1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended December 31, 2000 Commission file number: 1-5761
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LaBarge, Inc.
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(Exact Name of Registrant as specified in its charter)
DELAWARE 73-0574586
--------------------------------- -------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9900A Clayton Road, St. Louis, Missouri 63124
---------------------------------------------------------- ---------------
(Address) (Zip Code)
(314) 997-0800
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(Registrant's telephone number, including Area Code)
N/A
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes |X|. No | |.
Indicate the number of shares outstanding of each of the Issuer's classes of
common stock as of December 31, 2000. 14,904,117 shares of common stock.
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LABARGE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(dollars in thousands except per share data)
THREE MONTHS ENDED SIX MONTHS ENDED
--------------------------------------- ---------------------------------
DECEMBER 31, January 2, DECEMBER 31, January 2,
2000 2000 2000 2000
---------------------------------------------------------- ------------------- ------------------- ------------------ --------------
NET SALES $ 26,923 $ 17,552 $ 51,207 $ 31,683
---------------------------------------------------------- ------------------- ------------------- ------------------ --------------
COSTS AND EXPENSES:
Cost of sales 21,383 14,192 40,120 25,862
Selling and administrative expense 4,052 3,634 8,240 7,320
(Gain) due to impairment of assets - (2,300) - (2,300)
Interest expense 557 489 1,095 935
Loss from NotiCom - 632 - 1,152
Other income, net (327) (110) (606) (181)
---------------------------------------------------------- ------------------- ------------------- ------------------ --------------
Income earnings (loss) from continuing operations
before income taxes 1,258 1,015 2,358 (1,105)
Income tax expense (benefit) 532 337 997 (443)
---------------------------------------------------------- ------------------- ------------------- ------------------ --------------
Net earnings (loss) from continuing operations 726 678 1,361 (662)
---------------------------------------------------------- ------------------- ------------------- ------------------ --------------
DISCONTINUED OPERATIONS:
Gain (loss) from operations, net of tax benefit - 48 - (10)
---------------------------------------------------------- ------------------- ------------------- ------------------ --------------
NET EARNINGS (LOSS) $ 726 $ 726 $ 1,361 $ (672)
========================================================== =================== =================== ================== ==============
BASIC EARNINGS (LOSS) PER SHARE:
Net income (loss) from continuing operations $ .05 $ .05 $ .09 $ (.05)
Net income (loss) from discontinued operations - - - -
---------------------------------------------------------- ------------------- ------------------- ------------------ --------------
BASIC NET EARNINGS (LOSS) .05 .05 .09 (.05)
---------------------------------------------------------- ------------------- ------------------- ------------------ --------------
AVERAGE COMMON SHARES OUTSTANDING 14,899 14,782 14,884 14,782
========================================================== =================== =================== ================== ==============
DILUTED EARNINGS (LOSS) PER SHARE:
Net income (loss) from continuing operations $ .05 $ .05 $ .09 $ (.05)
Net income (loss) from discontinued operations - - - -
---------------------------------------------------------- ------------------- ------------------- ------------------ --------------
DILUTED NET EARNINGS (LOSS) $ .05 $ .05 $ .09 (.05)
---------------------------------------------------------- ------------------- ------------------- ------------------ --------------
AVERAGE DILUTED COMMON SHARES OUTSTANDING 14,899 14,782 14,884 14,782
========================================================== =================== =================== ================== ==============
See accompanying notes to consolidated financial statements.
