In the face of the foregoing challenges, Ladish did manage to ship $469.5 million of product in 2008. In spite of an 11% increase in net sales in 2008, earnings declined for a number of reasons. Largely due to the credit crisis and the Boeing strike, the product mix at Ladish shifted unfavorably at Ladish as jet engine components went from 56% of sales to 51% and correspondingly, industrial components increased from 20% to 23% of sales. This shift in product mix toward components with lower profit margins was an impediment to earnings in 2008. Ladish believes this trend will stabilize in 2009 and improve in 2010 and beyond as Boeing and Airbus bring new aircraft to the market and Ladish is able to utilize its expanded capacity for incremental sales.
Raw material remained a challenge for Ladish in 2008. Although performance of suppliers improved from 2007 levels, fluctuating market prices and price guarantees implemented by the Company's customers disrupted the supply chain and negatively affected the Company's cost of goods. The by-product market for the material Ladish recycles was severely depressed in 2008 and as a result Ladish did not receive a sufficient level of proceeds to offset its cost of goods, and raw material increased from 46% to 49% of Ladish's costs.
The Company benefited in 2008 from a combined tax rate of 15.4%. This lower tax rate was the result of Ladish recognizing a $5.5 million research and development tax credit in the third quarter of the year, a significant state tax savings from apportionment and a $1.9 million foreign economic zone credit from ZKM for prior investments in that operation. Results of Operations
Year Ended December 31, 2008 Compared to Year Ended December 31, 2007 Net sales in 2008 were $469.5 million, a 10.6% increase over the $424.6 million of net sales in 2007. The sales growth in 2008 was due to the continued strength of Ladish's markets and the acquisitions of Aerex and Chen-Tech in the third quarter of 2008. In 2008, cost of sales for the Company was 87% of net sales in comparison to 84% of net sales in 2007.
The Company's SG&A expense in 2008 was $19.8 million, or 4.2% of net sales. In 2007, SG&A expense was 3.9% of net sales. The percentage increase in SG&A expense is attributed to growth in employment to support capacity expansion and higher professional fees associated with tax planning.
In 2008, the Company's interest expense was $2.0 million in comparison to $2.5 million in 2007. The decrease in interest expense in 2008 was the result of a larger amount of interest capitalized associated with the capacity expansion programs at the Company. Total interest increased in 2008 as the Company incurred additional debt to support the acquisition of Aerex and Chen-Tech. The following table reflects the Company's treatment of interest for the years 2007 and 2008:

                     (Dollars in millions)    2007        2008
                     Interest expensed       $ 2.528     $ 1.971
                     Interest capitalized      0.795       2.418

                     Total                   $ 3.323     $ 4.389

Pretax income in 2008 was $38.3 million, an $11.9 million reduction from the 2007 pretax income level. The decline in pretax income was due to product mix and under-absorbed fixed costs.
Tax expense for 2008 was $5.9 million, which equated to an effective tax rate of 15.4%. In 2007, the Company experienced an effective tax rate of 35.5%. The reduction in tax rate is mainly attributed to the

