10-K 1 pcp2011060210k.htm FORM 10-K PCP 20110602 10K
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 3, 2011
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 September 26, 2010, was $18,700,276,576.
As of the close of business on May 19, 2011, the Registrant had 143,876,283 shares of Common Stock, without par value, outstanding.
Portions of the Registrant’s Proxy Statement to be filed in connection with the 2011 Annual Meeting of Shareholders are incorporated by reference in Part III.

TABLE OF CONTENTS
  
Page
 
 
 
 
 
 
 
 
 
 

 

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 investment castings and forgings for general industrial, armament, medical and other applications; nickel alloys and mill forms, 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; 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 34 percent of our sales in fiscal 2011.
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. In fiscal 2009, original equipment manufacturer (“OEM”) engine and landing gear customers began to significantly increase our production schedules in anticipation of higher Airbus and Boeing build rates. However, in August 2008, Boeing essentially ceased commercial aircraft production due to a strike by its machinists, and, when the strike was resolved several months later, Boeing did not add these unbuilt planes back into their schedules. In addition, in the same time frame, a worldwide financial crisis severely stunted economic growth and limited access to financing. As a result, the OEMs found that they had excess inventory on hand and began a substantial destocking process in the fourth quarter of fiscal 2009, wherein they consumed in-stock inventory with limited replacement, which continued through the third quarter of fiscal 2010. At this point, OEM cast and forged component orders began to increase steadily and, by the third quarter of fiscal 2011, OEM schedules matched more closely to commercial aircraft production rates.
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

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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.
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 will be incorporated into an 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

2

of airfoil castings used in aircraft turbine engines are replacement parts.
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. In recent years, international customers have been placing orders for even more efficient turbines, incorporating more advanced casting technology, thus increasing our dollar content per unit. This development, along with increased aftermarket activity and higher market shares in a growing customer base, drove the requirement for new capacity, which was added in late fiscal 2009. The worldwide financial recession, beginning in the fall of 2008, negatively impacted the IGT market, and our largest IGT customer started to destock in anticipation of decreased IGT shipments. The impact of customer destocking was partially offset by our continued share gains with other customers. However, by the third quarter of fiscal 2010, our international customers also began to reduce production schedules. By the end of fiscal 2011, aftermarket shipments began to offset continued weakness in OEM orders. 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
Our Investment Cast Products segment includes Cannon Muskegon, in Muskegon, Michigan, which produces 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 45 percent of our sales in fiscal 2011.
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

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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 provide forged products for use in power plants worldwide, as well as in oil and gas industry applications. These products include discs, spacers and valve components for land-based steam turbine and IGT engines, as well as shafts, cases, and compressor and turbine discs for marine gas engines. We also produce a variety of mechanical and structural tubular forged products from steel, primarily in the form of extruded, seamless pipe, for the domestic and international energy markets, which include coal, industrial gas turbine, and nuclear power plants, co-generation projects, and retrofit and life-extension applications. 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 September 30, 2009, we acquired Carlton Forge Works and a related entity (“Carlton”), a leading manufacturer of seamless rolled rings for critical aerospace applications based in Paramount, California. Carlton 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.
In January 2010, the Company acquired a 49 percent equity interest in Yangzhou Chengde Steel Tube Co., Ltd. ("Chengde") and has since increased that interest to 50 percent.  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.  Chengde has built a leading position in the Chinese boiler pipe market and has begun to make inroads into export markets.  Wyman-Gordon, a major player in providing large-diameter, interconnect pipe for coal-fired power plants, can now offer boiler pipe, interconnect pipe, and fittings as a single package.
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

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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 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, and cold drawing of bar and wire. 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 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 us and other companies that require the melting and processing of specialty alloys. Major markets include specialty alloy producers and foundries, permanent magnet and powder metal manufacturers and other industries with special metallurgical requirements.
Fastener Products
We have become a leading developer and manufacturer of highly engineered fasteners, fastener systems and precision components, primarily for critical aerospace applications. A large part of our Fastener Products sales come from the same aerospace customer base already served by our Investment Cast Products and Forged Products segments. In this regard, Fastener Products is subject to many of the same market forces as these other two segments. The balance of the segment’s sales is derived from 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 21 percent of our sales in fiscal 2011.
Fastener manufacturing generally begins with metal alloy wire or bar of various diameters, which are 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 connections 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 replacement cycle, particularly in aircraft engine and wheel and brake applications. The product line includes a variety of 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 sheet metal fabrications and precision machined components for airframe applications. While the fasteners 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 and related components or 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 CHERRYBUCK®, CHERRYMAX®, E-NUT®, FLEXLOC®,

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FORCEMATE®, FORCETEC®, GROMEX®, HI-LIFE®, MADE FROM SOLID®, 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®, SLEEVBOLT®, TORX®, TORX-PLUS®, TAPTITE® , MORTORQ® and MAThread®.
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; 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 2011, 2010 and 2009.
 
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 customer destocking coming to an end and a decline in the extruded pipe market. Our sales to the aerospace market of $2,991.0 million in fiscal 2010 decreased 17 percent from $3,606.2 million in fiscal 2009. Sales to the aerospace market as a percentage of total net sales increased from 53 percent in fiscal 2009 to 54 percent in fiscal 2010, principally reflecting a larger percentage decline in sales to general industrial markets.
 
 

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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 12.5 percent, 14.0 percent and 11.9 percent of total sales in fiscal 2011, 2010 and 2009, respectively, as follows:
 
  
2011
 
2010
 
2009
Investment Cast Products
$
523.2
 
 
$
494.5
 
 
$
524.1
 
Forged Products
224.5
 
 
243.6
 
 
244.9
 
Fastener Products
27.5
 
 
26.7
 
 
35.3
 
 
$
775.2
 
 
$
764.8
 
 
$
804.3
 
 
 
 
 
 
 
 
No other customer directly accounted for more than 10 percent of total sales; however, United Technologies, Rolls-Royce and Boeing 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 $4.4 billion as of April 3, 2011, $3.9 billion as of March 28, 2010, and $5.4 billion as of March 29, 2009. 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 2011 reflects increases in customer demand, creating longer lead times as facilities are operating closer to capacity levels. The decrease in backlog during fiscal 2010 reflects the impact of inventory corrections within the commercial aerospace and European IGT markets. Approximately 82 percent of our backlog is expected to be filled within the 2012 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.
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 Ladish Co., manufactures large titanium investment castings for jet engine and airframe applications. Many other companies

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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., Fortech, S.A. and Thyssen AG for aerospace turbine products, Alcoa Inc., Schultz Steel Company 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 delivery 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 $17.1 million in fiscal 2011, $25.6 million in fiscal 2010 and $13.5 million in fiscal 2009. 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 3, 2011, we had approximately 18,300 employees, including nearly 7,300 employees in the Investment Cast Products segment, approximately 5,200 employees in the Forged Products segment, approximately 5,500 employees in the Fasteners segment, approximately 130 employees in corporate functions, and approximately 170 employees in discontinued operations. Approximately 23 percent of our employees are affiliated with unions or covered by collective bargaining agreements. We expect to negotiate 19 collective bargaining agreements affecting approximately 14 percent of the workforce during fiscal 2012. 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 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.
 
 

8

 
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 reserves for future costs arising from environmental issues relating to our properties and operations. At April 3, 2011, we had accrued environmental reserves of approximately $66.8 million. We believe these reserves are adequate to cover the cost of remedial measures that may eventually be required by environmental authorities with respect to known environmental matters. Our reserves represent our best estimate of probable future obligations for the investigation and remediation of known contaminated sites. The reserves 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 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 3, 2011 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 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 reserves 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

9

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 reserves 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 $1.1 million, or 2 percent, of our current environmental reserves.
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 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; relations with our employees; our ability to manage our operating costs and to integrate acquired businesses in an effective manner; governmental regulations and environmental matters; risks associated with international operations and world economies; the relative stability of certain foreign currencies; 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 downloaded from the PCC Corporate Center at www.precast.com.
 

