<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year Commission file
ended July 2, 1995 number 1-5761
LABARGE, INC.
(Exact name of registrants specified in its charter)
Delaware 73-0574586
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
707 North Second Street, St. Louis, Missouri 63102
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 314-231-5960
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
Common Stock, $.01 par value American Stock Exchange, Inc.
Securities registered pursuant to Section 12(g) of the Act:
None
(Title of Class)
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 ___
As of August 16, 1995, 15,232,746 shares of Common Stock of the
registrant were outstanding; the aggregate market value of the shares of Common
Stock of the registrant held by non-affiliates was approximately $59,979,000,
based upon the closing price of the Common Stock on the American Stock
Exchange, Inc. on August 16, 1995.
DOCUMENTS INCORPORATED BY REFERENCE
See "Exhibits" on pages 7 through 9.
<PAGE> 2
PART I
Item 1. Business
(a) General Development of Business
LaBarge, Inc. (the "Company") became a Delaware corporation in 1968 as the
successor by merger with a company founded in 1953. The Company is engaged in
the contract engineering and manufacture of sophisticated electronic systems
and devices and complex interconnect systems.
For the last five years, the Company has focused on reducing debt and
developing new markets to replace its declining defense electronics business.
Total debt has declined from $28.8 million at July 1, 1990 to $10.6 million on
July 2, 1995.
In fiscal 1995, the Company sold its operations in Flippin, Arkansas for
$10,500,000 in cash and $2,900,000 in assumed liabilities. The proceeds from
the sale were used to reduce debt. In addition, the Company redeemed its $5
million of 15% Subordinated Notes for cash and $3.4 million in new 12%
Subordinated Notes due in 1998 (the "12% Notes").
With the lower debt level, the Company is better positioned to capitalize on
new opportunities it has developed in the telecommunications, medical
electronics, and geophysical markets.
(b) Financial Information About Industry Segments
The Company conducts its continuing operations through one industry segment,
which is the contract engineering and manufacture of sophisticated electronic
systems and devices and complex interconnect systems.
(c) Narrative Description of Business
GENERAL. The Company engineers, manufactures, tests and sells sophisticated
electronic control systems and devices and complex interconnect assemblies
under contract with its customers. Markets for the Company's products are:
defense electronics, telecommunications, medical equipment, aerospace,
geophysical/energy and various other commercial/industrial markets. The
Company's manufacturing facilities are located in Arkansas, Missouri and
Oklahoma. The Company employs approximately 650 people.
Historically, due to the lead times required in the production of the Company's
defense and aerospace products, its backlog of firm, unshipped orders has been
considered important. However, as the Company has decreased its dependence on
large defense contracts and increased the proportion of its sales received from
non-defense customers which have much shorter lead times and demand
just-in-time deliveries, the importance of backlog as a barometer of future
performance has decreased. The backlog at July 2, 1995 was approximately $52.1
million, as compared to $50.3 million at July 3, 1994, which excludes $4.5
million in orders for the Flippin operation that was sold in December, 1994.
The backlog at July 2, 1995, consisted of:
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$27.3 million of orders for various defense products compared to $34.9 million
at July 3, 1994 and $24.8 million of orders for commercial products versus
$14.4 million at July 3, 1994 excluding the $4.5 million attributable to the
Flippin operation. Substantially all of the defense backlog at July 2, 1995 is
pursuant to contracts containing cancellation and termination provisions.
Approximately $4.7 million of this backlog is not scheduled to ship within the
next 12 months pursuant to the shipment schedules contained in those contracts.
This compares to $6.8 million at year-end 1994.
MANUFACTURING. The Company has organized its production capabilities to
provide independent plant locations for specific capabilities and market
categories. This focused facility approach allows management at the facility
to concentrate attention on specific customer needs and at the same time
control all key aspects of the engineering and manufacturing processes.
Compliance with federal, state and local environmental laws is not expected to
materially affect the capital expenditures, earnings or competitive position of
the Company.
DEFENSE MARKET. The Company designs and manufactures products to customer
specifications, and the makeup of such products varies with customer needs. In
the past, such products have included military communications systems,
multiplexers, command receivers, automatic direction finding systems, printed
circuit board assemblies, flexible printed circuitry and various interconnect
assemblies and systems. These products are used in numerous military programs,
including the Aegis Radar System, Abrams M-1 Tank and the Bradley Fighting
Vehicle, and are also utilized in various naval shipboard command, control and
communications systems. Approximately 58% of the total sales by the Company in
fiscal 1995 were related to defense programs. This compares to 59% in 1994.
Substantially all of the Company's contracts with the U.S. Government and
subcontracts with prime contractors of the U.S. Government are firm fixed-price
contracts. Under firm fixed-price contracts, work is performed and paid for at
a fixed amount without adjustment for the actual costs experienced in
connection with the contracts. Therefore, unless the customer actually or
constructively alters or impedes the work performed, all risk of loss due to
cost overruns is borne by the contractor. All government prime contracts and
virtually all of the Company's subcontracts provide that they may be terminated
at the convenience of the government. Upon such termination, the contractor is
normally entitled to receive the purchase price for delivered items,
reimbursement for allowable costs incurred and allocable to the contract (which
do not include many ordinary costs of doing business in a commercial context)
and an allowance for profit on the allowable costs incurred or adjustment for
loss if completion of performance would have resulted in a loss. The
contractor is also normally entitled to reimbursement of the cost it incurs to
prepare and to negotiate a settlement of the termination for convenience.
In 1995 and prior years, the Company was dependent on the defense electronics
market for more than 50% of its business. With the cutbacks in defense
spending, and the Company's growing commercial business, this dependence is
declining. The Company is, however, identifying new defense opportunities as
many of the large prime contractors are increasingly using subcontractors as a
way to reduce overhead costs.
COMMERCIAL MARKET. The Company manufactures products for the
telecommunications, medical equipment, commercial aerospace, geophysical and
other commercial/industrial markets. The Company has aggressively expanded its
commercial
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business over the past several years and intends to continue to do so.
Presently, non-defense business accounts for 42% of total sales. The primary
commercial products are interconnect assemblies and systems, printed circuit
board assemblies and electro-mechanical subassemblies. The Company also
produces products as diverse as an audio tape player used by the vision
impaired and data collection equipment used in energy production. As in the
defense market, all production is done on a contract basis.
The Company has developed a portable medical laser under a contract from
Venisect, Inc. The laser is used to perforate the skin to draw small amounts
of blood for testing. The product is currently in Phase II FDA clinical trials
and it is hoped approval for commercial use will be received in fiscal 1996.
The impact on the Company's sales cannot yet be determined.
After 18 months of development, the Company recently received orders valued at
approximately $10 million from Northern Telecom to produce electrical and RF
interconnect assemblies and lightning protection systems for its PCS wireless
telecommunication system. The Company expects this to lead to additional
opportunities with Northern Telecom and others in the wireless
telecommunications business.
SALES AND DISTRIBUTION. The Company has seven employees whose primary
responsibility is sales. Additionally, the Company's engineering and plant
management employees are very involved in sales activities. Approximately 90%
of the Company's 1995 sales were made to existing or prior customers, and are
based upon established relationships. With few exceptions, the Company's sales
are made pursuant to fixed-price contracts. Larger, long-term contracts
generally have provisions for milestone or progress payments. The Company
normally carries inventories only related to specific contracts, and title
passes to the customer when products are shipped.
