<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 June 29, 1997 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.)
9900-A Clayton Road, St. Louis, Missouri 63124
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 314-997-0800
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 29, 1997, 15,658,230 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 $88,077,544,
based upon the closing price of the common stock on the American Stock
Exchange, Inc. on August 29, 1997.
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of the Company's definitive proxy materials to be filed
within 120 days after the Company's fiscal year are incorporated in Part
III herein.
<PAGE> 2
PART I
Statements contained in this Report which are not historical facts are forward
looking statements that 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 would 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; further cutbacks in defense
spending by the U.S. Government; lack of acceptance by the market of the Laser
Lancet(R) developed for TRANSMEDICA INTERNATIONAL, INC., ("TRANSMEDICA"),
formerly Venisect, Inc.; unexpected increases in the cost of raw materials,
labor and other resources necessary to operate the Company's business; and the
availability, amount, type and cost of financing for the Company and any
changes to that financing.
Item 1. Business
General Development of Business
LaBarge, Inc. (the "Company") became a Delaware corporation in 1968 as the
successor by merger to a company founded in 1953. The Company is engaged in
the engineering and manufacture of sophisticated electronic systems and
devices and complex interconnect systems.
For the past four years, the Company has focused on expanding into commercial
markets using the technologies it had historically developed for the defense
and aerospace electronics markets. The Company focuses it marketing toward
companies which require significant engineering effort to develop electronic
products which are capable of surviving harsh environmental conditions
including temperature, shock and vibration while maintaining high performance
reliability. The Company's focus is on the following markets:
telecommunications, geophysical, medical, aerospace and defense.
In fiscal 1996, the Company purchased the assets for $2.7 million and assumed
$400,000 of the liabilities of SOREP Technology Corporation ("SOREP") in
Houston, Texas. SOREP was renamed LaBarge/STC, Inc. and continues to operate
at its Houston location. LaBarge/STC, Inc. is engaged in the design and
manufacture of custom hybrid circuits and high temperature electronic
assemblies used in oil and gas exploration, drilling and production. This
acquisition supports the Company's efforts to expand in the geophysical market.
Also in fiscal 1996, the Company announced the formation of LaBarge Clayco
Wireless L.L.C. ("LaBarge Clayco"), which is a 50%/50% joint venture of LaBarge
Wireless, Inc., a wholly-owned subsidiary of LaBarge, Inc. and Clayco
Construction Company. LaBarge Clayco provides engineering, project management,
construction, installation and testing services for the rapidly growing
wireless telecommunications industry.
This joint venture complements the Company's activities in the design and
manufacture of sophisticated cable assemblies and electronic products used in
wireless telecommunications.
-2-
<PAGE> 3
In April 1997, TRANSMEDICA received clearance from the U.S. Food & Drug
Administration ("FDA") to market a small medical laser for the purpose of
perforating the skin to collect capillary blood for clinical testing. The
Laser Lancet(R) was developed for TRANSMEDICA under a technology licensing
agreement with TRANSMEDICA. The Company has begun manufacturing the device for
distribution by TRANSMEDICA. Sales of the device were insignificant in fiscal
1997 and any impact on the Company's future sales cannot yet be determined.
In June 1997, the Company's Board of Directors approved additional equity
investments in TRANSMEDICA of up to $2.0 million. This investment was made in
July and the Company now owns approximately 9.5% of TRANSMEDICA.
In the second quarter of fiscal 1995, the Company sold its operations in
Flippin, Arkansas for $10.5 million in cash and $2.9 million in assumed
liabilities. The proceeds from the sale were used to reduce debt.
In March 1997, the Company entered into a revised and amended unsecured
lending agreement with NationsBank, N.A. on terms more favorable than those
previously available to the Company. The agreement provides a $4.0 million
term loan requiring quarterly amortization of $250,000 beginning June 30, 1997
and a $17.0 million revolving working capital facility. Interest on the new
loans is at LIBOR plus a premium and/or a discount from the prime interest rate
and is based on certain operating criteria. The Company believes this loan
agreement provides sufficient working capital to support planned business
growth.
Financial Information About Industry Segments
The Company conducts its operations through one industry segment, electronics
design and manufacturing and markets its products to the telecommunications,
geophysical, medical, aerospace and defense markets. In each market, the
Company engineers and manufactures sophisticated electronic systems and devices
and complex interconnect assemblies.
Narrative Description of Business
GENERAL. The Company engineers, manufactures, tests and sells sophisticated
electronic systems and devices and complex interconnect assemblies. Principal
markets for the Company's products are: telecommunications (primarily the
wireless segment), geophysical, medical equipment, aerospace, defense and
various other commercial/industrial markets. The Company's manufacturing
facilities are located in Arkansas, Missouri, Oklahoma and Texas. The Company
employs approximately 800 people.
The Company's backlog at June 29, 1997, was approximately $61.3 million, as
compared to $62.2 million at June 30, 1996. The backlog at June 29, 1997,
consisted of: $36.6 million of orders for various defense products compared to
$38.4 million at June 30, 1996 and $24.7 million of orders for commercial
products compared to $24.8 million at June 30, 1996. Generally, lead times on
commercial products are much shorter and orders are placed on a just-in-time
delivery basis. Substantially all of the defense backlog at June 29, 1997 is
pursuant to contracts containing cancellation and termination provisions.
Approximately $7.2 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 $9.1 million at year-end 1996.
-3-
<PAGE> 4
MARKETING. The Company has divided its business development efforts along
market lines, each headed by a business unit manager. This approach allows
each business unit to thoroughly understand and concentrate on the needs of the
customers in that market. There are currently four such business units which
in the aggregate are supported by approximately eleven additional sales
personnel and approximately thirty-two design engineers and technicians. The
Company seeks to develop strong, long-term customer relationships, which will
provide the basis for future sales. These close relationships allow the
Company to better understand the customers' business needs and identify ways to
provide greater value to customers.
MANUFACTURING; ENVIRONMENTAL. The Company has organized its engineering and
production to provide flexible independent plant locations with specific design
and manufacturing capabilities, each of which can serve most, if not all,
markets. This approach allows local management at each facility to concentrate
the necessary 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 electronics products to
Department of Defense ("DOD") and prime contractor specifications. The makeup
of such products varies with customer needs. In the past, 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, among many others,
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 48% of total Company sales in fiscal
1997 and fiscal 1996 were defense related.
The Company is identifying new defense opportunities as many of the large prime
contractors are consolidating and increasingly using outside engineering and
manufacturing as a way to reduce overhead costs and increase profits.
COMMERCIAL AEROSPACE MARKET. The Company designs and manufactures high
temperature cable assemblies for jet engines; complex wiring harnesses for
space launch vehicles (including the Atlas/Centaur Rocket and the Space
Shuttle); and a variety of cable assemblies and wiring harnesses for
satellites. Approximately 8% of the Company's fiscal 1997 sales were for
aerospace applications compared to 6% in fiscal 1996.
TELECOMMUNICATIONS MARKET. The Company's primary focus in telecommunications
is on the rapidly growing wireless segment of the market, with special emphasis
on Personal Communication Systems ("PCS"). The Company designs and
manufactures sophisticated radio frequency, data and power cables; lightning
protection equipment; and, a variety of ancillary electrical/electronic
equipment. The products are predominantly used in wireless network
construction, commonly referred to as infrastructure.
-4-
<PAGE> 5
LaBarge Clayco provides cell-site engineering, project management,
construction, equipment installation and testing services. The operating
results of LaBarge Clayco are accounted for on the equity method. For fiscal
1997 this operation provided minimal income of $4,000, while in fiscal 1996 it
resulted in a loss of approximately $93,000.
Approximately 16% of fiscal 1997 sales were attributable to the
telecommunications market versus 26% in fiscal 1996. This lower percentage
results from a decrease in sales of approximately $4 million in 1997 versus
1996 which decrease was caused by delays in the build-out of the overall PCS
market as well as design changes in product offerings.
MEDICAL MARKET. The Company designed and developed the Laser Lancet(R), a
small medical laser, for TRANSMEDICA under a technology licensing agreement
with TRANSMEDICA. TRANSMEDICA received, in April 1997, FDA clearance to market
the device for the purpose of perforating the skin to collect capillary blood
for clinical testing. The Company will manufacture the Laser Lancet(R) for
distribution by TRANSMEDICA. TRANSMEDICA is reviewing distribution agreements
with several large medical supply operations, but has not yet entered into an
agreement for marketing the product.
