SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended September 30, 2001 Commission file number: 1-5761
--------------------------------------------------------------------------------
LaBarge, Inc.
--------------------------------------------------------------------------------
(Exact Name of Registrant as specified in its charter)
DELAWARE 73-0574586
--------------------------------------- -------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9900A Clayton Road, St. Louis, Missouri 63124
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(Address) (Zip Code)
(314) 997-0800
--------------------------------------------------------------------------------
(Registrant's telephone number, including Area Code)
N/A
--------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes |X|. No | |.
Indicate the number of shares outstanding of each of the Issuer's classes of
common stock as of September 30, 2001. 15,773,253 shares of common stock.
LABARGE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(dollars in thousands except per share data)
THREE MONTHS ENDED
------------------------------------------
SEPTEMBER 30, October 1,
2001 2000
--------------------------------------------------------------------------- -------------------- ---------------------
NET SALES $ 32,108 $ 24,284
--------------------------------------------------------------------------- -------------------- ---------------------
COSTS AND EXPENSES:
Cost of sales 25,888 18,737
Selling and administrative expense 4,355 4,188
Interest expense 316 537
Other income, net (96) (277)
--------------------------------------------------------------------------- -------------------- ---------------------
Income before income taxes 1,645 1,099
Income tax expense 609 465
--------------------------------------------------------------------------- -------------------- ---------------------
NET EARNINGS $ 1,036 $ 634
=========================================================================== ==================== =====================
BASIC NET EARNINGS PER SHARE $ .07 $ .04
AVERAGE COMMON SHARES OUTSTANDING 14,981 14,868
=========================================================================== ==================== =====================
DILUTED NET EARNINGS PER SHARE $ .07 $ .04
AVERAGE DILUTED COMMON SHARES OUTSTANDING 15,147 14,868
=========================================================================== ==================== =====================
See accompanying notes to consolidated financial statements.
2
LABARGE, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(dollars in thousands)
SEPTEMBER 30, July 1,
2001 2001
--------------------------------------------------------------------------------- ------------------- --------------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,403 $ 666
Accounts and notes receivable, net 14,759 16,946
Inventories 22,727 23,212
Prepaid expenses 735 727
Deferred tax assets, net 762 1,087
--------------------------------------------------------------------------------- ------------------- --------------------
TOTAL CURRENT ASSETS $ 40,386 $ 42,638
--------------------------------------------------------------------------------- ------------------- --------------------
PROPERTY, PLANT AND EQUIPMENT, NET 13,225 13,113
DEFERRED TAX ASSETS, NET 1,967 1,908
INTANGIBLE ASSETS, NET 4,890 4,693
OTHER ASSETS, NET 5,001 5,186
--------------------------------------------------------------------------------- ------------------- --------------------
$ 65,469 $ 67,538
================================================================================= =================== ====================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings $ 2,250 $ 2,500
Current maturities of long-term debt 1,779 1,779
Trade accounts payable 8,876 9,605
Accrued employee compensation 4,963 5,965
Other accrued liabilities 3,001 3,899
--------------------------------------------------------------------------------- ------------------- --------------------
TOTAL CURRENT LIABILITIES $ 20,869 $ 23,748
--------------------------------------------------------------------------------- ------------------- --------------------
OTHER LONG-TERM LIABILITIES 1,336 953
LONG-TERM DEBT 7,050 7,500
SUBORDINATED DEBT 5,621 5,621
--------------------------------------------------------------------------------- ------------------- --------------------
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value. Authorized 40,000,000 shares; issued 15,773,253
shares at September 30, 2001 and 15,773,253 at July 1, 2001,
including shares in treasury 158 158
Additional paid-in capital 13,538 13,569
Retained earnings 19,842 18,806
Accumulated other comprehensive loss (192) (97)
Less cost of common stock in treasury, shares at 827,250 at
September 30, 2001 and 812,176 shares at July 1, 2001 (2,753) (2,720)
--------------------------------------------------------------------------------- ------------------- --------------------
TOTAL STOCKHOLDERS' EQUITY 30,593 29,716
--------------------------------------------------------------------------------- ------------------- --------------------
$ 65,469 $ 67,538
================================================================================= =================== ====================
See accompanying notes to consolidated financial statements.
