced proprietary products are marketed under the brand names of AVILOK®, BALL-LOK®, CHERRYBUCK®, CHERRYMAX®, CHERRYLOCK®, E-NUT®, FLEXLOC®, FORCEMATE®, FORCETEC®, GROMEX®, HI-LIFE®, MAKE FROM SOLIDTM, MAXIBOLT®, STA-LOK®, TELLEP®, and TUKLOC®. We also hold licenses to use various well-recognized trademarks and technology in the manufacture of our fasteners and related components. These licensed trademarks include HI-LITE®, HI-LOK®, HI-TIGUE®, TORX®, TORX-PLUS®, TAPTITE®, MORTORQ® and MAThread®.
On August 9, 2011, we acquired Primus International ("Primus") for approximately $900 million in cash. Primus is a

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leading supplier of aerostructures and complex components and assemblies to the global aerospace industry, including swaged rods, and machined aluminum and titanium components. Product applications include wing, fuselage and engine-related assemblies, passenger and exit doors, and actuation and flight control assemblies. Headquartered in Bellevue, Washington, Primus operates five manufacturing locations, including three in the Seattle, Washington area, as well as Tulsa, Oklahoma and Suzhou, China.
On October 4, 2011, we acquired the assets of PB Fasteners ("PB") located in Gardena, California. PB further strengthens our fastener product line with its sleeve bolt technology on the Boeing 787 and other composite body aircraft.
The Fastener Products segment also includes businesses that produce refiner plates and screen cylinders for use in the pulp and paper industry; grinder pumps and affiliated components for low pressure sewer systems for residential and commercial applications and critical auxiliary equipment and gas monitoring systems utilized in the power generation industry; critical engineered fasteners and cold formed parts for automotive and general industry; and a broad range of thread-rolling dies, trimming dies, pins and steel and carbide forging tools for fastener production, principally for aerospace, automotive and general industrial and other applications.

Sales and Distribution
We sell our complex metal components and products into three major market areas: aerospace, power, and general industrial and other. The percentage of sales to these markets is shown below for fiscal 2012, 2011 and 2010.

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Our sales to the aerospace market of $4,459.6 million in fiscal 2012 increased 25 percent from $3,572.0 million in fiscal 2011. Sales to the aerospace market as a percentage of total net sales increased from 57 percent in fiscal 2011 to 62 percent in fiscal 2012, principally reflecting solid base aerospace growth and sales from acquired businesses. Our sales to the aerospace market of $3,572.0 million in fiscal 2011 increased 19 percent from $2,991.0 million in fiscal 2010. Sales to the aerospace market as a percentage of total net sales increased from 54 percent in fiscal 2010 to 57 percent in fiscal 2011, largely due to recoveries from aerospace customer destocking coming to an end and a decline in the extruded pipe market.
Our sales of investment castings products and forged products are made through direct sales personnel located in each business operation and through field sales representatives located at U.S. and international locations near our major customers, as well as through distributors. Our fastener products and services are sold through a worldwide network of distributors and independent sales representatives and by a direct sales and marketing staff. Industrial metalworking tools and other metal products are sold by both internal sales forces and sales representatives in the U.S., Europe, Asia, Australia and Latin America. Due to the sophisticated nature of our products, our sales efforts require technical personnel to work closely with customers to identify and assist in the development of new and modified products and to provide other services that are necessary to obtain new and repeat orders.
For information on revenue to external customers, profit or loss and total assets for each segment, refer to Part II, Item 8. Financial Statements and Supplementary Data.

Major Customers
Net direct sales to General Electric Company were 15.4 percent, 12.5 percent and 14.0 percent of total sales in fiscal 2012, 2011 and 2010, respectively, as follows:
 
  
2012
 
2011
 
2010
Investment Cast Products
$
558.9

 
$
523.2

 
$
494.5

Forged Products
464.2

 
224.5

 
243.6

Fastener Products
85.1

 
27.5

 
26.7

 
$
1,108.2

 
$
775.2

 
$
764.8

 
 
 
 
 
 

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, and the loss of their business could have a material adverse effect on our financial results.

Backlog
The backlog of unfilled orders believed to be firm at the end of each of our last three fiscal years was $5.9 billion as of April 1, 2012, $4.4 billion as of April 3, 2011, and $3.9 billion as of March 28, 2010. The majority of the backlog is for sales to aerospace and power market customers in the Investment Cast Products, Forged Products and Fastener Products segments. The increase in backlog during fiscal 2012 reflects growth in commercial aerospace and power markets as a result of increased build rates, prompting our customers to place their orders earlier. The increase in backlog during fiscal 2011 reflects increases in customer demand, creating longer lead times as facilities are operating closer to capacity levels. Approximately 80 percent of our backlog is expected to be filled within the 2013 fiscal year.
The majority of sales to customers are made on individual purchase orders generated from long-term agreements. Most of our orders are subject to termination by the customer upon payment of the cost of work in process, plus a related profit factor. Historically, we have not experienced significant order cancellations, although we periodically receive requests for delays in delivery schedules.

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

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In the Investment Cast Products segment, our principal competitor is Howmet, a subsidiary of Alcoa Inc. Howmet produces superalloy, titanium, stainless steel and aluminum investment castings principally for the aerospace and IGT markets. We believe that Howmet is capable of producing investment castings comparable to all but the largest and most complex of our structural investment castings. We also believe Howmet has the financial and technical resources to produce structural castings as large and complex as those produced by us, should they decide to do so. In addition, Pacific Cast Technologies, a subsidiary of Allegheny Technologies, Inc., manufactures large titanium investment castings for jet engine and airframe applications. Many other companies throughout the world also produce superalloy, titanium, stainless steel and aluminum investment castings, and some of these companies currently compete with us in the aerospace and other markets. Others are capable of competing with us if they choose to do so.
In the Forged Products segment, our largest competitors are Ladish Co., a subsidiary of Allegheny Technologies, Inc., Fortech, S.A. and Thyssen AG for aerospace turbine products, Alcoa Inc. and Firth Rixson Limited for aerospace structural products, Vallourec & Mannesmann Tubes and Sumitomo Corporation for energy products and Allegheny Technologies, Inc., Carpenter Technology Corporation, Haynes International, Inc., and Firth Rixson Limited for nickel-based alloys and superalloys. We also face increased competition from international companies as customers seek lower cost sources of supply.
International competition in the forging and casting processes may also increase in the future as a result of strategic alliances among aircraft prime contractors and foreign companies, particularly where “offset” or “local content” requirements create purchase obligations with respect to products manufactured in or directed to a particular country. Competition is often intense among the companies currently involved in the industry. We continue to strive to maintain competitive advantages with high-quality products, low-cost manufacturing, excellent customer service, and expertise in engineering and production.
Our Fastener operations compete with a large number of companies based primarily on technology, price, service, product quality and performance. Of these companies, we consider Alcoa Inc. and LISI to be our leading competitors. We believe that we maintain our strong market position through our high-quality product performance and service to our customers.

Research and Development
We have departments involved in research and development in all three of our reportable segments. The research and development effort at these operations is directed at the technical aspects of developing new and improved manufacturing processes. Expenditures for research and development activities at these departments amounted to $17.8 million in fiscal 2012, $17.1 million in fiscal 2011, and $25.6 million in fiscal 2010. A substantial amount of our technological capability is the result of engineering work and experimentation performed on the shop floor in connection with process development and production of new parts. This engineering work and experimentation are charged to the cost of production and are not included in research and development expenditures.

Employees
At April 1, 2012, we had approximately 21,500 employees, including nearly 7,550 employees in the Investment Cast Products segment, approximately 5,900 employees in the Forged Products segment, approximately 7,200 employees in the Fasteners segment, approximately 130 employees in corporate functions, and approximately 720 employees in discontinued operations. Approximately 22 percent of our employees are affiliated with unions or covered by collective bargaining agreements. We expect to negotiate 12 collective bargaining agreements affecting approximately 11 percent of the workforce during fiscal 2013. Management believes that labor relations in the Company have generally been satisfactory.

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

Materials & Supplies
We use a number of raw materials in our products, including certain metals such as nickel, titanium, cobalt, tantalum and molybdenum, which are found in only a few parts of the world. These metals are required for the alloys used or manufactured in our investment casting, forged and fastener product segments. The availability and costs of these metals may be influenced by private or governmental cartels, changes in world politics, labor relations between the metal producers and their work forces, unstable governments in exporting nations, and inflation. Similarly, supplies of the tool-grade steel we use may also be subject to variations in availability and cost. We have escalation clauses for nickel and other metals in certain of our long-term contracts with major customers, and we employ “price-in-effect” metal pricing in our alloy production businesses to lock-in the

8


current cost of metal at the time of production or shipment. We also enter into long-term supply agreements to fix the purchase price of strategic raw materials. Shortages of and price increases for certain raw materials we use have occurred in the past and may occur in the future. Future shortages or price fluctuations in raw materials could have a material adverse effect on us.

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

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

Environmental Compliance
We are subject to various federal, state and foreign environmental laws concerning, among other things, water discharges, air emissions, waste management, toxic use reduction and environmental cleanup. Environmental laws and regulations continue to evolve and it is likely we will be 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. It also is likely that we will be required to make additional expenditures, which could be significant, relating to environmental matters on an ongoing basis. We also own properties, or conduct or have conducted operations at properties, where hazardous materials have been used for many years, including during periods before careful management of these materials was required or generally believed to be necessary. Consequently, we are subject to environmental laws that impose liability for historical releases of hazardous substances.
Our financial statements include estimated liabilities for future costs arising from environmental issues relating to our properties and operations. At April 1, 2012, we had accrued environmental liabilities of approximately $71.4 million. We believe these liabilities are adequate to cover the cost of remedial measures that may eventually be required by environmental authorities with respect to known environmental matters. Our liabilities represent our best estimate of probable future obligations for the investigation and remediation of known contaminated sites. The liabilities include potential costs associated with asserted and unasserted claims. Our actual future expenditures, however, relating to compliance and cleanup of environmental conditions at our properties cannot be conclusively determined. The estimate of our environmental costs is 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. Further, 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 have identified vary across the spectrum, approximately half of our sites could be considered at an early stage of the investigation and remediation process. Therefore, our cost estimates, and our 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 30 years. While it is possible that a significant portion of the accrued costs as of April 1, 2012 may be paid out over the next ten years, we anticipate that no individual site will be considered to be material.
We have been named as a potentially responsible party (“PRP”) at sites identified by the Environmental Protection Agency (“EPA”) and state regulatory agencies for investigation and remediation under the Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”) and similar state statutes. Under common law, as applied in the environmental remediation context, PRPs may be jointly and severally liable, and therefore the Company may be potentially