Company recognizing a significant tax savings from the recognition of a $5.5 million research and development tax credit in the third quarter of 2008 and a $1.9 million foreign economic zone credit.
Net income in 2008 was $32.2 million, which equates to $2.15 per share on a fully-diluted basis. Net income was similar to 2007 levels but declined as a percentage of sales due to higher raw material and energy costs, a less profitable mix of products sold and inefficiencies associated with expanding manufacturing capacity, offset by the aforementioned tax savings and the capitalization of interest expense to capital projects.
The Company booked $408 million of new orders in 2008 in comparison to $534 million of new orders in 2007. The decline in orders was associated with the Boeing labor stoppage in the third quarter of 2008 and general, global economic conditions.
Year Ended December 31, 2007 Compared to Year Ended December 31, 2006 Net sales for 2007 were $424.6 million in comparison to $369.3 million of net sales in fiscal 2006. The 15% year-over-year increase in net sales was attributable to a 3% sales increase in jet engine components, a 48% sales increase in aerospace components and a 23% sales increase in industrial components. For 2007, all of the markets served by the Company showed continued strength and high demand for the products manufactured by the Company. Cost of sales was 84% of net sales in 2007 in contrast to 82% of net sales in 2006. The higher cost of sales in 2007 is attributed to higher raw material costs in 2007. SG&A expense for fiscal 2007 was $16.7 million, or 3.9% of net sales. In 2006, SG&A expense was $18.2 million, or 4.9% of net sales. The reduction in SG&A expense, both in total dollars and as a percentage of net sales, is due to the Company using internal staffing for international sales, a reduction in professional fees and a continued cost reduction effort.
Interest expense in 2007 was $2.5 million in comparison to $3.5 million in 2006. The reduction in interest expense in 2007 was due to lower debt levels and the capitalization of that portion of interest associated with capital projects at the Company. The following table reflects the Company's treatment of interest for the years 2006 and 2007:

                     (Dollars in millions)    2006        2007
                     Interest expensed       $ 3.548     $ 2.528
                     Interest capitalized      0.091       0.795

                     Total                   $ 3.639     $ 3.323

For 2007, the Company had $50.2 million of pretax income, a 12% increase over the $44.7 million of pretax income earned by the Company in 2006. The rise in pretax income is attributable to the increased volume of net sales in 2007, operating efficiencies and a more profitable mix of product in 2007. The Company recognized a tax expense of $17.8 million in 2007 for federal, state and foreign taxes. The 35.5% effective tax rate in 2007 is a decrease from the 35.9% effective tax rate used for 2006. The rate decrease in 2007 was a reflection of the Company reversing a valuation allowance at ZKM and recognizing a tax asset in 2007.
Net income for 2007 was $32.3 million, or $2.22 per share on a fully-diluted basis, in comparison to $28.5 million, or $2.00 per share on a fully-diluted basis, of net income in 2006. The growth of net income comes from higher net sales, operating efficiencies and product mix along with a slightly lower effective tax rate in 2007.

New orders of $534 million were booked by the Company in 2007 in comparison to $415 million of new orders in 2006. This resulted in the Company ending 2007 with $611 million of contract backlog in comparison to $500 million of contract backlog at the end of 2006. The increase in orders and resulting contract backlog in 2007 is a reflection of the overall strength in all three of the primary markets served by the Company.
Liquidity and Capital Resources
The Company's cash position as of December 31, 2008 is $1 million less than its position at December 31, 2007. The 2008 decrease in cash is due to $49.8 million in capital expenditures, pension contributions and decreased payables partially offset by decreases in inventory and receivables. Cash flow from operations in 2008 was $11.1 million less than cash flow from operations in 2007 primarily due to $7.4 million of increased cash pension contributions.
On July 20, 2001, the Company sold $30 million of Series A Notes in a private placement to certain institutional investors. The Series A Notes are unsecured and bear interest at a rate of 7.19% per annum with the interest being paid semiannually. The Series A Notes have a seven-year duration with the principal amortizing equally over the duration after the third year. Amortization payments of $6 million annually were made on July 20, 2004 through 2008, at which time the Series A Notes were retired.
On May 16, 2006, the Company sold $40 million 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.
On September 2, 2008, the Company sold $50 million 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. In addition, the Company and a syndicate of lenders have entered into a $35 million revolving line of credit (the "Facility") which was most recently renewed on April 25, 2008. The Facility bears interest at a rate of LIBOR plus 1.25% or at a base rate. At December 31, 2008, there were $28.9 million of borrowings under the Facility and $6.1 million of credit was available pursuant to the terms of the Facility. The Facility has a maturity date of April 24, 2009. The Company expects to renew the Facility on similar terms, as it has for each of the past nine years.
During 2008, the Company applied $49.8 million of cash for capital expenditures and $40.3 million of cash for acquisitions. These expenditures were funded by $28.7 million of cash from operations and borrowings under the Facility and the Series C Notes.
In 2008, the Company issued 1,301,961 shares of common stock in connection with the acquisitions of Aerex and Chen-Tech.
During the years ending December 31, 2007 and 2008, the Company received $0.289 million and $0.215 million, respectively, from the exercise of employee stock options.
Given the Company's ability to pass along raw material price increases to its customers, inflation has not had a material effect upon the Company during the period covered by this report. Given the rising demand for the products manufactured by the Company, and the prospects for increases in raw material costs and possible energy cost escalation, the Company cannot determine at this time if there will be any significant impact from inflation in the foreseeable future.

