<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year Commission file
ended July 2, 2000 Number 1-5761
---------------------- ----------------------
LABARGE, INC.
-----------------------------------------------------------------------------
(exact name of registrants specified in its charter)
Delaware 73-0574586
-----------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9900A Clayton Road, St. Louis, Missouri 63124
-----------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 314-997-0800
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<S><C>
Name of each exchange on which
Title of Class: registered:
Common Stock, $.01 par value American Stock Exchange
------------------------------------------------ ----------------------------------------------
</TABLE>
Securities registered pursuant to Section 12(g) of the Act:
None
-----------------------------------------------------------------------------
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes |X| No | |
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 September 21, 2000, 14,876,710 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 $35 million,
based upon the closing price of the common stock on the American Stock Exchange
on September 21, 2000.
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.
1
<PAGE> 2
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.
PART I
FORWARD-LOOKING STATEMENTS
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; the outcome of 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.
ITEM 1. BUSINESS
GENERAL DEVELOPMENT OF BUSINESS
LaBarge, Inc. ("LaBarge" or the "Company") is a Delaware Corporation. During
fiscal 2000, the Company was engaged in the following primary business
activities:
- The MANUFACTURING SERVICES GROUP is the Company's core electronic
manufacturing services 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 2000, the Company derived
approximately 98% of its total revenues from this group.
- 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 equipment. The group is
initially focusing its marketing efforts on the railroad industry to
monitor railroad-crossing equipment and on the oil and gas pipeline
industry to monitor cathodic protection devices. In fiscal 2000, the
Company derived approximately 2% of its total revenues from the Network
Technologies Group.
- LABARGE CLAYCO WIRELESS, L.L.C. ("LaBarge Clayco Wireless") was a joint
venture of LaBarge, Inc. and Clayco Construction Company that provided
turnkey construction, engineering and equipment installation services
for the wireless telecommunications industry.
On June 30, 2000 LaBarge Clayco Wireless was sold to Evolution
Holdings, Inc. of Phoenix, Arizona. For its 90% interest, the Company
received $4.6 million in cash and a three-year convertible note with an
estimated fair value of $115,000. The Company recognized a one-time
gain on the sale of $2.8 million, net of taxes.
- NOTICOM L.L.C. ("NotiCom") is a joint venture of LaBarge and Global
Research Systems, Inc. of Rome, Georgia, formed in fiscal 1999. During
the latter part of fiscal 2000 it was determined that significant
additional investment would be required to continue development of
NotiCom L.L.C.'s BusCall(TM) product. During the fourth quarter, the
Company determined it will not provide such additional funding for
NotiCom. Consequently, NotiCom is attempting to raise additional equity
in the capital markets. Given these events, the Company wrote-down its
remaining investment in NotiCom and the related technology to zero. The
total loss to LaBarge, including its share of NotiCom's operations and
the write-down, was $4.2 million in fiscal 2000.
2
<PAGE> 3
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
LaBarge designs and manufactures high performance electronics and interconnect
systems for customers in diverse technology-driven markets. The Company provides
complete electronic systems solutions through customized applications, design
and engineering services, and manufacturing for interconnect systems, circuit
card assemblies and high-level assemblies.
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, oil and gas and other
commercial markets. The group's engineering and manufacturing facilities are
located in Arkansas, Missouri, Oklahoma and Texas. The group employs
approximately 800 people.
Manufacturing Services Group sales were $78.3 million for fiscal 2000 compared
with $78.5 million in fiscal 1999.
The backlog for this group at July 2, 2000 was approximately $62.7 million,
compared with $42.7 million at June 27, 1999. The growth in backlog is the
result of an improved and reorganized sales and marketing effort that
concentrates on the Company's core competencies and the application of those
competencies to targeted large customers in a variety of industries.
Approximately $4.3 million of the backlog at fiscal 2000 year-end was not
scheduled to ship within the next 12 months pursuant to the shipment schedules
contained in those contracts. This compares to $9.0 million at fiscal 1999
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
During fiscal 2000, the Company generated significant revenues from customers in
the defense, aerospace, oil and gas, and other commercial markets. The Company
produces electronic equipment for use in a variety of high-technology
applications, including military communication and radar systems, commercial
aircraft, satellites, space launch vehicles, down-hole instrumentation, and mail
sorting equipment. However, the Company's broad-based core competencies in
electronics design and manufacturing allow it to pursue diverse opportunities
with customers in many different markets.
In the Manufacturing Services Group there are currently 12 sales personnel, 57
engineers and 43 technicians who provide direct customer support as needed. The
group's engineering and plant management employees are very 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.
3
<PAGE> 4
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.
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, reliability, and overall project management
capability.
CONCENTRATION OF BUSINESS
Three customers of the Manufacturing Services Group, each with multiple
operating units, together accounted for in excess of 43% of the Company's
consolidated sales in fiscal 2000: Lockheed Martin accounted for 18% of total
sales; Schlumberger accounted for 13% of total sales; and Northrop Grumman
accounted for 12% of total sales. No other customer accounted for more than 7.6%
of sales. Sales to the largest 10 customers represented approximately 74% of the
Company's total sales. By comparison, in fiscal 1999, sales to the largest 10
customers represented 77% 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.
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 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. 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. 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.
At the acquisition, options to acquire 310,000 shares of OCS common stock were
converted to 310,000 options for 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 options are callable by LaBarge, Inc.
in accordance 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
4
<PAGE> 5
million after the first anniversary of the acquisition (March 2, 2000) and prior
to June 15, 2000. The Company recorded goodwill of $6.8 million in this
transaction, which is being amortized over seven years.
The Company called the 310,000 outstanding shares of LaBarge-OCS, Inc. on June
12, 2000, and exchanged the shares for Subordinated Convertible Notes in the
amount of $1.3 million, with interest at 7.5%, payable quarterly and due June
2003.
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 a vice president who reports to the
Chief Executive Officer and President of LaBarge, Inc.
SALES AND MARKETING
This group's initial market focus is on the railroad industry, which uses the
group's proprietary ScadaNET Network(TM) product line, to monitor
railroad-crossing equipment. In addition, the group is marketing the ScadaNET
Network to the oil and gas pipeline industry which uses the products to monitor
cathodic protection devices.
The group has three full-time sales personnel and utilizes the services of
independent sales representatives to market its products.
Fiscal 2000 sales, totaling $1.3 million, were primarily to the railroad
industry. During fiscal 2000, the ScadaNET Network was selected by several rail
organizations as the system of choice for their remote monitoring programs. The
system is being installed at nearly 1,300 active crossings in seven states by
The Burlington Northern and Santa Fe Railway Company, Montana Rail Link and I&M
Rail Link. During the fourth quarter, Union Pacific Railroad selected the
ScadaNET system as a standard component on all the railroad's ongoing new
construction and crossing upgrade programs.
COMPETITION
The group has various competitors who market devices to monitor remote
industrial equipment. None of the competitors are known to market products that
provide a comprehensive service as cost effectively.
OPERATIONS
The Network Technologies Group does no manufacturing. The Company's
Manufacturing Services Group is the manufacturer of the Network Technologies
Group's products.
The group has an engineering and operations center located in the metropolitan
Kansas City area.
LABARGE CLAYCO WIRELESS
This business was started in fiscal 1996 as a 50%/50% joint venture with Clayco
Construction Company ("Clayco") in St. Louis, Missouri. In fiscal 1998, the
Company increased its ownership to 51%. In the second quarter of fiscal 1999,
the Company purchased from Clayco an additional 39% of LaBarge Clayco Wireless
for $300,000 to increase its ownership to 90%.
5
<PAGE> 6
On June 30, 2000 LaBarge Clayco Wireless was sold to Evolution Holdings, Inc. of
Phoenix, Arizona. For its 90% interest, the Company received $4.6 million in
cash and a three-year convertible note with an estimated fair value of $115,000.
The Company recognized a one-time gain on the sale of $2.8 million, net of
taxes.
The Company is reporting the results of LaBarge Clayco Wireless' operations and
the gain on the divestiture as a discontinued operation.
NOTICOM L.L.C. JOINT VENTURE
In the first quarter of fiscal 1999, LaBarge and Global Research Systems, Inc.
("Global") of Rome, Georgia 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. During fiscal 2000,
LaBarge made additional cash contributions totaling $705,000 and invested
equipment and services valued at $687,000.
During the latter part of fiscal 2000, it was determined that significant
additional investment would be required to continue development of NotiCom
L.L.C.'s BusCall(TM) product. During the fourth quarter, the Company determined
it will not provide such additional funding for NotiCom. Consequently, NotiCom
is attempting to raise additional equity in the capital markets. Given these
events, the Company wrote-down its remaining investment in NotiCom and the
related technology to zero. The total loss to LaBarge, including its share of
NotiCom's operations and the write-down, was $4.2 million in fiscal 2000.
ORGANIZATION
The joint venture is headed by a president who reports to a board of managers,
consisting of representatives from LaBarge and Global.
SIGNIFICANT EVENTS
TRANSMEDICA INTERNATIONAL, INC.
Transmedica International, Inc. ("Transmedica") issued a promissory note to
LaBarge in June 1998. The note, which was secured by substantially all of
Transmedica's assets, including its intellectual property, represented $1.2
million in converted accounts receivable owed to LaBarge by Transmedica and
$800,000 in operating capital extended to Transmedica by LaBarge. When
Transmedica failed to repay the note, which was due on June 2, 1999, LaBarge
took legal action against Transmedica seeking payment. The claim for payment of
the note was added to pending litigation filed by LaBarge against Transmedica in
October 1998 in St. Louis County. The litigation sought resolution of disputes
between the two companies pertaining to a portable medical laser device called
the Laser Lancet(R). As a result of Transmedica's default on the note and the
litigation, the Company reserved the full amount of its investment in
Transmedica ($4.6 million) at June 27, 1999.
In December 1999, the Company settled all pending litigation with Transmedica.
In the settlement, LaBarge received $2.2 million of cash, plus stock and options
in Norwood Abbey, Ltd., with an estimated value of $100,000. Norwood Abbey is an
Australia-based provider of medical devices that acquired Transmedica.
CAPITAL STRUCTURE
The Company has a senior, secured loan agreement with a bank.
The following is a summary of the agreement:
- A $3.9 million term loan requiring repayments of $393,000 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
6
<PAGE> 7
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 July 2, 2000, the maximum
allowable was $15.0 million. The revolver borrowing at fiscal 2000
year-end was $9.7 million and letters of credit outstanding totaled
$1.5 million. Unused revolving credit available at July 2, 2000, was
$3.8 million. This credit facility matures in February 2001. It is the
Company's intention to renew or replace this credit facility.
- Covenants and performance criteria which involve Earnings Before
Interest, Taxes, Depreciation and Amortization ("EBITDA"), EBITDA in
relation to debt and, after June 30, 2000, EBITDA in relation to fixed
charges. The Company is in compliance with its borrowing agreement
covenants for the quarter and twelve months ended July 2, 2000.
- Interest on the loans is at prime or a stated rate over LIBOR based on
certain ratios. As of year-end, the average rate was approximately
9.03%.
- A $6.2 million mortgage loan to finance the Company's fiscal 1998
purchase of its headquarters building in St. Louis, Missouri. The loan
has a 25-year amortization, a 7.5% interest rate and is due in January
2008.
OTHER LONG-TERM DEBT:
Industrial Revenue Bonds:
In July 1998, the Company acquired tax-exempt Industrial Revenue Bond
financing 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 outstanding balance at June
2000 was $1.2 million.
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 were exchanged for $1.3 million of Notes in June 2000.
