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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, 2002
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
Cudahy, Wisconsin 53110
(Address of principal executive offices) (Zip Code)
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
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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) 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
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Registration S-K is not contained herein, and will not be contained, to the
best of registrant's 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 ]
Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act).
Yes No X
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The aggregate market value of voting stock held by nonaffiliates of the
Registrant was $59,502,974 as of June 28, 2002.
(Continued on reverse side)
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13,023,393
(Number of Shares of common stock outstanding as of March 15, 2003)
(Continued on reverse side)
(Continued from cover page)
DOCUMENTS INCORPORATED BY REFERENCE
Part of Form 10-K into Which
Documents* Portions of Documents are Incorporated
- --------- --------------------------------------
Proxy Statement for 2003 Annual Meeting of Part III, Item 10. Directors and Executive Officers of the
Stockholders Registrant
Part III, Item 11. Executive Compensation
Part III, Item 12. Security Ownership of Certain Beneficial
Owners and Management
Part III, Item 13. Certain Relationships and Related
Transactions
* Only the portions of documents specifically listed herein are to be deemed incorporated by reference.
2
PART 1
Item 1. Business
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General
Ladish Co., Inc. ("Ladish" or the "Company") engineers, produces and markets
high-strength, high-technology forged and cast metal components for a wide
variety of load-bearing and fatigue-resisting applications in the jet engine,
aerospace and industrial markets. Approximately 94% of the Company's 2002
billings were derived from the sale of jet engine parts, missile components,
landing gear, helicopter rotors and other aerospace products. Approximately 19%
of the Company's 2002 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 forged and cast metal components
to the domestic aerospace industry, with an estimated 20% market share in the
jet engine component field.
Products and Markets
The Company markets its 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 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 products. 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,
----------------------------------------------------
2000 2001 2002
------------ ------------- -------------
(Dollars in millions)
Jet Engine Components...................... $163 71% $181 72% $139 74%
Aerospace Components....................... 48 21% 53 21% 38 20%
General Industrial Components.............. 19 8% 18 7% 12 6%
---- ---- ---- ---- ---- ----
Total................................. $230 100% $252 100% $189 100%
==== ==== ==== ==== ==== ====
Manufacturing
Ladish offers one of the most complete ranges of forging and investment casting
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 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. Investment casting involves the creation of precise wax molds
which are dipped, autoclaved and cast to create near-net components for the
aerospace industry.
Much of the Company's business is capital intensive, requiring large and
sophisticated forging, casting and heating equipment and extensive facilities
for inspection and testing of components after formation.
3
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 product sales force, consisting primarily of sales engineers, 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 Rolls-Royce, Sikorsky and Snecma 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 53%, 52% and 55% of the Company's revenues
in 2000, 2001 and 2002, respectively. Net sales to Rolls-Royce were 28%, 28% and
28%, United Technologies 16%, 15% and 16% and General Electric 9%, 9% and 11% of
total Company net sales for the respective years. No other customer accounted
for ten percent or more of the Company's sales.
Caterpillar, Volvo, Techspace Aero and Snecma are also important 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.
4
Exports accounted for approximately 50%, 49% and 50% of total Company net sales
in 2000, 2001 and 2002, respectively. Exports to England constituted
approximately 22%, 21% and 26%, respectively in the above years, of total
Company net sales.
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 $2.9 million, $3.7 million and $3.5
million on applied research and development work during 2000, 2001 and 2002,
respectively.
Patents and Trademarks
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
is 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 metal components 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
5
to fill customer orders. The Company has two or more sources of supply for all
significant raw materials.
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.
Energy
The Company uses a considerable amount of energy in the processing of its forged
and cast metal components. The rapidly fluctuating prices for energy, both
natural gas and electricity, had a significant impact on the Company's 2002
results and are likely to have a similar effect in 2003. Although the Company
attempts to ameliorate the impact of these price swings by purchasing directly
from producers and pre-ordering supplies for the future, the level of price
fluctuation and lack of availability are not within the control of the Company.
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 $271
million, $242 million and $195 million as of December 31, 2000, 2001 and 2002,
respectively. The Company's backlog declined by approximately 20% following the
terrorist attacks on September 11, 2001. Following these terrorist attacks, the
commercial aerospace market experienced a significant downturn worldwide which
reduced the backlog at December 31, 2001. The global commercial aerospace market
continued to soften in 2002 and the Company's backlog experienced a further
decline.
Competition
The sale of 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.
6
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 current environmental, workplace health or safety requirements. However,
additional costs and liabilities may be incurred to comply with current and
future requirements which 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 was previously named a
potentially responsible party at three "Superfund" sites. The Company's
liability with respect to these sites has been resolved. Although the Company
does not believe that the amount for which it may be held liable for any further
administrative or wrap-up expense will exceed the amount it has reserved of
approximately $0.24 million 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.
With respect to any past or future claim for any environmental, health or safety
matter, the Company evaluates every such claim from both a technical and legal
perspective, using outside consultants where necessary. The Company establishes
a good faith estimate of its prospective risk associated with said claim and,
where material, establishes a financial reserve for the estimated value of such
claim.
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:
o Market conditions and demand for the Company's products o Competition
o Interest rates and capital costs o Technologies
o Impact upon the commercial aerospace industry from the September 11, 2001 o Raw material and
terrorist attacks energy prices
o Unstable governments and business conditions in emerging economies o Taxes
o Legal, regulatory and environmental issues
7
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, 2002, the Company had approximately 1,074 employees, of whom
790 were engaged in manufacturing functions, 75 in executive and administrative
functions, 165 in technical functions, and 44 in sales and sales support. At
such date, approximately 603 employees, principally those engaged in
manufacturing, were represented by labor organizations under collective
bargaining agreements.
8
Number of Employees
Represented by Collective
Union Expiration Date Bargaining Agreement
----- --------------- --------------------
International Association of Machinists & Aerospace February 26, 2006 235
Workers, Local 1862
International Brotherhood of Boilermakers, Iron Ship September 28, 2003 157
Builders, Blacksmiths, Forgers & Helpers,
Subordinate Lodge 1509
International Federation of Professional & Technical August 24, 2003 97
Engineers, Technical Group, Local 92
International Association of Machinists & Aerospace March 26, 2006 59
Workers, Die Sinkers, Local 140
Office & Professional Employees International Union, July 4, 2004 27
Clerical Group, Local 35
International Brotherhood of Electrical Workers, Local November 16, 2003 24
662
Service Employees International, Local 150 April 20, 2003 4
Management
Name Age Position
---- --- --------
Kerry L. Woody........................51 President & CEO and Director
Wayne E. Larsen.......................48 Vice President Law/Finance & Secretary and Director
Gene E. Bunge.........................57 Vice President, Engineering
George Groppi.........................54 Vice President, Quality & Metallurgy
David L. Provan.......................53 Vice President, Materials Management
Gary J. Vroman........................43 Vice President, Sales & Marketing
Lawrence C. Hammond...................55 Vice President, Human Resources
Randy B. Turner.......................53 President - Pacific Cast Technologies, Inc. ("PCT")
William J. Lazzari....................53 President - Stowe Machine Co., Inc. ("Stowe")
Item 2. Properties
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The following table sets forth the location and size of the Company's three
facilities:
Approximate Acreage Approximate Square Footage
------------------- --------------------------
Cudahy, Wisconsin 184.5 1,650,000
Windsor, Connecticut 8.2 25,000
Albany, Oregon 14.0 110,000
The above facilities are owned by the Company.
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.
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.
9
Item 3. Legal Proceedings
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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. Although
the Company believes that there are no material legal proceedings pending or
threatened against the Company or any of its properties, the Company has been
named as a defendant in forty-one (41) asbestos cases in Mississippi and two (2)
asbestos cases in Illinois. As of the date of this filing, the Company has been
dismissed from three (3) of the cases in Mississippi and one (1) case in
Illinois. The Company never manufactured or processed asbestos. The Company's
only exposure to asbestos involves products the Company purchased from third
parties. The Company has notified its insurance carriers of these claims and is
vigorously defending these actions.
A purported stockholder of the Company filed a putative class action, Dean v.
Ladish Co., Inc., et. al., Case No. 03-C-0165, in the United States District
Court for the Eastern District of Wisconsin, on February 28, 2003, against the
Company and two Company officers. The complaint includes claims under the
federal securities laws and state common law, and seeks damages for stockholders
who purchased the common stock of the Company between March 10, 1998 and
September 27, 2002. The complaint's allegations, which the Company intends to
dispute, are based primarily on accounting issues relating to the Company's
restatement in 2002. The Company has notified its insurance carrier of the
claim, retained legal counsel and is vigorously defending the claim. The Company
has not made any provision for potential costs or losses, if any, which may
arise from this claim.
