10-K/A 1 slp408.txt FORM 10-K 2001 RESTATED ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 --------------------------- Form 10-K/A --------------------------- (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2001 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number 0-23539 Ladish Co., Inc. ( Exact name of registrant as specified in its charter ) Wisconsin 31-1145953 ( State of Incorporation ) ( I.R.S. Employer Identification No. ) 5481 S. Packard Avenue Cudahy, Wisconsin 53110 ( Address of principal executive offices ) ( Zip Code ) Registrant's telephone number, including area code (414) 747-2611 Securities Registered Pursuant to Section 12(b) of the Act: None Securities Registered Pursuant to Section 12(g) of the Act: Name of each exchange Title of each class on which registered ------------------- ------------------- Common stock, $0.01 par value Nasdaq Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of voting stock held by nonaffiliates of the Registrant is $51,084,463 as of February 21, 2002. 12,976,060 ( Number of Shares of common stock outstanding as of February 21, 2002 ) ( Continued from cover page ) DOCUMENTS INCORPORATED BY REFERENCE With the exception of those sections which are specifically incorporated by reference in this Form 10-K Annual Report from the proxy statement for the annual meeting of security holders in 2002, no other documents are to be deemed a part of this report. 2 PART 1 Item 1. Business General Ladish Co., Inc. ("Ladish" or the "Company") engineers, produces and markets high-strength, high-technology forged and cast metal components for a wide variety of load-bearing and fatigue-resisting applications in the jet engine, aerospace and industrial markets. Approximately 93% of the Company's 2001 billings were derived from the sale of jet engine parts, missile components, landing gear, helicopter rotors and other aerospace products. Approximately 19% of the Company's 2001 billings were derived from sales, directly or through prime contractors, under United States government contracts, primarily covering defense equipment. Although no comprehensive trade statistics are available, based on its experience and knowledge of the industry, management believes that the Company is the second largest supplier of forged and cast metal components to the domestic aerospace industry, with an estimated 20% market share in the jet engine component field. Products and Markets The Company markets its products primarily to manufacturers of jet engines, commercial business and defense aircraft, helicopters, satellites, heavy-duty off-road vehicles and industrial and marine turbines. The principal markets served by the Company are jet engine, commercial aerospace (defined by Ladish as satellite, rocket and aircraft components other than jet engines) and general industrial products. The amount of revenue and the revenue as a percentage of total revenue by market were as follows for the periods indicated:
Years Ended December 31, ------------------------ 1999 2000 2001 ---- ---- ---- (Dollars in millions) Jet Engine Components...................... $124 73% $163 71% $181 72% Aerospace Components....................... 27 16% 48 21% 53 21% General Industrial Components.............. 19 11% 19 8% 18 7% ------ ---- ------ ----- ------ ----- Total................................. $170 100% $230 100% $252 100% ==== === ==== === ==== ===
Manufacturing Ladish offers one of the most complete ranges of forging and investment casting services in the world. The Company employs all major forging processes, including open and closed-die hammer and press forgings, as well as ring-rolling, and also produces near-net shape aerospace components through isothermal forging and hot-die forging techniques. Closed-die forging involves hammering or pressing heated metal into the required shape and size by utilizing machined impressions in specially prepared dies which exert three-dimensional control on the heated metal. Open-die forging involves the hammering or pressing of metal into the required shape without such three-dimensional control, and ring-rolling involves rotating heated metal rings through presses to produce the desired shape. Investment casting involves the creation of precise wax molds which are dipped, autoclaved and cast to create near-net components for the aerospace industry. 3 Much of the Company's business is capital intensive, requiring large and sophisticated forging, casting and heating equipment and extensive facilities for inspection and testing of components after formation. Ladish believes that it has the largest forging hammer and largest ring-roll in the world at its plant in Cudahy, Wisconsin. Its largest counterblow forging hammer has a capacity of 125,000 mkg (meter-kilograms), and its ring-rolling equipment can produce single-piece seamless products that weigh up to 350,000 pounds with outside diameters as large as 28 feet and face heights up to 10 feet. Ladish's 4,500-ton and 10,000-ton isothermal presses can produce forgings, in superalloys as well as titanium, that weigh up to 2,000 pounds. Much of the equipment has been designed and built by Ladish. The Company also maintains such auxiliary facilities as die-sinking, heat-treating and machining equipment and produces most of the precision dies necessary for its forging operations. The Company considers such equipment to be in good operating condition and adequate for the purposes for which it is being used. Marketing and Sales The product sales force, consisting primarily of sales engineers, is supported by the Company's metallurgical staff of approximately 100 engineers and technicians. These technically trained sales engineers, organized along product line and customer groupings, work with customers on an ongoing basis to monitor competitive trends and technological innovations. Additionally, sales engineers consult with customers regarding potential projects and product development opportunities. During the past few years, the Company has refocused its marketing efforts on the jet engine components market and the commercial aerospace industry. The Company is actively involved with key customers in joint cooperative research and development, engineering, quality control, just-in-time inventory control and computerized process modeling programs. The Company has entered into strategic life-of-the-program contracts for a number of sole-sourced products with each of Rolls-Royce, Sikorsky and Snecma for major programs. The Company believes that these contracts are a reflection of the aerospace and industrial markets' recognition of the Company's manufacturing and technical expertise. The research and development of jet engine components is actively supported by the Company's Advanced Materials and Process Technology Group. The Company's long-standing commitment to research and development is evidenced by its industry-recognized materials and process advancements such as processing aluminum-lithium, Udimet 720 and titanium aluminides. The experienced staff and fully equipped research facilities support Ladish sales through customer-funded projects. Management believes that these research efforts position the Company to participate in future growth in demand for critical advanced jet engine components. Customers The Company's top three customers, Rolls-Royce, United Technologies and General Electric, accounted for approximately 60%, 53% and 52% of the Company's revenues in 1999, 2000 and 2001, respectively. Net sales to Rolls-Royce were 31%, 28% and 28%, United Technologies 18%, 16% and 15% and General Electric 11%, 9% and 9% of total Company net sales for the respective years. No other customer accounted for ten percent or more of the Company's sales. 4 Caterpillar, Volvo, Techspace Aero and Snecma 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. Exports accounted for approximately 44%, 50% and 49% of total Company net sales in 1999, 2000 and 2001, respectively. Exports to England constituted approximately 27% 22% and 21%, respectively in the above years, of total Company net sales. A substantial portion of the Company's revenues is derived from long-term, fixed price contracts with major engine and aircraft manufacturers. These contracts are typically "requirements" contracts under which the purchaser commits to purchase a given portion of its requirements of a particular component from the Company. Actual purchase quantities are typically not determined until shortly before the year in which products are to be delivered. The Company attempts to minimize its risk by entering into fixed-price contracts with its raw material suppliers. Additionally, a portion of the Company's revenue is directly or indirectly related to government spending, particularly military and space program spending. Research and Development The Company maintains a research and development department which is engaged in applied research and development work primarily relating to the Company's forging operations. The Company works closely with customers, universities and government technical agencies in developing advanced forgings, materials and processes. The Company spent approximately $3.3 million, $2.9 million and $3.7 million on applied research and development work during 1999, 2000 and 2001, respectively. Patents and Trademarks Although the Company owns patents covering certain of its processes, the Company does not consider these patents to be of material importance to the Company's business as a whole. The Company considers certain other information that it owns to be trade secrets and the Company takes measures to protect the confidentiality and control the disclosure and use of such information. The Company believes that these safeguards adequately protect its proprietary rights and the Company vigorously defends these rights. The Company owns or has obtained licenses for various trademarks, trademark registrations, service marks, service mark registrations, trade names, copyrights, copyright registrations, patent applications, inventions, know-how, trade secrets, confidential information and any other intellectual property that is necessary for the conduct of its business (collectively, "Intellectual Property"). The Company is not aware of any existing or threatened patent infringement claim (or of any facts that would reasonably be expected to result in any such claim) or any other existing or threatened challenge by any third party that would significantly limit the rights of the Company with respect to any such Intellectual Property or to the validity or scope of any such Intellectual Property. The Company has no pending claim against a third party with respect to the infringement by such third party or any such Intellectual Property that, if determined adversely to the Company, would individually or in the aggregate have a material adverse effect on the Company's financial condition 5 or results of operations. While the Company considers all of its proprietary rights as a whole to be important, the Company does not consider any single right to be essential to its operations as a whole. Raw Materials Raw materials used by the Company in its metal components include alloys of titanium, nickel, steel, aluminum, tungsten and other high temperature alloys. The major portion of metal requirements for forged products are purchased from major metal suppliers producing forging quality material as needed to fill customer orders. The Company has two or more sources of supply for all significant raw materials. The titanium and nickel-based superalloys used by the Company have a relatively high dollar value. Accordingly, the Company recovers and recycles scrap materials such as machine turnings, forging flash, solids and test pieces. The Company's most significant raw materials consist of nickel and titanium alloys. Its principal suppliers of nickel alloys include Special Metals Corporation and Allegheny Technologies. Its principal suppliers of titanium alloys are Titanium Metals Corporation of America, Allegheny Technologies and RTI International. The Company typically has fixed-price contracts with its suppliers. In addition, the Company, its customers and suppliers have undertaken active programs for supply chain management which are reducing overall lead times and the total cost of raw materials. Energy The Company uses a considerable amount of energy in the processing of its forged and cast metal components. The rapidly fluctuating prices for energy, both natural gas and electricity, had a significant impact on the Company's 2001 results and are likely to have a similar effect in 2002. Although the Company attempts to ameliorate the impact of these price swings by purchasing directly from producers and hedging supplies for the future, the level of price fluctuation and lack of availability are not within the control of the Company. Backlog The average amount of time necessary to manufacture the Company's products is five to six weeks from the receipt of raw material. The timing of the placement and filling of specific orders may significantly affect the Company's backlog figures, which are subject to cancellation for a variety of reasons. In addition, the Company typically only includes those contracts which will result in shipments within the next 12 to 18 months when compiling backlog and does not include the out years of long-term agreements. As a result, the Company's backlog may not be indicative of actual results or provide meaningful data for period-to-period comparisons. The Company's backlog was approximately $225 million, $271 million and $242 million as of December 31, 1999, 2000 and 2001, respectively. The Company's backlog declined by approximately 20% following the terrorist attack on September 11, 2001. 6 Competition The sale of metal components is highly competitive. Certain of the Company's competitors are larger than the Company and have substantially greater capital resources. Although the Company is the sole supplier on several sophisticated components required by prime contractors under a number of governmental programs, many of the Company's products could be replaced with other similar products of its competitors. However, the significant investment in tooling, the time required and the cost of obtaining the status of a "certified supplier" are barriers to entry. Competition is based on quality (including advanced engineering and manufacturing capability), price and the ability to meet delivery requirements. Environmental, Health and Safety Matters The Company's operations are subject to many federal, state and local regulations relating to the protection of the environment and to workplace health and safety. In particular, the Company's operations are subject to extensive federal, state and local laws and regulations governing waste disposal, air and water emissions, the handling of hazardous substances, environmental protection, remediation, workplace exposure and other matters. Management believes that the Company is presently in substantial compliance with all such laws and does not currently anticipate that the Company will be required to expend any substantial amounts in the foreseeable future in order to meet current environmental, workplace health or safety requirements. However, additional costs and liabilities may be incurred to comply with current and future requirements which could have a material adverse effect on the Company's results of operations or financial condition. There are no known pending remedial actions or claims relating to environmental matters that are expected to have a material effect on the Company's financial position or results of operations. All of the properties owned by the Company, however, are located in industrial areas and have a history of heavy industrial use. These properties may potentially incur environmental liabilities in the future that could have a material adverse effect on the Company's financial condition or results of operations. The Company was previously named a potentially responsible party at three "Superfund" sites. The Company's liability with respect to these sites has been resolved. Although the Company does not believe that the amount for which it may be held liable for any further administrative or wrap-up expense will be material and it 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. With respect to any past or future claim for any environmental, health or safety matter, the Company evaluates every such claim from both a technical and legal perspective, using outside consultants where necessary. The Company establishes a good faith estimate of its prospective risk associated with said claim and, where material, establishes a financial reserve for the estimated value of such claim. Forward Looking Statements Any statements contained herein that are not historical facts are forward-looking statements within the meaning of the Private Securities Legislation Reform Act of 1995, and involve risks and uncertainties. 7 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; the impact upon the commercial aerospace industry from the September 11, 2001 terrorist attack; competition; technologies; raw material and energy 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, 2001, the Company had approximately 1,193 employees, of whom 885 were engaged in manufacturing functions, 80 in executive and administrative functions, 180 in technical functions, and 48 in sales and sales support. At such date, approximately 680 employees, principally those engaged in manufacturing, were represented by labor organizations under collective bargaining agreements.
