<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended December 27, 1998 Commission file number: 1-5761
- --------------------------------------------------------------------------------
LaBarge, Inc.
- --------------------------------------------------------------------------------
(Exact Name of Registrant as specified in its charter)
DELAWARE 73-0574586
- ---------------------------------- ---------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9900A Clayton Road, St. Louis, Missouri 63124
- --------------------------------------------------------------------------------
(Address) (Zip Code)
(314) 997-0800
- --------------------------------------------------------------------------------
(Registrant's telephone number, including Area Code)
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X . No .
--- ---
Indicate the number of shares outstanding of each of the Issuer's classes of
common stock as of December 27, 1998. 15,208,367 common stock.
<PAGE> 2
LABARGE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(dollars in thousands except per share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
-------------------------------------------------------
DECEMBER 27, December 28, DECEMBER 27, December 28,
1998 1997 1998 1997
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET SALES $ 23,779 $ 22,203 $ 48,445 $ 43,696
- ------------------------------------------------------------------------------------------------
COSTS AND EXPENSES:
Cost of sales 18,983 17,002 38,272 33,807
Selling and administrative expense 3,594 3,418 7,005 6,400
- ------------------------------------------------------------------------------------------------
22,577 20,420 45,277 40,207
- ------------------------------------------------------------------------------------------------
EARNINGS FROM OPERATIONS 1,202 1,783 3,168 3,489
- ------------------------------------------------------------------------------------------------
Interest expense 370 196 679 326
Equity in loss of joint ventures 244 -- 272 94
Minority interest (5) (60) 142 (60)
Other (income) expense, net (59) 3 (212) (21)
- ------------------------------------------------------------------------------------------------
EARNINGS BEFORE INCOME TAXES 652 1,644 2,287 3,150
INCOME TAX EXPENSE 241 612 844 1,168
- ------------------------------------------------------------------------------------------------
NET EARNINGS 411 $ 1,032 $ 1,443 $ 1,982
================================================================================================
BASIC NET EARNINGS PER COMMON SHARE $ .03 $ .07 $ .09 $ .13
AVERAGE COMMON SHARES OUTSTANDING 15,311 15,657 15,383 15,658
================================================================================================
DILUTED NET EARNINGS PER COMMON SHARE $ .03 $ .07 $ .09 $ .13
AVERAGE DILUTED COMMON SHARES OUTSTANDING 15,372 15,781 15,450 15,787
================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE> 3
LABARGE, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(dollars in thousands)
<TABLE>
<CAPTION>
DECEMBER 27, June 28,
1998 1998
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,495 $ 540
Accounts and notes receivable, net 14,120 18,332
Inventories 18,460 18,968
Prepaid expenses 859 772
Deferred tax assets, net 1,387 2,087
- --------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 36,321 40,699
- --------------------------------------------------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT, NET 12,195 11,254
OTHER ASSETS, NET 11,138 7,039
- --------------------------------------------------------------------------------------------------------
$ 59,654 $ 58,992
========================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings $ 1,580 $ 5,020
Current maturities of long-term debt 1,797 1,102
Trade accounts payable 5,561 6,034
Accrued employee compensation 3,400 4,710
Other accrued liabilities 650 2,321
- --------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 12,988 19,187
- --------------------------------------------------------------------------------------------------------
LONG-TERM DEBT 16,737 10,163
- --------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value. Authorized
40,000,000 shares; issued 15,682,608 shares
at December 27, 1998 and 15,658,280 at
June 28, 1998, including shares in treasury 157 156
Additional paid-in capital 13,546 13,468
Retained earnings 17,926 16,683
Less cost of common stock in treasury, 474,241 shares at December 27, 1998
and 163,000 shares at June 28, 1998 (1,700) (665)
- --------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 29,929 29,642
- --------------------------------------------------------------------------------------------------------
$ 59,654 $ 58,992
========================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 4
LABARGE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(dollars in thousands)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
-------------------------------
DECEMBER 27, December 28,
1998 1997
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 1,443 $ 1,982
Adjustments to reconcile net cash provided (used) by operating
activities:
Undistributed loss in equity of joint venture 272 --
