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EX-31.1 - EXHIBIT 31.1 - LADISH CO INCc07766exv31w1.htm
Table of Contents

 
 
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 September 30, 2010
Commission File Number 1-34495
Ladish Co., Inc.
(Exact name of registrant as specified in its charter)
     
Wisconsin   31-1145953
     
(State or other Jurisdiction of   (I.R.S. Employer
incorporation or organization)   Identification No.)
     
5481 South Packard Avenue, Cudahy, Wisconsin   53110
     
(Address of principal executive offices)   (Zip Code)
(414) 747-2611
(Registrant’s telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
             
Large accelerated filer o   Accelerated filer þ   Non-accelerated filer o (Do not check if a smaller reporting company)   Smaller reporting company o
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ
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 September 30, 2010
     
Common Stock, $0.01 Par Value   15,704,552
 
 

 

 



Table of Contents

Ladish Co., Inc.
Condensed Consolidated Statements of Operations
(Dollars in Thousands, Except Per Share Data)
                                 
    For the Three Months     For the Nine Months  
    Ended September 30,     Ended September 30,  
    (unaudited)     (unaudited)  
    2010     2009     2010     2009  
 
                               
Net sales
  $ 100,280     $ 76,191     $ 298,635     $ 266,616  
 
                               
Cost of sales
    84,018       71,469       252,012       248,233  
 
                       
 
                               
Gross profit
    16,262       4,722       46,623       18,383  
 
                               
Selling, general and administrative expenses
    4,529       5,692       12,761       14,007  
 
                       
 
                               
Income (loss) from operations
    11,733       (970 )     33,862       4,376  
 
                               
Other income (expense):
                               
Interest expense
    (1,363 )     (1,428 )     (4,257 )     (3,594 )
Other, net
    (300 )     (632 )     354       (965 )
 
                       
 
                               
Income (loss) before income tax provision (benefit)
    10,070       (3,030 )     29,959       (183 )
 
                               
Income tax provision (benefit)
    3,855       (780 )     10,833       228  
 
                       
 
                               
Net income (loss)
    6,215       (2,250 )     19,126       (411 )
 
                               
Noncontrolling interest in net earnings (loss) of subsidiary
    (3 )     (41 )     22       (52 )
 
                       
 
                               
Net income (loss) attributable to the controlling interest
  $ 6,218     $ (2,209 )   $ 19,104     $ (359 )
 
                       
 
                               
Basic earnings (loss) per share
  $ 0.40     $ (0.14 )   $ 1.21     $ (0.02 )
 
                               
Diluted earnings (loss) per share
  $ 0.40     $ (0.14 )   $ 1.21     $ (0.02 )
 
                               
Basic weighted average shares outstanding
    15,703,799       15,901,877       15,754,554       15,901,439  
 
                               
Diluted weighted average shares outstanding
    15,704,935       15,901,877       15,755,826       15,901,439  
See accompanying notes to condensed consolidated financial statements.

 

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Ladish Co., Inc.
Condensed Consolidated Balance Sheets
(Dollars in Thousands, Except Share Data)
                 
    September 30,     December 31,  
    2010     2009  
    (unaudited)        
Assets:
               
Current assets:
               
Cash and cash equivalents
  $ 26,774     $ 19,917  
Accounts receivable, less allowance of $75 at each date
    77,322       59,382  
Inventories
    100,852       92,697  
Deferred income taxes
    5,134       5,144  
Prepaid expenses and other current assets
    2,828       6,118  
 
           
Total current assets
    212,910       183,258  
Property, plant and equipment:
               
Land and improvements
    6,920       6,905  
Buildings and improvements
    61,447       60,416  
Machinery and equipment
    252,689       240,352  
Construction in progress
    53,245       58,451  
 
           
 
    374,301       366,124  
Less – accumulated depreciation
    (178,876 )     (167,688 )
 
           
Net property, plant and equipment
    195,425       198,436  
Deferred income taxes
    22,128       26,522  
Goodwill
    37,571       37,571  
Other intangible assets, net
    19,165       19,465  
Other assets
    3,227       4,262  
 
