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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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Form 10-K
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(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
COMMISSION FILE NUMBER 0-23539
Ladish Co., Inc.
( Exact name of registrant as specified in its charter )
Wisconsin 31-1145953
( State of Incorporation ) ( I.R.S. Employer
Identification No. )
5481 S. Packard Avenue 53110
Cudahy, Wisconsin ( Zip Code )
( Address of principal
executive offices )
Registrant's telephone number, including area code (414) 747-2611
Securities Registered Pursuant to Section 12(b) of the Act:
None
Securities Registered Pursuant to Section 12(g) of the Act:
Name of each exchange
Title of each class on which registered
Common stock, $0.01 par value Nasdaq
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Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) or 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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrants knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of voting stock held by nonaffiliates of the
Registrant is $46,276,111 as of February 8, 2000.
13,401,234
( Number of Shares of common stock outstanding as of February 18, 2000 )
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( Continued on reverse side )
( Continued from cover page )
DOCUMENTS INCORPORATED BY REFERENCE
With the exception of those sections which are specifically incorporated by
reference in this Form 10-K Annual Report including the annual report to
security holders for fiscal year ended December 31, 1999 and the proxy statement
for the annual meeting of security holders in 2000, no other documents are to be
deemed a part of this report.
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PART 1
Item 1. Business
General
Ladish Co., Inc. ("Ladish" or the "Company") engineers, produces and markets
high-strength, high-technology forged and formed metal components for a wide
variety of load-bearing and fatigue-resisting applications in the jet engine,
aerospace and industrial markets. Approximately 90% of the Company's 1999
billings were derived from the sale of jet engine parts, missile components,
landing gear, helicopter rotors and other aerospace products. Approximately 20%
of the Company's 1999 billings were derived from sales, directly or through
prime contractors, under United States government contracts, primarily covering
defense equipment. Although no comprehensive trade statistics are available,
based on its experience and knowledge of the industry, management believes that
the Company is the second largest supplier of forging products to the domestic
aerospace industry, with an estimated 20% market share in the jet engine
component field.
Recent Acquisitions
In February 1999 the Company's wholly-owned subsidiary, Stowe Machine Co., Inc.
("Stowe"), acquired the business and assets of Adco Manufacturing, Incorporated
("Adco"). Adco was combined into Stowe and the Stowe financial results are
consolidated with those of the Company for the purpose of this Form 10-K Annual
Report. In January 2000 the Company's newly created, wholly-owned subsidiary,
Pacific Cast Technologies, Inc. ("PCT") merged with Wyman-Gordon Titanium
Castings, LLC with PCT being the surviving entity. For purposes of this Form
10-K Annual Report the results of PCT are not reflected in the Company's
financial results.
Products and Markets
The Company markets its forging products primarily to manufacturers of jet
engines, commercial business and defense aircraft, helicopters, satellites,
heavy-duty off-road vehicles and industrial and marine turbines. The principal
forging markets served by the Company are jet engine, commercial aerospace
(defined by Ladish as satellite, rocket and aircraft components other than jet
engines) and general industrial forgings. The amount of revenue and the revenue
as a percentage of total revenue by market were as follows for the periods
indicated:
Years Ended December 31,
1997 1998 1999
---- ---- ----
(Dollars in millions)
Jet Engine Forgings................$153 73% $160 70% $124 73%
Aerospace Forgings................. 35 17% 47 21% 27 16%
General Industrial Forgings........ 22 10% 20 9% 19 11%
---- ---- ---- ---- ---- ----
Total.........................$210 100% $227 100% $170 100%
==== ==== ==== ==== ==== ====
Manufacturing
Ladish offers one of the most complete ranges of forging services in the world.
The Company employs all major forging processes, including open and closed-die
hammer and press forgings, as well as ring-rolling, and also produces near-net
shape aerospace components through isothermal forging and hot-die forging
techniques. Closed-die forging involves hammering or pressing heated metal into
the required
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shape and size by utilizing machined impressions in specially prepared dies
which exert three-dimensional control on the heated metal. Open-die forging
involves the hammering or pressing of metal into the required shape without such
three-dimensional control, and ring-rolling involves rotating heated metal rings
through presses to produce the desired shape.
Much of the Company's forging business is capital intensive, requiring large and
sophisticated press, hammer and heating equipment and extensive facilities for
inspection and testing of components after forging. Ladish believes that it has
the largest forging hammer and largest ring-roll in the world at its plant in
Cudahy, Wisconsin. Its largest counterblow forging hammer has a capacity of
125,000 mkg (meter-kilograms), and its ring-rolling equipment can produce
single-piece seamless products that weigh up to 350,000 pounds with outside
diameters as large as 28 feet and face heights up to 10 feet. Ladish's 4,500-ton
and 10,000-ton isothermal presses can produce forgings, in superalloys as well
as titanium, that weigh up to 2,000 pounds. Much of the equipment has been
designed and built by Ladish. The Company also maintains such auxiliary
facilities as die-sinking, heat-treating and machining equipment and produces
most of the precision dies necessary for its forging operations. The Company
considers such equipment to be in good operating condition and adequate for the
purposes for which it is being used.
Marketing and Sales
The forging product sales force (consisting of 14 engineers), based in Cudahy,
Wisconsin, is supported by the Company's metallurgical staff of approximately
100 engineers and technicians. These technically trained sales engineers,
organized along product line and customer groupings, work with customers on an
ongoing basis to monitor competitive trends and technological innovations.
Additionally, sales engineers consult with customers regarding potential
projects and product development opportunities. During the past few years, the
Company has refocused its marketing efforts on the jet engine components market
and the commercial aerospace industry.
The Company is actively involved with key customers in joint cooperative
research and development, engineering, quality control, just-in-time inventory
control and computerized process modeling programs. The Company has entered into
strategic life-of-the-program contracts for a number of sole-sourced products
with each of Allison, Sikorsky and Thyssen for major programs. The Company
believes that these contracts are a reflection of the aerospace and industrial
markets' recognition of the Company's manufacturing and technical expertise.
The research and development of jet engine components is actively supported by
the Company's Advanced Materials and Process Technology Group. The Company's
long-standing commitment to research and development is evidenced by its
industry-recognized materials and process advancements such as processing
aluminum-lithium, Udimet 720 and titanium aluminides. The experienced staff and
fully equipped research facilities support Ladish sales through customer-funded
projects. Management believes that these research efforts position the Company
to participate in future growth in demand for critical advanced jet engine
components.
Customers
The Company's top three customers, Rolls-Royce, United Technologies and General
Electric, accounted for approximately 58% of the Company's revenues in 1997, 61%
of the Company's revenues in 1998 and 60% of the Company's revenues in 1999. No
other customer accounted for ten percent or more of the Company's sales.
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Caterpillar, Volvo and Allison are also significant customers of the Company.
Because of the relatively small number of customers for some of the Company's
principal products, the Company's largest customers exercise significant
influence over the Company's prices and other terms of trade.
A substantial portion of the Company's revenues is derived from long-term, fixed
price contracts with major engine and aircraft manufacturers. These contracts
are typically "requirements" contracts under which the purchaser commits to
purchase a given portion of its requirements of a particular component from the
Company. Actual purchase quantities are typically not determined until shortly
before the year in which products are to be delivered. The Company attempts to
minimize its risk by entering into fixed-price contracts with its raw material
suppliers. Additionally, a portion of the Company's revenue is directly or
indirectly related to government spending, particularly military and space
program spending.
Research and Development
The Company maintains a research and development department which is engaged in
applied research and development work primarily relating to the Company's
forging operations. The Company works closely with customers, universities and
government technical agencies in developing advanced forgings, materials and
processes. The Company spent approximately $3.4 million, $4.5 million and $3.3
million on applied research and development work during 1997, 1998 and 1999,
respectively.
Although the Company owns patents covering certain of its processes, the Company
does not consider these patents to be of material importance to the Company's
business as a whole. The Company considers certain other information that it
owns to be trade secrets and the Company takes measures to protect the
confidentiality and control the disclosure and use of such information. The
Company believes that these safeguards adequately protect its proprietary rights
and the Company vigorously defends these rights.
