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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, 1998
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:
Common Stock, $.01 par value
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) or the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirements for
the past 90 days.
Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrants knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of voting stock held by nonaffiliates of the
Registrant is $38,807,685 as of February 28, 1999.
13,916,049
(Number of Shares of common stock outstanding as of February 28, 1999 )
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(Continued from cover page )
DOCUMENTS INCORPORATED BY REFERENCE
With the exception of those sections which are specifically incorporated by
reference in this Form 10-K Annual Report including the annual report to
security holders for fiscal year ended December 31, 1998 and the proxy statement
for the annual meeting of security holders in 1999, no other documents are to be
deemed a part of this report.
PART 1
Item 1. Business
General
Ladish Co., Inc. ("Ladish" or the "Company") engineers, produces and markets
high-strength, high-technology forged and formed metal components for a wide
variety of load-bearing and fatigue-resisting applications in the jet engine,
aerospace and industrial markets. Approximately 90% of the Company's 1998
billings were derived from the sale of jet engine parts, missile components,
landing gear, helicopter rotors and other aerospace products. Approximately 20%
of the Company's 1998 billings were derived from sales, directly or through
prime contractors, under United States government contracts, primarily covering
defense equipment. Although no comprehensive trade statistics are available,
based on its experience and knowledge of the industry, management believes that
the Company is the second largest supplier of forging products to the domestic
aerospace industry, with an estimated 20% market share in the jet engine
component field.
Products and Markets
The Company markets its forging products primarily to manufacturers of jet
engines, commercial business and defense aircraft, helicopters, satellites,
heavy-duty off-road vehicles and industrial and marine turbines. The principal
forging markets served by the Company are jet engine, commercial aerospace
(defined by Ladish as satellite, rocket and aircraft components other than jet
engines) and general industrial forgings. The amount of revenue and the revenue
as a percentage of total revenue by market were as follows for the periods
indicated:
Years Ended December 31,
1996 1997 1998
(Dollars in millions)
Jet Engine Forgings................. $108 67% $153 73% $160 70%
Aerospace Forgings.................. 31 19% 35 17% 47 21%
General Industrial Forgings......... 23 14% 22 10% 20 9%
---- --- ---- --- ---- ---
Total............................ $162 100% $210 100% $227 100%
==== === ==== === ==== ===
Manufacturing
Ladish offers one of the most complete ranges of forging services in the world.
The Company employs all major forging processes, including open and closed-die
hammer and press forgings, as well as ring-rolling, and also produces near-net
shape aerospace components through isothermal forging and hot-die forging
techniques. Closed-die forging involves hammering or pressing heated metal into
the required shape and size by utilizing machined impressions in specially
prepared dies which exert three-dimensional control on the heated metal.
Open-die forging involves the hammering or pressing of metal into the required
shape without such three-dimensional control, and ring-rolling involves rotating
heated metal rings through presses to produce the desired shape.
Much of the Company's forging business is capital intensive, requiring large and
sophisticated press, hammer and heating equipment and extensive facilities for
inspection and testing of components after forging. Ladish believes that it has
the largest forging hammer and largest ring-roll in the free 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
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weigh up to 350,000 pounds with outside diameters as large as 28 feet and face
heights up to 10 feet. Ladish's 4,500-ton and 10,000-ton isothermal presses can
produce forgings, in superalloys as well as titanium, that weigh up to 2,000
pounds. Much of the equipment has been designed and built by Ladish. The Company
also maintains such auxiliary facilities as die-sinking, heat-treating and
machining equipment and produces most of the precision dies necessary for its
forging operations. The Company considers such equipment to be in good operating
condition and adequate for the purposes for which it is being used.
Marketing and Sales
The forging product sales force (consisting of 14 engineers), based in Cudahy,
Wisconsin, is supported by the Company's metallurgical staff of approximately
100 engineers and technicians. These technically trained sales engineers,
organized along product line and customer groupings, work with customers on an
ongoing basis to monitor competitive trends and technological innovations.
Additionally, sales engineers consult with customers regarding potential
projects and product development opportunities. During the past few years, the
Company has refocused its marketing efforts on the jet engine components market
and the commercial aerospace industry.
The Company is actively involved with key customers in joint cooperative
research and development, engineering, quality control, just-in-time inventory
control and computerized process modeling programs. The Company has entered into
strategic life-of-the-program contracts for a number of sole-sourced products
with each of Allison, Sikorsky and Thyssen for major programs. The Company
believes that these contracts are a reflection of the aerospace and industrial
markets' recognition of the Company's manufacturing and technical expertise.
The research and development of jet engine components is actively supported by
the Company's Advanced Materials and Process Technology Group. The Company's
long-standing commitment to research and development is evidenced by its
industry-recognized materials and process advancements such as processing
aluminum-lithium, Udimet 720 and titanium aluminides. The experienced staff and
fully equipped research facilities support Ladish sales through customer-funded
projects. Management believes that these research efforts position the Company
to participate in future growth in demand for critical advanced jet engine
components.
Customers
The Company's top three customers, Rolls-Royce, United Technologies and General
Electric, accounted for approximately 54% of the Company's revenues in 1996, 59%
of the Company's revenues in 1997 and 61% of the Company's revenues in 1998. No
other customer accounted for ten percent or more of the Company's sales.
Caterpillar, Volvo and Allison are also significant customers of the Company.
Because of the relatively small number of customers for some of the Company's
principal products, the Company's largest customers exercise significant
influence over the Company's prices and other terms of trade.
A substantial portion of the Company's revenues is derived from long-term, fixed
price contracts with major engine and aircraft manufacturers. These contracts
are typically "requirements" contracts under which the purchaser commits to
purchase a given portion of its requirements of a particular component from the
Company. Actual purchase quantities are typically not determined until shortly
before the year in which products are to be delivered. The Company attempts to
minimize its risk by entering into fixed-price contracts with its raw material
suppliers. Additionally, a portion of the Company's
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revenue is directly or indirectly related to government spending, particularly
military and space program spending.
Research and Development
The Company maintains a research and development department which is engaged in
applied research and development work primarily relating to the Company's
forging operations. The Company works closely with customers, universities and
government technical agencies in developing advanced forgings, materials and
processes. The Company spent approximately $3.4 million, $3.4 million and $4.5
million on applied research and development work during 1996, 1997 and 1998,
respectively.
Although the Company owns patents covering certain of its processes, the Company
does not consider these patents to be of material importance to the Company's
business as a whole. The Company considers certain other information that it
owns to be trade secrets and the Company takes measures to protect the
confidentiality and control the disclosure and use of such information. The
Company believes that these safeguards adequately protect its proprietary rights
and the Company vigorously defends these rights.
The Company owns or has obtained licenses for various trademarks, trademark
registrations, service marks, service mark registrations, trade names,
copyrights, copyright registrations, patent applications, inventions, know-how,
trade secrets, confidential information and any other intellectual property that
are necessary for the conduct of its business (collectively, "Intellectual
Property"). The Company is not aware of any existing or threatened patent
infringement claim (or of any facts that would reasonably be expected to result
in any such claim) or any other existing or threatened challenge by any third
party that would significantly limit the rights of the Company with respect to
any such Intellectual Property or to the validity or scope of any such
Intellectual Property. The Company has no pending claim against a third party
with respect to the infringement by such third party or any such Intellectual
Property that, if determined adversely to the Company, would individually or in
the aggregate have a material adverse effect on the Company's financial
condition or results of operations. While the Company considers all of its
proprietary rights as a whole to be important, the Company does not consider any
single right to be essential to its operations as a whole.
Raw Materials
Raw materials used by the Company in its forgings include alloys of titanium,
nickel, steel, aluminum, tungsten and other high temperature alloys. The major
portion of metal requirements for forged products are purchased from major metal
suppliers producing forging quality material as needed to fill customer orders.
The Company has two or more sources of supply for all significant raw materials.
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 Teledyne. Its principal suppliers of titanium alloys
are Titanium Metals Corporation of America, Allegheny Teledyne 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.
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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 $234
million, $278 million and $243 million as of December 31, 1996, 1997 and 1998,
respectively.
Patents and Trademarks
The Company does not hold, by license or otherwise, any patents, trademarks,
franchises or concessions whose loss or modification would materially affect its
business in the aggregate.
Competition
The sale of forged metal components is highly competitive. Certain of the
Company's competitors are larger than the Company, and have substantially
greater capital resources. Although the Company is the sole supplier on several
sophisticated components required by prime contractors under a number of
governmental programs, many of the Company's products could be replaced with
other similar products of its competitors. However, the significant investment
in tooling, the time required and the cost of obtaining the status of a
"certified supplier" are barriers to entry. Competition is based on quality
(including advanced engineering and manufacturing capability), price and the
ability to meet delivery requirements.
