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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended April 2, 2000 file number: 1-5761
- --------------------------------------- ----------------------------------------
LaBarge, Inc.
- --------------------------------------------------------------------------------
(Exact Name of Registrant as specified in its charter)
DELAWARE 73-0574586
- -------------------------------------- -----------------------------------
(State or other jurisdiction of I.R.S. Employer
incorporation or organization) Identification No.)
9900A Clayton Road, St. Louis, Missouri 63124
- ------------------------------------------- ------------------------------------
(Address) (Zip Code)
(314) 997-0800
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(Registrant's telephone number, including Area Code)
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(Former name, former address and former fiscal year,
if changed since last report)
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 (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes |X|. No |_|.
Indicate the number of shares outstanding of each of the Issuer's classes of
common stock as of April 2, 2000. 14,810,291 shares of common stock.
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LABARGE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(dollars in thousands except per share data)
THREE MONTHS ENDED NINE MONTHS ENDED
----------------------------------------------------------------------
APRIL 2, March 28, APRIL 2, March 28,
2000 1999 2000 1999
- ------------------------------------------------------------------------------------------------------------------------------------
NET SALES $ 26,034 $ 21,558 $ 63,764 $ 70,003
- ------------------------------------------------------------------------------------------------------------------------------------
COSTS AND EXPENSES:
Cost of sales 20,007 17,318 51,160 55,591
Selling and administrative expense 4,337 3,493 12,387 10,497
Gain on settlement of Transmedica - - (2,300) -
Interest expense 591 370 1,572 1,049
Loss from NotiCom 462 243 1,615 514
Minority interest income 36 31 33 172
Other income, net (57) (92) (240) (302)
- ------------------------------------------------------------------------------------------------------------------------------------
EARNINGS (LOSS) BEFORE INCOME TAXES 658 195 (463) 2,482
INCOME TAX EXPENSE (BENEFIT) 325 72 (124) 916
- ------------------------------------------------------------------------------------------------------------------------------------
NET EARNINGS (LOSS) $ 333 $ 123 $ (339) $ 1,566
====================================================================================================================================
BASIC NET EARNINGS (LOSS) PER COMMON SHARE $ .02 $ .01 $ (.02) $ .10
AVERAGE COMMON SHARES OUTSTANDING 14,810 15,022 14,748 15,263
====================================================================================================================================
DILUTED NET EARNINGS (LOSS) PER COMMON SHARE $ .02 $ .01 $ (.02) $ .10
AVERAGE DILUTED COMMON SHARES OUTSTANDING 14,814 15,071 14,748 15,319
====================================================================================================================================
See accompanying notes to consolidated financial statements.
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LABARGE, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(dollars in thousands)
APRIL 2, June 27,
2000 1999
- ------------------------------------------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 721 $ 495
Accounts and notes receivable, net 16,570 12,492
Inventories 21,247 16,093
Prepaid expenses 813 727
Deferred tax assets, net 718 664
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 40,069 30,471
- ------------------------------------------------------------------------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT, NET 12,863 13,188
DEFERRED TAX ASSETS, NET 1,896 1,818
INVESTMENT IN NOTICOM 2,113 2,780
INTANGIBLE ASSETS, NET 6,331 6,941
OTHER ASSETS, NET 4,841 4,456
- ------------------------------------------------------------------------------------------------------------------------------
$ 68,113 $ 59,654
==============================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings $ 9,480 $ 930
Current maturities of long-term debt 1,819 1,771
Trade accounts payable 10,373 5,847
Accrued employee compensation 3,663 3,873
Other accrued liabilities 2,569 2,863
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 27,904 15,284
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OTHER LONG-TERM LIABILITIES 117 -
LONG-TERM DEBT 11,876 15,866
SUBORDINATED DEBT 4,424 4,424
- ------------------------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value. Authorized 40,000,000 shares;
Issued 15,773,253 shares at April 2, 2000 and 15,711,395
At June 27, 1999, including shares in treasury 158 157
Additional paid-in capital 13,722 13,615
Retained earnings 13,064 13,403
Less cost of common stock in treasury, 962,962 shares at
April 2, 2000 and 955,853 shares at June 27, 1999 (3,152) (3,095)
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 23,792 24,080
- ------------------------------------------------------------------------------------------------------------------------------
$ 68,113 $ 59,654
==============================================================================================================================
See accompanying notes to consolidated financial statements.
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LABARGE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(dollars in thousands)
NINE MONTHS ENDED
---------------------------------------------
APRIL 2, March 28,
2000 1999
- ------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) earnings $ (339) $ 1,566
Adjustments to reconcile net cash (used) provided by operating
activities:
Gain on settlement of Transmedica (100) -
(Gain) loss on disposal of property (2) 20
Undistributed loss from NotiCom 1,068 458
Minority interest income 34 172
Depreciation and amortization 2,725 1,461
Deferred taxes (132) 700
Changes in assets and liabilities, net of acquisitions:
Accounts and notes receivable, net (4,078) 2,813
Inventories (5,154) 2,308
Prepaid expenses (86) 241
Trade accounts payable 4,526 (1,995)
Accrued liabilities and other (457) (372)
- ------------------------------------------------------------------------------------------------------------------------------
NET CASH (USED) PROVIDED BY OPERATING ACTIVITIES (1,995) 7,372
- ------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (995) (2,819)
Additions to other assets (495) (605)
Acquisition of majority business interest - 30
Investments in and advances to NotiCom (948) (4,301)
- ------------------------------------------------------------------------------------------------------------------------------
NET CASH USED BY INVESTING ACTIVITIES (2,438) (7,695)
- ------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Additions to long-term debt - 5,570
Repayments of long-term debt (3,942) (92)
Net sale of common stock 108 79
Net purchase of common stock for treasury (57) (2,005)
Net change in short-term borrowings 8,550 (3,044)
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NET CASH PROVIDED BY FINANCING ACTIVITIES 4,659 508
- ------------------------------------------------------------------------------------------------------------------------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 226 185
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 495 540
- ------------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 721 $ 725
==============================================================================================================================
See accompanying notes to consolidated financial statements.
