Add
LB to Portfolio
Set Alert
Email to a
Friend
| |||
|
|
Quotes & Info
|
| LB > SEC Filings for LB > Form 10-Q on 8-May-2009 | All Recent SEC Filings |
8-May-2009
Quarterly Report
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 throughout the report, including in the section of this report entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations." Readers are cautioned that matters subject to forward-looking statements involve known and unknown risks and uncertainties, including those discussed in our most recent Annual Report on Form 10-K. These risks and uncertainties may cause our 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. Accordingly, we can give no assurances that any of the events anticipated by the forward-looking statements will occur, or if any of them do, what impact they will have on our results of operations or financial condition. We expressly decline any obligation to publicly revise any forward-looking statements that have been made to reflect the occurrence of events after the date of this report.
General
General Development of Business and Information about Business Activity
LaBarge, Inc. ("LaBarge" or the "Company") is a Delaware corporation,
incorporated in 1968, that provides custom high-performance electronic,
electromechanical and interconnect systems on a contract basis for customers in
diverse technology-driven markets. The Company's core competencies are
manufacturing, engineering and design of interconnect systems, circuit card
assemblies, high-level assemblies, and complete electronic systems for its
customers' specialized applications.
The Company markets its services to customers desiring an engineering and manufacturing partner capable of developing and providing products that can perform reliably in harsh environmental conditions, such as high and low temperatures, severe shock and vibration. The Company's customers do business in a variety of markets with significant revenues from customers in the defense, government systems, medical, aerospace, natural resources, industrial and other commercial markets. As a contract manufacturer, revenues, and profit levels are impacted, primarily, by the volume of sales in the particular period.
The Company provides information about its end markets to demonstrate the diversity of its customer base, which the Company believes helps to reduce potential volatility in its revenue stream. However, the Company does not target customers in individual markets, but rather, targets companies that match a profile for their manufacturing requirements with those services and capabilities the Company provides. Within any end market, gross profit margins vary widely by customer and by contract.
The most significant factors influencing profitability in a particular period are: the mix of contracts with deliveries in that period; and, the volume of sales in relation to the Company's fixed costs. Delivery schedules are generally determined by the Company's customers. The significant factors that influence the profitability of the individual contracts include: (i) the competitive environment in which the contract was bid; (ii) the experience level of the Company in manufacturing the customer's particular product(s); (iii) the stability of the design of the product(s); and (iv) the accuracy of the Company's original cost estimates as reflected in the sale price for the product(s).
The Company has a centralized sales organization. Though the selling and marketing personnel have a customer and prospective customer focus, they are not limited to exclusively developing a specific end market.
The Company's engineering and manufacturing facilities are located in Arkansas, Missouri, Oklahoma, Texas, Pennsylvania and Wisconsin.
The Company employs approximately 1,480 people, including approximately 1,250 people who provide support for production activities (including assembly, testing and engineering) and approximately 230 people who provide administrative support.
The Company uses a fiscal year ending the Sunday closest to June 30; each fiscal quarter is 13 weeks. Fiscal years 2009 and 2008 consisted of 52 weeks.
On December 22, 2008, the Company acquired substantially all of the assets of Pensar Electronic Solutions LLC, ("Pensar"). The acquisition of Pensar, located in Appleton, Wisconsin, gives the Company a presence in the Upper Midwest and adds substantial new medical, natural resources and industrial accounts to the Company's customer mix.
Pensar is a profitable contract electronics manufacturer that designs, engineers and manufactures low-to-medium volume, high-mix, complex printed circuit board assemblies and higher-level electronic assemblies for a variety of end markets. Pensar's calendar 2008 revenues were approximately $52.4 million. The company has long-term customer relationships with industry leaders in a variety of commercial markets, with the medical, natural resources and industrial sectors accounting for the largest contributions to revenues.
The purchase price for the acquired assets was $45.4 million, subject to certain working capital adjustments. The acquisition was financed with senior bank debt. The preliminary purchase price is allocated to Pensar's net tangible and intangible assets based upon their estimated fair value as of the date of the acquisition.