Item 4. Submission of Matters to a Vote of Security Holders
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There were no matters submitted to a vote of security holders during the fourth
quarter of 2002.
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
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Matters
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The common stock of the Company, par value $0.01 per share, trades on the Nasdaq
National Market under the symbol "LDSH".
The following table sets forth, for the fiscal periods indicated, the high and
low sales prices for each quarter of the years 2000, 2001 and 2002. At December
31, 2002 there were an estimated 1,200 beneficial holders of the Company's
common stock.
Year Ended Year Ended Year Ended
December 31, 2000 December 31, 2001 December 31, 2002
------------------ ------------------- ------------------
High Low High Low High Low
---- --- ---- --- ---- ---
First quarter......... $7.13 $6.13 $13.38 $10.00 $11.15 $8.75
Second quarter........ $9.75 $6.13 $15.70 $10.02 $12.20 $9.53
Third quarter......... $15.25 $9.13 $16.20 $7.10 $12.46 $6.02
Fourth quarter........ $12.94 $8.94 $11.72 $7.26 $8.45 $5.10
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.
10
Item 6. Selected Financial Data
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The selected financial data of the Company for each of the last five fiscal
years are set forth below.
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.
Year Ended December 31,
--------------------------------------------------------------
(Dollars in thousands, except income per share)
INCOME STATEMENT DATA 1998 1999 2000 2001 2002
- --------------------- -------- -------- -------- -------- --------
Net sales $226,767 $170,241 $230,148 $252,417 $188,544
Income from operations 24,557 11,990 22,752 22,759 3,296
Interest expense 1,256 810 2,017 2,047 1,867
Net income 13,975 28,495 12,650 13,129 1,631
Basic earnings per share 1.15 2.08 0.97 1.01 0.13
Diluted earnings per share 1.01 1.96 0.92 1.00 0.12
Dividends paid -- -- -- -- --
Shares used to compute earnings per share
Basic 12,155,484 13,715,555 13,075,188 12,944,545 13,002,224
Diluted 13,826,133 14,513,261 13,681,904 13,154,528 13,113,203
December 31,
--------------------------------------------------------------
BALANCE SHEET DATA 1998 1999 2000 2001 2002
- ------------------ -------- -------- -------- -------- -------
Total assets $172,893 $196,253 $234,527 $232,670 225,810
Net working capital 40,049 43,518 41,459 65,175 63,143
Total debt 3,500 -- 25,000 30,000 30,000
Stockholders' equity 68,646 110,137 115,902 126,337 118,369
Item 7. Management's Discussion and Analysis of Financial Condition and Results
- -------------------------------------------------------------------------------
of Operations
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Results of Operations
Year Ended December 31, 2002 Compared to Year Ended December 31, 2001
For the year ended December 31, 2002, the Company had net sales of $188.5
million which reflects a 25% decrease from the $252.4 million of sales in 2001.
This downturn in sales resulted from the continued weakness in the global
aerospace market. The downturn in the Company's principal markets began with the
terrorist attacks on September 11, 2001, expanded during 2002 and continues to
negatively impact sales in 2003. Gross profit in 2002 of $12.4 million, or 6.6%
of sales, is a significant reduction from the $33.8 million of gross profit in
2001. The decline in gross profitability was largely due to the underabsorption
of the Company's fixed costs as sales decreased. In addition, many of the
Company's customers utilized the decline in demand as an opportunity to demand
price concessions which further eroded the Company's profit margins.
Selling, general and administrative expenses in fiscal 2002 were $9.1 million in
contrast to $11.1 million in 2001. The overall decrease in SG&A expenses in 2002
reflects in part the Company's cost reduction efforts in response to declining
sales.
Interest expense in 2002 was relatively flat when compared to 2001, $1.9 million
versus $2.0 million, respectively. The interest expense in both years is related
to the Company's $30 million of long-term notes which bear interest at a fixed
rate of 7.19% per annum. The Company did not have any indebtedness outstanding
at the end of either year under the senior credit facility.
11
Pretax income for 2002 was $1.68 million, or approximately 1% of sales, in
comparison to $20.52 million, 8% of sales, in 2001. The decline in pretax
profitability on an overall basis and as a percentage of sales is due to the
combination of reduced sales to the commercial aerospace industry, the resultant
underabsorption of fixed costs and the pricing pressures exerted by the
Company's customers. The Company was also negatively impacted in 2002 by an
inventory charge at Stowe of approximately $0.9 million and approximately $0.3
million of accounting and legal fees associated with the restatement of the
Company's financial statements for 1999, 2000 and 2001. Pretax income in 2002
did benefit from a $6.0 million pension credit compared to the $7.9 million
pension credit in 2001, and from a $0.78 million refund of import duty on raw
material.
The 2002 income tax provision of $0.049 million reflects an effective rate of
2.9% vs. the statutory rate of 35% due primarily to the benefit of the
extra-territorial income exclusion. See note 7 to the financial statements.
The Company's contract backlog at December 31, 2002 was $195 million in contrast
to backlog of $242 million at the end of 2001. The decline in backlog is a
reflection of the overall state of the commercial aerospace industry and a focus
within the supply chain to reduce inventory and working capital through
shortened leadtimes for orders.
Year Ended December 31, 2001 Compared to Year Ended December 31, 2000
Net sales for the year ended December 31, 2001 were $252.4 million, a 10%
increase over fiscal 2000. The growth in sales is attributable to a strong
global aerospace market along with capacity and capability expansion at both PCT
and Stowe. Sales growth for the year was negatively impacted in the fourth
quarter of 2001 due to the September 11, 2001 terrorist attack and the resulting
downturn in the commercial aerospace market. Gross profit in 2001 of $33.8
million, or 13.4% of sales, reflected a decline from the 2000 levels of $34.5
million, or 14% of sales. This decrease in profitability in 2001 is a result of
increased energy costs in the first half of the year, lower employment costs in
2000 due to a seven-week work stoppage and margin pressures from the Company's
main customers.
In fiscal 2001, selling, general and administrative expenses of $11.1 million
represented 4.4% of sales. This was in contrast with the $11.7 million, or 5.1%
of sales, of selling, general and administrative expenses incurred in 2000. The
decrease in SG&A expenses in 2001 is largely attributable to the stability of
the Company's common stock price and the avoidance of imputed compensation
expense associated with repriced stock options and FASB Interpretation No. 44.
The slight increase in interest expense in 2001 is due to the higher debt level
associated with the $30 million private placement of notes in July 2001. The
notes bear interest at a fixed rate of 7.19% per annum. The Company did not have
any indebtedness outstanding at year end 2001 under the senior credit facility.
The Company's pretax income for the twelve months ending December 31, 2001 of
$20.5 million, or 8.1% of sales, is a reduction from the $20.9 million, or 9.1%
of sales, of pretax income in fiscal 2000. As discussed above with respect to
gross income, 2001 earnings were down from 2000 due to energy costs, the 2000
strike and margin pressure from customers. Pretax income in 2001 did benefit
from an addition of $7.9 million in pension credit in comparison to $7.0 million
of like benefit in 2000.
12
The 2001 tax provision of $7.4 million, an effective rate of 36%, primarily
reflects a non-cash accounting charge as substantially all of the reported tax
provision is offset by the utilization of net operating loss carryforwards. The
rate of 36% reflects a benefit of 4% due primarily to the extra-territorial
income exclusion. See note 7 to the financial statements.
At December 31, 2001 contract backlog at the Company was $242 million. This
represents an 11% decrease from the $271 million of contract backlog at the end
of 2000. The decline in backlog is attributable to a downturn in the global
aerospace market following the September 11, 2001 terrorist attack.
13
Liquidity and Capital Resources
On April 13, 2001, the Company and a group of lenders entered into an amended
and restated credit facility (the "New Facility"). The New Facility was
comprised of a $16 million term facility with a three-year maturity and a $39
million revolving loan facility. The term facility bore interest at a rate of
LIBOR plus 1.25% and the revolving loan facility bore interest at a rate of
LIBOR plus 0.80%.
On July 20, 2001, the Company sold $30 million of senior notes ("Senior Notes")
in a private placement to certain institutional investors. The Senior Notes bear
interest at a rate of 7.19% per annum with the interest being paid semiannually.