COMPETITION. There is intense competition in all of the Company's capability
areas. While the Company is not aware of another entity that competes in all
of its markets, there are numerous companies, many larger than the Company,
which compete in each of these markets. Frequently, the Company's customers
have the ability to produce the products contracted to the Company but, because
of cost, capacity, engineering capability or other reasons, contract such work
to the Company. The principal methods of competition are price, service,
quality and reliability, engineering expertise, technical capability and
overall project management capability. In fiscal 1995, sales to 7 customers
represented 75% of the Company's total sales revenue; sales to Lockheed Martin
Corporation accounted for approximately $20.7 million (33.5%); General
Electric, approximately $7.7 million (12.4%) and United Defense, approximately
$5.9 million (9.6%). In fiscal 1994, sales to 7 customers represented 79.4% of
the Company's total sales revenue; sales to Lockheed Martin Corporation
accounted for approximately $24.3 million (33.3%); General Electric,
approximately $13 million (17.8%); and the U.S. Government, approximately $4.9
million (6.7%) of sales.
(d) Financial Information About Foreign and Domestic Operations and
Export Sales
No information has been included hereunder inasmuch as the Company's foreign
sales in fiscal 1995 accounted for less than 10% of total Company revenue.
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(e) Capital Structure
HISTORY. Beginning in fiscal 1987, the Company has undergone numerous changes
in its capital structure. These changes have included the issuance and
redemption of several classes of preferred stock and the borrowing and
repayment of various debt.
During 1995, the Company sold its operation in Flippin, Arkansas for $10.5
million in cash and $2.9 million in assumed liabilities. The Company used
$1.6 million of the proceeds plus $3.4 million in new 12% Subordinated Notes
due in 1998 to redeem all $5 million of 15% Subordinated Notes due in 1997.
The balance of the proceeds were used to reduce senior debt.
The capital structure as of July 2, 1995 consists of:
<TABLE>
<S> <C>
15,227,316 shares of Common Stock . . . . . . . . . . . . . . . . . $ 152,273
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . 12,553,561
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . 599,983
Less: Treasury stock . . . . . . . . . . . . . . . . . . . . . . (8,676)
12% Subordinated Notes . . . . . . . . . . . . . . . . . . . . . . 3,385,500
Long-term senior debt . . . . . . . . . . . . . . . . . . . . . . . 3,077,767
Short-term senior debt . . . . . . . . . . . . . . . . . . . . . . 4,173,825
-------------
$ 23,934,233
============
</TABLE>
The ratio of debt to equity as of July 2, 1995 is .8 to 1.
Item 2. Properties
The Company's principal facilities, which are deemed adequate and suitable for
the Company's business, are as follows:
<TABLE>
<CAPTION> Year of
Principal Land Buildings Termination
Location Use (Acres) (sq. ft.) of Lease
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
St. Louis, MO Offices 11,121 1996
Tulsa, OK Manufacturing
and Offices 3 49,359 2002
Joplin, MO Manufacturing
and Offices 5 50,400 Owned
Joplin, MO Manufacturing 33,000 1997
Berryville, AR Manufacturing
and Offices 7 27,000 Owned
Huntsville, AR Manufacturing
and Offices 6 45,000 1997
</TABLE>
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<PAGE> 6
Item 3. Legal Proceedings
The Company is a party to several legal proceedings arising out of the normal
course of business. The Company believes that none of these actions,
individually or in the aggregate, will have a material adverse effect on the
financial condition or results of operations of the Company.
Item 4. Submission of Matters to a Vote of Security Holders
There were no items submitted to a vote of the security holders in the quarter
ended July 2, 1995.
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters
Reference is made to the information contained in the section entitled "Stock
Price and Cash Dividends" on page 14 filed herewith.
Item 6. Selected Financial Data
Reference is made to the information contained in the section entitled
"Selected Financial Data" on page 14 filed herewith.
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Reference is made to the information contained in the section entitled
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" on pages 31 through 33 filed herewith.
Item 8. Financial Statements and Supplementary Data
Reference is made to the Index to Financial Statements and Schedule contained
on page 13 filed herewith.
Item 9. Disagreements on Accounting and Financial Disclosure
Not applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant
This information will be included in the Company's definitive proxy material to
be filed within 120 days after the end of the Company's fiscal year covered by
this report.
Item 11. Executive Compensation
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This information will be included in the Company's definitive proxy materials
to be filed within 120 days after the end of the Company's fiscal year covered
by this report.
Item 12. Security Ownership of Certain Beneficial Owners and Management
This information will be included in the Company's definitive proxy material to
be filed within 120 days after the end of the Company's fiscal year covered by
this report.
Item 13. Certain Relationships and Related Transactions
This information will be included in the Company's definitive proxy material to
be filed within 120 days after the end of the Company's fiscal year covered by
this report.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
1. Financial Statements.
See Index to Financial Statements and Schedule which follows.
2. Financial Statement Schedule.
See Index to Financial Statements and Schedule which follows.
3. Exhibits.
<TABLE>
<CAPTION>
Exhibit
Number Description Page
<S> <C> <C>
2(a) Asset Purchase Agreement between Avnet, Inc. and LaBarge, Inc.
dated December 2, 1994, previously filed as Exhibit 2(a) to the
Company's current report on Form 8-K, as filed with the
Commission on December 2, 1994 and incorporated herein by
reference.
3.1 Certificate of Incorporation, as amended, previously filed as
Exhibit 3.1 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1980 and incorporated herein by
reference.
3.1(a) Amendment to Certificate of Incorporation previously filed as
Exhibit 3.1 to the Company's Annual Report on Form 10-K for the
fiscal year ended June 30, 1987 and incorporated herein by
reference.
3.1(b) Amendment to Certificate of Incorporation dated June 23, 1988,
previously filed as Exhibit 3.1(b) to the Company's Registration
Statement on Form S-1 as filed with the Commission on July 19,
1988 and incorporated herein by reference.
</TABLE>
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<PAGE> 8
<TABLE>
<CAPTION>
Exhibit
Number Description Page
<S> <C> <C>
3.1(c) Amendment to Certificate of Incorporation dated August 24, 1989,
previously filed as Exhibit 3.1(c) to the Company's Current
Report on Form 8-K as filed with the Commission on August 24,
1989, and incorporated herein by reference.
3.1(d) Amendment to Certificate of Incorporation dated November 5, 1992,
previously filed as Exhibit 3.1(d) to the Company's Current
Report on Form 10-K as filed with the Commission on September 3,
1993, and incorporated herein by reference.
3.1(e) Amendment to Certificate of Incorporation dated January 31, 1994,
previously filed as Exhibit 3.1(e) to the Company's Current
Report on Form 10-Q as filed with the Commission on May 4, 1994,
and incorporated herein by reference.
3.2 By-Laws, as amended, previously filed as Exhibit 3.2 to the
Company's Annual Report on Form 10-K for the year ended December
31, 1980 and incorporated herein by reference.
10.3(a) $5,000,000 Note payable by the Company to Chemical Bank dated
March 30, 1987, previously filed as Exhibit 10.3(g) to the
Company's Annual Report on Form 10-K for the years ended June 30,
1987 and incorporated herein by reference.
10.6 First Amendment and Restatement to the LaBarge Employees Savings
Plan executed on May 3, 1990 and First Amendment to the First
Amendment and Restatement of the LaBarge, Inc. Employees Savings
Plan executed on June 5, 1990, previously filed as Exhibits (i)
and (ii), respectively, to the LaBarge, Inc. Employees Savings
Plan's Annual Report on Form 11-K for the year ended December 31,
1990 and incorporated herein by reference.