The Company owns or has obtained licenses for various trademarks, trademark
registrations, service marks, service mark registrations, trade names,
copyrights, copyright registrations, patent applications, inventions, know-how,
trade secrets, confidential information and any other intellectual property that
are necessary for the conduct of its business (collectively, "Intellectual
Property"). The Company is not aware of any existing or threatened patent
infringement claim (or of any facts that would reasonably be expected to result
in any such claim) or any other existing or threatened challenge by any third
party that would significantly limit the rights of the Company with respect to
any such Intellectual Property or to the validity or scope of any such
Intellectual Property. The Company has no pending claim against a third party
with respect to the infringement by such third party or any such Intellectual
Property that, if determined adversely to the Company, would individually or in
the aggregate have a material adverse effect on the Company's financial
condition or results of operations. While the Company considers all of its
proprietary rights as a whole to be important, the Company does not consider any
single right to be essential to its operations as a whole.
Raw Materials
Raw materials used by the Company in its forgings include alloys of titanium,
nickel, steel, aluminum, tungsten and other high temperature alloys. The major
portion of metal requirements for forged products are purchased from major metal
suppliers producing forging quality material as needed to fill customer orders.
The Company has two or more sources of supply for all significant raw materials.
5
The titanium and nickel-based superalloys used by the Company have a relatively
high dollar value. Accordingly, the Company recovers and recycles scrap
materials such as machine turnings, forging flash, solids and test pieces.
The Company's most significant raw materials consist of nickel and titanium
alloys. Its principal suppliers of nickel alloys include Special Metals
Corporation and Allegheny Technologies. Its principal suppliers of titanium
alloys are Titanium Metals Corporation of America, Allegheny Technologies and
RTI International. The Company typically has fixed-price contracts with its
suppliers.
In addition, the Company, its customers and suppliers have undertaken active
programs for supply chain management which are reducing overall lead times and
the total cost of raw materials.
Backlog
The average amount of time necessary to manufacture the Company's products is
five to six weeks from the receipt of raw material. The timing of the placement
and filling of specific orders may significantly affect the Company's backlog
figures, which are subject to cancellation for a variety of reasons. In
addition, the Company typically only includes those contracts which will result
in shipments within the next 12 to 18 months when compiling backlog and does not
include the out years of long-term agreements. As a result, the Company's
backlog may not be indicative of actual results or provide meaningful data for
period-to-period comparisons. The Company's backlog was approximately $278
million, $243 million and $225 million as of December 31, 1997, 1998 and 1999,
respectively.
Patents and Trademarks
The Company does not hold, by license or otherwise, any patents, trademarks,
franchises or concessions whose loss or modification would materially affect its
business in the aggregate.
Competition
The sale of forged metal components is highly competitive. Certain of the
Company's competitors are larger than the Company, and have substantially
greater capital resources. Although the Company is the sole supplier on several
sophisticated components required by prime contractors under a number of
governmental programs, many of the Company's products could be replaced with
other similar products of its competitors. However, the significant investment
in tooling, the time required and the cost of obtaining the status of a
"certified supplier" are barriers to entry. Competition is based on quality
(including advanced engineering and manufacturing capability), price and the
ability to meet delivery requirements.
Environmental, Health and Safety Matters
The Company's operations are subject to many federal, state and local
regulations relating to the protection of the environment and to workplace
health and safety. In particular, the Company's operations are subject to
extensive federal, state and local laws and regulations governing waste
disposal, air and water emissions, the handling of hazardous substances,
environmental protection, remediation, workplace exposure and other matters.
Management believes that the Company is presently in substantial compliance with
all such laws and does not currently anticipate that the Company will be
required to expend any substantial amounts in the foreseeable future in order to
meet
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current environmental, workplace health or safety requirements. However,
additional costs and liabilities may be incurred to comply with current and
future requirements, which costs and liabilities could have a material adverse
effect on the Company's results of operations or financial condition.
There are no known pending remedial actions or claims relating to environmental
matters that are expected to have a material effect on the Company's financial
position or results of operations. All of the properties owned by the Company,
however, are located in industrial areas and have a history of heavy industrial
use. These properties may potentially incur environmental liabilities in the
future that could have a material adverse effect on the Company's financial
condition or results of operations. The Company has been named a potentially
responsible party at three "Superfund" sites. Although the Company does not
believe that the amount for which it may be held liable will be material and has
reserved approximately $250,000 for such loss, no assurance can be given that
the amount for which the Company will be held responsible will not be
significantly greater than expected. In connection with the sale of the
Company's former Industrial Products Division ("IPD"), the Company has agreed to
indemnify Trinity Industries, Inc. until May 29, 2001 against certain
environmental liabilities that may arise with respect to the properties and
operations of IPD relating to the period prior to closing.
Year 2000 Compliance
The Company 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 did not experience any material operating issues
with respect to Year 2000.
Forward Looking Statements
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.
Employees
As of December 31, 1999, the Company had approximately 1,001 employees, of whom
721 were engaged in manufacturing functions, 75 in executive and administrative
functions, another 160 in technical functions, and 45 in sales and sales
support. At such date, approximately 732 employees, principally those engaged in
manufacturing, were represented by labor organizations under collective
bargaining agreements. With the addition of PCT, the Company will add
approximately 260 employees. The following table sets forth certain information
with respect to the Company's collective bargaining agreements with its
employees:
7
Number of
Employees
Represented
by Collective
Bargaining
Union Expiration Date Agreement
- ----- --------------- -------------
International Association of Machinists & February 20, 2000 317
Aerospace Workers, Local 1862
International Brotherhood of Boilermakers, September 24, 2000 175
Iron Ship Builders, Blacksmiths, Forgers
& Helpers, Subordinate Lodge 1509
International Federation of Professional & August 20, 2000 112
Technical Engineers, Technical Group,
Local 92
International Association of Machinists & March 26, 2000 67
Aerospace Workers, Die Sinkers, Local 140
Office & Professional Employees July 1, 2001 32
International Union, Clerical Group,
Local 35
International Brotherhood of Electrical October 15, 2000 25
Workers, Local 662
Service Employees International, Local 150 April 23, 2000 4
Management
Name Age Position
---- --- --------
Kerry L. Woody.................48 President & CEO and Director
Wayne E. Larsen................45 Vice President Law/Finance & Secretary
and Director
Gene E. Bunge..................54 Vice President, Engineering
Robert J. Noel.................59 Vice President, Corp. Business
Development/Technology
George Groppi..................51 Vice President, Quality & Metallurgy
David L. Provan................50 Vice President, Materials Management
Gary J. Vroman.................40 Vice President, Sales & Marketing
Lawrence C. Hammond............52 Vice President, Human Resources
Item 2. Properties
The following table sets forth the location and size of the Company's two
facilities:
Approximate
Approximate Acreage Square Footage
------------------- --------------
Cudahy, Wisconsin 184.5 1,650,000
Windsor, Connecticut 8.2 30,000
Albany, Oregon 14.0 90,000
The above facilities are owned by the Company. The Company also owns
approximately 4 acres of land in Houston, Texas, which is currently vacant and
for sale.
The Company believes that its facilities are well maintained, are suitable to
support the Company's business and are adequate for the Company's present and
anticipated needs. While the rate of utilization of the Company's manufacturing
equipment is not uniform, the Company estimates that its facilities overall are
currently operating at approximately 60% of capacity.
8
The principal executive offices of the Company are located at 5481 South Packard
Avenue, Cudahy, Wisconsin 53110. Its telephone number at such address is (414)
747-2611.
Item 3. Legal Proceedings
From time to time the Company is involved in legal proceedings relating to
claims arising out of its operations in the normal course of business. The
Company believes that there are no material legal proceedings pending or
threatened against the Company or any of its properties.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of security holders during the fourth
quarter of 1999.
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
The common stock of the Company, par value $0.01 per share, trades on the Nasdaq
National Market under the symbol "LDSH".
