2
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 29, 2002 Commission file number: 1-5761
LaBARGE, INC.
(Exact Name of Registrant as specified in its charter)
DELAWARE 73-0574586
(State or other jurisdiction (I.R.S. Employer
of Identification No.)
incorporation or organization)
9900A Clayton Road,
St. Louis, Missouri 63124
(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 29, 2002. 15,021,116 shares of common stock.
LaBARGE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(dollars in thousands except per share data)
Three Months Ended
September 29, September 30,
2002 2001
--------------------------- --------- ------------
Net sales $ 23,591 $32,108
--------------------------- --------- ------------
Costs and expenses:
Cost of sales 18,755 25,888
Selling and administrative 4,526 4,355
expense
Interest expense 223 316
Other income, net (49) (96)
--------------------------- --------- ------------
Income before income taxes 136 1,645
Income tax expense 53 609
Net earnings $ 83 $ 1,036
======================== =========== ==========
Basic net earnings per share $ 0.01 $ 0.07
Average common shares 15,015 14,981
outstanding
======================== =========== ==========
Diluted net earnings per $ 0.01 $ 0.07
share
Average diluted common shares 15,272 15,147
outstanding
======================== =========== ==========
See accompanying notes to consolidated financial statements.
LaBARGE, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(dollars in thousands)
September 29, June 30,
2002 2002
------------------------------------ ------- --------
ASSETS
Current assets:
Cash and cash equivalents $ 2,892 $ 2,532
Accounts and notes receivable, net 13,546 17,024
Inventories 23,923 22,499
Prepaid expenses 923 566
Deferred tax assets, net 677 627
------------------------------------ ------- --------
Total current assets $41,961 $43,248
------------------------------------ ------- --------
Property, plant and equipment, net 14,111 13,956
Deferred tax assets, net 700 937
Intangible assets, net 5,096 5,076
Other assets, net 4,888 4,989
------------------------------------ ------- --------
$66,756 $68,206
================================== ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings $ - $ 2,583
Current maturities of subordinated debt 5,621 5,621
Current maturities of long-term debt 343 278
Trade accounts payable 6,846 6,521
Accrued employee compensation 4,936 5,488
Other accrued liabilities 4,672 3,520
------------------------------------ ------- --------
Total current liabilities $22,418 $24,011
------------------------------------ ------- --------
Other long-term liabilities 3,511 3,464
Long-term debt 6,950 7,047
------------------------------------ ------- --------
Stockholders' equity:
Common stock, $.01 par value. Authorized
40,000,000 shares; issued 15,773,253 at
September 29, 2002 and 15,773,253 shares 158 158
at
June 30, 2002 including shares in
treasury
Additional paid-in capital 13,518 13,515
Retained earnings 22,819 22,736
Accumulated other comprehensive loss (114) (131)
Less cost of common stock in treasury,
752,137 shares (2,504) (2,594)
at September 29, 2002 and 779,143 at June
30, 2002
------------------------------------ ------- --------
Total stockholders' equity 33,877 33,684
------------------------------------ ------- --------
$66,756 $68,206
================================== ======= =======
See accompanying notes to consolidated financial statements.
LaBARGE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(dollars in thousands)
Three Months Ended
September 29, September 30,
2002 2001
---------------------------------- ----------- -------
Cash flows from operating activities:
Net earnings $ 83 $ 1,036
Adjustments to reconcile net cash
provided by
operating activities:
Depreciation and amortization 612 543
Gain on disposal of property, plant and 16 -
equipment
Deferred taxes 187 266
Changes in assets and liabilities:
Accounts and notes receivable, net 3,478 2,186
Inventories (1,424) 484
Prepaid expenses (357) (7)
Trade accounts payable 325 (729)
Accrued liabilities and other 666 (1,612)
---------------------------------- ----------- -------
Net cash provided by operating 3,586 2,167
activities
---------------------------------- ----------- -------
Cash flows from investing activities:
Additions to property, plant and (711) (612)
equipment
Other 10 (54)
---------------------------------- ----------- -------
Net cash used (provided) by investing (701) (666)
activities
---------------------------------- ----------- -------
Cash flows from financing activities:
Repayments of long-term senior debt (32) (450)
Issuance of stock to employee benefit 90 -
plan
Purchase of treasury stock - (64)
Net change in short-term borrowings (2,583) (250)
---------------------------------- ----------- -------
Net cash used by financing activities (2,525) (764)
---------------------------------- ----------- -------
Net increase in cash and cash 360 737
equivalents
Cash and cash equivalents at beginning 2,532 666
of period
---------------------------------- ----------- -------
Cash and cash equivalents at end of $ 2,892 $ 1,403
period
=================================== ========== =======
See accompanying notes to consolidated financial statements.
