PRECISION CASTPARTS CORP - FORM 10-Q

Attached files

file	filename
EX-31.1 - SECTION 302 CEO CERTIFICATION - PRECISION CASTPARTS CORP	pcp2015062810-qex311.htm
EX-10.1 - AMENDMENT NO. 2 AND CONSENT TO CREDIT AGREEMENT - PRECISION CASTPARTS CORP	pcp2015062810-qex101.htm
EX-31.2 - SECTION 302 CFO CERTIFICATION - PRECISION CASTPARTS CORP	pcp2015062810-qex312.htm
EX-32.2 - SECTION 906 CFO CERTIFICATION - PRECISION CASTPARTS CORP	pcp2015062810-qex322.htm
EX-32.1 - SECTION 906 CEO CERTIFICATION - PRECISION CASTPARTS CORP	pcp2015062810-qex321.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the Quarterly Period Ended June 28, 2015

Commission File Number 1-10348




Precision Castparts Corp.


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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [x] No [ ]

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

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



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

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

Number of shares of Common Stock, no par value, outstanding as of July 30, 2015: 137,497,621

PART I. FINANCIAL INFORMATION



Item 1.	Financial Statements

Precision Castparts Corp. and Subsidiaries

Condensed Consolidated Statements of Income

(Unaudited)

(In millions, except per share data)



	Three Months Ended
	6/28/15			6/29/14
Net sales	$	2,412		$	2,520
Costs and expenses:
Cost of goods sold	1,625			1,627
Selling and administrative expenses	168			156
Interest expense	20			17
Interest income	(1		)	(1		)
Total costs and expenses	1,812			1,799
Income before income tax expense and equity in loss of unconsolidated affiliates	600			721
Income tax expense	(197		)	(237		)
Equity in loss of unconsolidated affiliates	(3		)	—
Net income from continuing operations	400			484
Net loss from discontinued operations	—			(2		)
Net income	400			482
Net (income) loss attributable to noncontrolling interests	(1		)	1
Net income attributable to Precision Castparts Corp. (“PCC”)	$	399		$	483
Net income per common share attributable to PCC shareholders - basic:
Net income from continuing operations	$	2.89		$	3.35
Net loss from discontinued operations	—			(0.02		)
Net income per share	$	2.89		$	3.33
Net income per common share attributable to PCC shareholders - diluted:
Net income from continuing operations	$	2.87		$	3.32
Net loss from discontinued operations	—			(0.01		)
Net income per share	$	2.87		$	3.31
Weighted average common shares outstanding:
Basic	138.1			144.9
Diluted	138.9			145.9

See Notes to the Condensed Consolidated Financial Statements.

Precision Castparts Corp. and Subsidiaries

Condensed Consolidated Statements of Comprehensive Income

(Unaudited)

(In millions)



	Three Months Ended
	6/28/15			6/29/14
Net income	$	400		$	482
Other comprehensive income (loss) ("OCI"), net of tax:
Foreign currency translation adjustments	104			40
Unrealized loss on available-for-sale securities (net of income tax benefit of $0 and $2, respectively)	—			(10		)
Gain (loss) on derivatives:
Unrealized gain due to periodic revaluations (net of income tax expense of $3 and $0, respectively)	13			3
Less: reclassification adjustment for losses (gains) included in net income (net of income tax benefit of $1 and $0, respectively)	5			(2		)
Other comprehensive income, net of tax	122			31
Total comprehensive (income) loss attributable to noncontrolling interests	(4		)	2
Total comprehensive income attributable to PCC	$	518		$	515

See Notes to the Condensed Consolidated Financial Statements.

Precision Castparts Corp. and Subsidiaries

Condensed Consolidated Balance Sheets

(Unaudited)

(In millions)



	6/28/15			3/29/15
Assets
Current assets:
Cash and cash equivalents	$	1,056		$	474
Receivables, net	1,644			1,710
Inventories	3,760			3,640
Prepaid expenses and other current assets	77			81
Income tax receivable	—			37
Deferred income taxes	3			2
Discontinued operations	29			28
Total current assets	6,569			5,972
Property, plant and equipment, at cost	4,478			4,328
Accumulated depreciation	(1,932		)	(1,854		)
Net property, plant and equipment	2,546			2,474
Goodwill	6,918			6,661
Acquired intangible assets, net	3,736			3,744
Investment in unconsolidated affiliates	235			238
Other assets	337			311
Deferred income taxes	12			—
Discontinued operations	29			28
	$	20,382		$	19,428
Liabilities and Equity
Current liabilities:
Long-term debt currently due and short-term borrowings	$	506		$	1,093
Accounts payable	1,041			1,162
Accrued liabilities	519			559
Income tax payable	97			—
Deferred income taxes	22			—
Discontinued operations	11			13
Total current liabilities	2,196			2,827
Long-term debt	4,779			3,493
Pension and other postretirement benefit obligations	663			678
Other long-term liabilities	536			546
Deferred income taxes	957			924
Discontinued operations	3			3
Commitments and contingencies (See Notes)
Equity:
Preferred stock	—			—
Common stock	137			139
Paid-in capital	—			60
Retained earnings	11,915			11,685
Accumulated other comprehensive loss	(833		)	(955		)
Total PCC shareholders' equity	11,219			10,929
Noncontrolling interest	29			28
Total equity	11,248			10,957
	$	20,382		$	19,428

See Notes to the Condensed Consolidated Financial Statements.

Precision Castparts Corp. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(In millions)



	Three Months Ended
	6/28/15			6/29/14
Operating activities:
Net income	$	400		$	482
Net loss from discontinued operations	—			2
Non-cash items:
Depreciation and amortization	84			78
Deferred income taxes	44			30
Stock-based compensation expense	14			15
Excess tax benefits from share-based payment arrangements	(1		)	(7		)
Other non-cash adjustments	1			(5		)
Changes in assets and liabilities, excluding effects of acquisitions and dispositions of businesses:
Receivables	100			(48		)
Inventories	(94		)	(86		)
Prepaid expenses and other current assets	4			8
Income tax receivable and payable	137			175
Payables and accruals	(195		)	(133		)
Pension and other postretirement benefit plans	(24		)	(1		)
Other non-current assets and liabilities	(19		)	(29		)
Net cash used by operating activities of discontinued operations	(5		)	(5		)
Net cash provided by operating activities	446			476
Investing activities:
Acquisitions of businesses, net of cash acquired	(266		)	(625		)
Capital expenditures	(94		)	(75		)
Dispositions of businesses	1			15
Other investing activities, net	(18		)	5
Net cash used by investing activities of discontinued operations	(2		)	(1		)
Net cash used by investing activities	(379		)	(681		)
Financing activities:
Net change in commercial paper borrowings	(1,297		)	342
Proceeds from issuance of long-term debt	1,996			—
Payments for debt issuance costs	(14		)	—
Common stock issued	27			29
Excess tax benefits from share-based payment arrangements	1			7
Repurchase of common stock	(232		)	(159		)
Cash dividends	(4		)	(4		)
Other financing activities, net	—			(1		)
Net cash provided by financing activities	477			214
Effect of exchange rate changes on cash and cash equivalents	38			3
Net increase in cash and cash equivalents	582			12
Cash and cash equivalents at beginning of period	474			361
Cash and cash equivalents at end of period	$	1,056		$	373

See Notes to the Condensed Consolidated Financial Statements.

Notes to the Condensed Consolidated Financial Statements

(Unaudited)

(In millions, except share and per share data)

(1) Basis of Presentation

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

(2) Acquisitions

Fiscal 2016


•	During the first quarter of fiscal 2016, we completed two small acquisitions in the Forged Products segment.

Fiscal 2015


•	During the second quarter of fiscal 2015, we completed a small acquisition in the Airframe Products segment.

