The Daily Magic Formula Stock for 08/31/2008 is Precision Castparts Corp. According to the Magic Formula Investing Web Site, the ebit yield is 11% and the EBIT ROIC is 50-75 %.
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Precision Castparts Corp. (â€śPCCâ€ť or â€śthe Companyâ€ť), a worldwide manufacturer of complex metal components and products, provides high-quality investment castings, forgings and fasteners/fastener systems for critical aerospace and industrial gas turbine (â€śIGTâ€ť) applications. We also provide investment castings and forgings for general industrial, automotive, armament, medical and other applications; nickel alloys and product forms, as well as cobalt alloys, for the aerospace, chemical processing, oil and gas, pollution control and other industries; fasteners for automotive and general industrial markets; specialty alloys, waxes and metal processing solutions for the investment casting industry; refiner plates, screen cylinders and other products for the pulp and paper industry; metal-injection-molded and ThixoFormed â„˘ parts for automotive and other markets; low-pressure sewer systems; gas monitoring systems for the power generation industry; and metalworking tools for the fastener market and other applications.
Products and Markets
We manufacture complex metal components and products in three principal business segments: Investment Cast Products, Forged Products and Fastener Products. Each of these three business segments is described below.
Investment Cast Products
Our Investment Cast Products segment includes PCC Structurals, PCC Airfoils and Specialty Materials and Alloys Group (â€śSMAGâ€ť). These operations manufacture investment castings for aircraft engines, IGT engines, airframes, medical prostheses, armament and other industrial applications. The segment also provides alloys and waxes to PCCâ€™s investment casting operations, as well as to other investment casting companies. The Investment Cast Products segment accounted for approximately 32 percent of our sales in fiscal 2008.
We believe we are the market leader in manufacturing large, complex structural investment castings, and we are the leading manufacturer of airfoil investment castings used in jet aircraft engines. We manufacture investment castings for every jet aircraft engine program in production or under development by our key customers. We are also the market leader in manufacturing structural and airfoil investment castings for IGT and aeroderivative engines used for electric power generation, and we have expanded into the structural airframe and armament markets. In addition, we make investment castings for use in the medical prosthesis, satellite launch vehicle and general industrial markets.
Investment casting technology involves a technical, multi-step process that uses ceramic molds in the manufacture of metal components with more complex shapes, closer tolerances and finer surface finishes than parts manufactured using other casting methods. The investment casting process begins with the creation of a wax pattern of the part to be cast, along with wax gates and risers to create pathways through which molten metal can flow into the ceramic mold. A ceramic shell is then formed around the wax pattern, followed by melting and draining the wax from the ceramic shell. Finally, molten metal is poured into the ceramic shell, the shell is removed after the metal cools, and the part undergoes final processing and inspection.
Because of the complexity of the manufacturing process and the application of proprietary technologies, we believe we are currently one of the few manufacturers that can consistently produce the largest, complex, structural investment castings in quantities sufficient to meet our customersâ€™ quality and delivery requirements. Our emphasis on low-cost, high-quality products and timely delivery has enabled us to become the leading supplier of structural and airfoil castings for jet aircraft and IGT engines and to expand into the structural airframe and armament markets.
The commercial aerospace market cycle is a critical determinant of demand for our precision investment casting products. In fiscal 2002, the major economies of the United States and Europe began to slow, and, with the terrorist attacks on September 11, 2001, air travel declined significantly, resulting in several large commercial airline bankruptcies and weakened financial conditions for other airlines. This situation reduced demand for our commercial aerospace products, partially offset by military production, which increased in the aftermath of September 11. At the outset of fiscal 2005, however, the commercial replacement market began a vigorous and sustained recovery driven by higher production rates of commercial aircraft at Airbus and Boeing, which has lasted throughout fiscal 2008 and is anticipated to continue through fiscal 2009 and beyond.
Large jet aircraft engines are manufactured by a small number of suppliers, including General Electric (â€śGEâ€ť), Pratt & Whitney (a division of United Technologies Co.), Rolls-Royce and several joint ventures. As a result, we believe a high level of customer service and strong, long-term customer relationships will continue to be important to achieving our goals. We have been supplying castings for jet engines to GE for more than 40 years, and we have been supplying Pratt & Whitney with castings for more than 30 years for its military and commercial jet engines. In addition, we have supplied small structural investment castings to Rolls-Royce for approximately 25 years and large structural castings for approximately 20 years, most recently for use in its Trent series of jet aircraft engines. As we have been able to cast larger and more complex parts, manufacturers of large jet aircraft engines have made increasing use of our structural castings.
Aerospace Structural Castings
Our structural castings business manufactures the largest diameter stainless steel, nickel-based superalloy and titanium investment castings in the world, as well as a variety of smaller structural castings. These castings are stationary components that form portions of the fan, compressor, combustor and turbine sections of a jet aircraft engine, where strength and structural integrity are critical. Structural investment castings are sold primarily as original equipment to jet aircraft engine manufacturers.
We believe that trends in the manufacturing of aircraft jet engines will continue to increase our revenue per engine. As the design of new generation aircraft engines has emphasized increased thrust, higher fuel efficiency and reduction of noise and exhaust emissions, engine operating temperatures and pressures have increased. These conditions require the use of engine parts made of alloys that are able to withstand extreme operating conditions and provide an optimum strength-to-weight ratio. Many of these alloys are particularly suited for use in the investment castings we manufacture. In addition, titanium, a metal with a lower melting temperature than stainless steel or superalloys, is used in all but the hottest parts of the engine because of its considerable weight savings. Titanium is an exceptionally difficult metal to cast because of its reaction with other elements. However, we have developed the advanced technology and manufacturing processes to cast large, complex investment castings in titanium alloys. Many new generation engines, which are expected to be built through the next decade and beyond, make significantly greater use of our products than did previous engine designs.
We have also expanded into the structural airframes market through the production of components manufactured primarily from titanium and aluminum alloys. Aircraft manufacturers have shown substantial interest in using investment castings for airframe applications such as titanium aileron and flap hinges, pylons (engine mounts), wing spars and wing ribs, as well as aluminum alloy nacelle segments (thrust reversers), cascades, aircraft access doors, electronic boxes and pump housings for hydraulic and fuel systems.
Aerospace Airfoil Castings
We manufacture precision cast airfoils, such as the stationary vanes and rotating blades used in the turbine section of jet aircraft engines. This part of the engine is considered the â€śhot sectionâ€ť, where temperatures may exceed 2,400 degrees Fahrenheit. These conditions require use of special nickel-based superalloys and state-of-the-art casting techniques to manufacture airfoil castings with internal cooling passages that enable the airfoils to operate in an environment with temperatures higher than the melting point of the metal.
We use various casting technologies to manufacture turbine airfoils. A conventional casting process enables us to produce equiaxed airfoil castings, in which the metal grains are oriented randomly throughout the casting. A more advanced process enables us to produce directionally solidified (â€śDSâ€ť) airfoil castings, in which the metal grains are aligned longitudinally. This alignment decreases the internal stress on the weakest portion of a metal part where the various grains adjoin, thereby providing increased strength and improved efficiencies in engine performance over equiaxed parts. An even more advanced process enables us to produce single crystal (â€śSXâ€ť) airfoil castings, which consist of one large superalloy crystal without grain boundaries. SX castings provide greater strength and performance characteristics than either equiaxed or DS castings, as well as longer engine life.
