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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year Commission file
ended June 28, 1998 number 1-5761
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LABARGE, INC.
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(exact name of registrants specified in its charter)
Delaware 73-0574586
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9900 A Clayton Road, St. Louis, Missouri 63124
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(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 on which
Title of Class: registered:
Common Stock, $.01 par value American Stock Exchange, Inc.
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Securities registered pursuant to Section 12(g) of the Act:
None
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(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
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 Regulation S-K is not contained herein, and will not be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. Yes X No _
As of August 28, 1998, 15,540,278 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 $56 million,
based upon the closing price of the common stock on the American Stock Exchange,
Inc. on August 28, 1998.
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.
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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 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 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; the availability,
amount, type and cost of financing for the Company and any changes to that
financing; and unexpected year 2000 issues.
Item 1. Business
General Development of Business
LaBarge, Inc. ("LaBarge" or the "Company"), a Delaware corporation, is engaged
in the design, engineering and manufacture of sophisticated electronic systems
and devices and complex interconnect systems.
The Company is focused on commercial and defense markets using the technologies
it has historically developed for the defense and aerospace electronics markets.
The Company focuses it marketing toward companies that require significant
engineering effort to develop electronic products capable of surviving harsh
environmental conditions, including temperature, shock and vibration, while
maintaining high performance reliability. The Company's focus is on customers in
the following markets: defense, geophysical, aerospace, telecommunications and
medical.
In fiscal 1996, the Company acquired SOREP Technology Corporation in Houston,
Texas which was renamed LaBarge/STC, Inc. ("LaBarge Houston") and continues to
operate at its Houston location. LaBarge Houston 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 now a 51%/49% 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.
The Company has designed and developed the Laser Lancet, a portable
medical laser, for TRANSMEDICA International, Inc. ("TRANSMEDICA") under a
licensing agreement from TRANSMEDICA. TRANSMEDICA retains responsibility for
sales and marketing of the Laser Lancet. In July 1998, TRANSMEDICA received
broad clearance from the U.S. Food & Drug Administration ("FDA") to market and
manufacture the device for the purpose of perforating the skin to collect
capillary blood for clinical testing. It is too early to predict if or to what
extent the Laser Lancet may contribute to LaBarge's revenues and earnings.
In the first quarter of fiscal 1998, the Company increased its investment in
TRANSMEDICA by investing $2.0 million through the exchange of approximately $1.2
million of receivables and payment of $800,000 cash. The Company has now
invested $2.3 million and owns approximately 9.5% of TRANSMEDICA's common stock.
The Company accounts for this investment at cost.
Late in fiscal 1998, the Company reached new agreements with TRANSMEDICA
concerning its exclusive manufacturing rights, payment terms for open
receivables; and, payments for future units
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produced.
With the agreements, LaBarge's manufacturing rights were expanded to include all
of North America, South America and Europe. Secondly, the Company agreed to
accept a one year, interest-bearing note, secured by all of the assets of
TRANSMEDICA, for the $900,000 then owed and up to an additional $1.1 million to
finance new production by LaBarge. Further, the Company received warrants to
purchase 4% of TRANSMEDICA's common stock for $25 per share.
During the second quarter of fiscal 1998, the Company made a $500,000 investment
equating to an ownership position of approximately 10% in Open Cellular Systems,
Inc. of St. Louis. Open Cellular Systems uses shared access communication
networks to provide wireless communication solutions to the general industrial
and utility markets. The capabilities of Open Cellular complement LaBarge's and
management believes this alliance may provide future opportunities for LaBarge.
The Company accounts for this investment at cost.
In July 1998, LaBarge and Global Research Systems, Inc. of Rome, Georgia
("Global") formed NotiCom L.L.C. ("NotiCom"), a Georgia limited liability
company, to develop and market electronic systems providing advance notice of
the impending arrival of passenger motor vehicles. The first product marketed
by NotiCom will be BusCall(TM). BusCall notifies parents by phone, electronic
mail or pager when a school bus is approaching their children's bus stop. It
will be marketed to wireless communications providers and local exchange
carriers which can offer BusCall as an add-on service, such as call waiting and
call forwarding. LaBarge is the exclusive manufacturer of all electronic
hardware sold by NotiCom in the United States and Canada and will recognize
revenues as it sells products to NotiCom. Each of LaBarge and Global has a 50%
interest in NotiCom, except that after an aggregate of $1.0 million has been
distributed by NotiCom, Global will be entitled to 75% of subsequent
distributions until it has received preferred distributions aggregating $1.3
million. LaBarge has invested $1.8 million in NotiCom and has committed to
contribute $500,000 of development services. In addition, LaBarge has paid
Global $1.7 million for a 50% interest in the intellectual property and
licensed the technology to NotiCom. The Company has committed to pay Global up
to an aggregate of $23.3 million of additional purchase price for its 50%
interest in the technology if NotiCom meets or exceeds cumulative earnings
before income tax ("EBT") targets for the period from July 1, 1998 through
December 1, 1999 and through each six-month period thereafter through December
31, 2001. In order to generate the maximum purchase price, NotiCom must
generate $211.8 million of EBT between July 1, 1998 and December 31, 2001.
Because NotiCom is a start-up venture, it is too early to predict if or to what
extent NotiCom may contribute to the Company's revenues or earnings; therefore,
the Company has not recorded the contingent purchase price.
In March 1997, the Company entered into an unsecured lending agreement with
NationsBank, N.A. The agreement provided a $4.0 million term loan requiring
quarterly amortization of $250,000, which began June 30, 1997 and a $17.0
million revolving working capital facility. Interest on the 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 current planned business growth.
In fiscal 1998, the Company purchased its headquarters building in St. Louis,
Missouri and financed the purchase with a $6.2 million mortgage loan.
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Financial Information About Industry Segments
The Company conducts its operations through one industry segment, electronics
design and manufacturing, and markets its products to the defense, geophysical,
aerospace, telecommunications and medical markets. In each market, the Company
designs, engineers and manufactures sophisticated electronic systems and devices
and complex interconnect assemblies, capable of surviving harsh environmental
conditions, including temperature, shock and vibration, while maintaining
high-performance reliability.
Narrative Description of Business
GENERAL. The Company designs, engineers, manufactures, tests and sells
sophisticated electronic systems and devices and complex interconnect
assemblies. Principal markets for the Company's products are: defense,
geophysical, aerospace, telecommunications (primarily the wireless segment),
medical equipment and various other commercial/industrial markets. The Company's
manufacturing facilities are located in Arkansas, Missouri, Oklahoma and Texas.
The Company employs approximately 850 people.
The Company's backlog at June 28, 1998, was approximately $57.5 million, as
compared to $61.3 million at June 29, 1997. The backlog at June 28, 1998,
consisted of: $37.8 million of orders for various defense products compared to
$40.2 million at June 29, 1997 and $19.7 million of orders for commercial
products compared to $21.0 million at June 29, 1997. 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 28, 1998 is
pursuant to contracts containing cancellation and termination provisions.
Approximately $19.9 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 $9.2 million at year end 1997.
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 nine additional sales personnel and
approximately eleven design and application engineers. In addition, there are
forty-four engineers and forty-one technicians who provide direct customer
support as needed. 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
Shipboard Weapon System, Abrams M-1 Tank and the Bradley Fighting Vehicle, and
are also utilized in various naval shipboard command, control and communications
systems. Approximately 51% of total Company sales in fiscal 1998 and 48% in
fiscal 1997 were defense related.
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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.
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. LaBarge also designs and produces hybrid circuits
used in the same applications. Approximately 26% of fiscal 1998 sales were to
the geophysical industry compared to 21% in fiscal 1997. This increase in volume
is due to continuing penetration of existing customers, as well as development
of new business within the market.
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
10% of the Company's fiscal 1998 sales were for aerospace applications compared
to 8% in fiscal 1997.
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.
LaBarge Clayco provides cell-site engineering, project management, construction,
equipment installation and testing services. The operating results of LaBarge
Clayco were accounted for on the equity method in fiscal 1997. In the second
quarter of fiscal 1998, LaBarge increased its interest in LaBarge Clayco to 51%
and began consolidating the total operations of this joint venture.