•

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

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

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

(3) Discontinued Operations

During the fourth quarter of fiscal 2015, we decided to divest a small non-core business in the Forged Products segment and reclassified it to discontinued operations.

During the second quarter of fiscal 2015, we decided to divest a small non-core business in the Forged Products segment and reclassified it to discontinued operations.

During the second quarter of fiscal 2013, we sold a small non-core business in the Airframe Products segment. The transaction resulted in proceeds of $25 million in cash and an unsecured, subordinated, convertible promissory note in the principal amount of $18 million. The promissory note was repaid in the first quarter of fiscal 2015.

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



	Three Months Ended
	6/28/15			6/29/14
Net sales	$	9		$	12
Cost of goods sold	9			11
Selling and administrative expenses	1			2
Loss from operations before income taxes	(1		)	(1		)
Income tax benefit	—			—
Loss from operations	(1		)	(1		)
Gain (loss) on disposal, net of $0 tax expense in both periods	1			(1		)
Net loss from discontinued operations	$	—		$	(2	)

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



	6/28/15		3/29/15
Assets of discontinued operations:
Current assets	$	29	$	28
Net property, plant and equipment	21		20
Other assets	8		8
	$	58	$	56
Liabilities of discontinued operations:
Current liabilities	$	11	$	13
Long-term debt	1		1
Other long-term liabilities	2		2
	$	14	$	16

(4) Inventories

Inventories consisted of the following:



	6/28/15		3/29/15
Finished goods	$	556	$	544
Work-in-process	1,384		1,262
Raw materials and supplies	1,111		1,155
	3,051		2,961
Excess of LIFO cost over current cost	709		679
Total inventory	$	3,760	$	3,640

(5) Goodwill and Acquired Intangibles

We perform our annual goodwill and indefinite-lived intangible assets impairment testing during the second quarter of each fiscal year. For fiscal 2015, it was determined that the fair value of the related reporting units was greater than book value and that there was no impairment of goodwill. Furthermore, it was determined that the fair value of indefinite-lived intangible assets was greater than the carrying value and that there was no impairment of indefinite-lived intangible assets.

The changes in the carrying amount of goodwill by reportable segment for the three months ended June 28, 2015 were as follows:



	Balance at				Adjustments, Currency Translation and Other		Balance at
	3/29/15		Acquired		Adjustments, Currency Translation and Other		6/28/15
Investment Cast Products	$	337	$	—	$	1	$	338
Forged Products	3,553		217		37		3,807
Airframe Products	2,771		—		2		2,773
Total	$	6,661	$	217	$	40	$	6,918

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



	June 28, 2015							March 29, 2015
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Amortizable intangible assets:
Patents	$	9	$	(7	)	$	2	$	13	$	(11	)	$	2
Proprietary technology	—		—			—		2		(2		)	—
Long-term customer relationships	474		(84		)	390		482		(85		)	397
Backlog	43		(31		)	12		56		(41		)	15
Revenue sharing agreements	29		(3		)	26		29		(3		)	26
	$	555	$	(125	)	430		$	582	$	(142	)	440
Unamortizable intangible assets:
Tradenames						699							699
Long-term customer relationships						2,607							2,605
Acquired intangibles, net						$	3,736						$	3,744

Amortization expense for finite-lived intangible assets for the three months ended June 28, 2015 and June 29, 2014 was $10 million and $11 million, respectively. Amortization expense related to finite-lived intangible assets is projected to total $44 million for fiscal 2016. Amortization expense related to finite-lived intangible assets for fiscal 2015 was $42 million. Projected amortization expense for the succeeding five fiscal years is as follows:



Fiscal Year	Estimated Amortization Expense
2017	$	34
2018	28
2019	27
2020	28
2021	26

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

(6) Financing Arrangements

Long-term debt is summarized as follows:



	06/28/15		03/29/15
0.700% Senior Notes due fiscal 2016 ($500 face value less unamortized discount of $0 in both periods)	$	500	$	500
1.250% Senior Notes due fiscal 2018 ($1,000 face value less unamortized discount of $1 in both periods)	999		999
2.250% Senior Notes due fiscal 2021 ($550 face value less unamortized discount of $0 in both periods)	550		—
2.500% Senior Notes due fiscal 2023 ($1,000 face value less unamortized discount of $4 and $5)	996		995
3.250% Senior Notes due fiscal 2026 ($850 face value less unamortized discount of $2 and $0)	848		—
4.200% Senior Notes due fiscal 2036 ($275 face value less unamortized discount of $2 and $0)	273		—
3.900% Senior Notes due fiscal 2043 ($500 face value less unamortized discount of $3 in both periods)	497		497
4.375% Senior Notes due fiscal 2046 ($325 face value less unamortized discount of $1 and $0)	324		—
Commercial paper	290		1,587
Other	8		8
	5,285		4,586
Less: Long-term debt currently due	506		1,093
Total	$	4,779	$	3,493

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



Fiscal	Debt
2016	$	506
2017	1
2018	1,001
2019	—
2020	290
Thereafter	3,500
Total	$	5,298

On December 15, 2014, we entered into a 364-day, $1.0 billion revolving credit facility maturing December 2015 (the “364-Day Credit Agreement”), unless converted into a one-year term loan at the option of the Company at the end of the revolving period. The 364-Day Credit Agreement replaces the prior 364-day credit agreement that expired December 2014. The 364-Day Credit Agreement contains customary representations and warranties, events of default, and financial and other covenants.

On December 16, 2013, we entered into a five-year, $1.0 billion revolving credit facility (the "2013 Credit Agreement") (with a $500 million increase option, subject to approval of the lenders) maturing December 2018, unless extended pursuant to two 364-day extension options. On June 15, 2015, we amended the agreement to extend the maturity date one year to December 2019, utilizing one of the two extension options. The 2013 Credit Agreement contains customary representations and warranties, events of default, and financial and other covenants. The 364-Day and 2013 Credit Agreement may be referred to collectively as the "Credit Agreements." We had not borrowed funds under the Credit Agreements as of June 28, 2015.

Historically, we have issued commercial paper as a method of raising short-term liquidity. We believe we continue to have the ability to issue commercial paper and have issued commercial paper to fund acquisitions and short-term cash requirements in recent quarters. As of June 28, 2015, the amount of commercial paper borrowings outstanding was $290 million and the weighted average interest rate was 0.2%. For the three months ended June 28, 2015, the average amount of commercial paper borrowings outstanding was $1,521 million and the weighted average interest rate was 0.2%. For the three months ended June 29, 2014, the average amount of commercial paper borrowings outstanding was $1,059 million and the weighted average interest rate was 0.2%. During the first three months of fiscal 2016, the largest daily balance of outstanding commercial paper borrowings was $1,872 million. We do not have purchase commitments from buyers for our commercial paper; therefore, our ability to issue commercial paper is subject to market demand.

The maximum amount that can be borrowed under our Credit Agreements and commercial paper program is $2.0 billion. Our unused borrowing capacity as of June 28, 2015 was $1,710 million due to our outstanding commercial paper borrowings of $290 million.

Our financial covenant requirement and actual ratio as of June 28, 2015 was as follows:



	Covenant Requirement		Actual
Consolidated leverage ratio¹	65.0%	(maximum)	32.0%



¹		Terms are defined in the Credit Agreements.

As of June 28, 2015, we were in compliance with the financial covenant in the Credit Agreements.

(7) Earnings per Share and Shareholders' Equity

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



	Three Months Ended
	6/28/15		6/29/14
Amounts attributable to PCC shareholders:
Net income from continuing operations	$	399	$	485
Net loss from discontinued operations	—		(2		)
Net income attributable to PCC shareholders	$	399	$	483



	Three Months Ended
	6/28/15	6/29/14
Weighted average shares outstanding-basic	138.1	144.9
Effect of dilutive stock-based compensation plans	0.8	1.0
Weighted average shares outstanding-dilutive	138.9	145.9

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

For the three months ended June 28, 2015 and June 29, 2014, stock options to purchase 2.4 million and 1.0 million shares of common stock were excluded from the computation of diluted earnings per share, respectively, because they would have been antidilutive. These options could be dilutive in the future.