           
Total assets
  $ 490,426     $ 469,514  
 
           
Liabilities:
               
Current liabilities:
               
Accounts payable
  $ 33,130     $ 23,613  
Senior notes
    15,714       5,714  
Accrued liabilities:
               
Pensions
    249       259  
Postretirement benefits
    3,464       3,464  
Officers’ deferred compensation
    155       155  
Wages and salaries
    5,328       3,314  
Taxes, other than income taxes
    303       289  
Interest
    1,047       1,355  
Profit sharing
    2,456       611  
Paid progress billings
    846       2,428  
Income taxes
    1,279        
Other
    7,768       4,541  
 
           
Total current liabilities
    71,739       45,743  
Noncurrent liabilities:
               
Senior notes
    68,571       84,286  
Pensions
    66,382       69,653  
Postretirement benefits
    29,411       30,215  
Officers’ deferred compensation
    9,606       9,276  
Other noncurrent liabilities
    3,086       4,220  
 
           
Total liabilities
    248,795       243,393  
Equity:
               
Stockholders’ equity:
               
Common stock – authorized 100,000,000, issued 15,907,552 shares at each date of $.01 par value
    159       159  
Additional paid-in capital
    153,308       153,292  
Retained earnings
    164,482       145,378  
Treasury stock, 203,000 and 4,548 shares of common stock at each date at cost
    (3,272 )     (33 )
Accumulated other comprehensive loss
    (73,595 )     (73,214 )
 
           
Total stockholders’ equity
    241,082       225,582  
Noncontrolling interest in equity of subsidiary
    549       539  
 
           
Total equity
    241,631       226,121  
 
           
Total liabilities and equity
  $ 490,426     $ 469,514  
 
           
See accompanying notes to condensed consolidated financial statements.

 

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Ladish Co., Inc.
Condensed Consolidated Statements of Cash Flows

(Dollars in Thousands)
                 
    For the Nine Months  
    Ended September 30,  
    (unaudited)  
    2010     2009  
 
               
CASH FLOWS FROM OPERATING ACTIVITIES:
               
 
               
Net income (loss) attributable to the controlling interest
  $ 19,104     $ (359 )
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
               
Depreciation
    11,650       11,466  
Amortization of intangibles
    300       409  
Non-cash deferred compensation
    145       418  
Deferred income taxes
    4,292       349  
Noncontrolling interest in net earnings (loss) of subsidiary
    22       (52 )
Gain on purchase of stock – noncontrolling interest
    (6 )     (15 )
Loss on disposal of property, plant and equipment
    118       284  
 
               
Changes in assets and liabilities:
               
Accounts receivable
    (18,078 )     24,095  
Inventories
    (8,073 )     26,817  
Other assets
    4,382       1,945  
Accounts payable and accrued liabilities
    14,656       (18,558 )
Other liabilities
    (3,546 )     1,455  
 
           
Net cash provided by operating activities
    24,966       48,254  
 
           
 
               
CASH FLOWS FROM INVESTING ACTIVITIES:
               
 
               
Additions to property, plant and equipment
    (9,303 )     (10,946 )
Proceeds from sale of property, plant and equipment
    65       62  
Proceeds from working capital adjustment on Aerex acquisition
          1,200  
 
           
Net cash used in investing activities
    (9,238 )     (9,684 )
 
           
 
               
CASH FLOWS FROM FINANCING ACTIVITIES:
               
 
               
Repayment of Facility
          (28,900 )
Repayment of senior notes
    (5,715 )      
Retirement of capital lease obligations
          (1,660 )
Purchase of ZKM stock – noncontrolling interest
    (6 )     (33 )
Purchase of treasury stock
    (3,250 )      
Proceeds from exercise of stock options
    16       15  
 
           
Net cash used in financing activities
    (8,955 )     (30,578 )
 
           
 
               
Effect of exchange rate changes on cash and cash equivalents
    84       (179 )
 
           
INCREASE IN CASH AND CASH EQUIVALENTS
    6,857       7,813  
 
               
CASH AND CASH EQUIVALENTS, beginning of period
    19,917       4,903  
 
           
CASH AND CASH EQUIVALENTS, end of period
  $ 26,774     $ 12,716  
 
           
See accompanying notes to condensed consolidated financial statements.