To mitigate the exposure to changes in interest rates, the Company
entered into an interest rate swap agreement with a bank in August
1998. This agreement swaps a portion of the Company's exposure to
three-month LIBOR rates with a fixed rate of 5.95%. The notional amount
of the agreement, $8.2 million at July 2, 2000, amortizes quarterly to
match the quarterly payment under the existing bank term loan. This
agreement expires in September 2005.
OTHER LONG-TERM LIABILITIES:
Other long-term liabilities are deferred revenues associated with the
proprietary ScadaNET Network and represents prepaid communication services.
The ratio of debt-to-equity as of July 2, 2000 was 1.02 to 1, compared with .95
to 1 at June 27, 1999.
7
<PAGE> 8
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 2000, fiscal 1999 and fiscal 1998 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 17.5 49,000 Owned
Houston, TX Manufacturing &
Offices 3 48,740 2002
Huntsville, AR Manufacturing &
Offices 6 48,000 2000
Joplin, MO Manufacturing &
Offices 5 50,400 Owned
Joplin, MO Manufacturing 4 33,000 2002
Lenexa, KS Offices .5 4,137 2001
St. Louis, MO Offices 8 65,176 Owned
Tulsa, OK Manufacturing &
Offices 3 55,000 2002
--------------------------------------------------------------------------------------------------------------------
</TABLE>
ITEM 3. LEGAL PROCEEDINGS
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 this case will have a material adverse effect
on the financial condition or results of operations of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no items submitted to a vote of the security holders in the quarter
ended July 2, 2000.
8
<PAGE> 9
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 18 filed herewith.
ITEM 6. SELECTED FINANCIAL DATA
Reference is made to the information contained in the section entitled "Selected
Financial Data" on page 17 filed herewith.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Reference is made to the information contained in the section entitled
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" on pages 45 through 49 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 2000, fiscal 1999 and fiscal 1998 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 July 2, 2000, the Company had $26.6 million in total debt. $12.9 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 $13.7 million is subject to fluctuation. To
mitigate the exposure to changes in interest rates, the Company entered into an
interest rate swap agreement with a bank in August 1998. This agreement swaps a
portion of the Company's exposure to three-month LIBOR rates with a fixed rate
of 5.95%. The notional amount of the agreement, $8.2 million at July 2, 2000,
amortizes quarterly to match the quarterly payment under the existing bank term
loan. This agreement expires in September 2005. The additional interest cost to
the Company if interest rates went up 1%, would be $55,000 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 16 filed herewith.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
9
<PAGE> 10
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
This information will be included in the Company's definitive proxy materials to
be filed within 120 days after the end of the Company's fiscal year covered by
this report and is incorporated by reference.
ITEM 11. EXECUTIVE COMPENSATION
This information will be included in the Company's definitive proxy materials to
be filed within 120 days after the end of the Company's fiscal year covered by
this report and is incorporated by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
This information will be included in the Company's definitive proxy materials to
be filed within 120 days after the end of the Company's fiscal year covered by
this report and is incorporated by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
This information will be included in the Company's definitive proxy materials to
be filed within 120 days after the end of the Company's fiscal year covered by
this report and is incorporated by reference.
PART IV
ITEM 14. EXHIBITS, CONSOLIDATED FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
a. Consolidated Financial Statements.
See "Index to Consolidated Financial Statements and Schedule" contained
on page 18.
b. Reports on Form 8-K.
Reports on Form 8-K and Form 8-K-A were filed by the Company with the
Securities and Exchange Commission on July 14, 2000, and August 30,
2000, respectively.
c. Exhibits.
d. Consolidated Financial Statement Schedule.
See "Index to Consolidated Financial Statements and Schedule" contained
on page 16.
e. Exhibits.
<TABLE>
<CAPTION>
Exhibit
Number Description
------ -----------
<S> <C>
3.1 Restated Certificate of Incorporation, dated October 26, 1995,
previously filed as Exhibit 3.1(i) to the Company's Quarterly
Report on Form 10-Q for the quarter ended October 1, 1995 and
incorporated herein by reference.
</TABLE>
10
<PAGE> 11
<TABLE>
<S> <C>
3.1(a) Certificate of Amendment to Restated Certificate of
Incorporation, dated November 7, 1997, previously filed as
Exhibit 3.1(a) to the Company's Quarterly Report on Form 10-Q for
the quarter ended December 28, 1997 and incorporated herein by
reference.
3.2 By-Laws, as amended, previously filed as Exhibit 3.2(a) to the
Company's Quarterly Report on Form 10-Q for the quarter ended
October 1, 1995 and incorporated herein by reference.
10. First Amendment and Restatement to the LaBarge Employees Savings
Plan executed on May 3, 1990 and First Amendment to the First
Amendment and Restatement of the LaBarge, Inc. Employees Savings
Plan executed on June 5, 1990, previously filed as Exhibits (i)
and (ii), respectively, to the LaBarge, Inc. Employees Savings
Plan's Annual Report on Form 11-K for the year ended December 31,
1990 and incorporated herein by reference.
10.1(a) Second Amendment to the First Amendment and Restatement of the
LaBarge, Inc. Employees Savings Plan executed on November 30,
1993. Previously filed with the Securities and Exchange
Commission 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 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 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 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.
10.3 LaBarge, Inc. 1993 Incentive Stock Option Plan. Previously filed
with the Securities and Exchange Commission 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 on July 23, 1996 and incorporated herein by reference.
</TABLE>
11
<PAGE> 12
<TABLE>
<S> <C>
10.4 Management Retirement Savings Plan of LaBarge, Inc. Previously
filed with the Securities and Exchange Commission on July 23,
1996 and incorporated herein by reference.
10.5 Asset Purchase Agreement dated May 15, 1996, among registrants,
SOREP Technology Corporation and its shareholder, previously
filed as Exhibit 10.i to the Company's report on Form 8-K filed
with the Securities and Exchange Commission on May 28, 1996 and
incorporated herein by reference.
10.6 Loan Agreement dated June 25, 1996 among NationsBank, N.A.,
registrant, LaBarge Wireless, Inc. and LaBarge/STC, Inc.
Previously filed with the Securities and Exchange Commission with
the Company's Registration Statement on Form S-3 on July 23, 1996
and incorporated herein by reference.
10.7 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.
10.8 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.
10.9 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.
10.9(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.
10.10 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.
10.11 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 Annual Report on Form 10-K on September 27, 1999 and
incorporated herein by reference.
10.13 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.
10.14 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.
10.15 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
</TABLE>
12
<PAGE> 13
<TABLE>
<S> <C>
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.
10.16 Equity Purchase Agreement dated as of June 30, 2000, by and among
Evolution Holdings, Inc., Evolution.com, Inc., registrant,
LaBarge Wireless, Inc. and Clayco Construction Company,
previously filed with Securities and Exchange Commission with the
Company's current report on Form 8-K on July 14, 2000 and
incorporated herein by reference.
10.17* Executive Severance Agreement dated November 8, 1999, between
Donald H. Nonnenkamp and LaBarge, Inc.
23(a)* Independent Auditors' Consents.
27* Article 5 Financial Data Schedule.
</TABLE>
* Document filed herewith.
13
<PAGE> 14
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed
on its behalf by the undersigned, thereunto duly authorized.
Dated: September 21, 2000
LaBarge, Inc.
By s/Donald H. Nonnenkamp
------------------------------------------
Donald H. Nonnenkamp
Vice President and Chief Financial Officer
14
<PAGE> 15
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Craig E. LaBarge and Donald H. Nonnenkamp and
each of them, and substitution and resubstitution, for him and in his name,
place and stead, in any and all capacities, to sign this Report, any and all
amendments to this Report, and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or either of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereto.
Pursuant to the requirements of the Securities Act of 1934, this Report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
S/Pierre L. LaBarge, Jr. Chairman Emeritus and Director 9/14/00
------------------------------------------ --------------
Pierre L. LaBarge, Jr.
S/Craig E. LaBarge President (Chief Executive Officer) 9/14/00
------------------------------------------ and Director --------------
Craig E. LaBarge
S/Donald H. Nonnenkamp Vice President and Chief 9/14/00
------------------------------------------ Financial Officer --------------
Donald H. Nonnenkamp
S/Robert H. Chapman Director 9/14/00
------------------------------------------ --------------
Robert H. Chapman
S/Richard P. Conerly Director 9/14/00
------------------------------------------ --------------
Richard P. Conerly
S/John G. Helmkamp, Jr. Director 9/14/00
------------------------------------------ --------------
John G. Helmkamp, Jr.
S/J. C. Kuhn, Jr. Director 9/14/00
------------------------------------------ --------------
J. C. Kuhn, Jr.
S/Lawrence J. LeGrand Director 9/14/00
------------------------------------------ --------------
Lawrence J. LeGrand
S/James P. Shanahan, Jr. Director 9/14/00
------------------------------------------ --------------
James P. Shanahan, Jr.
S/Jack E. Thomas, Jr. Director 9/14/00
------------------------------------------ --------------
Jack E. Thomas, Jr.
</TABLE>
15
<PAGE> 16
LABARGE, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL
STATEMENTS AND SCHEDULES
<TABLE>
<CAPTION>
PAGE
----
Consolidated Financial Statements
---------------------------------
<S> <C>
Independent Auditors' Report 19
Consolidated Statements of Operations, 20
Years Ended July 2, 2000, June
27, 1999 and June 28, 1998
Consolidated Balance Sheets, 21
As of July 2, 2000 and
June 27, 1999
Consolidated Statements of Cash Flows, 22
Years Ended July 2, 2000,
June 27, 1999 and June 28, 1998
Consolidated Statements of Stockholders' Equity, 23
Years Ended July 2, 2000,
June 27, 1999 and June 28, 1998
Notes to Consolidated Financial Statements 24-42
Management's Discussion and Analysis of
Financial Condition and Results of Operations 43-49
Schedule II - Valuation and Qualifying Accounts 50
</TABLE>
All other schedules have been omitted as they are not applicable, not
significant, or the required information is given in the consolidated financial
statements or notes thereto.
<TABLE>
<CAPTION>
Financial Statement of Investee Subsidiary
------------------------------------------
<S> <C>
Independent Auditors' Report 51
Balance Sheets as of July 2, 2000 and June 27, 1999 52
Statement of Operations, Year Ended July 2, 2000
And the period from July 22, 1998 (inception) through June 27, 1999 53
Statement of Members' Equity as of July 2, 2000 and June 27, 1999 54
Statement of Cash Flows, Year Ended July 2, 2000
And the period from July 22, 1998 (inception) through June 27, 1999 55
Notes to Financial Statements as of July 2, 2000 and June 27, 1999 56-59
</TABLE>
16
<PAGE> 17
LaBarge, Inc.