Share repurchase program

During fiscal 2013 through 2015, the Board of Directors approved $2.5 billion for use in the Company's stock repurchase program. On May 13, 2015, the Board of Directors approved a $2.0 billion expansion to the Company's existing program to repurchase shares of the Company’s common stock, effective immediately and continuing through June 30, 2017. Repurchases under the Company's program may be made in open market or privately negotiated transactions in compliance with Securities and Exchange Commission Rule 10b-18, subject to market conditions, applicable legal requirements, and other relevant factors. This share repurchase program does not obligate PCC to acquire any particular amount of common stock, and it may be suspended at any time at the Company's discretion.

During the three months ended June 28, 2015, the Company repurchased 1,292,056 shares under this program at an average price paid per share of $210.01 for an aggregate purchase price of $271 million, with $39 million, net, not settled until after quarter-end. As of June 28, 2015, the Company had repurchased 11,104,150 shares under this program for an aggregate purchase price of $2,457 million.

(8) Stock-based Compensation

During the three months ended June 28, 2015 and June 29, 2014, we recorded stock-based compensation expense under our stock option, employee stock purchase, deferred stock unit and deferred compensation plans. A detailed description of the awards under these plans and the respective accounting treatment is included in the “Notes to the Consolidated Financial Statements” included in our Annual Report on Form 10-K for the year ended March 29, 2015.

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



	Three Months Ended
	6/28/15			6/29/14
Cost of goods sold	$	4		$	4
Selling and administrative expenses	10			11
Stock-based compensation expense before income taxes	14			15
Income tax benefit	(4		)	(4		)
Total stock-based compensation expense after income taxes	$	10		$	11

(9) Accumulated Other Comprehensive Income (Loss)

Accumulated other comprehensive income (loss) ("AOCI") consists of cumulative unrealized foreign currency translation adjustments, pension and postretirement obligations, unrealized gains (losses) on certain derivative instruments, and unrealized losses on available-for-sale securities.

Changes in AOCI by component, net of tax, for the three months ended June 28, 2015 were as follows:



	Cumulative unrealized foreign currency translation (losses) gains			Pension and postretirement obligations			Unrealized (loss) gain on derivatives			Unrealized loss on available-for-sale securities			Total
Balance at March 29, 2015	$	(284	)	$	(637	)	$	(12	)	$	(22	)	$	(955	)
OCI before reclassifications	104			—			13			—			117
Amounts reclassified from AOCI¹	—			—			5			—			5
Net current period OCI	104			—			18			—			122
Balance at June 28, 2015	$	(180	)	$	(637	)	$	6		$	(22	)	$	(833	)

Changes in AOCI by component, net of tax, for the three months ended June 29, 2014 were as follows:



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



¹		Reclassifications out of AOCI for the three months ended June 28, 2015 and June 29, 2014 were not significant.

(10) Derivatives and Hedging Activities

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

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

Fair value hedges

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

Net investment hedges

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

Cash flow hedges

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

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

As of June 28, 2015, there were $4 million of deferred net losses (pre-tax) relating to derivative activity in accumulated other comprehensive loss that are expected to be transferred to net earnings over the next twelve months when the forecasted transactions actually occur. As of June 28, 2015, the maximum term over which we are hedging exposures to the variability of cash flows for all forecasted and recorded transactions is 29 months. As of June 28, 2015, the amount of net notional foreign exchange and interest rate contracts outstanding was approximately $690 million and $100 million, respectively. We believe that there is no significant credit risk associated with the potential failure of any counterparty to perform under the terms of any derivative financial instrument.

Derivative instruments are measured at fair value within the Condensed Consolidated Balance Sheet either as assets or liabilities. As of June 28, 2015, accounts receivable included foreign exchange contracts of $12 million and accounts payable included foreign exchange contracts of $10 million. As of March 29, 2015, accounts receivable included foreign exchange contracts of $4 million and accounts payable included foreign exchange contracts of $29 million and interest rate contracts of $1 million.

For the three months ended June 28, 2015 and June 29, 2014, we recognized $3 million of losses and $3 million of gains, respectively, in the Condensed Consolidated Statements of Income for derivatives designated as hedging instruments. For the three months ended June 28, 2015 and June 29, 2014, we recognized $13 million of losses and $2 million of gains, respectively, in the Condensed Consolidated Statements of Income for derivatives not designated as hedging instruments. Gains and losses on derivatives not designated as hedging instruments are primarily offset by losses or gains arising from the revaluation of foreign currency denominated assets and liabilities. The ineffective portion of gains and losses relating to derivatives designated as hedging instruments in either period was not significant.

(11) Fair Value Measurements

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



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

The following table presents the assets and liabilities measured at fair value on a recurring basis as of June 28, 2015:



	Fair Value Measurements Using						Assets/Liabilities at Fair Value
	Level 1		Level 2		Level 3		Assets/Liabilities at Fair Value
Assets:
Trading securities	$	—	$	361	$	—	$	361
Available for sale securities	$	33	$	—	$	—	$	33
Derivative instruments	$	—	$	12	$	—	$	12
Liabilities:
Derivative instruments	$	—	$	10	$	—	$	10

The following table presents the assets and liabilities measured at fair value on a recurring basis as of March 29, 2015:



	Fair Value Measurements Using						Assets/Liabilities at Fair Value
	Level 1		Level 2		Level 3		Assets/Liabilities at Fair Value
Assets:
Available for sale securities	$	32	$	—	$	—	$	32
Derivative instruments	$	—	$	4	$	—	$	4
Liabilities:
Derivative instruments	$	—	$	30	$	—	$	30

Trading securities consist of money market funds, commercial paper, and other highly liquid short-term instruments with maturities of three months or less at the time of purchase. These investments are readily convertible to cash with market value approximating cost. There were no transfers between Level 1 and Level 2 fair value measurements during the first three months of fiscal 2016 or fiscal 2015.

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

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

We estimate that the fair value of our long-term fixed rate debt instruments was $4,865 million compared to a book value of $4,993 million at June 28, 2015. At March 29, 2015, the estimated fair value of our long-term fixed rate debt instruments was $3,013 million compared to a book value of $2,997 million. The fair value of long-term fixed rate debt was estimated using a combination of observable trades and quoted prices on such debt, as well as observable market data for comparable

instruments. Long-term fixed rate debt would be classified as Level 2 within the fair value hierarchy if it were measured at fair value. The estimated fair value of our miscellaneous long-term debt approximates book value.

(12) Pensions and Other Postretirement Benefit Plans

We sponsor many domestic and foreign defined benefit pension plans. In addition, we offer postretirement medical benefits for certain eligible employees. These plans are more fully described in the “Notes to Consolidated Financial Statements” included in our Annual Report on Form 10-K for the fiscal year ended March 29, 2015.

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



	Three Months Ended
	6/28/15			6/29/14
Service cost	$	13		$	12
Interest cost	27			29
Expected return on plan assets	(43		)	(41		)
Amortization of net actuarial loss	14			11
Amortization of prior service cost	1			1
Net periodic pension cost	$	12		$	12

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



	Three Months Ended
	6/28/15		6/29/14
Service cost	$	—	$	—
Interest cost	1		2
Amortization of net actuarial loss	—		—
Amortization of prior service cost	—		—
Net periodic benefit cost	$	1	$	2

During the three months ended June 28, 2015, we contributed $43 million to the defined benefit pension plans, of which $31 million was voluntary. During the three months ended June 29, 2014, we contributed $18 million to the defined benefit pension plans, of which $6 million was voluntary. We expect to contribute approximately $8 million of additional required contributions in fiscal 2016, for total contributions to the defined benefit pension plans of approximately $51 million in fiscal 2016. Including contributions in the first three months of fiscal 2016, we expect to contribute a total of approximately $7 million to the other postretirement benefit plans during fiscal 2016.