9


liable to the government or third parties for the 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 for contributing to the cost of cleanup. We are a party to various cost-sharing arrangements with other PRPs at certain sites. Our estimates of current liabilities factor in these cost- sharing arrangements and an assessment of the likelihood that such parties will fulfill their obligations at such sites. In the unlikely event that we are required to fully fund the remediation of a site, the statutory framework would allow us to pursue rights of contribution from other PRPs. We are identified as a PRP at the following federally designated Superfund sites: Lipari Landfill, Gloucester, New Jersey; Boarhead Farms, Bridgeton, Pennsylvania; Operating Industries, Monterey Park, California; Casmalia Resources Site, Casmalia, California; Pasco Sanitary Landfill, Pasco, Washington; Quanta Resources Corp., Edgewater, New Jersey; and Peterson-Puritan Site, Cumberland, Rhode Island. Generally, these Superfund sites are mature and almost all of the sites are in the remedial implementation phase and, as a consequence, are subject to less uncertainty than newly discovered sites. These Superfund sites constitute approximately $1.0 million, or 1 percent, of our current environmental liabilities.
We have notified our insurers of potential environmental cleanup liabilities at various facilities, including the Superfund sites identified above, and have asserted that we are entitled to recover the defense and indemnity costs incurred, and to be incurred, under certain historic insurance policies. Our accruals include our best estimate of all probable costs, without reduction for anticipated recovery from insurance or third parties unless collection is probable. We have also asserted indemnity claims against third-parties for certain sites, and we expect to recover a portion of our losses with respect to these sites.
The Financial Accounting Standards Board (“FASB”) issued guidance on asset retirement and environmental obligations that clarifies the term conditional asset retirement obligation and requires a liability to be recorded if the fair value of the obligation can be reasonably estimated. Asset retirement obligations covered by this guidance include those for which an entity has a significant obligation to perform an asset retirement activity, however the timing or method of settling the obligation are conditional on a future event that may not be within the control of the entity. This guidance also clarifies when an entity would have sufficient information to reasonably estimate the fair value of an asset retirement obligation.
In accordance with the asset retirement and environmental obligations guidance, we record all known asset retirement obligations for which the liability can be reasonably estimated. Currently, we have identified known asset retirement obligations associated with environmental contamination at two of our manufacturing facilities. We have not recognized a liability under this guidance for these retirement obligations because the fair value of remediation at these sites cannot be reasonably estimated since the settlement date is unknown at this time. The settlement date is unknown because remediation of these sites is not required until production ceases, and we have no current or future plans to cease production. These asset retirement obligations, when estimable, are not expected to have a material adverse effect on our consolidated financial position, results of operations, cash flows or business.

Forward-looking Statements
Information included within this Form 10-K 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; the availability and cost of energy, raw materials, supplies, and insurance; the cost of pension and postretirement medical benefits; equipment failures; product liability claims; relations with our employees; our ability to manage our operating costs and to integrate acquired businesses in an effective manner; 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.

Available Information
Our Annual Report on Form 10-K, quarterly reports on Form 10-Q, proxy statement, current reports on Form 8-K, and amendments to these reports filed with the Securities and Exchange Commission, as well as the annual report to shareholders, quarterly earnings releases, the Audit Committee Charter, the Nominating and Corporate Governance Committee Charter, the Compensation Committee Charter, Corporate Governance Guidelines and the Code of Conduct may be received free of charge by calling Investor Relations at (503) 946-4850 or sending an email to info@precastcorp.com. This information may also be

10


downloaded from the PCC Corporate Center at www.precast.com.
 
ITEM 1A.
RISK FACTORS    
Our growth strategy includes business acquisitions with associated risks.
Our growth strategy includes the acquisition of strategic operations. In recent years, we have completed a number of acquisition transactions. We expect that we will continue to seek acquisitions of complementary businesses, products and technologies to add products and services for our core customer base and for related markets, and to expand each of our businesses geographically. The success of 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 acquisitions entail a number of other risks, including:
• 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 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 62 percent of our total sales in fiscal 2012. Our power sales constituted 21 percent of our total sales in fiscal 2012.
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 that increase reliability. 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 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, and The Boeing Company. General Electric accounted for approximately 15 percent of our total sales for fiscal 2012. 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 four customers, the loss of any of them, or a reduction in or

11


substantial delay of orders from any of them, could have a material adverse effect on our business.
Additionally, 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 slow down of 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 12 percent of our fiscal 2012 sales. Defense spending is subject to appropriations and to political pressures that influence which programs are funded and those which are cancelled. 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.
The success of our business will depend, in part, on the success of new commercial and military aircraft programs including the Boeing 787, Boeing 747-8, Airbus A350, Airbus A380, and F-35 programs. We are currently under contract to supply components for a number of new commercial, general aviation, and military aircraft programs. Cancellation, reductions or delays of orders or contracts by our customers on any of these programs could 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 determinate 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 and various rare earth elements, which are found in only a few parts of the world and are available from a limited number of suppliers. The availability and costs of these metals and elements may be influenced by private or government cartels, changes in world politics, 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 metals and rare earth elements are required for the alloys or processes used or manufactured in our investment cast products, forged products and fastener 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 or price fluctuations in raw materials could result in decreased sales and 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.

12


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 multiple environmental permits. 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, approximately half 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 30 years. While it is possible that a significant portion of the accrued costs may be paid out over the next ten years, we anticipate that no individual site will be considered to be material. 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. Under common law, as applied in the environmental remediation context, potentially responsible parties may be jointly and severally liable, and therefore we may be potentially liable to the government or third parties for the 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 be jointly and severally 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 United States. We also have significant operations located outside the United States. In fiscal 2012, approximately 17 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;

13


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. 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. Both agencies upgraded our debt rating during fiscal 2011. 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.
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 product, 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 an adverse effect on our business, financial condition and results of operations.
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 22 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.

14


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 1B.
UNRESOLVED STAFF COMMENTS
None.


15


ITEM 2.
PROPERTIES    
Our manufacturing plants and administrative offices, along with certain information concerning the products and facilities are as follows:
 
 
 
 
Building Space (sq. ft.)
Division
No. of Facilities
 
Leased
 
Owned
 
Total
Executive & Corporate Offices
 
 
 
 
 
 
 
Domestic
2

 
567

 
42,118

 
42,685

Foreign
1

 
1,312

 

 
1,312

Investment Cast Products
 
 
 
 
 
 

Domestic
49

 
771,923

 
2,473,127

 
3,245,050

Foreign
6

 
9,090

 
377,037

 
386,127

Forged Products
 
 
 
 
 
 

Domestic
57

 
646,862

 
6,731,453

 
7,378,315

Foreign
25

 
692,041

 
1,622,807

 
2,314,848

Fastener Products
 
 
 
 
 
 

Domestic
40

 
1,603,655

 
1,692,396

 
3,296,051

Foreign
22

 
397,685

 
760,605

 
1,158,290

Discontinued Operations
 
 
 
 
 
 

Domestic
6

 
141,942

 
329,000

 
470,942

Foreign
8

 
205,906

 
171,644

 
377,550

Total Company
 
 
 
 
 
 

Domestic
154

 
3,164,949

 
11,268,094

 
14,433,043

Foreign
62

 
1,306,034

 
2,932,093

 
4,238,127

Total
216

 
4,470,983

 
14,200,187

 
18,671,170

 
 
 
 
 
 
 
 

We believe our principal properties include facilities suitable and adequate for our present needs for the manufacture of our products; see “Item 7. Management’s Discussion and Analysis.”
 
ITEM 3.
LEGAL PROCEEDINGS
For a general description of claims relating to environmental matters, see “Item 1. Business-Environmental Compliance.”
As of April 1, 2012, there were approximately 76 lawsuits pending against the Company alleging personal injury as the result of exposure to particulates, including asbestos, integrated into our premises or processes or into certain historical products.  It is frequently not possible at the outset of a case to determine which of the plaintiffs actually will pursue a claim against the Company.  Typically, that can only be determined through discovery after a case has been filed.  Thus, in a case involving multiple plaintiffs, unless otherwise expressed in the pleadings, the Company accounts for the lawsuit as one claim against it.  Provided below is a chart showing the number of new claims filed (as described above), the number of claims disposed of (settled or otherwise dismissed) and the approximate dollar amount paid by or on behalf of (including through insurance) the Company in settlement of these claims:
 
Fiscal
2012
 
2011
New Claims Filed
20

 
33

Claims Disposed Of
22

 
19

Dollars Paid in Settlement (in millions)
$
2.6

 
$

 
 
 
 
The Company considers that all such claims are tort claims while noting that some claims, such as those filed in West Virginia, were historically common law “employer liability” cases and are now based on a statutory definition of requisite intent.
The particulates in question are no longer incorporated into our products, and we have implemented safety protocols to reduce exposure to remaining particulates in the workplace. Based on the information available to us at the date of filing of this report, we believe, based on our review of the facts and law, that the potential exposure from the resolution of any or all of

16


these matters will not have a material adverse effect on our consolidated financial position, results of operations, cash flows or business.
Various claims and lawsuits arising during the normal course of business are pending against us. In the opinion of management, the outcome of these lawsuits will not have a material adverse effect on our consolidated financial position, results of operations, cash flows or business.
 
ITEM 4.
MINE SAFETY DISCLOSURES
Not applicable.

ITEM 4A.
EXECUTIVE OFFICERS OF THE REGISTRANT (a) 
 
Name
Officer Since
Age
Position Held With the Registrant
Mark Donegan
(b) 1992 
55
Chairman and Chief Executive Officer
Shawn R. Hagel
(c) 1997 
46
Senior Vice President, Chief Financial Officer and Assistant Secretary
Kenneth D. Buck
(d) 2005 
52
Executive Vice President and President - Forged Products
Kevin M. Stein
(e) 2009 
46
Executive Vice President and President - PCC Structurals
Roger A. Cooke
(f) 2000 
63
Senior Vice President, General Counsel and Secretary
Kirk G. Pulley
(g)  2004 
43
Vice President - Strategic Planning and Corporate Development
_________________________
(a)
The above information is reported as of May 1, 2012. The officers serve for a term of one year and until their successors are elected. Unless otherwise indicated, all positions have been held for the last five years.
(b)
Elected Chairman in 2003 and Chief Executive Officer in 2002. Previously was elected Executive Vice President in 1992. Named President - Wyman-Gordon in 1999. Previously served as President - PCC Structurals.
(c)
Elected Senior Vice President, Chief Financial Officer and Assistant Secretary in 2008. Previously was elected Vice President and Corporate Controller in 2000.
(d)
Elected Executive Vice President and President - Forged Products in 2010. Previously was elected Executive Vice President and President - PCC Airfoils and Wyman-Gordon in 2008 and Senior Vice President and President - PCC Airfoils in 2005.
(e)
Elected Executive Vice President in 2009 and President - PCC Structurals in 2011. Previously was elected President - Fastener Products Division in 2009. Prior to joining PCC, he was a Division President for Cooper Industries and General Manager for Tyco Electronics.
(f)
Elected Senior Vice President, General Counsel and Secretary in 2008. Previously was elected Vice President - Regulatory and Legal Affairs and Secretary in 2000.
(g)
Elected Vice President - Strategic Planning and Corporate Development in 2004. Prior to joining PCC, he was a Vice President in investment banking with Goldman Sachs & Co.



17


PART II

ITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES    
As of April 1, 2012, there were 4,808 shareholders of record of our common stock. The principal market for our common stock is the New York Stock Exchange, where it trades under the symbol PCP. For information concerning the quarterly high and low sales prices of PCC common stock and dividend data, refer to the Quarterly Financial Information table in Item 8, Financial Statements and Supplementary Data. We expect to continue to pay quarterly cash dividends, subject to our earnings, financial condition and other factors.
Return to Shareholders Performance Graph
The following line graph provides a comparison of the annual percentage change in the Company’s cumulative total shareholder return on its common stock to the cumulative total return of the S&P 500 Index and the S&P 500 Aerospace and Defense Index. The comparison assumes that $100 was invested on March 31, 2007 in PCC common stock and in each of the foregoing indices and, in each case, assumes the reinvestment of dividends.


