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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 ENDED JUNE 30, 2002
Commission File Number 1-5761
LABARGE, INC.
(Exact name of registrant specified in its charter)
DELAWARE
(State or other jurisdiction of incorporation or organization)
73-0574586
(I.R.S. Employer Identification Number)
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:
Title of Class: Common Stock, $.01 par value
Name of each exchange on which registered: American Stock Exchange
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
requirement 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. [X]
As of September 5, 2002, 15,773,253 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
$48.0 million, based upon the
closing price of the common stock on the American Stock Exchange on September 5,
2002.
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.
PART I
Forward-looking Statements
This report contains forward-looking statements that relate to future
events or our future financial performance. We have attempted to identify these
statements by terminology including "believe," "anticipate," "plan," "expect,"
"estimate," "intend," "seek," "goal," "may," "will," "should," "can,"
"continue," or the negative of these terms or other comparable terminology.
These statements include statements about our market opportunity, our growth
strategy, competition, expected activities, and the adequacy of our available
cash resources. These statements may be found in the sections of this report
entitled "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business." Readers are cautioned that matters
subject to forward-looking statements involve known and unknown risks and
uncertainties, including economic, regulatory, competitive and other factors
that may cause our or our industry's actual results, levels of activity,
performance or achievements to be materially different from any future results,
levels of activity, performance or achievements expressed or implied by these
forward-looking statements. These statements are not guarantees of future
performance and are subject to the risks, uncertainties and assumptions.
Actual results may differ from projections or estimates due to a variety of
important factors, including the following:
- The Company's dependence on a few large customers;
- - The Company's dependence on government contracts, which are subject to
cancellation;
- - The Company's ability to control costs, especially on fixed price
contracts;
- - The size and timing of new contract awards to replace completed or expired
contracts;
- - Cutbacks in defense spending by the U.S. Government;
- - Dependence of the Company on U.S. economic conditions and economic
conditions in the markets the Company serves;
- - Availability and increases in cost of raw materials, labor and other
resources;
- - Increased competition in the Company's markets;
- - The Company's ability to manage operating expenses;
- - The ability of the Company to develop the Network Technologies Group so
that it operates at a profit;
- - The outcome of litigation to which the Company is a party; and
- - The availability, amount, type and cost of financing for the Company and
any change to that financing.
Given these uncertainties, undue reliance should not be placed on such
forward-looking statements. Unless otherwise required by law, the Company
disclaims an obligation to update any such factors or to publicly announce the
results of any revisions to any forward-looking statements contained herein to
reflect future events or developments.
ITEM 1. BUSINESS
General Development of Business
LaBarge, Inc. ("LaBarge" or the "Company") is a Delaware corporation. During
fiscal 2002, 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 2002, the Company derived
approximately 98% of its total
revenues from this group.
* The Network Technologies Group 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 systems
products and Internet services that provide
monitoring and control of remote
industrial equipment. The group sells its products
and services in the railroad
industry to monitor railroad-crossing equipment
and in the oil and gas pipeline
industry to monitor cathodic protection devices.
In fiscal 2002, the Company
derived approximately 2% of its total revenues
from the Network Technologies
Group.
Strategy
The Company's strategy is to continue to grow its business through internal
development and acquisition.
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, including the design,
engineering and manufacturing of interconnect systems, circuit card assemblies
and high-level assemblies for our customers' specialized applications.
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, government systems, 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 850 people.
Manufacturing Services Group sales were $117.2 million for fiscal 2002,
compared with $116.7 million in fiscal 2001, and $78.3 million in fiscal 2000.
The backlog for this group at June 30, 2002 was approximately $98.0 million,
compared with $86.6 million at July 1, 2001, an increase of 13%. The growth in
backlog is the result of a 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 $21.0
million of the backlog at fiscal 2002 year end is not scheduled to ship within
the next 12 months pursuant to the shipment schedules contained in those
contracts. This compares with $17.7 million at fiscal 2001 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.
Sales and Marketing
During fiscal 2002, the Company generated significant revenues from customers in
the defense, government systems, 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,
military and commercial aircraft, satellites, space launch vehicles, down-hole
instrumentation in oil and gas wells, 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 13 sales personnel, 29
engineers and 50 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.
The Company seeks to develop strong, long-term relationships with its customers,
which will provide the basis for future sales. These close relationships allow
the Company to better understand the customers' business needs and identify ways
to provide greater value to 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. The group's
customers frequently 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 50% of the Company's
consolidated sales in fiscal 2002: Northrop Grumman accounted for 19% of total
sales; Schlumberger accounted for 17% of total sales; and Lockheed Martin
accounted for 14% of total sales. No other customer accounted for more than 6%
of total sales. Sales to the largest 10 customers represented approximately 75%
of the Company's total sales in both fiscal 2002 and 2001.
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.
Organization
The Network Technologies Group is led by a vice president who reports to the
Chief Executive Officer and President of LaBarge.
Sales and Marketing
This group's first major market focus was the railroad industry, where the
group's proprietary ScadaNET Network (TradeMark) product line is used 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 and test points along pipelines.
The group has four full-time sales personnel and utilizes the services of
independent representatives and distributors to market its products. In
addition, the group employs seven engineers for product development.
Fiscal 2002 sales totaled $2.9 million, compared with fiscal 2001 sales of $2.6
million and fiscal 2000 sales of $1.3 million. Sales backlog at June 30, 2002
was $2.7 million, compared with $1.2 million at July 1, 2001, an increase of
125%. Sales continued to be primarily to the railroad industry, accounting for
$2.5 million of the total. Major contributors to sales to the rail sector in
2002 were Union Pacific Railroad, Burlington Northern and Santa Fe Railway
Company, and Wisconsin Central Division of Canadian National Railway Company.
The Network Technologies Group continued to add new short-line railroad
customers during the current year.
Sales to the cathodic protection market totaled $400,000 in fiscal 2002,
compared with fiscal 2001 sales of $100,000. Approximately 40 oil and gas
pipeline companies have conducted evaluation programs using the ScadaNET system
and numerous companies have begun or are about to begin full-scale network
deployment.
Competition
The Company has various competitors who market devices to monitor remote
industrial equipment. In the railroad market, none of the competitors is known
to market products that provide a comprehensive service as cost effectively as
the ScadaNET Network. The Company expects to release new products in the near
future that are specifically intended to increase its competitive advantage in
oil and gas pipeline applications, and to augment its railroad sector product
line.
Operations
The group has an engineering and operations center located in the metropolitan
Kansas City area. The Company's Manufacturing Services Group is the
manufacturer of the Network Technologies Group's products.
Capital Structure
On February 1, 2002, the Company renewed its revolving credit agreement through
May 2003. The credit agreement was reduced to $15.0 million from $18.0 million
with substantially the same terms and conditions.
Also on this date, the balance
of the senior secured term loan, $1.6 million, was repaid in full.
On March 12, 2002, the Company entered into a new credit facility with another
bank, replacing the credit facility renewed on February 1, 2002, and refinancing
the mortgage loan of $6.2 million used to finance the 1998 purchase of the
Company's headquarters building in St. Louis, Missouri.
The following is a summary of the new credit facility:
* A revolving credit facility up to $15.0 million, secured by substantially
all the assets of the Company other than real
estate, based on a borrowing base
formula equal to the sum of 80% of eligible receivables, and 40% of eligible
inventories, less outstanding letters of credit. As of June 30, 2002, the
maximum allowable was $12.1 million, net of letters of credit outstanding of
$2.9 million. The revolver borrowing at quarter end was $2.6 million. Unused
revolving credit available at June 30, 2002 was $9.5 million. This credit
facility matures on September 30, 2004.
* A $6.4 million term loan secured by the Company's headquarters building in
St. Louis, Missouri. The loan payment schedule is based on a 25-year
amortization and begins in December 2002 with a balloon final payment due in
October 2009. Current balance at June 30, 2002 is $6.4 million.
* Interest on the loans is at a percentage of prime or a stated rate over
LIBOR based on certain ratios. For the period, the average rate was
approximately 3.96%.
* Covenants and performance criteria consist of Earnings Before Interest,
Taxes, Depreciation and Amortization ("EBITDA") in relation to debt, EBITDA in
relation to interest, minimum levels of EBITDA and tangible net worth. The
Company is in compliance with its borrowing agreement covenants as of June 30,
2002.
Subordinated Convertible Notes:
In March 1999, the Company, through its subsidiary LaBarge-OCS, Inc.,
issued its Subordinated Convertible Notes ("Notes") due June 2003 in the
aggregate principal amount of $5.6 million for the acquisition of OCS.
The Notes bear interest at 7.5% per annum payable quarterly, and
noteholders are entitled to participation payments if LaBarge-OCS, Inc.,
operating as The Network Technologies Group, achieves certain levels of
net earnings. No participation payments were earned in fiscal 2002.
The Notes are convertible by the holders into LaBarge, Inc. Common Stock
at $8.00 per share at any time up to their maturity date.
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 30,
2002 was $925,000.
Other Long-Term Liabilities:
Other long-term liabilities include deferred revenues associated with the
proprietary ScadaNET Network(TradeMark) (representing prepaid
communication services) in the amount of
$1.4 million and other customer advances in the amount of $2.1 million.
To mitigate the exposure to changes in interest rates, the Company
entered into an interest rate swap agreement. This agreement, designated
as a cash flow hedge, 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 is $3.5 million and it expires in June 2003. In accordance
with SFAS 133, as amended by SFAS 138, the change in fair value of the
swap during fiscal 2002, amounting to approximately $34,000, was recorded
to other comprehensive loss.
The ratio of debt-to-equity as of June 30, 2002 was .46 to 1, compared with .59
to 1 at July 1, 2001.