LaBARGE, INC.
FORM 10-Q
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. CONSOLIDATED FINANCIAL STATEMENTS - BASIS OF PRESENTATION
The consolidated balance sheets at September 29, 2002 and June 30, 2002, the
related consolidated statements of operations for the three months ended
September 29, 2002 and September 30, 2001 and the consolidated
statements of cash
flows for the three months ended September 29, 2002 and September 30, 2001, 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 accounting principles generally
accepted in the United State of America have been condensed or omitted. These
consolidated financial statements should be read in conjunction with the audited
financial statements and notes thereto included in the Company's
Annual Report on
Form 10-K for the fiscal year ended June 30, 2002.
2. GROSS AND NET SALES
Gross and net sales consist of the following:
(dollars in thousands)
Three Months Ended
September 29, September 30,
2002 2001
------------------------- ----------- ---------
Gross sales $23,821 $33,118
Less sales discounts 230 1,010
------------------------- ----------- ---------
Net sales $23,591 $32,108
========================= ========== =========
The Company accepts sales discounts from a number of customers in the normal
course of business.
3. ACCOUNTS AND OTHER RECEIVABLES
Accounts and other receivables consist of the following:
(dollars in thousands)
September 29, June 30,
2002 2002
----------------------------- ---------- ----------
Billed shipments, net of progress $12,901 $15,719
payments
Less allowance for doubtful accounts 150 145
Trade receivables, net 12,751 15,574
Other current receivables 795 1,450
----------------------------- ---------- ----------
$13,546 $17,024
=============================== ========= ==========
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 both September 29, 2002 and June 30, 2002, other current receivables include
$318,000 of customer payments to be received as settlements under prior claims.
For the three months ended September 29, 2002 and September 30, 2001, expense
for doubtful accounts charged to income before income taxes was $0. The
increase in the allowance for doubtful accounts between September 29, 2002 and
June 30, 2002 is related to recovery of previously written-off receivables.
4. INVENTORIES
Inventories consist of the following:
(dollars in thousands)
September 29, June 30,
2002 2002
-------------------------- ---------- ----------
Raw materials $14,175 $13,992
Work in progress 11,127 9,936
Less reserve for obsolescence 483 318
-------------------------- ---------- ----------
24,819 23,610
Less progress payments 896 1,111
-------------------------- ---------- ----------
$23,923 $22,499
=========================== ========= ==========
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 three months ended September 29, 2002 and September 30, 2001, expense
for inventory reserves charged to income before taxes was $165,000 and $226,000,
respectively.
5. INTANGIBLE ASSETS, NET
Intangible assets, net, is summarized as follows:
(dollars in thousands)
September 29, June 30,
2002 2002
--------------------- ----------- -----------
Goodwill $6,694 $6,694
Less amortization 2,378 2,378
--------------------- ----------- -----------
Net Goodwill 4,316 4,316
Software 2,224 2,136
Less amortization 1,563 1,494
--------------------- ----------- -----------
Net Software 661 642
Other, net 119 118
--------------------- ----------- -----------
Total intangible assets, $5,096 $5,076
net
==================== =========== ==========
The Company adopted the provisions of Statement No. 142, "Goodwill and Other
Intangible Assets" in the first quarter ended September 30, 2001. Accordingly,
goodwill is not amortized by the Company but rather tested for impairment at
least annually in accordance with this Standard.
