Attached files
file | filename |
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EX-31.2 - EXHIBIT 31.2 - LADISH CO INC | c07766exv31w2.htm |
EX-32.1 - EXHIBIT 32.1 - LADISH CO INC | c07766exv32w1.htm |
EX-31.1 - EXHIBIT 31.1 - LADISH CO INC | c07766exv31w1.htm |
Table of Contents
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended September 30, 2010
Commission File Number 1-34495
Ladish Co., Inc.
(Exact name of registrant as specified in its charter)
Wisconsin | 31-1145953 | |
(State or other Jurisdiction of | (I.R.S. Employer | |
incorporation or organization) | Identification No.) |
5481 South Packard Avenue, Cudahy, Wisconsin | 53110 | |
(Address of principal executive offices) | (Zip Code) |
(414) 747-2611
(Registrants telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed
by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months, and
(2) has been subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such files). Yes o No o
Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act. (Check one):
Large accelerated filer o | Accelerated filer þ | Non-accelerated filer o (Do not check if a smaller reporting company) | Smaller reporting company o |
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). Yes o No þ
Indicate the number of shares outstanding of each of the issuers classes of common stock, as
of the latest practicable date.
Class | Outstanding at September 30, 2010 | |
Common Stock, $0.01 Par Value | 15,704,552 |
TABLE OF CONTENTS
Table of Contents
PART I FINANCIAL INFORMATION
Page 2 of 14
Table of Contents
Ladish Co., Inc.
Condensed Consolidated Statements of Operations
(Dollars in Thousands, Except Per Share Data)
For the Three Months | For the Nine Months | |||||||||||||||
Ended September 30, | Ended September 30, | |||||||||||||||
(unaudited) | (unaudited) | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Net sales |
$ | 100,280 | $ | 76,191 | $ | 298,635 | $ | 266,616 | ||||||||
Cost of sales |
84,018 | 71,469 | 252,012 | 248,233 | ||||||||||||
Gross profit |
16,262 | 4,722 | 46,623 | 18,383 | ||||||||||||
Selling, general and administrative expenses |
4,529 | 5,692 | 12,761 | 14,007 | ||||||||||||
Income (loss) from operations |
11,733 | (970 | ) | 33,862 | 4,376 | |||||||||||
Other income (expense): |
||||||||||||||||
Interest expense |
(1,363 | ) | (1,428 | ) | (4,257 | ) | (3,594 | ) | ||||||||
Other, net |
(300 | ) | (632 | ) | 354 | (965 | ) | |||||||||
Income (loss) before income tax provision (benefit) |
10,070 | (3,030 | ) | 29,959 | (183 | ) | ||||||||||
Income tax provision (benefit) |
3,855 | (780 | ) | 10,833 | 228 | |||||||||||
Net income (loss) |
6,215 | (2,250 | ) | 19,126 | (411 | ) | ||||||||||
Noncontrolling interest in net earnings (loss) of subsidiary |
(3 | ) | (41 | ) | 22 | (52 | ) | |||||||||
Net income (loss) attributable to the controlling interest |
$ | 6,218 | $ | (2,209 | ) | $ | 19,104 | $ | (359 | ) | ||||||
Basic earnings (loss) per share |
$ | 0.40 | $ | (0.14 | ) | $ | 1.21 | $ | (0.02 | ) | ||||||
Diluted earnings (loss) per share |
$ | 0.40 | $ | (0.14 | ) | $ | 1.21 | $ | (0.02 | ) | ||||||
Basic weighted average shares outstanding |
15,703,799 | 15,901,877 | 15,754,554 | 15,901,439 | ||||||||||||
Diluted weighted average shares outstanding |
15,704,935 | 15,901,877 | 15,755,826 | 15,901,439 |
See accompanying notes to condensed consolidated financial statements.
Page 3 of 14
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Ladish Co., Inc.