Number of Employees Represented by Collective Union Expiration Date Bargaining Agreement ----- --------------- -------------------- International Association of Machinists & Aerospace February 23, 2003 279 Workers, Local 1862 International Brotherhood of Boilermakers, Iron Ship September 28, 2003 171 Builders, Blacksmiths, Forgers & Helpers, Subordinate Lodge 1509 International Federation of Professional & Technical August 24, 2003 107 Engineers, Technical Group, Local 92 International Association of Machinists & Aerospace March 23, 2003 63 Workers, Die Sinkers, Local 140 Office & Professional Employees International Union, July 4, 2004 31 Clerical Group, Local 35 International Brotherhood of Electrical Workers, Local November 16, 2003 25 662 Service Employees International, Local 150 April 20, 2003 4
Management Name Age Position ---- --- -------- Kerry L. Woody............50 President & CEO and Director Wayne E. Larsen...........47 Vice President Law/Finance & Secretary and Director Gene E. Bunge.............56 Vice President, Engineering George Groppi.............53 Vice President, Quality & Metallurgy David L. Provan...........52 Vice President, Materials Management Gary J. Vroman............42 Vice President, Sales & Marketing 8 Lawrence C. Hammond.......54 Vice President, Human Resources Randy B. Turner...........52 President - Pacific Cast Technologies, Inc. ("PCT") William J. Lazzari........52 President - Stowe Machine Co., Inc. ("Stowe") Item 2. Properties The following table sets forth the location and size of the Company's three facilities: Approximate Acreage Approximate Square Footage Cudahy, Wisconsin 184.5 1,650,000 Windsor, Connecticut 8.2 40,000 Albany, Oregon 14.0 110,000 The above facilities are owned by the Company. 9 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. Legal Proceedings From time to time the Company is involved in legal proceedings relating to claims arising out of its operations in the normal course of business. The Company believes that there are no material legal proceedings pending or threatened against the Company or any of its properties. Item 4. Submission of Matters to a Vote of Security Holders There were no matters submitted to a vote of security holders during the fourth quarter of 2001. PART II Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters The common stock of the Company, par value $0.01 per share, trades on the Nasdaq National Market under the symbol "LDSH". The following table sets forth, for the fiscal periods indicated, the high and low sales prices for each quarter of the years 1999, 2000 and 2001. At December 31, 2001 there were approximately 1,200 beneficial holders of the Company's common stock.
Year Ended Year Ended Year Ended December 31, 1999 December 31, 2000 December 31, 2001 High Low High Low High Low First quarter........... $8.38 $6.72 $7.13 $6.13 $13.38 $10.00 Second quarter.......... $8.31 $6.41 $9.75 $6.13 $15.70 $10.02 Third quarter........... $8.63 $6.44 $15.25 $9.13 $16.20 $7.10 Fourth quarter.......... $7.50 $5.84 $12.94 $8.94 $11.72 $7.26
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. Selected Financial Data The selected financial data of the Company for each of the last five fiscal years are set forth below. The data below should be read in conjunction with the Financial Statements and the Notes thereto and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this filing. 10
Year Ended December 31, (dollars in thousands, except income (loss) per share) INCOME STATEMENT DATA 1997 1998 1999 2000 2001 --------------------- ------ ---------- ----------- ----------- ------------ Net sales...................................... $209,816 $226,767 $170,241 $230,148 $252,417 Income from operations......................... 24,387 24,557 11,990 22,752 22,759 Interest expense............................... 3,334 1,256 810 2,017 2,047 Net income..................................... 11,529 13,975 28,495 12,650 13,129 Basic earnings per share....................... 2.21 1.15 2.08 0.97 1.01 Diluted earnings per share..................... 0.92 1.01 1.96 0.92 1.00 Dividends paid ................................ -- -- -- -- -- Shares used to compute earnings per share Basic....................................... 5,208,251 12,155,484 13,715,555 13,075,188 12,944,545 Diluted..................................... 12,469,818 13,826,133 14,513,261 13,681,904 13,154,528 December 31, BALANCE SHEET DATA 1997 1998 1999 2000 2001 ------------------ ----------- ---------- ----------- ----------- ------------ Total assets................................... $165,461 $172,893 $196,253 $234,527 $232,670 Net working capital............................ 32,292 40,049 43,518 41,459 65,175 Total debt..................................... 39,716 3,500 -- 25,000 30,000 Stockholders' equity........................... 5,017 68,646 110,137 115,902 126,337
In 2002, after consultation with the Company's auditors, re-examination of the accounting literature and re-consideration of the positive and negative evidence which existed in prior years at the end of each year, the Company determined that as of December 31, 1999 it was more likely than not that the NOL carryforwards would be utilized prior to their expiration and that all net deferred tax assets would be realized. Therefore, as of December 31, 1999, the entire valuation allowance against the net deferred tax assets was reversed and the income tax provisions in 1999, 2000 and 2001 and paid-in capital have been revised. The amount of the valuation allowance reversed was $36,728. In addition, the 1997, 1998 and 1999 income tax provisions have been restated to appropriately record the tax benefits derived from the utilization of pre-reorganization NOLs and reversing temporary differences as credits to paid-in capital rather than as reductions of income tax expense. The above financial data for 1997, 1998, 1999, 2000 and 2001 have been restated. Previously reported income was 1997-$18,902, 1998-$21,372, 1999-$9,703, 2000-$17,108 and 2001-$16,412. Previously reported diluted EPS was 1997-$1.52, 1998-$1.55, 1999-$0.67, 2000-$1.25 and 2001-$1.25. See notes 2(b) and 7 to the financial statements. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations Year Ended December 31, 2001 Compared to Year Ended December 31, 2000 Net sales for the year ending December 31, 2001 were $252.4 million, a 10% increase over fiscal 2000. The growth in sales is attributable to a strong global aerospace market along with capacity and capability expansion at both PCT and Stowe. Sales growth for the year was negatively impacted in the fourth quarter of 2001 due to the September 11, 2001 terrorist attack and the resulting downturn in the commercial aerospace market. Gross profit in 2001 of $33.8 million or 13.4% of sales reflected a decline from the 2000 levels of $34.5 million and 14% of sales. This decrease in 11 profitability in 2001 is a result of increased energy costs in the first half of the year, lower employment costs in 2000 due to the work stoppage and margin pressures from the Company's main customers. In fiscal 2001, selling, general and administrative expenses of $11.1 million represented 4.4% of sales. This was in contrast with the $11.7 million, or 5.1% of sales, of selling, general and administrative expenses incurred in 2000. The decrease in SG&A expenses in 2001 is largely attributable to the stability of the Company's common stock price and the avoidance of imputed compensation expense associated with repriced stock options and FIN 44. The slight increase in interest expense in 2001 is due to the higher debt level associated with the $30 million private placement of notes in July 2001. The notes bear interest at a rate of 7.19% per annum. The Company did not have any indebtedness outstanding at year end under the senior credit facility. The Company's pretax income for the twelve months ending December 31, 2001 of $20.5 million, or 8.1% of sales, is a reduction from the $20.9 million, or 9.1% of sales, of pretax income in fiscal 2000. As discussed above with respect to gross income, 2001 earnings were down from 2000 due to energy costs, the 2000 strike and margin pressure from customers. Pretax income in 2001 did benefit from an addition of $7.9 million in pension credit in comparison to $7.0 million of like benefit in 2000. The income tax provision was restated from that previously reported. The 2001 restated tax provision of $7.4 million, an implied rate of 36%, primarily reflects a non-cash accounting charge as substantially all of the reported tax provision is offset by the utilization of net operating loss carryforwards. The rate of 36% reflects a reduction of 4% due to the benefit of the extra-territorial income exclusion. See "Liquidity and Capital Resources." At December 31, 2001 contract backlog at the Company was $242 million. This represents an 11% decrease from the $271 million of contract backlog at the end of 2000. The decline in backlog is attributable to a downturn in the global aerospace market following the September 11, 2001 terrorist attack. Year Ended December 31, 2000 Compared to Year Ended December 31, 1999 During fiscal 2000, the Company had sales of $230.1 million, an increase of 35% over the $170.2 million of sales in 1999. The growth in sales occurred as a result of a significantly stronger global aerospace market and the acquisition of PCT in January 2000. In 2000, gross profit increased in both real dollars to $34.5 million and as a percentage of sales to 15.0%, in contrast to $19.2 million and 11.3%, respectively, in 1999. The increase in gross profit was partially attributable to the reduction in benefit expense which resulted from improved performance of the assets in the Company's defined benefit plans. Selling, general and administrative expenses of $11.7 million represented 5.1% of sales in 2000. In 1999, $7.2 million of SG&A expenses, or 4.2% of sales, were incurred. The increase in expenses as a percentage of sales was attributed to two factors. Firstly, PCT's costs entailed added SG&A expenses and secondly, the increase in foreign sales resulted in a higher percentage of sales expense. 