                         Contractual Obligations Table
                             (Dollars in Millions)

                                  Less Than                                       More Than
                                   1 Year         1-3 Years       3-5 Years        5 Years
  Senior Notes (1)               $         -     $    21.430     $    31.430     $    37.140
  Bank Facility                       28.900               -               -               -
  Operating Leases                     1.065           1.731           1.383           2.465
  Purchase Obligations (2)            35.069           7.986           3.993               -
  Other Long-Term Obligations:
  Pensions (3)                         8.309          20.000               -               -
  Postretirement Benefits (4)          3.540           6.912           6.540          13.787

(1) The Company expects to fund the payment of long-term debt through the use of cash on hand, cash generated from operations, the reduction of working capital and, if necessary, through access to the Facility.

(2) The purchase obligations relate primarily to raw material purchase orders necessary to fulfill the Company's production backlog for the Company's products along with commitments for energy supplies also necessary to fulfill the Company's production backlog. There are no net settlement provisions under any of these purchase orders nor is there any market for the underlying materials.

(3) The Company's estimated cash pension contribution is based upon the calculation of the Company's independent actuary for 2009. There are no estimates beyond 2011.

(4) The Company's cash expenditures for Postretirement Benefits have only been projected out through the year 2018.

Critical Accounting Policies
Deferred Income Taxes
The Company started 2008 with $2.1 million of domestic net operating loss ("NOL") carryforwards that were generated prior to its reorganization completed on April 30, 1993. These NOLs were utilized by the Company to reduce taxable income in 2008.
Pensions
The Company has noncontributory defined benefit pension plans ("Plans") covering a number of its employees. The Company contributed $11.797 million and $8.955 million, respectively, to the Plans in 2007 and 2008. The Company intends to contribute $8.3 million, $10 million and $10 million to the Plans in 2009, 2010 and 2011, respectively. The Company plans on funding those contributions from cash on hand, cash generated from operations, working capital reductions, treasury stock contributions and, if necessary, from the Facility. No estimates have been made for payments into the Plans beyond 2011.
The Plans' assets are held in a trust and are primarily invested in U.S. Government securities, investment grade corporate bonds and marketable common stocks. The key assumptions the Company considers with respect to the assets in the Plans and funding the liabilities associated with the Plans are the discount rate, the long-term rate of return on Plans' assets, the projected rate of increase in compensation levels and the actuarial estimate of mortality of participants in the Plans. The most sensitive assumption is the discount rate. For funding purposes, the Company's independent actuaries assumed an annual long-term rate of return on Plan assets of 8.9% and 7.95% for 2007 and 2008, respectively. For the ten-year period ending December 31, 2008, the Company experienced an annual rate of return on Plan assets of 2.68%.
The Company used a rate of 6.05% for its discount rate assumption for 2008, a decrease from the 6.11% rate used for 2007. An increase in the discount rate results in a decrease in the accumulated benefit

obligation at the measurement date which may also result in a decrease in the additional minimum pension liability included as a credit to accumulated other comprehensive income. Such an increase also results in an actuarial gain which is amortized to pension expense in accordance with FASB Statement No. 87. A decrease in the discount rate will have the opposite effect in the pension liability and pension expense. The Company bases its discount rate on long maturity AA rated corporate debt securities. The Company cannot predict whether these interest rates will increase or decrease in future years. The Company cannot predict the level of interest rates in the future and correspondingly cannot predict the future discount rate which will be applied to determine the Company's projected benefit obligation. As demonstrated in the chart below, relatively small movements in the discount rate, up or down, can have a significant impact on the Company's projected benefit obligation under the Plans.