SELECTED FINANCIAL DATA
(dollars in thousands except per share data)
<TABLE>
<CAPTION>
YEAR ENDED
-----------------------------------------------------------------------------
JULY 2, June 27, June 28, June 29, June 30,
2000 1999 1998 1997 1996
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $ 79,614 $ 78,577 $ 95,629 $ 96,666 $ 75,060
Pretax (loss) earnings from
continuing operations $ (1,880) $ (3,909) $ 7,762 $ 7,001 $ 3,771
Net (loss) earnings from
continuing operations $ (1,551) $ (3,280) $ 4,898 $ 7,735 $ 3,540
---------------------------------------------------------------------------------------------------------------------------
Discontinued Operations:
Income (loss) from operations,
net of taxes $ 293 $ 200 $ (134) $ - $ -
Gain on disposal, net of taxes 2,833 - - - -
Net earnings (loss) 1,575 (3,080) 4,764 7,735 3,540
BASIC EARNINGS (LOSS) PER SHARE:
Net (loss) income from
continuing operations $ (.11) $ (.22) $ .32 $ .50 $ .23
Net income (loss) from
discontinued operations .22 .02 (.01) - -
---------------------------------------------------------------------------------------------------------------------------
BASIC NET EARNINGS (LOSS) $ .11 $ (.20) $ .31 $ .50 $ .23
---------------------------------------------------------------------------------------------------------------------------
DILUTED EARNINGS (LOSS) PER SHARE:
Net (loss) income from
continuing operations $ (.11) $ (.22) $ .31 $ .49 $ .23
Net income (loss) from
discontinued operations .22 .02 (.01) - -
---------------------------------------------------------------------------------------------------------------------------
DILUTED NET EARNINGS (LOSS) $ .11 $ (.20) $ .30 $ .49 $ .23
---------------------------------------------------------------------------------------------------------------------------
Total assets $ 68,733 $ 59,654 $ 58,992 $ 43,459 $ 41,550
Long-term debt $ 15,025 $ 20,290 $ 10,163 $ 5,101 $ 10,419
---------------------------------------------------------------------------------------------------------------------------
</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.
The disposal of the Company's interest in LaBarge Clayco Wireless was reported
as a discontinued operation. Accordingly, the operating results of LaBarge
Clayco Wireless in fiscal years 1998, 1999 and 2000 are reported as discontinued
operations.
17
<PAGE> 18
STOCK PRICE AND CASH DIVIDENDS: LaBarge, Inc.'s Common Stock is listed on the
American Stock Exchange, under the trading symbol of LB. As of September 7,
2000, there were approximately 3,151 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 2000 and 1999, as reported by the American
Stock Exchange.
<TABLE>
<CAPTION>
1999-2000 HIGH LOW
---- ---
<S> <C> <C>
July -- September 2 7/16 1 1/2
October -- December 2 1/4 1 1/16
January -- March 3 7/15 2 1/16
April -- June 2 11/16 1 5/8
1998-99 HIGH LOW
---- ---
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>
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 July 2, 2000 and June 27, 1999, and the results of their
operations and their cash flows for each of the years in the three-year period
ended July 2, 2000, 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 LLP
--------------------------
St. Louis, Missouri
August 11, 2000
19
<PAGE> 20
LaBarge, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands except per-share data)
<TABLE>
<CAPTION>
YEAR ENDED
---------------------------------------------------------
JULY 2, June 27, June 28,
2000 1999 1998
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET SALES $ 79,614 $ 78,577 $ 95,629
------------------------------------------------------------------------------------------------------------------------------
COSTS AND EXPENSES:
Cost of sales 61,666 62,692 73,446
Selling and administrative expense 16,196 12,978 13,579
(Gain) loss due to impairment of assets (2,300) 4,573 -
Interest expense 2,092 1,384 955
Loss from NotiCom 4,172 1,221 -
Other income, net (332) (362) (113)
------------------------------------------------------------------------------------------------------------------------------
Loss from continuing operations before
income taxes (1,880) (3,909) 7,762
Income tax (benefit) expense (329) (629) 2,864
------------------------------------------------------------------------------------------------------------------------------
Net (loss) income from continuing operations (1,551) (3,280) 4,898
------------------------------------------------------------------------------------------------------------------------------
DISCONTINUED OPERATIONS:
Income (loss) from operations, (less applicable
income taxes of $172, $118 and benefit of $78 293 200 (134)
for 2000, 1999 and 1988, respectively)
Gain on disposal (less applicable income taxes
of $406) 2,833 - -
------------------------------------------------------------------------------------------------------------------------------
NET EARNINGS (LOSS) $ 1,575 $ (3,080) $ 4,764
==============================================================================================================================
BASIC EARNINGS (LOSS) PER SHARE:
Net (loss) income from continuing operations $ (.11) $ (.22) $ .32
Net income (loss) from discontinued operations .22 .02 (.01)
------------------------------------------------------------------------------------------------------------------------------
BASIC NET EARNINGS (LOSS) $ .11 $ (.20) $ .31
------------------------------------------------------------------------------------------------------------------------------
AVERAGE COMMON SHARES OUTSTANDING 14,783 15,157 15,604
==============================================================================================================================
DILUTED EARNINGS (LOSS) PER SHARE:
Net (loss) income from continuing operations $ (.11) $ (.22) $ .31
Net income (loss) from discontinued operations .22 .02 (.01)
------------------------------------------------------------------------------------------------------------------------------
DILUTED NET EARNINGS (LOSS) $ .11 $ (.20) $ .30
------------------------------------------------------------------------------------------------------------------------------
AVERAGE DILUTED COMMON SHARES OUTSTANDING 14,783 15,157 15,723
==============================================================================================================================
</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>
JULY 2, June 27,
2000 1999
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 734 $ 462
Accounts and notes receivable, net 17,813 10,253
Inventories 22,232 15,080
Prepaid expenses 864 728
Deferred tax assets, net 1,205 664
Current assets of discontinued operations - 3,284
----------------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS $ 42,848 $ 30,471
----------------------------------------------------------------------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT, NET 12,683 12,940
DEFERRED TAX ASSETS, NET 2,526 1,818
INVESTMENT IN NOTICOM - 2,780
INTANGIBLE ASSETS, NET 5,516 6,941
OTHER ASSETS, NET 5,160 4,451
NON-CURRENT ASSETS OF DISCONTINUED OPERATIONS - 253
----------------------------------------------------------------------------------------------------------------------------
$ 68,733 $ 59,654
============================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings $ 9,730 $ 130
Current maturities of long-term debt 1,823 1,771
Trade accounts payable 8,228 4,113
Accrued employee compensation 5,075 3,873
Other accrued liabilities 2,763 2,845
Current liabilities of discontinued operations - 2,552
----------------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES $ 27,619 $ 15,284
----------------------------------------------------------------------------------------------------------------------------
OTHER LONG-TERM LIABILITIES 316 -
LONG-TERM DEBT 9,284 15,866
SUBORDINATED DEBT 5,741 4,424
----------------------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value. Authorized 40,000,000
shares; issued 15,773,253 shares at July 2, 2000 and
15,711,395 at June 27, 1999, including shares in treasury 158 157
Additional paid-in capital 13,722 13,615
Retained earnings 14,978 13,403
Less cost of common stock in treasury, 921,199 shares at
July 2, 2000 and 955,853 shares at June 27, 1999 (3,085) (3,095)
----------------------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 25,773 24,080
----------------------------------------------------------------------------------------------------------------------------
$ 68,733 $ 59,654
============================================================================================================================
</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
---------------------------------------------------
JULY 2, June 27, June 28,
2000 1999 1998
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) $ 1,575 $ (3,080) $ 4,764
Adjustments to reconcile net cash (used) provided by
operating activities:
(Gain) loss due to impairment of assets (100) 4,573 -
(Gain) loss on disposal of discontinued operations (2,833) - -
Net (earnings) loss from discontinued operations (293) (200) 134
Loss from NotiCom and amortization of technology 4,172 1,221 -
Depreciation and amortization 2,846 1,965 1,343
Deferred taxes (1,249) (395) 2,339
Other (38) 16 -
Changes in assets and liabilities, net of acquisitions:
Accounts and notes receivable, net (7,866) 4,440 (4,184)
Inventories (7,152) 3,053 (3,960)
Prepaid expenses (136) (4) 23
Trade accounts payable 4,115 (1,435) (344)
Accrued liabilities and other 1,535 (310) 484
-----------------------------------------------------------------------------------------------------------------------------------
NET CASH (USED) PROVIDED BY CONTINUING OPERATIONS (5,424) 9,844 599
NET CASH PROVIDED (USED) BY DISCONTINUED OPERATIONS 402 152 (438)
NET CASH (USED) PROVIDED BY OPERATING ACTIVITIES (5,022) 9,996 161
-----------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (1,428) (3,250) (8,125)
Additions to other assets (307) (748) (2,299)
Investment in other companies (1,392) (2,585) (519)
Investment in technology - (1,686) -
Cash (used) provided by investing activities --
discontinued operations (68) (102) 566
Proceeds from disposal of discontinued operations 4,284 - -
-----------------------------------------------------------------------------------------------------------------------------------
NET CASH USED BY INVESTING ACTIVITIES 1,089 (8,371) (10,377)
-----------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Additional investment by minority interest - - 300
Additions to long-term debt 1,318 5,960 6,200
Repayments of long-term debt (6,531) (953) (1,066)
Sale (purchase) of common stock 118 (2,482) (665)
Net change in short-term borrowings, net of acquisitions 9,600 (4,140) 3,770
Net change in short-term debt of discontinued operations (300) (50) 750
-----------------------------------------------------------------------------------------------------------------------------------
NET CASH (USED) PROVIDED BY FINANCING ACTIVITIES 4,205 (1,665) 9,289
-----------------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 272 (40) (927)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 462 502 1,429
-----------------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 734 $ 462 $ 502
===================================================================================================================================
</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>
COMMON STOCK ADDITIONAL TREASURY STOCK
------------ PAID-IN RETAINED --------------
SHARES PAR VALUE CAPITAL EARNINGS SHARES COST
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
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)
NET EARNINGS - - - 1,575 - -
ISSUED FOR THE EMPLOYEE
STOCK PURCHASE PLAN 61,858 1 107 - 70,082 135
EXERCISE OF STOCK OPTIONS - - - - 70,000 145
PURCHASE OF COMMON
TO TREASURY - - - - (105,428) (270)
-----------------------------------------------------------------------------------------------------------------------------------
BALANCE AT JULY 2, 2000 15,773,253 $ 158 $ 13,722 $ 14,978 (921,199) $ (3,085)
===================================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
23
<PAGE> 24
LaBarge, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
July 2, 2000, June 27, 1999 and June 28, 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
The Company's financial results reflect the following primary business
activities:
The Manufacturing Services Group is the Company's core electronics 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 2000, the Company derived approximately 98% 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, oil and gas, and other
commercial markets. The group's engineering and manufacturing facilities are
located in Arkansas, Missouri, Oklahoma and Texas.
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 is
initially focusing its marketing efforts on the railroad industry to monitor
railroad-crossing equipment, and on the oil and gas pipeline industry to monitor
cathodic protection devices. In fiscal 2000, the Company derived approximately
2% of its total revenue from this business activity.
LaBarge Clayco Wireless, L.L.C. ("LaBarge Clayco Wireless") was a joint venture
of LaBarge and Clayco Construction Company that provided turnkey construction,
engineering and equipment installation services for the wireless
telecommunications industry.
On June 30, 2000, LaBarge Clayco Wireless was sold to Evolution Holdings, Inc.
of Phoenix, Arizona. For its 90% interest, the Company received $4.6 million in
cash and a three-year convertible note with an estimated fair value of $115,000.
The Company recognized a one-time gain on the sale of $2.8 million, net of
taxes.
NotiCom L.L.C. ("NotiCom") is a joint venture of LaBarge and Global Research
Systems, Inc. of Rome, Georgia, formed in fiscal 1999. During the latter part of
fiscal 2000 it was determined that significant additional investment would be
required to continue development of NotiCom L.L.C.'s BusCall(TM) product. During
the fourth quarter, the Company determined it will not provide such additional
funding for NotiCom. Consequently, NotiCom is attempting to raise additional
equity in the capital markets. Given these events, the Company wrote-down its
remaining investment in NotiCom and the related technology to zero. The total
loss to LaBarge, including its share of NotiCom's operations and the write-down,
was $4.2 million in fiscal 2000.