10.17 Security Agreement dated March 30, 1989 between the Company and
Sanwa, previously filed as Exhibit 10.17(a) to the Company's
Current Report on Form 8-K as filed with the Commission on April
14, 1989, and incorporated herein by reference.
10.17(a) Deed of Trust, Assignment of Leases and Rents Security Agreement
and Financing Statement, dated March 30, 1989, from the Company
to a trustee for the benefit of Sanwa, previously filed as
Exhibit 10.17(b) to the Company's Current Report on Form 8-K as
filed with the Commission on April 14, 1989, and incorporated
herein by reference.
10.17(b) Assignment of Promissory Notes, Revolving Credit Agreement, Deed
of Trust and Security Agreement from Mercantile Bank National
Association to Sanwa dated March 30, 1989, previously filed as
Exhibit 10.17(c) to the Company's Current Report on Form 8-K, as
filed with the Commission on April 14, 1989, and incorporated
herein by reference.
</TABLE>
-8-
<PAGE> 9
<TABLE>
<CAPTION>
Exhibit
Number Description Page
<S> <C> <C>
10.17(d) Leasehold Mortgage, Assignment of Leases and Rents, Security
Agreement and Financing Statement dated as of July 24, 1989 from
LaBarge to Sanwa, previously filed as Exhibit 10.17(g) to the
Company's Current Report on Form 8-K as filed with the Commission
on August 11, 1989, and incorporated herein by reference.
10.17(e) Revised and restated credit agreement dated as of May 11, 1992,
between the Company and Sanwa filed as Exhibit 10 to the
Company's Current Report on Form 8-K as filed with the Commission
on June 12, 1992, and incorporated herein by reference.
27 Article 5 Financial Data Schedule. 34
99(a) Proforma statement of operations for the twelve months ended July
3, 1994 and the nine months ended January 1, 1995, previously
filed as Exhibit 99(a) to the Company's Report on Form 10-Q for
the quarter ended January 1, 1994, and incorporated herein by
reference.
24(a) Independent Auditors' Consent. 10
<CAPTION>
Schedule
Number Description Page
<S> <C> <C>
VIII Valuation and Qualifying Accounts. 33
</TABLE>
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<PAGE> 10
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
LaBarge, Inc.:
We consent to incorporation by reference in the Registration Statement No.
33-31330 on Form S-8 of LaBarge, Inc. of our report dated August 15, 1995,
relating to the balance sheets of LaBarge, Inc. as of July 2, 1995 and July 3,
1994 and the related statements of operations, stockholders' equity and cash
flows and related schedule for each of the years in the three-year period ended
July 2, 1995, which report appears in the July 2, 1995 Annual Report on Form
10-K of LaBarge, Inc.
KPMG Peat Marwick LLP
August 21, 1995
St. Louis, Missouri
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<PAGE> 11
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed
on its behalf by the undersigned, thereunto duly authorized.
Dated: _______________________
LaBarge, Inc.
By ______________________________
William J. Maender
Vice President - Finance
(Chief Financial and
Accounting Officer)
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<PAGE> 12
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Pierre L. LaBarge, Jr., Craig E. LaBarge
and William J. Maender, and substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities, to sign this Report, any and
all amendments to this Report, and to file the same, with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or either of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
Pierre L. LaBarge, Jr. Chairman of the Board and 8/15/95
------------------------- Director
Pierre L. LaBarge, Jr.
Craig E. LaBarge President (Chief Executive 8/15/95
------------------------- Officer) and Director
Craig E. LaBarge
J. C. Kuhn, Jr. Executive Vice President (Chief 8/15/95
------------------------- Operating Officer) and
J. C. Kuhn, Jr. Director
William J. Maender Vice President Finance (Chief 8/15/95
------------------------- Financial and Accounting
William J. Maender Officer) and Secretary
Gus G. Casten Director 8/15/95
-------------------------
Gus G. Casten
Richard P. Conerly Director 8/15/95
-------------------------
Richard P. Conerly
R. Hal Dean Director 8/15/95
-------------------------
R. Hal Dean
Edward J. Nestor, Jr. Director 8/15/95
-------------------------
Edward J. Nestor, Jr.
James P. Shanahan, Jr. Director 8/15/95
-------------------------
James P. Shanahan, Jr.
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<PAGE> 13
LABARGE, INC. AND
INDEX TO FINANCIAL STATEMENTS
AND SCHEDULE
PAGE NUMBER
FINANCIAL STATEMENTS
Independent Auditors' Report 15
Statements of Operations,
Years Ended July 2, 1995,
July 3, 1994 and June 27, 1993 16
Balance Sheets, July 2, 1995
and July 3, 1994 17
Statements of Cash Flows,
Years Ended July 2, 1995,
July 3, 1994 and June 27, 1993 18
Statements of Stockholders' Equity,
Years Ended July 2, 1995,
July 3, 1994 and June 27, 1993 19
Notes to Financial Statements,
Years Ended July 2, 1995,
July 3, 1994 and June 27, 1993 20-29
Management's Discussion and Analysis of
Financial Condition and
Results of Operations 30-32
Form
SCHEDULE 10-K
VIII - Valuation and Qualifying Accounts 33
All other schedules have been omitted as they are
not applicable, not significant, or the
required information is given in the
financial statements or notes
thereto.
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<PAGE> 14
LaBarge, Inc.
SELECTED FINANCIAL DATA
($ in thousands, except per share data)
<TABLE>
<CAPTION>
YEAR ENDED
----------------------------------------------------------------------
JULY 2, July 3, June 27, June 28, June 30,
1995 1994 1993 1992 1991
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
Net sales $61,646 $73,143 $81,582 $77,690 $ 73,377
Earnings from operations 2,436 4,082 4,187 5,574 6,600
Earnings from continuing operations
before extraordinary items and cumulative
effect of accounting change 1,321 2,356 1,915 2,592 1,625
Loss from discontinued operations - - - (715) -
Extraordinary items - - - (1,077) 864
Cumulative effect of accounting change - - - 2,335 -
Net earnings $ 1,321 $ 2,356 $ 1,915 $ 3,133 $ 2,489
Earnings (loss) per common share:
Continuing operations before extraordinary
items and cumulative effect of
accounting change $ .09 $ .16 $ .13 $ .10 $ .05
Discontinued operations - - - (.05) -
Extraordinary items - - - (.08) .07
Cumulative effect of accounting change - - - .17 -
------------------------------------------------------------------------------------------------------------------------------------
Net earnings per common share $ .09 $ .16 $ .13 $ .14 $ .12
====================================================================================================================================
Total assets $31,608 $44,477 $43,362 $46,027 $ 42,852
Long-term obligations 6,463 15,143 18,073 20,449 18,264
Convertible preferred stock - - - 1,387 3,184
Dividends declared and accreted on preferred stock - - - 1,231 933
====================================================================================================================================
</TABLE>
Certain events occurring during the above reporting periods involving the
refinancing in 1992, discontinued operations and extraordinary items affect the
comparability of financial data presented on a year-to-year basis.
STOCK PRICE AND CASH DIVIDENDS: LaBarge, Inc.'s Common Stock is listed on the
American Stock Exchange, under the trading symbol of LB. As of September 1,
1995, there were approximately 4,000 holders of record of LaBarge, Inc.'s
Common Stock. No cash dividends have been paid during the aforementioned
periods. The following table indicates the quarterly high and low prices for
the stock for the fiscal years 1995 and 1994.