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LABARGE, INC.
FORM 10-Q
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. CONSOLIDATED FINANCIAL STATEMENTS - BASIS OF PREPARATION
The consolidated balance sheets at April 2, 2000 and June 27, 1999, the related
consolidated statements of operations for the three and nine months ended April
2, 2000 and March 28, 1999 and the consolidated statements of cash flows for the
nine months ended April 2, 2000 and March 28, 1999 have been prepared by
LaBarge, Inc. (the "Company") without audit. In the opinion of management,
adjustments, all of a normal and recurring nature, necessary to present fairly
the financial position and the results of operations and cash flows for the
aforementioned periods, have been made. Certain prior year amounts have been
reclassified to conform with the current year's presentation.
Certain information and footnote disclosures normally included in consolidated
financial statements prepared in conformity with generally accepted accounting
principles have been condensed or omitted. These consolidated financial
statements should be read in conjunction with the audited financial statements
and notes thereto included in the Company's Annual Report on Forms 10-K and
10-K/A for the fiscal year ended June 27, 1999.
2. ACCOUNTS AND NOTES RECEIVABLE
Accounts and notes receivable consist of the following:
(dollars in thousands)
APRIL 2, June 27,
2000 1999
- ---------------------------------------------------------------------------------------------------------------------
Billed shipments, net of progress payments $ 16,451 $ 11,819
Less allowance for doubtful accounts 178 347
- ---------------------------------------------------------------------------------------------------------------------
Trade receivables, net 16,273 11,472
Notes receivables - 2,000
Less allowance for doubtful notes - 2,000
- ---------------------------------------------------------------------------------------------------------------------
Notes receivable, net - -
Income tax receivable 101 863
Other current receivables 196 157
=====================================================================================================================
$ 16,570 $ 12,492
=====================================================================================================================
Progress payments are payments from customers in accordance with contractual
terms for contract costs incurred to date. Such payments are credited to the
customer at the time of shipment.
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Transmedica International, Inc. ("Transmedica") issued a promissory note to
LaBarge in June 1998. The note, which was secured by substantially all of
Transmedica's assets, represented $1.2 million in converted accounts receivable
owed to LaBarge by Transmedica and $800,000 in operating capital extended to
Transmedica by LaBarge. When Transmedica failed to repay the note, which was due
on June 2, 1999, LaBarge took legal action against Transmedica seeking payment.
The claim for payment of the note was added to pending litigation filed by
LaBarge against Transmedica in October 1998 in St. Louis County. The litigation
sought resolution of disputes between the two companies pertaining to a portable
medical laser device called the Laser Lancet(R). As a result of Transmedica's
default on the note and litigation, the Company decided to reserve the full
amount of its investment in Transmedica ($4.6 million) at June 27, 1999.
In December 1999, the Company resolved all pending litigation with Transmedica.
LaBarge received $2.3 million of cash and securities of Norwood Abbey, Ltd., an
Australian-based provider of medical devices.
Other current receivables, as of April 2, 2000, includes $111,000 of receivables
due from NotiCom in connection with contractual services provided by the
Company.
3. INVENTORIES
Inventories consist of the following:
(dollars in thousands)
APRIL 2, June 27,
2000 1999
- ---------------------------------------------------------------------------------------------------------------------
Raw materials $ 12,287 $ 9,472
Work in progress 9,044 7,755
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21,331 17,227
Less progress payments 84 1,134
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$ 21,247 $ 16,093
=====================================================================================================================
In accordance with contractual agreements, the U.S. Government has a security
interest in inventories identified with related contracts for which progress
payments have been received.
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4. INTANGIBLE ASSETS, NET
Intangible assets, net, is summarized as follows:
(dollars in thousands)
APRIL 2, June 27,
2000 1999
- ---------------------------------------------------------------------------------------------------------------------
Software $ 1,381 $ 1,124
Patents 85 73
Goodwill 7,202 7,214
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8,668 8,411
Less amortization 2,337 1,470
- ---------------------------------------------------------------------------------------------------------------------
$ 6,331 $ 6,941
=====================================================================================================================
Amortization expense was $282,000 for the quarter ended April 2, 2000 and
$42,000 for the quarter ended March 28, 1999.
5. INVESTMENT IN NOTICOM
Investment in NotiCom is summarized as follows:
(dollars in thousands)
APRIL 2, June 27,
2000 1999
- ----------------------------------------------------------------------------------------------------------------------
Investment in technology $ 1,686 $ 1,686
Less amortization 784 237
- ----------------------------------------------------------------------------------------------------------------------
Investment in technology, net 902 1,449
Investment in joint venture 1,211 1,331
- ----------------------------------------------------------------------------------------------------------------------
$ 2,113 $ 2,780
======================================================================================================================
The investments in joint venture and technology pertain to NotiCom and its
related advance notification technology.