10

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 57 percent of our total sales in fiscal 2011. Our power sales constituted 22 percent of our total sales in fiscal 2011.
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 13 percent of our total sales for fiscal 2011. No other customer directly accounted for more than 10 percent of total sales; however, United Technologies, Rolls Royce and Boeing 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 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

11

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 13 percent of our fiscal 2011 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 castings, forged products and fasteners 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.
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

12

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 reserves 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 reserves 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 reserved.
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 reserves 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 2011, 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;
•
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;

13

•
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 (“S&P”), 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 instruments governing our indebtedness could impose additional restrictions on our ability to make capital expenditures or otherwise limit our flexibility in planning for, or reacting to, changes in our business and the industries in which we operate or our ability to take advantage of potential business opportunities. These modifications also could require us to meet more stringent financial ratios and tests or could require us to grant a security interest in our assets to secure the indebtedness. 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.
We could be faced with labor shortages, disruptions or stoppages if our relations with our employees were to deteriorate.
Our operations rely heavily on our skilled employees. Any labor shortage, disruption or stoppage caused by any deterioration in employee relations or difficulties in the renegotiation of labor contracts could reduce our operating margins and income. Approximately 23 percent of our employees are affiliated with unions or covered by collective bargaining agreements. Failure to negotiate a new labor agreement when required could result in a work stoppage. Although we believe that our labor relations have generally been satisfactory, it is possible that we could become subject to additional work rules imposed by agreements with labor unions, or that work stoppages or other labor disturbances could occur in the future, any of which could reduce our operating margins and income and place us at a disadvantage relative to non-union competitors.
Product liability and product warranty risks could adversely affect our operating results.
We produce many critical parts for commercial and military aircraft and for high pressure applications in power plants. Failure of our parts could give rise to substantial product liability claims. We maintain insurance addressing this risk, 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 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.

14

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.
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 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
2
 
 
3,212
 
 
—
 
 
3,212
 
Investment Cast Products
 
 
 
 
 
 
 
Domestic
53
 
 
697,646
 
 
2,546,178
 
 
3,243,824
 
Foreign
6
 
 
9,090
 
 
377,037
 
 
386,127
 
Forged Products
 
 
 
 
 
 
 
Domestic
46
 
 
450,422
 
 
6,533,972
 
 
6,984,394
 
Foreign
29
 
 
631,104
 
 
1,622,807
 
 
2,253,911
 
Fastener Products
 
 
 
 
 
 
 
Domestic
32
 
 
1,126,466
 
 
1,424,140
 
 
2,550,606
 
Foreign
20
 
 
313,291
 
 
760,605
 
 
1,073,896
 
Discontinued Operations
 
 
 
 
 
 
 
Domestic
6
 
 
141,942
 
 
329,000
 
 
470,942
 
Foreign
5
 
 
15,000
 
 
111,520
 
 
126,520
 
Total Company
 
 
 
 
 
 
 
Domestic
139
 
 
2,417,043
 
 
10,875,408
 
 
13,292,451
 
Foreign
62
 
 
971,697
 
 
2,871,969
 
 
3,843,666
 
Total
201
 
 
3,388,740
 
 
13,747,377
 
 
17,136,117
 
 
 
 
 
 
 
 
 
 
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
In January 2010, the Company determined that a subsidiary, Caledonian Alloys, had two facilities in North Carolina and West Virginia operating trichloroethylene vapor degreasers out of compliance with state and federal environmental laws. Both degreasers ceased operation in January 2010 and were decommissioned shortly thereafter. The Company disclosed the non-compliance issues to state and federal regulatory authorities. On December 14, 2010, the North Carolina Department of Environment and Natural Resources assessed a final penalty in the amount of $0.1 million. On August 27, 2010, the West Virginia Department of Environmental Protection assessed a final penalty in the amount of $0.3 million. The resulting settlement did not have a material adverse effect on our consolidated financial position, results of operations or cash flows.
In December 2010, SPS Technologies, LLC paid penalties in the amount of $0.1 million to the United States Environmental Protection Agency to settle allegations that the Greer Stop Nut location in Nashville, Tennessee violated the Emergency Planning and Community Right-to-Know Act by failing over several years to submit certain chemical inventory forms to various government agencies.
For a general description of other claims relating to environmental matters, see “Item 1. Business-Environmental Compliance.”
As of April 3, 2011, there were approximately 79 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 the Company in settlement of these claims:
 

16

Fiscal
2011
 
2010
New Claims Filed
33
 
 
27
 
Claims Disposed Of
19
 
 
20
 
Dollars Paid in Settlement (in millions)
$
—
 
 
$
0.3
 
 
 
 
 
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 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.
RESERVED
 

17

ITEM 4A.
EXECUTIVE OFFICERS OF THE REGISTRANT (a) 
 
Name
Officer Since
Age
Position Held With the Registrant
Mark Donegan
(b) 1992 
54
Chairman and Chief Executive Officer
Shawn R. Hagel
(c) 1997 
45
Senior Vice President and Chief Financial Officer and Assistant Secretary
Kenneth D. Buck
(d) 2005 
51
Executive Vice President and President-Forged Products
Steven G. Hackett
(e) 2004 
53
Executive Vice President and President-Investment Cast Products
Kevin M. Stein
(f) 2009 
45
Executive Vice President and President-Fastener Products
Roger A. Cooke
(g) 2000 
63
Senior Vice President and General Counsel and Secretary
Kirk G. Pulley
(h)  2004 
42
Vice President-Strategic Planning and Corporate Development
_________________________
(a)
The above information is reported as of May 1, 2011. 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 and 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 and President-Investment Cast Products in 2010. Previously was elected Executive Vice President and President-Fastener Products Division in 2007. Previously, he was Vice President in charge of PCC Structurals’ small structural business operations.
(f)
Elected Executive Vice President and President-Fastener Products Division in 2009. Prior to joining PCC, he was a Division President for Cooper Industries and General Manager for Tyco Electronics.
(g)
Elected Senior Vice President and General Counsel and Secretary in 2008. Previously was elected Vice President-Regulatory and Legal Affairs and Secretary in 2000.
(h)
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.
 
 

18

PART II
 
ITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES    
As of April 3, 2011, there were 6,262 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, 2006 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)
 
 
2006
 
2007
 
2008
 
2009
 
2010
 
2011
S&P 500
100.0
 
 
111.83
 
 
105.55
 
 
67.20
 
 
98.17
 
 
114.37
 
S&P 500 Aerospace & Defense
100.0
 
 
116.05
 
 
121.54
 
 
73.65
 
 
121.09
 
 
134.74
 
Precision Castparts Corp.
100.0
 
 
175.46
 
 
171.07
 
 
106.72
 
 
209.61
 
 
253.50
 
 

19

ITEM 6.
SELECTED FINANCIAL DATA
Five-Year Summary of Selected Financial Data
 
(Unaudited)
(In millions, except employee, shareholder and per share data)
 
 
 
 
 
 
 
 
 
Fiscal
2011
 
2010
 
2009
 
2008
 
2007
Net sales
$
6,220.1
 
 
$
5,459.2
 
 
$
6,770.8
 
 
$
6,675.5
 
 
$
5,140.6
 
Net income
$
1,014.8
 
 
$
922.6
 
 
$
1,044.8
 
 
$
988.5
 
 
$
634.5
 
Net income attributable to PCC shareholders:
 
 
 
 
 
 
 
 
 
Continuing operations
$
1,009.4
 
 
$
925.1
 
 
$
1,036.6
 
 
$
949.8
 
 
$
594.3
 
Net income attributable to PCC shareholders
$
1,013.5
 
 
$
921.8
 
 
$
1,044.5
 
 
$
987.3
 
 
$
633.1
 
Return on sales from continuing operations
16.2
%
 
16.9
%
 
15.3
%
 
14.2
%
 
11.6
%
Return on beginning shareholders’ equity from continuing operations
17.1
%
 
19.0
%
 
25.6
%
 
33.4
%
 
27.5
%
Net income per common share attributable to PCC (basic):
 
 
 
 
 
 
 
 
 