The Company believes there are other applications for the laser technology
utilized in the Laser Lancet(R). One such application is laser- assisted
transdermal drug delivery. During the year, TRANSMEDICA began clinical trials
to demonstrate the viability of this application.
In addition to its laser work with TRANSMEDICA, the Company engineers and
manufactures a variety of electronic and electro-mechanical assemblies for use
in medical diagnostic equipment. Sales of all medical products accounted for
approximately 4% of the Company's total sales in fiscal 1997 and 5% in fiscal
1996.
GEOPHYSICAL MARKET. The Company designs and manufactures a variety of
electronic products used in oil and gas exploration, drilling and production.
Products include cabling, seismic analysis computer, down-hole instrumentation
and high-power drive controls. Through its subsidiary, LaBarge/STC, Inc., it
also designs and produces hybrid circuits used in the same applications.
Approximately 21% of fiscal 1997 sales were to the geophysical industry
compared to 10% in fiscal 1996. This increase in volume is due to the volume
associated with the acquisition of SOREP in late fiscal 1996, as well as
development of new business within the market.
SALES AND DISTRIBUTION. The Company has fifteen employees whose primary
responsibility is sales. Additionally, the Company's engineering and plant
management employees are very involved in sales activities. The Company's 1997
sales were made primarily 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 government contracts
generally have provisions for milestone or progress payments. The Company
primarily 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 target
market 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
-5-
<PAGE> 6
ability to produce the products contracted to the Company but, because of cost,
capacity, engineering capability or other reasons, order such products from the
Company. The principal methods of competition are engineering expertise,
technical capability, quality and reliability, overall project management
capability, service and price. In fiscal 1997, sales to 10 customers
represented approximately 76% of the Company's total sales revenue; sales to 1
aerospace and defense customer accounted for approximately 24%; sales to 1
geophysical customer accounted for approximately 14%; sales to 1
telecommunications customer, approximately 11% and the U.S. Government,
approximately 6%. In fiscal 1996, sales to 8 customers represented 78% of the
Company's total sales revenue; sales to 1 aerospace and defense customer
accounted for approximately 25%; 1 telecommunications customer, approximately
25%; and U.S. Government, approximately 6% of sales.
Financial Information About Foreign and Domestic Operations and Export Sales
No information has been included hereunder because the Company's foreign sales
in fiscal 1997 were less than 10% of total Company revenue.
Capital Structure
HISTORY. Since 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 was used to reduce senior debt.
During fiscal 1996, the Company purchased the assets of SOREP Technology
Corporation (renamed LaBarge/STC, Inc.) for approximately $2.7 million. The
Company also committed approximately $250,000 in LaBarge Clayco through its
LaBarge Wireless, Inc. subsidiary.
In March 1997, the Company entered into a revised and amended, unsecured
lending agreement with NationsBank, N.A. (successor to Boatmen's National Bank)
replacing its former agreement with NationsBank established in June 1996. The
new agreement provides for a $4 million term loan requiring quarterly
amortization of $250,000 beginning June 30, 1997 and a $17 million revolving
working capital facility.
Interest on both loans is variable with prime or LIBOR. At June 29, 1997 the
rate was 6.88%.
The ratio of debt to equity as of June 29, 1997 was .24 to 1.
-6-
<PAGE> 7
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>
Offices - 20,840 2007
St. Louis, MO
Manufacturing and
Tulsa, OK
Offices 3 49,359 2002
Manufacturing and
Joplin, MO
Offices 5 50,400 Owned
Manufacturing 33,000 1997
Joplin, MO
Manufacturing and
Berryville, AR
Offices 7 27,770 Owned
Manufacturing and
Huntsville, AR
Offices 6 45,000 1997
Houston, TX Manufacturing
and Offices 3 8,900 1999
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
Item 3. Legal Proceedings
The Company is a party to various legal proceedings arising out of the normal
course of business. The Company believes that none of these proceedings,
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 June 29, 1997.
-7-
<PAGE> 8
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 16 filed herewith.
Item 6. Selected Financial Data
Reference is made to the information contained in the section entitled
"Selected Financial Data" on page 16 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 36 through 39 filed herewith.
Item 8. Consolidated Financial Statements and Supplementary Data
Reference is made to the Index to Consolidated Financial Statements and
Schedule contained on page 15 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 materials
to be filed within 120 days after the end of the Company's fiscal year covered
by this report.
Item 11. Executive Compensation
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 materials
to be filed within 120 days after the end of the Company's fiscal year covered
by this report.
-8-
<PAGE> 9
Item 13. Certain Relationships and Related Transactions
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.
PART IV
Item 14. Exhibits, Consolidated Financial Statement Schedules and
Reports on Form 8-K
a. Consolidated Financial Statements.
See Index to Consolidated Financial Statements and Schedule
which follows.
b. Reports on Form 8-K
No reports on Form 8-K were filed by the Company in the fourth
quarter of fiscal 1997.
c. Exhibits
d. Consolidated Financial Statement Schedule.
See Index to Consolidated Financial Statements and Schedule
which follows.
e. Exhibits.
<TABLE>
<CAPTION>
Exhibit
Number Description Page
- ------- ----------- ----
<S> <C>
3.1 Restated Certificate of Incorporation, dated October 26, 1995,
previously filed as Exhibit 3.1(i) to the Company's
Quarterly Report on Form 10-Q for the quarter ended October 1,
1995 and incorporated herein by reference.
3.2 By-Laws, as amended, previously filed as Exhibit 3.2(a) to the
Company's Quarterly Report on Form 10-Q for thequarter ended
October 1, 1995 and incorporated herein by reference.
10. 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.
10.1(a) Second Amendment to the First Amendment and Restatement of the
LaBarge, Inc. Employees Savings Plan executed on November 30,
1993. Previously filed with the Securities and Exchange
Commission on the Company's Registration Statement on Form S-3 on
July 23, 1996 and is incorporated herein by reference.
</TABLE>
-9-
<PAGE> 10
<TABLE>
<S> <C>
10.1(b) Third Amendment to the First Amendment and Restatement of the
LaBarge, Inc. Employees Savings Plan executed on March 24, 1994.
Previously filed with the Securities and Exchange Commission on
the Company's Registration Statement on Form S-3 on July 23, 1996
and is incorporated herein by reference.
10.1(c) Fourth Amendment to the First Amendment and Restatement of the
LaBarge, Inc. Employees Savings Plan executed on October 26,
1995. Previously filed with the Securities and Exchange
Commission on the Company's Registration Statement on Form S-3 on
July 23, 1996 and is incorporated herein by reference.
10.2 LaBarge, Inc. 1987 Incentive Stock Option Plan. Previously filed
with the Securities and Exchange Commission on the Company's
Registration Statement on Form S-3 on July 23, 1996 and is
incorporated herein by reference.
10.2(a) First Amendment to the LaBarge, Inc. 1987 Incentive Stock Option
Plan. Previously filed with the Securities and Exchange
Commission on the Company's Registration Statement on Form S-3 on
July 23, 1996 and is incorporated herein by reference.
10.3 LaBarge, Inc. 1993 Incentive Stock Option Plan. Previously filed
with the Securities and Exchange Commission on the Company's
Registration Statement on Form S-3 on July 23, 1996 and is
incorporated herein by reference.
10.3(a) First Amendment to the LaBarge, Inc. 1993 Incentive Stock Option
Plan. Previously filed with the Securities and Exchange
Commission on the Company's Registration Statement on Form S-3 on
July 23, 1996 and is incorporated herein by reference.
10.4 Management Retirement Savings Plan of LaBarge, Inc. Previously
filed with the Securities and Exchange Commission on the Company's
Registration Statement on Form S-3 on July 23, 1996 and is
incorporated herein by reference.
10.5 Asset Purchase Agreement dated May 15, 1996 among registrant,
SOREP Technology Corporation and its shareholders,
previously filed as Exhibit 10.i to the Company's Current Report
on Form 8-K filed with the Commission on May 28, 1996 and
incorporated herein by reference.
10.6 Loan Agreement dated June 25, 1996 among NationsBank, N.A.,
registrant, LaBarge Wireless, Inc. and LaBarge/STC, Inc.
Previously filed with the Securities and Exchange Commission on
the Company's Registration Statement on Form S-3 on July 23, 1996
and is incorporated herein by reference.