See Note 2, "Acquisitions, Discontinued Operations 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 year
2000 consisted of 53 weeks, while fiscal years 1999 and 1998 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.
CASH EQUIVALENTS
The Company considers cash equivalents to be temporary investments which are
readily convertible to
25
<PAGE> 26
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 plan covering certain employees. The
Company's policy is to expense and fund savings plan 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. The Company amortizes these
assets over a three to 10-year life. Impairment losses are recorded on goodwill
and other long-lived assets when indicators of impairment are present.
Impairment losses are recognized if expected future cash flows of the related
assets are less than their carrying values.
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." 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. In June 2000, the FASB issued SFAS No. 138 "Accounting
for Certain Derivative Instruments and Hedging Activities and Amendment of FASB
Statement No. 133."
The Company does not foresee the adoption of SFAS Nos. 133 and 138 as materially
impacting the Company's consolidated financial statement, the results of
operations or the notes thereto.
2. ACQUISITIONS, DISCONTINUED OPERATIONS 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%
26
<PAGE> 27
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. The value of 310,000,
$1.3 million, shares is included in other current liabilities at June 27, 1999.
The Company recorded goodwill of $6.8 million in this transaction which is being
amortized over seven years.
On June 12, 2000, the Company called the 310,000 shares of LaBarge-OCS, Inc.
stock per its Call Agreement and exchanged the shares for $1.3 million of 7.5%
Notes.
During fiscal 2000, the Company determined it is more likely than not the
benefit of the deferred tax assets obtained in the OCS acquisition will be
realized. Therefore, the Company reduced the deferred tax asset valuation
allowance by $517,000 during fiscal 2000, with a corresponding reduction in
goodwill.
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. Joint Venture
In the first quarter of fiscal 1999, LaBarge and Global Research Systems, Inc.
("Global") of Rome, Georgia 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. Since inception,
NotiCom has concentrated on developing BusCall(TM), to provide impending arrival
information on school buses. Throughout its history, NotiCom has been a
development-stage company.
LaBarge and Global each initially had a 50% interest in NotiCom. For its
interest, 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 the underlying intellectual properties and, together, LaBarge and
Global licensed the technology to NotiCom. This investment was accounted for
using the equity method.
The Company has contributed 100% of the cash required from the partners for the
operation of NotiCom. As a result, the Company recognizes as its share of the
joint venture's losses, the larger of its equity percentage in the joint venture
or the cash loss (net loss excluding non-cash amortization) of the joint
venture. During fiscal 2000, LaBarge made additional cash contributions totaling
$705,000 and invested equipment and services valued at $687,000.
During the later part of fiscal 2000 it was determined that significant
additional investment would be required to continue development of the BusCall
product. During the fourth quarter, the Company determined it will not provide
such additional funding for NotiCom. Consequently, NotiCom is attempting to
raise additional equity in the capital markets. Given these events the Company
wrote-down its remaining investment in NotiCom and the related technology to
zero. The total loss to LaBarge, including its share of NotiCom's operations and
the write-down was $4.2 million in fiscal 2000.
27
<PAGE> 28
DISCONTINUED OPERATIONS
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 ("Clayco") 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 an additional 39% of LaBarge
Clayco Wireless for $300,000 to increase its ownership to 90%. The investment
was previously recorded using the equity method.
On June 30, 2000, LaBarge Clayco Wireless was sold to Evolution Holdings, Inc.
of Phoenix, Arizona. For its 90% interest, the Company received $4.6 million in
cash and a three-year convertible note with an estimated fair value of $115,000.
The Company recognized a one-time gain on the sale of $2.8 million, net of
taxes.
LaBarge Clayco Wireless has been accounted for as a discontinued operation.
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), while it continued efforts to recover
amounts owed it.
In December 1999, the Company settled pending litigation with Transmedica. In
the settlement, LaBarge received $2.2 million cash, plus stock and options of
Norwood Abbey, Ltd. with an estimated value of $100,000. Norwood Abbey is the
Australia-based provider of medical devices that acquired Transmedica.
3. ACCOUNTS AND NOTES RECEIVABLE
Accounts and notes receivable consist of the following:
(dollars in thousands)
<TABLE>
<CAPTION>
JULY 2, June 27,
2000 1999
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Billed shipments, net of progress payments $ 17,128 $ 9,570
Less allowance for doubtful accounts 172 347
-----------------------------------------------------------------------------------------------------------------------
Trade receivables, net 16,956 9,223
Notes receivable - 2,000
Less allowance for doubtful notes - 2,000
-----------------------------------------------------------------------------------------------------------------------
Notes receivable, net - -
Income tax receivable - 863
Other current receivables 857 167
-----------------------------------------------------------------------------------------------------------------------
$ 17,813 $ 10,253
=======================================================================================================================
</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.
Other current receivables include $331,000 of customer payments to be received
as a settlement under a prior claim for material.
28
<PAGE> 29
4. INVENTORIES
Inventories consist of the following:
(dollars in thousands)
<TABLE>
<CAPTION>
JULY 2, June 27,
2000 1999
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Raw materials $ 12,348 $ 9,472
Work in progress 10,210 6,742
-----------------------------------------------------------------------------------------------------------------------
22,558 16,214
Less progress payments 326 1,134
-----------------------------------------------------------------------------------------------------------------------
$ 22,232 $ 15,080
=======================================================================================================================
</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.
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is summarized as follows:
(dollars in thousands)
<TABLE>
<CAPTION>
Estimated
JULY 2, June 27, useful life
2000 1999 in years
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Land $ 2,457 $ 2,457 -
Building and improvements 7,888 6,316 5-33
Leasehold improvements 2,026 1,825 2-10
Machinery and equipment 9,771 9,195 5-20
Furniture and fixtures 1,630 1,561 5-20
Computer equipment 1,951 1,711 3
Construction in progress 65 1,423 -
-----------------------------------------------------------------------------------------------------------------------
25,788 24,488
Less accumulated depreciation 13,105 11,548
------------------------------------------------------------------------------------------------
$ 12,683 $ 12,940
================================================================================================
</TABLE>
Depreciation expense was $1.7 million and $1.5 million for the fiscal years
ended July 2, 2000 and June 27, 1999, respectively.
6. INTANGIBLE ASSETS, NET
Intangible assets, net, is summarized as follows:
(dollars in thousands)
<TABLE>
<CAPTION>
JULY 2, June 27,
2000 1999
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Software $ 1,366 $ 1,124
Patents 91 73
Goodwill 6,685 7,214
-----------------------------------------------------------------------------------------------------------------------
8,142 8,411
Less amortization 2,626 1,470
-----------------------------------------------------------------------------------------------------------------------
$ 5,516 $ 6,941
=======================================================================================================================
</TABLE>
During fiscal 2000, the Company determined it is more likely than not the
benefit of the deferred tax assets obtained in the OCS acquisition will be
realized. Therefore, the Company reduced the deferred tax asset valuation
allowance by $517,000 during fiscal 2000, with a corresponding reduction in
goodwill.
29
<PAGE> 30
Amortization expense was $1.2 million and $448,000 for the fiscal years ended
July 2, 2000 and June 27, 1999, respectively.
7. INVESTMENT IN NOTICOM
Investment in NotiCom is summarized as follows:
(dollars in thousands)
<TABLE>
<CAPTION>
JULY 2, June 27,
2000 1999
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Investment in technology $ - $ 1,686
Less amortization - 237
-----------------------------------------------------------------------------------------------------------------------
Investment in technology, net - 1,449
Investment in joint venture $ 3,707 2,315
Less loss in joint venture 3,707 984
-----------------------------------------------------------------------------------------------------------------------
Investment in joint venture - 1,331
$ - $ 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 fiscal year-end, NotiCom's
total assets were $2.0 million; total liabilities were $2.1 million; and results
of operations was a loss of $3.5 million.
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>
JULY 2, June 27,
2000 1999
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash value of life insurance $ 3,618 $ 2,903
Deposits, licenses and other 1,429 1,555
Investments in businesses 136 -
-----------------------------------------------------------------------------------------------------------------------
$ 5,183 $ 4,458
Less amortization 23 7
-----------------------------------------------------------------------------------------------------------------------
$ 5,160 $ 4,451
=======================================================================================================================
</TABLE>
Investments in businesses primarily refers to the Company's securities in
Norwood Abbey, Ltd. Please see Note 2 to "Notes to Consolidated Financial
Statements" for additional information.
30
<PAGE> 31
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>
JULY 2, June 27,
2000 1999
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Short-term borrowings:
Revolving credit agreement:
Balance at year-end $ 9,730 $ 130
Interest rate at year-end 9.45% 6.50%
Average amount of short-term borrowings
outstanding during period $ 4,612 $ 1,681
Average interest rate for period 9.03% 6.69%
Maximum short-term borrowings at any month-end $ 10,590 $ 6,390
==========================================================================================================================
Senior long-term debt:
Senior lender:
Term loan $ 3,908 10,214
Mortgage loan 5,992 6,082
Other 1,207 1,341
--------------------------------------------------------------------------------------------------------------------------
Total senior long-term debt 11,107 17,637
Less current maturities 1,823 1,771
--------------------------------------------------------------------------------------------------------------------------
Long-term debt, less current maturities $ 9,284 $ 15,866
==========================================================================================================================
Subordinated debt $ 5,741 $ 4,424
==========================================================================================================================
</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 2000, 1999 and 1998 were $2.1
million, $1.5 million and $773,000, respectively.
SENIOR LENDER:
The Company has a senior, secured loan agreement with a bank. The following is a
summary of the agreement:
- A term loan, with a current balance of $3.9 million, requiring repayments
of $393,000 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
July 2, 2000, the maximum allowable was $15.0 million. The revolver
borrowing at fiscal year-end was $9.7 million, and letters of credit
outstanding totaled $1.5 million. Unused revolving credit available at July
2, 2000, was $3.8 million. This credit facility matures in February 2001.
It is the Company's intention to renew or replace this credit facility.
- Covenants and performance criteria which involve Earnings Before Interest,
Taxes, Depreciation and Amortization ("EBITDA") and EBITDA in relation to
debt and, in addition, after June 30, 2000, EBITDA in relation to fixed
charges. The Company is in compliance with its borrowing agreement
covenants for the quarter and twelve months ended July 2, 2000.
31
<PAGE> 32
- 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 9.03%.
- A $6.2 million mortgage loan to finance the Company's fiscal 1998 purchase
of its headquarters building in St. Louis, Missouri. The loan has a 25-year
amortization, a 7.5% interest rate and is due in January 2008.
OTHER LONG-TERM DEBT:
Industrial Revenue Bonds:
In July 1998, the Company acquired tax-exempt Industrial Revenue Bond
financing 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 outstanding balance at June 2000 was
$1.2 million.
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 were exchanged for $1.3 million of
Notes in June 2000.
To mitigate the exposure to changes in interest rates, the Company entered
into an interest rate swap agreement with a bank in August 1998. This
agreement swaps a portion of the Company's exposure to three-month LIBOR
rates with a fixed rate of 5.95%. The notional amount of the agreement,
$8.2 million at July 2, 2000, amortizes quarterly to match the quarterly
payment under the existing bank term loan. This agreement expires in
September 2005.
OTHER LONG-TERM LIABILITIES:
Other long-term liabilities are deferred revenues associated with the
proprietary ScadaNET Network and represents prepaid communication services.
