SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended September 30, 1999
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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 _____
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class Outstanding at September 30, 1999
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Common Stock, $0.01 Par Value 13,686,152
Page 2 of 12
PART I - FINANCIAL INFORMATION
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Page 3 of 12
LADISH CO., INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in Thousands, Except Share and Per Share Data)
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
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1999 1998 1999 1998
------------ ------------ ------------ ------------
Net sales ........................................$ 41,803 $ 53,368 $ 129,330 $ 175,818
Cost of sales ........................................ 36,759 46,649 115,833 149,137
------------ ------------ ------------ ------------
Gross income on sales........................ 5,044 6,719 13,497 26,681
Selling, general and administrative expenses.......... 1,869 1,974 5,448 6,201
------------ ------------ ------------ ------------
Income from operations....................... 3,175 4,745 8,049 20,480
Other income (expense):
Interest expense................................. (317) (149) (659) (1,119)
Other, net....................................... 69 148 239 317
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Income from operations
before provision for income taxes......... 2,927 4,744 7,629 19,678
Provision for income taxes............................ 439 474 1,144 1,968
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Net income...................................$ 2,488 $ 4,270 $ 6,485 $ 17,710
============ ============ ============ ============
Basic earnings per share..............................$ 0.18 $ 0.30 $ 0.47 $ 1.53
Diluted earnings per share............................$ 0.17 $ 0.27 $ 0.44 $ 1.33
Basic weighted average shares outstanding............. 13,700,041 14,006,001 13,750,528 11,590,057
Diluted weighted average shares outstanding........... 14,271,807 15,613,198 14,626,639 13,293,550
Page 4 of 12
LADISH CO., INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands, Except Share and Per Share Data)
September 30, December 31,
Assets 1999 1998
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Current assets:
Cash and cash equivalents...........................................................$ 859 $ 5,517
Accounts receivable, less allowance of $300......................................... 29,872 35,409
Inventories......................................................................... 48,210 41,967
Prepaid expenses and other current assets........................................... 470 276
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Total current assets............................................................ 79,411 83,169
Property, plant and equipment:
Land and improvements............................................................... 3,855 3,855
Buildings and improvements.......................................................... 15,003 14,925
Machinery and equipment............................................................. 115,745 112,279
Construction in progress............................................................ 10,201 5,893
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144,804 136,952
Less - accumulated depreciation..................................................... (59,868) (50,981)
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Net property, plant and equipment............................................... 84,936 85,971
Other assets ........................................................................... 6,429 4,737
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Total assets....................................................................$ 170,776 $ 173,877
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Liabilities and Stockholders' Equity
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Current liabilities:
Senior debt.........................................................................$ 7,000 $ 2,250
Accounts payable.................................................................... 16,944 16,194
Accrued liabilities:
Pensions........................................................................ 486 738
Postretirement benefits......................................................... 5,488 5,488
Wages and salaries.............................................................. 4,533 4,045
Taxes, other than income taxes.................................................. 212 272
Interest........................................................................ 11 36
Profit sharing.................................................................. 525 2,720
Paid progress billings.......................................................... 4,282 6,767
Other........................................................................... 3,071 4,610
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Total current liabilities.................................................. 42,552 43,120
Long-term liabilities:
Senior debt, less current portion................................................... 0 1,250
Pensions ........................................................................... 15,562 17,422
Postretirement benefits............................................................. 41,460 42,762
Other noncurrent liabilities........................................................ 677 677
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Total liabilities.......................................................... 100,251 105,231
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Stockholders' equity:
Common stock - authorized 100,000,000, issued 14,318,406 and 14,013,667 shares
of $0.01 par value as of September 30, 1999 and December 31, 1998, respectively.. 143 140
Additional paid-in capital.......................................................... 79,617 81,661
Accumulated deficit................................................................. (4,977) (11,462)
Treasury stock, 632,254 shares and 222,754 shares of common stock at
Cost as of September 30, 1999 and December 31, 1998, respectively................ (4,258) (1,693)
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Total stockholders' equity................................................. 70,525 68,646
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Total liabilities and stockholders' equity.................................$ 170,776 $ 173,877
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Page 5 of 12
LADISH CO., INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
For the Nine Months
Ended September 30,
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1999 1998