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LABARGE, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(dollars in thousands)
DECEMBER 31, July 2,
2000 2000
--------------------------------------------------------------------------------- ------------------- --------------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 2,903 $ 734
Accounts and notes receivable, net 14,011 17,813
Inventories 25,022 22,232
Prepaid expenses 812 864
Deferred tax assets, net 1,412 1,205
--------------------------------------------------------------------------------- ------------------- --------------------
TOTAL CURRENT ASSETS $ 44,160 $ 42,848
--------------------------------------------------------------------------------- ------------------- --------------------
PROPERTY, PLANT AND EQUIPMENT, NET 12,597 12,683
DEFERRED TAX ASSETS, NET 1,941 2,526
INTANGIBLE ASSETS, NET 4,982 5,516
OTHER ASSETS, NET 5,569 5,160
--------------------------------------------------------------------------------- ------------------- --------------------
$ 69,249 $ 68,733
================================================================================= =================== ====================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings $ 5,187 $ 9,730
Current maturities of long-term debt 1,793 1,823
Trade accounts payable 10,069 8,228
Accrued employee compensation 4,536 5,075
Other accrued liabilities 5,439 2,763
--------------------------------------------------------------------------------- ------------------- --------------------
TOTAL CURRENT LIABILITIES $ 27,024 $ 27,619
--------------------------------------------------------------------------------- ------------------- --------------------
OTHER LONG-TERM LIABILITIES 851 316
LONG-TERM DEBT 8,394 9,284
SUBORDINATED DEBT 5,741 5,741
--------------------------------------------------------------------------------- ------------------- --------------------
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value. Authorized 40,000,000 shares; issued
15,773,253 shares at December 31, 2000 and 15,773,253 at July 2, 2000,
including shares in treasury 158 158
Additional paid-in capital 13,670 13,722
Retained earnings 16,338 14,978
Less cost of common stock in treasury, 869,136 shares at
December 31, 2000 and 921,199 shares at July 2, 2000 (2,927) (3,085)
--------------------------------------------------------------------------------- ------------------- --------------------
TOTAL STOCKHOLDERS' EQUITY 27,239 25,773
--------------------------------------------------------------------------------- ------------------- --------------------
$ 69,249 $ 68,733
================================================================================= =================== ====================
See accompanying notes to consolidated financial statements.
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LABARGE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(dollars in thousands)
SIX MONTHS ENDED
----------------------------------------
DECEMBER 31, January 2,
2000 2000
---------------------------------------------------------------------------------------- ------------------- --------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) $ 1,361 $ (672)
Adjustments to reconcile net cash provided by operating activities:
Loss from NotiCom and amortization of technology - 783
Depreciation and amortization 1,523 1,803
Deferred taxes 378 (573)
Other 3 (92)
Changes in assets and liabilities:
Accounts and notes receivable, net 3,802 2,352
Inventories (2,790) (1,508)
Prepaid expenses 52 (143)
Trade accounts payable 1,840 1,887
Other accrued liabilities 2,657 (1,228)
---------------------------------------------------------------------------------------- ------------------- --------------------
NET CASH PROVIDED BY CONTINUING OPERATIONS 8,826 2,609
NET CASH PROVIDED BY DISCONTINUED OPERATIONS - 708
---------------------------------------------------------------------------------------- ------------------- --------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 8,826 3,317
---------------------------------------------------------------------------------------- ------------------- --------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (851) (689)
Additions to other assets (464) (295)
Investment in other companies - (890)
Cash used by investing activities - discontinued operations - (24)
---------------------------------------------------------------------------------------- ------------------- --------------------
NET CASH USED BY INVESTING ACTIVITIES (1,315) (1,898)
---------------------------------------------------------------------------------------- ------------------- --------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of long-term debt (905) (3,073)
Sale (purchase) of common stock 106 (33)
Net change in short-term borrowings, net of acquisitions (4,543) 2,785
Net change in short-term debt of discontinued operations - 150
---------------------------------------------------------------------------------------- ------------------- --------------------
NET CASH USED BY FINANCING ACTIVITIES (5,342) (171)
---------------------------------------------------------------------------------------- ------------------- --------------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 2,169 1,248
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 734 462
---------------------------------------------------------------------------------------- ------------------- --------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 2,903 $ 1,710
======================================================================================== =================== ====================
See accompanying notes to consolidated financial statements.
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LABARGE, INC.
FORM 10-Q
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. CONSOLIDATED FINANCIAL STATEMENTS - BASIS OF PRESENTATION
The consolidated balance sheets at December 31, 2000 and July 2, 2000, the
related consolidated statements of operations for the three and six months ended
December 31, 2000 and January 2, 2000 and the consolidated statements of cash
flows for the six months ended December 31, 2000 and January 2, 2000, have been
prepared by LaBarge, Inc. (the "Company") without audit. In the opinion of
management, adjustments, all of a normal and recurring nature, necessary to
present fairly the financial position and the results of operations and cash
flows for the aforementioned periods, have been made. Certain prior year amounts
have been reclassified to conform with the current year's presentation.
Certain information and footnote disclosures normally included in consolidated
financial statements prepared in conformity with generally accepted accounting
principles have been condensed or omitted. These consolidated financial
statements should be read in conjunction with the audited financial statements
and notes thereto included in the Company's Annual Report on Form 10-K for the
fiscal year ended July 2, 2000.