NotiCom may add significantly to this business unit's revenues and profits in
the future. It is too early to predict if or to what extent this joint venture
may contribute to the Company's revenue and earnings.
Approximately 7% of fiscal 1998 sales were attributable to the
telecommunications market versus 16% in fiscal 1997. This lower percentage
results from a decrease in sales of approximately $10.0 million in fiscal 1998
versus fiscal 1997 to one customer, Northern Telecom.
MEDICAL MARKET. The Company designed and developed the Laser Lancet, a small
medical laser, for TRANSMEDICA under a technology licensing agreement with
TRANSMEDICA. TRANSMEDICA received, in July 1998, broad 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 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. One such application is laser-assisted transdermal
drug delivery.
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 6% of the Company's total sales in fiscal 1998 and 4% in fiscal
1997.
SALES AND DISTRIBUTION. The Company has thirteen employees whose primary
responsibility is sales. Additionally, the Company's engineering and plant
management employees are very involved in sales activities. The Company's fiscal
1998 sales were made primarily to existing or prior customers, and are based
upon established relationships. With few exceptions, the Company's sales are
made
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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
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 1998, approximately 51% of the
company's sales were to customers in the defense industry and 49% were to
customers in commercial markets including aerospace (10%), geophysical (26%) and
other (13%). Two customers, in fiscal 1998, each with multiple operating units,
accounted for in excess of 44% of total sales for the year: Lockheed Martin in
the aerospace/defense market at 27% of total sales; Schlumberger in the
geophysical market at 17% of total sales; no other customer accounted for more
than 5% of sales. Sales to the largest 10 customers represented approximately
67% of the Company's total sales revenue. By comparison, in fiscal 1997, sales
to the largest 10 customers represented 76% of the Company's total sales
revenue; sales to Lockheed Martin accounted for approximately 24%; Schlumberger,
14%; Nortel a telecommunications customer, approximately 11%; 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
each of fiscal 1998 and 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 fiscal 1996, the Company purchased the assets of LaBarge Houston for
approximately $2.7 million. The Company also invested approximately $250,000 in
LaBarge Clayco.
In fiscal 1997, the Company entered into an unsecured lending agreement with
NationsBank, N.A. The agreement provided 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 both loans is variable with
prime or LIBOR. At June 28, 1998 the rate was 6.7%.
In fiscal 1998, the Company purchased its headquarters building in St. Louis,
Missouri and financed the purchase with a $6.2 million mortgage loan.
The ratio of debt to equity as of June 28, 1998 was .55 to 1 compared with .24
to 1 at June 29, 1997.
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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) (SQUARE FEET) OF LEASE
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<S> <C> <C> <C> <C>
Berryville, AR Manufacturing & Offices
7 33,000 Owned
Houston, TX Manufacturing & Offices
2 35,500 2002
Huntsville, AR Manufacturing & Offices
6 45,000 2000
Joplin, MO Manufacturing & Offices
5 50,400 Owned
Joplin, MO Manufacturing 33,000 1999
St. Louis, MO Offices 8 65,176 Owned
Tulsa, OK Manufacturing & Offices
3 62,599 2002
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</TABLE>
Item 3. Legal Proceedings
The Company is a party to limited 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 28, 1998.
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 15 filed herewith.
Item 6. Selected Financial Data
Reference is made to the information contained in the section entitled "Selected
Financial Data" on page 15 filed herewith.
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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 35 through 41 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 14 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 and is incorporated by reference.
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 and is incorporated by reference.
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 and is incorporated by reference.
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 and is incorporated by reference.
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 1998.
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c. Exhibits
d. Consolidated Financial Statement Schedule.
See Index to Consolidated Financial Statements and Schedule
which follows.
e. Exhibits.
<TABLE>
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Exhibit
Number Description Page
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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.
3.1(a) Certificate of Amendment to Restated Certificate of
Incorporation, dated November 7, 1997, previously filed as
Exhibit 3.1(a) to the Company's Quarterly Report on Form 10-Q for
the quarter ended December 28, 1997 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 the quarter 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 with the Company's Registration Statement on Form S-3
on July 23, 1996 and is incorporated herein by reference.
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 with
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 January 3, 1995.
Previously filed with the Securities and Exchange Commission with
the Company's Registration Statement on Form S-3 on July 23, 1996
and is incorporated herein by reference.
10.1(d) Fifth 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 with the Company's Registration Statement on Form S-3
on July 23, 1996 and is incorporated herein by reference.
</TABLE>
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<TABLE>
<CAPTION>
<S> <C> <C>
10.1(e) Sixth Amendment to the First Amendment and Restatement of the
LaBarge, Inc. Employees Savings Plan executed on January 9, 1998.
Previously filed as Exhibit II, respectively, to the LaBarge,
Inc. Employees Savings Plan's Annual Report on Form 11-K for the
year ended December 31, 1997 and incorporated herein by
reference.
10.2 LaBarge, Inc. 1987 Incentive Stock Option Plan. Previously filed
with the Securities and Exchange Commission with 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 with 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 with 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 with 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 with the
Company's Registration Statement on Form S-3 on July 23, 1996 and
is incorporated herein by reference.
10.5 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 with
the Company's Registration Statement on Form S-3 on July 23, 1996
and is incorporated herein by reference.
10.6 LaBarge, Inc. 1995 Incentive Stock Option Plan. Previously filed
with the Securities and Exchange Commission with the Company's
Annual Report on Form 10-K on September 19, 1996 and is
incorporated herein by reference.
10.7 Operating Agreement for LaBarge Clayco Wireless L.L.C. Previously
filed with the Securities and Exchange Commission with the
Company's Annual Report on Form 10-K on September 19, 1996 and is
incorporated herein by reference.
10.8 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 with
the Company's Quarterly Report on Form 10-Q on May 14, 1997 and
is incorporated herein by reference.
23(a) Independent Auditors' Consent. 43
27 Article 5 Financial Data Schedule. 44
</TABLE>
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<TABLE>
<CAPTION>
Schedule
Number Description Page
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<S> <C> <C>
II Valuation and Qualifying Accounts. 42
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.
</TABLE>
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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, 1998
--------------------------
LaBarge, Inc.
By s/William J. Maender/s
-----------------------------------
William J. Maender
Vice President - Finance
(Chief Financial and
Accounting Officer)
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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 hereto.
Pursuant to the requirements of the Securities Act of 1934, this Report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
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<S> <C> <C>
Pierre L. LaBarge, Jr./s/ Chairman Emeritus and Director 8/11/98
---------------------------------------- --------------
Pierre L. LaBarge, Jr.
Craig E. LaBarge/s/ President (Chief Executive Officer) 8/11/98
---------------------------------------- --------------
Craig E. LaBarge and Director
William J. Maender/s/ Vice President-Finance (Chief 8/11/98
---------------------------------------- --------------
William J. Maender Financial Officer), Secretary and
Treasurer
Gus G. Casten/s/ Director 8/11/98
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Gus G. Casten
Robert H. Chapman/s/ Director 8/11/98
---------------------------------------- --------------
Robert H. Chapman
Richard P. Conerly/s/ Director 8/11/98
---------------------------------------- --------------
Richard P. Conerly
R. Hal Dean/s/ Director 8/11/98
---------------------------------------- --------------
R. Hal Dean
J. C. Kuhn, Jr./s/ Director 8/11/98
---------------------------------------- --------------
J. C. Kuhn, Jr.
Edward J. Nestor, Jr./s/ Director 8/11/98
---------------------------------------- --------------
Edward J. Nestor, Jr.
James P. Shanahan, Jr./s/ Director 8/11/98
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James P. Shanahan, Jr.
Jack E. Thomas, Jr./s/ Director 8/11/98
---------------------------------------- --------------
Jack E. Thomas, Jr.