Prior to the registration of the common stock of the Company on March 9, 1998,
limited trading of the common stock occurred in the over-the-counter market.
These quotations for the pre-registration period reflect inter-dealer prices,
without retail mark-up, mark-down or commission, and do not necessarily
represent actual transactions. The following table sets forth, for the fiscal
periods indicated, the high and low bid prices up until March 9, 1998 and the
high and low sales prices for the periods thereafter. At December 31, 1999 there
were approximately 250 beneficial holders of the Company's common stock.
Year Ended Year Ended Year Ended
December 31, 1997 December 31, 1998 December 31, 1999
High Low High Low High Low
----------------- ----------------- -----------------
First quarter......$12.60 $9.90 $22.50 $13.50 $8.38 $6.72
Second quarter.....$13.50 $9.90 $15.62 $12.25 $8.31 $6.41
Third quarter......$22.80 $12.60 $13.12 $8.00 $8.63 $6.44
Fourth quarter.....$19.80 $17.10 $10.00 $6.56 $7.50 $5.84
The Company has not paid cash dividends and currently intends to retain all its
earnings to finance its operations, its stock repurchase program and future
growth. The Company does not expect to pay dividends for the foreseeable future.
Item 6. Selected Financial Data
The selected financial data have been derived from the Financial Statements of
the Company and have been audited. The financial data set forth below as of
December 31, 1995, 1996, 1997, 1998 and 1999 and for the years ended December
31, 1995, 1996, 1997, 1998 and 1999 are derived from the Financial Statements
prepared of the Company which have been audited by Arthur Andersen LLP,
independent public accountants.
The data below should be read in conjunction with the Financial Statements and
the Notes thereto and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included elsewhere in this filing.
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Year Ended December 31,
(dollars in thousands, except income (loss) per share)
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INCOME STATEMENT DATA 1995 1996 1997 1998 1999
- --------------------- ---- ---- ---- ---- ----
Net sales.......................................... $115,738 $162,002 $209,816 $226,767 $170,241
Income (loss) from operations...................... (18,752) 5,809 24,387 24,557 11,990
Interest expense................................... 3,339 3,703 3,334 1,256 810
Income (loss) from continuing operations........... (22,146) 2,135 18,902 21,372 9,703
Income (loss) from discontinued operations......... 1,214 (8,856) -- -- --
Net income (loss).................................. (20,932) (6,721) 18,902 21,372 9,703
Basic earnings (loss) per share from
continuing operations............................ (4.40) 0.42 3.63 1.76 0.71
Diluted earnings (loss) per share from
continuing operations............................ (4.40) 0.20 1.52 1.55 0.67
Dividends paid .................................... -- -- -- -- --
Shares used to compute income (loss) per share
Basic...........................................5,029,517 5,091,957 5,208,251 12,155,484 13,715,555
Diluted.........................................5,029,517 10,857,910 12,469,818 13,826,133 14,513,261
December 31,
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BALANCE SHEET DATA 1995 1996 1997 1998 1999
- ------------------ ---- ---- ---- ---- ----
Total assets....................................... $164,696 $170,270 $165,461 $172,893 $159,583
Net working capital................................ 24,405 15,475 32,292 40,049 39,007
Total debt......................................... 43,932 51,848 39,716 3,500 --
Stockholders' equity (deficit)..................... (9,751) (16,287) 5,017 68,646 73,467
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
Year Ended December 31, 1999 Compared to Year Ended December 31, 1998
In 1999, net sales at the Company were $170.2 million, a 25% decline from the
level of 1998 sales. This reduction in revenue was attributable to two
significant equipment failures, one at the Company and one at the Company's
joint venture partner, and to the overall softening of the aerospace supply
market in 1999. Gross profit for the year ended December 31, 1999 was $19.2
million, or 11.3% of sales, in contrast to $32.6 million, or 14.4% of sales, for
1998 due to the decrease in sales.
Selling, general and administrative expenses were $7.2 million, or 4.2% of
sales, in fiscal 1999 in comparison to $8.1 million, or 3.6% of sales, in 1998.
The increase in the expenses as a percentage of sales reflects the impact of the
sales reduction and the fixed nature of a portion of these expenses.
Interest expense for the year ended December 31, 1999 was $.8 million in
contrast to interest expense of $1.3 million in fiscal 1998. The reduction in
interest expense was the result of decreased levels of debt and reduced interest
rates. As of December 31, 1999 the Company's senior debt had an interest rate
equal to LIBOR plus 0.75% as opposed to an interest rate equal to commercial
paper plus 1.5% at December 31, 1998.
Income before taxes for 1999 was $11.4 million in comparison to pretax income of
$23.7 for 1998. The decrease in pretax income was directly due to the reduction
in sales from 1999 to 1998.
The 1999 tax provision of $1.7 million, an implied rate of 15%, primarily
reflects a non-cash accounting charge associated with the Company's use of its
net operating losses ("NOLs"). 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 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."
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At December 31, 1999 contract backlog at the Company was $225 million. This
represents a 7% reduction from the $243 million of contract backlog at the end
of 1998. The decline in backlog is attributable to decreased raw material
prices, shortened lead-times and inventory adjustments at aerospace customers.
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997.
For the third year in a row, net sales for the year ended December 31, 1998
increased over the prior year. In fiscal 1998 the Company had $226.8 million in
net sales, an 8% increase over the $209.8 million in net sales in fiscal 1997.
The Company attributed the growth in sales to the continued strength of the
commercial aerospace sector which drove the demand for jet engine components. In
addition, the Ladish sales improvement in 1998 was also the result of attention
to bettering on-time deliveries and internal operating efficiencies. Gross
profit in 1998 increased to $32.6 million due largely to increased net sales.
In 1998, selling, general and administrative expenses, as a percentage of sales,
were 3.6% in comparison to 3.5% in 1997. The increase is attributable to larger
foreign sales which incur additional selling expenses for travel and the
increase in sales commissions.
The Company incurred interest expense of $1.3 million in 1998 in comparison to
$3.3 million in 1997, a decrease of $2 million. The decrease of interest expense
was attributable to (i) the repayment of the Subordinated Notes issued in late
1995 and early 1996, see "Liquidity and Capital Resources"; (ii) lower loan
balances of senior debt; and (iii) reduced interest rates. As of December 31,
1998, the Company's senior debt had an effective interest rate equal to the
commercial paper rate plus 1.5% per annum (reduced from 2.0% as of April 1,
1998). Effective interest rates averaged 7.4% during 1998 compared to 8.3%
during 1997.
Income before taxes for 1998 was $23.7 million for the Company in comparison to
pretax income of $20.5 million for 1997. The increase in pretax income was
primarily related to the increase in sales from one period to the next and the
reduction in interest expense.
The 1998 tax provision of $2.4 million, an implied rate of 10%, represents a
non-cash accounting charge. 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.
Contract backlog at December 31, 1998 was $243 million, compared to $278 million
at December 31, 1997, a decrease of 12%, due to increased raw material
availability, shortened leadtimes and current aerospace global demand.
Liquidity and Capital Resources
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 December
31, 1999, approximately $48.6
11
million was available and undrawn under the New Facility. There were no
borrowings under the New Facility as of December 31, 1999.
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 satisfaction of debt from the exercise of warrants were
used to repay the remaining outstanding balance under the Revolving Credit
Facility.
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 $50 million as of December 31,
1999. 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.
Under the common stock repurchase program authorized by the Company's Board of
Directors, the Company repurchased 1,516,768 shares of its common stock, or
common stock equivalents, as of December 31, 1999. The Company funded this
repurchase program with approximately $8.5 million of the cash generated from
operations. Inflation has not had a material effect upon the Company during the
period covered by this report. Given the products manufactured by the Company
and the raw materials used therein, the Company does not anticipate any
significant impact from inflation in the foreseeable future.
Item 7.A. Quantitative and Qualitative Disclosures about Market Risk
12
The Company believes that its exposure to market risk related to changes in
foreign currency exchange rates and trade accounts receivable is immaterial.