6. OTHER ASSETS
Other assets is summarized as follows:
(dollars in thousands)
September 29, June 30,
2002 2002
------------------------------ ----------- --------
Cash value of life insurance $3,887 $4,039
Deposits, licenses and other, net 865 814
Investments in businesses 136 136
------------------------------ ----------- --------
$4,888 $4,989
============================= =========== =========
Investments in businesses primarily refers to the Company's
securities in Norwood Abbey, Ltd.
7. 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 29, June 30,
2002 2002
--------------------------------- ---------- ---------
Short-term borrowings:
Revolving credit agreement:
Balance at period end $ - $ 2,583
Interest rate at period-end -% 2.90%
Average amount of short-term borrowings
outstanding during period $ 1,024 $ 2,548
Average interest rate for period 3.38% 3.96%
Maximum short-term borrowings at any $ 2,389 $ 6,320
month-end
=================================== ======== ========
Subordinated debt $5,621 $5,621
=================================== ======== ========
Senior long-term debt:
Senior lender:
Term loan $ 6,400 $ 6,400
Other 893 925
--------------------------------- ---------- ---------
Total senior long-term debt 7,293 7,325
Less current maturities 343 278
--------------------------------- ---------- ---------
Long-term debt, less current maturities $ 6,950 $ 7,047
=================================== ======== ========
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 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
September 29, 2002, the
maximum allowable was $12.1 million net of letters of credit
outstanding of $2.9 million. The revolver borrowing at
September 29, 2002 was $0. Unused revolving
credit available at September 29, 2002 was $12.1 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 September 29, 2002 was $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 3.38%.
* 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 violated its minimum EBITDA requirement for the twelve-month trailing
average ended September 29, 2002. Subsequent to period end,
the Company and its
financial institution executed an amendment which (i) waived the first quarter
covenant violation, and (ii) revised the required trailing twelve-month EBITDA
amounts for the remainder of the fiscal year.
Management expects to achieve the
revised covenants throughout fiscal 2003 and beyond.
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 the
fiscal 2003 first quarter. 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 September
29, 2002 was $893,000.
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 $17,000, was recorded
to other comprehensive loss.
Other Long-Term Liabilities:
Other long-term liabilities include deferred revenues associated with the
ScadaNET Network(TradeMark) (representing prepaid
communication services) in the
amount of $1.4 million and customer advances in the amount of $2.1
million.
The aggregate maturities of long-term obligations are as follows:
(dollars in thousands)
Fiscal Year
---------------------------------------
2003 $5,804
2004 295
2005 309
2006 280
2007 272
---------------------------------------
8. CASH FLOWS
Total cash payments for interest for the three months ended September 29, 2002
were $129,000, compared with $332,000 for the three months ended September 30,
2001. Cash payments for federal and state income taxes were $118,500 for the
three months ended September 29, 2002, compared with $345,000 for the three
months ended September 30, 2001.
9. EARNINGS PER COMMON SHARE
Basic and diluted earnings per share are computed as follows:
Three Months Ended
September 29, September 30,
2002 2001
------------------- --------- ---------
Numerator:
Net earnings $ 83 $ 1,036
---------------------- --------- ---------
Denominator:
Denominator for basic 15,015 14,981
net earnings per share
---------------------- --------- ---------
Potential common
shares:
Denominator for
diluted net earnings 15,272 15,147
per share - adjusted
weighted-average
shares and assumed
conversions
---------------------- --------- ---------
Basic net earnings $ 0.01 $ 0.07
per share
====================== ======== ========
Diluted net earnings $ 0.01 $ 0.07
per share
====================== ======== ========
10. LITIGATION AND CONTINGENCIES
In June 2000, the Company entered into a contract with McDonnell Douglas
Corporation ("MDC"), a wholly-owned subsidiary of The Boeing Company to supply
military aircraft wire harnesses, under a contract for which MDC is a prime
contractor with the U.S. Government. The Company has alleged
that MDC supplied a
defective bid package in its request for proposal. Attempts to negotiate a
settlement of the claim for additional contract revenue 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 September 30, 2002, the
Company has delivered 103 sets
of the wire harnesses with a sales value of $2.4 million. Included in the
Accounts Receivable balance at September 30, 2002 is $207,280 representing a
portion of the Company's claim against MDC on these shipments. Included in the
Company's work-in-process balance at September 30, 2002 is $355,000, 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 78
sets of wire harnesses with a sales value of $1.7 million.