1994-95 HIGH LOW
JULY-SEPTEMBER 1 7/8 1 1/16
OCTOBER-DECEMBER 1 3/4 1 3/16
JANUARY-MARCH 1 1/2 1 3/16
APRIL-JUNE 3 1 1/4
1993-94 HIGH LOW
July-September 1 7/16 3/4
October-December 2 5/16 1 1/4
January-March 2 1/4 1 1/2
April-June 1 7/8 1 1/8
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<PAGE> 15
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
LaBarge, Inc.:
We have audited the financial statements of LaBarge, Inc. as listed in the
accompanying index. In connection with our audits of the financial statements,
we also have audited the financial statement schedule as listed in the
accompanying index. These financial statements and financial statement
schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of LaBarge, Inc. as of July 2,
1995 and July 3, 1994, and the results of its operations and its cash flows for
each of the years in the three-year period ended July 2, 1995, in conformity
with generally accepted accounting principles. Also in our opinion, the
related financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
August 15, 1995
St. Louis, Missouri
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<PAGE> 16
LaBarge, Inc.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED
-----------------------------------------------------
JULY 2, July 3, June 27,
1995 1994 1993
=================================================================================================================
<S> <C> <C> <C>
NET SALES $ 61,645,883 $ 73,142,739 $ 81,582,140
-----------------------------------------------------------------------------------------------------------------
COSTS AND EXPENSES:
Cost of sales 51,391,393 60,797,439 68,571,775
Selling and administrative expenses 7,818,766 8,262,900 8,823,846
-----------------------------------------------------------------------------------------------------------------
59,210,159 69,060,339 77,395,621
-----------------------------------------------------------------------------------------------------------------
EARNINGS FROM OPERATIONS 2,435,724 4,082,400 4,186,519
-----------------------------------------------------------------------------------------------------------------
Interest expense 1,724,808 2,117,466 2,307,689
Other income, net 291,450 138,095 140,935
-----------------------------------------------------------------------------------------------------------------
EARNINGS BEFORE INCOME TAXES 1,002,366 2,103,029 2,019,765
INCOME TAX EXPENSE (BENEFIT) (318,300) (253,000) 105,100
-----------------------------------------------------------------------------------------------------------------
NET EARNINGS $ 1,320,666 $ 2,356,029 $ 1,914,665
=================================================================================================================
NET EARNINGS PER COMMON SHARE $ .09 $ .16 $ .13
=================================================================================================================
AVERAGE COMMON SHARES OUTSTANDING 15,222,667 15,135,463 15,005,843
=================================================================================================================
</TABLE>
See accompanying notes to financial statements.
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<PAGE> 17
LaBarge, Inc.
BALANCE SHEETS
<TABLE>
<CAPTION>
JULY 2, July 3,
1995 1994
=============================================================================================================
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 142,707 $ 139,667
Accounts and notes receivable, net 9,016,806 14,291,191
Inventories 14,133,263 21,446,507
Prepaid expenses 293,458 248,646
Deferred tax assets, net 758,034 614,362
-------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 24,344,268 36,740,373
-------------------------------------------------------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT, NET 2,676,512 3,346,278
DEFERRED TAX ASSETS, NET 2,491,528 2,257,500
OTHER ASSETS, NET 2,096,070 2,132,984
-------------------------------------------------------------------------------------------------------------
31,608,378 $44,477,135
=============================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings 2,500,000 $ 2,800,000
Current maturities of long-term debt 1,670,367 1,857,314
Trade accounts payable 5,012,833 9,835,360
Accrued employee compensation 1,398,325 1,345,006
Other accrued liabilities 993,513 1,403,279
Current liabilities from discontinued operations 269,474 125,000
-------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 11,844,512 17,365,959
-------------------------------------------------------------------------------------------------------------
LONG-TERM OBLIGATIONS:
Liabilities from discontinued operations - 231,818
Long-term debt 6,466,725 14,910,993
-------------------------------------------------------------------------------------------------------------
6,466,725 15,142,811
-------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY:
Common Stock, $.01 par value. Authorized 20,000,000
shares; issued 15,227,316 shares at July 2, 1995
and 15,166,877 shares at July 3, 1994 152,273 151,669
Additional paid-in capital 12,553,561 12,493,727
Retained earnings (deficit) 599,983 (677,031)
Less stock in treasury 5,391 shares at July 2, 1995 (8,676) -
-------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 13,297,141 11,968,365
-------------------------------------------------------------------------------------------------------------
$31,608,378 $44,477,135
=============================================================================================================
</TABLE>
See accompanying notes to financial statements.
-17-
<PAGE> 18
LaBarge, Inc.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED
----------------------------------------------------
JULY 2, July 3, June 27,
1995 1994 1993
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 1,320,666 $ 2,356,029 $ 1,914,665
Adjustments to reconcile to net cash provided (used)
by operating activities:
Depreciation and amortization 923,095 1,054,632 1,147,742
Accretion of discount on long-term assets
from business divestitures (30,387) (34,629) (122,638)
Accretion of discount on note
from discontinued operations 37,656 48,044 43,222
Gain from sale of operating facility in Flippin (154,389) - -
Changes in assets and liabilities:
Accounts and notes receivable, net 2,118,071 185,171 (1,788,991)
Inventories (1,040,458) (1,355,776) 4,169,348
Prepaid expenses (89,519) (202,044) (12,799)
Deferred taxes (377,700) (401,300) -
Trade accounts payable (2,166,584) 2,579,724 (2,278,583)
Accrued liabilities (613,824) 390,607 (35,543)
Current liabilities from discontinued operations, net (125,000) (75,000) (142,649)
--------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES (198,375) 4,545,458 2,893,774
--------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (647,313) (321,178) (991,604)
Recovery of deferred claim costs in other assets - - 751,022
Additions to other assets of continuing operations (118,208) (203,978) (374,617)
Sale of operating facility in Flippin 9,890,040 - -
--------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES 9,124,519 (525,156) (615,199)
--------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of long-term debt (8,631,216) (3,339,966) (1,670,519)
Repayment of Preferred Class C stockholders - - (1,277,100)
Exercise of stock warrants and options 101,029 55,800 -
Purchase of common stock to treasury (92,919) - -
Dividends paid - - (18,108)
Net change in short-term borrowings (300,000) (900,000) 799,800
--------------------------------------------------------------------------------------------------------------------------
NET CASH USED BY FINANCING ACTIVITIES (8,923,106) (4,184,166) (2,165,927)
--------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 3,040 (163,864) 112,648
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 139,667 303,531 190,883
--------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 142,707 $ 139,667 $ 303,531
==========================================================================================================================
</TABLE>
See accompanying notes to financial statements.
