SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended June 30, 2002
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Commission File Number 0-23539
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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 June 30, 2002
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Common Stock, $0.01 Par Value 13,004,160
PART I - FINANCIAL INFORMATION
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LADISH CO., INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in Thousands, Except Share and Per Share Data)
Restated Restated
------------------------- -------------------------
For the Three Months For the Six Months
Ended June 30, Ended June 30,
------------------------- -------------------------
2002 2001 2002 2001
---------- ---------- ---------- ----------
Net sales $ 48,309 $ 69,025 $ 101,465 $ 136,888
Cost of sales 44,474 58,602 93,481 117,807
---------- ---------- ---------- ----------
Gross income on sales 3,835 10,423 7,984 19,081
Selling, general and
administrative expenses 2,514 3,655 5,338 6,656
---------- ---------- ---------- ----------
Income from operations 1,321 6,768 2,646 12,425
Other income (expense):
Interest expense (422) (421) (868) (904)
Other, net 9 (24) 72 (16)
---------- ---------- ---------- ----------
Income before provision
for income taxes 908 6,323 1,850 11,505
Provision for income taxes 327 2,276 666 4,141
---------- ---------- ---------- ----------
Net income $ 581 $ 4,047 $ 1,184 $ 7,364
========== ========== ========== ==========
Basic earnings per share $ 0.04 $ 0.31 $ 0.09 $ 0.57
Diluted earnings per share $ 0.04 $ 0.31 $ 0.09 $ 0.56
Basic weighted average
shares outstanding 12,987,560 12,923,664 12,981,842 12,918,101
Diluted weighted average
shares outstanding 13,170,879 13,163,554 13,144,887 13,145,340
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LADISH CO., INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands, Except Share and Per Share Data)
Restated
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June 30, December 31,
2002 2001
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Assets
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Current assets:
Cash and cash equivalents $ 3,963 $ 3,962
Accounts receivable, less allowance of $341 33,661 37,719
Inventories 50,050 53,059
Deferred income taxes 5,643 5,643
Prepaid expenses and other current assets 1,200 635
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Total current assets 94,517 101,018
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Property, plant and equipment:
Land and improvements 4,776 4,637
Buildings and improvements 28,792 27,521
Machinery and equipment 142,978 139,174
Construction in progress 20,707 19,271
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197,253 190,603
Less - accumulated depreciation (95,003) (88,320)
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Net property, plant and equipment 102,250 102,283
Deferred income taxes 17,020 17,535
Other assets 14,869 11,834
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Total assets $ 228,656 $ 232,670
========= =========
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Accounts payable $ 17,224 $ 21,235
Accrued liabilities:
Pensions 146 153
Postretirement benefits 5,308 5,308
Wages and salaries 4,368 4,111
Taxes, other than income taxes 226 263
Interest 984 1,002
Profit sharing -- 812
Paid progress billings 942 473
Other 1,663 2,486
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Total current liabilities 30,861 35,843
Long term liabilities:
Senior notes 30,000 30,000
Pensions 2,661 2,599
Postretirement benefits 36,408 37,286
Other noncurrent liabilities 605 605
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Total liabilities 100,535 106,333
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Stockholders' equity:
Common stock - authorized 100,000,000, issued
14,573,515 shares of $.01 par value as of
June 30, 2002 and December 31, 2001 146 146
Additional paid-in capital 110,433 110,038
Retained earnings 29,159 27,975
Treasury stock, 1,569,355 and 1,597,455 shares
of common stock at cost as of June 30, 2002
and December 31, 2001, respectively (11,490) (11,695)
Additional minimum pension liability (127) (127)
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Total stockholders' equity 128,121 126,337
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Total liabilities and stockholders' equity $ 228,656 $ 232,670
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LADISH CO., INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
Restated
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For the Six Months
Ended June 30,
-------------------------
2002 2001
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,184 $ 7,364
Adjustments to reconcile net income to net cash
provided from (used for) operating activities:
Depreciation 7,609 7,274
Amortization -- 262
Deferred income taxes 515 3,893
Non-cash compensation expense 368 839
Other (41) --
Change in assets and liabilities:
Accounts receivable 4,058 (6,970)
Inventories 3,009 (2,817)
Other assets (3,600) (697)
Accounts payable and accrued liabilities (4,982) 965
Other liabilities (816) (4,813)
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Net cash provided from operating activities 7,304 5,300
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CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (7,713) (7,835)
Proceeds from sale of property, plant and
equipment 178 5
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Net cash used for investing activities (7,535) (7,830)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from senior debt -- 3,075
Repurchase of common stock -- (47)
Retirement of warrants -- (3,227)
Issuance of common stock 232 229
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Net cash provided from financing activities 232 30
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INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1 (2,500)
CASH AND CASH EQUIVALENTS, beginning of period 3,962 3,521
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CASH AND CASH EQUIVALENTS, end of period $ 3,963 $ 1,021
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LADISH CO., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands, Except Per Share Amounts)
(1) Basis of Presentation and Restatement
In the opinion of the Company, the accompanying restated unaudited consolidated
condensed financial statements contain all adjustments necessary to present
fairly its financial position at June 30, 2002 and December 31, 2001 and its
results of operations and cash flows for the six months ended June 30, 2002 and
June 30, 2001. Except as reflected in Note 8, 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. The Company has filed an annual report
on Form 10-K/A, which contains restated audited consolidated financial
statements that include all information and footnotes necessary for a fair
presentation of its financial position at December 31, 2001, 2000 and 1999 and
the related consolidated statements of operations, stockholders' equity, and
cash flows for the years ended December 31, 2001, 2000 and 1999.
