Item 1. Business
General
Ladish Co., Inc. ("Ladish" or the "Company") engineers, produces and markets high-strength, high-technology forged and formed metal components for a wide variety of load-bearing and fatigue-resisting applications in the jet engine, aerospace and industrial markets. Approximately 90% of the Company's 1999 billings were derived from the sale of jet engine parts, missile components, landing gear, helicopter rotors and other aerospace products. Approximately 20% of the Company's 1999 billings were derived from sales, directly or through prime contractors, under United States government contracts, primarily covering defense equipment. Although no comprehensive trade statistics are available, based on its experience and knowledge of the industry, management believes that the Company is the second largest supplier of forging products to the domestic aerospace industry, with an estimated 20% market share in the jet engine component field.
Recent Acquisitions
In February 1999 the Company's wholly-owned subsidiary, Stowe Machine Co., Inc. ("Stowe"), acquired the business and assets of Adco Manufacturing, Incorporated ("Adco"). Adco was combined into Stowe and the Stowe financial results are consolidated with those of the Company for the purpose of this Form 10-K Annual Report. In January 2000 the Company's newly created, wholly-owned subsidiary, Pacific Cast Technologies, Inc. ("PCT") merged with Wyman-Gordon Titanium Castings, LLC with PCT being the surviving entity. For purposes of this Form 10-K Annual Report the results of PCT are not reflected in the Company's financial results.
Products and Markets
The Company markets its forging products primarily to manufacturers of jet engines, commercial business and defense aircraft, helicopters, satellites, heavy-duty off-road vehicles and industrial and marine turbines. The principal forging markets served by the Company are jet engine, commercial aerospace (defined by Ladish as satellite, rocket and aircraft components other than jet engines) and general industrial forgings. The amount of revenue and the revenue as a percentage of total revenue by market were as follows for the periods indicated:
Years Ended December 31, 1997 1998 1999 ---- ---- ---- (Dollars in millions) Jet Engine Forgings................$153 73% $160 70% $124 73% Aerospace Forgings................. 35 17% 47 21% 27 16% General Industrial Forgings........ 22 10% 20 9% 19 11% ---- ---- ---- ---- ---- ---- Total.........................$210 100% $227 100% $170 100% ==== ==== ==== ==== ==== ====
Manufacturing
Ladish offers one of the most complete ranges of forging services in the world. The Company employs all major forging processes, including open and closed-die hammer and press forgings, as well as ring-rolling, and also produces near-net shape aerospace components through isothermal forging and hot-die forging techniques. Closed-die forging involves hammering or pressing heated metal into the required
shape and size by utilizing machined impressions in specially prepared dies which exert three-dimensional control on the heated metal. Open-die forging involves the hammering or pressing of metal into the required shape without such three-dimensional control, and ring-rolling involves rotating heated metal rings through presses to produce the desired shape.
Much of the Company's forging business is capital intensive, requiring large and sophisticated press, hammer and heating equipment and extensive facilities for inspection and testing of components after forging. Ladish believes that it has the largest forging hammer and largest ring-roll in the world at its plant in Cudahy, Wisconsin. Its largest counterblow forging hammer has a capacity of 125,000 mkg (meter-kilograms), and its ring-rolling equipment can produce single-piece seamless products that weigh up to 350,000 pounds with outside diameters as large as 28 feet and face heights up to 10 feet. Ladish's 4,500-ton and 10,000-ton isothermal presses can produce forgings, in superalloys as well as titanium, that weigh up to 2,000 pounds. Much of the equipment has been designed and built by Ladish. The Company also maintains such auxiliary facilities as die-sinking, heat-treating and machining equipment and produces most of the precision dies necessary for its forging operations. The Company considers such equipment to be in good operating condition and adequate for the purposes for which it is being used.
Marketing and Sales
The forging product sales force (consisting of 14 engineers), based in Cudahy, Wisconsin, is supported by the Company's metallurgical staff of approximately 100 engineers and technicians. These technically trained sales engineers, organized along product line and customer groupings, work with customers on an ongoing basis to monitor competitive trends and technological innovations. Additionally, sales engineers consult with customers regarding potential projects and product development opportunities. During the past few years, the Company has refocused its marketing efforts on the jet engine components market and the commercial aerospace industry.
The Company is actively involved with key customers in joint cooperative research and development, engineering, quality control, just-in-time inventory control and computerized process modeling programs. The Company has entered into strategic life-of-the-program contracts for a number of sole-sourced products with each of Allison, Sikorsky and Thyssen for major programs. The Company believes that these contracts are a reflection of the aerospace and industrial markets' recognition of the Company's manufacturing and technical expertise.
The research and development of jet engine components is actively supported by the Company's Advanced Materials and Process Technology Group. The Company's long-standing commitment to research and development is evidenced by its industry-recognized materials and process advancements such as processing aluminum-lithium, Udimet 720 and titanium aluminides. The experienced staff and fully equipped research facilities support Ladish sales through customer-funded projects. Management believes that these research efforts position the Company to participate in future growth in demand for critical advanced jet engine components.
Customers
The Company's top three customers, Rolls-Royce, United Technologies and General Electric, accounted for approximately 58% of the Company's revenues in 1997, 61% of the Company's revenues in 1998 and 60% of the Company's revenues in 1999. No other customer accounted for ten percent or more of the Company's sales.
Caterpillar, Volvo and Allison are also significant customers of the Company. Because of the relatively small number of customers for some of the Company's principal products, the Company's largest customers exercise significant influence over the Company's prices and other terms of trade.
A substantial portion of the Company's revenues is derived from long-term, fixed price contracts with major engine and aircraft manufacturers. These contracts are typically "requirements" contracts under which the purchaser commits to purchase a given portion of its requirements of a particular component from the Company. Actual purchase quantities are typically not determined until shortly before the year in which products are to be delivered. The Company attempts to minimize its risk by entering into fixed-price contracts with its raw material suppliers. Additionally, a portion of the Company's revenue is directly or indirectly related to government spending, particularly military and space program spending.
Research and Development
The Company maintains a research and development department which is engaged in applied research and development work primarily relating to the Company's forging operations. The Company works closely with customers, universities and government technical agencies in developing advanced forgings, materials and processes. The Company spent approximately $3.4 million, $4.5 million and $3.3 million on applied research and development work during 1997, 1998 and 1999, respectively.
Although the Company owns patents covering certain of its processes, the Company does not consider these patents to be of material importance to the Company's business as a whole. The Company considers certain other information that it owns to be trade secrets and the Company takes measures to protect the confidentiality and control the disclosure and use of such information. The Company believes that these safeguards adequately protect its proprietary rights and the Company vigorously defends these rights.
The Company owns or has obtained licenses for various trademarks, trademark registrations, service marks, service mark registrations, trade names, copyrights, copyright registrations, patent applications, inventions, know-how, trade secrets, confidential information and any other intellectual property that are necessary for the conduct of its business (collectively, "Intellectual Property"). The Company is not aware of any existing or threatened patent infringement claim (or of any facts that would reasonably be expected to result in any such claim) or any other existing or threatened challenge by any third party that would significantly limit the rights of the Company with respect to any such Intellectual Property or to the validity or scope of any such Intellectual Property. The Company has no pending claim against a third party with respect to the infringement by such third party or any such Intellectual Property that, if determined adversely to the Company, would individually or in the aggregate have a material adverse effect on the Company's financial condition or results of operations. While the Company considers all of its proprietary rights as a whole to be important, the Company does not consider any single right to be essential to its operations as a whole.