</TABLE>
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LABARGE, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND SCHEDULES
PAGE
----
Consolidated Financial Statements
Independent Auditors' Report 16
Consolidated Statements of Operations, 17
Years Ended June 28, 1998,
June 29, 1997 and June 30, 1996
Consolidated Balance Sheets, June 28, 1998 18
and June 29, 1997
Consolidated Statements of Cash Flows, 19
Years Ended June 28, 1998,
June 29, 1997 and June 30, 1996
Consolidated Statements of Stockholders' Equity, 20
Years Ended June 28, 1998,
June 29, 1997 and June 30, 1996
Notes to Consolidated Financial Statements, 21-34
Years Ended June 28, 1998,
June 29, 1997 and June 30, 1996
Management's Discussion and Analysis of 35-41
Financial Condition and
Results of Operations
Form
SCHEDULE 10-K
-------- ----
II - Valuation and Qualifying Accounts 42
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 28, June 29, June 30, July 2, July 3,
1998 1997 1996 1995 1994
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $ 99,292 $ 96,666 $ 75,060 $ 61,646 $ 73,143
Earnings from operations 8,465 7,844 4,980 2,436 4,082
Pretax earnings 7,550 7,001 3,771 1,002 2,103
Net earnings $ 4,764 $ 7,735 $ 3,540 $ 1,321 $ 2,356
--------------------------------------------------------------------------------------------------------------------
Basic net earnings per
common share $ .31 $ .50 $ .23 $ .09 $ .16
Diluted net earnings per common share
$ .30 $ .49 $ .23 $ .09 $ .15
--------------------------------------------------------------------------------------------------------------------
Total assets $ 58,992 $ 43,459 $ 41,550 $ 31,608 $ 44,477
Long-term obligations 10,163 5,101 10,419 6,467 15,143
--------------------------------------------------------------------------------------------------------------------
</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 28, 1998,
there were approximately 3,500 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 1998 and 1997, as reported by the American
Stock Exchange.
1997-98 HIGH LOW
July - September 6 1/8 5 7/16
October - December 6 13/16 3 3/4
January - March 4 11/16 3 7/8
April - June 4 1/8 3 3/8
1996-97 HIGH LOW
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
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 28, 1998 and June 29, 1997, and the results
of their operations and their cash flows for each of the years in the
three-year period ended June 28, 1998, 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 7, 1998
16
<PAGE> 17
LaBarge, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands except per share data)
<TABLE>
<CAPTION>
YEAR ENDED
---------------------------------------------------------------
JUNE 28, June 29, June 30,
1998 1997 1996
=======================================================================================================================
<S> <C> <C> <C>
NET SALES $ 99,292 $ 96,666 $ 75,060
- -----------------------------------------------------------------------------------------------------------------------
COSTS AND EXPENSES:
Cost of sales 76,420 77,442 61,103
Selling and administrative expense 14,407 11,380 8,977
- -----------------------------------------------------------------------------------------------------------------------
90,827 88,822 70,080
- -----------------------------------------------------------------------------------------------------------------------
EARNINGS FROM OPERATIONS 8,465 7,844 4,980
- -----------------------------------------------------------------------------------------------------------------------
Interest expense 997 942 1,355
Equity in loss (income) of joint venture 120 (4) 93
Minority interest loss (89) - -
Other (income) expense, net (113) (95) (239)
- -----------------------------------------------------------------------------------------------------------------------
EARNINGS BEFORE INCOME TAXES 7,550 7,001 3,771
INCOME TAX EXPENSE (BENEFIT) 2,786 (734) 231
- -----------------------------------------------------------------------------------------------------------------------
NET EARNINGS $ 4,764 $ 7,735 $ 3,540
=======================================================================================================================
BASIC NET EARNINGS PER COMMON SHARE $ .31 $ .50 $ .23
AVERAGE COMMON SHARES OUTSTANDING 15,604 15,626 15,314
=======================================================================================================================
DILUTED NET EARNINGS PER COMMON SHARE $ .30 $ .49 $ .23
AVERAGE COMMON SHARES OUTSTANDING 15,723 15,790 15,553
=======================================================================================================================
</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 28, June 29,
1998 1997
========================================================================================================================
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 540 $ 1,467
Accounts and notes receivable, net 18,332 13,384
Inventories 18,968 14,264
Prepaid expenses 772 735
Deferred tax assets, net 2,087 4,426
- ------------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 40,699 34,276
- ------------------------------------------------------------------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT, NET 11,254 4,090
OTHER ASSETS, NET 7,039 5,093
- ------------------------------------------------------------------------------------------------------------------------
$ 58,992 $ 43,459
========================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIaBILITIES:
Short-term borrowings $ 5,020 $ -
Current maturities of long-term debt 1,102 1,032
Trade accounts payable 6,034 5,532
Accrued employee compensation 4,710 4,537
Other accrued liabilities 2,321 1,714
- ------------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 19,187 12,815
- ------------------------------------------------------------------------------------------------------------------------
LONG-TERM DEBT 10,163 5,101
- ------------------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value. Authorized 40,000,000 shares; issued
15,658,280 shares at June 28, 1998 and at June 29, 1997, including
shares in treasury 156 156
Additional paid-in capital 13,468 13,468
Retained earnings 16,683 11,919
Less cost of common stock in treasury, 163,000 shares at June 28, 1998
and 50 shares at June 29, 1997 (665) -
- ------------------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 29,642 25,543
- ------------------------------------------------------------------------------------------------------------------------
$ 58,992 $ 43,459
========================================================================================================================
</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 28, June 29, June 30,
1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 4,764 $ 7,735 $ 3,540
Adjustments to reconcile net cash provided (used) by
operating activities:
Undistributed loss (earnings) in equity of joint venture 120 (4) 93
Minority interest in consolidated subsidiary (89) - -
Depreciation and amortization 1,393 1,012 864
Deferred taxes 2,339 (1,176) -
Other - - (290)
Changes in assets and liabilities, net of acquisition
of majority business interest:
Accounts and notes receivable, net (4,422) (529) (3,955)
Inventories (4,672) 3,313 (2,701)
Prepaid expenses 29 (449) 20
Other assets - (1,175) -
Trade accounts payable 182 (2,082) 2,514
Accrued liabilities 517 1,522 1,754
- -----------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 161 8,167 1,839
- -----------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (8,243) (1,711) (1,102)
Additions to other assets (2,299) (658) (496)
Collection of note receivable - - 621
Acquisition of Sorep Technology, net of cash acquired - - (1,802)
Acquisition of majority business interest, net of cash acquired 165 - -
- -----------------------------------------------------------------------------------------------------------------------------
NET CASH USED BY INVESTING ACTIVITIES (10,377) (2,369) (2,779)
- -----------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Additional investment by minority interest 300 - -
Additions to long-term debt 6,200 - 6,900
Repayments of long-term debt (1,066) (4,919) (3,986)
Exercise of stock warrants and options - 52 910
Sale (purchase) of common stock from (for) treasury (665) 1 8
Net change in short-term borrowings, net of acquisition of
majority business interest 4,520 (400) (2,100)
- -----------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES 9,289 (5,266) 1,732
- -----------------------------------------------------------------------------------------------------------------------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (927) 532 792
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 1,467 935 143
- -----------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 540 $ 1,467 $ 935
=============================================================================================================================
</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>
ADDITIONAL
COMMON STOCK PAID-IN RETAINED TREASURY STOCK
SHARES PAR VALUE CAPITAL EARNINGS SHARES COST
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
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 56,389 - 52 - 137 1
- -----------------------------------------------------------------------------------------------------------------------------
BALANCE AT JUNE 29, 1997 15,658,280 $ 156 $ 13,468 $ 11,919 (50) -
NET EARNINGS - - - 4,764 - -
PURCHASE oF COMMON
TO TREASURY - - - - (162,950) (665)
- -----------------------------------------------------------------------------------------------------------------------------
BALANCE AT JUNE 28, 1998 15,658,280 $ 156 $ 13,468 $ 16,683 (163,000) $ (665)
=============================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
20
<PAGE> 21
LaBarge, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 28, 1998, June 29, 1997 and June 30, 1996
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 customized electronic products and
systems and complex interconnect assemblies. Its customers are primary in the
defense, geophysical, aerospace, telecommunications and medical markets.
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, and joint ventures owned 51% and more.
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 1998, 1997 and 1996 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.
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.
21
<PAGE> 22
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.
BASIC AND DILUTED EARNINGS PER COMMON SHARE
Earnings per common share is computed in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 128, "Earnings Per Share." SFAS No. 128
replaced the previously reported primary and fully diluted earnings per share
with basic and diluted earnings per share. Unlike primary earnings per share,
basic earnings per share excludes any dilutive effects of options, warrants and
convertible securities. Diluted earnings per share is very similar to the
previously reported fully diluted earnings per share. All earnings per share
amounts for all periods have been restated to conform to the SFAS No. 128
requirements.
