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 June 30, 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 X No
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, 1998
Common Stock, $0.01 Par Value 14,013,667
Page 2 of 11
PART I - FINANCIAL INFORMATION
Page 3 of 11
LADISH CO., INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in Thousands, Except Share and Per Share Data)
For the Three Months For the Six Months
Ended June 30, Ended June 30,
1998 1997 1998 1997
Net sales.......................$ 60,779 $ 52,607 $ 122,450 $ 102,530
Cost of sales................... 50,531 43,899 102,488 87,843
--------- --------- --------- ---------
Gross income on sales...... 10,248 8,708 19,962 14,687
Selling, general and
administrative expenses....... 2,170 1,969 4,227 3,727
--------- --------- --------- ---------
Income from operations..... 8,078 6,739 15,735 10,960
Other income (expense):
Interest expense............. ( 189 ) ( 888 ) ( 970 ) ( 1,819)
Other, net................... 80 62 169 75
--------- --------- --------- ---------
Income from operations
before provision for
income taxes 7,969 5,913 14,934 9,216
Provision for income taxes.... 797 437 1,494 682
--------- --------- --------- ---------
Net income....................$ 7,172 $ 5,476 $13,440 $ 8,534
========= ========= ========= =========
Basic earnings per share (1)..$ .51 $ 1.05 $ 1.30 $ 1.65
Diluted earnings per share(1).$ .46 $ .45 $ 1.11 $ .70
Basic weighted average
shares outstanding (1) 13,982,310 5,196,307 10,362,06 5,171,728
Diluted weighted average
shares outstanding (1) 15,702,259 12,280,653 12,105,471 12,236,433
- --------------------
(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.
Page 4 of 11
LADISH CO., INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands, Except Share and Per Share Data)
June 30, December 31,
Assets 1998 1997
------
Current assets:
Cash and cash equivalents.....................$ 5,417 $ 566
Accounts receivable, less allowance of $300... 34,794 27,631
Inventories................................... 47,538 48,842
Prepaid expenses and other current assets..... 327 2,537
------------ -----------
Total current assets...................... 88,076 79,576
Property, plant and equipment:
Land and improvements......................... 3,855 3,855
Buildings and improvements.................... 13,865 13,756
Machinery and equipment....................... 103,341 99,766
Construction in progress...................... 9,162 6,666
------------ -----------
130,223 124,043
Less - accumulated depreciation............... ( 46,619 ) ( 41,206 )
----------- ----------
Net property, plant and equipment......... 83,604 82,837
Other assets....................................... 4,784 3,048
----------- ----------
Total assets..............................$ 176,464 $ 165,461
========= =========
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of senior debt................$ 2,000 $ 2,000
Notes payable................................. -- 250
Accounts payable.............................. 23,845 15,863
Accrued liabilities:
Pensions.................................. 9,554 8,293
Postretirement benefits................... 5,567 5,567
Wages and salaries........................ 6,008 5,501
Taxes, other than income taxes............ 148 239
Interest.................................. 50 96
Profit sharing............................ 1,880 2,629
Other..................................... 7,299 6,846
----------- ----------
Total current liabilities............ 56,351 47,284
Long-term liabilities:
Senior debt, less current portion............. 2,500 25,391
Subordinated debt............................. -- 11,325
Notes payable................................. -- 750
Pensions...................................... 9,398 28,409
Postretirement benefits....................... 43,128 43,857
Other noncurrent liabilities.................. 3,397 3,428
----------- ----------
Total liabilities.................... 114,774 160,444
----------- ----------
Stockholders' equity:
Common stock - authorized 100,000,000,
issued and outstanding 14,013,667 and
5,315,473 shares in each period of
$0.01 par value............................. 140 53
Additional paid-in capital.................... 80,944 37,798
Accumulated deficit........................... ( 19,394 ) ( 32,834 )
----------- ----------
Total stockholders' equity........... 61,690 5,017
----------- ----------
Total liabilities and
stockholders' equity................ $ 176,464 $ 165,461
======== =========
Page 5 of 11
LADISH CO., INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
For the Six Months
Ended June 30,
1998 1997
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income...................................$ 13,440 $ 8,534
Adjustments to reconcile net income to
net cash provided from (used for)
operating activities:
Depreciation.............................. 5,413 4,830
Amortization.............................. 145 66
Payment-in-kind interest on subordinated
debt.................................... 300 622
Reduction in valuation allowance.......... 1,396 682
Change in assets and liabilities:
Accounts receivable....................... ( 7,163 ) ( 8,550)
Inventories............................... 1,304 ( 11,534)
Other assets.............................. 326 110
Accounts payable and accrued liabilities.. 9,317 3,396
Other long-term liabilities............... ( 19,771 ) ( 4,731)
---------- -----------
Net cash provided from (used for)
operating activities.............. 4,707 ( 6,575)
---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and
equipment................................... ( 6,180 ) ( 4,239)
Proceeds from sale of property, plant
and equipment............................... 3 600
Acquisition of business....................... -- ( 8,513)
Proceeds from sale of IPD..................... -- 36,500
IPD disposition funds placed in escrow........ -- ( 3,650)
---------- -----------
Net cash provided from (used for
investing activities.............. ( 6,177 ) 20,698
-------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of senior debt...................... ( 22,891 ) ( 13,934)
Retirement of senior subordinated debt
and warrants................................ ( 11,625 ) ( 69)
Repayment of notes payable.................... ( 1,000 ) --
Issuance of common stock...................... 41,987 69
Repurchase of common stock.................... ( 150 ) --
---------- -----------
Net cash provided from (used for)
financing activities.............. 6,321 ( 13,934)
---------- -----------
INCREASE IN CASH AND CASH EQUIVALENTS.............. 4,851 189
CASH, beginning of period.......................... 566 102
---------- -----------
CASH, end of period................................$ 5,417 $ 291
========== ===========
Page 6 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 financial
statements contain all adjustments necessary to present fairly its financial
position at June 30, 1998 and December 31, 1997 and its results of operations
and cash flows for the six months ended June 30, 1998 and June 30, 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, 1996 and 1995.