Raw Materials
Raw materials used by the Company in its forgings include alloys of titanium, nickel, steel, aluminum, tungsten and other high temperature alloys. The major portion of metal requirements for forged products are purchased from major metal suppliers producing forging quality material as needed to fill customer orders. The Company has two or more sources of supply for all significant raw materials.
The titanium and nickel-based superalloys used by the Company have a relatively high dollar value. Accordingly, the Company recovers and recycles scrap materials such as machine turnings, forging flash, solids and test pieces.
The Company's most significant raw materials consist of nickel and titanium alloys. Its principal suppliers of nickel alloys include Special Metals Corporation and Allegheny Technologies. Its principal suppliers of titanium alloys are Titanium Metals Corporation of America, Allegheny Technologies and RTI International. The Company typically has fixed-price contracts with its suppliers.
In addition, the Company, its customers and suppliers have undertaken active programs for supply chain management which are reducing overall lead times and the total cost of raw materials.
Backlog
The average amount of time necessary to manufacture the Company's products is five to six weeks from the receipt of raw material. The timing of the placement and filling of specific orders may significantly affect the Company's backlog figures, which are subject to cancellation for a variety of reasons. In addition, the Company typically only includes those contracts which will result in shipments within the next 12 to 18 months when compiling backlog and does not include the out years of long-term agreements. As a result, the Company's backlog may not be indicative of actual results or provide meaningful data for period-to-period comparisons. The Company's backlog was approximately $278 million, $243 million and $225 million as of December 31, 1997, 1998 and 1999, respectively.
Patents and Trademarks
The Company does not hold, by license or otherwise, any patents, trademarks, franchises or concessions whose loss or modification would materially affect its business in the aggregate.
Competition
The sale of forged metal components is highly competitive. Certain of the Company's competitors are larger than the Company, and have substantially greater capital resources. Although the Company is the sole supplier on several sophisticated components required by prime contractors under a number of governmental programs, many of the Company's products could be replaced with other similar products of its competitors. However, the significant investment in tooling, the time required and the cost of obtaining the status of a "certified supplier" are barriers to entry. Competition is based on quality (including advanced engineering and manufacturing capability), price and the ability to meet delivery requirements.
Environmental, Health and Safety Matters
The Company's operations are subject to many federal, state and local regulations relating to the protection of the environment and to workplace health and safety. In particular, the Company's operations are subject to extensive federal, state and local laws and regulations governing waste disposal, air and water emissions, the handling of hazardous substances, environmental protection, remediation, workplace exposure and other matters. Management believes that the Company is presently in substantial compliance with all such laws and does not currently anticipate that the Company will be required to expend any substantial amounts in the foreseeable future in order to meet
current environmental, workplace health or safety requirements. However, additional costs and liabilities may be incurred to comply with current and future requirements, which costs and liabilities could have a material adverse effect on the Company's results of operations or financial condition.
There are no known pending remedial actions or claims relating to environmental matters that are expected to have a material effect on the Company's financial position or results of operations. All of the properties owned by the Company, however, are located in industrial areas and have a history of heavy industrial use. These properties may potentially incur environmental liabilities in the future that could have a material adverse effect on the Company's financial condition or results of operations. The Company has been named a potentially responsible party at three "Superfund" sites. Although the Company does not believe that the amount for which it may be held liable will be material and has reserved approximately $250,000 for such loss, no assurance can be given that the amount for which the Company will be held responsible will not be significantly greater than expected. In connection with the sale of the Company's former Industrial Products Division ("IPD"), the Company has agreed to indemnify Trinity Industries, Inc. until May 29, 2001 against certain environmental liabilities that may arise with respect to the properties and operations of IPD relating to the period prior to closing.
Year 2000 Compliance
The Company installed a new computer operating system which is compliant with Year 2000 demands. The new system includes hardware, software, fiber-optic wiring and extensive training for numerous Company personnel. The project was initiated in 1997 and the Company implemented the system at the end of the third quarter of 1998. The Company did not experience any material operating issues with respect to Year 2000.
Forward Looking Statements
Any statements contained herein that are not historical facts are forward-looking statements within the meaning of the Private Securities Legislation Reform Act of 1995, and involve risks and uncertainties. These forward-looking statements include expectations, beliefs, plans, objectives, future financial performance, estimates, projections, goals and forecasts. Potential factors which could cause the Company's actual results of operations to differ materially from those in the forward-looking statements include market conditions and demand for the Company's products; competition; technologies; raw material prices; interest rates and capital costs; taxes; unstable governments and business conditions in emerging economies; and legal, regulatory and environmental issues. Any forward-looking statement speaks only as of the date on which such statement is made. The Company undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made.
Employees
As of December 31, 1999, the Company had approximately 1,001 employees, of whom 721 were engaged in manufacturing functions, 75 in executive and administrative functions, another 160 in technical functions, and 45 in sales and sales support. At such date, approximately 732 employees, principally those engaged in manufacturing, were represented by labor organizations under collective bargaining agreements. With the addition of PCT, the Company will add approximately 260 employees. The following table sets forth certain information with respect to the Company's collective bargaining agreements with its employees:
Number of Employees Represented by Collective Bargaining Union Expiration Date Agreement - ----- --------------- ------------- International Association of Machinists & February 20, 2000 317 Aerospace Workers, Local 1862 International Brotherhood of Boilermakers, September 24, 2000 175 Iron Ship Builders, Blacksmiths, Forgers & Helpers, Subordinate Lodge 1509 International Federation of Professional & August 20, 2000 112 Technical Engineers, Technical Group, Local 92 International Association of Machinists & March 26, 2000 67 Aerospace Workers, Die Sinkers, Local 140 Office & Professional Employees July 1, 2001 32 International Union, Clerical Group, Local 35 International Brotherhood of Electrical October 15, 2000 25 Workers, Local 662 Service Employees International, Local 150 April 23, 2000 4
Management
Name Age Position ---- --- -------- Kerry L. Woody.................48 President & CEO and Director Wayne E. Larsen................45 Vice President Law/Finance & Secretary and Director Gene E. Bunge..................54 Vice President, Engineering Robert J. Noel.................59 Vice President, Corp. Business Development/Technology George Groppi..................51 Vice President, Quality & Metallurgy David L. Provan................50 Vice President, Materials Management Gary J. Vroman.................40 Vice President, Sales & Marketing Lawrence C. Hammond............52 Vice President, Human Resources
Item 2.
Item 2. Properties
The following table sets forth the location and size of the Company's two facilities:
Approximate Approximate Acreage Square Footage ------------------- -------------- Cudahy, Wisconsin 184.5 1,650,000 Windsor, Connecticut 8.2 30,000 Albany, Oregon 14.0 90,000
The above facilities are owned by the Company. The Company also owns approximately 4 acres of land in Houston, Texas, which is currently vacant and for sale.