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 2002, fiscal 2001 and fiscal 2000 were less than 10% of the
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:
Calendar
Year of
Principal Land Buildings Termination
Location Use (acres) (square of Lease
feet)
Berryville, Manufacturing &
AR
Offices 17.5 49,000 Owned
Houston, TX Manufacturing &
Offices 3 48,740 2002
Huntsville, Manufacturing &
AR
Offices 6 48,000 2019
Joplin, MO Manufacturing &
Offices 5 50,400 Owned
Joplin, MO Manufacturing 4 33,000 2002
Lenexa, KS Offices .5 4,137 2002
St. Louis, MO Offices 8 65,176 Owned
Tulsa, OK Manufacturing &
Offices 3 55,000 2002
Tulsa, OK Manufacturing 1 6,425 2003
ITEM 3. LEGAL PROCEEDINGS
In June 2000, the Company entered into a contract with McDonnell Douglas
Corporation ("MDC"), a wholly-owned subsidiary of The Boeing Company, to supply
aircraft wire harnesses. The Company has alleged that MDC supplied a defective
bid package in its request for proposal. Attempts to negotiate a settlement of
the claim arising from this defective bid package have not been successful, and
the Company anticipates filing an action in circuit court to seek an equitable
adjustment.
Under the contract through June 30, 2002, the Company has delivered 79 sets of
the wire harnesses with a sales value of $1.9 million. Included in the Accounts
Receivable balance at June 30, 2002 is $207,000 representing a portion of the
Company's claim against MDC on these shipments. Included in the Company's work-
in-process balance at June 30, 2002 is $298,000, which will not be recovered at
the current contract price and will be added to the Company's claim, plus lost
profits.
In addition, MDC has exercised options under the contract, for an additional 102
sets of wire harnesses with a sales value of $2.3 million. Based on current
cost estimates, the Company would have an additional claim of $743,000, plus
lost profits, on these units. Sales taken on this contract are being recognized
at zero gross profit.
MDC has options to purchase up to 150 additional sets of wire harnesses per year
through calendar year 2006. Management's estimate, based upon forecasted
information from MDC, is that the potential additional sales are 281 sets
through fiscal year 2006. If these additional orders are placed at the current
contract price, the additional sales would total $6.4 million and the Company
would incur an additional loss of $2.2 million which would be added to the claim
plus lost profit.
The Company has consulted with legal counsel, and believes that it will recover
these contract costs.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no items submitted to a vote of the security holders in the quarter
ended June 30, 2002.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Reference is made to the information contained in the section entitled "Stock
Price and Cash Dividends" on page 19 filed herewith.
The following table contains certain information as of June 30, 2002 with
respect to options granted and outstanding under the Company's three stock
option plans, share available for purchase as of that date under the Company's
employee stock purchase plan, weighted average exercise price of outstanding
options, warrants and rights, and number of securities remaining available for
future issuance under these plans.
Number of Number of
securities to securities
be issued Weighted- remaining
upon exercise average available for
of exercise price future issuance
Plan category outstanding of outstanding under equity
options, options, compensation
warrants and warrants and plans (excluding
rights rights securities
reflected in
column)
Equity
compensation
plans approved 1,532,863 $2.94 570,362
by security
holders
ITEM 6. SELECTED FINANCIAL DATA
Reference is made to the information contained in the section entitled "Selected
Financial Data" on page 18 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 47 through 53 filed herewith.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Foreign Currency Risk
No information has been included hereunder because the Company's foreign sales
in each of fiscal 2002, fiscal 2001 and fiscal 2000 were less than 10% of total
Company revenue. All foreign contracts are paid in U.S. dollars and the Company
is not significantly exposed to foreign currency translation. However, if the
significance of foreign sales grows, management will continue to monitor whether
it would be appropriate to use foreign currency risk management instruments to
mitigate any exposures.
Interest Rate Risk
As of June 30, 2002, the Company had $15.5 million in total debt. $6.5 million
is made up of 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 $9.0 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 fiscal 2001. This agreement, designated as a cash flow
hedge, 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 is $3.5 million and
it expires in June 2003. The additional interest cost to the Company if
interest rates went up 1%, would be $55,000 for one year.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Reference is made to the "Index to Consolidated Financial Statements and
Schedule" contained on page 17 filed herewith.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
This information will be included in the Company's definitive proxy materials to
be filed within 120 days after the end of the Company's fiscal year covered by
this report and is incorporated by reference.
ITEM 11. EXECUTIVE COMPENSATION
This information will be included in the Company's definitive proxy materials to
be filed within 120 days after the end of the Company's fiscal year covered by
this report and is incorporated by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
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 REPORT ON
FORM 8-K
a. Consolidated Financial Statements.
See "Index to Consolidated Financial Statements and Schedule"
contained on page 17.
b. Reports on Form 8-K.
Reports on Form 8-K were filed by the Company with the Securities
and Exchange Commission on October 9, 2001; November 9, 2001;
December 13, 2001 and January 4, 2002.
c. Exhibits.
See "Exhibits" below.
d. Consolidated Financial Statement Schedule.
See "Index to Consolidated Financial Statements and Schedule"
contained on page 17.
EXHIBITS
Exhibit
Number Description
3.1 Restated Certificate of Incorporation, dated October
26, 1995, previously filed as Exhibit 3.1(i) to the
Company's Quarterly Report on Form 10-Q for the
quarter ended October 1, 1995 and incorporated herein
by reference.
3.1(a) Certificate of Amendment to Restated Certificate of
Incorporation, dated November 7, 1997, previously
filed as Exhibit 3.1(a) to the Company's Quarterly
Report on Form 10-Q for the quarter ended December
28, 1997 and incorporated herein by reference.
3.2 By-Laws, as amended, previously filed as Exhibit
3.2(a) to the Company's Quarterly Report on Form 10-Q
for the quarter ended October 1, 1995 and
incorporated herein by reference.
10. First Amendment and Restatement to the LaBarge
Employees Savings Plan executed on May 3, 1990 and
First Amendment to the First Amendment and
Restatement of the LaBarge, Inc. Employees Savings
Plan executed on June 5, 1990, previously filed as
Exhibits (i) and (ii), respectively, to the LaBarge,
Inc. Employees Savings Plan's Annual Report on Form
11-K for the year ended December 31, 1990 and
incorporated herein by reference.
10.1(a) Second Amendment to the First Amendment and
Restatement of the LaBarge, Inc. Employees Savings
Plan executed on November 30, 1993. Previously filed
with the Securities and Exchange Commission July 23,
1996 with the Company's Form S-3 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 with the Company's Form S-3 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 with the Company's Form S-3 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 with the Company's Form S-3 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 with the Company's Form S-
3 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
with the Company's Form S-3 and incorporated herein
by reference.
10.4 Management Retirement Savings Plan of LaBarge, Inc.
Previously filed with the Securities and Exchange
Commission on July 23, 1996 with the Company's Form S-
3 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.
10.7 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.
10.10 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.
10.15 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 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.
10.17 Executive Severance Agreement dated November 8, 1999,
between Donald H. Nonnenkamp and LaBarge, Inc.,
previously filed with Securities and Exchange
Commission with the Company's current report on Form
10-K on September 22, 2000, and incorporated herein
by reference.
10.18 Amended and Restated Loan Agreement by among LaBarge,
Inc. and Bank of America, N.A. Previously filed with
the Securities and Exchange Commission with the
Company's Quarterly Report on Form 10-Q on May 14,
2002 and incorporated here in by reference.
10.19 Loan Agreement by and among U.S. Bank, N.A.,
LaBarge, Inc and LaBarge Properties, Inc.
Previously filed with the Securities and Exchange
Commission with the Company's Quarterly Report on
Form 10-Q on May 14, 2002 and incorporated herein
by reference.
21* Subsidiaries of the Company.
23(a)* Independent Auditors' Consent.
24* Power of Attorney (see signature page).
* Document filed herewith.
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 13, 2002
LaBarge, Inc.
By: /s/Donald H. Nonnenkamp
Donald H. Nonnenkamp
Vice President and Chief Financial Officer
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 re-substitution, 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 dated indicated.
SIGNATURE TITLE DATE
Chairman Emeritus &
Director
Pierre L. LaBarge, Jr.
/s/Craig E. LaBarge President, Chief Executive August 21,
Officer 2002
Craig E. LaBarge and Director
/s/Donald H. Nonnenkamp Vice President, Chief August 21,
Financial Officer 2002
Donald H. Nonnenkamp and Secretary
/s/Robert H. Chapman Director August 21,
2002
Robert H. Chapman
/s/Robert G. Clark Director August 21,
2002
Robert G. Clark
/s/Richard P. Conerly Director August 21,
2002
Richard P. Conerly
/s/John G. Helmkamp, Jr. Director August 21,
2002
John G. Helmkamp, Jr.
/s/Lawrence J. LeGrand Director August 21,
2002
Lawrence J. LeGrand
/s/James P. Shanahan, Director August 23,
Jr. 2002
James P. Shanahan, Jr.
/s/Jack E. Thomas, Jr. Director August 21,
2002
Jack E. Thomas, Jr.
CERTIFCATIONS
I, Craig E. LaBarge, certify that:
1. I have reviewed this annual report on Form 10-K of LaBarge, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a
material fact necessary to make
the statement made, in light of the circumstances
under which such statements
were made, not misleading with respect to the period covered by this annual
report; and
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of
operations and cash flows of the
registrant as of, and for, the periods presented in this annual report.
Date: September 13, 2002
/s/Craig E. LaBarge
Craig E. LaBarge
President and Chief Executive Officer
CERTIFCATIONS
I, Donald H. Nonnenkamp, certify that:
1. I have reviewed this annual report on Form 10-K of LaBarge, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state
a material fact necessary to make
the statement made, in light of the circumstances
under which such statements
were made, not misleading with respect to the period covered by this annual
report; and
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of
operations and cash flows of the
registrant as of, and for, the periods presented in this annual report.
Date: September 13, 2002
/s/Donald H. Nonnenkamp
Donald H. Nonnenkamp
Vice President, Chief Financial Officer
and Secretary
LaBARGE, INC. AND SUBSIDIARIES
INDEXTO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
Consolidated Financial Statements Page
Independent Auditor's Report 20
Consolidated Statements of Operations,
Years Ended June 30, 2002, July 1, 2001
and July 2, 2000 21
Consolidated Balance Sheets,
as of June 30, 2002 and July 1, 2001 22
Consolidated Statement of Cash Flows,
Years Ended June 30, 2002, July 1, 2001
and July 2, 2000 23
Consolidated Statements of Stockholders' Equity
Years Ended June 30, 2002, July 1, 2001
and July 2, 2000 24
Notes to Consolidated Financial Statements 25-46
Management's Discussion and Analysis of
Financial Condition and Results of Operations 47-53
Schedule II - Valuation and Qualifying Accounts 54
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.