Based on current cost
estimates, the Company would have an additional claim of $433,000, 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 $1.7 million, which would be added to the claim, plus lost
profits.
Accounting for the recognition of claim revenues is appropriate provided it is
probable that the claim will result in additional contract revenue and the
amount can be reliably estimated. The Company, based upon analysis performed
and consultation with legal counsel, believes that it will recover these
contract costs.
11. BUSINESS SEGMENT INFORMATION
Business Segments:
(dollars in thousands)
Net Sales to
Customers:
Three Months Ended
September 29, September 30,
2002 2001
---------------------- ----------- ---------
Manufacturing Services $23,070 $31,030
Group
Network Technologies 521 1,078
Group
$23,591 $32,108
====================== ============ ==========
Earnings:
Three Months Ended
September 29, September 30,
2002 2001
---------------------- ----------- ---------
Pretax earnings:
Manufacturing Services $ 641 $ 1,926
Group
Network Technologies (392) $ (77)
Group
Corporate and other 110 112
items
Interest expense (223) (316)
---------------------- ----------- ---------
Net earnings before $ 136 $ 1,645
income taxes
Income tax expense 53 609
---------------------- ----------- ---------
Net earnings $ 83 $ 1,036
====================== ============ ==========
Depreciation & Investments &
Amortization Capital Expenditures
Expense
Three Months Ended Three Months Ended
September September September September
29, 30, 29, 30,
2002 2001 2002 2001
------------------ -------- ------- ------- --------
Manufacturing $449 $405 $495 $731
Services Group
Network Technologies 39 21 56 79
Group
Corporate and other 124 117 150 (144)
items
------------------ -------- ------- ------- --------
$612 $543 $701 $666
================== ======= ======= ====== ========
Total Assets
September 29, June 30,
2002 2002
-------------------- ----------- --------
Manufacturing Services $44,832 $45,860
Group
Network Technologies 5,097 5,332
Group
Corporate and other 16,827 17,014
items
-------------------- ----------- --------
$66,756 $68,206
==================== ========== ========
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 for the three months ended
September 29, 2002.
For the three months ended September 29, 2002, the Company's three largest
customers were L-3 Communications, Schlumberger and Lockheed Martin, which
comprised approximately 21%, 14% and 13% of first quarter sales, respectively.
12. SUBSEQUENT EVENT
On November 1, 2002, the Company sold the railroad business of its Network
Technologies Group to GE Transportation Systems Global Signaling, LLC, a unit of
General Electric Company for $5.3 million in cash and assumption of
approximately $1.5 million of liabilities. The transaction resulted in a pretax
gain of approximately $2.3 million. However, as the Company had minimal tax
basis in the assets sold to GE, the sale will result in a loss, net of taxes, of
approximately $160,000. This sale will be accounted for as discontinued
operations under SFAS No. 144.
LaBARGE, INC.
FORM 10-Q
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements that r
elate 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.
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 fiscal 2003 first quarter, 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 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 sales backlog in the Manufacturing Services Group increased to $94.9
million at September 29, 2002, compared with $94.1 million at September 30,
2001. The diversification of the Company's customer base helps to protect it
from volatility in any one market segment, and has proved valuable in
maintaining backlog in the current soft economic environment.
* 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 2% and 3%,
respectively, of its total revenues from this group for the three months ended
September 29, 2002 and September 30, 2001.
On November 1, 2002, the Company sold the railroad business of its Network
Technologies Group to GE Transportation Systems Global Signaling, a unit of
General Electric Company for $5.3 million in cash and assumption of
approximately $1.5 million of liabilities. In connection with the sale, the
Company and GE Transportation Systems Global Signaling have entered into a
Manufacturing Agreement under which the Company will continue to produce the
hardware used in the railroad business. The sale will be reflected in the
Company's fiscal 2003 second quarter and the Company will realize $3.2
million in cash after taxes on the transaction. On a book basis, the Company
will record a pretax gain of $2.3 million. Because the transaction reflects
the sale of assets with a low tax basis, it will result in an after-tax book
loss of approximately $.01 per share, and will be treated as discontinued
operations
The sales backlog in the Network Technologies Group was $2.6 million at
September 29, 2002, compared with $1.7 million at September 30, 2001.