As engines grow to generate greater thrust for larger aircraft, the turbine sections of these engines must work harder and burn hotter. As a result, the major aircraft engine manufacturers have increasingly been designing their engines with a greater number of DS and SX blades. The DS and SX cast airfoils we produce, with their complex cooling passages, have been instrumental in enabling these engines to operate at higher temperatures. SX cast airfoils are used in both new and redesigned engines where performance requirements are higher.
The demand for aerospace airfoil castings is determined primarily by the number and type of engines required for new jet aircraft; the intervals between hot section maintenance, which are driven by engine cycles (takeoffs and landings); and the inventory levels of replacement parts maintained by the principal jet aircraft engine manufacturers and repair centers. A jet engineâ€™s airfoil components have shorter useful lives than structural investment castings and are replaced periodically during engine maintenance. As a result, our sales of aerospace airfoil castings are less affected by the cyclical patterns of the aerospace industry than are our sales of structural investment castings. The timing for replacement of aerospace airfoil castings principally depends on engine cycles and the expected life of the airfoil casting. Based upon information from our major customers, we believe that more than half of our sales of airfoil castings used in aircraft turbine engines are replacement parts.
In fiscal 1994, we began to manufacture investment castings for IGT engines. Due to contractual gains over the past several years, our market share has increased significantly, and we believe we are the leading supplier of investment castings used in IGT engines. Domestic IGT production began a significant decline in calendar 2001 due to weak economic conditions and falling demand for power generation capacity, mitigated slightly by continued international growth. In fiscal 2006, the market started to flatten, and our IGT business benefited from continued market share gains and international growth, along with a slight recovery in domestic OEM orders. In recent years, international customers have been placing orders for even more efficient turbines, incorporating more advanced casting technology, thus increasing our dollar content per unit. This development, along with increased aftermarket activity and higher market shares in a growing customer base, has driven the requirement for significant new capacity. Our IGT products consist of airfoil castings and high-temperature combustion hardware used in large, land-based gas turbines designed for electrical power generation. In addition, we manufacture structural and airfoil castings for aeroderivative gas turbine engines, which are also used for power generation, as well as for other commercial and military land and marine-based applications.
IGT manufacturers have significantly improved the efficiency and reduced the emissions profiles of industrial gas turbines, principally by incorporating advanced components in new engines as well as in refurbished and upgraded turbines in the field. We have leveraged our DS and SX airfoil casting knowledge from the aerospace market into the IGT market to produce blades and vanes that are better able to withstand the extreme heat and stresses of new higher-temperature gas turbines. IGT engines are built with investment castings that are similar, but generally larger, than the blades and vanes we manufacture for the aerospace market. Because of their size, IGT airfoils are usually more difficult to cast than smaller aerospace airfoils with the same properties.
Since industrial gas turbines are primarily used in electrical power generation, castings sales for new IGT engines are tied to the growth of global electricity consumption, while demand for replacement parts depends on the size and utilization rate of the installed base.
Other Investment Casting Products
Our strategy for profitable growth also includes the pursuit of other opportunities for our existing investment casting technology. We have been expanding the application of our investment casting technology in the medical prosthesis, satellite launch vehicle and general industrial markets by manufacturing such products as artificial hips and knees, parts for satellite launch vehicles, and impellers for pumps and compressors. In addition, we are manufacturing an increasing number of large titanium components for armament systems, including the BAE lightweight howitzer, which entered full-scale production in fiscal 2005.
Specialty Materials and Alloys
Our SMAG operation principally provides alloys and waxes to the Companyâ€™s investment casting operations, as well as to other companies with investment casting or other foundry operations. SMAG is comprised of Cannon Muskegon and M. ArgĂĽeso & Company (â€śArgĂĽesoâ€ť).
Cannon Muskegon produces alloys primarily used by manufacturers of investment castings, which include several patented and trademarked alloys formulated specifically for the casting of directionally solidified and single crystal airfoils that operate in high-temperature, high-stress engine environments. Cannon Muskegon supplies alloys to us, as well as to other companies with investment casting operations. The alloys produced by Cannon Muskegon also serve such diverse markets as medical, recreational and general industrial.
ArgĂĽeso manufactures advanced technology investment casting wax blends for us and other companies with investment casting operations. In addition, ArgĂĽeso serves the machining industry with Rigidax Â® tooling compound, a patented product used to prevent part vibration or movement during a machining operation.
We are among the leading manufacturers of forged components for the aerospace and power generation markets. Forged Productsâ€™ aerospace and IGT sales are primarily derived from the same large engine customers served by the Investment Cast Products segment, with additional aerospace sales to manufacturers of landing gear and airframes. Similarly, the dynamics of the aerospace and power generation markets, as described in the Investment Cast Products section above, are virtually the same for Forged Products. In addition, we manufacture high performance nickel-based alloys used to produce forged components for aerospace and non-aerospace markets, which include products for oil and gas, chemical processing and pollution control applications. The Forged Products segment accounted for approximately 46 percent of our sales in fiscal 2008.
We manufacture forged components from sophisticated titanium and nickel-based alloys for jet engines, including fan discs, compressor discs, turbine discs, seals, spacers, shafts, hubs and cases. Our airframe structural components are used on both commercial and military aircraft and include landing gear beams, bulkheads, wing structures, engine mounts, struts and tail flaps and housings. These parts are made of titanium, steel or other alloys. We also provide forged products for use in power plants worldwide, as well as in oil and gas industry applications. These products include discs, spacers and valve components for land-based steam turbine and industrial gas turbine engines, as well as shafts, cases, and compressor and turbine discs for marine gas engines. We also produce a variety of mechanical and structural tubular forged products, primarily in the form of extruded, seamless pipe, for the domestic and international energy markets, which include coal and nuclear power plants, co-generation projects, and retrofit and life-extension applications. For naval defense applications, we supply forged components for propulsion systems on nuclear submarines and aircraft carriers, as well as forgings for pumps, valves and structural applications.
Our forging business, which employs six different manufacturing processes, involves heating high-temperature nickel alloys, titanium or steel and then shaping them through pressing or extrusion, using hydraulic and mechanical presses with capacities ranging up to 55,000 tons. The process employed is determined based on the raw materials and the product application. The six manufacturing processes are summarized below:
Open-Die Forging â€”In this process, the metal is pressed between dies that never completely surround the metal, thus allowing it to be observed during the process. This manufacturing method is used to create relatively simple, preliminary shapes to be processed further by closed-die forging.
Closed-Die Forging â€”Closed-die forging involves pressing heated metal into shapes and sizes determined by machined impressions in specially prepared dies that completely surround the metal. This process allows the metal to flow more easily within the die cavity and, thus, produces forgings with superior surface finish and tighter tolerances, with enhanced repeatability of the part shape.
Hammer Forging â€”This form of closed-die forging uses multiple impact blows to shape a component between specially contoured dies. Forging hammers can be classified into two main types: single action and counterblow. Our counterblow hammers, which couple upper and lower ram movement to produce the impact forces required for large components, can offer improved near-net-shape capability compared to conventional press forging. Hammer forging is one of the oldest forging processes; however, computer-controlled technology has enabled the process to meet modern manufacturing requirements.