Minority interest in consolidated subsidiary 142 60
Depreciation and amortization 899 546
Loss on disposal of property and equipment 18 --
Deferred taxes 700 974
Changes in assets and liabilities, net of acquisition of majority
business interest:
Accounts and notes receivable, net 4,212 (734)
Inventories 508 (5,805)
Prepaid expenses (87) 60
Trade accounts payable (474) 70
Accrued liabilities (2,808) (1,237)
- -------------------------------------------------------------------------------------------------------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES 4,825 (4,084)
- -------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (1,801) (920)
Additions to other assets (427) (2,289)
Acquisition of majority business interest (313) 166
Investments in other companies (4,001) --
- -------------------------------------------------------------------------------------------------------
NET CASH USED BY INVESTING ACTIVITIES (6,542) (3,043)
- -------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Additions to long-term debt 7,288 --
Change in short-term borrowings (3,440) 7,075
Repayments of long-term debt (20) (516)
Sale of common stock 79 --
Purchase of common stock for treasury (1,235) (50)
- -------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 2,672 6,509
- -------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 955 (618)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 540 1,467
- -------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,495 $ 849
=======================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 5
LABARGE, INC.
FORM 10-Q
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. CONSOLIDATED FINANCIAL STATEMENTS - BASIS OF PREPARATION
The consolidated balance sheets at December 27, 1998 and June 28, 1998, the
related consolidated statements of operations for the three and six months ended
December 27, 1998 and December 28, 1997 and the consolidated statements of cash
flows for the six months ended December 27, 1998 and December 28, 1997 have been
prepared by LaBarge, Inc. (the "Company") without audit. In the opinion of
management, adjustments, all of a normal and recurring nature, necessary to
present fairly the financial position and the results of operations and cash
flows for the aforementioned periods, have been made. The Company adopted SFAS
No. 130, "Reporting Comprehensive Income" during the first quarter of fiscal
1999. The adoption of SFAS No. 130 had no impact on the Company's consolidated
financial statements.
Certain information and footnote disclosures normally included in consolidated
financial statements prepared in conformity with generally accepted accounting
principles have been condensed or omitted. These consolidated financial
statements should be read in conjunction with the audited financial statements
and notes thereto included in the Company's Annual Report on Form 10-K for the
fiscal year ended June 28, 1998.
2. ACCOUNTS AND NOTES RECEIVABLE
Accounts and notes receivable consist of the following:
(dollars in thousands)
<TABLE>
<CAPTION>
DECEMBER 27, June 28,
1998 1998
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Billed shipments, net of progress payments $ 12,215 $ 17,556
Less allowance for doubtful accounts 150 150
- -----------------------------------------------------------------------------------------------------------------------
Trade receivables - net 12,065 17,406
Notes receivables 1,922 903
Other current receivables 133 23
- -----------------------------------------------------------------------------------------------------------------------
$ 14,120 $ 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.
Effective June 2, 1998, LaBarge, Inc. and TransMedica International, Inc.
("TransMedica") reached revised agreements concerning our exclusive
manufacturing agreement and negotiated payments of then open accounts
receivables. The Company agreed to accept an interest bearing note secured by
all of the assets including patents of TransMedica, for the $900,000 then owed
for prior work and to extend future credit up to an additional $1.1 million
under the same note for future work performed. The value of this note at the
balance sheet dates is shown above.
Other current receivables are amounts due from employees for travel advances and
other miscellaneous sources.
5
<PAGE> 6
3. INVENTORIES
Inventories consist of the following:
(dollars in thousands)
<TABLE>
<CAPTION>
DECEMBER 27, June 28,
1998 1998
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Raw materials $ 11,045 $ 10,353
Work in progress 8,278 9,070
- ------------------------------------------------------------------------------------------------------------------------
19,323 19,423
Less progress payments 863 455
- ------------------------------------------------------------------------------------------------------------------------
$ 18,460 $ 18,968
========================================================================================================================
</TABLE>
In accordance with contractual agreements, the government has a security
interest in inventories related to contracts for which progress payments have
been received.