MEASUREMENT PERIOD
(by fiscal year)
 
 
2007
 
2008
 
2009
 
2010
 
2011
 
2012
S&P 500
100.0

 
94.39

 
60.09

 
87.79

 
102.27

 
110.45

S&P 500 Aerospace & Defense
100.0

 
104.73

 
63.47

 
104.34

 
116.11

 
120.79

Precision Castparts Corp.
100.0

 
97.50

 
60.82

 
119.46

 
144.48

 
167.10



18


ITEM 6.
SELECTED FINANCIAL DATA
Five-Year Summary of Selected Financial Data
 
(Unaudited)
(In millions, except employee, shareholder and per share data)

 
 
 
 
 
 
 
 
Fiscal
2012
 
2011
 
2010
 
2009
 
2008
Net sales
$
7,214.6

 
$
6,220.1

 
$
5,459.2

 
$
6,770.8

 
$
6,675.5

Net income
$
1,225.8

 
$
1,014.8

 
$
922.6

 
$
1,044.8

 
$
988.5

Net income attributable to PCC shareholders:
 
 
 
 
 
 
 
 
 
Continuing operations
$
1,230.5

 
$
1,009.4

 
$
925.1

 
$
1,036.6

 
$
949.8

Net income attributable to PCC shareholders
$
1,224.1

 
$
1,013.5

 
$
921.8

 
$
1,044.5

 
$
987.3

Return on sales from continuing operations
17.1
%
 
16.2
%
 
16.9
%
 
15.3
%
 
14.2
%
Return on beginning shareholders’ equity from continuing operations
17.2
%
 
17.1
%
 
19.0
%
 
25.6
%
 
33.4
%
Net income per common share attributable to PCC (basic):
 
 
 
 
 
 
 
 
 
Continuing operations
$
8.52

 
$
7.07

 
$
6.57

 
$
7.44

 
$
6.88

Net income
$
8.48

 
$
7.10

 
$
6.55

 
$
7.49

 
$
7.15

Net income per common share attributable to PCC (diluted):
 
 
 
 
 
 
 
 
 
Continuing operations
$
8.45

 
$
7.01

 
$
6.51

 
$
7.37

 
$
6.77

Net income
$
8.41

 
$
7.04

 
$
6.49

 
$
7.43

 
$
7.04

Weighted average shares of common stock outstanding
 
 
 
 
 
 
 
 
 
Basic
144.4

 
142.7

 
140.7

 
139.4

 
138.1

Diluted
145.6

 
143.9

 
142.1

 
140.6

 
140.2

Cash dividends declared per common share
$
0.12

 
$
0.12

 
$
0.12

 
$
0.12

 
$
0.12

Working capital
$
2,714.9

 
$
2,708.6

 
$
1,628.3

 
$
1,723.9

 
$
1,167.5

Total assets
$
10,558.8

 
$
8,955.9

 
$
7,660.7

 
$
6,721.4

 
$
6,050.1

Total debt
$
208.2

 
$
236.6

 
$
250.0

 
$
305.3

 
$
353.1

Total equity
$
8,364.8

 
$
7,164.5

 
$
5,891.7

 
$
4,863.1

 
$
4,049.0

Total debt as a percent of total debt and equity
2.4
%
 
3.2
%
 
4.1
%
 
5.9
%
 
8.0
%
Book value per share
$
57.57

 
$
49.86

 
$
41.52

 
$
34.76

 
$
29.13

Capital expenditures(1)
$
194.0

 
$
120.6

 
$
169.5

 
$
205.7

 
$
227.4

Number of employees(2)
21,480

 
18,308

 
18,064

 
20,611

 
21,558

Number of shareholders of record
4,808

 
6,262

 
6,298

 
5,910

 
7,617

 
 
 
 
 
 
 
 
 
 
_________________________
(1)
Includes capital expenditures of discontinued operations
(2)
Includes employees of discontinued operations


19


ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(in millions, except per share data)

Business overview
During fiscal 2012, we leveraged our solid contractual positions in traditional end markets of aerospace and IGT and gained traction in newer businesses such as aerostructures and oil and gas. The commercial aerospace market is robust and does not appear to be slowing down. We are well positioned to benefit from increased base production build rates announced by Boeing and Airbus, and Boeing 787 production is beginning to gain traction. Within our power markets, we experienced solid IGT sales growth, driven by both improved OEM schedules and aftermarket demand for spares. We also generated more than $1.0 billion of cash from operations during fiscal 2012 and revenue reached a record level, exceeding $7.2 billion.
As part of our continued focus on expanding our product lines and markets, we completed eight acquisitions in fiscal 2012. The acquisition of the rings operations of Unison Engine Components ("Tru-Form"), which closed in the second quarter of fiscal 2012, broadens our forged product range, adding flash-welded and cold-rolled rings to our portfolio. Tru-Form, which supplies all prime engine OEMs, has exposure to every major commercial aircraft in production today. The addition of PB Fasteners, which closed early in the third quarter of fiscal 2012, further strengthens our fastener product line, adds to our already strong position on the Boeing 787, and will provide opportunities on other composite aircraft in the future.
In addition to our already served end markets, we are rapidly expanding our aerospace reach and positioning ourselves with customers in the oil and gas industry. Aided by the acquisitions of Rollmet and KLAD, we have made great strides in penetrating the oil and gas markets. We received two significant orders with major oil and gas customers, which will provide incremental sales in fiscal 2013. In early fiscal 2013, we acquired RathGibson, LLC, which gives us additional manufacturing capabilities to serve the oil and gas industry and will enable us to offer more comprehensive bids on severe service projects. We also have a strong focus on development of our aerostructures platform. With the integration of Primus actively underway, we have already begun to capture valuable synergies and to achieve top- and bottom-line growth. In May 2012, we acquired Centra Industries ("Centra"), a state-of-the art aerostructures manufacturer located in Ontario, Canada. Centra manufactures a range of machined airframe components and assemblies, in both aluminum and hard metals. Also in May 2012, we agreed to acquire Dickson Testing Company ("Dickson") and Aerocraft Heat Treating Company ("Aerocraft"). Dickson offers a full range of destructive testing services including: mechanical properties; metallurgical and chemical analyses; and low-cycle fatigue testing. Aerocraft provides precision heat treating services for titanium and nickel alloy forgings and castings used in the aerospace industry, as well as other related services including straightening, de-twisting and forming.
During fiscal 2012, we focused on upgrading manufacturing equipment and increasing operational productivity with the completion or initiation of several large-scale cost reduction projects throughout the Company. We also acquired several small strategic tuck-in acquisitions that expanded our manufacturing capabilities. We expect our baseline capital expenditures for fiscal 2013 to be moderately higher than fiscal 2012 based on our current forecasts. These expenditures will be targeted for equipment upgrades, capacity expansion, and cost reduction and productivity projects across all segments.
Our net periodic pension expense for fiscal 2013 is estimated to increase by $32 million, primarily due to a reduction in discount rates and amortization of actuarial losses. However, improved operating performance at every one of our manufacturing sites continues to be our prime focus. We have achieved strong base incremental margins across all segments over the past year. Over the long term, as a Company, we are focused daily on delivering strong incremental margins as our sales increase, as our results have clearly demonstrated over the past year. We have the right tools, and we have the right people, who know how to put these tools to work to deliver results and the opportunity for both top- and bottom-line growth has never been better.

20


 
Fiscal Year
 
% Increase/(Decrease)
  
2012
 
2011
 
2010
 
2012 vs. 2011
 
2011 vs. 2010
Net sales
$
7,214.6

 
$
6,220.1

 
$
5,459.2

 
16
 %
 
14
 %
Costs and expenses:
 
 
 
 
 
 
 
 
 
Cost of goods sold
4,949.3

 
4,326.7

 
3,668.8

 
14
 %
 
18
 %
Selling and administrative expenses
448.1

 
390.6

 
367.1

 
15
 %
 
6
 %
Interest expense, net
5.2

 
9.0

 
13.1

 
(42
)%
 
(31
)%
Total costs and expenses
5,402.6

 
4,726.3

 
4,049.0

 
 
 
 
Income before income tax expense and equity in earnings of unconsolidated affiliates
1,812.0

 
1,493.8

 
1,410.2

 
21
 %
 
6
 %
Income tax expense
(594.4
)
 
(499.7
)
 
(485.7
)
 
19
 %
 
3
 %
Equity in earnings of unconsolidated affiliates
14.6

 
16.6

 
1.4

 
(12
)%
 
1,086
 %
Net income from continuing operations
1,232.2

 
1,010.7

 
925.9

 
22
 %
 
9
 %
Net (loss) income from discontinued operations
(6.4
)
 
4.1

 
(3.3
)
 
(256
)%
 
224
 %
Net income
1,225.8

 
1,014.8

 
922.6

 
21
 %
 
10
 %
Net income attributable to noncontrolling interest
(1.7
)
 
(1.3
)
 
(0.8
)
 
31
 %
 
63
 %
Net income attributable to Precision Castparts Corp. (“PCC”)
$
1,224.1

 
$
1,013.5

 
$
921.8

 
21
 %
 
10
 %
Net income per common share attributable to PCC shareholders (basic):
 
 
 
 
 
 
 
 
 
Net income per share from continuing operations
$
8.52

 
$
7.07

 
$
6.57

 
21
 %
 
8
 %
Net (loss) income per share from discontinued operations
(0.04
)
 
0.03

 
(0.02
)
 
(233
)%
 
250
 %
Net income per share (basic)
$
8.48

 
$
7.10

 
$
6.55

 
19
 %
 
8
 %
Net income per common share attributable to PCC shareholders (diluted):
 
 
 
 
 
 
 
 
 
Net income per share from continuing operations
$
8.45

 
$
7.01

 
$
6.51

 
21
 %
 
8
 %
Net (loss) income per share from discontinued operations
(0.04
)
 
0.03

 
(0.02
)
 
(233
)%
 
250
 %
Net income per share (diluted)
$
8.41

 
$
7.04

 
$
6.49

 
19
 %
 
8
 %
 
 
 
 
 
 
 
 
 
 
 
Fiscal Year
 
% Increase/(Decrease)
Sales by Market
2012
 
2011
 
2010
 
2012 vs. 2011
 
2011 vs. 2010
Aerospace
$
4,459.6

 
$
3,572.0

 
$
2,991.0

 
25
 %
 
19
 %
% of total
62
%
 
57
%
 
54
%
 
 
 
 
Power
1,512.0

 
1,348.3

 
1,454.6

 
12
 %
 
(7
)%
% of total
21
%
 
22
%
 
27
%
 
 
 
 
General Industrial & Other
1,243.0

 
1,299.8

 
1,013.6

 
(4
)%
 
28
 %
% of total
17
%
 
21
%
 
19
%
 
 
 
 
Total Sales
$
7,214.6

 
$
6,220.1

 
$
5,459.2

 
16
 %
 
14
 %
% of total
100
%
 
100
%
 
100
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 


21


Average market price of key metals
 (per pound)
Fiscal Year
 
Increase/(Decrease)
2012
 
2011
 
2010
 
2012 vs. 2011
 
2011 vs. 2010
  
  
 
  
 
  
 
$        
 
%        
 
$        
 
%        
Nickel
$
9.54

 
$
10.69

 
$
7.72

 
$
(1.15
)
 
(11
)%
 
$
2.97

 
38
%
London Metals Exchange (1)
 
 
 
 
 
 
 
 
 
 
 
 
 
Titanium
$
4.71

 
$
4.79

 
$
1.66

 
$
(0.08
)
 
(2
)%
 
$
3.13

 
189
%
Ti 6-4 bulk, Metalprices.com
 
 
 
