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, 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 June 30, 1999
Common Stock, $0.01 Par Value 13,586,049
<PAGE>
Page 2 of 12
PART I - FINANCIAL INFORMATION
<PAGE>
Page 3 of
LADISH CO., INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in Thousands, Except Share and Per Share Data)
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended June 30, Ended June 30,
-------------------------- -------------------------
1999 1998 1999 1998
----------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Net sales ........................................... $ 44,771 $ 60,779 $ 87,527 $ 122,450
Cost of sales ....................................... 39,756 50,531 79,074 102,488
----------- ----------- ----------- ----------
Gross income on sales....................... 5,015 10,248 8,453 19,962
Selling, general and administrative expenses......... 1,922 2,170 3,579 4,227
----------- ----------- ----------- ----------
Income from operations...................... 3,093 8,078 4,874 15,735
Other income (expense):
Interest expense................................ (181) (189) (342) (970)
Other, net...................................... 61 80 170 169
----------- ----------- ----------- ----------
Income from operations
before provision for income taxes........ 2,973 7,969 4,702 14,934
Provision for income taxes........................... 445 797 705 1,494
----------- ----------- ----------- ----------
Net income.................................. $ 2,528 $ 7,172 $ 3,997 $ 13,440
=========== =========== =========== ==========
Basic earnings per share (1)......................... $ 0.18 $ 0.51 $ 0.29 $ 1.30
Diluted earnings per share (1)....................... $ 0.18 $ 0.46 $ 0.27 $ 1.11
Basic weighted average shares outstanding (1)........ 13,681,544 13,982,310 13,776,189 10,362,063
Diluted weighted average shares outstanding (1)...... 14,401,338 15,702,259 14,804,473 12,105,471
- --------------------
(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.
</TABLE>
<PAGE>
Page 4 of 12
LADISH CO., INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands, Except Share and Per Share Data)
<TABLE>
<CAPTION>
June 30, December 31,
Assets 1999 1998
------
Current assets:
<S> <C> <C>
Cash and cash equivalents.................................................. $ 1,054 $ 5,517
Accounts receivable, less allowance of $300................................ 24,860 35,409
Inventories................................................................ 48,189 41,967
Prepaid expenses and other current assets.................................. 643 276
------------ ------------
Total current assets................................................... 74,746 83,169
Property, plant and equipment:
Land and improvements...................................................... 3,855 3,855
Buildings and improvements................................................. 15,000 14,925
Machinery and equipment.................................................... 115,631 112,279
Construction in progress................................................... 9,075 5,893
------------ ------------
143,561 136,952
Less - accumulated depreciation............................................ (56,886) (50,981)
------------ ------------
Net property, plant and equipment...................................... 86,675 85,971
Other assets .................................................................. 10,125 4,737
------------ ------------
Total assets........................................................... $ 171,546 $ 173,877
============ ============
<CAPTION>
Liabilities and Stockholders' Equity Current liabilities:
---------------------------------------------------------
<S> <C> <C>
Current portion of senior debt............................................. $ 2,500 $ 2,250
Accounts payable........................................................... 14,247 16,194
Accrued liabilities:
Pensions............................................................... 841 738
Postretirement benefits................................................ 5,488 5,488
Wages and salaries..................................................... 5,373 4,045
Taxes, other than income taxes......................................... 158 272
Interest............................................................... 57 36
Profit sharing........................................................ -- 2,720
Paid progress billings................................................. 4,184 6,767
Other.................................................................. 6,429 4,610
------------ ------------
Total current liabilities......................................... 39,277 43,120
Long-term liabilities:
Senior debt, less current portion.......................................... 6,882 1,250
Pensions .................................................................. 15,035 17,422
Postretirement benefits.................................................... 41,839 42,762
Other noncurrent liabilities............................................... 677 677
------------ ------------
Total liabilities................................................. 103,710 105,231
------------ ------------
Stockholders' equity:
Common stock - authorized 100,000,000, issued 14,188,803 and 14,013,667
shares of $0.01 par value as of June 30, 1999 and December 31, 1998,
respectively 142 140