Environmental, Health and Safety Matters
The Company's operations are subject to many federal, state and local
regulations relating to the protection of the environment and to workplace
health and safety. In particular, the Company's operations are subject to
extensive federal, state and local laws and regulations governing waste
disposal, air and water emissions, the handling of hazardous substances,
environmental protection, remediation, workplace exposure and other matters.
Management believes that the Company is presently in substantial compliance with
all such laws and does not currently anticipate that the Company will be
required to expend any substantial amounts in the foreseeable future in order to
meet current environmental, workplace health or safety requirements. However,
additional costs and liabilities may be incurred to comply with current and
future requirements, which costs and liabilities could have a material adverse
effect on the Company's results of operations or financial condition.
There are no known pending remedial actions or claims relating to environmental
matters that are expected to have a material effect on the Company's financial
position or results of operations. Both of the properties owned by the Company,
however, are located in industrial areas and have a history of heavy industrial
use. These properties may potentially incur environmental liabilities in the
future that could have a material adverse effect on the Company's financial
condition or results of operations. The Company has been named a potentially
responsible party at three "Superfund" sites. Although the Company does not
believe that the amount for which it may be held liable will be material and has
reserved approximately $300,000 for such loss, no assurance can be given that
the amount for which
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the Company will be held responsible will not be significantly greater than
expected. In connection with the sale of the Company's former Industrial
Products Division ("IPD"), the Company has agreed to indemnify Trinity
Industries, Inc. until May 29, 2001 against certain environmental liabilities
that may arise with respect to the properties and operations of IPD relating to
the period prior to closing.
Year 2000 Compliance
The Company has installed a new computer operating system which is compliant
with Year 2000 demands. The new system includes hardware, software, fiber-optic
wiring and extensive training for numerous Company personnel. The project was
initiated in 1997 and the Company implemented the system at the end of the third
quarter of 1998. The Company used the fourth quarter of 1998 to prove-out and
fully convert to the new operating system. The Company has estimated the cost of
this new operating system to be approximately $6 million.
The Company is currently assessing the need for Year 2000 contingency plans for
both internal operations and external business relations. At this time, the
Company believes its new operating system will fully address all Year 2000
issues. Given the size and sophistication of those customers and suppliers which
are material to the Company's business, the Company does not anticipate a
significant business risk associated with Year 2000 compliance by its customers
and suppliers.
Forward Looking Statements
Any statements contained herein that are not historical facts are
forward-looking statements within the meaning of the Private Securities
Legislation Reform Act of 1995, and involve risks and uncertainties. These
forward-looking statements include expectations, beliefs, plans, objectives,
future financial performance, estimates, projections, goals and forecasts.
Potential factors which could cause the Company's actual results of operations
to differ materially from those in the forward-looking statements include market
conditions and demand for the Company's products; competition; technologies; raw
material prices; interest rates and capital costs; taxes; unstable governments
and business conditions in emerging economies; and legal, regulatory and
environmental issues. Any forward-looking statement speaks only as of the date
on which such statement is made. The Company undertakes no obligation to update
any forward-looking statement to reflect events or circumstances after the date
on which such statement is made.
Employees
As of December 31, 1998, the Company had approximately 1,130 employees, of whom
815 were engaged in manufacturing functions, 95 in executive and administrative
functions, another 175 in technical functions, and 45 in sales and sales
support. At such date, approximately 865 employees, principally those engaged in
manufacturing, were represented by labor organizations under collective
bargaining agreements. The following table sets forth certain information with
respect to the Company's collective bargaining agreements with its employees:
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Number of Employees
Represented by Collective
Union Expiration Date Bargaining Agreement
International Association of Machinists & Aerospace February 20, 2000 378
& Aerospace Workers, Local 1862
International Brotherhood of Boilermakers, Iron Ship September 24, 2000 212
Builders, Blacksmiths, Forgers & Helpers,
Subordinate Lodge 1509
International Federation of Professional & Technical August 20, 2000 118
Engineers, Technical Group, Local 92
International Association of Machinists & Aerospace March 26, 2000 81
Workers, Die Sinkers, Local 140
Office & Professional Employees International Union, July 1, 2001 45
Clerical Group, Local 35
International Brotherhood of Electrical Workers, October 15, 2000 26
Local 662
Service Employees International, Local 150 April 23, 2000 4
Management
Name Age Position
Kerry L. Woody..........47 President & CEO and Director
Wayne E. Larsen.........44 Vice President Law/Finance & Secretary and Director
Gene E. Bunge...........53 Vice President, Engineering
Robert J. Noel..........58 Vice President, Quality & Technology
James K. Sorenson.......61 Vice President, Materials Management
Gary J. Vroman..........39 Vice President, Sales & Marketing
Lawrence C. Hammond.....51 Vice President, Human Resources
Ronald O. Wiese.........65 Treasurer
Thomas S. Plichta.......56 Corporate Controller
Item 2. Properties
The following table sets forth the location and size of the Company's two
facilities:
Approximate Acreage Approximate Square Footage
Cudahy, Wisconsin 184.5 1,650,000
Windsor, Connecticut 8.2 30,000
The above facilities are owned by the Company. The Company also owns
approximately 4 acres of land in Houston, Texas, which is currently vacant and
for sale.
The Company believes that its facilities are well maintained, are suitable to
support the Company's business and are adequate for the Company's present and
anticipated needs. While the rate of utilization of the Company's manufacturing
equipment is not uniform, the Company estimates that its facilities overall are
currently operating at approximately 60% of capacity. The Company-owned
facilities have been pledged as collateral to its senior lender.
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The principal executive offices of the Company are located at 5481 South Packard
Avenue, Cudahy, Wisconsin 53110. Its telephone number at such address is (414)
747-2611.
Item 3. Legal Proceedings
From time to time the Company is involved in legal proceedings relating to
claims arising out of its operations in the normal course of business. The
Company believes that there are no material legal proceedings pending or
threatened against the Company or any of its properties.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of security holders during the fourth
quarter of 1998.
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
The common stock of the Company, par value $0.01 per share, trades on the Nasdaq
National Market under the symbol "LDSH".
Prior to the registration of the common stock of the Company on March 9, 1998,
limited trading of the common stock occurred in the over-the-counter market.
These quotations for the pre-registration period reflect inter-dealer prices,
without retail mark-up, mark-down or commission, and do not necessarily
represent actual transactions. The following table sets forth, for the fiscal
periods indicated, the high and low bid prices up until March 9, 1998 and the
high and low sales prices for the periods thereafter. At December 31, 1998 there
were approximately 300 beneficial holders of the Company's common stock.
Year Ended Year Ended
December 31, 1997 December 31, 1998
High Low High Low
First quarter............ $12.60 $9.90 $22.50 $13.50
Second quarter........... $13.50 $9.90 $15.62 $12.25
Third quarter............ $22.80 $12.60 $13.12 $8.00
Fourth quarter........... $19.80 $17.10 $10.00 $6.56
The Company has not paid cash dividends and currently intends to retain all its
earnings to finance its operations and future growth. The Company does not
expect to pay dividends for the foreseeable future.
Item 6. Selected Financial Data
The financial data set forth below as of December 31, 1994, 1995, 1996, 1997 and
1998 and for the years ended December 31, 1994, 1995, 1996, 1997 and 1998 are
derived from the Financial Statements prepared of the Company which have been
audited by Arthur Andersen LLP, independent public accountants.
The data below should be read in conjunction with the Financial Statements and
the Notes thereto and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included elsewhere in this filing.