2. ACCOUNTS AND NOTES RECEIVABLE
Accounts and notes receivable consist of the following:
(dollars in thousands)
DECEMBER 31, July 2,
2000 2000
----------------------------------------------------------- ----------------------------- ---------------------------
Billed shipments, net of progress payments $ 13,468 $ 17,128
Less allowance for doubtful accounts 166 172
----------------------------------------------------------- ----------------------------- ---------------------------
Trade receivables, net 13,302 16,956
Other current receivables 709 857
----------------------------------------------------------- ----------------------------- ---------------------------
$ 14,011 $ 17,813
=========================================================== ============================= ===========================
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.
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3. INVENTORIES
Inventories consist of the following:
(dollars in thousands)
DECEMBER 31, July 2,
2000 2000
------------------------------------------------------------- ---------------------------- --------------------------
Raw materials $ 18,357 $ 12,348
Work in progress 7,843 10,210
------------------------------------------------------------- ---------------------------- --------------------------
26,200 22,558
Less progress payments 1,178 326
------------------------------------------------------------- ---------------------------- --------------------------
$ 25,022 $ 22,232
============================================================= ============================ ==========================
In accordance with contractual agreements, the U.S. Government has a security
interest in inventories identified with related contracts for which progress
payments have been received.
4. INTANGIBLE ASSETS, NET
Intangible assets, net, is summarized as follows:
(dollars in thousands)
DECEMBER 31, July 2,
2000 2000
--------------------------------------------------------------- -------------------------- --------------------------
Software $ 1,425 $ 1,366
Patents 80 91
Goodwill 6,695 6,685
--------------------------------------------------------------- -------------------------- --------------------------
8,200 8,142
Less amortization 3,218 2,626
--------------------------------------------------------------- -------------------------- --------------------------
$ 4,982 $ 5,516
=============================================================== ========================== ==========================
Amortization expense was approximately $294,000 for the quarter ended December
31, 2000 and $270,000 for the quarter ended January 2, 2000.
5. OTHER ASSETS
Other assets is summarized as following:
(dollars in thousands)
DECEMBER 31, July 2,
2000 2000
------------------------------------------------------------- ---------------------------- --------------------------
Cash value of life insurance $ 3,842 $ 3,618
Deposits, licenses, and other 1,623 1,429
Investments in businesses 136 136
------------------------------------------------------------- ---------------------------- --------------------------
$ 5,601 $ 5,183
Less amortization 32 23
------------------------------------------------------------- ---------------------------- --------------------------
$ 5,569 $ 5,160
============================================================= ============================ ==========================
Investments in businesses primarily refers to the Company's securities in
Norwood Abbey, Ltd.
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6. SHORT AND LONG-TERM OBLIGATIONS
Short-term borrowings, long-term debt and the current maturities of long-term
debt consist of the following: (dollars in thousands)
DECEMBER 31, July 2,
2000 2000
---------------------------------------------------------------------- ----------------------- ----------------------
Short-term borrowings:
Revolving credit agreement:
Balance at period-end $ 5,187 $ 9,730
Interest rate at period-end 8.22% 9.45%
Average amount of short-term borrowings outstanding during period
$ 10,362 $ 4,612
Average interest rate for period 8.85% 9.03%
Maximum short-term borrowings at any month-end $ 13,302 $ 10,590
====================================================================== ======================= ======================
Senior long-term debt:
Senior lender:
Term loan $ 3,122 3,908
Mortgage loan 5,945 5,992
Other 1,120 1,207
---------------------------------------------------------------------- ----------------------- ----------------------
Total senior long-term debt 10,187 11,107
Less current maturities 1,793 1,823
---------------------------------------------------------------------- ----------------------- ----------------------
Long-term debt, less current maturities $ 8,394 $ 9,284
====================================================================== ======================= ======================
Subordinated debt $ 5,741 $ 5,741
====================================================================== ======================= ======================
The average interest rate was computed by dividing the sum of daily interest
costs by the sum of the daily borrowings for the respective periods.
SENIOR LENDER:
The Company 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 $3.1 million, requiring repayments
of $393,000 of principal quarterly. Under this schedule, the term loan will
be repaid in December 2002.
- A revolving credit facility up to $18.0 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
December 31, 2000, the maximum allowable was $15.8 million. The revolver
borrowing at quarter-end was $5.2 million, and letters of credit
outstanding totaled $1.6 million. Unused revolving credit available at
December 31, 2000 was $9.0 million. The maturity date of the revolving
credit facility is February 2002.
