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, 1999
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 March 31, 1999
Common Stock, $0.01 Par Value 13,906,049
page 2 of 12
PART I - FINANCIAL INFORMATION
Page 3 of 12
LADISH CO., INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in Thousands, Except Share and Per Share Data)
For the Three Months
Ended March 31,
-----------------------------
1999 1998
---------- ----------
Net sales......................................................... $ 42,756 $ 61,671
Cost of sales .................................................... 39,318 51,957
---------- ----------
Gross income on sales.................................... 3,438 9,714
Selling, general and administrative expenses...................... 1,657 2,057
---------- ----------
Income from operations................................... 1,781 7,657
Other income (expense):
Interest expense............................................. ( 161 ) ( 781 )
Other, net................................................... 109 89
---------- ----------
Income before provision for income taxes................. 1,729 6,965
Provision for income taxes........................................ 260 697
---------- ----------
Net income............................................... $ 1,469 $ 6,268
========== ==========
Basic earnings per share (1)...................................... $ 0.11 $0.94
Diluted earnings per share (1).................................... $ 0.10 $0.73
Basic weighted average shares outstanding (1)..................... 13,871,887 6,701,592
Diluted weighted average shares outstanding (1)................... 15,208,660 8,542,829
- --------------------
(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 12
LADISH CO., INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands, Except Share and Per Share Data)
March 31, December 31,
Assets 1999 1998
------ ----------- -------------
Current assets:
Cash and cash equivalents.................................................. $ 1,545 $ 5,517
Accounts receivable, less allowance of $300................................ 29,255 35,409
Inventories................................................................ 48,052 41,967
Prepaid expenses and other current assets.................................. 502 276
----------- -----------
Total current assets................................................... 79,354 83,169
----------- -----------
Property, plant and equipment:
Land and improvements...................................................... 3,855 3,855
Buildings and improvements................................................. 14,962 14,925
Machinery and equipment.................................................... 114,508 112,279
Construction in progress................................................... 9,092 5,893
----------- -----------
142,417 136,952
Less - accumulated depreciation............................................ ( 53,932 ) ( 50,981 )
----------- ----------
Net property, plant and equipment...................................... 88,485 85,971
Other assets .................................................................. 10,206 4,737
----------- ----------
Total assets........................................................... $ 178,045 $ 173,877
=========== ===========
Liabilities and Stockholders' Equity Current liabilities:
Current portion of senior debt............................................. $ 2,375 $ 2,250
Accounts payable........................................................... 17,089 16,194
Accrued liabilities:
Pensions............................................................... 738 738
Postretirement benefits................................................ 5,488 5,488
Wages and salaries..................................................... 5,205 4,045
Taxes, other than income taxes......................................... 258 272
Interest............................................................... 62 36
Profit sharing........................................................ 0 2,720
Paid progress billings................................................. 4,058 6,767
Other.................................................................. 4,886 4,610
----------- -----------
Total current liabilities......................................... 40,159 43,120
Long term liabilities:
Senior debt, less current portion.......................................... 8,505 1,250
Pensions .................................................................. 16,229 17,422
Postretirement benefits.................................................... 42,364 42,762
Other noncurrent liabilities............................................... 677 677
----------- -----------
Total liabilities................................................. 107,934 105,231
----------- ----------
Stockholders' equity:
Common stock - authorized 100,000,000, issued 14,188,803 shares and
14,013,667 shares of $0.01 par value as of March 31, 1999 and
December 31, 1998, respectively......................................... 142 140
Additional paid-in capital................................................. 82,092 81,661
Accumulated deficit........................................................ ( 9,993 ) ( 11,462 )
Treasury stock, 282,754 shares and 222,754 shares of common stock at cost