The Senior Notes have a seven-year duration with the principal amortizing
equally over the remaining duration after the third year. The Company used the
proceeds from the Senior Notes to repay outstanding borrowings under the New
Facility and for working capital purposes.
In conjunction with the private placement of the Senior Notes, the Company and
the lenders in the New Facility amended the New Facility on July 17, 2001 (the
"Amended Facility"). The Amended Facility consisted of a maximum of $50 million
revolving line of credit which bore interest at a rate of LIBOR plus 0.80%. The
Company and the lenders entered into an additional amendment to the Amended
Facility on April 12, 2002 in order to allow one lender to withdraw and to
reduce the maximum size of the revolving line of credit to $45 million. On
December 31, 2002, the Company and the lenders further modified the Amended
Facility by reducing the maximum line of revolving credit to $25 million with a
variable interest rate based upon the Company's operating performance. As of
December 31, 2002, the interest rate on the Amended Facility was LIBOR plus
1.25%. As of December 31, 2002, $25 million was available pursuant to the terms
of the Amended Facility. There were no borrowings under the Amended Facility as
of December 31, 2002.
Under the common stock repurchase program (the "Program") authorized by the
Company's Board of Directors in 1998, the Company has repurchased a total of
2,822,235 shares, or share equivalents, of its common stock out of the 3,500,000
shares authorized by the Board of Directors under the Program. The Company has
funded the Program with approximately $19.5 million of 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.
Critical Accounting Policy
The Company has net operating loss ("NOL") carryforwards that were generated
prior to its reorganization ("Pre-Reorganization") completed on April 30, 1993
as well as NOL carryforwards that were generated subsequent to reorganization
and prior to the 1998 ownership change ("Post-Reorganization"), and an NOL
carryforward generated in 2002. These NOLs are available to the Company to
reduce future taxable income. The net realizable value of the related tax
benefit of the NOLs is approximately $10.9 million as of December 31, 2002.
The amount of the NOL carryforwards used through December 31, 2002 total $18.6
million of the Pre-Reorganization NOLs and $42.8 million of the
Post-Reorganization NOLs. Federal NOL carryforwards remaining as of December 31,
2002 total $15 million of Pre-Reorganization NOLs and $6.2 million of
Post-Reorganization NOLs. Wisconsin NOL carryforwards remaining as of December
31, 2002 total $8
14
million of Pre-Reorganization NOLs and $10.9 million of Post-Reorganization
NOLs. The NOL carryforward generated in 2002 amounted to $6.1 million for
federal and $0.7 million for Wisconsin.
The Company's IPO in March, 1998 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, generated prior to the
ownership change, to reduce future taxable income. 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. Since the ownership change, the total NOL
available for use is $11.9 million annually. To the extent less than $11.9
million is used in any year, the unused amount is added to and increases the
limitation in the succeeding year. Pre-Reorganization NOLs are further limited
to an annual usage of $2.1 million. Any unused amount is added to and increases
the limitation in the succeeding year. The Pre-Reorganization NOLs expire in
2008 and the Post-Reorganization NOLs expire in years 2008 through 2010. There
is no limitation on the usage of the NOLs generated in 2002 and these NOLs
expire in 2022.
Realization of the net deferred tax assets over time is dependent upon the
Company generating sufficient taxable income in future periods. FAS 109 requires
establishment of a valuation allowance reserve for all or a part of the NOLs
unless it is more likely than not that sufficient taxable income will be
generated in future periods to utilize the NOLs before they expire. In
determining that realization of the net deferred tax assets was more likely than
not, the Company gave consideration to a number of factors including its recent
earnings history, expectations for earnings in the future, the timing of
reversal of temporary differences, tax planning strategies available to the
Company and the expiration dates associated with NOL carryforwards. If, in the
future, the Company determines that it is no longer more likely than not that
the net deferred tax assets will be realized, a valuation allowance will be
established against all or part of the net deferred tax assets with an
offsetting charge to the income tax provision.
Item 7.A. 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.
Item 8. Financial Statements and Supplementary Data
- ----------------------------------------------------
The response to Item 8. Financial Statements and Supplementary Data incorporates
by reference the information listed in the consolidated financial statements and
accompanying schedules beginning on page F-1.
Item 9. Changes in and Disagreements with Accountants on Accounting and
- ------------------------------------------------------------------------
Financial Disclosure
- --------------------
By letter dated August 19, 2002, Deloitte & Touche LLP, who had been engaged to
replace Arthur Andersen as the Company's independent accountants, resigned the
engagement, claiming a disagreement with management regarding the Company's
method of recognition of valuation allowances against deferred tax assets. This
resignation was reported on a Form 8-K filed on August 26, 2002.
The Company subsequently engaged KPMG LLP to reaudit 1999, 2000 and 2001, and to
audit 2002. There have been no disagreements on accounting and financial
disclosure with the Company's public accounting firm, KPMG LLP.
15
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 section entitled "Section 16(a) Beneficial Ownership Reporting
Compliance" in 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 W. Bianchi 62
Margaret Bertelsen Hampton 44
Leon A. Kranz 63
Wayne E. Larsen 48
Scott D. Roeper 43
Robert W. Sullivan 44
Kerry L. Woody 51
Other information required by Item 401 of Regulation S-K is as follows:
Lawrence W. Bianchi, 62. 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, 57. 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 1968. He has a B.S.E.E. from the
Milwaukee School of Engineering.
George Groppi, 54. 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. Groppi has been
with the Company since 1969. He holds a B.S. in Mechanical Engineering from
Marquette University.
Lawrence C. Hammond, 55. 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.
Margaret Bertelsen Hampton, 44. Director since 2001. Ms. Hampton has been a
Portfolio Manager at Grace Brothers Ltd., an Evanston, Illinois based investment
management firm, since 1997. Previously, Ms. Hampton was a Managing Director for
First Chicago Capital Corporation, a position she held for more than five years.
Ms. Hampton is a Director of Furr's Restaurant Group in Dallas, Texas.
16
Leon A. Kranz, 63. Director since 2001. Mr. Kranz is President and Chief
Executive Officer of Weber Metals, Inc., a Paramount, California based metals
processor, a position he has held for ten years.
Wayne E. Larsen, 48. 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 since 1989 after joining the Company as corporate counsel in 1981.
Mr. Larsen is a Trustee of the Ladish Co. Foundation and a Director of the
Wisconsin Foundation for Independent Colleges and the South Shore YMCA of
Milwaukee. Mr. Larsen has a B.A. from Marquette University and a J.D. from
Marquette Law School.
William J. Lazzari, 53. Mr. Lazzari has been President of Stowe Machine Co.,
Inc. ("Stowe") since 2000. He was General Manager at Stowe for over four years
prior to becoming President. He holds a B.S. in Marketing from the University of
Hartford.
David L. Provan, 53. 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.
Scott D. Roeper, 43. Director since 2001. Mr. Roeper is a Managing Director and
Partner for Facilitator Capital Fund ("FCF"), a Wisconsin-based private equity
fund. Prior to joining FCF in 1999, Mr. Roeper was a senior banker for Firstar
Bank since 1990. Mr. Roeper is a Director of numerous FCF portfolio companies.
Robert W. Sullivan, 44. 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 fifteen years. Mr. Sulllivan is a Director of Furr's Restaurant Group in
Dallas, Texas.
Randy B. Turner, 53. Mr. Turner has served as President of Pacific Cast
Technologies, Inc. ("PCT") since it was acquired by the Company in January 2000.
Prior to joining the Company, Mr. Turner served as President of the corporate
predecessor to PCT. He has a B.S. in Business Management from Lewis and Clark
College.
Gary J. Vroman, 43. 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, 51. 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. 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.
The Company's ethics code is reflected in its policies addressing i) conflict of
interest, ii) compliance with antitrust laws, iii) improper payments, iv)
falsification of records, and v) insider trading. These policies apply to all
Company employees including the principal executive officer, the principal
financial officer, controller and members of the Board of Directors. On an
annual basis, the Company requires its key management personnel to certify their
review and compliance with these policies. A copy of the policies is filed
herewith as Exhibit 14.
17
Item 11. Executive Compensation
- --------------------------------
The information called for by this Item is incorporated herein by reference to
the sections entitled "Executive Compensation and Other Matters," "The Stock
Option Plan," "Pension Benefits," "Compensation of Directors," "Employment
Agreements," "Compensation Committee Interlocks and Insider Participation,"
"Compensation and Stock Option Committee Report," and "Total Shareholder Return"
of the Proxy Statement for the 2003 Annual Meeting of Stockholders.