</TABLE>
-10-
<PAGE> 11
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
10.7 LaBarge, Inc. 1995 Incentive Stock Option Plan. Previously filed
with the Securities and Exchange Commission on the Company's
Current Report on the Company's Current Form 10-K on September
19, 1996 and is incorporated herein by reference.
10.8 Operating Agreement for LaBarge Clayco Wireless L.L.C., a 50%/50%
joint venture between LaBarge Wireless, Inc. a wholly-owned
subsidiary of LaBarge, Inc. and Clayco Construction Company.
Previously filed with the Securities and Exchange Commission on
the Company's Current Report on the Company's Current Form 10-K on
September 19, 1996 and is incorporated herein by reference.
10.9 Amendment to Loan Agreement between NationsBank, N.A. and LaBarge,
Inc., LaBarge/STC, Inc. and LaBarge Wireless, Inc. Previously
filed with the Securities and Exchange Commission on the Company's
Current Report on the Company's Current Form 10-Q on May 14, 1997
and is incorporated herein by reference.
27 Article 5 Financial Data Schedule. 42
23(a) Independent Auditors' Consent. 12
</TABLE>
Schedule
Number Description Page
- ------- ----------- ----
II Valuation and Qualifying Accounts. 40-41
All other schedules have been omitted as they are
not applicable, not significant, or the
required information is given in the
consolidated financial statements or notes
thereto.
-11-
<PAGE> 12
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: September 4, 1997
------------------------
LaBarge, Inc.
By s/William J. Maender/s
---------------------------------
William J. Maender
Vice President - Finance
(Chief Financial and
Accounting Officer)
-12-
<PAGE> 13
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Craig E. LaBarge and William J. Maender
and each of them, 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 Act of 1934, this Report
as been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
s/Pierre L. LaBarge, Jr./s Chairman Emeritus and Director 8/21/97
- ------------------------------------ ---------------
Pierre L. LaBarge, Jr.
President (Chief Executive Officer) and
s/Craig E. LaBarge/s Director 8/21/97
- ------------------------------------ ---------------
Craig E. LaBarge
s/J. C. Kuhn, Jr./s Executive Vice President (Chief
- ------------------------------------ Operating Officer) and Director 8/21/97
J. C. Kuhn, Jr. ---------------
s/William J. Maender/s Vice President Finance (Chief Financial
- ------------------------------------ and Accounting Officer) and Secretary 8/21/97
William J. Maender Director ---------------
s/Gus G. Casten/s Director 8/21/97
- ------------------------------------ ---------------
Gus G. Casten
s/Richard P. Conerly/s Director 8/21/97
- ----------------------------------- ---------------
Richard P. Conerly
s/R. Hal Dean/s Director 8/21/97
- ----------------------------------- ---------------
R. Hal Dean
8/21/97
s/Edward J. Nestor, Jr./s Director ---------------
- -----------------------------------
Edward J. Nestor, Jr.
8/21/97
s/James P. Shanahan, Jr./s Director ---------------
- -----------------------------------
James P. Shanahan, Jr.
s/Jack E. Thomas, Jr./s Director 8/21/97
- ----------------------------------- ---------------
Jack E. Thomas, Jr.
</TABLE>
-13-
<PAGE> 14
LABARGE, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND SCHEDULES
PAGE NUMBER
-----------
Consolidated Financial Statements
---------------------------------
Independent Auditors' Report 17
Consolidated Statements of Operations,
Years Ended June 29, 1997,
June 30, 1996 and July 2, 1995 18
Consolidated Balance Sheets, June 29, 1997
and June 30, 1996 19
Consolidated Statements of Cash Flows,
Years Ended June 29, 1997,
June 30, 1996 and July 2, 1995 20
Consolidated Statements of Stockholders' Equity,
Years Ended June 29, 1997,
June 30, 1996 and July 2, 1995 21
Notes to Consolidated Financial Statements,
Years Ended June 29, 1997,
June 30, 1996 and July 2, 1995 22-35
Management's Discussion and Analysis of
Financial Condition and
Results of Operations 36-39
Form
SCHEDULE 10-K
-------- ----------
II - Valuation and Qualifying Accounts 40-41
All other schedules have been omitted as they are
not applicable, not significant, or the
required information is given in the
consolidated financial statements or notes
thereto.
-14-
<PAGE> 15
LaBarge, Inc.
SELECTED FINANCIAL DATA
(dollars in thousands except per share data)
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------------------------------------------
JUNE 29, June 30, July 2, July 3, June 27,
1997 1996 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $ 96,666 $ 75,060 $ 61,646 $ 73,143 $ 81,582
Earnings from operations 7,844 4,980 2,436 4,082 4,187
Pretax Earnings 7,001 3,771 1,002 2,103 2,020
Net earnings $ 7,735 $ 3,540 $ 1,321 $ 2,356 $ 1,915
- --------------------------------------------------------------------------------------------------------------
Net earnings per common share $ .50 $ .23 $ .09 $ .16 $ .13
- --------------------------------------------------------------------------------------------------------------
Total assets $ 43,459 $ 41,550 $ 31,608 $ 44,477 $ 43,362
Long-term obligations 5,101 10,419 6,467 15,143 18,073
- --------------------------------------------------------------------------------------------------------------
</TABLE>
Certain events occurring during the above reporting periods involving
acquisitions, divestitures, joint ventures, refinancings, and deferred tax
valuation adjustments affect the comparability of financial data presented on
a year-to-year basis. No cash dividends have been paid during the
aforementioned periods.
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 August 29,
1997, there were approximately 4,000 holders of record of LaBarge, Inc.'s
Common Stock. The following table indicates the quarterly high and low closing
prices for the stock for the fiscal years 1997 and 1996, as reported by the
American Stock Exchange.
<TABLE>
<CAPTION>
1996-97 HIGH LOW
<S> <C> <C>
July-September 9 1/2 5 5/16
October-December 7 1/8 5 3/4
January-March 7 5/16 5 13/16
April-June 8 6
</TABLE>
<TABLE>
<CAPTION>
1995-96 HIGH LOW
<S> <C> <C>
July-September 4 7/16 2 3/8
October-December 3 15/16 2 5/8
January-March 5 3 1/4
April-June 10 3/4 4 1/2
</TABLE>
-15-
<PAGE> 16
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
LaBarge, Inc.:
We have audited the consolidated financial statements of LaBarge, Inc. and
subsidiaries as listed in the accompanying index. In connection with our
audits of the consolidated financial statements, we also have audited the
financial statement schedule as listed in the accompanying index. These
consolidated financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of LaBarge, Inc. and
subsidiaries as of June 29, 1997 and June 30, 1996, and the results of their
operations and their cash flows for each of the years in the three-year period
ended June 29, 1997, in conformity with generally accepted accounting
principles. Also in our opinion, the related financial statement schedule,
when considered in relation to the basic consolidated financial statements
taken as a whole, presents fairly, in all material respects, the information
set forth therein.
s/KPMG Peat Marwick LLP/s
St. Louis, Missouri
August 8, 1997
-16-
<PAGE> 17
LaBarge, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands except per share data)
<TABLE>
<CAPTION>
YEAR ENDED
----------------------------------------------------
JUNE 29, June 30, July 2,
1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET SALES $ 96,666 $ 75,060 $ 61,646
- -----------------------------------------------------------------------------------------------------------------
COSTS AND EXPENSES:
Cost of sales 77,442 61,103 51,391
Selling and administrative expenses 11,380 8,977 7,819
- -----------------------------------------------------------------------------------------------------------------
88,822 70,080 59,210
- -----------------------------------------------------------------------------------------------------------------
EARNINGS FROM OPERATIONS 7,844 4,980 2,436
- -----------------------------------------------------------------------------------------------------------------
Interest expense 942 1,355 1,725
Equity in earnings (loss) of joint venture 4 (93) -
Other income, net 95 239 291
- -----------------------------------------------------------------------------------------------------------------
EARNINGS BEFORE INCOME TAXES 7,001 3,771 1,002
INCOME TAX EXPENSE (BENEFIT) (734) 231 (319)
- -----------------------------------------------------------------------------------------------------------------
NET EARNINGS $ 7,735 $ 3,540 $ 1,321
=================================================================================================================
NET EARNINGS PER COMMON SHARE $ .50 $ .23 $ .09
=================================================================================================================
AVERAGE COMMON SHARES OUTSTANDING 15,626 15,314 15,223
=================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
-17-
<PAGE> 18
LaBarge, Inc.