4. OTHER ASSETS
Other assets consist of the following:
(dollars in thousands)
<TABLE>
<CAPTION>
DECEMBER 27, June 28,
1998 1998
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash value of life insurance $ 2,538 $ 2,229
Deposits, licenses, and other 1,696 1,879
Investments in other companies 6,480 2,750
- ------------------------------------------------------------------------------------------------------------------------
10,714 6,858
- ------------------------------------------------------------------------------------------------------------------------
Software 1,095 1,047
Goodwill 412 412
- ------------------------------------------------------------------------------------------------------------------------
1,507 1,459
- ------------------------------------------------------------------------------------------------------------------------
Less amortization 1,083 1,278
- ------------------------------------------------------------------------------------------------------------------------
$ 11,138 $ 7,039
========================================================================================================================
</TABLE>
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). BusCall notifies parents by phone
when their children's school bus is approaching their bus stop. It is being
marketed to telephone companies which can offer BusCall as a value-added
service, such as call waiting and call forwarding. LaBarge is the exclusive
manufacturer of all products sold by NotiCom in the United States and Canada and
will recognize revenues as it sells products to NotiCom. Each of LaBarge and
Global has a 50% interest in NotiCom, except that after an aggregate of $1.0
million has been distributed by NotiCom, Global will be entitled to 75% of
subsequent distributions until it has received preferred distributions
aggregating $1.3 million. LaBarge has invested $1.8 million in cash in NotiCom
along with $500,000 of development services. In addition, LaBarge has paid
Global $1.7 million for a 50% interest in the intellectual property and has
licensed the technology to NotiCom. The Company has committed to pay Global up
to an aggregate of $23.3 million of additional purchase price for its 50%
interest in the technology if NotiCom meets or exceeds cumulative earnings
before income tax ("EBT") targets for the period from July 1, 1998 through
December 1, 1999 and through each six-month period thereafter through December
31, 2001. In order to generate the maximum
6
<PAGE> 7
purchase price, NotiCom must generate $211.8 million of EBT between July 1, 1998
and December 31, 2001. Because NotiCom is a start-up venture, it is too early to
predict if or to what extent NotiCom may contribute to the Company's revenues or
earnings; therefore, the Company has not recorded the contingent purchase price.
The investment is accounted for using the equity method. For the six months
ended December 27, 1998, LaBarge's share of the losses from the joint venture
were $272,000.
In the second quarter of fiscal 1998, the Company increased its ownership of
LaBarge Clayco Wireless L.L.C. to 51%. In the second quarter of fiscal 1999, the
Company purchased from Clayco Construction Company an additional 39% of LaBarge
Clayco Wireless L.L.C. for $300,000 to increase its ownership to 90%. Beginning
with the second quarter fiscal 1998, LaBarge, Inc. began consolidating 100% of
the results of this unit into its financial statements and deducting the
minority interest share before arriving at earnings before income taxes. The
investment was previously recorded using the equity method.
During fiscal 1998, the Company made a $500,000 investment equating to an
ownership position of approximately 10% in Open Cellular Systems, Inc. of St.
Louis. Open Cellular Systems uses shared access communication networks to
provide wireless communication solutions to the general industrial and utility
markets. The capabilities of Open Cellular complement LaBarge's and management
believes this alliance may provide future opportunities for the Company. The
Company accounts for this investment at cost.
In June 1997, the Company increased it's investment in TransMedica by $2.0
million by exchanging approximately $1.2 million of current accounts receivable
and investing $800,000 cash. The Company's investment in TransMedica totals $2.3
million, which is carried at cost; the Company owns approximately 9.5% of
TransMedica's common stock. Also during this period, LaBarge finalized revised
agreements with TransMedica concerning our exclusive manufacturing agreement and
negotiated payment terms for open receivables and for future payments for Laser
Lancet(R) units. At December 27, 1998, the Company has $1.9 million in notes
receivable from TransMedica.