             Projected Plan Benefit Obligation as of December 31, 2008
                               (Dollars in Millions)
           At 5.80% discount rate                       $       208.605
           At 6.05% discount rate                       $       204.035
           At 6.30% discount rate                       $       199.585

Nor can the Company predict with any certainty what the actual rate of return will be for the Plans' assets. As demonstrated in the chart below, a modest change in the presumed rate of return on the Plans' assets will have a material impact upon the actual net periodic cost for the Plans.

                Net Periodic Cost for Year Ending December 31, 2009
                               (Dollars in Millions)
              7.70% expected return                     $     6.018
              7.95% expected return                     $     5.600
              8.20% expected return                     $     5.183

Goodwill and Other Intangible Assets
Goodwill represents the cost of acquired net assets in excess of their fair market values. Goodwill and other intangible assets with indefinite useful lives are not amortized but are tested for impairment at least annually in accordance with the provisions of Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets ("SFAS No. 142"). Intangible assets with estimable useful lives are amortized over their respective estimated useful lives and also reviewed at least annually for impairment.
In accordance with SFAS No. 142, a two-step impairment test is required to identify potential goodwill impairment and measure the amount of the goodwill impairment loss to be recognized. In the first step, the fair value of each reporting unit is compared to its carrying value to determine if the goodwill is impaired. If the fair value of the reporting unit exceeds the carrying value of the net assets assigned to that unit, then goodwill is not impaired and the second step is not required. If the carrying value of the net assets assigned to the reporting unit exceeds its fair value, then the second step is performed in order to determine the implied fair value of the reporting unit's goodwill and an impairment loss is recorded for an amount equal to the difference between the implied fair value and the carrying value of the goodwill.
For the purpose of goodwill analysis, the Company has only one reporting segment, as defined by SFAS No. 142. Goodwill of $37.1 million represents the excess of the purchase price over the fair value of identifiable tangible and intangible net assets relating to business acquisitions. Goodwill increased significantly in 2008 due to the acquisitions of Aerex and Chen-Tech. It is an asset with an indefinite life and therefore is not amortized to expense, but is subject to annual impairment testing. The Company tests the goodwill for impairment at least annually by fair value impairment testing. The Company's assessment of fair value used in the annual impairment testing takes into account a number of factors