- Covenants and performance criteria which involve Earnings Before Interest,
Taxes, Depreciation and Amortization ("EBITDA") in relation to debt, EBITDA
in relation to fixed charges, and maximum capital expenditures. The Company
is in compliance with its borrowing agreement covenants for the quarter
ended December 31, 2000.
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- Interest on the loans at prime or a stated rate over LIBOR based on certain
ratios. As of the quarter-end, the average rate was approximately 8.85%.
- 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. The balance
at quarter-end was $5.9 million.
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 December 2000
was $1.1 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,
$7.5 million at December 31, 2000, amortizes quarterly. This agreement
expires in September 2005.
OTHER LONG-TERM LIABILITIES:
Other long-term liabilities include (1) deferred revenues associated with
the proprietary ScadaNET Network" (representing prepaid communication
services), and (2) long-term customer advances.
7. DISCONTINUED OPERATIONS
On June 30, 2000, LaBarge Clayco Wireless was sold to Evolution Holdings, Inc.
of Phoenix, Arizona. For its 90% interest in this joint venture, the Company
received $4.6 million in cash and a three-year convertible note with an
estimated fair value of $115,000. In fiscal 2000 fourth quarter, 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.
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8. INCOME TAXES
The Company has alternative minimum and investment tax credit carryforwards of
approximately $422,000 that are available to reduce future regular federal
income taxes.
9. CASH FLOWS
Total cash payments for interest for the three and six months ended December 31,
2000 were $456,000 and $1.0 million, compared with $548,000 and $1.1 million for
the three and six months ended January 2, 2000. Cash payments for federal and
state income taxes were $845,000 and $1.7 million for the three and six months
ended December 31, 2000, compared with a cash refund for income taxes of $-0-
and $754,000, for the three and six months ended January 2, 2000.
10. EARNINGS PER COMMON SHARE
Basic and diluted earnings (loss) per share are computed as follows:
THREE MONTHS ENDED SIX MONTHS ENDED
----------------------------------- -----------------------------------
DECEMBER 31, January 2, DECEMBER 31, January 2,
2000 2000 2000 2000
------------------------------------------------------- ----------------- ----------------- -------------------- --------------
NUMERATOR:
Net earnings (loss) from continuing operations $ 726 $ 678 $ 1,361 $ (662)
Net earnings (loss) from discontinued operations - 48 - (10)
------------------------------------------------------- ----------------- ----------------- -------------------- --------------
Net earnings (loss) $ 726 $ 726 $ 1,361 $ (672)
------------------------------------------------------- ----------------- ----------------- -------------------- --------------
DENOMINATOR:
Denominator for basic net earnings
(loss) per share 14,899 14,782 14,884 14,782
------------------------------------------------------- ----------------- ----------------- -------------------- --------------
POTENTIAL COMMON SHARES:
Denominator for diluted net earnings
(loss) per share - adjusted weighted -
average shares and assumed conversions 14,899 14,782 14,884 14,782
------------------------------------------------------- ----------------- ----------------- -------------------- --------------
BASIC EARNINGS (LOSS) PER SHARE:
Net earnings (loss) from
continuing operations $ .05 $ .05 $ .09 $ (.05)
Earnings (loss) from discontinued operations - - - -
------------------------------------------------------- ----------------- ----------------- -------------------- --------------
BASIC NET EARNINGS (LOSS) $ .05 $ .05 $ .09 $ (.05)
======================================================= ================= ================= ==================== ==============
DILUTED EARNINGS (LOSS) PER SHARE:
Net earnings (loss) from
continuing operations $ .05 $ .05 $ .09 $ (.05)
Earnings (loss) from discontinued operations - - - -
------------------------------------------------------- ----------------- ----------------- -------------------- --------------
DILUTED NET EARNINGS (LOSS) PER SHARE: $ .05 $ .05 $ .09 $ (.05)
======================================================= ================= ================= ==================== ==============
The effect of conversion of the Subordinated Convertible Notes into common stock
is not considered in the calculations of diluted net earnings per common share
because it would have an anti-dilutive effect on earnings per share.