The restated results of operations for the six-month period ended June 30, 2002
are not necessarily indicative of the results to be expected for the full year.
(2) Inventories
Inventories consisted of:
June 30, December 31,
2002 2001
--------- ------------
Raw material and supplies $ 13,992 $ 16,995
Work-in-process and finished goods 36,519 37,058
Less progress payments (461) (994)
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Total inventories $ 50,050 $ 53,059
======== =========
(3) Interest and Income Tax Payments
For the Six Months
Ended June 30,
--------------------------
2002 2001
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Interest $ 853 $ 841
Income taxes 194 622
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(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 adopted the provisions of SFAS No. 142 on January 1, 2002. With the
adoption of SFAS No. 142, goodwill is no longer amortized and the Company ceases
to incur any expense related thereto. Rather, the assets associated with the
goodwill will be assessed, at least annually, for impairment. During the quarter
ending March 31, 2002, the Company performed the first of the annual impairment
tests of goodwill. The results of those tests revealed that the goodwill of the
Company has not been impaired. As of March 31, 2002, the Company had
approximately $8.4 million of goodwill on its balance sheet. On a yearly basis,
prior to the adoption of SFAS No. 142, the Company's annual expense associated
with the amortization of goodwill was approximately $.49 million.
(8) Restatement of Interim Financial Statements
Subsequent to June 30, 2002, the Company revised the discount rate assumption
used to determine its pension obligation and pension expense. The change from 8%
to 7.5% resulted in a reduction of income before income taxes of $0.086 million
and $0.172 million for the three and six months ended June 30, 2002,
respectively.
The provision for income taxes was previously reported using an implied rate of
22% and has been restated to use an effective rate of 36%.
Income before taxes, provision for income taxes, net income and earnings per
share have been restated as follows:
For the Three Months For the Six Months
Ended June 30, 2002 Ended June 30, 2002
---------------------- ----------------------
As As
Previously As Previously As
Reported Restated Reported Restated
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Income before income taxes $994 $908 $2,022 $1,850
Provision for income taxes $219 $327 $445 $666
Net income $775 $581 $1,577 $1,184
Diluted earnings per share $0.06 $0.04 $0.12 $0.09
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MANAGEMENT'S DISCUSSION
AND ANALYSIS OF RESULTS OF OPERATIONS AND
CHANGES IN FINANCIAL POSITION
RESULTS OF OPERATIONS
Second Quarter 2002 Compared to Second Quarter 2001
Net sales for the three months ended June 30, 2002 were $48.3 million compared
to $69.0 for the same period in 2001. The 30% reduction in sales for the second
quarter of 2002 was directly a result of the downturn in the commercial
aerospace market. Gross profit for the second quarter of 2002 decreased to 8.1%
of sales in contrast to 15.1% of sales in the second quarter of 2001 primarily
as a result of sales decreases along with an unfavorable product mix and under
absorption of fixed costs.
Selling, general and administrative expenses, as a percentage of sales, were
5.2% for the second quarter of 2002 compared to 5.3% for the same period in
2001. SG&A expenses for both periods were higher than normal due to the
Company's recognition of approximately $0.300 million and $0.675 million in
non-cash expenses in 2002 and 2001, respectively, due to the adoption 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 declining to 4.6% and 4.3%, respectively, of sales in
the second quarter of 2002 and 2001.
Interest expense for the period was $0.422 million in contrast to $0.421 million
in 2001. During the second quarter of 2002, the Company's revolving debt had an
interest rate equal to the LIBOR rate plus 0.80% per annum and the long-term
notes were priced at the rate of 7.19% per annum.
The provision for income taxes has been restated from that previously reported.