 

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Ladish Co., Inc.
Notes to Condensed Consolidated Financial Statements
(Dollars in Thousands, Except Share Data)
(1) Basis of Presentation
In the opinion of the Company, the accompanying unaudited condensed consolidated financial statements contain all adjustments necessary to present fairly its financial position at September 30, 2010 and its results of operations and cash flows for the interim periods presented. All adjustments are of a normal recurring nature.
The accompanying unaudited consolidated condensed financial statements have been prepared in accordance with Article 10 of Regulation S-X and therefore do not include all disclosures required for annual financial statements presented 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, 2009 and 2008, and the related consolidated statements of operations, stockholders’ equity, and cash flows for the years ended December 31, 2009, 2008 and 2007.
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
                 
    September 30,     December 31,  
    2010     2009  
Raw materials
  $ 16,273     $ 18,038  
Work-in-process and finished goods
    87,669       77,209  
Less progress payments
    (3,090 )     (2,550 )
 
           
Total inventories
  $ 100,852     $ 92,697  
 
           
(3) Interest and Income Tax Payments
                 
    For the Nine Months  
    Ended September 30,  
    2010     2009  
Interest paid
  $ 4,584     $ 4,749  
Income taxes paid (refunded)
    3,641       (2,650 )

 

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(4) Cash and Cash Equivalents
Cash in excess of daily requirements is invested in marketable securities consisting of commercial paper and money market instruments which mature in three months or less. Such investments are deemed to be cash equivalents due to the high liquidity and short term duration of such money market accounts. The Company maintains deposits in financial institutions that consistently exceed the current FDIC limit of $250. The Company has not experienced any losses in such accounts and management believes the Company is not at significant risk. Outstanding payroll and accounts payable checks related to certain bank accounts are recorded as accounts payable on the balance sheets. These checks amounted to $3,489 and $105 as of September 30, 2010 and December 31, 2009, respectively.
(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 have been provided, the sales price is determinable and collectibility is reasonably assured. This 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 recognized as reductions of the related inventory costs. Progress payments in excess of inventory costs are reflected as a liability. The Company does not recognize revenue from the disposal of by-products. Any proceeds received from by-product disposal are considered an offset to cost of sales. The allowance for doubtful accounts is based on a review of sales reports, open deduction reports, trends in collections, historical experience and existing economic conditions. Bad debt write-offs occur upon notice of insolvency or other evidence of business closure. The Company has reviewed SEC Staff Accounting Bulletin No. 104 and believes its revenue recognition policy to be in compliance with FASB ASC 605-10-S99-1.
(6) Income Taxes
The year-to-date income tax provision for 2010 was based on an annualized combined federal, state and foreign effective rate of 36.2%, which differed from the statutory federal rate of 35% due primarily to state taxes offset by the benefit of the Domestic Production Activities deduction. In 2009, the Company had a tax provision of $228 despite a year-to-date loss due to domestic income being offset by a foreign loss.
(7) Pension and Postretirement Benefits
The components of net periodic benefit costs recognized for the nine-month periods ended September 30, 2010 and 2009 are presented in the table below.
                                 
                    Other  
    Pension Benefits     Postretirement Benefits  
    2010     2009     2010     2009  
Service cost
  $ 1,204     $ 1,010     $ 172     $ 143  
Interest cost
    8,194       8,891       1,236       1,426  
Expected return on plan assets
    (9,178 )     (9,949 )            
Amortization of prior service cost
    368       293       11       11  
Amortization of the net loss
    6,128       3,955       76       4  
 
                       
Net periodic benefit cost
  $ 6,716     $ 4,200     $ 1,495     $ 1,584  
 
                       

 

