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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year Commission file
ended June 27, 1999 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.)
9900A 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
Title of Class: which registered:
Common Stock, $.01 par value American Stock Exchange
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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 20, 1999, 14,746,216 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 $26 million, based upon
the closing price of the common stock on the American Stock Exchange on August
20, 1999.
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
GENERAL
Statements contained in this Report which are not historical facts are
forward-looking statements within the meaning of the federal securities laws.
Forward-looking statements involve risks and uncertainties. Future events and
the Company's actual results could differ materially from those contemplated by
those forward-looking statements. Important factors which could cause the
Company's actual results to differ materially from those projected in, or
inferred by, forward-looking statements are (but are not necessarily limited to)
the following: the impact of increasing competition or deterioration of economic
conditions in the Company's markets; cutbacks in defense spending by the U.S.
Government; lack of acceptance by the market for the BusCall(TM) product; lack
of acceptance by the market for the products of LaBarge's Network Technologies
Group; the outcome of certain legal actions between LaBarge and TransMedica
International, Inc. regarding a note receivable and LaBarge's investment in
TransMedica; the outcome of other litigation the Company is party to;
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") is a Delaware Corporation. The
Company is engaged in the following primary business activities:
- - The MANUFACTURING SERVICES GROUP is the Company's core manufacturing
business, which has been its principal business since 1985. This group
designs, engineers and produces sophisticated electronic systems and
devices and complex interconnect systems on a contract basis for its
customers. In fiscal 1999, the Company derived approximately 88% of its
total revenues from this group.
- - LABARGE CLAYCO WIRELESS, L.L.C. ("LaBarge Clayco Wireless") provides
turnkey construction, engineering and equipment installation services for
the wireless telecommunications industry. In fiscal 1999, the Company
derived approximately 12% of its total revenue from this business.
- - The NETWORK TECHNOLOGIES GROUP is the Company's newest business activity.
This business became part of the Company in fiscal 1999 through the
acquisition of Open Cellular Systems, Inc. ("OCS"). The group designs and
markets proprietary cellular and network communication system products and
Internet services that provide monitoring and control of remote industrial
and municipal utility equipment. Results of the group are included in the
consolidated results of the Company since the date of the OCS acquisition,
March 2, 1999. In fiscal 1999, limited revenue was derived from this group.
- - NOTICOM L.L.C. JOINT VENTURE
In the first quarter of fiscal 1999, LaBarge and Global Research Systems,
Inc. of Rome, Georgia ("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 to be marketed by NotiCom is BusCall(TM) which
provides households with advance notice of the impending arrival of school
buses. In fiscal 1999, the NotiCom investment was accounted for using the
equity method. Throughout fiscal 1999, NotiCom was a development-stage
company.
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STRATEGY
The Company's business strategy is to continue to grow its core electronics
manufacturing services business while developing or acquiring proprietary
capabilities, technologies and products related to its core competencies in
electronics.
INFORMATION ABOUT EACH BUSINESS ACTIVITY
MANUFACTURING SERVICES GROUP
This group provides contract manufacturing and engineering services to customers
in diverse markets. The group markets its services to companies desiring an
engineering and manufacturing partner capable of developing and producing
high-reliability electronic equipment, including products capable of performing
in harsh environmental conditions, such as high and low temperature, severe
shock and vibration. The group serves customers in a variety of markets with
significant revenues from defense, aerospace and geophysical customers. The
group's manufacturing facilities are located in Arkansas, Missouri, Oklahoma and
Texas. The group employs approximately 620 people.
The backlog for this group at June 27, 1999 was approximately $42.7 million,
compared with $57.5 million at June 28, 1998. The backlog consisted of orders
from various defense customers equaling $26.6 million compared with $37.8
million at June 28, 1998, and orders from commercial customers equaling $16.1
million compared with $19.7 million at June 28, 1998. Generally, lead times for
commercial orders are much shorter and orders are placed on a just-in-time
delivery basis. Substantially, all of the defense backlog at June 27, 1999 is
pursuant to contracts containing cancellation and termination provisions.
Approximately $9.0 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 $19.9 million at fiscal 1998 year-end.
ORGANIZATION
The Company has organized the Manufacturing Services Group with a senior vice
president with overall responsibility for the group. He reports to the Chief
Executive Officer and President of LaBarge, Inc.
SALES AND MARKETING
In the Manufacturing Services Group there are currently 14 sales personnel, 52
engineers and 36 technicians who provide direct customer support as needed. The
group's engineering and plant management employees are involved in sales
activities. With few exceptions, the group's sales are made pursuant to
fixed-price contracts. Larger, long-term government contracts generally have
provisions for milestone or progress payments. This group typically carries
inventories only related to specific contracts, and title passes to the customer
when products are shipped.
The group seeks to develop strong, long-term relationships with its customers,
which will provide the basis for future sales. These close relationships allow
this group to better understand the customer's business needs and identify ways
to provide greater value to the customer.
DEFENSE CUSTOMERS
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 47% of total Company sales in fiscal 1999 and 51% in fiscal 1998
were defense-related.
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COMMERCIAL AEROSPACE CUSTOMERS
The group 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 14% of the Company's total
sales for fiscal 1999 were for aerospace applications compared to 10% in fiscal
1998.
GEOPHYSICAL CUSTOMERS
The group designs and manufactures a variety of electronic products for
customers engaged in oil and gas exploration, drilling and production. Products
include cabling, seismic analysis computers, down-hole instrumentation and
high-power drive controls. LaBarge also designs and produces hybrid circuits
used in similar applications. Approximately 17% of total Company sales in fiscal
1999 were to geophysical customers compared with 25% in fiscal 1998. This
decrease in volume is attributable to an industry-wide reduction in purchases of
capital equipment by oil field service companies.
COMPETITION
There is intense competition for all of the Manufacturing Services Group's
targeted customers. While the group is not aware of another entity that competes
in all of its capabilities, there are numerous companies, many larger than
LaBarge, which compete in one or more of these capabilities. Frequently, the
group's customers have the ability to produce internally 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 service, price, engineering expertise, technical and
manufacturing capability, quality and reliability, and overall project
management capability.
CONCENTRATION OF BUSINESS
Two customers of the Manufacturing Services Group in fiscal 1999, each with
multiple operating units, together accounted for in excess of 38% of the
Company's consolidated sales for the year: Lockheed Martin, which operates in
the aerospace/defense market, accounted for 25% of total sales; Schlumberger,
which operates in the geophysical market, accounted for 13% of total sales; no
other customer accounted for more than 7% of sales. Sales to the largest 10
customers represented approximately 68% of the Company's total sales. By
comparison, in fiscal 1998, sales to the largest 10 customers represented 67% of
the Company's total sales.
MANUFACTURING OPERATIONS
The Manufacturing Services Group has organized its engineering and production to
provide flexible independent plant locations with specific design and
manufacturing capabilities. 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.
LABARGE CLAYCO WIRELESS
This business provides turnkey construction, engineering and equipment
installation services for the wireless telecommunications industry. It was
started in fiscal 1996 as a 50%/50% joint venture with Clayco Construction
Company in St. Louis, Missouri. The operating results of LaBarge Clayco Wireless
were accounted for on the equity method in fiscal 1997. In the second quarter of
fiscal 1998, LaBarge increased its ownership interest in LaBarge Clayco Wireless
to 51% and began consolidating the total operations of this joint venture. In
the second quarter of fiscal 1999, the Company purchased from Clayco
Construction Company an additional 39% of LaBarge Clayco Wireless for $300,000
to increase its ownership to 90%. It was split out as a separate segment in
fiscal 1999 due to the changes in ownership and its growth in revenues.
LaBarge Clayco Wireless' sales for the year ending June 27, 1999 were $10.6
million, or 12% of
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consolidated sales, versus $3.7 million, or 4% of consolidated sales, for the
fiscal year ending June 28, 1998. The backlog at June 27, 1999 was approximately
$1.5 million compared with $2.6 million for June 28, 1998. Generally, lead times
on the commercial projects serviced by this group are short and orders are
placed on an immediate delivery basis.
ORGANIZATION
LaBarge Clayco Wireless is led by a president who reports to the Chief Executive
Officer and President of LaBarge, Inc. The president of LaBarge Clayco Wireless
has overall responsibility for the performance of this business. Reporting to
him are one sales person, 10 project managers and support personnel along with
23 field personnel. The main office is in St. Louis, Missouri.
SALES AND MARKETING
This segment's primary focus is on the rapidly growing telecommunications
wireless market, with special emphasis on Personal Communication Systems
("PCS"). The primary sales are in wireless network construction, commonly
referred to as infrastructure. Customers include wireless telephone service
providers and wireless tower companies who lease space on their towers to
wireless telephone service providers.
COMPETITION
This group competes against contractors and subcontractors who are capable of
doing all or some of the work LaBarge Clayco Wireless performs as well as the
wireless telephone providers who do some or all of the work themselves.
SIGNIFICANT CUSTOMERS
Two customers, each with multiple operations, accounted for 74% of this group's
sales in fiscal 1999.
NETWORK TECHNOLOGIES GROUP
In fiscal 1999, the Company formed its Network Technologies Group by acquiring
privately held Open Cellular Systems, Inc. ("OCS"). The group designs and
markets cellular and network communication system products and internet services
that provide monitoring and control of remote industrial and municipal utility
equipment. The systems designed by the Network Technologies Group use existing
cellular telephone infrastructure and Internet technologies to provide companies
with low-cost, two-way data communication. The group has identified broad
applications for its network communication system services, including systems
designed to monitor and control railroad crossing equipment, oil and gas
pipelines, industrial process equipment and power distribution networks. A
description of the acquisition follows:
In March 1999, the Company acquired the remaining 90% of the stock of privately
held OCS for approximately $5.6 million. Prior to the acquisition, LaBarge held
a 10% equity stake in OCS, which it acquired in October 1997 for $500,000. The
purchase price was paid by issuing Subordinated Convertible Notes ("Notes") due
in June 2003 and bearing interest of 7.5% per annum payable quarterly beginning
June 29, 1999. Each share of OCS stock was valued at $4.25 in the transaction.
Under the terms of the Notes, each holder has the right to convert the Notes
into LaBarge, Inc. Common Stock at a conversion price of $8.00 per share at any
time after the first anniversary of the Notes up to their maturity date.
Further, the note holders are entitled to receive participation payments from
the Company for each fiscal year through 2003 equal to the amount by which 35%
of the net income of OCS exceeds the 7.5% interest paid on the Notes for the
fiscal year.
On March 2, 1999, 1,008,622 shares of OCS common stock were exchanged for $4.3
million of Subordinated Convertible Notes. Options to acquire 310,000 shares of
OCS common stock were converted to 310,000 shares of common stock of
LaBarge-OCS, Inc., the acquiring subsidiary, and represent shares acquired by
the holders through exercise of employee stock options. These shares
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are callable by LaBarge, Inc. in accord with a call agreement whereby the
Company, at its discretion, may exchange the shares for Subordinated Convertible
Notes at $4.25 per share or $1.3 million after the first anniversary of the
acquisition (March 2, 2000) and prior to June 15, 2000. This dollar amount is
included in other current liabilities. The Company recorded goodwill of $6.8
million in this transaction, which is being amortized over seven years.
The Company used the purchase method of accounting to record this acquisition.
The results of operations of LaBarge-OCS, Inc. have been included in the
consolidated results of operations of LaBarge since the date of acquisition.
ORGANIZATION
The Network Technologies Group is led by two vice presidents who report to the
Chief Executive Officer and President of LaBarge, Inc. One is responsible for
marketing and business development for the group. The other oversees engineering
and operations.
SALES AND MARKETING
This group's initial market focus is on the railroad industry, which uses the
group's proprietary product, devices and services to monitor railroad crossing
equipment, and the oil and gas pipeline industry which uses the products,
devices and services to monitor cathodic protection devices throughout their
systems.
The group has two full-time sales personnel and utilizes the services of
independent sales representatives to market its products.
Sales in fiscal 1999 were minimal.
COMPETITION
The group has various competitors who market devices to report failures of
remote industrial equipment via hard-wired or radio telephone devices. None of
the competitors are known to market products which provide this service as cost
effectively as the Network Technologies Group.
OPERATIONS
The Network Technologies Group does no manufacturing. The Manufacturing Services
Group is the manufacturer of the Network Technologies Group's products.
The group has an Internet monitoring and notification operation in the
metropolitan Kansas City area to report a variety of events, including alarm
conditions, to its customers.
NOTICOM L.L.C. JOINT VENTURE
In the first quarter of fiscal 1999, 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 to be marketed by NotiCom is BusCall. BusCall uses a combination of
technologies, including Global Positioning System satellite location data,
wireless communications techniques and telephony, to notify parents by phone
when their children's school bus is approaching the bus stop. It is being
marketed to telephone companies and other potential service providers, which can
offer BusCall as a value-added service. LaBarge's Manufacturing Services Group
is the exclusive manufacturer of all products sold by NotiCom.
LaBarge and Global each initially had 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
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in cash in NotiCom along with $500,000 of development services. In addition,
LaBarge has paid Global $1.7 million for a 50% interest in intellectual
properties and has licensed the technology to NotiCom.
The Company is obligated 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 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. It
appears unlikely at this time that such targets will be met; therefore, the
Company has not recorded the contingent purchase price.
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. Given the
risks inherent in a start-up operation, the Company elected, during the fourth
quarter of fiscal 1999, to amortize the technology over three years. For the
fourth quarter, the amortization of this investment was approximately $310,000
and for the next two years, non-cash amortization is expected to be $1.75
million per year. In fiscal 1999, this investment was accounted for using the
equity method.
In July and August 1999, NotiCom needed additional cash infusions totaling
approximately $400,000 to continue its development and marketing efforts.
LaBarge has made such contributions, which has increased LaBarge's equity
interest in NotiCom.
ORGANIZATION
The joint venture is headed by a president who reports to a board of managers,
consisting of representatives from LaBarge and Global.
SALES AND MARKETING
The BusCall product is being marketed to various telephone-operating companies
as a value-added service. Two such companies used the system successfully in the
1998-1999 school year and one will be increasing the service for the 1999-2000
school year. In addition, new opportunities representing significantly larger
system utilization are being planned for fiscal 2000.
SIGNIFICANT EVENT
TRANSMEDICA INTERNATIONAL, INC.
