SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended September 30, 2001
Commission File Number 0-23539
LADISH CO., INC.
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(Exact name of registrant as specified in its charter)
Wisconsin 31-1145953
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(State or other Jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5481 South Packard Avenue, Cudahy, Wisconsin 53110
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(Address of principal executive offices) (Zip Code)
(414) 747-2611
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(Registrant's telephone number, including area code)
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, and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
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Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class Outstanding at September 30, 2001
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Common Stock, $0.01 Par Value 12,976,060
PART I - FINANCIAL INFORMATION
Page 2 of 11
LADISH CO., INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in Thousands, Except Share and Per Share Data)
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
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2001 2000 2001 2000
------------ ------------ ------------ ------------
Net sales ....................... $ 59,524 $ 58,399 $ 196,412 $ 170,665
Cost of sales ................... 52,071 49,763 169,878 145,053
----------- ----------- ----------- -----------
Gross income on sales....... 7,453 8,636 26,534 25,612
Selling, general and
administrative expenses......... 1,558 3,538 8,214 8,482
----------- ----------- ----------- -----------
Income from operations...... 5,895 5,098 18,320 17,130
Other income (expense):
Interest expense............... (544) (512) (1,448) (1,486)
Other, net..................... 36 5 20 91
----------- ----------- ----------- -----------
Income before provision
for income taxes........... 5,387 4,591 16,892 15,735
Provision for income taxes....... 1,077 826 3,378 2,832
----------- ----------- ----------- -----------
Net income.................. $ 4,310 $ 3,765 $ 13,514 $ 12,903
=========== =========== =========== ===========
Basic earnings per share......... $ 0.33 $ 0.29 $ 1.04 $ 0.98
Diluted earnings per share....... $ 0.33 $ 0.28 $ 1.03 $ 0.94
Basic weighted average
shares outstanding............. 12,965,055 12,889,319 12,933,924 13,128,964
Diluted weighted average
shares outstanding........... 13,225,001 13,647,165 13,172,065 13,778,539
Page 3 of 11
LADISH CO., INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands, Except Share and Per Share Data)
September 30, December 31,
Assets 2001 2000
------ ------------- ------------
Current assets:
Cash and cash equivalents....................... $ 2,738 $ 3,521
Accounts receivable, less allowance
of $348 and $337 respectively.................. 44,451 38,615
Inventories..................................... 56,758 54,942
Prepaid expenses and other current assets....... 274 483
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Total current assets........................ 104,221 97,561
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Property, plant and equipment:
Land and improvements........................... 4,637 4,622
Buildings and improvements...................... 25,719 25,484
Machinery and equipment......................... 134,400 131,770
Construction in progress........................ 20,001 10,777
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184,757 172,653
Less - accumulated depreciation................. (85,742) (74,828)
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Net property, plant and equipment........... 99,015 97,825
Other assets .................................... 10,980 10,377
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Total assets................................ $ 214,216 $ 205,763
========= =========
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Senior debt..................................... $ -- $ 15,000
Accounts payable................................ 25,225 25,057
Accrued liabilities:
Pensions...................................... 255 332
Postretirement benefits....................... 5,745 5,745
Wages and salaries............................ 5,780 4,201
Taxes, other than income taxes................ 229 243
Interest...................................... 471 163
Profit sharing................................ 912 1,366
Paid progress billings........................ 2,042 6,014
Other......................................... 2,904 3,459
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Total current liabilities................... 43,563 61,580
Long term liabilities:
Senior debt, less current portion............... -- 10,000
Senior notes.................................... 30,000 --
Pensions ....................................... 2,226 7,742
Postretirement benefits......................... 37,292 38,682
Other noncurrent liabilities.................... 605 621
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Total liabilities........................... 113,686 118,625
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Stockholders' equity:
Common stock - authorized 100,000,000,
issued and outstanding 14,573,515
shares of $.01 par value as of
September 30, 2001 and December 31, 2000....... 146 146
Additional paid-in capital...................... 83,283 83,804
Retained earnings............................... 28,796 15,349
Treasury stock, 1,597,455 and 1,661,038
shares of common stock at cost as of
September 30, 2001 and December 31, 2000,
respectively................................... (11,695) (12,161)
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Total stockholders' equity.................. 100,530 87,138