The Company believes that its facilities are well maintained, are suitable to support the Company's business and are adequate for the Company's present and anticipated needs. While the rate of utilization of the Company's manufacturing equipment is not uniform, the Company estimates that its facilities overall are currently operating at approximately 60% of capacity.
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.
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.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of security holders during the fourth quarter of 1999.
PART II
Item 5.
Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters
The common stock of the Company, par value $0.01 per share, trades on the Nasdaq National Market under the symbol "LDSH".
Prior to the registration of the common stock of the Company on March 9, 1998, limited trading of the common stock occurred in the over-the-counter market. These quotations for the pre-registration period reflect inter-dealer prices, without retail mark-up, mark-down or commission, and do not necessarily represent actual transactions. The following table sets forth, for the fiscal periods indicated, the high and low bid prices up until March 9, 1998 and the high and low sales prices for the periods thereafter. At December 31, 1999 there were approximately 250 beneficial holders of the Company's common stock.
Year Ended Year Ended Year Ended December 31, 1997 December 31, 1998 December 31, 1999 High Low High Low High Low ----------------- ----------------- ----------------- First quarter......$12.60 $9.90 $22.50 $13.50 $8.38 $6.72 Second quarter.....$13.50 $9.90 $15.62 $12.25 $8.31 $6.41 Third quarter......$22.80 $12.60 $13.12 $8.00 $8.63 $6.44 Fourth quarter.....$19.80 $17.10 $10.00 $6.56 $7.50 $5.84
The Company has not paid cash dividends and currently intends to retain all its earnings to finance its operations, its stock repurchase program and future growth. The Company does not expect to pay dividends for the foreseeable future.
Item 6.
Item 6. Selected Financial Data
The selected financial data have been derived from the Financial Statements of the Company and have been audited. The financial data set forth below as of December 31, 1995, 1996, 1997, 1998 and 1999 and for the years ended December 31, 1995, 1996, 1997, 1998 and 1999 are derived from the Financial Statements prepared of the Company which have been audited by Arthur Andersen LLP, independent public accountants.
The data below should be read in conjunction with the Financial Statements and the Notes thereto and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this filing.
Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Results of Operations
Year Ended December 31, 1999 Compared to Year Ended December 31, 1998
In 1999, net sales at the Company were $170.2 million, a 25% decline from the level of 1998 sales. This reduction in revenue was attributable to two significant equipment failures, one at the Company and one at the Company's joint venture partner, and to the overall softening of the aerospace supply market in 1999. Gross profit for the year ended December 31, 1999 was $19.2 million, or 11.3% of sales, in contrast to $32.6 million, or 14.4% of sales, for 1998 due to the decrease in sales.
Selling, general and administrative expenses were $7.2 million, or 4.2% of sales, in fiscal 1999 in comparison to $8.1 million, or 3.6% of sales, in 1998. The increase in the expenses as a percentage of sales reflects the impact of the sales reduction and the fixed nature of a portion of these expenses.
Interest expense for the year ended December 31, 1999 was $.8 million in contrast to interest expense of $1.3 million in fiscal 1998. The reduction in interest expense was the result of decreased levels of debt and reduced interest rates. As of December 31, 1999 the Company's senior debt had an interest rate equal to LIBOR plus 0.75% as opposed to an interest rate equal to commercial paper plus 1.5% at December 31, 1998.
Income before taxes for 1999 was $11.4 million in comparison to pretax income of $23.7 for 1998. The decrease in pretax income was directly due to the reduction in sales from 1999 to 1998.
The 1999 tax provision of $1.7 million, an implied rate of 15%, primarily reflects a non-cash accounting charge associated with the Company's use of its net operating losses ("NOLs"). The reversal of valuation allowances relating to pre-restructuring NOLs requires the Company to record a tax provision and to reflect the offset as an addition to paid-in capital, rather than as an offset to the provision for income taxes. The Company intends to continue to use its NOLs in the future to reduce actual payment of federal income taxes. The future use of the NOLs is subject to certain statutory restrictions. See "Liquidity and Capital Resources."
At December 31, 1999 contract backlog at the Company was $225 million. This represents a 7% reduction from the $243 million of contract backlog at the end of 1998. The decline in backlog is attributable to decreased raw material prices, shortened lead-times and inventory adjustments at aerospace customers.
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997.
For the third year in a row, net sales for the year ended December 31, 1998 increased over the prior year. In fiscal 1998 the Company had $226.8 million in net sales, an 8% increase over the $209.8 million in net sales in fiscal 1997. The Company attributed the growth in sales to the continued strength of the commercial aerospace sector which drove the demand for jet engine components. In addition, the Ladish sales improvement in 1998 was also the result of attention to bettering on-time deliveries and internal operating efficiencies. Gross profit in 1998 increased to $32.6 million due largely to increased net sales.
In 1998, selling, general and administrative expenses, as a percentage of sales, were 3.6% in comparison to 3.5% in 1997. The increase is attributable to larger foreign sales which incur additional selling expenses for travel and the increase in sales commissions.
The Company incurred interest expense of $1.3 million in 1998 in comparison to $3.3 million in 1997, a decrease of $2 million. The decrease of interest expense was attributable to (i) the repayment of the Subordinated Notes issued in late 1995 and early 1996, see "Liquidity and Capital Resources"; (ii) lower loan balances of senior debt; and (iii) reduced interest rates. As of December 31, 1998, the Company's senior debt had an effective interest rate equal to the commercial paper rate plus 1.5% per annum (reduced from 2.0% as of April 1, 1998). Effective interest rates averaged 7.4% during 1998 compared to 8.3% during 1997.
Income before taxes for 1998 was $23.7 million for the Company in comparison to pretax income of $20.5 million for 1997. The increase in pretax income was primarily related to the increase in sales from one period to the next and the reduction in interest expense.
The 1998 tax provision of $2.4 million, an implied rate of 10%, represents a non-cash accounting charge. The reversal of valuation allowances relating to pre-restructuring NOLs requires the Company to record a tax provision and to reflect the offset as an addition to paid-in capital, rather than as an offset to the provision for income taxes.
Contract backlog at December 31, 1998 was $243 million, compared to $278 million at December 31, 1997, a decrease of 12%, due to increased raw material availability, shortened leadtimes and current aerospace global demand.
Liquidity and Capital Resources
As of July 1, 1999, the Company entered into a new credit facility (the "New Facility") with a syndicate of lenders. The New Facility provides for borrowings of up to $100 million subject to certain limitations. Borrowings under the New Facility are unsecured and will initially be structured as revolving loans with the option of conversion into term loans. Borrowings under the New Facility bear interest at a rate of LIBOR plus 0.75% per annum. Proceeds from the New Facility were used to terminate the prior credit agreement on July 1, 1999. At December 31, 1999, approximately $48.6
million was available and undrawn under the New Facility. There were no borrowings under the New Facility as of December 31, 1999.