Item 12. Security Ownership of Certain Beneficial Owners and Management
- ------------------------------------------------------------------------
The information called for by this Item is incorporated herein by reference to
the sections entitled "Voting Securities and Stockholders" and "The Stock Option
Plan" of the Proxy Statement for the 2003 Annual Meeting of Stockholders.
Item 13. Certain Relationships and Related Transactions
- --------------------------------------------------------
The information called for by this Item is incorporated herein by reference to
the section entitled "Certain Relationships" of the Proxy Statement for the 2003
Annual Meeting of Stockholders.
Item 14. Controls and Procedures
- ---------------------------------
The Company's management, under the supervision and with the participation of
the Company's principal executive officer and principal financial officer, has
evaluated the Company's disclosure controls and procedures within 90 days prior
to the filing date of this report. Based on that evaluation, management believes
that the Company's disclosure controls and procedures are effective in ensuring
that information required to be disclosed by the Company in the reports that it
files or submits under the Securities and Exchange Act of 1934, as amended, is
recorded, processed, summarized and reported, within the time period specified
by the Securities and Exchange Commission's rules and forms.
There were no significant changes in the Company's internal controls or in other
factors that could significantly affect these controls subsequent to the date of
management's evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
PART IV
Item 15. 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 2002.
18
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
March 18, 2003 Vice President Law/Finance & 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 Officer March 21, 2003
- ------------------------------------- (Principal Executive Officer), -------------------
Kerry L. Woody Director
/s/ Wayne E. Larsen Vice President Law/Finance & March 18, 2003
- ------------------------------------- Secretary (Principal Financial and -------------------
Wayne E. Larsen Accounting Officer), Director
/s/ Lawrence W. Bianchi Director March 17, 2003
- ------------------------------------- -------------------
Lawrence W. Bianchi
/s/ Margaret Bertelsen Hampton Director March 24, 2003
- ------------------------------------- -------------------
Margaret Bertelsen Hampton
/s/ Leon A. Kranz Director March 11, 2003
- ------------------------------------- -------------------
Leon A. Kranz
/s/ Scott D. Roeper Director March 12, 2003
- ------------------------------------- -------------------
Scott D. Roeper
/s/ Robert W. Sullivan Director March 12, 2003
- ------------------------------------- -------------------
Robert W. Sullivan
19
CERTIFICATION
- -------------
I, Kerry L. Woody, President and CEO of Ladish Co., Inc., certify that:
1. I have reviewed this annual report on Form 10-K of Ladish Co., Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: March 24, 2003
/s/ Kerry L. Woody
- -------------------------------------
Kerry L. Woody
President and CEO
20
CERTIFICATION
- -------------
I, Wayne E. Larsen, Vice President Law/Finance and Secretary of Ladish Co.,
Inc., certify that:
1. I have reviewed this annual report on Form 10-K of Ladish Co., Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: March 24, 2003
/s/ Wayne E. Larsen
- --------------------------------------
Wayne E. Larsen
Vice President Law/Finance & Secretary
21
INDEX TO FINANCIAL STATEMENTS
Independent Auditors' Report.................................................F-2
Consolidated Balance Sheets as of
December 31, 2001 and 2002..............................................F-3
Consolidated Statements of Operations for the
years ended December 31, 2000, 2001 and 2002............................F-5
Consolidated Statements of Stockholders' Equity for the years
ended December 31, 2000, 2001 and 2002..................................F-6
Consolidated Statements of Cash Flows for the years
ended December 31, 2000, 2001 and 2002..................................F-7
Notes to Consolidated Financial Statements...................................F-8
F-1
Independent Auditors' Report
To the Stockholders
of Ladish Co., Inc.:
We have audited the accompanying consolidated balance sheets of Ladish Co.,
Inc., a Wisconsin corporation, and subsidiaries as of December 31, 2001 and
2002, 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, 2002. 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 auditing standards generally accepted
in the United States. 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, 2001 and 2002, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 2002 in conformity with accounting principles generally
accepted in the United States.
As discussed in Note 2(f) to the consolidated financial statements, effective
January 1, 2002, the Company adopted Statement of Financial Accounting Standards
No. 142, "Goodwill and Other Intangible Assets."
/s/ KPMG LLP
Milwaukee, Wisconsin
January 23, 2003 except as to note 11,
which is as of March 19, 2003
F-2
Ladish Co., Inc.
Consolidated Balance Sheets
December 31, 2001 and 2002
(Dollars in Thousands Except Share Data)
Assets 2001 2002
------ ------------- ------------
Current Assets:
Cash and Cash Equivalents $3,962 $8,959
Accounts Receivable, Less Allowance
of $341 and $191, Respectively 37,719 32,237
Inventories 53,059 45,849
Deferred Income Taxes 5,643 5,764
Prepaid Expenses and Other Current Assets 635 664
------------- ------------
Total Current Assets 101,018 93,473
Property, Plant and Equipment:
Land and Improvements 4,637 4,828
Buildings and Improvements 27,521 35,166
Machinery and Equipment 139,174 151,364
Construction in Progress 19,271 9,374
------------- ------------
190,603 200,732
Less Accumulated Depreciation (88,320) (102,240)
------------- ------------
Net Property, Plant and Equipment 102,283 98,492
Deferred Income Taxes 17,535 23,023
Other Assets 11,834 10,822
------------- ------------
Total Assets $232,670 $225,810
============= ============
See accompanying notes to consolidated financial statements.
F-3
Ladish Co., Inc.
Consolidated Balance Sheets
December 31, 2001 and 2002
(Dollars in Thousands Except Share Data)
Liabilities and Stockholders' Equity 2001 2002
------------------------------------ ------------- -------------
Current Liabilities:
Accounts Payable $21,235 $17,134
Accrued Liabilities:
Pensions 153 1,792
Postretirement Benefits 5,308 4,744
Wages and Salaries 4,111 3,343
Taxes, Other Than Income Taxes 263 365
Interest 1,002 981
Profit Sharing 812 -
Paid Progress Billings 473 571
Other 2,486 1,400
------------- -------------
Total Current Liabilities 35,843 30,330
Long-Term Liabilities:
Senior Notes 30,000 30,000
Pensions - 7,166
Postretirement Benefits 37,286 36,312
Officers' Deferred Compensation 2,599 3,035
Other Noncurrent Liabilities 605 598
------------- -------------
Total Liabilities 106,333 107,441
Stockholders' Equity:
Common Stock-Authorized 100,000,000, Issued
14,573,515 Shares of $.01 Par Value 146 146
Additional Paid-In Capital 110,038 109,769
Retained Earnings 27,975 29,606
Treasury Stock, 1,597,455 and 1,550,122 Shares,
Respectively, of Common Stock, at Cost (11,695) (11,349)
Additional Minimum Pension Liability (127) (9,803)
------------- -------------
Total Stockholders' Equity 126,337 118,369
------------- -------------
Total Liabilities and Stockholders' Equity $232,670 $225,810
============= =============
See accompanying notes to consolidated financial statements.
F-4
Ladish Co., Inc.
Consolidated Statements of Operations
(Dollars in Thousands Except Share Data)
Years Ended December 31,
------------------------------------------
2000 2001 2002
------------- ------------- -------------
Net Sales $230,148 $252,417 $188,544
Cost of Sales 195,657 218,606 176,163
------------- ------------- -------------
Gross Profit 34,491 33,811 12,381
Selling, General and Administrative Expenses 11,739 11,052 9,085
------------- ------------- -------------
Income from Operations 22,752 22,759 3,296
Other (Income) Expense:
Interest Expense 2,017 2,047 1,867
Other, Net (128) 197 (251)
------------- ------------- -------------
Income Before Income Tax Provision 20,863 20,515 1,680
Income Tax Provision 8,213 7,386 49
------------- ------------- -------------
Net Income $12,650 $13,129 $1,631
============= ============= =============
Earnings Per Share:
Basic $0.97 $1.01 $0.13
Diluted $0.92 $1.00 $0.12
See accompanying notes to consolidated financial statements.
F-5
Ladish Co., Inc.