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Year Ended December 31,
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(dollars in thousands, except income (loss) per share)
INCOME STATEMENT DATA 1994 1995 1996 1997 1998
Net sales..................................................... $121,803 $115,738 $162,002 $209,816 $226,767
Income (loss) from operations................................. ( 14,700 ) ( 18,752 ) 5,809 24,387 24,557
Interest expense.............................................. 2,466 3,339 3,703 3,334 1,256
Income (loss) from continuing operations...................... ( 17,028 ) ( 22,146 ) 2,135 18,902 21,372
Income (loss) from discontinued operations.................... 221 1,214 ( 8,856 ) -- --
Net income (loss)............................................. ( 16,807 ) ( 20,932 ) ( 6,721 ) 18,902 21,372
Basic earnings (loss) per share from continuing operations.... ( 3.39 ) ( 4.40 ) 0.42 3.63 1.76
Diluted earnings (loss) per share from continuing operations.. ( 3.39 ) ( 4.40 ) 0.20 1.52 1.55
Dividends paid ............................................... -- -- -- -- --
Shares used to compute income (loss) per share
Basic...................................................... 5,023,353 5,029,517 5,091,957 5,208,251 12,155,484
Diluted.................................................... 5,023,353 5,029,517 10,857,910 12,469,818 13,826,133
December 31,
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BALANCE SHEET DATA 1994 1995 1996 1997 1998
Total assets.................................................. $164,347 $164,696 $170,270 $165,461 $173,877
Net working capital........................................... 24,271 24,405 15,475 32,292 40,049
Total debt.................................................... 31,665 43,932 51,848 39,716 3,500
Stockholders' equity (deficit)................................ 11,141 ( 9,751 ) ( 16,287 ) 5,017 68,646
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997.
For the third year in a row, net sales for the year ended December 31, 1998
increased over the prior year. In fiscal 1998 the Company had $226.8 million in
net sales, an 8% increase over the $209.8 million in net sales in fiscal 1997.
The Company attributed the growth in sales to the continued strength of the
commercial aerospace sector which drove the demand for jet engine components. In
addition, the Ladish sales improvement in 1998 was also the result of attention
to bettering on-time deliveries and internal operating efficiencies. Gross
profit in 1998 increased to $32.6 million due largely to increased net sales.
In 1998, selling, general and administrative expenses, as a percentage of sales,
were 3.6% in comparison to 3.5% in 1997. The increase is attributable to larger
foreign sales which incur additional selling expenses for travel and the
increase in sales commissions.
The Company incurred interest expense of $1.3 million in 1998 in comparison to
$3.3 million in 1997, a decrease of $2 million. The decrease of interest expense
was attributable to (i) the repayment of the Subordinated Notes issued in late
1995 and early 1996, see "Liquidity and Capital Resources"; (ii) lower loan
balances of senior debt; and (iii) reduced interest rates. As of December 31,
1998, the Company's senior debt had an effective interest rate equal to the
commercial paper rate plus 1.5% per annum (reduced from 2.0% as of April 1,
1998). Effective interest rates averaged 7.4% during 1998 compared to 8.3%
during 1997.
Income before taxes for 1998 was $23.7 million for the Company in comparison to
pretax income of $20.5 million for 1997. The increase in pretax income was
primarily related to the increase in sales from one period to the next and the
reduction in interest expense.
The 1998 tax provision of $2.4 million primarily reflects a non-cash accounting
charge associated with the Company's use of its net operating losses ("NOLs").
The reversal of valuation allowances relating
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to pre-restructuring NOLs requires the Company to record a tax provision and to
reflect the offset as an addition to paid-in capital, rather than as an offset
to the provision for income taxes. The Company intends to continue to use its
NOLs in the future to reduce actual payment of federal income taxes. The future
use of the NOLs is subject to certain statutory restrictions. See "Liquidity and
Capital Resources".
Contract backlog at December 31, 1998 was $243 million, compared to $278 million
at December 31, 1997, a decrease of 12%, due to increased raw material
availability, shortened leadtimes and current aerospace global demand.
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996.
Net sales for the year ended December 31, 1997 were $209.8 million compared to
$162 million for 1996, an increase of 30%. The increase in sales in 1997 was
largely the result of a continued resurgence in the jet engine market with
steady volume in the aerospace and general industrial markets. Ladish also
benefited in 1997 as a result of increased sales and improved pricing due to
significant improvement in on-time deliveries and manufacturing productivity.
Gross profit increased by 157% in 1997 due to improved operating efficiencies,
greater absorption of fixed costs by higher sales volumes and improved pricing
in the commercial aerospace industry.
Selling, general and administrative expenses, as a percentage of sales, were
3.5% for 1997 compared to 4.0% for 1996. This reduced percentage, which resulted
primarily from the increase in sales, occurred even though foreign sales, which
involve greater commission expense than domestic sales, increased from 40% of
net sales in 1996 to 42% in 1997.
Interest expense for 1997 was $3.3 million compared to $3.7 million for 1996, a
decrease of 11%. The decrease in interest expense was attributable to lower loan
balances of senior debt along with reduced interest rates. Approximately $1.2
million of the interest expense in 1997 and $1.0 million in 1996 were
attributable to non-cash payment-in-kind ("PIK") payments on the Subordinated
Notes. As of December 31, 1997, the Company's senior debt had an effective
interest rate equal to the commercial paper rate plus 2.0% per annum (reduced
from 2.5% as of December 31, 1996). Effective interest rates averaged 8.3%
during 1997 compared to 9.9% during 1996.
The Company's income before taxes increased from $2.1 million in 1996 to $20.5
million in 1997, due principally to the substantial increase in net sales.
The $1.6 million provision for taxes for 1997 represented a non-cash accounting
charge. The reversal of valuation allowances relating to pre-restructuring NOLs
requires the Company to record a tax provision and to reflect the offset as an
addition to paid-in capital, rather than as an offset to the provision for
income taxes.
Contract backlog at December 31, 1997 was $278 million, compared to $234 million
at December 31, 1996, an increase of 19%, due primarily to an increase in
orders.
Liquidity and Capital Resources
On March 13, 1998 the Company successfully completed an initial public offering
for 2,336,000 shares of common stock (the "IPO"). The Company received
approximately $29.5 million in proceeds from the IPO, after underwriting
discounts and commissions. Those proceeds were utilized by the Company to reduce
its pension liability, redeem the Subordinated Notes and repay a portion of the
outstanding
9
indebtedness under the Revolving Credit Facility. Subsequent to the IPO, the
underwriters elected to purchase additional shares of common stock from the
Company which resulted in the Company receiving approximately $6.3 million in
additional proceeds. These additional proceeds along with approximately $7.0
million of proceeds and satisfaction of debt from the exercise of warrants were
used to repay the remaining outstanding balance under the Revolving Credit
Facility.
In March 1998, the Company entered into an amended and restated credit agreement
(the "Credit Agreement") with its lender which expires on June 30, 2000. The
Credit Agreement consists of two facilities: (i) a $45 million revolving line of
credit (the "Revolving Credit Facility") and (ii) an $8 million term loan (the
"Term Loan"). All of the Company's assets have been pledged to secure borrowings
under the Credit Agreement.
Borrowings under the Revolving Credit Facility bear interest at a rate equal to
the commercial paper rate plus 1.5% per annum. Availability under the Revolving
Credit Facility is subject to a borrowing base limitation which is calculated
based upon eligible accounts receivable and inventories reduced by the amount of
any letters of credit. At December 31, 1998, approximately $45 million was
available and undrawn under the Revolving Credit Facility. The balance of the
Term Loan as of December 31, 1998 was $3.5 million.
In December 1995, the Company issued a total of $4.0 million of its 12% senior
subordinated secured notes due December 22, 2000 (the "Subordinated Notes") to
certain stockholders. In February 1996, the Company completed a second offering
of Subordinated Notes when it issued an additional $5.3 million of Subordinated
Notes to certain other stockholders. On March 31, 1998 the Company redeemed the
Subordinated Notes by repaying the outstanding face value of the Subordinated
Notes plus accrued interest thereon.
The Company has net operating loss ("NOL") carryforwards, which were generated
prior to a financial restructuring that was completed on April 30, 1993, as well
as NOL carryforwards that were generated in subsequent years. The total
remaining NOL carryforwards were approximately $52 million as of December 31,
1998. The NOL carryforwards expire gradually beginning in the year 2007 through
2010.
The Company's IPO created an ownership change as defined by the Internal Revenue
Service, ("IRS"). This ownership change generated an IRS imposed limitation on
the utilization of NOL carryforwards on future tax returns. The annual use of
the NOL carryforwards is limited to the lesser of the Company's taxable income
or the amount of the IRS imposed limitation. Approximately $12 million of the
NOL carryforwards is available for use annually. Approximately $2 million of the
$12 million annual limitation relates to a previous restriction on NOL
carryforwards generated prior to the financial restructuring.
Based on the limitations described above and certain other factors, a valuation
allowance has been recorded against the entire amount of the net deferred tax
assets. Any tax benefit that is realized in subsequent years from the reduction
of the valuation allowance established at or prior to the financial
restructuring will be recorded as an addition to paid-in capital. Any tax
benefit that is realized in subsequent years from the utilization of deferred
tax assets created after April 30, 1993, will be recorded as a reduction of
future income tax provisions.