On November 25, 2008, Eclipse Aviation Corporation ("Eclipse"), a customer of the Company, announced that it filed a petition for relief under Chapter 11 of the United States Bankruptcy Code. On January 20, 2009, the bankruptcy court approved the sale of certain assets of Eclipse to EclipseJet Aviation International, Inc. ("EclipseJet"), an affiliate of ETIRC Aviation, which was a major shareholder of Eclipse. However, on March 5, 2009, the Eclipse bankruptcy was converted to a Chapter 7 liquidation.
The Eclipse bankruptcy negatively impacted the Company's financial results for the nine months ended March 29, 2009, as discussed in more detail throughout this Management's Discussion and Analysis of Financial Condition and Results of Operations, and in Notes 4 and 5 to the consolidated financial statements filed with this report. The end market for sales to Eclipse was commercial aerospace.
Results of Operations - Three and Nine Months Ended March 29, 2009
Backlog
(in thousands)
March 29, June 29,
Change 2009 2008
Backlog $(35,691 ) $ 185,602 $ 221,293
|
The backlog of unshipped orders at March 29, 2009 was $185.6 million. Included in this backlog is $24.2 million from the newly acquired Appleton location. During the quarter ended December 28, 2008, backlog was reduced by $39.6 million due to the bankruptcy of Eclipse. At June 29, 2008, the Company's backlog included approximately $41.9 million relating to orders from Eclipse.
Approximately $30.4 million of the backlog at March 29, 2009 is scheduled to ship beyond the next 12 months pursuant to the shipment schedules contained in the related contracts. This compares with $48.4 million at June 29, 2008.
Net Sales
(in thousands)
The following table identifies net sales by customers' end markets:
Three Months Ended Nine Months Ended
March 29, March 30, March 29, March 30,
2009 2008 2009 2008
Net sales:
Defense $ 32,302 $ 27,793 $ 96,609 $ 74,243
Natural resources 14,059 17,886 38,978 52,020
Industrial 11,635 14,225 38,601 36,762
Medical 8,150 5,474 17,066 12,998
Government systems 497 2,757 4,087 6,951
Aerospace commercial 2,028 6,096 7,420 15,290
All other 3,545 1,211 5,854 3,420
Total net sales $ 72,216 $ 75,442 $ 208,615 $ 201,684
|
The Pensar acquisition contributed $13.6 million and $13.8 million of sales to the three and nine months ended March 29, 2009, respectively, primarily in the natural resources, industrial and medical market sectors.
The increase in sales to defense customers for the three and nine months ended March 29, 2009, compared with the same periods in the prior fiscal year, is attributable to several contracts for a variety of defense applications including military aircraft, missile systems, radar systems and shipboard programs. For the three and nine months ended March 29, 2009, sales to natural resources customers who do business in the mining and oil-and-gas industries were negatively affected by the overall economic downturn and lower commodity prices. The impact was partially offset by $5.0 million of sales from the Pensar acquisition primarily in the field of wind power generation. Industrial sales were down in the three months ended March 29, 2009, compared with the same period a year earlier. The Pensar acquisition added $1.6 million of industrial sales to the current-year quarter. Industrial sales for the nine months ended March 29, 2009 were up $1.8 million due to strong sales in the fiscal first quarter and the Pensar acquisition. Medical sales increased in the three and nine months ended March 29, 2009 primarily due to the Pensar acquisition, which added $4.2 million of medical sales. Commercial aerospace sales declined in both the three- and nine-month periods ended March 29, 2009, compared with the same periods a year earlier, primarily due to the bankruptcy of Eclipse Aviation and the cessation of shipments to that customer. (See Notes 4 and 5 of the Consolidated Financial Statements for additional information.) The decrease in government systems sales for the three and nine months ended March 29, 2009, compared with the same periods a year earlier, resulted from the completion of a large multiyear order for checked baggage-screening equipment.
Sales to the Company's 10 largest customers represented 58% of total revenue in the third quarter of fiscal 2009, compared with 70% for the same period of fiscal 2008. The Company's top three customers and their relative contributions to sales for the third quarter of fiscal 2009 were as follows: Owens-Illinois, Inc., $8.3 million (11.6%), Raytheon Company, $6.0 million (8.2%), and BAE Systems, Inc., $5.3 million (7.3%). This compares with Owens-Illinois, Inc., $11.8 million (15.6%), Schlumberger Ltd., $8.1 million (10.8%), and Modular Mining, $7.5 million (10.0%), for the third quarter of fiscal 2008.