-18-
<PAGE> 19
LaBarge, Inc.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK TREASURY STOCK
------------ ADDITIONAL RETAINED --------------
PAID-IN EARNINGS
SHARES PAR VALUE CAPITAL (DEFICIT) SHARES COST
===================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT JUNE 28, 1992 14,952,917 $ 149,529 $ 12,130,066 $ (4,947,725) - $ -
Net earnings - - - 1,914,665 - -
Common shares issued in
settlement of lawsuit from
discontinued operations 100,000 1,000 199,900 - - -
Conversion of Class C
Preferred Stock 50,000 500 109,500 - - -
-----------------------------------------------------------------------------------------------------------------------------------
BALANCE AT JUNE 27, 1993 15,102,917 151,029 12,438,566 (3,033,060) - -
Net earnings - - - 2,356,029 - -
Exercise of stock option 24,000 240 15,600 - - -
Exercise of warrants 39,960 400 39,561 - - -
-----------------------------------------------------------------------------------------------------------------------------------
BALANCE AT JULY 3, 1994 15,166,877 151,669 12,493,727 (677,031) - -
-----------------------------------------------------------------------------------------------------------------------------------
Net earnings - $ - $ - $ 1,320,666 - $ -
Exercise of warrants 60,439 604 59,834 - - -
Purchase of common to treasury - - - - (63,391) (92,919)
Exercise of stock option - - - (43,652) 58,000 84,243
-----------------------------------------------------------------------------------------------------------------------------------
BALANCE AT JULY 2, 1995 15,227,316 $ 152,273 $ 12,553,561 $ 599,983 (5,391) $ (8,676)
===================================================================================================================================
</TABLE>
See accompanying notes to financial statements.
-19-
<PAGE> 20
LaBarge, Inc.
NOTES TO FINANCIAL STATEMENTS
July 2, 1995, July 3, 1994 and June 27, 1993
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
FISCAL REPORTING PERIOD
The Company uses a fiscal year ending the Sunday closest to June 30. Fiscal
year 1995 consisted of 52 weeks compared to 53 weeks for fiscal year 1994 and
52 weeks for fiscal 1992.
INCOME RECOGNITION
Sales and related cost of sales are recognized as specific contract terms are
fulfilled under the percentage-of-completion method (usually when units are
shipped, the units-of-delivery method). The percentage-of-completion method
gives effect to the most recent contract value and estimates of costs at
completion. When appropriate, contract prices are adjusted for increased scope
and other changes ordered or caused by the customer.
Since some contracts extend over a long period of time, revisions in cost and
contract price during the progress of work have the effect of adjusting current
period earnings applicable to performance in prior periods. When the current
contract estimate indicates a loss, provision is made for the total anticipated
loss.
INVENTORIES
The Company procures materials and manufactures all products to customer
specifications and requirements.
Raw materials are stated at the lower of cost or market as determined by the
weighted average cost method.
In accordance with industry practice, the Company's work in process consists of
actual production costs, including factory overhead and tooling costs, reduced
by costs attributable to units for which sales have been recognized. Such
costs under contracts are determined by the average cost method based on the
estimated average cost of all units expected to be produced under the contract.
Consistent with industry practice, amounts relating to long-term contracts are
classified as current assets although a portion of these amounts is not
expected to be realized within one year.
Revenues to be realized on delivery of products against existing unfilled
orders, contract modifications and estimated additional orders will be
sufficient to absorb inventoried costs.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is carried at cost and includes additions and
improvements which extend the remaining useful life of the assets.
Depreciation is computed on the straight-line method.
INCOME TAXES
Under the asset and liability method of SFAS 109, deferred tax assets and
liabilities are recognized for the estimated future tax consequences
attributable to differences
-20-
<PAGE> 21
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates in effect for the year in
which those temporary differences are expected to be recovered or settled.
CASH EQUIVALENTS
The Company considers cash equivalents to be temporary investments which are
readily convertible to cash, such as certificates of deposit, commercial paper
and treasury bills with original maturities of less than three months.
EMPLOYEE BENEFIT PLANS
The Company has a contributory savings and profit-sharing plan covering certain
employees. The Company's policy is to fund and expense savings plan and
profit-sharing costs as incurred.
The Company offers a non-qualified deferred compensation program to certain key
employees whereby they may defer a portion of annual compensation for payment
upon retirement. Such a program is unfunded; however, the Company purchases
Company-owned life insurance contracts through which the Company will recover
its entire cost upon the death of the employee.
EARNINGS PER COMMON SHARE
Earnings per common share is computed as net earnings divided by the weighted
average number of common shares outstanding during the year.
RE-CLASSIFICATIONS
Certain 1994 financial information has been reclassified to the 1995
presentation.
2. ACCOUNTS AND NOTES RECEIVABLE
Accounts and notes receivable consist of the following:
<TABLE>
<CAPTION>
JULY 2, July 3,
1995 1994
<S> <C> <C>
-------------------------------------------------------------------------------------------
Billed shipments, net of progress
payments $6,668,454 $10,639,812
Unbilled costs and accrued profits,
net of progress payments 900,870 3,241,053
-------------------------------------------------------------------------------------------
Trade receivables - gross 7,569,324 13,880,865
Less: allowance for doubtful accounts (168,442) (139,675)
-------------------------------------------------------------------------------------------
Trade receivables - net 7,400,882 13,741,190
Current portion of notes receivable 1,168,443 463,136
Other current receivables 447,481 86,865
-------------------------------------------------------------------------------------------
$9,016,806 $14,291,191
===========================================================================================
</TABLE>
Unbilled amounts represent revenues recognized on contracts less applicable
progress payments received for which billings have not been presented to the
customers at year end. Unbilled amounts are usually billed within the month
following the closing date as units are delivered to the customer. All
receivables are due within the current year.
-21-
<PAGE> 22
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.
Notes receivable include a note from a prior divestiture of $220,225, a note
from a customer for work performed of $346,437 and a note from a former officer
of the Company totaling $600,000.
Other current receivables include funds on deposit in escrow and amounts due
from employees for travel advances and other miscellaneous sources.
3. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
JULY 2, July 3,
1995 1994
----------------------------------------------------------------------
<S> <C> <C>
Raw materials $ 8,609,143 $15,003,307
Work in process 6,181,425 7,604,981
----------------------------------------------------------------------
14,790,568 22,608,288
Less: progress payments (657,305) (1,161,781)
----------------------------------------------------------------------
$14,133,263 $21,446,507
======================================================================
</TABLE>
In accordance with contractual agreements, the government has a security
interest in the inventories identified with related contracts for which
progress payments have been received.
In the normal course of business, situations develop which require revisions to
contract specifications and, as a result, renegotiation of pricing to allow
recovery of additional costs incurred or to be incurred. Included in
inventories at July 3, 1994 were deferred costs subject to renegotiation
totaling approximately $755,000. These costs were incurred due to various
technical discrepancies caused by customer changes in contract requirements or
terms and the resultant delays in contract performance. These costs were
recovered in fiscal 1995.
-22-
<PAGE> 23
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is summarized as follows:
<TABLE>
<CAPTION>
Estimated
JULY 2, July 3, useful life
1995 1994 in years
---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Land $ 35,606 $ 35,606 -
Building and improvements 1,845,214 1,797,252 5-33
Leasehold improvements 1,313,707 1,324,023 2-10
Machinery and equipment 6,226,796 7,349,100 2-20
Furniture and fixtures 1,475,535 1,617,511 3-10
Construction in progress 477 69,541
----------------------------------------------------------------------------
10,897,335 12,193,033
Less accumulated depreciation
and amortization 8,220,823 8,846,755
----------------------------------------------------------------------------
$2,676,512 $3,346,278
============================================================================
</TABLE>
Property, plant and equipment depreciation and amortization expenses were
$738,912 and $838,652, for the fiscal years ended July 2, 1995 and July 3,
1994, respectively.