Under the common stock repurchase program authorized by the Company's Board of
Directors, the Company repurchased 222,754 shares of its common stock during the
year ending December 31, 1998. The Company funded this repurchase program with
$1.7 million of the cash generated from operations.
10
Inflation has not had a material effect upon the Company during the period
covered by this report. Given the products manufactured by the Company and the
raw materials used therein, the Company does not anticipate any significant
impact from inflation in the foreseeable future.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The Company believes that 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 - is
incorporated by reference to the information set forth as a separate section of
this Report.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
The Company did not change public accounting firms in 1998, and there have been
no disagreements on accounting and financial disclosure with the Company's
public accounting firm, Arthur Andersen LLP.
PART III
Item 10. Directors and Executive Officers of the Registrant
Certain information called for by this Item is incorporated herein by reference
to the Proxy Statement for the Annual Meeting of Stockholders filed herewith as
an Exhibit.
The list of Executive Officers in Part I, Item 1. Business, paragraph captioned
"Executive Officers of the Registrant" is incorporated by reference. The list of
Directors of the Company is as follows:
Name Age
Lawrence L. Bianchi 57
Charles W. Finkl 78
Wayne E. Larsen 44
Robert W. Sullivan 40
Kerry L. Woody 47
Other information required by Item 401 of Regulation S-K is as follows:
Lawrence W. Bianchi, 57. 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, 53. Mr. Bunge has served as Vice President, Engineering since
November 1991. From 1985 until that time he was General Manager of Engineering.
Mr. Bunge has been with the Company since 1973. He has a B.S.E.E. from the
Milwaukee School of Engineering.
Charles W. Finkl, 78. Director since 1998. Mr. Finkl is a director and the
Chairman and Chief Executive Officer of A. Finkl & Sons, Co., a Chicago,
Illinois based metals processor, a position he has held for more than ten years.
Lawrence C. Hammond, 51. 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.
11
He has a B.A. and a Masters in Industrial Relations from Michigan State
University and a J.D. from the Detroit College of Law.
Wayne E. Larsen, 44. Director since 1997. Since 1995 Mr. Larsen has been Vice
President Law/Finance and Secretary of the Company. He served as General Counsel
and Secretary from 1989 after joining the Company as corporate counsel in 1981.
He is also a director and Vice President and Secretary of Stowe Machine Co.,
Inc. Mr. Larsen is a Trustee of the Ladish Co. Foundation. Mr. Larsen has a B.A.
from Marquette University and a J.D. from Marquette Law School.
Robert J. Noel. 58. Mr. Noel has been Vice President, Quality and Technology
since March 1991. He has been Manager of Metallurgy since 1985 and prior to that
period was a Product Metallurgist for jet engine components. Mr. Noel has been
with the Company since 1963. He has a B.S. in Mechanical Engineering from
Marquette University.
Thomas S. Plichta, 56. Mr. Plichta has served as Corporate Controller since May
1989. He served as Assistant Corporate Controller for more than five years prior
to that time. Mr. Plichta has been with the Company since 1965. He has a B.S. in
Accounting from Marquette University.
James K. Sorenson, 61. Mr. Sorenson has served as Vice President, Materials
Management since March 1991. Prior to that time he had been Purchasing Manager,
Production Manager, and Head Buyer. Mr. Sorenson has been with the Company since
1963. He has a B.S. in Mechanical Engineering from the University of Wisconsin.
Robert W. Sullivan, 40. Director since 1993. Mr. Sullivan is President of The
Plitt Company, a seafood distribution concern. Previously Mr. Sullivan had been
President of The Martec Group, a sales and marketing consulting group for more
than five years.
Gary J. Vroman, 39. 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.
Ronald O. Wiese, 65. Mr. Wiese has served as Treasurer since May 1989. He was
Assistant Treasurer of the Company since 1986 and was its Tax Manager from 1982
to 1986. Mr. Wiese has been with the Company since 1955. He holds a B.S. in
Accounting from Marquette University.
Kerry L. Woody, 47. Director since 1997. Mr. Woody has been President since 1995
and was appointed Chief Executive Officer of the Company in 1998. Prior to that
time he was Vice President-Operations, Vice President-Manufacturing Services and
Production Manager. He joined the Company in 1975. Mr. Woody is also a director
and President of Stowe Machine Co., Inc. In addition, Mr. Woody serves as a
Director of Vilter Manufacturing Co. and Milwaukee Lutheran College. Mr. Woody
has a B.S. in Engineering from Milliken University.
Item 11. Executive Compensation
The information called for by this Item is incorporated herein by reference to
the Proxy Statement for the Annual Meeting of Stockholders filed herewith as an
Exhibit.
12
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information called for by this Item is incorporated herein by reference to
the Proxy Statement for the Annual Meeting of Stockholders filed herewith as an
Exhibit.
Item 13. Certain Relationships and Related Transactions
The information called for by this Item is incorporated herein by reference to
the Proxy Statement for the Annual Meeting of Stockholders filed herewith as an
Exhibit.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
Exhibits. See the accompanying index to exhibits on page X-1 which is part of
this report.
Financial Statements. See the accompanying index to financial statements and
schedules on page 14 which is a part of this report.
Reports on Form 8-K. The Company filed a report on Form 8-K, dated December 23,
1998, relating to an equipment failure in its largest isothermal press.
13
FORM 10-K - ITEM 8, 14(a) AND (d)
LADISH CO., INC. AND SUBSIDIARY
INDEX TO FINANCIAL STATEMENTS
Report of Independent Public Accountants
Balance Sheets as of December 31, 1997 and 1998
Statements of Operations for the years ended December 31, 1996, 1997 and 1998
Statements of Stockholders' Equity for the years ended December 31, 1995, 1996,
1997 and 1998
Statements of Cash Flows for the years ended December 31, 1996, 1997 and 1998
Notes to Financial Statements
14
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders
of Ladish Co., Inc.:
We have audited the accompanying balance sheets of Ladish Co., Inc., a Wisconsin
corporation, as of December 31, 1997 and 1998, and the related statements of
operations, stockholders' equity and cash flows for each of the years in the
three year period ended December 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the 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 financial statements referred to above present fairly, in
all material respects, the financial position of Ladish Co., Inc. as of December
31, 1997 and 1998, and the results of its operations and its cash flows for each
of the years in the three year period ended December 31, 1998 in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin,
February 5, 1999.
15
LADISH CO., INC.
BALANCE SHEETS
DECEMBER 31, 1997 AND 1998
(Dollars in Thousands Except Per Share Data)
ASSETS 1997 1998
------------- -------------
CURRENT ASSETS:
Cash and cash equivalents $566 $5,517
Accounts receivable, less allowance of $300 27,631 35,409
Inventories 48,842 41,967
Prepaid expenses and other current assets 2,537 276
------------- -------------
Total current assets 79,576 83,169
PROPERTY, PLANT AND EQUIPMENT:
Land and improvements 3,855 3,855
Building and improvements 13,756 14,925
Machinery and equipment 99,766 112,279
Construction in progress 6,666 5,893
------------- -------------
124,043 136,952
Less- Accumulated depreciation (41,206) (50,981)
------------- -------------
Net property, plant and equipment 82,837 85,971
OTHER ASSETS 3,048 4,737
------------- -------------
Total assets $165,461 $173,877
============= =============
The accompanying notes to financial statements are an integral part of these
statements.
16
LADISH CO., INC.
BALANCE SHEETS
DECEMBER 31, 1997 AND 1998
(Dollars in Thousands Except Per Share Data)
LIABILITIES AND STOCKHOLDERS' EQUITY 1997 1998
------------- -------------
CURRENT LIABILITIES:
Current portion of senior debt $2,000 $2,250
Notes payable 250 -
Accounts payable 15,863 16,194
Accrued liabilities-
Pensions 8,293 738
Postretirement benefits 5,567 5,488
Wages and salaries 5,501 4,045
Taxes, other than income taxes 239 272
Interest 96 36
Profit sharing 2,629 2,720
Paid progress billings 4,504 6,767
Other 2,342 4,610
------------- -------------
Total current liabilities 47,284 43,120
LONG-TERM LIABILITIES:
Senior debt-less current portion 25,391 1,250
Subordinated debt 11,325 -
Notes payable 750 -
Pensions 28,409 16,013
Postretirement benefits 43,857 42,762
Officers' deferred compensation 2,201 1,409
Other noncurrent liabilities 1,227 677
------------- -------------
Total liabilities 160,444 105,231
STOCKHOLDERS' EQUITY:
Common stock-authorized 100,000,000, issued
and outstanding 5,315,473 and 14,013,667
shares in each period of $.01 par value 53 140
Additional paid-in capital 37,798 81,661
Accumulated deficit (32,834) (11,462)
Treasury stock, 222,754 shares of common stock
at cost - (1,693)
------------- -------------
Total stockholders' equity 5,017 68,646
------------- -------------
Total liabilities and stockholders' equity $165,461 $173,877
============= =============
The accompanying notes to financial statements are an integral part of these
statements.