Item 8. Financial Statements and Supplementary Data
The response to Item 8. Financial Statements and Supplementary Data incorporate
by reference the information listed in the index to consolidated financial
statements and accompanying schedules beginning on page F-1.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
The Company did not change public accounting firms in 1998, and there have been
no disagreements on accounting and financial disclosure with the Company's
public accounting firm, Arthur Andersen LLP.
PART III
Item 10. Directors and Executive Officers of the Registrant
Certain information called for by this Item is incorporated herein by reference
to the Proxy Statement for the Annual Meeting of Stockholders filed herewith as
an Exhibit.
The list of Executive Officers in Part I, Item 1. Business, paragraph captioned
"Executive Officers of the Registrant" is incorporated by reference. The list of
Directors of the Company is as follows:
Name Age
Lawrence L. Bianchi 58
Charles W. Finkl 79
Wayne E. Larsen 45
Robert W. Sullivan 41
Kerry L. Woody 48
Other information required by Item 401 of Regulation S-K is as follows:
Lawrence W. Bianchi, 58. Director since 1998. Mr. Bianchi in 1993 retired as the
Managing Partner of the Milwaukee, Wisconsin office of KPMG Peat Marwick. From
1994 to 1998 Mr. Bianchi served as CFO of the law firm of Foley & Lardner. Mr.
Bianchi's principal occupation is investments.
Gene E. Bunge, 54. Mr. Bunge has served as Vice President, Engineering since
November 1991. From 1985 until that time he was General Manager of Engineering.
Mr. Bunge has been with the Company since 1973. He has a B.S.E.E. from the
Milwaukee School of Engineering.
Charles W. Finkl, 79. Director since 1998. Mr. Finkl is a director and the
Chairman and Chief Executive Officer of A. Finkl & Sons, Co., a Chicago,
Illinois based metals processor, a position he has held for more than ten years.
George Groppi, 51. Mr. Groppi has served as Vice President Quality and
Metallurgy since September 1999. He was named Manager of Product Metallurgy in
1992. In 1994 he was appointed Manager of Production Control and recently
assumed the position of Manager of Quality & Metallurgy. Mr.
13
Groppi has been with the Company since 1969. He holds a B.S. in Mechanical
Engineering from Marquette University.
Lawrence C. Hammond, 52. Mr. Hammond has served as Vice President, Human
Resources since January 1994. Prior to that time he had served as Director of
Industrial Relations at the Company and he had been Labor Counsel at the
Company. Mr. Hammond has been with the Company since 1980. He has a B.A. and a
Masters in Industrial Relations from Michigan State University and a J.D. from
the Detroit College of Law.
Wayne E. Larsen, 45. Director since 1997. Since 1995 Mr. Larsen has been Vice
President Law/Finance and Secretary of the Company. He served as General Counsel
and Secretary from 1989 after joining the Company as corporate counsel in 1981.
He is also a director and Vice President and Secretary of Stowe Machine Co.,
Inc. Mr. Larsen is a Trustee of the Ladish Co. Foundation and a director of the
Wisconsin Foundation for Independent Colleges. Mr. Larsen has a B.A. from
Marquette University and a J.D. from Marquette Law School.
Robert J. Noel. 59. Mr. Noel has served as Vice President Corporate Business
Development/ Tech-nology since September 1999. He had been Vice President,
Quality and Technology since March 1991. He had been Manager of Metallurgy since
1985 and prior to that period was a Product Metallurgist for jet engine
components. Mr. Noel has been with the Company since 1963. He has a B.S. in
Mechanical Engineering from Marquette University.
David L. Provan, 50. Mr. Provan has served as Vice President, Materials
Management since September 1999. Prior to that time he had been Purchasing
Manager, Raw Materials, and Head Buyer. Mr. Provan has been with the Company
since 1979. He has a Bachelor's Degree in Business Administration from the
University of Wisconsin-Parkside.
Robert W. Sullivan, 41. Director since 1993. Mr. Sullivan is President of The
Plitt Company, a seafood distribution concern. Previously Mr. Sullivan had been
President of The Martec Group, a sales and marketing consulting group for more
than five years.
Gary J. Vroman, 40. Mr. Vroman has served as Vice President, Sales and Marketing
since December 1995. From January 1994 to December 1995 he was General Manager
of Sales. Prior to that period he had been the Product Manager for jet engine
components. Mr. Vroman has been with the Company since 1982. He has a B.S. in
Engineering from the University of Illinois and a M.S. in Engineering Management
from the Milwaukee School of Engineering.
Kerry L. Woody, 48. Director since 1997. Mr. Woody has been President since 1995
and was appointed Chief Executive Officer of the Company in 1998. Prior to that
time he was Vice President-Operations, Vice President-Manufacturing Services and
Production Manager. He joined the Company in 1975. Mr. Woody is also a director
and Vice President of Stowe Machine Co., Inc. In addition, Mr. Woody serves as a
Director of Vilter Manufacturing Co. and Milwaukee Lutheran College. Mr. Woody
has a B.S. in Engineering from Milliken University.
Item 11. Executive Compensation
The information called for by this Item is incorporated herein by reference to
the Proxy Statement for the Annual Meeting of Stockholders filed herewith as an
Exhibit.
14
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information called for by this Item is incorporated herein by reference to
the Proxy Statement for the Annual Meeting of Stockholders filed herewith as an
Exhibit.
Item 13. Certain Relationships and Related Transactions
The information called for by this Item is incorporated herein by reference to
the Proxy Statement for the Annual Meeting of Stockholders filed herewith as an
Exhibit.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
Exhibits. See the accompanying index to exhibits on page X-1 which is part of
this report.
Financial Statements. See the accompanying index to financial statements and
schedules on page F-1 which is a part of this report.
Reports on Form 8-K. The Company has not filed any reports on Form 8-K during
the fourth quarter of 1999.
15
LADISH CO., INC.
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1998 AND 1999
TOGETHER WITH REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders
of Ladish Co., Inc.:
We have audited the accompanying consolidated balance sheets of Ladish Co., Inc.
and subsidiaries, a Wisconsin corporation, as of December 31, 1998 and 1999, and
the related consolidated statements of operations, stockholders' equity and cash
flows for each of the years in the three year period ended December 31, 1999.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Ladish Co., Inc. and
subsidiaries as of December 31, 1998 and 1999, and the results of their
operations and their cash flows for each of the years in the three year period
ended December 31, 1999 in conformity with generally accepted accounting
principles.
/s/ Arthur Andersen LLP
---------------------------------
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin
January 28, 2000
LADISH CO., INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1999
(Dollars in Thousands Except Per Share Data)
ASSETS 1998 1999
------ --------- ---------
CURRENT ASSETS:
Cash and cash equivalents $5,517 $1,008
Accounts receivable, less allowance of $300 35,409 25,222
Inventories 40,983 42,427
Prepaid expenses and other current assets 276 238
--------- ---------
Total current assets 82,185 68,895
PROPERTY, PLANT AND EQUIPMENT:
Land and improvements 3,855 3,855
Building and improvements 14,925 15,912
Machinery and equipment 112,279 120,526
Construction in progress 5,893 5,562
--------- ---------
136,952 145,855
Less- Accumulated depreciation (50,981) (62,648)
--------- ---------
Net property, plant and equipment 85,971 83,207
OTHER ASSETS 4,737 7,481
--------- ---------
Total assets $172,893 $159,583
========= =========
The accompanying notes to consolidated financial statements are an integral part
of these statements.