Consolidated Statements of Stockholders' Equity
(Dollars in Thousands Except Share Data)
Common Stock Additional
----------------------- Additional Treasury Minimum
Par Paid-in Retained Stock, Pension
Shares Value Capital Earnings at Cost Liability Total
-------------- -------- ----------- ----------- ---------- ------------ -----------
Balance, December 31, 1999 14,318,406 $143 $112,941 $2,263 $(5,210) $ - $110,137
Net Income - - - 12,650 - - 12,650
Issuance of Common Stock 1,500 - 12 - - - 12
Retirement of Warrants - - (495) - - - (495)
Exercise of Warrants 253,609 3 301 - - - 304
Purchase of Treasury Stock - - - - (6,951) - (6,951)
Retirement of Stock Options - - (75) - - - (75)
Compensation Expense Related to
Stock Options - - 320 - - - 320
-------------- -------- ----------- ----------- ---------- ------------ -----------
Balance, December 31, 2000 14,573,515 146 113,004 14,913 (12,161) - 115,902
Net Income - - - 13,129 - - 13,129
Issuance of Common Stock - - - (67) 466 - 399
Retirement of Warrants - - (3,227) - - - (3,227)
Exercise of Stock Options - - 214 - - - 214
Retirement of Stock Options - - (28) - - - (28)
Compensation Expense
Related to Stock Options - - 75 - - - 75
Additional Minimum Pension
Liability (Net of $84
Deferred Tax) - - - - - (127) (127)
-------------- -------- ----------- ----------- ---------- ------------ -----------
Balance, December 31, 2001 14,573,515 146 110,038 27,975 (11,695) (127) 126,337
Net Income - - - 1,631 - - 1,631
Issuance of Common Stock - - 35 - 346 - 381
Exercise of Stock Options - - 1 - - - 1
Compensation (Credit) Related
to Stock Options - - (305) - - - (305)
Additional Minimum Pension
Liability (Net of $6,452
Deferred Tax) - - - - - (9,676) (9,676)
-------------- -------- ----------- ----------- ---------- ------------ -----------
Balance, December 31, 2002 14,573,515 $146 $109,769 $29,606 $(11,349) $(9,803) $118,369
============== ======== =========== =========== ========== ============ ===========
See accompanying notes to consolidated financial statements.
F-6
Ladish Co., Inc.
Consolidated Statements of Cash Flows
(Dollars in Thousands)
Years Ended December 31,
---------------------------------------
2000 2001 2002
----------- ------------ -------------
Cash Flows from Operating Activities:
Net Income $12,650 $13,129 $1,631
Adjustments to Reconcile Net Income to Net Cash Provided by (Used for)
Operating Activities:
Depreciation 13,402 14,197 15,092
Amortization 515 537 -
Charge in Lieu of Taxes Related to Goodwill 66 66 66
Tax Effect Related to Stock Options 50 233 1
Deferred Income Taxes 7,839 6,824 584
Non-Cash Compensation Related to Stock Options 320 75 (305)
Loss (Gain) on Disposal of Property, Plant and Equipment 29 240 (27)
Changes in Assets and Liabilities:
Accounts Receivable (9,798) 896 5,482
Inventories (7,344) 1,883 7,210
Other Assets (879) (3,404) (5,276)
Accounts Payable and Accrued Liabilities 13,786 (10,737) (5,513)
Other Liabilities (9,183) (6,728) (3,055)
----------- ------------ -------------
Net Cash Provided by Operating Activities 21,453 17,211 15,890
----------- ------------ -------------
Cash Flows from Investing Activities:
Additions to Property, Plant and Equipment (12,018) (18,958) (11,475)
Proceeds from Sale of Property, Plant and Equipment 583 63 201
Acquisition of Business (25,250) - -
----------- ------------ -------------
Net Cash Used for Investing Activities (36,685) (18,895) (11,274)
----------- ------------ -------------
Cash Flows from Financing Activities:
Proceeds from (Repayment of) Senior Debt 25,000 (25,000) -
Proceeds from Senior Notes - 30,000 -
Issuance of Common Stock 12 399 381
Retirement of Warrants (495) (3,227) -
Exercise of Warrants 304 - -
Repurchase of Common Stock (7,076) (47) -
----------- ------------ -------------
Net Cash Provided by Financing Activities 17,745 2,125 381
----------- ------------ -------------
Increase in Cash and Cash Equivalents 2,513 441 4,997
Cash and Cash Equivalents, Beginning of Period 1,008 3,521 3,962
----------- ---------------------------
Cash and Cash Equivalents, End of Period $3,521 $3,962 $8,959
=========== ============ =============
Supplemental Cash Flow Information:
Income Taxes Paid (Refunded) $560 $875 $(165)
Interest Paid $1,897 $1,385 $1,824
See accompanying notes to consolidated financial statements.
F-7
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"), headquartered in Cudahy, Wisconsin,
engineers, produces and markets high-strength, high-technology forged and
cast metal components for a wide variety of load-bearing and
fatigue-resisting applications in the jet engine, aerospace and industrial
markets, for both domestic and international customers. The Company
operates as a single segment. Net sales to the jet engine, aerospace and
industrial customers were approximately 71%, 21% and 8% in 2000, 72%, 21%
and 7% in 2001 and 74%, 20% and 6% in 2002, respectively, of total Company
net sales.
In January 2000, the Company acquired Wyman-Gordon Titanium Castings, LLC,
an investment casting operation. The acquired business was renamed Pacific
Cast Technologies, Inc. ("PCT") and is located in Albany, Oregon.
In 2000, 2001 and 2002, respectively, the Company had three customers that
collectively accounted for approximately 53%, 52% and 55%, respectively, of
total Company net sales. Net sales to Rolls-Royce were 28%, 28% and 28%,
United Technologies 16%, 15% and 16% and General Electric 9%, 9% and 11% of
total Company net sales for the respective years.
Exports accounted for approximately 50%, 49% and 50% of total Company net
sales in 2000, 2001 and 2002, respectively, with exports to England
constituting approximately 22%, 21% and 26%, respectively, of total Company
net sales.
As of December 31, 2002, approximately 56% 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
2003.
(2) Summary of Significant Accounting Policies
------------------------------------------
(a) 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.
(b) Cash and Cash Equivalents
-------------------------
The Company considers marketable securities with maturities of less
than three months to be cash equivalents and are shown as a component
of cash and cash equivalents on the balance sheets.
(c) Outstanding Checks
------------------
Outstanding payroll and accounts payable checks related to certain
bank accounts are recorded as accounts payable in the accompanying
consolidated balance sheets. These checks amounted to $3,905 and
$1,537 as of December 31, 2001 and 2002, respectively.
(d) Inventories
-----------
Inventories are stated at the lower of cost, first-in, first-out
(FIFO) basis, or market. Inventory values include material and
conversion costs.
F-8
Inventories for the years ended December 31, 2001 and 2002 consist of the
following:
December 31,
-------------------------
2001 2002
------------ ------------
Raw Materials $16,996 $10,235
Work-in-Process and Finished 37,057 36,567
------------ ------------
54,053 46,802
Less Progress Payments (994) (953)
------------ ------------
Total Inventories $53,059 $45,849
============ ============
(e) Property, Plant and Equipment
-----------------------------
Additions to property, plant, and equipment are recorded at cost. Tooling
costs, along with normal repairs and maintenance, 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
(f) Goodwill
--------
Goodwill represents the excess of the purchase price over the fair value of
identifiable tangible and intangible net assets relating to business
acquisitions. Goodwill is included in other assets. As of December 31,
2002, goodwill amounted to $8,180. In 2000 and 2001, goodwill was amortized
on a straight-line basis over 20 years resulting in amortization expense of
$484 and $490, respectively. SFAS No. 142 "Goodwill and Other Intangibles",
which was adopted on January 1, 2002, requires that goodwill no longer be
amortized but instead that it will be tested for impairment at least
annually. No amortization expense was recorded in 2002. The goodwill assets
were subjected to fair value impairment tests in 2002 and no impairments
were recognized.
Years Ended December 31,
-------------------------------------------------
2000 2001 2002
------------- ------------- -------------
Reported Net Income $12,650 $13,129 $1,631
Add Back: Goodwill Amortization 484 490 -
------------- ------------- -------------
Adjusted Net Income $13,134 $13,619 $1,631
Basic Earnings Per Share:
Reported Net Income $0.97 $1.01 $0.13
Goodwill Amortization 0.04 0.04 -
------------- ------------- -------------
Adjusted Net Income $1.01 $1.05 $0.13
Diluted Earnings Per Share:
Reported Net Income $0.92 $1.00 $0.12
Goodwill Amortization 0.04 0.04 -
------------- ------------- -------------
Adjusted Net Income $0.96 $1.04 $0.12
(g) Fair Values of Financial Instruments
------------------------------------
The fair value of financial instruments (principally the Senior Notes)
does not materially differ from their carrying values.