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Total liabilities and stockholders'
equity..................................... $ 214,216 $ 205,763
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Page 4 of 11
LADISH CO., INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
For the Nine Months
Ended September 30,
2001 2000
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income........................................ $ 13,514 $ 12,903
Adjustments to reconcile net income
to net cash provided from (used for)
operating activities:
Depreciation.................................... 10,918 10,554
Amortization.................................... 398 618
Reduction in valuation allowance................ 3,047 2,635
Non-cash compensation (income) expense.......... (294) 810
Other........................................... -- 12
Change in assets and liabilities:
Accounts receivable............................. (5,836) (9,153)
Inventories..................................... (1,816) (8,362)
Other assets.................................... ( 792) (272)
Accounts payable and accrued liabilities........ (3,017) 17,533
Other liabilities............................... (6,922) (7,313)
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Net cash provided from (used for)
operating activities......................... 9,200 19,965
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CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment........ (12,113) (9,127)
Proceeds from sale of property, plant
and equipment.................................... 5 54
Acquisition of business........................... -- (25,250)
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Net cash used for investing activities........ (12,108) (34,323)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from (repayment of) senior debt.......... (25,000) 20,000
Proceeds from senior notes........................ 30,000 --
Repurchase of common stock........................ (47) (5,002)
Retirement of warrants............................ (3,227) (28)
Issuance of common stock.......................... 399 12
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Net cash provided from financing activities... 2,125 14,982
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INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.... (783) 624
CASH AND CASH EQUIVALENTS, beginning of period...... 3,521 1,008
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CASH AND CASH EQUIVALENTS, end of period............ $ 2,738 $ 1,632
========= =========
Page 5 of 11
LADISH CO., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands)
(1) Basis of Presentation
In the opinion of the Company, the accompanying unaudited consolidated condensed
financial statements contain all adjustments necessary to present fairly its
financial position at September 30, 2001 and December 31, 2000 and its results
of operations and cash flows for the nine months ended September 30, 2001 and
September 30, 2000. All adjustments are of a normal recurring nature.
The accompanying unaudited consolidated condensed financial statements have been
prepared in accordance with Article 10 of Regulation S-X and therefore do not
include all information and footnotes necessary for a fair presentation of the
financial position, results of operations and cash flow in conformity with
generally accepted accounting principles. In conjunction with its Form 10-K, the
Company filed audited consolidated financial statements which included all
information and footnotes necessary for a fair presentation of its financial
position at December 31, 2000 and 1999, and the related consolidated statements
of operations, stockholders' equity, and cash flows for the years ended December
31, 2000, 1999 and 1998.
The results of operations for the nine-month period ended September 30, 2001 are
not necessarily indicative of the results to be expected for the full year.
(2) Inventories
Inventories consisted of:
September 30, December 31,
2001 2000
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Raw material and supplies $ 16,885 $ 16,319
Work-in-process and finished goods 41,215 41,381
Less progress payments (1,342) (2,758)
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Total inventories $ 56,758 $ 54,942
======== ========
(3) Interest and Income Tax Payments
For the Nine Months
Ended September 30,
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2001 2000
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Interest $ 1,332 $ 1,232
Income taxes 807 433
Page 6 of 11
(4) Cash and Cash Equivalents
Cash in excess of daily requirements is invested in marketable securities
consisting of Commercial Paper and Repurchase Agreements which mature in three
months or less. Such investments are deemed to be cash equivalents for purposes
of the statement of cash flows.
(5) Revenue Recognition
Revenue is recognized when products are shipped pursuant to firm, fixed-price
written contracts with title to the products passing to the customers at the FOB
point.
(6) Earnings Per Share
The incremental difference between basic weighted average shares outstanding and
diluted weighted average shares outstanding is due to the dilutive impact of
outstanding options and warrants.
(7) Goodwill
The Company will adopt the provisions of SFAS No. 142 on January 1, 2002. With
the adoption of SFAS No. 142, goodwill will no longer be amortized and the
Company will cease to incur any expense related thereto. Rather, the assets
associated with the goodwill will be assessed, at least annually, for
impairment. During fiscal 2002, the Company will perform the first of the annual
impairment tests of goodwill. As of December 31, 2000, the Company had
approximately $8.9 million of goodwill on its balance sheet which was amortized
at a rate of approximately $0.48 million annually.