On October 16, 1998, LaBarge filed a Petition for Specific Performance and
Declaratory Judgment in the Circuit Court for St. Louis County, Missouri,
seeking resolution of a dispute regarding LaBarge's rights to develop and
manufacture new laser products and determination of the number of Laser Lancet
devices TransMedica is presently obligated to purchase from LaBarge. The result
of this suit and its effect on the valuation of LaBarge's investment in, or
future sales to TransMedica cannot yet be determined.
7
<PAGE> 8
5. 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>
DECEMBER 27, June 28,
1998 1998
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Short-term borrowings:
Revolving credit agreements:
Balance at period end $ 1,580 $ 5,020
Interest rate at period end 7.02% 6.80%
Average amount of short-term borrowings outstanding during period $ 2,462 $ 4,751
Average interest rate for period 6.68% 6.94%
Maximum short-term borrowings at any month end $ 1,580 $ 9,250
===============================================================================================
Long-term debt:
Senior lender:
Revolving credit agreement -- 2,000
Term loan 11,000 3,000
Mortgage loan 6,125 6,164
Other 1,409 101
- -----------------------------------------------------------------------------------------------
18,534 11,265
Less current maturities 1,797 1,102
- -----------------------------------------------------------------------------------------------
Total long-term debt, less current maturities $16,737 $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.
SENIOR LENDER
The Company amended its lending agreement with NationsBank, N.A. on September
25, 1998. The amended agreement provides a seven-year, unsecured lending
agreement including an $11.0 million term loan payable in quarterly installments
of $393,000 beginning December 31, 1998 and a $15.0 million working capital
revolver. The interest rate on both loans is variable based on the ratio of
senior debt to earnings and is available as either a premium over LIBOR or a
discount from prime rate at the Company's option.
6. MINORITY INTEREST
On May 7, 1996, the Company, through its wholly-owned subsidiary LaBarge
Wireless Inc., entered into 50%/50% joint venture - LaBarge Clayco Wireless
L.L.C. The Company reported results of operations using the equity method of
accounting. In the second quarter of fiscal 1998, the Company increased its
ownership of LaBarge Clayco Wireless L.L.C. to 51%. Beginning with the second
quarter fiscal 1998, LaBarge, Inc. began consolidating 100% of the results of
this unit into its financial statement and deducting the minority interest share
before arriving at earnings before taxes. In the second quarter of fiscal 1999,
the Company purchased from Clayco Construction Company an additional 39% of
LaBarge Clayco Wireless L.L.C for $300,000 to increase its ownership to 90%. The
minority interest income for six months ending December 27, 1998 was $142,000
compared with a
8
<PAGE> 9
$60,000 loss for the six months ended December 28, 1997. The minority holders
interest is included in other liabilities and is $75,000 at December 27, 1998,
compared with $246,000 at December 28, 1997.
7. INCOME TAXES
As of June 28, 1998, the Company had alternative minimum tax credit
carryforwards and investment tax credits of approximately $712,000 available to
reduce future regular federal income taxes.
8. CASH FLOWS
Total cash payments for interest for the three and six months ended December 27,
1998 were $292,000 and $643,000 compared with $106,000 and $199,000 for the
three and six months ended December 28, 1997. Cash payments for income taxes for
the three and six months ended December 27, 1998 were $157,000 and $1.0 million,
compared with $125,000 and $331,000 for the three and six months ended December
28, 1997.