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.
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 June 1997, the FASB issued SFAS No. 130 "Reporting Comprehensive Income"
which becomes
22
<PAGE> 23
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.
In April 1998, the FASB issued SOP 98-5, "Reporting on the Costs of Start-up
Activities," which will become effective for the Company in fiscal 2000. It
requires costs of start-up activities and organization costs to be expensed as
incurred. The Company currently follows this approach and such costs have been
minimal in the past.
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures About
Pensions and Other Post-retirement Benefits," which becomes effective for the
Company in fiscal 1999. Since the Company has no pension plan nor provides
post-retirement benefits, there should be no impact to the Company from the
adoption of SFAS No. 132.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which becomes effective for the Company in
fiscal 2000. Historically the Company has not utilized such instruments or
engaged in such activities; therefore, the adoption of SFAS No. 133 will not
impact the Company's consolidated financial statements, the results of
operations or the notes thereto.
2. ACQUISITIONS, DIVESTITURES AND INVESTMENTS
Acquisition
In fiscal 1996, the Company, through its wholly-owned subsidiary, LaBarge/STC,
Inc., acquired SOREP Technology Corporation. The total acquisition cost exceeded
the estimated fair value of the net assets acquired by $400,000 and was 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.
Joint Venture
During the second quarter of fiscal 1998, the Company increased its ownership of
LaBarge Clayco Wireless L.L.C. to fifty-one percent. Beginning with the second
quarter, LaBarge, Inc. began consolidating 100% of the results of this unit into
its financial statements and deducting the minority interest share before
arriving at pretax profits. For fiscal years 1997 and 1996, the results of
operations and investment in this joint venture had been reported using the
equity method of accounting, which was appropriate for a 50% joint venture.
Sales by and assets of the joint venture were less than 4.2% of total
consolidated net sales and assets for fiscal 1998.
Investments
Early in fiscal 1998, the Company invested an additional $2.0 million in
TRANSMEDICA International, Inc., the company for whom LaBarge produces the Laser
Lancet(R). Payment for this investment included an exchange of approximately
$1.2 million of 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. The Company has now invested $2.3 million and owns approximately 9.5% of
TRANSMEDICA's common stock.
Also during this period, LaBarge finalized revised agreements with TRANSMEDICA
concerning our exclusive manufacturing agreement and negotiated payment terms
for open receivables and for future payments for Laser Lancet units.
With the agreement, LaBarge became the exclusive manufacturer for all of North
and South Americas
23
<PAGE> 24
and Europe. Secondly, the Company agreed to accept an interest-bearing note,
secured by all the assets of TRANSMEDICA, for the $900,000 then owed for prior
work and provide $1.1 million in funding for new production of Laser Lancets. As
part of the agreement, LaBarge received warrants to purchase an additional 4% of
TRANSMEDICA stock for $25 per share.
Also during fiscal 1998, LaBarge made a $500,000 investment equating to an
ownership position of approximately 10% in Open Cellular Systems, Inc. of St.
Louis. Open Cellular Systems uses shared access communication networks to
provide wireless communication solutions to the general industrial and utility
markets. The capabilities of Open Cellular complement LaBarge's and management
believes this alliance may provide future opportunities for LaBarge. The Company
accounts for the investment at cost.
3. ACCOUNTS AND NOTES RECEIVABLE
Accounts and notes receivable consist of the following:
(dollars in thousands)
<TABLE>
<CAPTION>
JUNE 28, June 29,
1998 1997
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Billed shipments, net of progress payments $ 17,556 $ 13,421
Less allowance for doubtful accounts 150 148
- -----------------------------------------------------------------------------------------------------------------
Trade receivables - net 17,406 13,273
Notes receivables 903 -
Other current receivables 23 111
- -----------------------------------------------------------------------------------------------------------------
$ 18,332 $ 13,384
=================================================================================================================
</TABLE>
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.
Early in fiscal 1998, the Company invested an additional $2.0 million in
TRANSMEDICA. Payment for this investment included an exchange of approximately
$1.2 million of 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.
In the fourth quarter of fiscal 1998, the Company extended up to $2.0 million in
credit to TRANSMEDICA, which includes $900,000 currently owed and $1.1 million
in new credit to allow new production of the Laser Lancet. The credit is in the
form of a one-year, interest-bearing note and is secured by substantially all of
TRANSMEDICA's assets.
Other current receivables include amounts due from employees for travel advances
and other miscellaneous sources.
24
<PAGE> 25
4. INVENTORIES
Inventories consist of the following:
(dollars in thousands)
<TABLE>
<CAPTION>
JUNE 28, June 29,
1998 1997
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Raw materials $ 10,353 $ 10,546
Work in progress 9,070 4,015
- -------------------------------------------------------------------------------------------------------------
19,423 14,561
Less progress payments 455 297
- -------------------------------------------------------------------------------------------------------------
$ 18,968 $ 14,264
=============================================================================================================
</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 28, June 29, useful life
1998 1997 in years
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Land $ 2,457 $ 36 -
Building and improvements 5,902 1,869 5-33
Leasehold improvements 1,634 1,571 2-10
Machinery and equipment 8,622 7,829 2-20
Furniture and fixtures 3,118 2,337 3-10
Construction in progress 228 34 -
- -----------------------------------------------------------------------------------------------------------------
21,961 13,676
Less accumulated depreciation 10,707 9,586
- ----------------------------------------------------------------------------------------
$ 11,254 $ 4,090
========================================================================================
</TABLE>
Depreciation expense was $1.2 million, $816,000 and $695,000 for the fiscal
years ended June 28, 1998, June 29, 1997 and June 30, 1996, respectively.
In fiscal 1998, the Company purchased its headquarters building in St. Louis,
Missouri for $6.2 million.
25
<PAGE> 26
6. OTHER ASSETS
Other assets is summarized as follows:
(dollars in thousands)
<TABLE>
<CAPTION>
JUNE 28, June 29,
1998 1997
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash value of life insurance $ 2,229 $ 1,818
Deposits licenses, and other 1,879 2,502
Investments in businesses 2,750 411
- --------------------------------------------------------------------------------------------------------------
6,858 4,731
- --------------------------------------------------------------------------------------------------------------
Software 1,047 1,034
Goodwill 412 403
- --------------------------------------------------------------------------------------------------------------
1,459 1,437
Less amortization 1,278 1,075
- --------------------------------------------------------------------------------------------------------------
$ 7,039 $ 5,093
==============================================================================================================
</TABLE>
Amortization expense was $203,000, $196,000 and $169,000 for the fiscal years
ended June 28, 1998, June 29, 1997 and June 30, 1996, respectively.
7. SHORT- AND LONG-TERM OBLIGATIONS
Short-term borrowings, long-term debt and the current maturities of long-term
debt consist of the following:
(dollars in thousands)
<TABLE>
<CAPTION>
JUNE 28, June 29,
1998 1997
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Short-term borrowings:
Revolving credit agreements:
Balance at period end $ 5,020 $ -
Interest rate at period end 6.80% 6.88%
Average amount of short-term borrowings
outstanding during period $ 4,751 $ 1,484
Average interest rate for period 6.94% 7.47%
Maximum short-term borrowings at any month end $ 9,250 $ 3,060
==================================================================================================================
Long-term debt:
Senior lender:
Revolving credit agreement 2,000 2,000
Term loan 3,000 4,000
Mortgage loan 6,164 -
Other 101 133
- ------------------------------------------------------------------------------------------------------------------
11,265 6,133
Less current maturities 1,102 1,032
- ------------------------------------------------------------------------------------------------------------------
Total long-term debt, less current maturities $ 10,163 $ 5,101
==================================================================================================================
</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.
26
<PAGE> 27
Total cash payments for interest in fiscal years 1998, 1997 and 1996 were
$773,000, $900,000, and $1.4 million, respectively.
SENIOR LENDER
The Company's senior lender is NationsBank, N.A. The four-year, unsecured
lending agreement provides a $4.0 million term loan payable in quarterly
installments of $250,000 which began 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 28, 1998, the Company is at the lowest rates possible under the agreement,
currently which ranges from 6.7% to 7.0%.