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The Company previously disclosed in its financial statements for the year ended December 31, 2009, that it expected to contribute $7,456 to its pension plans in 2010. As of September 30, 2010, the Company has made $9,109 of cash contributions to the pension plans versus $2,554 during the same period in 2009. The Company currently estimates its total contributions to its pension plans in 2010 will be $10,478.
In December 2003, the Medicare Prescription Drug, Improvement and Modernization Act of 2003 was enacted. The Company has concluded that certain benefits provided by its postretirement benefit plan are actuarially equivalent to Medicare Part D under the Act and has filed a refund request with the Claims Management Services, a division of the Health and Human Services Department. In the first nine months of 2010 and 2009, respectively, the Company received refunds of $54 and $159.
(8) Debt
On May 16, 2006, the Company sold $40,000 of Series B senior notes (the “Series B Notes”) in a private placement to certain institutional investors. The Series B Notes are unsecured and bear interest at a rate of 6.14% per annum with interest being paid semiannually. The Series B Notes have a ten-year duration with the principal amortizing equally over the duration after the fourth year. The first amortization payment of $5,715 was paid on May 17, 2010.
On September 2, 2008, the Company sold $50,000 of Series C senior notes (the “Series C Notes”) in a private placement to certain institutional investors. The Series C Notes are unsecured and bear interest at a rate of 6.41% per annum with interest being paid semiannually. The Series C Notes have a seven-year duration with the principal amortizing equally over the duration after the third year.
The Company’s Series B and Series C Notes contain financial covenants which (a) limit the incurrence of certain additional debt; (b) require a certain level of consolidated adjusted net worth; (c) require a minimum fixed charges coverage ratio; and (d) require a limited amount of funded debt to consolidated cash flow. The covenant on incurrence of additional debt limits funded debt to 60% of total capitalization. At September 30, 2010, funded debt at Ladish was at 23% of total capitalization. This covenant also limits priority debt to 20% of adjusted net worth. Ladish had no priority debt at September 30, 2010. The covenant on adjusted net worth requires a minimum of $112,829. At September 30, 2010, Ladish had $274,506 of adjusted net worth. The covenant on fixed charges coverage ratio requires that consolidated cash flow to fixed charges be a minimum of 2.00. The Company’s fixed charges coverage ratio at September 30, 2010 was 9.62. The final covenant on net debt to consolidated cash flow allows for a maximum level of 4.00. At September 30, 2010, the Company’s actual level was 1.05. The Note Agreement for the Series B and Series C Notes also contains customary representations and warranties and events of default.
The Company and a syndicate of lenders entered into a revolving credit facility (the “Facility”), which was most recently renewed on April 8, 2010. The Facility consists of a $35,000 unsecured revolving line of credit which bears interest at a rate of LIBOR plus 2.00% or at a base rate. At September 30, 2010, there were no borrowings under the Facility and $35,000 was available pursuant to the terms of the Facility. The Facility has a maturity date of April 7, 2011.
The Company and the syndicate of lenders participating in the Facility entered into Amendment No. 2 to the Facility. This Amendment, effective as of April 8, 2010, modified the covenant on minimum EBITDA by deleting that covenant and substituting in its place a covenant on the ratio of net debt to EBITDA. The covenant requires a maximum ratio of net debt to EBITDA to be no more than 3.50:1. As of September 30, 2010, the Company’s ratio was 1.05:1. The Facility also contains a covenant that requires a minimum fixed charge coverage ratio of 1.7x. As of September 30, 2010, the Company had a fixed charge coverage ratio of 4.26x.

 