(h) Revenue Recognition
-------------------
Sales revenue is recognized when the title and risk of loss have
passed to the customer, there is pervasive evidence of an arrangement,
delivery has occurred or the services provided, the sales price is
determinable and collectibility is reasonably assured. This generally
occurs at the time of shipment. Net sales include freight out as well
as reductions for returns and allowances, and sales
F-9
discounts. 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 a liability.
(i) Income Taxes
------------
Deferred taxes are accounted for under the asset and liability method
whereby deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and
liabilities and their respective tax basis. Deferred tax assets and
liabilities are measured using enacted tax rates. Deferred income tax
provisions or benefits are based on the change in the deferred tax
assets and liabilities from period to period.
(j) 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 will likely
differ from those estimates, but management believes such differences
will not be material.
(3) Debt
----
Senior Debt
-----------
On April 13, 2001, the Company and a group of lenders entered into an
amended and restated credit facility (the "New Facility"). The New Facility
was comprised of a $16,000 term facility with a three-year maturity and a
$39,000 revolving loan facility. The term facility bore interest at a rate
of LIBOR plus 1.25% and the revolving loan facility bore interest at a rate
of LIBOR plus 0.80%.
On July 20, 2001, the Company sold $30,000 of senior notes ("Senior Notes")
in a private placement to certain institutional investors. The Senior Notes
bear interest at a rate of 7.19% per annum with the interest being paid
semiannually. The Senior Notes have a seven-year duration with the
principal amortizing equally over the remaining duration after the third
year. The Company used the proceeds from the Senior Notes to repay
outstanding borrowings under the New Facility and for working capital
purposes.
In conjunction with the private placement of the Senior Notes, the Company
and the lenders in the New Facility amended the New Facility on July 17,
2001 (the "Amended Facility"). The Amended Facility consisted of a maximum
$50,000 revolving line of credit which bore interest at a rate of LIBOR
plus 0.80%. The Company and the lenders entered into an additional
amendment to the Amended Facility on April 12, 2002 in order to allow one
lender to withdraw and to reduce the maximum size of the revolving line of
credit to $45,000. On December 31, 2002, the Company and the lenders
further modified the Amended Facility by reducing the maximum line of
revolving credit to $25,000 with a variable interest rate based upon the
Company's operating performance. As of December 31, 2002, the interest rate
on the Amended Facility was LIBOR plus 1.25%. As of December 31, 2002,
$25,000 was available pursuant to the terms of the Amended Facility. There
were no borrowings under the Amended Facility as of December 31, 2002.
Warrants related to previously repaid senior subordinated notes were
354,767, 32,076 and 32,076 outstanding and exercisable as of December 31,
2000, 2001 and 2002, respectively. 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 in 2005.
F-10
(4) Stockholders' Equity
--------------------
Under the common stock repurchase program (the "Program") authorized by the
Company's Board of Directors in 1998, the Company has repurchased a total
of 2,822,235 shares, or share equivalents, of its common stock out of the
3,500,000 shares authorized by the Board of Directors under the Program.
The Company has funded the Program with approximately $19,500 of cash
generated from operations.
The Company has a Long-Term Incentive Plan (the "Plan") that covers certain
employees. Under the Plan, incentive stock options for up to 983,333 shares
may be granted to employees of the Company of which 977,833 options have
been granted. These options expire ten years from the grant date. In 2000,
2001 and 2002, 6,500, 130,000 and 12,000 options, respectively, were
granted under the Plan. These options vest over two years. As of December
31, 2002, 715,334 options granted under the Plan remain outstanding.
Additionally, the Company granted 496,188 stock options in 1993 to an
individual who was then Chairman of the Board of Directors. The options
were granted at fair value, vested on date of grant and expire if not
exercised in ten years from date of grant. All of these options remain
outstanding as of December 31, 2002.
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 2000, 2001 and 2002. 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:
Years Ended December 31,
-----------------------------------------------------------------------
2000 2001 2002
----------------------- ----------------------- -----------------------
As Pro As Pro As Pro
Reported Forma Reported Forma Reported Forma
------------ ---------- ------------ ---------- ------------ ----------
Net Income $12,650 $12,294 $13,129 $12,795 $1,631 $1,422
Diluted Earnings Per Share $0.92 $0.90 $1.00 $0.97 $0.12 $0.11
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.
The fair value of the option grants in 2000, 2001 and 2002 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 Weighted Average Weighted Average
Risk Free Expected Weighted Average Black-Scholes
Year Interest Rate Remaining Lives Volatility Factor Option Price
---- ------------- --------------- ----------------- ------------
2000 5.51% 10 Years 39.98% $6.12
2001 4.92% 10 Years 41.46% $6.38
2002 5.08% 10 Years 52.37% $6.41
F-11
A summary of options for 2000, 2001 and 2002 is as follows:
2000 2001 2002
------------------------- ------------------------- -------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
------------- ---------- ------------- ---------- ------------- ---------
Outstanding at
Beginning of Year 1,209,604 $10.83 1,189,604 $10.92 1,249,355 $11.14
Granted 6,500 8.25 130,000 10.50 12,000 10.50
Forfeited - - - - (2,500) 10.50
Exercised (26,500) 6.13 (70,249) 6.24 (47,333) 8.04
------------- ---------- ------------- ---------- ------------- ---------
Outstanding at End of
Year 1,189,604 $10.92 1,249,355 $11.14 1,211,522 $11.26
============= ========== ============= ========== ============= =========
Exercisable at End of
Year 1,145,104 $11.03 1,116,105 $11.23 1,134,522 $11.31
============= ========== ============= ========== ============= =========
The options outstanding and exercisable as of December 31, 2002 consist of
the following:
Weighted Average Average
Range of Number of Options Exercise Price Remaining
Exercise ------------------------------- ------------------------------- Contractual
Prices Outstanding Exercisable Outstanding Exercisable Life - Years
------------- -------------- --------------- --------------- --------------- --------------
$5 to $10 575,834 575,834 $7.36 $7.36 5.00
$10 to $15 360,028 283,028 11.42 11.67 3.44
$15 to $20 165,396 165,396 18.00 18.00 0.33
$20 to $25 110,264 110,264 21.00 21.00 0.33
------------- ------------- ---------- --------- -------
1,211,522 1,134,522 $11.26 $11.31 3.47
============= ============= ========== ========= =======
In June 1999, the Company reduced the exercise price of 320,000 options
previously granted to certain employees from $13.50 and $15.50 to $8.25. As
a result, the Company recorded additional compensation expense (credit) of
$320, $75 and $(305) in 2000, 2001 and 2002, respectively, relating to the
modified stock options.
(5) Research and Development
------------------------
Research and Development costs are expensed as incurred. These costs were
$2,921, $3,709 and $3,467 in 2000, 2001 and 2002, respectively. Research
and Development costs funded by customers, amounting to $728, $1,518 and
$1,980 in 2000, 2001 and 2002, respectively, have been recorded as sales.
(6) Leases
------
Certain office and warehouse facilities and equipment are leased under
noncancelable operating leases expiring on various dates through the year
2007. Rental expense was $154, $145 and $136 in 2000, 2001 and 2002,
respectively.
Minimum lease obligations under noncancelable operating leases are as
follows:
2003 $163
2004 154
2005 139
2006 104
2007 and Thereafter 104
--------
Total $664
========
F-12
(7) Income Taxes
------------
The Company has net operating loss ("NOL") carryforwards that were
generated prior to its reorganization ("Pre-Reorganization") completed on
April 30, 1993 as well as NOL carryforwards that were generated subsequent
to reorganization and prior to the 1998 ownership change
("Post-Reorganization"), and an NOL carryforward generated in 2002. These
NOLs are available to the Company to reduce future taxable income and the
related tax benefits are included in deferred income taxes on the
accompanying balance sheets at their net realizable value of approximately
$8,499 and $10,916 as of December 31, 2001 and 2002, respectively,
reflecting a combined federal and state tax rate of 40%.
The amount of the NOL carryforwards used through December 31, 2002 total
$18,578 of the Pre-Reorganization NOLs and $42,848 of the
Post-Reorganization NOLs. Federal NOL carryforwards remaining as of
December 31, 2002 total $14,997 of Pre-Reorganization NOLs and $6,239 of
Post-Reorganization NOLs. Wisconsin NOL carryforwards remaining as of
December 31, 2002 total $8,025 of Pre-Reorganization NOLs and $10,901 of
Post-Reorganization NOLs. The NOL carryforward generated in 2002 amounted
to $6,054 for federal and $710 for Wisconsin.
The Company's IPO in March, 1998 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, generated
prior to the ownership change, to reduce future taxable income. 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. Since the
ownership change, the total NOL available for use is $11,865 annually. To
the extent less than $11,865 is used in any year, the unused amount is
added to and increases the limitation in the succeeding year.