Condensed Consolidated Balance Sheets
(Dollars in Thousands, Except Share Data)
September 30, | December 31, | |||||||
2010 | 2009 | |||||||
(unaudited) | ||||||||
Assets: |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 26,774 | $ | 19,917 | ||||
Accounts receivable, less allowance of $75 at each date |
77,322 | 59,382 | ||||||
Inventories |
100,852 | 92,697 | ||||||
Deferred income taxes |
5,134 | 5,144 | ||||||
Prepaid expenses and other current assets |
2,828 | 6,118 | ||||||
Total current assets |
212,910 | 183,258 | ||||||
Property, plant and equipment: |
||||||||
Land and improvements |
6,920 | 6,905 | ||||||
Buildings and improvements |
61,447 | 60,416 | ||||||
Machinery and equipment |
252,689 | 240,352 | ||||||
Construction in progress |
53,245 | 58,451 | ||||||
374,301 | 366,124 | |||||||
Less accumulated depreciation |
(178,876 | ) | (167,688 | ) | ||||
Net property, plant and equipment |
195,425 | 198,436 | ||||||
Deferred income taxes |
22,128 | 26,522 | ||||||
Goodwill |
37,571 | 37,571 | ||||||
Other intangible assets, net |
19,165 | 19,465 | ||||||
Other assets |
3,227 | 4,262 | ||||||
Total assets |
$ | 490,426 | $ | 469,514 | ||||
Liabilities: |
||||||||
Current liabilities: |
||||||||
Accounts payable |
$ | 33,130 | $ | 23,613 | ||||
Senior notes |
15,714 | 5,714 | ||||||
Accrued liabilities: |
||||||||
Pensions |
249 | 259 | ||||||
Postretirement benefits |
3,464 | 3,464 | ||||||
Officers deferred compensation |
155 | 155 | ||||||
Wages and salaries |
5,328 | 3,314 | ||||||
Taxes, other than income taxes |
303 | 289 | ||||||
Interest |
1,047 | 1,355 | ||||||
Profit sharing |
2,456 | 611 | ||||||
Paid progress billings |
846 | 2,428 | ||||||
Income taxes |
1,279 | | ||||||
Other |
7,768 | 4,541 | ||||||
Total current liabilities |
71,739 | 45,743 | ||||||
Noncurrent liabilities: |
||||||||
Senior notes |
68,571 | 84,286 | ||||||
Pensions |
66,382 | 69,653 | ||||||
Postretirement benefits |
29,411 | 30,215 | ||||||
Officers deferred compensation |
9,606 | 9,276 | ||||||
Other noncurrent liabilities |
3,086 | 4,220 | ||||||
Total liabilities |
248,795 | 243,393 | ||||||
Equity: |
||||||||
Stockholders equity: |
||||||||
Common stock authorized 100,000,000, issued 15,907,552 shares at each
date of $.01 par value |
159 | 159 | ||||||
Additional paid-in capital |
153,308 | 153,292 | ||||||
Retained earnings |
164,482 | 145,378 | ||||||
Treasury stock, 203,000 and 4,548 shares of common stock at each date at cost |
(3,272 | ) | (33 | ) | ||||
Accumulated other comprehensive loss |
(73,595 | ) | (73,214 | ) | ||||
Total stockholders equity |
241,082 | 225,582 | ||||||
Noncontrolling interest in equity of subsidiary |
549 | 539 | ||||||
Total equity |
241,631 | 226,121 | ||||||
Total liabilities and equity |
$ | 490,426 | $ | 469,514 | ||||
See accompanying notes to condensed consolidated financial statements.
Page 4 of 14
Table of Contents
Ladish Co., Inc.