On March 13, 1998 the Company successfully completed an initial public offering for 2,336,000 shares of common stock (the "IPO"). The Company received approximately $29.5 million in proceeds from the IPO, after underwriting discounts and commissions. Those proceeds were utilized by the Company to reduce its pension liability, redeem the Subordinated Notes and repay a portion of the outstanding indebtedness under the Revolving Credit Facility. Subsequent to the IPO, the underwriters elected to purchase additional shares of common stock from the Company which resulted in the Company receiving approximately $6.3 million in additional proceeds. These additional proceeds along with approximately $7.0 million of proceeds and satisfaction of debt from the exercise of warrants were used to repay the remaining outstanding balance under the Revolving Credit Facility.
In December 1995, the Company issued a total of $4.0 million of its 12% senior subordinated secured notes due December 22, 2000 (the "Subordinated Notes") to certain stockholders. In February 1996, the Company completed a second offering of Subordinated Notes when it issued an additional $5.3 million of Subordinated Notes to certain other stockholders. On March 31, 1998 the Company redeemed the Subordinated Notes by repaying the outstanding face value of the Subordinated Notes plus accrued interest thereon.
The Company has net operating loss ("NOL") carryforwards, which were generated prior to a financial restructuring that was completed on April 30, 1993, as well as NOL carryforwards that were generated in subsequent years. The total remaining NOL carryforwards were approximately $50 million as of December 31, 1999. The NOL carryforwards expire gradually beginning in the year 2007 through 2010.
The Company's IPO created an ownership change as defined by the Internal Revenue Service ("IRS"). This ownership change generated an IRS imposed limitation on the utilization of NOL carryforwards on future tax returns. The annual use of the NOL carryforwards is limited to the lesser of the Company's taxable income or the amount of the IRS imposed limitation. Approximately $12 million of the NOL carryforwards is available for use annually. Approximately $2 million of the $12 million annual limitation relates to a previous restriction on NOL carryforwards generated prior to the financial restructuring.
Based on the limitations described above and certain other factors, a valuation allowance has been recorded against the entire amount of the net deferred tax assets. Any tax benefit that is realized in subsequent years from the reduction of the valuation allowance established at or prior to the financial restructuring will be recorded as an addition to paid-in capital. Any tax benefit that is realized in subsequent years from the utilization of deferred tax assets created after April 30, 1993, will be recorded as a reduction of future income tax provisions.
Under the common stock repurchase program authorized by the Company's Board of Directors, the Company repurchased 1,516,768 shares of its common stock, or common stock equivalents, as of December 31, 1999. The Company funded this repurchase program with approximately $8.5 million of the cash generated from operations. Inflation has not had a material effect upon the Company during the period covered by this report. Given the products manufactured by the Company and the raw materials used therein, the Company does not anticipate any significant impact from inflation in the foreseeable future.
Item 7.A. Quantitative and Qualitative Disclosures about Market Risk
The Company believes that its exposure to market risk related to changes in foreign currency exchange rates and trade accounts receivable is immaterial.
Item 8.
Item 8. Financial Statements and Supplementary Data
The response to Item 8. Financial Statements and Supplementary Data incorporate by reference the information listed in the index to consolidated financial statements and accompanying schedules beginning on page.
Item 9.
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.
Item 10. Directors and Executive Officers of the Registrant
Certain information called for by this Item is incorporated herein by reference to the Proxy Statement for the Annual Meeting of Stockholders filed herewith as an Exhibit.
The list of Executive Officers in Part I, Item 1. Business, paragraph captioned "Executive Officers of the Registrant" is incorporated by reference. The list of Directors of the Company is as follows:
Name Age Lawrence L. Bianchi 58 Charles W. Finkl 79 Wayne E. Larsen 45 Robert W. Sullivan 41 Kerry L. Woody 48
Other information required by Item 401 of Regulation S-K is as follows:
Lawrence W. Bianchi, 58. Director since 1998. Mr. Bianchi in 1993 retired as the Managing Partner of the Milwaukee, Wisconsin office of KPMG Peat Marwick. From 1994 to 1998 Mr. Bianchi served as CFO of the law firm of Foley & Lardner. Mr. Bianchi's principal occupation is investments.
Gene E. Bunge, 54. Mr. Bunge has served as Vice President, Engineering since November 1991. From 1985 until that time he was General Manager of Engineering. Mr. Bunge has been with the Company since 1973. He has a B.S.E.E. from the Milwaukee School of Engineering.
Charles W. Finkl, 79. Director since 1998. Mr. Finkl is a director and the Chairman and Chief Executive Officer of A. Finkl & Sons, Co., a Chicago, Illinois based metals processor, a position he has held for more than ten years.
George Groppi, 51. Mr. Groppi has served as Vice President Quality and Metallurgy since September 1999. He was named Manager of Product Metallurgy in 1992. In 1994 he was appointed Manager of Production Control and recently assumed the position of Manager of Quality & Metallurgy. Mr.
Groppi has been with the Company since 1969. He holds a B.S. in Mechanical Engineering from Marquette University.
Lawrence C. Hammond, 52. Mr. Hammond has served as Vice President, Human Resources since January 1994. Prior to that time he had served as Director of Industrial Relations at the Company and he had been Labor Counsel at the Company. Mr. Hammond has been with the Company since 1980. He has a B.A. and a Masters in Industrial Relations from Michigan State University and a J.D. from the Detroit College of Law.
Wayne E. Larsen, 45. Director since 1997. Since 1995 Mr. Larsen has been Vice President Law/Finance and Secretary of the Company. He served as General Counsel and Secretary from 1989 after joining the Company as corporate counsel in 1981. He is also a director and Vice President and Secretary of Stowe Machine Co., Inc. Mr. Larsen is a Trustee of the Ladish Co. Foundation and a director of the Wisconsin Foundation for Independent Colleges. Mr. Larsen has a B.A. from Marquette University and a J.D. from Marquette Law School.
Robert J. Noel. 59. Mr. Noel has served as Vice President Corporate Business Development/ Tech-nology since September 1999. He had been Vice President, Quality and Technology since March 1991. He had been Manager of Metallurgy since 1985 and prior to that period was a Product Metallurgist for jet engine components. Mr. Noel has been with the Company since 1963. He has a B.S. in Mechanical Engineering from Marquette University.
David L. Provan, 50. Mr. Provan has served as Vice President, Materials Management since September 1999. Prior to that time he had been Purchasing Manager, Raw Materials, and Head Buyer. Mr. Provan has been with the Company since 1979. He has a Bachelor's Degree in Business Administration from the University of Wisconsin-Parkside.
Robert W. Sullivan, 41. Director since 1993. Mr. Sullivan is President of The Plitt Company, a seafood distribution concern. Previously Mr. Sullivan had been President of The Martec Group, a sales and marketing consulting group for more than five years.
Gary J. Vroman, 40. Mr. Vroman has served as Vice President, Sales and Marketing since December 1995. From January 1994 to December 1995 he was General Manager of Sales. Prior to that period he had been the Product Manager for jet engine components. Mr. Vroman has been with the Company since 1982. He has a B.S. in Engineering from the University of Illinois and a M.S. in Engineering Management from the Milwaukee School of Engineering.
