SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended June 30, 2003
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Commission File Number 0-23539
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LADISH CO., INC.
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(Exact name of registrant as specified in its charter)
Wisconsin 31-1145953
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(State or other Jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5481 South Packard Avenue, Cudahy, Wisconsin 53110
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(Address of principal executive offices) (Zip Code)
(414) 747-2611
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(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes No X
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class Outstanding at June 30, 2003
- ----------------------------- ----------------------------
Common Stock, $0.01 Par Value 13,023,393
Page 2 of 13
PART I - FINANCIAL INFORMATION
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Page 3 of 13
LADISH CO., INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in Thousands, Except Share Data)
For the Three Months For the Six Months
Ended June 30, Ended June 30,
------------------------ ------------------------
2003 2002 2003 2002
---------- ---------- ---------- ----------
Net sales $ 49,055 $ 48,309 $ 96,362 $ 101,465
Cost of sales 44,792 44,474 90,083 93,481
---------- ---------- ---------- ----------
Gross income on sales 4,263 3,835 6,279 7,984
Selling, general and
administrative expenses 3,283 2,514 4,405 5,338
---------- ---------- ---------- ----------
Income from operations 980 1,321 1,874 2,646
Other income (expense):
Interest expense (565) (422) (1,094) (868)
Other, net 72 9 78 72
---------- ---------- ---------- ----------
Income before provision
for income taxes 487 908 858 1,850
Provision for income taxes 414 327 211 666
---------- ---------- ---------- ----------
Net income $ 73 $ 581 $ 647 $ 1,184
========== ========== ========== ==========
Basic earnings per share $ 0.01 $ 0.04 $ 0.05 $ 0.09
Diluted earnings per share $ 0.01 $ 0.04 $ 0.05 $ 0.09
Basic weighted average
shares outstanding 13,023,393 12,987,560 13,023,393 12,981,842
Diluted weighted average
shares outstanding 13,048,680 13,170,879 13,048,323 13,144,887
Page 4 of 13
LADISH CO., INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands, Except Share Data)
June 30, December 31,
Assets 2003 2002
------ ---------- ------------
Current assets:
Cash and cash equivalents ............................. $ 6,310 $ 8,959
Accounts receivable, less
allowance at each date of $191 ....................... 37,543 32,237
Inventories ........................................... 49,166 45,849
Deferred income taxes ................................. 5,764 5,764
Prepaid expenses and other current assets ............. 1,317 664
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Total current assets .............................. 100,100 93,473
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Property, plant and equipment:
Land and improvements ................................. 4,878 4,828
Buildings and improvements ............................ 35,168 35,166
Machinery and equipment ............................... 156,338 151,364
Construction in progress .............................. 5,730 9,374
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202,114 200,732
Less - accumulated depreciation ....................... (108,002) (102,240)
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Net property, plant and equipment ................. 94,112 98,492
Deferred income taxes ...................................... 22,835 23,023
Other assets ............................................... 10,789 10,822
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Total assets ...................................... $ 227,836 $ 225,810
========= =========
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Accounts payable ...................................... $ 20,085 $ 17,134
Accrued liabilities:
Pensions .......................................... 3,366 1,792
Postretirement benefits ........................... 4,744 4,744
Wages and salaries ................................ 4,349 3,343
Taxes, other than income taxes .................... 406 365
Interest .......................................... 966 981
Paid progress billings ............................ 110 571
Other ............................................. 1,706 1,400
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Total current liabilities .................... 35,732 30,330
Long term liabilities:
Senior notes .......................................... 30,000 30,000
Postretirement benefits ............................... 35,747 36,312
Pensions .............................................. 6,750 10,201
Other noncurrent liabilities .......................... 591 598
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Total liabilities ............................ 108,820 107,441
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Stockholders' equity:
Common stock - authorized 100,000,000, issued
14,573,515 shares at each date of $.01 par value .... 146 146
Additional paid-in capital ............................ 109,769 109,769
Retained earnings ..................................... 30,253 29,606
Treasury stock, 1,550,122 shares of
common stock at each date at cost .................... (11,349) (11,349)