The $0.327 million provision for income taxes for 2002 and $2.276 million for
2001 reflect an effective rate of 36%. The Company has significant net operating
loss ("NOL") carryforwards which largely offset most actual tax liabilities of
the Company. For financial statement purposes the Company uses an effective tax
rate which reflects federal and state taxes without a reduction for actual NOL
usage. See "Liquidity and Capital Resources."
Net income of $0.581 million for the second quarter of 2002, an 86% reduction
from the same period in 2001, reflects the impact of the reduced commercial
aerospace market, product mix, margin pressures from customers, although it was
partially offset by a decrease in non-cash compensation expense. The decrease in
profitability was due to lower sales volume in 2002, along with pricing
pressures from aerospace customers.
Six Months 2002 Compared to Six Months 2001
For the first six months of 2002, sales of $101.5 million reflected a 25.9%
reduction from the $136.9 million of sales for the first half of 2001. The sales
decline reflects contraction in the Company's aerospace market. Gross profit in
the first half of 2002 was 8.0% in comparison to 13.9% in the same period in
2001. The decline in gross profit is primarily due to reduction in sales volume
the first half of 2002 versus 2001 and the under absorption of fixed costs in
the first half of 2002.
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SG&A expenses for the first two quarters of 2002 were 5.2% of sales in contrast
to 4.9% of sales through June 30, 2001. SG&A expenses in the first half of 2002
were increased as a result of a one-time payment of $0.255 million of excise
taxes on defined benefit plans. As discussed above in the quarter discussion,
the increase in SG&A expense is partially attributable to the non-cash, FIN 44
charge for both of the six-month periods. Without said charge, SG&A would have
been 4.9% and 4.2% of sales through June 30, 2002 and 2001, respectively.
First half of 2002 interest expense of $0.868 million was relatively flat when
compared to $0.904 million for the equivalent period of 2001.
Pretax income for the first six months of 2002 benefited from a $3.18 million
credit from the Company's defined benefit pension plans. For the same period in
2001, pretax income was increased by a like credit of $3.95 million.
The provision for income taxes has been restated from that previously reported.
The tax provisions of $0.67 million and $4.1 million, respectively, for the
first six months of 2002 and 2001, represent an effective rate of 36%. The
Company has significant net operating loss ("NOL") carryforwards which largely
offset most actual tax liabilities of the Company. For financial statement
purposes the Company uses an effective tax rate which reflects federal and state
taxes without a reduction for actual NOL usage. See "Liquidity and Capital
Resources."
Net income for the period decreased to $1.2 million from $7.4 million in the
prior year. The 83.9% decline in profitability is a result of reduced volume in
the commercial aerospace market, unfavorable product mix and pricing pressures
from commercial aerospace customers.
Liquidity and Capital Resources
On April 13, 2001, the Company and a syndicate of lenders entered into an
amended and restated credit facility (the "New Facility"). The New Facility was
comprised of a $16 million term facility with a three-year maturity and a $39
million revolving loan facility. The term facility bore interest at a rate of
LIBOR plus 1.25% and the revolving loan facility bore 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%. On April 12,
2002 the Amended Facility was modified to reduce the revolving line of credit to
$45 million. At June 30, 2002, $24.8 million was available pursuant to the terms
of the Amended Facility. There were no borrowings under the Amended Facility as
of June 30, 2002.
The Company has NOL carryforwards that were generated prior to its
reorganization completed on April 30, 1993 as well as NOL carryforwards that
were generated subsequent to reorganization. During each accounting period,
beginning April 30, 1993 through December 31, 1998, a valuation allowance was
recorded to reduce the unrealized benefits of NOL carryforwards and temporary
differences to zero. To the extent that the benefits of pre-reorganization NOLs
and reversing temporary differences were realized subsequent to April 30, 1993
through utilization or were recognized by way of a reduction of the valuation
allowance there was a corresponding increase in paid-in capital recognized
rather than a
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reduction in income tax expense. To the extent the benefits of
post-reorganization NOL carryforwards were either realized through utilization
or recognized by way of a reduction of the valuation allowance there was a
corresponding decrease in the income tax provision.
The amount of the NOL carryforwards used through December 31, 2001 totals $18.6
million of the pre-reorganization NOLs and $42.8 million of the
post-reorganization NOLs. NOL carryforwards remaining as of December 31, 2001
total $15.0 million of pre-reorganization NOLs and $6.2 million of
post-reorganization NOLs.
The Company's IPO in March, 1998 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 to reduce future taxable
income. The annual use of the NOL carryforwards is limited to the lesser of the
Company's income or the amount of the IRS imposed limitation. Since the
ownership change, the total NOL available for use is $11.9 million annually. To
the extent less than $11.9 million was used in any year, the unused amount was
added to and increased the limitation in the succeeding year. NOL carryforwards
generated prior to the reorganization are further limited to an annual usage of
$2.1 million. Any unused amount is added to and increases the limitation in the
succeeding year. The pre-reorganization NOL carryforwards expire in 2008 and the
post-reorganization NOL carryforwards expire in 2010.