(13) Commitments and Contingencies

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

PCC Environmental Matters

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

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

The Company's environmental liability balance was $443 million and $448 million at June 28, 2015 and March 29, 2015, of which $90 million and $95 million was classified as a current liability, respectively, and generally reflects the best estimate of the costs or range of costs to remediate identified environmental conditions for which costs can be reasonably estimated. If no point in a range of costs is a better estimate than others, the low end of the range of costs is accrued. The estimated upper end of the range of reasonably possible environmental costs exceeded amounts accrued by approximately $360 million at June 28,

2015. Actual future losses may be lower or higher given the uncertainties regarding the status of laws, regulations, enforcement policies, the impact of potentially responsible parties, technology and information related to individual sites.

Due to the nature of its historical operations, TIMET has significant environmental liabilities at its titanium manufacturing plants. It has for many years, under the oversight of government agencies, conducted investigations of the soil and groundwater contamination at its plant sites. TIMET has initiated remedial actions at its properties, including the capping of former on-site landfills, removal of contaminated sediments from on-site surface impoundments, remediation of contaminated soils and the construction of a slurry wall and groundwater extraction system to treat contaminated groundwater as well as other remedial actions. Although it is anticipated that significant remediation will be completed within the next two to three years, it is expected that a substantial portion of the TIMET environmental accruals will be expended within an estimated 41 years. Expenditures related to these remedial actions and for resolving TIMET's other environmental liabilities will be applied against existing liabilities. As the remedial actions are implemented at these sites, the liabilities will be adjusted based on the progress made in determining the extent of contamination and the extent of required remediation. While the existing liability generally represents our current best estimate of the costs or range of costs of resolving the identified environmental liabilities, these costs may change substantially due to factors such as the nature and extent of contamination, changes in legal and remedial requirements, the allocation of costs among potentially responsible parties as well as other third parties, and technological changes, among others.

(14) New Accounting Pronouncements

In April 2015, the Financial Accounting Standards Board (“FASB”) issued guidance on measuring the fair value of plan assets of a defined benefit pension plan for a reporting entity with a fiscal year-end that does not coincide with a month-end. Under the new guidance, the reporting entity is permitted to measure defined benefit plan assets and obligations using the month-end that is closest to the entity's fiscal year-end. The guidance is effective for the Company beginning the first quarter of fiscal 2017 with early adoption permitted. The adoption of this guidance is not expected to have a significant impact on our consolidated financial position, results of operations, or cash flows.

In April 2015, the FASB issued guidance to simplify the presentation of debt issuance costs. The new guidance requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The guidance is effective for the Company beginning the first quarter of fiscal 2017 with early adoption permitted. The adoption of this guidance is not expected to have a significant impact on our consolidated financial position, results of operations, or cash flows.

In January 2015, the FASB issued guidance which eliminates the concept of an extraordinary item. As a result, entities will no longer segregate an extraordinary item from the results of ordinary operations; separately present an extraordinary item on its income statement, net of tax, after income from continuing operations; and disclose income taxes and earnings per share data applicable to an extraordinary item. The guidance is effective for the Company beginning the first quarter of fiscal 2017 with early adoption permitted. The adoption of this guidance is not expected to have a significant impact on our consolidated financial position, results of operations, or cash flows.

In May 2014, the FASB issued guidance on revenue from contracts with customers. The guidance outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes the most current revenue recognition guidance. The guidance is effective for the Company beginning the first quarter of fiscal 2019. The Company is in the process of determining the impact of this guidance on our consolidated financial position, results of operations, and cash flows.

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

(15) Segment Information

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



	Three Months Ended
	6/28/15			6/29/14
Net sales:
Investment Cast Products	$	632		$	625
Forged Products	1,001			1,088
Airframe Products	779			807
Consolidated net sales	$	2,412		$	2,520
Segment operating income (loss):
Investment Cast Products	$	237		$	224
Forged Products	204			309
Airframe Products	218			242
Corporate expenses	(40		)	(38		)
Total segment operating income	619			737
Interest expense	20			17
Interest income	(1		)	(1		)
Consolidated income before income tax expense and equity in loss of unconsolidated affiliates	$	600		$	721

(16) Restructuring Charges

In the fourth quarter of fiscal 2015, we implemented headcount reductions at various operations to improve our cost structure and in response to the current market conditions, which resulted in a pre-tax charge of $8 million. These restructuring plans provided for terminations of approximately 490 employees, which we expect to be completed by the fourth quarter of fiscal 2016. As of June 28, 2015, accrued amounts remaining related to our restructuring plans amounted to $3 million, primarily due to a European operation.

(17) Subsequent Events

On July 31, 2015, we acquired Composites Horizons, LLC ("CHI"), the leading independent supplier of high temperature carbon and ceramic composite components, including ceramic matrix composites (CMC), for use in next-generation aerospace engines. Using proprietary technologies, CHI manufactures specialized, performance-critical components with exceptional strength and high-temperature tolerance, thus allowing aircraft engines to operate with higher fuel efficiency and lower emissions. In combination with CHI, we are now able to offer our engine customers metallic and CMC material capability to meet a broader range of customer requirements. CHI operates from one site in Covina, California, and employs approximately 200 people. The CHI acquisition was an asset and stock purchase for tax purposes and operates as part of the Investment Cast Products segment.

On July 26, 2015, we agreed to acquire Noranco for approximately $560 million. Noranco is a premier supplier of complex machined and fabricated components for aero-engine, landing gear and airframe applications. Noranco provides significant value to aerospace customers through a wide range of sophisticated capabilities including high precision machining and sheet metal fabrication, processing, assembly and testing. Noranco's aerostructures business strengthens our existing market position in airframe products, and their engine, landing gear, and machining capability will expand our product offering on current and next generation aircraft. Noranco employs approximately 1,100 employees across eight manufacturing sites in North America. The Noranco acquisition, which is expected to close in the third quarter of fiscal 2016, will be a stock purchase for tax purposes and will operate as part of the Airframe Products segment.



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

Consolidated Results of Operations - Comparison Between Three Months Ended June 28, 2015 and June 29, 2014



	Three Months Ended						Increase/(Decrease)
(in millions, except per share and per pound data)	6/28/15			6/29/14			$			%
Net sales	$	2,412		$	2,520		$	(108	)	(4	)%
Costs and expenses:
Cost of goods sold	1,625			1,627			(2		)	—
Selling and administrative expenses	168			156			12			8
Interest expense, net	19			16			3			19
Total costs and expenses	1,812			1,799			13			1
Income before income tax expense and equity in loss of unconsolidated affiliates	600			721			(121		)	(17	)
Income tax expense	(197		)	(237		)	40			17
Effective tax rate	32.8		%	32.9		%
Equity in loss of unconsolidated affiliates	(3		)	—			(3		)	(100	)
Net income from continuing operations	400			484			(84		)	(17	)
Net loss from discontinued operations	—			(2		)	2			(100	)
Net income	400			482			(82		)	(17	)
Net (income) loss attributable to noncontrolling interests	(1		)	1			(2		)	(200	)
Net income attributable to Precision Castparts Corp. (“PCC”)	$	399		$	483		$	(84	)	(17	)%
Net income per common share attributable to PCC shareholders - diluted:
Net income per share from continuing operations	$	2.87		$	3.32		$	(0.45	)	(14	)%
Net loss per share from discontinued operations	—			(0.01		)	0.01			(100	)
Net income per share	$	2.87		$	3.31		$	(0.44	)	(13	)%