Additional minimum pension liability .................. (9,803) (9,803)
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Total stockholders' equity ................... 119,016 118,369
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Total liabilities and stockholders' equity ... $ 227,836 $ 225,810
========= =========
Page 5 of 13
LADISH CO., INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
For the Six Months
Ended June 30,
-------------------
2003 2002
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................................ $ 647 $ 1,184
Adjustments to reconcile net income to net cash
provided by (used for) operating activities:
Depreciation ..................................... 6,307 7,609
Deferred income taxes ............................ 188 515
Non-cash compensation related to stock options ... -- 368
Other ............................................ (1) (41)
Changes in assets and liabilities:
Accounts receivable .............................. (5,306) 4,058
Inventories ...................................... (3,317) 3,009
Other assets ..................................... (620) (3,600)
Accounts payable and accrued liabilities ......... 5,402 (4,982)
Other long-term liabilities ...................... (4,023) (816)
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Net cash provided by (used for)
operating activities ....................... (723) 7,304
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CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment ........... (1,939) (7,713)
Proceeds from sale of property, plant and equipment .. 13 178
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Net cash used for investing activities ...... (1,926) (7,535)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock ............................. -- 232
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Net cash provided by financing activities ... -- 232
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INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS .......... (2,649) 1
CASH AND CASH EQUIVALENTS, beginning of period ............ 8,959 3,962
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CASH AND CASH EQUIVALENTS, end of period................... $ 6,310 $ 3,963
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Page 6 of 13
LADISH CO., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands, Except Share Data)
(1) Basis of Presentation
In the opinion of the Company, the accompanying unaudited consolidated condensed
financial statements contain all adjustments necessary to present fairly its
financial position at June 30, 2003 and its results of operations and cash flows
for the six months ended June 30, 2003 and June 30, 2002. All adjustments are of
a normal recurring nature.
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with Article 10 of Regulation S-X and therefore do not
include all information and footnotes necessary for a fair presentation of the
financial position, results of operations and cash flows in conformity with
accounting principles generally accepted in the United States of America. The
Company has filed a report on Form 10-K which contains audited consolidated
financial statements that include all information and footnotes necessary for a
fair presentation of its financial position at December 31, 2002 and 2001, and
the related consolidated statements of operations, stockholders' equity, and
cash flows for the years ended December 31, 2002, 2001 and 2000.
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of 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.
The results of operations for any interim period are not necessarily indicative
of the results to be expected for a full year.
(2) Inventories
Inventories consisted of:
June 30, December 31,
2003 2002
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Raw material and supplies $ 9,022 $ 10,235
Work-in-process and finished goods 41,378 36,567
Less progress payments (1,234) (953)
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Total inventories $ 49,166 $ 45,849
======== ========
(3) Interest and Income Tax Payments
For the Six Months
Ended June 30,
2003 2002
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Interest $ 1,076 $ 853
Income taxes 17 194
Page 7 of 13
(4) Cash and Cash Equivalents
Cash in excess of daily requirements is invested in marketable securities
consisting of commercial paper and repurchase agreements which mature in three
months or less. Such investments are deemed to be cash equivalents.
(5) 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
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.
(6) Refund From Internal Revenue Service and Income Taxes
Included in the first six months of 2003 as a reduction of selling, general and
administrative expenses is $1,250 received from the Internal Revenue Service for
the refund of certain pension excise taxes expensed and paid in prior years. Due
to the nature of this item it has been treated as a significant infrequently
occurring item in determining the provision for income taxes. The provision for
income taxes for the six months ended June 30, 2003 includes $424 related to
this item.
The second quarter tax provision of $414 reflects an effective tax rate of 85%
versus the statutory rate of 35% due primarily to a change in estimate of the
expected annual effective tax rate during the second quarter resulting from the
Company's relative low pretax income level.