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income..........................................................................$ 6,485 $ 17,710
Adjustments to reconcile net income to net cash
provided from (used for) operating activities:
Depreciation.................................................................... 8,915 8,129
Amortization.................................................................... 395 185
Payment-in-kind interest on subordinated debt................................... -- 300
Reduction in valuation allowance................................................ 990 1,839
Other........................................................................... (3) 0
Change in assets and liabilities:
Accounts receivable............................................................. 6,754 (5,140)
Inventories..................................................................... (3,292) 4,056
Other assets.................................................................... (447) 147
Accounts payable and accrued liabilities........................................ (5,449) 4,939
Other long-term liabilities..................................................... (3,162) (18,471)
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Net cash provided from operating activities................................ 11,186 13,694
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CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment.......................................... (5,878) (9,834)
Proceeds from sale of property, plant and equipment................................. 13 4
Acquisition of business............................................................. (11,533) --
IPD funds from escrow............................................................... 3,650 --
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Net cash used for investing activities..................................... (13,748) (9,830)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from (repayment of) senior debt............................................ 3,500 (23,391)
Retirement of senior subordinated debt and warrants................................. -- (11,625)
Repayment of notes payable.......................................................... -- (1,000)
Issuance of common stock............................................................ 12 35,036
Repurchase of common stock.......................................................... (2,565) (1,091)
Retirement of warrants.............................................................. (3,253) --
Exercise of warrants................................................................ 210 6,951
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Net cash provided from (used for) financing activities..................... (2,096) 4,880
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INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS......................................... (4,658) 8,744
CASH AND CASH EQUIVALENTS, beginning of period........................................... 5,517 566
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CASH AND CASH EQUIVALENTS, end of period.................................................$ 859 $ 9,310
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Page 6 of 12
LADISH CO., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands)
(1) Basis of Presentation
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In the opinion of the Company, the accompanying unaudited consolidated financial
statements contain all adjustments necessary to present fairly its financial
position at September 30, 1999 and December 31, 1998 and its results of
operations and cash flows for the nine months ended September 30, 1999 and
September 30, 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, 1997 and 1996.
The results of operations for the nine-month period ended September 30, 1999 are
not necessarily indicative of the results to be expected for the full year.
(2) Inventories
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Inventories consisted of:
September 30, December 31,
1999 1998
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Raw material and supplies $ 17,545 $ 16,546
Work-in-process and finished goods 32,589 28,697
Less progress payments (1,924) (3,276)
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Total inventories $ 48,210 $ 41,967
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(3) Interest and Income Tax Payments
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For the Nine Months
Ended September 30,
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1999 1998
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Interest $ 641 $3,216
Income taxes 373 32
(4) Cash and Cash Equivalents
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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
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Revenue is recognized when products are shipped.
(6) Initial Public Offering
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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
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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
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Third Quarter 1999 Compared to Third Quarter 1998
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Net sales for the three months ended September 30, 1999 were $41.8 million
compared to $53.4 million for the same period in 1998. The decrease in sales for
the third quarter of 1999 was primarily attributed to the continued decline of
the jet engine market and the failure of the Company's joint venture partner's
38,000-ton press. The Company did benefit in the third quarter of 1999 due to
reduced costs associated with manpower reductions and product mix. Gross profit
declined to 12.1% of sales in contrast to 12.6% of sales in the third quarter of
1998 as a result of under absorption of fixed costs by the reduced level of
sales.
Selling, general and administrative expenses, as a percentage of sales, were
4.5% for the third quarter of 1999 compared to 3.7% for the same period in 1998.
During the third quarter of 1999, the Company recorded an unusual and
nonrecurring cost of approximately $2 million associated with the adoption of
the 1999 Retirement Incentive Plan (the "Plan") for both hourly and salary
employees of the Company. This impacted the cost of operations for
manufacturing, selling and general administrative. The costs associated with the
adoption of the Plan were offset by the partial payment the Company received
from its property insurer in connection with the business interruption portion
of the Company's claim with respect to the failure of #116 isothermal press. At
this time the Company cannot predict the amount of additional payments from its
insurer or the time period in which those payments would be received.