The Company's top three customers and their relative contributions to sales for the nine months ended March 29, 2009 were as follows: Owens-Illinois, Inc., $30.3 million (14.6%), Schlumberger Ltd., $19.7 million (9.5%), and Raytheon Company, $18.4 million (8.8%). This compares with Owens-Illinois, Inc., $28.4 million (14.1%), Schlumberger Ltd., $23.4 million (11.6%), and Modular Mining, $22.8 million (11.3%), for the nine months ended March 30, 2008.
Cost of Sales and Gross Profit
(dollars in thousands)
Three Months Ended Nine Months Ended
March 29, March 30, March 29, March 30,
2009 2008 2009 2008
Cost of sales $ 57,558 $ 60,410 $ 169,442 $ 161,904
Percent of net sales 79.7 % 80.1 % 81.2 % 80.3 %
Gross profit $ 14,658 $ 15,032 $ 39,173 $ 39,780
Gross profit margin 20.3 % 19.9 % 18.8 % 19.7 %
|
Gross profit margins vary significantly by contract. The most significant factors influencing profitability in a particular period are the mix of contracts and orders with deliveries in that period and the volume of sales in relation to the Company's fixed costs. Delivery schedules are generally determined by the Company's customers. The significant factors that influence the profitability of individual contracts include: (i) the competitive environment in which the contract was bid; (ii) the experience level of the Company in manufacturing the customer's particular product(s); and (iii) the stability of the design of the customer's product(s).
Cost of sales for the three months ended March 29, 2009 decreased by $2.9 million or 4.7%, driven primarily by a sales decline of 4.3% from the same period in the prior fiscal year.
The gross profit margin for the three months ended March 29, 2009 increased by 40 basis points, compared with the three-month period ended March 30, 2008. The acquired Pensar operation increased cost of sales by $12.4 million and gross profit by $1.2 million in the three months ended March 29, 2009, compared with same period a year earlier. The Pensar operation generated gross profit margin of 8.9% in the quarter ended March 29, 2009. The Pensar gross margin was impacted by the step up of work in process and finished goods inventory as part of the allocation of the acquisition purchase price, which added $184,000 to cost of sales recorded by the Pensar operation. Excluding the Pensar operation, gross profit margin would have been 22.9% for the three months ended March 29, 2009, an increase of 300 basis points compared with the same three-month period ended March 30, 2008. This increase is primarily the result of several contracts with lower than average margins and significant sales in the quarter ended March 28, 2008 being substantially completed in the quarter ended December 28, 2008. This lead to a more favorable contract mix in the three months ended March 29, 2009.
Cost of sales for the nine months ended March 29, 2009 increased $7.5 million or 4.7%, compared with the prior year. The increase was driven primarily by a 3.4% increase in sales and the write-down of inventory related to Eclipse Aviation, as discussed in Note 5 to the Consolidated Financial Statements.
The gross profit margin for the nine months ended March 29, 2009 decreased by 90 basis points, compared with the comparable period ended March 30, 2008. The decline in the gross profit margin is primarily the result of the write-down of inventory relating to the Eclipse Aviation bankruptcy, which increased cost of sales and reduced gross profit by $4.2 million. For more details on the Eclipse matter, please see Note 5 to the Consolidated Financial Statements. For the nine months ended March 29, 2009, this write-down of inventory resulted in a 200 basis-point reduction in the reported gross profit margin. The acquired Pensar operation increased cost of sales by $12.6 million and gross profit by $1.2 million in the nine months ended March 29, 2009 versus the comparable period a year earlier. Absent the Eclipse write-off and the impact of the Pensar acquisition, the gross profit margin would have been 21.7% for the nine months ended March 29, 2009, which is 200 basis points higher than the nine months ended March 30, 2008.