(7) Earnings Per Share
The incremental difference between basic weighted average shares outstanding and
diluted weighted average shares outstanding is due to the dilutive impact of
outstanding options and warrants.
(8) Stockholders' Equity
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 970,333 options have been
granted. These options expire ten years from the grant date. Options granted
vest over two years. During the first six months of 2003, 2,500 options were
forfeited. As of June 30, 2003, 712,834 options granted under the Plan remain
outstanding. During the second quarter of 2003, 496,188 stock options expired.
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 the six-month period ending June 30, 2003. 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:
Page 8 of 13
For the Three-Month Period For the Six-Month Period
Ended June 30, 2003 Ended June 30, 2003
-------------------------- ------------------------
As Reported Pro Forma As Reported Pro Forma
----------- ----------- ----------- ----------
Net income $73 $68 $647 $613
Diluted earnings per share $0.01 $0.01 $0.05 $0.05
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.
Page 9 of 13
MANAGEMENT'S DISCUSSION
AND ANALYSIS OF RESULTS OF OPERATIONS AND
CHANGES IN FINANCIAL POSITION
(Dollars in Thousands)
RESULTS OF OPERATIONS
Second Quarter 2003 Compared to Second Quarter 2002
Net sales for the three months ended June 30, 2003 were $49,055 compared to
$48,309 for the same period in 2002. The 2% increase in sales for the second
quarter of 2003 was due to the Company's ability to be responsive to short lead
time orders and an improvement in defense related sales. Gross profit for the
second quarter of 2003 increased to 8.7% of sales in contrast to 7.9% of sales
in the second quarter of 2002 primarily as a result of cost reduction efforts
partially offset by margin pressures in 2003. Cost reductions in the second
quarter of 2003 included lower unit cost of natural gas and lower benefit costs.
Selling, general and administrative expenses, as a percentage of sales, were
6.7% for the second quarter of 2003 compared to 5.2% for the same period in
2002. The variation in SG&A expenses between the periods was directly
attributable to the Company's recognition of significant costs in 2003 from the
proxy contest which occurred in connection with the Company's 2003 annual
meeting of stockholders. The Company incurred an individually significant and
unanticipated expense of $1,000 for the costs associated with the proxy contest.
The $1,000 proxy expense includes $200 of costs incurred by the Company's
largest stockholder which the Company has agreed to reimburse.
Interest expense for the three-month period in 2003 was $565 in contrast to $422
in 2002. The lower interest expense in 2002 reflects the requirement to
capitalize interest costs associated with capital projects. During the second
quarter of 2003, the Company's revolving credit facility had an interest rate
equal to the LIBOR rate plus 1.25% per annum and the senior notes bear interest
at the rate of 7.19% per annum. The Company had no borrowings under the
revolving credit facility in the second quarter of 2003.
The second quarter tax provision of $414 reflects an effective tax rate of 85%
versus the statutory rate of 35% due primarily to a change in estimate of the
expected annual effective tax rate during the second quarter of 2003 resulting
from the Company's relative low pretax income level. The Company has significant
net operating loss ("NOL") carryforwards which largely offset most calculated
tax liabilities of the Company. For financial statement purposes, the Company
has recorded as a deferred tax asset the tax benefits attributable to the NOL
carryforwards. Therefore, the Company uses an effective tax rate which reflects
federal and state taxes without a reduction for actual NOL usage. See Note 6 to
the consolidated financial statements and "Liquidity and Capital Resources."
Net income for the second quarter of 2003 was $73, a $508 decline from the same
period in 2002. The decrease in profitability was directly due to the $600, net
of income tax, of unanticipated proxy expenses incurred by the Company and its
largest stockholder in preparation for the 2003 Annual Meeting of Stockholders.
