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, 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 September 30, 1998
Common Stock, $0.01 Par Value 13,901,913
<PAGE>
Page 2 of 11
PART I - FINANCIAL INFORMATION
------------------------------
<PAGE>
Page 3 of 11
<TABLE>
LADISH CO., INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in Thousands, Except Share and Per Share Data)
<CAPTION>
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Net sales .............................................. $ 53,368 $ 54,542 $175,818 $157,072
Cost of sales .......................................... 46,649 46,212 149,137 134,055
-------- -------- -------- ---------
Gross income on sales ......................... 6,719 8,330 26,681 23,017
Selling, general and administrative expenses ........... 1,974 1,880 6,201 5,607
-------- -------- -------- ---------
Income from operations ........................ 4,745 6,450 20,480 17,410
Other income (expense):
Interest expense .................................. (149) (840) (1,119) (2,659)
Other, net ........................................ 148 68 317 143
-------- -------- -------- ----------
Income from operations
before provision for income taxes .......... 4,744 5,678 19,678 14,894
Provision for income taxes ............................. 474 513 1,968 1,195
-------- -------- -------- ---------
Net income.................................... $ 4,270 $5,165 $17,710 $13,699
======== ======== ======== ==========
Basic earnings per share (1)......................... $ 0.30 $0.99 $1.53 $2.64
Diluted earnings per share (1)....................... $ 0.27 $0.41 $1.33 $1.10
Basic weighted average shares outstanding (1)........ 14,006,001 5,196,307 11,590,057 5,180,011
Diluted weighted average shares outstanding (1)...... 15,613,198 12,681,334 13,293,550 12,425,320
- --------------------
<FN>
(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.
</FN>
</TABLE>
<PAGE>
Page 4 of 11
LADISH CO., INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands, Except Share and Per Share Data)
September 30, December 31,
Assets 1998 1997
--------
Current assets:
Cash and cash equivalents..................... $ 9,310 $ 566
Accounts receivable, less allowance of $300... 32,771 27,631
Inventories................................... 44,786 48,842
Prepaid expenses and other current assets..... 489 2,537
-------- --------
Total current assets...................... 87,356 79,576
Property, plant and equipment:
Land and improvements......................... 3,855 3,855
Buildings and improvements.................... 13,891 13,756
Machinery and equipment....................... 103,570 99,766
Construction in progress...................... 12,561 6,666
--------- --------
133,877 124,043
Less - accumulated depreciation............... ( 49,336) ( 41,206)
-------- --------
Net property, plant and equipment......... 84,541 82,837
Other assets ..................................... 4,761 3,048
-------- --------
Total assets.............................. $176,658 $165,461
======== ========
Liabilities and Stockholders'
Equity Current liabilities:
Current portion of senior debt................ $2,125 $ 2,000
Notes payable................................. -- 250
Accounts payable.............................. 21,354 15,863
Accrued liabilities:
Pensions.................................. 5,114 8,293
Postretirement benefits................... 5,567 5,567
Wages and salaries........................ 5,907 5,501
Taxes, other than income taxes............ 213 239
Interest.................................. 39 96
Profit sharing............................ 1,980 2,629
Other..................................... 9,799 6,846
-------- --------
Total current liabilities............ 52,098 47,284
Long-term liabilities:
Senior debt, less current portion............. 1,875 25,391
Subordinated debt............................. -- 11,325
Notes payable................................. -- 750
Pensions ..................................... 11,630 28,409
Postretirement benefits....................... 42,956 43,857
Other noncurrent liabilities.................. 2,637 3,428
-------- --------
Total liabilities.................... 111,196 160,444
-------- --------
Stockholders' equity:
Common stock - authorized 100,000,000,
issued 14,013,667 and 5,315,473
shares in each period of $0.01 par value... 140 53
Additional paid-in capital.................... 81,387 37,798
Treasury stock - 111,754 shares of common
stock at cost................................ ( 941) --
Accumulated deficit........................... ( 15,124) ( 32,834)
-------- --------
Total stockholders' equity........... 65,462 5,017
-------- ---------
Total liabilities and stockholders'
equity............................. $ 176,658 $ 165,461
========= ==========
<PAGE>
Page 5 of 11
<TABLE>
LADISH CO., INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
<CAPTION>
For the Nine Months
Ended September 30,
1998 1997
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income................................... $17,710 $13,699
Adjustments to reconcile net income to
net cash provided from (used for)
operating activities:
Depreciation............................. 8,129 7,365
Amortization............................. 185 113
Payment-in-kind interest on
subordinated debt...................... 300 931
Reduction in valuation allowance......... 1,839 1,103
Change in assets and liabilities:
Accounts receivable...................... ( 5,140) (10,886)
Inventories.............................. 4,056 (8,886)
Other assets............................. 147 (156)
Accounts payable and accrued
liabilities............................ 4,939 1,779
Other long-term liabilities............... (18,471) (2,688)
-------- ---------
Net cash provided from
operating activities............... 13,694 2,374
-------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and
equipment.................................. ( 9,834) (6,255)
Proceeds from sale of property,
plant and equipment........................ 4 612
Acquisition of business...................... -- (8,515)
Proceeds from sale of IPD.................... -- 36,500
IPD disposition funds placed in
escrow..................................... -- ( 3,650)
--------- ---------
Net cash provided from
(used for) investing activities.... (9,830) 18,692
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of senior debt...................... (23,391) (20,475)
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................... (1,091) --
-------- --------
Net cash provided from
(used for) financing
activities....................... 4,880 (20,475)
--------- ---------
INCREASE IN CASH AND CASH EQUIVALENTS............. 8,744 591
CASH, beginning of period......................... 566 102
--------- ---------
CASH, end of period............................... $ 9,310 $ 693
========= =========
</TABLE>
<PAGE>
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 September 30, 1998 and December 31, 1997 and its results of
operations and cash flows for the nine months ended September 30, 1998 and
September 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 nine-month period ended September 30, 1998 are
not necessarily indicative of the results to be expected for the full year.