5. SHORT- AND LONG-TERM OBLIGATIONS
Short-term borrowings, long-term debt and the current maturities of long-term
debt consist of the following:
<TABLE>
<CAPTION>
JULY 2, July 3,
1995 1994
----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
SHORT-TERM BORROWINGS:
Revolving credit agreement:
Balance at period-end $2,500,000 $ 2,800,000
Interest rate at period-end 10.5% 8.75%
Average amount of short-term
borrowings outstanding during
period (rounded to nearest thousand) $2,472,000 $ 2,397,000
Average interest rate for period 9.70% 7.82%
Maximum short-term borrowings
at any month-end $5,000,000 $ 3,200,000
================================================================================================================
Total short-term borrowings $2,500,000 $ 2,800,000
================================================================================================================
LONG-TERM DEBT:
Sanwa Business Credit Corporation:
Revolving credit agreement $2,500,000 $ 7,500,000
Term loan 805,000 1,705,000
Chemical Bank term loan 1,071,429 2,034,718
15% Subordinated Notes - 5,000,000
12% Subordinated Notes 3,385,500 -
Industrial revenue bond due
semiannually through 1997, interest at 8% 180,000 270,000
Other 195,163 258,589
----------------------------------------------------------------------------------------------------------------
8,137,092 16,768,307
Less current maturities 1,673,825 1,857,314
----------------------------------------------------------------------------------------------------------------
Total long-term debt $6,463,267 $14,910,993
================================================================================================================
</TABLE>
-23-
<PAGE> 24
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.
Total cash payments for interest in 1995, 1994 and 1993 were $1,833,219,
$2,104,750 and $2,221,402, respectively.
SENIOR LENDER - SANWA BUSINESS CREDIT CORPORATION
Revolving Credit Agreement (the "Revolver"):
The Revolver expires July 1, 1996 and consists of a maximum $14,500,000 in
availability at a floating interest rate of prime plus 1.5% payable monthly
in arrears. Availability is subject to a borrowing base formula involving
accounts receivable and inventories. The terms of the Revolver require the
Company to pay an annual commitment fee of .5% on the unused portion and an
annual availability fee of .25% based on the maximum borrowing limit
calculated as of January 1.
Sanwa Term Loan:
The Sanwa term loan is $3,280,000 at a floating interest rate of prime plus
1.5% payable monthly in arrears and matures on June 1, 1996. The loan is to
be paid in 43 even monthly payments, beginning November 1, 1992, of $75,000
and a 44th payment on June 1, 1996 of $55,000.
The Sanwa agreement, dated May 11, 1992, is secured by a lien on substantially
all of the Company's assets and subject to covenants including minimum net
worth; maximum leverage; minimum earnings before interest, taxes, depreciation
and amortization; and minimum cash flow coverage. The Sanwa prime interest
rate was 9.0% and 7.25% at July 2, 1995 and July 3, 1994, respectively.
CHEMICAL BANK
This debt consists of a 10-year term loan of $5,000,000 plus $697,208 of
capitalized interest at a floating interest rate of prime plus .5%. This loan
requires 28 equal quarterly payments, which began in March 1990, of $203,472.
In December, 1994 in conjunction with the sale of the Flippin facility, the
Company prepaid $224,102 remaining on the capitalized interest loan. The loan
is secured by the assets of the Company subject to an intercreditor agreement
between Sanwa and Chemical. The intercreditor agreement provides that
Chemical's lien rights are subordinate to Sanwa's lien rights as to an amount
of indebtedness not to exceed $22,398,000 as of July 3, 1994. This amount
increases by 7.5% each January 1, to a maximum of $25,000,000 through the term
of the loan. The Chemical prime interest rate was 9.0% and 7.25% at July 2,
1995 and July 3, 1994, respectively.
15% SUBORDINATED NOTES
The 15% Subordinated Notes totaling $5,000,000 were five-year notes due May 15,
1997. These notes were redeemed in full in March, 1995.
12% SUBORDINATED NOTES
The 12% Subordinated Notes totaling $3,385,500 are three-year notes due May 15,
1998. These notes require monthly payment of interest beginning April 15,
1995.
-24-
<PAGE> 25
The aggregate maturities of long-term obligations, excluding the revolving
credit agreement which expires July 1, 1996, are as follows:
<TABLE>
<CAPTION>
Fiscal Year
<S> <C>
1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,670,367
1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 471,379
1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,410,962
1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26,751
2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28,105
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29,528
</TABLE>
6. OPERATING LEASES
The Company operates certain of its manufacturing facilities in leased premises
and with leased equipment under noncancellable operating lease agreements
having an initial term of more than one year and expiring at various dates
through 2002. The real property leases require the Company to pay maintenance,
insurance and real estate taxes.
At July 2, 1995, the future minimum lease payments under operating leases for
continuing operations with initial noncancellable terms in excess of one year
are as follows:
<TABLE>
<CAPTION>
Fiscal Year
<S> <C>
1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $726,156
1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 528,370
1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 313,414
1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 277,833
2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 256,955
</TABLE>
Rental expense under operating leases is as follows:
<TABLE>
<CAPTION>
Year Ended
--------------------------------------------------------
JULY 2, July 3, June 27,
1995 1994 1993
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Initial term of more than one year $ 932,751 $ 999,124 $ 994,270
Short-term rentals 300,425 418,786 448,493
--------------------------------------------------------------------------------------------------------------------------
$1,233,176 $1,417,910 $1,442,763
==========================================================================================================================
</TABLE>
7. EMPLOYEE BENEFIT PLANS
The Company has a contributory profit-sharing plan which qualifies under
Section 401(k) of the Internal Revenue Code for employees meeting certain
service requirements. The plan allows eligible employees to contribute up to
15% of their compensation, with the Company matching 50% of the first $25 per
month and 25% of the excess of the first 8% of this contribution. During 1995,
1994 and 1993, Company matching contributions were $136,432, $171,578 and
$198,287, respectively.
-25-
<PAGE> 26
At the discretion of the Board of Directors, the Company may also make
contributions dependent on profits each year for the benefit of all eligible
employees under the amended plan. There were no such contributions for the
years ended July 2, 1995, July 3, 1994 and June 27, 1993 other than Company
matching discussed above.
In 1992, the Company started a deferred compensation plan for selected
employees who, due to Internal Revenue Service guidelines, could not take full
advantage of the contributory profit-sharing plan. This plan, which is not
required to be funded, allows eligible employees to defer portions of their
current compensation and the Company guarantees a return of 2% over the prime
interest rate on the deferral (compounded daily from the date of deferral). To
support the deferred compensation plan, the Company has elected to purchase
company-owned life insurance. The costs associated with the plan for 1995 are
$40,541 for the guaranteed return and $3,319 for the expense of the
company-owned life insurance. The cash surrender value of the company-owned
life insurance is in other assets. The liability for the deferred compensation
is in accrued employee compensation.