Kerry L. Woody, 48. Director since 1997. Mr. Woody has been President since 1995 and was appointed Chief Executive Officer of the Company in 1998. Prior to that time he was Vice President-Operations, Vice President-Manufacturing Services and Production Manager. He joined the Company in 1975. Mr. Woody is also a director and Vice President of Stowe Machine Co., Inc. In addition, Mr. Woody serves as a Director of Vilter Manufacturing Co. and Milwaukee Lutheran College. Mr. Woody has a B.S. in Engineering from Milliken University.
Item 11.
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.
Item 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.
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.
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 which is a part of this report.
Reports on Form 8-K. The Company has not filed any reports on Form 8-K during the fourth quarter of 1999.
LADISH CO., INC.
CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 1998 AND 1999 TOGETHER WITH REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of Ladish Co., Inc.:
We have audited the accompanying consolidated balance sheets of Ladish Co., Inc. and subsidiaries, a Wisconsin corporation, as of December 31, 1998 and 1999, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the years in the three year period ended December 31, 1999. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Ladish Co., Inc. and subsidiaries as of December 31, 1998 and 1999, and the results of their operations and their cash flows for each of the years in the three year period ended December 31, 1999 in conformity with generally accepted accounting principles.
/s/ Arthur Andersen LLP --------------------------------- ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin January 28, 2000
LADISH CO., INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1999
(Dollars in Thousands Except Per Share Data)
ASSETS 1998 1999 ------ --------- --------- CURRENT ASSETS: Cash and cash equivalents $5,517 $1,008 Accounts receivable, less allowance of $300 35,409 25,222 Inventories 40,983 42,427 Prepaid expenses and other current assets 276 238 --------- --------- Total current assets 82,185 68,895
PROPERTY, PLANT AND EQUIPMENT: Land and improvements 3,855 3,855 Building and improvements 14,925 15,912 Machinery and equipment 112,279 120,526 Construction in progress 5,893 5,562 --------- --------- 136,952 145,855 Less- Accumulated depreciation (50,981) (62,648) --------- ---------
Net property, plant and equipment 85,971 83,207
OTHER ASSETS 4,737 7,481 --------- --------- Total assets $172,893 $159,583 ========= =========
The accompanying notes to consolidated financial statements are an integral part of these statements.
LADISH CO., INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1999
(Dollars in Thousands Except Per Share Data)
LIABILITIES AND STOCKHOLDERS' EQUITY 1998 1999 ------------------------------------ ----- ----
CURRENT LIABILITIES: Current portion of senior debt $ 2,250 $ - Accounts payable 16,194 12,548 Accrued liabilities- Pensions 738 504 Postretirement benefits 5,488 5,551 Wages and salaries 4,045 3,107 Taxes, other than income taxes 272 227 Interest 36 54 Profit sharing 2,720 958 Paid progress billings 6,767 5,556 Other 3,626 1,383 -------- -------- Total current liabilities 42,136 29,888
LONG-TERM LIABILITIES: Senior debt-less current portion 1,250 - Pensions 16,013 12,947 Postretirement benefits 42,762 40,929 Officers' deferred compensation 1,409 1,745 Other noncurrent liabilities 677 607 -------- -------- Total liabilities 104,247 86,116
STOCKHOLDERS' EQUITY: Common stock-authorized 100,000,000, issued and outstanding 14,013,667 and 14,318,406 shares in each period of $.01 par value 140 143 Additional paid-in capital 81,661 80,293 Accumulated deficit (11,462) (1,759) Treasury stock, 222,754 and 770,672 shares, respectively, of common stock, at cost (1,693) (5,210) -------- -------- Total stockholders' equity 68,646 73,467 -------- -------- Total liabilities and stockholders' equity $172,893 $159,583 ======== ========
The accompanying notes to consolidated financial statements are an integral part of these statements.
LADISH CO., INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in Thousands Except Per Share Data)
Years Ended December 31, ---------------------------- 1997 1998 1999 -------- -------- --------
NET SALES $209,816 $226,767 $170,241
COST OF SALES 178,051 194,125 151,065 -------- -------- --------
Gross profit 31,765 32,642 19,176
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 7,378 8,085 7,186 -------- -------- --------
Income from operations 24,387 24,557 11,990
OTHER (INCOME) EXPENSE: Interest expense, net 3,334 1,256 810 Other, net 549 (446) (236) -------- --------- -------
Income before provision for income taxes 20,504 23,747 11,416
PROVISION FOR INCOME TAXES 1,602 2,375 1,713 -------- -------- --------
Net income $ 18,902 $ 21,372 $ 9,703 ======== ======== ========
EARNINGS PER SHARE: Basic $3.63 $1.76 $0.71 Diluted $1.52 $1.55 $0.67
The accompanying notes to consolidated financial statements are an integral part of these statements.
The accompanying notes to consolidated financial statements are an integral part of these statements.
The accompanying notes to consolidated financial statements are an integral part of these statements.
LADISH CO., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands Except Share and Per Share Data)
(1) Business Information-
Ladish Co., Inc. (the "Company") engineers, produces and markets high-strength, high-technology forged and formed metal components for a wide variety of load-bearing and fatigue-resisting applications in the engine, aerospace and industrial markets, for both domestic and international customers. The Company operates as a single segment. Net sales to the engine, aerospace and industrial markets were approximately 73%, 16% and 11%, respectively, of total Company net sales in 1999.
Through May 30, 1997, the Company operated facilities located in Cudahy, Wisconsin; Russellville, Arkansas; and Cynthiana, Kentucky. In February 1997, the Board of Directors approved the disposition of the Company's Industrial Products Division ("IPD") which included the facilities located in Arkansas and Kentucky. The disposal date was May 30, 1997, however, the impact of the discontinued operations were accounted for in 1996. Substantially all IPD assets were sold to a third party buyer for approximately $36,500 in cash subject to a working capital adjustment. Ten percent of the cash proceeds ($3,650) was placed in an escrow account to secure certain representations made by the Company in connection with the sale. In 1999, all contingencies were resolved and the funds placed in escrow were collected.
In June 1997, the Company acquired Stowe Machine Co., Inc. ("Stowe"), a finished machining operation located in Windsor, Connecticut. In February 1999, the Company acquired Adco Manufacturing, Incorporated ("Adco"), a finished machining operation. Adco was relocated and merged operations with Stowe in Windsor, Connecticut.
The Company has three customers that each accounted for more than 10% of total Company net sales in 1997, 1998 and 1999, respectively, and collectively accounted for approximately 58%, 61% and 60%, respectively, of total Company net sales.
Exports accounted for approximately 42%, 44% and 44% of total Company net sales in 1997, 1998 and 1999, respectively, with exports to Europe constituting approximately 32%, 36% and 38%, respectively, of total Company net sales.
As of December 31, 1999, approximately 73% of the Company's employees were represented by one of seven collective bargaining units. The collective bargaining agreements with most of these units will expire during the year 2000. The Company does not anticipate that work stoppages will arise in connection with the renewal of these agreements in the future.