3
LABARGE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(dollars in thousands)
THREE MONTHS ENDED
----------------------------------------
SEPTEMBER 30, October 1,
2001 2000
---------------------------------------------------------------------------------------- ------------------- --------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 1,036 $ 634
Adjustments to reconcile net cash provided by
operating activities:
Depreciation and amortization 543 784
Deferred taxes 266 --
Other -- (3)
Changes in assets and liabilities, net of acquisitions:
Accounts and notes receivable, net 2,186 2,618
Inventories 484 (3,071)
Prepaid expenses (7) (65)
Trade accounts payable (729) 455
Accrued liabilities and other (1,612) (965)
---------------------------------------------------------------------------------------- ------------------- --------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 2,167 387
---------------------------------------------------------------------------------------- ------------------- --------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (612) (556)
Additions to other assets (54) (371)
---------------------------------------------------------------------------------------- ------------------- --------------------
NET CASH (USED) BY INVESTING ACTIVITIES (666) (927)
---------------------------------------------------------------------------------------- ------------------- --------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of long-term debt (450) (66)
(Purchase) sale of common stock (64) 51
Net change in short-term borrowings (250) 420
---------------------------------------------------------------------------------------- ------------------- --------------------
NET CASH (USED) PROVIDED BY FINANCING ACTIVITIES (764) 405
---------------------------------------------------------------------------------------- ------------------- --------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 737 (135)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 666 734
---------------------------------------------------------------------------------------- ------------------- --------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,403 $ 599
======================================================================================== =================== ====================
See accompanying notes to consolidated financial statements.
4
LABARGE, INC.
FORM 10-Q
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. CONSOLIDATED FINANCIAL STATEMENTS - BASIS OF PRESENTATION
The consolidated balance sheets at September 30, 2001 and July 1, 2001, the
related consolidated statements of operations for the three months ended
September 30, 2001 and October 1, 2000 and the consolidated statements of cash
flows for the three months ended September 30, 2001 and October 1, 2000, have
been prepared by LaBarge, Inc. (the "Company") without audit. In the opinion of
management, adjustments, all of a normal and recurring nature, necessary to
present fairly the financial position and the results of operations and cash
flows for the aforementioned periods, have been made. Certain prior year amounts
have been reclassified to conform with the current year's presentation.
Certain information and footnote disclosures normally included in consolidated
financial statements prepared in conformity with generally accepted accounting
principles have been condensed or omitted. These consolidated financial
statements should be read in conjunction with the audited financial statements
and notes thereto included in the Company's Annual Report on Form 10-K for the
fiscal year ended July 1, 2001.
2. ACCOUNTS AND NOTES RECEIVABLE
Accounts and notes receivable consist of the following:
(dollars in thousands)
SEPTEMBER 30, July 1,
2001 2001
----------------------------------------------------------- ----------------------------- ---------------------------
Billed shipments, net of progress payments $ 14,703 $ 16,703
Less allowance for doubtful accounts 275 289
----------------------------------------------------------- ----------------------------- ---------------------------
Trade receivables, net 14,428 16,414
Other current receivables 331 532
----------------------------------------------------------- ----------------------------- ---------------------------
$ 14,759 $ 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 September 30, 2001 and July 1, 2001, other current receivables include
$135,000 and $346,000 of customer payments to be received as a settlement under
a prior claim for material.
5
3. INVENTORIES
Inventories consist of the following:
(dollars in thousands)
SEPTEMBER 30, July 1,
2001 2001
------------------------------------------------------------- ---------------------------- --------------------------
Raw materials $ 11,377 $ 10,799
Work in progress 12,436 13,028
------------------------------------------------------------- ---------------------------- --------------------------
23,813 23,827
Less progress payments 1,086 615
------------------------------------------------------------- ---------------------------- --------------------------
$ 22,727 $ 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.