In fiscal 1998, the Company purchased its headquarters building in St. Louis,
Missouri and financed the purchase with a $6.2 million mortgage loan. The loan
is at 7.5% interest on a 25-year amortization with a due date of January 2008.
LaBarge Clayco has a revolving line of credit with Mercantile Bank N. A. This
line is in the amount of $1.0 million and has a maturity of September 1998. The
interest rate on this note is a 1/4% over the bank's prime rate. At fiscal
year-end 1998, the outstanding amount was $750,000 at an interest rate of 8.75%.
LaBarge Clayco anticipates renegotiating the revolving line of credit prior to
expiration on terms generally consistent with those currently in place.
The aggregate maturities of long-term obligations are as follows:
(dollars in thousands)
FISCAL YEAR
----------------------------------------------------------------------
1999........................................................ $1,102
2000....................................................... 1,124
2001....................................................... 3,131
2002...................................................... 105
2003...................................................... 114
----------------------------------------------------------------------
8. 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.
27
<PAGE> 28
At June 28, 1998, the future minimum lease payments under operating leases with
initial noncancellable terms in excess of one year are as follows: (dollars in
thousands)
FISCAL YEAR
-----------------------------------------------------------------------
1999...................................................... $1,074
2000...................................................... 796
2001...................................................... 637
2002...................................................... 464
2003...................................................... 130
-----------------------------------------------------------------------
Rental expense under operating leases is as follows:
(dollars in thousands)
<TABLE>
<CAPTION>
YEAR ENDED
-------------------------------------------------------
JUNE 28, June 29, June 30,
1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Initial term of more than one year $ 1,226 $ 1,150 $ 860
Short-term rentals 363 341 390
- -----------------------------------------------------------------------------------------------------------------
$ 1,589 $ 1,491 $ 1,250
=================================================================================================================
</TABLE>
9. 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 1998, 1997 and
1996, Company matching contributions were $236,000, $187,000 and $141,000,
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
fiscal years ended June 28, 1998, June 29, 1997 and June 30, 1996.
The Company has a deferred compensation plan for selected employees who, due to
Internal Revenue Service guidelines, cannot 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 $119,000, $63,000 and $45,000
for the guaranteed return and $13,000, $20,000 and $8,000 of income for the
Company-owned insurance in fiscal years 1998, 1997 and 1996, respectively. The
cash surrender value of the Company-owned life insurance related to deferred
compensation is included, along with other policies owned by the Company, in
other assets and was $838,000 at June 28, 1998 compared to $669,000 at June 29,
1997. The liability for the deferred compensation and interest thereon is in
accrued employee compensation and was $1.3 million at June 28, 1998 versus
$906,000 at June 29, 1997.
On July 1, 1998, the Company started an employee stock purchase plan which
allows any employee to purchase common stock at 15% below the market price at
the end of each quarter.
28
<PAGE> 29
10. OTHER INCOME, NET
The components of other income, net are as follows:
(dollars in thousands)
<TABLE>
<CAPTION>
YEAR ENDED
----------------------------------------------------
JUNE 28, June 29, June 30,
1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest income $ 43 $ 96 $ 152
Property rental income 314 - -
Property rental expense (275) - -
Other, net 31 (1) 87
- ------------------------------------------------------------------------------------------------------------------
$ 113 $ 95 $ 239
==================================================================================================================
</TABLE>
In fiscal 1998, the Company purchased its headquarters building in St. Louis,
Missouri and financed the purchase with a $6.2 million mortgage loan.
At June 28, 1998, the future minimum rental income under leases with tenants in
excess of one year are as follows:
(dollars in thousands)
FISCAL YEAR
----------------------------------------------------------------------
1999.......................................................... $707
2000......................................................... 706
2001......................................................... 709
2002......................................................... 684
2003......................................................... 658
----------------------------------------------------------------------
11. INCOME TAXES
Income tax expense (benefit) consists of:
(dollars in thousands)
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
---------------------------------------------------------
<S> <C> <C> <C>
YEAR ENDED JUNE 28, 1998:
U.S. FEDERAL $ 102 $ 2,404 $ 2,506
STATE AND LOCAL 345 (65) 280
- -------------------------------------------------------------------------------------------------------------------
$ 447 $ 2,339 $ 2,786
===================================================================================================================
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
===================================================================================================================
</TABLE>
29
<PAGE> 30
Income tax expense (benefit) differed from the amounts computed by applying the
U.S. Federal income tax rate of 34% as a result of the following:
(dollars in thousands)
<TABLE>
<CAPTION>
JUNE 28, June 29, June 30,
1998 1997 1996
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Computed "expected" tax expense $ 2,567 $ 2,380 $ 1,282
Increase (reduction) in income taxes resulting from:
Change in valuation allowance - (3,616) (1,163)
State and local tax 215 183 110
Other 4 319 2
- --------------------------------------------------------------------------------------------------------------------
$ 2,786 $ (734) $ 231
====================================================================================================================
</TABLE>
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities are presented below:
(dollars in thousands)
<TABLE>
<CAPTION>
JUNE 28, June 29,
1998 1997
- --------------------------------------------------------------------------------------------------------------
<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 $ 396 $ 468
Other 1,212 1,004
Net operating loss carryforwards - 2,748
Tax credit carryforwards 712 584
- --------------------------------------------------------------------------------------------------------------
TOTAL GROSS DEFERRED TAX ASSETS 2,320 4,804
- --------------------------------------------------------------------------------------------------------------
DEFERRED TAX LIABILITIES:
Property, plant and equipment, principally
due to differences in depreciation and
capitalized interest (230) (282)
Other (3) (96)
- --------------------------------------------------------------------------------------------------------------
TOTAL GROSS DEFERRED TAX LIABILITIES (233) (378)
- --------------------------------------------------------------------------------------------------------------
NET DEFERRED TAX ASSETS $ 2,087 $ 4,426
==============================================================================================================
</TABLE>
No valuation allowance is provided to reduce the deferred tax assets to a level
which, more likely than not, will be realized. The net deferred assets reflect
management's estimate of the tax benefits which will be realized from future
profitability which can be predicted with reasonable certainty.
The net change in the total valuation allowance for the years ended June 28,
1998 and June 29, 1997 were $-0- and decreases of $3.6 million, respectively.
The Company has alternative minimum and investment tax credit carryforwards of
approximately $712,000 which are available to reduce future regular federal
income taxes.
Total cash payments for income taxes in all years presented were $270,000 for
fiscal 1998, $432,000 for fiscal 1997 and $249,000 for fiscal 1996.
12. EARNINGS PER COMMON SHARE
In 1997, the Financial Accounting Standards Board (FASB) issued SFAS No., 128,
"Earnings Per Share." SFAS No. 128 replaced the previously reported primary and
fully diluted earnings per share
30
<PAGE> 31
with basic and diluted earnings per share. Unlike primary earnings per share,
basic earnings per share excludes the dilutive effects of options, warrants, and
convertible securities. Diluted earnings per share is very similar to the
previously reported fully diluted earnings per share. All earnings per share
amounts for all periods presented have been restated to conform to the SFAS No.
128 requirements.
<TABLE>
<CAPTION>
JUNE 28, June 29, June 30,
1998 1997 1996
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NUMERATOR:
Net earnings $ 4,764 $ 7,735 $ 3,540
- ----------------------------------------------------------------------------------------------------------------------
DENOMInATOR:
Denominator for basic net earnings per
share weighted-average share 15,604 15,626 15,314
Effect of dilutive securities-employee
stock options 119 164 239
- ----------------------------------------------------------------------------------------------------------------------
POTENTIAL COMMON SHARES:
Denominator for diluted net earnings per
share adjusted weighted-average shares
and assumed conversions 15,723 15,790 15,553
- ----------------------------------------------------------------------------------------------------------------------
BASIC NET EARNINGS PER COMMON SHARE $ .31 $ .50 $ .23
======================================================================================================================
DILUTED NET EARNINGS PER COMMON SHARE $ .30 $ .49 $ .23
======================================================================================================================
</TABLE>
13. 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 and the
mortgage loan 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.