LaBarge, Inc.
SELECTED FINANCIAL DATA
(dollars in thousands, except per share data)
Year Ended
June 30, July 1, July 2, June 27, June 28,
2002 2001 2000 1999 1998
- -------------------- ------- ------- ------ ------ ------
Net Sales $120,136 $119,222 $79,614 $78,577 $95,629
Pretax earnings (loss)
from continuing 5,993 6,526 (1,880) (3,909) 7,762
operations
Net earnings (loss) from
continuing operations 3,930 3,828 (1,551) (3,280) 4,898
- -------------------- ------- ------- ------- ------- ------
Discontinued operations:
Income (loss) from
operations, net of taxes - - 293 200 (134)
Gain on disposal, net of - - 2,833 - -
taxes
Net earnings (loss) 3,930 3,828 1,575 (3,080) 4,764
Basic earnings (loss) per
share:
Net income (loss) from
continuing operations $ 0.26 $ 0.26 $ (0.11) $ (0.22) $ 0.32
Net income (loss) from
discontinued operations - - 0.22 0.02 (0.01)
- -------------------- ------- ------- ------- ------- ------
Basic net earnings 0.26 0.26 0.11 (0.20) 0.31
(loss)
- -------------------- ------- ------- ------- ------- ------
Diluted earnings (loss) per
share:
Net income (loss) from
continuing operations 0.26 0.26 (0.11) (0.22) 0.31
Net income (loss) from
discontinued operations - - 0.22 0.02 (0.01)
- -------------------- ------- ------- ------- ------- ------
Diluted net earnings $ 0.26 $ 0.26 $ 0.11 $ (0.20) $ 0.30
(loss)
- -------------------- ------- ------- ------- ------- ------
Total assets $ 68,206 $ 67,538 $ 68,733 $59,654 $58,992
Long-term debt $ 7,047 $ 13,121 $ 15,025 $20,290 $10,163
==================== ====== ======= ====== ====== ======
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, in fiscal
year 2000, 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.
Stock Price and Cash Dividends: LaBarge, Inc.'s Common Stock is listed on the
American Stock Exchange, under the trading symbol of LB. As of August 19, 2002,
there were approximately 3,075 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 2002 and 2001, as reported by the American
Stock Exchange.
2001 - 2002 High Low
July - September 3.29 2.77
October - December 4.43 2.87
January - March 5.00 3.39
April - June 5.60 3.85
2000 - 2001 High Low
July - September 2.44 1.50
October - December 2.25 1.06
January - March 3.44 2.06
April - June 2.69 1.88
The Company has paid no cash dividends on its common stock.
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 auditing standards generally
accepted in the United States of America. Those standards require that
we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the consolidated financial statements referred to above,
present fairly, in all material respects, the financial position of
LaBarge, Inc. and subsidiaries as of June 30, 2002 and July 1, 2001, and
the results of their operations and their cash flows for each of the
years in the three-year period ended June 30, 2002, in conformity with
accounting principles generally accepted in the United States of America.
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.
As discussed in Note 7 to the consolidated financial statements, in
fiscal year 2002, the Company adopted Statement of Financial Accounting
Standards No. 142, "Goodwill and Other Intangible Assets".
/s/KPMG LLP
St. Louis, Missouri
August 21, 2002
LaBarge, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands, except per-share data)
Year Ended
- -------------------- ------- ------- -------
June 30, July 1, July 2,
2002 2001 2000
- -------------------- ------- ------- -------
Net sales $120,136 $119,222 $ 79,614
Costs and expenses:
Cost of sales 96,656 94,386 61,666
Selling and administrative 16,964 17,142 16,196
expense
Gain due to recovery of
impaired assets - - (2,300)
Loss from NotiCom - - 4,172
Interest expense 1,144 1,884 2,092
Other income, net (621) (716) (332)
- -------------------- ------- ----------- -------
Earnings (loss) from continuing
operations before income taxes 5,993 6,526 (1,880)
Income tax expense (benefit) 2,063 2,698 (329)
- -------------------- ------- ----------- -------
Net earnings (loss) from
continuing operations 3,930 3,828 (1,551)
- -------------------- ------- ----------- -------
Discontinued operations:
Income from operation (less
applicable income taxes of $172) - - 293
Gain on disposal (less applicable
income taxes of $406) - - 2,833
- -------------------- ------- ----------- -------
Net earnings $ 3,930 $ 3,828 $ 1,575
======================= ======== ======= ======
Basic earnings (loss) per share:
Net income (loss) from continuing
operations $ 0.26 $ 0.26 $ (0.11)
Net income from discontinued - - 0.22
operations
- -------------------- ------- ----------- -------
Basic net earnings (loss) $ 0.26 $ 0.26 $ 0.11
- -------------------- ------- ----------- -------
Average common shares outstanding 14,975 14,914 14,783
======================= ======== ======= ======
Diluted net earnings per share:
Net income (loss) from continuing
operations $ 0.26 $ 0.26 $ (0.11)
Net income from discontinued - - $ 0.22
operations
- -------------------- ------- ----------- -------
Diluted net earnings $ 0.26 $ 0.26 $ 0.11
Average diluted common shares
outstanding 15,404 14,914 14,783
======================= ======== ======= ======
See accompanying notes to consolidated financial statements.
LaBarge, Inc.
CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except per-share data)
June 30, July 1,
2002 2001
- -------------------- ------- -------
ASSETS
Current assets:
Cash and cash equivalents $ 2,532 $ 666
Accounts and other receivables, net 17,024 16,946
Inventories 22,499 23,212
Prepaid expenses 566 727
Deferred tax assets, net 627 1,087
Total current assets $43,248 $42,638
Property, plant and equipment, net 13,956 13,113
Deferred tax assets, net 937 1,908
Intangible assets, net 5,076 4,693
Other assets, net 4,989 5,186
- -------------------- ------- ----------
$68,206 $67,538
============================= ======== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings $2,583 $ 2,500
Current maturities of subordinated debt 5,621 -
Current maturities of long-term debt 278 1,779
Trade accounts payable 6,521 9,605
Accrued employee compensation 5,488 5,965
Other accrued liabilities 3,520 3,899
- -------------------- ------- ----------
Total current liabilities $24,011 $23,748
- -------------------- ------- ----------
Other long-term liabilities 3,464 953
Long-term debt 7,047 7,500
Subordinated debt - 5,621
- -------------------- ------- ----------
Stockholders' equity:
Common stock, $.01 par value. Authorized
40,000,000 shares; issued 15,773,253 shares at
June 30, 2002 and 15,773,253 at 158 158
July 1, 2001, including shares in treasury
Additional paid-in capital 13,515 13,569
Retained earnings 22,736 18,806
Accumulated other comprehensive loss (131) (97)
Less cost of common stock in treasury, shares
of 779,143 at (2,594) (2,720)
June 30, 2002 and 812,176 shares at July 1,
2001
- -------------------- ------- ----------
Total stockholders' equity 33,684 29,716
- -------------------- ------- ----------
$68,206 $67,538
======================== ======== ========
See accompanying notes to consolidated financial statements.
LaBarge, Inc.
CONSOLIDATED CASH FLOWS
(dollars in thousands, except per-share data)
Year Ended
June 30, July 1, July 2,
2002 2001 2000
- -------------------- ------- ------- -------
Cash flows from operating activities:
Net earnings $3,930 $3,828 $1,575
Adjustments to reconcile net cash
provided by
operating activities:
Depreciation and amortization 2,195 2,828 2,846
Deferred taxes 1,430 737 (1,249)
Gain due to impairment of assets - - (100)
Gain on disposal of discontinued - - (2,833)
operations
Net earnings from discontinued - - (293)
operations
Loss from NotiCom and amortization of - - 4,172
technology
Other 25 1 (38)
Changes in assets and liabilities,
net of acquisitions: (78) 868 (7,866)
Accounts and notes receivable, net
Inventories 713 (979) (7,152)
Prepaid expenses 162 136 (136)
Trade accounts payable (3,084) 1,376 4,115
Accrued liabilities and other 1,620 2,550 1,535
- -------------------- ------- ------- -------
Net cash provided (used) by operating 6,913 11,345 (5,424)
activities
- -------------------- ------- ------- -------
Net cash provided by discontinued - - 402
operations
- -------------------- ------- ------- -------
Net cash provided (used) by operating 6,913 11,345 (5,022)
activities
- -------------------- ------- ------- -------
Cash flows from investing activities:
Additions to property, plant and equipment (2,870) (2,192) (1,428)
Additions to other assets (378) (271) (307)
Investments in other companies - - (1,392)
Cash used by investing activities- - - (68)
discontinued operations
Proceeds from disposal of discontinued - - 4,284
operations
- -------------------- ------- ------- -------
Net cash used (provided) by investing (3,248) (2,463) 1,089
activities
- -------------------- ------- ------- -------
Cash flows from financing activities:
Borrowings of long-term senior debt 6,400 - 1,318
Repayments of long-term senior debt (8,354) (1,932) (6,530)
Issuance of stock to employees 303 212 387
Purchase of treasury stock (231) - (270)
Net change in short-term borrowings, net 83 (7,230) 9,600
of acquisitions
Net change in short-term debt of - - (300)
discontinued operations
- -------------------- ------- ------- -------
Net cash used by financing activities (1,799) (8,950) 4,205
Net increase in cash and cash equivalents 1,866 (68) 272
Cash and cash equivalents at beginning of 666 734 462
year
- -------------------- ------- ------- -------
Cash and cash equivalents at end of period $2,532 $666 $734
============================ ======== ======= ========
See accompanying notes to consolidated financial statements.
