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Rating Action:

MOODY'S AFFIRMS PRECISION CASTPARTS CORPORATION'S Baa3 LONG TERM AND PRIME-3 SHORT TERM RATINGS, CHANGES THE OUTLOOK TO STABLE

22 Mar 2006
MOODY'S AFFIRMS PRECISION CASTPARTS CORPORATION'S Baa3 LONG TERM AND PRIME-3 SHORT TERM RATINGS, CHANGES THE OUTLOOK TO STABLE

Approximately $1 billion of Debt Securities Affected

New York, March 22, 2006 -- Moody's Investors Service affirmed its Baa3 long- and Prime-3 short-term ratings for Precision Castparts Corp. ("PCC") and changed the outlook to Stable from Developing. Moody's has also withdrawn the rating on Precision Castparts Corp.'s bank credit facilities. The facilities have been replaced with a new bank credit facility. Moody's does not rate the new facility. The developing outlook was assigned November 21, 2005 prompted by the company's announcement that it was unable to file its second fiscal quarter financial report (10Q) on a timely basis due to an ongoing investigation of accounting irregularities at its Wyman Gordon Forging's Houston plant and at J&L Fiber Services (both are wholly owned subsidiaries of PCC).

Outlook Actions:

..Issuer: Precision Castparts Corp.

....Outlook, Changed To Stable From Developing

Withdrawals:

..Issuer: Precision Castparts Corp.

....Senior Unsecured Bank Credit Facility, Withdrawn, previously rated Baa3

The change in outlook and affirmation of the ratings is based on the completion of the special investigation of the accounting irregularities and the filing of the company's quarterly financial statements for both the second and third fiscal quarters. The investigation determined that the irregularities were isolated events and no material weaknesses were identified. Further, no restatement of earnings was necessary and the company recorded a cumulative adjustment in the second quarter of fiscal 2006 which reduced pre-tax income and net income by $3.8 million and $1.9 million respectively.

The Company has taken immediate action to address the cause of these errors, including termination of certain involved individuals, the development of improved policies and procedures, and enhancement of internal controls. See Moody's Financial Reporting Assessment and Corporate Governance Assessment for further details.

The primary ratings factors supporting the ratings are the company's strong cash flow to debt metrics and the positive outlook for the majority of the company's major business segments. Demand in the energy and aerospace industry should continue to drive increased revenues, margins and cash flow for the intermediate term. Industrial Products was the only segment to see declining revenues and falling margins. This result was due to declining volumes in the automotive industry. Debt levels have declined since the company's last acquisition leading to cash flow to debt metrics higher than those generally seen in the rating category. Metrics are expected to remain strong proforma for the soon to be completed acquisition of Special Metals Corporation.

The primary factor constraining the rating is the continued financial and managerial stress that naturally results from high growth and acquisitions. Revenues have grown as a result of organic growth and acquisitions from a low point of $1.9 billion in FY 2004 to more than $3.4 billion in the last twelve months ended January 1, 2006. The company is expected to close its latest acquisition, the $540 million purchase of Special Metals Corporation, before the end of the second calendar quarter of 2006 continuing the company's high rate of growth through acquisitions. Moody's notes that the company has operations in more than 70 locations in the US and internationally. This combination of high growth, widely dispersed operating units, the demand on management to successfully integrate multiple acquisitions with widely varying corporate cultures will continue to be a challenge and a ratings constraint.

The ratings would be negatively affected if the company was to report additional accounting irregularities or identify pervasive material weaknesses in its internal controls. Moody's notes that the company's first 404 audit identified no material weaknessess and no material weaknesses were identified as a result of the investigation. A meaningful decline in operating margins (to below 10%) and a decline in the ratio of retained cash flow to debt to less than 25% would result in a review of the ratings.

Positive ratings adjustments could occur if the company's fiscal 2006 (FYE 4/2/2006) financial statements are filed timely and no material weaknesses are identified, no difficulties were to occur in the integration of Special Metals, further acquisitions were to be undertaken in a paced manner and liquidity and cash flow coverage metrics were to return to historically strong levels post the Special Metals acquisition including operating margins substantially above 10%.

Precision Castparts Corp., headquartered in Portland, Oregon, is involved primarily in the production of investment castings, forgings and fasteners for aerospace, power generation and general industrial applications. It also participates in a variety of other industries including fluid management, metalworking and machine tools.

New York
Michael J. Mulvaney
Managing Director
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Richard Bittenbender
Senior Vice President
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

No Related Data.
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