The aggregate maturities of long-term obligations are as follows:
(dollars in thousands)
<TABLE>
<CAPTION>
FISCAL YEAR
---------------------------------------------------------------------------
<S> <C>
2001.......................................................... $1,823
2002......................................................... 1,785
2003......................................................... 6,729
2004........................................................ 223
2005......................................................... 223
---------------------------------------------------------------------------
</TABLE>
32
<PAGE> 33
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
-------------------------------------------------------------
JULY 2, June 27, June 28,
2000 1999 1998
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Initial term of more than one year $ 1,207 $ 1,078 $ 1,098
Short-term rentals 201 370 363
-----------------------------------------------------------------------------------------------------------------------
$ 1,408 $ 1,448 $ 1,461
=======================================================================================================================
</TABLE>
At July 2, 2000, 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>
2001......................................................... $ 1,222
2002....................................................... 905
2003....................................................... 405
2004....................................................... 118
2005....................................................... 152
---------------------------------------------------------------------------
</TABLE>
11. EMPLOYEE BENEFIT PLANS
The Company has a contributory savings 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 2000, 1999 and 1998,
Company matching contributions were $264,000, $261,000 and $229,000,
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 2000,
1999 and 1998.
The Company has a deferred compensation plan for selected employees who, due to
Internal Revenue Service guidelines, cannot take full advantage of the
contributory savings 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 has decreased the last three years
due to growth in cash value life insurance policies the Company purchased. The
costs was $(221,000), $123,000 and $132,000 for the Company-owned insurance in
fiscal years 2000, 1999 and 1998, 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 $1.4
million at July 2, 2000 compared with $1.0 million at June 27, 1999.
33
<PAGE> 34
The liability for the deferred compensation and interest thereon is in accrued
employee compensation and was $1.6 million at July 2, 2000 versus $1.6 million
at June 27, 1999.
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 2000, 131,940 shares were purchased by employees in the
amount of $243,000, which cost the Company approximately $36,000.
12. OTHER INCOME, NET
The components of other income, net, are as follows:
(dollars in thousands)
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------------------------------
JULY 2, June 27, June 28,
2000 1999 1998
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest income $ 43 $ 75 $ 43
Property rental income 871 766 314
Property rental expense (549) (473) (275)
Other, net (33) (6) 31
-----------------------------------------------------------------------------------------------------------------------
$ 332 $ 362 $ 113
=======================================================================================================================
</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 July 2, 2000, 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>
2001.......................................................... $ 869
2002.......................................................... 867
2003.......................................................... 822
2004.......................................................... 827
2005.......................................................... 838
---------------------------------------------------------------------------
</TABLE>
34
<PAGE> 35
13. INCOME TAXES
Total income tax (benefit) was allocated as follows:
(dollars in thousands)
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
-------------------------------------------------------------------
<S> <C> <C> <C>
YEAR ENDED JULY 2, 2000:
CONTINUING OPERATIONS:
U.S. FEDERAL $ (23) $ (202) $ (225)
STATE AND LOCAL (4) (100) (104)
-----------------------------------------------------------------------------------------------------------------------
$ (27) $ (302) $ (329)
DISCONTINUED OPERATIONS:
U.S. FEDERAL $ 837 $ (348) $ 489
STATE AND LOCAL 171 (82) 89
-----------------------------------------------------------------------------------------------------------------------
$ 1,008 $ (430) $ 578
TOTAL:
U.S. FEDERAL $ 814 $ (550) $ 264
STATE AND LOCAL 167 (182) (15)
-----------------------------------------------------------------------------------------------------------------------
$ 981 $ (732) $ 249
=======================================================================================================================
Year ended June 27, 1999:
Continuing operations:
U.S. Federal $ (183) $ (272) $ (455)
State and Local (22) (152) (174)
-----------------------------------------------------------------------------------------------------------------------
$ (205) $ (424) $ (629)
Discontinued operations:
U.S. Federal $ 76 $ 25 $ 101
State and Local 13 4 17
-----------------------------------------------------------------------------------------------------------------------
$ 89 $ 29 $ 118
Total:
U.S. Federal $ (107) $ (247) $ (354)
State and Local (9) (148) (157)
-----------------------------------------------------------------------------------------------------------------------
$ (116) $ (395) $ (511)
=======================================================================================================================
Year ended June 28, 1998:
Continuing operations:
U.S. Federal $ 174 $ 2,398 $ 2,572
State and Local 358 (66) 292
-----------------------------------------------------------------------------------------------------------------------
$ 532 $ 2,332 $ 2,864
Discontinued operations:
U.S. Federal $ (72) $ 6 $ (66)
State and Local (13) 1 (12)
-----------------------------------------------------------------------------------------------------------------------
$ (85) $ 7 $ (78)
Total:
U.S. Federal $ 102 $ 2,404 $ 2,506
State and Local 345 (65) 280
-----------------------------------------------------------------------------------------------------------------------
$ 447 $ 2,339 $ 2,786
=======================================================================================================================
</TABLE>
35
<PAGE> 36
Income tax (benefit) expense from continuing operations differed from the
amounts computed by applying the U.S. Federal income tax rate of 34% as a result
of the following:
(dollars in thousands)
<TABLE>
<CAPTION>
JULY 2, June 27, June 28,
2000 1999 1998
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Computed "expected" tax (benefit) expense $ (639) $ (1,329) $ 2,639
Increase (reduction) in income taxes resulting from:
Change in valuation allowance - 851 -
State and local tax (69) (115) 193
Goodwill 333 117 -
Other 46 (153) 32
-----------------------------------------------------------------------------------------------------------------------
$ (329) $ (629) $ 2,864
=======================================================================================================================
</TABLE>
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities are presented below:
(dollars in thousands)
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------
JULY 2, June 27,
2000 1999
-----------------------------------------------------------------------------------------------------------------------
<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 $ 492 $ 500
Deferred compensation 603 486
Investment in NotiCom 1,521 147
Other 604 626
Capital loss carryforwards - 851
Net operating loss carryforwards 294 606
Tax credit carryforwards 422 821
-----------------------------------------------------------------------------------------------------------------------
TOTAL GROSS DEFERRED TAX ASSETS 3,936 4,037
LESS VALUATION ALLOWANCE - 1,368
-----------------------------------------------------------------------------------------------------------------------
DEFERRED TAX ASSETS $ 3,936 $ 2,669
-----------------------------------------------------------------------------------------------------------------------
DEFERRED TAX LIABILITIES:
Property, plant and equipment, principally
Due to differences in depreciation and
Capitalized interest (205) (187)
-----------------------------------------------------------------------------------------------------------------------
TOTAL GROSS DEFERRED TAX LIABILITIES (205) (187)
-----------------------------------------------------------------------------------------------------------------------
NET DEFERRED TAX ASSETS $ 3,731 $2,482
=======================================================================================================================
</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 tax 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 July 2, 2000 and June 27, 1999 was a decrease of $1.4
million and an increase of $1.4 million, respectively. For the year ended July
2, 2000, $851,000 of the decrease in valuation allowance is attributable to
capital loss carryforwards which the Company will utilize as a result of the
sale of LaBarge Clayco Wireless. The remaining decrease of $517,000 relates to
deferred tax assets of OCS for which a valuation reserve was recorded at
acquisition by the Company. During fiscal year 2000, the Company determined it
is more likely than not that the benefits of these deferred tax assets will be
realized. The reduction in the valuation allowance resulted in a corresponding
reduction in goodwill. Net operating loss carryforwards are available to offset
future tax income through fiscal year 2019.
36
<PAGE> 37
The Company has alternative minimum and investment tax credit carryforwards of
approximately $422,000 that are available to reduce future regular federal
income taxes. Total cash receipts and payments for federal and state income
taxes in all years presented were $(863,000) for fiscal 2000, $617,000 for
fiscal 1999 and $270,000 for fiscal 1998.
14. EARNINGS PER COMMON SHARE
Basic and diluted earnings (loss) per share are computed as follows:
<TABLE>
<CAPTION>
JULY 2, June 27, June 28,
2000 1999 1998
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NUMERATOR:
Net earnings (loss) from continuing operations $ (1,551) $ 3,280) $ 4,898
Discontinued operations 3,126 200 (134)
Net earnings (loss) $ 1,575 $ 3,080) $ 4,764
-----------------------------------------------------------------------------------------------------------------------
POTENTIAL COMMON SHARES:
BASIC EARNINGS (LOSS) PER SHARE:
Net (loss) income from continuing operations $ (.11) $ (.22) $ .32
Income (loss) from discontinued operations .22 .02 (.01)
-----------------------------------------------------------------------------------------------------------------------
BASIC NET EARNINGS (LOSS) $ .11 $ (.20) $ .31
-----------------------------------------------------------------------------------------------------------------------
AVERAGE COMMON SHARES OUTSTANDING 14,783 15,157 15,604
=======================================================================================================================
DENOMINATOR:
DILUTED EARNINGS (LOSS) PER SHARE:
Net (loss) income from continuing operations $ (.11) $ (.22) $ .31
Income (loss) from discontinued operations .22 .02 (.01)
-----------------------------------------------------------------------------------------------------------------------
DILUTED NET EARNINGS (LOSS) $ .11 $ (.20) $ .30
-----------------------------------------------------------------------------------------------------------------------
AVERAGE COMMON SHARES OUTSTANDING 14,783 15,157 15,723
=======================================================================================================================
</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.
The fair value of the interest rate swap agreement at July 2, 2000 was
approximately $220,000. The fair value of the interest rate swap agreement is
based upon market quotes from counterparties.
The Company has examined amounts outstanding under the senior secured loan
agreement, the Mortgage Loan, the Industrial Revenue Bonds and the Subordinated
Convertible Notes and determined that carrying amounts recorded on the financial
statements are consistent with the estimated fair value as of July 2, 2000.