(2) Summary of Significant Accounting Policies-
(a) Outstanding checks-
Outstanding payroll and accounts payable checks related to certain bank accounts are recorded as accounts payable in the accompanying balance sheets. These checks amounted to $2,144 and $2,037 as of December 31, 1998 and 1999, respectively.
(b) Inventories-
Inventories are stated at the lower of cost or market using the first-in, first-out (FIFO) valuation method. Inventory values include material and conversion costs.
Inventories consist of the following: December 31, ---------------------- 1998 1999 --------- --------- Raw materials $16,546 $15,215 Work-in-process and finished 27,713 29,500 --------- --------- 44,259 44,715 Less progress payments (3,276) (2,288) --------- --------- Total inventories $40,983 $42,427 ========= =========
(c) Property, plant and equipment-
Additions to property, plant, and equipment are recorded at cost. Tooling costs are expensed as incurred. Depreciation is provided using the straight-line method over the estimated useful lives of the assets, as follows:
Land improvements 30 or 39 years Buildings and improvements 30 or 39 years Machinery and equipment 5 to 12 years
(d) Goodwill-
Goodwill represents the excess of the purchase price over the fair value of identifiable net assets relating to the 1997 acquisition of Stowe and the 1999 acquisition of Adco. Goodwill is included in other assets and is being amortized on a straight-line basis over 20 years. As of December 31, 1999, unamortized goodwill amounted to $6,709. Amortization expense was $24, $43 and $316 in 1997, 1998 and 1999, respectively. The Company evaluates goodwill to assess recoverability from future operations. Impairments are recognized in operating results to the extent that carrying value exceeds fair value.
(e) Revenue recognition-
Sales revenue is recognized when products are shipped. Net sales include reductions for returns and allowances, sales discounts and freight out. Progress payments on contracts are generally recognized as a reduction of the related inventory costs. Progress payments in excess of inventory costs are reflected as deferred revenue.
(f) Income taxes-
Deferred income taxes are provided at the enacted marginal rates on the difference between the financial statement and income tax basis of assets and liabilities. Deferred income tax provisions or benefits are based on the change in the deferred tax assets and liabilities from period to period.
(g) Consolidation-
The consolidated financial statements include the accounts of the Company and all of its subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.
(h) Use of estimates-
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.
(i) Reclassification-
Certain reclassifications have been made to the 1997 and 1998 financial statements to conform with the 1999 presentation.
(3) Debt-
Senior debt-
On July 1, 1999, the Company entered into a new credit facility (the "New Facility") with a syndicate of lenders. The New Facility provides for borrowings of up to $100,000 subject to certain limitations. Borrowings under the New Facility are unsecured and will initially be structured as revolving loans with the option of conversion into term loans. Borrowings under the New Facility bear interest at a rate of LIBOR plus 0.75% per annum. Proceeds from the New Facility were used to terminate the prior credit agreement on July 1, 1999. As of December 31, 1999, approximately $48,600 was available and undrawn under the New Facility. The balance of the borrowings under the New Facility as of December 31, 1999 was $0.
Senior subordinated secured notes and warrants-
In 1995 and 1996, the Company issued senior subordinated notes ("Notes") to two of the Company's largest stockholders. The noteholders also received warrants with each Note purchased. Each warrant entitles the holder to purchase one share of common stock for $1.20 per share. The exercise price may be paid in cash, or by the surrender of already outstanding Ladish common stock, or other warrants having a fair value equal to the exercise price. The warrants expire ten years from the date of issuance. In March 1998, the Notes were paid in full.
Warrants outstanding and exercisable were 7,608,932, 1,732,964 and 660,787 for the years ended December 31, 1997, 1998 and 1999, respectively.
(4) Stockholders' Equity-
In December 1997, the Company's articles of incorporation were amended to provide for a 1-6 reverse split of the common stock. All common stock amounts have been adjusted for this reverse split.
In March 1998, the Company sold 2,837,138 shares in an initial offering ("IPO") at a per share price of $13.50. The net IPO proceeds to the Company of approximately $35,000 were used to repay subordinated debt and a portion of outstanding indebtedness under the Company's senior credit facility and to contribute to certain underfunded pension plans. In addition, the Company received total cash proceeds of $6,951 from the exercise of warrants during 1998.
Under the common stock repurchase program authorized by the Company's Board of Directors, the Company repurchased 547,918 shares of its common stock and 746,096 warrants during 1999. The Company funded this repurchase program with approximately $6,800 of the cash generated from operations. As of December 31, 1999, the Company has repurchased a total of 1,517,798 shares of its common stock, or common stock equivalents for a total of approximately $8,500 under the repurchase program.
The Company has a Long-Term Incentive Plan (the "Plan") that covers certain employees. Under the Plan, incentive stock options may be granted to employees of the Company which expire ten years from the grant date. In September 1996, the Company issued 433,333 options under the Plan. These options vest over four years. During 1998 and 1999, the Company issued 320,000 and 76,000 options, respectively, under the Plan. These options vest over two years. As of December 31, 1999, 713,416 of these options remain outstanding. The Company has reserved 6,500 shares for future issuance under the Plan.
The Company accounts for its option grants using the intrinsic value based method pursuant to APB Opinion No. 25 and Statement of Financial Accounting Standards No. 123 ("SFAS 123") under which no compensation expense was recognized in 1997, 1998 and 1999. Had compensation cost for these options been determined pursuant to the fair value method under SFAS 123, the Company's pro forma net income and diluted earnings per share would have been as follows:
1997 1998 1999 ----------------- ----------------- --------------- As Pro As Pro As Pro Reported Forma Reported Forma Reported Forma -------- -------- -------- -------- -------- ------
Net income $18,902 $17,439 $21,372 $20,603 $9,703 $9,202
Diluted earnings $1.52 $1.40 $1.55 $1.49 $0.67 $0.63 per share
Because the SFAS 123 method of accounting has not been applied to options granted prior to January 1, 1995, and additional awards in future years are anticipated, the effect of applying SFAS 123 in the above pro forma disclosure is not necessarily indicative of future results.
The fair value of the option grants in 1999 used to compute the pro forma amounts above was estimated based on vesting of the grants using the Black-Scholes option pricing model with the following assumptions: weighted average risk free interest rate of 5.72%, weighted-average expected remaining lives of 10 years, weighted-average volatility factor of 45.11%, and a weighted-average Black-Scholes option price of $5.06.
The options outstanding as of December 31, 1999 consist of the following:
Weighted Average Average Range of Number of Options Exercise Price Remaining Exercise ------------------------ ------------------------ Contractual Prices Outstanding Exercisable Outstanding Exercisable Life ----------- ----------- ----------- ----------- ----------- -----------
$5 to $10 713,416 477,416 $ 7.24 $ 6.75 7.89 $10 to $15 220,528 220,528 12.00 12.00 3.33 $15 to $20 165,396 165,396 18.00 18.00 3.33 $20 to $25 110,264 110,264 21.00 21.00 3.33 --------- ------- ------ ------ ---- 1,209,604 973,604 $10.83 $11.47 6.02 ========= ======= ====== ====== ====
(5) Research and Development-
Research and Development costs are expensed as incurred. These costs were $3,427, $4,503 and $3,265 in 1997, 1998 and 1999, respectively. Research and Development costs funded by customers, amounting to $1,071, $2,310 and $862 in 1997, 1998 and 1999, respectively, have been recorded as sales.