 
 
 
 
 
 
 
 
 
 
Cobalt
$
16.40

 
$
20.09

 
$
18.89

 
$
(3.69
)
 
(18
)%
 
$
1.20

 
6
%
Metal Bulletin COFM.8 Index (1)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
_________________________
(1)
Source: Bloomberg

Fiscal 2012 compared with fiscal 2011
Total sales for fiscal 2012 were $7,214.6 million, an increase of $994.5 million, or 16 percent, from fiscal 2011 sales of $6,220.1 million. The increase in sales compared to the prior year was driven by solid aerospace growth of approximately $888 million, or 25 percent, over fiscal 2011 levels, particularly within the Investment Cast and Forged Products segments. Boeing and Airbus accelerated base production build rates throughout fiscal 2012 and Boeing 787 production began to ramp up. Aerospace sales increased from 57 percent of total sales in fiscal 2011 to 62 percent of total sales in fiscal 2012. Sales within our power market increased approximately $164 million, or 12%, over the prior year. Factors contributing to this increase include solid IGT sales performance, driven by both OEM orders and aftermarket demand, and growth in oil and gas sales, primarily in the Forged Products segment, partially offset by further reductions in interconnect pipe sales. Sales to the power market (which includes IGT, oil and gas and interconnect pipe) decreased from 22 percent of total sales in fiscal 2011 to 21 percent of total sales in fiscal 2012. General industrial sales declined approximately $57 million, or 4 percent, over the prior year, as we focused on growing higher margin, intercompany activity. We used more of our internal assets for billet production, with intercompany activity increasing approximately $260 million, or 24%, over last year. General industrial and other sales decreased from 21 percent of total sales in fiscal 2011 to 17 percent of total sales in fiscal 2012. We acquired eight businesses during fiscal 2012, which contributed approximately $400 million to sales in fiscal 2012 (also included in market changes discussed above).
Higher external selling prices of nickel alloy from the Forged Products segment’s three primary mills added approximately $150 million to top-line revenues in fiscal 2012 versus fiscal 2011. Contractual material pass-through pricing increased sales by approximately $301.0 million in fiscal 2012 versus approximately $233.4 million in fiscal 2011, an increase of $67.6 million. Contractual material pass-through pricing adjustments are calculated based on market prices such as those shown in the above table in trailing periods from one to twelve months. Although nickel prices decreased 11% on the London Metals Exchange ("LME") compared to the prior year, volume increases, customer directed forward purchases of
nickel, and material price escalators associated with other raw materials drove the increase in material pass-through and selling prices of nickel alloy over the prior year.
With regard to growth in the commercial aircraft industry, based on data from The Airline Monitor as of January 2012, Boeing and Airbus aircraft deliveries are expected to moderately increase through calendar year 2012 as compared to 2011. Due to manufacturing lead times and scheduled build rates, our production volumes are generally 6 to 9 months ahead of aircraft deliveries. The Airline Monitor is projecting further growth in aircraft deliveries in calendar year 2013, and therefore we anticipate that our aerospace sales will continue to increase in fiscal 2013.
Cost of goods sold was $4,949.3 million, or 69 percent of sales, in fiscal 2012 as compared to $4,326.7 million, or 70 percent of sales, in fiscal 2011. Cost of goods sold as a percent of sales was positively impacted by effective leverage on increased sales volume, increased internal metal sourcing in an effort to reduce costs, and other operational improvements. These decreases were partially offset by by the inclusion of lower-margin sales from the acquisitions in the Forged and Fastener Products segments and new product development costs. Contractual material pass-through pricing diluted gross margin by 1.4 percentage points in fiscal 2012 compared to 1.2 percentage points last year.
Selling and administrative expenses were $448.1 million, or 6 percent of sales, in fiscal 2012 compared to $390.6 million, or 6 percent of sales, in fiscal 2011. The largest increase in selling and administrative expenses over the prior year is attributable to additional expenses from the fiscal 2012 acquisitions.

22


Net income from continuing operations attributable to PCC for fiscal 2012 was $1,230.5 million, or $8.45 per share (diluted). By comparison, net income from continuing operations attributable to PCC for fiscal 2011 was $1,009.4 million, or $7.01 per share (diluted). Fiscal 2012 net income attributable to PCC including discontinued operations was $1,224.1 million, or $8.41 per share (diluted), compared with net income of $1,013.5 million, or $7.04 per share (diluted) in fiscal 2011. Fiscal 2012 results include a net loss of $6.4 million, or $0.04 per share (diluted), from discontinued operations, compared to net income of $4.1 million, or $0.03 per share (diluted), in the prior year.

Fiscal 2011 compared with fiscal 2010
Total sales for fiscal 2011 were $6,220.1 million, an increase of $760.9 million, or 14 percent, from fiscal 2010 sales of $5,459.2 million. The increase in sales compared to fiscal 2010 was driven by improved aerospace demand, resulting in an increase in aerospace sales of approximately $581 million, or 19 percent, over fiscal 2010 levels, as our aerospace customer order schedules aligned with base commercial aircraft build rates, particularly within the Investment Cast and Forged Products segments. Aerospace sales increased from 54 percent of total sales in fiscal 2010 to 57 percent of total sales in fiscal 2011. General industrial sales increased $286 million, or 28 percent, over fiscal 2010, and increased from 19 percent of total sales in fiscal 2010 to 21 percent of total sales in fiscal 2011. Higher external selling prices of nickel alloy from the Forged Products segment’s three primary mills, which increased 38% on the London Metals Exchange ("LME") compared to fiscal 2010, added approximately $111 million to top-line revenues in fiscal 2011 versus fiscal 2010. Fiscal 2011 also included four quarters of sales from Carlton Forge Works ("Carlton"), which was acquired in the third quarter of fiscal 2010. These increases were partially offset by a decline in seamless pipe sales of approximately $217 million, or 42 percent, over fiscal 2010 levels. Sales to the power market (which includes IGT and seamless pipe) decreased from 27 percent of total sales in fiscal 2010 to 22 percent of total sales in fiscal 2011. Contractual material pass-through pricing, which reflects the impact of escalation formulas included in certain long-term agreements, also declined, increasing sales by approximately $233.4 million in fiscal 2011 versus approximately $249.6 million in fiscal 2010, a decrease of $16.2 million. Contractual material pass-through pricing adjustments are calculated based on market prices such as those shown in the above table in trailing periods from one to twelve months.
Cost of goods sold was $4,326.7 million, or 70 percent of sales, in fiscal 2011 as compared to $3,668.8 million, or 67 percent of sales, in fiscal 2010. Cost of goods sold as a percent of sales was negatively impacted by the reduced seamless pipe volume, which was replaced by lower margin general industrial sales in the Forged Products segment. In addition, lower sales of core product lines in the Fasteners Products segment were replaced with sales of less complex, lower margin products. These decreases were partially offset by the effective leverage of increased aerospace volume due to significantly improved cost structures throughout the Company. Contractual material pass-through pricing diluted gross margin by 1.2 percentage points in fiscal 2011 compared to 1.6 percentage points in fiscal 2010.
Selling and administrative expenses were $390.6 million, or 6 percent of sales, in fiscal 2011 compared to $367.1 million, or 7 percent of sales, in fiscal 2010. The lower year-over-year percentage was primarily due to the fixed nature of selling and administrative expenses coupled with an increase in sales compared to fiscal 2010.
Net income from continuing operations attributable to PCC for fiscal 2011 was $1,009.4 million, or $7.01 per share (diluted). By comparison, net income from continuing operations attributable to PCC for fiscal 2010 was $925.1 million, or $6.51 per share (diluted). Fiscal 2011 net income attributable to PCC including discontinued operations was $1,013.5 million, or $7.04 per share (diluted), compared with net income of $921.8 million, or $6.49 per share (diluted) in fiscal 2010. Fiscal 2011 net income includes $4.1 million, or $0.03 per share (diluted), from discontinued operations, compared to a net loss of $3.3 million, or $0.02 per share (diluted), in fiscal 2010.

Acquisitions
Fiscal 2012
On July 14, 2011, we acquired the rings operations of Unison Engine Components ("Tru-Form") from GE Aviation, an operating unit of General Electric Company. Tru-Form is a leader in the manufacture of flash-welded and cold-rolled rings for jet engine and gas turbine applications, including spacer rings, combustion casings and liners, low pressure turbine casings, and fan cases. The innovative Tru-Form cold-rolling process produces a near-net-shaped part from a flash-welded ring, reducing material and machining costs and enabling the production of more complex part shapes.  Tru-Form employs approximately 275 people across its three locations in Wilkes-Barre and Mountaintop, Pennsylvania, and Tyseley, England. The Tru-Form acquisition was an asset purchase for tax purposes and operates as part of the Forged Products segment.
On July 22, 2011, we acquired the assets of the Rollmet business ("Rollmet") from Rockwell Collins. Rollmet has developed a unique cold-roll extrusion process to manufacture precision thin wall pipe across a range of materials, including nickel alloys, stainless steel, aluminum, and carbon steel.  Rollmet's products are utilized in a variety of oil and gas

23


applications, as well as motor cases for missile programs.  Rollmet has approximately 70 employees and operates one facility in Irvine, California. The Rollmet acquisition was an asset purchase for tax purposes and operates as part of the Forged Products segment.
On August 9, 2011, we acquired Primus International ("Primus") for approximately $900 million in cash.  Primus is a leading supplier of aerostructures and complex components and assemblies to the global aerospace industry, including swaged rods, and machined aluminum and titanium components.  Product applications include wing, fuselage and engine-related assemblies, passenger and exit doors, and actuation and flight control assemblies.  Headquartered in Bellevue, Washington, Primus employs approximately 1,500 people across five manufacturing locations, including three in the Seattle, Washington area, as well as Tulsa, Oklahoma, and Suzhou, China.  The Primus acquisition was a stock purchase for tax purposes and operates as part of the Fastener Products segment. This transaction resulted in $422.1 million of goodwill and $505.3 million of other intangible assets, including customer relationships with indefinite lives valued at $468.5 million, customer relationships with finite lives valued at $15.6 million and backlog valued at $21.2 million. We also recorded a long-term liability related to the fair value of loss contracts valued at $85.3 million.
On October 4, 2011, we acquired the assets of PB Fasteners ("PB"). PB is an industry leader in the design and manufacturing of fastener products for airframe applications, including the development of the SLEEVbolt ® fastening system. PB’s sleeve bolt technology is critical to mitigating the impact of lightning strikes on the Boeing 787 aircraft and other composite body aircraft. Located in Gardena, California, PB entered the aerospace fastener business in 1967. The PB acquisition was an asset purchase for tax purposes and operates as part of the Fastener Products segment.
Over the course of fiscal 2012, we completed several additional acquisitions which were not material, but do provide us with additional manufacturing capabilities.
The purchase price allocations for each business acquisition above, in addition to four minor acquisitions, are subject to further refinement. The impact of these acquisitions is not material to our consolidated results of operations; consequently, pro forma information has not been included.
Fiscal 2011
On January 3, 2011, we acquired an additional 1% equity interest in Yangzhou Chengde Steel Tube Co., Ltd (“Chengde”) for approximately $7 million in cash, increasing our equity interest to 50%. We continue to account for this investment under the equity method as we currently do not exercise control of the major operating and financial policies of Chengde. The carrying value of this investment as of April 1, 2012 was $424.3 million and was included in investment in unconsolidated affiliates in our consolidated balance sheet. The carrying value of our investment in Chengde exceeded the amount of underlying equity in net assets of Chengde by approximately $189 million as of April 1, 2012. This difference arose through the valuation process that was applied to the assets acquired.
Fiscal 2010
On September 30, 2009, we completed the acquisition of Carlton Forge Works and a related entity (“Carlton”) for approximately $847 million in cash, comprised of approximately $502 million of cash on hand and the proceeds of approximately $345 million of commercial paper debt issuance (subsequently repaid). Carlton, a leading manufacturer of seamless rolled rings for critical aerospace applications, offers nickel, titanium, and steel rolled rings across the widest range of product sizes in the industry. Carlton broadens our forging capabilities and enables us to provide a full range of forged products to our aerospace engine customers. The Carlton acquisition is an asset purchase for tax purposes and operates as part of our Forged Products segment. This transaction resulted in $400.1 million of goodwill (which is deductible for tax purposes) and $336.7 million of other intangible assets, including tradenames with indefinite lives valued at $89.1 million, customer relationships with indefinite lives valued at $204.8 million, customer relationships with finite lives valued at $3.7 million, backlog valued at $10.2 million and revenue sharing agreements valued at $28.9 million. We also recorded a long-term liability related to the fair value of a pre-existing revenue sharing agreement valued at $92.0 million. The impact of this acquisition was not material to our consolidated results of operations; consequently, pro-forma information has not been included.
On January 15, 2010, we acquired a 49% equity interest in Chengde for approximately $355 million in cash, comprised of approximately $115 million of cash on hand and the proceeds of approximately $240 million of commercial paper debt issuance (subsequently repaid). Chengde is a leading manufacturer of seamless, extruded pipe for boiler applications in coal-fired power plants, as well as pipe and tubing for other energy-related applications, such as compressed natural gas. The company operates from one facility with a manufacturing footprint of nearly 6 million square feet in the Jiangsu Province of China. Chengde has built a leading position in the Chinese boiler pipe market and has begun to make inroads into export markets.
The above business acquisitions, in addition to four minor acquisitions in fiscal 2012, were accounted for under the