During the first quarter of fiscal 2000, NotiCom needed additional cash
contribution totaling approximately $405,000 to continue its development and
marketing efforts. LaBarge made these contributions. No cash contributions were
made in the second or third quarter. The Company provided equipment valued at
$485,000 during the second quarter and $58,000 in the third quarter of fiscal
2000. These amounts were added to the Company's investment in NotiCom. LaBarge
anticipates NotiCom will require additional cash contributions in the fourth
quarter of fiscal 2000 as NotiCom continues its development efforts. On April
17, 2000, LaBarge made a cash contribution of $168,000.
The Company has contributed 100% of the cash required from the partners for the
operation of NotiCom. As a result, the Company recognizes as its share of the
joint venture's losses, the larger of its equity percentage in the joint venture
or the cash loss (net loss excluding non-cash amortization) of the joint
venture.
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At April 2, 2000 quarter-end, NotiCom's total assets were $3.4 million and its
total liabilities were $2.2 million. NotiCom's operations incurred a loss for
the nine months ended April 2, 2000 of $1.9 million, including $771,000 of
amortization. Included in the Company's results from operations for the nine
months ended April 2, 2000 is 100% of the cash losses from NotiCom, amounting to
$1.1 million plus $547,000 of amortization of the related technology recorded on
LaBarge's balance sheet.
6. OTHER ASSETS
Other assets consist of the following:
(dollars in thousands)
APRIL 2, June 27,
2000 1999
- ---------------------------------------------------------------------------------------------------------------------
Cash value of life insurance $ 3,329 $ 2,903
Deposits, licenses, and other 1,395 1,560
Investments in businesses 136 2,250
- ---------------------------------------------------------------------------------------------------------------------
4,860 6,713
Less allowance for revaluation of impaired assets - 2,250
Less amortization 19 7
- ---------------------------------------------------------------------------------------------------------------------
$ 4,841 $ 4,456
=====================================================================================================================
7. SHORT AND LONG-TERM OBLIGATIONS
Short-term borrowings, long-term debt and the current maturities of long-term
debt consist of the following:
(dollars in thousands)
APRIL 2, June 27,
2000 1999
- ---------------------------------------------------------------------------------------------------------------------
Short-term borrowings:
Revolving credit agreements:
Balance at period end $ 9,480 $ 930
Interest rate at period end 9.0% 7.79%
Average amount of short-term borrowings outstanding during period $ 2,881 $ 1,681
Average interest rate for period 8.44% 6.69%
Maximum short-term borrowings at any month end $ 9,480 $ 6,390
=====================================================================================================================
Senior long-term debt:
Senior lender:
Term loan $ 6,442 $ 10,214
Mortgage loan 6,015 6,082
Other 1,237 1,341
- ---------------------------------------------------------------------------------------------------------------------
Total senior long-term debt 13,695 17,637
Less current maturities 1,819 1,771
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Long-term debt, less current maturities $ 11,876 $ 15,866
- ---------------------------------------------------------------------------------------------------------------------
Subordinated debt $ 4,424 $ 4,424
=====================================================================================================================
The average interest rate was computed by dividing the sum of daily interest
costs by the sum of the daily borrowings for the respective periods.
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SENIOR LENDER
In fiscal 1999, the Company amended its senior loan agreement with Bank of
America. The original agreement included a term loan and revolving credit
facility totaling $20.0 million.
That amendment reestablished the bank's secured position, reinstated a borrowing
base limitation on the revolver and established new covenants and performance
measures to reflect the effect of LaBarge's new investments (NotiCom and OCS),
as well as the reserve for loss on the Transmedica assets in fiscal 1999. The
senior loan agreement was further amended on September 30, 1999.
The following is a summary of the current senior loan agreement:
- - A term loan, with a current balance of $6.4 million, requiring repayments
of principal quarterly. This loan matures in September 2005.
- - A revolving credit facility up to $15.0 million based on a borrowing base
formula equal to the sum of 85% of eligible receivables, 50% of eligible
finished goods inventories, 30% of other eligible inventories, 50% of the
net book value of equipment and 75% of the net book value of certain real
property and 70% of appraised value of other real property less the current
term loan balance and outstanding letters of credit. The borrowing base
calculated on financial information as of April 2, 2000, showed the maximum
allowable was approximately $12.3 million. The revolver borrowing at April
2, 2000 was $8.6 million.
- - Covenants specify minimum performance criteria which involve Earnings
Before Interest, Taxes, Depreciation and Amortization ("EBITDA") and, after
June 30, 2000, EBITDA in relation to debt and EBITDA in relation to fixed
charges. The Company is in compliance with its borrowing agreement
covenants for the quarter and nine months ended April 2, 2000.
- - Interest on the loans is at prime or a stated rate over LIBOR based on
certain ratios. For the nine months ended April 2, 2000, the average rate
was approximately 8.44%.