Revenues from Research and Development funded by customers are recognized when the related product is shipped or the services are provided.
(6) Leases-
Certain office and warehouse facilities and equipment are leased under noncancelable operating leases expiring on various dates through the year 2004. Rental expense was $304, $283 and $261 in 1997, 1998 and 1999, respectively.
Minimum lease obligations under noncancelable operating leases are as follows:
2000 $104 2001 85 2002 74 2003 45 2004 and thereafter 45 ----- Total $353 =====
(7) Income Taxes-
The Company has net operating loss ("NOL") carryforwards, which were generated prior to a financial restructuring that was completed on April 30, 1993, as well as NOL carryforwards that were generated in subsequent years. The total remaining NOL carryforwards were approximately $50,000 as of December 31, 1999. The NOL carryforwards expire gradually beginning in the year 2007 through 2010.
The Company's IPO created an ownership change as defined by the Internal Revenue Service, ("IRS"). This ownership change generated an IRS imposed limitation on the utilization of NOL carryforwards on future tax returns. The annual use of the NOL carryforwards is limited to the lesser of the Company's taxable income or the amount of the IRS imposed limitation. Approximately $12,000 of the NOL carryforwards is available for use annually. Approximately $2,100 of the $12,000 annual limitation relates to a previous restriction on NOL carryforwards generated prior to the financial restructuring.
Based on the limitations described above and certain other factors, a valuation allowance has been recorded against the entire amount of the net deferred tax assets. Any tax benefit that is realized in subsequent years from the reduction of the valuation allowance established at or prior to the financial restructuring will be recorded as an addition to paid-in-capital. Any tax benefit that is realized in subsequent years from the utilization of deferred tax assets created after April 30, 1993, will be recorded as a reduction of future income tax provisions.
Components of the deferred income taxes are as follows:
December 31, ------------------ 1998 1999 ------ ------ Current deferred tax assets: Inventory adjustments $1,719 $ 585 Accrued employee costs 1,333 1,340 Pension benefits - 50 Postretirement healthcare benefits 2,195 2,220 Other 1,042 391 ------ ------ Total current deferred tax assets 6,289 4,586
Current valuation allowance (6,289) (4,586) ------ ------ Net current deferred taxes $ - $ - ====== ======
December 31, ------------------ 1998 1999 ------ -------- Noncurrent deferred tax assets and (liabilities): Property, plant and equipment $(18,028) $(16,617) Operating loss carryforwards 20,965 20,198 Pension benefits 6,969 5,720 Postretirement healthcare benefits 17,105 16,372 Other 119 52 -------- ------- Total net noncurrent deferred tax assets 27,130 25,725
Noncurrent valuation allowance (27,130) (25,725) -------- -------- Net noncurrent deferred taxes $ - $ - ======== ========
A summary of the Company's effective tax rates is as follows:
1997 1998 1999 ------ ------- -------
Pretax book income $20,504 $23,747 $11,416 ======= ======= =======
Federal tax at statutory rate $7,176 $8,311 $3,996 State tax at statutory rate 1,025 1,187 571 Post restructuring net operating losses utilized (6,599) (7,123) (2,854) ------- ------- ------- Total provision $ 1,602 $2,375 $1,713 ======= ======= ======= Effective tax rate 7.8% 10.0% 15.0% ======= ======= =======
(8) Pensions and Post-Retirement Benefits-
The Company has noncontributory defined benefit pension plans ("Plans") covering substantially all employees. Plans covering salaried and management employees provide pension benefits that are based on the highest five consecutive years of an employee's compensation during the last ten years prior to retirement. Plans covering hourly employees and union members generally provide benefits of stated amounts for each year of service. The Company's funding policy is to contribute annually an
amount equal to or greater than the minimum amount required under the Employee Retirement Income Security Act of 1974. The Plans' assets are primarily invested in U.S. Government securities, corporate bonds and common stocks.
In addition to pension benefits, employees are provided certain postretirement healthcare and life insurance benefits. Substantially all of the employees may become eligible for these benefits when they retire. The Company accrues, as current costs, the future lifetime retirement benefits for both active and retired employees and their dependents. Steps have been taken by the Company to reduce the amount of the future obligation for postretirement healthcare benefits of future retirees by capping the amount of funds payable on behalf of the retirees.
The following is a reconciliation of the change in benefit obligation and plan assets for the years ended December 31, 1998 and 1999:
The components of the net periodic benefit costs for the years ended December 31, 1997, 1998 and 1999, respectively, are:
Assumptions used in the determination of net periodic benefit costs for these years are:
1997 1998 1999 -------- -------- --------
Discount rate 8.25% 7.75% 7.50% Rate of increase in compensation levels 2.00% 2.00% 3.00% Expected long-term rate of return on assets 9.25% 9.25% 9.25%
Certain employees are covered by union-sponsored, collectively bargained, multi-employer pension plans.
The actuarial calculation of the Company's minimum funding pension payment due in 2000 for 1999 is $504. This amount is shown as a current liability on the balance sheet as of December 31, 1999.
Assumed healthcare cost trend rates have a significant effect on the amounts reported for the postretirement healthcare plans. A one-percentage-point change in assumed healthcare cost trend rates would have the following effects:
1% 1% Increase Decrease -------- --------
Effect on total of service and interest cost $219 $(100) components
Effect on postretirement healthcare benefit $1,821 $(1,155) obligation
During 1999, the Company offered certain employees a one-time early-retirement program that resulted in additional pension expense of $2,097. The impact of the additional liability is included in the amendments in the benefit obligation reconciliation.
(9) Officers' Deferred Compensation Plan-
Certain officers have deferred compensation agreements which, upon retirement, provide them with, among other things, supplemental pension and other postretirement benefits. An accumulated unfunded liability, net of the Rabbi Trust, of $1,409 and $1,745 as of December 31, 1998 and 1999, respectively, has been recorded under these agreements as actuarially determined. The expense was $165, $135 and $114 in 1997, 1998 and 1999, respectively.
The Company established a Rabbi Trust in July of 1998 to fund a portion of this plan. The Rabbi Trust does not hold any Company stock and is considered in the calculations determined by the actuary.
(10) Profit Sharing-
The Company has a profit sharing program in which substantially all of the employees are eligible to participate. The profit sharing payout is derived from a formula based on pretax income and is payable no later than February 15th of the subsequent year. The expense was $2,629, $2,720 and $958 in 1997, 1998 and 1999, respectively.
(11) Commitments and Contingencies-
The Company is involved in various stages of investigation relative to environmental protection matters relating to various waste disposal sites. The potential costs related to such matters and the possible impact thereof on future operations are uncertain due in part to uncertainty as to the extent of the pollution, the complexity of government laws and regulations and their interpretations, the varying costs and effectiveness of alternative cleanup technologies and methods, and the questionable level of the Company's involvement. The Company has made provisions in the financial statements for potential losses related to these matters. The Company does not anticipate such losses will have a material impact on the financial statements beyond the aforementioned provisions.