24


acquisition method of accounting (except for the investment in Chengde, which was accounted for under the equity method) and, accordingly, the results of operations have been included in the Consolidated Statements of Income since the acquisition date.

Discontinued operations
Our financial statements were impacted by activities relating to the planned or completed divestiture of certain of our businesses. These businesses have been accounted for under discontinued operations guidance. Accordingly, any operating results of these businesses are presented in our Consolidated Statements of Income as discontinued operations, net of income tax, and all prior periods have been reclassified.
Fiscal 2012
During the fourth quarter of fiscal 2012, we decided to divest a small non-core business in the Fastener Products segment and reclassified it to discontinued operations.
Fiscal 2011
During the second quarter of fiscal 2011, we sold an automotive fastener business. The transaction resulted in a gain of approximately $6.4 million (net of tax).
During the first quarter of fiscal 2011, we decided to divest a small non-core business in the Fastener Products segment and reclassified it to discontinued operations. We have entered into an agreement to sell this business and expect to complete the transaction in the first quarter of fiscal 2013.
Fiscal 2010
In the fourth quarter of fiscal 2010, we decided to dispose of a small non-core business in the Fasteners Products segment and reclassified it to discontinued operations. The sale of the business was completed in the second quarter of fiscal 2011.
In the third quarter of fiscal 2010, we decided to divest a small non-core business in the Investment Cast Products segment and reclassified it to discontinued operations. The sale of the business was completed in the fourth quarter of fiscal 2010. The transaction resulted in a gain of approximately $11.4 million (net of tax) in fiscal 2010.
In the second quarter of fiscal 2010, we recognized an impairment loss of approximately $8.7 million (net of tax) related to two automotive fastener businesses held for sale due to continued erosion in the automotive market. The sale of these businesses was completed in the second quarter of fiscal 2011.

Subsequent events
On April 2, 2012, we acquired RathGibson, LLC ("RathGibson"). RathGibson manufactures precision thin-wall, nickel-alloy and stainless steel welded and seamless tubing, with broad capabilities in length, wall thickness, and diameter. RathGibson's products are used in a multitude of oil & gas, chemical/petrochemical processing, and power generation applications, as well as in other commercial markets. RathGibson operates three facilities in Janesville, Wisconsin; North Branch, New Jersey; and Clarksville, Arkansas, and employs more than 500 people. The RathGibson acquisition is an asset purchase for tax purposes and will be reported as part of the Forged Products segment.
On May 18, 2012, we acquired Centra Industries, a state-of-the art aerostructures manufacturer located in Cambridge, Ontario. Centra manufactures a range of machined airframe components and assemblies, in both aluminum and hard metals. Core competencies include the high-speed machining of complex, high-precision structures, sub-assembly, and kit integration. Established in 1974, Centra has approximately 400 non-union employees. The Centra acquisition is a stock purchase for tax purposes and will be reported as part of the Fastener Products segment.
On May 20, 2012, we agreed to acquire Dickson Testing Company and Aerocraft Heat Treating Company. Dickson offers a full range of destructive testing services including: mechanical properties; metallurgical and chemical analyses; and low-cycle fatigue testing. Dickson is located in South Gate, California, with approximately 110 employees. Aerocraft provides precision heat treating services for titanium and nickel alloy forgings and castings used in the aerospace industry, as well as other related services including straightening, de-twisting and forming. Aerocraft is located in Paramount, California, with nearly 60 employees. The acquisition is an asset purchase for tax purposes and will be reported as part of the Forged Products segment. The transaction is expected to be completed by July 2012.


25


Financial results by segment
We analyze our operating segments and manage our business across three reportable segments: Investment Cast Products, Forged Products and Fastener Products.
 
 
Fiscal Year
 
% Increase/(Decrease)
  
2012
 
2011
 
2010
 
2012 vs. 2011
 
2011 vs. 2010
Net sales:
 
 
 
 
 
 
 
 
 
Investment Cast Products
$
2,326.9

 
$
2,095.6

 
$
1,851.3

 
11
%
 
13
 %
Forged Products
3,189.5

 
2,779.7

 
2,283.0

 
15
%
 
22
 %
Fastener Products
1,698.2

 
1,344.8

 
1,324.9

 
26
%
 
2
 %
Consolidated net sales
$
7,214.6

 
$
6,220.1

 
$
5,459.2

 
16
%
 
14
 %
Segment operating income:
 
 
 
 
 
 
 
 
 
Investment Cast Products
$
766.4

 
$
665.5

 
$
560.0

 
15
%
 
19
 %
% of sales
32.9
%
 
31.8
%
 
30.2
%
 
 
 
 
Forged Products
686.2

 
539.4

 
529.7

 
27
%
 
2
 %
% of sales
21.5
%
 
19.4
%
 
23.2
%
 
 
 
 
Fastener Products
488.1

 
411.0

 
440.2

 
19
%
 
(7
)%
% of sales
28.7
%
 
30.6
%
 
33.2
%
 
 
 
 
Corporate expense
(123.5
)
 
(113.1
)
 
(106.6
)
 
9
%
 
6
 %
Total segment operating income
1,817.2

 
1,502.8

 
1,423.3

 
21
%
 
6
 %
% of sales
25.2
%
 
24.2
%
 
26.1
%
 
 
 
 
Interest expense, net
5.2

 
9.0

 
13.1

 
 
 
 
Consolidated income before income tax expense and equity in earnings of unconsolidated affiliates
$
1,812.0

 
$
1,493.8

 
$
1,410.2

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fiscal Year
 
% Increase/(Decrease)
  
2012
 
2011
 
2010
 
2012 vs. 2011
 
2011 vs. 2010
Contractual material pass-through:
 
 
 
 
 
 
 
 
 
Investment Cast Products
$
76.9

 
$
51.1

 
$
40.7

 
50
%
 
26
 %
Forged Products
210.3

 
170.4

 
201.8

 
23
%
 
(16
)%
Fastener Products
13.8

 
11.9

 
7.1

 
16
%
 
68
 %
Total contractual material pass-through
$
301.0

 
$
233.4

 
$
249.6

 
29
%
 
(6
)%
 
 
 
 
 
 
 
 
 
 
 
Fiscal Year
 
% Increase/(Decrease)
  
2012
 
2011
 
2010
 
2012 vs. 2011
 
2011 vs. 2010
Intercompany sales activity:(1)
 
 
 
 
 
 
 
 
 
Investment Cast Products(2)
$
295.5

 
$
238.8

 
$
199.1

 
24
%
 
20
 %
Forged Products(3)
927.4

 
740.2

 
703.4

 
25
%
 
5
 %
Fastener Products(4)
115.9

 
99.4

 
84.9

 
17
%
 
17
 %
Total intercompany sales activity
$
1,338.8

 
$
1,078.4

 
$
987.4

 
24
%
 
9
 %
 
 
 
 
 
 
 
 
 
 
_________________________
(1)
Intercompany sales activity consists of each segment’s total intercompany sales activity, including intercompany sales activity within a segment and between segments.
(2)
Investment Cast Products: Includes intersegment sales activity of $47.5 million, $33.2 million and $26.3 million for fiscal 2012, 2011 and 2010, respectively.
(3)
Forged Products: Includes intersegment sales activity of $84.2 million, $65.2 million and $64.1 million for fiscal 2012, 2011 and 2010, respectively.
(4)
Fastener Products: Includes intersegment sales activity of $4.5 million, $4.2 million and $2.8 million for fiscal 2012, 2011 and 2010, respectively.


26


Investment Cast Products
The Investment Cast Products segment manufactures investment castings, and provides related investment casting materials and alloys, for aircraft engines, IGT engines, airframes, armaments, medical prostheses and other industrial applications.
 
 
Fiscal Year
 
% Increase/(Decrease)
  
2012
 
2011
 
2010
 
2012 vs. 2011
 
2011 vs. 2010
Sales by Market:
 
 
 
 
 
 
 
 
 
Aerospace
$
1,487.4

 
$
1,304.8

 
$
1,045.1

 
14
 %
 
25
 %
% of total
64
%
 
62
%
 
57
%
 
 
 
 
Power
623.5

 
555.8

 
580.6

 
12
 %
 
(4
)%
% of total
27
%
 
27
%
 
31
%
 
 
 
 
General Industrial & Other
216.0

 
235.0

 
225.6

 
(8
)%
 
4
 %
% of total
9
%
 
11
%
 
12
%
 
 
 