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11. BUSINESS SEGMENT INFORMATION
Business segments:
(dollars in thousands)
NET SALES TO CUSTOMERS:
THREE MONTHS ENDED SIX MONTHS ENDED
--------------------------------------- ----------------------------------------
DECEMBER 31, January 2, DECEMBER 31, January 2,
2000 2000 2000 2000
------------------------------------ ------------------ -------------------- ------------------- --------------------
Manufacturing Services Group $ 26,565 $ 17,414 $ 50,560 $ 31,463
Network Technologies Group 358 138 647 220
------------------------------------ ------------------ -------------------- ------------------- --------------------
$ 26,923 $ 17,552 $ 51,207 $ 31,683
==================================== ================== ==================== =================== ====================
EARNINGS (LOSS):
THREE MONTHS ENDED SIX MONTHS ENDED
---------------------------------------- -----------------------------------
DECEMBER 31, January 2, DECEMBER 31, January 2,
2000 2000 2000 2000
-------------------------------------------- ------------------- -------------------- ------------------ ----------------
Pretax earnings (loss) from continuing
operations:
Manufacturing Services Group $ 2,349 $ 546 $ 4,657 $ (294)
Gain due to impairment of assets - 2,300 - 2,300
-------------------------------------------- ------------------- -------------------- ------------------ ----------------
Total Manufacturing Services Group 2,349 2,846 4,657 2,006
Network Technologies Group (560) (592) (1,159) (1,077)
NotiCom - (632) - (1,152)
Corporate and other items 26 (118) (45) 53
Interest expense (557) (489) (1,095) (935)
-------------------------------------------- ------------------- -------------------- ------------------ ----------------
NET EARNINGS (LOSS) FROM
CONTINUING OPERATIONS BEFORE TAX $ 1,258 $ 1,015 $ 2,358 $ (1,105)
INCOME TAX EXPENSE (BENEFIT) 532 337 997 (443)
-------------------------------------------- ------------------- -------------------- ------------------ ----------------
NET EARNINGS (LOSS) FROM
CONTINUING OPERATIONS 726 678 1,361 (662)
-------------------------------------------- ------------------- -------------------- ------------------ ----------------
Discontinued operations:
Income (loss) from operations,
net of taxes - 48 - (10)
-------------------------------------------- ------------------- -------------------- ------------------ ----------------
$ 726 $ 726 $ 1,361 $ (672)
============================================ =================== ==================== ================== ================
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DEPRECIATION & AMORTIZATION EXPENSE:
THREE MONTHS ENDED SIX MONTHS ENDED
------------------------------------ --------------------------------------
DECEMBER 31, January 2, DECEMBER 31, January 2,
2000 2000 2000 2000
------------------------------------- --------------- ------------------- ------------------- ------------------
Manufacturing Services Group $ 375 $ 320 $ 784 $ 716
Network Technologies Group 229 246 463 515
NotiCom - 178 - 369
Corporate and other items 135 102 276 203
------------------------------------- --------------- ------------------- ------------------- ------------------
$ 739 $ 846 $ 1,523 $ 1,803
===================================== =============== =================== =================== ==================
INVESTMENTS & CAPITAL EXPENDITURES:
THREE MONTHS ENDED SIX MONTHS ENDED
----------------------------------- --------------------------------------
DECEMBER 31, January 2, DECEMBER 31, January 2,
2000 2000 2000 2000
------------------------------------- --------------- ------------------- ------------------- ------------------
Manufacturing Services Group $ 356 $ 227 $ 1,024 $ 511
Network Technologies Group 212 84 248 100
Investment in NotiCom - 405 - 890
Corporate and other items (180) 210 43 373
------------------------------------- --------------- ------------------- ------------------- ------------------
$ 388 $ 926 $ 1,315 $ 1,874
===================================== =============== =================== =================== ==================
TOTAL ASSETS:
DECEMBER 31, July 2,
2000 2000
-------------------------------------------- ------------------------ -----------------------
Manufacturing Services Group $ 44,907 $ 45,283
Network Technologies Group 5,522 5,878
Corporate and other items 18,820 17,572
-------------------------------------------- ------------------------ -----------------------
$ 69,249 $ 68,733
============================================ ======================== =======================
GEOGRAPHIC INFORMATION:
The Company has no sales offices or facilities outside of the United States.
Sales for export did not exceed 10% of total sales for the three or six months
ended December 31, 2000.
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LABARGE, INC.
FORM 10-Q
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
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; 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.