37
<PAGE> 38
16. BUSINESS SEGMENT INFORMATION
BUSINESS SEGMENTS:
(dollars in thousands)
NET SALES TO CUSTOMERS:
<TABLE>
<CAPTION>
YEAR ENDED
---------------------------------------------------------------
JULY 2, June 27, June 28,
2000 1999 1998
---------------------------------------------------------------
<S> <C> <C> <C>
Manufacturing Services Group $ 78,271 $ 78,518 $ 95,629
Network Technologies Group 1,343 59 -
-------------------------------------------------------------------------------------------------------------------------
$ 79,614 $ 78,577 $ 95,629
=========================================================================================================================
</TABLE>
EARNINGS (LOSS):
<TABLE>
<CAPTION>
YEAR ENDED
---------------------------------------------------------------
JULY 2, June 27, June 28,
2000 1999 1998
---------------------------------------------------------------
<S> <C> <C> <C>
Pretax earnings (loss) from continuing operations:
Manufacturing Services Group $ 5,432 $ 4,172 $ 8,522
Gain (loss) due to impairment of assets 2,300 (4,573) -
-------------------------------------------------------------------------------------------------------------------------
Total Manufacturing Services Group 7,732 $ (401) $ 8,522
Network Technologies Group (1,966) $ (635) $ -
NotiCom (4,172) (1,221) -
Corporate and other items (1,382) (268) 195
Interest expense (2,092) (1,384) (955)
-------------------------------------------------------------------------------------------------------------------------
NET (LOSS) EARNINGS FROM
CONTINUING OPERATIONS BEFORE TAX $ (1,880) $ (3,909) $ 7,762
INCOME TAX (BENEFIT) EXPENSE (329) (629) 2,864
NET (LOSS) EARNINGS FROM
CONTINUING OPERATIONS (1,551) (3,280) 4,898
-------------------------------------------------------------------------------------------------------------------------
Discontinued operations:
Income from operations, net of taxes $ 293 $ 200 $ (134)
Gain on disposal, net of taxes 2,833 - -
-------------------------------------------------------------------------------------------------------------------------
$ 1,575 $ (3,080) $ 4,764
=========================================================================================================================
</TABLE>
38
<PAGE> 39
<TABLE>
<CAPTION>
DEPRECIATION & AMORTIZATION INVESTMENTS &
EXPENSE CAPITAL EXPENDITURES
YEAR ENDED YEAR ENDED
----------------------------------------- --------------------------------------------
JULY 2, June 27, June 28, JULY 2, June 27, June28,
2000 1999 1998 2000 1999 1998
----------------------------------------- --------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Manufacturing Services Group $ 1,378 $ 1,168 $ 923 $ 1,048 $ 2,789 $ 2,861
Network Technologies Group 1,011 344 - 139 23 -
Investment in NotiCom 1,449 237 - 1,392 4,001 -
Corporate and other items 457 453 433 664 1,195 7,301
---------------------------------------------------------------------------------- --------------------------------------------
$ 4,295 $ 2,202 $ 1,356 $ 3,243 $ 8,008 $ 10,162
================================================================================== ============================================
</TABLE>
<TABLE>
<CAPTION>
TOTAL ASSETS
YEAR ENDED
--------------------------------------------------------------
JULY 2, June 27, June 28,
2000 1999 1998
--------------------------------------------------------------
<S> <C> <C> <C>
Manufacturing Services Group $ 45,283 $ 30,752 $ 45,594
Network Technologies Group 5,878 6,691 -
Investment in NotiCom - 2,780 -
Corporate and other items 17,572 15,894 10,929
Discontinued operations - 3,537 2,469
---------------------------------------------------------------------------------------------------------------
$ 68,733 $ 59,654 $ 58,992
===============================================================================================================
</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 July 2,
2000, June 27, 1999 and June 29, 1997 follow:
<TABLE>
<CAPTION>
Customer 2000 1999 1998
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1........................................... 18% 28% 28%
2........................................... 13 15 17
3........................................... 12 - -
----------------------------------------------------------------------------------------------------
</TABLE>
17. LITIGATION AND CONTINGENCIES
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 this case will have a material adverse effect
on the financial condition or results of operations of the Company.
39
<PAGE> 40
18. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data is set forth below:
(dollars in thousands except per share data)
<TABLE>
<CAPTION>
2000 FIRST SECOND THIRD FOURTH
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 14,131 $ 17,552 $ 22,139 $ 25,792
---------------------------------------------------------------------------------------------------------------------------
Cost of sales 11,670 14,192 16,923 18,881
Selling and administrative expense 3,686 3,634 3,920 4,956
(Gain) loss due to impairment of assets - (2,300) - -
Interest expense 446 489 550 607
Loss from NotiCom 520 632 462 2,558
Other (income) expense, net (71) (110) (54) (97)
---------------------------------------------------------------------------------------------------------------------------
Net (loss) earnings from continuing
operations before income taxes (2,120) 1,015 338 (1,113)
Income tax (benefit) expense (780) 337 209 (95)
---------------------------------------------------------------------------------------------------------------------------
Net (loss) earnings from
continuing operations $ (1,340) $ 678 $ 129 $ (1,018)
---------------------------------------------------------------------------------------------------------------------------
DISCONTINUED OPERATIONS:
Income from operations, net of taxes (58) 48 204 100
Gain on disposal, net of taxes - - - 2,833
---------------------------------------------------------------------------------------------------------------------------
Net (loss) earnings (1,398) 726 $ 333 1,915
===========================================================================================================================
BASIC (LOSS) EARNINGS PER SHARE:
Net (loss) earnings from continuing operations $ (.09) $ .05 $ .01 $ (.07)
Income from discontinued operations - - .01 .20
---------------------------------------------------------------------------------------------------------------------------
BASIC NET EARNINGS (LOSS) (.09) .05 .02 .13
---------------------------------------------------------------------------------------------------------------------------
AVERAGE COMMON SHARES OUTSTANDING 14,744 14,782 14,810 14,849
===========================================================================================================================
DILUTED (LOSS) EARNINGS PER SHARE:
Net (loss) earnings from continuing operations $ (.09) $ .05 $ .01 $ (.07)
Income from discontinued operations - - .01 .20
---------------------------------------------------------------------------------------------------------------------------
DILUTED NET (LOSS) EARNINGS $ (.09) $ .05 $ .02 $ .13
---------------------------------------------------------------------------------------------------------------------------
AVERAGE DILUTED COMMON SHARES OUTSTANDING 14,744 14,782 14,814 14,849
===========================================================================================================================
</TABLE>
40
<PAGE> 41
18. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
(CONTINUED)
<TABLE>
<CAPTION>
1999 First Second Third Fourth
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 21,080 $ 21,571 $ 19,214 $ 16,712
---------------------------------------------------------------------------------------------------------------------------
Cost of sales 16,385 17,036 15,595 13,676
Selling and administrative expense 3,046 3,301 3,193 3,438
(Gain) loss due to impaired assets - - - 4,573
Interest expense 293 351 354 386
Loss from NotiCom 28 244 243 706
Other (income) expense, net (154) (60) (92) (56)
---------------------------------------------------------------------------------------------------------------------------
Net (loss) earnings from continuing
operations before income taxes 1,482 699 (79) (6,011)
Income tax expense (benefit) 546 259 (29) (1,405)
---------------------------------------------------------------------------------------------------------------------------
Net earnings (loss) from
continuing operations $ 936 $ 440 $ (50) $ (4,606)
---------------------------------------------------------------------------------------------------------------------------
Discontinued operations:
Income from operations, net of taxes $ 96 $ (29) $ 173 $ (40)
Net earnings (loss) $ 1,032 $ 411 $ 123 $ (4,646)
===========================================================================================================================
BASIC (LOSS) EARNINGS PER SHARE:
Net (loss) earnings from continuing operations $ .06 $ .03 $ - $ (.31)
Income from discontinued operations .01 - .01 -
---------------------------------------------------------------------------------------------------------------------------
BASIC NET EARNINGS (LOSS) $ .07 $ .03 $ .01 $ (.31)
---------------------------------------------------------------------------------------------------------------------------
AVERAGE COMMON SHARES OUTSTANDING 15,455 15,311 15,022 14,837
===========================================================================================================================
DILUTED (LOSS) EARNINGS PER SHARE:
Net (loss) earnings from continuing operations $ .06 $ .03 $ - $ (.31)
Income from discontinued operations .01 - .01 -
---------------------------------------------------------------------------------------------------------------------------
DILUTED NET (LOSS) EARNINGS $ .07 $ .03 $ .01 $ (.31)
---------------------------------------------------------------------------------------------------------------------------
AVERAGE DILUTED COMMON SHARES OUTSTANDING 15,530 15,372 15,071 14,880
===========================================================================================================================
</TABLE>
During the fiscal 1999 fourth quarter, the estimated life for amortization of
the NotiCom technology was changed from 15 to three years. Please see Note 2 to
"Notes to Consolidated Financial Statements" for additional information related
to fiscal 2000 loss on NotiCom.
41
<PAGE> 42
19. STOCK OPTION PLANS
The Company has three stock option plans for key management personnel. Under the
1993 Incentive Stock Option Plan, the Company was authorized to grant options
for up to 300,000 shares of common stock. The 1995 Incentive Stock Option Plan
authorized 400,000 shares to be granted. The 1999 Non-Qualified Stock Option
Plan authorized 1,520,000 shares to be granted.
Information regarding these option plans for fiscal years 2000, 1999 and 1998:
<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 29, 1997 296,775 $ 3.42 155,000 $ 1.26
Granted 75,513 5.98 - - $ 2.86
--------------------------------------------------------------------------------------------------------------------------------
Outstanding at June 27, 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
CANCELED (130,015) 3.97 - -
GRANTED 689,355 2.50 - - $ .80
EXERCISED (70,000) 1.35 - -
--------------------------------------------------------------------------------------------------------------------------------
OUTSTANDING AT JULY 2, 2000 919,628 $ 3.16 160,788 $ 5.86
================================================================================================================================
</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 JULY 2, 2000 LIFE (YEARS) PRICE AT JULY 2, 2000 PRICE
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 2.50 - 3.43 733,840 8.97 $ 2.59 - $ -
3.77 - 5.86 101,000 4.15 4.70 76,000 5.00
5.97 - 7.24 84,788 3.76 6.63 84,788 6.63
--------------------------------------------------------------------------------------------------------------------------------
$ 2.50 - 7.24 919,628 160,788
================================================================================================================================
</TABLE>
All stock options are granted at prices not less than 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 earnings (loss) and diluted earnings (loss)
per share for fiscal 2000 would have been $1.5 million and $.11 per share (the
same as reported), respectively, and $(3.2) million and $(.21) per share,
respectively, in fiscal 1999.
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 7.0% expected dividend yield of 0%;
expected life of three years; and, expected volatility of 58%.
42
<PAGE> 43
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
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; the outcome of 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.
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 electronics
manufacturing services 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 2000, the Company derived
approximately 98% of its total revenues from this group.
The group markets its services to companies in technology-driven industries
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, oil and gas, and other commercial markets. The group's
engineering and manufacturing facilities are located in Arkansas, Missouri,
Oklahoma and Texas.
The backlog of unshipped orders in the Manufacturing Services Group
increased to $62.7 million at fiscal 2000 year-end, compared to $42.7
million at fiscal 1999 year-end. The growth in backlog is the result of an
improved and reorganized sales and marketing effort that concentrates on
the Company's core competencies and the application of those competencies
to targeted large customers in a variety of industries.
- The NETWORK TECHNOLOGIES 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 equipment. Results of the group are included in the
consolidated results of the Company since the date of the OCS acquisition,
March 2, 1999. This group is initially focusing its marketing efforts on
the railroad industry to monitor railroad crossing equipment, and on the
oil and gas pipeline industry to monitor cathodic protection devices. In
fiscal 2000, the Company derived 2% of its total revenues from this group.
SIGNIFICANT EVENTS
Recent significant events include:
- During the second fiscal quarter, LaBarge settled its disputes with
Transmedica International, Inc., resulting in a pretax gain of $2.3
million. In the settlement, LaBarge received $2.2 million cash.
As part of the resolution of the disputes between the two companies,
LaBarge released its
43
<PAGE> 44
manufacturing rights to Norwood Abbey Ltd., the Australia-based provider of
medical devices that purchased Transmedica, in exchange for options to
purchase shares of Norwood Abbey common stock. In addition, LaBarge
converted its equity investment in Transmedica into shares and options of
Norwood Abbey. Consequently, LaBarge owns approximately 640,000 shares and
has options to buy 5.2 million additional shares of Norwood Abbey at prices
ranging from $1.00 Australian to $2.50 Australian. As of fiscal 2000
year-end, these Norwood Abbey securities are carried at $100,000. On August
2, 2000, Norwood Abbey completed an initial public offering in Australia at
$1 per share Australian.
- Pursuant to a call agreement, on June 12, 2000, the Company called the
310,000 shares of LaBarge-OCS, Inc. stock that was still outstanding from
the original acquisition of OCS. The shares were exchanged for $1.3 million
of 7.5% Subordinated Convertible Notes due in 2003.
- On June 30, 2000 LaBarge Clayco Wireless was sold to Evolution Holdings,
Inc. of Phoenix, Arizona. For its 90% interest, the Company received $4.6
million in cash and a three-year convertible note with an estimated fair
value of $115,000. The Company recognized a one-time gain on the sale of
$2.8 million, net of taxes.