Selling and Administrative Expenses
(dollars in thousands)
Three Months Ended Nine Months Ended
March 29, March 30, March 29, March 30,
2009 2008 2009 2008
Selling and administrative expenses $ 7,828 $ 7,689 $ 25,739 $ 22,101
Percent of sales 10.8 % 10.0 % 12.3 % 11.0 %
|
For the three months ended March 29, 2009, selling and administrative expenses increased $139,000, compared with the year-ago period. This is primarily the result of an additional $910,000 related to the Pensar acquisition, offset by declines of $442,000 in compensation expense, $122,000 in professional services expense, and $179,000 in commission expense.
For the nine months ended March 29, 2009, selling and administrative expenses increased $3.6 million, compared with the year ago period. This is primarily the result of an additional $981,000 related to the Pensar acquisition and a $3.7 million increase in the allowance for doubtful accounts related to the bankruptcy of Eclipse, offset by declines of $563,000 in compensation expense and $207,000 of business meeting and travel expense.
Interest Expense
(in thousands)
Three Months Ended Nine Months Ended
March 29, March 30, March 29, March 30,
2009 2008 2009 2008
Interest expense $ 508 $ 392 $ 811 $ 1,206
|
Interest expense increased in the three months ended March 29, 2009 and decreased in the nine months ended March 29, 2009, compared with the year-ago periods.
Average debt levels for the three- and nine-month periods ended March 29, 2009 were $47.4 million and $23.3 million, respectively. The debt level increased in the three-month period ended March 29, 2009 as a result of the Pensar acquisition. Average debt levels for the three- and nine-month periods ended March 30, 2008 were $25.7 million and $23.8 million, respectively.
Average interest rates for the three- and nine-month periods ended March 30, 2008 were 3.9% and 4.0%, respectively. The average interest rate was 5.8% and 6.4% for the three- and nine-month periods ended March 30, 2009, respectively.
Income Tax Expense
(in thousands)
Three Months Ended Nine Months Ended
March 29, March 30, March 29, March 30,
2009 2008 2009 2008
Income tax expense $ 2,506 $ 2,597 $ 4,872 $ 6,170
|
The estimated annual effective tax rate for the three- and nine-month periods ended March 29, 2009 was 39.6%. For the three- and nine-month periods ended March 30, 2008 the estimated annual effective tax rate was 37.5%. The increase in the estimated annual effective tax rate is due to a higher proportion of current year pretax income being derived in states with higher tax rates.
Liquidity and Capital Resources
The following table shows LaBarge's equity and total debt positions:
Stockholders' Equity and Debt
(in thousands)
March 29, June 29,
2009 2008
Stockholders' equity $ 100,295 $ 91,469
Debt 45,528 15,629
|
The Company's operations provided $25.4 million of operating cash flow in the nine months ended March 29, 2009, compared with $5.1 million for the nine months ended March 28, 2008. The Pensar acquisition contributed $900,000 to operating cash flow in the current-year period. The primary driver of the increase was reduced cash disbursements of $22.2 million for inventory purchases and other costs of production. The lower inventory purchases and other production costs were primarily driven by the reduction of sales volume in the Company's second and third quarters of fiscal year 2009, exclusive of the Pensar acquisition, and a reduction of purchases of long lead time materials. This increase in net cash provided by operating activities was partially offset by a reduction in cash advances received from customers for material which was $7.0 million less in the nine months ended March 29, 2009 than in the comparable period in the prior fiscal year.
Also, tax payments made during the nine months ended March 29, 2009 were $2.9 million lower than in the same period in the prior fiscal year due to lower taxable income.
The Company's investing activities used $53.9 million of cash, compared with a use of $3.9 million in the nine months ended March 28, 2008. The primary driver was the $44.9 million used to acquire Pensar (see Note 2 to the Consolidated Financial Statements). In addition, current-year capital expenditures used $8.4 million. The Company's purchases included $2.5 million for the Tulsa manufacturing facility, which had been leased in the prior years, and $3.0 million of surface mount technology equipment to expand the Company's capabilities at its Pittsburgh and Tulsa manufacturing facilities.
The Company's financing activities for the nine months ended March 29, 2009 provided $29.5 million of cash, compared with a use of $1.3 million of cash in the same period last year. This was primarily the result of the borrowing of $35.0 million to finance the Pensar acquisition.