Condensed Consolidated Statements of Cash Flows
(Dollars in Thousands)
(Dollars in Thousands)
For the Nine Months | ||||||||
Ended September 30, | ||||||||
(unaudited) | ||||||||
2010 | 2009 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: |
||||||||
Net income (loss) attributable to the controlling interest |
$ | 19,104 | $ | (359 | ) | |||
Adjustments to reconcile net income to net cash
provided by (used in) operating activities: |
||||||||
Depreciation |
11,650 | 11,466 | ||||||
Amortization of intangibles |
300 | 409 | ||||||
Non-cash deferred compensation |
145 | 418 | ||||||
Deferred income taxes |
4,292 | 349 | ||||||
Noncontrolling interest in net earnings (loss) of subsidiary |
22 | (52 | ) | |||||
Gain on purchase of stock noncontrolling interest |
(6 | ) | (15 | ) | ||||
Loss on disposal of property, plant and equipment |
118 | 284 | ||||||
Changes in assets and liabilities: |
||||||||
Accounts receivable |
(18,078 | ) | 24,095 | |||||
Inventories |
(8,073 | ) | 26,817 | |||||
Other assets |
4,382 | 1,945 | ||||||
Accounts payable and accrued liabilities |
14,656 | (18,558 | ) | |||||
Other liabilities |
(3,546 | ) | 1,455 | |||||
Net cash provided by operating activities |
24,966 | 48,254 | ||||||
CASH FLOWS FROM INVESTING ACTIVITIES: |
||||||||
Additions to property, plant and equipment |
(9,303 | ) | (10,946 | ) | ||||
Proceeds from sale of property, plant and equipment |
65 | 62 | ||||||
Proceeds from working capital adjustment on Aerex acquisition |
| 1,200 | ||||||
Net cash used in investing activities |
(9,238 | ) | (9,684 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES: |
||||||||
Repayment of Facility |
| (28,900 | ) | |||||
Repayment of senior notes |
(5,715 | ) | | |||||
Retirement of capital lease obligations |
| (1,660 | ) | |||||
Purchase of ZKM stock noncontrolling interest |
(6 | ) | (33 | ) | ||||
Purchase of treasury stock |
(3,250 | ) | | |||||
Proceeds from exercise of stock options |
16 | 15 | ||||||
Net cash used in financing activities |
(8,955 | ) | (30,578 | ) | ||||
Effect of exchange rate changes on cash and cash equivalents |
84 | (179 | ) | |||||
INCREASE IN CASH AND CASH EQUIVALENTS |
6,857 | 7,813 | ||||||
CASH AND CASH EQUIVALENTS, beginning of period |
19,917 | 4,903 | ||||||
CASH AND CASH EQUIVALENTS, end of period |
$ | 26,774 | $ | 12,716 | ||||
See accompanying notes to condensed consolidated financial statements.
Page 5 of 14
Table of Contents
Ladish Co., Inc.
Notes to Condensed Consolidated Financial Statements
(Dollars in Thousands, Except Share Data)
(1) Basis of Presentation
In the opinion of the Company, the accompanying unaudited condensed consolidated financial
statements contain all adjustments necessary to present fairly its financial position at
September 30, 2010 and its results of operations and cash flows for the interim periods presented.
All adjustments are of a normal recurring nature.
The accompanying unaudited consolidated condensed financial statements have been prepared in
accordance with Article 10 of Regulation S-X and therefore do not include all disclosures required
for annual financial statements presented in conformity with accounting principles generally
accepted in the United States of America. The Company has filed a report on Form 10-K which
contains audited consolidated financial statements that include all information and footnotes
necessary for a fair presentation of its financial position at December 31, 2009 and 2008, and the
related consolidated statements of operations, stockholders equity, and cash flows for the years
ended December 31, 2009, 2008 and 2007.
The preparation of financial statements in conformity with accounting principles generally accepted
in the United States of America requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and the disclosure of contingent assets and
liabilities at the date of financial statements and the reported amounts of revenues and expenses
during the reporting periods. Actual results will likely differ from those estimates, but
management believes such differences will not be material.
The results of operations for any interim period are not necessarily indicative of the results to
be expected for a full year.
(2) Inventories
September 30, | December 31, | |||||||
2010 | 2009 | |||||||
Raw materials |
$ | 16,273 | $ | 18,038 | ||||
Work-in-process and finished goods |
87,669 | 77,209 | ||||||
Less progress payments |
(3,090 | ) | (2,550 | ) | ||||
Total inventories |
$ | 100,852 | $ | 92,697 | ||||
(3) Interest and Income Tax Payments
For the Nine Months | ||||||||
Ended September 30, | ||||||||
2010 | 2009 | |||||||
Interest paid |
$ | 4,584 | $ | 4,749 | ||||
Income taxes paid (refunded) |
3,641 | (2,650 | ) |
Page 6 of 14
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(4) Cash and Cash Equivalents
Cash in excess of daily requirements is invested in marketable securities consisting of commercial
paper and money market instruments which mature in three months or less. Such investments are
deemed to be cash equivalents due to the high liquidity and short term duration of such money
market accounts. The Company maintains deposits in financial institutions that consistently exceed
the current FDIC limit of $250. The Company has not experienced any losses in such accounts and
management believes the Company is not at significant risk. Outstanding payroll and accounts
payable checks related to certain bank accounts are recorded as accounts payable on the balance
sheets. These checks amounted to $3,489 and $105 as of September 30, 2010 and December 31, 2009,
respectively.