Continuing operations
$
7.07
 
 
$
6.57
 
 
$
7.44
 
 
$
6.88
 
 
$
4.37
 
Net income
$
7.10
 
 
$
6.55
 
 
$
7.49
 
 
$
7.15
 
 
$
4.66
 
Net income per common share attributable to PCC (diluted):
 
 
 
 
 
 
 
 
 
Continuing operations
$
7.01
 
 
$
6.51
 
 
$
7.37
 
 
$
6.77
 
 
$
4.31
 
Net income
$
7.04
 
 
$
6.49
 
 
$
7.43
 
 
$
7.04
 
 
$
4.59
 
Weighted average shares of common stock outstanding
 
 
 
 
 
 
 
 
 
Basic
142.7
 
 
140.7
 
 
139.4
 
 
138.1
 
 
136.0
 
Diluted
143.9
 
 
142.1
 
 
140.6
 
 
140.2
 
 
138.0
 
Cash dividends declared per common share
$
0.12
 
 
$
0.12
 
 
$
0.12
 
 
$
0.12
 
 
$
0.12
 
Working capital
$
2,708.6
 
 
$
1,628.3
 
 
$
1,723.9
 
 
$
1,167.5
 
 
$
378.7
 
Total assets
$
8,955.9
 
 
$
7,660.7
 
 
$
6,721.4
 
 
$
6,050.1
 
 
$
5,258.7
 
Total debt
$
236.6
 
 
$
250.0
 
 
$
305.3
 
 
$
353.1
 
 
$
870.2
 
Total equity
$
7,164.5
 
 
$
5,891.7
 
 
$
4,863.1
 
 
$
4,049.0
 
 
$
2,839.5
 
Total debt as a percent of total debt and equity
3.2
%
 
4.1
%
 
5.9
%
 
8.0
%
 
23.5
%
Book value per share
$
49.86
 
 
$
41.52
 
 
$
34.76
 
 
$
29.13
 
 
$
20.70
 
Capital expenditures(1)
$
120.6
 
 
$
169.5
 
 
$
205.7
 
 
$
227.4
 
 
$
223.1
 
Number of employees(2)
18,308
 
 
18,064
 
 
20,611
 
 
21,558
 
 
20,026
 
Number of shareholders of record
6,262
 
 
6,298
 
 
5,910
 
 
7,617
 
 
7,075
 
 
 
 
 
 
 
 
 
 
 
_________________________
(1)
Includes capital expenditures of discontinued operations
(2)
Includes employees of discontinued operations
 

20

ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(in millions, except per share data)
 
Business overview
Although fiscal 2011 brought a long-awaited recovery in commercial aerospace markets for our Investment Cast Products and Forged Products segments, we continued to face challenges in the power markets and in all markets for our Fastener Products segment. While overall industrial gas turbine ("IGT") markets remained relatively flat in fiscal 2011, we continued to experience significant weakness in sales volumes and pricing for our Forged Products' seamless extruded pipe products. Despite these challenges, we achieved solid year-over-year increases in sales, operating income, net income from continuing operations, and earnings per share. These results were primarily driven by strong aerospace and general industrial growth and continued focus on maximizing operational leverage. We also generated $1,038.0 million of cash from operations and our cash balance reached a record level of more than $1.1 billion.
As part of our continued focus on expanding our product lines and markets, we completed two small acquisitions in fiscal 2011, and in May 2011, we agreed to acquire the assets of PB Fasteners, a strategically important acquisition that will improve our position on new, advanced composite-based aerospace platforms. In January 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%. 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.
Also, during the year, we continued to upgrade manufacturing equipment and increase operational productivity with the completion or initiation of various large-scale cost reduction projects, primarily within the Forged Products segment. We expect our baseline capital expenditures for fiscal 2012 to be moderately higher than fiscal 2011 based on our current forecasts. These expenditures will be targeted for cost reduction projects and equipment upgrades within our Forged Products and Investment Cast Products segments. Capacity expansion projects that arise in excess of the base forecast will be evaluated on their own merits during the fiscal year based on demand.
During the latter half of fiscal 2011, we received orders for aerospace castings and forgings from our customers to support previously announced build rates of both base commercial aircraft programs and the Boeing 787. We believe these orders will help drive sales increases through calendar 2012 and beyond. In our Fastener Products segment, we expect to transition gradually toward a similar recovery in original equipment manufacturer ("OEM") and distributor orders toward the back end of fiscal 2012, once production rates associated with current build rates deplete our customers' current inventories. We are seeing some promising upside in our other major markets, including opportunities in our seamless pipe business, and we expect to gain some traction in our IGT operations as the year progresses.
From many perspectives - market position, manufacturing discipline, balance sheet - we have a solid foundation for continued profitable growth. We are well-positioned with our customer base to grow sales and build our share in the years ahead. We will continue to focus on opportunities targeted at increasing the overall value of the company.

21

 
Fiscal Year
 
% Increase/(Decrease)
  
2011
 
2010
 
2009
 
2011 vs. 2010
 
2010 vs. 2009
Net sales
$
6,220.1
 
 
$
5,459.2
 
 
$
6,770.8
 
 
14
 %
 
(19
)%
Costs and expenses:
 
 
 
 
 
 
 
 
 
Cost of goods sold
4,326.7
 
 
3,668.8
 
 
4,792.1
 
 
18
 %
 
(23
)%
Selling and administrative expenses
390.6
 
 
367.1
 
 
381.9
 
 
6
 %
 
(4
)%
Restructuring and asset impairment
—
 
 
—
 
 
10.9
 
 
—
 %
 
(100
)%
Interest expense, net
9.0
 
 
13.1
 
 
10.6
 
 
(31
)%
 
24
 %
Total costs and expenses
4,726.3
 
 
4,049.0
 
 
5,195.5
 
 
 
 
 
Income before income tax expense and equity in earnings of unconsolidated affiliates
1,493.8
 
 
1,410.2
 
 
1,575.3
 
 
6
 %
 
(10
)%
Income tax expense
(499.7
)
 
(485.7
)
 
(538.4
)
 
3
 %
 
(10
)%
Equity in earnings of unconsolidated affiliates
16.6
 
 
1.4
 
 
—
 
 
1,086
 %
 
100
 %
Net income from continuing operations
1,010.7
 
 
925.9
 
 
1,036.9
 
 
9
 %
 
(11
)%
Net income (loss) from discontinued operations
4.1
 
 
(3.3
)
 
7.9
 
 
224
 %
 
(142
)%
Net income
1,014.8
 
 
922.6
 
 
1,044.8
 
 
10
 %
 
(12
)%
Net income attributable to noncontrolling interest
(1.3
)
 
(0.8
)
 
(0.3
)
 
63
 %
 
167
 %
Net income attributable to Precision Castparts Corp. (“PCC”)
$
1,013.5
 
 
$
921.8
 
 
$
1,044.5
 
 
10
 %
 
(12
)%
Net income per common share attributable to PCC shareholders (basic):
 
 
 
 
 
 
 
 
 
Net income per share from continuing operations
$
7.07
 
 
$
6.57
 
 
$
7.44
 
 
8
 %
 
(12
)%
Net income (loss) per share from discontinued operations
0.03
 
 
(0.02
)
 
0.05
 
 
250
 %
 
(140
)%
Net income per share (basic)
$
7.10
 
 
$
6.55
 
 
$
7.49
 
 
8
 %
 
(13
)%
Net income per common share attributable to PCC shareholders (diluted):
 
 
 
 
 
 
 
 
 
Net income per share from continuing operations
$
7.01
 
 
$
6.51
 
 
$
7.37
 
 
8
 %
 
(12
)%
Net income (loss) per share from discontinued operations
0.03
 
 
(0.02
)
 
0.06
 
 
250
 %
 
(133
)%
Net income per share (diluted)
$
7.04
 
 
$
6.49
 
 
$
7.43
 
 
8
 %
 
(13
)%
 
 
 
 
 
 
 
 
 
 
 