LADISH CO., INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1999
(Dollars in Thousands Except Per Share Data)
LIABILITIES AND STOCKHOLDERS' EQUITY 1998 1999
------------------------------------ ----- ----
CURRENT LIABILITIES:
Current portion of senior debt $ 2,250 $ -
Accounts payable 16,194 12,548
Accrued liabilities-
Pensions 738 504
Postretirement benefits 5,488 5,551
Wages and salaries 4,045 3,107
Taxes, other than income taxes 272 227
Interest 36 54
Profit sharing 2,720 958
Paid progress billings 6,767 5,556
Other 3,626 1,383
-------- --------
Total current liabilities 42,136 29,888
LONG-TERM LIABILITIES:
Senior debt-less current portion 1,250 -
Pensions 16,013 12,947
Postretirement benefits 42,762 40,929
Officers' deferred compensation 1,409 1,745
Other noncurrent liabilities 677 607
-------- --------
Total liabilities 104,247 86,116
STOCKHOLDERS' EQUITY:
Common stock-authorized 100,000,000, issued
and outstanding 14,013,667 and 14,318,406
shares in each period of $.01 par value 140 143
Additional paid-in capital 81,661 80,293
Accumulated deficit (11,462) (1,759)
Treasury stock, 222,754 and 770,672 shares,
respectively, of common stock, at cost (1,693) (5,210)
-------- --------
Total stockholders' equity 68,646 73,467
-------- --------
Total liabilities and stockholders' equity $172,893 $159,583
======== ========
The accompanying notes to consolidated financial statements are an integral part
of these statements.
LADISH CO., INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in Thousands Except Per Share Data)
Years Ended December 31,
----------------------------
1997 1998 1999
-------- -------- --------
NET SALES $209,816 $226,767 $170,241
COST OF SALES 178,051 194,125 151,065
-------- -------- --------
Gross profit 31,765 32,642 19,176
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 7,378 8,085 7,186
-------- -------- --------
Income from operations 24,387 24,557 11,990
OTHER (INCOME) EXPENSE:
Interest expense, net 3,334 1,256 810
Other, net 549 (446) (236)
-------- --------- -------
Income before provision for income taxes 20,504 23,747 11,416
PROVISION FOR INCOME TAXES 1,602 2,375 1,713
-------- -------- --------
Net income $ 18,902 $ 21,372 $ 9,703
======== ======== ========
EARNINGS PER SHARE:
Basic $3.63 $1.76 $0.71
Diluted $1.52 $1.55 $0.67
The accompanying notes to consolidated financial statements are an integral part
of these statements.
LADISH CO., INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars in Thousands Except Per Share Data)
Common Stock Additional Treasury
-------------------- Paid-in Accumulated Stock,
Shares Amount Capital Deficit at Cost Total
---------- ------ ---------- ----------- -------- --------
BALANCE, December 31, 1996 5,139,993 $ 51 $35,398 $(51,736) $ - $(16,287)
Net income - - - 18,902 - 18,902
Issuance of common stock 119,166 1 814 - - 815
Reduction in valuation
allowance related to
pre-restructuring NOLs - - 1,519 - - 1,519
Exercise of warrants 56,314 1 67 - - 68
---------- ---- ------- -------- ------- --------
BALANCE, December 31, 1997 5,315,473 53 37,798 (32,834) - 5,017
Net income - - - 21,372 - 21,372
Issuance of common stock 2,837,138 28 34,910 - - 34,938
Exercise of warrants 5,869,389 59 6,892 - - 6,951
Purchase of treasury stock - - - - (1,693) (1,693)
Reduction in valuation
allowance related to
pre-restructuring NOLs - - 2,211 - - 2,211
Repurchase of shares, retired (8,333) - (150) - - (150)
---------- ---- ------- -------- ------- --------
BALANCE, December 31, 1998 14,013,667 140 81,661 (11,462) (1,693) 68,646
Net income - - - 9,703 - 9,703
Issuance of common stock 2,000 - 12 - - 12
Retirement of warrants - - (3,253) - - (3,253)
Exercise of warrants 302,739 3 207 - - 210
Purchase of treasury stock - - - - (3,517) (3,517)
Reduction in valuation
allowance related to
pre-restructuring NOLs - - 1,666 - - 1,666
---------- ---- ------- -------- ------- --------
BALANCE, December 31, 1999 14,318,406 $143 $80,293 $ (1,759) $(5,210) $ 73,467
========== ==== ======= ======== ======= ========
The accompanying notes to consolidated financial statements are an integral part
of these statements.
LADISH CO., INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
Years Ended December 31,
-----------------------------
1997 1998 1999
------- ------- -------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $18,902 $21,372 $9,703
Adjustments to reconcile net income to net cash provided
by (used for) operating activities-
Depreciation 9,773 10,491 11,755
Amortization 159 227 506
Payment-in-kind interest on subordinated debt 1,240 300 -
Reduction in valuation allowance 1,519 2,211 1,666
Loss on disposal of property, plant and equipment 750 34 35
Changes in assets and liabilities, net of impact of
acquisitions-
Accounts receivable (5,382) (7,778) 11,398
Inventories (8,887) 6,720 1,507
Other assets (437) 345 (634)
Accounts payable and accrued liabilities (12,657) (4,009) (10,062)
Other liabilities (7,115) (14,833) (4,633)
------- ------- -------
Net cash provided by (used for) operating activities (2,135) 15,080 21,241
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (9,217) (13,662) (7,792)
Proceeds from sale of property, plant and equipment 984 3 33
Acquisition of businesses (8,529) - (11,593)
Proceeds from sale of IPD 36,500 - -
IPD disposition funds placed in escrow (3,650) - 3,650
------- ------- -------
Net cash provided by (used for) investing activities 16,088 (13,659) (15,702)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Retirement of senior subordinated debt (68) (11,625) -
Repayment of senior debt (14,304) (23,891) (3,500)
Repayment of notes payable - (1,000) -
Issuance of common stock 815 34,938 12
Retirement of warrants - - (3,253)
Exercise of warrants 68 6,951 210
Repurchase of common stock - (1,843) (3,517)
------- ------- -------
Net cash provided by (used in) financing activities (13,489) 3,530 (10,048)
------- ------- -------
LADISH CO., INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(continued)
Years Ended December 31,
-----------------------------
1997 1998 1999
------- ------- -------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS $ 464 $ 4,951 $(4,509)
CASH AND CASH EQUIVALENTS, beginning of period 102 566 5,517
------- ------- -------
CASH AND CASH EQUIVALENTS, end of period $ 566 $ 5,517 $ 1,008
======= ======= =======
SUPPLEMENTAL CASH FLOW INFORMATION:
Income taxes paid $ 326 $ 48 $ 177
Interest paid $ 2,595 $ 3,868 $ 742
The accompanying notes to consolidated financial statements are an integral part
of these statements.
LADISH CO., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands Except Share and Per Share Data)
(1) Business Information-
Ladish Co., Inc. (the "Company") engineers, produces and markets
high-strength, high-technology forged and formed metal components for a wide
variety of load-bearing and fatigue-resisting applications in the engine,
aerospace and industrial markets, for both domestic and international
customers. The Company operates as a single segment. Net sales to the
engine, aerospace and industrial markets were approximately 73%, 16% and
11%, respectively, of total Company net sales in 1999.
Through May 30, 1997, the Company operated facilities located in Cudahy,
Wisconsin; Russellville, Arkansas; and Cynthiana, Kentucky. In February
1997, the Board of Directors approved the disposition of the Company's
Industrial Products Division ("IPD") which included the facilities located
in Arkansas and Kentucky. The disposal date was May 30, 1997, however, the
impact of the discontinued operations were accounted for in 1996.
Substantially all IPD assets were sold to a third party buyer for
approximately $36,500 in cash subject to a working capital adjustment. Ten
percent of the cash proceeds ($3,650) was placed in an escrow account to
secure certain representations made by the Company in connection with the
sale. In 1999, all contingencies were resolved and the funds placed in
escrow were collected.
In June 1997, the Company acquired Stowe Machine Co., Inc. ("Stowe"), a
finished machining operation located in Windsor, Connecticut. In February
1999, the Company acquired Adco Manufacturing, Incorporated ("Adco"), a
finished machining operation. Adco was relocated and merged operations with
Stowe in Windsor, Connecticut.
The Company has three customers that each accounted for more than 10% of
total Company net sales in 1997, 1998 and 1999, respectively, and
collectively accounted for approximately 58%, 61% and 60%, respectively, of
total Company net sales.