4. INTANGIBLE ASSETS, NET
Intangible assets, net, is summarized as follows:
(dollars in thousands)
SEPTEMBER 30, July 1,
2001 2001
--------------------------------------------------------------- -------------------------- --------------------------
Software $ 1,828 $ 1,598
Patents 99 91
Goodwill 6,694 6,694
--------------------------------------------------------------- -------------------------- --------------------------
$ 8,621 $ 8,383
Less amortization 3,731 3,690
--------------------------------------------------------------- -------------------------- --------------------------
$ 4,890 $ 4,693
=============================================================== ========================== ==========================
The Company has adopted the provisions of Statement 142 with the first quarter
ended September 30, 2001.
Goodwill amortization expense was $0 for the quarter ended September 30, 2001
and $229,000 for the quarter ended October 1, 2000. 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 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."
6
5. OTHER ASSETS
Other assets is summarized as follows:
(dollars in thousands)
SEPTEMBER 30, July 1,
2001 2001
------------------------------------------------------------- ---------------------------- --------------------------
Cash value of life insurance $ 3,999 $ 4,220
Deposits, licenses, and other 910 871
Investments in businesses 136 136
------------------------------------------------------------- ---------------------------- --------------------------
$ 5,045 $ 5,227
Less amortization 44 41
------------------------------------------------------------- ---------------------------- --------------------------
$ 5,001 $ 5,186
============================================================= ============================ ==========================
Investments in businesses primarily refers to the Company's securities in
Norwood Abbey, Ltd.
6. SHORT- AND LONG-TERM OBLIGATIONS
Short-term borrowings, long-term debt and the current maturities of long-term
debt consist of the following:
(dollars in thousands)
SEPTEMBER 30, July 1,
2001 2000
----------------------------------------------------------------------- ---------------------- ----------------------
Short-term borrowings:
Revolving credit agreement:
Balance at period-end $ 2,250 $ 2,500
Interest rate at period-end 4.07% 4.78%
Average amount of short-term borrowings outstanding
during period $ 2,522 $ 7,275
Average interest rate for period 4.43% 8.30%
Maximum short-term borrowings at any month-end $ 3,282 $ 13,302
======================================================================= ====================== ======================
Senior long-term debt:
Senior lender:
Term loan $ 1,944 $ 2,336
Mortgage loan 5,868 5,895
Other 1,017 1,048
----------------------------------------------------------------------- ---------------------- ----------------------
Total senior long-term debt 8,829 9,279
Less current maturities 1,779 1,779
----------------------------------------------------------------------- ---------------------- ----------------------
Long-term debt, less current maturities $ 7,050 $ 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.
SENIOR LENDER:
The Company has a senior, secured loan agreement with a bank. The following is a
summary of the agreement:
- A term loan, with a current balance of $1.9 million, requiring repayments
of $393,000 of principal quarterly.
7
- A revolving credit facility up to $18.0 million based on a borrowing base
formula equal to the sum of 85% of eligible receivables, 50% of eligible
finished goods inventories, 30% of other eligible inventories, 50% of the
net book value of equipment and 75% of the net book value of real property
less the current term loan balance and outstanding letters of credit. As of
September 30, 2001, the maximum allowable was $14.2 million. The revolver
borrowing at quarter-end was $2.3 million, and letters of credit
outstanding totaled $2.1 million. Unused revolving credit available at
September 30, 2001 was $9.8 million. This credit facility matures in
February 2002. It is the Company's intention to renew or replace this
credit facility.
- Covenants and performance criteria which involve Earnings Before Interest,
Taxes, Depreciation and Amortization ("EBITDA") in relation to debt and, in
addition, after June 30, 2000, EBITDA in relation to fixed charges. The
Company is in compliance with its borrowing agreement covenants for the
quarter ended September 30, 2001.
- Interest on the loans at prime or a stated rate over LIBOR based on certain
ratios. For the quarter, the average rate was approximately 4.43%.
- A $6.2 million mortgage loan to finance the Company's fiscal 1998 purchase
of its headquarters building in St. Louis, Missouri. The loan has a 25-year
amortization, a 7.5% interest rate and is due in January 2008. The balance
at quarter-end was $5.9 million.
OTHER LONG-TERM DEBT:
Industrial Revenue Bonds:
In July 1998, the Company acquired tax-exempt Industrial Revenue Bond
financing in the amount of $1.3 million. The debt is payable over 10 years
with an interest rate of 5.28%. This funding was used to expand the
Berryville, Arkansas, facility. The outstanding balance at September 30,
2001 was $1.0 million.