Page 7 of 11
Management's Discussion
and Analysis of Results of Operations and
Changes in Financial Position
RESULTS OF OPERATIONS
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Third Quarter 2001 Compared to Third Quarter 2000
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Net sales for the three months ended September 30, 2001 were $59.5 million
compared to $58.4 for the same period in 2000. The slight, 2%, increase in sales
for the third quarter of 2001 was due to the softening of the aerospace market,
particularly after September 11, 2001. Gross profit for the third quarter of
2001 declined to 12.5% of sales in contrast to 14.8% of sales in the third
quarter of 2000 primarily as a result of product mix and margin pressures in
2001 and increased operating costs.
Selling, general and administrative expenses, as a percentage of sales, were
2.6% for the third quarter of 2001 compared to 6.1% for the same period in 2000.
The variation in SG&A expenses between the periods was attributable to the
Company's recognition of approximately $1.1 million in non-cash credit in 2001
and $.8 million in non-cash expenses in 2000 as a result of the impact of FIN 44
on stock option programs. Under the provisions of this interpretation, 320,000
options repriced at $8.25 per share are accounted for under variable accounting,
which records compensation expense or benefit for increases or decreases in the
market value of the Company's common stock until the options are exercised,
forfeited or expire. Adjusting for this non-cash, accounting charge would have
resulted in SG&A expenses being 4.5% of sales in the third quarter of 2001 and
4.7% of sales in the same period of 2000.
Interest expense for the period was $0.544 million in contrast to $0.512 million
in 2000. The increase in interest expense was due to higher loan balances.
During the third quarter of 2001, the Company's revolving debt had an interest
rate equal to the LIBOR rate plus 0.80% per annum and the senior notes earn
interest at the rate of 7.19% per annum.
The $1.08 million provision for income taxes for 2001 and $0.83 million for
2000, 20% and 18% respectively, represent largely non-cash accounting charges.
The reversal of valuation allowances relating to pre-restructuring NOLs requires
the Company to record a tax provision and to reflect the offset as an addition
to paid-in capital, rather than as an offset to the provision for income taxes.
The overall effective rate differs substantially from the statutory tax rate due
to the reversal of valuation allowances relating to post-restructuring versus
pre-restructuring deferred tax assets. The Company intends to continue to use
its NOLs in the future to reduce actual payment of federal income taxes. The
future use of the NOLs is subject to certain statutory restrictions.
See "Liquidity and Capital Resources."
Net income for the third quarter of 2001 after non-cash compensation credit was
$4.3 million, a 14.5% increase from the same period in 2000. The increase in
profitability was due to improved sales volume in 2001, partially enhanced by
the non-cash SG&A credit in 2001.
Nine Months 2001 Compared to Nine Months 2000
---------------------------------------------
For the first nine months of 2001, sales of $196.4 million reflected a 15.1%
increase over the $170.7 million of sales for the three quarters of 2000. The
sales growth reflects an expansion in the Company's aerospace market. Gross
profit in the first nine months of 2001 was 13.5% in comparison to 15.0% in the
same period in 2000. The decline in gross profit is primarily due to increased
energy costs in the early portion of 2001 versus 2000 and the reduced employment
expenses in 2000 due to the first quarter work stoppage.
Page 8 of 11
SG&A expenses for the first three quarters of 2001 were 4.2% of sales in
contrast to 5.0% of sales through September 30, 2000. As discussed above in the
quarter discussion, the variation in SG&A expense is largely attributable to the
non-cash, FIN 44 charges and credits. On a normalized basis, the Company's SG&A
expenses typically approximate 4.5% of sales.
Lower interest rates in the first nine months of 2001 led to interest expense
declining to $1.45 million for the period from $1.49 million in 2000.
As discussed above, the tax provisions of $3.4 million and $2.8 million, 20% and
18% respectively, for the first nine months of 2001 and 2000, represent largely
non-cash accounting charges.
Net income for the period increased to $13.5 million from $12.9 million in the
prior year. While total income was up in 2001 over 2000, as a percentage of
sales there was a decline in profitability as a result of increased energy costs
and higher employment costs without a work stoppage, along with higher implied
tax rates.
Liquidity and Capital Resources
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As of July 1, 1999, the Company entered into a new credit facility (the
"Facility") with a syndicate of lenders. The Facility provides for borrowings of
up to $100 million subject to certain limitations. Borrowings under the Facility
are unsecured and were initially structured as revolving loans with the option
of conversion into term loans. Borrowings under the Facility bear interest at a
rate of LIBOR plus 0.75% per annum. Proceeds from the Facility were used to
terminate the prior credit agreement on July 1, 1999.