On June 2, 1999, TransMedica International, Inc., ("TransMedica") defaulted on
the payment of a $2.0 million note due the Company. As a result, the Company
reevaluated the value of its assets related to TransMedica and decides to
reserve the full amount ($4.6 million). The Company is continuing its effort to
recover the amounts it believes are owed it by TransMedica.
HISTORY
In fiscal 1993, LaBarge, Inc. entered into an agreement with TransMedica
(formerly known as Venisect, Inc.) to design, develop and manufacture a patented
medical laser device, the Laser Lancet(R).
Since August 1995, the Company has acquired approximately 9.5% of TransMedica's
common stock for $2.3 million. The Company made an initial $250,000 cash
investment in fiscal 1996, and converted approximately $1.2 million of accounts
receivable and provided an additional $800,000 in operating capital in fiscal
1997. In June 1998, TransMedica issued the Company an interest-bearing
promissory note in the amount of $2.0 million and warrants to purchase an
additional 4% of TransMedica stock for $25 per share in exchange for $900,000 of
accounts receivable and additional credit of $1.1 million for new production of
Laser Lancet devices. The note is secured by substantially all of TransMedica's
assets.
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On October 16, 1998, the Company filed a Petition for Specific Performance and
Declaratory Judgment in the Circuit Court for St. Louis County, Missouri,
seeking resolution of LaBarge's right to develop and manufacture new laser
products and determination of the number of Laser Lancet devices TransMedica is
presently obligated to purchase from LaBarge under an exclusive manufacturing
agreement between the two companies.
On June 3, 1999, the Company amended its suit to include payment of the $2.0
million note receivable that was due June 2, 1999, and which remains unpaid as
of August 20, 1999.
CAPITAL STRUCTURE
On June 25, 1999, the Company amended its senior loan agreement with Bank of
America. The Company entered into a loan agreement on June 25, 1996, with
NationsBank, N.A. which subsequently merged with Bank of America. The original
agreement included a term loan and revolving credit facility totaling $20.0
million.
The current amendment reestablished the bank's secured position, reinstated a
borrowing base limitation on the revolver and established new covenants and
performance measures to reflect the effect of LaBarge's new investments (NotiCom
and OCS), as well as the reserve for loss on the TransMedica assets in fiscal
1999.
The following is a summary of the current senior loan agreement:
- - An $11.0 million term loan requiring repayments of principal quarterly.
This loan matures in September 2005.
- - A revolving credit facility up to $15.0 million based on a borrowing base
formula equal to the sum of 85% of eligible receivables, 50% of eligible
finished goods inventories, 30% of other eligible inventories, 50% of the
net book value of equipment and 75% of the net book value of real property,
less the current term loan balance and outstanding letters of credit. As
of June 27, 1999, the maximum allowable was approximately $2.3 million. The
revolver borrowing at fiscal 1999 year-end was $130,000.
- - Covenants and performance criteria which involve Earnings Before Interest,
Taxes, Depreciation and Amortization ("EBITDA") and in addition, after June
30, 2000, EBITDA in relation to debt and EBITDA in relation to fixed
charges.
- - Interest on the loans at prime or a stated rate over LIBOR based on certain
ratios. As of year-end, the average rate was approximately 7.0%.
In addition to the senior lending agreement, borrowings consist of the
following:
Mortgage Loan:
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 has a 25-year amortization, a 7.5% interest rate and is due
in January 2008.
Secondary Line of Credit:
LaBarge Clayco Wireless L.L.C has a revolving line of credit with
Mercantile Bank N.A. This line is in the amount of $1.0 million and matures
November 1999. The interest rate on this note is 1/4% over the bank's prime
rate. At fiscal 1999 year-end, the outstanding amount was $800,000 at an
interest rate of 8.25%. The Company anticipates renegotiating the revolving
line of credit prior to expiration on terms generally consistent with those
currently in place.
Subordinated Convertible Notes:
On March 2, 1999, the Company, through its subsidiary LaBarge-OCS, Inc.,
purchased the remaining 90% of OCS for $5.6 million by (1) exchanging its
Subordinated Convertible Notes ("Notes") due June 2003 in the principal
amount of $4.3 million for the outstanding shares of OCS, and (2)
exchanging 310,000 shares of LaBarge-OCS, Inc. common stock for outstanding
options to purchase OCS common shares. The Notes bear interest at 7.5%
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per annum payable quarterly beginning June 29, 1999, and noteholders are
entitled to participation payments if LaBarge-OCS, Inc. achieves certain
levels of earnings before taxes. The Notes are convertible by the holders
into LaBarge, Inc. Common Stock at $8.00 per share at any time after the
first anniversary of the Notes up to their maturity date. The 310,000
shares of LaBarge-OCS, Inc. common stock may be exchanged for $1.3 million
of Notes, at the option of the Company, after March 2, 2000, but before
June 15, 2000.
Industrial Revenue Bonds:
In July 1998, the Company acquired a tax-exempt Industrial Revenue Bond
through GE Capital Public Finance, Inc. in the amount of $1.3 million. The
debt is payable over 10 years with an interest rate of 5.28%. This funding
was used to expand the Berryville, Arkansas, facility.
The ratio of debt-to-equity as of June 27, 1999 was .95 to 1, compared with .55
to 1 at June 28, 1998.
ENVIRONMENTAL COMPLIANCE
Compliance with federal, state and local environmental laws is not expected to
materially affect the capital expenditures, earnings or competitive position of
any segment of the Company.
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 1999, fiscal 1998 and fiscal 1997 were less than 10% of total
Company revenue.
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
- -------------------------- -------------------------- --------------------- -------------------- -------------------
<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 4 33,000 2002
Lenexa, KS Offices - 4,137 2001
St. Louis, MO Offices 8 65,176 Owned
St. Louis, MO Offices &
Warehousing - 7,437 2002
Tulsa, OK Manufacturing &
Offices 3 62,599 2002
- -------------------------- -------------------------- --------------------- -------------------- -------------------
</TABLE>
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ITEM 3. LEGAL PROCEEDINGS
On October 16, 1998, the Company filed a Petition for Specific Performance and
Declaratory Judgment in the Circuit Court for St. Louis County, Missouri,
seeking a resolution of LaBarge's right to develop and manufacture a new laser
product and determination of the number of Laser Lancet devices TransMedica
International, Inc. is obligated to purchase from LaBarge under an exclusive
manufacturing agreement between the two companies. On June 3, 1999, the Company
amended its suit to include payment of TransMedica's delinquent $2.0 million
note receivable that was due June 2, 1999.
In May 1999, TransMedica filed a counterclaim against LaBarge seeking dismissal
of LaBarge's petition, damages in an indeterminate amount, punitive damages,
costs and attorney's fees relating to several counts alleging breach of
contract, warranty and fiduciary duty by LaBarge and a declaration that a small
laser device developed by a third party is not subject to TransMedica's
agreement with LaBarge. TransMedica also filed a separate action against LaBarge
in the Circuit Court in Little Rock, Arkansas, containing the same counts and
seeking the same relief as in its counterclaim. The Arkansas proceeding has been
stayed pending resolution of the St. Louis County proceeding. LaBarge intends to
vigorously pursue its petition against TransMedica and to defend against
TransMedica's claims and counterclaims.
At this time, it is too early to determine what, if any, recovery or liability
LaBarge might have as a result of this suit. The Company has reserved 100% of
the value of its TransMedica assets and recorded a loss of $4.6 million in
fiscal 1999 as a result.
In August 1999, Jerome S. Stein filed a Petition in the Circuit Court for the
City of St. Louis against the Company and its former chairman, Pierre L.
LaBarge, Jr., seeking damages in an indeterminate amount in excess of $25,000,
plus interest and court costs. Mr. Stein alleges in his claim against the
Company that the Company agreed to pay him 1% of any increase in value of
LaBarge's outstanding common stock in exchange for certain promotional services.
The Company denies any such arrangement with Mr. Stein, believes the suit to be
totally without merit, and intends to defend it vigorously.
The Company does not believe that either case, 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 27, 1999.
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 19 filed herewith.
ITEM 6. SELECTED FINANCIAL DATA
Reference is made to the information contained in the section entitled "Selected
Financial Data" on page 19 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 45 through 53 filed herewith.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Foreign Currency Risk
No information has been included hereunder because the Company's foreign sales
in each of fiscal 1999, fiscal 1998 and fiscal 1997 were less than 10% of total
Company revenue. All foreign contracts are paid in U.S. dollars and the Company
is not significantly exposed to foreign currency translation. However, if the
significance of foreign sales grows, management will continue to monitor whether
it would be appropriate to use foreign currency risk management instruments to
mitigate any exposures.
Interest Rate Risk
As of June 27, 1999, the Company had $23.0 million in total debt. $11.8 million
is made up of a mortgage loan, subordinated debt, and industrial revenue bonds.
This debt has a fixed rate and is not subject to interest rate risk. The
interest rate on the remaining $11.2 million is subject to fluctuation. The
additional interest cost to the company if interest rates went up 1% would be
$112,000 for one year.
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Reference is made to the "Index to Consolidated Financial Statements and
Schedule" contained on page 18 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.
11
<PAGE> 12
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"
contained on page 18.
b. Reports on Form 8-K.
No reports on Form 8-K were filed by the Company in the fourth
quarter of fiscal 1999.
c. Exhibits.
d. Consolidated Financial Statement Schedule.
See "Index to Consolidated Financial Statements and Schedule"
contained on page 18.
e. Exhibits.
Exhibit
Number Description
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.
12
<PAGE> 13
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 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 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
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 incorporated
herein by reference.
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.
10.1(f) Seventh Amendment to the First Amendment and Restatement of the
LaBarge, Inc. Employees Savings Plan executed on August 11, 1999.
Previously filed with the Securities and Exchange Commission with the
Company Annual Report on Form 10-K on September 27, 1999 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 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
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 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
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 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 incorporated
herein by reference.
13
<PAGE> 14
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 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 incorporated
herein by reference.
10.8 First 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 incorporated herein
by reference.
10.8(a) Third Amendment to Loan Agreement between Bank of America, formerly
NationsBank, N.A. and LaBarge, Inc., LaBarge/STC, Inc., LaBarge
Wireless, Inc. and LaBarge-OCS, Inc. dated June 25, 1999 and attached
hereto as reference. Previously filed with the Securities and Exchange
Commission with the Company Annual Report on Form 10-K on September
27, 1999 and incorporated herein by reference.
10.9 First Amendment to the LaBarge, Inc. Employee Stock Purchase Plan.
Previously filed with the Securities and Exchange Commission with the
Company's Quarterly Report on Form 10-Q on May 12, 1999 and
incorporated here in by reference.
10.10 Second Amendment to the 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
Quarterly Report on Form 10-Q on November 9, 1998 and incorporated
herein by reference.
10.11 Settlement Agreement dated June 2, 1998, between TransMedica
International, Inc. and LaBarge, Inc., with an Index of omitted
exhibits and schedules and agreement by LaBarge to furnish such
omitted exhibits and schedules upon request. Previously filed with
the Securities and Exchange Commission with the Company Annual Report
on Form 10-K on September 27, 1999 and incorporated herein by
reference.
10.12 Purchase Agreement dated July 22, 1998 between Global Research
Systems, Inc. and LaBarge, Inc. Previously filed with the Securities
and Exchange Commission with the Company Annual Report on Form 10-K on
September 27, 1999 and incorporated herein by reference.
10.13 Operating Agreement of NotiCom L.L.C. Previously filed with the
Securities and Exchange Commission with the Company Annual Report on
Form 10-K on September 27, 1999 and incorporated herein by reference.
10.14 Agreement and Plan of Merger dated February 9, 1999, among LaBarge,
Inc., LaBarge-OCS, Inc. and Open Cellular Systems, Inc., with an
Index of omitted exhibits and schedules and agreement by LaBarge to
furnish such omitted exhibits and schedules upon request. Previously
filed with the Securities and Exchange Commission with the Company
Annual Report on Form 10-K on September 27, 1999 and incorporated
herein by reference.
23(a)* Independent Auditors' Consents.
27* Article 5 Financial Data Schedule.
* Document filed herewith.
14
<PAGE> 15
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Amendment to the
Report to be signed on its behalf by the undersigned, thereunto duly authorized.
Dated: October 4, 1999
---------------
LaBarge, Inc.
By /s/ William J. Maender
-------------------------------
William J. Maender
Vice President - Finance
(Chief Financial and
Accounting Officer)
15
<PAGE> 16
Pursuant to the requirements of the Securities Act of 1934, this Amendment
to the 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
--------- ----- ----
<S> <C> <C>
/s/ * Chairman Emeritus and Director 10-4-99
------------------------------------------ --------------
Pierre L. LaBarge, Jr.
/s/ Craig E. LaBarge President (Chief Executive Officer) 10-4-99
------------------------------------------ and Director --------------
Craig E. LaBarge
/s/ William J. Maender Vice President-Finance (Chief 10-4-99
------------------------------------------ Financial Officer), Secretary and
William J. Maender Treasurer --------------
/s/ * Director 10-4-99
------------------------------------------ --------------
Robert H. Chapman
/s/ * Director 10-4-99
------------------------------------------ --------------
Richard P. Conerly
/s/ * Director 10-4-99
------------------------------------------ --------------
John G. Helmkamp, Jr.
/s/ * Director 10-4-99
------------------------------------------ --------------
J. C. Kuhn, Jr.
/s/ * Director 10-4-99
------------------------------------------ --------------
Lawrence J. LeGrand
/s/ * Director 10-4-99
------------------------------------------ --------------
James P. Shanahan, Jr.
/s/ * Director 10-4-99
------------------------------------------ --------------
Jack E. Thomas, Jr.
*By: /s/ William J. Maender
-------------------------------------
William J. Maender
Attorney in fact
</TABLE>
16
<PAGE> 17
LABARGE, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
AND SCHEDULES
PAGE
------
Consolidated Financial Statements
Independent Auditors' Report 19
Consolidated Statements of Operations, 20
Years Ended June 27, 1999
June 28, 1998 and June 29, 1997
Consolidated Balance Sheets
June 27, 1999, and June 28, 1998 21
Consolidated Statements of Cash Flows, 22
Years Ended June 27, 1999,
June 28, 1998 and June 29, 1997
Consolidated Statements of Stockholders' Equity, 23
Years Ended June 27, 1999,
June 28, 1998 and June 29, 1997
Notes to Consolidated Financial Statements, 24-43
Years Ended June 27, 1999,
June 28, 1998 and June 29, 1997
Management's Discussion and Analysis of 44-52
Financial Condition and
Results of Operations
Schedule II - Valuation and Qualifying Accounts 53
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.