In addition to the senior lending agreement, bank working capital borrowings
consist of the following:
SECONDARY LINE OF CREDIT
LaBarge Clayco Wireless has a line of credit with Firstar Bank, formerly
Mercantile Bank N.A. This line was renegotiated in January 2000, and is in the
amount of $2.0 million. The interest rate on this note is 1/4% over the bank's
prime rate. At the end of the third quarter of fiscal 2000, the outstanding
amount was $900,000 at an interest rate of 9.0%.
OTHER LONG-TERM LIABILITIES
Other long-term liabilities are deferred revenues associated with a proprietary
cellular and network communication system being marketed by the Company's
Network Technologies Group to provide monitoring and control of remote
industrial equipment.
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8. MINORITY INTEREST
In the second quarter of fiscal 1999, the Company purchased from Clayco an
additional 39% of LaBarge Clayco Wireless for $300,000 to increase its ownership
to 90%. The minority interest income for nine months ending January 2, 2000 was
$33,000 compared with $172,000 for the nine months ending March 28, 1999. The
minority holder's interest is included in other liabilities and was $132,000 at
April 2, 2000, compared with $98,000 at June 27, 1999.
9. INCOME TAXES
As of April 2, 2000, the Company had alternative minimum tax credit
carryforwards and investment tax credits of approximately $821,000 available to
reduce future regular federal income taxes. Investment tax credits of $59,000
and $4,000 will expire in fiscal years 2000 and 2001, respectively.
10. CASH FLOWS
Total cash payments for interest for the three and nine months ended April 2,
2000 were $475,000 and $1.6 million, respectively, compared with $215,000 and
$991,000, for the three and nine months ended March 28, 1999, respectively. Cash
refunds for income taxes for the three and nine months ended April 2, 2000 were
$-0- and $754,000, respectively, compared with a payment of $-0- and $1.7
million, for the three and nine months ended March 28, 1999, respectively.
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11. EARNINGS PER COMMON SHARE
Basic and diluted earnings (loss) per share are computed as follows:
THREE MONTHS ENDED NINE MONTHS ENDED
-----------------------------------------------------------------------
APRIL 2, March 28, APRIL 2, March 28,
2000 1999 2000 1999
- ----------------------------------------------------------------------------------------------------------------------
NUMERATOR:
Net earnings (loss) $ 333 $ 123 $ (339) $ 1,566
- ----------------------------------------------------------------------------------------------------------------------
DENOMINATOR:
Denominator for basic net
earnings (loss) per share-
weighted-average shares 14,810 15,022 14,748 15,263
Effect of dilutive securities-
employee stock options 4 49 - 56
- ----------------------------------------------------------------------------------------------------------------------
POTENTIAL COMMON SHARES:
Denominator for diluted net earnings
(loss) per shares-adjusted weighted-
average shares and assumed
conversions 14,814 15,071 14,748 15,319
- ----------------------------------------------------------------------------------------------------------------------
BASIC NET EARNINGS (LOSS) PER
COMMON SHARE $ .02 $ .01 $ (.02) $ .10
======================================================================================================================
DILUTED NET EARNINGS (LOSS) PER
COMMON SHARE $ .02 $ .01 $ (.02) $ .10
======================================================================================================================
The effect of conversion of the Subordinated Convertible Notes into common stock
is not considered in the calculations of diluted net earnings per common share
because it would have an anti-dilutive effect on earnings per share as stated in
SFAS No. 128, "Earnings Per Share."
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12. BUSINESS SEGMENT INFORMATION
Business segments:
(dollars in thousands)
NET SALES TO CUSTOMERS:
THREE MONTHS ENDED NINE MONTHS ENDED
----------------------------------------------------------------------
APRIL 2, March 28, APRIL 2, March 28,
2000 1999 2000 1999
- ---------------------------------------------------------------------------------------------------------------
Manufacturing Services Group $21,779 $ 19,214 $ 53,241 $ 61,864
LaBarge Clayco Wireless 3,895 2,344 9,942 8,139
Network Technologies Group 360 - 581 -
- ---------------------------------------------------------------------------------------------------------------
$26,034 $ 21,558 $ 63,764 $ 70,003
===============================================================================================================
EARNINGS (LOSS) BEFORE INCOME TAXES:
THREE MONTHS ENDED NINE MONTHS ENDED
-------------------------------- -----------------------------------
APRIL 2, March 28, APRIL 2, March 28,
2000 1999 2000 1999
- -------------------------------------------------------------------------------------------------------------------
Manufacturing Services Group $ 1,933 $ 942 $ 1,636 $ 3,284
Gain on settlement of Transmedica - - 2,300 -
- -------------------------------------------------------------------------------------------------------------------
Total Manufacturing Services Group 1,933 942 3,936 3,284
LaBarge Clayco Wireless 395 321 420 606
Network Technologies Group (491) (82) (1,571) (82)
Loss from NotiCom (462) (243) (1,615) (514)
Corporate and other items (126) (373) (61) 237
Interest expense (591) (370) (1,572) 1,049)
- -------------------------------------------------------------------------------------------------------------------
$ 658 $ 195 $ (463) $ 2,482
===================================================================================================================
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DEPRECIATION & AMORTIZATION EXPENSE:
THREE MONTHS ENDED NINE MONTHS ENDED
------------------------------------------------------------------------------
APRIL 2, March 28, APRIL 2, March 28,
2000 1999 2000 1999
- ---------------------------------------------------------------------------------------------------------------------
Manufacturing Services Group $ 327 $ 369 $ 1,044 $ 1,029
LaBarge Clayco Wireless 21 9 67 25
Network Technologies Group 249 33 763 33
Equity in NotiCom 178 28 547 56