LaBarge, Inc.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(dollars in thousands, except share data)
Additional
Common Stock Paid-in
Shares Par Value Capital
-------------------------- -------- --------- -----------
Balance at June 27, 1999 15,711,395 $157 $13,615
Net earnings - - -
Issued for the Employee
Stock Purchase Plan 61,858 1 107
Exercise of stock options - - -
Purchase of common stock
to treasury - - -
- --------------------------- -------- --------- -----------
Balance at July 2, 2000 15,773,253 $158 $13,722
Comprehensive income:
Net earnings - - -
Change in fair value of
interest rate hedge - - -
Issued for the Employee -
Stock Purchase Plan - - (153)
Purchase of common stock
to treasury - - -
Balance at July 1, 2001 15,773,253 $158 $13,569
- --------------------------- -------- --------- -----------
Comprehensive income:
Net earnings - - -
Change in fair value of
interest rate hedge - - -
Issued for the Employee
Stock Purchase Plan - - (47)
Purchase of common stock
to treasury - - -
Exercise of stock options - - (7)
- --------------------------- -------- --------- -----------
Balance at June 30, 2002 15,773,253 $158 $13,515
=========================== ========= ========= ===========
Accumulated
Retained Other Treasury Stock
Earnings Comprehensive Shares Cost
Loss
------------------------- -------- --------- -------- --------
Balance at June 27, 1999 $13,403 - (955,853) $(3,095)
Net earnings 1,575 - - -
Issued for the Employee
Stock Purchase Plan - - 70,082 135
Exercise of stock options - - 70,000 145
Purchase of common stock
to treasury - - (105,428) (270)
------------------------- -------- --------- -------- --------
Balance at July 2, 2000 $14,978 - (921,199) $(3,085)
Comprehensive income:
Net earnings 3,828 - - -
Change in fair value of
interest rate hedge - (97) - -
Issued for the Employee
Stock Purchase Plan - - 109,027 365
Purchase of common stock
to treasury - - (4) -
Balance at July 1, 2001 $18,806 (97) (812,176) $(2,720)
------------------------- -------- --------- -------- --------
Comprehensive income:
Net earnings 3,930 - - -
Change in fair value of
interest rate hedge - (34) - -
Issued for the Employee
Stock Purchase Plan - - 87,163 290
Purchase of common stock
to treasury - - (74,130) (231)
Exercise of stock options - - 20,000 67
------------------------- -------- --------- -------- --------
Balance at June 30, 2002 $22,736 $(131) (779,143) $(2,594)
======================= ======= ======= ======== ========
For the fiscal years ended June 30, 2002, July 1, 2001 and July 2, 2000, total
comprehensive income was $3.9 million, $3.7 million and $1.6 million,
respectively.
See accompanying notes to consolidated financial statements.
LaBarge, Inc.
NOTES TO CONCOLIDATED FINANCIAL STATEMENTS
June 30, 2002, July 1, 2001 and July 2, 2000
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 2002, 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 the defense, government systems,
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 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. This group's first major market focus was the railroad
industry, where the group's proprietary ScadaNET Network(TradeMark) product line
is used 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 and test points along
pipelines. In fiscal 2002, the Company derived approximately 2% of its total
revenue from this business activity.
See Note 2, "Acquisitions, Discontinued Operations and Investments."
Critical Accounting Policies
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions in certain circumstances that affect amounts reported
in the accompanying consolidated financial statements. In preparing these
financial statements, management has made their best estimates and judgment of
certain amounts included in the financial statements. The Company believes
there is a likelihood that materially different amounts would be reported under
different conditions or using different assumptions related to the accounting
policies described below. Application of these accounting policies involves the
exercise of judgment and use of assumptions as to future uncertainties and, as a
result, actual results could differ from these estimates. The Company's senior
management discusses the accounting policies described below with the audit
committee of the Company's board of directors on an annual basis.
The following discussion of critical accounting policies is intended to bring to
the attention of readers those accounting policies that we believe are critical
to our consolidated financial statements and other financial disclosures.
Revenue Recognition and Cost of Sales
Revenue on production contracts is recorded when specific contract terms are
fulfilled, usually upon delivery. Under long-term contracts for which delivery
is an inappropriate measure of performance, revenue is recognized on the
percentage-of-completion method based upon incurred costs compared to total
estimated costs under the contract. The percentage-of-completion method gives
effect to the most recent contract value and estimates of cost 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 cost estimate indicates a loss, provision is made for the total
anticipated loss.
Certain sales in the Company's Network Technologies Group segment include
prepayment of multi-year communication services. These revenues are deferred
and recognized over the period of the service agreement.
The SEC's Staff Accounting Bulletin (SAB) No. 101, "Revenue Recognition,"
provides guidance on the application of generally accepted accounting principles
to selected revenue recognition issues. The Company's revenue recognition
policy is in accordance with generally accepted accounting principles and SAB
No. 101.
Accounts Receivable
Accounts receivables have been reduced by an allowance for amounts that may
become uncollectable in the future. This estimated allowance is based primarily
on management's evaluation of the financial condition of the Company's
customers.
Inventory
Inventories are valued at the lower of cost or market and have been reduced by a
reserve for excess and obsolete inventories. The Company adjusts the value of
its reserve based upon assumptions for future usage and market conditions.
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 bases. The
Company has considered future taxable income analyses and feasible tax planning
strategies in assessing the need for the valuation allowance. Should the Company
determine that it would not be able to recognize all or part of its net deferred
tax assets in the future, an adjustment to the
carrying value of the deferred tax
assets would be charged to income in the period in which such determination is
made.
Goodwill and Other Long-Lived Assets
The Company has adopted the provisions of SFAS No. 142 on July 2, 2001, and has
reassessed the useful lives and residual values of all recorded intangible
assets. Goodwill is reviewed by management for impairment annually or whenever
events or changes in circumstance indicate the carrying amount may not be
recoverable. If indicators of impairment are present, the determination of the
amount of impairment is based on the Company's judgment as to the discontinued
future operating cash flows to be generated from these assets throughout their
estimated useful lives.
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 is based upon market quotes
from counter parties. In accordance with FASB Statement No. 133, "Accounting
for Derivative Instruments and Hedging Activities," as amended by FASB Statement
No. 138, the change in fair value was recorded to other comprehensive loss.
The Company has examined amounts outstanding under the revolving credit
agreement, the term loan, the Industrial Revenue Bonds and the Subordinated
Convertible Notes and determined that carrying amounts recorded on the financial
statement are consistent with the estimated fair value as of June 30, 2002.
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 in consolidation. 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 2002 consisted of 52 weeks, as did fiscal 2001. Fiscal year 2000 consisted
of 53 weeks.
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 are carried at cost and include additions and
improvement which extend the remaining useful life of the assets. Depreciation
is computed on the straight-line method.
Cash Equivalents
The Company considers cash equivalents to be temporary investments which are
readily convertible to cash, such as certificates of deposit, commercial paper
and treasury bills with original maturities of less than three months.
Employee Benefit Plans
The Company has a contributory savings plan covering certain employees. The
Company's policy is to expense the 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.
The Company also offers an employee stock purchase plan that allows any eligible
employee to purchase common stock at the end of each quarter at 15% below the
market price as of the first or last day of the quarter, whichever is lower.
Goodwill and Other Intangible 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. The Company accounts for goodwill and other
intangible assets as required by the Financial Accounting Standards Board
("FASB") Statement No. 141, "Business Combinations," and Statement No. 142,
"Goodwill and Other Intangible Assets."
Stock-Based Compensation
The Company accounts for stock-based compensation using the intrinsic value
method prescribed by the 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.
Use of Estimates
The preparation of consolidated financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, the disclosure of contingent assets and
liabilities at the date of the consolidated financial statements, and the
reported amounts of revenues and expenses during the reporting periods. Actual
results could differ from these estimates.
New Accounting Standards
In June 2001, the Financial Accounting Standards Board issued SFAS No. 143,
"Accounting for Asset Retirement Obligations." This standard applies to legal
obligations associated with the retirement of tangible long-lived assets.
Management does not believe adoption of
this standard will have a material impact
on the Company's financial statements.
In August 2001, the Financial Accounting Standards Board issued SFAS No. 144,
"Accounting for the Impairment or Disposal
of Long-Lived Assets," which addresses
the impairment or disposal of long-lived assets
and the reporting of discontinued
operations. Management does not believe adoption of this standard will have a
material impact on the Company's financial statements.
In June 2002, the Financial Accounting Standards Board issued SFAS No. 146,
"Accounting for Costs Associated with Exit or Disposal Activities." This
statement requires that a liability for a cost associated with an exit or
disposal activity be recognized and measured initially at fair value only when
the liability is incurred. The provisions of this Statement are effective for
exit or disposal activities that are initiated after December 31, 2002.
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% 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 (as defined in
the purchase agreement) exceeds the 7.5% interest paid on the Notes for the
fiscal year. Since the date of the OCS acquisition, the Company has not been
required to make participation payments.
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.
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
shares, $1.3 million, was included in other current liabilities at June 27,
1999. 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% Subordinated Convertible Notes.
The Company initially recorded goodwill of $6.8 million in this transaction.
During fiscal 2000, the Company determined it is more likely than not that 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. Remaining goodwill, which is no longer being amortized, is $4.1
million.
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 the later part of fiscal 2000, it was determined that significant
additional investment would be required to continue development of the NotiCom
product. During the fourth quarter of fiscal 2000, the Company determined it
would not provide such additional funding for NotiCom. 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. In fiscal 2001,
NotiCom ceased all operations.
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%.
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.
In fiscal year 2001, Evolution Holdings ceased operations; consequently,
additional amounts owed by Evolution Holdings to the Company, including the
convertible note, were written off in the period to other income, net.
Investments
In December 1999, the Company received $2.2 million cash, plus stock and options
of Norwood Abbey, Ltd. in settlement of certain claims against, and in exchange
for its interest in Transmedica International, Inc. (a previous investment of
the Company). The Company is carrying the stock and options at a value of
$100,000.
3. GROSS AND NET SALES
Gross and net sales consist of the following:
(dollars in thousands)
Year Ended
June 30, July 1, July 2,
2002 2001 2000
----------------------- -------- ------- -------
Gross sales $123,869 $121,340 $81,754
Less sales discounts 3,733 2,118 2,140
Net sales $120,136 $119,222 $79,614
========================= ======= ======= =======
The Company accepts sales discounts from a number of customers in the normal
course of business.
4. ACCOUNTS AND OTHER RECEIVABLES
Accounts and other receivables consist of the following:
(dollars in thousands)
June 30, July 1,
2002 2001
--------------------------------- ------- ------
Billed shipments, net of progress $15,719 $16,703
payments
Less allowance for doubtful accounts 145 289
Trade receivables, net 15,574 16,414
Other current receivables 1,450 532
$17,024 $16,946
============================== ======= =======
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.