14. 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 defense, geophysical, aerospace, telecommunications and
medical markets.
31
<PAGE> 32
Customers accounting for more than 10% of net sales for the years ended June 28,
1998, June 29, 1997 and June 30, 1996 follow:
Customer 1998 1997 1996
-------------------------------------------------------------------------
1..................................... 27% 24% 26%
2..................................... 17 14 4
3..................................... 1 11 25
-------------------------------------------------------------------------
Sales for export did not exceed 10% of sales in any fiscal year.
15. LITIGATION AND CONTINGENCIES
The Company is involved in limited 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.
16. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data is set forth below:
(dollars in thousands except per share data)
<TABLE>
<CAPTION>
1998 FIRST SECOND THIRD FOURTH
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 21,492 $ 22,203 $ 26,996 $ 28,601
Gross profit 4,687 5,201 5,996 6,988
Earnings from operations before
income taxes 1,506 1,644 2,004 2,396
Income tax expense 556 612 734 884
Net earnings $ 950 $ 1,032 $ 1,270 $ 1,512
Basic net earnings per common share $ .06 $ .07 $ .08 $ .10
Diluted net earnings per common share $ .06 $ .07 $ .08 $ .10
====================================================================================================================
1997 First Second Third Fourth
- --------------------------------------------------------------------------------------------------------------------
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
Basic net earnings per common share $ .09 $ .10 $ .11 $ .20
Diluted net earnings per common share $ .09 $ .10 $ .11 $ .20
====================================================================================================================
</TABLE>
During fiscal 1997, management revised its estimate as to the future realizable
value of its net tax
32
<PAGE> 33
operating loss carryforwards. This revaluation resulted in $1.2 million of
incremental tax benefits in the fourth quarter and for the year 1997, which
increased net earnings by the same amount and earnings per share by $.08.
17. 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.
Information regarding these option plans for fiscal years 1998, 1997 and 1996:
<TABLE>
<CAPTION>
WEIGHTED-
WEIGHTED- NUMBER OF WEIGHTED- AVERAGE
NUMBER OF AVERAGE SHARES AVERAGE FAIR VALUE
SHARES EXERCISE PRICE EXERCISABLE EXERCISE PRICE GRANTED OPTION
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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
GRANTED 75,513 5.98 - - $ 2.86
- ------------------------------------------------------------------------------------------------------------------------------
OUTSTANDING AT JUNE 28, 1998 372,288 3.94 205,000 $ 1.97
- ------------------------------------------------------------------------------------------------------------------------------
</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 6/28/98 LIFE (YEARS) PRICE AT 6/28/98 PRICE
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ .66 - 1.24 80,000 1.1 $ 1.13 80,000 $ 1.13
1.31 - 1.44 75,000 4.6 1.40 75,000 1.40
3.98 - 4.38 50,000 5.8 4.18 50,000 4.18
5.97 - 7.24 167,288 8.2 6.35 - -
- -----------------------------------------------------------------------------------------------------------------------
$ .66 - 7.24 372,288 205,000
=======================================================================================================================
</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 SFAS No.
123, "Accounting for Stock-Based Compensation". 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
No. 123, the Company's pro forma net income and diluted earnings per share for
fiscal 1998 would have been $4.6 million and $.29 per share, respectively, and
$7.6 million and $.49 per share in fiscal 1997, respectively.
33
<PAGE> 34
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 61%.
18. 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
fiscal 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.
19. SUBSEQUENT EVENT
In July 1998, LaBarge and Global Research Systems, Inc. of Rome, Georgia
("Global") formed NotiCom L.L.C. ("NotiCom"), a Georgia limited liability
company, to develop and market electronic systems providing advance notice of
the impending arrival of passenger motor vehicles. The first product marketed by
NotiCom will be BusCall. BusCall notifies parents by phone, electronic mail or
pager when a school bus is approaching their children's bus stop. It will be
marketed to wireless communications providers and local exchange carriers which
can offer BusCall as an add-on service, such as call waiting and call
forwarding. LaBarge is the exclusive manufacturer of all electronic hardware
sold by NotiCom in the United States and Canada and will recognize revenues as
it sells products to NotiCom. Each of LaBarge and Global has a 50% interest in
NotiCom, except that after an aggregate of $1.0 million has been distributed by
NotiCom, Global will be entitled to 75% of subsequent distributions until it has
received preferred distributions aggregating $1.3 million. LaBarge has invested
$1.8 million in NotiCom and has committed to contribute $500,000 of development
services. In addition, LaBarge has paid Global $1.7 million for a 50% interest
in the intellectual property and has licensed the technology to NotiCom. The
Company has committed to pay Global up to an aggregate of $23.3 million of
additional purchase price for its 50% interest in the technology if NotiCom
meets or exceeds cumulative earnings before income tax ("EBT") targets for the
period from July 1, 1998 through December 1, 1999 and through each six-month
period thereafter through December 31, 2001. In order to generate the maximum
purchase price, NotiCom must generate $211.8 million of EBT between July 1, 1998
and December 31, 2001. Because NotiCom is a start-up venture, it is too early to
predict if or to what extent NotiCom may contribute to the Company's revenues or
earnings; therefore, the Company has not recorded the contingent purchase price.
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,
forwardlooking 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.; unexpected increases in the cost
of raw materials, labor and other resources necessary to operate the Company's
business; the availability, amount, type and cost of financing for the Company
and any changes to that financing; and unexpected year 2000 issues.
OVERVIEW
LaBarge, Inc. designs and manufactures sophisticated high performance
electronics and systems for specialized applications in a variety of industries.
We provide complete electronic system solutions, developing customized
applications for our customers who are typically recognized leaders in the
defense, geophysical, commercial aerospace, telecommunications and medical
industries. As such, we rely heavily on maintaining strong relationships with
our current customers and continually establishing relationships with new
customers.
SIGNIFICANT EVENTS Recent significant events include:
- - We achieved record sales and pretax profits in fiscal 1998. Pretax profit
of $7.6 million exceeded last year's $7.0 million by 7.8%.
- - We increased total sales 2.7% as compared with fiscal 1997, and 32.3% as
compared with fiscal 1996, despite the loss of significant business with
Northern Telecom ("Nortel"), our largest telecommunications customer in
fiscal 1997 and 1996, due to the customer's product redesign. In fiscal
1998, Nortel represented only 1.1% of total sales while in fiscal 1997 it
represented 11.4% and in fiscal 1996, it accounted for 24.9%. Excluding
Nortel, fiscal 1998 sales were up 14.6% over fiscal 1997. Success in
developing new relationships with other companies has allowed us to
accomplish this growth.
- - During fiscal 1998, 51% of our total sales were to customers in the defense
market, as compared with 48% in fiscal 1997 and 46% in fiscal 1996. We
continue to see a solid defense-related business, even though the
opportunities for significant growth in this area in the future are limited
due to the current lower levels of government spending.
We continue to see much better growth potential in commercial markets such
as commercial aerospace and telecommunications. In recent years, growth in
the geophysical market has been strong; however, we are anticipating some
softness due to low crude oil prices. We believe that long-term
fundamentals in this market are very positive and that we can overcome any
short-term impact through the strength in other markets.
- - In July 1998, we entered into a 50%/50% joint venture with Global Research
Systems, Inc. of Rome, Georgia. The new company, known as NotiCom L.L.C.,
is in the development stage and will market electronic systems providing
advance notice of the impending arrival of passenger motor vehicles. The
first product marketed by NotiCom will be BusCall(TM). This unique product
notifies parents by phone, electronic mail or pager when the school bus is
approaching the children's bus
35
<PAGE> 36
stop. The product will be marketed to telephone companies, both wireless
providers and local exchange carriers, who can offer BusCall as an
added-value service such as call forwarding and call waiting.
LaBarge, Inc. will be the exclusive manufacturer of all systems hardware
sold by the joint venture. We are optimistic about the potential for the
technology, but it is too early to predict what effect the joint venture
will have on revenues and earnings.
Our initial investment in NotiCom L.L.C. is $4.0 million. The investment is
not reflected in the fiscal 1998 year-end balance sheet since the
agreements were finalized subsequent to fiscal year end. (See "Notes to
Consolidated Financial Statements" for more detail.)