Fiscal Year
 
% Increase/(Decrease)
Sales by Market
2011
 
2010
 
2009
 
2011 vs. 2010
 
2010 vs. 2009
Aerospace
$
3,572.0
 
 
$
2,991.0
 
 
$
3,606.2
 
 
19
 %
 
(17
)%
% of total
57
%
 
54
%
 
53
%
 
 
 
 
Power
1,348.3
 
 
1,454.6
 
 
1,703.2
 
 
(7
)%
 
(15
)%
% of total
22
%
 
27
%
 
25
%
 
 
 
 
General Industrial & Other
1,299.8
 
 
1,013.6
 
 
1,461.4
 
 
28
 %
 
(31
)%
% of total
21
%
 
19
%
 
22
%
 
 
 
 
Total Sales
$
6,220.1
 
 
$
5,459.2
 
 
$
6,770.8
 
 
14
 %
 
(19
)%
% of total
100
%
 
100
%
 
100
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 

22

Average market price of key metals
 (per pound)
Fiscal Year
 
Increase/(Decrease)
2011
 
2010
 
2009
 
2011 vs. 2010
 
2010 vs. 2009
  
  
 
  
 
  
 
$        
 
%        
 
$        
 
%        
Nickel
$
10.69
 
 
$
7.72
 
 
$
7.61
 
 
$
2.97
 
 
38
%
 
$
0.11
 
 
1
 %
London Metals Exchange (1)
 
 
 
 
 
 
 
 
 
 
 
 
 
Titanium
$
4.79
 
 
$
1.66
 
 
$
2.64
 
 
$
3.13
 
 
189
%
 
$
(0.98
)
 
(37
)%
Ti 6-4 bulk, Metalprices.com
 
 
 
 
 
 
 
 
 
 
 
 
 
Cobalt
$
20.09
 
 
$
18.89
 
 
$
31.04
 
 
$
1.20
 
 
6
%
 
$
(12.15
)
 
(39
)%
Metal Bulletin COFM.8 Index (1)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
_________________________
(1)
Source: Bloomberg
 
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 the prior year 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 have 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 the prior year, 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 the prior year, added approximately $111 million to top-line revenues in fiscal 2011 versus fiscal 2010. Fiscal 2011 also includes 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.
With regard to growth in the commercial aircraft industry, based on data from the Airline Monitor as of January 2011, Boeing and Airbus aircraft deliveries are expected to moderately increase through calendar year 2011 as compared to 2010. Due to manufacturing lead times and scheduled build rates, our production volumes are generally 4 to 6 months ahead of aircraft deliveries. The Airline Monitor is projecting further growth in aircraft deliveries in calendar year 2012 primarily driven by Boeing 787 production rates, and therefore we anticipate that our aerospace sales will continue to increase modestly through fiscal 2012.
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 last year.
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 the prior year.
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 the prior year.
 

23

Fiscal 2010 compared with fiscal 2009
Total sales for fiscal 2010 were $5,459.2 million, a decrease of $1,311.6 million, or 19 percent, from fiscal 2009 sales of $6,770.8 million. Total aerospace sales decreased 17 percent over fiscal 2009 levels, and increased from 53 percent of total sales in fiscal 2009 to 54 percent of total sales in fiscal 2010. Power generation sales decreased 15 percent over fiscal 2009 levels, and increased from 25 percent of total sales in fiscal 2009 to 27 percent of total sales in fiscal 2010. Sales to the general industrial and other markets decreased 31 percent over the prior year, and decreased from 22 percent of total sales in fiscal 2009 to 19 percent of total sales in fiscal 2010. The decrease in sales was driven by reduced demand from destocking aerospace, European IGT and Chinese pipe customers, weakness in the general industrial and power markets, and lower average metal selling prices. Excluding the impacts of currency, metal prices, and the acquisition of Carlton, aerospace volume decreased approximately $525 million, or 17%, general industrial and other markets decreased approximately $244 million, or 20%, and power markets decreased approximately $155 million, or 11% compared to the same period last year. Lower nickel alloy selling prices from the Forged Products segment's three primary mills negatively impacted sales by approximately $170 million compared to fiscal 2009. Contractual material pass-through pricing, which reflects the impact of escalation formulas included in certain long-term agreements, also declined, increasing sales by approximately $249.6 million in fiscal 2010 versus approximately $419.5 million in fiscal 2009, a decrease of $169.9 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. In addition, our foreign operations reported approximately $41 million in reduced U.S. dollar equivalent sales year-over-year due to the increase in the value of the U.S. dollar relative to international currencies, primarily the British pound. The remaining decrease is primarily attributable to lower average metal selling prices at our businesses that employ price-in-effect metal pricing, and various other factors. These decreases were partially offset by approximately $135 million of sales from Carlton, which was acquired in the third quarter of fiscal 2010.
Cost of goods sold was $3,668.8 million, or 67 percent of sales, in fiscal 2010 as compared to $4,792.1 million, or 71 percent of sales, in fiscal 2009. The improvement in the year-over-year percentage reflects increased productivity and improved material utilization compared to fiscal 2009. Contractual material pass-through pricing diluted gross margin by 1.6 percentage points in fiscal 2010 compared to 1.9 percentage points in fiscal 2009.
Selling and administrative expenses were $367.1 million, or 7 percent of sales, in fiscal 2010 compared to $381.9 million, or 6 percent of sales, in fiscal 2009. The higher year-over-year percentage was primarily due to higher expense related to our deferred compensation plan as compared to fiscal 2009 and the fixed nature of selling and administrative expenses coupled with a decrease in sales.
Net income from continuing operations (attributable to PCC) for fiscal 2010 was $925.1 million, or $6.51 per share (diluted). By comparison, net income from continuing operations (attributable to PCC) for fiscal 2009 was $1,036.6 million, or $7.37 per share (diluted), which included restructuring charges totaling $0.05 per share (diluted). Fiscal 2010 net income (including discontinued operations) was $921.8 million, or $6.49 per share (diluted), compared with net income of $1,044.5 million, or $7.43 per share (diluted) in fiscal 2009. Fiscal 2010 net income includes a loss of $3.3 million, or $0.02 per share (diluted), from discontinued operations, compared to income of $7.9 million, or $0.06 per share (diluted), in fiscal 2009.
 
Acquisitions
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 3, 2011 was $395.1 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 $183 million as of April 3, 2011. This difference arose through the valuation process that was applied to the assets acquired.
Fiscal 2010
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.

24

The following business acquisitions were accounted for under the acquisition method of accounting and, accordingly, the results of operations have been included in the Consolidated Statements of Income since the acquisition dates.
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.
Fiscal 2009
In the third quarter of fiscal 2009, we acquired three entities for a total cost of approximately $469.4 million, which was primarily paid in cash. These transactions resulted in $320.2 million of goodwill (of which $217.1 million is deductible for tax purposes) and $59.9 million of other intangible assets, including tradenames with indefinite lives valued at approximately $34.7 million. The impact of these acquisitions was not material to our consolidated results of operations; consequently, pro forma information has not been included. The following is a description of the three acquisitions.
On December 4, 2008, we acquired Hackney Ladish Holding Corp. (“Hackney Ladish”), a leading producer of forged pipe fittings for critical energy infrastructure and related applications. With more than 80 years of experience manufacturing pipe fittings, Hackney Ladish offers the widest range of product types and sizes in the industry. Fittings are used in piping systems throughout the energy value chain, from drilling through processing and storage. Hackney Ladish’s products connect pipe, change the direction of flow, increase or reduce pipe sizes, join or separate flow, or cap pipe ends. This acquisition extends our reach into oil and gas markets and provides profitable growth opportunities for our seamless pipe and nickel-alloy tubing operations.  Hackney Ladish operates manufacturing facilities in Russellville, Arkansas and Enid, Oklahoma. The Hackney Ladish acquisition is a stock purchase for tax purposes and operates as part of the Forged Products segment.
On November 21, 2008, we acquired Fatigue Technology, Inc. (“FTI”), headquartered in Seattle, Washington. FTI pioneered the cold expansion process in 1969 and is the technology leader in fatigue life extension for both metal and composite airframe fastener holes. FTI has taken this foundation of creating a residual stress field around a cold-worked hole to develop innovative solutions that significantly reduce manufacturing and maintenance flow-time and costs. The resulting components are easier and faster to install, and the methods of aircraft assembly are enhanced. This acquisition continues our strategy of expanding into additional critical aerospace fastener products, thus offering our customers a wider selection of fasteners to meet all of their requirements. The FTI acquisition is an asset purchase for tax purposes and operates as part of the Fastener Products segment.
On September 30, 2008, we acquired Airdrome Holdings, LLC (“Airdrome”), which consisted of Airdrome Precision Components (“APC”) and AF Aerospace Ltd. (“AFA”). APC, located in Long Beach, California, is a leading supplier of hydraulic and pneumatic fluid fittings primarily for airframe applications. AFA, located in Rugby, England, manufactures a variety of machined components for aerospace applications, including fittings and other fluid conveyance products, ultra-high tensile bolts, and machined details. Fluid fittings, manufactured in nickel, titanium, and stainless steel alloys, are the critical connectors for hoses transporting fuel, hydraulic fluid, and pneumatic pressure throughout an aircraft. This acquisition also fits our strategy of enhancing our critical aerospace fastener family of products to serve our customers better. The Airdrome acquisition is an asset purchase for tax purposes and operates as part of the Fastener Products segment.
 