8. OTHER INCOME AND EXPENSE, NET
The components of other income and (expense), net are as follows:
<TABLE>
<CAPTION>
Year Ended
-----------------------------------------------
JULY 2, July 3, June 27,
1995 1994 1993
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest income $130,841 $126,587 $124,220
Gain on disposal of
operating facility in Flippin 154,389 - -
Other, net 6,220 11,508 16,715
-----------------------------------------------------------------------------------------------------------------------
$291,450 $138,095 $140,935
=======================================================================================================================
</TABLE>
9. INCOME TAXES
Income tax expense (benefit) attributable to earnings from continuing
operations consists of:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
------- -------- -----
<S> <C> <C> <C>
YEAR ENDED JULY 2, 1995:
U.S. FEDERAL $ 19,300 $(321,000) $(301,700)
STATE AND LOCAL 40,100 (56,700) (16,600)
--------- --------- ---------
$ 59,400 $(377,700) $(318,300)
========= ========= =========
YEAR ENDED JULY 3, 1994:
U.S. Federal $ 45,900 $(341,100) $(295,200)
State and Local 102,400 (60,200) 42,200
--------- --------- ---------
$ 148,300 $(401,300) $(253,000)
========= ========= =========
YEAR ENDED JUNE 27, 1993:
U.S. Federal $ 42,100 $ - $ 42,100
State and Local 63,000 - 63,000
--------- --------- ---------
$ 105,100 $ - $ 105,100
========= ========= =========
</TABLE>
-26-
<PAGE> 27
Income tax expense (benefit) attributable to income from continuing operations
differed from the amounts computed by applying the U.S. Federal income tax rate
of 34% as a result of the following:
<TABLE>
<CAPTION>
JULY 2, July 3, June 27,
1995 1994 1993
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Computed "expected" tax expense $ 340,700 $ 715,100 $ 686,800
Increase (reduction) in income taxes
resulting from:
Utilization of net operating loss
carryforwards (392,950) (779,800) (755,500)
Alternative minimum tax 19,300 45,900 42,100
Change in net deferred tax assets (377,700) (401,300) -
State and local income taxes 40,100 102,400 63,000
Cash surrender value of life insurance 30,650 55,000 57,800
Other, net 21,600 9,700 10,900
----------------------------------------------------------------------------------------------------------------------------
$ (318,300) $ (253,000) $ 105,100
============================================================================================================================
</TABLE>
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities are presented below:
<TABLE>
<CAPTION>
JULY 2, July 3,
1995 1994
------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Accounts receivable due to allowance
for doubtful accounts $ 140,008 $ 53,077
Inventories due to additional costs inventoried
for tax purposes pursuant to the Tax Reform
Act of 1986 and inventory reserves 215,231 453,902
Accrued liability, settlement of lawsuit
with a note payable 102,400 135,610
Deferred compensation 193,599 139,715
Accrued vacation 118,750 132,997
Accrued health insurance 66,880 68,400
Accrued workers' compensation 61,179 34,245
Net operating loss carryforwards 6,944,645 7,161,782
Tax credit carryforwards 471,940 452,840
------------------------------------------------------------------------------------------------------------------
TOTAL GROSS DEFERRED TAX ASSETS 8,314,632 8,632,568
LESS - VALUATION ALLOWANCE 4,778,751 5,451,221
------------------------------------------------------------------------------------------------------------------
NET DEFERRED TAX ASSETS $3,535,881 $3,181,347
------------------------------------------------------------------------------------------------------------------
Deferred tax liabilities:
Property, plant and equipment, principally
due to differences in depreciation and
capitalized interest $ (224,774) $ (201,764)
Software amortization (61,545) (107,721)
------------------------------------------------------------------------------------------------------------------
TOTAL GROSS DEFERRED TAX LIABILITIES $ (286,319) $ (309,485)
------------------------------------------------------------------------------------------------------------------
NET DEFERRED TAX ASSETS $3,249,562 $2,871,862
==================================================================================================================
</TABLE>
-27-
<PAGE> 28
A valuation allowance is provided to reduce the deferred tax assets to a level
which, more likely than not, will be realized. The net deferred assets
reflects management's estimate of the amount which will be realized from future
profitability which can be predicted with reasonable certainty.
The net change in the total valuation allowance for the years ended July 2,
1995 and July 3, 1994 were decreases of $789,410 and $1,038,752, respectively.
At July 2, 1995, the Company has net operating loss carryforwards for Federal
income tax purposes of $20,393,000 which are available to offset future Federal
taxable income through 2003. The Company also has investment tax credit
carryforwards for Federal income tax purposes of approximately $227,300 which
are available to reduce future Federal income taxes through 2001. In addition,
the Company has alternative minimum tax credit carryforwards of approximately
$244,640 which are available to reduce future regular Federal income taxes over
an indefinite period. These carryforwards are the result of losses generated
by discontinued operations prior to 1987.
Total cash payments for income taxes in all years presented were not material.
10. INDUSTRY SEGMENT INFORMATION
The Company is engaged in contract engineering, production and sale of
electronic devices and systems, specialized cables and harnesses and circuits
primarily to the defense electronics, aerospace and commercial electronics
industries.
Sales for export did not exceed 10% of sales. Customers accounting for more
than 10% of net sales for the years ended July 2, 1995, July 3, 1994 and June
27, 1993 follow:
<TABLE>
<CAPTION>
Customer 1995 1994 1993
-------- ---- ---- ----
<S> <C> <C> <C>
Lockheed Martin . . . . . . . . . . . . . 34% 33% 26%
General Electric . . . . . . . . . . . . 12% 18% 23%
</TABLE>
11. LITIGATION AND CONTINGENCIES
The Company is involved in litigation arising in the normal course of business.
In the opinion of management, the ultimate disposition of the litigation will
not have a material adverse effect on the financial position of the Company.
During fiscal 1992, the Company settled a class action lawsuit. The final
payment of $275,000 is due on August 27, 1995.
-28-
<PAGE> 29
12. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data is set forth below:
<TABLE>
<CAPTION>
1995 FIRST SECOND THIRD FOURTH
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $17,110,578 $16,206,319 $14,770,035 $13,558,951
Gross profit 2,771,538 2,882,913 2,462,577 2,137,462
Earnings from operations
before income taxes 188,566 494,357 275,201 44,241
Income tax expense (benefit) 11,300 29,300 16,500 (375,400)
Net earnings $ 177,266 $ 465,057 $ 258,701 $ 419,641
Net earnings per common share $ .01 $ .03 $ .02 $ .03
=====================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
1994 First Second Third Fourth
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $19,608,279 $18,038,025 $17,184,874 $18,311,561
Gross profit 3,403,465 3,082,960 3,100,198 2,758,677
Earnings from continuing operations
before income taxes 641,123 589,796 622,352 249,758
Income tax expense (benefit) 38,500 35,400 37,300 (364,200)
Net earnings $ 602,623 $ 554,396 $ 585,052 $ 613,958
Net earnings per common share $ .04 $ .04 $ .04 $ .04
=====================================================================================================================
</TABLE>
13. STOCK OPTION PLANS
On July 20, 1987, the Company adopted the LaBarge, Inc. 1987 Incentive Stock
Option Plan, and on August 19, 1993, the Company adopted the LaBarge, Inc. 1993
Incentive Stock Option Plan. Pursuant to these plans, options may be granted
to those employees deemed appropriate subject to certain limitations contained
in the plan. Options granted under the plans may be for a maximum term of 10
years and may not be exercised by employees before two years following the date
of the grant.
As of July 2, 1995, options to purchase 107,000 shares of Common Stock were
outstanding and exercisable at prices ranging from $.66 to $1.2375 per share
under the 1987 plan. Options to purchase 212,000 shares are outstanding, but
not exercisable until August 1995 at prices ranging from $1.125 to $1.4428 per
share under the 1993 plan. Options granted under the 1987 plan for 58,000
shares at $.66 to $.726 per share and 24,000 shares at $.66 per share were
exercised in 1995 and 1994, respectively.
-29-
<PAGE> 30
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
At July 2, 1995, the Company had a backlog of $52.1 million, up from $50.3
million at July 3, 1994, which excludes $4.5 million attributable to the former
Flippin operation. Although this backlog includes orders from customers which
require delivery of product for as much as two years into the future, the
majority (91%) is scheduled to ship in fiscal 1996.