Conventional/Multi-Ram â€”The closed-die, multi-ram process, which is employed on our 20,000 and 30,000 ton presses, enables us to produce complex forgings with multiple cavities, such as valve bodies, in a single heating and pressing cycle. Dies may be split on either a vertical or a horizontal plane, and shaped punches may be operated by side rams, piercing rams or both. This process also optimizes grain flow and uniformity of deformation and reduces machining requirements.
Isothermal Forging â€”Isothermal forging is a closed-die process in which the dies are heated to the same temperature as the metal being forged, typically in excess of 1,900 degrees Fahrenheit. Because the dies may oxidize at these elevated temperatures, this process is performed in a vacuum or inert gas atmosphere. Our isothermal press produces near-net shape components, requiring less machining by our customers.
Extrusion â€”The extrusion process is capable of producing thick-wall, seamless pipe, with outside diameters of up to 48 inches and a wall thickness from 0.5 inches up to 7 inches for applications in the power generation and oil and gas industries, including tension leg platforms, riser systems and production manifolds. Our 35,000-ton vertical extrusion press is one of the largest and most advanced in the world. In addition to solid metals, powdered materials can be compacted and extruded into forging billets with this press.
In April 2007, we acquired McWilliams Forge Company, Inc. (â€śMcWilliamsâ€ť), a leading manufacturer of titanium, nickel and steel forgings, primarily for commercial and military aerospace applications. McWilliams has established solid, long-term relationships with manufacturers of smaller aircraft engines, which will extend the customer reach of our forging operations. In addition, McWilliams has a state-of-the-art screw press, providing us with the capability of forging different materials and size ranges.
We believe that we are the world leader in producing forged rotating components for use in jet aircraft engines. These parts are forged from ingots, which are converted to billets in our cogging and extrusion presses and from metal powders (primarily nickel alloys) that are produced, consolidated and extruded into billets entirely in our own facilities. In addition, we purchase billets from outside metal suppliers.
High Performance Forging Alloys
In May 2006, we acquired Special Metals Corporation (â€śSMCâ€ť), a world leader in the production of high-performance, nickel-based alloys and superalloys, principally used in the manufacture of forged components designed to operate under extreme conditions in gas turbines and other critical applications. SMC, in conjunction with our high performance alloy production facilities in western Australia and the United States, provides us with an expanded internal supply of nickel-based alloys for our forging operations, which will enable us to better manage our overall value stream now and in the future.
With the acquisition of SMC, we are the worldâ€™s largest and most diversified producer of high performance nickel-based alloys, supplying more than 5,000 customers. Our alloys, which provide high temperature strength and corrosion resistance, aqueous corrosion resistance, and toughness and strength in certain embrittling environments, are principally used to manufacture forged components required in the most technically demanding industries and applications. Commercial and military aerospace represents the largest market served by SMC; other non-aerospace markets include high performance, nickel-based alloys for oil & gas, chemical & petrochemical processing, power generation, pollution control, thermal processing, electrical and heating elements, marine and welding applications.
Our alloying processes utilize electric arc, air induction, and vacuum induction melting furnaces, while a few specialized alloys are made using a mechanical alloying process. Refining facilities include furnaces for Argon-Oxygen-Decarburizat ion, vacuum arc remelting and electroslag remelting. Our major hot finishing processes include rotary forging, plate rolling, bar rolling, press forging and extrusion of seamless tubulars and shapes. The latter two processes are extensions of other similar operations within the Forged Products segment. Cold finishing processes include cold rolled sheet and strip, tube and pipe pilgering, and cold drawing of bar and wire. We produce nickel alloys in all standard mill forms from large ingots and billets to plate, sheet, strip, tubing, bar and wire, the latter of which includes core and filler wires for welding products. Our alloys are classified into unique families recognized worldwide and are sold under such trademarks as INCONEL Â® , INCOLOY Â® , MONEL Â® , NIMONIC Â® , UDIMET Â® , BRIGHTRAY Â® , and NILO Â® .
In July 2007, we completed the acquisition of Caledonian Alloys Limited (â€śCaledonianâ€ť), the market leader in providing nickel superalloy and titanium revert management solutions for the aerospace and IGT markets. Revert includes metal chips, casting gates, bar ends, forging flash, and other byproducts from forging, casting, and fastener manufacturing processes that can be re-melted and reused. The acquisition of Caledonian provides us with the infrastructure and capabilities needed to create a closed loop system for the retention and reuse of internally-generated revert. In addition, Caledonian provides access to new sources of material outside the Company and helps determine optimal utilization of revert streams throughout our melting operations worldwide.
During the third quarter of fiscal 2008, Greenville Metals, a metal processing operation, was moved from the Investment Cast Products segment to the Forged Products segment to better align Greenville Metalsâ€™ business with synergies associated with the recent acquisition of Caledonian. Greenville Metals, Inc. provides metallurgical process solutions and services worldwide for us and other companies that require the melting and processing of specialty alloys. Major markets include specialty alloy producers and foundries, permanent magnet and powder metal manufacturers and other industries with special metallurgical requirements. Greenville Metals was formerly an Investment Cast Products business.
Through SPS Technologies, Inc., we have become a leading developer and manufacturer of highly engineered fasteners, fastener systems and precision components, primarily for critical aerospace and automotive applications. The majority of our Fastener Products sales come from the same aerospace customer base already served by our Investment Cast Products and Forged Products segments. In this regard, Fastener Products is subject to many of the same market forces as these other two segments. The balance of the segmentâ€™s sales is derived from automotive and general industrial markets, including farm machinery, construction equipment, machine tools, medical equipment, appliances and recreation. The Fastener Products segment accounted for approximately 22 percent of our sales in fiscal 2008.
Fastener manufacturing begins with wire or metal bar of various diameters, which is cut into fastener blanks of prescribed lengths and then heat treated. Using highly engineered tools and thread dies, the fastener blanks are then formed into complex head shapes and thread configurations to meet exacting customer requirements.
Our aerospace fasteners are manufactured from nickel and titanium alloys and are used on airframes, jet engines, aircraft wheels and brakes and landing gear assemblies. They are found in such flight- and safety-critical areas as the wing-to-fuselage, the stabilizers-to-fuselage and the engine-to-wing connections on an aircraft, as well as the airfoil-to-disc and disc-to-shaft connections on a jet engine. These fasteners are not only incorporated in new aircraft builds but are also integrally involved in the replacement cycle, particularly in aircraft engine and wheel and brake applications. The product line includes a variety of bolts, nuts, plate nuts, inserts, washers and other precision components. While the fasteners are produced to demanding customer designs, we continue to be active in developing several trademarked alloys for applications requiring high strength, elevated temperature, corrosion resistance and/or lighter weight. These include MULTIPHASE Â® and AEREX Â® nickel-based alloys and the SPS TITAN Â® family of titanium alloys.
Our engineered fasteners, manufactured from a variety of steel, nickel and titanium alloys, are used in automotive applications, including power trains; suspensions; steering, airbag, and seating systems; and chassis assemblies. These products have also penetrated other markets requiring proven strength, close dimensional tolerance and high reliability, such as diesel, mining, construction, heavy truck and niche general industrial applications. We have developed a broad range of technically advanced proprietary products under the brand names of FLEXLOC Â® , DURLOK Â® and DURLOK II Â® , TORX Â® , TRU-FLEX Â® , TAPTITE Â® and MAThread â„˘ .