At June 30, 2002 and July 1, 2001, other current receivables include $318,000
and $346,000 of customer payments to be received as a settlement under a prior
claim for material. Also at June 30, 2002, $964,000 was included in other
current receivable for Federal and State overpayment of taxes. See Note 17,
"Litigation and Contingencies."
For the fiscal years ended June 30, 2002, July 1, 2001 and July 2, 2000, expense
for doubtful accounts charged to income before income taxes was $(48,000),
$324,000 and $335,000. The Company had significant improvement in the aging of
accounts receivable during fiscal 2002, which directly impacted the expense for
doubtful accounts as compared with prior years.
5. INVENTORIES
Inventories consist of the following:
(dollars in thousands)
June 30, July 1,
2002 2001
--------------------------------- ------- ------
Raw materials $13,992 $11,554
Work in progress 9,936 13,028
Less reserve for obsolescence 318 755
23,610 23,827
Less progress payments 1,111 615
---------------------------- ------- ------
$22,499 $23,212
============================ ======= =======
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.
For the fiscal years ended June 30, 2002, July 1, 2001 and July 2, 2000, expense
for inventory reserves charged to income before income taxes was $185,000 and
$1.1 million and $593,000, respectively. Reduction in fiscal 2002 is the result
of reduced levels of aged inventory as compared with prior years.
6. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is summarized as follows:
(dollars in thousands)
Estimated
June 30, July 1, useful
life
2002 2001 in years
--------------------- ------ ------ --------
Land $ 2,458 $ 2,458 -
Building and improvements 8,331 8,099 5-33
Leasehold improvements 2,716 2,282 2-10
Machinery and equipment 12,200 10,792 5-20
Furniture and fixtures 1,957 1,714 5-20
Computer equipment 2,598 2,335 3
Construction in progress 117 241 -
--------------------- ------ ------ --------
30,377 27,921
Less accumulated depreciation 16,421 14,808
--------------------- ------ ------
$13,956 $13,113
====================== ======= =======
Depreciation expense was $2.0 million, $1.8 million
and $1.7 million for the fiscal
years ended June 30, 2002, July 1, 2001 and July 2, 2000, respectively.
7. INTANGIBLE ASSETS, NET
Intangible assets, net, is summarized as follows:
(dollars in thousands)
June 30, July 1,
2002 2001
--------------------- --------- --------
Goodwill $6,694 $6,694
Less amortization 2,378 2,378
--------------------- --------- --------
Net Goodwill 4,316 4,316
Software 2,136 1,598
Less amortization 1,494 1,312
--------------------- --------- --------
Net Software 642 286
Other, net 118 91
--------------------- --------- --------
Total intangible assets, $5,076 $4,693
net
===================== ========= ========
Total goodwill for the Manufacturing Services Group was $402,825 and $402,825
for the fiscal years June 30, 2002 and July 1, 2001, respectively. The total
goodwill for the Network Technologies Group was $6.3 million and $6.3 million
for the fiscal years June 30, 2002 and July 1, 2001, respectively.
Amortization expense was $192,000, $1.1 million and $1.2 million for the fiscal
years ended June 30, 2002, July 1, 2001 and July 2, 2000, respectively.
In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement
No. 142, "Goodwill and Other Intangible Assets." Statement 142 requires that
goodwill and intangible assets with indefinite useful lives no longer be
amortized, but instead be tested for impairment at least annually in accordance
with the provisions of Statement 142. Statement 142 also requires that
intangible assets with definite useful lives be amortized over their respective
estimated useful lives to their estimated residual values, and reviewed for
impairment in accordance with SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of."
The Company adopted the provisions of Statement 142 in the first quarter ended
September 30, 2001. Goodwill amortization expense was $0 for the year ended
June 30, 2002 and $927,000 for the year ended July 1, 2001 and $1.1 million for
the year ended July 2, 2000.
Basic and diluted earnings (loss) per share are computed as follows and include
adjustment to prior periods required by the adoption of SFAS 142:
June 30, July 1, July 2,
2002 2001 2000
------------------------------ ------ ------ ------
Net earnings $3,930 $3,828 $1,575
Add back: Goodwill amortization expense - 927 1,100
------------------------------ ------ ------ ------
Adjusted net earnings $3,930 $4,755 $2,675
============================== ======== ====== =======
Basic net earnings per share:
Net earnings $ 0.26 $ 0.26 $ 0.11
Goodwill amortization - 0.06 0.07
------------------------------ ------ ------ ------
Adjusted basic net earnings per share $ 0.26 $ 0.32 $ 0.18
============================== ======== ====== =======
Diluted earnings per share:
Net earnings $ 0.26 $ 0.26 $ 0.11
Goodwill amortization - 0.06 0.07
------------------------------ ------ ------ ------
Adjusted diluted net earnings per share $ 0.26 $ 0.32 $ 0.18
============================== ======== ====== =======
8. OTHER ASSETS
Other assets is summarized as follows:
(dollars in thousands)
June 30, July 1,
2002 2001
-------------------------- -------- --------
Cash value of life insurance $4,039 $4,220
Deposits, licenses and other, net 814 830
Investments in businesses 136 136
-------------------------- -------- --------
$4,989 $5,186
========================== ======== ========
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.
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)
June 30, July 1,
2002 2001
-------------------------------- ---------- ---------
Short-term borrowings:
Revolving credit agreement:
Balance at year-end $2,583 $2,500
Interest rate at year-end 2.90% 4.78%
Average amount of short-term borrowings
outstanding during period $2,548 $7,275
Average interest rate for period 3.96% 8.30%
Maximum short-term borrowings at any month- $6,320 $13,302
end
============================= ====== ======
Senior long-term debt:
Senior lender:
Term loan $6,400 $2,336
Mortgage loan - 5,895
Other 925 1,048
-------------------------------- ---------- ---------
Total senior long-term debt 7,325 9,279
Less current maturities 278 1,779
Long-term debt, less current maturities $7,047 $7,500
============================= ====== ======
Subordinated debt $5,621 $5,621
============================= ====== ======
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 2002, 2001 and 2000 were $1.2
million, $2.0 million and $2.1 million, respectively.
Senior Lender:
On February 1, 2002, the Company renewed its revolving credit agreement through
May 2003. The credit agreement was reduced to $15.0 million from $18.0 million
with substantially the same terms and conditions.
Also on this date, the balance
of the senior secured term loan, $1.6 million, was repaid in full.
On March 12, 2002, the Company entered into a new credit facility with another
bank, replacing the credit facility renewed on February 1, 2002, and refinancing
the mortgage loan of $6.2 million used to finance the 1998 purchase of the
Company's headquarters building in St. Louis, Missouri.
The following is a summary of the new credit facility:
* A revolving credit facility up to $15.0 million, secured by substantially
all the assets of the Company other than real
estate, based on a borrowing base
formula equal to the sum of 80% of eligible receivables, and 40% of eligible
inventories, less outstanding letters of credit. As of June 30, 2002, the
maximum allowable was $12.1 million net of
letters of credit outstanding of $2.9
million. The revolver borrowing at fiscal year end was $2.6 million. . Unused
revolving credit available at June 30, 2002 was $9.5 million. This credit
facility matures on September 30, 2004.
* A $6.4 million term loan secured by the Company's headquarters building in
St. Louis, Missouri. The loan payment schedule is based on a 25-year
amortization and begins in December 2002 with a final balloon payment due in
October 2009. The balance at June 30, 2002 is $6.4 million.
* Interest on the loans is at a percentage of prime or a stated rate over
LIBOR based on certain ratios. For the period, the average rate was
approximately 3.96%.
* Covenants and performance criteria consist of Earnings Before Interest,
Taxes, Depreciation and Amortization ("EBITDA") in relation to debt, EBITDA in
relation to interest, minimum levels of EBITDA and tangible net worth. The
Company is in compliance with its borrowing agreement covenants as of June 30,
2002.
Subordinated Convertible Notes:
In March 1999, the Company, through its subsidiary LaBarge-OCS, Inc.,
issued its Subordinated Convertible Notes ("Notes") due June 2003 in
the aggregate principal amount of $5.6 million for the acquisition of
OCS. The Notes bear interest at 7.5% per annum payable quarterly, and
noteholders are entitled to participation payments if LaBarge-OCS,
Inc., operating as The Network Technologies Group, achieves certain
levels of net earnings. No participation payments were earned in
fiscal 2002. The Notes are convertible by the holders into LaBarge,
Inc. Common Stock at $8.00 per share at any time up to their maturity
date.
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 30,
2002 was $925,000.
Other Long-Term Liabilities:
Other long-term liabilities include deferred revenues associated with the
proprietary ScadaNET Network(TradeMark) (representing prepaid
communication services) in the amount of $1.4 million and customer
advances in the amount of $2.1 million.
To mitigate the exposure to changes in interest rates, the Company
entered into an interest rate swap agreement. This agreement, designated
as a cash flow hedge, 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 is $3.5 million and it expires in June 2003. In accordance
with SFAS 133, as amended by SFAS 138, the change in fair value of the
swap during fiscal 2002, amounting to approximately $34,000, was recorded
to other comprehensive loss.
The aggregate maturities of long-term obligations are as follows:
(dollars in thousands)
Fiscal Year
2003 $5,899
2004 391
2005 399
2006 406
2007 414
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 2019.
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)
Year Ended
June 30, July 1, July 2,
2002 2001 2000
-------------------- ------- ------ -------
-------
Initial term of more $1,851 $1,061 $1,207
than one year
Short-term rentals 250 758 201
-------------------- ------- ------ -------
-------
$2,101 $1,819 $1,408
==================== ====== ====== ======
=======
At June 30, 2002, the future minimum lease payments under operating leases with
initial noncancellable terms in excess of one year are as follows:
(dollars in thousands)
Fiscal Year
2003 $1,474
2004 942
2005 506
2006 316
2007 319
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 2002, 2001 and 2000, Company matching
contributions were $385,000, $346,000 and $264,000, 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 2002,
2001 and 2000.