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 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).

25

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.
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.
Fiscal 2009
In the third quarter of fiscal 2009, we decided to dispose of two automotive fastener operations. The decision to discontinue these automotive fastener operations resulted from their non-core nature coupled with further erosion in the automotive market. These operations were reclassified from the Fasteners Products segment to discontinued operations in the third quarter of fiscal 2009. We recognized an impairment loss of approximately $8.7 million (net of tax) in the second quarter of fiscal 2010 related to these 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.
In the first quarter of fiscal 2009, we sold the stock of several small entities, a group of foreign operations held for sale and previously recorded as discontinued from our former Flow Technologies pumps and valves business. The transaction resulted in a net gain of approximately $3.0 million in fiscal 2009.
 
Restructuring, asset impairment and other non-recurring charges
We regularly assess our cost structure to ensure that operations are properly sized for prevailing market conditions, taking into consideration current and forecasted conditions in markets we serve. During fiscal 2011 and 2010, we did not incur any restructuring or impairment charges. The following restructuring and asset impairment charges were recorded in fiscal 2009.
Fiscal 2009
In the third quarter of fiscal 2009, we incurred restructuring and impairment charges of $10.9 million pursuant to plans to downsize operations across all segments. We had been gearing up for aerospace growth into fiscal 2010, whereas demand decreased, particularly in the casting and forging aerospace markets. The charges consisted of $8.6 million for employee severance expenses and $2.3 million for impairments and relocation expenses associated with long lived assets. These restructuring plans provided for terminations of approximately 980 employees in the third and fourth quarters of fiscal 2009 and first quarter of fiscal 2010. The restructuring and impairment charges recorded by the Investment Cast Products segment, Forged Products segment and Fastener Products segment were $5.2 million, $3.7 million and $2.0 million, respectively, during fiscal 2009. The tax-effected impact of these charges was $7.2 million, or $0.05 per share (diluted). As of April 3, 2011 and March 28, 2010, no accrued liabilities remained related to the restructuring plans.
 
Subsequent Event
 
In May 2011, we agreed to acquire 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. Sleeved fastener technology is critical to mitigating the impact of lightning strikes on the Boeing 787 and other composite-based aircraft. Located in Gardena, California, PB entered the aerospace fastener business in 1967. The acquisition is expected to be completed early in fiscal 2012, after which PB's results will be reported as part of the Fastener Products segment.
 
Impacts of the Global Economic Recession and Recovery
Economic events created recessionary economic conditions around the world in many industries in fiscal 2009 and 2010. Although many countries and industries are recovering, weakness persists in certain areas. While we are not immune to impacts from the lingering effects of the global recession, we believe our strong financial position enables us to take advantage of opportunities in our markets served, continue to make operational improvements in our businesses and benefit from the continuing economic recovery.
During fiscal 2011 and fiscal 2010, approximately 57 percent and 54 percent, respectively, of our sales were to customers in the global aerospace markets. Until the recession occurred and aerospace program delays were announced, customer schedules indicated that the aerospace production rates would continue to experience growth throughout fiscal 2010 and possibly beyond, particularly due to anticipated build rates of major new commercial aerospace programs such as the Boeing

26

787 and Airbus A380, each of which contains significant per-ship-set revenue for PCC. Aerospace production rates began to recover in fiscal 2011 as compared with fiscal 2010 levels, and we have seen a realignment of component build rates and aircraft production schedules indicating an end to destocking in the supply chain. We expect to see further order increases as Boeing 787 production starts to ramp up in the latter half of fiscal 2012, as well as increased build rates on other commercial aircraft model production projected for fiscal 2012. Our most significant customers in the aerospace industry are primarily large, well-financed businesses that we believe have the ability to weather economic downturns. We must rely on the forecasted information provided from time to time by our customers as guidance with regard to the impacts from the current and future economic environment.
During fiscal 2011 and fiscal 2010, approximately 22 percent and 27 percent, respectively, of our sales were to customers in the global power markets, which include our IGT business as well as sales of our seamless extruded pipe. Demand in our OEM IGT markets has softened, and during the latter half of fiscal 2010, we experienced the beginning of destocking by our European customers, which continued through the first half of our fiscal 2011. Starting in the fourth quarter of fiscal 2010 and continuing through fiscal 2011, we have experienced significant sales declines in our seamless pipe products as Chinese customers utilize existing inventory. We must rely on the forecasted information provided from time to time by our customers as guidance with regard to the impacts from the current and future economic environment.
The remaining 21 percent and 19 percent of our respective sales in fiscal 2011 and fiscal 2010 were into general industrial markets. It is difficult to summarize the opportunities and challenges in these markets, because the circumstances vary widely from one individual market to another. We experienced declines in general industrial sales during the recession but have seen a recovery in the latter part of fiscal 2010 and throughout fiscal 2011 in sales to general industrial markets. This recovery helped replace sales in power markets as noted above.
We follow an investment philosophy of diversified investing and risk mitigation when managing our pension plans. The investments in our pension plans totaled approximately $1.7 billion at the end of fiscal 2011. During fiscal 2011, we contributed $115.9 million to our defined benefit pension plans, including voluntary contributions of $100.0 million, to increase plan funding. We believe our financial position and liquidity will allow us to make all required pension contributions as well as any additional voluntary contributions that management deems advisable. We made a voluntary contribution of $50.0 million to the defined benefit pension plans in early fiscal 2012. In addition, the investments in our plans experienced positive returns of $120.6 million in fiscal 2011 and $162.8 million in fiscal 2010 as global investment markets recovered after experiencing losses of $105.3 million during the recession in fiscal 2009.
See the Changes in Financial Condition and Liquidity section for a discussion of the impact of the global financial climate and credit shortage on liquidity.
 

27

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. Segment operating income amounts presented below exclude restructuring and asset impairment charges.
 