The Fastener Products segment also includes businesses from the former Industrial Products group, including our subsidiaries J&L Fiber Services, Advanced Forming Technology (â€śAFTâ€ť), Environmental One (â€śE/Oneâ€ť) and the PCC Precision Tool Group (â€śPTGâ€ť). J&L Fiber Services produces refiner plates and screen cylinders for use in the pulp and paper industry. AFT manufactures metal-injection-molded and ThixoFormed â„˘ components for numerous industrial applications. E/One produces low-pressure sewer systems for residential and commercial applications and monitoring units utilized in the power generation industry. PTG manufactures a broad range of thread-rolling dies, trimming dies, punches and pins and steel and carbide forging tools for fastener production, principally for aerospace, automotive, and general industrial and other applications.
Our sales to the aerospace market of $3,768.3 million in fiscal 2008 increased 33 percent from $2,825.3 million in fiscal 2007. Sales to the aerospace market as a percentage of total net sales increased from 53 percent in fiscal 2007 to 55 percent in fiscal 2008, principally reflecting steady OEM and aftermarket growth in commercial aerospace, as well as the impact of acquisitions within this market.
Our sales of investment castings products and forged products are made through direct sales personnel located in each business operation and through field sales representatives located at U.S. and international locations near our major customers, as well as through distributors. Our fastener products and services are sold by a direct sales and marketing staff and through a worldwide network of independent sales representatives and distributors. Industrial metalworking tools and machines and other metal products are sold by both internal sales forces and sales representatives in the U.S., Europe, Asia, Australia and Latin America. Due to the sophisticated nature of our products, our sales efforts require technical personnel to work closely with customers to identify and assist in the development of new and modified products and to provide other services that are necessary to obtain new and repeat orders.
For information on revenue to external customers, profit or loss and total assets for each segment, refer to Part II, Item 8. Financial Statements and Supplementary Data.
The backlog of unfilled orders believed to be firm at the end of each of our last three fiscal years was $6.0 billion as of March 30, 2008, $4.8 billion as of April 1, 2007, and $3.1 billion as of April 2, 2006. The majority of the backlog is for sales to aerospace and power generation customers in the Investment Cast Products, Forged Products and Fastener Products segments. The growth in backlog during fiscal 2008 reflects robust conditions in our core aerospace and power generation markets, higher levels of contractual material pass-through pricing related to higher material costs, and the impact of acquisitions. Approximately 78 percent of our backlog is expected to be filled within the 2009 fiscal year.
The majority of sales to customers are made on individual purchase orders generated from long-term agreements. Most of our orders are subject to termination by the customer upon payment of the cost of work in process, plus a related profit factor. Historically, we have not experienced significant order cancellations.
We are subject to substantial competition in all of the markets we serve. Components and products similar to those we make can be produced by competitors using either the same types of manufacturing processes or other forms of manufacturing. Although we believe our manufacturing processes, technology and experience provide advantages to our customers, such as high quality, competitive prices and physical properties that often meet more stringent demands, alternative forms of manufacturing can be used to produce many of the components and products we make. Despite intense competition, we believe we are the number one or two supplier in most of our principal markets. Several factors, including long-standing customer relationships, technical expertise, state-of-the-art facilities and dedicated employees, aid us in maintaining our competitive advantages.
In the Investment Cast Products segment, our principal competitor is Howmet, a subsidiary of Alcoa Inc. Howmet produces superalloy, titanium, stainless steel and aluminum investment castings principally for the aerospace and IGT markets. We believe that Howmet is capable of producing investment castings comparable to all but the largest and most complex of our structural investment castings. We also believe Howmet has the financial and technical resources to produce structural castings as large and complex as those produced by us, should they decide to do so. In addition, Pacific Cast Technologies, a subsidiary of Ladish Co., manufactures large titanium investment castings for jet engine and airframe applications. Many other companies throughout the world also produce superalloy, titanium, stainless steel and aluminum investment castings, and some of these companies currently compete with us in the aerospace and other markets. Others are capable of competing with us if they choose to do so.
In the Forged Products segment, our largest competitors are Ladish Co., Fortech, S.A. and Thyssen AG for aerospace turbine products, Alcoa Inc. and Schultz Steel Company for aerospace structural products, Vallourec & Mannesmann Tubes and Sumitomo Corporation for energy products and Allegheny Technologies, Inc., Carpenter Technology Corporation, and Haynes International, Inc. for nickel-based alloys and superalloys. We also face increased competition from international companies as customers seek lower cost sources of supply.
International competition in the forging and casting processes may also increase in the future as a result of strategic alliances among aircraft prime contractors and foreign companies, particularly where â€śoffsetâ€ť or â€ślocal contentâ€ť requirements create purchase obligations with respect to products manufactured in or directed to a particular country. Competition is often intense among the companies currently involved in the industry. We continue to strive to maintain competitive advantages with high-quality products, low-cost manufacturing, excellent customer service, and delivery and expertise in engineering and production.
Our Fastener operations compete with a large number of companies based primarily on technology, price, service, product quality and performance. Of these companies, we consider Alcoa Inc., LISI and McKecknie to be our leading competitors. We believe that we maintain our strong market position through our high-quality product performance and service to our customers.
Research and Development
We have departments involved in research and development in all three of our reportable segments. The research and development effort at these operations is directed at the technical aspects of developing new and improved manufacturing processes. Expenditures for research and development activities amounted to $11.3 million in fiscal 2008, $9.1 million in fiscal 2007 and $6.6 million in fiscal 2006. A substantial amount of our technological capability is the result of engineering work and experimentation performed on the shop floor in connection with process development and production of new parts. This engineering work and experimentation is charged to the cost of production and is not included in research and development expenditures.
At March 30, 2008, we had approximately 21,400 employees within our three segments, including nearly 9,200 employees in the Investment Cast Products segment, 5,500 employees in the Forged Products segment and 6,700 employees in the Fasteners segment. In addition, we had approximately 100 employees in corporate functions and over 100 in discontinued operations, for a total of approximately 21,600 employees. Approximately 25 percent of our employees are affiliated with unions or covered by collective bargaining agreements. We expect to negotiate nine collective bargaining agreements affecting approximately 11 percent of the workforce during fiscal 2009. Management believes that labor relations in the Company have generally been satisfactory.
Don R. Graberâ€”64
President and Chief Executive Officer of Colleton Enterprises LLC, a private consulting and investment company located in Dayton, Ohio, since March 2005. From 1997 to 2004, Chairman, President and Chief Executive Officer of Huffy Corporation, a manufacturer of wheeled products; retired from Huffy in January 2004. Mr. Graber was previously President of Worldwide Household Products Group, The Black & Decker Corporation. In October 2004, Huffy Corporation filed a petition for voluntary reorganization under Chapter 11 of the U.S. Bankruptcy Code.
Gen. Lester L. Lyles (Ret.)â€”61
Independent consultant since 2003. Prior to that, Mr. Lyles served in the U.S. Air Force for over 35 years, most recently as Commander of the U.S. Air Force Materiel Command from 2000 to 2003. Mr. Lyles is also a director of General Dynamics Corporation, KBR, Inc. and The Dayton Power and Light Company.