During the year, the Company continued to develop new customers. The Company
believes that the markets, customers and programs in which it is involved
provide a solid base and new growth opportunities for the future.
The Company is significantly less dependent on defense spending than it once
was due to its increasing commercial business. As a percent of total sales,
defense related sales were 57.9% in 1995; 58.9% in 1994 and 68.7% in 1993.
With the Company's focus on the telecommunications, medical and geophysical
markets, it is expected that commercial sales volume will increase
significantly in fiscal 1996 and beyond.
RESULTS OF OPERATIONS - 1995 - 1994 - 1993
Net sales for fiscal year 1995 were $61.6 million compared to $73.1 million in
1994 and $81.6 million in 1993. The decrease in sales in 1995 is attributed to
the sale of the Company's former operation in Flippin, Arkansas in December
1994. Excluding Flippin sales from 1995 and 1994, sales year to year were
comparable at $54.3 million in 1995 and $54.1 million 1994. The decrease from
1993 to 1994 is attributable to lower defense revenues caused by the general
reduction in U.S. defense spending, partially off-set by higher commercial
revenues.
The Company is engaged in the design and manufacture of sophisticated
electronic systems and devices and complex interconnect systems. The Company
focuses on the following markets: defense, telecommunications, aerospace,
medical, and geophysical. The Company generally manufactures products upon
receipt of firm customer orders and ships the product in accordance with the
customers' scheduled deliveries.
Consequently, the Company's backlog at the beginning of a period, bookings
during the period, customer delivery schedules, jobs for which the customer
furnishes material and the mix of products to be produced all influence annual
volume and profit.
Gross margin in 1995 was 16.6% compared to 16.9% in 1994 and 15.9% in 1993.
The lower margin in 1995 was caused by lower volume of sales in relation to
fixed costs due to the sale of Flippin.
Selling and administrative expenses were $7.8 million in 1995 compared to $8.3
million in 1994 and $8.8 million in 1993. The sale of Flippin caused the
reduction in cost from 1994 to 1995. The Company believes that 1996 costs will
increase slightly as compared to 1995 as a result of increased marketing
efforts in new markets. The Company expects wage and fringe benefit costs and
the costs of outside services such as insurance coverage, data processing and
legal services associated with administrative functions to remain relatively
constant compared to 1995.
-30-
<PAGE> 31
Interest expense in 1995 totaled $1.7 million compared to $ 2.1 million in 1994
and $2.3 million in 1993. The decrease in 1995 versus 1994 is attributed to
the sale of the Flippin operation which allowed the Company to reduce debt by
approximately $8 million. The Company expects interest costs to be lower in
1996 as borrowings continue at lower levels.
Other income (expense) of approximately $0.3 million in 1995, $0.1 million in
1994 and $0.1 million in 1993 consists of: the $154,000 gain on the sale of
Flippin in 1995 and interest income on a note held from a prior divestiture.
The Company continues to have significant tax loss carryforwards which, in
accordance with SFAS 109, results in $3.25 million of deferred tax assets, net
of the related valuation allowance as of July 2, 1995. Net deferred tax assets
increased in 1995 and 1994, resulting in deferred tax benefits of $377,700 and
$401,300, respectively. No such benefit or expense occurred in 1993.
NET EARNINGS
Net earnings for 1995 were $1,320,666 compared to $2,356,029 for 1994 and
$1,914,665 for 1993. Earnings per common share were $.09 in 1995 compared to
$.16 in 1994 and $.13 in 1993.
FINANCIAL CONDITION AND LIQUIDITY
Over the last three years, the Company has taken important steps to improve its
financial condition.
During 1995, the Company sold its operation in Flippin, Arkansas for $10.5
million in cash and $2.9 million in assumed liabilities. The Company used $1.6
million of the proceeds plus $3.4 million in new 12% Subordinated Notes due in
1998 to redeem all $5 million of 15% Subordinated Notes due in 1997. The
balance of the proceeds were used to reduce senior debt. As a result of the
Flippin sale and the subsequent debt reduction, the Company's balance sheet is
much stronger.
Shareholders' equity increased to $13.3 million at July 2, 1995, from to $12.0
at July 3, 1994 and $9.6 million at June 27, 1993. Debt has been reduced from
to $10.6 million at July 2, 1995 from $19.6 million at July 3, 1994 and $23.8
million at June 27, 1993 .
The Company's revolving credit agreement with Sanwa Business Credit Corporation
expires July 1, 1996. The agreement allows for maximum borrowing (subject to a
borrowing base formula) of $14.5 million, of which $5.0 million was outstanding
and $3.5 million was available under the borrowing base calculation at July 2,
1995. The Company expects to enter into a new loan agreement prior to July 1,
1996.
The aggregate maturities of all debt over the next 3 years, excluding the
revolving credit agreement, are $1.7 million in 1996, $0.5 million in 1997 and
$3.4 million in 1998.
The Company expect to meet these obligations with cash generated from
operations, new financing and available funds under its revolving credit
agreement.
During the year, the Company used $0.2 million in cash to support operations
compared to generating $4.5 million in 1994 and $2.9 million in 1993. The
Company invested $0.8 million in new equipment and other assets during the year
compared to $0.5 million in 1994 and $1.4 million in 1993.
-31-
<PAGE> 32
At July 2, 1995, accounts receivable were down $2.1 million and inventories
were up $1.0 million over prior year levels. Accounts payable were down $2.2
million. These values exclude the Flippin sale effect.
At July 2, 1995, the Company's capital structure consisted of $10.6 million of
debt and $13.3 million common shareholders' equity.
-32-
<PAGE> 33
Schedule VIII
LABARGE, INC.
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED JULY 2, 1995,
JULY 3, 1994 AND JUNE 27, 1993
<TABLE>
<CAPTION>
Balance Balance
beginning Charge- end of
of period Recoveries Offs period
---------- ---------- ---------- ---------
Allowance for
doubtful accounts:
<S> <C> <C> <C> <C>
1993 $ 96,069 $31,142 $- $127,211
1994 127,211 12,464 - 139,675
1995 139,675 28,767 - 168,442
<CAPTION>
Balance Balance
beginning end of
of period Increase Decrease period
----------- ---------- ------------ ----------
Deferred tax asset
valuation allowance:
<C> <C> <C> <C> <C>
1993 $7,127,825 $- $ (637,852) $6,489,973
1994 6,489,973 - (1,038,752) 5,451,221
1995 5,451,221 - (672,470) 4,778,751
</TABLE>
-33-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUL-02-1995
<PERIOD-END> JUL-02-1995
<CASH> 143
<SECURITIES> 0
<RECEIVABLES> 7,569
<ALLOWANCES> (168)
<INVENTORY> 14,133
<CURRENT-ASSETS> 24,344
<PP&E> 10,897
<DEPRECIATION> (8,221)
<TOTAL-ASSETS> 31,608
<CURRENT-LIABILITIES> 11,848
<BONDS> 0
<COMMON> 152
0
0
<OTHER-SE> 13,145
<TOTAL-LIABILITY-AND-EQUITY> 31,608
<SALES> 61,646
<TOTAL-REVENUES> 61,646
<CGS> 51,391
<TOTAL-COSTS> 59,210
<OTHER-EXPENSES> (291)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,725
<INCOME-PRETAX> 1,002
<INCOME-TAX> (318)
<INCOME-CONTINUING> 1,321
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,321
<EPS-PRIMARY> .09
<EPS-DILUTED> .09
</TABLE>