 
Total Sales
$
2,326.9

 
$
2,095.6

 
$
1,851.3

 
11
 %
 
13
 %
Operating income
$
766.4

 
$
665.5

 
$
560.0

 
15
 %
 
19
 %
% of sales
32.9
%
 
31.8
%
 
30.2
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fiscal 2012 compared with fiscal 2011
The Investment Cast Products segment reported fiscal 2012 sales of $2,326.9 million, an increase of 11.0 percent from prior year sales of $2,095.6 million. Aerospace sales increased approximately $183 million, or 14 percent, over the prior year driven by higher build rates of commercial aircraft, including the Boeing 787, and the greater frequency of takeoffs and landings. This segment also experienced solid increases in commercial and military aftermarket sales. Within our power market, IGT sales increased by approximately $57 million, or 11%, over the prior year, driven by both OEM orders and aftermarket demand. The increases in aerospace and IGT sales were partially offset by declines in general industrial and other sales. Sales also include $76.9 million of higher pricing related to contractual pass-through of increased material costs compared to $51.1 million in fiscal 2011, an increase of $25.8 million.
Operating income for the Investment Cast Products segment was $766.4 million or 32.9 percent of sales in fiscal 2012, compared to $665.5 million, or 31.8 percent of sales, in fiscal 2011. Operating income increased compared to the prior year as the segment continues to generate solid incremental margins on increased sales volumes into aerospace and IGT markets. The segment improved operating margin by 1.1 percentage points year-over-year driven by the solid drop-through on increased volume, partially offset by costs associated with anticipated volume increases, including maintenance and training expenses. Contractual material pass-through pricing diluted operating margins by 1.1 percentage points in fiscal 2012 compared to 0.8 percentage points last year.
The Investment Cast Products segment anticipates growing aerospace OEM sales driven by the announced increases in Airbus and Boeing base program build rates in late calendar 2012 and early 2013, as well as by 787 production, which will continue to be a strong contributor to segment sales as build schedules ramp through this calendar year and into the next. On the IGT front, OEM sales are beginning to trend positively, providing further upside potential. We estimate that our net periodic pension expense for fiscal 2013 will increase by $13 million, primarily due to a reduction in discount rates and amortization of actuarial losses.
Fiscal 2011 compared with fiscal 2010
The Investment Cast Products segment reported fiscal 2011 sales of $2,095.6 million, an increase of 13.0 percent from fiscal 2010 sales of $1,851.3 million. The year-over-year increase in sales reflects the realignment of aerospace OEM orders with production rates and aftermarket increases driven by engine schedules. Aerospace sales increased approximately $260 million, or 25 percent, over fiscal 2010 as the destocking ended and orders driven by previously announced increases in base aircraft build rates realigned with customer demand. In addition, external alloy sales from Cannon-Muskegon more than doubled over fiscal 2010, which we believe is a leading indicator of the aerospace rebound. IGT sales decreased approximately $33 million, or 6 percent, compared to fiscal 2010 due to continued customer destocking that began in the latter half of fiscal 2010; however, the segment experienced an increase in OEM shipments in the fourth quarter of fiscal 2011. Sales also include $51.1 million of higher pricing related to contractual pass-through of increased material costs compared to $40.7 million in fiscal 2010, an increase of $10.4 million.

27


Operating income for the Investment Cast Products segment was $665.5 million or 31.8 percent of sales in fiscal 2011, compared to $560.0 million, or 30.2 percent of sales, in fiscal 2010. Operating income increased compared to fiscal 2010 primarily due to improved leverage on increased aerospace throughput combined with improved cost performance. The segment improved operating margin by 1.6 percentage points year-over-year driven by continuous focus on productivity, scrap and rework, and other variable cost improvements in the segment's manufacturing operations. Contractual material pass-through pricing diluted operating margins by 0.8 percentage points in fiscal 2011 compared to 0.7 percentage points in fiscal 2010.
Forged Products
The Forged Products segment manufactures forged components from sophisticated titanium and nickel-based alloys principally for the aerospace and power markets, and manufactures nickel and cobalt-based alloys used to produce forged components for aerospace and non-aerospace markets which include products for oil and gas, chemical processing, and pollution control applications. The segment also provides nickel superalloy and titanium revert management solutions, re-melting various material byproducts and reusing them in casting, forging, and fastener manufacturing processes. Forged Products’ sales to the aerospace and power markets are derived primarily from the same large engine customers served by the Investment Cast Products segment, with additional aerospace sales to manufacturers of landing gear and other airframe components. The Forged Products segment also produces extruded pipe for the power and oil and gas industries.
 
 
Fiscal Year
 
% Increase/(Decrease)
  
2012
 
2011
 
2010
 
2012 vs. 2011
 
2011 vs. 2010
Sales by Market:
 
 
 
 
 
 
 
 
 
Aerospace
$
1,692.4

 
$
1,317.1

 
$
956.0

 
28
 %
 
38
 %
% of total
53
%
 
47
%
 
42
%
 
 
 
 
Power
864.9

 
775.3

 
857.2

 
12
 %
 
(10
)%
% of total
27
%
 
28
%
 
37
%
 
 
 
 
General Industrial & Other
632.2

 
687.3

 
469.8

 
(8
)%
 
46
 %
% of total
20
%
 
25
%
 
21
%
 
 
 
 
Total Sales
$
3,189.5

 
$
2,779.7

 
$
2,283.0

 
15
 %
 
22
 %
Operating income
$
686.2

 
$
539.4

 
$
529.7

 
27
 %
 
2
 %
% of sales
21.5
%
 
19.4
%
 
23.2
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fiscal 2012 compared with fiscal 2011
The Forged Products segment reported fiscal 2012 sales of $3,189.5 million, an increase of 15 percent from prior year sales of $2,779.7 million. Fiscal 2012 results include the benefit from the acquisitions of KLAD, Tru-Form and Rollmet for part of the year. Similar to Investment Cast Products, this segment experienced robust OEM and aftermarket aerospace activity as aerospace sales improved by approximately $375 million, or 28 percent, year-over-year. In addition, sales within our power market increased approximately $90 million, or 12%, compared to the prior year. Factors contributing to this increase include growth in IGT sales due to market share gains and oil and gas sales aided by the acquisitions of Rollmet and KLAD, partially offset by a decline in interconnect pipe shipments. Although interconnect pipe sales continued to lag fiscal 2011 levels, demand is beginning to improve. General industrial sales declined approximately $55 million, or 8%, during fiscal 2012, as the segment used more of its internal assets for billet production, with intercompany activity increasing approximately $187 million, or 25%, over last year. Higher external selling prices of external alloy sales from the segment’s three primary mills added approximately $150 million to top-line revenues in fiscal 2012 versus fiscal 2011. Fiscal 2012 sales also include $210.3 million of contractual pricing related to pass-through of increased raw material costs compared to $170.4 million last year, an increase of $39.9 million.
Operating income for the Forged Products segment was $686.2 million or 21.5 percent of sales in fiscal 2012, compared to $539.4 million, or 19.4 percent of sales, in fiscal 2011. The increase in operating income year-over-year was primarily driven by solid leverage from increased aerospace and IGT volume and the contribution from the acquisitions. The segment's operating margins increased by 2.1 percentage points year over year despite higher development costs associated with testing and qualifying new oil and gas products. Operationally, the segment achieved strong base incremental drop-though and increased internal metal sourcing to reduce costs. The contractual pass-through of higher raw material costs diluted operating margins by 1.5 percentage points in fiscal 2012 compared to 1.3 percentage points last year.

28


The Forged Products segment is poised for further aerospace growth in fiscal 2013 as base commercial aircraft and Boeing 787 production schedules begin to build. We foresee numerous opportunities for sales growth in oil and gas markets in fiscal 2013 and going forward. Delivery of the segment's Saudi Aramco nickel casing order is scheduled to begin late in the first half of fiscal 2013 and the ADNOC nickel casing order is expected to start shipping in the second quarter of fiscal 2013. We expanded our power platform with the acquisition of RathGibson, which closed two days into the first quarter of fiscal 2013. RathGibson gives us further manufacturing capabilities to serve the oil and gas industry and will enable us to offer more comprehensive bids on severe service projects going forward. We estimate that our net periodic pension expense for fiscal 2013 will increase by $10 million, primarily due to a reduction in discount rates and amortization of actuarial losses.
Fiscal 2011 compared with fiscal 2010
The Forged Products segment reported fiscal 2011 sales of $2,779.7 million, an increase of 22 percent from fiscal 2010 sales of $2,283.0 million. Similar to Investment Cast Products, previous destocking activities associated with customer-owned aerospace inventory ended and new orders sparked commercial activity in this segment as aerospace sales improved by approximately $361 million, or 38 percent, year-over-year. General industrial sales also showed continued strength, increasing by approximately $218 million, or 46 percent, compared to fiscal 2010. Fiscal 2011 also includes four quarters of sales from Carlton, which was acquired in the third quarter of fiscal 2010. Partially offsetting these increases was a decline in power markets of approximately $82 million, or 10 percent, compared to fiscal 2010 due to significantly lower core seamless pipe shipments. Higher external selling prices of external alloy sales from the segment’s three primary mills added approximately $111 million to top-line revenues in fiscal 2011 versus fiscal 2010. Fiscal 2011 sales also include $170.4 million of contractual pricing related to pass-through of increased raw material costs compared to $201.8 million in fiscal 2010, a decrease of $31.4 million.
Operating income for the Forged Products segment was $539.4 million or 19.4 percent of sales in fiscal 2011, compared to $529.7 million, or 23.2 percent of sales, in fiscal 2010. The slight increase in operating income year-over-year was primarily driven by solid leverage from increased aerospace volume and the contribution from increased general industrial business, partially offset by weak seamless pipe performance. The segment's operating margin decreased by more than 3 percentage points in fiscal 2011 due to the negative impact of reduced seamless pipe volume and pricing. Growth in the segment's lower-margin general industrial markets also negatively impacted operating margin. Higher metal selling prices at the segment's three primary mills diluted operating margins by 0.8 percentage points in fiscal 2011. The contractual pass-through of higher raw material costs diluted operating margins by 1.3 percentage points in fiscal 2011 compared to 2.2 percentage points in fiscal 2010.

Fastener Products
The Fastener Products segment manufacturers highly engineered fasteners, fastener systems, aerostructures, and precision components, primarily for critical aerospace applications. The balance of the segment’s sales is derived from construction, automotive, heavy truck and general industrial markets, including farm machinery, mining and construction equipment, shipbuilding, machine tools, medical equipment, appliances and recreation.
 
 
Fiscal Year
 
% Increase/(Decrease)
  
2012
 
2011
 
2010
 
2012 vs. 2011
 
2011 vs. 2010
Sales by Market:
 
 
 
 
 
 
 
 
 
Aerospace
$
1,279.8

 
$
950.1

 
$
989.9

 
35
%
 
(4
)%
% of total
75
%
 
71
%
 
75
%
 
 
 
 
Power
23.6

 
17.2

 
16.8

 
37
%
 
2
 %
% of total
2
%
 
1
%
 
1
%
 
 
 
 
General Industrial & Other
394.8

 
377.5

 
318.2

 
5
%
 
19
 %
% of total
23
%
 
28
%
 
24
%
 
 
 