17
LADISH CO., INC.
STATEMENTS OF OPERATIONS
(Dollars in Thousands Except Per Share Data)
Years Ended December 31,
-------------------------------------------
1996 1997 1998
------------- ------------- ---------------
NET SALES $162,002 $209,816 $226,767
COST OF SALES 149,637 178,051 194,125
------------- ------------- ---------------
Gross profit 12,365 31,765 32,642
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES
6,556 7,378 8,085
------------- ------------- ---------------
Income from operations 5,809 24,387 24,557
OTHER (INCOME) EXPENSE:
Interest expense, net 3,703 3,334 1,256
Other, net (29) 549 (446)
------------- ------------- ---------------
Income from continuing operations before
provision for income taxes 2,135 20,504 23,747
PROVISION FOR INCOME TAXES - 1,602 2,375
------------- ------------- ---------------
Income from continuing operations 2,135 18,902 21,372
DISCONTINUED OPERATIONS (Note 12):
Loss from operations of IPD (net of tax effect of $-) (262) - -
Loss on disposal of IPD (net of tax effect of $-) (8,594) - -
------------- ------------- ---------------
Net income (loss) $(6,721) $18,902 $21,372
============= ============= ===============
EARNINGS PER SHARE FROM CONTINUING OPERATIONS (Note 13):
Basic $0.42 $3.63 $1.76
Diluted $0.20 $1.52 $1.55
NET INCOME (LOSS) PER SHARE:
Basic $(1.32) $3.63 $1.76
Diluted $(0.62) $1.52 $1.55
The accompanying notes to financial statements are an integral part of these statements.
18
LADISH CO., INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars in Thousands Except Per Share Data)
Additional Treasury
Common Stock Paid-in Accumulated Stock,
Shares Amount Capital Deficit at Cost Total
-------------- ----------- ------------ --------------- ----------- ------------
BALANCE, December 31, 1995 5,029,517 $35,224 $40 $(45,015) $ $ (9,751)
-
Net loss - - - (6,721) - (6,721)
Change in par value of common stock
from no par to $.01
- (35,174) 35,174 - - -
Issuance of warrants on senior
subordinated notes - - 53 - - 53
Exercise of warrants 110,476 1 131 - - 132
-------------- ----------- ------------ ------------ ----------- ------------
BALANCE, December 31, 1996 5,139,993 51 35,398 (51,736) - (16,287)
Net income - - - 18,902 - 18,902
Issuance of common stock 119,166 1 814 - - 815
Reduction in valuation allowance
related to pre-fresh start NOLs
- - 1,519 - - 1,519
Exercise of warrants 56,314 1 67 - - 68
-------------- ----------- ------------ ------------ ----------- ------------
BALANCE, December 31, 1997 5,315,473 53 37,798 (32,834) - 5,017
Net income - - - 21,372 - 21,372
Issuance of common stock 2,837,138 28 34,910 - - 34,938
Exercise of warrants 5,869,389 59 6,892 - - 6,951
Purchase of treasury stock - - - - (1,693) (1,693)
Reduction in valuation allowance
related to pre-fresh start NOLS
- - 2,211 - - 2,211
Repurchase of shares, retired (8,333) - (150) - - (150)
-------------- ----------- ------------ ------------ ----------- ------------
BALANCE, December 31, 1998 14,013,667 $140 $81,661 $(11,462) $(1,693) $68,646
============== =========== ============ ============ =========== ============
The accompanying notes to financial statements are an integral part of these statements.
19
LADISH CO., INC.
STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
Years Ended December 31,
---------------------------------------
1996 1997 1998
------------ ----------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(6,721) $18,902 $21,372
Adjustments to reconcile net income (loss) to net cash provided by
(used for) operating activities-
Depreciation 9,136 9,773 10,491
Amortization 151 159 227
Payment-in-kind interest on subordinated debt 1,035 1,240 300
Reduction in valuation allowance - 1,519 2,211
Loss on disposal of IPD 8,594 - -
Loss on disposal of property, plant and equipment - 750 34
Changes in assets and liabilities, net of impact of acquisition-
Accounts receivable (5,691) (5,382) (7,778)
Inventories (8,211) (9,219) 6,875
Net assets of IPD (5,768) - -
Other assets 96 (437) 345
Accounts payable and accrued liabilities 17,707 (12,325) (4,164)
Other liabilities (12,702) (7,115) (14,833)
------------ ----------- ------------
Net cash provided by (used for) operating activities (2,374) (2,135) 15,080
------------ ----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (4,997) (9,217) (13,662)
Proceeds from sale of property, plant and equipment 70 984 3
Acquisition of business - (8,529) -
Proceeds from sale of IPD - 36,500 -
IPD disposition funds placed in escrow - (3,650) -
------------ ----------- ------------
Net cash provided by (used for) investing activities (4,927) 16,088 (13,659)
------------ ----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Retirement of senior subordinated debt (132) (68) (11,625)
Net proceeds from (repayments of) senior debt 1,735 (14,304) (23,891)
Proceeds from issuance of subordinated debt 5,331 - -
Repayment of notes payable - - (1,000)
Issuance of common stock - 815 34,938
Exercise of warrants 132 68 6,951
Repurchase of common stock - - (1,843)
------------ ----------- ------------
Net cash provided by (used in) financing activities 7,066 (13,489) 3,530
------------ ----------- ------------
20
LADISH CO., INC.
STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(continued)
Years Ended December 31,
---------------------------------------
1996 1997 1998
----------- ----------- ------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS:
$(235) $464 $4,951
CASH AND CASH EQUIVALENTS, beginning of period 337 102 566
=========== =========== ============
CASH AND CASH EQUIVALENTS, end of period $102 $566 $5,517
=========== =========== ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Income taxes paid $14 $326 $48
Interest paid $4,087 $2,595 $3,868
The accompanying notes to financial statements are an integral part of these statements.
21
LADISH CO., INC.
NOTES TO FINANCIAL STATEMENTS
(Dollars in Thousands Except Share and Per Share Data)
(1) Business Information-
Ladish Co., Inc. (the "Company") engineers, produces and markets
high-strength, high-technology forged and formed metal components for a
wide variety of load-bearing and fatigue-resisting applications in the
aerospace, defense and industrial markets, for both domestic and
international customers. The Company operates as a single segment. Net
sales to the aerospace, defense and industrial markets were approximately
70.5%, 20.7% and 8.8%, respectively, of total Company net sales in 1998.
Through May 30, 1997, the Company operated facilities located in Cudahy,
Wisconsin; Russellville, Arkansas; and Cynthiana, Kentucky. On May 30,
1997, the Company disposed of its Industrial Products Division ("IPD")
which included the facilities located in Arkansas and Kentucky. (See Note
12.)
In June 1997, the Company acquired Stowe Machine Co., Inc., a finished
machining operation located in Windsor, Connecticut. (See Note 14.)
For the years ended December 31, 1996, 1997 and 1998, the Company had three
customers that individually accounted for 19%, 20% and 29%; 17%, 23% and
21%; and 18%, 15% and 11%, respectively, of net sales from continuing
operations.
Exports accounted for approximately 40%, 42% and 44% of the Company's net
sales for the years ended December 31, 1996, 1997 and 1998, respectively.
Net sales to Europe (primarily to the United Kingdom) constituted
approximately 31%, 32% and 36% for the years ended December 31, 1996, 1997
and 1998, respectively.
As of December 31, 1998, approximately 77% of the Company's employees were
represented by one of seven collective bargaining units. The collective
bargaining agreements with most of these units will expire during the year
2000. The Company does not anticipate that work stoppages will arise in
connection with the renewal of these agreements in the future.
(2) Summary of Significant Accounting Policies-
(a) Outstanding checks-
Outstanding payroll and accounts payable checks related to certain bank
accounts are recorded as accounts payable in the accompanying balance
sheets. These checks amounted to $622 and $2,144 as of December 31, 1997
and 1998, respectively.
22
(b) Inventories-
Inventories are stated at the lower of cost or market using the first-in,
first-out (FIFO) valuation method. Inventory costs include material, labor
and overhead.