(5) Revenue Recognition
Sales revenue is recognized when the title and risk of loss have passed to the customer, there is
pervasive evidence of an arrangement, delivery has occurred or the services have been provided, the
sales price is determinable and collectibility is reasonably assured. This occurs at the time of
shipment. Net sales include freight out as well as reductions for returns and allowances, and
sales discounts. Progress payments on contracts are recognized as reductions of the related
inventory costs. Progress payments in excess of inventory costs are reflected as a liability. The
Company does not recognize revenue from the disposal of by-products. Any proceeds received from
by-product disposal are considered an offset to cost of sales. The allowance for doubtful accounts
is based on a review of sales reports, open deduction reports, trends in collections, historical
experience and existing economic conditions. Bad debt write-offs occur upon notice of insolvency
or other evidence of business closure. The Company has reviewed SEC Staff Accounting Bulletin No.
104 and believes its revenue recognition policy to be in compliance with FASB ASC 605-10-S99-1.
(6) Income Taxes
The year-to-date income tax provision for 2010 was based on an annualized combined federal, state
and foreign effective rate of 36.2%, which differed from the statutory federal rate of 35% due
primarily to state taxes offset by the benefit of the Domestic Production Activities deduction. In
2009, the Company had a tax provision of $228 despite a year-to-date loss due to domestic income
being offset by a foreign loss.
(7) Pension and Postretirement Benefits
The components of net periodic benefit costs recognized for the nine-month periods ended
September 30, 2010 and 2009 are presented in the table below.
Other | ||||||||||||||||
Pension Benefits | Postretirement Benefits | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Service cost |
$ | 1,204 | $ | 1,010 | $ | 172 | $ | 143 | ||||||||
Interest cost |
8,194 | 8,891 | 1,236 | 1,426 | ||||||||||||
Expected return on plan assets |
(9,178 | ) | (9,949 | ) | | | ||||||||||
Amortization of prior service cost |
368 | 293 | 11 | 11 | ||||||||||||
Amortization of the net loss |
6,128 | 3,955 | 76 | 4 | ||||||||||||
Net periodic benefit cost |
$ | 6,716 | $ | 4,200 | $ | 1,495 | $ | 1,584 | ||||||||
Page 7 of 14
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The Company previously disclosed in its financial statements for the year ended December 31, 2009,
that it expected to contribute $7,456 to its pension plans in 2010. As of September 30, 2010, the
Company has made $9,109 of cash contributions to the pension plans versus $2,554 during the same
period in 2009. The Company currently estimates its total contributions to its pension plans in
2010 will be $10,478.
In December 2003, the Medicare Prescription Drug, Improvement and Modernization Act of 2003 was
enacted. The Company has concluded that certain benefits provided by its postretirement benefit
plan are actuarially equivalent to Medicare Part D under the Act and has filed a refund request
with the Claims Management Services, a division of the Health and Human Services Department. In
the first nine months of 2010 and 2009, respectively, the Company received refunds of $54 and $159.
(8) Debt
On May 16, 2006, the Company sold $40,000 of Series B senior notes (the Series B Notes) in a
private placement to certain institutional investors. The Series B Notes are unsecured and bear
interest at a rate of 6.14% per annum with interest being paid semiannually. The Series B Notes
have a ten-year duration with the principal amortizing equally over the duration after the fourth
year. The first amortization payment of $5,715 was paid on May 17, 2010.
On September 2, 2008, the Company sold $50,000 of Series C senior notes (the Series C Notes) in a
private placement to certain institutional investors. The Series C Notes are unsecured and bear
interest at a rate of 6.41% per annum with interest being paid semiannually. The Series C Notes
have a seven-year duration with the principal amortizing equally over the duration after the third
year.
The Companys Series B and Series C Notes contain financial covenants which (a) limit the
incurrence of certain additional debt; (b) require a certain level of consolidated adjusted net
worth; (c) require a minimum fixed charges coverage ratio; and (d) require a limited amount of
funded debt to consolidated cash flow. The covenant on incurrence of additional debt limits funded
debt to 60% of total capitalization. At September 30, 2010, funded debt at Ladish was at 23% of
total capitalization. This covenant also limits priority debt to 20% of adjusted net worth.