First Six Months 2003 Compared to First Six Months 2002
The Company recorded $96,362 of sales in the first half of 2003 in comparison to
$101,465 of sales in the same period of 2002. The 5% decline in sales in 2003 is
attributable to the continued softness in the commercial aerospace market
further compounded by the weakness in the missile and satellite launch
Page 10 of 13
industry. In the first six months of 2003, the Company's gross profit as a
percentage of sales was 6.5% in comparison to 7.9% in 2002. The decline in
profitability was due to lower absorption of fixed costs on reduced sales,
increased unit costs of natural gas in the first quarter of 2003 along with
margin pressures from the Company's customer base.
In the first six months of 2003, the Company's selling, general and
administrative expenses were $4,405 or 4.6% of sales in contrast to $5,338, or
5.3% of sales, during the like period in 2002. These expenses were reduced in
part in 2003 by the Company receiving a $1,250 refund of previously paid and
expensed excise taxes from the United States Internal Revenue Service. During
the first half of 2003, the Company recognized an individually significant and
unanticipated expense of $1,000 for the costs associated with the proxy contest
which occurred in connection with the Company's 2003 annual meeting of
stockholders. The $1,000 proxy expense includes $200 of costs incurred by the
Company's largest stockholder which the Company has agreed to reimburse.
Interest expense for the first six months of 2003 was $1,094 in comparison to
$868 in the same period of 2002. The lower interest expense in 2002 reflects the
requirement to capitalize interest costs which were associated with capital
projects. For the first half of 2003, the Company's revolving credit facility
had an interest rate equal to the LIBOR rate plus 1.25% per annum and the senior
notes bear interest at the rate of 7.19% per annum. The Company had no
borrowings under the revolving credit facility in the first half of 2003.
The income tax provision of $211 for the first six months of 2003 reflects an
effective tax rate of 25% versus the statutory rate of 35%. The variation in
rate is attributable to significant permanent book to tax differences in
conjunction with the Company's relative low pretax income level. The Company has
significant NOL carryforwards which largely offset most calculated tax
liabilities of the Company. For financial statement purposes, the Company has
recorded as a deferred tax asset the tax benefits attributable to the NOL
carryforwards. Therefore, the Company uses an effective tax rate which reflects
federal and state taxes without a reduction for actual NOL usage. See Note 6 to
the consolidated financial statements and "Liquidity and Capital Resources."
The Company had net income of $647 in the first half of 2003 in comparison to
$1,184 for the same period in 2002. The reduction in profitability was largely
attributable to lower sales volume and higher energy costs in the first quarter
of 2003 along with continued margin pressures throughout the first half of 2003.
Liquidity and Capital Resources
The Company's cash position as of June 30, 2003 is $2,649 less than its position
at December 31, 2002. The year-to-date decline in cash is due to increases in
accounts receivable and inventory partially offset by an increase in trade
payables.
On April 13, 2001, the Company and a syndicate 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 Notes in a private placement to
certain institutional investors. The Notes bear interest at a rate of 7.19% per
annum with the interest being paid semiannually. The 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 Notes to repay
outstanding borrowings under the New Facility and for working capital purposes.
Page 11 of 13
In conjunction with the private placement of the 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 $50,000 revolving line
of credit which bore interest at a rate of LIBOR plus 0.80%. On April 12, 2002,
the Amended Facility was modified to reduce the revolving line of credit to
$45,000. On December 31, 2002, the Amended Facility was further modified to
reduce the revolving line of credit to $25,000. The interest rate on the Amended
Facility was LIBOR plus 1.25% as of June 30, 2003. At June 30, 2003, $17,700 was
available pursuant to the terms of the Amended Facility. There were no
borrowings under the Amended Facility as of June 30, 2003.