9. EARNINGS PER COMMON SHARE
Earnings per share are computed as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 27, December 28, DECEMBER 27, December 28,
1998 1997 1998 1997
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NUMERATOR:
Net earnings $ 411 $ 1,032 $ 1,443 $ 1,982
- ------------------------------------------------------------------------------------------------------
DENOMINATOR:
Denominator for basic net
earnings per share - weighted-
average shares 15,311 15,657 15,383 15,658
Effect of dilutive securities-
employee stock options 61 124 67 129
- ------------------------------------------------------------------------------------------------------
POTENTIAL COMMON SHARES:
Denominator for diluted net earnings
per shares - adjusted weighted-
average shares and assumed conversions
15,372 15,781 15,450 15,787
- ------------------------------------------------------------------------------------------------------
BASIC NET EARNINGS PER
COMMON SHARE $ .03 $ .07 $ .09 $ .13
======================================================================================================
DILUTED NET EARNINGS PER
COMMON SHARE $ .03 $ .07 $ .09 $ .13
======================================================================================================
</TABLE>
9
<PAGE> 10
LABARGE, INC.
FORM 10-Q
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
Statements contained herein which are not historical facts are forward-looking
statements that involve risks and uncertainties. Future events and the
Company's actual results could differ materially from those contemplated by
those forward-looking statements. Important factors which could cause the
Company's actual results to differ materially from those projected in, or
inferred by, forward-looking statements are (but are not necessarily limited
to) the following: the impact of increasing competition or deterioration of
economic conditions in the Company's markets, especially the geophysical
market; further cutbacks in defense spending by the U.S. Government; lack of
acceptance in the market of the Laser Lancet developed for TransMedica
International, Inc., ("TransMedica"), formerly Venisect, Inc.; legal actions
between LaBarge and TransMedica regarding contractual issues; the performance
of the NotiCom L.L.C. joint venture; 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.
LaBarge, Inc. designs, engineers and manufactures sophisticated,
high-performance electronic products and systems for specialized applications in
a variety of industries. The Company provides complete electronic system
solutions through customized applications, design and engineering services, and
product development. As a result, the Company relies heavily on continually
establishing relationships with new customers and maintaining strong
relationships with existing customers who are typically recognized leaders in
the defense, geophysical, commercial aerospace, and telecommunications
industries.
The Company's business strategy is to continue to grow its core design and
manufacturing business by developing or acquiring proprietary capabilities,
technologies and products, and the Company has made certain investments during
the last three fiscal years toward that end. For example, during the last twelve
months, the Company has increased its ownership stake in its LaBarge Clayco
Wireless L.L.C. joint venture to 90% from 50%. LaBarge Clayco Wireless provides
cell site engineering, construction and equipment installation services to the
telecommunications market. The Company's joint venture partner retains a 10%
minority interest in the business, which was launched in 1996.
In addition, 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). BusCall uses a
combination of technologies, including Global Positioning System satellite
location data, wireless communications techniques and telephony, that notifies
parents by phone when their children's school bus is approaching the bus stop.
It is being marketed to telephone companies which can offer BusCall as a
value-added service, such as call waiting and call forwarding. LaBarge is the
exclusive manufacturer of all products sold by NotiCom.
LaBarge and Global each have 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 property
and has licensed the technology to NotiCom. The Company has committed to pay
Global up to an aggregate of $23.3 million of
10
<PAGE> 11
additional purchase price for its 50% interest in the technology if NotiCom
meets or exceeds cumulative earnings before income tax ("EBT") targets for the
period from July 1, 1998 through December 1, 1999 and through each six-month
period thereafter through December 31, 2001. To generate the maximum purchase
price, NotiCom must generate $211.8 million of EBT between July 1, 1998 and
December 31, 2001.
Because NotiCom is a start-up venture, it is too early to predict if or to what
extent NotiCom may contribute the Company's revenues or earnings; therefore, the
Company has not recorded the contingent purchase price. The investment is
accounted for using the equity method. For the six months ended December 27,
1998, LaBarge's share of the losses from the joint venture were $272,000.
The Company has also made a $500,000 investment, equating to an approximate 10%
equity stake, in Open Cellular Systems, Inc. of St. Louis. Open Cellular Systems
uses shared-access communication networks to provide wireless communication
solutions to the general industrial and utility markets. The capabilities of
Open Cellular Systems complement those of LaBarge and management believes this
alliance may provide future opportunities for LaBarge. The investment is
accounted for at cost.