Pre-Reorganization NOLs are further limited to an annual usage of $2,142.
Any unused amount is added to and increases the limitation in the
succeeding year. The Pre-Reorganization NOLs expire in 2008 and the
Post-Reorganization NOLs expire in years 2008 through 2010. There is no
limitation on the usage of the NOLs generated in 2002 and these NOLs expire
in 2022.
Realization of the net deferred tax assets over time is dependent upon the
Company generating sufficient taxable income in future periods. In
determining that realization of the net deferred tax assets was more likely
than not, the Company gave consideration to a number of factors including
its recent earnings history, expectations for earnings in the future, the
timing of reversal of temporary differences, tax planning strategies
available to the Company and the expiration dates associated with NOL
carryforwards. If, in the future, the Company determines that it is no
longer more likely than not that the net deferred tax assets will be
realized, a valuation allowance will be established against all or part of
the net deferred tax assets with an offsetting charge to the income tax
provision.
F-13
The components of net deferred income tax assets for the years ended
December 31, 2001 and 2002 are as follows:
December 31,
---------------------------------
2001 2002
-------------- --------------
Current Deferred Tax Assets Attributable to:
Inventory Adjustments $ 804 $ 715
Accrued Employee Costs 1,384 1,321
Pension Benefits 45 702
Postretirement Healthcare Benefits 2,123 1,898
Other 1,287 1,128
-------------- --------------
Total Current Deferred Tax Assets $5,643 $ 5,764
============== ==============
Noncurrent Deferred Tax Assets and
(Liabilities) Attributable to:
Property, Plant and Equipment $(7,112) $(5,603)
NOL Carryforwards 8,499 10,916
Pension Benefits (6) 3,388
Postretirement Healthcare Benefits 14,914 14,525
Alternative Minimum Tax Credits 1,029 -
Other 211 (203)
-------------- --------------
Total Noncurrent Deferred Tax Assets $17,535 $23,023
============== ==============
Total Net Deferred Tax Assets $23,178 $28,787
============== ==============
A reconciliation of the Federal statutory tax rate to the Company's
effective tax rate for the years ended December 31, 2000, 2001 and 2002 is
as follows:
Years Ended December 31,
----------------------------------------------------
2000 2001 2002
--------------- ------------- --------------
Pre-tax Accounting Income $20,863 $20,515 $1,680
=============== ============= ==============
Federal Tax at Statutory Rate of 35% $7,302 $7,180 $588
State Tax, Net of Federal Benefit 1,076 986 69
Permanent Differences and Other, Net 101 60 27
Extra-Territorial Income Exclusion (266) (840) (635)
--------------- ------------- --------------
Total Tax Provision $8,213 $7,386 $49
=============== ============= ==============
Effective Tax Rate 39.4% 36.0% 2.9%
=============== ============= ==============
The Extra-Territorial Income Exclusion is a statutory exclusion of income related to the Company's
international sales.
F-14
The components of income tax expense (benefits) for the years ended
December 2000, 2001 and 2002 are as follows:
2000
----------------------------------------------------
Federal Tax State Tax Total
---------------- -------------- -------------
Current $ - $ 258 $ 258
Deferred 6,456 1,383 7,839
Charge in Lieu of Taxes Related to:
Goodwill 58 8 66
Stock Options 44 6 50
---------------- -------------- -------------
Total Income Tax Expense $6,558 $1,655 $8,213
================ ============== =============
2001
----------------------------------------------------
Federal Tax State Tax Total
---------------- -------------- -------------
Current $ - $ 263 $ 263
Deferred 5,607 1,217 6,824
Charge in Lieu of Taxes Related to:
Goodwill 58 8 66
Stock Options 204 29 233
---------------- -------------- -------------
Total Income Tax Expense $5,869 $1,517 $7,386
================ ============== =============
2002
----------------------------------------------------
Federal Tax State Tax Total
---------------- -------------- -------------
Current $(652) $50 $(602)
Deferred 536 48 584
Charge in Lieu of Taxes Related to:
Goodwill 58 8 66
Stock Options 1 - 1
---------------- -------------- -------------
Total Income Tax Expense (Benefit) $(57) $106 $49
================ ============== =============
Alternative minimum tax payments totaling $652 have been made through 2002
and are recorded as a tax receivable as the carryback of the NOL generated
in 2002 will result in a refund of these payments.
(8) Pensions and Postretirement Benefits
------------------------------------
The Company has noncontributory defined benefit pension plans ("Plans")
covering a majority of its 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 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, a majority of the Company's employees are
provided certain postretirement healthcare and life insurance benefits. 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
pensions and postretirement healthcare benefits of future retirees by
capping the amount of funds payable on behalf of the retirees.
F-15
The following is a reconciliation of the change in benefit obligation and
plan assets for the years ended December 31, 2001 and 2002:
Postretirement
Pension Benefits Benefits
-------------------------- -------------------------
December 31, December 31,
-------------------------- -------------------------
2001 2002 2001 2002
------------- ------------ ------------ ------------
Change in Benefit Obligation:
Projected Benefit Obligation at Beginning of
Year $163,323 $174,117 $ 42,786 $ 41,521
Service Cost 672 784 307 313
Interest Cost 13,882 13,059 3,417 3,127
Amendments - - - -
Actuarial (Gains) Losses 14,741 10,234 319 (764)
Benefits Paid (18,501) (17,522) (5,308) (4,744)
------------- ------------ ------------ ------------
Projected Benefit Obligation at End of Year $174,117 $180,672 $ 41,521 $ 39,453
============= ============ ============ ============
Change in Plan Assets:
Plan Assets at Fair Value at Beginning of Year $217,200 $185,082 $ - $ -
Actual Return on Plan Assets (14,039) (7,530) - -
Company Contributions 422 152 5,308 4,744
Benefits Paid (18,501) (17,522) (5,308) (4,744)
------------- ------------ ------------ ------------
Plan Assets at Fair Value at End of Year $185,082 $160,182 $ - $ -
============= ============ ============ ============
Funded Status of Plan $10,965 $(20,490) $(41,521) $(39,453)
Unrecognized Prior Service Cost 3,372 2,911 - -
Unrecognized Net Actuarial (Gain) Loss (11,962) 26,097 (1,073) (1,603)
------------- ------------ ------------ ------------
Net Prepaid (Accrued) Benefit Cost $2,375 $8,518 $(42,594) $(41,056)
============= ============ ============ ============
Weighted Average Assumptions:
Discount Rate 7.50% 6.85% 8.00% 6.85%
Rate of Increase in Compensation Levels 3.00% 3.00% - -
Expected Long-Term Rate of Return on Assets 9.25% 9.25% - -
For certain of the Plans and the officers' supplemental pension plan, the
accumulated benefit obligation exceeds the fair value of the plan assets
plus accrued pension expense. This results in an additional pension
liability of $1,078 and $18,819 as of December 31, 2001 and 2002,
respectively. The additional pension liability is allocated to intangible
assets for prior service costs of $867 and $2,480 as of December 31, 2001
and 2002, respectively, and the balance is reported in stockholders'
equity. The status of the Plans is presented in the consolidated balance
sheets as follows:
December 31,
---------------------------------
2001 2002
-------------- --------------
Deferred Income Taxes 84 6,536
Other Assets 3,363 2,480
Accrued Liabilities - Pensions $ (153) $(1,792)
Long-Term Liabilities - Pensions - (7,166)
Officers' Deferred Compensation (1,046) (1,343)
Stockholders' Equity 211 16,339
Deferred Tax Effect Included in Stockholders' Equity (84) (6,536)
-------------- --------------
Net Prepaid Benefit Cost $2,375 $8,518
============== ==============
F-16
The components of the net periodic benefit costs for the years ended
December 31, 2000, 2001 and 2002 are:
Pension Benefits Postretirement Benefits
-------------------------------- --------------------------------
2000 2001 2002 2000 2001 2002
---------- ---------- ---------- ----------- ---------- ---------
Service Cost-Benefit Earned During
the Period $ 1,322 $ 672 $ 784 $ 333 $ 307 $ 313
Interest Cost on Projected Benefit
Obligation 13,696 13,882 13,058 3,597 3,417 3,126
Expected Return on Pension Assets (19,177) (19,715) (19,151) - - -
Net Amortization and Deferral (3,190) (3,195) (1,142) (238) (249) (233)
Prior Service Cost 375 461 461 - - -
---------- ---------- ---------- ----------- ---------- ---------
Net Periodic Benefit Cost (Income) $(6,974) $(7,895) $(5,990) $3,692 $3,475 $3,206
========== ========== ========== =========== ========== =========
Assumptions used in the determination of net periodic benefit costs for
these years are:
2000 2001 2002
---------- ---------- ----------
Discount Rate 8.25% 8.50% 7.50%
Rate of Increase in Compensation
Levels 3.00% 3.00% 3.00%
Expected Long-Term Rate of Return
on Assets 9.25% 9.25% 9.25%
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 Components $226 $(204)
Effect on Postretirement Healthcare Benefit Obligation $1,354 $(1,230)
As a result of union labor renegotiations finalized during 2000, the
benefits in certain Company sponsored pension plans were frozen and
replaced with comparable benefits in national multi-employer plans not
administered by the Company. The Company contributed $1,413 and $1,245 to
these plans during 2001 and 2002, respectively.