CONSOLIDATED BALANCE SHEETS
(dollars in thousands except per share data)
<TABLE>
<CAPTION>
JUNE 29, June 30,
1997 1996
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,467 $ 935
Accounts receivable, net 13,384 12,855
Inventories 14,264 17,577
Prepaid expenses 735 286
Deferred tax assets, net 4,426 1,013
- --------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 34,276 32,666
- --------------------------------------------------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT, NET 4,090 3,194
DEFERRED TAX ASSETS, NET - 2,237
INVESTMENT IN JOINT VENTURE 161 157
OTHER ASSETS, NET 4,932 3,296
- --------------------------------------------------------------------------------------------------------
$ 43,459 $ 41,550
========================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings $ - $ 400
Current maturities of long-term debt 1,032 633
Trade accounts payable 5,532 7,614
Accrued employee compensation 4,537 3,302
Other accrued liabilities 1,714 1,427
- --------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 12,815 13,376
- --------------------------------------------------------------------------------------------------------
LONG-TERM DEBT 5,101 10,419
- --------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value. Authorized 20,000,000
shares; issued 15,658,230 shares at June 29, 1997
and 15,601,891 shares at June 30, 1996 156 156
Additional paid-in capital 13,468 13,416
Retained earnings 11,919 4,184
Less stock in treasury, -0- shares at June 29,
1997 and 187 shares at June 30, 1996 - (1)
- --------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 25,543 17,755
- --------------------------------------------------------------------------------------------------------
$ 43,459 $ 41,550
========================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
-18-
<PAGE> 19
LaBarge, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
<TABLE>
<CAPTION>
YEAR ENDED
----------------------------------------------------
JUNE 29, June 30, July 2,
1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 7,735 $ 3,540 $ 1,321
Adjustments to reconcile net earnings to net
cash provided (used) by operating activities:
Depreciation and amortization 1,012 864 923
Other (4) (197) (272)
Changes in assets and liabilities:
Accounts receivable, net (529) (3,955) 2,118
Inventories 3,313 (2,701) (1,040)
Prepaid expenses (449) 20 (89)
Deferred taxes (1,176) - (378)
Other assets (1,175) - -
Trade accounts payable (2,082) 2,514 (2,167)
Accrued liabilities 1,522 1,754 (614)
- --------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES 8,167 1,839 (198)
- --------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (1,711) (1,102) (648)
Additions to other assets (658) (496) (118)
Acquisition of SOREP Technology
(net of cash acquired) - (1,802) -
Sale of operating facility in Flippin, Arkansas - - 9,890
Collection of note receivable - 621 -
- --------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES (2,369) (2,779) 9,124
- --------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of long-term debt - 6,900 -
Repayments of long-term debt (4,919) (3,986) (8,631)
Exercise of stock warrants and options 52 910 101
Sale (purchase) of common stock from treasury 1 8 (93)
Net change in short-term borrowings (400) (2,100) (300)
- --------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES (5,266) 1,732 (8,923)
- --------------------------------------------------------------------------------------------------------------------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 532 792 3
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 935 143 140
- --------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 1,467 $ 935 $ 143
==========================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
-19-
<PAGE> 20
LaBarge, Inc.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(dollars in thousands except share data)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL RETAINED TREASURY STOCK
------------ PAID-IN EARNINGS --------------
SHARES PAR VALUE CAPITAL (DEFICIT) SHARES COST
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT JULY 3, 1994 15,166,877 $ 151 $ 12,494 $ (677) - $ -
Net earnings - - - 1,321 - -
Exercise of warrants 60,439 1 60 - - -
Purchase of common
to treasury - - - - (63,391) (93)
Exercise of stock options - - (44) - 58,000 84
- ---------------------------------------------------------------------------------------------------------------------------------
BALANCE AT JULY 2, 1995 15,227,316 $ 152 $ 12,510 $ 644 (5,391) $ (9)
Net earnings - - - 3,540 - -
Exercise of warrants 300,000 3 897 - - -
Purchase of common
to treasury - - - - (24,221) (88)
Exercise of stock options 74,575 1 9 - 29,425 96
- ---------------------------------------------------------------------------------------------------------------------------------
BALANCE AT JUNE 30, 1996 15,601,891 $ 156 $ 13,416 $ 4,184 (187) $ (1)
NET EARNINGS - - - 7,735 - -
EXERCISE OF STOCK OPTIONS 56,339 - 52 - 187 1
- ---------------------------------------------------------------------------------------------------------------------------------
BALANCE AT JUNE 29, 1997 15,658,230 $ 156 $ 13,468 $ 11,919 - -
=================================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
-20-
<PAGE> 21
LaBarge, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 29, 1997, June 30, 1996 and July 2, 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
LaBarge, Inc. and subsidiaries (the "Company") are engaged in the design,
engineering, manufacturing and sale of electronic products and systems and
complex interconnect assemblies. Primary markets where the Company's products
are sold are: telecommunications, geophysical, medical, aerospace and defense.
USE OF ESTIMATES
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements, and the reported amounts of revenues and expenses during
the reporting periods. Actual results could differ from these estimates.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of LaBarge, Inc. and
its wholly-owned subsidiaries. Significant intercompany accounts and
transactions have been eliminated. Investments in 20 - 50% owned companies are
accounted for on the equity method. Investments in less than 20% owned
companies are accounted for at cost.
ACCOUNTING PERIOD
The Company uses a fiscal year ending the Sunday closest to June 30. Fiscal
years 1997, 1996 and 1995 consisted of 52 weeks.
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 products to customer
requirements.
Raw materials are stated at the lower of cost or market as determined by the
weighted average cost method.
-21-
<PAGE> 22
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
Income taxes are accounted for under the asset and liability method. Deferred
tax assets and liabilities are recognized for the estimated future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
basis. Deferred tax assets and liabilities are measured using enacted tax
rates 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 expense and fund 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 plus a guaranteed return. The program is unfunded; however,
the Company purchases Company-owned life insurance contracts through which the
Company will recover a portion of its 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. The potential
dilution from the exercise of stock options is not significant.
GOODWILL AND OTHER LONG-LIVED ASSETS
Goodwill is amortized on a straight-line basis over a 10-year period.
Impairment losses are recorded on goodwill and other long-lived assets when
indicators of impairment are present and the undiscounted cash flows estimated
to be generated by those assets or related to the business acquired are less
than the assets' carrying amount.
-22-
<PAGE> 23
STOCK-BASED COMPENSATION
The Company accounts for stock-based compensation using the intrinsic value
method prescribed by APB Opinion No. 25, "Accounting for Stock Issued to
Employees" and related interpretations. The Company provides the financial
statement disclosures required by SFAS No. 123, "Accounting for Stock-Based
Compensation".
RECLASSIFICATIONS OF PRIOR YEAR AMOUNTS
Certain prior year amounts have been reclassified to conform with the current
year's presentation.
NEW ACCOUNTING STANDARDS
In February 1997, the FASB issued SFAS No. 128, "Earnings Per Share", which
establishes standards for computing and presenting earnings per share. SFAS
No. 128 is effective for fiscal years beginning after December 15, 1997. The
Company believes the adoption of this accounting standard will not have a
significant impact on the computation and presentation of the Company's
earnings per share.
In June 1997, the FASB issued SFAS No. 130 "Reporting Comprehensive Income"
which becomes effective for fiscal years beginning after December 15, 1997.
The adoption of SFAS No. 130 will not impact the Company's consolidated
financial statements or results of operations.
Also in June 1997, the FASB issued SFAS No. 131 "Disclosures About Segments of
an Enterprise and Related Information" which becomes effective for fiscal years
beginning after December 15, 1997. Since the company only participates in one
business segment, the design, engineering, manufacturing, and sale of
electronics to its customer, the adoption of SFAS No. 131 will not impact the
Company's consolidated financial statements, its results of operations or the
notes thereto.
2. ACQUISITIONS AND DIVESTITURES OF BUSINESSES
Acquisition
On May 15, 1996, the Company, through its newly formed, wholly-owned
subsidiary, LaBarge/STC, Inc., acquired the assets for cash of approximately
$2.7 million and assumed approximately $400,000 of liabilities of SOREP
Technology Corporation. The total acquisition cost exceeded the estimated fair
value of the net assets acquired by $400,000 and is recorded as goodwill. The
combination was accounted for by the purchase method. The results of
operations of LaBarge/STC, Inc. have been included in the accompanying
consolidated financial statements from the date of acquisition.
