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 March 31, 1998
Commission File Number 0-23539
Ladish Co., Inc.
(Exact name of registrant as specified in its charter)
Wisconsin 31-1145953
(State or other Jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5481 South Packard Avenue, Cudahy, Wisconsin 53110
(Address of principal executive offices) (Zip Code)
(414) 747-2611
(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 No X
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 March 31, 1998
Common Stock, $0.01 Par Value 13,945,246
PART I FINANCIAL INFORMATION
Ladish Co., Inc.
Consolidated Statements of Operations
(Dollars in Thousands, Except Share and Per Share Data)
For the Three Months
Ended March 31,
1998 1997
Net sales . . . . . . . . . . . . . . . . . . . $ 61,671 $ 49,923
Cost of sales . . . . . . . . . . . . . . . . . 51,957 43,944
--------- ---------
Gross income on sales . . . . . . . . . . 9,714 5,979
Selling, general and
administrative expenses . . . . . . . . . . . 2,057 1,758
--------- ---------
Income from operations . . . . . . . . . . 7,657 4,221
Other income (expense):
Interest expense . . . . . . . . . . . . . . ( 781) ( 931)
Other, net . . . . . . . . . . . . . . . . . 89 13
--------- ---------
Income before provision for
income taxes . . . . . . . . . . . . . . 6,965 3,303
Provision for income taxes . . . . . . . . . . 697 245
--------- ---------
Net income . . . . . . . . . . . . . . . . $ 6,268 $ 3,058
========= =========
Basic earnings per share (1) . . . . . . . . $ 0.94 $0.59
Diluted earnings per share (1) . . . . . . . $ 0.73 $0.25
Basic weighted average
shares outstanding (1) . . . . . . . . . . . . 6,701,592 5,146,876
Diluted weighted average
shares outstanding (1) . . . . . . . . . . . . 8,542,829 12,195,013
____________________
(1) See the discussion of the impact of the March 9, 1998 Initial Public
Offering of Common Stock by the Company on the basic earnings per
share calculation as well as the diluted earnings per share
calculation in Part II Other Information Item 5.
Ladish Co., Inc.
Consolidated Balance Sheets
(Dollars in Thousands, Except Share and Per Share Data)
March 31, December 31,
Assets 1998 1997
Current assets:
Cash and cash equivalents . . . . . . . $ 9,599 $ 566
Accounts receivable, less allowance
of $300 . . . . . . . . . . . . . . 34,671 27,631
Inventories . . . . . . . . . . . . . . 48,291 48,842
Prepaid expenses and other
current assets . . . . . . . . . . . 2,211 2,537
------- -------
Total current assets . . . . . . . 94,772 79,576
------- -------
Plant and equipment:
Land . . . . . . . . . . . . . . . . . . 3,855 3,855
Buildings and improvements . . . . . . . 13,788 13,756
Machinery and equipment . . . . . . . . 100,421 99,766
Construction in progress . . . . . . . . 8,742 6,666
------- -------
126,806 124,043
Less accumulated
depreciation . . . . . . . . . . . ( 43,863) ( 41,206)
------- -------
Net plant and equipment . . . . . 82,943 82,837
Other assets . . . . . . . . . . . . . . . . 2,970 3,048
------- -------
Total assets . . . . . . . . . . . $ 180,685 $ 165,461
======= =======
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of senior debt . . . . . $ 2,000 $ 2,000
Current portion of Notes payable . . . . -- 250
Accounts payable . . . . . . . . . . . . 34,998 15,863
Accrued liabilities:
Pensions . . . . . . . . . . . . . . 10,104 8,293
Postretirement benefits . . . . . . 5,567 5,567
Wages and salaries . . . . . . . . 5,728 5,501
Taxes, other than income taxes . . . 277 239
Interest . . . . . . . . . . . . . 92 96
Profit sharing . . . . . . . . . . . 740 2,629
Other . . . . . . . . . . . . . . . 6,169 6,846
------- -------
Total current liabilities . . . . 65,675 47,284
Senior debt, less current portion . . . . . 3,000 25,391
Notes payable, less current portion . . . . . -- 750
Subordinated debt . . . . . . . . . . . . . . -- 11,325
Pensions . . . . . . . . . . . . . . . . . . 10,891 28,409
Postretirement benefits . . . . . . . . . . 43,589 43,857
Other noncurrent liabilities . . . . . . . . 3,416 3,428
------- -------
Total liabilities . . . . . . . . 126,571 160,444
------- -------
Stockholders' equity:
Common stock authorized 100,000,000,
issued 13,945,246 shares and
5,315,473 shares of $0.01 par value
as of March 31, 1998 and December 31,
1997, respectively . . . . . . . . . 139 53
Additional paid-in capital . . . . . . . 80,541 37,798
Accumulated deficit . . . . . . . . . . ( 26,566) ( 32,834)
------- -------
Total stockholders' equity . . . . 54,114 5,017
------- -------
Total liabilities and
stockholders' equity . . . . . . $ 180,685 $ 165,461
======= =======
Ladish Co., Inc.