Peter R. Bridenbaughâ€”67
President of P. Bridenbaugh, Inc., an organization providing consulting services; until retiring in January 1998, Executive Vice Presidentâ€”Automotive, Aluminum Co. of America, an integrated producer of aluminum and other products for the aerospace, automotive, building and construction, and commercial and industrial markets; from 1993 to 1996, Executive Vice President and Chief Technical Officer, Aluminum Co. of America.
Chairman and Chief Executive Officer of the Company. Mr. Donegan came to PCC from General Electric Company in 1985. He held numerous management positions with the Company before becoming Chairman. Prior to assuming his current responsibilities, Mr. Donegan was President of the Company and was elected to the position of Chairman following the Annual Meeting of Shareholders in August 2003. Mr. Donegan is also a member of the board of directors of Rockwell Collins, Inc.
Daniel J. Murphyâ€”59
Chief Executive Officer of Alliant Techsystems Inc. (â€śATKâ€ť), a supplier of aerospace and defense products and ammunition, since 2003, and Chairman of ATK since April 2005; from 2002 to 2003, Group Vice President, ATK Precision Systems Group.
Vernon E. Oechsleâ€”65
Retired; until May 2001, Chairman and Chief Executive Officer of Quanex Corporation, a manufacturer of steel bars, aluminum shapes and steel tubes and pipes.
Steven G. Rothmeierâ€”61
Chairman and Chief Executive Officer of Great Northern Capital, a private investment and merchant banking firm, since March 1993. Mr. Rothmeier is also a director of Waste Management, Inc., Great Northern Asset Management and ArvinMeritor, Inc.
Executive Vice President and Chief Financial Officer of Spirit AeroSystems Holdings, Inc., a designer and manufacturer of aerostructures, since August 2005; from October 2000 until August 2005, Executive Vice President and Chief Financial Officer of Goodrich Corporation, a supplier of products and services to the commercial and general aviation airplane markets and the global defense and space markets.
MANAGEMENT DISCUSSION FROM LATEST 10K
We completed another successful year in fiscal 2008, attaining record levels of sales, operating income, net income from continuing operations, and earnings per share. These results were principally driven by continuing strong conditions in our core aerospace and power generation markets, effective volume leverage, and disciplined cost reduction and operational improvements across all of our segments. Also, during the year, we successfully acquired McWilliams and Caledonian, two strategically important acquisitions within the Forged Products segment.
In April 2007, we completed the acquisition of McWilliams, a leading manufacturer of titanium, nickel and steel forgings, primarily for commercial and military aerospace applications. McWilliams has established long-term relationships with manufacturers of smaller aircraft engines, thereby extending the customer reach of our forging operations. McWilliams operates both hammer and screw presses for open and closed die forging.
In July 2007, we completed the acquisition of Caledonian, the market leader in providing nickel superalloy and titanium revert management solutions for the aerospace and industrial gas turbine (â€śIGTâ€ť) markets. Revert includes metal chips, casting gates, bar ends, forging flash, and other byproducts from casting, forging, and fastener manufacturing processes that can be re-melted and reused. The acquisition of Caledonian provides us with the infrastructure and capabilities needed to create a closed loop system for the retention and reuse of internally-generated revert. In addition, Caledonian provides access to new sources of material outside the Company and helps determine optimal utilization of revert streams throughout our melting operations worldwide. During the third quarter of fiscal 2008, Greenville Metals, a metal processing operation, became part of the Forged Products segment to take advantage of synergies with Caledonian. Greenville Metals was formerly a business in the Investment Cast Products segment.
Also, during the year, we continued to increase manufacturing capacity to support growth in our core markets with completion or initiation of various large-scale capital expenditure projects, primarily within the Forged Products segment. We expect fiscal 2009 capital expenditures will be approximately 10-20 percent higher than fiscal 2008 spending levels, with the most significant capacity expansion projects planned within the Investment Cast Products segment to support record demand for IGT products.
Looking ahead, we will continue to capitalize on our strong foundation across all markets. We are well positioned on existing as well as new and expanding aerospace platforms, driven by continuing increases in OEM aircraft build rates, high aircraft utilization rates, and an expanding aerospace customer base. We also expect to benefit from solid growth in demand for IGT components and extruded pipe products serving the power generation market, as well as further market penetration in our non-aerospace nickel alloys serving the oil and gas, chemical processing and pollution control industries.
Total sales for fiscal 2008 were $6,852.1 million, an increase of $1,523.7 million, or 29 percent, from fiscal 2007 sales of $5,319.4 million. Total aerospace sales increased 33 percent over fiscal 2007 levels, and increased from 53 percent of total sales in fiscal 2007 to 55 percent of total sales in fiscal 2008. Power generation sales increased 43 percent over fiscal 2007 levels, and increased from 21 percent of total sales in fiscal 2007 to 24 percent of total sales in fiscal 2008. Sales to the general industrial markets increased 7 percent over the prior year, and decreased from 20 percent of total sales in fiscal 2007 to 16 percent of total sales in fiscal 2008. Sales to the automotive market grew by 10 percent, decreasing from 6 percent of total sales in fiscal 2007 to 5 percent of total sales in fiscal 2008. The
acquisitions of GSC, Cherry, McWilliams and Caledonian collectively contributed approximately $315 million of the year-over-year increase. The remaining increase in sales was principally driven by continued strength in our core aerospace and power generation markets. In addition, contractual pass-through pricing of higher material costs increased sales by approximately $460.9 million this year versus approximately $299.0 million in fiscal 2007. With regard to growth in the commercial aircraft industry, aircraft deliveries increased 8 percent in calendar 2007 from calendar 2006, and forecasts from The Airline Monitor as of January 2008 indicate aircraft deliveries are expected to increase approximately 13 percent in calendar year 2008. Due to manufacturing lead times, our production volumes are approximately 6 to 9 months ahead of aircraft deliveries.
Cost of goods sold was $4,982.3 million, or 73 percent of sales, in fiscal 2008 as compared to $4,020.2 million, or 76 percent of sales, in fiscal 2007. The improvement in the year-over-year percentage reflects the impact of leverage from higher sales volume and improved operating efficiencies, partially offset by increased raw material costs in fiscal 2008, primarily nickel and cobalt, which have increased approximately 15 percent and 74 percent, respectively, on the London Metals Exchange and Metal Bulletin COFM.8 Index, respectively, compared to fiscal 2007.
Selling and administrative expenses were $358.9 million, or 5 percent of sales, in fiscal 2008 compared to $332.7 million, or 6 percent of sales, in fiscal 2007. The improved year-over-year percentage was primarily due to leverage from the higher sales volume and lower expense related to our deferred compensation plan compared to the prior year, partially offset by increased stock based compensation expense.
Net income from continuing operations for fiscal 2008 was $965.9 million, or $6.89 per share (diluted), which included restructuring charges totaling $0.03 per share (diluted). By comparison, net income from continuing operations for fiscal 2007 was $609.8 million, or $4.42 per share (diluted). Fiscal 2007 net income from continuing operations included tax benefits of $11.1 million, or $0.08 per share (diluted), associated with tax refund claims and changes in tax reserves resulting from completed and ongoing audits. Fiscal 2008 net income (including discontinued operations) was $987.3 million, or $7.04 per share (diluted), compared with net income of $633.1 million, or $4.59 per share (diluted) in fiscal 2007. Fiscal 2008 net income includes income of $21.4 million, or $0.15 per share (diluted), from discontinued operations, compared to income of $23.3 million, or 0.17 per share (diluted), in the prior year.