Corporate and other items 101 95 304 318
- ---------------------------------------------------------------------------------------------------------------------
$ 876 $ 534 $ 2,725 $ 1,461
=====================================================================================================================
INVESTMENTS & CAPITAL EXPENDITURES:
THREE MONTHS ENDED NINE MONTHS ENDED
------------------------------------------------------------------------------
APRIL 2, March 28, APRIL 2, March 28,
2000 1999 2000 1999
- ---------------------------------------------------------------------------------------------------------------------
Manufacturing Services Group $ 175 $ 774 $ 686 $ 2,064
LaBarge Clayco Wireless 35 95 59 426
Network Technologies Group 27 63 127 63
Equity in NotiCom 58 - 948 4,001
Corporate and other items 245 221 618 1,141
- ---------------------------------------------------------------------------------------------------------------------
$ 540 $ 1,153 $ 2,438 $ 7,695
=====================================================================================================================
TOTAL ASSETS:
APRIL 2, June 27,
2000 1999
- ---------------------------------------------------------------------------------------------------------------------
Manufacturing Services Group $ 40,135 $ 30,752
LaBarge Clayco Wireless 4,395 3,537
Network Technologies Group 6,541 6,691
Investment in NotiCom 2,113 2,780
Corporate and other items 14,929 15,894
- ---------------------------------------------------------------------------------------------------------------------
$ 68,113 $ 59,654
=====================================================================================================================
GEOGRAPHIC INFORMATION:
The Company has no sales offices or facilities outside of the United States.
Sales for export did not exceed 10% of total sales in fiscal year 1999 or third
quarter of fiscal year 2000.
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LABARGE, INC.
FORM 10-Q
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
Statements contained in this Report which are not historical facts are
forward-looking statements within the meaning of the federal securities laws.
Forward-looking statements involve risks and uncertainties. Future events and
the Company's actual results could differ materially from those contemplated by
those forward-looking statements. Important factors which could cause the
Company's actual results to differ materially from those projected in, or
inferred by, forward-looking statements are (but are not necessarily limited to)
the following: the impact of increasing competition or deterioration of economic
conditions in the Company's markets; cutbacks in defense spending by the U.S.
Government; lack of acceptance by the market for the BusCall(TM) product; lack
of acceptance by the market for the products of LaBarge's Network Technologies
Group; unexpected increases in the cost of raw materials, labor and other
resources necessary to operate the Company's business; the availability, amount,
type and cost of financing for the Company and any changes to that financing.
LaBarge, Inc. ("LaBarge" or the "Company") is a Delaware Corporation. The
Company is engaged in the following primary business activities:
- - The MANUFACTURING SERVICES GROUP is the Company's core manufacturing
business, which has been its principal business since 1985. This group
designs, engineers and produces sophisticated electronic systems and
devices and complex interconnect systems on a contract basis for its
customers. The Company derived approximately 83% of its total revenues from
this group for the nine months ended April 2, 2000, compared with
approximately 88% for the nine months ended March 28, 1999.
The group markets its services to companies desiring an engineering and
manufacturing partner capable of developing and providing high-reliability
electronic equipment, including products capable of performing in harsh
environmental conditions, such as high and low temperature, severe shock
and vibration. The group serves customers in a variety of markets with
significant revenues from customers in the defense, aerospace, and oil and
gas markets. The group's manufacturing facilities are located in Arkansas,
Missouri, Oklahoma and Texas.
- - LABARGE CLAYCO WIRELESS L.L.C. ("LaBarge Clayco Wireless") provides turnkey
construction, engineering and equipment installation services for the
wireless telecommunications industry. In the second quarter of fiscal 1998,
LaBarge increased its ownership interest in LaBarge Clayco Wireless from
50% to 51% and began consolidating the total operations of this joint
venture. In the second quarter of fiscal 1999, the Company purchased from
Clayco Construction Company an additional 39% of LaBarge Clayco Wireless
for $300,000 to increase its ownership to 90%. LaBarge Clayco Wireless
became a reportable segment in fiscal 1999, due to the changes in ownership
and its growth in revenues. For the nine months ended April 2, 2000, the
Company derived approximately 16% of its total revenues from this group
compared with 12% for the nine months ended March 28, 1999.
- - The NETWORK TECHNOLOGIES GROUP is the Company's newest business activity.
This group was started in fiscal 1999 through the acquisition of privately
held Open Cellular Systems, Inc. ("OCS"). The group designs and markets
proprietary cellular and network communication system products and Internet
services that provide monitoring and control of remote industrial
equipment. Results of the group are included in the consolidated results of
the Company since the date of the OCS acquisition, March 2, 1999. This
group is focusing its marketing efforts initially toward the railroad
industry to monitor railroad crossing equipment and its performance, and
toward the oil and gas pipeline industry to monitor
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cathodic protection devices. For the nine months ended April 2, 2000,
approximately 1% of the Company's revenue was derived from this group.
- - NOTICOM L.L.C. JOINT VENTURE
In the first quarter of fiscal 1999, LaBarge and Global Research Systems,
Inc. of Rome, Georgia formed NotiCom L.L.C. ("NotiCom"), a Georgia limited
liability company, to develop and market electronic systems providing
advance notice of the impending arrival of passenger motor vehicles.