RESULTS OF OPERATIONS -Three Months Ended September 29, 2002
Net Sales
(dollars in thousands)
Three Months Ended
September 29, September 30,
Change 2002 2001
------------ -------- ---------- -----------
Net Sales -26.5% $23,591 $32,108
============== ====== ======== ===========
For the fiscal 2003 first quarter ended September 29, 2002, net sales were $23.6
million compared with $32.1 million for the same period of fiscal 2002. Sales
to top 10 customers represented 81.5% of total revenue in the first quarter of
fiscal 2003 versus 77.3% for the same period of fiscal 2002. The Company's top
three customers and the portion of total first-quarter sales they represented
were as follows: L-3 Communications, 21%; Schlumberger, 14%; and Lockheed
Martin, 13%.
The Manufacturing Services Group. Sales in the manufacturing services segment
of the business were
$23.1 million, accounting for 98% of total sales for the quarter ended September
29, 2002, down 25.8% or $7.9 million over the same period of fiscal 2002. Prior
year sales included $9.3 million of postal sorting equipment. This contract has
been completed. Offsetting this was this was a $4.7 million increase in sales
of airport security equipment. In addition, revenues from the oil and gas
sector were down $1.1 million in the quarter, compared to the same period one
year ago.
Network Technologies Group. Sales of the Network Technologies Group were 2% of
total sales for the quarter ended September 29, 2002.
The Group generated first-
quarter sales of $521,000 versus $1.1 million for the first quarter of fiscal
2002. Sales were primarily to the railroad industry where the Company's ScadaNET
NetworkT product is used primarily to monitor railroad crossing equipment. The
Company also shipped a small number of units to targeted customers in the
pipeline market where the ScadaNET NetworkT is used to monitor the performance
of cathodic protection devices on petroleum and natural gas pipelines.
Gross Profit
(dollars in thousands)
Three Months Ended
September 29, September 30,
Change 2002 2001
-------------- ------- ---------- --------
Gross profit $(1,384) $4,836 $6,220
Gross margin + 1.1 20.5% 19.4%
pts.
================= ======= ======== =========
A breakdown of margins by group shows the following:
Manufacturing Services Group. This group's gross profit margin was 19.8% for
the quarter ended September 29, 2002, compared with 18.2% for the quarter ended
September 30, 2001. The improvement in margins is due primarily to changes in
sales mix and, in the prior year first quarter, margins were adversely impacted
by certain disruptions related to September 11.
Network Technologies Group. This group's gross profit margin was 53.2% for the
quarter ended September 29, 2002, compared with 52.8% for the quarter
ended September 30, 2001.
Selling and Administrative Expenses
(dollars in thousands)
Three Months Ended
September 29, September 30,
Change 2002 2001
------------------- ----- --------- ----------
Selling and $171 $4,526 $4,355
administrative expenses + 5.6 19.2% 13.6%
Percent of sales pts.
====================== ====== ======== =========
Selling and administrative expenses as a percent of sales increased due to the
relatively fixed component of these costs as a percentage of reduced sales
volume.
Manufacturing Services Group. Selling and administrative expenses for this
group were $3.9 million (16.9% of sales) for the quarter ended September 29,
2002 and $3.7 million (12.0% of sales) for the same period of fiscal 2002.
Higher medical costs contributed $170,000 to the fiscal 2003 first-quarter
selling and administrative expenses.
Network Technologies Group. Selling and administrative expenses for the quarter
ended September 29, 2002 and September 30, 2001 for this group were $669,000 and
$646,000, respectively. Selling and administrative expenses increased in the
fiscal 2003 period due primarily to additional selling and development activity
in the pipeline cathodic protection market.
Interest Expense
(dollars in thousands)
Three Months Ended
September 29, September 30,
Change 2002 2001
------------------- ----- --------- ----------
Interest expense $(93) $223 $316
====================== ====== ======== =========
Interest expense decreased for the quarter ended September 29, 2002, 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 29,
2002 were approximately $1.5 million lower than the same periods of fiscal 2002.