Ladish had no priority debt at September 30, 2010. The covenant on adjusted net worth requires a
minimum of $112,829. At September 30, 2010, Ladish had $274,506 of adjusted net worth. The
covenant on fixed charges coverage ratio requires that consolidated cash flow to fixed charges be a
minimum of 2.00. The Companys fixed charges coverage ratio at September 30, 2010 was 9.62. The
final covenant on net debt to consolidated cash flow allows for a maximum level of 4.00. At
September 30, 2010, the Companys actual level was 1.05. The Note Agreement for the Series B and
Series C Notes also contains customary representations and warranties and events of default.
The Company and a syndicate of lenders entered into a revolving credit facility (the Facility),
which was most recently renewed on April 8, 2010. The Facility consists of a $35,000 unsecured
revolving line of credit which bears interest at a rate of LIBOR plus 2.00% or at a base rate. At
September 30, 2010, there were no borrowings under the Facility and $35,000 was available pursuant
to the terms of the Facility. The Facility has a maturity date of April 7, 2011.
The Company and the syndicate of lenders participating in the Facility entered into Amendment No. 2
to the Facility. This Amendment, effective as of April 8, 2010, modified the covenant on minimum
EBITDA by deleting that covenant and substituting in its place a covenant on the ratio of net debt
to EBITDA. The covenant requires a maximum ratio of net debt to EBITDA to be no more than 3.50:1.
As of September 30, 2010, the Companys ratio was 1.05:1. The Facility also contains a covenant
that requires a minimum fixed charge coverage ratio of 1.7x. As of September 30, 2010, the Company
had a fixed charge coverage ratio of 4.26x.
Page 8 of 14
Table of Contents
At September 30, 2010, the Company was in compliance with all covenants in the Series B and Series
C Notes and the Facility.
(9) Earnings Per Share
The incremental difference between basic weighted average shares outstanding and diluted weighted
average shares outstanding is due to the dilutive impact of outstanding options.
(10) Stockholders Equity
The Company has a Stock Option Plan (the Plan) that covers certain employees. Under the Plan,
incentive stock options for up to 983,333 shares may be granted to employees of the Company, of
which 943,833 options have been granted. These options expire ten years from the grant date.
Options granted vest over two years. There were no options granted and 1,548 options were
exercised in the nine months ended September 30, 2010. As of September 30, 2010, 3,000 options
granted under the Plan remain outstanding and exercisable.
On May 5, 2010, at the 2010 Annual Stockholders Meeting of the Company, the stockholders of the
Company approved the adoption of the Companys 2010 Restricted Stock Unit Plan (the Plan).
Subsequent to that meeting, the Company granted 400,000 restricted stock units under the Plan to
certain employees and directors of the Company.
(11) Legal Proceedings
From time to time the Company is involved in legal proceedings relating to claims arising out of
its operations in the normal course of business. Although the Company believes that there are no
material legal proceedings pending or threatened against the Company or any of its properties, the
Company has been named as a defendant in a number of asbestos cases. As of the date of this
filing, the Company has nine individual claims pending in Mississippi, one claim pending in
Wisconsin and two individual claims pending in Illinois. The Company has never manufactured or
processed asbestos. The Companys only exposure to asbestos involves products the Company
purchased from third parties. Given that the consortium of insurers are handling the defense of
the Company, combined with the lack of actual exposure or prior negative judgments, the Company has
not made any provision in its financial statements for the asbestos litigation.
The Company is also participating in an investigation initiated by U.S. Customs & Border Protection
(Customs) into duty drawback claims filed on behalf of the Company by its former export agent.
The Company is cooperating with Customs in this investigation. Based upon its internal
investigation, the Company believes any errors or omissions with respect to its filings were solely
attributable to its former export agent. The Company intends to continue to cooperate with Customs
in resolving this matter. The Company believes that the ultimate resolution of the matter with Customs should occur in the near term and the
Company has made adequate provisions in its financial statements for such a resolution.
(12) New Accounting Pronouncements
None.
(13) Subsequent Events
The Company is not aware of any subsequent events which would require recognition or disclosure in
the financial statements.