 
Total Sales
$
1,698.2

 
$
1,344.8

 
$
1,324.9

 
26
%
 
2
 %
Operating income
$
488.1

 
$
411.0

 
$
440.2

 
19
%
 
(7
)%
% of sales
28.7
%
 
30.6
%
 
33.2
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 

29


Fiscal 2012 compared with fiscal 2011
The Fastener Products segment reported fiscal 2012 sales of $1,698.2 million, a 26 percent increase from fiscal 2011 sales of $1,344.8 million. Fiscal 2012 results include the contribution from the Primus and PB Fasteners acquisitions for part of the year. This segment experienced a solid recovery in aerospace sales compared to the prior year, which increased approximately $330 million, or 35 percent, driven by a steady acceleration in orders for the segment's critical aerospace core fastener products and the contribution from acquisitions. While the gap between order levels and commercial aircraft production rates continued to close, the segment still lagged the build rates as customer inventory levels continued to be depleted. In terms of the aerostructure products within the segment, sales are tracking closely to increased commercial build rates. General industrial sales increased approximately $17 million, or 5%, over the prior year.
Operating income for the Fasteners segment was $488.1 million or 28.7 percent of sales in fiscal 2012, compared to $411.0 million, or 30.6 percent of sales, in fiscal 2011. The increased volume of core product running through the Fastener Products businesses is starting to drive solid incremental drop-through, however, operating margins were reduced by 1.7% percentage points due to the inclusion of lower-margin sales from the acquisitions in fiscal 2012 results. Although the acquisitions continue to have a dilutive effect on segment operating margins, they are quickly adopting PCC operational methods and are beginning to demonstrate solid performance improvements.
The Fastener Products segment is expected to benefit when Boeing 787 production schedules accelerate and core aerospace product sales recover, although, there is no current line of sight related to the timing of these items. We also expanded our presence in the aerostructures business with the acquisition of Centra Industries in the first quarter of fiscal 2013. Aerostructures will continue to be a platform for our long-term profitable growth. We estimate that our net periodic pension expense for fiscal 2013 will increase by $4 million, primarily due to a reduction in discount rates and amortization of actuarial losses.
Fiscal 2011 compared with fiscal 2010
The Fastener Products segment reported fiscal 2011 sales of $1,344.8 million, a 2 percent increase from fiscal 2010 sales of $1,324.9 million. Strong general industrial sales helped to increase year-over-year sales by approximately $59 million, or 19 percent. Offsetting this increase was a decline in aerospace fastener sales of approximately $40 million, or 4 percent, compared to fiscal 2010. Aerospace volume suffered from delays in the Boeing 787 production schedule and continued weakness in orders from distributors, as current aircraft production was supplied out of existing customer inventory. This segment was able to increase sales of lower margin, non-core aerospace products in order to maintain volume and mitigate the impact of the decline in core aerospace sales.
Operating income for the Fasteners segment was $411.0 million or 30.6 percent of sales in fiscal 2011, compared to $440.2 million, or 33.2 percent of sales, in fiscal 2010. Segment operating margins were negatively affected by the shift away from core aerospace products to lower margin, less complex fasteners, and increased general industrial volume.
Interest and taxes
Net interest expense during fiscal 2012 was $5.2 million, compared with $9.0 million during fiscal 2011. The reduced interest expense was primarily due to lower debt balances, partially offset by a make-whole prepayment of interest associated with the early retirement of our remaining outstanding private note. The private note was repaid in November 2011 in advance of its August 2014 stated maturity. Interest income increased as a result of an increase in cash balances invested outside the U.S. earning rates higher than U.S. interest rates.
Net interest expense in fiscal 2011 was $9.0 million, compared with $13.1 million in fiscal 2010. The lower net interest expense was primarily due to reduced interest expense resulting from lower debt balances and lower borrowing rates, and increased interest income resulting from higher cash balances.
The effective tax rate for fiscal 2012 was 32.8 percent, 0.7 percentage points lower than the 33.5 percent effective tax rate in fiscal 2011. The decrease in the full-year tax rate compared to the prior year was primarily due to a reduction in state taxes, increased benefits from earnings taxed at rates lower than the U.S statutory tax rate, and benefits from non-recurring adjustments to prior year tax assets and liabilities, partially offset by reduced benefits from the research and development credit.
The effective tax rate for fiscal 2011 was 33.5 percent, 0.9 percentage points lower than the 34.4 percent effective tax rate in fiscal 2010. The decrease in the full-year tax rate compared to the prior year was primarily due to increased benefits from the federal manufacturing deduction and a reduction in non-benefited foreign losses, partially offset by reduced benefits from earnings taxed at rates lower than the U.S statutory tax rate.


30


Liquidity and capital resources
Total assets of $10,558.8 million at April 1, 2012 represented a $1,602.9 million increase from the $8,955.9 million balance at April 3, 2011. The increase principally reflects cash generated during the year from business operations totaling $1,038.3 million and increased receivables in support of higher sales. Inventories also increased driven by purchases to support increasing sales, increasing internal metal and product sourcing, and an inventory build in anticipation of maintenance scheduled in the second quarter of fiscal 2013. In addition, tangible and intangible assets recorded in the acquisitions of Rollmet, Tru-Form, Primus and PB Fasteners contributed to the increase.
Total capitalization at April 1, 2012 was $8,573.0 million, consisting of $208.2 million of debt and $8,364.8 million of equity. The debt-to-capitalization ratio declined to 2.4% at April 1, 2012 from 3.2% at the end of fiscal 2011, reflecting debt reductions and the impact of increased equity from earnings and stock issuances through employee stock compensation programs, partially offset by an increase in accumulated other comprehensive loss related to our pension and other postretirement plans.
Cash as of April 1, 2012 was $698.7 million, a decrease of $460.3 million from the end of fiscal 2011, and total debt was $208.2 million, down $28.4 million since the end of fiscal 2011. The net negative cash flow reflects cash paid to acquire businesses (net of cash acquired) of $1,423.9 million and capital expenditures of $192.1 million, partially offset by cash generated from operations of $1,038.3 million and $122.1 million from the issuance of common stock.
Capital spending of $192.1 million in fiscal 2012 principally provided for cost reduction and productivity projects and equipment upgrades throughout the Company. We expect our baseline capital expenditures for fiscal 2013 to be moderately higher than fiscal 2012 based on our current forecasts. These expenditures will be targeted for equipment upgrades, capacity expansion, and cost reduction and productivity projects across all segments.
During fiscal 2012, we contributed $69.4 million to the defined benefit pension plans, of which $50.0 million was voluntary. In the first month of fiscal 2013, we made an additional $50.0 million voluntary contribution to the defined benefit pension plans. We expect to contribute approximately $12.4 million of required contributions in fiscal 2013, for total contributions to the defined benefit pension plans of approximately $62.4 million in fiscal 2013. In addition, we contributed $8.5 million to the other postretirement benefit plans during fiscal 2012. We expect to contribute approximately $7.0 million to the other postretirement benefit plans during fiscal 2013.
In July 2010, we paid $38.3 million to one of our postretirement medical benefit plans that was jointly administered with a union. This payment and the related administrative changes remove PCC and its affiliates from any further financial, administrative or fiduciary responsibilities to this plan, and we therefore accounted for these events as a settlement of the plan and reversed the related liability. There was no significant gain or loss associated with the settlement.
During fiscal 2012, we closed on eight acquisitions in the amount of $1,423.9 million. These acquisitions were funded from cash on hand and the proceeds from commercial paper debt issuances, which was repaid prior to the end of the third quarter of fiscal 2012.
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 cover acquisitions and short-term cash requirements in recent quarters. There were no commercial paper borrowings outstanding as of April 1, 2012 or April 3, 2011. During fiscal 2012, the average amount of commercial paper borrowings outstanding was $57.6 million and the weighted average interest rate was 0.3%. During fiscal 2011, the average amount of commercial paper borrowings outstanding was $21.5 million and the weighted average interest rate was 0.3%. During fiscal 2012 and 2011, the largest daily balance of outstanding commercial paper borrowings was $390.0 million and $210.0 million, respectively. We do not anticipate any changes in our ability to borrow under our current credit facility, 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.
On November 30, 2011, we entered into a credit agreement (the “New Credit Agreement”) with Bank of America, N.A. as Administrative Agent, Swing Line Lender and L/C Issuer, Wells Fargo Bank, National Association and Citibank, N.A., as Syndication Agents, and other lenders from time to time party thereto (collectively the “Lenders”). On the same day, we also terminated our prior credit agreement with Bank of America, N.A. and the other lenders under such agreement. The New Credit Agreement consists of a five-year, $1.0 billion revolving credit facility (with a $500 million increase option, subject to approval of the Lenders) maturing November 30, 2016, unless extended pursuant to two 364-day extension options (subject to approval of the Lenders). The New Credit Agreement is unsecured and contains customary representations and warranties, events of default, and financial and other covenants.

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Our unused borrowing capacity as of April 1, 2012 was $1.0 billion under the New Credit Agreement. Our financial covenant requirement and actual ratio as of April 1, 2012 was as follows:
 
  
Covenant Requirement
Actual
Consolidated leverage ratio1
65.0
%
(maximum)
2.4
%
 
 
 
_________________________
(1)
Terms are defined in the New Credit Agreement.
As of April 1, 2012, we were in compliance with the financial covenant in the New Credit Agreement.
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, borrowing from our $1.0 billion revolving credit facility or new bank credit facilities, the issuance of public or privately placed debt securities, or the issuance of equity instruments.

Contractual obligations and commercial commitments
We are obligated to make future payments under various contracts such as debt agreements and lease agreements. The following table represents our contractual payment obligations as of April 1, 2012 and the estimated timing of future cash payments:
 
Contractual Cash Obligations
Total
 
2013
 
2014
 
2015
 
2016
 
2017
 
Thereafter
Long-term debt
$
208.2

 
$
0.5

 
$
202.0

 
$
0.2

 
$
5.5

 
$

 
$

Operating leases(1)
147.4

 
28.2

 
22.7

 
18.5

 
13.6

 
9.8

 
54.6

Cash contributions to qualified pension plans
60.8

 
12.4

 
12.1

 
12.1

 
12.1

 
12.1

 

Interest on fixed-rate debt
23.0

 
10.5

 
8.0

 
1.8

 
1.7

 
1.0

 

Interest on variable-rate debt(2)
3.7

 
2.1

 
1.6

 

 

 

 

Total
$
443.1

 
$
53.7

 
$
246.4

 
$
32.6

 
$
32.9

 
$
22.9

 
$
54.6

 
 
 
 
 
 
 
 
 
 
 
 
 
 
_________________________
(1)
Operating lease obligations include $42.8 million attributable to operations held-for-sale.
(2)
Interest on variable-rate debt is based on current prevailing interest rates.
Our reserve for uncertain tax positions at April 1, 2012 was $12.9 million. Due to the uncertainties associated with settling these liabilities, we are unable to make reasonable estimates of the period of cash settlement of these liabilities. As a result, our reserve for unrecognized tax benefits is excluded from the table above. See Note 10 to the Consolidated Financial Statements for additional information regarding our reserve for uncertain tax positions.
We also have benefit payments due under our non-qualified pension and other post-retirement benefit plans that are not required to be funded in advance, but are pay-as-you-go. See Note 18 to the Consolidated Financial Statements for additional information.