-23-
<PAGE> 24
Pro forma unaudited consolidated results of operations for fiscal 1996 and
1995, as if the acquisition had been completed at the beginning of each period,
follow:
(dollars in thousands except per share data)
<TABLE>
<CAPTION>
YEAR ENDED
----------------------------------------------
JUNE 30, July 2,
1996 1995
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
Net sales $ 81,699 $ 64,369
- ---------------------------------------------------------------------------------------------
Net earnings from operations 6,680 2,445
- ---------------------------------------------------------------------------------------------
Net earnings 4,941 1,210
- ---------------------------------------------------------------------------------------------
Net earnings per common share $ .32 $ .08
=============================================================================================
</TABLE>
The pro forma data has been adjusted, net of income taxes, to reflect interest
expense and the amortization of goodwill. Such pro forma adjustments are not
necessarily indicative of what the actual consolidated results of operations
might have been had the acquisition been effective at the beginning of each
year presented.
Joint Venture
On May 7, 1996, the Company, through its wholly-owned subsidiary LaBarge
Wireless, Inc., entered into a 50%/50% joint venture -- LaBarge Clayco Wireless
L.L.C. The results of operations and investment in this joint venture have
been reported using the equity method of accounting.
Divestiture
On December 2, 1994, the Company divested its operation in Flippin, Arkansas.
The business was sold for $10.5 million in cash and $2.9 million in assumed
liabilities. $1.6 million of the proceeds plus $3.4 million in 12%
Subordinated Notes, due in May 1998, were used to redeem $5 million of 15%
Subordinated Notes due in 1997. The balance of the proceeds were used to
reduce senior debt. Sales of the Flippin operation were $7.3 million in fiscal
1995 to the date of divestiture. The comparability of the results of
operations for fiscal years 1996 and 1995 are affected by this divestiture.
3. ACCOUNTS RECEIVABLE
Accounts receivable consist of the following:
(dollars in thousands)
<TABLE>
<CAPTION>
JUNE 29, June 30,
1997 1996
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Billed shipments, net of progress payments $ 13,421 $ 12,860
Less allowance for doubtful accounts 148 187
- --------------------------------------------------------------------------------------------
Trade receivables -- net 13,273 12,673
Other current receivables 111 182
- --------------------------------------------------------------------------------------------
$ 13,384 $ 12,855
============================================================================================
</TABLE>
-24-
<PAGE> 25
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.
Subsequent to June 29, 1997, the Company invested an additional $2 million in
TRANSMEDICA. Payment for this investment included an exchange of approximately
$1.2 million of current accounts receivable and $800,000 cash. The amount of
the receivable, $1.2 million, was reclassified to other assets, net as of June
29, 1997. With this investment the Company owns approximately 10% of
TRANSMEDICA Common Stock.
Other current receivables include funds on deposit in escrow and amounts due
from employees for travel advances and other miscellaneous sources.
4. INVENTORIES
Inventories consist of the following:
(dollars in thousands)
<TABLE>
<CAPTION>
JUNE 29, June 30,
1997 1996
- ------------------------------------------------------------------------------------
<S> <C> <C>
Raw materials $ 10,546 $ 10,987
Work in process 4,015 7,834
- ------------------------------------------------------------------------------------
14,561 18,821
Less progress payments 297 1,244
- ------------------------------------------------------------------------------------
$ 14,264 $ 17,577
====================================================================================
</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.
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is summarized as follows:
(dollars in thousands)
<TABLE>
<CAPTION>
Estimated
JUNE 29, June 30, useful life
1997 1996 in years
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Land $ 36 $ 36 -
Building and improvements 1,869 1,869 5-33
Leasehold improvements 1,571 1,566 2-10
Machinery and equipment 7,829 7,211 2-20
Furniture and fixtures 2,337 1,721 3-10
Construction in progress 34 3 -
- ---------------------------------------------------------------------------------------------------------
13,676 12,406
Less accumulated depreciation
and amortization 9,586 9,212
- ---------------------------------------------------------------------------------
$ 4,090 $ 3,194
=================================================================================
</TABLE>
Property, plant and equipment depreciation and amortization expenses were
$816,000, $695,000 and $739,000 for the fiscal years ended June 29, 1997, June
30, 1996 and July 2, 1995, respectively.
-25-
<PAGE> 26
6. 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)
<TABLE>
<CAPTION>
JUNE 29, June 30,
1997 1996
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
SHORT-TERM BORROWINGS:
Revolving credit agreement:
Balance at period end $ - $ 400
Interest rate at period end 6.88% 8.25%
Average amount of short-term borrowings
outstanding during period $ 1,484 $ 5,823
Average interest rate for period 7.47% 10.07%
Maximum short-term borrowings
at any month end $ 3,060 $ 9,800
=======================================================================================================
LONG-TERM DEBT:
Senior lender:
Revolving credit agreement $ 2,000 $ 4,500
Term loan 4,000 3,000
12% Subordinated Notes - 3,386
Industrial revenue bond due
semiannually through 2001, interest at 5% 110 134
Other 23 32
- -------------------------------------------------------------------------------------------------------
6,133 11,052
Less current maturities 1,032 633
- -------------------------------------------------------------------------------------------------------
Total long-term debt, less current maturities $ 5,101 $ 10,419
=======================================================================================================
</TABLE>
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 1997, 1996 and 1995 were $900,000, $1.4
million and $1.8 million, respectively.
In February 1997, the Company redeemed all $3.4 million of 12% Subordinated
Notes due in May 1998 for cash.
SENIOR LENDER
On March 20, 1997, the Company entered into an amended credit agreement with
NationsBank, N.A. (successor to Boatmen's National Bank), its senior lender.
The revised four-year unsecured lending agreement provides a $4.0 million term
loan payable in quarterly installments of $250,000 beginning June 30, 1997 and
a $17.0 million working capital revolver. The interest rate on both loans is
variable based on a ratio of senior debt to earnings and is available as either
a premium over LIBOR or a discount from prime rate at the Company's option.
Through various performance criterion, this rate can be lowered to 150 basis
points below prime, or at the Company's option, 75 basis points over LIBOR. At
June 29, 1997, the Company is at the lowest rates possible under the agreement,
currently which ranges from 6.53% to 7%. Under the terms of the agreement, the
Company pays a .20% fee on committed but unused funds.
-26-
<PAGE> 27
The aggregate maturities of long-term obligations are as follows:
<TABLE>
<CAPTION>
(dollars in thousands)
FISCAL YEAR
---------------------------------------------------------
<S> <C>
1998 . . . . . . . . . . . . . . . . . . . . . $1,032
1999 . . . . . . . . . . . . . . . . . . . . . 1,033
2000 . . . . . . . . . . . . . . . . . . . . . 1,035
2001 . . . . . . . . . . . . . . . . . . . . . 3,033
2002 . . . . . . . . . . . . . . . . . . . . . -
---------------------------------------------------------
</TABLE>
7. 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 2007. The real property leases require the Company to pay maintenance,
insurance and real estate taxes.
At June 29, 1997, the future minimum lease payments under operating leases with
initial noncancellable terms in excess of one year are as follows:
<TABLE>
<CAPTION>
(dollars in thousands)
FISCAL YEAR
---------------------------------------------------------
<S> <C>
1998 . . . . . . . . . . . . . . . . . . . $1,175
1999 . . . . . . . . . . . . . . . . . . . 964
2000 . . . . . . . . . . . . . . . . . . . 707
2001 . . . . . . . . . . . . . . . . . . . 670
2002 . . . . . . . . . . . . . . . . . . . . 702
---------------------------------------------------------
</TABLE>
Rental expense under operating leases is as follows:
(dollars in thousands)
<TABLE>
<CAPTION>
YEAR ENDED
-----------------------------------------------------
JUNE 29, June 30, July 2,
1997 1996 1995
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Initial term of more than one year $ 1,150 $ 860 $ 933
Short-term rentals 341 390 300
- ----------------------------------------------------------------------------------------------------------
$ 1,491 $ 1,250 $ 1,233
==========================================================================================================
</TABLE>
8. 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 1997,
1996 and 1995, Company matching contributions were $187,000, $141,000 and
$136,000, respectively.
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 June 29, 1997,
-27-
<PAGE> 28
June 30, 1996 and July 2, 1995.