Interest expense for the period was $0.32 million in contrast to $0.15 million
in 1998. The increase in interest expense was attributable to higher loan
balances of senior debt, partially offset by reduced interest rates. As of
September 30, 1999, the Company's senior debt had an interest rate equal to the
LIBOR rate plus 0.75% per annum (reduced from commercial paper plus 1.0% per
annum as of September 30, 1998).
The $0.44 million provision for taxes for 1999 and $0.47 million for 1998
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".
Page 9 of 12
Nine Months 1999 Compared to Nine Months 1998
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Net sales for the first nine months of 1999 of $129.3 million compares to $175.8
million of sales for the first nine months of 1998. The sales reduction was
largely due to a decline of the jet engine and commercial aerospace industry
compounded by the equipment failures at both the Company and its joint venture
partner. Gross profit decreased to 10.4% in the first nine months of 1999 in
comparison to 15.2% during the same period in 1998 due to reduced sales. Net
income of $6.5 million, or 5.0% of sales, for the first nine months of 1999
compares to the $17.7 million, or 10.1% of sales, for the same period in 1998.
The reduction in net income is attributable to the reduced sales.
For the first nine months of 1999, selling, general and administrative expenses,
as a percentage of sales, were 4.2% compared to 3.5% for the first nine months
of 1998.
As discussed above in the discussion of the third quarter results, the Company
did recognize the cost associated with the adoption of the Plan in the first
nine months of 1999, and the partial insurance payment.
Interest expense for the period of $0.66 million was a reduction from $1.12
million of interest in the first nine months of 1998 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 third quarter, the $1.1 million tax
provision for the first nine months of 1999, compared to $2.0 million for the
same period in 1998, represents the largely non-cash accounting charges
associated with the use of pre-restructuring NOLs.
Liquidity and Capital Resources
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As of July 1, 1999, the Company entered into a new credit facility (the "New
Facility") with a syndicate of lenders. The New Facility provides for borrowings
of up to $100 million subject to certain limitations. Borrowings under the New
Facility are unsecured and will initially be structured as revolving loans with
the option of conversion into term loans. Borrowings under the New Facility bear
interest at a rate of LIBOR plus 0.75% per annum. Proceeds from the New Facility
were used to terminate the prior credit agreement on July 1, 1999. At September
30, 1999, approximately $41.0 million was available and undrawn under the New
Facility. The balance of the borrowings under the New Facility as of September
30, 1999 was $7.0 million.
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
Page 10 of 12
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.
Under the common stock repurchase program (the "Program") authorized by the
Company's Board of Directors, the Company repurchased 29,500 shares, or share
equivalents, of its common stock during the third quarter of 1999. As of
September 30, 1999, the Company has repurchased 1,378,350 shares, or share
equivalents, of its common stock under the Program.
Year 2000 Compliance
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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 $7.5 million.
The Company has assessed 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.
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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
Page 11 of 12
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
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The Company believes that its exposure to market risk related to changes in
foreign currency exchange rates and trade accounts receivable is immaterial.
PART II - OTHER INFORMATION
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Item 4. Submission of Matters to a Vote of Security Holders
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No matter was submitted to the stockholders for a vote during the period covered
by this report.
Item 5. Other Information
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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 September 30,
1999 the Company had 13,686,152 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 13,700,041 basic shares and 14,271,807 fully-diluted shares of
common stock outstanding for the three months ended September 30, 1999 and
13,750,528 basic shares and 14,626,639 fully-diluted shares of common stock
outstanding for the nine months ended September 30, 1999.
At the May 21, 1999 meeting of the Compensation and Stock Option Committee (the
"Committee") of the Board of Directors, the Committee recommended reducing the
exercise price of the 402,500 options under the 1996 Long Term Incentive Plan
from $14.50 per share to $8.25 per share. At a subsequent Board of Directors
Meeting, the Board of Directors approved the Committee's recommendation.
Item 6. Exhibits and Reports on Form 8-K
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(a) Exhibit 27. Financial Data Schedule.
(b) No reports on Form 8-K have been filed with the Commission during the
period covered by this report.
Page 12 of 12
SIGNATURES
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Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
LADISH CO., INC.
Date: October 25, 1999 By: /s/ WAYNE E. LARSEN
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Wayne E. Larsen
Vice President Law/Finance
& Secretary