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 an interest rate of between prime and prime plus 2%. To
support the deferred compensation plan, the Company has elected to purchase
Company-owned life insurance. The costs associated with the plan have been
decreased the last three years due to growth in cash value life insurance
policies the Company purchased. The increase in the cash value of the life
insurance policies exceeded the premiums paid by $92,000, $123,000 and $221,000
in fiscal years 2002, 2001 and 2000, 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 $1.3 million
at June 30, 2002 compared with $1.7 million at July 1, 2001. The liability for
the deferred compensation and interest thereon is in accrued employee
compensation and was $2.1 million at June 30, 2002
versus $1.9 million at July 1,
2001.
The Company has 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 2002,
87,163 shares were purchased by employees in the amount of $243,836, which cost
the Company approximately $40,000. In fiscal 2001,
109,027 shares were purchased
in the amount of $215,686, which cost the Company approximately $36,000.
12. OTHER INCOME, NET
The components of other income, net, are as follows:
(dollars in thousands)
Year Ended
June 30, July 1, July 2,
2002 2001 2000
------------------- ------- --------- --------
Interest income $ 48 $175 $ 43
Property rental 1,008 900 871
income
Property rental (404) (649) (549)
expense
Other, net (31) 290 (33)
------------------- ------- --------- --------
$ 621 $716 $332
=================== ======== ========= ========
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.
In fiscal 2002, Other, net includes revenue
recognized in connection with the sale
of certain technology totaling $70,000. In fiscal 2001, Other, net includes
revenue recognized in connection with the sale of certain technology totaling
$513,000 net of related expenses, and expenses
incurred associated with the sale of
LaBarge Clayco Wireless in June 2000, totaling $262,000.
At June 30, 2002, the future minimum rental income under leases with tenants in
excess of one year is as follows:
(dollars in thousands)
Fiscal Year
2003 $876
2004 874
2005 865
2006 520
2007 359
13. INCOME TAXES
Total income tax expense (benefit) was allocated as follows:
(dollars in thousands)
Current Deferred Total
---------------- ------------ ----------- ----------
Year ended June 30,
2002:
Total:
U.S. Federal $ 421 $1,256 $1,677
State and Local 212 174 386
---------------- ------------ ----------- ----------
$ 633 $1,430 $2,063
================ ======== ========= ========
Year ended July 1, 2001:
Total:
U.S. Federal $1,657 $ 698 $2,355
State and Local 304 39 343
---------------- ------------ ----------- ----------
$1,961 $ 737 $ 2,698
================ ======== ========= ========
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
================ ======== ========= ========
Income tax expense (benefit) 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)
June 30, July 1, July 2,
2002 2001 2000
-------------------------------- ------ ------ ------
Computed "expected" tax expense $2,038 $2,219 $(639)
(benefit)
Increase (reduction) in income taxes
resulting from:
Federal tax credits (254) - -
State and local tax 255 226 (69)
Goodwill - 294 333
Other 24 (41) 46
-------------------------------- ------ ------ ------
$2,063 $2,698 $(329)
==================================== ====== ====== =====
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)
June 30, July 1,
2002 2001
---------------------------------- ---------- ------------
Deferred tax assets:
Inventories due to additional costs
inventoried
for tax purposes pursuant to the Tax
Reform
Act of 1986 and inventory reserves $ 305 $ 559
Deferred compensation 782 686
Investment in joint venture - 457
Intangibles 13 528
Other 287 527
Deferred revenue 518 317
Net operating loss carryforwards 83 154
---------------------------------- ---------- ------------
Total gross deferred tax assets $ 1,988 $ 3,228
Deferred tax liabilities:
Property, plant and equipment, principally
due to differences in depreciation (424) (234)
---------------------------------- ---------- ------------
Total gross deferred tax liabilities (424) (234)
---------------------------------- ---------- ------------
Net deferred tax assets $ 1,564 $ 2,994
================================== =========== ========
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.
Total cash payments (receipts) for federal and state income taxes in all years
presented were $1.8 million for fiscal 2002, $2.3 million for fiscal 2001 and
$(863,000) for fiscal 2000.
14. EARNINGS PER COMMON SHARE
Basic and diluted earnings (loss) per share are computed as follows:
June 30, July 1, July 2,
2002 2001 2000
---------------------------------- ------- ------- --------
Numerator:
Net earnings (loss) from continuing $ 3,930 $ 3,828 $(1,551)
operations
Discontinued operations - - 3,126
Net earnings 3,930 3,828 1,575
---------------------------------- ------- ------- --------
Denominator:
Denominator for basic net earnings
(loss) per share 14,975 14,914 14,783
---------------------------------- ------- ------- --------
Potential common shares:
Denominator for diluted net earnings
(loss)
per share - adjusted
weighted-average
shares and assumed conversions 15,404 14,914 14,783
---------------------------------- ------- ------- --------
Basic net earnings (loss) per share:
Net earnings (loss) from continuing $ 0.26 $ 0.26 $ (0.11)
operations
Earnings from discontinued - - 0.22
operations
---------------------------------- ------- ------- --------
Basic net earnings $ 0.26 $ 0.26 $ 0.11
================================== ======= ====== =======
Diluted earnings (loss) per share:
Net earnings (loss) from continuing $ 0.26 $ 0.26 $ (0.11)
operations
Earnings from discontinued - - 0.22
operations
---------------------------------- ------- ------- --------
Diluted net earnings per share $ 0.26 $ 0.26 $ 0.11
================================== ======= ====== =======
15. BUSINESS SEGMENT INFORMATION
Business Segments:
(dollars in thousands)
Net Sales to Customers:
Year Ended
June 30, July 1, July 2,
2002 2001 2000
----------- --------- -----------
Manufacturing Services Group $117,190 $116,655 $78,271
Network Technologies Group 2,946 2,567 1,343
$120,136 $119,222 $79,614
================================= ==================== ==========
Earnings (Loss):
Year Ended
June 30, July 1, July 2,
2002 2001 2000
--------- --------- -------
Pretax earnings (loss) from continuing
operations:
Manufacturing Services Group $ 8,043 $ 10,234 $ 5,432
Gain due to recovery of impaired - - 2,300
assets
---------------------------------- -------- -------- --------
Total Manufacturing Services Group $ 8,043 $ 10,234 $ 7,732
Network Technologies Group $ (1,017) $ (1,858) $ (1,966)
NotiCom - - (4,172)
Corporate and other items 111 34 (1,382)
Interest expense (1,144) (1,884) (2,092)
---------------------------------- -------- -------- --------
Net earnings (loss) from
continuing operations before income $ 5,993 $ 6,526 $ (1,880)
taxes
Income tax expense (benefit) 2,063 2,698 (329)
Net earnings (loss) from
continuing operations 3,930 3,828 (1,551)
---------------------------------- -------- -------- --------
Discontinued operations:
Income from operations, net of $ - $ - $ 293
taxes
Gain on disposal, net of taxes - - 2,833
---------------------------------- -------- -------- --------
$ 3,930 $ 3,828 $ 1,575
=================================== ======= ======== ========
Depreciation & Amortization
Expense
Year Ended
June 30, July 1, July 2,
2002 2001 2000
------------------------ -------- -------- --------
Manufacturing Services $1,653 $1,478 $1,378
Group
Network Technologies Group 26 920 1,011
Investment in NotiCom - - 1,449
Corporate and other items 516 430 457
------------------------ -------- -------- --------
$2,195 $2,828 $4,295
======================== ======== ======== ========
Investments &
Capital Expenditures
Year Ended
June 30, July 1, July 2,
2002 2001 2000
------------------------ -------- -------- --------
Manufacturing Services $2,627 $2,026 $1,048
Group
Network Technologies Group 320 177 139
Investment in NotiCom - - 1,392
Corporate and other items 301 260 548
------------------------ -------- -------- --------
$3,248 $2,463 $3,127
======================== ======== ======== ========
Total Assets
Year Ended
June 30, July 1,
2002 2001
------------------------------ -------------- ----------------
Manufacturing Services Group $45,860 $46,150
Network Technologies Group 5,332 5,459
Corporate and other items 17,014 15,929
------------------------------ -------------- ----------------
$68,206 $67,538
============================ ======== ========
Geographic Information
The Company has no sales offices or facilities outside of the United States.
Sales for exports did not exceed 10% of total sales in any fiscal year.
Customers accounting for more than 10% of net sales for the years ended June 30,
2002, July 1, 2001 and July 2, 2000:
Customer 2002 2001 2000
1 19% 27% 18%
2 17 17 13
3 14 10 12
For the year ended June 30, 2002, the Company's three largest customers were
Northrop Grumman, Schlumberger and Lockheed Martin.
16. 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 2002, 2001 and 2000
follows:
Weighted- Number of
Number of Average Shares
Shares Exercise Exercisable
Price
--------------------------- -------- ------- -------
Outstanding at June 27, 1999 430,288 $4.22 231,775
Canceled (130,015) 3.97 -
Granted 689,355 2.50 -
Exercised (70,000) 1.35 -
--------------------------- -------- ------- -------
Outstanding at July 2, 2000 919,628 $3.16 160,788
Canceled (74,515) 4.77 -
Granted 388,475 2.62 -
Exercised - -
--------------------------- -------- ------- -------
Outstanding at July 1, 2001 1,233,588 $2.96 308,651
Canceled (16,775) 7.24 -
Granted 336,050 3.07 -
Exercised (20,000) 3.30 -
--------------------------- -------- ------- -------
Outstanding at June 30, 2002 1,532,863 $2.94 565,010
=========================== ========= ======= ========
Weighted-
Weighted- Average
Average Fair Value
Exercise Price Granted Option
--------------------------- -------- -------
Outstanding at June 27, 1999 $4.03
Canceled -
Granted - $.80
Exercised -
--------------------------- -------- -------
Outstanding at July 2, 2000 $5.86
Canceled -
Granted - $.76
Exercised -
--------------------------- -------- -------
Outstanding at July 1, 2001 $4.20
Canceled - -
Granted - $1.89
Exercised - -
--------------------------- -------- -------
Outstanding at June 30, 2002 $3.41
================================ ======== ===========
The following table summarizes information about stock options outstanding:
Options Outstanding
-------------------
Weighted-
Average
Number Remaining
Range of Outstanding Contractual
Exercise Prices at June 30, 2002 Life (Years)
------------------ ------------- -----------
$2.50 - 3.425 1,372,075 7.84
3.768 - 5.86 86,000 3.38
5.97 - 7.24 74,788 3.32
------------------ ------------- -----------
$2.50 - 7.24 1,532,863
============= =========== ========
Options Exercisable
-------------------
Weighted- Weighted-
Average Number Average
Exercise Exercisable Exercise
Price at June 30, 2002 Price
------------------ ------------- -----------
$2.62 429,222 $2.63
4.82 61,000 5.00
6.64 74,788 6.64
------------------ ------------- -----------
565,010
============= =========== ========
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 and diluted earnings per share for
fiscal 2002 would have been $3.7 million and $.24 per share basic and $.24 per
diluted share; for fiscal 2001, $3.6 million and $.24 per diluted share; and for
fiscal 2000, $1.5 million and $.11 per diluted share, respectively.