Average market price of key metals (per pound)	Three Months Ended				Increase/(Decrease)
Average market price of key metals (per pound)	6/28/15		6/29/14		$			%
Nickel	$	5.94	$	8.38	$	(2.44	)	(29	)%
London Metal Exchange (LME)¹
Titanium	$	3.13	$	2.73	$	0.40		15	%
Ti 6-4 bulk, Metalprices.com
Cobalt	$	13.80	$	14.21	$	(0.41	)	(3	)%
Metal Bulletin COFM.8 Index¹



¹	Source: Bloomberg



Intercompany sales¹	Three Months Ended				Increase/(Decrease)
Intercompany sales¹	6/28/15		6/29/14		$			%
Investment Cast Products²	$	73	$	68	$	5		7	%
Forged Products³	384		495		(111		)	(22	)%
Airframe Products⁴	76		66		10			15	%
Total intercompany sales	$	533	$	629	$	(96	)	(15	)%



¹	Intercompany sales consist of each segment's total intercompany sales, including intercompany sales within a segment and between segments.
²	Investment Cast Products: Includes sales between segments of $14 million and $10 million for the first quarter of fiscal 2016 and 2015, respectively.
³	Forged Products: Includes sales between segments of $25 million and $30 million for the first quarter of fiscal 2016 and 2015, respectively.
⁴	Airframe Products: Includes sales between segments of $2 million and $1 million for the first quarter of fiscal 2016 and 2015, respectively.

Sales for the first quarter of fiscal 2016 were $2,412 million, a decrease of $108 million, or 4%, from $2,520 million in the same quarter last year. The current quarter includes the contribution from two businesses acquired in fiscal 2015 and two businesses acquired in the first quarter of fiscal 2016. Excluding the impact of acquisitions, organic sales declined compared to last year, reflecting a sharp decline in oil & gas and other non-industrial gas turbine ("IGT") power generation demand. The effect of foreign currency rates negatively impacted sales by approximately $53 million, with most of the impact felt in the Forged Products and Airframe Products segments. In addition, lower market-driven pricing of raw material inputs negatively impacted external sales year-over-year as raw material input prices were approximately $26 million lower in the current period versus a year ago. We would have experienced modest organic sales growth excluding the factors discussed above. Contractual material pass-through pricing increased sales by $56 million in the first quarter of fiscal 2016, compared to $63 million in the first quarter of fiscal 2015. Contractual material pass-through pricing adjustments are calculated based on average market prices of key metals as shown in the above table in trailing periods ranging from approximately one to twelve months.

Including the impact of acquisitions, aerospace sales decreased 1% from the prior year; however, large commercial sales were higher by 3%, reflecting our positions on growth programs and stronger content wins throughout our product lines. Regional/business jet demand was stable while military sales experienced double-digit declines. Sales to our power markets decreased 17% over the prior year, driven almost entirely by the 38% decline in demand from our oil & gas and other non-IGT power generation customers. Partially offsetting this decline was further growth in IGT sales. IGT sales increased 3%, reflecting the strength of our position on the latest generation of turbines. General industrial and other sales decreased 6%, primarily due to lower sales to the industrial processing and automotive sectors.

Net income from continuing operations attributable to PCC for the first quarter of fiscal 2016 was $399 million, or $2.87 per share (diluted), compared to net income from continuing operations attributable to PCC for the first quarter of fiscal 2015 of $485 million, or $3.32 per share (diluted). Net income attributable to PCC (including discontinued operations) for the first quarter of fiscal 2016 was $399 million, or $2.87 per share (diluted), compared with net income attributable to PCC of $483 million, or $3.31 per share (diluted), in the same quarter last year.

Interest and Income Tax

Interest expense for the first quarter of fiscal 2016 was $20 million, compared with $17 million for the first quarter of last year. We issued $2.0 billion of debt during the last month of the first quarter of fiscal 2016 and therefore incurred interest and financing expenses associated with that debt. Interest income was $1 million for both the first quarter of fiscal 2016 and fiscal 2015.

The effective tax rate for the first quarter of fiscal 2016 was 32.8%, compared with 32.9% for the first quarter of fiscal 2015. The lower effective tax rate in the current period is primarily due to increased benefits from non-recurring adjustments to prior year tax assets and liabilities, partially offset by reduced benefits from the domestic manufacturing deduction and earnings taxed at rates lower than the U.S. statutory rate.

Acquisitions

Fiscal 2016


•	During the first quarter of fiscal 2016, we completed two small acquisitions in the Forged Products segment.

Fiscal 2015


•	During the second quarter of fiscal 2015, we completed a small acquisition in the Airframe Products segment.

•

Discontinued Operations

There was no net income or loss from discontinued operations for the first quarter of fiscal 2016 compared to a net loss of $2 million, or $0.01 per share (diluted), for the first quarter of fiscal 2015. Net income or loss from discontinued operations represents the results of operations of entities that have been disposed of, or are classified as held for sale in accordance with discontinued operations guidance. The net loss from discontinued operations in the prior year was primarily due to costs associated with shutting down the affected facilities.

Subsequent Events

Fiscal 2016 Outlook

Based on data from The Airline Monitor as of June 2015, Boeing and Airbus aircraft deliveries are expected to moderately increase through calendar year 2015 as compared to 2014. Due to manufacturing lead times and scheduled build rates, our production volumes are approximately three to six months ahead of aircraft deliveries for mature programs. The Airline Monitor is projecting further growth in aircraft deliveries in calendar year 2016, and therefore we anticipate that our aerospace sales will continue to increase in fiscal 2016 compared to fiscal 2015.

Looking at the key end market drivers for our fiscal 2016 plan, we expect mid-single digit revenue growth in commercial aerospace, driven by higher build rates currently projected by our customers on the Boeing 787 and Airbus A350, as well as growing activity on the LEAP engine, and share gains in our aerostructures operations. We have also factored in the announced build rate cuts on the Airbus A330. Despite the slow start experienced in military demand in the first quarter of fiscal 2016, we still see a path for fiscal 2016 to look much like fiscal 2015, with stable build rates and also stable activity in our spares sales. On the regional/business jet side, we anticipate continued demand for mid to large cabin sizes, which will drive growth. We have a number of new platforms that are anticipated to ramp in fiscal 2016 which would yield a high single digit growth rate for the regional/business jet end market. In IGT, we expect continued growth driven by our position on the H-class platform and upgrade programs. Given the weak global oil & gas demand, we are anticipating volume and price pressures and expect declines in excess of 30 percent in this market for fiscal 2016 compared to fiscal 2015. Within our general industrial and other markets, we are expecting fiscal 2016 to be similar to fiscal 2015, with risk of secondary impacts due to weakness in the oil & gas markets. We believe our plan for fiscal 2016 is balanced and achievable, targeting growth and margin expansion in the Investment Cast Products and Airframe Products segments over fiscal 2015 levels. We expect the Forged Products segment will experience low single-digit sales decline versus fiscal 2015 and modest margin expansion compared to the fourth quarter of fiscal 2015.

Results of Operations by Segment - Comparison Between Three Months Ended June 28, 2015 and June 29, 2014



(in millions)	Three Months Ended						Increase/(Decrease)
(in millions)	6/28/15			6/29/14			$			%
Net sales:
Investment Cast Products	$	632		$	625		$	7		1	%
Forged Products	1,001			1,088			(87		)	(8	)
Airframe Products	779			807			(28		)	(3	)
Consolidated net sales	$	2,412		$	2,520		$	(108	)	(4	)%
Segment operating income (loss):
Investment Cast Products	$	237		$	224		$	13		6	%
% of sales	37.5		%	35.8		%
Forged Products	204			309			(105		)	(34	)
% of sales	20.4		%	28.4		%
Airframe Products	218			242			(24		)	(10	)
% of sales	28.0		%	30.0		%
Corporate expenses	(40		)	(38		)	(2		)	5
Total segment operating income	619			737			$	(118	)	(16	)%
% of sales	25.7		%	29.2		%
Interest expense, net	19			16
Consolidated income before income tax expense and equity in loss of unconsolidated affiliates	$	600		$	721

Investment Cast Products

Investment Cast Products' sales were $632 million in the first quarter of fiscal 2016, compared to sales of $625 million in the first quarter of fiscal 2015, an increase of $7 million. Commercial aerospace sales increased by approximately 6% year-over-year, with balanced performance from both original equipment manufacturers (OEM) and spares. Regional/business jet sales were stable, while military shipments were lower by 15%, reflecting weaker demand for components for new build aircraft. In addition, the segment saw growth of approximately 4% in IGT sales, driven by the Company's higher content on upgrade programs and new production turbines, and growing spares demand. General industrial and other sales declined approximately 12%, primarily as a result of lower sales to the automotive and impellers sectors.