 
Fiscal Year
 
% Increase/(Decrease)
  
2011
 
2010
 
2009
 
2011 vs. 2010
 
2010 vs. 2009
Net sales:
 
 
 
 
 
 
 
 
 
Investment Cast Products
$
2,095.6
 
 
$
1,851.3
 
 
$
2,272.1
 
 
13
 %
 
(19
)%
Forged Products
2,779.7
 
 
2,283.0
 
 
2,978.4
 
 
22
 %
 
(23
)%
Fastener Products
1,344.8
 
 
1,324.9
 
 
1,520.3
 
 
2
 %
 
(13
)%
Consolidated net sales
$
6,220.1
 
 
$
5,459.2
 
 
$
6,770.8
 
 
14
 %
 
(19
)%
Segment operating income:
 
 
 
 
 
 
 
 
 
Investment Cast Products
$
665.5
 
 
$
560.0
 
 
$
582.7
 
 
19
 %
 
(4
)%
% of sales
31.8
%
 
30.2
%
 
25.6
%
 
 
 
 
Forged Products
539.4
 
 
529.7
 
 
652.9
 
 
2
 %
 
(19
)%
% of sales
19.4
%
 
23.2
%
 
21.9
%
 
 
 
 
Fastener Products
411.0
 
 
440.2
 
 
459.7
 
 
(7
)%
 
(4
)%
% of sales
30.6
%
 
33.2
%
 
30.2
%
 
 
 
 
Corporate expense
(113.1
)
 
(106.6
)
 
(98.5
)
 
6
 %
 
8
 %
Total segment operating income
1,502.8
 
 
1,423.3
 
 
1,596.8
 
 
6
 %
 
(11
)%
% of sales
24.2
%
 
26.1
%
 
23.6
%
 
 
 
 
Restructuring and asset impairment
—
 
 
—
 
 
10.9
 
 
 
 
 
Interest expense, net
9.0
 
 
13.1
 
 
10.6
 
 
 
 
 
Consolidated income before income tax expense and equity in earnings of unconsolidated affiliates
$
1,493.8
 
 
$
1,410.2
 
 
$
1,575.3
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fiscal Year
 
% Increase/(Decrease)
  
2011
 
2010
 
2009
 
2011 vs. 2010
 
2010 vs. 2009
Contractual material pass-through:
 
 
 
 
 
 
 
 
 
Investment Cast Products
$
51.1
 
 
$
40.7
 
 
$
81.3
 
 
26
 %
 
(50
)%
Forged Products
170.4
 
 
201.8
 
 
325.9
 
 
(16
)%
 
(38
)%
Fastener Products
11.9
 
 
7.1
 
 
12.3
 
 
68
 %
 
(42
)%
Total contractual material pass-through
$
233.4
 
 
$
249.6
 
 
$
419.5
 
 
(6
)%
 
(41
)%
 
 
 
 
 
 
 
 
 
 
 
Fiscal Year
 
% Increase/(Decrease)
  
2011
 
2010
 
2009
 
2011 vs. 2010
 
2010 vs. 2009
Intercompany sales:(1)
 
 
 
 
 
 
 
 
 
Investment Cast Products(2)
$
238.8
 
 
$
199.1
 
 
$
251.5
 
 
20
 %
 
(21
)%
Forged Products(3)
740.2
 
 
703.4
 
 
836.0
 
 
5
 %
 
(16
)%
Fastener Products(4)
99.4
 
 
84.9
 
 
110.2
 
 
17
 %
 
(23
)%
Total intercompany sales
$
1,078.4
 
 
$
987.4
 
 
$
1,197.7
 
 
9
 %
 
(18
)%
 
 
 
 
 
 
 
 
 
 
_________________________
(1)
Intercompany sales consist of each segment’s total intercompany sales, including intercompany sales within a segment and between segments.
(2)
Investment Cast Products: Includes intersegment sales of $33.2 million, $24.1 million and $24.0 million for fiscal 2011, 2010 and 2009, respectively.
(3)
Forged Products: Includes intersegment sales of $65.2 million, $64.1 million and $75.6 million for fiscal 2011, 2010 and 2009, respectively.
(4)
Fastener Products: Includes intersegment sales of $4.2 million, $2.8 million and $5.6 million for fiscal 2011, 2010 and 2009, respectively.
 

28

Investment Cast Products
The Investment Cast Products segment manufactures investment castings, or provides related investment casting materials and alloys, for aircraft engines, IGT engines, airframes, armaments, medical prostheses and other industrial applications.
 
 
Fiscal Year
 
% Increase/(Decrease)
  
2011
 
2010
 
2009
 
2011 vs. 2010
 
2010 vs. 2009
Sales by Market:
 
 
 
 
 
 
 
 
 
Aerospace
$
1,304.8
 
 
$
1,045.1
 
 
$
1,314.5
 
 
25
 %
 
(20
)%
% of total
62
%
 
57
%
 
58
%
 
 
 
 
Power
555.8
 
 
580.6
 
 
686.2
 
 
(4
)%
 
(15
)%
% of total
27
%
 
31
%
 
30
%
 
 
 
 
General Industrial & Other
235.0
 
 
225.6
 
 
271.4
 
 
4
 %
 
(17
)%
% of total
11
%
 
12
%
 
12
%
 
 
 
 
Total Sales
$
2,095.6
 
 
$
1,851.3
 
 
$
2,272.1
 
 
13
 %
 
(19
)%
Operating income
$
665.5
 
 
$
560.0
 
 
$
582.7
 
 
19
 %
 
(4
)%
% of sales
31.8
%
 
30.2
%
 
25.6
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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 the prior year’s 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 the prior year 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 last year, which we believe is a leading indicator of the aerospace rebound. IGT sales decreased approximately $33 million, or 6 percent, compared to last year 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.
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 the prior year 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 last year.
The Investment Cast Products segment anticipates growing aerospace OEM sales in fiscal 2012 as Boeing 787 and other base commercial aircraft production orders continue to ramp up and will effectively leverage increased aerospace throughput. On the IGT front, the segment expects to gain traction going forward based on some orders received during the fourth quarter of fiscal 2011 and customer inquiries about future product availability.
Fiscal 2010 compared with fiscal 2009
The Investment Cast Products segment reported fiscal 2010 sales of $1,851.3 million, a decrease of 19 percent from the prior year’s sales of $2,272.1 million. The year-over-year decrease in sales primarily reflects a continued disconnect between aerospace order rates and engine builds related to customer destocking, which negatively impacted aerospace sales by approximately $210 million, or 18%. Power market sales were down by $75 million, or 12% (excluding the impacts of currency and metal pricing), compared to last year as a result of destocking by European IGT customers. Sales also include $40.7 million of higher pricing related to contractual pass-through of increased material costs compared to $81.3 million in fiscal 2009, a decrease of $40.6 million. In addition, our foreign operations reported approximately $10 million in reduced U.S. dollar equivalent sales year-over-year due to the increase in the value of the U.S. dollar relative to international currencies, primarily the British pound.
 

29

Operating income for the Investment Cast Products segment was $560.0 million or 30.2 percent of sales in fiscal 2010, compared to $582.7 million, or 25.6 percent of sales, in fiscal 2009. Despite the challenges of continued destocking, the segment improved operating margins by 4.6 percentage points year over year due to increased labor productivity, improved material utilization and lower scrap and rework costs. Contractual material pass-through pricing diluted operating margins by 0.7 percentage points in fiscal 2010 compared to 1.0 percentage points in fiscal 2009.
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)
  
2011
 
2010
 
2009
 
2011 vs. 2010
 
2010 vs. 2009
Sales by Market:
 
 
 
 
 
 
 
 
 
Aerospace
$
1,317.1
 
 
$
956.0
 
 
$
1,158.0
 
 
38
 %
 
(17
)%
% of total
47
%
 
42
%
 
39
%
 
 
 
 
Power
775.3
 
 
857.2
 
 
997.6
 
 
(10
)%
 
(14
)%
% of total
28
%
 
37
%
 
33
%
 
 
 
 
General Industrial & Other
687.3
 
 
469.8
 
 
822.8
 
 
46
 %
 
(43
)%
% of total
25
%
 
21
%
 
28
%
 
 
 
 
Total Sales
$
2,779.7
 
 
$
2,283.0
 
 
$
2,978.4
 
 
22
 %
 
(23
)%
Operating income
$
539.4
 
 
$
529.7
 
 
$
652.9
 
 
2
 %
 
(19
)%
% of sales
19.4
%
 
23.2
%
 
21.9
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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 the prior year’s 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 the prior year. 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 the prior year 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 last year, 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 the current year 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 the current year. 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 last year.
The segment’s aerospace OEM schedules are showing solid increases as previously announced build rates in both base commercial aircraft and Boeing 787 production ramp up, which will continue to drive aerospace sales levels through fiscal