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. achieves certain levels of
earnings before taxes. The Notes are convertible by the holders into
LaBarge, Inc. Common Stock at $8.00 per share at any time up to their
maturity date.
To mitigate the exposure to changes in interest rates, the Company entered
into an interest rate swap agreement with a bank on February 26, 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 $4.0 million and it expires in June
2003. In accordance with FAS 133, as amended by FAS 138, the change in fair
value of the swap during the first quarter of fiscal 2002, amounting to
approximately $95,000 was recorded to other comprehensive loss.
OTHER LONG-TERM LIABILITIES:
Other long-term liabilities include deferred revenues associated with the
proprietary ScadaNET Network(TM) (representing prepaid communication
services).
8
7. CASH FLOWS
Total cash payments for interest for the three months ended September 30, 2001
were $332,000, compared with $570,000 for the three months ended October 1,
2000. Cash payments for federal and state income taxes were $345,000 for the
three months ended September 30, 2001, compared with $850,000 for the three
months ended October 1, 2000.
8. EARNINGS PER COMMON SHARE
Basic and diluted earnings per share are computed as follows and includes
adjustments to prior period required by the adoption of FAS 142:
THREE MONTHS ENDED
-------------------------------------------------
SEPTEMBER 30, October 1,
2001 2000
----------------------------------------------------------- ------------------------ ------------------------
NUMERATOR:
Reported net earnings $ 1,036 $ 634
Add back: Goodwill amortization expense -- 229
-------------------------------------------------------------- ---------------------- -----------------------
Adjusted net earnings $ 1,036 $ 863
============================================================== ====================== =======================
DENOMINATOR:
Denominator for basic net earnings per share 14,981 14,868
-------------------------------------------------------------- ---------------------- -----------------------
POTENTIAL COMMON SHARES:
Denominator for diluted net earnings per
share - adjusted weighted-average shares
And assumed conversions 15,147 14,868
-------------------------------------------------------------- ---------------------- -----------------------
BASIC NET EARNINGS PER SHARE:
Reported net earnings $ .07 $ .04
Goodwill amortization expense -- .02
-------------------------------------------------------------- ---------------------- -----------------------
ADJUSTED NET EARNINGS PER SHARE $ .07 $ .06
============================================================== ====================== =======================
DILUTED NET EARNINGS PER SHARE
Reported net earnings $ .07 $ .04
Goodwill amortization expense -- .02
-------------------------------------------------------------- ---------------------- -----------------------
ADJUSTED NET EARNINGS PER SHARE $ .07 $ .06
============================================================== ====================== =======================
The effect of conversion of the Subordinated Convertible Notes into common stock
is not considered in the calculations of diluted net earnings per common share
because it would have an anti-dilutive effect on earnings per share.