Financial Statement of Investee Subsidiary
------------------------------------------
Independent Auditors' Report 54
Balance Sheet June 27, 1999 55
Statement of Operations, Period July 22, 1998 - June 27, 1999 56
Statement of Members' Equity, Period July 22, 1998 - June 27, 1999 57
Statement of Cash Flows, Period July 22, 1998 - June 27, 1999 58
Notes to Financial Statements, Period July 22, 1998 - June 27, 1999 59-61
17
<PAGE> 18
LaBarge, Inc.
SELECTED FINANCIAL DATA
(dollars in thousands except per share data)
<TABLE>
<CAPTION>
YEAR ENDED
------------------------------------------------------------------------------
JUNE 27, June 28, June 29, June 30, July 2,
1999 1998 1997 1996 1995
----------------------------------------- ---------------- --------------- -------------- --------------- --------------
<S> <C> <C> <C> <C> <C>
Net sales $ 89,143 $ 99,292 $ 96,666 $ 75,060 $ 61,646
Pretax (loss) earnings $ (3,591) $ 7,550 $ 7,001 $ 3,771 $ 1,002
Net (loss) earnings $ (3,080) $ 4,764 $ 7,735 $ 3,540 $ 1,321
----------------------------------------- ---------------- --------------- -------------- --------------- --------------
Basic net (loss) earnings per
common share $ (.20) $ .31 $ .50 $ .23 $ .09
Diluted net (loss) earnings per common
share $ (.20) $ .30 $ .49 $ .23 $ .09
----------------------------------------- ---------------- --------------- -------------- --------------- --------------
Total assets $ 59,654 $ 58,992 $ 43,459 $ 41,550 $ 31,608
Long-term obligations $ 20,290 $ 10,163 $ 5,101 $ 10,419 $ 6,467
----------------------------------------- ---------------- --------------- -------------- --------------- --------------
</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 20, 1999,
there were approximately 3,233 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 1999 and 1998, as reported by the American
Stock Exchange.
<TABLE>
<CAPTION>
1998-99 HIGH LOW
---- ---
<S> <C> <C>
July - September 5 3/8 3 3/16
October - December 3 15/16 3
January - March 3 3/8 2 1/4
April - June 2 3/4 2 1/16
</TABLE>
<TABLE>
<CAPTION>
1997-98 HIGH LOW
---- ---
<S> <C> <C>
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
</TABLE>
18
<PAGE> 19
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 27, 1999 and June 28, 1998, and the results of their
operations and their cash flows for each of the years in the three-year period
ended June 27, 1999, 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 L.L.P.
August 9, 1999
19
<PAGE> 20
LaBarge, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands except per share data)
<TABLE>
<CAPTION>
YEAR ENDED
----------------------------------------------------------------
JUNE 27, June 28, June 29,
1999 1998 1997
- ----------------------------------------------------------- --------------------- ---------------------- -------------------
<S> <C> <C> <C>
NET SALES $ 89,143 $ 99,292 $ 96,666
- ----------------------------------------------------------- --------------------- ---------------------- -------------------
COSTS AND EXPENSES:
Cost of sales 71,416 76,420 77,442
Selling and administrative expense 14,269 14,407 11,380
Loss due to revaluation of impaired assets 4,573 - -
Interest expense 1,451 997 942
Equity in loss (income) of joint venture - 120 (4)
Loss from NotiCom 1,221 - -
Minority interest income (loss) 165 (89) -
Other income, net (361) (113) (95)
- ----------------------------------------------------------- --------------------- ---------------------- -------------------
92,734 91,742 89,665
- ----------------------------------------------------------- --------------------- ---------------------- -------------------
NET (LOSS) EARNINGS BEFORE INCOME TAXES (3,591) 7,550 7,001
INCOME TAX (BENEFIT) EXPENSE (511) 2,786 (734)
- ----------------------------------------------------------- --------------------- ---------------------- -------------------
NET (LOSS) EARNINGS $ (3,080) $ 4,764 $ 7,735
=========================================================== ===================== ====================== ===================
BASIC NET (LOSS) EARNINGS
PER COMMON SHARE $ (.20) $ .31 $ .50
AVERAGE COMMON SHARES OUTSTANDING 15,157 15,604 15,626
=========================================================== ===================== ====================== ===================
DILUTED NET (LOSS) EARNINGS
PER COMMON SHARE $ (.20) $ .30 $ .49
AVERAGE COMMON SHARES OUTSTANDING 15,157 15,723 15,790
=========================================================== ===================== ====================== ===================
</TABLE>
See accompanying notes to consolidated financial statements.
20
<PAGE> 21
LaBarge, Inc.
CONSOLIDATED BALANCE SHEETS
(dollars in thousands except per share data)
<TABLE>
<CAPTION>
JUNE 27, June 28,
1999 1998
- --------------------------------------------------------------------------------- ---------------------- -------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 495 $ 540
Accounts and notes receivable, net 12,492 18,332
Inventories 16,093 18,968
Prepaid expenses 727 772
Deferred tax assets, net 664 2,087
- --------------------------------------------------------------------------------- ---------------------- -------------------
TOTAL CURRENT ASSETS 30,471 40,699
- --------------------------------------------------------------------------------- ---------------------- -------------------
PROPERTY, PLANT AND EQUIPMENT, NET 13,188 11,254
DEFERRED TAX ASSETS, NET 1,818 -
INVESTMENT IN NOTICOM 2,780 -
INTANGIBLE ASSETS, NET 6,941 471
OTHER ASSETS, NET 4,456 6,568
- --------------------------------------------------------------------------------- ---------------------- -------------------
$ 59,654 $ 58,992
================================================================================= ====================== ===================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings $ 930 $ 5,020
Current maturities of long-term debt 1,771 1,102
Trade accounts payable 5,847 6,034
Accrued employee compensation 3,873 4,710
Other accrued liabilities 2,863 2,321
- --------------------------------------------------------------------------------- ---------------------- -------------------
TOTAL CURRENT LIABILITIES 15,284 19,187
- --------------------------------------------------------------------------------- ---------------------- -------------------
LONG-TERM SENIOR DEBT 15,866 10,163
SUBORDINATED DEBT 4,424 -
- --------------------------------------------------------------------------------- ---------------------- -------------------
TOTAL LIABILITIES 35,574 29,350
- --------------------------------------------------------------------------------- ---------------------- -------------------
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value. Authorized 40,000,000 shares; issued
15,711,395 shares at June 27, 1999 and 15,658,280 at June 28, 1998,
including shares in treasury 157 156
Additional paid-in capital 13,615 13,468
Retained earnings 13,403 16,683
Less cost of common stock in treasury, 955,853 shares at
June 27, 1999 and 163,649 shares at June 28, 1998 (3,095) (665)
- --------------------------------------------------------------------------------- ---------------------- -------------------
TOTAL STOCKHOLDERS' EQUITY 24,080 29,642
- --------------------------------------------------------------------------------- ---------------------- -------------------
$ 59,654 $ 58,992
================================================================================= ====================== ===================
</TABLE>
See accompanying notes to consolidated financial statements.
21
<PAGE> 22
LaBarge, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
<TABLE>
<CAPTION>
YEAR ENDED
---------------------------------------------------
JUNE 27, June 28, June 29,
1999 1998 1997
- ------------------------------------------------------------------------------- ----------------- ------------------ --------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) earnings $ (3,080) $ 4,764 $ 7,735
Adjustments to reconcile net cash provided (used) by Operating activities:
Loss due to revaluation of impaired assets 4,573 - -
Undistributed loss from NotiCom 984 - -
Undistributed loss (earnings) in equity of joint venture - 120 (4)
Loss on disposal of property and equipment 16 - -
Minority interest income (loss) 165 (89) -
Depreciation and amortization 2,236 1,393 1,012
Deferred taxes (395) 2,339 (1,176)
Changes in assets and liabilities, net of acquisitions:
Accounts and notes receivable, net 3,763 (4,422) (529)
Inventories 2,777 (4,672) 3,313
Prepaid expenses 48 29 (449)
Other assets - - (1,175)
Trade accounts payable (917) 182 (2,082)
Accrued liabilities (174) 517 1,522
- ------------------------------------------------------------------------------- ----------------- ------------------ --------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 9,996 161 8,167
- ------------------------------------------------------------------------------- ----------------- ------------------ --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (3,452) (8,243) (1,711)
Additions to other assets (753) (2,299) (658)
Investment in other companies (2,585) 165 -
Investment in technology (1,686) - -
- ------------------------------------------------------------------------------- ----------------- ------------------ --------------
NET CASH USED BY INVESTING ACTIVITIES (8,476) (10,377) (2,369)
- ------------------------------------------------------------------------------- ----------------- ------------------ --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Additional investment by minority interest - 300 -
Additions to long-term debt 5,960 6,200 -
Repayments of long-term debt (953) (1,066) (4,919)
(Purchase) sale of common stock (2,482) (665) 53
Net change in short-term borrowings, net of acquisitions (4,090) 4,520 (400)
- ------------------------------------------------------------------------------- ----------------- ------------------ --------------
NET CASH (USED) PROVIDED BY FINANCING ACTIVITIES (1,565) 9,289 (5,266)
- ------------------------------------------------------------------------------- ----------------- ------------------ --------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (45) (927) 532
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 540 1,467 935
=============================================================================== ================= ================== ==============
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 495 $ 540 $ 1,467
=============================================================================== ================= ================== ==============
</TABLE>
See accompanying notes to consolidated financial statements.
22
<PAGE> 23
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 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 - - - - (163,599) (665)
- ----------------------------------------- --------------- --------------- ------------- ------------- --------------- -------------
BALANCE AT JUNE 28, 1998 15,658,280 $ 156 $ 13,468 $ 16,683 (163,649) $ (665)
NET LOSS - - - (3,080) - -
ISSUED FOR THE EMPLOYEE
STOCK PURCHASE PLAN 53,115 1 147 - - -
EXERCISE OF STOCK OPTIONS - - - (200) 65,000 272
PURCHASE OF COMMON
TO TREASURY - - - - (857,204) (2,702)
========================================= =============== =============== ============= ============= =============== =============
BALANCE AT JUNE 27, 1999 15,711,395 $ 157 $ 13,615 $ 13,403 (955,853) $(3,095)
========================================= =============== =============== ============= ============= =============== =============
</TABLE>
See accompanying notes to consolidated financial statements.
23
<PAGE> 24
LaBarge, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 27, 1999, June 28, 1998 and June 29, 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
The Company is engaged in the following primary business activities:
The Manufacturing Services Group is the Company's core manufacturing business,
which has been its principal business since 1985. This group designs, engineers
and produces sophisticated electronic systems and devices and complex
interconnect systems on a contract basis for its customers in diverse markets.
In fiscal 1999, the Company derived approximately 88% of its total revenue from
this business activity.
The group markets its services to companies desiring an engineering and
manufacturing partner capable of developing and providing high-reliability
electronic equipment, including products capable of performing in harsh
environmental conditions, such as high and low temperature, severe shock and
vibration. The group serves customers in a variety of markets with significant
revenues from customers in the defense, aerospace and geophysical markets. The
group's manufacturing facilities are located in Arkansas, Missouri, Oklahoma and
Texas.
LaBarge Clayco Wireless, L.L.C. ("LaBarge Clayco Wireless") provides turnkey
construction, engineering and equipment installation services for the wireless
telecommunications industry. This group markets its services to wireless
telephone service providers and wireless tower companies who lease space on
their towers to wireless telephone service providers throughout the United
States.
In fiscal 1999, this group provided approximately 12% of the Company's total
sales.
The Network Technologies Group is the Company's newest business activity. This
group was started in fiscal 1999 with the acquisition of Open Cellular Systems,
Inc. ("OCS"). The group designs and markets proprietary cellular and network
communication system products and Internet services that provide monitoring and
control of remote industrial and municipal utility equipment. The group's
initial target markets are the railroad and oil and gas pipeline industries. In
fiscal 1999, limited revenue was derived from this group.
NOTICOM L.L.C. JOINT VENTURE
In the first quarter of fiscal 1999, LaBarge and Global Research Systems, Inc.
of Rome, Georgia ("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
to be marketed by NotiCom is BusCall(TM) which provides households with advance
notice of the impending arrival of school buses. In fiscal 1999, the NotiCom
investment was accounted for using the equity method. Throughout fiscal 1999,
NotiCom was a development-stage company.
See Note 2 "Acquisitions and Investments."
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
24
<PAGE> 25
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 in which LaBarge has an
interest greater than 50%. 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 1999, 1998 and 1997 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.
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.
25
<PAGE> 26
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.
On July 1, 1998, the Company started an employee stock purchase plan that allows
any eligible employee to purchase common stock at 15% below the market price as
of the first or last day of the quarter, whichever is lower at the end of each
quarter.
GOODWILL AND OTHER LONG-LIVED ASSETS
Goodwill, representing the excess of the cost over the net tangible and
identifiable intangible assets of acquired businesses, and investments in
technologies, are stated at cost and are amortized on a straight-line basis,
over the estimated future periods to be benefited. Impairment losses are
recorded on goodwill and other long-lived assets when indicators of impairment
are present. The Company amortizes these assets over a three to 10-year life.
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 to the current
year's presentation.
NEW ACCOUNTING STANDARDS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." Issued in June 1998, this Statement
establishes standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. This
Statement was to be effective for the Company for this year ending June 2000.
However, in June 1999, SFAS 137, "Accounting for Derivative Financial
Instruments and Hedging Activities: Deferral of Effective Date of FASB Statement
No. 133", was issued which delays the implementation of SFAS 133, which is now
effective for the Company for the year ending June 2001.
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.
26
<PAGE> 27
2. ACQUISITIONS AND INVESTMENTS
ACQUISITIONS
Open Cellular Systems, Inc.