Exports accounted for approximately 42%, 44% and 44% of total Company net
sales in 1997, 1998 and 1999, respectively, with exports to Europe
constituting approximately 32%, 36% and 38%, respectively, of total Company
net sales.
As of December 31, 1999, approximately 73% of the Company's employees were
represented by one of seven collective bargaining units. The collective
bargaining agreements with most of these units will expire during the year
2000. The Company does not anticipate that work stoppages will arise in
connection with the renewal of these agreements in the future.
(2) Summary of Significant Accounting Policies-
(a) Outstanding checks-
Outstanding payroll and accounts payable checks related to certain bank
accounts are recorded as accounts payable in the accompanying balance
sheets. These checks amounted to $2,144 and $2,037 as of December 31,
1998 and 1999, respectively.
(b) Inventories-
Inventories are stated at the lower of cost or market using the
first-in, first-out (FIFO) valuation method. Inventory values include
material and conversion costs.
Inventories consist of the following:
December 31,
----------------------
1998 1999
--------- ---------
Raw materials $16,546 $15,215
Work-in-process and finished 27,713 29,500
--------- ---------
44,259 44,715
Less progress payments (3,276) (2,288)
--------- ---------
Total inventories $40,983 $42,427
========= =========
(c) Property, plant and equipment-
Additions to property, plant, and equipment are recorded at cost.
Tooling costs are expensed as incurred. Depreciation is provided using
the straight-line method over the estimated useful lives of the assets,
as follows:
Land improvements 30 or 39 years
Buildings and improvements 30 or 39 years
Machinery and equipment 5 to 12 years
(d) Goodwill-
Goodwill represents the excess of the purchase price over the fair value
of identifiable net assets relating to the 1997 acquisition of Stowe and
the 1999 acquisition of Adco. Goodwill is included in other assets and
is being amortized on a straight-line basis over 20 years. As of
December 31, 1999, unamortized goodwill amounted to $6,709. Amortization
expense was $24, $43 and $316 in 1997, 1998 and 1999, respectively. The
Company evaluates goodwill to assess recoverability from future
operations. Impairments are recognized in operating results to the
extent that carrying value exceeds fair value.
(e) Revenue recognition-
Sales revenue is recognized when products are shipped. Net sales include
reductions for returns and allowances, sales discounts and freight out.
Progress payments on contracts are generally recognized as a reduction
of the related inventory costs. Progress payments in excess of inventory
costs are reflected as deferred revenue.
-2-
(f) Income taxes-
Deferred income taxes are provided at the enacted marginal rates on the
difference between the financial statement and income tax basis of
assets and liabilities. Deferred income tax provisions or benefits are
based on the change in the deferred tax assets and liabilities from
period to period.
(g) Consolidation-
The consolidated financial statements include the accounts of the
Company and all of its subsidiaries. All significant intercompany
accounts and transactions have been eliminated in consolidation.
(h) Use of estimates-
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting periods. Actual results could differ from those
estimates.
(i) Reclassification-
Certain reclassifications have been made to the 1997 and 1998 financial
statements to conform with the 1999 presentation.
(3) Debt-
Senior debt-
On 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 $100,000 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. As of December 31, 1999, approximately
$48,600 was available and undrawn under the New Facility. The balance of the
borrowings under the New Facility as of December 31, 1999 was $0.
Senior subordinated secured notes and warrants-
In 1995 and 1996, the Company issued senior subordinated notes ("Notes") to
two of the Company's largest stockholders. The noteholders also received
warrants with each Note purchased. Each warrant entitles the holder to
purchase one share of common stock for $1.20 per share. The exercise price
may be paid in cash, or by the surrender of already outstanding Ladish
common stock, or other warrants having a fair value equal to the exercise
price. The warrants expire ten years from the date of issuance. In March
1998, the Notes were paid in full.
Warrants outstanding and exercisable were 7,608,932, 1,732,964 and 660,787
for the years ended December 31, 1997, 1998 and 1999, respectively.
-3-
(4) Stockholders' Equity-
In December 1997, the Company's articles of incorporation were amended to
provide for a 1-6 reverse split of the common stock. All common stock
amounts have been adjusted for this reverse split.
In March 1998, the Company sold 2,837,138 shares in an initial offering
("IPO") at a per share price of $13.50. The net IPO proceeds to the Company
of approximately $35,000 were used to repay subordinated debt and a portion
of outstanding indebtedness under the Company's senior credit facility and
to contribute to certain underfunded pension plans. In addition, the Company
received total cash proceeds of $6,951 from the exercise of warrants during
1998.
Under the common stock repurchase program authorized by the Company's Board
of Directors, the Company repurchased 547,918 shares of its common stock and
746,096 warrants during 1999. The Company funded this repurchase program
with approximately $6,800 of the cash generated from operations. As of
December 31, 1999, the Company has repurchased a total of 1,517,798 shares
of its common stock, or common stock equivalents for a total of
approximately $8,500 under the repurchase program.
The Company has a Long-Term Incentive Plan (the "Plan") that covers certain
employees. Under the Plan, incentive stock options may be granted to
employees of the Company which expire ten years from the grant date. In
September 1996, the Company issued 433,333 options under the Plan. These
options vest over four years. During 1998 and 1999, the Company issued
320,000 and 76,000 options, respectively, under the Plan. These options vest
over two years. As of December 31, 1999, 713,416 of these options remain
outstanding. The Company has reserved 6,500 shares for future issuance under
the Plan.
The Company accounts for its option grants using the intrinsic value based
method pursuant to APB Opinion No. 25 and Statement of Financial Accounting
Standards No. 123 ("SFAS 123") under which no compensation expense was
recognized in 1997, 1998 and 1999. Had compensation cost for these options
been determined pursuant to the fair value method under SFAS 123, the
Company's pro forma net income and diluted earnings per share would have
been as follows:
1997 1998 1999
----------------- ----------------- ---------------
As Pro As Pro As Pro
Reported Forma Reported Forma Reported Forma
-------- -------- -------- -------- -------- ------
Net income $18,902 $17,439 $21,372 $20,603 $9,703 $9,202
Diluted earnings $1.52 $1.40 $1.55 $1.49 $0.67 $0.63
per share
Because the SFAS 123 method of accounting has not been applied to options
granted prior to January 1, 1995, and additional awards in future years are
anticipated, the effect of applying SFAS 123 in the above pro forma
disclosure is not necessarily indicative of future results.
-4-
The fair value of the option grants in 1999 used to compute the pro forma
amounts above was estimated based on vesting of the grants using the
Black-Scholes option pricing model with the following assumptions: weighted
average risk free interest rate of 5.72%, weighted-average expected
remaining lives of 10 years, weighted-average volatility factor of 45.11%,
and a weighted-average Black-Scholes option price of $5.06.
1997 1998 1999
-------------------- -------------------- ---------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
------- -------- ------- -------- ------- --------
Outstanding at
beginning of Period 929,521 $11.34 815,604 $12.08 1,135,604 $11.00
Granted - - 320,000 8.25 76,000 8.18
Forfeited (2,500) 6.00 - - - -
Exercised (111,417) 6.00 - - (2,000) 6.00
-------- ------ --------- ------ --------- ------
Outstanding at end
of Period 815,604 $12.08 1,135,604 $11.00 1,209,604 $10.83
======== ====== ========= ====== ========= ======
Exercisable at end
of Period 598,937 $14.28 707,270 $13.02 973,604 $11.47
======== ====== ========= ====== ========= ======
The options outstanding as of December 31, 1999 consist of the following:
Weighted Average Average
Range of Number of Options Exercise Price Remaining
Exercise ------------------------ ------------------------ Contractual
Prices Outstanding Exercisable Outstanding Exercisable Life
----------- ----------- ----------- ----------- ----------- -----------
$5 to $10 713,416 477,416 $ 7.24 $ 6.75 7.89
$10 to $15 220,528 220,528 12.00 12.00 3.33
$15 to $20 165,396 165,396 18.00 18.00 3.33
$20 to $25 110,264 110,264 21.00 21.00 3.33
--------- ------- ------ ------ ----
1,209,604 973,604 $10.83 $11.47 6.02
========= ======= ====== ====== ====
(5) Research and Development-
Research and Development costs are expensed as incurred. These costs were
$3,427, $4,503 and $3,265 in 1997, 1998 and 1999, respectively. Research and
Development costs funded by customers, amounting to $1,071, $2,310 and $862
in 1997, 1998 and 1999, respectively, have been recorded as sales.