On July 5, 2007, we acquired Caledonian Alloys for $208.1 million in cash, of which $165.1 million was paid at close, and we expect two additional contingent payments of approximately $21.5 million each will be paid over the two years subsequent to acquisition. Caledonian is a market leader in providing nickel superalloy and titanium revert management solutions for the aerospace and IGT industries. Revert includes metal chips, casting gates, bar ends, forging flash, and other byproducts from casting, forging, and fastener manufacturing processes that can be re-melted and reused. Headquartered in Livingston, Scotland, Caledonian employs approximately 300 people and operates nine revert processing facilities in six countries. The Caledonian acquisition is a stock purchase for tax purposes and operates as part of the Forged Products segment.
On April 3, 2007, we acquired McWilliams, a privately-held company headquartered in Rockaway, New Jersey, for $91.4 million in cash. Founded in 1880, McWilliams is a leading manufacturer of titanium, nickel and steel forgings, primarily for commercial and military aerospace applications. The company, which employs approximately 120 people at its New Jersey facility, operates both hammer and screw presses for open and closed die forging. The McWilliams acquisition is an asset purchase for tax purposes and operates as part of the Forged Products segment.
On February 23, 2007, we acquired Cherry from Acument Global Technologies, Inc. (â€śAcumentâ€ť) for $298.1 million in cash. Founded in 1939, Cherry encompasses the aerospace operations of Acument, formerly Textron Fastening Systems, and is a manufacturer of aerospace rivets and blind bolts. Cherry employs approximately 500 people at its facility in Santa Ana, California. Cherry fills a gap in our product line of critical aerospace fasteners and opens up potential synergies and economies of scale with our other fastener operations. The Cherry acquisition is an asset purchase for tax purposes and operates as part of the Fastener Products segment.
On February 2, 2007, we acquired GSC, a manufacturer of aluminum and steel structural investment castings for aerospace, energy, medical, and other end markets for $77.1 million in cash. GSC employed approximately 375 people at its operations in Ogden, Utah and Saltillo, Mexico. The Mexico operation was closed subsequent to the acquisition. GSC enhances our small structural investment casting portfolio with its ability to produce larger components. The GSC acquisition is an asset purchase for tax purposes and operates as part of the Investment Cast Products segment.
On May 25, 2006, we acquired SMC, a manufacturer of high-performance nickel-based alloys and superalloys, which are sold internally and to third party customers. SMC provides our forging operations with nickel-based alloys for manufacturing aerospace components, enabling us to manage our overall value stream more cost effectively from raw material to forged components. The aggregate purchase price was $548.1 million, which principally includes $310.6 million for the purchase of shares and $240.1 million for the repayment of SMCâ€™s outstanding debt and related termination costs, partially offset by $22.3 million of cash acquired. The SMC acquisition is a stock purchase for tax purposes and operates as part of the Forged Products segment.
On January 6, 2006, we acquired the Shur-Lok Group, which includes the Shur-Lok Corporation in Irvine, California, and Shur-Lok International located in Petit-Rechain, Belgium, for approximately $113.0 million. Shur-Lok is a manufacturer of highly engineered, critical aerospace fasteners, including inserts, barrel nuts, adjustable diameter bolts, fluid fittings and lock nuts. The Shur-Lok product line enhances the basket of fastener products we can offer to our commercial airframe customers, while increasing market reach into other critical fastener applications. The Shur-Lok acquisition is an asset purchase for tax purposes and operates as part of the Fastener Products segment.
Our financial statements were impacted by activities relating to the planned or completed divestiture of a number of our businesses. These businesses have been accounted for under SFAS No. 144, â€śAccounting for the Impairment or Disposal of Long-Lived Assets.â€ť Accordingly, any operating results of these businesses are presented in our Consolidated Statements of Operations as discontinued operations, net of income tax, and all prior periods have been reclassified.
In the fourth quarter of fiscal 2008, we entered into an agreement to sell the Unbrako fastener business headquartered in Shannon, Ireland. The transaction is anticipated to close in the second quarter of fiscal 2009. Unbrako has been reclassified from the Fastener Products segment to discontinued operations.
Also in the fourth quarter, we decided to close the Kladno alloy manufacturing business located in the Czech Republic. Kladno primarily supplied steel ingots to Wyman-Gordonâ€™s Grafton, Massachusetts operation. Kladno has been reclassified from the Forged Products segment to discontinued operations.
In January 2008, we completed the sale of Rescal for approximately $11.2 million. Rescal, which is located in France, was acquired with SMC and has been held for sale since the first quarter of fiscal 2007. The sale of the business generated a tax-effected gain of $4.6 million, or $0.03 per share (diluted) in the fourth quarter of fiscal 2008.
In January 2008, we completed the sale of Shape Memory Alloys (â€śSMAâ€ť) for $30.2 million. The SMA business was acquired with SMC in the first quarter of fiscal 2007, and was reclassified from the Forged Products segment to discontinued operations during the third quarter of fiscal 2008. The sale of the business generated a tax-effected gain of $16.3 million, or $0.12 per share (diluted), of which $4.0 million, or $0.03 per share (diluted), was recognized in the third quarter of fiscal 2008.
In the second quarter of fiscal 2007, we sold our interest in Wyman-Gordon FRISA to our 50% joint venture partner for $30.0 million in cash. In addition, the buyer assumed and subsequently repaid $17.4 million of debt upon closing. At the time of the closing, the joint venture entity operated a manufacturing facility located in Mexico that was engaged in the manufacture of forged products using the ring rolling process. FRISA was reclassified from the Forged Products segment to discontinued operations.
In the first quarter of fiscal 2007, we decided to sell the refiner rebuild business of J&L Fiber Services and close our AFT Composites business. These businesses were reclassified from the former Industrial Products segment (now the Fastener Products segment) to discontinued operations. Both transactions were completed during the third quarter of fiscal 2007.
Restructuring, asset impairment and other non-recurring charges
We regularly assess our cost structure to ensure that operations are properly sized for prevailing market conditions, taking into consideration current and forecasted conditions in markets we serve. The following restructuring and asset impairment charges were recorded in fiscal 2008 and 2006.
During the fourth quarter of fiscal 2008, the Investment Cast Products segment recorded restructuring charges of $6.1 million, primarily for shut down costs associated with an underutilized machining operation located in the United Kingdom. The tax-effected impact of these charges was $4.3 million, or $0.03 per share (diluted).
During the third quarter of fiscal 2006, we recorded restructuring and asset impairment charges of $2.3 million, which included $1.7 million primarily for the write down of a building and equipment to fair value related to consolidation of a machining operation in the Investment Cast Products segment, and $0.6 million for severance costs associated with headcount reductions related to downsizing a tooling operation in Ireland. The tax-effected impact of these charges was $1.9 million, or $0.01 per share (diluted).
Looking forward to fiscal 2009, we are well positioned for continued success and profitable growth. We see a continuation of growing demand from all our major markets, and our manufacturing operations are prepared to take advantage of volume leverage and opportunities for cost reduction. We have ramped up capital spending in the last two years to increase production capacity, and we expect additional capital spending in fiscal 2009 to further increase capacity to meet growing demand in our core markets. We will be fully prepared to meet the increased demand from our aerospace customers as new production programs such as the Airbus A380, Boeing 787, F-35 fighter, and KC-X tanker come on line. On the IGT front, major turbine programs currently in production and new platforms in development are providing significant growth opportunities across an expanded customer base. Extruded pipe has a growing backlog extending more than 24 months, and our non-aerospace nickel alloy operations are steadily opening up new market opportunities. In concert with this top-line growth, we have a full pipeline of projects designed to streamline our manufacturing plants and to reduce costs quarter after quarter.