Inventories consist of the following:
December 31,
-------------------------
1997 1998
----------- ------------
Raw materials $19,104 $16,546
Work-in-process and finished 34,049 28,697
----------- ------------
53,153 45,243
Less progress payments (4,311) (3,276)
----------- ------------
Total inventories $48,842 $41,967
=========== ============
(c) Property, plant and equipment-
Additions to property, plant, and equipment are recorded at cost. Tooling
costs are expensed as incurred. Depreciation is provided using the
straight-line method over the estimated useful lives of the assets, as
follows:
Land improvements 30 or 39 years
Buildings and improvements 30 or 39 years
Machinery and equipment 5 to 12 years
(d) Goodwill-
Goodwill represents the excess of the purchase price over the fair value of
identifiable net assets relating to the 1997 acquisition of Stowe Machine
Co., Inc. (see Note 14). Goodwill is included in other assets and is being
amortized on a straight-line basis over 20 years. As of December 31, 1998,
unamortized goodwill amounted to $802. Amortization expense was $24 and $43
for the years ended December 31, 1997 and 1998, respectively.
(e) Revenue recognition-
Sales revenue is recognized when products are shipped. Net sales include
reductions for returns and allowances, sales discounts and freight out.
Progress payments on contracts are generally recognized as a reduction of
the related inventory costs. Progress payments in excess of inventory costs
are reflected as deferred revenue.
(f) Income taxes-
Deferred income taxes are provided at the enacted marginal rates on the
difference between the financial statement and income tax basis of assets
and liabilities. Deferred income tax provisions or benefits are based on
the change in the deferred tax assets and liabilities from period to
period. (See Note 7.)
23
(g) Use of estimates-
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting periods. Actual results could differ from those
estimates.
(h) Fair value of financial instruments-
Based on the borrowing rates currently available to the Company for loans
with similar terms and maturities, the fair value of long-term debt of the
Company approximates book value as of December 31, 1998.
(3) Debt-
Senior debt-
The Company maintains a credit agreement which provides for a $53,000 total
credit facility which includes an $8,000 term loan component. All personal
and real property of the Company has been pledged as collateral under the
credit agreement. An affiliated party of this lender is also a significant
customer of the Company.
As of December 31, 1998, the $45,000 revolving credit facility carried an
interest rate of commercial paper plus 1.5%. The credit facility expires on
June 30, 2000. The credit line availability is subject to a borrowing base
limitation which is calculated based on eligible accounts receivable and
inventories reduced by any letters of credit. Letters of credit outstanding
total $91 and $21 as of December 31, 1997 and 1998, respectively. As of
December 31, 1998, the amount available for future borrowing under the
revolving credit facility was approximately $45,000.
The term loan is payable in quarterly installments. The Company may, at any
time, prepay the outstanding balance, but will be subject to a prepayment
fee of 1% if the prepayment is prior to July 1, 1999. The term loan carries
an interest rate of commercial paper plus 1.5%. As of December 31, 1998,
the interest rate was approximately 7.4%.
The annual maturities of the Company's term loan are as follows:
1999 $2,250
2000 1,250
----------
$3,500
==========
24
The revolving credit facility and term loan contain covenants including but
not limited to restrictions on indebtedness, operations, change in control
and the requirement that interest coverage and fixed charge coverage
ratios, as defined, be maintained. As of December 31, 1998, the Company was
in compliance with all covenants under the credit facility and term loan.
Senior subordinated secured notes and warrants-
In December 1995, the Company issued a total of $4,000 of senior
subordinated notes ("Notes") to two of the Company's largest stockholders.
In February 1996, in a second offering of these Notes, additional proceeds
of $5,331 ($132 of these proceeds related to the purchase of common stock
under the rights attached to warrants as discussed later in this note) were
received by the Company.
As stated above, the noteholders also received warrants with each Note
purchased. Each warrant entitles the holder to purchase one share of common
stock for $1.20 per share. The exercise price may be paid in cash, or by
the surrender of already outstanding Ladish common stock, Notes or other
warrants having a fair value equal to the exercise price.
The warrants expire ten years from the date of issuance. The warrants were
recorded as an increase to additional paid-in capital at their stated value
which is considered to approximate fair value at the date of issuance.
In March 1998, the Notes were paid in full.
Warrants outstanding and exercisable were 7,665,245, 7,608,932 and
1,732,964 for the years ended December 31, 1996, 1997 and 1998,
respectively.
(4) Stockholders' Equity-
In June 1996, the Company's stockholders approved an amendment to the
articles of incorporation which changed the par value of a share of common
stock from "no par" to $.01 par. This amendment decreased common stock by
$35,174 and increased additional paid-in-capital by $35,174.
In December 1997, the Company's articles of incorporation were amended to
provide for a 1-6 reverse split of the common stock. All common stock
amounts have been adjusted for this reverse split.
In March 1998, the Company sold 2,837,138 shares in an initial offering
("IPO") at a per share price of $13.50. The net IPO proceeds to the Company
of approximately $35,000 were used to repay subordinated debt and a portion
of outstanding indebtedness under the Company's senior credit facility and
to contribute to certain underfunded pension plans. In addition, the
Company received total cash proceeds of $6,951 from the exercise of
warrants during 1998.
25
In 1996, the Company adopted the Ladish Co., Inc. 1996 Long-Term Incentive
Plan (the "Plan"). Under the Plan, incentive stock options may be granted
to employees of the Company which expire ten years from the grant date. In
September 1996, the Company issued 433,333 options under the Plan. These
options vest over four years. During 1998, the Company issued 320,000
options under the Plan. These options vest over two years. As of December
31, 1998, 642,500 of these options remain outstanding. The Company has
reserved 80,000 shares for future issuance under the Plan.
The Company accounts for its option grants using the intrinsic value based
method pursuant to APB Opinion No. 25 and Statement of Financial Accounting
Standards No. 123 ("SFAS 123") under which no compensation expense was
recognized in 1996, 1997 and 1998. Had compensation cost for these options
been determined pursuant to the fair value method under SFAS 123, the
Company's pro forma net earnings per share from continuing operations would
have been as follows:
1996 1997 1998
----------------------- ----------------------- -----------------------
As Pro As Pro As Pro
Reported Forma Reported Forma Reported Forma
------------ ---------- ------------ ---------- ------------ ----------
Net income $2,135 $1,523 $18,902 $17,439 $21,372 $20,603
Diluted earnings per share $0.20 $0.14 $1.52 $1.40 $1.55 $1.49
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 1996 used to compute the pro forma
amounts above was estimated based on the vesting date of the grants using
the minimum value option pricing model with the following assumptions: risk
free interest rate of 6%, expected remaining lives of 10 years, and market
value of $6.00.
The fair value of the option grants in 1998 used to compute the pro forma
amounts above was estimated based on vesting of the grants using the
Black-Scholes option pricing model with the following assumptions: weighted
average risk free interest rate of 5.32%, weighted-average expected
remaining lives of 10 years, weighted-average volatility factor of 60.79%,
and a weighted-average Black-Scholes option price of $7.83.
26
1996 1997 1998
--------------------------- -------------------------- -----------------------------
Weighted Weighted Weighted
Average Average Average
Options Exercise Exercise Exercise
Options Price Options Price Options Price
Outstanding at beginning
of Period 385,924 $14.57 929,521 $11.34 818,688 $12.06
Granted 543,597 9.04 - - 320,000 14.50
Exercised - - 110,833 6.00 - -
----------- ----------- ----------- ----------- ------------- ----------
Outstanding at end of
Period 929,521 $11.34 818,688 $12.06 1,138,688 $12.75
=========== =========== =========== =========== ============= ==========
Exercisable at end of
Period 604,521 $14.21 602,021 $14.24 710,354 $12.99
=========== =========== =========== =========== ============= ==========
The options outstanding at December 31, 1998 consist of the following:
Weighted
Weighted Average
Range of Average Remaining
Exercise Number Exercise Contractual
Prices Outstanding/Exercisable Price Life
- ------------ ------------------------- -------------------- -----------
$5 to $10 322,500 / 214,166 $6.00 / $6.00 7.75
$10 to $15 380,528 / 220,528 $12.63 / $12.00 6.54
$15 to $20 325,396 / 165,396 $16.77 / $18.00 6.91
$20 to $25 110,264 / 110,264 $21.00 / $21.00 4.33
------------------------- -------------------- ---------
1,138,688 / 710,354 $12.75 / $12.99 6.78
========================= ==================== =========
(5) Research and Development-
Research and Development costs are expensed as incurred. These costs of
continuing operations were $3,384, $3,427 and $4,503 in 1996, 1997 and
1998, respectively. Research and Development costs funded by customers,
amounting to $885, $1,071 and $2,310 from continuing operations in 1996,
1997 and 1998, respectively, have been recorded as sales.