Beginning in fiscal 2000, the Company has contributed 100% of the cash
required from the partners for the operation of NotiCom. As a result, the
Company recognizes as its share of the joint venture's losses, the larger
of its equity percentage in the joint venture or the cash loss (net loss
excluding non-cash amortization) of the joint venture. Throughout its
history, NotiCom has been a development-stage company.
During the early stages of testing NotiCom's BusCall(TM) system in a major
metropolitan market, additional design engineering requirements were
identified and are presently being evaluated.
SIGNIFICANT EVENTS
Recent significant events include:
- - Transmedica International, Inc. ("Transmedica") issued a promissory note to
LaBarge in June 1998. The note, which was secured by substantially all of
Transmedica's assets, represented $1.2 million in converted accounts
receivable owed to LaBarge by Transmedica and $800,000 in operating capital
extended to Transmedica by LaBarge. When Transmedica failed to repay the
note, which was due on June 2, 1999, LaBarge took legal action against
Transmedica seeking payment. The claim for payment of the note was added to
pending litigation filed by LaBarge against Transmedica in October 1998 in
St. Louis County. The litigation sought resolution of disputes between the
two companies pertaining to a portable medical laser device called the
Laser Lancet(R). As a result of Transmedica's default on the note and the
litigation, the Company decided to reserve the full amount of its
investment in Transmedica ($4.6 million) at June 27, 1999.
In December 1999, the Company resolved all pending litigation with
Transmedica. LaBarge received $2.3 million of cash and securities of
Norwood Abbey, Ltd., an Australian-based provider of medical devices.
- - On March 2, 1999, 1,008,622 shares of OCS common stock were exchanged for
$4.3 million of Subordinated Convertible Notes. Options to acquire 310,000
shares of OCS common stock were converted to 310,000 shares of common stock
of LaBarge-OCS, Inc., the acquiring subsidiary and represent shares
acquired by the holders through exercise of employee stock options. These
shares are callable by LaBarge, Inc. pursuant to a call agreement whereby
the Company, at its discretion, may exchange the shares for Subordinated
Convertible Notes at $4.25 per share or $1.3 million after the first
anniversary of the merger (March 2, 2000) and prior to June 15, 2000. This
dollar amount is included in other current liabilities at the balance sheet
date due to the call agreement. The Company intends to make this call prior
to June 15, 2000. The Company recorded goodwill of $6.8 million in this
transaction, which is reflected in other assets.
OCS now operates as the Company's Network Technologies Group.
- - Beginning in fiscal 2000, the Company has contributed 100% of the cash
required from the partners for the operation of NotiCom, the Georgia
limited liability company formed in fiscal 1999. As a result, the Company
recognizes as its share of the joint venture's losses, the larger of its
equity percentage in the joint venture or the cash loss (net loss excluding
non-cash expense) of the joint venture. Throughout its history, NotiCom has
been a development-stage company.
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During the first quarter of fiscal 2000, NotiCom needed additional cash
contributions totaling approximately $405,000 to continue its development
and marketing efforts. LaBarge made these contributions. No cash
contributions were required during the second or third quarters of fiscal
2000. Equipment valued at $543,000 was added to the Company's investment in
NotiCom during the second and third quarters of fiscal 2000 combined. The
Company anticipates NotiCom will require additional cash contributions in
the fourth quarter of fiscal 2000, as NotiCom continues its development
efforts. On April 17, 2000, LaBarge made a cash contribution of $168,000.
RESULTS OF OPERATIONS-QUARTER ENDED APRIL 2, 2000
SALES
(dollars in thousands)
THREE MONTHS ENDED NINE MONTHS ENDED
----------------------------------------------------------------------
APRIL 2, March 28, APRIL 2, March 28,
2000 1999 2000 1999
- ---------------------------------------------------------------------------------------------------------------
Manufacturing Services Group $ 21,779 $ 19,214 $ 53,241 $ 61,864
LaBarge Clayco Wireless 3,895 2,344 9,942 8,139
Network Technologies Group 360 - 581 -
- ---------------------------------------------------------------------------------------------------------------
$ 26,034 $ 21,558 $ 63,764 $ 70,003
===============================================================================================================
The MANUFACTURING SERVICES GROUP. The Manufacturing Services Group's sales for
the third quarter of fiscal 2000 were $21.8 million compared with $19.2 million
for the fiscal 1999 third quarter, a 13.3% increase. The group, which accounted
for approximately 84% of total third quarter sales, experienced higher sales to
customers in the defense, aerospace and government systems markets.
Sales to defense customers for the fiscal 2000 third quarter were up $494,000 to
a total of $9.8 million, representing 45% of the group's sales for the quarter.
Approximately 55% of the group's third-quarter sales were to customers in
commercial markets, including aerospace, oil and gas, and government systems.
Sales to aerospace customers were up $372,000 to a total of $3.4 million. Sales
to government systems customers were up $3.0 million to a total of $4.4 million.
The increase was principally due to new shipments to Northrop Grumman for postal
sorting equipment used by U.S. Postal Service. Production on this program began
in fiscal 2000.