- - Late in fiscal 1998, we reached new agreements with TRANSMEDICA
International, Inc., concerning our exclusive manufacturing rights; payment
terms for open receivables; and payments for future units produced.
With the agreements, our manufacturing rights were expanded to include all
of North America, South America and Europe. Secondly, we agreed to accept a
one year, interest-bearing note, secured by all of the assets of
TRANSMEDICA, for the $900,000 then owed us up to an additional $1.1 million
to finance new production by LaBarge. Further, we received warrants to
purchase 4% of TRANSMEDICA's common stock for $25 per share.
In July 1998, TRANSMEDICA received broad clearance from the FDA to market
the Laser Lancet for capillary blood collection. At this time, we cannot
predict what result this broad clearance will have on TRANSMEDICA's
marketing efforts or LaBarge's revenues and earnings.
- - Early in fiscal 1998, we increased our investment in TRANSMEDICA by
investing $2.0 million through the exchange of approximately $1.2 million
of receivables and payment of $800,000 cash. We now own 9.5% of TRANSMEDICA
stock.
- - Also during fiscal 1998, we made a $500,000 investment equating to an
approximate 10% ownership position in Open Cellular Systems, Inc. of St.
Louis. Open Cellular Systems uses shared-access communication networks to
provide wireless communication solutions to the general industrial and
utility markets. The capabilities of Open Cellular complement those of
LaBarge and management believes this alliance may provide future
opportunities for LaBarge. The Company accounts for the investment at cost.
- - In October 1997, we increased our ownership interest in LaBarge Clayco
Wireless L.L.C. to 51%. In doing so, we began consolidating the total
operations into our financial statements and reflecting the
minority-owners' interest as an addition to or deduction from income as
opposed to the prior method of recording the one-line entry for our share
of equity of the company.
- - In fiscal 1998, we began reporting net earnings and earnings per share on a
fully taxed basis. The composite tax rate in fiscal 1998 was 37.1%, which
compares with 6.5% in fiscal year 1997 and 6.1% in fiscal 1996. Further, in
fiscal 1997 we revalued our deferred tax assets which resulted in
non-recurring $1.2 million in incremental tax benefits. If all years were
fully taxed on a basis comparable with fiscal 1998, earnings per common
share would have been $.30 in fiscal 1998, compared with $.28 in fiscal
1997 and $.15 in fiscal 1996.
We are continuing to focus our sales efforts on both existing and new customers
who offer us the opportunity to provide a partnering-type relationship over the
long-term. We are primarily focused on customers in the defense, geophysical,
commercial aerospace, telecommunications and medical markets, all of which we
believe have good long-term potential.
36
<PAGE> 37
At June 28, 1998, we had a backlog of orders totaling $57.5 million as compared
to $61.3 million at the beginning of the fiscal year. Of this backlog,
approximately $37.8 million was for defense-related customers and $19.7 million
for commercial customers. Approximately $19.9 million of our total backlog
figure is currently scheduled for delivery in fiscal year 2000 or beyond. We
believe this backlog gives us a solid base of business for fiscal 1999.
RESULTS OF OPERATIONS 1998 - 1997 - 1996
SALES
(dollars in thousands)
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------------------------------
Change
1998 vs. 1997 1998 1997 1996
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales + 2.7% $ 99,292 $ 96,666 $ 75,060
======================================================================================================================
</TABLE>
During fiscal 1998, increased sales to customers in defense, geophysical and
commercial aerospace were sufficient to offset a lower level of business in
telecommunications. Sales to defense customers were $50.6 million in fiscal 1998
versus $46.4 million in fiscal 1997 (up 9.1%); sales to geophysical customers
were $25.3 million in fiscal 1998 compared with $20.5 million in fiscal 1997 (up
23.7%); and sales to commercial aerospace customers were $9.8 million in fiscal
1998 versus $7.4 million in fiscal 1997 (up 32.5%). Sales to telecommunications
customers were down due to a decision by Northern Telecom ("Nortel") in our
fiscal 1997 to change their product focus and redesign a product we manufactured
for them in fiscal years 1996 and 1997. Thus sales to Nortel in fiscal 1998 were
$1.0 million compared to $11.0 million in fiscal 1997 and $18.7 million in
fiscal 1996.
Sales to our top 10 customers accounted for 67.0% of fiscal 1998 revenue versus
75.9% in fiscal 1997 and 78.0% in fiscal 1996. Included in these revenues are
sales to various units of Lockheed Martin, which accounted for 27.3% of total
sales in fiscal 1998 compared with 23.7% in fiscal 1997 and 26.0% in fiscal
1996; and sales to units of Schlumberger, which totaled 16.7% in fiscal 1998,
13.8% in fiscal 1997 and 2.8% in fiscal 1996 of total sales.
GROSS MARGIN
(dollars in thousands)
<TABLE>
<CAPTION>
YEAR ENDED
----------------------------------------------------------
Change
1998 vs. 1997 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Gross profit + 19.0% $ 22,872 $19,224 $13,957
Gross margin + 3.1pts. 23.0% 19.9% 18.6%
=====================================================================================================================
</TABLE>
The increase in gross margin from fiscal 1996 to 1997, and again, from fiscal
1997 to fiscal 1998 is primarily attributable to our strategic focus on
providing higher value-added products and services for our customers. In
addition, better purchasing practices have allowed us to reduce material costs.
OPERATING EXPENSES
(dollars in thousands)
<TABLE>
<CAPTION>
YEAR ENDED
-----------------------------------------------------------
Change
1998 vs. 1997 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating expenses + 26.6% $ 14,407 $ 11,380 $ 8,977
Percent of sales + 2.7 pts. 14.5% 11.8% 12.0%
=======================================================================================================================
</TABLE>
37
<PAGE> 38
During fiscal 1997, we aggressively added personnel in sales, applications
engineering and management to help secure new business, support customer needs
and, in general, put more resources in front of the customers. This allows us to
identify opportunities to provide greater value for our customers. These
additions were made throughout fiscal 1997, but the full effect on an annual
basis did not appear until fiscal 1998, hence the major increases in operating
expenses in both fiscal 1998 and 1997. During fiscal 1998, we added 14 people to
our non-production staff, while in fiscal 1997 we added 40 people.
INTEREST EXPENSE
(dollars in thousands)
<TABLE>
<CAPTION>
YEAR ENDED
----------------------------------------------------------------------
1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest expense $ 997 $ 942 $ 1,355
=================================================================================================================
</TABLE>
In fiscal 1998, borrowings increased due to: investments in TRANSMEDICA and Open
Cellular Systems; the repurchase of LaBarge stock; and, the purchase of the
Company's headquarters building in St. Louis. (See "Financial Condition and
Liquidity" below.) As a result, interest expense was higher in fiscal 1998 than
in fiscal 1997.
In fiscal 1997, $3.4 million in 12% Subordinated Notes were redeemed which,
along with $8.2 million in operating cash flow, allowed us to reduce borrowings
and related interest costs as compared with fiscal 1996.
PRETAX EARNINGS
(dollars in thousands)
<TABLE>
<CAPTION>
YEAR ENDED
---------------------------------------------------
Change
1998 vs. 1997 1998 1997 1996
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Pretax earnings + 7.8% $ 7,550 $ 7,001 $ 3,771
====================================================================================================================
</TABLE>
Pretax earnings of $7.6 million were a record for us and reflect the continuing
growth and strength of the Company.
TAX EXPENSE (BENEFIT)
(dollars in thousands)
<TABLE>
<CAPTION>
YEAR ENDED
-----------------------------------------------------------------------
1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Tax expense (benefit) $ 2,786 $ (734) $ 231
==================================================================================================================
</TABLE>
In accordance with SFAS 109, we revalued our net deferred tax assets in fiscal
1997 to reflect our expectation that it was more likely than not that the tax
benefits available to us would be realized. Consequently, the revaluation
resulted in a $1.2 million incremental tax benefit in fiscal 1997.
Further, this revaluation resulted in fiscal 1998 and future earnings being
taxed at the full appropriate marginal state and federal rates.