12 In 2000, the Company's interest expense increased to $2 million in contrast to $0.8 million in 1999. This increase was the result of the debt incurred in connection with the PCT acquisition and slightly higher interest rates in 2000. At the end of 2000 the Company's debt had an interest rate of LIBOR plus 1.25% on the long-term debt and LIBOR plus 0.80% on revolving credit as opposed to a rate of LIBOR plus 0.75% on revolving debt in 1999. Pretax income at the Company was $20.9 million in 2000 in contrast to $11.4 million in 1999. The increase in pretax income was a direct function of increased sales and the PCT acquisition. In addition, pretax income also benefited from $7.0 million of pension credit in 2000 and $2.4 million of pension credit in 1999. The income tax provision was restated from that previously reported. The 2000 tax provision of $8.2 million, an implied rate of 39%, primarily reflects a non-cash accounting charge as substantially all of the reported tax provision is offset by the utilization of net operating loss carryforwards. See "Liquidity and Capital Resources." At December 31, 2000 contract backlog at the Company was $271 million. This represents a 20% increase from the $225 million of contract backlog at the end of 1999. The growth in backlog is attributable to a stronger global aerospace market and the PCT acquisition. 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 $0.8 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 million for 1998. The decrease in pretax income was directly due to the reduction in sales from 1999 to 1998, partially offset by $2.4 million of pension credit in 1999 as opposed to $0.03 million of pension expense in 1998. The income tax provision was restated from that previously reported. The 1999 tax provision of $0.7 million, an effective tax rate of 6.5%, reflects a lower than the expected 35% tax rate due to the benefits of the NOL carryforwards and reversing temporary differences not previously recognized in 13 the amount of $3.843 million. Furthermore, a credit to income tax provision of $17.9 million has been recognized as a result of the Company's decision as of December 31, 1999 to reverse a valuation allowance provided against the future benefits of net operating losses and other net deferred tax assets. The result of this action in addition to the credit to income was a credit of $18.9 million to paid-in capital. 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. Liquidity and Capital Resources As of July 1, 1999, the Company entered into a new credit facility (the "Facility") with a syndicate of lenders. The Facility provided for borrowings of up to $100 million subject to certain limitations. Borrowings under the Facility were unsecured and were initially structured as revolving loans with the option of conversion into term loans. Borrowings under the Facility bore interest at a rate of LIBOR plus 0.75% per annum. Proceeds from the Facility were used to terminate the prior credit agreement on July 1, 1999. On April 13, 2001, the Company and substantially the same group of lenders entered into an amended and restated credit facility (the "New Facility"). The New Facility was comprised of a $16 million term facility with a three-year maturity and a $39 million revolving loan facility. The term facility bore interest at a rate of LIBOR plus 1.25% and the revolving loan facility bore interest at a rate of LIBOR plus 0.80%. On July 20, 2001, the Company sold $30 million of senior notes ("Senior Notes") in a private placement to certain institutional investors. The Senior Notes bear interest at a rate of 7.19% per annum with the interest being paid semiannually. The Senior Notes have a seven-year duration with the principal amortizing equally over the remaining duration after the third year. The Company used the proceeds from the Senior Notes to repay outstanding borrowings under the New Facility and for working capital purposes. In conjunction with the private placement of the Senior Notes, the Company and the lenders in the New Facility amended the New Facility on July 17, 2001 (the "Amended Facility"). The Amended Facility consists of a maximum of $50 million revolving line of credit which bears interest at a rate of LIBOR plus 0.80%. As of December 31, 2001, approximately $44.6 million was available pursuant to the terms of the Amended Facility. There were no borrowings under the Amended Facility as of December 31, 2001. The Company's IPO in March 1998 created an ownership change as devined by the Internal Revenue Service ("IRS"). This ownership change generated an IRS imposed limitation on the utilization of NOL carryforwards to reduce future taxable income. The annual use of the NOL carryforwards is limited to the lesser of the Company's income or the amount of the IRS imposed limitation. Since the ownership change, the total NOL available for use is $11.9 million annually. To the extent less than $11.9 million was used in any year, the unused amount was added to and increased the limitation in the succeeding year. NOL carryforwards generated prior to the reorganization are further limited to an annual usage of $2.1 million. Any unused amount is added to and increases the limitation in the 14 succeeding year. The pre-reorganization NOL carryforwards expire in 2008 and the post-reorganization NOL carryforwards expire in 2010. Each year beginning April 30, 1993 through December 31, 1998, a valuation allowance was recorded to reduce the unrealized benefits of NOL carryforwards and temporary differences to zero. To the extent that the benefit of pre-reorganization NOLs and reversing temporary differences is realized subsequent to April 30, 1993 through utilization or is recognized by way of a reduction of the valuation allowance there is a corresponding increase in paid-in capital recognized rather than a reduction in income tax expense. To the extent the benefit of post-reorganization NOL carryforwards is realized through utilization or recognized by way of a reduction of the valuation allowance there is a corresponding decrease in the income tax provision. The amount of the NOL carryforwards used through December 31, 2001 totals $18.6 million of the pre-reorganization NOLs and $42.8 million of the post-reorganization NOLs. NOL carryforwards remaining as of December 31, 2001 total $15 million of pre-reorganization NOLs and $6.3 million of post-reorganization NOLs. In 2002, after re-examination of the accounting literature and re-consideration of the positive and negative evidence which existed in prior years at the end of each year and consultation with the Company's auditors, the Company determined that as of December 31, 1999 it was more likely than not that the NOL carryforwards would be utilized prior to their expiration and that all net deferred tax assets would be realized. Therefore, as of December 31, 1999, the entire valuation allowance against the net deferred tax assets was reversed and the income tax provisions in 1999, 2000 and 2001 and paid-in capital have been revised. The amount of the valuation allowance reversed was $36.7 million. The financial statements for 1999, 2000 and 2001 have been restated. The effect of the valuation allowance reversal as of December 31, 1999 will be appropriately split between a credit of $18.9 million to paid-in capital for that part of the allowance applicable to pre-reorganization net operating losses and net temporary differences and a credit of $17.9 million to income tax provision for that part of the allowance applicable to post-reorganization net operating losses and temporary differences. Also in 1999 the income tax provision includes $0.7 million related to utilization of pre-reorganization NOLs which is credited to paid-in capital. Under the common stock repurchase program (the "Program") authorized by the Company's Board of Directors, the Company repurchased 329,357 shares, or share equivalents, of its common stock during 2001. As of December 31, 2001, the Company has repurchased a total of 2,822,235 shares, or share equivalents, of its common stock under the Program. The Company funded the Program with approximately $19.5 million of cash generated from operations. Inflation has not had a material effect upon the Company during the period covered by this report. Given the products manufactured by the Company and the raw materials used therein, the Company does not anticipate any significant impact from inflation in the foreseeable future. Item 7.A. Quantitative and Qualitative Disclosures about Market Risk 15 The Company believes that its exposure to market risk related to changes in foreign currency exchange rates and trade accounts receivable is immaterial. Item 8. Financial Statements and Supplementary Data The response to Item 8. Financial Statements and Supplementary Data incorporates by reference the information listed in the index to consolidated financial statements and accompanying schedules beginning on page F-1. 16 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The Company engaged KPMG LLP to reaudit 1999, 2000 and 2001 and there have been no disagreements on accounting and financial disclosure with the Company's public accounting firm, KPMG LLP. PART III Item 10. Directors and Executive Officers of the Registrant Certain information called for by this Item is incorporated herein by reference to the Proxy Statement for the Annual Meeting of Stockholders filed herewith as an Exhibit. The list of Executive Officers in Part I, Item 1. Business, paragraph captioned "Executive Officers of the Registrant" is incorporated by reference. The list of Directors of the Company is as follows: Name Age ---- --- Lawrence W. Bianchi 61 Margaret Bertelsen Hampton 43 Leon A. Kranz 62 Wayne E. Larsen 47 Scott D. Roeper 42 Robert W. Sullivan 43 Kerry L. Woody 50 Other information required by Item 401 of Regulation S-K is as follows: Lawrence W. Bianchi, 61. 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, 56. 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. George Groppi, 53. 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, 54. 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. 17 Margaret Bertelsen Hampton, 43. Director since 2001. Ms. Hampton has been a Portfolio Manager at Grace Brothers Ltd., an Evanston, Illinois based investment management firm, since 1997. Previously, Ms. Hampton was a Managing Director for First Chicago Capital Corporation, a position she held for more than five years. Leon A. Kranz, 62. Director since 2001. Mr. Kranz is President and Chief Executive Officer of Weber Metals, Inc., a Paramount, California based metals processor, a position he has held for ten years. Wayne E. Larsen, 47. Director since 1997. Since 1995 Mr. Larsen has been Vice President Law/Finance and Secretary of the Company. He served as General Counsel and Secretary since 1989 after joining the Company as corporate counsel in 1981. Mr. Larsen is a Trustee of the Ladish Co. Foundation and a Director of the Wisconsin Foundation for Independent Colleges and the South Shore YMCA of Milwaukee. Mr. Larsen has a B.A. from Marquette University and a J.D. from Marquette Law School. William J. Lazzari, 52. Mr. Lazzari has been President of Stowe Machine Co., Inc. ("Stowe") since 2000. He was General Manager at Stowe for over four years prior to becoming President. He holds a B.S. in Marketing from the University of Hartford. David L. Provan, 52. Mr. Provan has served as Vice President, Materials Management since September 1999. Prior to that time he had been Purchasing Manager, Raw Materials, and Head Buyer. Mr. Provan has been with the Company since 1979. He has a Bachelor's Degree in Business Administration from the University of Wisconsin-Parkside. Scott D. Roeper, 42. Director since 2001. Mr. Roeper is a Managing Director and Partner for Facilitator Capital Fund ("FCF"), a Wisconsin-based private equity fund. Prior to joining FCF in 1999, Mr. Roeper was a senior banker for Firstar Bank since 1990. Mr. Roeper is a Director of numerous FCF portfolio companies. Robert W. Sullivan, 43. 