(9) Officers' Deferred Compensation Plan
------------------------------------
Certain officers have deferred compensation agreements (the "Plan") which,
upon retirement, provide them with, among other things, supplemental
pension and other postretirement benefits. An accumulated unfunded
liability, net of the investments in a Rabbi Trust, of $2,599 and $3,035 as
of December 31, 2001 and 2002, respectively, has been recorded under these
agreements as actuarially determined. The expense was $252, $292 and $291
in 2000, 2001 and 2002, respectively.
The Company has established a Rabbi Trust for the beneficiaries of the Plan
to fund a portion of the benefits earned under the Plan. The Rabbi Trust
does not hold any Company stock and is considered in the calculations
determined by the actuary.
(10) Profit Sharing
--------------
The Cudahy site 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 net income and is payable no later than
February 15th of the subsequent year. The expense was $1,366, $812 and $0
in 2000, 2001 and 2002, respectively. PCT has a profit sharing program
called "Gainshare" in which all employees are
F-17
eligible to participate. The Gainshare pool is calculated based on various
internal operating measurements. The expense was $469, $691 and $93 in
2000, 2001 and 2002, 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 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 losses that might result from such
actions are not expected to be material to the financial statements.
A purported stockholder of the Company filed a putative class action, Dean
v. Ladish Co., Inc., et. al., Case No. 03-C-0165, in the United States
District Court for the Eastern District of Wisconsin, on February 28, 2003,
against the Company and two Company officers. The complaint includes claims
under the federal securities laws and state common law, and seeks damages
for stockholders who purchased the common stock of the Company between
March 10, 1998 and September 27, 2002. The complaint's allegations, which
the Company intends to dispute, are based primarily on accounting issues
relating to the Company's restatement in 2002. The Company has notified its
insurance carrier of the claim, retained legal counsel and is vigorously
defending the claim. The Company has not made any provision for potential
costs or losses, if any, which may arise from this claim.
Since 1995, the Company has participated in a joint venture with Weber
Metals, Inc. ("Weber"). The joint venture is directed toward serving the
jet engine market by combining the Company's technology and market presence
with Weber's unique equipment. A director of the Company is the chief
executive officer of Weber. The Company's payments to Weber under the joint
venture were $1,236 and $1,073 in 2001 and 2002, respectively.
(12) Earnings Per Share
------------------
Basic earnings per share of common stock are computed by dividing net
income by the weighted 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.
The following shares were used to calculate basic and diluted earnings per
share for the years ended December 31, 2000, 2001 and 2002:
December 31,
----------------------------------------------
2000 2001 2002
-------------- --------------- ---------------
Average Basic Common Shares Outstanding 13,075,188 12,944,545 13,002,224
Incremental Shares Applicable to Common Stock Options
and Warrants 606,716 209,983 110,979
-------------- --------------- ---------------
Average Diluted Common Shares Outstanding 13,681,904 13,154,528 13,113,203
============== =============== ===============
The shares outstanding used to compute diluted earnings per share for 2002
excluded outstanding options to purchase 635,688 shares of common stock at
a weighted average exercise price of $14.79. These 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.
F-18
(13) Acquisitions
------------
On January 14, 2000, the Company completed the purchase of certain assets
and assumption of certain liabilities of Wyman-Gordon Titanium Castings,
LLC. The acquired business was renamed PCT.
The PCT acquisition was accounted for using the purchase method of
accounting. The Company's consolidated statements of operations include the
revenues and expenses of PCT from the date of acquisition. The excess of
the purchase price over the fair value of the net assets acquired
(goodwill) was approximately $2,700.
The PCT purchase price allocation was as follows:
Current Assets $8,842
Property, Plant and Equipment 16,614
Assumed Liabilities (2,906)
Goodwill 2,700
-------
Total Purchase Price $25,250
=======
(14) 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
---------------------------------------- ------------------------------------------------------------------
2001 March 31 June 30 September 30 December 31
---------------------------------------- ------------- ------------- ------------------ -----------------
Net Sales $67,863 $69,025 $59,524 $56,005
Gross Profit 8,658 10,423 7,453 7,277
Operating Income 5,657 6,768 5,895 4,439
Net Income 3,317 4,047 3,447 2,318
Basic Earnings Per Share 0.26 0.31 0.27 0.18
Diluted Earnings Per Share 0.25 0.31 0.26 0.18
Quarters Ended
---------------------------------------- ------------------------------------------------------------------
2002 March 31 June 30 September 30 December 31
---------------------------------------- ------------- ------------- ------------------ -----------------
Net Sales $53,156 $48,309 $42,790 $44,289
Gross Profit 4,149 3,835 2,871 1,526
Operating Income (Loss) 1,325 1,321 1,477 (827)
Net Income (Loss) 603 581 651 (204)
Basic Earnings (Loss) Per Share 0.05 0.04 0.05 (0.02)
Diluted Earnings (Loss) Per Share 0.05 0.04 0.05 (0.02)
An inventory adjustment was recorded in the quarter ended December 31, 2002
which reduced gross profit and operating income by $858, net income by $515
and decreased per share results by $0.04.
F-19
Per share amounts for the quarters and the full years have each been
calculated separately. Accordingly, quarterly amounts may not add to the
annual amounts because of differences in the average shares outstanding in
each period.
(15) Valuation and Qualifying Accounts
---------------------------------
Provision
Charged
(Credited) Payments
Balance at to and Balance at
Beginning of PCT Profit and Accounts End of
Year Acquisition Loss Written Off Year
------------ ----------- ---------- ----------- ----------
Year ended December 31, 2000
Allowance for doubtful accounts $300 $35 $6 $4 $337
======== ======== ========= ====== =======
Year ended December 31, 2001
Allowance for doubtful accounts $337 - $15 $11 $341
======== ======== ========= ====== =======
Year ended December 31, 2002
Allowance for doubtful accounts $341 - $(150) - $191
======== ======== ========= ====== =======
F-20
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) Amendment No. 1 dated April 13, 2001 to Credit Agreement dated April 14, 2000 among
Ladish Co., Inc. and Firstar Bank Milwaukee, N.A. and the Financial Institutions Parties
thereto, filed with Form 10-K on February 22, 2002 is incorporated by reference.
10 (d) Amendment No. 2 dated July 17, 2001 to Credit Agreement dated April 14, 2000 among
Ladish Co., Inc. and Firstar Bank Milwaukee, N.A. and the Financial Institutions Parties
thereto, filed with Form 10-K on February 22, 2002 is incorporated by reference.
10 (e) Amendment No. 3 dated April 12, 2002 to Credit Agreement dated April 14, 2000 among
Ladish Co., Inc. and U.S. Bank National Association and the Financial Institutions Party
thereto. X-2
10 (f) Amendment No. 4 dated December 31, 2002 to Credit Agreement dated April 14, 2000 among
Ladish Co., Inc. and U.S. Bank National Association and the Financial Institutions Party
thereto. X-5
10 (g) Note Purchase Agreement dated July 20, 2001 between Ladish Co., Inc. and the Purchasers
listed therein, filed with Form 10-K on February 22, 2002 is incorporated by reference.
10 (h) 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.
14 Ladish Co., Inc. Policies X-8
21 List of Subsidiaries of the Company, filed with Form 10-K on February 22, 2002 is
incorporated by reference.
23 Consent of Independent Public Accountants. X-12
99 (a) Written statement of the chief executive officer of the Company certifying this Form
10-K complies with the requirements of Section 13(a) of the Securities Exchange Act of
1934. X-13
99 (b) Written statement of the chief financial officer of the Company certifying this Form
10-K complies with the requirements of Section 13(a) of the Securities Exchange Act of
1934. X-14
X-1