30

2012 and beyond. Seamless pipe shipments within this segment began to improve toward the end of the fourth quarter of fiscal 2011, and the trend is expected to continue in fiscal 2012. Operating income is expected to show improvement, benefiting from some recovery of core seamless pipe sales and higher aerospace sales.
Fiscal 2010 compared with fiscal 2009
The Forged Products segment reported fiscal 2010 sales of $2,283.0 million, a decrease of 23 percent from the prior year’s sales of $2,978.4 million. The acquisition of Carlton in the third quarter of fiscal 2010 contributed approximately $135 million in incremental sales over the prior year. The decrease in sales from the prior year reflects a decline in general industrial and other markets, which negatively impacted sales by approximately $184 million, or 30% (excluding the impacts of currency and metal pricing), and aerospace OEM and aftermarket destocking, which negatively impacted aerospace sales by approximately $180 million, or 21%. A decline in power markets negatively impacted sales by $77 million, or 10%, compared to the prior year (excluding the impacts of currency and metal pricing). The lower selling prices of external nickel alloy sales from the segment’s three primary mills negatively impacted external sales by approximately $170 million in fiscal 2010 versus fiscal 2009. Fiscal 2010 sales also include $201.8 million of higher contractual pricing related to pass-through of increased raw material costs compared to $325.9 million in fiscal 2009, a decrease of $124.1 million. In addition, our foreign operations reported approximately $21 million in reduced U.S. dollar equivalent sales year-over-year due to the increase in the value of the U.S. dollar relative to international currencies, primarily the British pound.
Operating income for the Forged Products segment was $529.7 million or 23.2 percent of sales in fiscal 2010, compared to $652.9 million, or 21.9 percent of sales, in fiscal 2009. Operating income was negatively impacted by reduced sales volume coupled with the segment’s high fixed cost base, the loss of higher margin energy products, and rapid escalation in metal pricing toward the end of fiscal 2010, which exerted downward pressure on segment operating margins due to a lag in customer pricing. The contractual pass-through of higher raw material costs diluted operating margins by 2.2 percentage points in fiscal 2010 compared to 2.7 percentage points in fiscal 2009.
 
Fastener Products
The Fastener Products segment produces fasteners, fastener systems and components for critical applications in the aerospace, automotive and industrial machinery markets as well as applications and monitoring units utilized in the power generation industry.
 
 
Fiscal Year
 
% Increase/(Decrease)
  
2011
 
2010
 
2009
 
2011 vs. 2010
 
2010 vs. 2009
Sales by Market:
 
 
 
 
 
 
 
 
 
Aerospace
$
950.1
 
 
$
989.9
 
 
$
1,133.7
 
 
(4
)%
 
(13
)%
% of total
71
%
 
75
%
 
75
%
 
 
 
 
Power
17.2
 
 
16.8
 
 
19.4
 
 
2
 %
 
(13
)%
% of total
1
%
 
1
%
 
1
%
 
 
 
 
General Industrial & Other
377.5
 
 
318.2
 
 
367.2
 
 
19
 %
 
(13
)%
% of total
28
%
 
24
%
 
24
%
 
 
 
 
Total Sales
$
1,344.8
 
 
$
1,324.9
 
 
$
1,520.3
 
 
2
 %
 
(13
)%
Operating income
$
411.0
 
 
$
440.2
 
 
$
459.7
 
 
(7
)%
 
(4
)%
% of sales
30.6
%
 
33.2
%
 
30.2
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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 the prior year. 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.

31

The most significant future catalysts for segment growth continue to be the Boeing 787 ramp-up and the recovery of fastener distribution orders. As those inventory levels fall, and production demand increases, the segment is poised to benefit from market improvement and additional share gains anticipated to begin toward the latter half of fiscal 2012. These increased volumes, driven across the business’ improved cost structure, will help the segment achieve stronger operational performance.
Fiscal 2010 compared with fiscal 2009
The Fastener Products segment reported fiscal 2010 sales of $1,324.9 million, a 13 percent decrease from fiscal 2009 sales of $1,520.3 million. The decrease in sales primarily resulted from further aerospace aftermarket and distributor destocking coupled with a decline in regional/business jet demand, which negatively impacted year-over-year aerospace sales by $135 million, or 12% (excluding the impact of currency). A decline in general industrial and other markets negatively impacted sales by $40 million, or 12% (excluding the impact of currency), compared to the prior year. In addition, our foreign operations reported approximately $10 million in reduced U.S. dollar equivalent sales year-over-year due to the increase in the value of the U.S. dollar relative to international currencies, primarily the British pound.
Operating income for the Fasteners segment was $440.2 million or 33.2 percent of sales in fiscal 2010, compared to $459.7 million, or 30.2 percent of sales, in fiscal 2009. The higher operating margin was a result of continuous, aggressive cost improvement projects undertaken throughout fiscal 2010, resulting in productivity improvements, better utilization of assets, and effective cost management across the segment.
Interest and taxes
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.
Net interest expense in fiscal 2010 was $13.1 million, compared with $10.6 million in fiscal 2009. The higher net interest expense was primarily due to lower interest income earned on lower interest rates and lower average cash balances.
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.
The effective tax rate for fiscal 2010 was 34.4 percent, 0.2 percentage points higher than the 34.2 percent effective tax rate in fiscal 2009. The slight increase in the full-year tax rate compared to the prior year was primarily due to reduced benefits from the U.S. manufacturing deduction, an increase in state taxes and non-benefited foreign losses in fiscal 2010; offset by increased benefits from foreign earnings taxed at rates lower than the U.S. statutory tax rate.
 
Liquidity and capital resources
Total assets of $8,955.9 million at April 3, 2011 represented a $1,295.2 million increase from the $7,660.7 million balance at March 28, 2010. The increase principally reflects cash generated during the year from operations totaling $1,038.0 million and the strengthening of the British Pound, Euro, and Australian dollar in relation to the U.S. dollar. Total capitalization at April 3, 2011 was $7,401.1 million, consisting of $236.6 million of debt and $7,164.5 million of equity. The debt-to-capitalization ratio declined to 3.2% at April 3, 2011 from 4.1% at the end of fiscal 2010, reflecting the impact of increased equity from earnings and stock issuances, in addition to reduced debt levels.
Cash as of April 3, 2011 was $1,159.0 million, an increase of $1,046.6 million from the end of fiscal 2010, and total debt was $236.6 million, down $13.4 million since the end of fiscal 2010. The net cash flow of $1,060.0 million reflects cash generated from operations of $1,038.0 million and $116.3 million from the issuance of common stock, partially offset by capital expenditures of $120.4 million and cash paid to acquire businesses of $37.2 million.
Capital spending of $120.4 million in fiscal 2011 principally provided for equipment upgrades and cost reduction and productivity projects throughout the Company. We expect our baseline capital expenditures for fiscal 2012 to be moderately higher than fiscal 2011 based on our current forecasts. These expenditures will be targeted for cost reduction projects and equipment upgrades within our Forged Products and Investment Cast Products segments. Capacity expansion projects that arise in excess of the base forecast will be evaluated on their own merits during the fiscal year based on demand.
During fiscal 2011, we contributed $115.9 million to the defined benefit pension plans, of which $100.0 million was voluntary. In the first month of fiscal 2012, we made a $50.0 million voluntary contribution to the defined benefit pension plans. We expect to contribute approximately $11.2 million of required contributions in fiscal 2012, for total contributions to

32

the defined benefit pension plans of approximately $61.2 million in fiscal 2012. In addition, we contributed $47.0 million to the other postretirement benefit plans during fiscal 2011. We expect to contribute approximately $7.5 million to the other postretirement benefit plans during fiscal 2012.
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.
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 from cash generated from operations, borrowings from our existing $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.
Our revolving bank credit facility (“Credit Agreement”) provides available borrowing up to $1.0 billion through May 2012. Our unused borrowing capacity as of April 3, 2011 was $980.9 million under the Credit Agreement, reduced by a $19.1 million workers’ compensation letter of credit issued in the fourth quarter of fiscal 2009. The Credit Agreement contains various standard financial covenants, including maintenance of minimum net worth, interest coverage ratio and leverage ratio. The financial covenants in the Credit Agreement are our most restrictive covenants.
Our covenant requirements and actual ratios as of April 3, 2011 were as follows (dollars in millions):
 
  
Covenant Requirement
Actual
Consolidated minimum net worth(1)
$
3,586.7
 
(minimum)
$
7,164.5
 
Consolidated interest coverage ratio(1)
2.25:1.00
 
(minimum)
109.73:1.00
 
Consolidated leverage ratio(1)
3.25:1.00
 
(maximum)
0.14:1.00
 
 
 
 
_________________________
(1)
Terms are defined in the Amended and Restated Credit Agreement.
As of April 3, 2011, we were in compliance with all financial covenants of our loan agreements.
Historically, we have also 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. During fiscal 2011, the largest daily balance of outstanding commercial paper borrowings was $210 million early in the first quarter with all borrowings repaid prior to the end of the second quarter. 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.
 