Operating income was $237 million in the first quarter of fiscal 2016, an increase of $13 million from $224 million in the first quarter of fiscal 2015. Operating income as a percent of sales for the first quarter of fiscal 2016 increased to 37.5% from 35.8% of sales in the same period last year, an increase of 1.7 percentage points. Investment Cast Products' operations continued to deliver solid operating margins by effectively leveraging higher volumes. Contractual pricing related to pass-through of increased material costs was approximately $12 million in the first quarter of fiscal 2016, compared to approximately $13 million in the same period last year. Contractual material pass-through pricing diluted operating margins by 0.7 percentage points in the first quarter of fiscal 2016 compared to 0.8 percentage points in the same period a year ago.

The Investment Cast Products segment has solid content on most major aircraft production platforms. Fiscal 2016 sales gains are expected to be driven by the next step-up in commercial build rates currently projected by our customers on platforms such as the Boeing 787 and Airbus A350 and narrow-body re-engining. The acquisition of CHI will allow us to offer high-temperature engine solutions across a broad range of materials. We expect to leverage higher commercial aerospace volumes by adding incremental capacity to meet higher demand and at the same time, improve our overall efficiency and cost structure. We expect IGT growth to continue into fiscal 2016 due to growth in high-efficiency, large-capacity new IGT platforms, IGT upgrade programs and higher spares activity. Overall, we expect mid-single digit sales growth with incremental operating margins above our typical 35 to 40 percent.

Forged Products

Forged Products' sales were $1,001 million in the first quarter of fiscal 2016, compared to sales of $1,088 million in the first quarter of fiscal 2015, a decrease of $87 million. Results for the first quarter of fiscal 2016 include contributions from two small acquisitions that were not included in the prior year. Aerospace sales decreased approximately 1% year over year due to decreased military sales, partially offset by growth of 5% in commercial aerospace sales. Military sales experienced double-digit declines reflecting lower OEM build activity, while regional/business jet sales were modestly lower. Sales to the power markets decreased approximately 33%, primarily driven by lower oil & gas and other non-IGT power generation demand, while IGT was stable. General industrial and other sales decreased approximately 1% compared to the prior year. Lower

market-driven pricing of raw material inputs negatively impacted external sales year-over-year as raw material input prices were approximately $25 million lower in the current period versus a year ago. In addition, the effect of foreign currency rates negatively impacted sales by approximately $22 million. Contractual material pass-through pricing contributed approximately $43 million of sales in the first quarter of fiscal 2016 compared to approximately $48 million of sales in the first quarter of fiscal 2015.

Operating income was $204 million for the first quarter of fiscal 2016, a decrease of $105 million from $309 million in the first quarter of fiscal 2015. Operating income as a percent of sales for the first quarter of fiscal 2016 decreased to 20.4% from 28.4% of sales in the same period last year. Operating income as a percent of sales decreased compared to a year ago as a result of negative volume leverage and weaker product mix in the oil & gas market, coupled with higher other variable costs. Contractual pass-through of higher raw material costs diluted operating margins by 0.9 percentage points in the first quarter of fiscal 2016 compared to 1.3 percentage points in the same period a year ago.

Similar to the Investment Cast Products segment, the Forged Products segment is aligned with large commercial aerospace build rates. We expect increased demand in fiscal 2016 in aerospace and IGT markets given our customers' current forecasts, with TIMET share gains favorably impacting sales, partially offset by foreign currency headwinds. However, given the continued uncertainty in the oil and gas market, we cannot predict when this market will recover, and further sales reductions may occur. All those inputs net to our expectation for a low-single digit sales decline for the segment versus fiscal 2015. Furthermore, in March 2015, the TIMET Morgantown facility suffered a serious incident and an electron beam furnace will be out of commission for an extended period of time. We anticipate this will have a $25 million to $30 million negative impact to operating income in fiscal 2016. The segment will benefit from the impact of restructuring actions taken at the end of fiscal 2015. As is the case every year, we will perform maintenance during the second quarter, and in fiscal 2016, we have a planned press upgrade, which will result in an extended outage occurring at our Wyman-Gordon UK facility. Taking into consideration all of the factors above, we expect modest margin expansion in the Forged Products segment in fiscal 2016 compared to the fourth quarter of fiscal 2015.

Airframe Products

Airframe Products' sales were $779 million for the first quarter of fiscal 2016, compared to sales of $807 million in the first quarter of fiscal 2015, a decrease of $28 million. Results for the first quarter of fiscal 2016 include contributions for a full quarter from ADI and a small acquisition in fiscal 2015. The effect of foreign currency rates negatively impacted sales by approximately $24 million in the current period versus a year ago. Commercial aerospace sales, the chief driver of this segment, were relatively flat year-over-year, reflecting fastener demand timing and the impact of new development work on aerostructures sales. In fasteners, we saw several of our facilities impacted by demand timing associated with the expansion of a customer's supply chain management initiatives. Regarding aerostructures, we have been very successful in winning new positions, but the ramp of that new work created some disruption in our operations, and constrained activity in other areas. General industrial and other sales decreased approximately 17% when compared to the prior year, primarily due to lower sales to the automotive and construction sectors.

Operating income was $218 million for the first quarter of fiscal 2016, a decrease of $24 million from $242 million in the first quarter of fiscal 2015. Operating income as a percent of sales for the first quarter of fiscal 2016 decreased to 28.0% from 30.0% of sales in the same period last year. Operating income as a percent of sales decreased compared to a year ago as a result of lower volumes, product mix, and initial inefficiencies on new product introductions.

Airframe Products is expecting growth in fiscal 2016, with sales up near the low end of the mid-single digit range, reflecting higher aerospace build rates, share gains, and further contributions from recent acquisitions, partially offset by foreign currency headwinds and the challenges of new product introductions. Demand to support current build rates is expected to drive sales in the fasteners operations in fiscal 2016. New business wins have secured market share for the aerostructures operations, and we anticipate that the contracts in place will lead to increased production in the second half of fiscal 2016. Build rate increases currently projected by our customers on platforms such as the Boeing 787 and Airbus A350 and narrow-body re-engining provide further upside potential over the next 24 months. The Noranco acquisition complements our product offering and further expands our ability to support the breadth of our customers' requirements. We expect the segment to deliver strong leverage on its growth, with incremental margins in the 40 percent range.

Changes in Financial Condition and Liquidity

Total assets of $20,382 million at June 28, 2015 represented a $954 million increase from the $19,428 million balance at March 29, 2015. The increase in total assets principally reflects proceeds from the $2.0 billion debt offering discussed below, cash generated from operations during the first three months of fiscal 2016 totaling $446 million and increased inventories in anticipation of planned shutdowns in the second quarter of fiscal 2016 and as a result of new product introduction, partially offset by the repurchase of common stock.

Total capitalization at June 28, 2015 was $16,505 million, consisting of $5,286 million of total debt and $11,219 million of PCC shareholders' equity. The debt-to-capitalization ratio increased to 32.0% at June 28, 2015 from 29.6% at the end of fiscal 2015, reflecting increased debt associated with the $2.0 billion debt offering discussed below, and lower cumulative translation adjustments, partially offset by the impact of increased equity from net income.