In December 1997, the Board of Directors of the Company authorized the
repurchase of up to 1,000,000 shares of LaBarge common stock. In December 1998,
the Board extended the authorization and in January 1999 increased the
authorization to 2,000,000 shares. Through December 27, 1998, approximately
500,000 shares had been repurchased.
For the six months ended December 27, 1998, approximately 50.6% of the Company's
sales were to customers in commercial markets, including telecommunications
(15.1%), geophysical (16.5%), aerospace (13.0%) and other (6.0%). Two customers
account for in excess of 10% each of total sales for the six months:
Schlumberger in the geophysical market at 13.0% of total sales; and Lockheed
Martin in the aerospace and defense markets at 27.8% of total sales.
The Company's backlog of firm, unshipped orders at December 27, 1998 was
approximately $46.9 million compared with $73.3 million at December 28, 1997.
The backlog at December 27, 1998 consisted of approximately $24.7 million for
various defense customers and approximately $22.2 million for commercial
electronics customers. This is compared with $52.2 million for defense customers
and $21.1 million for commercial customers for the prior year quarter ended
December 28, 1997. The decline in defense backlog is primarily attributable to
the near completion of several long-term contracts (i.e., AEGIS), which, due to
current redesigns by our customer, follow-on orders have not been placed to
date; and customer requested delays in shipments on other programs which has, in
turn, delayed reorders. Approximately $10.7 million of the total backlog is not
scheduled to ship within the next 12 months pursuant to the shipment schedules
outlined by our customers.
The Company is currently engaged in litigation with TransMedica International,
Inc. seeking resolution of certain disputes that have arisen between the two
companies concerning the Laser Lancet(R), a small medical laser the Company
developed under an exclusive manufacturing agreement with TransMedica. 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
product and determination of the number of Laser Lancet devises TransMedica is
presently obligated to purchase from LaBarge.
Since August 1995, the Company has invested a total of $2.3 million in
TransMedica equal to an approximate 9.5% ownership of TransMedica's common
stock. The investment resulted from an initial $250,000 investment in fiscal
1996, as well as the conversion of approximately $1.2 million of
11
<PAGE> 12
accounts receivable and an additional $800,000 in operating capital provided in
fiscal 1997. In addition, the Company holds a $1.9 million interest-bearing note
secured by all the assets of TransMedica and warrants to purchase an additional
4% of TransMedica stock for $25 per share, accepted by the Company in June 1998
for $900,000 then owed plus up to an addition $1.1 million for new production of
Laser Lancet devices. Management believes the value of the security interest in
the assets of TransMedica supports the carrying value of the note receivable. It
is too early to determine what, if any, effect the litigation mentioned above
will have on either the value of LaBarge's investment in TransMedica (which is
accounted for at cost), or on its future revenues from TransMedica.
12
<PAGE> 13
RESULTS OF OPERATIONS
SIX MONTHS ENDED DECEMBER 27, 1998
COMPARED TO SIX MONTHS ENDED DECEMBER 28, 1997
Net sales for the six months ended December 27, 1998 were $48.4 million compared
with $43.7 million for the six months ended December 28, 1997, an increase of
$4.7 million or 10.8%. This increase was due to inclusion of LaBarge Clayco
Wireless sales of $5.7 million for the six months ended December 27, 1998,
compared with $664,000 for six months ended December 28, 1997. The Company began
consolidating the results of LaBarge Clayco Wireless L.L.C. in the second
quarter of fiscal 1998.
Gross profit for the six months ended December 27, 1998 was $10.2 million, 21.0%
of sales, compared with $9.9 million, 22.6% of sales, for the six months ended
December 28, 1997. Gross margin was negatively effected by lower volume in the
geophysical market caused by reductions in capital spending by our geophysical
customers as a result of the current low price of crude oil. Further, gross
margin was affected by increased costs associated with added capacity brought
on-line in the last year which is currently under utilized due to lower than
planned volume.