- During the latter part of fiscal 2000, it was determined that significant
additional investment would be required to continue development of NotiCom
L.L.C.'s BusCall(TM) product. During the fourth quarter, the Company
determined it will not provide such additional funding for NotiCom.
Consequently, NotiCom is attempting to raise additional equity in the
capital markets. Given these events the Company wrote-down its remaining
investment in NotiCom and the related technology to zero. The total loss to
LaBarge, including its share of NotiCom's operations and the write-down was
$4.2 million in fiscal 2000.
RESULTS OF OPERATIONS -- FISCAL 2000 - 1999 - 1998
SALES FROM CONTINUING OPERATIONS
(dollars in thousands)
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------------------------------------------
Change
2000 vs. 1999 2000 1999 1998
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales + 1.3% $79,614 $78,577 $95,629
============================================================================================================================
</TABLE>
During fiscal 2000, sales from continuing operations were $79.6 million compared
with $78.6 million in fiscal 1999 and $95.6 million in fiscal 1998. Sales to our
top 10 customers represented 74% of total revenue in fiscal 2000 versus 77% in
fiscal 1999 and 67% in fiscal 1998. Sales to our top three customers and the
percent of total sales they represented were: Lockheed Martin, 18% in fiscal
2000, 28% in fiscal 1999 and 28% in fiscal 1998; Schlumberger, 13% in fiscal
2000, 15% in fiscal 1999, and 17% in fiscal 1998; and Northrop Grumman, 12% in
fiscal 2000, and insignificant in fiscal 1999 and 1998. No other customer in the
last two years has represented more than 7% of total sales.
MANUFACTURING SERVICES GROUP. Sales in the manufacturing services segment of the
business, which accounted for 98% of total sales in fiscal 2000, were
essentially flat from fiscal 1999.
Commercial customers had significant sales growth in fiscal 2000. Sales to
commercial customers increased $9.3 million to $44.4 million. Sales of
electro-mechanical assemblies for mail handling equipment used by the U.S.
Postal Service was the most significant contribution to this growth. Sales to
oil and gas customers recovered in the second half of fiscal 2000 in response to
higher prices.
Sales to defense customers fell $8.3 million to $33.8 million, primarily due to
lower shipments under the AEGIS program, and reduced direct cable purchases by
the Department of Defense during the first half of the fiscal year.
44
<PAGE> 45
NETWORK TECHNOLOGIES GROUP. Sales by this segment of the Company were 2% of
total sales in fiscal 2000.
Fiscal 2000 sales, totaling $1.3 million, were primarily to the railroad
industry. During fiscal 2000, the ScadaNET Network(TM) was selected by several
rail organizations as the system of choice for their remote monitoring programs.
The system is being installed at nearly 1,300 active crossings in seven states
by The Burlington Northern and Santa Fe Railway Company, Montana Rail Link and
I&M Rail Link. During the fourth quarter, Union Pacific Railroad selected the
ScadaNET system as a standard component on all the railroad's ongoing new
construction and crossing upgrade programs.
Network Technologies did not have meaningful sales in fiscal 1999, since the
group's predecessor was acquired in the third quarter of fiscal 1999.
GROSS PROFIT FROM CONTINUING OPERATIONS
(dollars in thousands)
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------------------------------------------
Change
2000 vs. 1999 2000 1999 1998
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Gross profit + 13.0 % $17,948 $15,885 $22,183
Gross margin + 2.3 pts. 22.5% 20.2% 23.2%
============================================================================================================================
</TABLE>
A breakdown of margins by group shows the following:
MANUFACTURING SERVICES GROUP. This group's gross profit margin was 22.3% in
fiscal 2000 compared with 19.9% in fiscal 1999 and 23.2% in 1998. In fiscal
2000, margin increases were obtained through better product mix, emphasizing
larger dollar contracts and greater value-added production.
NETWORK TECHNOLOGIES GROUP. This group's gross profit margin was 20.4% for
fiscal 2000, the group's first full year as a LaBarge operation. Gross margins
for Network Technologies were substantially higher in the second half of the
year as a result of accelerated sales.
SELLING AND ADMINISTRATIVE EXPENSES
(dollars in thousands)
<TABLE>
<CAPTION>
YEAR ENDED
---------------------------------------------------
Change
2000 vs. 1999 2000 1999 1998
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Selling and administrative expenses + 24.8% $ 16,196 $ 12,978 $ 13,579
Percent of sales + 3.8 pts. 20.3% 16.5% 14.2%
============================================================================================================================
</TABLE>
Selling and administrative expenses rose in fiscal 2000, reflecting a full year
of the Network Technologies Group, plus higher professional services and
staffing costs. As a percent of sales, selling and administrative expenses are
expected to decline from fiscal 2000 levels.
MANUFACTURING SERVICES GROUP. Selling and administrative expenses for this group
were $12.9 million (16.4% of sales) in fiscal 2000, $11.8 million (14.8% of
sales) in fiscal 1999 and $13.7 million (14.3% of sales) in fiscal 1998. The
increase of $1.1 million in fiscal 2000 versus fiscal 1999 is directly
attributable to higher selling and marketing costs.
NETWORK TECHNOLOGIES GROUP. This group accounted for $2.3 million of selling and
administrative expenses in fiscal 2000. This included $978,000 in amortization
of goodwill. Acquired in March 1999, this group's partial year operating
expenses were $516,000 in fiscal 1999, including $338,000 of goodwill
amortization.
45
<PAGE> 46
INTEREST EXPENSE
(dollars in thousands)
<TABLE>
<CAPTION>
YEAR ENDED
-------------------------------------------------------------------------------------------
2000 1999 1998
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest expense $ 2,092 $ 1,384 $ 995
============================================================================================================================
</TABLE>
Interest expense increased in fiscal 2000 due to higher interest rates on
additional short-term borrowings to support increased levels of working capital;
and the addition of the subordinated notes in March 1999. For further discussion
of our capital structure, see "Financial Condition and Liquidity" below.
(GAIN) LOSS DUE TO IMPAIRMENT OF ASSETS
(dollars in thousands)
<TABLE>
<CAPTION>
YEAR ENDED
---------------------------------------------------------------------
2000 1999 1998
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(Gain) loss due to
impairment of assets $ (2,300) $ 4,573 $ -
============================================================================================================================
</TABLE>
In fiscal 2000, the Company settled its outstanding disputes with Transmedica
International, Inc. by receiving $2.2 million cash, plus stock and options
(valued at $100,000) from Norwood Abbey, Ltd., an Australia-based provider of
medical devices that acquired Transmedica.
In fiscal 1999, the Company reserved the total amount of its assets related to
Transmedica.
LOSS FROM NOTICOM
(dollars in thousands)
<TABLE>
<CAPTION>
YEAR ENDED
-----------------------------------------------------------------------
2000 1999 1998
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Loss from NotiCom $ 4,172 $ 1,221 $ -
============================================================================================================================
</TABLE>
During the latter part of fiscal 2000 it was determined that significant
additional investment would be required to continue development of NotiCom
L.L.C.'s BusCall(TM) product. During the fourth quarter, the Company determined
it will not provide such additional funding for NotiCom. Consequently, NotiCom
is attempting to raise additional equity in the capital markets. Given these
events, the Company wrote-down its remaining investment in NotiCom and the
related technology to zero. The total loss to LaBarge, including its share of
NotiCom's operations and the write-down, was $4.2 million in fiscal 2000.
46
<PAGE> 47
PRETAX (LOSS) EARNINGS FROM CONTINUING OPERATIONS
(dollars in thousands)
<TABLE>
<CAPTION>
YEAR ENDED
-------------------------------------------------------------------------------
2000 1999 1998
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Pretax (loss) earnings $ (1,880) $ (3,909) $ 7,762
============================================================================================================================
</TABLE>
The change in earnings from continuing operations in fiscal 2000, compared with
fiscal 1999, is attributable to: the $2.3 million recovery on impaired assets
versus a $4.6 million charge in 1999; a $3.0 million increase in expenses
associated with NotiCom; a $1.3 million increase in pretax profits from the
Manufacturing Services Group offset by a $1.3 million increase in pretax loss
from the Network Technologies Group; $1.1 million of higher corporate expense;
and, a $700,000 increase in interest expense.
TAX (BENEFIT) EXPENSE FROM CONTINUING OPERATIONS
(dollars in thousands)
<TABLE>
<CAPTION>
YEAR ENDED
-----------------------------------------------------------------------------
2000 1999 1998
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Tax (benefit) expense from
continuing operations $ (329) $ (629) $ 2,864
============================================================================================================================
</TABLE>
Tax (benefit) expense are impacted by non-deductible goodwill expense incurred
in connection with the OCS acquisition that equaled $978,000 in fiscal 2000,
$338,000 in fiscal 1999, and zero in fiscal 1998.
DISCONTINUED OPERATIONS, NET OF TAX
(dollars in thousands)
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------------------------------------------
2000 1999 1998
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income from operations $ 293 $ 200 $ (134)
Gain on disposal $ 2,833 $ - $ -
============================================================================================================================
</TABLE>
Discontinued operations reflect the results of LaBarge Clayco Wireless and its
sale on June 30, 2000. Gain on disposal includes $851,000 of reduction in
deferred tax asset valuation allowance associated with capital loss
carryforwards utilized as a result of the sale.
47
<PAGE> 48
NET EARNINGS (LOSS) AND EARNINGS (LOSS) PER SHARE
(dollars in thousands except per share data)
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------------------------------------
2000 1999 1998
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net earnings (loss) $ 1,575 $ (3,080) $ 4,764
BASIC EARNINGS (LOSS) PER SHARE:
Net loss from continuing operations $ (.11) $ (.22) $ .32
Income (loss) from discontinued
operations .22 .02 (.01)
---------------------------------------------------------------------------------------------------------------------------
Basic net earnings (loss) $ .11 $ (.20) $ .31
---------------------------------------------------------------------------------------------------------------------------
DILUTED EARNINGS (LOSS) PER SHARE:
Net loss from continuing operations $ $ (.11) $ (.22) $ .31
Income (loss) from discontinued
operations .22 .02 (.01)
---------------------------------------------------------------------------------------------------------------------------
Diluted net earnings (loss) $ .11 $ (.20) $ .30
===========================================================================================================================
</TABLE>
FINANCIAL CONDITION AND LIQUIDITY
The following shows LaBarge's equity and total debt positions:
STOCKHOLDERS' EQUITY AND DEBT
(dollars in thousands)
<TABLE>
<CAPTION>
YEAR ENDED
-------------------------------------------------------------------------------
2000 1999
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Stockholders' equity $ 25,773 $ 24,080
Debt $ 26,578 $ 22,191
===========================================================================================================================
</TABLE>
The Company's continuing operations used $5.4 million of cash in fiscal year
2000. Fiscal year 1999 generated cash of $9.8 million. Higher fiscal 2000 order
levels increased the Company's net working capital asset investment by $9.5
million. Offsetting this cash use was cash generated from net earnings and
non-cash expenses. In fiscal 1999, the cash generated was the result of much
lower levels of net working capital required for a reduced order level.
The $4.3 million net cash proceeds from the sale of LaBarge Clayco Wireless
offset the investments made in fixed assets and NotiCom during fiscal 2000, and
provided a net $1.1 million of cash. Fiscal 1999 investing activities used $8.4
million including the original NotiCom investment of $4.0 million, and capital
expenditures of $3.3 million.
Financing activities generated $4.2 million of cash in fiscal 2000, through the
combination of $9.6 million of additional short-term debt, $1.3 million of
additional subordinated debt and $6.5 million reduction in long-term debt.