Consolidated Statements of Cash Flows
(Dollars in Thousands)
For the Three Months
Ended March 31,
1998 1997
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income . . . . . . . . . . . . . . . . $ 6,268 $ 3,058
Adjustments to reconcile net income to
net cash provided from (used for)
operating activities:
Depreciation . . . . . . . . . . . . 2,657 2,415
Amortization . . . . . . . . . . . . 107 33
Payment-in-kind interest on
subordinated debt . . . . . . . 289 313
Reduction in valuation allowance . 653 245
Other . . . . . . . . . . . . . . . (3) --
Change in assets and liabilities:
Accounts receivable . . . . . . . . ( 7,040) ( 6,126)
Inventories . . . . . . . . . . . . 551 ( 6,435)
Other assets . . . . . . . . . . . 297 17
Accounts payable and accrued
liabilities . . . . . . . . . . 18,641 9,767
Other liabilities . . . . . . . . . ( 17,798) ( 2,128)
------- -------
Net cash provided from operating
activities . . . . . . . . . . 4,622 1,159
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant
and equipment . . . . . . . . . . . ( 2,763) ( 1,665)
Proceeds from sale of property,
plant and equipment . . . . . . . . 3 599
-------- -------
Net cash used for investing
activities . . . . . . . . . . ( 2,760) ( 1,066)
-------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of senior debt . . . . . . . . ( 22,391) ( 87)
Retirement of senior subordinated
debt and warrants . . . . . . . . . ( 11,614) ( 69)
Repayment of notes payable . . . . . . . ( 1,000) --
Issuance of common stock . . . . . . . . 42,176 69
------- -------
Net cash provided from (used
for) financing activities . . 7,171 ( 87)
------- -------
INCREASE IN CASH AND CASH EQUIVALENTS . . 9,033 6
CASH, beginning of period . . . . . . . . . 566 102
------- -------
CASH, end of period . . . . . . . . . . . . $ 9,599 $ 108
======= =======
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
financial statements contain all adjustments necessary to present fairly
its financial position at March 31, 1998 and December 31, 1997 and its
results of operations and cash flows for the three months ended March 31,
1998 and March 31, 1997. All adjustments are of a normal recurring
nature.
The accompanying unaudited consolidated 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 S-1, 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, 1997 and 1996, and the related consolidated statements of operations,
stockholders' equity, and cash flows for the years ended December 31, 1997
and 1996.
The results of operations for the three-month period ended March 31, 1998
are not necessarily indicative of the results to be expected for the full
year.
(2) Inventories
Inventories consisted of:
March 31, December 31,
1998 1997
Raw material and supplies $ 16,807 $ 19,104
Work-in-process and
finished goods 35,442 34,049
Less progress payments ( 3,958) ( 4,311)
-------- -------
Total inventories $ 48,291 $ 48,842
======== ========
(3) Interest and Income Tax Payments
For the Three Months
Ended March 31,
1998 1997
Interest $ 2,883 $ 769
Income taxes -- 50
(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.
(6) Initial Public Offering
On March 13, 1998, the Company received proceeds of $29.5 million on the
sale of 2,336,000 shares of common stock in an initial public offering.
Subsequently, the Underwriters exercised their option to purchase 501,138
shares for additional proceeds of $6.3 million. In addition, warrants for
5,792,635 shares were exercised for proceeds and forgiveness of debt of
approximately $7.0 million.
(7) 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.