The Company has NOL carryforwards that were generated prior to its 1993
reorganization, as well as NOL carryforwards that were generated in subsequent
years. The total remaining NOL carryforwards were $27,290 as of December 31,
2002. The NOL carryforwards expire gradually in the years 2008 through 2022.
The Company's initial public offering in March 1998 created an ownership change
as defined by the IRS. This ownership change generated an IRS imposed limitation
on the utilization of NOL carryforwards on future tax returns. The annual use of
the NOL carryforwards is limited to the lesser of the Company's taxable income
or the amount of the IRS imposed limitation. The NOL carryforwards available for
use annually is $11,865. Of the $11,865 annual limitation, $2,142 relates to a
previous restriction on NOL carryforwards generated prior to the 1993
reorganization.
Realization of the net deferred tax assets, including those attributable to the
NOL carryforwards, 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.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The Company believes that its exposure to market risk related to changes in
foreign currency exchange rates and trade accounts receivable is immaterial as
all of the Company's sales are made in U.S. dollars. The Company does not
consider itself subject to the market risks addressed by Item 305 of Regulation
S-K.
_________________________
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 Unstable governments and business conditions in emerging economies o Raw material prices
o Legal, regulatory and environmental issues o Taxes
Page 12 of 13
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.
Item 4. Controls and Procedures
The registrant's certifying officers have evaluated the effectiveness of the
design and operation of the Company's internal controls and disclosure controls
and procedures prior to the date of this quarterly report. Based upon that
review, the certifying officers have concluded that the internal controls and
disclosure controls and procedures are effectively operating to ensure that
material information relating to the Company and its consolidated subsidiaries
is made known to such officers by others within those entities, particularly
during the period in which this quarterly report was being prepared. The review
of internal controls and disclosure controls and procedures did not reveal any
significant deficiencies in the design or operation, which could adversely
affect the Company's ability to record, process, summarize and report financial
data. The Company did not discover any material weaknesses in these controls or
procedures, nor did the Company discover any fraud of any kind involving
management or other employees who have a significant role in the Company's
internal controls. There were no significant changes in the internal controls or
in other factors that could significantly affect internal controls subsequent to
the date of evaluation, including any corrective actions taken with regard to
significant deficiencies or material weaknesses, and there are no corrective
actions contemplated as of the date of this report. The Company did not identify
any significant changes that need to be made to ensure the effectiveness of the
internal controls or the disclosure controls and procedures. Nor did the Company
identify any other factors that could materially affect the internal controls
occurring after the date of our certification.
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
On June 6, 2003, at the Annual Meeting of Stockholders of the Company, the
stockholders were asked to vote on the election of a new board of directors for
the next year or until their successors are elected. The following tabulation
reflects the result of the election:
Individual For Withheld
- ---------- --- --------
Lawrence W. Bianchi 5,475,920 217,993
James C. Hill 5,986,221 4,957
Leon A. Kranz 5,370,820 323,093
J. Robert Peart 5,986,221 4,957
Kerry L. Woody 9,335,093 217,793
No other matters were submitted to a vote of the stockholders during the period
covered by this report.
Item 5. Other Information
None
Page 13 of 13
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 99.1 is the written statement of the chief executive officer
of the Company certifying this Form 10-Q complies with the
requirements of Section 13(a) of the Securities Exchange Act of 1934.
Exhibit 99.2 is the written statement of the chief financial officer
of the Company certifying this Form 10-Q complies with the
requirements of Section 13(a) of the Securities Exchange Act of 1934.
Exhibit 99.3 is the written statement of the chief executive officer
and chief financial officer of the Company certifying this Form 10-Q
complies with the requirements of Section 13(a) of the Securities
Exchange Act of 1934.
Exhibit 99.4 are the Amended and Restated By-Laws of the Company.
(b) A Form 8-K was filed by the Company on April 11, 2003 announcing
financial results for the first quarter of 2003. A Form 8-K was filed
by the Company on June 11, 2003 announcing the election of a new Board
of Directors.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
LADISH CO., INC.
Date: July 25, 2003 By: /s/ WAYNE E. LARSEN
--------------------- --------------------------------
Wayne E. Larsen
Vice President Law/Finance
& Secretary