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 were $63,000,
$45,000 and $37,000 for the guaranteed return; and ($20,000), ($8,000) and
$2,000 of (income) expense for the Company-owned insurance in 1997, 1996 and
1995, respectively. The cash surrender value of the company-owned life
insurance is in other assets and was $669,000 at June 29, 1997 compared to
$525,000 at June 30, 1996. The liability for the deferred compensation is in
accrued employee compensation and was $906,000 at June 29, 1997 versus $622,000
at June 30, 1996.
9. OTHER INCOME, NET
The components of other income, net are as follows:
(dollars in thousands)
<TABLE>
<CAPTION>
YEAR ENDED
---------------------------------------------
JUNE 29, June 30, July 2,
1997 1996 1995
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest income $ 96 $ 152 $ 131
Gain on disposal of
operating facility in Flippin, Arkansas - - 154
Other, net (1) 87 6
- ----------------------------------------------------------------------------------------------------------
$ 95 $ 239 $ 291
==========================================================================================================
</TABLE>
-28-
<PAGE> 29
10. INCOME TAXES
Income tax expense (benefit) attributable to earnings from continuing
operations consists of:
<TABLE>
<CAPTION>
(dollars in thousands)
CURRENT DEFERRED TOTAL
------- -------- -----
<S> <C> <C> <C>
YEAR ENDED JUNE 29, 1997:
U.S. FEDERAL $ 134 $ (1,176) $ (1,042)
STATE AND LOCAL 308 - 308
--- ------- -------
$ 442 $ (1,176) $ (734)
=== ======= =======
Year ended June 30, 1996:
U.S. Federal $ 72 $ - $ 72
State and Local 159 - 159
--- ------- -------
$ 231 $ - $ 231
=== ======= =======
Year ended July 2, 1995:
U.S. Federal $ 19 $ (321) $ (302)
State and Local 40 (57) (17)
--- ------- -------
$ 59 $ (378) $ (319)
=== ======= =======
</TABLE>
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>
(dollars in thousands)
JUNE 29, June 30, July 2,
1997 1996 1995
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Computed "expected" tax expense $ 2,380 $ 1,282 $ 341
Increase (reduction) in income taxes
resulting from:
Change in valuation allowance (3,616) (1,163) (672)
State and local tax 183 110 26
Other 319 2 (14)
- ------------------------------------------------------------------------------------------------------
$ (734) $ 231 $ (319)
======================================================================================================
</TABLE>
-29-
<PAGE> 30
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>
(dollars in thousands)
JUNE 29, June 30,
1997 1996
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
DEFERRED TAX ASSETS:
Inventories due to additional costs inventoried
for tax purposes pursuant to the Tax Reform
Act of 1986 and inventory reserves $ 468 $ 273
Other 1,004 680
Net operating loss carryforwards 2,748 5,665
Tax credit carryforwards 584 511
- ------------------------------------------------------------------------------------------------------------------
TOTAL GROSS DEFERRED TAX ASSETS 4,804 7,129
LESS VALUATION ALLOWANCE - 3,616
- ------------------------------------------------------------------------------------------------------------------
NET DEFERRED TAX ASSETS 4,804 3,513
- ------------------------------------------------------------------------------------------------------------------
DEFERRED TAX LIABILITIES:
Property, plant and equipment, principally
due to differences in depreciation and
capitalized interest (282) (182)
Software amortization (96) (81)
- ------------------------------------------------------------------------------------------------------------------
TOTAL GROSS DEFERRED TAX LIABILITIES (378) (263)
- ------------------------------------------------------------------------------------------------------------------
NET DEFERRED TAX ASSETS $ 4,426 $ 3,250
==================================================================================================================
</TABLE>
A valuation allowance is provided, if necessary, to reduce the deferred tax
assets to a level which, more likely than not, will be realized. The net
deferred assets reflect management's estimate of the tax benefits which will be
realized from future profitability which can be predicted with reasonable
certainty. The effect of management's estimates in fiscal 1997 resulted in
$1.2 million in incremental tax benefits for the year which increased net
earnings $1.2 million or $.08 per common share.
The net change in the total valuation allowance for the years ended June 29,
1997 and June 30, 1996 were decreases of $3.6 million and $1.2 million,
respectively.
At June 29, 1997, the Company has net operating loss carryforwards for federal
income tax purposes of $8.0 million which are available to offset future
federal taxable income through 2004. In addition, the Company has alternative
minimum tax credit carryforwards and investment tax credits of approximately
$584,000 which are available to reduce future regular federal income taxes.
Total cash payments for income taxes in all years presented were not
significant.
-30-
<PAGE> 31
11. FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company considers the carrying amounts of cash and cash equivalents,
receivables and accounts payable to approximate fair value because of the short
maturity of these financial instruments.
Amounts outstanding under the unsecured, senior lending agreement are also
considered to be carried on the financial statements at their estimated fair
values because they were entered into recently and accrue interest at rates
which generally fluctuate with interest rate trends.
12. INDUSTRY SEGMENT INFORMATION
The Company is engaged in the design, engineering, manufacturing and sale of
electronic systems and devices and complex cables and wiring harnesses
principally for the telecommunications, geophysical, medical, aerospace and
defense markets.
Customers accounting for more than 10% of net sales for the years ended June
29, 1997, June 30, 1996 and July 2, 1995 follow:
<TABLE>
<CAPTION>
Customer 1997 1996 1995
--------------------------------------------------------------------------------
<S> <C> <C> <C>
1 . . . . . . . . . . . . . . . . . . . . 24% 26% 34%
2 . . . . . . . . . . . . . . . . . . . . 14 4 4
3 . . . . . . . . . . . . . . . . . . . 11 25 1
--------------------------------------------------------------------------------
</TABLE>
Sales for export did not exceed 10% of sales in any fiscal year.
13. LITIGATION AND CONTINGENCIES
The Company is involved in litigation arising in the normal course of business.
In the opinion of management, the ultimate resolution of the litigation will
not have a material adverse effect on the operating results, financial position
or cash flows of the Company.
-31-
<PAGE> 32
14. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data is set forth below:
(dollars in thousands except per share data)
<TABLE>
<CAPTION>
1997 FIRST SECOND THIRD FOURTH
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 21,923 $ 24,102 $ 25,230 $ 25,411
Gross profit 4,756 5,016 4,774 4,678
Earnings from operations
before income taxes 1,496 1,653 1,774 2,078
Income tax expense (benefit) 96 106 98 (1,034)
Net earnings $ 1,400 $ 1,547 $ 1,676 $ 3,112
Net earnings per common share $ .09 $ .10 $ .11 $ .20
==================================================================================================================================
1996 First Second Third Fourth
- ----------------------------------------------------------------------------------------------------------------------------------
Net sales $ 13,361 $ 14,910 $ 21,424 $ 25,365
Gross profit 2,039 2,427 4,041 5,450
Earnings from operations
before income taxes 92 441 1,303 1,935
Income tax expense 5 27 86 113
Net earnings $ 87 $ 414 $ 1,217 $ 1,822
Net earnings per common share $ .01 $ .03 $ .08 $ .12
==================================================================================================================================
</TABLE>
During fiscal 1997, management revised its estimate as to the future realizable
value of its net tax operating loss carry forwards. This revaluation resulted
in $1.2 million of incremental tax benefits in the fourth quarter and for the
year which increased net earnings by the same amount and earnings per share by
$.08.
Due to the acquisition of SOREP Technology Corp. in the fourth quarter of
fiscal 1996, the comparability of quarterly data is impacted.
The significant increase in sales and profits in the third and fourth quarters
of 1996 is largely due to sales to the telecommunication market.
15. STOCK OPTION PLANS
The Company has three incentive stock option plans for key management
personnel. Under the 1987 Plan, the Company was authorized to grant options
for up to 200,000 shares of common stock. The 1993 Plan authorized 300,000
shares to be granted. The 1995 Plan authorized 400,000 shares to be granted.
Under all plans, the term of the granted options are ten years and the vesting
period is two years.