Additional paid-in capital................................................. 79,215 81,661
Accumulated deficit........................................................ (7,465) (11,462)
Treasury stock, 602,754 shares and 222,754 shares of common stock at
Cost as of June 30, 1999 and December 31, 1998, respectively............ (4,056) (1,693)
------------ ------------
Total stockholders' equity........................................ 67,836 68,646
------------ ------------
Total liabilities and stockholders' equity........................ $ 171,546 $ 173,877
============ ============
</TABLE>
<PAGE>
Page 5 of 12
LADISH CO., INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
<TABLE>
<CAPTION>
For the Six Months
Ended June 30,
------------------------------
1999 1998
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income................................................................ $ 3,997 $ 13,440
Adjustments to reconcile net income to net cash
provided from (used for) operating activities:
Depreciation.......................................................... 5,933 5,413
Amortization.......................................................... 189 148
Payment-in-kind interest on subordinated debt......................... -- 300
Reduction in valuation allowance...................................... 599 1,396
Other................................................................. -- (3)
Change in assets and liabilities:
Accounts receivable................................................... 11,766 (7,163)
Inventories........................................................... (3,271) 1,304
Other assets.......................................................... (460) 326
Accounts payable and accrued liabilities.............................. (4,224) 9,317
Other long-term liabilities........................................... (3,310) (19,771)
---------- ----------
Net cash provided from operating activities...................... 11,219 4,707
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment................................ (4,635) (6,180)
Proceeds from sale of property, plant and equipment....................... 10 3
Acquisition of business................................................... (11,533) --
---------- -----------
Net cash used for investing activities........................... (16,158) (6,177)
---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from (repayment of) senior debt.................................. 5,882 (22,891)
Retirement of senior subordinated debt and warrants....................... -- (11,625)
Repayment of notes payable................................................ -- (1,000)
Issuance of common stock.................................................. -- 35,036
Repurchase of common stock................................................ (2,363) (150)
Retirement of warrants.................................................... (3,253) --
Exercise of warrants...................................................... 210 6,951
---------- -----------
Net cash provided from financing activities...................... 476 6,321
--------- -----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............................... (4,463) 4,851
CASH AND CASH EQUIVALENTS, beginning of period................................. 5,517 566
---------- -----------
CASH AND CASH EQUIVALENTS, end of period....................................... $ 1,054 $ 5,417
========== ===========
</TABLE>
<PAGE>
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 June 30, 1999 and December 31, 1998 and its results of operations
and cash flows for the six months ended June 30, 1999 and June 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 six-month period ended June 30, 1999 are not
necessarily indicative of the results to be expected for the full year.
(2) Inventories
Inventories consisted of:
June 30, December 31,
1999 1998
--------- ----------
Raw material and supplies $ 17,716 $ 16,546
Work-in-process and finished goods 33,201 28,697
Less progress payments (2,728) (3,276)
--------- ----------
Total inventories $ 48,189 $ 41,967
========= ==========
<PAGE>
Page 7 of 12
(3) Interest and Income Tax Payments
For the Six Months
Ended June 30,
-------------------------------
1999 1998
----------- ---------
Interest $ 337 $ 3,084
Income taxes 356 11
(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 12
Management's Discussion
and Analysis of Results of Operations and
Changes in Financial Position
RESULTS OF OPERATIONS
Second Quarter 1999 Compared to Second Quarter 1998
Net sales for the three months ended June 30, 1999 were $44.8 million compared
to $60.8 million for the same period in 1998. The decrease in sales for the
second 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 second quarter of 1999 due to
reduced costs associated with manpower reductions and product mix. Gross profit
declined to 11.2% of sales in contrast to 16.9% of sales in the second 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
4.3% for the second quarter of 1999 compared to 3.6% for the same period in
1998.
Interest expense for the period was $0.18 million in contrast to $0.19 million
in 1998. The reduction in interest expense was attributable to lower loan
balances of senior debt and reduced interest rates. As of June 30, 1999, the
Company's senior debt had an interest rate equal to the commercial paper rate
plus 1.0% per annum (reduced from 1.5% as of June 30, 1998).