In March 1999, the Company acquired the remaining 90% of the stock of privately
held Open Cellular Systems, Inc. ("OCS") for approximately $5.6 million. Prior
to the acquisition, LaBarge held a 10% equity stake in OCS, which it acquired in
October 1997 for $500,000. The purchase price was paid by issuing Subordinated
Convertible Notes (the "Notes") due in June 2003 and bearing interest of 7.5%
per annum payable quarterly beginning June 29, 1999. Each share of OCS stock was
valued at $4.25 in the transaction. Under the terms of the Notes, each holder
has the right to convert the Notes into LaBarge, Inc. Common Stock at a
conversion price of $8.00 per share at any time after the first anniversary of
the Notes up to their maturity date. Further, the noteholders are entitled to
receive for each fiscal year through 2003 participation payments from the
Company equal to the amount by which 35% of the net income of OCS exceeds the
7.5% interest paid on the Notes for the fiscal year.
On March 2, 1999, 1,008,622 shares of OCS common stock were exchanged for $4.3
million of Subordinated Convertible Notes. Options to acquire 310,000 shares of
OCS common stock were converted to 310,000 shares of common stock of
LaBarge-OCS, Inc., the acquiring subsidiary, and represent shares acquired by
the holders through exercise of employee stock options. These shares are
callable by LaBarge, Inc. in accord with a call agreement whereby the Company,
at its discretion, may exchange the shares for Subordinated Convertible Notes at
$4.25 per share or $1.3 million after the first anniversary of the acquisition
(March 2, 2000) and prior to June 15, 2000. This dollar amount is included in
other current liabilities. The Company recorded goodwill of $6.8 million in this
transaction. This intangible asset is being amortized over seven years.
The Company used the purchase method of accounting to record this acquisition.
The results of operations of LaBarge-OCS, Inc. have been included in the
consolidated results of operations of LaBarge since the date of acquisition.
NotiCom L.L.C.
In the first quarter of fiscal 1999, 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 to be marketed by NotiCom is BusCall. BusCall uses a combination
of technologies, including Global Positioning System satellite location data,
wireless communications techniques and telephony, to notify parents by phone
when their children's school bus is approaching the bus stop. It is being
marketed to telephone companies and other potential service providers, which can
offer BusCall as a value-added service. LaBarge's Manufacturing Services Group
is the exclusive manufacturer of all products sold by NotiCom.
LaBarge and Global each initially had 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
cash in NotiCom along with $500,000 of development services. In addition,
LaBarge has paid Global $1.7 million for a 50% interest in intellectual
properties and has licensed the technology to NotiCom.
The Company is obligated 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 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. It
appears unlikely at this time that such targets will be met; therefore, the
Company has not recorded the contingent purchase price.
27
<PAGE> 28
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. Given the
risks inherent in a start-up operation, the Company elected, during the fourth
quarter of fiscal 1999, to amortize its investment over three years. For the
fourth quarter, the amortization of this investment was approximately $310,000
and for the next two years, non-cash amortization is expected to be $1.75
million per year. In fiscal 1999, this investment is accounted for using the
equity method.
In July and August 1999, NotiCom needed additional cash infusions totaling
approximately $400,000 to continue its development and marketing efforts.
LaBarge has made such contributions.
LaBarge Clayco Wireless, L.L.C.
In fiscal 1996, LaBarge Clayco Wireless L.L.C. ("LaBarge Clayco Wireless"), a
50%/50% joint venture with Clayco Construction Company of St. Louis, Missouri,
was formed. In the second quarter of fiscal 1998, the Company increased its
ownership of LaBarge Clayco Wireless to 51%. In the second quarter of fiscal
1999, the Company purchased from Clayco Construction Company an additional 39%
of LaBarge Clayco Wireless for $300,000 to increase its ownership to 90%.
Beginning with the second quarter of fiscal 1998, LaBarge began consolidating
100% of the results of this unit into its financial statements and deducting the
minority interest share to arrive at earnings before income taxes. The
investment was previously recorded using the equity method.
INVESTMENTS
On June 2, 1999, TransMedica International, Inc. ("TransMedica") defaulted on
the payment of a $2.0 million note due the Company. As a result, the Company
reevaluated the value of its assets related to TransMedica and elected to
reserve the full amount ($4.6 million). The Company is continuing its effort to
recover the amounts it believes are owed it by TransMedica.
History of TransMedica
In fiscal 1993, LaBarge, Inc. entered into an agreement with TransMedica
(formerly known as Venisect, Inc.) to design, develop and manufacture a patented
medical laser device, the Laser Lancet(R).
Since August 1995, the Company has acquired approximately 9.5% of TransMedica's
common stock for $2.3 million. The Company made an initial $250,000 cash
investment in fiscal 1996, and converted approximately $1.2 million of accounts
receivable and provided an additional $800,000 in operating capital in fiscal
1997. In June 1998, TransMedica issued the Company an interest-bearing
promissory note in the amount of $2.0 million and warrants to purchase an
additional 4% of TransMedica stock for $25 per share in exchange for $900,000 of
accounts receivable and additional credit of $1.1 million for new production of
Laser Lancet devices. The note is secured by substantially all of TransMedica's
assets.
On October 16, 1998, the Company filed a Petition for Specific Performance and
Declaratory Judgment in the Circuit Court for St. Louis County, Missouri,
seeking resolution of LaBarge's right to develop and manufacture new laser
products and determination of the number of Laser Lancet devices. TransMedica is
presently obligated to purchase from LaBarge under an exclusive manufacturing
agreement between the two companies.
On June 3, 1999, the Company amended its suit to include payment of the $2.0
million note receivable plus interest due thereon, that was due June 2, 1999,
but as of August 20, 1999, which remains unpaid by TransMedica.
28
<PAGE> 29
3. ACCOUNTS AND NOTES RECEIVABLE
Accounts and notes receivable consist of the following:
(dollars in thousands)
<TABLE>
<CAPTION>
JUNE 27, June 28,
1999 1998
- ------------------------------------------------------------------ ------------------------- ------------------------
<S> <C> <C>
Billed shipments, net of progress payments $ 11,819 $ 17,556
Less allowance for doubtful accounts 347 150
- ------------------------------------------------------------------ ------------------------- ------------------------
Trade receivables, net 11,472 17,406
Notes receivable 2,000 903
Less allowance for doubtful notes 2,000 -
- ------------------------------------------------------------------ ------------------------- ------------------------
Notes receivable, net - 903
Income tax receivable 863 -
Other current receivables 157 23
================================================================== ========================= ========================
$ 12,492 $ 18,332
================================================================== ========================= ========================
</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.
On June 2, 1999, the Company should have received payment of a $2.0 million note
receivable plus interest due thereon from TransMedica. TransMedica defaulted on
its obligation. Based on a review of all facts available at this time, the
Company has written down to zero the carrying value of its receivable, inventory
and investment in TransMedica at year-end.
4. INVENTORIES
Inventories consist of the following:
(dollars in thousands)
<TABLE>
<CAPTION>
JUNE 27, June 28,
1999 1998
- ---------------------------------------------------------- ------------------------------ ------------------------------
<S> <C> <C>
Raw materials $ 9,472 $ 10,353
Work in progress 7,755 9,070
- ---------------------------------------------------------- ------------------------------ ------------------------------
17,227 19,423
Less progress payments 1,134 455
- ---------------------------------------------------------- ------------------------------ ------------------------------
$ 16,093 $ 18,968
========================================================== ============================== ==============================
</TABLE>
In accordance with contractual agreements, the U.S. Government has a security
interest in the inventories identified with related contracts for which progress
payments have been received.
29
<PAGE> 30
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is summarized as follows:
(dollars in thousands)
<TABLE>
<CAPTION>
Estimated
JUNE 27, June 28, useful life
1999 1998 in years
- ------------------------------------------------ ----------------------- ----------------------- ----------------------
<S> <C> <C> <C>
Land $ 2,457 $ 2,457 -
Building and improvements 6,353 5,902 5-33
Leasehold improvements 1,825 1,634 2-10
Machinery and equipment 9,355 8,622 5-20
Furniture and fixtures 1,733 1,730 5-20
Computer equipment 1,711 1,388 3
Construction in progress 1,423 228 -
- ------------------------------------------------ ----------------------- ----------------------- ----------------------
24,857 21,961
Less accumulated depreciation 11,669 10,707
- ------------------------------------------------ ----------------------- -----------------------
$ 13,188 $ 11,254
================================================ ======================= =======================
</TABLE>
Depreciation expense was $1.6 million and $1.2 million, for the fiscal years
ended June 27, 1999 and June 28, 1998, respectively.
6. INTANGIBLE ASSETS, NET
Intangible assets, net, is summarized as follows:
(dollars in thousands)
<TABLE>
<CAPTION>
JUNE 27, June 28,
1999 1998
- ------------------------------------------ ---------------------------------------- ----------------------------------------
<S> <C> <C>
Software $ 1,124 $ 1,047
Patents 73 40
Goodwill 7,214 412
- ------------------------------------------ ---------------------------------------- ----------------------------------------
8,411 1,499
Less amortization 1,470 1,028
- ------------------------------------------ ---------------------------------------- ----------------------------------------
$ 6,941 $ 471
========================================== ======================================== ========================================
</TABLE>
Amortization expense was $448,000 and $203,000 for the fiscal years ended June
27, 1999 and June 28, 1998, respectively.
7. INVESTMENT IN NOTICOM
Investment in NotiCom is summarized as follows:
(dollars in thousands)
<TABLE>
<CAPTION>
JUNE 27, June 28,
1999 1998
- ------------------------------------------ ---------------------------------------- ----------------------------------------
<S> <C> <C>
Investment in joint venture $ 1,331 $ -
Investment in technology 1,449 -
- ------------------------------------------ ---------------------------------------- ----------------------------------------
$ 2,780 $ -
========================================== ======================================== ========================================
</TABLE>
The investments in joint venture and technology pertain to NotiCom and its
related advance notification technology. NotiCom statements are presented in
"Financial Statements of Investee Subsidiary." At
30
<PAGE> 31
fiscal year-end, NotiCom's total assets were $3.0 million; total liabilities
were $311,000; and results of operations for its first year of operations was a
loss of $2.0 million.
The loss from NotiCom includes 50% of the losses from operations of the joint
venture and $237,000 of amortization of the technology.
For additional information about investment in joint ventures please see Note 2
in "Notes to Consolidated Financial Statements."
8. OTHER ASSETS
Other assets is summarized as follows:
(dollars in thousands)
<TABLE>
<CAPTION>
JUNE 27, June 28,
1999 1998
- ----------------------------------------------------------------- --------------------------- ------------------------------
<S> <C> <C>
Cash value of life insurance $ 2,903 $ 2,229
Deposits, licenses and other 1,560 1,839
Investments in businesses 2,250 2,750
- ----------------------------------------------------------------- --------------------------- ------------------------------
6,713 6,818
Less allowance for revaluation of impaired assets 2,250 -
- ----------------------------------------------------------------- --------------------------- ------------------------------
4,463 6,818
Less amortization 7 250
- ----------------------------------------------------------------- --------------------------- ------------------------------
$ 4,456 $ 6,568
================================================================= =========================== ==============================
</TABLE>
The investments in businesses and allowance for revaluation of impaired assets
pertain to the Company's equity interest in TransMedica's stock. Please see Note
2 to "Notes to Consolidated Financial Statements" for additional information.
31
<PAGE> 32
9. 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 27, June 28,
1999 1998
- ------------------------------------------------------------------------ ------------------------- ------------------------
<S> <C> <C>
Short-term borrowings:
Revolving credit agreements:
Balance at period end $ 930 $ 5,020
Interest rate at period end 7.79% 6.80%
Average amount of short-term borrowings
outstanding during period $ 1,681 $ 4,751
Average interest rate for period 6.69% 6.94%
Maximum short-term borrowings at any month end $ 6,390 $ 9,250
======================================================================== ========================= ========================
Long-term debt:
Senior lender:
Revolving credit agreement $ - $ 2,000
Term loan 10,214 3,000
Mortgage loan 6,082 6,164
Subordinated debt 4,424 -
Other 1,341 101
- ------------------------------------------------------------------------ ------------------------- ------------------------
22,061 11,265
Less current maturities 1,771 1,102
======================================================================== ========================= ========================
Subordinated debt 4,424 -
Long-term debt, less current maturities $ 15,866 $ 10,163
======================================================================== ========================= ========================
</TABLE>
The average interest rate was computed by dividing the sum of daily interest
costs by the sum of the daily borrowings for the respective periods.
Total cash payments for interest in fiscal years 1999, 1998 and 1997 were $1.5
million, $773,000 and $900,000, respectively.
SENIOR LENDER
On June 25, 1999, the Company amended its senior loan agreement with Bank of
America. The Company entered into a loan agreement on June 25, 1996, with
NationsBank, N.A. which subsequently merged with Bank of America. The original
agreement included a term loan and revolving credit facility totaling $20.0
million.
The current amendment reestablished the bank's secured position, reinstated a
borrowing base limitation on the revolver and established new covenants and
performance measures to reflect the effect of LaBarge's new investments (NotiCom
and OCS), as well as the reserve for loss on the TransMedica assets in fiscal
1999.
The following is a summary of the current senior loan agreement:
- - An $11.0 million term loan requiring repayments of principal quarterly.
This loan matures in September 2005.
- - A revolving credit facility up to $15.0 million based on a borrowing base
formula equal to the sum of 85% of eligible receivables, and 50% of
eligible finished goods inventories, 30% of other eligible inventories, 50%
of the net book value of equipment and 75% of the net book value of real
property, less the current term loan balance and outstanding letters of
credit. As of June 27, 1999, the maximum allowable was approximately $2.3
million. The revolver borrowing at fiscal 1999 year-end was $130,000.
32
<PAGE> 33
- - Covenants and performance criteria which involve Earnings Before
Interest, Taxes, Depreciation and Amortization ("EBITDA") and in addition,
after June 30, 2000, EBITDA in relation to debt and EBITDA in relation to
fixed charges.
- - Interest on the loans at prime or a stated rate over LIBOR based on
certain ratios. As of year-end the average rate was approximately 7.0%.
In addition to the senior lending agreement, borrowings consist of the
following:
Mortgage Loan:
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 has a 25-year amortization, a 7.5% interest rate and is due
in January 2008.
Secondary Line of Credit:
LaBarge Clayco Wireless has a revolving line of credit with Mercantile Bank
N.A. This line is in the amount of $1.0 million and matures November 1999.
The interest rate on this note is a 1/4% over the bank's prime rate. At
fiscal 1999 year-end, the outstanding amount was $800,000 at an interest
rate of 8.25%. The Company anticipates renegotiating the revolving line of
credit prior to expiration on terms generally consistent with those
currently in place.