38
<PAGE> 39
NET EARNINGS AND EARNINGS PER SHARE
(dollars in thousands except per share data)
<TABLE>
<CAPTION>
YEAR ENDED
-----------------------------------------------------------------
1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net earnings $ 4,764 $ 7,735 $ 3,540
Basic net earnings per share $ .31 $ .50 $ .23
Diluted net earnings per share $ .30 $ .49 $ .23
=====================================================================================================================
</TABLE>
Although reported net earnings and earnings per share are significantly lower in
fiscal 1998 versus fiscal 1997, they are not directly comparable, because of
significantly higher tax rates in fiscal 1998.
In fiscal 1998, state and federal taxes on earnings were approximately 37% while
in fiscal 1997 a benefit of $1.2 million was derived as noted above and added to
earnings and earnings per share. In fiscal years 1997 and 1996, due to net
operating loss carryforwards, earnings were taxed at only approximately 6.5% and
6.1%, respectively. Comparing all years on an equivalent tax basis with fiscal
1998, the results are as follows:
Fully taxed earnings and earnings per share on an equivalent tax basis with
fiscal 1998:
(dollars in thousands except per share data)
<TABLE>
<CAPTION>
YEAR ENDED
-----------------------------------------------------------------
1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fully taxed net earnings $ 4,764 $ 4,418 $ 2,379
Basic net earnings per share $ .31 $ .28 $ .16
Diluted net earnings per share $ .30 $ .28 $ .15
=====================================================================================================================
</TABLE>
FINANCIAL CONDITION AND LIQUIDITY
Over the last few years, we have worked to improve our balance sheet and overall
financial condition.
The following shows our equity and debt:
STOCKHOLDERS' EQUITY AND DEBT
(dollars in thousands)
<TABLE>
<CAPTION>
YEAR ENDED
------------------------------------------------------
1998 1997
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Stockholders' equity $ 29,642 $ 25,543
Debt $ 16,285 $ 6,133
=============================================================================================================
</TABLE>
39
<PAGE> 40
Events which have impacted us over the last two fiscal years are:
In fiscal 1997, we renegotiated the terms of our senior lending arrangement with
NationsBank, N.A. on more favorable terms than the previous agreement. This
helped us lower interest costs and provides adequate working capital for planned
operations through fiscal 1999.
Also in fiscal 1997, we redeemed $3.4 million of 12% Subordinated Notes due in
1998, which further reduced interest costs.
In fiscal 1998, we purchased our headquarters building in St. Louis, Missouri
and financed the purchase with a $6.2 million mortgage loan to reduce operating
costs. In addition, cash was used to purchase other capital items totaling $2.0
million in fiscal 1998 compared with $1.7 million in fiscal 1997 and $1.1
million in fiscal 1996.
The aggregate maturities of all debt over the next three years, excluding the
revolving credit agreement and amounts due on our mortgage loan are $1.1 million
in fiscal 1999; $1.1 million in fiscal 2000 and $1.1 million in fiscal 2001. We
expect to meet these obligations with cash generated from operations and funds
available under our revolving credit agreement.
Early in fiscal 1998, we invested $2.0 million in TRANSMEDICA. We converted $1.2
million of accounts receivable classified as other assets, net plus $800,000 in
cash as payment for this investment. With this investment, we have invested $2.3
million and own approximately 9.5% of TRANSMEDICA's common stock.
In June 1998, we reached new agreements with TRANSMEDICA concerning our
exclusive manufacturing rights; payment terms for open receivables; and payments
for future units produced. With the agreements, our manufacturing rights were
expanded to include all of North and South America and Europe. Secondly, we
agreed to accept a $2.0 million, one year, interest-bearing note, secured by all
of the assets of TRANSMEDICA, for the $900,000 then owed us and up to an
additional $1.1 million to finance new production by LaBarge. Further, we
received warrants to purchase an additional 4% of TRANSMEDICA's common stock for
$25 per share.
Also during fiscal 1998, we made a $500,000 investment equating to an
approximate 10% ownership position in Open Cellular Systems, Inc. of St. Louis.
Open Cellular Systems uses shared access communication networks to provide
wireless communication solutions to the general industrial and utility markets.
The capabilities of Open Cellular complement those of LaBarge and management
believes this alliance may provide future opportunities for LaBarge. The Company
accounts for this investment at cost.
In January 1998, the Board of Directors authorized the purchase of up to
1,000,000 shares of common stock on the open market. This was due to the low
valuation of LaBarge stock in the market place in relation to comparable
companies. As of June 28, 1998, we had acquired 162,950 shares.
Due to increased accounts receivable and inventories in support of higher sales,
we only generated $161,000 in cash from operations in fiscal 1998 compared with
$8.2 million in fiscal 1997. This, combined with all of the items mentioned
above, resulted in an increase in borrowings of $10.7 million.
YEAR 2000
We are currently reviewing our exposure to year 2000 computer-related risks. We
are reviewing all internal systems, as well as those of suppliers and customers,
to evaluate any potential impact on January 1, 2000 and beyond.
40
<PAGE> 41
To date, we believe that all internal systems will be compliant or at least have
no material adverse effect on our ability to operate on or after January 1,
2000. No significant program revisions have been identified which would result
in significant cost in future periods. We anticipate, but cannot be assured,
that should a problem arise, we will be able to take necessary steps to minimize
the impact with minimal or no material effect on the results of the Company or
its customers.
The cost of this effort thus far has been immaterial and has been included in
operating expenses.
41
<PAGE> 42
Schedule II
LABARGE, INC.
VALUATION AND QUALIFYING ACCOUNTS
(DOLLARS IN THOUSANDS)
YEARS ENDED JUNE 28, 1998,
JUNE 29, 1997 AND JUNE 30, 1996
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>
1996 $ 168 $ 59 $ 40 $ 187
1997 187 - 39 148
1998 $ 148 $ 31 $ 29 $ 150
</TABLE>
INVENTORY RESERVE
This account represents amounts in inventory which may become valueless in
future periods, but as of the balance sheet date, are 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>
1996 $ 100 $ 330 $ 233 $ 197
1997 197 750 494 453
1998 $ 453 $ 695 $ 646 $ 502
</TABLE>
DEFERRED TAX ASSET VALUATION ALLOWANCE
This account represents the value of the Company's Deferred Tax Asset as a
result of Net Loss Carryforwards from prior periods which might not be realized
in future periods.
<TABLE>
<CAPTION>
Decreases
Balance Due to Earnings Balance
Beginning & Higher Expected End of
Year of Period Value of Asset Period
---- ----------- ----------------- ----------
<S> <C> <C> <C>
1996 $ 4,779 $ 1,163 $ 3,616
1997 3,616 3,616 -
1998 $ - $ - $ -
</TABLE>
42
<PAGE> 1
Exhibit 23(a)
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
LaBarge, Inc.:
We consent to incorporation by reference in the Registration Statements No.
33-53583 and 33-31330 on Form S-8 of LaBarge, Inc. of our report dated August
7, 1998, relating the consolidated balance sheets of LaBarge, Inc. and
subsidiaries as of June 28, 1998 and June 29, 1997, 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 28,
1998, which report appears in the June 28, 1998 Annual Report on Form 10-K of
LaBarge, Inc.
s/KPMG Peat Marwick LLP/s
-------------------------
KPMG Peat Marwick LLP
St. Louis, Missouri
September 4, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-28-1998
<PERIOD-END> JUN-28-1998
<CASH> 540
<SECURITIES> 0
<RECEIVABLES> 18,332
<ALLOWANCES> 150
<INVENTORY> 18,968
<CURRENT-ASSETS> 40,699
<PP&E> 11,254
<DEPRECIATION> 10,707
<TOTAL-ASSETS> 58,992
<CURRENT-LIABILITIES> 19,187
<BONDS> 0
0
0
<COMMON> 156
<OTHER-SE> 29,486
<TOTAL-LIABILITY-AND-EQUITY> 58,992
<SALES> 99,292
<TOTAL-REVENUES> 99,292
<CGS> 76,420
<TOTAL-COSTS> 90,827
<OTHER-EXPENSES> 82
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 997
<INCOME-PRETAX> 7,550
<INCOME-TAX> 2,766
<INCOME-CONTINUING> 4,764
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,764
<EPS-PRIMARY> .31
<EPS-DILUTED> .30
</TABLE>