Cash as of June 28, 2015 was $1,056 million, an increase of $582 million from the end of fiscal 2015. Total debt was $5,286 million, an increase of $699 million from the end of fiscal 2015. The net change in cash and debt primarily reflects stock repurchases of $232 million, cash paid to acquire businesses (net of cash acquired) of $266 million, and capital expenditures of $94 million, partially offset by cash generated by operations for the first three months of fiscal 2016 of $446 million and common stock issuances of $27 million.

We expect capital expenditures for fiscal 2016 to increase to approximately $550 million based on our current forecasts. These expenditures are targeted for facility expansions to increase capacity and reduce costs, equipment upgrades and press refurbishments, primarily in the Forged Products and Airframe Products segments.

In the first three months of fiscal 2016, we contributed $43 million to our defined benefit pension plans, of which $31 million was voluntary. We expect to contribute approximately $8 million of additional required contributions in fiscal 2016, for total contributions to the defined benefit pension plans of approximately $51 million in fiscal 2016. Including contributions in the first three months of fiscal 2016, we expect to contribute a total of approximately $7 million to other postretirement benefit plans during fiscal 2016.

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

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

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

On June 1, 2015, we issued $2.0 billion aggregate principal amount of notes (collectively, the "Senior Notes") as follows: $550 million of 2.250% Senior Notes due 2020; $850 million of 3.250% Senior Notes due 2025; $275 million of 4.200% Senior Notes due 2035; and $325 million of 4.375% Senior Notes due 2045. The Senior Notes are unsecured obligations of the Company and rank equally with all of the other existing and future senior, unsecured and unsubordinated debt of the Company. We issued the Senior Notes to take advantage of the favorable interest rate environment and raise funds to enable us to pay down the majority of outstanding commercial paper balances. We expect to use future commercial paper capacity to fund repayment of our $500 million 0.700% Senior Notes due in December 2015 and for general Corporate purposes, which may include acquisitions and share repurchases.

On December 16, 2013, we entered into a five-year, $1.0 billion revolving credit facility (the "2013 Credit Agreement") (with a $500 million increase option, subject to approval of the lenders) maturing December 2018, unless extended pursuant to two 364-day extension options. On June 15, 2015, we amended the agreement to extend the maturity date one year to December 2019, utilizing one of the two extension options. The 2013 Credit Agreement contains customary representations and warranties, events of default, and financial and other covenants. The 364-Day and 2013 Credit Agreements may be referred to collectively as the "Credit Agreements." We had not borrowed funds under the Credit Agreements as of June 28, 2015.

interest rate was 0.2%. During the first three months of fiscal 2016, the largest daily balance of outstanding commercial paper borrowings was $1,872 million.

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

Our financial covenant requirement and actual ratio as of June 28, 2015 was as follows:



	Covenant Requirement		Actual
Consolidated leverage ratio¹	65.0%	(maximum)	32.0%



¹	Terms are defined in the Credit Agreements.

As of June 28, 2015, we were in compliance with the financial covenant in the Credit Agreements.

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

Critical Accounting Policies

For a discussion of our critical accounting policies, see “Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations” in our Form 10-K filed on May 28, 2015.

Forward-Looking Statements

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



Item 3.	Quantitative and Qualitative Disclosures About Market Risk

There have been no material changes to our market risk exposure since March 29, 2015.



Item 4.	Controls and Procedures

PCC management, including the Chief Executive Officer and Chief Financial Officer, have conducted an evaluation of the effectiveness of disclosure controls and procedures as of the end of the period covered by this report pursuant to Exchange Act Rule 13a-15(b). Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that the disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in reports filed with the Securities and Exchange Commission is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, and is accumulated and communicated to Company

management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. There have been no changes in internal control over financial reporting that occurred during the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

PART II. OTHER INFORMATION



Item 1.	Legal Proceedings

In February 2013, South Coast Air Quality Management District ("SCAQMD") issued a Notice of Violation alleging that one of our operations violated fuel and emission limits in the facility's air permit between September 2012 and February 2014. The noncompliance issue was resolved to SCAQMD's satisfaction in May 2014. In July 2015, we agreed to pay SCAQMD $342,500 to settle the Notice of Violation.



Item 1A.	Risk Factors

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

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


•	inaccurate assessment of liabilities;


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


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


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


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


	when needed; and


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

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

We operate in cyclical markets.

A significant portion of our revenues are derived from the highly cyclical aerospace and power generation markets. Our sales to the aerospace industry constituted 70 percent of our total sales in fiscal 2015. Our sales to the power market constituted 17 percent of our total sales in fiscal 2015.

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

The power generation market is also cyclical in nature. Demand for power generation products is global and is affected by the state of the U.S. and world economies, the availability of financing to power generation project sponsors, the political environments of numerous countries and environmental constraints imposed upon power project operators. The availability of

fuels and related prices also have a large impact on demand. Reductions in demand for our power generation products could have a material adverse effect on our business.

We also sell products and services to customers in the oil and gas, automotive, chemical and petrochemical, medical, industrial process, and other general industrial markets. Each of these markets is cyclical in nature, and the market for oil and gas products can be particularly volatile. 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, which for the oil and gas market include the levels of exploration, development, and production activity of oil and natural gas companies and the trends in oil and natural gas prices. Cyclical declines or sustained weakness in any of these markets could have a material adverse effect on our business.

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

A substantial portion of our business is conducted with a relatively small number of large direct and indirect customers, including General Electric Company, United Technologies Corporation, Rolls Royce plc, Airbus, Spirit AeroSystems, and The Boeing Company. General Electric accounted for approximately 13 percent of our total sales for fiscal 2015. No other customer directly accounted for more than 10 percent of total sales; however, Boeing, Airbus, Rolls Royce, Spirit AeroSystems, and United Technologies are also considered key customers. A financial hardship experienced by any one of these key customers, the loss of any of them or a reduction in or substantial delay of orders from any of them could have a material adverse effect on our business.

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

Sales to the military sector constituted approximately 10 percent of our fiscal 2015 sales. Defense spending is subject to appropriations and to political pressures that influence which programs are funded and which are canceled. Reductions in domestic or foreign defense budgets or military aircraft procurement, delays in funding or reprioritization of government spending away from defense programs in which we participate could adversely affect our business.

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

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

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

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

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

We use a number of raw materials in our products, including certain metals such as nickel, titanium, cobalt, tantalum and molybdenum, various rare earth elements, and titanium-containing feedstock ore (natural rutile and upgraded ilmenite), which are found in only a few parts of the world, are available from a limited number of suppliers and, in some cases, are considered conflict minerals for U.S. regulatory purposes if originating in certain countries. The availability and costs of these metals and

elements may be influenced by private or government cartels, changes in world politics or regulatory requirements, labor relations between the producers and their work forces, unstable governments in exporting nations, export quotas imposed by governments in countries with rare earth element supplies, market forces of supply and demand, and inflation. These raw materials are required for the alloys or processes used or manufactured in our investment cast products, forged products and airframe products segments. We have escalation clauses for nickel, titanium and other metals in a number of our long-term contracts with major customers, but we are not usually able to fully offset the effects of changes in raw material costs. We also employ “price-in-effect” metal pricing in our alloy production businesses to lock-in the current cost of metal at the time of production or time of shipment. The ability of key metal suppliers to meet quality and delivery requirements can also impact our ability to meet commitments to customers. Future shortages (either to us or our customers) or price fluctuations in raw materials could result in decreased sales or margins or otherwise adversely affect our business. The enactment of new or increased import duties on raw materials imported by us could also increase the costs to us of obtaining the raw materials and might adversely affect our business.