including EBITDA multiples of transactions in the Company's industry as well as fair market value multiples of transactions of similarly situated enterprises. No impairments were recognized in 2007 or 2008. Should goodwill become impaired in the future, the amount of impairment will be charged to SG&A expense. The Company has $20.0 million of amortizable customer relationships included in other intangible assets that will be amortized over 50 years with annual amortization of $0.4 million.
New Accounting Pronouncements
In September 2006, the Financial Accounting Standards Board ("FASB") issued SFAS No. 157, Fair Value Measurements (SFAS No. 157). SFAS No. 157 establishes a framework for measuring fair value in accordance with generally accepted accounting principles, clarifies the definition of fair value within that framework and expands disclosures about fair value measurements. SFAS No. 157 applies whenever other standards require (or permit) assets or liabilities to be measured at fair value, except for the measurement of share based payments. SFAS No. 157 does not expand the use of fair value in any new circumstances. For certain types of financial instruments, SFAS No. 157 requires a limited form of retrospective transition, whereby the cumulative impact of the change in principle is recognized in the opening balance in retained earnings in the fiscal year of adoption. All other provisions of SFAS No. 157 will be applied prospectively. On February 12, 2008, the FASB issued FASB Staff Position ("FSP") FAS 157-2, "Effective Date of FASB Statement No. 157" ("FSP FAS 157-2"). FSP FAS 157-2 defers the implementation of SFAS No. 157 for certain nonfinancial assets and nonfinancial liabilities. The remainder of SFAS No. 157 is effective for the Company beginning in the first quarter of fiscal year 2009. The aspects that have been deferred by FSP FAS 157-2 will be effective for the Company beginning in the first quarter of fiscal year 2010. The fiscal year 2009 adoption is not expected to have a material impact on the consolidated financial statements. The Company is currently evaluating the impact that FSP FAS 157-2 may have on the Company's consolidated financial statements.
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities - Including an Amendment of FASB Statement No. 115 ("SFAS No. 159"). This standard permits an entity to choose to measure many financial instruments and certain other items at fair value. The fair value option permits a company to choose to measure eligible items at fair value at specified election dates. A company will report unrealized gains and losses on items for which the fair value option has been elected in earnings after adoption. SFAS No. 159 was effective for the Company on January 1, 2008. The Company elected not to adopt the fair value option for any other financial assets and liabilities as permitted by SFAS No. 159.
In December 2007, the FASB issued SFAS No. 141 (Revised 2007), Business Combinations ("SFAS No. 141(R)"). The objective of SFAS No. 141(R) is to improve the information provided in financial reports about a business combination and its effects. SFAS No. 141(R) requires an acquirer to recognize the assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree at the acquisition date, measured at their fair values as of that date. SFAS No. 141(R) also requires the acquirer to recognize and measure the goodwill acquired in a business combination or a gain from a bargain purchase. SFAS No. 141(R) will be applied on a prospective basis for business combinations where the acquisition date is on or after the beginning of the Company's 2009 fiscal year. SFAS No. 141(R) did not apply to the acquisitions of Aerex and Chen-Tech.
In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements-an amendment of ARB No. 51 ("SFAS No. 160"). The objective of SFAS No. 160 is to improve the financial information provided in consolidated financial statements. SFAS No. 160 amends ARB No. 51 to establish accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. SFAS No. 160 also changes the way the consolidated income statement is presented, establishes a single method of accounting for changes in a parent's ownership

interest in a subsidiary that do not result in deconsolidation, requires that a parent recognize a gain or loss in net income when a subsidiary is deconsolidated, and expands disclosures in the consolidated financial statements in order to clearly identify and distinguish between the interests of the parent's owners and the interest of the noncontrolling owners of a subsidiary. SFAS No. 160 is effective for the Company's 2009 fiscal year. The Company does not anticipate that SFAS No. 160 will have any material impact on the Company's consolidated financial statements. However, SFAS No. 160 will modify the manner in which the Company reports on the minority interest in ZKM as the minority interest will be reclassified as a component of stockholders' equity. On December 30, 2008, the FASB issued FASB Staff Position (FSP) FAS 132R-1, "Employers' Disclosures about Postretirement Benefit Plan Assets," which significantly expands the disclosures required by employers for postretirement plan assets. The FSP requires plan sponsors to provide extensive new disclosures about assets in defined benefit postretirement benefit plans as well as any concentrations of associated risks. In addition, the FSP requires new disclosures similar to those in FASB Statement 157, Fair Value Measurements, in terms of the three-level fair value hierarchy, including a reconciliation of the beginning and ending balances of plan assets that fall within Level 3 of the hierarchy. FSP FAS 132R-1 also includes a technical amendment to FASB Statement
132 (revised 2003), Employers' Disclosures about Pensions and Other Postretirement Benefits, to restore a provision that was inadvertently deleted by FASB Statement 158, Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans. FSP FAS 132R-1 is effective for periods ending after December 15, 2009. The disclosure requirements are annual and do not apply to interim financial statements. The technical amendment to Statement 132R was effective as of December 30, 2008.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk The Company believes that its exposure to market risk related to changes in foreign currency exchange rates and trade accounts receivable is immaterial. Item 8. Financial Statements and Supplementary Data The response to Item 8. Financial Statements and Supplementary Data incorporates by reference the information listed in the consolidated financial statements and accompanying schedules beginning on page F-1.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Grant Thornton LLP have been the auditors of the financial statements of the . . .