Selling and administrative expenses for the six months ended December 27, 1998
were $7.0 million or 14.5% of sales, compared with $6.4 million or 14.6% of
sales for the six months ended December 28, 1997. The majority of the increase
is due to inclusion of LaBarge Clayco Wireless for six months in fiscal 1999,
versus only three months in fiscal 1998.
Interest expense for the six months ended December 27, 1998 was $679,000
compared with $326,000 for the six months ended December 28, 1997. Interest
expense has increased due to an increase in debt incurred in connection with:
the purchase of the Company's headquarters in St. Louis, Missouri for $6.2
million in January 1998; the investment in NotiCom L.L.C. and technology related
thereto, totaling $4.0 million in July 1998, the financing of the expansion of
our Berryville, Arkansas facility for $1.4 million in September 1998 and
additional investment in TransMedica totaling approximately $1.5 million.
Equity in loss of joint ventures for the six months ended December 27, 1998 was
$272,000 compared with $94,000 for the six months ended December 28, 1997. These
amounts represent the Company's share of losses incurred by NotiCom L.L.C. for
the period ended December 27, 1998 and LaBarge Clayco Wireless L.L.C. for the
period ending December 28, 1997. In the second quarter of fiscal 1998, the
Company increased its ownership of LaBarge Clayco Wireless L.L.C. to 51%. At
that time, LaBarge, Inc. began consolidating 100% of the results of this unit
into its financial statements and deducting the minority interest before
arriving at earnings before taxes. The minority interest share of profit for the
six months ended December 27, 1998 was $142,000 versus a $60,000 share of loss
for the six months ended December 28, 1997.
Other income for the six months ended December 27, 1998, was $212,000 compared
with $21,000 for the six months ended December 28, 1997. This increase is the
result of the purchase of our corporate headquarters in St. Louis, Missouri and
the revenues and expenses resulting from the leasing of space in that building
to third parties.
Income tax expense for the six months ended December 27, 1998 was $844,000
compared with $1.2 million for the six months ended December 28, 1997. The
effective tax rate for both years was approximately 37%.
13
<PAGE> 14
Diluted earnings per common share were $.09 for the six months ended December
27, 1998, and $.13 for the six months ended December 28, 1997.
RESULTS OF OPERATIONS
THREE MONTHS ENDED DECEMBER 27, 1998
COMPARED TO THREE MONTHS ENDED DECEMBER 28, 1997
Net sales for the three months ended December 27, 1998 were $23.8 million
compared with $22.2 million for the three months ended December 28, 1997. This
is a 7.2% increase and is attributable to higher LaBarge Clayco Wireless sales.
Gross profit for the three months ended December 27, 1998 was $4.8 million or
20.2% of sales, compared with $5.2 million or 23.4% of sales, for the three
months ended December 28, 1997. Gross margin was negatively effected by lower
volume in the geophysical market caused by reductions in capital spending by our
geophysical customers as a result of the current low price of crude oil.
Further, gross margin was affected by increased costs associated with added
capacity brought on-line in the last year which is currently under utilized due
to lower than planned volume.
Selling and administrative expenses were $3.6 million or 15.1% of sales, for the
three months ended December 27, 1998, compared with $3.4 million or 15.4% of
sales, for the three months ended December 28, 1997. The increase is due to
LaBarge Clayco Wireless's growth year to year and higher salaries and fringe
benefits due to wage increases year to year.
Interest expense for the three months ended December 27, 1998 was $370,000
compared with $196,000 for the three months ended December 28, 1997. Interest
expense has increased due to an increase in debt incurred in connection with:
the purchase of the Company's headquarters in St. Louis, Missouri for $6.2
million in January 1998; the investment in NotiCom L.L.C. and technology related
thereto, totaling $4.0 million in July 1998, the financing of the expansion of
our Berryville, Arkansas facility for $1.4 million in September 1998 and
additional investment in TransMedica totaling approximately $1.5 million.