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

A number of our products are manufactured and sold under U.S. government contracts or subcontracts. Consequently, we are directly and indirectly subject to various federal rules, regulations and orders applicable to government contractors. From time to time, we are also subject to government inquiries and investigations of our business practices due to our participation in government programs. These inquiries and investigations are costly and consuming of internal resources. Violation of applicable government rules and regulations could result in civil liability, in cancellation or suspension of existing contracts or in ineligibility for future contracts or subcontracts funded in whole or in part with federal funds, any of which could have a material adverse effect on our business.

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

We are subject to various federal, state and foreign environmental laws and regulations concerning, among other things, water discharges, air emissions, hazardous material and waste management and environmental cleanup. Environmental laws and regulations continue to evolve and we may become subject to increasingly stringent environmental standards in the future, particularly under air quality and water quality laws and standards related to climate change issues, such as reporting of greenhouse gas emissions. We are required to comply with environmental laws and the terms and conditions of environmental permits required for our operations. Failure to comply with these laws or permits could result in fines and penalties, interruption of manufacturing operations or the need to install pollution control equipment that could be costly. We also may be required to make additional expenditures, which could be significant, relating to environmental matters on an ongoing basis. We also own properties, or conduct or have conducted operations at properties, where hazardous materials have been used for many years, including during periods before careful management of these materials was required or generally believed to be necessary. Consequently, we will continue to be subject to environmental laws that impose liability for historical releases of hazardous substances.

Our financial statements include estimated liabilities for future costs arising from environmental issues relating to our properties and operations. Our accruals for known environmental liabilities represent our best estimate of our probable future obligations for the investigation and remediation of known contaminated sites. Our accruals include asserted and unasserted claims. The estimates of our environmental costs are based on currently available facts, present laws and regulations and current technology and take into consideration our prior experience in site investigation and remediation, the data available for each site and the professional judgment of our environmental specialists and consultants. Although recorded liabilities include our best estimate of all probable costs, our total costs for the final settlement of each site cannot be predicted with certainty due to the variety of factors that make potential costs associated with contaminated sites inherently uncertain, such as the nature and extent of site contamination, available remediation alternatives, the extent to which remedial actions will be required, the time period over which costs will be incurred, the number and economic viability of other responsible parties and whether we have any opportunity of contribution from third parties, including recovery from insurance policies. In addition, sites that are in the early stages of investigation are subject to greater uncertainties than mature sites that are close to completion. Although the sites we identify vary across the spectrum, a majority of our sites could be considered at an early stage of the investigation and remediation process. Therefore, our cost estimates and the accruals associated with those sites are subject to greater uncertainties. Environmental contingent liabilities are often resolved over a long period of time, and the timing of expenditures depends on a number of factors that vary by site. We expect that we will expend present accruals over many years, and that remediation of all currently known sites will be completed within an estimated 41 years. We cannot ensure that our estimated liabilities are adequate to cover the total cost of remedial measures that may eventually be required by environmental authorities with respect to known environmental matters or the cost of claims that may be asserted in the future with respect to environmental matters about which we are not yet aware. Accordingly, the costs of environmental remediation or claims may exceed the amounts accrued.

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

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

Our business is subject to risks associated with international operations.

We purchase products from and supply products to businesses located outside of the U.S. We also have significant operations located outside the U.S. In fiscal 2015, 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;


•	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. 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 due to economic conditions or otherwise, or increased competition from local manufacturers who have cost advantages or who may be preferred suppliers, or effects of anti-dumping or other import duties. Also, Chinese commercial laws, regulations and interpretations applicable to non-Chinese market participants such as us are rapidly changing. These laws, regulations and interpretations could impose restrictions on our ownership or operations of our interests in China and have a material adverse effect on our business.

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

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

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

Our manufacturing processes depend on certain sophisticated and high-value equipment, such as some of our forging presses for which there may be only limited or no production alternatives. Unexpected failures of this equipment could result in production delays, revenue loss and significant repair costs. In addition, our factories rely on the availability of electrical power and natural gas, transportation for raw materials and finished products and employee access to our workplace that are subject to interruption in the event of severe weather conditions or other natural or manmade events. While we maintain backup resources

to the extent practicable, a severe or prolonged equipment outage or other interruptive event affecting areas where we have significant manufacturing operations may result in loss of manufacturing or shipping days, which could have a material adverse effect on our business. Natural or manmade events that interrupt significant manufacturing operations of our customers also could have a material adverse effect on our business.

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

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

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

Our operations rely heavily on our skilled employees. Any labor shortage, disruption or stoppage caused by any deterioration in employee relations or difficulties in the renegotiation of labor contracts could reduce our operating margins and income. Approximately 22 percent of our employees are affiliated with unions or covered by collective bargaining agreements. Failure to negotiate a new labor agreement when required could result in a work stoppage. Although we believe that our labor relations have generally been satisfactory, it is possible that we could become subject to additional work rules imposed by agreements with labor unions, or that work stoppages or other labor disturbances could occur in the future, any of which could reduce our operating margins and income and place us at a disadvantage relative to non-union competitors.

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

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

Product liability and contractual liability risks could adversely affect our operating results.

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

Our inventories could be subject to significant valuation changes due to our use of the last-in, first-out ("LIFO") inventory valuation method.

The cost for the majority of our inventories is determined on a LIFO basis. Under the LIFO valuation method for inventories, changes in the cost inputs to produce inventories, including raw materials, labor and fixed costs, are recognized in cost of goods sold in the current period. Accordingly, the carrying value of our LIFO inventories may be higher or lower than current replacement costs for such inventory. When LIFO cost is greater than current cost, there is an increased likelihood that our inventories could be subject to write-downs to market value. As of June 28, 2015, the LIFO cost of our inventories exceeds the current cost by $709 million. The key drivers that are causing our LIFO costs to exceed current costs are discussed in Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations under the heading of “Critical accounting policies” and the sub-heading “Valuation of inventories” in our Form 10-K filed on May 28, 2015. If actual demand is significantly less than the future demand that we have projected, inventory write-downs may be required, which could have a material adverse effect on the value of our inventories and reported operating results.

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

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

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

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


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


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


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


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


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



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

ISSUER PURCHASES OF EQUITY SECURITIES

The following table provides information about purchases of our common stock during the quarter ended June 28, 2015:



Period	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs ⁽¹⁾	Maximum Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs ⁽¹⁾ (in millions)
3/30/15-5/3/15	448,539	$	205.09	10,260,633	$	222
5/4/15-5/31/15	601,461	$	215.05	10,862,094	$	2,093
6/1/15-6/28/15	242,056	$	206.58	11,104,150	$	2,043
Total	1,292,056	$	210.01	11,104,150	$	2,043

(1) During fiscal 2013 through 2015, the Board of Directors approved $2.5 billion for use in the Company's stock repurchase program. On May 13, 2015, the Board of Directors approved a $2.0 billion expansion to the Company's existing program to repurchase shares of the Company’s common stock, effective immediately and continuing through June 30, 2017. The Company intends to repurchase outstanding shares from time to time in the open market, subject to market conditions.



Item 6.	Exhibits

(a) Exhibits



	10.1	Amendment No. 2 and Consent to Credit Agreement, dated June 15, 2015, among Precision Castparts Corp. and Bank of America, N.A., as Administrative Agent.

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

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

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

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

	101.INS	XBRL Instance Document.

	101.SCH	XBRL Taxonomy Extension Schema Document.

	101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document.

	101.DEF	XBRL Taxonomy Extension Definition Linkbase Document.

	101.LAB	XBRL Taxonomy Extension Label Linkbase Document.

	101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



		PRECISION CASTPARTS CORP.

DATE:	August 7, 2015	/s/ Shawn R. Hagel
		Shawn R. Hagel Executive Vice President and Chief Financial Officer (Authorized Signatory and Principal Financial and Accounting Officer)

Attached files

Stock widget

Investing forum

PRECISION CASTPARTS CORP Reports