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. Randy B. Turner, 52. Mr. Turner has served as President of Pacific Cast Technologies, Inc. ("PCT") since it was acquired by the Company in January 2000. Prior to joining the Company, Mr. Turner served as President of the corporate predecessor to PCT. He has a B.S. in Business Management from Lewis and Clark College. Gary J. Vroman, 42. 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, 50. 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- 18 Operations, Vice President-Manufacturing Services and Production Manager. He joined the Company in 1975. In addition, Mr. Woody serves as a Director of Vilter Manufacturing Co. and Milwaukee Lutheran College. Mr. Woody has a B.S. in Engineering from Milliken University. 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. Security Ownership of Certain Beneficial Owners and Management The information called for by this Item is incorporated herein by reference to the Proxy Statement for the Annual Meeting of Stockholders filed herewith as an Exhibit. Item 13. Certain Relationships and Related Transactions The information called for by this Item is incorporated herein by reference to the Proxy Statement for the Annual Meeting of Stockholders filed herewith as an Exhibit. PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K Exhibits. See the accompanying index to exhibits on page X-1 which is part of this report. Financial Statements. See the accompanying index to financial statements and schedules on page F-1 which is a part of this report. Reports on Form 8-K. The Company has not filed any reports on Form 8-K during the fourth quarter of 2001. 19 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 October 31, 2002 Vice President Law/Finance & Secretary Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature Title Date /s/ KERRY L. WOODY President and Chief October 31, 2002 ----------------------------------- Executive Officer ---------------- Kerry L. Woody (Principal Executive Officer), Director /s/ WAYNE E. LARSEN Vice President October 31, 2002 ----------------------------------- Law/Finance & ---------------- Wayne E. Larsen Secretary (Principal Financial and Accounting Officer), Director /s/ LAWRENCE W. BIANCHI Director October 31, 2002 ----------------------------------- ---------------- Lawrence W. Bianchi /s/ MARGARET BERTELSEN HAMPTON Director October 31, 2002 ----------------------------------- ---------------- Margaret Bertelsen Hampton /s/ LEON A. KRANZ Director October 31, 2002 ----------------------------------- ---------------- Leon A. Kranz /s/ SCOTT D. ROEPER Director October 31, 2002 ----------------------------------- ---------------- Scott D. Roeper /s/ ROBERT W. SULLIVAN Director October 31, 2002 ----------------------------------- ---------------- Robert W. Sullivan 20 INDEX TO EXHIBITS Exhibit Page Numbers Description Number ------- ----------- ------ 3 (a) Articles of Incorporation of the Company as filed with the Secretary of the State of Wisconsin filed with Form S-1 as Exhibit 3.2 on December 23, 1997 are incorporated by reference. 3 (b) The Ladish Co., Inc. By-Laws filed with Form S-1 as Exhibit 3.2 on December 23, 1997 are incorporated by reference. 10 (a) Form of Ladish Co., Inc. 1996 Long Term Incentive Plan filed with Form S-1 as Exhibit 10.4 on December 23, 1997 is incorporated by reference. 10 (b) Form of Employment Agreement between Ladish Co., Inc. and certain of its executive officers filed with Form S-1 as Exhibit 10.5 on December 23, 1997 is incorporated by reference. 10 (c) Amendment No. 1 dated April 13, 2001 to Credit Agreement dated April 14, 2000 among Ladish Co., Inc. and Firstar Bank Milwaukee, N.A. and the Financial Institutions Parties thereto, filed with Form 10-K on February 22, 2002 is incorporated by reference. 10 (d) Amendment No. 2 dated July 17, 2001 to Credit Agreement dated April 14, 2000 among Ladish Co., Inc. and Firstar Bank Milwaukee, N.A. and the Financial Institutions Parties thereto, filed with Form 10-K on February 22, 2002 is incorporated by reference. 10 (e) Note Purchase Agreement dated July 20, 2001 between Ladish Co., Inc. and the Purchasers listed therein, filed with Form 10-K on February 22, 2002 is incorporated by reference. 10 (f) 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, filed with Form 10-K on February 22, 2002 is incorporated by reference. 23 Consent of Independent Public Accountants. X-2 99(a) Written statement of the chief executive officer of the Company certifying this Form 10-Q/A complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934. X-3 99(b) Written statement of the chief financial officer of the Company certifying this Form 10-Q/A complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934. X-4 99(c) Definitive Proxy Statement for the 2001 Annual Meeting of Stockholders filed on February 22, 2002 is incorporated herein by reference. X-1 Ladish Co., Inc. Consolidated Financial Statements As of December 31, 1999, 2000 and 2001 Together with Report of Independent Public Accountants Independent Auditors' Report To the Stockholders of Ladish Co., Inc.: We have audited the accompanying consolidated balance sheets of Ladish Co., Inc., a Wisconsin corporation, and subsidiaries as of December 31, 1999, 2000 and 2001, 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, 2001. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Ladish Co., Inc. and subsidiaries as of December 31, 1999, 2000 and 2001, and the results of their operations and their cash flows for each of the years in the three year period ended December 31, 2001 in conformity with accounting principles generally accepted in the United States. As discussed in footnotes 2 (a) and 7, the consolidated financial statements as of and for the years ended December 31, 1999, 2000 and 2001 have been restated. /s/ KPMG LLP KPMG LLP Milwaukee, Wisconsin October 30, 2002 Ladish Co., Inc. Consolidated Balance Sheets December 31, 1999, 2000 and 2001 (Dollars in Thousands Except Per Share Data)
Restated ----------------------------------------- Assets 1999 2000 2001 ------ ------------- ------------- ------------- Current Assets: Cash and Cash Equivalents $1,008 $3,521 $3,962 Accounts Receivable, Less Allowance of $300, $337 and $341, Respectively 25,222 38,615 37,719 Inventories 42,427 54,942 53,059 Deferred Income Taxes 4,511 5,478 5,643 Prepaid Expenses and Other Current Assets 238 483 635 ------------- ------------- ------------- Total Current Assets 73,406 103,039 101,018 Property, Plant and Equipment: Land and Improvements 3,855 4,622 4,637 Buildings and Improvements 15,912 25,484 27,521 Machinery and Equipment 120,526 131,770 139,174 Construction in Progress 5,562 10,777 19,271 ------------- ------------- ------------- 145,855 172,653 190,603 Less- Accumulated Depreciation (62,648) (74,828) (88,320) ------------- ------------- ------------- Net Property, Plant and Equipment 83,207 97,825 102,283 Deferred Income Taxes 32,497 24,045 17,535 Other Assets 7,143 9,618 11,834 ------------- ------------- ------------- Total Assets $196,253 $234,527 $232,670 ============= ============= =============
See accompanying notes to consolidated financial statements. Ladish Co., Inc. Consolidated Balance Sheets December 31, 1999, 2000 and 2001 (Dollars in Thousands Except Per Share Data)
Restated ----------------------------------------- Liabilities and Stockholders' Equity 1999 2000 2001 ------------------------------------ ------------- ------------- ------------- Current Liabilities: Current Portion of Senior Debt $ - $15,000 $ - Accounts Payable 12,548 25,057 21,235 Accrued Liabilities- Pensions 504 332 153 Postretirement Benefits 5,551 5,745 5,308 Wages and Salaries 3,107 4,201 4,111 Taxes, Other Than Income Taxes 227 243 263 Interest 54 163 1,002 Profit Sharing 958 1,366 812 Paid Progress Billings 5,556 6,014 473 Other 1,383 3,459 2,486 ------------- ------------- ------------- Total Current Liabilities 29,888 61,580 35,843 Long-Term Liabilities: Senior Debt-Less Current Portion - 10,000 - Senior Notes - - 30,000 Pensions 12,947 5,610 - Postretirement Benefits 40,929 38,682 37,286 Officers' Deferred Compensation 1,745 2,147 2,599 Other Noncurrent Liabilities 607 606 605 ------------- ------------- ------------- Total Liabilities 86,116 118,625 106,333 Stockholders' Equity: Common Stock - Authorized 100,000,000 Shares, Issued 14,318,406 Shares in 1999 and 14,573,515 Shares in 2000 and 2001 143 146 146 Additional Paid-In Capital 112,941 113,004 110,038 Retained Earnings 2,263 14,913 27,975 Treasury Stock, 770,672, 1,661,038 and 1,597,455 Shares, Respectively, of Common Stock, at Cost (5,210) (12,161) (11,695) Additional Minimum Pension Liability - - (127) ------------- ------------- ------------- ------------- ------------- Total Stockholders' Equity 110,137 115,902 126,337 ------------- ------------- ------------- Total Liabilities and Stockholders' Equity $196,253 $234,527 $232,670 ============= ============= =============
See accompanying notes to consolidated financial statements. Ladish Co., Inc. Consolidated Statements of Operations (Dollars in Thousands Except Per Share Data)
Restated ------------------------------------------ Years Ended December 31, ------------------------------------------ 1999 2000 2001 ------------- ------------- ------------- Net Sales $170,241 $230,148 $252,417 Cost of Sales 151,065 195,657 218,606 ------------- ------------- ------------- Gross Profit 19,176 34,491 33,811 Selling, General and Administrative Expenses 7,186 11,739 11,052 ------------- ------------- ------------- Income from Operations 11,990 22,752 22,759 Other (Income) Expense: Interest Expense 810 2,017 2,047 Other, Net (236) (128) 197 ------------- ------------- ------------- Income Before Income Tax Provision (Benefit) 11,416 20,863 20,515 Income Tax Provision (Benefit): Reversal of Valuation Allowance (17,878) - - Other 799 8,213 7,386 ------------- ------------- ------------- (17,019) 8,213 7,386 ------------- ------------- ------------- Net Income $28,495 $12,650 $13,129 ============= ============= ============= Earnings Per Share: Basic $2.08 $0.97 $1.01 Diluted $1.96 $0.92 $1.00