Income tax expense for the three months ended December 27, 1998 was $241,000
compared with $612,000 for the three months ended December 28, 1997.
Diluted earnings per common share were $.03 for the three months ended December
27, 1998 and $.07 for the three months ended December 28, 1997.
FINANCIAL CONDITION & LIQUIDITY
Cash and cash equivalents at December 27, 1998 were $1.5 million compared with
$540,000 at June 28, 1998. $890,000 of the cash at December 27, 1998 is held in
escrow for the final payments on the construction of the Berryville facility
expansion.
Accounts receivable at December 27, 1998, were $14.1 million compared with $18.3
million at June 28, 1998; a decrease of $4.2 million.
Inventories at December 27, 1998 and June 28, 1998 were $18.5 million and $19.0
million, respectively.
14
<PAGE> 15
Also during the six months ended December 27, 1998, the Company purchased $1.8
million in property, plant and equipment including $1.4 million for the
Berryville plant expansion.
During the six months of the current fiscal year, the Company invested $4.0
million in NotiCom L.L.C., a joint venture between the Company and Global
Research Systems, Inc.
In September 1998, the Company amended its lending agreement with NationsBank,
N.A., extending the term of the agreement, converting its short-term debt of
$4.3 million to long-term and adding additional long-term debt of $1.8 million.
In addition, other long-term debt of $1.4 million was added via an Industrial
Revenue Bond to expand the Berryville plant.
YEAR 2000
THE COMPANY'S STATE OF READINESS:
We are currently reviewing our exposure to Year 2000 computer-related risks. We
are reviewing all internal systems, as well as those of suppliers and customers,
to evaluate any potential impact on January 1, 2000 and beyond.
COST:
The total anticipated cost for Year 2000 remediation activity are not expected
to be material. The cost of this effort thus far has been immaterial and has
been included in operating expenses.
RISKS AND CONTiNGENCY PLANS:
To date, we believe that all internal systems will be compliant or at least have
no material adverse effect on our ability to operate on or after January 1,
2000. No major program revisions have been identified which would result in
significant cost in future periods. Third parties having a material relationship
with the Company may be a potential risk based on their individual Year 2000
preparedness which may not be within the Company's reasonable control. The
Company is in the process of identifying, reviewing, and logging the Year 2000
preparedness of critical third parties. Pending the results of that review, the
Company will then determine what course of action and contingencies will need to
be made.
We anticipate, but cannot be assured, that should a problem arise, we will be
able to take necessary steps to minimize the impact with minimal or no material
effect on the results of the Company or its customers.
15
<PAGE> 16
PART II
Not Applicable
16
<PAGE> 17
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LABARGE, INC.
---------------------------------
Date February 9, 1999
----------------
/s/ William J. Maender
---------------------------------
William J. Maender
Vice President - Finance,
Treasurer and Secretary
17
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-28-1999
<PERIOD-END> DEC-27-1998
<CASH> 1,495
<SECURITIES> 0
<RECEIVABLES> 14,120
<ALLOWANCES> 150
<INVENTORY> 18,460
<CURRENT-ASSETS> 36,321
<PP&E> 12,195
<DEPRECIATION> (10,946)
<TOTAL-ASSETS> 59,654
<CURRENT-LIABILITIES> 12,988
<BONDS> 0
0
0
<COMMON> 157
<OTHER-SE> 29,772
<TOTAL-LIABILITY-AND-EQUITY> 59,654
<SALES> 48,445
<TOTAL-REVENUES> 48,445
<CGS> 38,272
<TOTAL-COSTS> 45,277
<OTHER-EXPENSES> 7,207
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 679
<INCOME-PRETAX> 2,287
<INCOME-TAX> 844
<INCOME-CONTINUING> 1,443
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,443
<EPS-PRIMARY> .09
<EPS-DILUTED> .09
</TABLE>