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 3, 2011 and the estimated timing of future cash payments:
 
Contractual Cash Obligations
Total
 
2012
 
2013
 
2014
 
2015
 
2016
 
Thereafter
Long-term debt
$
236.6
 
 
$
14.7
 
 
$
5.4
 
 
$
206.2
 
 
$
4.9
 
 
$
5.4
 
 
$
—
 
Operating leases(1)
77.2
 
 
19.4
 
 
14.7
 
 
11.1
 
 
8.8
 
 
4.9
 
 
18.3
 
Interest on fixed-rate debt
27.0
 
 
10.4
 
 
9.4
 
 
6.6
 
 
0.4
 
 
0.2
 
 
—
 
Interest on variable-rate debt(2)
6.6
 
 
2.1
 
 
2.3
 
 
2.2
 
 
—
 
 
—
 
 
—
 
Total
$
347.4
 
 
$
46.6
 
 
$
31.8
 
 
$
226.1
 
 
$
14.1
 
 
$
10.5
 
 
$
18.3
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
_________________________
(1)
Operating lease obligations include $0.2 million attributable to an operation held-for-sale.
(2)
Interest on variable-rate debt is based on current prevailing interest rates.
 

33

Our reserve for uncertain tax positions at April 3, 2011 was $12.3 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 11 to the Consolidated Financial Statements for additional information regarding our reserve for uncertain tax positions.
The table above also excludes estimated required cash contributions to our qualified pension plans totaling approximately $60.7 million over the next five years: $11.2 million in fiscal 2012, $12.0 million in fiscal 2013, and $12.5 million in fiscal 2014, fiscal 2015 and fiscal 2016. 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 19 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 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 may not be recoverable. For fiscal 2011, 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 three reporting units in our Fasteners Products reportable operating segment. The Fasteners Products operating segment includes several aggregated component units (referred to as the Fasteners Products reporting unit) and two other reporting units for which the segment manager regularly reviews performance.
 

34

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 2011 goodwill impairment analysis ranged from 10% to 15% depending on the reporting unit. The annual growth rate for earnings before interest and taxes varied by reporting unit and ranged from 5% to 17% 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 2011 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 30% 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 3, 2011.
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 2011 and 2010, 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 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 reserves accrued at April 3, 2011 and March 28, 2010 were $66.8 million and $75.6 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 in the future. 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

35

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. 
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 5.75% for the total benefit obligation of our pension plans at our April 3, 2011 measurement date. For our non-U.S. Plans, we used a discount rate assumption of 5.88% for the total benefit obligation of our pension plans at our April 3, 2011 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 2011 and 2010 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 2011 and 2010 net periodic pension cost. For fiscal 2011, our U.S. net periodic pension expense was $26.6 million and non-U.S. net periodic pension income was $1.8 million. We estimate that for fiscal 2012, our U.S. net periodic pension expense will be approximately $26.1 million and non-U.S. net periodic pension income will be approximately $3.6 million. Our U.S. net postretirement benefit cost was $6.4 million for fiscal 2011, and we estimate that for fiscal 2012, our U.S. net postretirement benefit cost will be $5.5 million.
The table below quantifies the approximate impact, as of April 3, 2011, 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
$
6.0
 
Expected long-term rate of return
$
4.3
 
Increase in projected benefit obligation:
 
Discount rate
$
59.0
 
 
 
The approximate impact, as of April 3, 2011, 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 May 2011, the Financial Accounting Standards Board (“FASB”) issued guidance which 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 will be effective in the fourth quarter of fiscal 2012. 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 January 2010, the FASB issued guidance which requires new 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,

36

except for disclosures about purchases, sales, issuances and settlements of Level 3 assets and liabilities, which will be effective in the first quarter of fiscal 2012. As this guidance only requires expanded disclosures, the adoption did not and will not impact our consolidated financial position, results of operations or cash flows.
In October 2009, the FASB issued amendments to the accounting and disclosure for revenue recognition for multiple element arrangements. These amendments modify the criteria for recognizing revenue and require enhanced disclosures for multiple element-deliverable revenue arrangements. This guidance will be effective in the first quarter of fiscal 2012. 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 2009, the FASB issued guidance to require an enterprise to perform an analysis to determine whether the enterprise's variable interest gives it a controlling financial interest in a variable interest entity. This guidance was effective in the first quarter of fiscal 2011. The adoption of this guidance did not impact our consolidated financial position, results of operations or cash flows.
 
ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK    
At various times, we use derivative financial instruments to limit exposure to changes in foreign currency exchange rates, interest rates and prices of strategic raw materials. Because derivative instruments are used solely as hedges and not for speculative trading purposes, fluctuations in the market values of such derivative instruments are generally offset by reciprocal changes in the underlying economic exposures that the instruments are intended to hedge. For further discussion of derivative financial instruments, refer to Item 8. Financial Statements and Supplementary Data.
Interest Rate Risk
We have variable rate debt obligations that expose us to interest rate risk.  If market interest rates had averaged 10 percent higher than actual levels in fiscal 2011 or 2010, the effect on our interest expense and net income would not have been material.
Foreign Currency Risk
The majority of our revenue, expense and capital purchasing activities are transacted in U.S. dollars; however, we are exposed to fluctuations in foreign currencies for transactions denominated in other currencies. As discussed in the “Summary of Significant Accounting Policies” in the Financial Statements and Supplementary Data, we had foreign currency hedges in place at April 3, 2011 and March 28, 2010 to reduce such exposure. The estimated loss in fair value on foreign currency hedges outstanding as of April 3, 2011, from a hypothetical 10 percent adverse change in exchange rates, would not have been material.
Material Cost Risk
We have entered into long-term supply agreements to fix the purchase price of certain strategic raw materials as of April 3, 2011 and March 28, 2010. In addition, we had escalation clauses related to raw material pricing in certain of our sales contracts at April 3, 2011 and March 28, 2010. If market rates had averaged 10 percent higher than actual levels in either fiscal 2011 or 2010, the effect on our cost of sales and net earnings, after considering the effects of these supply agreements and sales contracts, would not have been material.
 

37

ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Consolidated Statements of Income
 
 
Fiscal Years Ended
(In millions, except per share data)
April 3, 2011
 
March 28, 2010
 
March 29, 2009
Net sales
$
6,220.1
 
 
$
5,459.2
 
 
$
6,770.8
 
Costs and expenses:
 
 
 
 
 
Cost of goods sold
4,326.7
 
 
3,668.8
 
 
4,792.1
 
Selling and administrative expenses
390.6
 
 
367.1
 
 
381.9
 
Restructuring and asset impairment
—
 
 
—
 
 
10.9
 
Interest expense
13.5
 
 
16.2
 
 
18.3
 
Interest income
(4.5
)
 
(3.1
)
 
(7.7
)
Total costs and expenses
4,726.3
 
 
4,049.0
 
 
5,195.5
 
Income before income tax expense and equity in earnings of unconsolidated affiliates
1,493.8
 
 
1,410.2
 
 
1,575.3
 
Income tax expense
(499.7
)
 
(485.7
)
 
(538.4
)
Equity in earnings of unconsolidated affiliates
16.6
 
 
1.4
 
 
—
 
Net income from continuing operations
1,010.7