Subordinated Convertible Notes:
On March 2, 1999, the Company, through its subsidiary, LaBarge-OCS, Inc.,
purchased the remaining 90% of OCS for $5.6 million by (1) exchanging its
Subordinated Convertible Notes ("Notes") due June 2003 in the principal
amount of $4.3 million for the outstanding shares of OCS; and (2)
exchanging 310,000 shares of LaBarge-OCS, Inc. common stock for outstanding
options to purchase OCS common shares. The Notes bear interest at 7.5% per
annum payable quarterly beginning June 29, 1999, and noteholders are
entitled to participation payments if LaBarge-OCS, Inc. achieves certain
levels of earnings before taxes. The Notes are convertible by the holders
into LaBarge, Inc. Common Stock at $8.00 per share at any time after the
first anniversary of the Notes up to their maturity date. The 310,000
shares of LaBarge-OCS, Inc. common stock may be exchanged for $1.3 million
of Notes, at the option of the Company, after March 2, 2000, but before
June 15, 2000.
Industrial Revenue Bonds:
In July 1998, the Company acquired a tax-exempt Industrial Revenue Bond
through GE Capital Public Finance, Inc. in the amount of $1.3 million. The
debt is payable over 10 years with an interest rate of 5.28%. This funding
was used to expand the Berryville, Arkansas, facility.
The aggregate maturities of long-term obligations are as follows:
(dollars in thousands)
<TABLE>
<CAPTION>
FISCAL YEAR
---------------------------------------------------------------------------
<S> <C>
2000......................................................... $ 1,771
2001......................................................... 1,883
2002......................................................... 1,805
2003......................................................... 6,114
2004......................................................... 1,955
---------------------------------------------------------------------------
</TABLE>
33
<PAGE> 34
10. 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.
Rental expense under operating leases is as follows:
(dollars in thousands)
<TABLE>
<CAPTION>
YEAR ENDED
------------------------------------------------------------------
JUNE 27, June 28, June 29,
1999 1998 1997
- ---------------------------------------------------- ---------------------- ---------------------- --------------------
<S> <C> <C> <C>
Initial term of more than one year $ 1,243 $ 1,226 $ 1,150
Short-term rentals 370 363 341
- ---------------------------------------------------- ---------------------- ---------------------- --------------------
$ 1,613 $ 1,589 $ 1,491
==================================================== ====================== ====================== ====================
</TABLE>
At June 27, 1999, the future minimum lease payments under operating leases with
initial noncancellable terms in excess of one year are as follows: (dollars in
thousands)
<TABLE>
<CAPTION>
FISCAL YEAR
---------------------------------------------------------------------------
<S> <C>
2000.......................................................... $ 1,097
2001........................................................ 930
2002........................................................ 678
2003........................................................ 220
2004....................................................... 29
---------------------------------------------------------------------------
</TABLE>
11. 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 1999, 1998 and
1997, Company matching contributions were $274,000, $236,000 and $187,000,
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 29, 1999, June 28, 1998 and June 29, 1997.
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 $91,000, $119,000 and $63,000
for the guaranteed return and $32,000, $13,000 and $20,000 of income for the
Company-owned insurance in fiscal years 1999, 1998 and 1997, respectively. The
cash surrender value of the Company-owned life insurance related to deferred
compensation is included in other assets along with other policies owned by the
Company, and was $1.0 million at June
34
<PAGE> 35
27, 1999 compared with $835,000 at June 28, 1998. The liability for the deferred
compensation and interest thereon is in accrued employee compensation and was
$1.6 million at June 27, 1999 versus $1.3 million at June 28, 1998.
On July 1, 1998, the Company started an employee stock purchase plan that allows
any eligible employee to purchase common stock at 15% below the market price as
of the first or last day of the quarter, whichever is lower at the end of each
quarter. In fiscal 1999, 53,115 shares were issued to employees at a cost to the
Company of approximately $35,000.
12. OTHER INCOME, NET
The components of other income, net, are as follows:
(dollars in thousands)
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------------------------------
JUNE 27, June 28, June 29,
1999 1998 1997
- -------------------------------------------------------- -------------------- --------------------- -------------------
<S> <C> <C> <C>
Interest income $ 75 $ 43 $ 96
Property rental income 766 314 -
Property rental expense (473) (275) -
Other, net (7) 31 (1)
- -------------------------------------------------------- -------------------- --------------------- -------------------
$ 361 $ 113 $ 95
======================================================== ==================== ===================== ===================
</TABLE>
In fiscal 1998, the Company purchased its headquarters building in St. Louis,
Missouri, and leases a significant portion of the facilities to third parties.
Rental income represents rent receipts from these third parties.
At June 27, 1999, the future minimum rental income under leases with tenants in
excess of one year is as follows:
(dollars in thousands)
<TABLE>
<CAPTION>
FISCAL YEAR
---------------------------------------------------------------------------
<S> <C>
2000........................................................... $713
2001........................................................... 716
2002........................................................... 691
2003........................................................... 665
2004........................................................... 665
---------------------------------------------------------------------------
</TABLE>
35
<PAGE> 36
13. INCOME TAXES
Income tax (benefit) expense consists of:
(dollars in thousands)
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
---------------------- ---------------------- ---------------------
<S> <C> <C> <C>
YEAR ENDED JUNE 27, 1999:
U.S. FEDERAL $ (107) $ (247) $ (354)
STATE AND LOCAL (9) (148) (157)
- --------------------------------------------------- ---------------------- ---------------------- ---------------------
$ (116) $ (395) $ (511)
=================================================== ====================== ====================== =====================
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)
=================================================== ====================== ====================== =====================
</TABLE>
Income tax (benefit) expense 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 27, June 28, June 29,
1999 1998 1997
- ------------------------------------------------------------------- --------------- --------------- ----------------
<S> <C> <C> <C>
Computed "expected" tax (benefit) expense $ (1,221) $ 2,567 $ 2,380
Increase (reduction) in income taxes resulting from:
Change in valuation allowance 851 - (3,616)
State and local tax (155) 215 183
Other 14 4 319
- ------------------------------------------------------------------- --------------- --------------- ----------------
$ (511) $ 2,786 $ (734)
=================================================================== =============== =============== ================
</TABLE>
36
<PAGE> 37
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 27, June 28,
1999 1998
- -------------------------------------------------------------- --------------------------- --------------------------
<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 $ 500 $ 396
Deferred compensation 486 581
Other 773 631
Capital loss carryforwards 851 -
Net operating loss carryforwards 606 -
Tax credit carryforwards 821 712
- -------------------------------------------------------------- --------------------------- --------------------------
TOTAL GROSS DEFERRED TAX ASSETS 4,037 2,320
LESS VALUATION ALLOWANCE 1,368 -
- -------------------------------------------------------------- --------------------------- --------------------------
NET DEFERRED TAX ASSETS 2,669 2,320
- -------------------------------------------------------------- --------------------------- --------------------------
DEFERRED TAX LIABILITIES:
Property, plant and equipment, principally
due to differences in depreciation and
capitalized interest (187) (230)
Other - (3)
- -------------------------------------------------------------- --------------------------- --------------------------
TOTAL GROSS DEFERRED TAX LIABILITIES (187) (233)
- -------------------------------------------------------------- --------------------------- --------------------------
NET DEFERRED TAX ASSETS $ 2,482 $2,087
============================================================== =========================== ==========================
</TABLE>
A valuation allowance is provided, if necessary, to reduce the deferred tax
assets to a level which, more likely than not, will be realized. The net
deferred assets reflect management's belief that it is more likely than not that
the results of future operations will generate sufficient taxable income to
realize the deferred tax assets. The net change in the total valuation allowance
for the years ended June 27, 1999 and June 28, 1998 was an increase of $1.4
million and $-0-, respectively. For the year ended June 27, 1999, $851,000 of
the increase in valuation reserve is attributable to capital loss carryforwards
which the Company may not be able to use in the future. The remaining balance,
$517,000, relates to limitations of the use of net operating loss carryforwards
generated by LaBarge-OCS prior to being acquired by the Company. Net operating
loss carryforwards are available to offset future tax income through fiscal year
2019. Capital loss carryforwards are available to offset capital gains through
fiscal year 2004.
The Company has alternative minimum and investment tax credit carryforwards of
approximately $821,000 that are available to reduce future regular federal
income taxes. Investment tax credits of $59,000 and $4,000 will expire in fiscal
years 2000 and 2001, respectively.
Total cash payments for federal and state income taxes in all years presented
were $617,000 for fiscal 1999, $270,000 for fiscal 1998 and $432,000 for fiscal
1997.
<PAGE> 38
14. EARNINGS PER COMMON SHARE
Basic and diluted (loss) earnings per share are computed as follows:
<TABLE>
<CAPTION>
JUNE 27, June 28, June 29,
1999 1998 1997
- ------------------------------------------------------------ ------------------- --------------------- ---------------------
<S> <C> <C> <C>
NUMERATOR:
Net (loss) earnings $ (3,080) $ 4,764 $ 7,735
- ------------------------------------------------------------ ------------------- --------------------- ---------------------
DENOMINATOR:
Denominator for basic net (loss) earnings per share
weighted-average share 15,157 15,604 15,626
Effect of dilutive securities-employee
stock options - 119 164
- ------------------------------------------------------------ ------------------- --------------------- ---------------------
POTENTIAL COMMON SHARES:
Denominator for diluted net (loss) earnings per share
adjusted weighted-average shares
and assumed conversions 15,157 15,723 15,790
- ------------------------------------------------------------ ------------------- --------------------- ---------------------
BASIC NET (LOSS) EARNINGS PER
COMMON SHARE $ (.20) $ .31 $ .50
============================================================ =================== ===================== =====================
DILUTED NET (LOSS) EARNINGS PER
COMMON SHARE $ (.20) $ .30 $ .49
============================================================ =================== ===================== =====================
</TABLE>
The effect of 53,000 shares exercisable through various employee stock options
is not considered in the calculations of diluted net loss per common shares for
fiscal 1999 because it would have an anti-dilutive effect on net loss per share.
15. FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company considers the carrying amounts of cash and cash equivalents,
accounts receivable and accounts payable to approximate fair value because of
the short maturity of these financial instruments.
Amounts outstanding under the secured senior lending agreement and the mortgage
loan and the subordinated notes 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.
38
<PAGE> 39
16. BUSINESS SEGMENT INFORMATION
BUSINESS SEGMENTS:
(dollars in thousands)
NET SALES TO CUSTOMERS:
<TABLE>
<CAPTION>
YEAR ENDED
-------------------------------------------------------------------
1999 1998 1997
------------------- ---------------------- ------------------------
<S> <C> <C> <C>
Manufacturing Services Group $ 78,518 $ 95,629 $ 96,666
LaBarge Clayco Wireless 10,566 3,663 -
Network Technologies Group 59 - -
- -------------------------------------------------------- ------------------- ---------------------- ------------------------
$ 89,143 $ 99,292 $ 96,666
======================================================== =================== ====================== ========================
</TABLE>
INCOME BEFORE INCOME TAXES:
<TABLE>
<CAPTION>
YEAR ENDED
-------------------------------------------------------------------
1999 1998 1997
------------------- ---------------------- ------------------------
<S> <C> <C> <C>
Manufacturing Services Group before
non-recurring losses $ 4,152 $ 8,493 $ 8,779
Loss due to revaluation of impaired assets (4,573) - -
- -------------------------------------------------------- ------------------- ---------------------- ------------------------
Net Manufacturing Services Group (421) 8,493 8,779
LaBarge Clayco Wireless 551 (259) 4
Network Technologies Group (637) - -
Loss from NotiCom (1,221) - -
Corporate and other items (412) 313 (840)
Interest expense (1,451) (997) (942)
- -------------------------------------------------------- ------------------- ---------------------- ------------------------
$ (3,591) $ 7,550 $ 7,001
======================================================== =================== ====================== ========================
</TABLE>
<TABLE>
<CAPTION>
DEPRECIATION & AMORTIZATION EXPENSE INVESTMENTS &
CAPITAL EXPENDITURES
YEAR ENDED YEAR ENDED
-------------- ------------ ------------- ------------- --------------- --------------
1999 1998 1997 1999 1998 1997
-------------- ------------ ------------- ------------- --------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Manufacturing Services Group $ 1,168 $ 923 $ 795 $ 2,789 $ 2,861 $ 846
LaBarge Clayco Wireless 34 37 - 468 215 -
Network Technologies Group 344 - - 23 - -
Investment in NotiCom 237 - - 4,001 - -
Corporate and other items 453 433 217 1,195 7,301 1,523
- ---------------------------------------- -------------- ------------ ------------- ------------- --------------- --------------
$ 2,236 $ 1,393 $ 1,012 $ 8,476 $ 10,377 $ 2,369
======================================== ============== ============ ============= ============= =============== ==============
</TABLE>
39
<PAGE> 40
<TABLE>
<CAPTION>
TOTAL ASSETS
YEAR ENDED
--------------------- ------------------ ---------------------
1999 1998 1997
--------------------- ------------------ ---------------------
<S> <C> <C> <C>
Manufacturing Services Group $ 30,752 $ 45,594 $ 36,337
LaBarge Clayco Wireless 3,537 2,469 161
Network Technologies Group 6,691 - -
Investment in NotiCom 2,780 - -
Corporate and other items 15,894 10,929 6,961
------------------------------------------------ --------------------- ------------------ ---------------------
$ 59,654 $ 58,992 $ 43,459
================================================ ===================== ================== =====================
</TABLE>
GEOGRAPHIC INFORMATION
The Company has no sales offices or facilities outside of the United States.
Sales for exports did not exceed 10% of total sales in any fiscal year.
Customers accounting for more than 10% of net sales for the years ended June 27,
1999,
June 28, 1998 and June 29, 1997 follow:
<TABLE>
<CAPTION>
Customer 1999 1998 1997
------------------------------------------ -------------------- ------------------ -----------------
<S> <C> <C> <C>
1........................................... 25% 27% 24%
2........................................... 13 17 14
3........................................... - 1 11
------------------------------------------ -------------------- ------------------ -----------------
</TABLE>
17. LITIGATION AND CONTINGENCIES
On October 16, 1998, the Company filed a Petition for Specific Performance and
Declaratory Judgment in the Circuit Court for St. Louis County, Missouri,
seeking a resolution of LaBarge's right to develop and manufacture a new laser
product and determination of the number of Laser Lancet devices TransMedica
International, Inc. is obligated to purchase from LaBarge under an exclusive
manufacturing agreement between the two companies. On June 3, 1999, the Company
amended its suit to include payment of TransMedica's delinquent $2.0 million
note receivable that was due June 2, 1999.