LaBarge, Inc. ("LaBarge" or the "Company") is a Delaware Corporation. The
Company is engaged in the following primary business activities:
- The MANUFACTURING SERVICES GROUP is the Company's core manufacturing
business, which has been its principal business since 1985. This group
designs, engineers and produces sophisticated electronic systems and
devices and complex interconnect systems on a contract basis for its
customers. The Company derived approximately 99% of its total revenues from
this group for the three and six months ended December 31, 2000.
The group markets its services to companies desiring an engineering and
manufacturing partner capable of developing and providing high-reliability
electronic equipment, including products capable of performing in harsh
environmental conditions, such as high and low temperature, severe shock
and vibration. The group serves customers in a variety of markets with
significant revenues from customers in the defense, aerospace, and oil and
gas markets. The group's manufacturing facilities are located in Arkansas,
Missouri, Oklahoma and Texas.
The backlog of unshipped orders in the Manufacturing Services Group
increased to $89.5 million at December 31, 2000, compared to $62.7 million
at fiscal 2000 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. Backlog growth was
from commercial customers.
- 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. 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. The Company derived 1% of its total revenues from this
group for the three and six months ended December 31, 2000.
The backlog of unshipped orders in the Network Technologies Group was
$860,000 at December 31, 2000, compared with $382,000 at fiscal 2000
year-end. Contracts with the railroad industry represented the majority of
the growth in this backlog.
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SIGNIFICANT EVENTS
Recent significant events include:
- On June 30, 2000 LaBarge Clayco Wireless was sold to Evolution Holdings,
Inc. of Phoenix, Arizona. For its 90% interest in the joint venture, 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.
- 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 would not provide such additional funding for NotiCom.
Consequently, NotiCom attempted to raise additional equity in the capital
markets. To date, these efforts have not been successful. Given these
events, during the fourth quarter of fiscal 2000, 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--QUARTER ENDED DECEMBER 31, 2000
NET SALES
(dollars in thousands)
THREE MONTHS ENDED SIX MONTHS ENDED
--------------------------------------- ----------------------------------------------
DECEMBER 31, January 2, DECEMBER 31, January 2,
2000 2000 2000 2000
------------------------ ------------------ -------------------- ---------------------------- -----------------
Net Sales $ 26,923 $ 17,552 $ 51,207 $ 31,683
======================== ================== ==================== ============================ =================
For the fiscal 2001 second quarter, ended December 31, 2000, net sales from
continuing operations were $26.9 million compared with $17.6 million for the
same period of fiscal 2000. Sales to our top 10 customers represented 71% of
total revenue in the second quarter of fiscal 2001 versus 76% for the same
period of fiscal 2000. Sales to our top three customers and the portion of total
sales they represented were as follows: Northrop Grumman, 23%; Schlumberger,
16%; and Lockheed Martin, 8%.
The MANUFACTURING SERVICES GROUP. Sales in the manufacturing services segment of
the business were $26.6 million, accounting for 99% of total sales for the
quarter ended December 31, 2000, up $9.2 million (53%) over the same period of
fiscal 2000.
Comparing the second quarter of fiscal 2001 with the same period of fiscal 2000,
the significant sales growth came from commercial customers. Sales to commercial
customers grew 111% to $18.7 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 also increased
during the period.
NETWORK TECHNOLOGIES GROUP. Sales by this segment of the Company were 1% of
total sales for the quarter ended December 31, 2000.
The Network Technologies Group generated second quarter sales of $358,000 versus
$138,000 for the second quarter of fiscal 2000. Sales were primarily to the
railroad industry. During fiscal 2000, the group's proprietary 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
2,600 active crossings by The Burlington Northern and Santa Fe Railway Company,
Union Pacific Railroad, Montana Rail Link and I&M Rail Link. Second quarter
sales represented the continuation of this build-out program. The ScadaNET
Network is a standard component of all new and upgraded rail crossings built by
the Union Pacific Railroad and Burlington Northern and Santa Fe Railway Company.
In January 2001, the Company reached an agreement with Union
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Pacific Railroad to provide equipment and remote monitoring services to retrofit
1,100 crossings in the state of Illinois.
GROSS PROFIT
(dollars in thousands)
THREE MONTHS ENDED SIX MONTHS ENDED
------------------------------------------ ------------------------------------------
DECEMBER 31, January 2, DECEMBER 31, January 2,
2000 2000 2000 2000
--------------------------- -------------------- --------------------- -------------------- ---------------------
Gross profit $ 5,540 $ 3,360 $ 11,087 $ 5,821
Gross margin 20.6% 19.1% 21.7% 18.4%
=========================== ==================== ===================== ==================== =====================
A breakdown of margins by group shows the following:
MANUFACTURING SERVICES GROUP. This group's gross profit margin was 19.2% for the
quarter (20.5% for the six months) ended December 31, 2000, compared with 19.4%
for the quarter (18.5% for the six months) ended January 2, 2000. Additional
costs incurred associated with the later-than-expected start-up of the recently
announced contract with Northrop Grumman impacted second quarter gross margins.