MANAGEMENT'S DISCUSSION
AND ANALYSIS OF RESULTS OF OPERATIONS AND
CHANGES IN FINANCIAL POSITION
Results of Operations
First Quarter 1998 Compared to First Quarter 1997
Net sales for the three months ended March 31, 1998 were $61.7 million
compared to $49.9 for the same period in 1997, an increase of 24%. The
increase in sales for the first quarter of 1998 was primarily attributed
to the continued resurgence of the jet engine market. The Company also
continued to benefit in 1998 due to improvement in on-time deliveries and
focus on manufacturing productivity. Gross profit improved to 15.8% of
sales in contrast to 12% of sales in the first three months of 1997 as a
result of operating efficiencies and greater absorption of fixed costs by
an increased level of sales.
Selling, general and administrative expenses, as a percentage of sales,
were 3.3% for the first quarter of 1998 compared to 3.5% for the same
period in 1997.
Interest expense for the period was reduced to $0.78 million from a level
of $0.93 million in 1997, a decrease of 16%. The reduction in interest
expense was attributable to lower loan balances of senior debt and reduced
interest rates. Approximately $0.36 million of the interest expense in
1998 was related to the subordinated notes issued in 1995 and 1996. The
notes were redeemed March 31, 1998. See "Liquidity and Capital
Resources". As of March 31, 1998, the Company's senior debt had an
interest rate of equal to the commercial paper rate plus 2.0% per annum
(reduced from 2.5% as of March 31, 1997).
The Company's income before taxes increased from $3.3 million in the first
quarter of 1997 to $7.0 million in 1998, due primarily to the increase in
sales.
The $0.70 million provision for taxes for 1998 and $0.25 million for 1997
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 Operating Loss
Carryforwards".
Liquidity and Capital Resources
In March 1998, the Company entered into an amended and restated credit
agreement (the "Credit Agreement") with its lender which expires on June
30, 2000. The Credit Agreement consists of two facilities: (i) a $45
million revolving line of credit (the "Revolving Credit Facility") and
(ii) an $8 million term loan (the "Term Loan"). All of the Company's
assets have been pledged to secure borrowings under the Credit Agreement.
Borrowings under the Revolving Credit Facility bear interest at a rate
equal to the commercial paper rate plus 2.0% per annum (reduced from 2.5%
as of December 31, 1996). The lender has agreed to reduce the interest
rate on the Revolving Credit Facility to the commercial paper rate plus
1.5% per annum as of April 1, 1998. Availability under the Revolving
Credit Facility is subject to a borrowing base limitation which is
calculated based upon eligible accounts receivable and inventories reduced
by the amount of any letters of credit. At March 31, 1998, approximately
$45 million was available and undrawn under the Revolving Credit Facility.
The Term Loan is payable in 16 consecutive quarterly installments which
commenced on September 30, 1996. The first four quarterly installments
were $375,000 each, the next eight installments are $500,000 each
beginning September 30, 1997, and the last four installments are $625,000
each, with the first installment due on September 30, 1999 and the last
installment due on June 30, 2000. Borrowings under the Term Loan bear
interest at a rate equal to the commercial paper rate plus 2.0% per annum.
The lender has agreed to reduce the interest rate on the Term Loan to the
commercial paper rate plus 1.5% per annum as of April 1, 1998. The
Company may, at any time, prepay the outstanding balance of the Term Loan,
in whole or in part, subject to a prepayment fee of 1% of the outstanding
balance (or in the case of a partial prepayment, of the amount prepaid) if
the Term Loan is prepaid on or before July 1, 1999. The balance of the
Term Loan as of March 31, 1998 was $5.0 million.
The Credit Agreement contains covenants, including, but not limited to,
restrictions on the incurrence of additional indebtedness and operations
and capital expenditures. In addition, the Company is required to
maintain an interest coverage ratio of 1.5 to 1 for 1997 and 2.0 to 1
thereafter and to maintain a fixed charge coverage ratio of 1.0 to 1. At
March 31, 1998, the Company was in compliance with all covenants under the
Credit Agreement and believes that it will remain in compliance with such
covenants for the foreseeable future.