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At September 30, 2010, the Company was in compliance with all covenants in the Series B and Series C Notes and the Facility.
(9) 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.
(10) Stockholders’ Equity
The Company has a Stock Option 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 943,833 options have been granted. These options expire ten years from the grant date. Options granted vest over two years. There were no options granted and 1,548 options were exercised in the nine months ended September 30, 2010. As of September 30, 2010, 3,000 options granted under the Plan remain outstanding and exercisable.
On May 5, 2010, at the 2010 Annual Stockholders’ Meeting of the Company, the stockholders of the Company approved the adoption of the Company’s 2010 Restricted Stock Unit Plan (the “Plan”). Subsequent to that meeting, the Company granted 400,000 restricted stock units under the Plan to certain employees and directors of the Company.
(11) 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. Although the Company believes that there are no material legal proceedings pending or threatened against the Company or any of its properties, the Company has been named as a defendant in a number of asbestos cases. As of the date of this filing, the Company has nine individual claims pending in Mississippi, one claim pending in Wisconsin and two individual claims pending in Illinois. The Company has never manufactured or processed asbestos. The Company’s only exposure to asbestos involves products the Company purchased from third parties. Given that the consortium of insurers are handling the defense of the Company, combined with the lack of actual exposure or prior negative judgments, the Company has not made any provision in its financial statements for the asbestos litigation.
The Company is also participating in an investigation initiated by U.S. Customs & Border Protection (“Customs”) into duty drawback claims filed on behalf of the Company by its former export agent. The Company is cooperating with Customs in this investigation. Based upon its internal investigation, the Company believes any errors or omissions with respect to its filings were solely attributable to its former export agent. The Company intends to continue to cooperate with Customs in resolving this matter. The Company believes that the ultimate resolution of the matter with Customs should occur in the near term and the Company has made adequate provisions in its financial statements for such a resolution.
(12) New Accounting Pronouncements
None.
(13) Subsequent Events
The Company is not aware of any subsequent events which would require recognition or disclosure in the financial statements.

 

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MANAGEMENT’S DISCUSSION
AND ANALYSIS OF RESULTS OF OPERATIONS AND
CHANGES IN FINANCIAL POSITION

(Dollars in Thousands, except per share data)
RESULTS OF OPERATIONS
Third Quarter 2010 Compared to Third Quarter 2009
Net sales for the three months ended September 30, 2010 were $100,280 compared to $76,191 for the same period in 2009. The amount of net sales for each of the three principal markets served by the Company were as follows for the periods indicated:
                                 
    Three Months Ended September 30,  
    2010     2009  
Jet Engine Components
  $ 49,866       50 %   $ 39,757       52 %
Aerospace Components
    35,696       36 %     28,365       37 %
General Industrial Components
    14,718       14 %     8,069       11 %
 
                       
Total
  $ 100,280       100 %   $ 76,191       100 %
 
                       
Gross profit for the third quarter of 2010 was 16.2% of net sales in contrast to 6.2% of net sales in the third quarter of 2009. The increase in gross profit in the third quarter of 2010 is primarily a result of improved productivity, lower employment levels and improved by-product sales along with an improved absorption of fixed costs by the increased level of net sales.
Selling, general and administrative expenses were $4,529 and $5,692 and, as a percentage of net sales, were 4.5% and 7.5% for the third quarters of 2010 and 2009, respectively. The percentage decrease in selling, general and administrative expenses was attributed to the higher costs associated with work force reductions in 2009.
Interest expense for the third quarter of 2010 was $1,363 in contrast to $1,428 for the same period in 2009. The lower interest expense in 2010 is due primarily to the reduced level of senior notes. During the third quarter of 2010, the Company’s revolving line of credit had an interest rate equal to the LIBOR rate plus 2.00% or at a base rate. Series B and Series C senior notes bore interest at the rate of 6.14% and 6.41%, respectively. The Company had no borrowings under the revolving line of credit facility and had $84,285 of senior notes outstanding at the end of the third quarter of 2010.
Pretax income for the third quarter of 2010 was $10,070 in contrast to a loss of $(3,030) for the same period in 2009. The increase in pretax income was due to the incremental sales increase, growth of by-product sales, significantly reduced expenses associated with employment reductions and reduced utility costs.
The 2010 third quarter income tax provision is based on an effective tax rate of 38.3%, which differed from the statutory federal rate of 35% due to state income taxes offset by the benefit of the Domestic Production Activities deduction. The 2009 tax benefit of $(780) was due to the pre-tax loss of $(3,030) in the third quarter.
The Company’s net income for the third quarter of 2010 was $6,218, an $8,427 increase from $(2,209) in net losses for the same quarter of 2009. Profitability increased from the prior period due to the increased sales levels, lower employment costs, improved productivity, higher by-product sales and lower utility costs. The Company’s contract backlog at September 30, 2010 was $536,511 in comparison to backlogs of $475,566 and $504,207 at September 30, 2009 and December 31, 2009, respectively.