We expect fiscal 2009 sales to grow organically by approximately 8 to 10 percent, driven by strong conditions in our core markets and our increased manufacturing capacity. We believe changes in metal prices will continue to impact sales growth during fiscal 2009, as we have already begun to see raw material costs, primarily nickel, decline in the last two quarters. In addition, continued growth in intercompany sales, particularly within our Forged Products segment, will have an impact on reported sales as capacity is utilized for internal demands and these sales are eliminated in consolidation. Internal supply allows us to manage our overall value stream more cost effectively from raw material to forged component.
Operating income is expected to benefit from the sales volume increases and continued operational improvements, and operating margin as a percent of sales is also expected to show modest improvement over fiscal 2008 levels principally due to leverage from higher sales volume and improved operating performance across all segments.
As in prior years, we will remain active on the acquisition front, continually assessing the strategic fit and value of businesses that have potential for success within our existing framework. At the same time, we will continually assess the suitability and management of our existing businesses in order to maintain our strong financial position and competitive profile.
Financial results by segment
We analyze our operating segments in accordance with Statement of Financial Accounting Standard (â€śSFASâ€ť) No. 131, â€śDisclosure about Segments of an Enterprise and Related Information,â€ť and manage our business across three reportable segments: Investment Cast Products, Forged Products and Fastener Products. Effective in the third quarter of fiscal 2008, PCCâ€™s Greenville Metals, a metal processing operation, was moved from the Investment Cast Products segment to the Forged Products segment to better align Greenville Metalsâ€™ business with synergies associated with the recent acquisition of Caledonian Alloys. All prior periods have been reclassified to reflect the change in reportable segments. Segment operating income amounts presented below exclude restructuring and asset impairment charges.
Investment Cast Products
The Investment Cast Products segment includes PCC Structurals, PCC Airfoils and Specialty Materials and Alloys Group (â€śSMAGâ€ť). These businesses manufacture investment castings, or provide related investment casting materials and alloys, for aircraft engines, IGT engines, airframes, armaments, medical prostheses and other industrial applications.
Fiscal 2008 compared with fiscal 2007
The Investment Cast Products segment reported fiscal 2008 sales of $2,160.0 million, an increase of 24 percent from the prior yearâ€™s sales of $1,748.3 million. Approximately $45 million, or 11 percent of this increase reflects incremental sales of GSC, which was acquired in the fourth quarter of fiscal 2007. The remaining increase in sales reflects growth in the commercial and regional aerospace markets and strengthening demand in the IGT power generation businesses. Sales also include $100.4 million of higher pricing related to contractual pass-through of increased material costs compared to $55.8 million last year.
Operating income for the Investment Cast Products segment was $521.8 million or 24.2 percent of sales in fiscal 2008, compared to $382.3 million, or 21.9 percent of sales, in fiscal 2007. The increase in operating income reflects the impact of higher sales volume, partially offset by higher raw material costs, primarily nickel and cobalt, which have increased approximately 15 percent and 74 percent, respectively, on the London Metals Exchange and Metal Bulletin COFM.8 Index, respectively, compared to fiscal 2007. The continued improvement in operating margins as a percent of sales was driven by leverage from the increased sales volume and improved manufacturing performance, partially offset by the impact of higher raw material costs and pass-through pricing. While the majority of the higher material costs were recovered from contractual terms allowing for pass-through pricing and protect operating income, they dilute operating income as a percent of sales. Contractual material pass-through pricing diluted operating margins by 1.2 percentage points in fiscal 2008 compared to 0.7 percentage points last year.
The Investment Cast Products segment anticipates higher sales in fiscal 2009, primarily driven by increased demand from commercial aerospace and IGT customers. Additional capacity expansion projects are planned for completion in fiscal 2009 to accommodate higher demand for IGT products. Operating margins, as a percent of sales, are expected to improve slightly in fiscal 2009 as a result of leverage from the higher sales volume and continued improvements in operating efficiencies.
Mark Donegan - Chairman and Chief Executive Officer
Thank you. And thank you all for listening in. I'm sure you're all familiar with the forward-looking statement and you need to take it into consideration when you are analyzing the following information. I think Q1 overall is a solid quarter, we saw continued growth and we generated again record sales and operating income.
On the sales front, we saw sales growth of 11.2% year end over year growing from $1.65 billion last year to $1.83 billion this year. We saw operating income increase 20.5% versus last year going just under $352 million last year to $424 million this year. We saw margins expand overall for the company from 21.3% to 23.1% this year; and all this generating an EPS of $1.95 versus last year of $1.61. So I think it was a solid baseline to start the year but certainly has a lot to do moving forward.
If you look at the primary drivers for the business, as you'd expect, we continue to see very solid demand from the aerospace side. Again for us the key drivers in the OEM side, we continue to see strong demand on the program that we have good contents. The programs that are important to us either shows good solid schedules or even growing schedules.
The aftermarket, again for us, where we have good market penetration, which is really the later generation more fuel-efficient platforms. And at this time the platforms that we care about are continuing to fly. And we have little content on the early generation planes where it's 737, Airbus 320 family, the MD-80 727. So again, what continues to fly is kind of what'sâ€¦ is very important to us.
Second key driver overall for the company, certainly, has been the power. We continue to see extremely strong demand from our gas turbine business where demand at this point of time continues to outpace our ability for output. And (inaudible) continues to see very solid growth year-over-year.
If I look at this point in time what we're seeing in terms of the balance of the year in terms of our base, we're seeing a good, solid demand on both our IGT platforms and our aerospace platforms at this point in time. So again, the base programs for us look solid at this point in time. On the operating income side, I think we continue to see good leverage across all of our business, but certainly in Q1 we saw very solid results from investment casts and fasteners, and we will go through those later on in the presentation.
I've added a different chart this time to try to better clarify kind of our sales by end market. This is a chart we would like to continue using in the future. If you look at our Q1 sales by market, as you'd expect aerospace being the largest at 52% and it positions us kind of squarely in the target we've said we want to be in that 50% to 55%.
Power continues to grow and was second at 23%. And again, for us it's a very concentrated position in industrial gas turbine, seamless pipe and oil and gas. General industrial came in at roughly 20% it's really spread across chemical, pollution control, medical, pulp and paper.
And the automotive is at 5%. And again, at this point in time the business is kind of holding its own, we're holding flat and it's certainly very challenging North American time. If I will look forward and look at the strength of the company as I would evaluate the company at this point in time, I think that our presence across a good diversified mix of high-end markets is significant. I think we continue to have a very, very solid success in all opportunities in the airline. I think the 787 certainly demonstrates that with the highest position or a content we've ever had on any platform. But equally it's important I think is our ability to drive our capabilities in areas like IGT, seamless pipe, oil and gas. And it gives us a good platform to really face head on whatever challenging times we would see in the future.