In December 1995, the Company issued a total of $4.0 million of its 12%
senior subordinated secured notes due December 22, 2000 (the "Subordinated
Notes") to certain stockholders. In February 1996, the Company completed
a second offering of Subordinated Notes when it issued an additional $5.3
million of Subordinated Notes to certain other stockholders. The
Subordinated Notes bear interest at a rate of 12% per annum and are due in
December 2000. Interest on the Subordinated Notes is payable quarterly in
the form of additional Subordinated Notes. The Subordinated Notes are
secured by a second security interest in substantially all of the
Company's assets, and are subordinated to indebtedness under the Credit
Agreement. On March 31, 1998 the Company redeemed the Subordinated Notes
by repaying the outstanding face value of the Subordinated Notes plus
accrued interest thereon. In connection with such redemption the holders
of the Subordinated Notes released their second security interest in the
Company's assets.
At December 31, 1997, the Company had approximately $57.0 million of net
operating loss carryforwards ("NOLs") for federal income tax purposes, of
which approximately $21.4 million are restricted due to the 1993 change of
ownership of the Company. To the extent that the Company generates
taxable income, these NOLs will reduce the federal income taxes of the
Company in future years, and therefore increase its after-tax cash flow.
Given the Company's continued positive financial performance, the Company
has undertaken an evaluation of the treatment of the NOLs for future
valuation purposes.
On March 13, 1998 the Company successfully completed an initial public
offering for 2,336,000 shares of common stock (the "IPO"). The Company
received approximately $29.5 million in proceeds from the IPO, after
underwriting discounts and commissions. Those proceeds were utilized by
the Company to reduce its pension liability, redeem the Subordinated Notes
and repay a portion of the outstanding indebtedness under the Revolving
Credit Facility. Subsequent to the IPO, the underwriters elected to
purchase additional shares of common stock from the Company which resulted
in the Company receiving approximately $6.3 million in additional
proceeds. These additional proceeds along with approximately $7.0 million
of proceeds and forgiveness of debt from the exercise of warrants were
used to repay the remaining outstanding balance under the Revolving Credit
Facility.
--------------------
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 2. Changes in Securities
In connection with the IPO and in compliance with Item 701(f) of
Regulation S-K, the Company represents that:
(1) The effective date of the registration statement was March 9, 1998
and the Commission file number assigned to it was 333-43011.
(2) The offering was commenced March 9, 1998.
(3) The offering did not terminate before any securities were sold.
(4) (i) The offering terminated after all of the registered securities
were sold.
(ii) The managing underwriters for the offering were Credit Suisse
First Boston and BT Alex. Brown.
(iii) Common Stock of the Company was registered.
(iv) The aggregate amount of Common Stock registered and sold was
7,343,278 shares at an offering price of $13.50 per share which
raised an aggregate amount of proceeds of $99,134,253. Of the
total, 2,837,138 shares were sold by the Company for $38,301,363 of
proceeds and 4,506,140 shares were sold by selling security holders
for $60,832,890 of proceeds.
(v) The underwriting discounts and commissions paid by the Company
amounted to $2,468,310. The Company also incurred approximately
$600,000 of expenses in connection with the offering, none of which
was paid directly or indirectly to directors, officers or affiliates
of the Company.
(vi) The net offering proceeds to the Company was approximately
$35,233,000.
(vii) The Company applied the net offering proceeds as follows:
$15,000,000 Contributed to Company-sponsored pension plans
$1,000,000 Redeemed outstanding note
$11,614,000 Redeemed Senior Subordinated 12% Notes
$7,619,000 Repayment of Senior Debt
Of the above use of proceeds, approximately $8,730,000 of the
redeemed Senior Subordinated 12% Notes were held by affiliates. No
other officer, director or affiliate received any of the proceeds.
Item 5. Other Information
As a result of the new shares of common stock issued by the Company in the
IPO combined with the conversion of warrants into common stock as of March
31, 1998 the Company had 13,945,246 basic shares of common stock
outstanding (as reflected in the Consolidated Balance Sheets on page 4).
On a fully-diluted basis, taking into account outstanding warrants and
options, the Company would have 15,861,234 shares of common stock
outstanding. Due to the timing of the IPO and the warrant exercise
combined with the dictates of Statement of Financial Accounting Standards
No. 128, the Company reported 6,701,592 basic shares and 8,542,829 fully-
diluted shares of common stock outstanding as of March 31, 1998.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27 Financial Data Schedule
(b) Reports on Form 8-K.
No reports on Form 8-K have been filed with the Commission during the
period covered by this report.
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: May 1, 1998 By: /s/
Wayne E. Larsen
Vice President Law/Finance
& Secretary