Revenues from Research and Development funded by customers are recognized
when the related product is shipped or the services are provided.
-5-
(6) Leases-
Certain office and warehouse facilities and equipment are leased under
noncancelable operating leases expiring on various dates through the year
2004. Rental expense was $304, $283 and $261 in 1997, 1998 and 1999,
respectively.
Minimum lease obligations under noncancelable operating leases are as
follows:
2000 $104
2001 85
2002 74
2003 45
2004 and thereafter 45
-----
Total $353
=====
(7) Income Taxes-
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 $50,000 as of
December 31, 1999. 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 $12,000 of the NOL carryforwards is available for use
annually. Approximately $2,100 of the $12,000 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.
-6-
Components of the deferred income taxes are as follows:
December 31,
------------------
1998 1999
------ ------
Current deferred tax assets:
Inventory adjustments $1,719 $ 585
Accrued employee costs 1,333 1,340
Pension benefits - 50
Postretirement healthcare benefits 2,195 2,220
Other 1,042 391
------ ------
Total current deferred tax assets 6,289 4,586
Current valuation allowance (6,289) (4,586)
------ ------
Net current deferred taxes $ - $ -
====== ======
December 31,
------------------
1998 1999
------ --------
Noncurrent deferred tax assets and (liabilities):
Property, plant and equipment $(18,028) $(16,617)
Operating loss carryforwards 20,965 20,198
Pension benefits 6,969 5,720
Postretirement healthcare benefits 17,105 16,372
Other 119 52
-------- -------
Total net noncurrent deferred tax assets 27,130 25,725
Noncurrent valuation allowance (27,130) (25,725)
-------- --------
Net noncurrent deferred taxes $ - $ -
======== ========
A summary of the Company's effective tax rates is as follows:
1997 1998 1999
------ ------- -------
Pretax book income $20,504 $23,747 $11,416
======= ======= =======
Federal tax at statutory rate $7,176 $8,311 $3,996
State tax at statutory rate 1,025 1,187 571
Post restructuring net operating
losses utilized (6,599) (7,123) (2,854)
------- ------- -------
Total provision $ 1,602 $2,375 $1,713
======= ======= =======
Effective tax rate 7.8% 10.0% 15.0%
======= ======= =======
(8) Pensions and Post-Retirement Benefits-
The Company has noncontributory defined benefit pension plans ("Plans")
covering substantially all employees. Plans covering salaried and management
employees provide pension benefits that are based on the highest five
consecutive years of an employee's compensation during the last ten years
prior to retirement. Plans covering hourly employees and union members
generally provide benefits of stated amounts for each year of service. The
Company's funding policy is to contribute annually an
-7-
amount equal to or greater than the minimum amount required under the
Employee Retirement Income Security Act of 1974. The Plans' assets are
primarily invested in U.S. Government securities, corporate bonds and
common stocks.
In addition to pension benefits, employees are provided certain
postretirement healthcare and life insurance benefits. Substantially all of
the employees may become eligible for these benefits when they retire. The
Company accrues, as current costs, the future lifetime retirement benefits
for both active and retired employees and their dependents. Steps have been
taken by the Company to reduce the amount of the future obligation for
postretirement healthcare benefits of future retirees by capping the amount
of funds payable on behalf of the retirees.
The following is a reconciliation of the change in benefit obligation and
plan assets for the years ended December 31, 1998 and 1999:
Pension Benefits Postretirement
Benefits
------------------------- ----------------------
December 31, December 31,
------------------------- ----------------------
1998 1999 1998 1999
---------- ---------- ---------- -----------
CHANGE IN BENEFIT OBLIGATION:
Projected benefit obligation at
beginning of year $177,820 $176,094 $ 54,178 $ 50,767
Service cost 1,203 1,318 357 361
Interest cost 13,781 13,310 3,984 3,612
Amendments - 3,750 - -
Actuarial (gains)/losses 492 (10,611) (2,264) (3,006)
Benefits paid (17,202) (17,844) (5,488) (5,551)
-------- -------- -------- --------
Projected benefit obligation at end of $176,094 $166,017 $ 50,767 $ 46,183
year ======== ======== ======== ========
CHANGE IN PLAN ASSETS:
Plan assets at fair value at beginning $183,318 $ $
of year $204,626 - -
Actual return on plan assets 18,531 27,274 - -
Company contributions 19,979 951 5,488 5,551
Benefits paid (17,202) (17,844) (5,488) (5,551)
-------- -------- -------- --------
Plan assets at fair value at end of year $204,626 $215,007 $ - $ -
======== ======== ======== ========
Funded status of plan $ 28,532 $ 48,990 $(50,767) $(46,183)
Unrecognized prior service cost 1,891 3,191 - -
Unrecognized net actuarial (gain)/loss (47,174) (65,632) 2,517 (297)
-------- -------- -------- --------
Net accrued benefit cost $(16,751) $(13,451) $(48,250) $(46,480)
======== ======== ======== ========
WEIGHTED AVERAGE ASSUMPTIONS:
Discount rate 7.50% 8.25% 7.50% 8.25%
Rate of increase in compensation levels 3.00% 3.00% - -
Expected long-term rate of return on 9.25% 9.25% - -
assets
-8-
The components of the net periodic benefit costs for the years ended
December 31, 1997, 1998 and 1999, respectively, are:
Pension Benefits Postretirement Benefits
---------------------------- ------------------------
1997 1998 1999 1997 1998 1999
-------- -------- -------- ------- ------- ------
Service cost-benefit earned during
the period $ 1,426 $ 1,203 $ 1,318 $ 343 $357 $361
Interest cost on projected benefit
obligation 14,070 13,781 13,310 3,619 3,984 3,612
Actual return on plan assets (35,145) (18,531) (27,274) - - -
Net amortization and deferral 21,660 3,575 10,295 (77) (28) (192)
------- ------- ------- ------ ------ ------
Net periodic benefit cost
(income) $ 2,011 $ 28 $(2,351) $3,885 $4,313 $3,781
======= ======= ======= ====== ====== ======
Assumptions used in the determination of net periodic benefit costs for
these years are:
1997 1998 1999
-------- -------- --------
Discount rate 8.25% 7.75% 7.50%
Rate of increase in compensation
levels 2.00% 2.00% 3.00%
Expected long-term rate of return
on assets 9.25% 9.25% 9.25%
Certain employees are covered by union-sponsored, collectively bargained,
multi-employer pension plans.
The actuarial calculation of the Company's minimum funding pension payment
due in 2000 for 1999 is $504. This amount is shown as a current liability on
the balance sheet as of December 31, 1999.
Assumed healthcare cost trend rates have a significant effect on the amounts
reported for the postretirement healthcare plans. A one-percentage-point
change in assumed healthcare cost trend rates would have the following
effects:
1% 1%
Increase Decrease
-------- --------
Effect on total of service and interest cost $219 $(100)
components
Effect on postretirement healthcare benefit $1,821 $(1,155)
obligation
During 1999, the Company offered certain employees a one-time
early-retirement program that resulted in additional pension expense of
$2,097. The impact of the additional liability is included in the amendments
in the benefit obligation reconciliation.
-9-
(9) Officers' Deferred Compensation Plan-
Certain officers have deferred compensation agreements which, upon
retirement, provide them with, among other things, supplemental pension and
other postretirement benefits. An accumulated unfunded liability, net of
the Rabbi Trust, of $1,409 and $1,745 as of December 31, 1998 and 1999,
respectively, has been recorded under these agreements as actuarially
determined. The expense was $165, $135 and $114 in 1997, 1998 and 1999,
respectively.