Sales to oil and gas customers were $3.2 million in the third quarter of fiscal
2000, compared with sales of $3.8 million reported for the third quarter of
fiscal 1999. Sales to oil and gas customers have begun to recover from the
industry-wide downturn which affected the entire market for oilfield equipment.
Fiscal 2000 third-quarter sales to oil and gas customers were up 31% from the
second quarter of the fiscal year.
The Manufacturing Services Group's backlog of firm, unshipped orders at April 2,
2000 rose to approximately $59.1 million, compared with $42.7 million at June
27, 1999 year-end. The backlog at April 2, 2000 consisted of approximately $26.2
million for various defense customers and approximately $32.9 million for
commercial electronics customers. This is compared with $26.6 million for
defense customers and $16.1 million for commercial customers at June 27, 1999
year-end.
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LABARGE CLAYCO WIRELESS. Sales by LaBarge Clayco Wireless were $3.9 million and
represented approximately 15% of total Company sales for the third quarter of
fiscal 2000, an increase of $1.6 million from the third quarter of fiscal 1999.
The increase is attributable to higher bookings in the second and third
quarters. The unit's backlog of new contracts at April 2, 2000 was $2.4 million
compared with $1.5 million at the end of the prior year. The Company expects the
unit's fourth fiscal quarter sales to be consistent with those in the third
quarter.
The NETWORK TECHNOLOGIES GROUP. Sales by the Network Technologies Group were
$360,000 for the fiscal 2000 third quarter and are expected to grow as the year
progresses. The Company has received contracts to supply its proprietary
ScadaNET Network(TM) to the Burlington Northern and Santa Fe Railway Company,
Union Pacific Railroad, Montana Rail Link and I&M Rail Link. The group's backlog
at April 2, 2000 was $1.1 million.
GROSS PROFIT
(dollars in thousands)
THREE MONTHS ENDED NINE MONTHS ENDED
--------------------------------------------------------------------------
APRIL 2, March 28, APRIL 2, March 28,
2000 1999 2000 1999
-----------------------------------------------------------------------------------------------------------------
Gross profit $ 6,027 $ 4,240 $ 12,604 $ 14,412
Gross margin 23.2% 19.7% 19.8% 20.6%
=================================================================================================================
A breakdown of margins by group shows the following:
The MANUFACTURING SERVICES GROUP. This group's gross margin was 23.9% for the
quarter (20.7% for the nine months) ended April 2, 2000, compared with 18.7% for
the quarter (20.2% for the nine months) ended March 28, 1999. Increased sales
have improved the group's capacity utilization.
LABARGE CLAYCO WIRELESS. This group's gross margin was 20.8% for the quarter
(15.8% for the nine months) ended April 2, 2000, versus 26.5% for the quarter
(19.2% for the nine months) ended March 28, 1999. The gross margin change was
due to the mix of business in the first nine months of fiscal 2000, compared
with the first nine months of fiscal 1999.
The NETWORK TECHNOLOGIES GROUP. This group's gross margin was 9.9% for the
quarter (6.7% for the nine months) ended April 2, 2000. The group was formed in
March 1999, so no comparable data for the year-ago period exists.
SELLING AND ADMINISTRATIVE EXPENSES
(dollars in thousands)
THREE MONTHS ENDED NINE MONTHS ENDED
------------------------------------------------------------------------
APRIL 2, March 28, APRIL 2, March 28,
2000 1999 2000 1999
------------------------------------------------------------------------------------------------------------------
Selling and administrative expenses $ 4,337 $ 3,493 $12,387 $10,497
Percent of sales 16.7% 16.2% 19.4% 15.0%
==================================================================================================================
Selling and administrative expenses increased 24.2% in the third quarter of
fiscal 2000, compared with the third quarter of fiscal 1999. $1.5 million of the
year-to-date increase is attributable to the Network Technologies Group which
was purchased March 2, 1999. Also, higher corporate severance expenses were
incurred.
The MANUFACTURING SERVICES GROUP. Selling and administrative expenses for this
group were $2.3 million (10.1% of sales) for the quarter ended April 2, 2000,
versus $2.2 million (11.0% of sales) in the previous
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fiscal year. For the nine months ended April 2, 2000, expenses were $6.2 million
(11.2% of sales), compared with $6.6 million (10.3% of sales) for the nine
months ended March 28, 1999.
LABARGE CLAYCO WIRELESS. Selling and administrative expenses for this group were
$417,000 (10.7% of sales) for the quarter ended April 2, 2000, versus $300,000
(12.8% of sales) in the previous fiscal year. For the nine months ended April 2,
2000, expenses were $1.1 million (11.5% of sales), compared with $958,000 (11.8%
of sales) for the nine months ended March 28, 1999. Increases in selling and
administrative expenses are a result of higher sales levels.
The NETWORK TECHNOLOGIES GROUP. This group accounted for $487,000 of selling and
administrative expenses for the quarter ended April 2, 2000 ($1.5 million for
the nine months). This included $240,000 in the third quarter ($738,000 for the
nine months) in amortization of goodwill related to the group's acquisition in
March 1999.
INTEREST EXPENSE
(dollars in thousands)
THREE MONTHS ENDED NINE MONTHS ENDED
-----------------------------------------------------------------------------------
APRIL 2, March 28, APRIL 2, March 28,
2000 1999 2000 1999
-----------------------------------------------------------------------------------------------------------------
Interest expense $591 $ 370 $ 1,572 $ 1,049
=================================================================================================================
Interest expense increased in the fiscal 2000 third quarter and the nine months
ended April 2, 2000. This is due to higher borrowing levels and increased
interest rates.