Page 9 of 14
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MANAGEMENTS DISCUSSION
AND ANALYSIS OF RESULTS OF OPERATIONS AND
CHANGES IN FINANCIAL POSITION
(Dollars in Thousands, except per share data)
AND ANALYSIS OF RESULTS OF OPERATIONS AND
CHANGES IN FINANCIAL POSITION
(Dollars in Thousands, except per share data)
RESULTS OF OPERATIONS
Third Quarter 2010 Compared to Third Quarter 2009
Net sales for the three months ended September 30, 2010 were $100,280 compared to $76,191 for the
same period in 2009. The amount of net sales for each of the three principal markets served by the
Company were as follows for the periods indicated:
Three Months Ended September 30, | ||||||||||||||||
2010 | 2009 | |||||||||||||||
Jet Engine Components |
$ | 49,866 | 50 | % | $ | 39,757 | 52 | % | ||||||||
Aerospace Components |
35,696 | 36 | % | 28,365 | 37 | % | ||||||||||
General Industrial Components |
14,718 | 14 | % | 8,069 | 11 | % | ||||||||||
Total |
$ | 100,280 | 100 | % | $ | 76,191 | 100 | % | ||||||||
Gross profit for the third quarter of 2010 was 16.2% of net sales in contrast to 6.2% of net sales
in the third quarter of 2009. The increase in gross profit in the third quarter of 2010 is
primarily a result of improved productivity, lower employment levels and improved by-product sales
along with an improved absorption of fixed costs by the increased level of net sales.
Selling, general and administrative expenses were $4,529 and $5,692 and, as a percentage of net
sales, were 4.5% and 7.5% for the third quarters of 2010 and 2009, respectively. The percentage
decrease in selling, general and administrative expenses was attributed to the higher costs
associated with work force reductions in 2009.
Interest expense for the third quarter of 2010 was $1,363 in contrast to $1,428 for the same period
in 2009. The lower interest expense in 2010 is due primarily to the reduced level of senior notes.
During the third quarter of 2010, the Companys revolving line of credit had an interest rate
equal to the LIBOR rate plus 2.00% or at a base rate. Series B and Series C senior notes bore
interest at the rate of 6.14% and 6.41%, respectively. The Company had no borrowings under the
revolving line of credit facility and had $84,285 of senior notes outstanding at the end of the
third quarter of 2010.
Pretax income for the third quarter of 2010 was $10,070 in contrast to a loss of $(3,030) for the
same period in 2009. The increase in pretax income was due to the incremental sales increase,
growth of by-product sales, significantly reduced expenses associated with employment reductions
and reduced utility costs.
The 2010 third quarter income tax provision is based on an effective tax rate of 38.3%, which
differed from the statutory federal rate of 35% due to state income taxes offset by the benefit of
the Domestic Production Activities deduction. The 2009 tax benefit of $(780) was due to the
pre-tax loss of $(3,030) in the third quarter.
The Companys net income for the third quarter of 2010 was $6,218, an $8,427 increase from $(2,209)
in net losses for the same quarter of 2009. Profitability increased from the prior period due to
the increased sales levels, lower employment costs, improved productivity, higher by-product sales
and lower utility
costs. The Companys contract backlog at September 30, 2010 was $536,511 in comparison to backlogs
of $475,566 and $504,207 at September 30, 2009 and December 31, 2009, respectively.
Page 10 of 14
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First Nine Months 2010 Compared to First Nine Months 2009
The Company had net sales of $298,635 during the first nine months of 2010 in contrast to $266,616
of net sales in the first three quarters of 2009. The amount of net sales for each of the three
principal markets served by the Company were as follows for the periods indicated:
Nine Months Ended September 30, | ||||||||||||||||
2010 | 2009 | |||||||||||||||
Jet Engine Components |
$ | 147,529 | 49 | % | $ | 144,549 | 54 | % | ||||||||
Aerospace Components |
109,430 | 37 | % | 88,315 | 33 | % | ||||||||||
General Industrial Components |
41,676 | 14 | % | 33,752 | 13 | % | ||||||||||
Total |
$ | 298,635 | 100 | % | $ | 266,616 | 100 | % | ||||||||
In the first nine months of 2010, the Company had gross profits of $46,623, or 15.6% of net sales,
in contrast to $18,383, or 6.9% of net sales, during the same period in 2009. The increase in
gross income in 2010 is attributable to higher sales, improved productivity, lower employment
levels and improved by-product sales.