Senior Lender:
The Company amended its senior secured loan agreement on January 30, 2009. The following is a summary of the agreement:
• A revolving credit facility, up to $30.0 million, available for direct borrowings or letters of credit. The facility is based on a borrowing base formula equal to the sum of 85% of eligible receivables and 35% of eligible inventories. As of March 29, 2009, the outstanding loans under the revolving credit facility were $0. As of March 29, 2009, letters of credit issued were $1.1 million, which reduces the available borrowings under the revolving credit facility; and an aggregate of $28.9 million was available under the revolving credit facility. This credit facility matures on December 28, 2011.
• An aggregate $45.0 million term loan, which will begin amortizing in September 2009, at a quarterly rate of $2.0 million, increasing to $2.5 million in September 2010, and increasing to $2.7 million in September 2011. The balance is due on December 28, 2011.
• Interest on the revolving facility and the term loans is calculated at a base rate or LIBOR plus a stated spread based on certain ratios. For the fiscal quarter ended March 29, 2009, the average rate was approximately 3.92%.
• All loans are secured by substantially all the assets of the Company other than real estate.
• Covenants and performance criteria consist of Earnings Before Interest, Taxes, Depreciation and Amortization ("EBITDA") in relation to debt, EBITDA in relation to fixed charges and minimum net worth. The Company was in compliance with its borrowing agreement covenants as of March 29, 2009. The write-off of certain assets related to Eclipse during the nine months ended March 29, 2009 did not impact the Company's debt covenant compliance.
Other Long-Term Debt:
Other long-term debt includes capital lease agreements with outstanding balances
totaling $278,000 at March 29, 2009 and $336,000 at June 29, 2008.
The aggregate maturities of long-term obligations are as follows:
(in thousands)
Fiscal Year 2009 ……………………………………………………… $ 39 2010 ……………………………………………………… 8,162 2011 ……………………………………………………… 10,069 2012 ……………………………………………………… 27,258 2013 ……………………………………………………… --- |
Critical Accounting Policies and Estimates 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 its 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 a periodic basis.
The following discussion of critical accounting policies is intended to bring to the attention of readers those accounting policies that management believes are critical to the Company's consolidated financial statements and other financial disclosures. It is not intended to be a comprehensive list of all of our significant accounting policies that are more fully described in the Notes to the Consolidated Financial Statements included with this quarterly report on Form 10-Q for the quarter ended March 29, 2009 and as referenced in the Company's Annual Report on Form 10-K for the fiscal year ended June 29, 2008.
Revenue Recognition and Cost of Sales
The Company's revenue is derived from products and services delivered to
customers pursuant to contracts. The Company has a significant number of
contracts for which revenue is accounted for under the percentage-of-completion
method using the units-of-delivery as the measure of completion in accordance
withStatement of Position 81-1 "Accounting for Performance of Construction-Type
and Certain Production-Type Contracts" ("SOP 81-1"). The percentage of total
revenue recognized under contracts within the scope of SOP 81-1 is generally
40-60% of total revenue in any given quarter. These are primarily fixed price
contracts and vary widely in terms of size, length of performance period and
expected gross profit margins. Under the units-of-delivery method, the Company
recognizes revenue when title transfers, which is usually upon shipment of the
product or completion of the service.
The Company also sells products under purchase agreements or long-term supply contracts that are not within the scope of SOP 81-1. The Company manufactures goods in ongoing production lines over a long period of time. The Company builds units to the customer specifications based on firm purchase orders issued under the terms of purchase agreements from the customer. The purchase orders tend to be of a relatively short duration and customers place repeat orders on a periodic basis. The pricing is generally fixed for some length of time and the quantities are based on individual purchase orders. Revenue is recognized in accordance with Staff Accounting Bulletin No. 104, "Revenue Recognition." Revenue is recognized on substantially all transactions when title transfers, which is usually upon shipment.
The Company recognizes revenue for contracts that are both within the scope of SOP 81-1 and not within the scope of SOP 81-1, when title transfers which is usually upon shipment.
. . .
|
|