9. BUSINESS SEGMENT INFORMATION
Business segments:
(dollars in thousands)
NET SALES TO CUSTOMERS:
THREE MONTHS ENDED
------------------------------------------------------
SEPTEMBER 30, October 1,
2001 2000
------------------------------------------------------- --------------------------- --------------------------
Manufacturing Services Group $ 31,030 $ 23,995
Network Technologies Group 1,078 289
------------------------------------------------------- --------------------------- --------------------------
$ 32,108 $ 24,284
======================================================= =========================== ==========================
9
EARNINGS:
THREE MONTHS ENDED
------------------------------------------------------
SEPTEMBER 30, October 1,
2001 2000
------------------------------------------------------- ---------------------------- -------------------------
PRETAX EARNINGS:
Manufacturing Services Group $ 1,926 $ 2,308
Network Technologies Group (77) (598)
Corporate and other items 112 (74)
Interest expense (316) (537)
------------------------------------------------------- ---------------------------- -------------------------
NET EARNINGS BEFORE INCOME TAXES $ 1,645 $ 1,099
INCOME TAX EXPENSE 609 465
------------------------------------------------------- ---------------------------- -------------------------
NET EARNINGS $ 1,036 $ 634
======================================================= ============================ =========================
DEPRECIATION & AMORTIZATION EXPENSE:
THREE MONTHS ENDED
------------------------------------------------------
SEPTEMBER 30, October 1,
2001 2000
------------------------------------------------------- --------------------------- --------------------------
Manufacturing Services Group $ 405 $ 408
Network Technologies Group 21 234
Corporate and other items 117 142
------------------------------------------------------- --------------------------- --------------------------
$ 543 $ 784
======================================================= =========================== ==========================
INVESTMENTS & CAPITAL EXPENDITURES:
THREE MONTHS ENDED
------------------------------------------------------
SEPTEMBER 30, October 1,
2001 2000
------------------------------------------------------- ---------------------------- -------------------------
Manufacturing Services Group $ 731 $ 668
Network Technologies Group 79 36
Corporate and other items (144) 223
------------------------------------------------------- ---------------------------- -------------------------
$ 666 $ 927
======================================================= ============================ =========================
TOTAL ASSETS:
SEPTEMBER 30, July 1,
2001 2001
------------------------------------------------------- ---------------------------- -------------------------
Manufacturing Services Group $ 43,420 $ 46,150
Network Technologies Group 5,806 5,459
Corporate and other items 16,243 15,929
------------------------------------------------------- ---------------------------- -------------------------
$ 65,469 $ 67,538
======================================================= ============================ =========================
GEOGRAPHIC INFORMATION:
The Company has no sales offices or facilities outside of the United States.
Sales for export did not exceed 10% of total sales for the three months ended
September 30, 2001.
10
LABARGE, INC.
FORM 10-Q
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
FORWARD-LOOKING STATEMENTS
Statements contained in this Report which are not historical facts are
forward-looking statements within the meaning of the federal securities laws.
Forward-looking statements involve risks and uncertainties. Future events and
the Company's actual results could differ materially from those contemplated by
those forward-looking statements. Important factors which could cause the
Company's actual results to differ materially from those projected in, or
inferred by, forward-looking statements are (but are not necessarily limited to)
the following: the impact of increasing competition or deterioration of economic
conditions in the Company's markets; cutbacks in defense spending by the U.S.
Government; unexpected increases in the cost of raw materials, labor and other
resources necessary to operate the Company's business; the availability, amount,
type and cost of financing for the Company and any changes to that financing.
LaBarge, Inc. ("LaBarge" or the "Company") is a Delaware Corporation. The
Company is engaged in the following primary business activities:
- The MANUFACTURING SERVICES GROUP is the Company's core 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 the first quarter fiscal 2002, the
Company derived approximately 97% 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
government systems, defense, aerospace, oil and gas, and other commercial
markets. The group's engineering and manufacturing facilities are located
in Arkansas, Missouri, Oklahoma and Texas.
The backlog of unshipped orders in the Manufacturing Services Group
increased to $94.1 million at September 30, 2001 compared with $65.7
million at October 1, 2000. The growth in backlog is the result of an
improved and reorganized sales and marketing effort that concentrates on
the Company's core competencies and the application of those competencies
to targeted large customers in a variety of industries.
- The NETWORK TECHNOLOGIES GROUP was started in fiscal 1999 through the
acquisition of privately held Open Cellular Systems, Inc. ("OCS"). The
group designs and markets proprietary cellular and network communication
system products and Internet services that provide monitoring and control
of remote industrial equipment. Results of the group are included in the
consolidated results of the Company since the date of the OCS acquisition,
March 2, 1999. This group is initially focusing its marketing efforts on
the railroad industry to monitor railroad crossing equipment, and on the
oil and gas pipeline industry to monitor cathodic protection devices. The
Company derived 3% of its total revenues from this group for the three
months ended September 30, 2001.
The backlog of unshipped orders in the Network Technologies Group is
$568,000 at September 30, 2001, a small reduction from year ago levels.
11
SIGNIFICANT EVENTS
Recent significant events include:
- 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 tested for impairment at least annually
in accordance with the provisions of Statement 142. Statement 142 will also
require 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 has adopted the provisions of Statement 142 with the first
quarter ended September 30, 2001. Goodwill amortization expense was $0 for
the quarter ended September 30, 2001 and $229,000 for the quarter ended
October 1, 2000.