-32-
<PAGE> 33
Information regarding these option plans for 1997, 1996 and 1995 is:
<TABLE>
<CAPTION>
WEIGHTED-
WEIGHTED- NUMBER OF WEIGHTED- AVERAGE
NUMBER AVERAGE SHARES AVERAGE FAIR VALUE
OF SHARES EXERCISE PRICE EXERCISABLE EXERCISE PRICE GRANTED OPTIONS
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OUTSTANDING AT JULY 3, 1994 262,000 $ .99 97,000 $ .68
Granted 115,000 1.39
Exercised (58,000) .93
- ------------------------------------------------------------------------------------------------------------------------------------
OUTSTANDING AT JULY 2, 1995 319,000 $ 1.19 107,000 $ 1.02
Granted 50,000 4.18 $ 1.48
Exercised (104,000) 1.02
- ------------------------------------------------------------------------------------------------------------------------------------
OUTSTANDING AT JUNE 30, 1996 265,000 $ 1.82 187,000 $ 1.13
GRANTED 91,775 6.65 $ 3.08
EXERCISED (60,000) 1.29
- ------------------------------------------------------------------------------------------------------------------------------------
OUTSTANDING AT JUNE 29, 1997 296,775 $ 3.42 155,000 $ 1.26
====================================================================================================================================
</TABLE>
The following table summarizes information about stock options outstanding:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
- -----------------------------------------------------------------------------------------------------------------------------------
WEIGHTED-
AVERAGE WEIGHTED- WEIGHTED-
NUMBER REMAINING AVERAGE NUMBER AVERAGE
RANGE OF OUTSTANDING CONTRACTUAL EXERCISE EXERCISABLE EXERCISE
EXERCISE PRICES AT 6/29/97 LIFE (YEARS) PRICE AT 6/29/97 PRICE
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ .66 - 1.24 80,000 1.5 $ 1.13 80,000 $ 1.13
1.31 - 1.44 75,000 4.5 1.40 75,000 1.40
3.98 - 4.38 50,000 5.5 4.18 - -
5.97 - 7.24 91,775 8.0 6.65 - -
- -----------------------------------------------------------------------------------------------------------------------------------
$ .66 - 7.24 296,775 155,000
===================================================================================================================================
</TABLE>
All stock options are granted at fair market value of the common stock at the
grant date.
The company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (SFAS 123). Accordingly, no compensation cost has been recognized
for the stock option plans.
Had compensation cost for the Company's three stock option plans been
determined based on the fair value at the grant date consistent with the
provision of SFAS 123, the Company's pro forma net income and earnings per
share for 1997 would have been $7.6 million and $.49 per share, respectively,
and $3.4 million and $.22 per share in fiscal 1996, respectively. Because the
SFAS 123 method of accounting has not been applied to options granted prior to
July 3, 1995, the resulting pro forma compensation cost may not be
representative of that to be expected in future years.
The fair market value of stock options granted is estimated on the date of
grant using the Black-Scholes option pricing model with the following weighted
average assumptions: risk-free interest rate of 6.5%; expected dividend yield
of 0%; expected life of three years and expected volatility of 60%.
-33-
<PAGE> 34
16. WARRANTS
On May 28, 1996, warrants for 300,000 shares of common stock were exercised at
$3 per share by the Company's former lender. These warrants were issued in
1992 as part of a refinancing. The Company filed a Registration Statement on
Form S-3 with the Securities and Exchange Commission to register these shares
for sale by the holder thereof.
-34-
<PAGE> 35
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
Statements contained herein which are not historical facts are forward looking
statements that 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; further cutbacks in defense
spending by the U.S. Government; lack of acceptance by the market of the Laser
Lancet(R) developed for TRANSMEDICA; unexpected increases in the cost of raw
materials, labor and other resources necessary to operate the Company's
business; and the availability, amount, type and cost of financing for the
Company and any changes to that financing.
OVERVIEW
LaBarge, Inc. designs, engineers and manufactures sophisticated electronic
assemblies and complex interconnect systems on a custom basis for its
customers. As such, the Company relies heavily on establishing new and
maintaining existing partnering arrangements with its customers. The customers
are primarily in the telecommunication (wireless), geophysical, commercial
aerospace, defense and medical markets.
SIGNIFICANT EVENTS
The Company has designed and developed the Laser Lancet(R), a small medical
laser, for TRANSMEDICA, under a technology licensing agreement from
TRANSMEDICA. TRANSMEDICA received FDA clearance in April 1997 to market the
device for the purpose of perforating the skin to collect capillary blood for
clinical testing. The Company will manufacture the Laser Lancet(R) for
distribution by TRANSMEDICA. The method for such distribution is under review
by TRANSMEDICA; and, until such plan is finalized, the Company cannot estimate
the impact on future sales. To date, limited shipments of the product have
been made.
In March 1997, the Company entered into a revised and amended unsecured lending
agreement with NationsBank, N.A. replacing its former agreement with
NationsBank, N.A. established in June 1996. The new agreement provided for a
$4 million term loan requiring quarterly amortization of $250,000 beginning
June 30, 1997 and a $17 million revolving working capital facility.
In March 1997, the Company announced it had received a two-year contract valued
at $12.4 million to continue production of electronic assemblies for the U.S.
Navy's AEGIS Weapons System from Lockheed Martin - Government Electronics
Systems. This continues a program which the Company started in 1990 and for
which it has received three awards for excellence.
Other significant orders announced during the year were: $3.7 million from
USBI for cable assemblies for the Space Shuttle; $2.9 million from Sensis
Corporation to produce printed circuit board assemblies for a new U.S. Marine
Corps Radar System; and $1.4 million from Lockheed Martin to produce printed
circuit board assemblies for use in a U.S. Air Force Radar System.
During the year, the Company continued to expand its commercial customer base.
The
-35-
<PAGE> 36
Company is focusing its resources primarily on users of electronic equipment in
the telecommunications, geophysical, medical and aerospace markets. For the
year, sales to commercial customers totaled approximately 52% of the Company's
total sales versus 48% to defense customers. This compares with commercial
sales of 54% in fiscal 1996 and 42% in fiscal 1995.
Backlog at June 29, 1997, was approximately $61.3 million of which 60% was for
defense products and 40% was for commercial products. Of the backlog, $7.2
million is not due to ship for more than one year. Management believes this
backlog provides a solid base for future years.
In fiscal 1996, the Company, through its wholly-owned subsidiary LaBarge/STC,
Inc., acquired SOREP Technology Corporation in Houston, Texas. LaBarge/STC,
Inc. manufactures electronic assemblies primarily used in the oil and gas
industry. This acquisition furthered the Company's expansion in the
geophysical market.
Also in fiscal 1996, the Company announced the formation of LaBarge Clayco
Wireless L.L.C., which is a 50%/50% joint venture of LaBarge Wireless, Inc., a
wholly-owned subsidiary of LaBarge, Inc. and Clayco Construction Company.
LaBarge Clayco Wireless provides engineering, project management, construction,
installation and testing services for the wireless telecommunications industry.
This joint venture complements the Company's activities in the design and
manufacture of sophisticated cable assemblies and electronic products used in
wireless telecommunications.
On December 2, 1994 (fiscal 1995), the Company sold its manufacturing operation
in Flippin, Arkansas, for $10.5 million in cash and $2.9 million in assumed
liabilities. The proceeds were used to reduce debt. Sales of $7.3 million
from the Flippin operation were included in Company sales in fiscal 1995.
Flippin sales in fiscal 1994 were $19.0 million. This affects the
comparability of certain values year to year.
RESULTS OF OPERATIONS 1997 - 1996 - 1995
SALES
Net sales for fiscal year 1997 were $96.7 million, up 29% from the $75.1
million in fiscal 1996 and compared with $61.6 million in fiscal 1995.
The sales increase in 1997 can be attributed primarily to growth in the
geophysical and aerospace markets, and to a lesser extent, the defense market.
The increase in geophysical is primarily attributable to the acquisition of
SOREP Technology in late fiscal 1996. Sales to the telecommunications market
were lower than expected due to delays in the build-out of the PCS
infrastructure and due to design changes for products to one customer (Nortel).
This impacted the second half of fiscal 1997 and will continue to do so in the
first and second quarters of 1998 as the Company works to replace this decrease
in business. Management expects to see continued growth in fiscal 1998.
Sales to the defense industry were approximately $46 million in fiscal 1997,
$37 million in 1996 and $35 million in 1995. Sales to 10 customers accounted
for 75.9% of revenues in fiscal 1997. Sales to units of Lockheed Martin
accounted for 23.9% of revenue; to units of Schlumberger -- 13.8% and to Nortel
- -- 11.4%.