Fiscal 1999 changes in net debt was a provider of $867,000 of cash offset by
$2.5 million of repurchases of LaBarge's common stock.
Currently, our total debt-to-equity ratio is 1.02 to 1 versus .95 to 1 at the
end of fiscal 1999.
Our revolving credit agreement (see Note 9 in "Notes to Consolidated Financial
Statements") matures in February 2001. It is the Company's intention to renew or
replace that agreement with a new multi-year bank agreement.
48
<PAGE> 49
RISK FACTORS
The Company operates in a competitive marketplace and is exposed to risks
associated with economic conditions.
The Network Technologies Group, as a relatively new operation, has used cash
during its first full year of operation. It is too early to predict the timing
of the potential wide-spread acceptance of this segment's products and its
contribution to future 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 and capital expenditures of our business for the
next two years.
49
<PAGE> 50
Schedule II
LABARGE, INC.
VALUATION AND QUALIFYING ACCOUNTS
(DOLLARS IN THOUSANDS)
YEARS ENDED JULY 2, 2000,
JUNE 27, 1999 AND JUNE 28, 1998
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>
1998 $ 148 $ 31 $ 29 $ 150
1999 150 2,186 (11) 2,347
2000 $ 2,347 $ 335 $ 2,510 $ 172
</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>
1998 $ 453 $ 695 $ - $ 646 $ 502
1999 502 602 5 240 869
2000 $ 869 $ 593 $ - $ 710 $ 752
</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>
Increase
Balance (Decrease) Balance
Beginning Attributable to End of
Year of Period Increase Acquisition Decrease Period
---- --------- -------- ----------- -------- ------
<S> <C> <C> <C> <C> <C>
1998 $ - $ - $ - $ - $ -
1999 - 851 517 - 1,368
2000 $ 1,368 $ - $ (517) $ (851) $ -
</TABLE>
50
<PAGE> 51
INDEPENDENT AUDITORS' REPORT
The Board of Managers
NotiCom L.L.C.:
We have audited the accompanying balance sheets of NotiCom L.L.C. (a development
stage enterprise) as of July 2, 2000 and June 27, 1999, and the related
statements of operations, members' equity, and cash flows for the year ended
July 2, 2000 and 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of NotiCom L.L.C. (a development
stage enterprise) as of July 2, 2000 and June 27, 1999, and the results of its
operations and its cash flows for the year ended July 2, 2000 and the period
from July 22, 1998 (inception) through June 27, 1999, in conformity with
generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in note 2 to the
financial statements, due to the withdrawal of funding by one of its members,
the Company must find new investors in order to continue product development
which raises substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also described in note 2. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
/s/ KPMG LLP
---------------
St. Louis, Missouri
July 28, 2000
51
<PAGE> 52
NOTICOM L.L.C.
(A Development Stage Enterprise)
Balance Sheets
July 2, 2000 and June 27, 1999
<TABLE>
<CAPTION>
ASSETS 2000 1999
----------------- -----------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 172,266 55,550
Trade accounts receivable 486,019 96,637
Inventories 100,000 60,486
Prepaid expenses and other current assets 20,596 9,476
----------------- -----------------
Total current assets 778,881 222,149
Property and equipment, net 221,506 692,672
Intangible assets, net 1,027,823 2,055,647
----------------- -----------------
$ 2,028,210 2,970,468
================= =================
LIABILITIES AND MEMBERS' EQUITY
Current liabilities:
Due to member $ 977,446 263,509
Georgia contract termination 769,019 --
Other current liabilities 379,325 47,284
----------------- -----------------
2,125,790 310,793
Members' equity (deficit) (97,580) 2,659,675
----------------- -----------------
$ 2,028,210 2,970,468
================= =================
</TABLE>
See accompanying notes to financial statements.
52
<PAGE> 53
NOTICOM L.L.C.
(A Development Stage Enterprise)
Statements of Operations
Year ended July 2, 2000 and the period from
July 22, 1998 (inception) through June 27, 1999
<TABLE>
<CAPTION>
CUMULATIVE SINCE
2000 1999 INCEPTION
----------------- ----------------- ------------------
<S> <C> <C> <C>
Revenue $ 551,792 169,708 721,500
Costs and expenses:
Cost of sales 484,547 108,470 593,017
Selling, general, and administrative 1,165,419 1,184,384 2,349,803
Research and development expense 155,408 620,233 775,641
Amortization of intangible assets 1,149,169 257,353 1,406,522
Loss on termination of Georgia contract 1,069,757 -- 1,069,757
Other, net (9,473) (32,407) (41,880)
----------------- ----------------- ------------------
4,014,827 2,138,033 6,152,860
----------------- ----------------- ------------------
Net loss $ (3,463,035) (1,968,325) (5,431,360)
================= ================= ==================
</TABLE>
See accompanying notes to financial statements.
53
<PAGE> 54
NOTICOM L.L.C.
(A Development Stage Enterprise)
Statements of Members' Equity
July 2, 2000 and June 27, 1999
<TABLE>
<CAPTION>
DEFICIT TOTAL
ACCUMULATED DURING MEMBERS'
CAPITAL DEVELOPMENT STAGE EQUITY (DEFICIT)
--------------- ------------------ -------------------
<S> <C> <C> <C>
Balance at July 22, 1998 $ -- -- --
Capital contributions 4,628,000 -- 4,628,000
Net loss -- (1,968,325) (1,968,325)
--------------- ------------------ -------------------
Balance at June 27, 2000 4,628,000 (1,968,325) 2,659,675
Capital contributions 705,780 -- 705,780
Net loss -- (3,463,035) (3,463,035)
--------------- ------------------ -------------------
Balance at July 2, 2000 $ 5,333,780 (5,431,360) (97,580)
=============== ================== ===================
</TABLE>
See accompanying notes to financial statements.
54
<PAGE> 55
NOTICOM L.L.C.
(A Development Stage Enterprise)
Statements of Cash Flows
Year ended July 2, 2000 and the period from
July 22, 1998 (inception) through June 27, 1999
<TABLE>
<CAPTION>
CUMULATIVE SINCE
2000 1999 INCEPTION
--------------- ----------------- ------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (3,463,035) (1,968,325) (5,431,360)
Adjustments to reconcile net loss
to net cash used in operating activities:
Depreciation and amortization 1,210,882 315,741 1,526,623
Loss on software impairment 379,796 -- 379,796
Changes in assets and liabilities:
Trade accounts receivable (389,382) (96,637) (486,019)
Inventories (39,514) (60,486) (100,000)
Prepaid expenses and other current assets (11,120) (9,476) (20,596)
Due to member 713,937 263,509 977,446
Georgia contract termination 769,019 -- 769,019
Other current liabilities 332,041 47,284 379,325
--------------- ----------------- ------------------------
Net cash used in operating activities (497,376) (1,508,390) (2,005,766)
--------------- ----------------- ------------------------
Cash flows from investing activities:
Purchases of property and equipment (108,172) (251,060) (359,232)
Proceeds from sale of equipment 16,484 -- 16,484
--------------- ----------------- ------------------------
Net cash used in investing activities (91,688) (251,060) (342,748)
Cash flows from financing activities -
proceeds from capital contributions from members 705,780 1,815,000 2,520,780
--------------- ----------------- ------------------------
Net increase in cash 116,716 55,550 172,266
Cash and cash equivalent at beginning of period 55,550 -- --
--------------- ----------------- ------------------------
Cash and cash equivalent at end of period $ 172,266 55,550 172,266
=============== ================= ========================
</TABLE>
See accompanying notes to financial statements.
55
<PAGE> 56
NOTICOM L.L.C.
Notes to Financial Statements
July 2, 2000 and July 27, 1999
(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 five 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. See note 3 related to liquidity.
(2) LIQUIDITY
The Company's financial statements for the year ended July 2, 2000 and
the period from July 22, 1998 (inception) through June 27, 1999 have
been prepared on a going concern basis which assumes continuity of
operations and realization of assets and liquidation of liabilities in
the ordinary course of business. The Company has incurred a net loss for
the year ended July 2, 2000 and the period from July 22, 1998
(inception) through June 27, 1999 of approximately $3.5 million and $2.0
million, respectively. Since inception, one of the two members (LaBarge,
Inc.) has funded the cash requirements of the Company. LaBarge has
informed the Company that they will not be funding operations in fiscal
2001 and beyond. Accordingly, the Company is currently in the process of
seeking alternative forms of capital in order to continue development
efforts. The ongoing viability of the Company is dependent upon
obtaining new capital.
56
<PAGE> 57
(3) TERMINATION OF GEORGIA CONTRACT
During fiscal 2000, the Company entered into a contract in the State of
Georgia to provide a customer with equipment, plus other services. All
revenue and costs of sales recognized during fiscal 2000 related to the
service component of this contract. Under the terms of the contract, the
customer could terminate the contract and receive a 50% refund on the
equipment purchases. Accordingly, the revenue associated with the
equipment sales transactions had not been recognized. During fiscal
2000, the customer exercised their right to terminate the contract. As a
result of this termination, the Company recorded a liability for 50% of
all equipment sales due to this customer, amounting to $769,019, and
recognized a gain on the termination of the contract amounting to
$678,481. The Company also evaluated the carrying value of the inventory
and capitalized software utilized during the contract. This evaluation,
performed following the contract termination, resulted in charges of
$1,368,443 and $379,795 to reduce the inventory and capitalized
software, respectively, to estimated fair value. The net impact of these
transactions resulted in a loss on termination of Georgia contract of
$1,069,757.
The Company is currently involved in negotiations with the customer as
to the ultimate settlement amount of the terminated contract and other
unresolved matters. The Company has recorded a liability for the
estimated settlement amount, which is included in current liabilities as
of June 2, 2000. The actual settlement amount could vary from this
estimate.
(4) 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, service fees and royalties. The
Company recognizes revenue from the sale of equipment when the
equipment is shipped. The Company recognizes revenue from
licensing fees, service fees and royalties when the fees are
earned.
CASH AND CASH EQUIVALENTS
For purposes of the statements 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.
57
<PAGE> 58
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.
(5) RELATED PARTY TRANSACTIONS
The Company was formed on July 22, 1998 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
statements 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
$1,028,607 and $819,691 of products and services from LaBarge during
fiscal year 2000 and 1999, respectively. The 1999 amount is in addition
to the $500,000 of services provided by LaBarge as part of the initial
capital contribution.
(6) PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
2000 1999
------------ -----------
<S> <C> <C>
Equipment $ 47,207 44,506
Leasehold improvements 2,274 2,274
Computers and equipment 161,115 109,754
Capitalized software costs 84,498 594,526
------------ -----------
295,094 751,061
Less accumulated depreciation 73,588 58,388
------------ -----------
$ 221,506 692,672
============ ===========
</TABLE>
As previously noted, the Company recorded a charge of $379,795 to reduce
the software to estimated fair value. The reduction in software value is
primarily attributed to significant software modifications required to
the Company's BusCall(TM) product after the cancellation of the Georgia
contract.
58
<PAGE> 59
(7) INTANGIBLE ASSETS
Intangible assets consist of the following:
<TABLE>
<CAPTION>
2000 1999
------------- -------------
<S> <C> <C>
Intellectual property $ 2,313,000 2,313,000
Less accumulated amortization 1,285,177 257,353
------------- -------------
$ 1,027,823 2,055,647
============= =============
</TABLE>
(8) LEASES
The Company leases office space under a month-to-month lease. Rental
expense totaled $51,641 and $43,577 for the year ended July 2, 2000 and
the period ended June 27, 1999.
59