In 2002, after re-examination of the accounting literature and re-consideration
of the positive and negative evidence which existed in prior years at the end of
each year and consultation with the Company's auditors, the Company determined
that as of December 31, 1999 it was more likely than not that the NOL
carryforwards would be utilized prior to their expiration and that all net
deferred tax assets would be realized. Therefore, effective as of December 31,
1999, the entire valuation allowance against the net deferred tax assets was
reversed and the income tax provisions in 1999, 2000 and 2001 and paid-in
capital have been revised. The amount of the valuation allowance reversed was
$36.7 million. The financial statements for 1999, 2000 and 2001 have been
restated.
The effect of the valuation allowance reversal as of December 31, 1999 has been
allocated between a credit of $18.9 million to paid-in capital for that part of
the allowance applicable to pre-reorganization NOLs and net temporary
differences and a credit of $17.9 million to the income tax provision for that
part of the allowance applicable to post-reorganization NOLs and temporary
differences. Also in 1999, the income tax provision includes $0.7 million
related to utilization of pre-reorganization NOLs which is credited to paid-in
capital.
The opening balances of paid-in capital and retained earnings as of January 1,
1999 have been restated to increase paid-in capital $14.8 million and reduce
retained earnings by the same amount with no effect on total stockholders'
equity. This adjustment is being made to correct a misallocation of the benefits
of the pre-reorganization NOLs and other net deferred tax assets between paid-in
capital and reductions of income tax expense in prior years.
Realization of the net deferred tax assets over time is dependent upon the
Company generating sufficient taxable income in future periods. In determining
that realization of the net deferred tax assets was more likely than not, the
Company gave consideration to a number of factors including its recent earnings
history, expectations for earnings in the future, the timing of reversal of
temporary differences, tax planning strategies available to the Company and the
expiration dates associated with NOL carryforwards. If, in the future, the
Company determines that it is no longer more likely than not that the net
deferred tax assets will be realized, a valuation allowance will be established
against all or part of the net deferred tax assets with an offsetting charge to
the income tax provision.
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Item 3. Quantitative and Qualitative Disclosures about Market Risk
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 risk 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
Item 1. Legal Proceedings
The Company has been named as a defendant in a number of lawsuits filed in
Circuit Court in the State of Mississippi alleging personal injuries from
asbestos exposure. The Company has notified its insurers and is vigorously
defending these claims as the Company never manufactured asbestos and does not
believe Ladish products contain asbestos. At this time, the Company cannot
predict the outcome of this litigation.
Item 4. Submission of Matters to a Vote of Security Holders
On April 11, 2002 at the annual meeting of stockholders of the Company, the
stockholders were asked to vote on the election of a new board of directors for
the next year or until their successors are elected. The following tabulation
reflects the result of the election:
Individual For Withheld
---------- --- --------
Lawrence W. Bianchi 11,776,872 212,515
Margaret Bertelsen Hampton 11,751,772 237,615
Leon A. Kranz 11,772,789 216,598
Wayne E. Larsen 11,026,219 963,168
Scott D. Roeper 11,772,789 216,598
Robert W. Sullivan 11,776,689 212,698
Kerry L. Woody 11,029,119 960,268
No other matters were submitted to a vote of the stockholders during the period
covered by this report.
Item 5. Other Information
None.
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Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 99(a) is the written statement of the chief executive officer of
the Company certifying this Form 10-Q/A complies with the requirements of
Section 13(a) of the Securities Exchange Act of 1934.
Exhibit 99(b) is the written statement of the chief financial officer of
the Company certifying this Form 10-Q/A complies with the requirements of
Section 13(a) of the Securities Exchange Act of 1934.
(b) A Form 8-K was filed on June 28, 2002 announcing the change of independent
auditors from Arthur Andersen LLP to Deloitte & Touche LLP. There was no
dispute with Arthur Andersen LLP over accounting principles or practices,
financial statement disclosures or auditing scope or procedures.
A Form 8-K was filed on July 16, 2002 supplementing the information
contained in the Form 8-K filed on June 28, 2002.
A Form 8-K was filed on August 26, 2002 announcing the resignation of
Deloitte & Touche LLP as the Company's independent auditors.
A Form 8-K/A was filed on September 4, 2002 supplementing the information
contained in the Form 8-K filed on August 26, 2002.
A Form 8-K was filed on September 10, 2002 announcing the appointment of
KPMG LLP as the Company's new independent auditors.
SIGNATURES
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: October 31, 2002 By: /s/ WAYNE E. LARSEN
----------------------------
Wayne E. Larsen
Vice President Law/Finance
& Secretary
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