-36-
<PAGE> 37
GROSS MARGIN
Gross margin as a percentage of net sales increased in 1997 due to the higher
volume of sales in relation to fixed costs. Gross margin in 1997 was 19.9%
compared with 18.6% in 1996 and 16.6% in 1995.
SELLING AND ADMINISTRATIVE EXPENSES
Selling and administrative expenses were $11.4 million in 1997 versus $9.0
million in 1996 and $7.8 million in 1995. This increase in cost reflects
increased marketing efforts, improvements in systems and new employment to
support future anticipated growth.
OTHER
Interest expense in 1997 is down compared with prior years due to the lower
debt level throughout the period. In fiscal 1997 interest expense was $900,000
million versus $1.4 million in fiscal 1996 and $1.7 million in 1995. Interest
costs are expected to decrease again in fiscal 1998, barring any significant
rate increases during the year.
In the category shown as "Equity in gain (loss) of joint venture," $4,000 gain
in fiscal 1997 and a $93,000 loss in fiscal 1996, represents the Company's 50%
portion of the gain (loss) sustained by LaBarge Clayco Wireless L.L.C. during
the respective periods. The results of operation of the joint venture are
being reported using the equity method of accounting.
Other income, net, includes interest income from notes receivable and
miscellaneous short-term and overnight investments. In addition, other items of
income or expense not classified elsewhere, or minor in amount, are included in
this heading. For fiscal 1997, the amount was $95,000 compared with $239,000
in 1996 and $291,000 in 1995.
PRETAX EARNINGS
Pretax earnings in fiscal 1997 were $7.0 million, up 86% compared with $3.8
million in fiscal 1996 and compared with $1.0 million in fiscal 1995.
TAX BENEFITS
In accordance with SFAS 109, management revalued its net deferred tax assets in
fiscal 1997 to reflect its expectation that it is more likely than not the tax
benefits will be realized. This revaluation resulted in $1.2 million in
incremental tax benefits in fiscal 1997 which increased net earnings by the
same amount or added $.08 to net earnings per share. Deferred tax assets were
$4.4 million at June 29, 1997.
NET EARNINGS
Net earnings for 1997 were $7.7 million compared with $3.5 million in 1996 and
$1.3 million in 1995. Earnings per common share were $.50 in 1997, $.23 in
1996 and $.09 in 1995.
In the future, all earnings will be reported on a fully taxed basis which will
cause earnings and earnings per share to be reported approximately 32% lower
than in previous years. Had earnings been fully taxed in fiscal 1997, earnings
per share would have been $.28 versus $.15 in fiscal 1996 and $.05 in fiscal
1995 on the same fully taxed basis.
FINANCIAL CONDITION AND LIQUIDITY
Prior to fiscal 1997, the Company took important steps to improve its financial
condition and position itself to grow in new commercial markets.
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 $5.0 million of 15%
-37-
<PAGE> 38
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 was significantly strengthened in 1995.
During 1996, warrants to purchase 300,000 shares of common stock of the Company
were exercised at $3 per share. The warrants were originally issued to the
Company's then senior lender as part of a 1992 refinancing. This exercise
provided $900,000 in additional equity to the Company.
In 1997, the Company entered into a revised and amended four-year loan
agreement with NationsBank, N.A. which provides sufficient working capital to
finance the anticipated internal growth of the Company over the next three
years. The agreement provides for a $4.0 million term loan and a $17.0 million
revolving credit facility. Both loans are unsecured and expire February 1,
2001. The entire facility bears interest at the prevailing prime rate or
below. On June 29, 1997, the Company had $15.0 million in its revolving credit
line available.
In February 1997, the Company redeemed all $3.4 million of 12% Subordinated
Notes due in 1998, which further reduced interest costs.
The aggregate maturities of all debt over the next three years, excluding the
revolving credit agreement, are $1.1 million in 1998, $1.1 million in 1999 and
$1.0 million in 2000. The Company expects to meet these obligations with cash
generated from operations and available funds under its revolving credit
agreement.
Stockholders' equity increased to $25.5 million at June 29, 1997 from $17.8
million at June 30, 1996 and $13.3 million at July 2, 1995. Debt was $6.1
million at June 29, 1997, $11.5 million at June 30, 1996 and $10.6 million at
July 2, 1995.
During the fiscal year 1997, the Company generated $8.2 million in cash from
operating activities which it used to redeem $3.4 million in 12% Subordinated
Notes, $1.9 million in bank borrowing and $1.7 million to purchase additional
equipment for operating the business.
As of June 29, 1997, accounts receivable were up $500,000 compared with the
prior year end. Inventories were down $3.3 million from the prior year end due
to the change in product mix. Trade accounts payable were down $2.0 million
due to continued efforts to pay all vendors within terms.
Subsequent to year end, the Company invested $2.0 million in TRANSMEDICA. The
Company converted $1.2 million of other assets, net plus $800,000 in cash as
payment for this investment.
At June 29, 1997, the Company's capital structure consisted of $25.5 million of
common stockholders' equity and $6.1 million of debt.
-38-
<PAGE> 39
Schedule II
LABARGE, INC.
VALUATION AND QUALIFYING ACCOUNTS
(DOLLARS IN THOUSANDS)
YEARS ENDED JUNE 29, 1997
JUNE 30, 1996 AND JULY 2, 1995
Allowance for Doubtful Accounts
This account represents amounts which may become uncollectible in future
periods.
<TABLE>
<CAPTION>
Balance Additions Balance
Beginning Charged to End of
Year of Period Expense Deductions Period
---------- ---------- ----------- ---------- ---------
<S> <C> <C> <C> <C>
1995 $ 140 $ 28 $ - $168
1996 168 59 40 187
1997 187 - 39 148
</TABLE>
Inventory Reserve
This account is used to write-off inventory which becomes valueless in future
periods, but as of the balance sheet date, is included at cost.
<TABLE>
<CAPTION>
Balance Additions Deductions Balance
Beginning Charged to from Reserve End of
Year of Period Expense for Write-offs Period
--------- ----------- ----------- -------------- ----------
<S> <C> <C> <C> <C>
1995 $517 $ 369 $ 786 $100
1996 100 330 233 197
1997 197 750 504 443
</TABLE>
-39-
<PAGE> 40
Deferred Tax Asset Valuation Allowance
This account is used to reduce the value of the Company's Deferred Tax Asset as
a result of Net Loss Carryforwards from prior periods.
<TABLE>
<CAPTION>
Increases Decreases
Balance Due to Lower Due to Earnings Balance
Beginning Expected & Higher Expected End of
Year of Period Value of Asset Value of Asset Period
--------- ----------- -------------- ------------------- ----------
<S> <C> <C> <C> <C>
1995 $5,451 $ - $ 672 $ 4,779
1996 4,779 - 1,163 3,616
1997 3,616 - 3,616 -
</TABLE>
-40-
<PAGE> 1
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
LaBarge, Inc.:
We consent to incorporation by reference in the Registration Statement No.
333-21220 on Form S-8 of LaBarge, Inc. of our report dated August 8, 1997,
relating to the consolidated balance sheets of LaBarge, Inc. and subsidiaries
as of June 29, 1997 and June 30, 1996, and the related consolidated statements
of operations, stockholders' equity and cash flows, and related schedule for
each of the years in the three-year period ended June 29, 1997, which report
appears in the June 29, 1997 Annual Report on Form 10-K of LaBarge, Inc.
s/KPMG Peat Marwick LLP/s
St. Louis, Missouri
September 2, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-29-1997
<PERIOD-END> JUN-29-1997
<CASH> 1,467
<SECURITIES> 0
<RECEIVABLES> 13,384
<ALLOWANCES> 148
<INVENTORY> 14,264
<CURRENT-ASSETS> 34,276
<PP&E> 4,090
<DEPRECIATION> 9,586
<TOTAL-ASSETS> 43,459
<CURRENT-LIABILITIES> 12,815
<BONDS> 0
0
0
<COMMON> 156
<OTHER-SE> 25,387
<TOTAL-LIABILITY-AND-EQUITY> 43,459
<SALES> 96,666
<TOTAL-REVENUES> 96,666
<CGS> 77,442
<TOTAL-COSTS> 88,822
<OTHER-EXPENSES> (91)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 942
<INCOME-PRETAX> 7,001
<INCOME-TAX> (734)
<INCOME-CONTINUING> 7,735
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,735
<EPS-PRIMARY> .50
<EPS-DILUTED> .50
</TABLE>