See accompanying notes to consolidated financial statements. Ladish Co., Inc. Consolidated Statements of Stockholders' Equity (Dollars in Thousands Except Per Share Data)
Restated ------------------------------------------------------------------------------------- Common Stock Retained Additional ---------------------- Additional Earnings Treasury Minimum Shares Par Paid-in Accumulated Stock, Pension Value Capital (Deficit) at Cost Liability Total -------------- ------- ----------- ------------ ----------- ----------- ----------- Balance, December 31, 1998 14,013,667 $140 $81,661 $(11,462) $(1,693) $ - $68,646 - Adjustment to Correct Misallocation of Pre-Reorganization NOLs - - 14,770 (14,770) - - - -------------- ------- ----------- ------------ ----------- ----------- ----------- Balance, December 31, 1998 as restated 14,013,667 140 96,431 (26,232) (1,693) - 68,646 Net Income - - - 28,495 - - 28,495 Issuance of Common Stock 2,000 - 12 - - - 12 Retirement of Warrants - - (3,253) - - - (3,253) Exercise of Warrants 302,739 3 207 - - - 210 Purchase of Treasury Stock - - - - (3,517) - (3,517) Reduction in Valuation Allowance Related To Pre-Reorganization Net Deferred Tax Assets - - 19,544 - - - 19,544 -------------- ------- ----------- ------------ ----------- ----------- ----------- Balance, December 31, 1999 14,318,406 143 112,941 2,263 (5,210) - 110,137 - Net Income - - - 12,650 - - 12,650 Issuance of Common Stock 1,500 - 12 - - - 12 Compensation Expense Related to Stock Options - - 320 - - - 320 Retirement of Warrants - - (495) - - - (495) Exercise of Warrants 253,609 3 301 - - - 304 Retirement of Stock Options - - (75) - - - (75) Purchase of Treasury Stock - - - - (6,951) - (6,951) -------------- ------- ----------- ------------ ----------- ----------- ----------- Balance, December 31, 2000 14,573,515 146 113,004 14,913 (12,161) - 115,902 Net Income - - - 13,129 - - 13,129 Issuance of Common Stock - - - (67) 466 - 399 Compensation Expense Related to Stock Options - - 75 - - - 75 Retirement of Warrants - - (3,227) - - - (3,227) Exercise of Stock Options - - 214 - - - 214 Retirement of Stock Options - - (28) - - - (28) Additional Minimum Pension Liability (Net of $84 Tax) - - - - - (127) (127) -------------- ------- ----------- ------------ ----------- ----------- ----------- Balance, December 31, 2001 14,573,515 $146 $110,038 $27,975 $(11,695) (127) $126,337 ============== ======= =========== ============ =========== =========== ===========
See accompanying notes to consolidated financial statements. Ladish Co., Inc. Consolidated Statements of Cash Flows (Dollars in Thousands)
Restated -------------------------------------- Years Ended December 31, -------------------------------------- 1999 2000 2001 ------------- ---------- ------------ Cash Flows from Operating Activities: Net Income $28,495 $12,650 $13,129 Adjustments to Reconcile Net Income to Net Cash Provided by (Used for) Operating Activities: Depreciation 11,755 13,402 14,197 Amortization 506 515 537 Tax Benefits Credited to Additional Paid-in Capital 694 - - Reversal of Post-Reorganization Valuation Allowance on Deferred Tax Assets (17,878) - - Charge in Lieu of Taxes Related to Goodwill 58 66 66 Reduction of Deferred Tax Asset Valuation Allowance (2,650) - - Tax Benefit of Post-Reorganization NOLs (1,839) - - Tax Effect Related to Stock Options - 50 233 Non-Cash Compensation Expense Related to Stock Options - 320 75 Deferred Income Taxes 4,490 7,839 6,824 Loss on Disposal of Property, Plant and Equipment 35 29 240 Changes in Assets and Liabilities: Accounts Receivable 11,398 (9,798) 896 Inventories 1,507 (7,344) 1,883 Other Assets (635) (879) (3,404) Accounts Payable and Accrued Liabilities (10,062) 13,786 (10,737) Other Liabilities (4,633) (9,183) (6,728) ------------- ---------- ------------ Net Cash Provided by Operating Activities 21,241 21,453 17,211 ------------- ---------- ------------ Cash Flows from Investing Activities: Additions to Property, Plant and Equipment (7,792) (12,018) (18,958) Proceeds from Sale of Property, Plant and Equipment 33 583 63 Acquisition of Businesses (11,593) (25,250) - Collection of Funds Placed in Escrow 3,650 - - ------------- ---------- ------------ Net Cash Used for Investing Activities (15,702) (36,685) (18,895) ------------- ---------- ------------ Cash Flows from Financing Activities: (Repayment of) Proceeds from Senior Debt (3,500) 25,000 (25,000) Proceeds from Senior Notes - - 30,000 Issuance of Common Stock 12 12 399 Retirement of Warrants (3,253) (495) (3,227) Exercise of Warrants 210 304 - Repurchase of Common Stock (3,517) (7,076) (47) ------------- ---------- ------------ Net Cash (Used in) Provided by Financing Activities (10,048) 17,745 2,125 ------------- ---------- ------------ (Decrease) Increase in Cash and Cash Equivalents (4,509) 2,513 441 Cash and Cash Equivalents, Beginning of Period 5,517 1,008 3,521 ------------- ---------- ------------ Cash and Cash Equivalents, End of Period $1,008 $3,521 $3,962 ============= ========== ============ Supplemental Cash Flow Information: Income Taxes Paid $177 $560 $470 Interest Paid $742 $1,897 $1,385
See accompanying notes to consolidated financial 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"), headquartered in Cudahy, Wisconsin, engineers, produces and markets high-strength, high-technology forged and cast metal components for a wide variety of load-bearing and fatigue-resisting applications in the 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% in 1999, 71%, 21% and 8% in 2000 and 72%, 21% and 7% in 2001, respectively, of total Company net sales. In May 1997, the Company sold its Industrial Products Division ("IPD") for approximately $36,500 in cash. In 1999, all contingencies were resolved and the funds placed in escrow of $3,650 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. In January 2000, the Company acquired Wyman-Gordon Titanium Castings, LLC, an investment casting operation. The acquired business was renamed Pacific Cast Technologies, Inc. ("PCT") and is located in Albany, Oregon. In 1999, 2000 and 2001, respectively, the Company had three customers that collectively accounted for approximately 60%, 53% and 52%, respectively, of total Company net sales. Net sales to Rolls-Royce were 31%, 28% and 28%, United Technologies 18%, 16% and 15% and General Electric 11%, 9% and 9% of total Company net sales for the respective years. Exports accounted for approximately 44%, 50% and 49% of total Company net sales in 1999, 2000 and 2001, respectively, with exports to England constituting approximately 27%, 22% and 21%, respectively, of total Company net sales. As of December 31, 2001, approximately 57% of the Company's employees were represented by one of seven collective bargaining units. The collective bargaining agreements with most of these units will expire during the year 2003. 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) Consolidation and Restatement 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. Certain amounts presented in these consolidated financial statements have been restated from amounts previously reported. Refer to Note 7 for a description of the accounts restated. The effects of the restatement on certain components of the consolidated financial statements are as follows:
1999 2000 2001 -------------------------- -------------------------- -------------------------- As As As Previously As Previously As Previously As Reported Restated Reported Restated Reported Restated ------------ ----------- ------------ ----------- ----------- ------------ Net working capital $ 39,007 $43,518 $35,981 $41,459 $59,532 $65,175 ============ =========== ============ =========== =========== ============ Stockholders' equity 73,467 110,137 87,138 115,902 104,590 126,337 ============ =========== ============ =========== =========== ============ Income tax provision 1,713 799 3,755 8,213 4,103 7,386 ============ =========== ============ =========== =========== ============ Net Income 9,703 28,495 17,108 12,650 16,412 13,129 ============ =========== ============ =========== =========== ============ Diluted earnings per share 0.67 1.96 1.25 0.92 1.25 1.00 ============ =========== ============ =========== =========== ============
Ladish Co., Inc. Notes to Consolidated Financial Statements (Dollars in Thousands Except Share and Per Share Data) (b) Cash and Cash Equivalents- The Company considers marketable securities with maturities of less than three months to be cash equivalents and are shown as a component of cash and cash equivalents on the balance sheets. (c) Outstanding Checks- Outstanding payroll and accounts payable checks related to certain bank accounts are recorded as accounts payable in the accompanying consolidated balance sheets. These checks amounted to $2,037, $5,416 and $3,905 as of December 31, 1999, 2000 and 2001, respectively. (d) 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, -------------------------------------- 1999 2000 2001 ------------ ------------ ----------- Raw Materials $15,215 $16,319 $16,996 Work-in-Process and Finished 29,500 41,381 37,057 ------------ ------------ ----------- 44,715 57,700 54,053 Less Progress Payments (2,288) (2,758) (994) ------------ ------------ ----------- Total Inventories $42,427 $54,942 $53,059 ============ ============ =========== (e) Property, Plant and Equipment- Additions to property, plant, and equipment are recorded at cost. Tooling costs, along with normal repairs and maintenance, are expensed as incurred. Depreciation is provided using the straight-line method over the estimated useful lives of the assets, as follows: Land Improvements 30 or 39 years Buildings and Improvements 30 or 39 years Machinery and Equipment 5 to 12 years (f) Goodwill- Goodwill represents the excess of the purchase price over the fair value of identifiable net assets relating to the 1997 acquisition of Stowe, the 1999 acquisition of Adco, and the 2000 acquisition of PCT. Goodwill is included in other assets and is being amortized on a straight-line basis over 20 years. As of December 31, 2001, unamortized goodwill amounted to $8,245. Amortization expense was $316, $484 and $490 in 1999, 2000 and 2001, respectively. The Company evaluates goodwill to assess recoverability from future operations of the acquired assets which generated the goodwill. Impairments are recognized in operating results to the extent that carrying value exceeds fair value. See Note (2)(k) for further discussion of the impact FASB No. 142 will have on the goodwill of the Company. (g) Fair Values of Financial Instruments- The