NETWORK TECHNOLOGIES GROUP. This group's gross profit margin was 49.3% for the
quarter ended December 31, 2000. Gross margins for the Network Technologies
Group were not significant for the same period of fiscal 2000, as sales totaled
only $138,000.
During the second half of fiscal 2001, we anticipate that the Company's sales
mix will evolve into higher gross margins with increased sales from the Network
Technologies Group.
SELLING AND ADMINISTRATIVE EXPENSES
(dollars in thousands)
THREE MONTHS ENDED SIX MONTHS ENDED
-------------------------------------- ----------------------------------------
DECEMBER 31, January 2, DECEMBER 31, January 2,
2000 2000 2000 2000
------------------------------- ------------------ ------------------- ------------------ ---------------------
Selling and administrative
expenses $ 4,052 $ 3,634 $ 8,240 $ 7,320
Percent of sales 15.1% 20.7% 16.1% 23.1%
=============================== ================== =================== ================== =====================
Selling and administrative expenses rose for the three and six months ended
December 31, 2000 as compared to prior periods, reflecting much higher sales
levels. As a percent of sales, selling and administrative expenses declined
reflecting increased sales without a proportionate increase in selling and
administrative expenses. Growth in prior periods' selling and administrative
expenses were in anticipation of higher levels of sales and bookings, that were
realized in the current quarter, and the expected sales levels for the remainder
of the fiscal year.
MANUFACTURING SERVICES GROUP. Selling and administrative expenses for this group
were $3.2 million (12.1% of sales) for the quarter ended December 31, 2000 and
$3.1 million (17.7% of sales) for the same period of fiscal 2000.
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NETWORK TECHNOLOGIES GROUP. This group accounted for $736,000 of selling and
administrative expenses for the quarter ended December 31, 2000. This included
$219,000 in amortization of goodwill. For the same period of fiscal 2000, these
expenses totaled $592,000, including $239,000 of goodwill. Selling and
administrative expenses increased due to additional activity and larger sales
volume.
INTEREST EXPENSE
(dollars in thousands)
THREE MONTHS ENDED SIX MONTHS ENDED
---------------------------------------- ------------------------------------------
DECEMBER 31, January 2, DECEMBER 31, January 2,
2000 2000 2000 2000
----------------------------- ----------------- ---------------------- ---------------------- -------------------
Interest expense $ 557 $ 489 $ 1,095 $ 935
============================= ================= ====================== ====================== ===================
Interest expense increased for the quarter and six months ended December 31,
2000, primarily due to higher average interest rates on additional short-term
borrowings to support increased levels of average working capital.
LOSS FROM NOTICOM
(dollars in thousands)
THREE MONTHS ENDED SIX MONTHS ENDED
---------------------------------------- -----------------------------------------
DECEMBER 31, January 2, DECEMBER 31, January 2,
2000 2000 2000 2000
------------------------------ -------------------- ------------------- --------------------- -------------------
Loss from NotiCom $ - $ 632 $ - $ 1,152
============================== ==================== =================== ===================== ===================
The Company is no longer providing funding for NotiCom L.L.C. and, at the end of
fiscal year 2000, wrote-down its remaining investment to zero. No additional
expense is expected to be incurred from the Company's interest in NotiCom's
operations.
PRETAX EARNINGS (LOSS) FROM CONTINUING OPERATIONS
(dollars in thousands)
THREE MONTHS ENDED SIX MONTHS ENDED
---------------------------------------------- --------------------------------------
DECEMBER 31, January 2, DECEMBER 31, January 2,
2000 2000 2000 2000
--------------------------- ---------------------- ----------------------- ------------------ -------------------
Pretax earnings (loss) $ 1,258 $ 1,015 $ 2,358 $ (1,105)
=========================== ====================== ======================= ================== ===================
The change in earnings from continuing operations for the quarter ended December
31, 2000, compared with the same period of fiscal 2000, is primarily
attributable to significantly higher sales (and increase of $9.2 million) and
gross profit (an increase of $1.7 million) from the Manufacturing Services Group
and the absence of a charge associated with NotiCom L.L.C., offset by the
non-recurring gain recognized in the quarter ended January 2, 2000, of $2.3
million associated with the company's investment in Transmedica International.