(2) Inventories
-----------
Inventories consisted of:
September 30, December 31,
1998 1997
Raw material and supplies $ 17,635 $ 19,104
Work-in-process and finished goods 30,374 34,049
Less progress payments ( 3,223 ) (4,311)
---------- ----------
Total inventories $ 44,786 $ 48,842
========= =========
<PAGE>
Page 7 of 11
(3) Interest and Income Tax Payments
--------------------------------
For the Nine Months
Ended September 30,
1998 1997
---- ----
Interest $ 3,216 $ 2,216
Income taxes 32 297
(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>
Page 8 of 11
Management's Discussion
and Analysis of Results of Operations and
Changes in Financial Position
Results of Operations
- ---------------------
Third Quarter 1998 Compared to Third Quarter 1997
- -------------------------------------------------
Net sales for the three months ended September 30, 1998 were $53.4 million
compared to $54.5 million for the same period in 1997, a decrease of 2%. The
decrease in sales for the third quarter of 1998 was primarily attributed to
inventory adjustments by the Company's major customers in the jet engine market.
The Company also experienced certain equipment difficulties in the period which
impacted sales mix. Gross profit eroded to 12.6% of sales in contrast to 15.3%
of sales in the third quarter of 1997 as a result of product mix and less
absorption of fixed costs by a lower level of sales.
Selling, general and administrative expenses, as a percentage of sales, were
3.7% for the third quarter of 1998 compared to 3.4% for the same period in 1997.
Interest expense for the period was reduced to $0.15 million from a level of
$0.84 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 September 30, 1998,
the Company's senior debt had an interest rate equal to the commercial paper
rate plus 1.5% per annum (reduced from 2.0% as of September 30, 1997).
The Company's income before taxes of $4.7 million in the third quarter of 1998
compares to $5.7 million in 1997, due primarily to the decrease in sales and
unfavorable sales mix.
The $0.47 million provision for taxes for 1998 and $0.51 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".
NINE MONTHS 1998 COMPARED TO NINE MONTHS 1997
- ---------------------------------------------
Net sales for the first nine months of 1998 of $175.8 million represent an 11.9%
improvement over the $157.1 million of sales for the first nine months of 1997.
The sales growth was largely due to continued expansion of the jet engine and
commercial aerospace industry. Gross
<PAGE>
Page 9 of 11
profit increased to 15.2% in the first nine months of 1998 in comparison to
14.7% during the first nine months of 1997 due to increased sales and operating
efficiencies. Net income of $17.7 million, or 10.1% of sales, for the first nine
months of 1998 reflects positive growth in comparison to the $13.7 million, or
8.7% 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 nine months of 1998, selling, general and administrative expenses,
as a percentage of sales, were 3.5% compared to 3.6% for the same period of
1997.
Interest expense for the period of $1.12 million was a 58% reduction from $2.66
million of interest in the first nine 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 Third Quarter, the $2.0 million tax
provision for the first nine months of 1998 represents the largely non-cash
accounting charges associated with the use of pre-restructuring NOLs. i.
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 September 30, 1998,
approximately $45 million was available and undrawn under the Revolving Credit
Facility. The balance of the Term Loan as of September 30, 1998 was $4.0
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.
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
<PAGE>
Page 10 of 11
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.
Under the common stock repurchase program authorized by the Company's Board of
Directors, the Company repurchased 111,754 shares of its common stock during the
period covered by this report. The Company funded this repurchase program with
$.941 million of the cash generated from operations.
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
period covered by this report. The Company intends to use 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
<PAGE>
Page 11 of 11
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 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 September 30,
1998 the Company had 13,901,913 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 14,006,001 basic shares and 15,613,198 fully-diluted shares of
common stock outstanding for the three months ended September 30, 1998 and
11,590,057 basic shares and 13,293,550 fully-diluted shares of common stock
outstanding for the nine months ended September 30, 1998.
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.
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 30, 1998
By: /S/Wayne E. Larson
Wayne E. Larsen
Vice President Law/Finance
& Secretary
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE CONSOLIDATED FINANCIAL TATEMENTS OF LADISH CO., INC.
AS OF AND FOR THE NINE MONTHS ENDED SEPTEMBER 30 1998 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<CIK> 0000814250
<NAME> Ladish Co. Inc.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 9,310
<SECURITIES> 0
<RECEIVABLES> 33,071
<ALLOWANCES> 300
<INVENTORY> 44,786
<CURRENT-ASSETS> 87,356
<PP&E> 133,877
<DEPRECIATION> (49,336)
<TOTAL-ASSETS> 176,658
<CURRENT-LIABILITIES> 52,098
<BONDS> $4,000
0
0
<COMMON> 140
<OTHER-SE> 65,462
<TOTAL-LIABILITY-AND-EQUITY> 176,658
<SALES> 175,818
<TOTAL-REVENUES> 175,818
<CGS> 149,137
<TOTAL-COSTS> 6,201
<OTHER-EXPENSES> 317
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,119
<INCOME-PRETAX> 19,678
<INCOME-TAX> 1,968
<INCOME-CONTINUING> 17,710
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 17,710
<EPS-PRIMARY> 1.53
<EPS-DILUTED> 1.33
</TABLE>