The results of operations for the six-month period ended June 30, 1998 are not
necessarily indicative of the results to be expected for the full year.
(2) Inventories
Inventories consisted of:
June 30, December 31,
1998 1997
Raw material and supplies $ 16,936 $ 19,104
Work-in-process and finished goods 34,486 34,049
Less progress payments ( 3,884 ) ( 4,311 )
---------- ----------
Total inventories $ 47,538 $ 48,842
========= =========
Page 7 of 11
(3) Interest and Income Tax Payments
For the Six Months
Ended June 30,
1998 1997
Interest $ 3,084 $ 1,716
Income taxes 11 141
(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 conversion 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.
Page 8 of 11
MANAGEMENT'S DISCUSSION
AND ANALYSIS OF RESULTS OF OPERATIONS AND
CHANGES IN FINANCIAL POSITION
RESULTS OF OPERATIONS
- ---------------------
Second Quarter 1998 Compared to Second Quarter 1997
Net sales for the three months ended June 30, 1998 were $60.8 million compared
to $52.6 million for the same period in 1997, an increase of 16%. The increase
in sales for the second 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 16.9% of sales in contrast
to 16.6% of sales in the second quarter 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
3.6% for the second quarter of 1998 compared to 3.7% for the same period in
1997.
Interest expense for the period was reduced to $0.19 million from a level of
$0.89 million in 1997, a decrease of $0.7 million. The reduction in interest
expense was attributable to lower loan balances of senior debt and reduced
interest rates. See "Liquidity and Capital Resources". As of June 30, 1998, the
Company's senior debt had an interest rate equal to the commercial paper rate
plus 1.5% per annum (reduced from 2.5% as of June 30, 1997).
The Company's income before taxes increased from $5.9 million in the second
quarter of 1997 to $8.0 million in 1998, due primarily to the increase in sales.
The $0.80 million provision for taxes for 1998 and $0.44 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".
Six Months 1998 Compared to Six Months 1997
- -------------------------------------------
Net sales for the first six months of 1998 of $122.5 million represent a 19.5%
improvement over the $102.5 million of sales for the first six months of 1997.
The sales growth was largely due to continued expansion of the jet engine and
commercial aerospace industry. Gross profit increased to 16.3% in the first six
months of 1998 in comparison to 14.3% during the first half of 1997 due to
increased sales and operating efficiencies. Net income of $13.4 million, or
10.9% of sales, for the first half of 1998 reflects positive growth in
comparison to the $8.5 million, or 8.3% of sales, for the same period in 1997.
The improvement in net income is attributable to the sales growth, reduced
interest expense and internal operating efficiencies.
For the first six months of 1998, selling, general and administrative expenses,
as a percentage of sales, were 3.5% compared to 3.6% for the first half of 1997.
Interest expense for the period of $0.97 million was a 47% reduction from $1.82
million of interest in the first six months of 1997 due to reduced senior loan
balances, lower interest rates and the retirement of subordinated notes in the
first quarter of 1998.
As indicated above in the discussion of the Second Quarter, the $1.5 million tax
provision for the first six months of 1998 represents the largely non-cash
accounting charges associated with the use of pre-restructuring NOLs.
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 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 June 30, 1998, approximately
$45 million was available and undrawn under the Revolving Credit Facility. The
balance of the Term Loan as of June 30, 1998 was $4.5 million.
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. On March 31, 1998 the Company redeemed the
Subordinated Notes by repaying the outstanding face value of the Subordinated
Notes plus accrued interest thereon.
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 undertook an evaluation of the
treatment of the NOLs for future valuation purposes and anticipates completing
the evaluation by the end of 1998.
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.
Page 9 of 11
PART II - OTHER INFORMATION
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 the Company had
14,013,667 basic shares of common stock outstanding as of June 30, 1998 (as
reflected in the Consolidated Balance Sheets on page 4). 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 on a weighted
average basis 13,982,310 basic shares and 15,702,259 fully-diluted shares of
common stock outstanding for the three months ended June 30, 1998 and 10,362,063
basic shares and 12,105,471 fully-diluted shares of common stock outstanding for
the six months ended June 30, 1998.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27 Financial Data Schedule
(b) 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: July 28, 1998 By: /s/ Wayne E. Larsen
Wayne E. Larsen
Vice President Law/Finance
& Secretary
EXHIBIT INDEX
Exhibit No. Description
27 Financial Data Schedule