Average interest rates declined 58 basis points for the three months ended
September 29, 2002, compared with the previous year.
Pretax Earnings
(dollars in thousands)
Three Months Ended
September September 30,
Change 29, 2001
2002
------------------- ----- --------- ----------
Pretax earnings $(1,509) $136 $1,645
=================== ====== ======== =========
The decrease in pretax earnings for the quarter ended September 29, 2002,
compared with the same period of fiscal 2002, is primarily attributable to lower
gross profit of $1.4 million on a sales decrease of $8.5 million and an increase
in selling and administrative expense of $171,000, offset by a $93,000 reduction
in interest expense.
Tax Expense
(dollars in thousands)
Three Months Ended
September September 30,
Change 29, 2001
2002
------------------- ----- --------- ----------
Tax Expense $(556) $53 $609
=================== ====== ======== =========
The reduction in tax expense is the result of lower pretax earnings.
FINANCIAL CONDITION AND LIQUIDITY
The following table shows LaBarge's equity and total debt positions:
Stockholders' Equity and Debt
(dollars in thousands)
September 29, June 30,
2002 2002
----------------- --------- --------
Stockholders' $33,877 $33,684
equity
Debt 12,914 $15,529
============== ======== ==========
The Company's operations provided $3.6 million of net cash for the three months
ended September 29, 2002.
At September 30, 2002, the total debt-to-equity ratio for the Company is .38 to
1, versus .46 to 1 at the end of fiscal 2002.
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 of products (the delivery method). 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 changes in 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 accounting principles generally accepted
in the United States of America ("GAAP") to selected revenue recognition issues.
The Company's revenue recognition policy is in accordance with GAAP 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.
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 discounted future
operating cash flows to be generated from these assets throughout their
estimated useful lives.
New Accounting Standards
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.
PART II
ITEM 4. Controls and Procedures
The Company's President and Chief Executive Officer, Craig E. LaBarge,
and the Company's Vice President, Chief Financial Officer and
Secretary, Donald H. Nonnenkamp, have evaluated the Company's internal
controls and disclosure controls systems within 90 days of the filing
of this report.
Messrs. LaBarge and Nonnenkamp have concluded that the Company's
disclosure controls systems are functioning effectively to provide
reasonable assurance that the Company can meet its disclosure
obligations. The Company's disclosure controls system is based upon a
chain of financial and general business reporting lines that converge
in the headquarters of the Company in St. Louis, Missouri. The
reporting process is designed to ensure that information required to
be disclosed by the Company in the reports that it files or submits
with the Commission is recorded, processed, summarized and reported
within the time periods specified in the Commission's rules and forms.
Since Messrs. LaBarge's and Nonnenkamp's most recent review of the
Company's internal controls systems, there have been no significant
changes in internal controls or in other factors that could
significantly affect these controls.
ITEM 6. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) Reports on Form 8-K: Current reports on From
8-K were filed on September 13, 2002 and September 26, 2002, in
accordance with Regulation FD to report certain information the
Registrant intended to present to certain institutional
investors.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LaBARGE, INC.
Date: November 13, 2002
/s/Donald H. Nonnenkamp
Donald H. Nonnenkamp
Vice President
and Chief Financial Officer
I, Craig E. LaBarge, certify that:
1. I have reviewed this quarterly report on Form 10-Q of LaBarge, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a
material fact necessary to make
the statements made, in light of the circumstances
under which such statements
were made, not misleading with respect to
the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly 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 quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including
its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit committee
of registrant's board of directors (or persons performing the equivalent
function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
/s/Craig E. LaBarge
President and Chief Executive Officer
Date: November 13, 2002
I, Donald H. Nonnenkamp, certify that:
1. I have reviewed this quarterly report on Form 10-Q of LaBarge, Inc.
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly 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 quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its
consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officer and
I have disclosed, based on
our most recent evaluation, to the registrant's
auditors and the audit committee
of registrant's board of directors (or persons performing the equivalent
function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly
affect internal controls
subsequent to the date of our most recent
evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
/s/Donald H. Nonnenkamp
Vice President, Chief Financial
Officer and Secretary
Date: November 13, 2002