RESULTS OF OPERATIONS -- THREE MONTHS ENDED SEPTEMBER 30, 2001
NET SALES
(dollars in thousands)
THREE MONTHS ENDED
--------------------------------------------------
SEPTEMBER 30, October 1,
Change 2001 2000
----------------------------------------- --------------- -------------------- -----------------------------
Net Sales 32.2% $ 32,108 $ 24,284
========================================= =============== ==================== =============================
For the fiscal 2002 first quarter, ended September 30, 2001, net sales from
continuing operations were $32.1 million compared with $24.3 million for the
same period of fiscal 2001. Sales to our top 10 customers represented 77.3% of
total revenue in the first quarter of fiscal 2002 versus 71.4% for the same
period of fiscal 2001. Our top three customers and the portion of total
first-quarter sales they represented were as follows: Northrop Grumman, 28.9%;
Schlumberger, 17.8%; and Lockheed Martin, 12.8%.
The MANUFACTURING SERVICES GROUP. Sales in the manufacturing services segment of
the business were $31.0 million, accounting for 97% of total sales for the
quarter ended September 30, 2001, up $7.0 million, or 29.3%, over the same
period of fiscal 2001.
Comparing the first quarter of fiscal 2002 with the same period of fiscal 2001,
the significant sales growth came from both commercial and defense customers.
Sales to commercial customers grew 39% and sales to the defense industry grew
18%. Sales of electro-mechanical assemblies for mail sorting equipment used by
the U.S. Postal Service was the most significant contributor to this growth,
increasing 62%. Sales to oil and gas customers increased 50% during the period.
NETWORK TECHNOLOGIES GROUP. Sales by this segment of the Company were 3% of
total sales for the quarter ended September 30, 2001.
The Group generated first-quarter sales of $1.1 million versus $289,000 for the
first quarter of fiscal 2001. Sales were primarily to the railroad industry
where the Company's ScadaNET Network(TM) product is used to monitor railroad
crossing equipment. Major contributors to sales growth were Union Pacific
Railroad and the Burlington Northern and Santa Fe Railway Company.
The Company also began shipping small numbers of units to targeted customers in
the pipeline market where the ScadaNET Network(TM) is used to monitor the
performance of cathodic protection devices on petroleum and natural gas
pipelines.
12
GROSS PROFIT
(dollars in thousands)
THREE MONTHS ENDED
------------------------------------------------------
SEPTEMBER 30, October 1,
Change 2001 2000
--------------------------- ----------------- ---------------------------------- -----------------------
Gross profit $ 673 $ 6,220 $ 5,547
Gross margin - 3.4 PTS. 19.4% 22.8%
=========================== ================= ================================== =======================
A breakdown of margins by group shows the following:
MANUFACTURING SERVICES GROUP. This group's gross profit margin was 18.2% for the
quarter ended September 30, 2001, compared with 22.5% for the quarter ended
October 1, 2000. Sales mix changes resulted in lower gross margins.
During September, as a result of the September 11, 2001 attacks, the Company
experienced disruptions caused by delays in material receipts. The Company
estimates that these delays negatively affected fiscal 2002 first-quarter gross
margins by 90 basis points.
NETWORK TECHNOLOGIES GROUP. This group's gross profit margin was 52.8% for the
quarter ended September 30, 2001, compared with 50.1% for the quarter ended
October 1, 2000.
SELLING AND ADMINISTRATIVE EXPENSE
(dollars in thousands)
THREE MONTHS ENDED
----------------------------------------------
SEPTEMBER 30, October 1,
Change 2001 2000
------------------------------------------ ---------------- -------------------------- -----------------
Selling and administrative expenses $ 167 $ 4,355 $ 4,188
Percent of sales - 3.6 PTS. 13.6% 17.2%
========================================== ================ ========================== =================
Selling and administrative expense rose for the first quarter ended September
30, 2001, compared with the prior year's first quarter, reflecting much higher
sales levels. However, selling and administrative expense declined as a
percentage of sales reflecting increased sales without a proportionate increase
in selling and administrative expense.