LOSS FROM NOTICOM
(dollars in thousands)
THREE MONTHS ENDED NINE MONTHS ENDED
-------------------------------------------------------------------------------------
APRIL 2, March 28, APRIL 2, March 28,
2000 1999 2000 1999
-----------------------------------------------------------------------------------------------------------------
Loss from NotiCom $ 462 $ 243 $ 1,615 $ 514
=================================================================================================================
The loss for NotiCom pertains to the joint venture developing advance
notification systems and technology. At April 2, 2000, NotiCom's total assets
were $3.4 million and total liabilities were $2.2 million. In the fourth quarter
of fiscal 1999, after reevaluating the amortization schedule for the NotiCom
technology, the Company began to amortize the technology over a three-year
period.
The loss from NotiCom, which is included in the Company's results from
operations, is 100% of the cash losses from the joint venture, amounting to $1.1
million plus $547,000 of amortization of the technology for the nine months
ended April 2, 2000. The Company is recognizing 100% of the cash loss since its
joint venture partner, Global Research Systems, Inc., has not made additional
cash contributions to cover the operating requirements of NotiCom. NotiCom's
operations incurred a loss for the nine months ended April 2, 2000 of $1.8
million, including $771,000 of amortization.
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PRETAX EARNINGS (LOSS)
(dollars in thousands)
THREE MONTHS ENDED NINE MONTHS ENDED
-----------------------------------------------------------------------------
APRIL 2, March 28, APRIL 2, March 28,
2000 1999 2000 1999
--------------------------------------------------------------------------------------------------------------
Pretax earnings (loss) $ 658 $ 195 $ (463) $ 2,482
==============================================================================================================
The change in earnings in the third quarter of fiscal 2000, compared with the
third quarter of fiscal 1999, is attributable to: a $1.8 million increase in
gross margins for all three segments; offset by a $220,000 increase in pretax
loss (including additional non-cash amortization of $150,000) from NotiCom; an
increase of $95,000 in pretax loss from operations of the Network Technologies
Group; an increase of $844,000 in selling and administration expense; and
$220,000 in higher interest costs due to higher rates and increased borrowings.
The following shows LaBarge's equity and debt positions:
STOCKHOLDERS' EQUITY AND DEBT
(dollars in thousands)
APRIL 2, June 27,
2000 1999
-------------------------------------------------------------------------------------------------------
Stockholders' equity $ 23,792 $ 24,080
Debt $ 27,599 $ 22,991
=======================================================================================================
Currently, the Company's debt-to-equity ratio is 1.16 to 1 versus .95 to 1 at
the end of fiscal 1999.
As of June 25, 1999, we amended our senior lending agreement with Bank of
America. This included revising the borrowing base, granting a security interest
in the assets of the Company and revising covenants and performance measures to
reflect the reserve for loss of the Transmedica assets and the additions of OCS
and NotiCom as new businesses of the Company. The borrowing base calculated on
financial information as of April 2, 2000 showed the maximum allowable was
approximately $12.3 million. The revolver borrowing at April 2, 2000 was $8.6
million.
RISK FACTORS
The NotiCom joint venture, as a start-up company, has a higher risk factor than
our manufacturing services business. Further, development and testing of the
BusCall product has required additional cash and equipment investment of
approximately $948,000 thus far in fiscal 2000, and it is expected that
additional cash will be needed to fully bring the product to market. Given the
risks inherent in a start-up operation, it is too early to predict if or to what
extent NotiCom may contribute to the Company's revenues or earnings.
The Network Technologies Group, although beyond the start-up stage, has used
cash during its first nine months of operation. During the second and third
quarters, the Network Technologies Group received important new orders evidenced
by its backlog of $1.1 million at the quarter ended April 2, 2000, compared with
$-0- at the quarter ended March 28, 1999. The group is expected to contribute to
Company profits in the last quarter of fiscal 2000.
We believe our availability of funds going forward from cash generated from
operations and available credit under the Company's senior lending agreement
will be sufficient to support the planned operations of our business.
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20
FINANCIAL CONDITION & LIQUIDITY
Cash and cash equivalents at April 2, 2000 were $721,000 compared with $495,000
at June 27, 1999.
Accounts and notes receivable at April 2, 2000, were $16.6 million, compared
with $12.5 million at June 27, 1999, an increase of $4.1 million. Accounts
receivables were up due to higher sales in the third quarter of fiscal 2000.
Inventories at April 2, 2000 and June 27, 1999 were $21.2 million and $16.1
million, respectively, an increase of $5.1 million, reflecting higher sales
levels in the third quarter and anticipated higher sales in the fourth quarter
of fiscal 2000.
During the nine months ended April 2, 2000, the Company purchased $995,000 in
property, plant and equipment.
During the first nine months of fiscal 2000, the Company invested $948,000 in
NotiCom L.L.C.
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PART II
NOT APPLICABLE
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SIGNATURE
---------
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.
LABARGE, INC.
-----------------------
Date: May 11, 2000
s/Donald H. Nonnenkamp
---------------------------
Donald H. Nonnenkamp
Vice President
and Chief Financial Officer
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