On April 13, 2001, the Company and substantially the same group of lenders
entered into an amended and restated credit facility (the "New Facility"). The
New Facility is comprised of a $16 million term facility with a three-year
maturity and a $39 million revolving loan facility. The term facility bears
interest at a rate of LIBOR plus 1.25% and the revolving loan facility bears
interest at a rate of LIBOR plus 0.80%.
On July 20, 2001 the Company sold $30 million of Notes in a private placement to
certain institutional investors. The Notes bear interest at a rate of 7.19% per
annum with the interest being paid semiannually. The Notes have a seven-year
duration with the principal amortizing equally over the remaining duration after
the third year. The Company used the proceeds from the Notes to repay
outstanding borrowings under the New Facility and for working capital purposes.
In conjunction with the private placement of the Notes, the Company and the
lenders in the New Facility amended the New Facility on July 17, 2001 (the
"Amended Facility"). The Amended Facility consists of a $50 million revolving
line of credit which bears interest at a rate of LIBOR plus 0.80%. At September
30, 2001 $44.5 million was available pursuant to the terms of the Amended
Facility. There were no borrowings under the Amended Facility as of September
30, 2001.
The Company has net operating loss ("NOL") carryforwards, which were generated
prior to a financial restructuring that was completed on April 30, 1993, as well
as NOL carryforwards that were generated in subsequent years. The total
remaining NOL carryforwards were approximately $34.5 million as of December 31,
2000. The NOL carryforwards expire gradually beginning in the year 2007 through
2010.
The Company's IPO created an ownership change as defined by the Internal Revenue
Service, ("IRS"). This ownership change generated an IRS imposed limitation on
the utilization of NOL carryforwards on future tax returns. The annual use of
the NOL carryforwards is limited to the lesser of the Company's taxable income
or the amount of the IRS imposed limitation. Approximately $12 million of the
NOL carryforwards is available for use annually. Approximately $2 million of the
$12 million annual
Page 9 of 11
limitation relates to a previous restriction on NOL carryforwards generated
prior to the financial restructuring.
Based on the limitations described above and certain other factors, a valuation
allowance has been recorded against the entire amount of the net deferred tax
assets. Any tax benefit that is realized in subsequent years from the reduction
of the valuation allowance established at or prior to the financial
restructuring will be recorded as an addition to paid-in capital. Any tax
benefit that is realized in subsequent years from the utilization of deferred
tax assets created after April 30, 1993, will be recorded as a reduction of
future income tax provisions.
Under the common stock repurchase program (the "Program") authorized by the
Company's Board of Directors, the Company repurchased 329,357 shares, or share
equivalents, of its common stock during the first nine months of 2001. As of
September 30, 2001, the Company has repurchased approximately 2.82 million
shares, or share equivalents, of its common stock under the Program.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
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The Company believes that its exposure to market risk related to changes in
foreign currency exchange rates and trade accounts receivable is immaterial as
all of the Company's sales are made in U.S. dollars. The Company does not
consider it subject to the market risks addressed by Item 305 of Regulation S-K.
----------------------
Any statements contained herein that are not historical facts are
forward-looking statements within the meaning of the Private Securities
Legislation Reform Act of 1995, and involve risks and uncertainties. These
forward-looking statements include expectations, beliefs, plans, objectives,
future financial performance, estimates, projections, goals and forecasts.
Potential factors which could cause the Company's actual results of operations
to differ materially from those in the forward-looking statements include market
conditions and demand for the Company's products; competition; technologies; raw
material prices; interest rates and capital costs; taxes; unstable governments
and business conditions in emerging economies; and legal, regulatory and
environmental issues. Any forward-looking statement speaks only as of the date
on which such statement is made. The Company undertakes no obligation to update
any forward-looking statement to reflect events or circumstances after the date
on which such statement is made.
PART II - OTHER INFORMATION
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Item 4. Submission of Matters to a Vote of Security Holders
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No matters were submitted to a vote of the stockholders during the period
covered by this report.
Item 5. Other Information
--------------------------
None
Item 6. Reports on Form 8-K
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No reports on Form 8-K were filed during the period covered by this report.
Page 10 of 11
SIGNATURES
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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.
LADISH CO., INC.
Date: November 2, 2001 By: /s/ WAYNE E. LARSEN
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Wayne E. Larsen
Vice President Law/Finance
& Secretary
Page 11 of 11