The Company sold certain technology during the quarter ended October 1, 2000,
for a total of $575,000. Revenue recognized in connection with this sale in the
quarter ended December 31, 2000, was approximately $246,000. The remainder of
the sale price, $137,000, will be recognized in the third quarter of fiscal
2001, matching the Company's remaining performance requirements under the terms
of the sale agreement.
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TAX EXPENSE (BENEFIT) FROM CONTINUING OPERATIONS
(dollars in thousands)
THREE MONTHS ENDED SIX MONTHS ENDED
---------------------------------------- --------------------------------------
DECEMBER 31, January 2, DECEMBER 31, January 2,
2000 2000 2000 2000
---------------------------------- ------------------- -------------------- ------------------- ------------------
Tax expense (benefit) from
continuing operations $ 532 $ 337 $ 997 $ (443)
================================== =================== ==================== =================== ==================
Tax expense (benefit) was impacted by non-deductible goodwill expense of
$219,000 incurred in connection with the OCS acquisition in the quarter ended
December 31, 2000, and $239,000 for the same period of fiscal 2000.
DISCONTINUED OPERATIONS, NET OF TAX
(dollars in thousands)
THREE MONTHS ENDED SIX MONTHS ENDED
------------------------------------- -------------------------------------
DECEMBER 31, January 2, DECEMBER 31, January 2,
2000 2000 2000 2000
------------------------------------- ------------------- ----------------- ------------------- -----------------
Income from discontinued
operations $ - $ 48 $ - $ (10)
===================================== =================== ================= =================== =================
Discontinued operations reflect the results of LaBarge Clayco Wireless, sold on
June 30, 2000.
FINANCIAL CONDITION AND LIQUIDITY
The following table shows LaBarge's equity and total debt positions:
STOCKHOLDERS' EQUITY AND DEBT
(dollars in thousands)
DECEMBER 31, July 2,
2000 2000
--------------------------------- ------------------------------ --------------------------
Stockholders' equity $ 27,239 $ 25,773
Debt $ 21,115 $ 26,578
================================= ============================== ==========================
The Company's continuing operations provided $8.4 million of net cash for the
quarter ended December 31, 2000. A reduction in net working capital assets,
together with earnings generated cash, reduced short-term borrowings during the
quarter ended December 31, 2000.
The Company received a $5 million payment from a customer to finance material
purchases on a contract negotiated during the quarter. $4.4 million of this
payment is classified as other accrued liabilities.
Currently, our total debt-to-equity ratio is .78 to 1 versus 1.03 to 1 at the
end of fiscal 2000.
Effective October 24, 2000, our revolving credit agreement (see Note 7 in "Notes
to Consolidated Financial Statements") maturity was extended to February 2002,
and the commitment amount increased to $18.0 million.
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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
since its acquisition in March 1999. It is too early to predict the timing and
the extent 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.
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PART II
ITEM 4. Submission of Matter to a Vote of Security Holders
On November 17, 2000, at the Company's Annual Meeting of
Stockholders, stockholders took the following actions:
a. Elected two Class B Directors for a term ending in 2003. Vote
tallies were as follows:
Votes FOR Votes ABSTAINING
--------- ----------------
John G. Helmkamp, Jr. 13,370,343 164,935
Lawrence J. LeGrand 13,370,743 164,535
b. Ratified the selection of KPMG, LLP as independent accountants
for 2001 with 13,431,487 FOR votes, 54,114 AGAINST votes and
49,677 votes ABSTAINED.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibit 10.6(a) Fifth Amendment to Loan Agreement Among Bank of
America, N.A. and LaBarge, Inc. LaBarge/STC, Inc., LaBarge
Wireless LLC, and LaBarge OCS, Inc.
(b) Reports on Form 8-K: On December 4, 2000, a current report
on Form 8-K was submitted in accordance with Regulation FD to
report the following information.
- On December 5, 2000, certain members of the Registrant's
management will meet with institutional investors and will
make a slide presentation.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LABARGE, INC.
-------------------------------
Date: February 6, 2001
s/Donald H. Nonnenkamp
-------------------------------
Donald H. Nonnenkamp
Vice President
and Chief Financial Officer
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