The Company had selling, general and administrative expense of $12,761, or 4.3% of net sales, in
the first nine months of 2010 in comparison to $14,007, or 5.3% of net sales, in the first three
quarters of 2009. The decrease in selling, general and administrative expense in 2010 was due to
lower employment costs in 2010.
The Company incurred interest expense of $4,257 in the first nine months of 2010 in comparison to
$3,594 of interest expense in the equivalent period of 2009. The difference in interest expense
between the periods is attributable to higher capitalization of interest in 2009 as the Company was
in the process of finishing a major capital project in 2009.
Pretax income in the first nine months was $29,959, a $30,142 increase over the $(183) of pretax
loss in the first nine months of 2009. The increase in pretax income in 2010 resulted from sales
growth, lower employment levels, higher productivity, improved by-product sales and lower utility
rates.
The year-to-date income tax provision for 2010 was based on an annualized combined federal, state
and foreign effective rate of 36.2%, which differed from the statutory federal rate of 35% due
primarily to state taxes offset by the benefit of the Domestic Production Activities deduction. In
2009, the Company had a tax provision of $228 despite a year-to-date loss due to domestic income
being offset by a foreign loss.
The Companys net income of $19,104, or $1.21 of diluted per share earnings, in the first nine
months of 2010 reflects an increase of $19,463 from the loss of $(359), or $(0.02) of diluted
losses per share in the first three quarters of 2009. The increase in net income reflects the
impact of incremental sales growth, improved absorption of fixed costs, higher productivity,
improved by-product sales and lower utility rates.
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Liquidity and Capital Resources
The Companys cash position as of September 30, 2010 was $6,857 more than it was at December 31,
2009. For the first nine months of 2010, the Company generated $24,966 of cash from operating
activities in contrast to $48,254 of cash from operations in the same period of 2009. The Company
expended $9,303 and $10,946 of cash on capital expenditures in the first nine months of 2010 and
2009, respectively. The Company expects capital expenditures for the remainder of 2010 will be at
a reduced level. The Company also expended $3,250 in the first three quarters of 2010 on the
repurchase of 200,000 shares of the common stock of the Company, $5,715 on the retirement of long
term debt and $9,109 was contributed to the Companys pension trust in 2010 in comparison to $2,554
in 2009.
On May 16, 2006, the Company sold $40,000 of Series B Notes in a private placement to certain
institutional investors. The Series B Notes are unsecured and bear interest at a rate of 6.14% per
annum with interest being paid semiannually. The Series B Notes have a ten-year duration with the
principal amortizing equally over the duration after the fourth year. The first amortization
payment of $5,715 was paid on May 17, 2010.
On September 2, 2008, the Company sold $50,000 of Series C Notes in a private placement to certain
institutional investors. The Series C Notes are unsecured and bear interest at a rate of 6.41% per
annum with interest being paid semiannually. The Series C Notes have a seven-year duration with
the principal amortizing equally over the duration after the third year.
The Companys Series B and Series C Notes contain financial covenants which (a) limit the
incurrence of certain additional debt; (b) require a certain level of consolidated adjusted net
worth; (c) require a minimum fixed charges coverage ratio; and (d) require a limited amount of
funded debt to consolidated cash flow. The covenant on incurrence of additional debt limits funded
debt to 60% of total capitalization. At September 30, 2010, funded debt at Ladish was at 23% of
total capitalization. This covenant also limits priority debt to 20% of adjusted net worth.
Ladish had no priority debt at September 30, 2010. The covenant on adjusted net worth requires a
minimum of $112,829. At September 30, 2010, Ladish had $274,506 of adjusted net worth. The
covenant on fixed charges coverage ratio requires that consolidated cash flow to fixed charges be a
minimum of 2.00. The Companys fixed charges coverage ratio at September 30, 2010 was 9.62. The
final covenant on net debt to consolidated cash flow allows for a maximum level of 4.00. At
September 30, 2010, the Companys actual level was 1.05. The Note Agreement for the Series B and
Series C Notes also contains customary representations and warranties and events of default.