 

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First Nine Months 2010 Compared to First Nine Months 2009
The Company had net sales of $298,635 during the first nine months of 2010 in contrast to $266,616 of net sales in the first three quarters of 2009. The amount of net sales for each of the three principal markets served by the Company were as follows for the periods indicated:
                                 
    Nine Months Ended September 30,  
    2010     2009  
Jet Engine Components
  $ 147,529       49 %   $ 144,549       54 %
Aerospace Components
    109,430       37 %     88,315       33 %
General Industrial Components
       41,676       14 %     33,752       13 %
 
                       
Total
  $ 298,635       100 %   $ 266,616       100 %
 
                       
In the first nine months of 2010, the Company had gross profits of $46,623, or 15.6% of net sales, in contrast to $18,383, or 6.9% of net sales, during the same period in 2009. The increase in gross income in 2010 is attributable to higher sales, improved productivity, lower employment levels and improved by-product sales.
The Company had selling, general and administrative expense of $12,761, or 4.3% of net sales, in the first nine months of 2010 in comparison to $14,007, or 5.3% of net sales, in the first three quarters of 2009. The decrease in selling, general and administrative expense in 2010 was due to lower employment costs in 2010.
The Company incurred interest expense of $4,257 in the first nine months of 2010 in comparison to $3,594 of interest expense in the equivalent period of 2009. The difference in interest expense between the periods is attributable to higher capitalization of interest in 2009 as the Company was in the process of finishing a major capital project in 2009.
Pretax income in the first nine months was $29,959, a $30,142 increase over the $(183) of pretax loss in the first nine months of 2009. The increase in pretax income in 2010 resulted from sales growth, lower employment levels, higher productivity, improved by-product sales and lower utility rates.
The year-to-date income tax provision for 2010 was based on an annualized combined federal, state and foreign effective rate of 36.2%, which differed from the statutory federal rate of 35% due primarily to state taxes offset by the benefit of the Domestic Production Activities deduction. In 2009, the Company had a tax provision of $228 despite a year-to-date loss due to domestic income being offset by a foreign loss.
The Company’s net income of $19,104, or $1.21 of diluted per share earnings, in the first nine months of 2010 reflects an increase of $19,463 from the loss of $(359), or $(0.02) of diluted losses per share in the first three quarters of 2009. The increase in net income reflects the impact of incremental sales growth, improved absorption of fixed costs, higher productivity, improved by-product sales and lower utility rates.

 