as of March 31, 1999 and December 31, 1998, respectively................ ( 2,130 ) ( 1,693 )
----------- -----------
Total stockholders' equity........................................ 70,111 68,646
----------- -----------
Total liabilities and stockholders' equity........................ $ 178,045 $ 173,877
=========== ===========
Page 5 of 12
LADISH CO., INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
For the Three Months
Ended March 31,
-----------------------------
1999 1998
--------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................................. $ 1,469 $ 6,268
Adjustments to reconcile net income to net cash
provided from (used for) operating activities:
Depreciation........................................................... 2,952 2,657
Amortization........................................................... 76 107
Payment-in-kind interest on subordinated debt.......................... 0 289
Reduction in valuation allowance....................................... 223 653
Other.................................................................. 0 ( 3 )
Change in assets and liabilities:
Accounts receivable.................................................... 7,371 ( 7,040 )
Inventories............................................................ ( 3,134 ) 551
Other assets........................................................... ( 287 ) 297
Accounts payable and accrued liabilities............................... ( 3,383 ) 18,641
Other liabilities...................................................... ( 1,591 ) ( 17,798 )
--------- ----------
Net cash provided from operating activities....................... 3,696 4,622
--------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment................................. ( 3,453 ) ( 2,763 )
Proceeds from sale of property, plant and equipment........................ ( 1 ) 3
Acquisition of business.................................................... ( 11,367 ) 0
--------- ----------
Net cash used for investing activities............................ ( 14,821 ) ( 2,760 )
--------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from (Repayment of) senior debt................................... 7,380 ( 22,391 )
Retirement of senior subordinated debt and warrants........................ 0 ( 11,614 )
Repayment of notes payable................................................. 0 ( 1,000 )
Issuance of common stock................................................... 0 35,225
Repurchase of common stock................................................. ( 437 ) 0
Exercise of warrants....................................................... 210 6,951
--------- ----------
Net cash provided from financing activities....................... 7,153 7,171
--------- ----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS................................ ( 3,972 ) 9,033
CASH AND CASH EQUIVALENTS, beginning of period.................................. 5,517 566
--------- ----------
CASH AND CASH EQUIVALENTS, end of period........................................ $ 1,545 $ 9,599
========= ==========
Page 6 of 12
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, 1999 and December 31, 1998 and its results of operations
and cash flows for the three months ended March 31, 1999 and March 31, 1998. 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 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, 1998 and 1997, and the related consolidated statements of
operations, stockholders' equity, and cash flows for the years ended December
31, 1998 and 1997.
The results of operations for the three-month period ended March 31, 1999 are
not necessarily indicative of the results to be expected for the full year.
(2) Inventories
Inventories consisted of:
March 31, December 31,
1999 1998
---------- ------------
Raw material and supplies $ 19,543 $ 16,546
Work-in-process and finished goods 31,341 28,697
Less progress payments ( 2,832 ) ( 3,276 )
--------- ---------
Total inventories $ 48,052 $ 41,967
========= =========
Page 7 of 12
(3) Interest and Income Tax Payments
For the Three Months
Ended March 31,
-------------------------------
1999 1998
---------- ---------
Interest $ 182 $ 2,883
Income taxes 204 --
(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.
Page 8 of 12
Management's Discussion
and Analysis of Results of Operations and
Changes in Financial Position
RESULTS OF OPERATIONS
First Quarter 1999 Compared to First Quarter 1998
Net sales for the three months ended March 31, 1999 were $42.8 million compared
to $61.7 for the same period in 1998. The decrease in sales for the first
quarter of 1999 was primarily attributed to repair and upgrade of the Company's
largest isothermal press, as disclosed in the Form 8-K dated December 23, 1998,
and the continued decline of the jet engine market. Gross profit was reduced to
8.0% of sales in contrast to 15.8% of sales in the first three months of 1998 as
a result of under absorption of fixed costs by a diminished level of sales.
Selling, general and administrative expenses were reduced to $1.7 million from
$2.1 million, however, as a percentage of sales, were 3.9% for the first quarter
of 1999 compared to 3.3% for the same period in 1998. The percentage increase in
SG&A expenses was also a reflection of under absorption due to reduced sales.