Moving into the segments, beginning with investment cast, again, I think they had a good start on a solid Q1. We saw the sales growth of 17.3% versus last year growing from $509 million last year to just under $598 million this year. Our operating income grew by 26.3% year-over-year going from $120 million last year to $151 million this year. We saw good margin expansion going from 23.5% last year to 25.3% this year. If I look at the key drivers, as you'd expect certainly on aerospace front, demand remained very strong. Again, we saw good demand from both the OEM and the after markets and we were able to see record performance levels in terms of productivity gains. We talked about this in the past, our ability to slow down and hiring would help us get good productivity gains. We saw this really across all our facilities. And we gained good leverage in our fixed asset departments from the standpoint of casting and investing.
During the quarter we saw very little demand in investment cast from either the 787 or the A380. But certainly if I look at the 787 moving into production during the next calendar year, I would expect it to become a significant contributor for the next year and beyond. IGT or the internalâ€¦ the gas turbine continues to be an extremely strong market for us with at this point in time as we stated demand being really above our current capabilities. This is, again, both from OEM and after market. We urgently need our new facility in Ohio along with our expansion in Portland. And again, we've stated this has the ability to generate $90 million of additional sales.
It's important to know we need this not only to support our current demand but also the development of the latest share gains we got across an expanding customer base. So, again, so are the timing you are going to match it very well when the tooling comes in for our new programs is when the new facility comes online. As we look beyond this year, moving into mid-next year and end, we could certainly expect to see North American coming in and adding to this demand.
Forged products saw sales growth from 5.6 year-over-year from $773 million last year to $816 million last year. From last year between the selling price of external alloy and increased internal sale, the sales line is really impacted by roughly $50 million. This would have put us more in the range of 12% growth on a comparable basis. Operating income grew by roughly 7.8% from just under $170 million last year to $183 million this year. And margin expanded from 21.9 last year to 22.4 this year.
If I look at the key drivers in Forged, again, as you'd expect on the sales side, you know, the aerospace demand remain extremely strong and steady. In the quarter also in Forged, we saw very little demand from the 787. And what we're looking at on the Forged side is a very low level of production, so a very low level of activity moving towards the end of this fiscal year.
As we would expect to see as the 787 would then move into more of a production mode, we expect this to be a pretty significant contributor to the forging business at that point in time. The other significant piece certainly has been the power, ex trued pipe continues to be very strong when we saw year-on-year growth of roughly 50%. At the same time our backlog continues to expand. We're now roughly $900 million. If I look back to where this business was, certainly the time I was running Wyman-Gordon in its early stages, I look at the job Jim and the entire team has done down in Houston, I think its just an incredible job they've done, really growing a global demand for this product and again, our footprint continues to expand and continues to be a significant piece of the puzzle. Q2 in forging always faces its typical challenges. These are the same events we have year-over-yearâ€¦ [no audio]
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Mark Donegan - Chairman of the Board and Chief Executive Officer
Okay. I have to try to figure outâ€¦ I apologize for that. We lost our phone. I have to try to figure out where we were. So I think I'll back up a little bit in case ... make sure I go all the way back. So, kind of picking up where we were in forge products, I'll begin again with the power side. Exterior pipe continues to be extremely strong story for us. We saw roughly 50% growth in the year-on-year at the same time we brought our, we saw our backlog expand to roughly $900 million. If I think back to where we started with this business at the time of the acquisition and certainly when I was running, the Wyman-Gordon operation, I think Jim and his entire team have done a outstanding job of growing globally and really continue to spread out footprint.
Q2, we faced typical challenges that we normally face in the forging business. The same events that occur year-on-year over the last two years we had a couple mitigating events certainly two years ago we had the acquisition of special metals in Q2. And then, last year, we saw kind of the continued acceleration as well as added to that the Caledonian operations. The two primary events that occurred are preventative maintenance. These are bringing down our large presses. It's really mandatory that we do as to make sure our presses stay up and running. We typically match these during the higher vacation season to avoid multiple interruptions. And we also have an extended shutdown of our European operations of roughly two weeks. The effect of both the maintenance cost and the loss of leverage is roughly $12 million for Q2.
We also have one otherâ€¦ one of event that has occurred in forging we had an unplanned outage in one of our two isothermal presses. We had an electron exterior that created an overheat situation in the furnace. The press itself and the furnace are fine. However, the tooling package that holds all the tools in has been damaged and we're in the process of evaluating how much of it we can reuse and how much we're going to have to redo. We're looking somewhere in the vicinity of probably six weeks of that one press being down.
Moving on to fasteners, I think the entire fastener team continues to do a very solid job. We saw good sales growth of 14.5% versus last year from $367 million with just under $421 million this year so a good operating income growth of 32.7% from 86.6% last year to just under $115 million this year. We saw solid margin expansion from 23.6 last year to 27.3 this year. I look at the primary drivers behind the fasteners, as you'd expect growth in the aerospace continues to be extremely strong. In fact we grew by roughly 18.5% year-over-year. We saw very strong demand from our customers. It's a little bit more difficult for us to kind of tell where, but we really believe it's coming from both the OEM and the aftermarket. And I think that the entire team has done a good job of effectively leveraging this volume across our assets and seeing good margin expansion. I think we've been successful to date in growing our market share, but weâ€¦ this is an area we continue to see future upside for us. So taking our constant attack on costs and turning it back around in market and trying to go back and grow our shares certainly has worked successfully for us and will continue to be a constant driver for us.
The other area that we now seen, we've talked about this during the last call and we're moving ahead with it, it is taking or utilizing our automotive assets to drive into a lower end of the aerospace market that quite frankly have been unsuccessful in attacking in the past. I think with the automotive assets both in terms of equipment and we got very capable employees to drive the transition, we've seen opportunity now and that kind of enter an market we haven't been in the past.
On the non-aerospace side, in a nutshell, we've been able to do is really hold our own volume flat during certainly a very challenging time in the North America. And we didn't see any change in this throughout the balance of the year.
Moving into cash, and again, I think we generated a solid cash in the quarter of roughly $223 million. And we now have cash in a positive position versus our debt. And again I think it positions us well to capitalize on the opportunities as they come up. So in summary, I think we continue to see very solid demand from our base programs. Again, we're on, for us the programs to us that matter we have our content, the build rates holding firm or growing.
Aftermarket, if I look at either the current retirement that is out there or what they've announced now is retiring in the future. Today, they are not significant contributors to PCC. And again that's a result of where we got our traction in terms of penetrating the market and kind of the mid-'90s.
And from an accelerated standpoint, certainly the 787 as we exit this fiscal year moving into production will be an accelerator. And through a lesser degree but still there this is the A380 establishing a production rate will be an accelerator to us.
IGT who had kind of said this continues to be a very strong piece of the puzzle. The demand remains very strong. And again, we look throughout the balance of this year, certainly the demand is going to outpace or output capabilities. I think we're well positioned on the high production platform. And very key for us has been the wins over the course of the last six months that really positioned us well in all the advanced platforms and expanded our customer base on the advanced engines. And again, this is going to be hitting development on this as the new facility, so the end of the calendar year '09.
The price demand we see right now remains strong and the backlog really supports two years of production. And on the non-aerospace alloy side we still see market share opportunities in our key areas. So, I think that overall Q1 was a good start. We have a lot to do. We have a lot of opportunities in all fronts in terms of growth, performance and margins. And certainly our goal is to stay focused, stick to the basics and drive through the results we have to drive through. So with that, that ends what I had. Sorry, about the disconnect.