The $0.45 million provision for taxes for 1999 and $0.80 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".
Six Months 1999 Compared to Six Months 1998
Net sales for the first six months of 1999 of $87.5 million compares to $122.5
million of sales for the first six 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 9.7% in the first six months of 1999 in
comparison to 16.3% during the first half of 1998 due to reduced sales. Net
income of $4.0 million, or 4.6% of sales, for the first half of 1999 compares to
the $13.4 million, or 11.0% of sales, for the same period in 1998. The reduction
in net income is attributable to the reduced sales.
<PAGE>
Page 9 of 12
For the first six months of 1999, selling, general and administrative expenses,
as a percentage of sales, were 4.1% compared to 3.5% for the first half of 1998.
Interest expense for the period of $0.34 million was a reduction from $0.97
million of interest in the first six 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 Second Quarter, the $0.7 million tax
provision for the first six months of 1999, compared to $1.5 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
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
June 30, 1999, approximately $38.1 million was available and undrawn under the
Revolving Credit Facility. The balance of the Term Loan as of June 30, 1999 was
$2.5 million.
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. 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
Credit Agreement on July 1, 1999.
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.
<PAGE>
Page 10 of 12
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 1,066,096 shares, or share
equivalents, of its common stock during the second quarter of 1999. As of June
30, 1999, the Company has repurchased 1,348,850 shares, or share equivalents, of
its common stock under the Program.
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.
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.
---------------------
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
<PAGE>
Page 11 of 12
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 4. Submission of Matters to a Vote of Security Holders
On May 21, 1999 at the annual meeting of the stockholders of the Company, the
stockholders were asked to vote on the election of a new board of directors for
the next year or until their successors are elected. The result of said voting
is as follows:
Individual For Withheld
--------------------------- ------------ --------
Lawrence W. Bianchi 11,738,889 73,134
Charles W. Finkl 11,738,122 73,901
Wayne E. Larsen 11,738,889 73,134
Robert W. Sullivan 11,738,440 73,583
Kerry L. Woody 11,738,740 73,283
The above individuals represent the entire previous board of directors. No other
individuals were nominated or received stockholder votes.
No other matter was submitted to the stockholders for a vote during the period
covered by this report.
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 June 30, 1999
the Company had 13,586,049 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 13,681,544 basic shares and 14,401,338 fully-diluted shares of
common stock outstanding for the three months ended June 30, 1999 and 13,776,189
basic shares and 14,804,473 fully-diluted shares of common stock outstanding for
the six months ended June 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
<PAGE>
Page 12 of 12
to $8.25 per share. At a subsequent Board of Directors Meeting, the Board of
Directors approved the Committee's recommendation.
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: July 22, 1999 By: /S/ WAYNE E. LARSEN
Wayne E. Larsen
Vice President Law/Finance
& Secretary
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
(27) Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF LADISH CO., INC. AS OF AND FOR THE SIX
MONTHS ENDED JUNE 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENT.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 1,054
<SECURITIES> 0
<RECEIVABLES> 25,160
<ALLOWANCES> 300
<INVENTORY> 48,189
<CURRENT-ASSETS> 74,746
<PP&E> 86,675
<DEPRECIATION> 56,886
<TOTAL-ASSETS> 171,546
<CURRENT-LIABILITIES> 39,277
<BONDS> 0
0
0
<COMMON> 142
<OTHER-SE> 67,836
<TOTAL-LIABILITY-AND-EQUITY> 171,546
<SALES> 87,527
<TOTAL-REVENUES> 87,527
<CGS> 79,074
<TOTAL-COSTS> 3,579
<OTHER-EXPENSES> 170
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 342
<INCOME-PRETAX> 4,702
<INCOME-TAX> 705
<INCOME-CONTINUING> 3,997
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,997
<EPS-BASIC> 0.29
<EPS-DILUTED> 0.27
</TABLE>