The Company established a Rabbi Trust in July of 1998 to fund a portion of
this plan. The Rabbi Trust does not hold any Company stock and is
considered in the calculations determined by the actuary.
(10) Profit Sharing-
The Company has a profit sharing program in which substantially all of the
employees are eligible to participate. The profit sharing payout is derived
from a formula based on pretax income and is payable no later than February
15th of the subsequent year. The expense was $2,629, $2,720 and $958 in
1997, 1998 and 1999, respectively.
(11) Commitments and Contingencies-
The Company is involved in various stages of investigation relative to
environmental protection matters relating to various waste disposal sites.
The potential costs related to such matters and the possible impact thereof
on future operations are uncertain due in part to uncertainty as to the
extent of the pollution, the complexity of government laws and regulations
and their interpretations, the varying costs and effectiveness of
alternative cleanup technologies and methods, and the questionable level
of the Company's involvement. The Company has made provisions in the
financial statements for potential losses related to these matters. The
Company does not anticipate such losses will have a material impact on the
financial statements beyond the aforementioned provisions.
Various other lawsuits and claims arising in the normal course of business
are pending against the Company and such losses are not expected to be
material to the financial statements.
In December 1998, one of the Company's primary presses suffered a major
breakdown and was not operational for several months. The Company filed
claims with its insurance company for all repair and business interruption
costs. As of December 31, 1999, all reimbursable costs have been recovered
through the Company's policy.
(12) Earnings Per Share-
Basic earnings per share of common stock are computed by dividing net
income by the weighed average number of common shares outstanding during
the period. Diluted earnings per share of common stock are computed by
dividing net income by the average number of common shares and common share
equivalents related to the assumed exercise of stock options and warrants.
-10-
The following shares were used to calculate basic and diluted earnings per
share:
December 31,
----------------------------------
1997 1998 1999
---------- ---------- ----------
Average basic common shares 5,208,251 12,155,484 13,715,555
outstanding
Incremental shares applicable to 7,261,567 1,670,649 797,706
common stock options and warrants ---------- ---------- ----------
Average diluted common shares 12,469,818 13,826,133 14,513,261
outstanding ========== ========== ==========
The shares outstanding used to compute diluted earnings per share for 1999
excluded outstanding options to purchase 889,688 shares of common stock at
a weighted average exercise price of $9.25. The options were excluded
because their exercise prices were greater than the average market price of
the common shares during the year and their inclusion in the computation
would have been antidilutive.
(13) Acquisitions-
On June 16, 1997, the Company completed the purchase of certain assets and
assumption of certain liabilities of Stowe Machine Co., Inc. ("Stowe"). The
purchase price was composed of approximately $8,500 in cash and a note
payable of $1,000.
The Stowe acquisition was accounted for using the purchase method of
accounting. Accordingly, the net assets were allocated based upon their
fair values at the acquisition's effective date of June 16, 1997. The
Company's consolidated statements of operations do not include the revenues
and expenses of Stowe prior to this date. The excess of the purchase price
over the fair value of the net assets acquired (goodwill) of approximately
$870 will be amortized on a straight-line basis over 20 years.
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 approximately $10,850 in cash, plus a
working capital adjustment of approximately $750.
The Adco 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 December 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
$6,220 will be amortized on a straight-line basis over 20 years.
(14) Subsequent Events-
On January 14, 2000, the Company acquired all of the membership interest of
Wyman-Gordon Titanium Castings, LLC for a purchase price of $26,600 in
cash. The acquired business was renamed Pacific Cast Technologies, Inc. and
is located in Albany, Oregon. The acquisition was financed through the use
of the senior credit facility.
-11-
(15) Quarterly Results of Operations (Unaudited)-
The following table sets forth unaudited consolidated income statement data
for each quarter of the Company's last two fiscal years. The unaudited
quarterly financial information has been prepared on the same basis as the
annual information presented in the financial statements and, in
management's opinion, reflects all adjustments (consisting of normal
recurring entries) necessary for a fair presentation of the information
provided. The operating results for any quarter are not necessarily
indicative of results for any future period.
Quarters Ended
--------------------------------------------
1998 March 31 June 30 September 30 December 31
-------------------------- -------- ------- ------------ -----------
Net sales $61,671 $60,779 $53,368 $50,949
Gross profit 9,714 10,248 6,719 5,961
Operating income 7,657 8,078 4,745 4,077
Net income 6,268 7,172 4,270 3,662
Basic earnings per share 0.94 0.51 0.30 0.26
Diluted earning per share 0.73 0.46 0.27 0.24
Quarters Ended
--------------------------------------------
1999 March 31 June 30 September 30 December 31
------------------------- -------- ------- ------------ -----------
Net sales $42,756 $44,771 $41,803 $40,911
Gross profit 3,438 5,015 5,044 5,679
Operating income 1,781 3,093 3,175 3,941
Net income 1,469 2,528 2,488 3,218
Basic earnings per share 0.11 0.18 0.18 0.24
Diluted earning per share 0.10 0.18 0.17 0.23
-12-
(16) Valuation and Qualifying Accounts-
Provision Payments
Balance at Charged to and Balance at
Beginning of Profit and Accounts End of
Year Loss Written Off Year
------------ ---------- ----------- ----------
Year ended December 31, 1997
Allowance for doubtful accounts $300 $ 9 $ 9 $300
====== ===== ===== ======
Year ended December 31, 1998
Allowance for doubtful accounts $300 $ 2 $2 $300
====== ===== ===== ======
Year ended December 31, 1999
Allowance for doubtful accounts $300 $(3) $(3) $300
====== ===== ===== ======
-13-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
By: /s/ WAYNE E. LARSEN
----------------------------------
Wayne E. Larsen
Vice President Law/Finance &
February 18, 2000 Secretary
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Signature Title Date
/s/ KERRY L. WOODY President and Chief Executive February 18, 2000
- ------------------------- Officer (Principal Executive -----------------
Kerry L. Woody Officer), Director
/s/ WAYNE E. LARSEN Vice President Law/Finance & February 18, 2000
- ------------------------- Secretary (Principal Financial -----------------
Wayne E. Larsen and Accounting Officer),
Director
/s/ LAWRENCE W. BIANCHI Director February 18, 2000
- ------------------------- -----------------
Lawrence W. Bianchi
/s/ CHARLES W. FINKL Director February 18, 2000
- ------------------------- -----------------
Charles W. Finkl
/s/ ROBERT W. SULLIVAN Director February 17, 2000
- ------------------------- -----------------
Robert W. Sullivan
16
INDEX TO EXHIBITS
Exhibit Page
Numbers Description Number
- ------- ----------- ------
3 (a) Articles of Incorporation of the Company as filed
with the Secretary of the State of Wisconsin filed with
Form S-1 as Exhibit 3.2 on December 23, 1997 are
incorporated by reference.
3 (b) The Ladish Co., Inc. By-Laws filed with Form S-1 as
Exhibit 3.2 on December 23, 1997 are incorporated by
reference.
10 (a) Form of Ladish Co., Inc. 1996 Long Term Incentive Plan
filed with Form S-1 as Exhibit 10.4 on December 23, 1997
is incorporated by reference.
10 (b) Form of Employment Agreement between Ladish Co., Inc.
and certain of its executive officers filed with Form
S-1 as Exhibit 10.5 on December 23, 1997 is
incorporated by reference.
10 (c) Credit Agreement dated February 15, 1999 among Ladish Co., X-2
Inc. and Firstar Bank Milwaukee, N.A. and the Financial
Institutions Parties thereto.
10 (d) Agreement dated September 15, 1995 between Ladish Co., Inc.
and Weber Metals, Inc. filed with Form S-1 as Exhibit 10.7
on February 23, 1998 is incorporated by reference.
21 List of Subsidiaries of the Company. X-56
23 Consent of Independent Public Accountants. X-
27 Financial Data Schedule. X-
99 Definitive Proxy Statement for the 2000 Annual Meeting of
Stockholders (to be filed pursuant to Regulation 14A
within 120 days after the end of the Company's fiscal
year and, upon such filing, incorporated herein by reference).