Revenues from Research and Development funded by customers are recognized
when the related product is shipped or the services are provided.
(6) Leases-
Certain office and warehouse facilities and equipment are leased under
noncancelable operating leases expiring on various dates through the year
2003. Rental expense from continuing operations was $284, $304 and $283 in
1996, 1997 and 1998, respectively.
27
Minimum lease obligations under noncancelable operating leases are as
follows:
1999 $320
2000 89
2001 72
2002 45
2003 and thereafter 45
--------
Total $571
========
(7) Income Taxes-
The Company has net operating loss ("NOL") carryforwards, which were
generated prior to a financial restructuring that was completed on April
30, 1993, as well as NOL carryforwards that were generated in subsequent
years. The total remaining NOL carryforwards were approximately $52,000 as
of December 31, 1998. The NOL carryforwards expire gradually beginning in
the year 2007 through 2010.
The Company's IPO created an ownership change as defined by the Internal
Revenue Service, ("IRS"). This ownership change generated an IRS imposed
limitation on the utilization of NOL carryforwards on future tax returns.
The annual use of the NOL carryforwards is limited to the lesser of the
Company's taxable income or the amount of the IRS imposed limitation.
Approximately $12,000 of the NOL carryforwards is available for use
annually. Approximately $2,100 of the $12,000 annual limitation relates to
a previous restriction on NOL carryforwards generated prior to the
financial restructuring.
Based on the limitations described above and certain other factors, a
valuation allowance has been recorded against the entire amount of the net
deferred tax assets. Any tax benefit that is realized in subsequent years
from the reduction of the valuation allowance established at or prior to
the financial restructuring will be recorded as an addition to
paid-in-capital. Any tax benefit that is realized in subsequent years from
the utilization of deferred tax assets created after April 30, 1993, will
be recorded as a reduction of future income tax provisions.
28
Components of the deferred income taxes are as follows:
December 31,
--------------------------
1997 1998
------------- -----------
Current deferred tax assets:
Inventory adjustments $ 1,166 $ 1,719
Accrued employee costs 1,391 1,333
Pension benefits 3,031 -
Postretirement healthcare benefits 2,227 2,195
Other 1,069 1,042
------------- -----------
Total current deferred tax assets 8,884 6,289
Current valuation allowance (8,884) (6,289)
------------- -----------
Net current deferred taxes $ - $ -
============= ===========
Noncurrent deferred tax assets and (liabilities):
Property, plant and equipment $(19,522) $(18,028)
Operating loss carryforwards 22,815 20,965
Pension benefits 12,244 6,969
Postretirement healthcare benefits 17,543 17,105
Other 1,402 119
------------- -----------
Total net noncurrent deferred tax assets 34,482 27,130
Noncurrent valuation allowance (34,482) (27,130)
------------- -----------
Net noncurrent deferred taxes $ - $ -
============= ===========
29
A summary of the Company's effective tax rates is as follows:
1996 1997 1998
------- ------- -------
Pretax book income $2,135 $20,504 $23,747
======= ======= =======
Federal tax at statutory rate $747 $ 7,176 $ 8,311
State tax at statutory rate 107 1,025 1,187
Post restructuring net operating losses utilized (854) (6,599) (7,123)
------- ------- -------
Total provision $ - $ 1,602 $ 2,375
======= ======= =======
Effective tax rate -% 7.8% 10.0%
======= ======= =======
(8) Pensions and Post-Retirement Benefits-
The Company has noncontributory defined benefit pension plans ("Plans")
covering substantially all employees. Plans covering salaried and
management employees provide pension benefits that are based on the highest
five consecutive years of an employee's compensation during the last ten
years prior to retirement. Plans covering hourly employees and union
members generally provide benefits of stated amounts for each year of
service. The Company's funding policy is to contribute annually an amount
equal to or greater than the minimum amount required under the Employee
Retirement Income Security Act of 1974. The Plans' assets are primarily
invested in U.S. Government securities, corporate bonds and common stocks.
In addition to pension benefits, employees are provided certain
postretirement healthcare and life insurance benefits. Substantially all of
the employees may become eligible for these benefits when they retire. The
Company accrues, as current costs, the future lifetime retirement benefits
for both active and retired employees and their dependents. Steps have been
taken by the Company to reduce the amount of the future obligation for
postretirement healthcare benefits of future retirees by capping the amount
of funds payable on behalf of the retirees.
30
The following is a reconciliation of the change in benefit obligation and
plan assets for the years ended December 31, 1997 and 1998:
Pension Benefits Postretirement Benefits
---------------------------- -----------------------------
December 31, December 31,
---------------------------- -----------------------------
1997 1998 1997 1998
---------------------------- -------------- --------------
CHANGE IN BENEFIT OBLIGATION:
Projected benefit obligation at beginning of
year $170,277 $177,820 $ 46,490 $ 54,178
Service cost 1,426 1,203 343 357
Interest cost 14,070 13,781 3,619 3,984
Actuarial (gains)/losses 9,287 492 9,293 (2,264)
Benefits paid (17,240) (17,202) (5,567) (5,488)
============== ============ ============= =============
Projected benefit obligation at end of year $177,820 $176,094 $ 54,178 $ 50,767
============== ============ ============= =============
CHANGE IN PLAN ASSETS:
Plan assets at fair value at beginning of year
$151,261 $183,318 $ - $ -
Actual return on plan assets 35,145 18,531 - -
Company contributions 14,152 19,979 5,567 5,488
Benefits paid (17,240) (17,202) (5,567) (5,488)
============== ============ ============= =============
Plan assets at fair value at end of year $183,318 $204,626 $ - $ -
============== ============ ============= =============
Funded status of plan $5,498 $28,532 $(54,178) $(50,767)
Unrecognized prior service cost 2,138 1,891 - -
Unrecognized net actuarial (gain)/loss (44,338) (47,174) 4,754 2,517
-------------- ------------ ------------- -------------
Net accrued benefit cost $(36,702) $(16,751) $(49,424) $(48,250)
============== ============ ============= =============
WEIGHTED AVERAGE ASSUMPTIONS:
Discount rate 7.75% 7.50% 7.75% 7.50%
Rate of increase in compensation levels 2.00% 3.00% - -
Expected long-term rate of return on assets 9.25% 9.25% - -
31
The components of the net periodic benefit costs for the years ended
December 31, 1996, 1997 and 1998, respectively, are:
Pension Benefits Postretirement Benefits
-------------------------------- -------------------------------
1996 1997 1998 1996 1997 1998
---------- ---------- ---------- ---------- ---------- ---------
Service cost-benefit earned during
the period $ 1,595 $ 1,426 $ 1,203 $ 380 $ 343 $ 357
Interest cost on projected benefit
obligation 14,013 14,070 13,781 3,890 3,619 3,984
Actual return on plan assets (17,303) (35,145) (18,531) - - -
Net amortization and deferral 5,501 21,660 3,575 (56) (77) (28)
Curtailment gain (445) - - (366) - -
---------- ---------- ---------- ---------- ---------- ---------
Net periodic benefit cost $ 3,361 $ 2,011 $ 28 $3,848 $3,885 $4,313
========== ========== ========== ========== ========== =========
Assumptions used in the determination of net periodic benefit costs for
these years are:
Discount rate 7.75% 8.25% 7.75%
Rate of increase in compensation
levels 2.00% 2.00% 2.00%
Expected long-term rate of return
on assets 8.00% 9.25% 9.25%
Certain employees are covered by union-sponsored, collectively bargained,
multi-employer pension plans.
The actuarial calculation of the Company's minimum funding pension payment
due in 1999 for 1998 is $738. This amount is shown as a current liability
on the balance sheet as of December 31, 1998.
Due to the sale of IPD in 1996, the Company experienced a gain of $445
related to the pension benefit plans and $366 related to the postretirement
healthcare benefits that were placed in curtailment. The Company will
remain liable for the plans and will continue to administer the plans. This
gain is reflected as a component of the loss on the sale of IPD.
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 $ 289 $(180)
Effect on postretirement healthcare benefit obligation $2,530 $(986)
32
(9) Officers' Deferred Compensation Plan-
Certain officers have deferred compensation agreements which, upon
retirement, provide them with, among other things, supplemental pension and
other postretirement benefits. An accumulated unfunded liability, net of
the Rabbi Trust, of $2,201 and $1,409 as of December 31, 1997 and 1998,
respectively, has been recorded under these agreements as actuarially
determined. The expense was $169, $165 and $135 in 1996, 1997 and 1998,
respectively.