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Liquidity and Capital Resources
The Company’s cash position as of September 30, 2010 was $6,857 more than it was at December 31, 2009. For the first nine months of 2010, the Company generated $24,966 of cash from operating activities in contrast to $48,254 of cash from operations in the same period of 2009. The Company expended $9,303 and $10,946 of cash on capital expenditures in the first nine months of 2010 and 2009, respectively. The Company expects capital expenditures for the remainder of 2010 will be at a reduced level. The Company also expended $3,250 in the first three quarters of 2010 on the repurchase of 200,000 shares of the common stock of the Company, $5,715 on the retirement of long term debt and $9,109 was contributed to the Company’s pension trust in 2010 in comparison to $2,554 in 2009.
On May 16, 2006, the Company sold $40,000 of Series B Notes in a private placement to certain institutional investors. The Series B Notes are unsecured and bear interest at a rate of 6.14% per annum with interest being paid semiannually. The Series B Notes have a ten-year duration with the principal amortizing equally over the duration after the fourth year. The first amortization payment of $5,715 was paid on May 17, 2010.
On September 2, 2008, the Company sold $50,000 of Series C Notes in a private placement to certain institutional investors. The Series C Notes are unsecured and bear interest at a rate of 6.41% per annum with interest being paid semiannually. The Series C Notes have a seven-year duration with the principal amortizing equally over the duration after the third year.
The Company’s Series B and Series C Notes contain financial covenants which (a) limit the incurrence of certain additional debt; (b) require a certain level of consolidated adjusted net worth; (c) require a minimum fixed charges coverage ratio; and (d) require a limited amount of funded debt to consolidated cash flow. The covenant on incurrence of additional debt limits funded debt to 60% of total capitalization. At September 30, 2010, funded debt at Ladish was at 23% of total capitalization. This covenant also limits priority debt to 20% of adjusted net worth. Ladish had no priority debt at September 30, 2010. The covenant on adjusted net worth requires a minimum of $112,829. At September 30, 2010, Ladish had $274,506 of adjusted net worth. The covenant on fixed charges coverage ratio requires that consolidated cash flow to fixed charges be a minimum of 2.00. The Company’s fixed charges coverage ratio at September 30, 2010 was 9.62. The final covenant on net debt to consolidated cash flow allows for a maximum level of 4.00. At September 30, 2010, the Company’s actual level was 1.05. The Note Agreement for the Series B and Series C Notes also contains customary representations and warranties and events of default.
The Company and a syndicate of lenders entered into a revolving credit facility which was most recently renewed on April 8, 2010. The Facility consists of a $35,000 unsecured revolving line of credit which bears interest at a rate of LIBOR plus 2.00% or at a base rate. At September 30, 2010, there were no borrowings under the Facility and $35,000 was available pursuant to the terms of the Facility. The Facility has a maturity date of April 7, 2011.
The Company and the syndicate of lenders participating in the Facility entered into Amendment No. 2 to the Facility. This Amendment, effective as of April 8, 2010, modified the covenant on minimum EBITDA by deleting that covenant and substituting in its place a covenant on the ratio of net debt to EBITDA. The covenant requires a maximum ratio of net debt to EBITDA to be no more than 3.50:1. As of September 30, 2010, the Company’s ratio was 1.05:1. The Facility also contains a covenant that requires a minimum fixed charge coverage ratio of 1.7x. As of September 30, 2010, the Company had a fixed charge coverage ratio of 4.26x.
At September 30, 2010, the Company was in compliance with all covenants in the Series B and Series C Notes and the Facility.

 

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As of September 30, 2010 and December 31, 2009, the Company had net deferred tax assets of $27,262 and $31,666, respectively. Realization of net deferred tax assets is dependent upon the Company generating sufficient taxable income in future periods. In determining that realization of net deferred tax assets was more likely than not, the Company has given consideration to a number of factors including its recent earnings history, expectations for earnings in the future, the timing of reversal of temporary differences and tax planning strategies available to the Company. If, in the future, the Company determines that it is no longer more likely than not that 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.
The Company’s market capitalization at September 30, 2010 was $488,883. The increase in the trading price of the Company’s common stock from June 30, 2010 is believed to be related to overall improvement in the domestic equity markets and aerospace stocks in particular rather than any direct assessment of the Company.
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 the vast majority 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 Litigation 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
  Interest rates and capital costs     Technologies
  Unstable governments and business conditions in emerging economies     Raw material and energy prices
  Legal, regulatory and environmental issues     Taxes
  Health care costs        
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
Under the direction of the principal executive officer and principal financial officer, the Company has evaluated the effectiveness of its disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of September 30, 2010. Based on that evaluation, the chief executive officer and the chief financial officer have concluded that the Company’s disclosure controls and procedures were effective.
There were no significant changes in the Company’s internal controls over financial reporting or in other factors that could significantly affect these controls during the quarter ended September 30, 2010, including any corrective actions with regard to significant deficiencies and material weaknesses.

 

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PART II — OTHER INFORMATION
Item 5. Other Information
None.
Item 6. Exhibits
Exhibit 31.1 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 31.2 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 32.1 is the written statement of the chief executive officer and chief financial officer of the Company pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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.
 
 
  By:   /s/ Gary J. Vroman    
    Gary J. Vroman   
    President & Chief Executive Officer   
     
  By:   /s/ Wayne E. Larsen    
    Wayne E. Larsen   
    Vice President Law/Finance & Secretary   
Date: November 3, 2010

 

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