Critical accounting policies
We have identified the policies below as critical to our business operations and the understanding of our results of operations. The impact and any associated risks related to these policies on our business operations are discussed throughout Management’s Discussion and Analysis where such policies affect reported and expected financial results. For a detailed discussion on the application of these and other significant accounting policies, see the Notes to the Consolidated Financial Statements of this Annual Report. Note that the preparation of this Annual Report requires management to make estimates and assumptions that affect the reported amount of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results may differ from those estimates.
Revenue recognition
We recognize revenue when the earnings process is complete. This generally occurs when products are shipped to the customer in accordance with the contract or purchase order, ownership and risk of loss have passed to the customer, collectibility is reasonably assured, and pricing is fixed and determinable. In instances where title does not pass to the customer

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upon shipment, we recognize revenue upon delivery or customer acceptance, depending on terms of the sales agreement. Service sales, representing maintenance and engineering activities, are recognized as services are performed. Shipping and handling costs billed to customers are included in revenue.
Valuation of inventories
All inventories are stated at the lower of their cost or market value, with the market value being determined based on sales in the ordinary course of business. Cost for inventories at a significant number of our operations is determined on a last-in, first-out (“LIFO”) basis. The average inventory cost method is utilized for most other inventories. We regularly review inventory quantities on hand and record a provision for excess or obsolete inventory equal to the difference between the cost of the inventory and the estimated market value based on the age, historical usage or assumptions about future demand for the inventory. We also regularly review inventory balances on a LIFO basis to ensure the balances are stated at the lower of cost or market as of the balance sheet date. For those inventories valued using LIFO, their carrying value may be higher or lower than current replacement costs for such inventory, since the LIFO costing assumption matches current costs with current sales, not with current inventory values. When the LIFO cost is greater than the current cost, there is an increased likelihood that our inventories could be subject to write-downs to market value. While historical write-downs have not been material, if actual market conditions are less favorable than those projected by management, additional inventory write-downs may be required, which could have a significant impact on the value of our inventories and reported operating results.
Goodwill and acquired intangibles
From time to time, we acquire businesses in purchase transactions that typically result in the recognition of goodwill and other intangible assets, which may affect the amount of future period amortization expense and possible impairment charges. The determination of the value of such intangible assets requires management to make estimates and assumptions that affect the consolidated financial statements.
Goodwill and indefinite-lived intangible assets related to our continuing operations are tested for impairment at a minimum each fiscal year at the end of the second month in the second quarter or when events or circumstances indicate that the carrying value of these assets exceeds their fair value. For fiscal 2012, our reporting units consisted of two operating segments within our Investment Cast Products reportable operating segment, two operating segments within our Forged Products reportable operating segment, as well as four reporting units in our Fastener Products reportable operating segment.  PCC Aerostructures, which was acquired in the second quarter of fiscal 2012, will be tested for goodwill impairment in fiscal 2013.  The Fastener Products operating segment includes several aggregated component units (referred to as the Fastener Products reporting unit), PCC Aerostructures, and two other reporting units.
Testing for goodwill impairment involves the estimation of the fair value of the reporting units. Discounted cash flow models are typically used in these valuations. Such models require the use of significant estimates and assumptions primarily based on future cash flows, expected market growth rates, our estimates of sales volumes, sales prices and related costs, and the discount rate applied, which reflects the weighted average cost of capital. Management uses the best available information at the time fair values of the reporting units are estimated; however, estimates could be materially impacted by factors such as changes in growth trends and specific industry conditions, with the potential for a corresponding adverse effect on the consolidated financial statements potentially resulting from an impairment of the goodwill. We also consider comparable transactions to estimate the fair value of the reporting units. The cash flow models used to determine fair value are most sensitive to the expected future cash flows and the discount rate for each reporting unit. The discount rate used in the cash flow models for the fiscal 2012 goodwill impairment analysis ranged from 9% to 15% depending on the reporting unit. The annual growth rate for earnings before interest and taxes varied by reporting unit and ranged from 3% to 11% over the initial five-year forecast period. A sensitivity analysis determined that using terminal growth rates of 3%, 4% or 5% would not result in impairment in the fiscal 2012 goodwill impairment analysis. We performed a sensitivity analysis on both of these factors and determined that the forecast for future earnings before interest and taxes used in the cash flow model could decrease by 36% or the discount rate utilized could increase by 5%, and the goodwill of our reporting units would not be impaired. The reporting unit that would be most sensitive to worsening economic conditions has $78.9 million of goodwill recorded as of April 1, 2012.
The impairment test for indefinite-lived intangible assets encompasses calculating the fair value of an indefinite-lived intangible asset and comparing the fair value to its carrying value. If the carrying value exceeds the estimated fair value, impairment is recorded. For fiscal 2012 and 2011, it was determined that the fair value of indefinite-lived intangible assets was greater than the carrying value.
Environmental costs
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

33


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. 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, but any amounts, and the possible range of any amounts in excess of those already accrued, are not reasonably estimable at this time. Total environmental liabilities accrued at April 1, 2012 and April 3, 2011 were $71.4 million and $66.8 million, respectively.
Guidance on asset retirement and environmental obligations clarifies the term conditional asset retirement obligation and requires a liability to be recorded if the fair value of the obligation can be reasonably estimated. Asset retirement obligations covered by this guidance include those for which an entity has a significant obligation to perform an asset retirement activity; however, the timing or method of settling the obligation are conditional on a future event that may not be within the control of the entity. This guidance also clarifies when an entity would have sufficient information to reasonably estimate the fair value of an asset retirement obligation.
In accordance with the asset retirement and environmental obligations guidance, we record all known asset retirement obligations for which the liability can be reasonably estimated. Currently, we have identified known asset retirement obligations associated with environmental contamination at two of our manufacturing facilities. However, we have not recognized a liability under this guidance for these retirement obligations because the fair value of remediation at these sites cannot be reasonably estimated since the settlement date is unknown at this time. The settlement date is unknown because remediation of these sites is not required until production ceases, and we have no current plans to cease production. These asset retirement obligations, when estimable, are not expected to have a material adverse effect on our consolidated financial position, results of operations, cash flows or business.
Income taxes
Provisions for federal, state and foreign income taxes are calculated on reported pre-tax earnings based on current tax law and also include, in the current period, the cumulative effect of any changes in tax rates from those used previously in determining deferred tax assets and liabilities. Such provisions differ from the amounts currently receivable or payable because certain items of income and expense are recognized in different time periods for financial reporting purposes than for income tax purposes. Significant judgment is required in determining income tax provisions and evaluating tax positions. Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax benefit will not be realized. Tax benefits arising from uncertain tax positions are recognized when it is more likely than not that the position will be sustained upon examination by the relevant tax authorities. The amount recognized in the financial statements is the largest amount of tax benefit that is greater than 50 percent likely of being realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information. We recognize interest and penalties, if any, related to uncertain tax positions in income tax expense.
Pension and other postretirement benefit plans
We sponsor many U.S. and non-U.S. defined benefit pension plans. Our pension and postretirement benefit plans are accounted for in accordance with defined benefit pension and other postretirement plans accounting guidance. Plan assets have been valued at fair value in accordance with this guidance. Pension and postretirement expense and liability amounts are derived from several significant assumptions, including the discount rate, expected return on plan assets and health care cost trend rate.  For valuation of our pension liabilities, we derive a market-based discount rate from yields on high quality, liquid fixed income securities at the end of our fiscal year. We use only highly-rated bonds (AA/Aa or higher) to estimate the interest rate at which our pension benefits could be effectively settled. For our U.S. Plans, we used a discount rate assumption of 4.85% for the total benefit obligation of our pension plans at our April 1, 2012 measurement date. For our non-U.S. Plans, we used a discount rate assumption of 5.27% for the total benefit obligation of our pension plans at our April 1, 2012 measurement date.
In developing the long-term rate of return on plan assets assumptions, we evaluate input from third party investment consultants and actuaries, review asset allocation and investment strategies, ranges of projected and historical returns, and inflation and economic assumptions. The expected return assumptions are derived from asset allocations within the Company's target asset allocation ranges consistent with our diversified investment approach. As the assumed rate of return on plan assets is a long-term assumption, it is not anticipated to be as volatile as the discount rate, which is a point-in-time measurement. For our U.S. Plans, we used a long-term rate of return assumption of 8.0% to calculate the 2012 and 2011 net periodic pension cost. For our non-U.S. Plans, we used a long-term rate of return assumption of 7.5% to calculate the 2012 and 2011 net periodic pension cost. For fiscal 2012, our U.S. net periodic pension expense was $25.7 million and non-U.S. net periodic pension income was $3.5 million. We estimate that for fiscal 2013, our U.S. net periodic pension expense will be approximately $51.2 million and non-U.S. net periodic pension expense will be approximately $3.0 million. The increase in estimated expense is

34


primarily due to a reduction in the discount rates used in determining the net periodic pension cost and amortization of actuarial losses. Absent increases in interest rates, higher asset values and/or higher contributions, net periodic pension cost will increase further in future years. Our U.S. net postretirement benefit cost was $5.5 million for fiscal 2012, and we estimate that for fiscal 2013, our U.S. net postretirement benefit cost will be $6.4 million.
The table below quantifies the approximate impact, as of April 1, 2012, of a one-quarter percentage point decrease in our assumptions for discount rate and expected return on assets, holding other assumptions constant.
 
  
0.25 Percentage
Point Decrease
Increase in annual costs:
 
Discount rate
$
6.9

Expected long-term rate of return
$
4.2

Increase in projected benefit obligation:
 
Discount rate
$
71.8

 
 
The approximate impact, as of April 1, 2012, of a one percentage point increase in our assumption for the health care cost trend rate, holding other assumptions constant, on our total service and interest cost components and accumulated postretirement benefit obligation is not significant.

Recently issued accounting standards
In December 2011, the Financial Accounting Standards Board (“FASB”) issued guidance increasing disclosures regarding offsetting assets and liabilities. For derivatives and financial assets and liabilities, the amendments require disclosure of gross asset and liability amounts, amounts offset on the balance sheet, and amounts subject to the offsetting requirements but not offset on the balance sheet. The guidance is effective for the Company beginning the first quarter of fiscal 2014 and is to be applied retrospectively. As this guidance only requires expanded disclosures, 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 June 2011, the FASB issued guidance that requires an entity to present the total of comprehensive income, the components of net income, and the components of other comprehensive income in either a single continuous statement or two separate but consecutive statements. This guidance does not change the items that must be reported in OCI. In December 2011, the FASB deferred some aspects of the June guidance that relate to the presentation of reclassification adjustments. The FASB is considering whether to present the effects of reclassifications out of accumulated other comprehensive income on the components of net income and other comprehensive income on the face of the financial statements. The guidance is effective for the Company beginning the first quarter of fiscal 2013 and is to be applied retrospectively. The Company is currently evaluating how it will report comprehensive income, but either method permitted will constitute a change in the Company's financial statement presentation.
In September 2011, the FASB issued guidance to aid in an entity's assessment of goodwill and whether it is necessary to perform the two-step quantitative goodwill impairment test. Under this guidance, an entity would not be required to calculate the fair value of a reporting unit unless the entity determines, based on a qualitative assessment, that it is more likely than not that its fair value is less than its carrying amount. The amendments include a number of events and circumstances for an entity to consider in conducting the qualitative assessment. This pronouncement will be effective in the first quarter of fiscal 2013. As this guidance only modifies the requirements of impairment testing, the adoption will not impact our consolidated financial position, results of operations, or cash flows.
In September 2011, the FASB also issued guidance that increases the quantitative and qualitative disclosures an employer is required to provide about its participation in significant multiemployer plans that offer pension or other postretirement benefits. The objective of this guidance is to enhance the transparency of disclosures about the significant multiemployer plans in which an employer participates, the level of the employer's participation in those plans, the financial health of the plans, and the nature of the employer's commitments to the plans. This pronouncement has been adopted and disclosure is included within Note 18—Pension and Other Postretirement Benefit Plans. As this guidance only requires expanded disclosures, the adoption did not impact our consolidated financial position, results of operations, or cash flows.
In May 2011, the FASB issued guidance that amends existing measurement guidance and expands disclosure requirements for fair value measurements, particularly for "Level 3" (as defined in the accounting guidance) inputs. This guidance was effective in the fourth quarter of fiscal 2012. The adoption of this guidance did not have a significant impact on our consolidated financial position, results of operations, or cash flows.

35


In January 2010, the FASB issued guidance that requires certain disclosures and clarifies existing disclosure requirements for fair value measurements. Specifically, the changes require disclosure of transfers into and out of “Level 1” and “Level 2” (as defined in the accounting guidance) fair value measurements, and also require more detailed disclosure about the activity within Level 3 fair value measurements. This guidance was effective for the Company in the fourth quarter of fiscal 2010, except for disclosures about purchases, sales, issuances and settlements of Level 3 assets and liabilities, which was effective in the first quarter of fiscal 2012. As this guidance only requires expanded disclosures, the adoption did not impact our consolidated financial position,