The Company established a Rabbi Trust in July of 1998 to fund a portion of
this plan. The Rabbi Trust does not hold any Company stock and is
considered in the calculations determined by the actuary.
(10) Profit Sharing-
Effective January 1, 1996, the Company initiated a profit sharing program
in which substantially all of the employees are eligible to participate.
The profit sharing payout is derived from a formula based on pretax income
and is payable no later than February 15th of the subsequent year. The
expense was $2,780, $2,629 and $2,720 for the years ended December 31,
1996, 1997 and 1998.
(11) Commitments and Contingencies-
The Company is involved in various stages of investigation relative to
environmental protection matters relating to various waste disposal sites.
The potential costs related to such matters and the possible impact thereof
on future operations are uncertain due in part to uncertainty as to the
extent of the pollution, the complexity of government laws and regulations
and their interpretations, the varying costs and effectiveness of
alternative cleanup technologies and methods, and the questionable level of
the Company's involvement. The Company has made provisions in the financial
statements for potential losses related to these matters. The Company does
not anticipate such losses will have a material impact on the financial
statements beyond the aforementioned provisions.
Various other lawsuits and claims arising in the normal course of business
are pending against the Company and such losses are not expected to be
material to the financial statements.
In December 1998, one of the Company's primary presses suffered a major
breakdown and is not expected to be operational for several months. The
Company has filed claims with its insurance company for all repair and
business interruption costs. All costs are expected to be recovered through
the Company's policy.
33
(12) Discontinued Operations-
In February 1997, the Board of Directors approved the disposition of the
Company's Industrial Products Division ("IPD") which included facilities
located in Arkansas and Kentucky. The disposal date was May 30, 1997.
Substantially all IPD assets were sold to a third party buyer for
approximately $36,500 in cash subject to a working capital adjustment. Ten
percent of the cash proceeds ($3,650) was placed in an escrow account to
secure certain representations made by the Company in connection with the
sale. The escrow is reflected on the balance sheet as of December 31, 1998
as other noncurrent assets.
The net results of these operations prior to December 31, 1996 are included
in the consolidated statements of operations under "discontinued
operations." Sales for IPD were $46,034 for the year ended December 31,
1996.
The operating results of IPD include an interest allocation based upon the
net assets of IPD. Interest expense allocated to the discontinued operation
was $1,422 for the year ended December 31, 1996.
Basic earnings (loss) per share from discontinued operations were $(1.74)
in 1996. Diluted earnings (loss) per share in 1996 were $(0.82).
The loss on disposal of IPD reflected in the consolidated statements of
operations includes the write-down of the assets of IPD to estimated net
realizable value, estimated operating losses incurred by IPD during the
period of January 1, 1997 through May 30, 1997 and the estimated disposal
costs of these operations. In February 1997, the Kentucky facility of IPD
sustained significant flood damage which was covered by insurance, less a
$1,300 deductible. The deductible related to the flood damage was included
in the loss on disposal of IPD.
(13) Earnings Per Share-
Basic earnings per share of common stock are computed by dividing net
earnings from operations by the weighed average number of common shares
outstanding during the period. Diluted earnings per share of common stock
are computed by dividing net earnings from operations by the average number
of common shares and common share equivalents related to the assumed
exercise of stock options and warrants.
34
The following shares were used to calculate basic and diluted earnings per
share:
December 31,
-------------------------------------
1996 1997 1998
---------- ------------ --------------
Average basic common
shares outstanding 5,091,957 5,208,251 12,155,484
Incremental shares applicable
to common stock options
and warrants 5,765,953 7,261,567 1,670,649
--------- --------- ---------
Average diluted common shares
outstanding 10,857,910 12,469,818 13,826,133
========== ========== ==========
The shares outstanding used to compute diluted earnings per share for 1998
excluded outstanding options to purchase 595,660 shares of common stock at
weighted average exercise price of $17.49. The options were excluded
because their exercise prices were greater than the average market price of
the common shares during the year and their inclusion in the computation
would have been antidilutive.
(14) Acquisition-
On June 16, 1997, the Company completed the purchase of certain assets and
assumption of certain liabilities of Stowe Machine Co., Inc. (Stowe). The
purchase price was composed of approximately $8,500 in cash and a note
payable of $1,000.
The acquisition has been accounted for using the purchase method of
accounting. Accordingly, the net assets are included in the Company's
consolidated balance sheet as of December 31, 1997 based upon their fair
values at the acquisition's effective date of June 16, 1997. The Company's
consolidated statements of operations do not include the revenues and
expenses of Stowe prior to this date. The excess of the purchase price over
the fair value of the net assets acquired (goodwill) of approximately $870
will be amortized on a straight-line basis over 20 years.
Supplemental pro forma consolidated results from continuing operations
(Unaudited)-
The following unaudited pro forma summary presents the consolidated results
from continuing operations as if the acquisition had occurred at the
beginning of the periods presented and does not purport to be indicative of
what would have occurred had the acquisition actually been made as of such
date or of results which may occur in the future.
1997
------------
Net sales $213,519
Net income from continuing operations 18,714
Diluted earnings per share from continuing operations 1.50
35
(15) Quarterly Results of Operations (Unaudited)-
The following table sets forth unaudited consolidated income statement data
for each quarter of the Company's last two fiscal years. The unaudited
quarterly financial information has been prepared on the same basis as the
annual information presented in the financial statements and, in
management's opinion, reflects all adjustments (consisting of normal
recurring entries) necessary for a fair presentation of the information
provided. The operating results for any quarter are not necessarily
indicative of results for any future period.
Quarter ended (in thousands,
except per share amounts) March 31 June 30 September 30 December 31
--------------- ------------ ------------------- -----------------
1997
Net sales $49,923 $52,607 $54,542 $52,744
Gross profit 5,979 8,708 8,330 8,748
Operating income 4,221 6,739 6,450 6,977
Net income 3,058 5,476 5,165 5,203
Basic earnings per share 0.59 1.05 0.99 0.98
Diluted earning per share 0.25 0.45 0.41 0.41
1998
Net sales $61,671 $60,779 $53,368 $50,949
Gross profit 9,714 10,248 6,719 5,961
Operating income 7,657 8,078 4,745 4,077
Net income 6,268 7,172 4,270 3,662
Basic earnings per share 0.94 0.51 0.30 0.26
Diluted earning per share 0.73 0.46 0.27 0.24
36
(16) Valuation and Qualifying Accounts-
Provision Payments
Balance at Charged to and Balance at
Beginning of Profit and Accounts End of
Year Loss Written Off Year
Year ended December 31, 1996
Allowance for doubtful accounts $450 $(121) $29 $300
========= ========== ======= ========
Year ended December 31, 1997
Allowance for doubtful accounts $300 $9 $9 $300
========= ========== ======= ========
Year ended December 31, 1998
Allowance for doubtful accounts $300 $2 $2 $300
========= ========== ======= ========
37
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 19, 1999 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 (Principal Executive March 19, 1999
Kerry L. Woody Officer), Director
/s/ Wayne E. Larsen Vice President Law/Finance &
- ---------------------------- Secretary (Principal Financial March 19, 1999
Wayne E. Larsen and Accounting Officer),
Director
/s/ Lawrence W. Bianchi Director
- ---------------------------- March 19, 1999
Lawrence W. Bianchi
/s/ Charles W. Finkl Director
- ---------------------------- March 19, 1999
Charles W. Finkl
/s/ Robert W. Sullivan Director
- ---------------------------- March 19, 1999
Robert W. Sullivan
38
INDEX TO EXHIBITS
Exhibit
Numbers Description
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) 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 February 3, 1998 is incorporated by reference.
10 (c) Amended and Restated Credit Agreement dated March 9, 1998 among
Ladish Co., Inc. and General Electric Capital Corporation, as
amended.
10 (d) Agreement dated September 15, 1995 between Ladish Co., Inc. and
Weber Metals, Inc. filed with Form S-1 as Exhibit 10.7 on
February 23, 1998 is incorporated by reference.
21 List of Subsidiaries of the Company.
23 Consent of Independent Public Accountants.
27 Financial Data Schedule.
99 Definitive Proxy Statement for the 1999 Annual Meeting of
Stockholders (to be filed pursuant to Regulation 14A within 120
days after the end of the Company's fiscal year and, upon such
filing, incorporated herein by reference).
39