fair value of financial instruments does not materially differ from their carrying values. (h) Revenue Recognition- Sales revenue is recognized when products are shipped. Net sales include freight out as well as reductions for returns and allowances, and sales discounts. Progress payments on contracts are Ladish Co., Inc. Notes to Consolidated Financial Statements (Dollars in Thousands Except Share and Per Share Data) generally recognized as a reduction of the related inventory costs. Progress payments in excess of inventory costs are reflected as deferred revenue. (i) Income Taxes- Deferred taxes are accounted for under the asset and liability method whereby deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates. Deferred income tax provisions or benefits are based on the change in the deferred tax assets and liabilities from period to period. (j) Use of Estimates- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. (k) New Accounting Pronouncements- Revenue Recognition--In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements," or "SAB 101." SAB 101 provides guidance on a variety of revenue recognition matters and must be adopted no later than the fourth quarter of 2000. As the Company's accounting policies were consistent with the provisions of SAB 101, there was not any impact on its financial statements. Derivatives--In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities," or "SFAS 133." SFAS 133 establishes accounting and reporting standards requiring that every derivative instrument, including derivative instruments embedded in other contracts, be recorded on the balance sheet as either an asset or liability measured at its fair value. The Company adopted SFAS 133 effective January 1, 2001. The Company continues to assess the impact of this standard with new transactions and is not currently impacted by this standard. Goodwill and Intangibles--In June 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 142, "Goodwill and Intangibles," or "SFAS 142." SFAS 142 establishes accounting standards that preclude the continued amortization of goodwill and other indefinite lived intangible assets. These assets will be subject to annual fair value impairment tests. The Company has evaluated the impact of this standard and has determined it will not result in any impairment of the goodwill recorded as of January 1, 2002. The current annual amortization expense of approximately $490 will no longer be recorded when adopted. (3) Debt- Senior Debt- On July 1, 1999, the Company entered into a new credit facility (the "Facility") with a syndicate of lenders. The Facility provided for borrowings of up to $100,000 subject to certain limitations. Borrowings under the Facility were unsecured and were initially structured as revolving loans with the option of conversion into term loans. Borrowings under the Facility bore interest at a rate of LIBOR plus 0.75% per annum. Proceeds from the Facility were used to terminate the prior credit agreement on July 1, 1999. On April 13, 2001, the Company and substantially the same group of lenders entered into an amended and restated credit facility (the "New Facility"). The New Facility was comprised of a $16,000 term facility Ladish Co., Inc. Notes to Consolidated Financial Statements (Dollars in Thousands Except Share and Per Share Data) with a three-year maturity and a $39,000 revolving loan facility. The term facility bore interest at a rate of LIBOR plus 1.25% and the revolving loan facility bore interest at a rate of LIBOR plus 0.80%. On July 20, 2001, the Company sold $30,000 of senior notes ("Senior Notes") in a private placement to certain institutional investors. The Senior Notes bear interest at a rate of 7.19% per annum with the interest being paid semiannually. The Senior Notes have a seven-year duration with the principal amortizing equally over the remaining duration after the third year. The Company used the proceeds from the Senior Notes to repay outstanding borrowings under the New Facility and for working capital purposes. In conjunction with the private placement of the Senior Notes, the Company and the lenders in the New Facility amended the New Facility on July 17, 2001 (the "Amended Facility"). The Amended Facility consists of a maximum $50,000 revolving line of credit which bears interest at a rate of LIBOR plus 0.80%. As of December 31, 2001, approximately $44,600 was available pursuant to the terms of the Amended Facility. There were no borrowings under the Amended Facility as of December 31, 2001. Senior Subordinated Secured Notes and Warrants- In 1995 and 1996, the Company issued senior subordinated notes ("Subordinated Notes") to a few of the Company's stockholders. The noteholders also received warrants with each Subordinated 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 Subordinated Notes were paid in full. Warrants outstanding and exercisable were 660,787, 354,767 and 32,076 as of December 31, 1999, 2000 and 2001, respectively. (4) Stockholders' Equity- Under the common stock repurchase program authorized by the Company's Board of Directors, the Company repurchased 329,357 shares of its common stock, or common stock equivalents during 2001. The Company funded this repurchase program with approximately $3,300 of the cash generated from operations. As of December 31, 2001, the Company has repurchased a total of 2,822,235 shares of its common stock, or common stock equivalents for a total of approximately $19,500 under the repurchase program. The Company has a Long-Term Incentive Plan (the "Plan") that covers certain employees. Under the Plan, incentive stock options for up to 983,333 shares may be granted to employees of the Company. As of December 31, 2001, 963,333 options have been granted. These options expire ten years from the grant date. Options issued under the Plan in 1999, 2000 and 2001, were 76,000, 6,500 and 130,000 options, respectively. These options vest over two years. As of December 31, 2001, 753,167 options remain outstanding. 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 1999, 2000 and 2001. Had compensation cost for these options been determined pursuant to the fair value method under SFAS 123, the Company's pro forma restated net income and diluted earnings per share would have been as follows:
Years Ended December 31, ----------------------------------------------------------------------- 1999 2000 2001 ----------------------- ----------------------- ----------------------- As Pro As Pro As Pro Reported Forma Reported Forma Reported Forma ------------ ---------- ------------ ---------- ------------ ---------- Net Income $28,495 $27,994 $12,650 $12,048 $13,129 $12,259 Diluted Earnings Per Share $1.96 $1.93 $0.92 $0.88 $1.00 $0.93
Ladish Co., Inc. Notes to Consolidated Financial Statements (Dollars in Thousands Except Share and Per Share Data) 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, 2000 and 2001 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 Weighted Average Weighted Average Average Risk Free Expected Weighted Average Black-Scholes Year Interest Rate Remaining Lives Volatility Factor Option Price 1999 5.72% 10 Years 45.11% $5.06 2000 5.51% 10 Years 39.98% $6.12 2001 4.92% 10 Years 41.46% $6.38 A summary of options for 1999, 2000 and 2001 is as follows:
1999 2000 2001 -------------------------- --------------------------- --------------------------- Weighted Weighted Weighted Average Average Average Exercise Exercise Exercise Options Price Options Price Options Price ------- ----- ------- ----- ------- ----- Outstanding at Beginning of Year 1,135,604 $11.00 1,209,604 $10.83 1,189,604 $10.92 Granted 76,000 8.18 6,500 8.25 130,000 10.50 Forfeited - - - - - - Exercised or Repurchased (2,000) 6.00 (26,500) 6.13 (70,249) 6.24 ------------- ---------- ------------- --------- ------------- ---------- Outstanding at End of Year 1,209,604 $10.83 1,189,604 $10.92 1,249,355 $11.14 ============= ========== ============= ========= ============= ========== Exercisable at End of Year 973,604 $11.47 1,145,104 $11.03 1,116,105 $11.23 ============= ========== ============= ========= ============= ==========
The options outstanding and exercisable as of December 31, 2001 consist of the following:
Range of Number of Options Exercise Price Remaining Exercise ------------------------------- ------------------------------- Contractual Prices Outstanding Exercisable Outstanding Exercisable Life ------------- -------------- --------------- --------------- --------------- -------------- $5 to $10 623,167 619,917 $7.41 $7.41 6.06 $10 to $15 350,528 220,528 11.44 12.00 4.27 $15 to $20 165,396 165,396 18.00 18.00 1.33 $20 to $25 110,264 110,264 21.00 21.00 1.33 ------------- ------------- ---------- --------- ------- 1,249,355 1,116,105 $11.14 $11.23 4.51 ============= ============= ========== ========= =======
In June 1999, the Company reduced the exercise price of 320,000 options previously granted to certain employees from $13.50 and $15.50 to $8.25. Financial Accounting Standards Board Interpretation No. 44, "Accounting for Certain Transactions Involving Stock Compensation," addresses the accounting for modifications to outstanding stock options and became effective on July 1, 2000. As a result, the Company recorded an additional $320 and $75 of compensation expense in 2000 and 2001, respectively, relating to the modified stock options. Certain options of retiring employees were purchased in 2000 at an amount equal to their intrinsic value. Ladish Co., Inc. Notes to Consolidated Financial Statements (Dollars in Thousands Except Share and Per Share Data) (5) Research and Development- Research and Development costs are expensed as incurred. These costs were $3,265, $2,921 and $3,709 in 1999, 2000 and 2001, respectively. Research and Development costs funded by customers, amounting to $862, $728 and $1,518 in 1999, 2000 and 2001, 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 2006. Rental expense was $261, $154 and $145 in 1999, 2000 and 2001, respectively. Minimum lease obligations under noncancelable operating leases are as follows: 2002 $132 2003 108 2004 93 2005 54 2006 and Thereafter 54 -------- Total $441 ======== (7) Income Taxes- Substantially all amounts related to income tax expense and net deferred tax assets have been restated from amounts previously reported. The components of income tax expense (benefits) are as follows:
1999 --------------------------------------------------- Federal Tax State Tax Total ----------------- ---------------- ---------------- Current $ - $46 $46 Deferred 3,702 788 4,490 Charge in lieu of taxes related to goodwill 51 7 58 Tax benefits credited directly to paid-in capital 607 87 694 Reduction of beginning of year valuation allowance (2,093) (557) (2,650) Benefits of NOL carryforwards (1,609) (230) (1,839) ----------------- ---------------- ---------------- 658 141 799 Reversal of valuation allowance for post-reorganization deferred tax assets (15,643) (2,235) (17,878) ----------------- ---------------- ---------------- Total tax benefits $(14,985) $(2,094) $(17,079) ================= ================ ================ Income tax benefits credited directly to paid-in capital: Pre-reorganization NOL carryforwards utilized and reversal of temporary differences in the current year $(607) $(87) $(694) Reversal of valuation allowance for pre-reorganization deferred tax assets (16,494) (2,356) (18,850) ----------------- ---------------- ---------------- Total credits to paid-in capital $(17,101) $(2,443) $(19,544) ================= ================ ================ Ladish Co., Inc. Notes to Consolidated Financial Statements (Dollars in Thousands Except Share and Per Share Data) 2000 --------------------------------------------------- Federal Tax State Tax Total ----------------- ---------------- ---------------- Current $ - $308 $308 Deferred 6,500 1,339 7,839 Charge in lieu of taxes related to goodwill 58 8 66 ----------------- ---------------- ---------------- Total tax provision $6,558 $1,655 $8,213 ================= ================ ================ 2001 --------------------------------------------------- Federal Tax State Tax Total ----------------- ---------------- ---------------- Current $ - $496 $496 Deferred 5,811 1,013 6,824 Charge in lieu of taxes related to goodwill 58 8 66 ----------------- ---------------- ---------------- Total tax provision $5,869 $1,517 $7,386 ================= ================ ================
A reconciliation of the Federal statutory tax rate to the Company's effective tax rate is as follows:
1999 2000 2001 ----------------- ---------------- ---------------- Pre-tax accounting income $11,416 $20,863 $20,515 ================= ================ ================ Federal tax at statutory rate of 35% $3,996 $7,302 $7,180 State tax, net of Federal benefit 547 1,076 986 Permanent differences 41 101 60 Extra-Territorial Income Exclusion - (266) (840) Current year reduction of valuation allowance (3,785) - - ----------------- ---------------- ---------------- $799 $8,213 $7,386 ================= ================ ================ Effective tax rate 7.0% 39.4% 36.0% ================= ================ ================
The Extra-Territorial Income Exclusion is a statutory exclusion of income related to the Company's international sales. Components of net deferred income tax assets are as follows:
12/31/99 12/31/00 12/31/01 ----------------- ---------------- ---------------- Current deferred tax assets attributable to: Inventory adjustments $ 588 $ 995 $ 804 Accrued employee costs 1,261 1,467 1,384 Pension benefits 50 19 45 Postretirement healthcare benefits 2,220 2,298 2,123 Other 392 699 1,287 ----------------- ---------------- ---------------- Total current deferred tax assets $4,511 $5,478 $5,643 ================= ================ ================ Noncurrent deferred tax assets and (liabilities) attributable to: Property, plant and equipment $(10,318) $(8,698) $(7,112) NOL carryforwards 19,950 13,265 8,499 Pension benefits 6,019 3,115 (6) Postretirement healthcare benefits 16,372 15,473 14,914 Alternative minimum tax credits 280 634 1,029 Other 194 256 211 ----------------- ---------------- ---------------- Total noncurrent net deferred tax assets $32,497 $24,045 $17,535 ================= ================ ================ Total net deferred tax assets $37,008 $29,523 $23,178 ================= ================ ================
Ladish Co., Inc. Notes to Consolidated Financial Statements (Dollars in Thousands Except Share and Per Share Data) Amounts attributable to certain components of deferred tax assets have been restated for 1999, 2000 and 2001 to reflect the results of an IRS audit of the tax returns for years prior to reorganization 1987-1992. The IRS adjustments affected the pre-reorganization temporary differences related to property, plant and equipment and related depreciation expense in future years. The net impact of the adjustments at December 31, 1999 reduced the deferred tax liability related to property, plant and equipment by $6,300 and the deferred tax asset attributable to NOLs by $248. Other changes increased deferred tax assets by $365. Net deferred tax assets as well as the valuation allowance provided thereon were increased $6,417 from the amount, previously reported. The Company has net operating loss ("NOL") carryforwards that were generated prior to its reorganization completed on April 30, 1993 as well as NOL carryforwards that were generated subsequent to reorganization. During each accounting period, beginning April 30, 1993 through December 31, 1998, a valuation allowance was recorded to reduce the unrealized benefits of NOL carryforwards and temporary differences to zero. To the extent that the benefits of pre-reorganization NOLs and reversing temporary differences were realized subsequent to April 30, 1993 through utilization or were recognized by way of a reduction of the valuation allowance there was a corresponding increase in paid-in capital recognized rather than a reduction in income tax expense. To the extent the benefits of post-reorganization NOL carryforwards were either realized through utilization or recognized by way of a reduction of the valuation allowance there was a corresponding decrease in the income tax provision. The amount of the NOL carryforwards used through December 31, 2001 total $18,578 of the pre-reorganization NOLs and $42,837 of the post-reorganization NOLs. Federal NOL carryforwards remaining as of December 31, 2001 total $14,997 of pre-reorganization NOLs and $6,250 of post-reorganization NOLs. Wisconsin NOL carryforwards as of December 31, 2001 total $12,148 of pre-reorganization NOLs and $10,988 of post-reorganization NOLs. The Company's IPO in March, 1998 created an ownership change as defined by the Internal Revenue Service ("IRS"). This ownership change generated an IRS imposed limitation on the utilization of NOL carryforwards to reduce future taxable income. The annual use of the NOL carryforwards is limited to the lesser of the Company's taxable income or the amount of the IRS imposed limitation. Since the ownership change, the total NOL available for use is $11,865 annually. To the extent less than $11,865 was used in any year, the unused amount was added to and increased the limitation in the succeeding year. NOL carryforwards generated prior to the reorganization are further limited to an annual usage of $2,142. Any unused amount is added to and increases the limitation in the succeeding year. The pre-reorganization NOL carryforwards expire in 2008 and the post-reorganization NOL carryforwards expire in years 2008 through 2010. In 2002, after re-examination of the accounting literature and re-consideration of the positive and negative evidence which existed in prior years at the end of each year and consultation with the Company's auditors, the Company determined that as of December 31, 1999 it was more likely than not that the NOL carryforwards would be utilized prior to their expiration and that all net deferred tax assets would be realized. Therefore, effective as of December 31, 1999, the entire valuation allowance against the net deferred tax assets was reversed and the income tax provisions in 1999, 2000 and 2001 and paid-in capital have been revised. The amount of the valuation allowance reversed was $36,728. The financial statements for 1999, 2000 and 2001 have been restated. The effect of the valuation allowance reversal as of December 31, 1999 has been allocated between a credit of $18,850 to paid-in capital for that part of the allowance applicable to pre-reorganization NOLs and net temporary differences and a credit of $17,878 to the income tax provision for that part of the allowance applicable to post-reorganization NOLs and temporary differences. Also in 1999, the income tax provision includes $694 related to utilization of pre-reorganization NOLs which is credited to paid-in capital. Ladish Co., Inc. Notes to Consolidated Financial Statements (Dollars in Thousands Except Share and Per Share Data) The opening balances of paid-in capital and retained earnings as of January 1, 1999 have been restated to increase paid-in capital $14,770 and reduce retained earnings by the same amount with no effect on total stockholders' equity. This adjustment is being made to correct a misallocation of the benefits of the pre-reorganization NOLs and other net deferred tax assets between paid-in capital and reductions of income tax expense in prior years. Realization of the net deferred tax assets over time is dependent upon the Company generating sufficient taxable income in future periods. In determining that realization of the net deferred tax assets was more likely than not, the Company gave consideration to a number of factors including its recent earnings history, expectations for earnings in the future, the timing of reversal of temporary differences, tax planning strategies available to the Company and the expiration dates associated with NOL carryforwards. If, in the future, the Company determines that it is no longer more likely than not that the net deferred tax assets will be realized, a valuation allowance will be established against all or part of the net deferred tax assets with an offsetting charge to the income tax provision. Alternative minimum tax payments of $54, $354 and $395 were made in 1999, 2000 and 2001, respectively, and are recorded as deferred tax assets. (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, 1999, 2000 and 2001:
Pension Benefits ------------------------------------------ December 31, ------------------------------------------ 1999 2000 2001 ------------- ------------- ------------- Change in Benefit Obligation: Projected Benefit Obligation at Beginning of Year $176,094 $166,017 $163,323 Service Cost 1,318 1,322 672 Interest Cost 13,310 13,696 13,882 Amendments 3,750 1,016 - Actuarial (Gains) Losses (10,611) 13 14,741 Benefits Paid (17,844) (18,741) (18,501) ------------- ------------- ------------- Projected Benefit Obligation at End of Year $166,017 $163,323 $174,117 ============= ============= ============= Change in Plan Assets: Plan Assets at Fair Value at Beginning of Year $204,626 $215,007 $217,200 Actual Return on Plan Assets 27,274 20,400 (14,039) Company Contributions 951 534 422 Benefits Paid (17,844) (18,741) (18,501) ------------- ------------- ------------- Plan Assets at Fair Value at End of Year $215,007 $217,200 $185,082 ============= ============= ============= Ladish Co., Inc. Notes to Consolidated Financial Statements (Dollars in Thousands Except Share and Per Share Data) Pension Benefits ------------------------------------------ December 31, ------------------------------------------ 1999 2000 2001 ------------- ------------- ------------- Funded Status of Plan $48,990 $53,877 $10,965 Unrecognized Prior Service Cost 3,191 3,832 3,372 Unrecognized Net Actuarial Gain (65,632) (63,651) (11,962) ------------- ------------- ------------- Net Prepaid (Accrued) Benefit Cost $(13,451) $(5,942) $2,375 ============= ============= ============= Weighted Average Assumptions: Discount Rate 8.25% 8.50% 7.50% Rate of Increase in Compensation Levels 3.00% 3.00% 3.00% Expected Long-Term Rate of Return on Assets 9.25% 9.25% 9.25% Postretirement Benefits ------------------------------------------ December 31, ------------------------------------------ 1999 2000 2001 ------------- ------------- ------------- Change in Benefit Obligation: Projected Benefit Obligation at Beginning of Year $50,767 $46,183 $42,786 Service Cost 361 333 307 Interest Cost 3,612 3,597 3,417 Amendments - - - Actuarial (Gains) Losses (3,006) (1,582) 319 Benefits Paid (5,551) (5,745) (5,308) ------------- ------------- ------------- Projected Benefit Obligation at End of Year $46,183 $42,786 $41,521 ============= ============= ============= Change in Plan Assets: Plan Assets at Fair Value at Beginning of Year $ - $ - $ - Actual Return on Plan Assets - - - Company Contributions 5,551 5,745 5,308 Benefits Paid (5,551) (5,745) (5,308) ------------- ------------- ------------- Plan Assets at Fair Value at End of Year $ - $ - $ - ============= ============= ============= Funded Status of Plan $(46,183) $(42,786) $(41,521) Unrecognized Prior Service Cost - - - Unrecognized Net Actuarial Gain (297) (1,641) (1,073) ------------- ------------- ------------- Accrued Benefit Cost $(46,480) $(44,427) $(42,594) ============= ============= ============= Weighted Average Assumptions: Discount Rate 8.25% 8.50% 8.00% Rate of Increase in Compensation Levels - - - Expected Long-Term Rate of Return on Assets - - -
The components of the net periodic benefit costs for the years ended December 31, 1999, 2000 and 2001, respectively, are:
Pension Benefits Postretirement Benefits -------------------------------- -------------------------------- 1999 2000 2001 1999 2000 2001 ---------- --------------------- ----------- ---------- --------- Service Cost-Benefit Earned During the Period $1,318 $1,322 $ 672 $361 $333 $307 Interest Cost on Projected Benefit Obligation 13,310 13,696 13,882 3,612 3,597 3,417 Expected Return on Pension Assets (17,986) (19,177) (19,715) - - - Net Amortization and Deferral (1,443) (3,190) (3,195) (192) (238) (249) Prior Service Cost 353 375 461 - - - Loss Due to Curtailment 2,097 - - - - - ---------- --------------------- ----------- ---------- --------- Net Periodic Benefit Cost (Income) $(2,351) $(6,974) $(7,895) $3,781 $3,692 $3,475 ========== ===================== =========== ========== =========
Ladish Co., Inc. Notes to Consolidated Financial Statements (Dollars in Thousands Except Share and Per Share Data) Assumptions used in the determination of net periodic benefit costs for these years are: 1999 2000 2001 ---------- ---------- ---------- Discount Rate 7.50% 8.25% 8.50% Rate of Increase in Compensation Levels 3.00% 3.00% 3.00% Expected Long-Term Rate of Return on Assets 9.25% 9.25% 9.25% Assumed healthcare cost trend rates have a significant effect on the amounts reported for the postretirement healthcare plans. A one-percentage-point change in assumed healthcare cost trend rates would have the following effects: 1% 1% Increase Decrease ---------- ------------ Effect on Total of Service and Interest Cost Components $178 $(162) Effect on Postretirement Healthcare Benefit Obligation $2,434 $(2,209) During 1999, the Company offered certain employees a one-time early-retirement program that resulted in additional pension expense of $2,096. The impact of the additional liability is included in the amendments in the benefit obligation reconciliation. As a result of union labor renegotiations finalized during 2000, the benefits in certain Company sponsored pension plans were frozen and replaced with comparable benefits in national multi-employer plans not administered by the Company. The Company contributed $777 and $1,413 to these plans during 2000 and 2001, respectively. (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 $1,745, $2,147 and $2,599 as of December 31, 1999, 2000 and 2001, respectively, has been recorded under these agreements as actuarially determined. The expense was $114, $252 and $292 in 1999, 2000 and 2001, respectively. An additional minimum liability net of deferred tax benefits is reflected in stockholders' equity. 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 Cudahy site has a profit sharing program in which substantially all of the employees are eligible to participate. The profit sharing payout is derived from a formula based on pretax income in 1999, net income in 2000 and 2001, and is payable no later than February 15th of the subsequent year. The expense was $958, $1,366 and $812 in 1999, 2000 and 2001, respectively. PCT has a profit sharing program called "Gainshare" in which all employees are eligible to participate. The Gainshare pool is calculated based on various internal operating measurements. The expense was $469 and $691 in 2000 and 2001, 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 Ladish Co., Inc. Notes to Consolidated Financial Statements (Dollars in Thousands Except Share and Per Share Data) 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. (12) Earnings Per Share- Basic earnings per share of common stock are computed by dividing net income by the weighted average number of common shares outstanding during the period. Diluted earnings per share of common stock are computed by dividing net income by the average number of common shares and common share equivalents related to the assumed exercise of stock options and warrants. The following shares were used to calculate basic and diluted earnings per share:
December 31, ---------------------------------------------- 1999 2000 2001 -------------- --------------- --------------- Average Basic Common Shares Outstanding 13,715,555 13,075,188 12,944,545 Incremental Shares Applicable to Common Stock Options and Warrants 797,706 606,716 209,983 -------------- --------------- --------------- Average Diluted Common Shares Outstanding 14,513,261 13,681,904 13,154,528 ============== =============== ===============
The shares outstanding used to compute diluted earnings per share for 2001 excluded outstanding options to purchase 496,188 shares of common stock at a weighted average exercise price of $16.00. The options were excluded because their exercise prices were greater than the average market price of the common shares during the year. (13) Acquisitions- 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 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 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 is amortized through December 31, 2001 on a straight-line basis over 20 years. See Note (2)(k) for further discussion of the impact FASB No. 142 will have on the goodwill of the Company. On January 14, 2000, the Company completed the purchase of certain assets and assumption of certain liabilities of Wyman-Gordon Titanium Castings, LLC. The acquired business was renamed Pacific Cast Technologies, Inc. ("PCT"). The PCT acquisition was accounted for using the purchase method of accounting. Accordingly, the net assets were included in the Company's consolidated balance sheet as of December 31, 2000 based upon their fair values at the acquisition date of January 14, 2000. The Company's consolidated statements of operations do not include the revenues and expenses of PCT prior to this date. The excess of the purchase price over the fair value of the net assets acquired (goodwill) of approximately Ladish Co., Inc. Notes to Consolidated Financial Statements (Dollars in Thousands Except Share and Per Share Data) $2,700 is amortized on a straight-line basis over 20 years through December 31, 2001. See Note (2)(k) for further discussion of the impact FASB No. 142 will have on the goodwill of the Company. The PCT purchase price allocation was as follows: Current Assets $8,842 Property, Plant and Equipment 16,614 Assumed Liabilities (2,906) Goodwill 2,700 ----------- Total Purchase Price $25,250 =========== (14) Quarterly Results of Operations (Unaudited)- The following table sets forth restated unaudited consolidated income statement of operations data for each quarter of the Company's last three 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 ---------------------------------------- ------------------------------------------------------------------ 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 (restated) 1,469 2,528 2,488 22,010 Basic Earnings Per Share (restated) 0.11 0.18 0.18 1.62 Diluted Earnings Per Share (restated) 0.10 0.18 0.17 1.55 ---------------------------------------- 2000 ---------------------------------------- Net Sales $54,852 $57,414 $58,399 $59,483 Gross Profit 8,603 8,373 8,636 8,879 Operating Income 6,375 5,657 5,098 5,622 Net Income (restated) 3,616 3,137 2,783 3,114 Basic Earnings Per Share (restated) 0.27 0.24 0.22 0.24 Diluted Earnings Per Share (restated) 0.26 0.23 0.20 0.23 ---------------------------------------- 2001 ---------------------------------------- Net Sales $67,863 $69,025 $59,524 $56,005 Gross Profit 8,658 10,423 7,453 7,277 Operating Income 5,657 6,768 5,895 4,439 Net Income (restated) 3,317 4,047 3,447 2,318 Basic Earnings Per Share (restated) 0.26 0.31 0.27 0.18 Diluted Earnings Per Share (restated) 0.25 0.31 0.26 0.18
Net income and earnings per share amounts for all quarters, beginning with the quarter ended December 31, 1999, have been restated to reflect the effect of the reversal of the net deferred tax asset valuation allowance as of December 31, 1999. See Note 7. Ladish Co., Inc. Notes to Consolidated Financial Statements (Dollars in Thousands Except Share and Per Share Data) (15) Valuation and Qualifying Accounts-
Provision Payments Balance at Charged to and Balance at Beginning of PCT Profit and Accounts End of Year Acquisition Loss Written Off Year ---- ----------- ---- ----------- ---- Year ended December 31, 1999 Allowance for doubtful accounts $300 - $(3) $(3) $300 ======== ======== ======== ====== ======= Year ended December 31, 2000 Allowance for doubtful accounts $300 $35 $6 $4 $337 ======== ======== ======== ====== ======= Year ended December 31, 2001 Allowance for doubtful accounts $337 - $15 $11 $341 ======== ======== ======== ====== =======