In May 1999, TransMedica filed a counterclaim against LaBarge seeking dismissal
of LaBarge's petition, damages in an indeterminate amount, punitive damages,
costs and attorney's fees relating to several counts alleging breach of
contract, warranty and fiduciary duty by LaBarge and a declaration that a small
laser device developed by a third party is not subject to TransMedica's
agreement with LaBarge. TransMedica also filed a separate action against LaBarge
in the Circuit Court in Little Rock, Arkansas, containing the same counts and
seeking the same relief as in its counterclaim. The Arkansas proceeding has been
stayed pending resolution of the St. Louis County proceeding. LaBarge intends to
vigorously pursue its petition against TransMedica and to defend against
TransMedica's claims and counterclaims.
At this time, it is too early to determine what, if any, recovery or liability
LaBarge might have as a result of this suit. The Company has reserved 100% of
the value of its TransMedica assets and recorded a loss of $4.6 million in
fiscal 1999 as a result.
In August 1999, Jerome S. Stein filed a Petition in the Circuit Court for the
City of St. Louis against the
40
<PAGE> 41
Company and its former chairman, Pierre L. LaBarge, Jr., seeking damages in an
indeterminate amount in excess of $25,000, plus interest and court costs. Mr.
Stein alleges in his claim against the Company that the Company agreed to pay
him 1% of any increase in value of LaBarge's outstanding common stock in
exchange for certain promotional services. The Company denies any such
arrangement with Mr. Stein, believes the suit to be totally without merit, and
intends to defend it vigorously.
The Company does not believe that either case, individually or in the aggregate,
will have a material adverse effect on the financial condition or results of
operations of the Company.
18. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data is set forth below:
(dollars in thousands except per share data)
<TABLE>
<CAPTION>
1999 FIRST SECOND THIRD FOURTH
- --------------------------------------------------------- --------------- ---------------- --------------- --------------
<S> <C> <C> <C> <C>
Net sales $ 24,667 $ 23,779 $ 21,558 $ 19,139
- --------------------------------------------------------- --------------- ---------------- --------------- --------------
Cost of sales 19,289 18,983 17,318 15,826
Selling and administrative expense 3,411 3,594 3,493 3,771
Loss due to revaluation of impaired assets - - - 4,573
Interest expense 309 370 370 402
Equity in loss (income) of joint venture 28 244 243 706
Minority interest profit (loss) 147 (5) 31 (8)
Other (income)expense, net (152) (59) (92) (58)
- --------------------------------------------------------- --------------- ---------------- --------------- --------------
Net earnings (loss) before income taxes 1,635 652 195 (6,073)
Income tax expense (benefit) 603 241 72 (1,427)
- --------------------------------------------------------- --------------- ---------------- --------------- --------------
Net earnings (loss) $ 1,032 $ 411 $ 123 $ (4,646)
Basic net earnings (loss) per common share $ .07 $ .03 $ .01 $ (.31)
Diluted net earnings (loss) per common share $ .07 $ .03 $ .01 $ (.31)
========================================================= =============== ================ =============== ==============
</TABLE>
<TABLE>
<CAPTION>
1998 First Second Third Fourth
- --------------------------------------------------------- --------------- ---------------- --------------- --------------
<S> <C> <C> <C> <C>
Net sales $ 21,492 $ 22,203 $ 26,996 $ 28,601
- --------------------------------------------------------- --------------- ---------------- --------------- --------------
Cost of sales 16,805 17,002 21,000 21,613
Selling and administrative expense 2,981 3,418 3,636 4,372
Interest expense 130 196 298 373
Equity in loss (income) of joint venture 94 - - 26
Minority interest profit (loss) - (60) (61) 32
Other (income)expense, net (24) 3 119 (211)
- --------------------------------------------------------- --------------- ---------------- --------------- --------------
Net earnings before income taxes $ 1,506 $ 1,644 $ 2,004 $ 2,396
Income tax expense (benefit) 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
========================================================= =============== ================ =============== ==============
</TABLE>
41
<PAGE> 42
During the fiscal 1999 fourth quarter, the estimated life for amortization of
the NotiCom technology was changed from 15 to three years.
19. 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 10 years and the vesting period is two
years.
Information regarding these option plans for fiscal years 1999, 1998 and 1997:
<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 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
GRANTED 123,000 3.49 - - $ .38
EXERCISED (65,000) 1.24 - -
- -------------------------------------- -------------- ------------------- ----------------- ----------------- ------------------
OUTSTANDING AT JUNE 27, 1999 430,288 $ 4.22 231,775 $ 4.03
- -------------------------------------- -------------- ------------------- ----------------- ----------------- ------------------
</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 JUNE 27, 1999 LIFE (YEARS) PRICE AT JUNE 27, 1999 PRICE
- ---------------------- ------------------- -------------------- ------------------- -------------------- -------------------
<S> <C> <C> <C> <C> <C>
$ .66 - 1.44 90,000 2.25 $ 1.28 90,000 $ 1.28
3.43 - 4.38 173,000 6.89 4.32 50,000 4.18
5.86 - 7.24 167,288 6.90 6.35 91,775 6.65
- ---------------------- ------------------- -------------------- ------------------- -------------------- -------------------
$ .66 - 7.24 430,288 231,775
====================== =================== ==================== =================== ==================== ===================
</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 (loss) income and diluted (loss) earnings
per share for fiscal 1999 would have been $(3.2 million) and $(.21) per share,
respectively, and $4.6 million and $.29 per share, respectively in fiscal 1998.
42
<PAGE> 43
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 41%.
20. SUBSEQUENT EVENT
In July and August 1999, NotiCom L.L.C., the Company's joint venture with Global
Research Systems, Inc., needed additional cash infusions of approximately
$400,000 to continue its development and marketing efforts. LaBarge has made
these contributions, which has increased LaBarge's equity interest in NotiCom.
43
<PAGE> 44
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
Statements contained in this Report which are not historical facts are
forward-looking statements within the meaning of the federal securities laws.
Forward-looking statements involve risks and uncertainties. Future events and
the Company's actual results could differ materially from those contemplated by
those forward-looking statements. Important factors which could cause the
Company's actual results to differ materially from those projected in, or
inferred by, forward-looking statements are (but are not necessarily limited to)
the following: the impact of increasing competition or deterioration of economic
conditions in the Company's markets; cutbacks in defense spending by the U.S.
Government; lack of acceptance by the market for the BusCall(TM) product; lack
of acceptance by the market for the products of LaBarge's Network Technologies
Group; the outcome of certain legal actions between LaBarge and TransMedica
International, Inc. regarding a note receivable and LaBarge's investment in
TransMedica; the outcome of other litigation the Company is party to; 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. ("LaBarge" or the "Company") is a Delaware Corporation. The
Company is engaged in the following primary business activities:
- - The MANUFACTURING SERVICES GROUP is the Company's core manufacturing
business, which has been its principal business since 1985. This group
designs, engineers and produces sophisticated electronic systems and
devices and complex interconnect systems on a contract basis for its
customers. In fiscal 1999, the Company derived approximately 88% of its
total revenues from this group.
The group markets its services to companies desiring an engineering and
manufacturing partner capable of developing and providing high-reliability
electronic equipment, including products capable of performing in harsh
environmental conditions, such as high and low temperature, severe shock
and vibration. The group serves customers in a variety of markets with
significant revenues from customers in the defense, aerospace and
geophysical markets. The group's manufacturing facilities are located in
Arkansas, Missouri, Oklahoma and Texas.
- - LABARGE CLAYCO WIRELESS L.L.C. ("LaBarge Clayco Wireless") provides turnkey
construction, engineering and equipment installation services for the
wireless telecommunications industry. It was started in fiscal 1996 as a
50%/50% joint venture with Clayco Construction Company in St. Louis,
Missouri. The operating results of LaBarge Clayco Wireless were accounted
for on the equity method through fiscal 1997. In the second quarter of
fiscal 1998, LaBarge increased its ownership interest in LaBarge Clayco
Wireless to 51% and began consolidating the total operations of this joint
venture. In the second quarter of fiscal 1999, the Company purchased from
Clayco Construction Company an additional 39% of LaBarge Clayco Wireless
for $300,000 to increase its ownership to 90%. LaBarge Clayco Wireless
became a reportable segment in fiscal 1999, due to the changes in ownership
and its growth in revenues. In fiscal 1999, the Company derived
approximately 12% of its total revenues from this group.
- - The NETWORK TECHNOLOGIES GROUP is the Company's newest business activity.
This group was started in fiscal 1999 through the acquisition of privately
held Open Cellular Systems, Inc. ("OCS"). The group designs and markets
proprietary cellular and network communication system products and Internet
services that provide monitoring and control of remote industrial and
municipal utility equipment. Results of the group are included in the
consolidated results of the Company since the
44
<PAGE> 45
date of the OCS acquisition, March 2, 1999. This group is focusing its
marketing efforts initially toward the railroad industry to monitor
railroad crossing equipment and its performance, and toward the oil and gas
pipeline industry to monitor cathodic protection devices. In fiscal 1999,
limited revenue was derived from this group.
- - NOTICOM L.L.C. JOINT VENTURE In the first quarter of fiscal 1999, LaBarge
and Global Research Systems, Inc. of Rome, Georgia ("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 to be marketed by
NotiCom is BusCall(TM) which provides households with advance notice of the
impending arrival of school buses. In fiscal 1999, the NotiCom investment
was accounted for using the equity method. Throughout fiscal 1999, NotiCom
was a development-stage company.
During fiscal 1999, the BusCall system was used by two phone companies to
provide notification services to families in their service area. In fiscal
2000, one of these providers is expanding the service to additional
subscribers. NotiCom expects to install another major system in fiscal 2000
which it is hoped will provide the basis for a larger scale deployment
beginning in fiscal 2001.
SIGNIFICANT EVENTS
Recent significant events include:
- - On June 2, 1999, TransMedica International, Inc. ("TransMedica") defaulted
on the payment of a $2.0 million note receivable due the Company. As a
result, the Company reevaluated the value of its assets related to
TransMedica and decided to reserve the full amount ($4.6 million). The
Company is continuing its effort to recover the amounts it believes are
owed it by TransMedica.
The history of this investment in TransMedica is as follows: In fiscal
1993, LaBarge, Inc. entered into an agreement with TransMedica (formerly
known as Venisect, Inc.) to design, develop and manufacture a patented
medical laser device, the Laser Lancet(R).
Since August 1995, the Company has acquired approximately 9.5% of
TransMedica's common stock for $2.3 million. The Company made an initial
$250,000 cash investment in fiscal 1996, and converted approximately $1.2
million of accounts receivable and provided an additional $800,000 in
operating capital in fiscal 1997. In June 1998, TransMedica issued the
Company an interest-bearing promissory note in the amount of $2.0 million
and warrants to purchase an additional 4% of TransMedica stock for $25 per
share in exchange for $900,000 of accounts receivable and additional credit
of $1.1 million for new production of Laser Lancet devices. The note is
secured by substantially all of TransMedica's assets.
On October 16, 1998, the Company filed a Petition for Specific Performance
and Declaratory Judgment in the Circuit Court for St. Louis County,
Missouri, seeking resolution of LaBarge's right to develop and manufacture
new laser products and determination of the number of Laser Lancet devices
TransMedica was obligated to purchase from LaBarge under an exclusive
manufacturing agreement between the two companies.
On June 3, 1999, the Company amended its suit to include payment of the
$2.0 million note receivable plus interest due thereon. As of August 20,
1999, the amount remains unpaid.
- - In March 1999, the Company acquired the remaining 90% of the stock of
privately held Open Cellular Systems, Inc. ("OCS") for approximately $5.6
million. Prior to the acquisition, LaBarge held a 10% equity stake in OCS,
which it acquired in October 1997 for $500,000. The March 1999 purchase
price was paid by issuing Subordinated Convertible Notes (the "Notes") due
in June
45
<PAGE> 46
2003 and bearing interest of 7.5% per annum payable quarterly beginning
June 29, 1999. Each share of OCS stock was valued at $4.25 in the
transaction. Under the terms of the Notes, each holder has the right to
convert the Notes into LaBarge, Inc. Common Stock at a conversion price of
$8.00 per share at any time after the first anniversary of the Notes up to
their maturity date. Further, the noteholders are entitled to receive
participation payments from the Company for each fiscal year through 2003
equal to the amount by which 35% of the net income of OCS (as defined in
the agreements) exceeds the 7.5% interest paid on the Notes for the fiscal
year.
On March 2, 1999, 1,008,622 shares of OCS common stock were exchanged for
$4.3 million of the Notes. Options to acquire 310,000 shares of OCS common
stock were converted to 310,000 shares of common stock of LaBarge-OCS,
Inc., the acquiring subsidiary, and represent shares acquired by the
holders through exercise of employee stock options. These shares are
callable by LaBarge, Inc. in accord with a call agreement whereby the
Company, at its discretion, may exchange the shares for the Notes at $4.25
per share or $1.3 million after the first anniversary of the acquisition
(March 2, 2000) and prior to June 15, 2000. This dollar amount is included
in other current liabilities. The Company recorded goodwill of $6.8 million
in this transaction. This goodwill is being amortized over seven years.
The Company used the purchase method of accounting to record this
acquisition. The results of operations of LaBarge-OCS, Inc. have been
included in the consolidated results of operations of LaBarge since the
date of acquisition.
- - In the first quarter of fiscal 1999, 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 to be marketed by NotiCom is BusCall. BusCall
uses a combination of technologies, including Global Positioning System
satellite location data, wireless communications techniques and telephony,
to notify parents by phone when their children's school bus is approaching
the bus stop. It is being marketed to telephone companies and other
potential service providers, which can offer BusCall as a value-added
service. LaBarge's Manufacturing Services Group is the exclusive
manufacturer of all products sold by NotiCom.
LaBarge and Global each initially had 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 invested
$1.8 million cash in NotiCom along with $500,000 of development services.
In addition, LaBarge paid Global $1.7 million for a 50% interest in
intellectual properties and has licensed the technology to NotiCom.
The Company is obligated 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 taxes ("EBT") 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. It appears unlikely at this time that such targets will be met;
therefore, the Company has not recorded the contingent purchase price.
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.