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 1.7%; expected dividend yield of 0%;
expected life of six years and, expected volatility of 76%. The expected life
of stock options for fiscal 2001 and 2000 was three years.
17. LITIGATION AND CONTINGENICIES
In June 2000, the Company entered into a contract with McDonnell Douglas
Corporation ("MDC"), a wholly-owned subsidiary of The Boeing Company to supply
aircraft wire harnesses. The Company has alleged that MDC supplied a defective
bid package in its request for proposal. Attempts to negotiate a settlement of
the claim arising from this defective bid package have not been successful, and
the Company anticipates filing an action in circuit court to seek an equitable
adjustment.
Under the contract through June 30, 2002, the
Company has delivered 79 sets of the
wire harnesses with a sales value of $1.9 million. Included in the Accounts
Receivable balance at June 30, 2002 is $207,000 representing a portion of the
Company's claim against MDC on these shipments.
Included in the Company's work-in-
process balance at June 30, 2002 is $298,000, which will not be recovered at the
current contract price and will be added to the Company's claim, plus lost
profits.
In addition, MDC has exercised options under the contract, for an additional 102
sets of wire harnesses with a sales value of $2.3 million.
Based on current cost
estimates, the Company would have an additional claim of $743,000, plus lost
profits, on these units. Sales taken on this contract are being recognized at
zero gross profit.
MDC has options to purchase up to 150 additional sets of wire harnesses per year
through calendar year 2006. Management's estimate, based upon forecasted
information from MDC, is that the potential additional
sales are 281 sets through
fiscal year 2006. If these additional orders are placed at the current contract
price, the additional sales would total $6.4 million and the Company would incur
an additional loss of $2.2 million which would be added to the claim, plus lost
profits.
The Company has consulted with legal counsel, and believes that it will recover
these contract costs.
18. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data is set forth below:
(dollars in thousands, except per-share data)
2002 First Second Third Fourth
--------------------------------- ------- ------ ------- ------
Net sales $32,108 $31,495 $30,159 $26,374
--------------------------------- ------- ------ ------- ------
Cost of sales 25,888 24,825 24,036 21,907
Selling and administrative expense 4,355 4,476 4,118 4,015
Interest expense 316 336 269 223
Other (income) expense, net (96) (102) (239) (184)
--------------------------------- ------- ------ ------- ------
Net earnings before income taxes 1,645 1,960 1,975 413
Income tax expense (benefit) 609 760 730 (36)
--------------------------------- ------- ------ ------- ------
Net earnings $ 1,036 $ 1,200 $ 1,245 $ 449
================================= ====== ======= ======= ======
Basic earnings per share:
Net earnings $ 0.07 $ 0.08 $ 0.08 $ 0.03
--------------------------------- ------- ------ ------- ------
Average common shares outstanding 14,981 14,961 14,964 14,991
================================= ====== ======= ======= ======
Diluted earnings per share:
Net earnings $ 0.07 $ 0.08 $ 0.08 $ 0.03
--------------------------------- ------- ------ ------- ------
Average diluted common shares 15,147 15,364 15,499 15,550
outstanding
================================= ====== ======= ======= ======
In the fourth quarter of fiscal 2002, the Company recognized a $925,000 charge
resulting from a change in an estimate on long-running customer contracts.
18. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
(continued)
2001 First Second Third Fourth
--------------------------------- ------- ------ ------- ------
Net sales $24,284 $26,923 $32,428 $35,587
Cost of sales 18,737 21,383 25,153 29,113
--------------------------------- ------- ------ ------- ------
Selling and administrative expense 4,188 4,052 5,010 3,892
Interest expense 537 557 433 357
Other (income) expense, net (277) (327) (221) 109
Net earnings before income taxes 1,099 1,258 2,053 2,116
Income tax expense 465 532 838 863
--------------------------------- ------- ------ ------- ------
Net earnings $634 $ 726 $ 1,215 $ 1,253
Basic earnings per share:
Net earnings $ 0.04 $ 0.05 $ 0.08 $ 0.08
--------------------------------- ------- ------ ------- ------
Average common shares outstanding 14,868 14,899 14,928 14,958
================================= ====== ======= ======= ======
Diluted earnings per share:
Net earnings $ 0.04 $ 0.05 $ 0.08 $ 0.08
================================= ====== ======= ======= ======
Average diluted common shares 14,868 14,899 14,928 15,032
outstanding
================================= ====== ======= ======= ======
The Company adopted SFAS No. 142 on July 2, 2001; therefore, the fiscal 2001
amounts above include goodwill amortization and the fiscal 2002 amounts exclude
goodwill amortization. For fiscal 2001, goodwill amortization for the first,
second, third and fourth quarter was $233,000, $233,000, $229,000 and $232,000,
respectively.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Forward-looking Statements
This report contains forward-looking statements that relate to future
events or our future financial performance. We have attempted to identify these
statements by terminology including "believe," "anticipate," "plan," "expect,"
"estimate," "intend," "seek," "goal," "may," "will," "should," "can,"
"continue," or the negative of these terms or other comparable terminology.
These statements include statements about our market opportunity, our growth
strategy, competition, expected activities, and the adequacy of our available
cash resources. These statements may be found in the sections of this report
entitled "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business." Readers are cautioned that matters
subject to forward-looking statements involve known and unknown risks and
uncertainties, including economic, regulatory, competitive and other factors
that may cause our or our industry's actual results, levels of activity,
performance or achievements to be materially different from any future results,
levels of activity, performance or achievements expressed or implied by these
forward-looking statements. These statements are not guarantees of future
performance and are subject to the risks, uncertainties and assumptions.
Actual results may differ from projections or estimates due to a variety of
important factors, including the following:
- The Company's dependence on a few large customers;
- - The Company's dependence on government contracts, which are subject to
cancellation;
- - The Company's ability to control costs, especially on fixed price
contracts;
- - The size and timing of new contract awards to replace completed or expired
contracts;
- - Cutbacks in defense spending by the U.S. Government;
- - Dependence of the Company on U.S. economic conditions and economic
conditions in the markets the Company serves;
- - Availability and increases in cost of raw materials, labor and other
resources;
- - Increased competition in the Company's markets;
- - The Company's ability to manage operating expenses;
- - The ability of the Company to develop the Network Technologies Group so
that it operates at a profit;
- - The outcome of litigation to which the Company is a party; and
- - The availability, amount, type and cost of financing for the Company and
any change to that financing.
Given these uncertainties, undue reliance should not be placed on such
forward-looking statements. Unless otherwise required by law, the Company
disclaims an obligation to update any such factors or to publicly announce the
results of any revisions to any forward-looking statements contained herein to
reflect future events or developments.
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 2002, 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, government systems,
aerospace, oil and gas, and other commercial markets. The group's engineering
and manufacturing facilities are located in Arkansas, Missouri, Oklahoma and
Texas.
The sales backlog in the Manufacturing
Services Group increased to $98.0 million
at fiscal 2002 year end, compared with $86.6 million at fiscal 2001 year end.
The growth in backlog is the result of an effective 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
diversification of the Company's customer base helps to protect it from
volatility in any one market segment.
* 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 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 2002, the Company derived 2% of its
total revenues from this group.
The Network Technologies Group, as a relatively new operation, has used cash
during its years of operation. It is too early to predict the timing and the
extent of the potential widespread acceptance
of this segment's products and its
contribution, if any, to future earnings and cash flow.
Sales backlog at June 30, 2002 was $2.7 million, compared with $1.2 million at
July 1, 2001, an increase of 125%.
Results of Operations - Fiscal 2002 - 2001- 2000
Net Sales
(dollars in thousands)
Year Ended
Change
2002 vs. 2001 2002 2001 2000
----------- -------- --------- -------- ---------
Net sales +0.8% $120,136 $119,222 $79,614
=========== ======== ======= ======== ========
During fiscal 2002, net sales were $120.1 million
compared with $119.2 million in
fiscal 2001 and $79.6 million in fiscal 2000. Sales to our top 10 customers
represented 75% of total revenue in fiscal 2002
and 2001; and 74% in fiscal 2000.
Sales to our top three customers and the percent of total sales they represent
were: Northrop Grumman, 19% in fiscal 2002, 27%
in fiscal 2001 and 12% in fiscal
2000; Schlumberger, 17% in fiscal 2002, 17% in fiscal 2001
and 13% in fiscal 2000,
and Lockheed Martin, 14% in fiscal 2002, 10% in fiscal 2001 and 18% in fiscal
2000.
Manufacturing Services Group. Sales in the
manufacturing services segment of the
business accounted for 98% of total sales in fiscal 2002 and 2001.
In fiscal 2002, sales totaled $117.2 million, $535,000 over fiscal 2001 sales of
$116.7 million. Sales to defense customers in
fiscal 2002 improved 39.5% to $46.0
million. Sales of land-based and ship-borne radar systems, missile and aircraft
cables, and various electronic equipment on land-based vehicles were the
significant drivers in defense sales increases. The Company's sales of baggage
screening equipment increased 46.7% to $6.6 million.
These sales increases were offset by declining sales in the commercial aerospace
and government systems markets. The sales of electro-mechanical assemblies for
mail sorting equipment used by the U.S. Postal Service declined 28.9%, to $23.6
million, as the Company completed its contract. Sales
to the commercial aerospace
market declined 31.3% to $10.2 million. Oil & gas sales declined modestly to
$24.5 million.