Interest expense for the period was reduced to $0.16 million from a level of
$0.78 million in 1998, an approximate 80% decrease. The reduction in interest
expense was attributable to lower loan balances of senior debt, reduced interest
rates and the previous redemption of subordinated notes. 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, 1999, the Company's senior debt had an
interest rate equal to the commercial paper rate plus 1.0% per annum (reduced
from 2.0% as of March 31, 1998).
The Company's income before taxes declined to $1.73 million in the first quarter
of 1999 from $6.97 million in 1998, due primarily to the reduction in sales.
The $0.70 million provision for taxes for 1998 and $0.26 million for 1999
represent largely non-cash accounting charges. For 1999, the Company is using an
implied tax rate of 15% in contrast to the 10% implied tax rate for 1998. 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".
Page 9 of 12
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 Credit Agreement bear interest at a rate equal to the
commercial paper rate plus 1.0% per annum (reduced from 1.5% as of December 31,
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, 1999, approximately $37 million was available and undrawn under the
Revolving Credit Facility. The balance of the Term Loan as of March 31, 1999 was
$3.0 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.
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 $52 million as of December 31,
1998. 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 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.
Page 10 of 12
Under the common stock repurchase program authorized by the Company's Board of
Directors, the Company repurchased 60,000 shares of its common stock during the
period covered by this report.
Year 2000 Compliance
The Company has installed a new computer operating system which is compliant
with Year 2000 demands. The new system includes hardware, software, fiber-optic
wiring and extensive training for numerous Company personnel. The project was
initiated in 1997 and the Company implemented the system at the end of the third
quarter of 1998. The Company used the fourth quarter of 1998 to prove-out and
fully convert to the new operating system. The Company has estimated the cost of
this new operating system to be approximately $6 million.
The Company is currently assessing the need for Year 2000 contingency plans for
both internal operations and external business relations. At this time, the
Company believes its new operating system will fully address all Year 2000
issues. Given the size and sophistication of those customers and suppliers which
are material to the Company's business, the Company does not anticipate a
significant business risk associated with Year 2000 compliance by its customers
and suppliers.
-------------------------
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.
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.
Page 11 of 12
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 as of March 31, 1999
the Company had 13,906,049 basic shares of common stock outstanding (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 13,871,887 basic shares and 15,208,660 fully-diluted shares of
common stock as of March 31, 1999 and 6,701,592 basic shares and 8,542,829
fully-diluted shares of common stock outstanding as of March 31, 1998.
On February 16, 1999, the Company completed the purchase of certain assets and
assumption of certain liabilities of Adco Manufacturing, Incorporated ("Adco").
The purchase price was comprised of approximately $10.85 million in cash.
The acquisition has been accounted for using the purchase method of accounting.
Accordingly, the net assets are included in the Company's consolidated balance
sheet as of March 31, 1999 based upon their fair values at the acquisition date
of February 16, 1999. The Company's consolidated statements of operations do not
include the revenues and expenses of Adco prior to this date. The excess of the
purchase price over the fair value of the net assets acquired (goodwill) of
approximately $5.5 million will be amortized on a straight-line basis over 20
years. At this time, the allocation of the purchase price to Adco's assets,
including goodwill, is preliminary and subsequently may be adjusted.
On April 12, 1999, the Company's joint venture partner, Weber Metals, Inc.
("Weber"), experienced an equipment failure on its 38,000-ton press. This press
is used to support the joint venture activities of the Company and Weber. At
this time the impact of this equipment failure on Ladish's future results can
not be ascertained as the timing of the repair has yet to be determined and the
extent to which product can be transferred back to the Company's Cudahy facility
or whether any product can be transferred to the facility of Weber's parent,
Otto Fuchs Metallwerke, is presently being assessed.
Item 6. Reports on Form 8-K
No reports on Form 8-K have been filed with the Commission during the period
covered by this report.
Page 12 of 12
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, 1999 By: /s/ WAYNE E. LARSEN
Wayne E. Larsen
Vice President Law/Finance
& Secretary