Given the risks inherent in a start-up operation, the Company elected,
during the fourth quarter of fiscal 1999, to amortize its investment over
three years. For the fourth quarter, the amortization of this investment
was approximately $310,000 and, for the next two years, non-cash
amortization is expected to be $1.75 million per year. In fiscal 1999, this
investment was accounted for using the equity method.
46
<PAGE> 47
In July and August 1999, NotiCom needed additional cash infusions totaling
approximately $400,000 to continue its development and marketing efforts.
LaBarge has made such contributions.
- - In fiscal 1996, LaBarge Clayco Wireless, L.L.C. ("LaBarge Clayco Wireless")
a 50%/50% joint venture with Clayco Construction Company of St. Louis,
Missouri, was formed. In the second quarter of fiscal 1998, the Company
increased its ownership of LaBarge Clayco Wireless to 51%. In the second
quarter of fiscal 1999, the Company purchased from Clayco Construction
Company an additional 39% of LaBarge Clayco Wireless for $300,000 to
increase its ownership to 90%. Beginning with the second quarter of fiscal
1998, LaBarge began consolidating 100% of the results of this unit into its
financial statements and deducting the minority interest share to arrive at
earnings before income taxes. The investment was previously recorded using
the equity method.
RESULTS OF OPERATIONS - FISCAL 1999 - 1998 - 1997
SALES
(dollars in thousands)
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------------------------------------------
Change
1999 versus 1998 1999 1998 1997
- ------------------------- ----------------------- ------------------------ ------------------------ ------------------------
<S> <C> <C> <C> <C>
Net sales -10.2 % $89,143 $99,292 $96,666
========================= ======================= ======================== ======================== ========================
</TABLE>
During fiscal 1999, sales were $89.1 million compared with $99.3 million in
fiscal 1998 and $96.7 million in fiscal 1997.
MANUFACTURING SERVICES GROUP. The 10.2% decline in fiscal 1999 revenues is due
to lower sales in the manufacturing services segment of the business which
accounted for 88% of total sales in fiscal 1999 and is the direct result of
lower sales to customers in the defense and geophysical markets.
Sales to defense customers were down $8.5 million to $42.1 million, principally
due to lower shipments on the AEGIS program in fiscal 1999 versus fiscal 1998.
This program is winding down and future orders for this program will be limited
to foreign military sales and repair or replacement equipment. The Company was
not successful replacing this business in fiscal 1999.
Sales to geophysical customers were down $10.1 million to $15.3 million in
fiscal 1999 compared with fiscal 1998. The slump in the oil and gas industry,
which has affected the entire market for equipment for the exploration and
production of oil, is the cause. In spite of this, we have been gaining new
customers and expanding our relationships with existing customers. We are
encouraged by the increase in oil and gas prices and are confident that when the
industry rebounds, LaBarge will benefit significantly from our new and expanded
relationships. However, we cannot predict when that will occur.
LABARGE CLAYCO WIRELESS. Sales by LaBarge Clayco Wireless were $10.6 million and
represented 12% of total Company sales in fiscal 1999. This is an increase of
$6.9 million over 1998 and is due to two factors: (1) increased success from our
marketing efforts supported by excellent performance on prior projects; and (2)
in fiscal 1998 we did not begin consolidating LaBarge Clayco Wireless' sales
until the second quarter when we acquired controlling interest in LaBarge Clayco
Wireless.
NETWORK TECHNOLOGIES GROUP. Sales by the third business segment of the Company,
the Network Technologies Group, were insignificant in fiscal 1999. The Network
Technologies Group is comprised of the former OCS, which was acquired on March
2, 1999.
Sales to our top 10 customers represented 68% of total revenue in fiscal 1999
versus 67% in fiscal
47
<PAGE> 48
1998 and 75.9% in fiscal 1997. Sales to our top two customers and the percent of
total sales they represent were: Lockheed Martin, 25% in fiscal 1999, 27% in
fiscal 1998 and 24% in fiscal 1997; and Schlumberger, 13% in fiscal 1999, 17% in
fiscal 1998 and 14% in fiscal 1997. No other customer in the last two years has
represented more than 7% of total sales.
GROSS PROFIT
(dollars in thousands)
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------------------------------------------
Change
1999 vs. 1998 1999 1998 1997
- ------------------------- ----------------------- ------------------------ ------------------------ ------------------------
<S> <C> <C> <C> <C>
Gross profit -22.5% $17,727 $22,872 $19,224
Gross margin - 3.1 pts. 19.9% 23.0% 19.9%
========================= ======================= ======================== ======================== ========================
</TABLE>
A breakdown of margins by group shows the following:
MANUFACTURING SERVICES GROUP. This group's gross margin was 20.3% in fiscal 1999
compared with 23.2% in fiscal 1998 and 19.9% in 1997. In fiscal 1999, excess
capacity as a result of lower sales led to higher fixed costs per sales dollar
at several of our manufacturing facilities, negatively impacting gross margins.
LABARGE CLAYCO WIRELESS. This group's gross margin was 17.4% in fiscal 1999
versus 18.8% in fiscal 1998. The gross margin change was due to the mix of
business in 1999 compared with 1998. There is no comparable value for fiscal
1997 since we did not consolidate LaBarge Clayco Wireless' operations until the
second quarter of fiscal 1998.
NETWORK TECHNOLOGIES GROUP. This group negatively affected the gross profit for
the fiscal year by $105,000. Sales were only $59,000 for the four months of
fiscal 1999 we owned OCS and cost of sales was $164,000.
SELLING AND ADMINISTRATIVE EXPENSES
(dollars in thousands)
<TABLE>
<CAPTION>
YEAR ENDED
---------------------------------------------------
Change
1999 vs. 1998 1999 1998 1997
- ------------------------------------------------ ----------------------- ----------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Selling and administrative expenses -1.0% $ 14,269 $ 14,407 $ 11,380
Percent of sales +1.5 pts. 16.0% 14.5% 11.8%
================================================ ======================= ================= ================ ================
</TABLE>
Selling and administrative expenses were down slightly in fiscal 1999 versus
fiscal 1998, but up significantly from 1997 due to the consolidation of LaBarge
Clayco Wireless in fiscal 1999 and fiscal 1998 and the Network Technologies
Group in fiscal 1999.
MANUFACTURING SERVICES GROUP. Selling and administrative expenses for this group
were $11.8 million (14.8% of sales) in fiscal 1999, $13.7 million (14.3% of
sales) in fiscal 1998 and $11.4 million in fiscal 1997. The decrease of $1.9
million in fiscal 1999 versus fiscal 1998 is directly attributable to reductions
in expenses due to lower volume.
LABARGE CLAYCO WIRELESS. Selling and administrative expenses for this group were
$1.3 million (12.2% of sales) in fiscal 1999 versus $828,000 (22.6% of sales) in
fiscal 1998. The dollar increase year-to-year was primarily attributable to the
fact that fiscal 1999 included 12 months of expense while fiscal 1998 only
included the nine months from the time we began consolidating the results of
this operation. Since most of these costs represent salaries and fringes for
management, building rental,
48
<PAGE> 49
insurance and other fixed costs, the higher volume in fiscal 1999 caused the
percent of sales to decrease.
NETWORK TECHNOLOGIES GROUP. This group accounted for $516,000 of operating
expenses in fiscal 1999. This included $338,000 in amortization of goodwill
since the date of acquisition.
INTEREST EXPENSE
(dollars in thousands)
<TABLE>
<CAPTION>
YEAR ENDED
-------------------------------------------------------------------------------------------
1999 1998 1997
- -------------------------------- ------------------------------ ----------------------------- ------------------------------
<S> <C> <C> <C>
Interest expense $1,451 $997 $942
================================ ============================== ============================= ==============================
</TABLE>
Interest expense increased in fiscal 1999 due to higher borrowings attributable
to: $1.3 million in additional borrowing for the expansion of one manufacturing
plant; $4.4 million of new Subordinated Convertible Notes related to the
purchase of OCS on March 2, 1999; and approximately $1.0 million in higher
senior borrowings during the year. For further discussion of our capital
structure, see "Financial Condition and Liquidity" below.
Additionally, LaBarge repurchased approximately 857,000 shares of its common
stock during fiscal 1999, at a total price of $2.4 million.
LOSS DUE TO REVALUATION OF IMPAIRED ASSETS
(dollars in thousands)
<TABLE>
<CAPTION>
YEAR ENDED
---------------------------------------------------------------------
1999 1998 1997
- ------------------------------------------------------ --------------------- ----------------------- -----------------------
<S> <C> <C> <C>
Loss due to revaluation of impaired assets $4,573 $ - $ -
====================================================== ===================== ======================= =======================
</TABLE>
In fiscal 1999, the Company reserved the total amount of its assets in
TransMedica International, Inc.
LOSS FROM NOTICOM
(dollars in thousands)
<TABLE>
<CAPTION>
YEAR ENDED
-----------------------------------------------------------------------
1999 1998 1997
- ---------------------------------------------------- -------------------- -------------------------- -----------------------
<S> <C> <C> <C>
Loss from NotiCom $1,221 $ - $ -
==================================================== ==================== ========================== =======================
</TABLE>
The loss in fiscal 1999 represents LaBarge's 50% interest in NotiCom L.L.C.
Included in the loss is $237,000 of amortization of the technology acquired in
the acquisition. In the fourth quarter, after reevaluating the amortization
schedule for the NotiCom technology, the Company elected to amortize the
technology over a three-year period rather than a longer period.
49
<PAGE> 50
PRETAX (LOSS) EARNINGS
(dollars in thousands)
<TABLE>
<CAPTION>
YEAR ENDED
-------------------------------------------------------------------------------
1999 1998 1997
- ------------------------------------------- ---------------------- ---------------------------- ---------------------------
<S> <C> <C> <C>
Pretax (loss) earnings $(3,591) $7,550 $7,001
=========================================== ====================== ============================ ===========================
</TABLE>
The change in earnings in fiscal year 1999 as compared to 1998 is attributable
to: (1) the $4.6 million reserve for loss on TransMedica; (2) $1.9 million
in losses (including non-cash amortization of $724,000) in new business
activities started in fiscal 1999; $454,000 in higher interest costs due to
increased borrowings in fiscal 1999; (4) $4.3 million in lower profits from our
Manufacturing Services Group caused by lower sales volume from defense and
geophysical customers; and, (5) $810,000 increase in earnings from LaBarge
Clayco Wireless.
TAX (BENEFIT) EXPENSE
(dollars in thousands)
<TABLE>
<CAPTION>
YEAR ENDED
-------------------------------------------------------------------------------------------
1999 1998 1997
- -------------------------------- ------------------------------ ----------------------------- ------------------------------
<S> <C> <C> <C>
Tax expense (benefit) $(511) $2,786 $(734)
================================ ============================== ============================= ==============================
</TABLE>
NET (LOSS) EARNINGS AND (LOSS) EARNINGS PER SHARE (dollars in thousands except
per share data)
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------------------------------------------
1999 1998 1997
- ------------------------------------------------ -------------------- -------------------------- --------------------------
<S> <C> <C> <C>
Net (loss) earnings $ (3,080) $ 4,764 $ 7,735
Basic net (loss) earnings per share $ (.20) $ .31 $ .50
Diluted net (loss) earnings per share $ (.20) $ .30 $ .49
================================================ ==================== ========================== ==========================
</TABLE>
FINANCIAL CONDITION AND LIQUIDITY
The following shows LaBarge's equity and debt positions:
STOCKHOLDERS' EQUITY AND DEBT
(dollars in thousands)
<TABLE>
<CAPTION>
YEAR ENDED
-------------------------------------------------------------------------------
1999 1998
- ------------------------------------------- -------------------------------------- ----------------------------------------
<S> <C> <C>
Stockholders' equity $ 24,080 $ 29,642
Debt $ 22,991 $ 16,285
=========================================== ====================================== ========================================
</TABLE>
The Company has generated $10.0 million, $161,000 and $8.2 million in cash from
operations for the fiscal years 1999, 1998 and 1997, respectively. In fiscal
1999, the reserve for the loss on TransMedica, the higher amortization expense
related to the OCS goodwill and certain acquired technology associated
with our investment in NotiCom were non-cash items included in the loss for the
year. These, in addition to $6.5 million of reduced accounts receivable and
inventories, account for the $10.0 million in cash generated for the year.
Comparatively, in fiscal 1998, limited cash was generated in spite of excellent
profits due to increases in accounts receivable and inventories. In fiscal 1997,
profits were the main contributor to the positive cash flow.
The cash generated in the last three years, along with additional borrowings,
has been used to
50
<PAGE> 51
purchase a total of $13.4 million in new property, plant and equipment including
the fiscal 1998 purchase of the St. Louis headquarters facility for $6.2 million
and the fiscal 1999 expansion of one of our manufacturing facilities totaling
$1.3 million.
Cash from operations has also been used to acquire a controlling interest in
LaBarge Clayco Wireless for $300,000, our 50% interest in NotiCom for $4.0
million and OCS for $6.8 million. In addition, we have repurchased approximately
1.0 million shares of our common stock at a cost of approximately $3.1 million
under our stock repurchase plan.
Currently, our debt-to-equity ratio is .95 to 1 versus .55 to 1 at the end of
fiscal 1998.
As of June 25 1999, we have amended our senior lending agreement (see Note 9 in
"Notes to Consolidated Financial Statements") with Bank of America to reflect
the changes in the make up of our Company going forward. This included revising
the borrowing base, granting a security interest in the assets of the Company
and revising covenants and performance measures to reflect the reserve for loss
of the TransMedica assets and the additions of OCS and NotiCom as new businesses
of the Company.
RISK FACTORS
The NotiCom joint venture, as a start-up company, has a higher risk factor than
our manufacturing services business. Further, development and testing of the
BusCall product has required additional cash investment of approximately
$400,000 thus far in fiscal 2000, and it is expected that additional cash will
be needed to fully bring the product to market. Given the risks inherent in a
start-up operation, it is too early to predict if or to what extent NotiCom may
contribute to the Company's revenues or earnings.
The Network Technologies Group, although beyond the start-up stage, has used
cash during its first four months of operation and has had limited sales. It is
too early to predict to what extent this group will contribute to the Company's
revenues, earnings and cash flow.
Overall, we believe our availability of funds going forward from cash generated
from operations and available credit with the bank should be sufficient to
support the planned operations of the four segments of our business for the next
two years.