Network Technologies Group. Sales by this
segment of the Company were 2% of total
sales in both fiscal 2002 and 2001.
Fiscal 2002 sales totaled $2.9 million, up 12%, compared with fiscal 2001 sales
of $2.6 million. Sales continued to be primarily to the railroad industry -
accounting for $2.5 million of the total. Major contributors to sales to the
rail sector in 2002 were Union Pacific Railroad, Burlington Northern and Santa
Fe Railway Company, and Wisconsin Central Division of Canadian National Railway
Company. The Network Technologies Group continued to add new short-line
railroad customers during the year.
Sales to the cathodic protection market totaled $400,000 in fiscal 2002,
compared with fiscal 2001 sales of $100,000. Approximately 40 oil and gas
pipeline companies have conducted evaluation programs using the
ScadaNET(TradeMark) system and numerous companies have begun or are about to
begin deployment.
Gross Profit
(dollars in thousands)
Year Ended
Change
2002 vs. 2001 2002 2001 2000
Gross profit -1,356 $23,480 $24,836 $17,948
Gross margin -1.3% 19.5% 20.8% 22.5%
=========== ======== ======= ======== ========
A breakdown of margins by group shows the following:
Manufacturing Services Group. This group's gross profit margin was 18.7 % in
fiscal 2002, compared with 20.2% in fiscal 2001 and 22.3% in fiscal 2000. In
fiscal 2002, margins declined due to a $925,000 charge recognized in the fourth
quarter resulting from a change in an estimate at completion on a long-running
customer contracts. Absent this charge, gross profit margin would have been
19.5%. In addition, gross profit was impacted by a $600,000 increase in medical
benefit costs.
Network Technologies Group. This group's gross profit margin was 51.2% for
fiscal 2002, compared with 51.3% for fiscal 2001.
Selling and Administrative Expenses
(dollars in thousands)
Year Ended
Change
2002 vs. 2002 2001 2000
2001
Selling and administrative -178 $16,964 $17,142 $16,196
expenses
Percent of sales -0.3% 14.1% 14.4% 20.3%
=========== ======== ======= ======== ========
Selling and administrative expenses declined modestly due to the discontinuation
of goodwill amortization ($1.0 million), offset in part by higher salary and
wages ($500,000), general insurance ($300,000) and medical benefit costs
($200,000).
Manufacturing Services Group. Selling and administrative expenses for this
group were $14.3 million (12.2% of sales) in fiscal 2002, $13.8 million (11.8%
of sales) in fiscal 2001 and $12.9 million (16.4% of sales) in fiscal 2000.
Network Technologies Group. This group accounted for $2.6 million of selling
and administrative expenses in fiscal 2002 and $3.2 million in fiscal 2001.
Higher product development expenses were
incurred in fiscal 2002, but were offset
by the absence of $905,000 of goodwill amortization that was expensed in fiscal
2001.
Interest Expense
(dollars in thousands)
Year Ended
2002 2001 2000
Interest expense $1,144 $1,884 $2,092
=========== ======= ======== ========
Interest expense decreased in fiscal 2002 due to lower average debt levels and
lower interest rates on borrowings. For further discussion of our capital
structure, see "Financial Condition and Liquidity" below.
Pretax Earnings (Loss) from Continuing Operations
(dollars in thousands)
Year Ended
2002 2001 2000
Pretax earnings (loss) $5,993 $6,526 $(1,880)
=========== ======= ======== ========
The $533,000 decline in pretax earnings in fiscal 2002 compared with fiscal 2001
was attributable to: 1) a $2.2 million decline in the pretax profits from the
Manufacturing Services Group; 2) a $841,000 reduction in the pretax loss of the
Network Technologies Group, primarily the result of elimination of goodwill
amortization expense; and 3) a $740,000 decline in interest expense.
Tax Expense (Benefit) from Continuing Operations
(dollars in thousands)
Year Ended
2002 2001 2000
Tax expense (benefit) from
continuing operations $2,063 $2,698 $(329)
=========== ======= ======== ========
Tax expense was impacted in fiscal year 2002 by application of federal research
and experimentation credits of $254,000.
Net Earnings and Earnings Per Share
(dollars in thousands, except per-share data)
Year Ended
2002 2001 2000
---------------------------------- ------- -------- --------
Net earnings $3,930 $3,828 $1,575
Basic earnings per share:
Net earnings (loss) from
continuing operations $ 0.26 $ 0.26 $ (0.11)
Income from discontinued operations - - 0.22
Basic net earnings $ 0.26 $ 0.26 $ 0.11
Diluted earnings per share:
Net earnings (loss) from
continuing operations $ 0.26 $ 0.26 $(0.11)
Income from discontinued operations - - 0.22
Diluted net earnings $ 0.26 $ 0.26 $ 0.11
=================================== =================== ========
Financial Condition and Liquidity
The following shows LaBarge's equity and total debt positions:
Stockholders' Equity and Debt
(dollars in thousands)
Year Ended
2002 2001
Stockholders' $33,684 $29,716
equity
Debt $15,529 $17,400
=================== ================ =============
The Company's continuing operations provided $6.9 million of cash in fiscal 2002
compared with $11.3 million of cash in fiscal year 2001. The decline is due
primarily to changes in net working capital.
Investing activities, primarily capital expenditures, used $3.2 million of the
operating cash generated. The remainder was used to repay debt and increase cash
balances.
Currently, our total debt-to-equity ratio is .46 to
1 versus .59 to 1 versus at the
end of fiscal 2001.
Overall, management believes our availability of funds going forward from cash
generated from operations and available bank credit should be sufficient to
support the planned operations and capital
expenditures of the Company's business
for the next two fiscal years.
Critical Accounting Policies
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions in certain circumstances that affect amounts reported
in the accompanying consolidated financial statements. In preparing these
financial statements, management has made their best estimates and judgment of
certain amounts included in the financial statements. The Company believes
there is a likelihood that materially different amounts would be reported under
different conditions or using different assumptions related to the accounting
policies described below. Application of these accounting policies involves the
exercise of judgment and use of assumptions as to future uncertainties and, as a
result, actual results could differ from these estimates. The Company's senior
management discusses the accounting policies described below with the audit
committee of the Company's board of directors on an annual basis.
The following discussion of critical accounting policies is intended to bring to
the attention of readers those accounting policies that we believe are critical
to our consolidated financial statements and other financial disclosures.
Revenue Recognition and Cost of Sales
Revenue on production contracts is recorded when specific contract terms are
fulfilled, usually upon delivery (the delivery method). Revenue under long-term
contracts for which the delivery method is an inappropriate measure of
performance, revenue is recognized on the percentage-of-completion method based
upon incurred costs compared to total estimated costs under the contract. The
percentage-of-completion method gives effect to the most recent contract value
and estimates of cost 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 cost estimate indicates a loss, provision is made for the total
anticipated loss.
Certain sales in the Company's Network Technologies Group include prepayment of
multi-year communication services. These revenues are deferred and recognized
over the period of the service agreement.
The SEC's Staff Accounting Bulletin (SAB) No. 101, "Revenue Recognition"
provides guidance on the application of generally accepted accounting principles
to selected revenue recognition issues. The Company's revenue recognition
policy is in accordance with generally accepted accounting principles and SAB
No. 101.
Accounts Receivable
Accounts receivables have been reduced by an allowance for amounts that may
become uncollectable in the future. This estimated allowance is based primarily
on management's evaluation of the financial condition of the Company's
customers.
Inventory
Inventories are valued at the lower of cost or market and have been reduced by a
reserve for excess and obsolete inventories. The Company adjusts the value of
its reserve based upon assumptions for future usage and market conditions.
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 bases. The
Company has considered future taxable income analyses and feasible tax planning
strategies in assessing the need for the valuation allowance. Should the Company
determine that it would not be able to recognize all or part of its net deferred
tax assets in the future, an adjustment to the
carrying value of the deferred tax
assets would be charged to income in the period in which such determination is
made.
Goodwill and Other Long-Lived Assets
The Company has adopted the provisions of SFAS No. 142 on July 2, 2001, and has
reassessed the useful lives and residual values of all recorded intangible
assets. Goodwill is reviewed by management for impairment annually or whenever
events or changes in circumstance indicate the carrying amount may not be
recoverable. If indicators of impairment are present, the determination of the
amount of impairment is based on the Company's judgment as to the discontinued
future operating cash flows to be generated from these assets throughout their
estimated useful lives.
New Accounting Standards
In June 2001, the Financial Accounting Standards Board issued SFAS No. 143,
"Accounting for Asset Retirement Obligations." This standard applies to legal
obligations associated with the retirement of tangible long-lived assets.
Management does not believe adoption of this
standard will have a material impact
on the Company's financial statements.
In August 2001, the Financial Accounting Standards Board issued SFAS No. 144,
"Accounting for the Impairment or Disposal of
Long-Lived Assets," which addresses
the impairment or disposal of long-lived assets and the
reporting of discontinued
operations. Management does not believe adoption of this standard will have a
material impact on the Company's financial statements.
In June 2002, the Financial Accounting Standards Board issued SFAS No. 146,
"Accounting for Costs Associated with Exit or Disposal Activities." This
statement requires that a liability for a cost associated with an exit or
disposal activity be recognized and measured initially at fair value only when
the liability is incurred. The provisions of this Statement are effective for
exit or disposal activities that are initiated after December 31, 2002.
Schedule II
LaBARGE, INC.
Valuation and Qualifying Accounts
(dollars in thousands)
Years ended June 30, 2002,
July 1, 2001 and July 2, 2000
Allowance for Doubtful Accounts
This account represents amounts that may become uncollectible in future periods.
Balance Additions Balance
Beginning Charged to End of
Year of Period Expense Deductions Period
2000 2,347 335 2,510 172
2001 172 324 207 289
2002 $ 289 $ (48) $ 96 $145
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.
Balance Additions Deductions Balance
Beginning Charged to From Reserve End of
Year of Period Expense For Write- Period
offs
2000 869 593 710 752
2001 752 1,121 1,118 755
2002 $755 $ 185 $ 622 $318
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.
Balance Decrease Balance
Beginning Attributable End of
to
Year of Period Acquisition Decrease Period
2000 1,368 (517) (851) -
2001 - - - -
2002 - - - -
PART II