MANUFACTURING SERVICES GROUP. Selling and administrative expense for this group
was $3.7 million (12.0% of sales) for the quarter ended September 30, 2001 and
$3.3 million (13.6% of sales) for the same period of fiscal 2001.
NETWORK TECHNOLOGIES GROUP. Selling and administrative expense for the quarter
ended September 30, 2001 for this group was $646,000 and included no goodwill
amortization. For the same period of fiscal 2001, these expenses totaled
$743,000, including $219,000 in amortization of goodwill. Selling and
administrative expense increased in the fiscal 2002 period (not including
amortization of goodwill) due to additional selling and development activity,
larger sales volume and greater allocation of corporate expenses.
13
INTEREST EXPENSE
(dollars in thousands)
THREE MONTHS ENDED
------------------------------------------------------
SEPTEMBER 30, October 1,
2001 2000
-------------------------------------------------- ------------------------------ ----------------------
Interest expense $ 316 $ 537
================================================== ============================== ======================
Interest expense decreased for the quarter ended September 30, 2001, primarily
due to lower debt levels and lower interest rates on short-term borrowings.
Average short-term borrowings for the three-month period ended September 30,
2001 were $6.7 million lower than the same period of fiscal 2001.
PRETAX EARNINGS
(dollars in thousands)
THREE MONTHS ENDED
------------------------------------------------------
SEPTEMBER 30, October 1,
2001 2000
-------------------------------------------------- ------------------------------ ----------------------
Pretax earnings $ 1,645 $ 1,099
================================================== ============================== ======================
The increase in pretax earnings for the quarter ended September 30, 2001,
compared with the same period of fiscal 2001, is primarily attributable to
significantly higher gross profit ($673,000) on higher sales, ($7.8 million) a
reduction of $229,000 of goodwill amortization expense and $221,000 reduction in
interest expense.
TAX EXPENSE
(dollars in thousands)
THREE MONTHS ENDED
------------------------------------------------------
SEPTEMBER 30, October 1,
2001 2000
-------------------------------------------------- ------------------------------ ----------------------
Tax expense $ 609 $ 465
================================================== ============================== ======================
The tax rate for the quarter ended September 30, 2001, was lower than the prior
year's first quarter due to the elimination of the non-deductible goodwill
amortization expense of $229,000.
FINANCIAL CONDITION AND LIQUIDITY
The following table shows LaBarge's equity and total debt positions:
STOCKHOLDERS' EQUITY AND DEBT
(dollars in thousands)
SEPTEMBER 30, July 1,
2001 2001
------------------------------------ ------------------------------ ------------------------------------
Stockholders' equity $ 30,593 $ 29,716
Debt $ 16,700 $ 17,400
==================================== ============================== ====================================
The Company's operations provided $2.2 million of net cash for the quarter ended
September 30, 2001. Currently, our total debt-to-equity ratio is .55 to 1 versus
.59 to 1 at the end of fiscal 2001.
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RISK FACTORS
The Company operates in a competitive marketplace and is exposed to risks
associated with economic conditions.
The Network Technologies Group, as a relatively new operation, has used cash
during its first two 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 to future earnings and cash flow.
Overall, we believe 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 our business for the next two
years.
NEW ACCOUNTING STANDARDS
In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement
No. 141, "Business Combinations," and Statement No. 142, "Goodwill and Other
Intangible Assets." Statement 141 requires that the purchase method of
accounting be used for all business combinations initiated or completed after
June 30, 2001. Statement 141 also specifies criteria that intangible assets
acquired in a purchase method business combination must meet to be recognized
and reported apart from goodwill. Statement 142 requires that goodwill and
intangible assets with indefinite useful lives no longer be amortized, but
instead 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 has adopted the provisions of Statement 142 and has reassessed the
useful lives and residual values of all recorded intangible assets. No change in
amortization periods was made. The Company has received third party expert
advice as to the evaluation of goodwill and intangible assets value. No
impairment was required to be recorded.
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PART II
Not Applicable
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LABARGE, INC.
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Date: November 6, 2001
/s/Donald H. Nonnenkamp
--------------------------------
Donald H. Nonnenkamp
Vice President
and Chief Financial Officer
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