YEAR 2000
We rely on computer technology for much of our operations. We have been
analyzing all of our information and data systems for possible Year 2000 ("Y2K")
problems.
We have completed testing of our basic manufacturing system, which covers our
accounting, billing, accounts payable and manufacturing operations, and have
concluded that this system, which uses a four-digit date field, is Y2K
compliant. We do not anticipate any significant Y2K problems with our basic
system.
In addition to our internal systems, we are dependent on the systems of
third-party vendors for certain of our operations. For instance, our payroll is
dependent upon a system operated by a third-party vendor. We have received
certification from this vendor that the system is Y2K compliant. We are
communicating with our other outside trading partners in order to assess their
Y2K readiness. These include, among others, our customers and suppliers. We have
received assurances of Y2K compliance from the substantial majority of the major
outside trading partners upon whom we rely and, while there can be no assurance
that they will be Y2K compliant, we believe that the significant third parties
upon whom we are dependent are or expect to be Y2K compliant before the end of
calendar 1999. Based upon information already gathered from these parties, we do
not presently have reason to believe that there will be Y2K problems with these
third parties that would impair our normal
51
<PAGE> 52
operations. We intend to complete our communications with our outside trading
partners prior to December 31, 1999.
We believe that the most likely worst-case scenario due to a Y2K failure of our
internal and third-party external systems would be the inability to manufacture
and ship products in a timely manner. This could have a negative impact on our
relationships with our customers and an adverse effect on our financial
condition and results of operations.
Currently, we have a contingency plan which involves manual protection of data
and an operating plan in the event of a Y2K failure.
Costs incurred to date for Y2K remediation activity have been immaterial and
have been included in operating expenses. We do not anticipate any material
costs for remaining Y2K compliance efforts, and we have not included any
expenditures for Y2K compliance in our budget. However, there can be no
assurance that additional expenses will not be significant.
52
<PAGE> 53
Schedule II
LABARGE, INC.
VALUATION AND QUALIFYING ACCOUNTS
(DOLLARS IN THOUSANDS)
YEARS ENDED JUNE 27, 1999
JUNE 28, 1998 AND JUNE 29, 1997
ALLOWANCE FOR DOUBTFUL ACCOUNTS
This account represents amounts that 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> <C>
1997 $ 187 $ - $ 39 $ 148
1998 148 31 29 150
1999 $ 150 $ 2,186 $ (11) $ 2,347
</TABLE>
INVENTORY RESERVE
This account represents amounts in inventory that may become valueless in future
periods, but as of the balance sheet date, are included at cost.
<TABLE>
<CAPTION>
Balance Additions Acquisition Deductions Balance
Beginning Charged to Charged to From Reserve End of
Year of Period Expense Goodwill For Write-offs Period
---- --------- ------- -------- -------------- ------
<S> <C> <C> <C> <C> <C> <C>
1997 $ 197 $ 750 $ - $ 494 $ 453
1998 453 695 - 646 502
1999 $ 502 $ 602 $ 5 $ 240 $ 869
</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 that might not be realized
in future periods.
<TABLE>
<CAPTION>
Balance Increase Balance
Beginning Due to End of
Year of Period Increase Acquisition Decrease Period
---- --------- -------- ----------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
1997 $ 3,616 $ - $ - $ 3,616 $ -
1998 - - - - -
1999 $ - $ 851 $ 517 $ - $ 1,368
</TABLE>
53
<PAGE> 54
INDEPENDENT AUDITORS' REPORT
The Board of Managers
NotiCom L.L.C.:
We have audited the accompanying balance sheet of NotiCom L.L.C. (a
development stage enterprise) as of June 27, 1999, and the related
statements of operations, members' equity, and cash flows for the
period from July 22, 1998 (inception) through June 27, 1999. These
financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of NotiCom
L.L.C. (a development stage enterprise) as of June 27, 1999, and the
results of its operations and its cash flows for the period from July
22, 1998 (inception) through June 27, 1999, in conformity with
generally accepted accounting principles.
/s/ KPMG LLP
-------------------------
July 23, 1999
54
<PAGE> 55
NOTICOM L.L.C.
(A Development Stage Enterprise)
Balance Sheet
June 27, 1999
ASSETS
<TABLE>
<S> <C>
Current assets:
Cash and cash equivalent $ 55,550
Trade accounts receivable 96,637
Inventories 60,486
Prepaid expenses and other current assets 9,476
-----------
Total current assets 222,149
Property and equipment, net 692,672
Intangible assets, net 2,055,647
-----------
$ 2,970,468
===========
LIABILITIES AND MEMBERS' EQUITY
Current liabilities - trade accounts payable
and accrued expenses $ 310,793
Members' equity 2,659,675
$ 2,970,468
===========
</TABLE>
See accompanying notes to financial statements.
55
<PAGE> 56
NOTICOM L.L.C.
(A Development Stage Enterprise)
Statement of Operations
Period July 22, 1998 (inception) through June 27, 1999
<TABLE>
<S> <C>
Revenue $ 169,708
Cost of sales 108,470
Gross profit 61,238
Selling, general, and administrative 1,184,384
Research and development expense 620,233
Amortization of intellectual property 257,353
Operating loss (2,000,732)
Interest income 32,407
-----------
Net loss $ (1,968,325)
===========
</TABLE>
See accompanying notes to financial statements.
56
<PAGE> 57
NOTICOM L.L.C.
(A Development Stage Enterprise)
Statement of Members' Equity
Period July 22, 1998 (inception) through June 27, 1999
<TABLE>
<CAPTION>
DEFICIT TOTAL
ACCUMULATED DURING MEMBERS'
CAPITAL DEVELOPMENT STAGE EQUITY
------- ----------------- ------
<S> <C> <C> <C>
Balance at July 22, 1998 $ -- -- --
Capital contribution 4,628,000 -- 4,628,000
Net loss -- (1,968,325) (1,968,325)
----------- ------------------- -----------
Balance at June 27, 1999 $ 4,628,000 (1,968,325) 2,659,675
=========== =================== ==========
</TABLE>
See accompanying notes to financial statements.
57
<PAGE> 58
NOTICOM L.L.C.
(A Development Stage Enterprise)
Statement of Cash Flows
Period July 22, 1998 (inception) through June 27, 1999
<TABLE>
<S> <C>
Cash flows from operating activities:
Net loss $ (1,968,325)
Adjustments to reconcile net loss
to net cash used in operating activities:
Amortization 257,353
Depreciation 58,388
Changes in assets and liabilities:
Trade accounts receivable (96,637)
Inventories (60,486)
Prepaid expenses and other current assets (9,476)
Trade accounts payable and accrued expenses 310,793
--------------
Net cash used in operating activities (1,508,390)
Cash flows from investing activities -
purchases of property and equipment (251,060)
Cash flows from financing activities -
proceeds from capital contributions from members 1,815,000
Net increase in cash 55,550
Cash and cash equivalent at beginning of period --
--------------
Cash and cash equivalent at end of period $ 55,550
==============
</TABLE>
See accompanying notes to financial statements.
58
<PAGE> 59
(1) Organization
NotiCom L.L.C. (the Company) is a Georgia limited liability corporation
which was formed on July 22, 1998. The Company started as a 50/50% joint
venture between LaBarge, Inc. (LaBarge) and Global Research Systems
(Global). The Company is involved in the research, development, and
marketing of wireless communication technology and related products. The
Company has certain international ownership, marketing, and distribution
rights to certain wireless communication technology which was conceived
by Global and developed and refined by Global, LaBarge, and the Company.
This technology has several applications; however, NotiCom is currently
focusing the majority of their attention on the BusCall(TM) product
line. BusCall(TM) is a wireless communication system installed in buses
carrying students for education purposes. When the bus approaches, an
automated communication is made to the households of bus-riding
individuals to alert them of the status of the bus and to decrease the
amount of time spent waiting at the bus stop.
The Company is governed by a four member Board of Managers. The
Operating Agreement of NotiCom L.L.C. provides for losses to be
allocated in proportion to the members' interest. Earnings of the
Company are to be divided as follows: (i) in proportion to the members'
interest up to $1 million; (ii) the next $2,628,000 will be allocated
75% to Global and 25% to LaBarge subject to change based on ownership
percentage and subject to a $1,314,000 preference payment to Global; and
(iii) thereafter, the earnings are divided in proportion to the members'
interest. The Company also has an agreement with Buscall Properties
L.L.C. (Buscall) under which Buscall agrees to license certain
intellectual property to the Company in exchange for a royalty fee equal
to 2.5% of the Company's revenue. Buscall is a 50/50 joint venture
between LaBarge and Global.
The Company is a Development Stage Enterprise with a limited operating
history and limited revenues from product sales to date. Since
inception, the Company has devoted its efforts principally to product
design and development, developing a business plan and marketing
strategy, commencing the recruitment of management and sales personnel,
filing patent applications covering certain aspects of the wireless
communication technology, and in sales efforts in an attempt to generate
revenue.
(2) Summary of Significant Accounting Policies
Accounting Period
The Company uses a fiscal year ending on the Sunday closest to
June 30.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect reported amounts of assets and
liabilities and disclosures of contingent liabilities at the date of
the financial statements, and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ
from those estimates.
Revenue Recognition
The Company earns revenue primarily from the sale and installation
of equipment, licensing fees, and royalties. The Company recognizes
revenue from the sale of equipment when the equipment is shipped.
The Company recognizes revenue from licensing fees and royalties
when the fees are earned based on the licensing agreement.
59
<PAGE> 60
Cash and Cash Equivalents
For purposes of the statement of cash flows, cash includes amounts
on deposit with financial institutions, including short-term
investments with original maturities of three months or less.
Inventory
Inventories are stated at the lower of cost or market using the
average cost method.
Intangibles
Intangible assets primarily consist of intellectual property which
is amortized over three years. The Company periodically evaluates
the carrying value of intangible assets for impairment based on the
expected undiscounted cash flows over the remaining life of the
asset.
Property and Equipment
Property and equipment is carried at cost. Depreciation is
calculated over the estimated useful lives of the related assets
(three to five years).
Income Taxes
No provision for income taxes is made because the liability for
income taxes is that of the individual members and not that of the
Company.
(3) Related Party Transactions
The Company was formed with initial capital contributions consisting of
(i) $1,814,000 in cash and $500,000 in services from LaBarge and (ii)
intellectual property valued at $2,313,000 and $1,000 in cash from
Global. The $500,000 in services from LaBarge and the $2,313,000 in
intellectual property from Global are considered non-cash transactions
and therefore are not reflected in the statement of cash flows.
The Company has a manufacturing agreement with LaBarge which gives
LaBarge exclusive rights to manufacture the products to be sold by the
Company within a specified territory. In addition, LaBarge provides
research and development services to the Company. The Company purchased
$819,691 of products and services from LaBarge during fiscal year 1999.
This amount is in addition to the $500,000 of services provided by
LaBarge as part of the initial capital contribution.
60
<PAGE> 61
(4) PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<S> <C>
Equipment $ 44,507
Leasehold improvements 2,274
Computers and equipment 109,754
Capitalized software costs 594,526
-----------
751,061
Less accumulated depreciation 58,388
-----------
$ 692,673
===========
</TABLE>
During the period from July 22, 1998 (inception) through June 27, 1999,
the Company recorded $39,346 of depreciation relating to computer
software costs.
(5) INTANGIBLE ASSETS
Intangible assets consist of the following:
<TABLE>
<S> <C>
Intellectual property $ 2,313,000
Less accumulated amortization 257,353
-----------
$ 2,055,647
===========
</TABLE>
(6) LEASES
The Company leases office space under a month-to-month lease. Rental
expense totaled $43,577 for fiscal year 1999.
(7) BUSINESS AND CREDIT CONCENTRATION
All of the Company's revenue for fiscal year 1999 was from one customer.
The balance of trade accounts receivable as of June 27, 1999 is from
this customer.
(8) SUBSEQUENT EVENT
On June 25, 1999, LaBarge initiated a cash call pursuant to the
Operating Agreement of NotiCom L.L.C. Under the Operating Agreement,
members have fifteen days to comply with the cash call. In the event the
cash is not remitted by the non-calling member, the other member may
contribute all of the cash which results in a change in the ownership
interest of the members. Global did not remit the cash pursuant to the
cash call.
LaBarge has made additional cash infusions totaling approximately
$400,000 to continue NotiCom's development and marketing efforts.
61
<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 No. 33-31330 on Form S-8 of LaBarge, Inc. of our report dated
August 9, 1999, relating to the consolidated balance sheets of LaBarge, Inc. and
subsidiaries as of June 27, 1999 and June 28, 1998, 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 27, 1999,
which report appears in the June 27, 1999 Annual Report on Form 10-K/A of
LaBarge, Inc.
KPMG LLP
St. Louis, Missouri
October 4, 1999
<PAGE> 2
EXHIBIT 23(a)
INDEPENDENT AUDITORS' CONSENT
The Board of Managers
NotiCom L.L.C.:
We consent to incorporation by reference in the registration statements (Nos.
33-53583 and 33-31330) on Form S-8 of LaBarge, Inc. of our report dated July 23,
1999 relating to the balance sheet of NotiCom L.L.C. as of June 27, 1999, and
the related statements of operations, members' equity, and cash flows for the
period from July 22, 1998 (inception) through June 27, 1999, which report
appears in the June 27, 1999 annual report on Form 10-K/A of LaBarge, Inc.
/s/ KPMG LLP
St. Louis, Missouri
October 4, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-27-1999
<PERIOD-END> JUN-27-1999
<CASH> 495
<SECURITIES> 0
<RECEIVABLES> 12,492
<ALLOWANCES> 2,347
<INVENTORY> 16,093
<CURRENT-ASSETS> 30,471
<PP&E> 13,188
<DEPRECIATION> 11,669
<TOTAL-ASSETS> 59,654
<CURRENT-LIABILITIES> 15,284
<BONDS> 0
0
0
<COMMON> 157
<OTHER-SE> 24,080
<TOTAL-LIABILITY-AND-EQUITY> 59,654
<SALES> 89,143
<TOTAL-REVENUES> 89,143
<CGS> 71,416
<TOTAL-COSTS> 90,258
<OTHER-EXPENSES> 1,025
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,451
<INCOME-PRETAX> (3,591)
<INCOME-TAX> (511)
<INCOME-CONTINUING> (3,080)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,080)
<EPS-BASIC> (.20)
<EPS-DILUTED> (.20)
</TABLE>