Various other lawsuits and claims arising in the normal course of business are pending against the Company and such losses are not expected to be material to the financial statements.
In December 1998, one of the Company's primary presses suffered a major breakdown and was not operational for several months. The Company filed claims with its insurance company for all repair and business interruption costs. As of December 31, 1999, all reimbursable costs have been recovered through the Company's policy.
(12) Earnings Per Share-
Basic earnings per share of common stock are computed by dividing net income by the weighed average number of common shares outstanding during the period. Diluted earnings per share of common stock are computed by dividing net income by the average number of common shares and common share equivalents related to the assumed exercise of stock options and warrants.
The following shares were used to calculate basic and diluted earnings per share:
December 31, ---------------------------------- 1997 1998 1999 ---------- ---------- ----------
Average basic common shares 5,208,251 12,155,484 13,715,555 outstanding
Incremental shares applicable to 7,261,567 1,670,649 797,706 common stock options and warrants ---------- ---------- ----------
Average diluted common shares 12,469,818 13,826,133 14,513,261 outstanding ========== ========== ==========
The shares outstanding used to compute diluted earnings per share for 1999 excluded outstanding options to purchase 889,688 shares of common stock at a weighted average exercise price of $9.25. The options were excluded because their exercise prices were greater than the average market price of the common shares during the year and their inclusion in the computation would have been antidilutive.
(13) Acquisitions-
On June 16, 1997, the Company completed the purchase of certain assets and assumption of certain liabilities of Stowe Machine Co., Inc. ("Stowe"). The purchase price was composed of approximately $8,500 in cash and a note payable of $1,000.
The Stowe acquisition was accounted for using the purchase method of accounting. Accordingly, the net assets were allocated based upon their fair values at the acquisition's effective date of June 16, 1997. The Company's consolidated statements of operations do not include the revenues and expenses of Stowe prior to this date. The excess of the purchase price over the fair value of the net assets acquired (goodwill) of approximately $870 will be amortized on a straight-line basis over 20 years.
On February 16, 1999, the Company completed the purchase of certain assets and assumption of certain liabilities of Adco Manufacturing, Incorporated ("Adco"). The purchase price was approximately $10,850 in cash, plus a working capital adjustment of approximately $750.
The Adco acquisition has been accounted for using the purchase method of accounting. Accordingly, the net assets are included in the Company's consolidated balance sheet as of December 31, 1999 based upon their fair values at the acquisition date of February 16, 1999. The Company's consolidated statements of operations do not include the revenues and expenses of Adco prior to this date. The excess of the purchase price over the fair value of the net assets acquired (goodwill) of approximately $6,220 will be amortized on a straight-line basis over 20 years.
(14) Subsequent Events-
On January 14, 2000, the Company acquired all of the membership interest of Wyman-Gordon Titanium Castings, LLC for a purchase price of $26,600 in cash. The acquired business was renamed Pacific Cast Technologies, Inc. and is located in Albany, Oregon. The acquisition was financed through the use of the senior credit facility.
(15) Quarterly Results of Operations (Unaudited)-
The following table sets forth unaudited consolidated income statement data for each quarter of the Company's last two fiscal years. The unaudited quarterly financial information has been prepared on the same basis as the annual information presented in the financial statements and, in management's opinion, reflects all adjustments (consisting of normal recurring entries) necessary for a fair presentation of the information provided. The operating results for any quarter are not necessarily indicative of results for any future period.
Quarters Ended -------------------------------------------- 1998 March 31 June 30 September 30 December 31 -------------------------- -------- ------- ------------ -----------
Net sales $61,671 $60,779 $53,368 $50,949
Gross profit 9,714 10,248 6,719 5,961
Operating income 7,657 8,078 4,745 4,077
Net income 6,268 7,172 4,270 3,662
Basic earnings per share 0.94 0.51 0.30 0.26 Diluted earning per share 0.73 0.46 0.27 0.24
Quarters Ended -------------------------------------------- 1999 March 31 June 30 September 30 December 31 ------------------------- -------- ------- ------------ -----------
Net sales $42,756 $44,771 $41,803 $40,911
Gross profit 3,438 5,015 5,044 5,679
Operating income 1,781 3,093 3,175 3,941
Net income 1,469 2,528 2,488 3,218
Basic earnings per share 0.11 0.18 0.18 0.24 Diluted earning per share 0.10 0.18 0.17 0.23
(16) Valuation and Qualifying Accounts-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
LADISH CO., INC.
By: /s/ WAYNE E. LARSEN ---------------------------------- Wayne E. Larsen Vice President Law/Finance & February 18, 2000 Secretary
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature Title Date
/s/ KERRY L. WOODY President and Chief Executive February 18, 2000 - ------------------------- Officer (Principal Executive ----------------- Kerry L. Woody Officer), Director
/s/ WAYNE E. LARSEN Vice President Law/Finance & February 18, 2000 - ------------------------- Secretary (Principal Financial ----------------- Wayne E. Larsen and Accounting Officer), Director
/s/ LAWRENCE W. BIANCHI Director February 18, 2000 - ------------------------- ----------------- Lawrence W. Bianchi
/s/ CHARLES W. FINKL Director February 18, 2000 - ------------------------- ----------------- Charles W. Finkl
/s/ ROBERT W. SULLIVAN Director February 17, 2000 - ------------------------- ----------------- Robert W. Sullivan
INDEX TO EXHIBITS
Exhibit Page Numbers Description Number - ------- ----------- ------ 3 (a) Articles of Incorporation of the Company as filed with the Secretary of the State of Wisconsin filed with Form S-1 as Exhibit 3.2 on December 23, 1997 are incorporated by reference.
3 (b) The Ladish Co., Inc. By-Laws filed with Form S-1 as Exhibit 3.2 on December 23, 1997 are incorporated by reference.
10 (a) Form of Ladish Co., Inc. 1996 Long Term Incentive Plan filed with Form S-1 as Exhibit 10.4 on December 23, 1997 is incorporated by reference.
10 (b) Form of Employment Agreement between Ladish Co., Inc. and certain of its executive officers filed with Form S-1 as Exhibit 10.5 on December 23, 1997 is incorporated by reference.
10 (c) Credit Agreement dated February 15, 1999 among Ladish Co., X-2 Inc. and Firstar Bank Milwaukee, N.A. and the Financial Institutions Parties thereto.
10 (d) Agreement dated September 15, 1995 between Ladish Co., Inc. and Weber Metals, Inc. filed with Form S-1 as Exhibit 10.7 on February 23, 1998 is incorporated by reference.
21 List of Subsidiaries of the Company. X-56
23 Consent of Independent Public Accountants. X-
27 Financial Data Schedule. X-
99 Definitive Proxy Statement for the 2000 Annual Meeting of Stockholders (to be filed pursuant to Regulation 14A within 120 days after the end of the Company's fiscal year and, upon such filing, incorporated herein by reference).