The Company and a syndicate of lenders entered into a revolving credit facility which was most
recently renewed on April 8, 2010. The Facility consists of a $35,000 unsecured revolving line of
credit which bears interest at a rate of LIBOR plus 2.00% or at a base rate. At September 30,
2010, there were no borrowings under the Facility and $35,000 was available pursuant to the terms
of the Facility. The Facility has a maturity date of April 7, 2011.
The Company and the syndicate of lenders participating in the Facility entered into Amendment No. 2
to the Facility. This Amendment, effective as of April 8, 2010, modified the covenant on minimum
EBITDA by deleting that covenant and substituting in its place a covenant on the ratio of net debt
to EBITDA. The covenant requires a maximum ratio of net debt to EBITDA to be no more than 3.50:1.
As of September 30, 2010, the Companys ratio was 1.05:1. The Facility also contains a covenant
that requires a minimum fixed charge coverage ratio of 1.7x. As of September 30, 2010, the Company
had a fixed charge coverage ratio of 4.26x.
At September 30, 2010, the Company was in compliance with all covenants in the Series B and Series
C Notes and the Facility.
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As of September 30, 2010 and December 31, 2009, the Company had net deferred tax assets of $27,262
and $31,666, respectively. Realization of net deferred tax assets is dependent upon the Company
generating sufficient taxable income in future periods. In determining that realization of net
deferred tax assets was more likely than not, the Company has given consideration to a number of
factors including its recent earnings history, expectations for earnings in the future, the timing
of reversal of temporary differences and tax planning strategies available to the Company. If, in
the future, the Company determines that it is no longer more likely than not that net deferred tax
assets will be realized, a valuation allowance will be established against all or part of the net
deferred tax assets with an offsetting charge to the income tax provision.
The Companys market capitalization at September 30, 2010 was $488,883. The increase in the
trading price of the Companys common stock from June 30, 2010 is believed to be related to overall
improvement in the domestic equity markets and aerospace stocks in particular rather than any
direct assessment of the Company.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The Company believes that its exposure to market risk related to changes in foreign currency
exchange rates and trade accounts receivable is immaterial as the vast majority of the Companys
sales are made in U.S. dollars. The Company does not consider itself subject to the market risks
addressed by Item 305 of Regulation S-K.
Any statements contained herein that are not historical facts are forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995, and involve risks and
uncertainties. These forward-looking statements include expectations, beliefs, plans, objectives,
future financial performance, estimates, projections, goals and forecasts. Potential factors which
could cause the Companys actual results of operations to differ materially from those in the
forward-looking statements include:
|
Market conditions and demand for the Companys products | | Competition | |||
|
Interest rates and capital costs | | Technologies | |||
|
Unstable governments and business conditions in emerging economies | | Raw material and energy prices | |||
|
Legal, regulatory and environmental issues | | Taxes | |||
|
Health care costs |
Any forward-looking statement speaks only as of the date on which such statement is made. The
Company undertakes no obligation to update any forward-looking statement to reflect events or
circumstances after the date on which such statement is made.
Item 4. Controls and Procedures
Under the direction of the principal executive officer and principal financial officer, the Company
has evaluated the effectiveness of its disclosure controls and procedures (as defined in Exchange
Act Rules 13a-15(e) and 15d-15(e)) as of September 30, 2010. Based on that evaluation, the chief
executive officer and the chief financial officer have concluded that the Companys disclosure
controls and procedures were effective.
There were no significant changes in the Companys internal controls over financial reporting or in
other factors that could significantly affect these controls during the quarter ended September 30,
2010, including any corrective actions with regard to significant deficiencies and material
weaknesses.
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PART II OTHER INFORMATION
Item 5. Other Information
None.
Item 6. Exhibits
Exhibit 31.1 is the written statement of the chief executive officer of the Company certifying this
Form 10-Q complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934.
Exhibit 31.2 is the written statement of the chief financial officer of the Company certifying this
Form 10-Q complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934.
Exhibit 32.1 is the written statement of the chief executive officer and chief financial officer of
the Company pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly authorized.
LADISH CO., INC. |
||||
By: | /s/ Gary J. Vroman | |||
Gary J. Vroman | ||||
President & Chief Executive Officer | ||||
By: | /s/ Wayne E. Larsen | |||
Wayne E. Larsen | ||||
Vice President Law/Finance & Secretary |
Date: November 3, 2010
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