LaBarge Inc.

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LaBarge Inc.

9900A Clayton Road
Post Office Box 14499
St. Louis, Missouri 63178
U.S.A.
Telephone: (314)997-0800
Fax: (314)812-9438
Web site: http://www.labarge.com

Public Company
Incorporated: 1953 as LaBarge Pipe and Steel Company
Employees: 800
Sales: $79.61 million (2000)
Stock Exchanges: American
Ticker Symbol: LB
NAIC: 33429 Other Communications Equipment Manufacturing; 334417 Electronic Connector Manufacturing; 334418 Printed Circuit Assembly (Electronic Assembly)Manufacturing; 335999 All Other Miscellaneous Electrical Equipment and Component Manufacturing

LaBarge Inc. manufactures electronic components and systems for specialized applications, such as environments with high levels of vibration and heat. Defense-related contracting provided slightly less than half the company’s revenues in the late 1990s. The company has gone to a great deal of expense trying to enter rising new markets. Only the traditional Manufacturing Services Group was profitable in 2000, however.

Origins

LaBarge Inc. began its existence in 1953 as a St. Louis steel pipe distributor called LaBarge Pipe and Steel Company. The firm formed a separate tubing division in 1966 and entered the electronics business in late 1967, merging with Tulsa-based Dorsett Electronics Inc. Dorsett’s primary markets were the aerospace, communications, and medical industries. LaBarge Steel and Pipe was renamed simply LaBarge Inc. after the merger.

Nelson Concrete was acquired in 1969 and the next year LaBarge entered the medical electronics field. Soon, the company introduced a prosthetic voice box called the VoiceBak. The 3 oz. plastic device was worn outside the patient’s neck and was operated manually, unlike electronic neck resonators. At the same time, the Dorsett Electronics subsidiary was introducing a new system of aircraft escape seats.

Nevertheless, LaBarge’s greatest growth was coming from its more traditional lines of business. The company continued to expand its tubular steel business throughout the 1970s. Tubular steel accounted for 80 percent of LaBarge’s 1974 earnings of $6.5 million. LaBarge Tubular was formed in Canada in 1976. The company also expanded its wire and cable offerings. In 1975, it announced a new 50,000-square-foot wire and cable plant in California. Pretax income rose 40 percent in 1978 alone; sales of tubular steel were up 23 percent. In 1980, LaBarge announced plans to open a $1.6 million steel tube distribution center near Birmingham, Alabama.

LaBarge acquired Omni Duralite Co. in 1982, entering the furniture business. Another 1982 acquisition, A. Baldwin & Co., was a New Orleans-based distributor of tubular steel pipe with sales of about $12 million a year.

Restructuring in the 1980s

In 1984, LaBarge sold its steel business at a $12 million loss to a management group led by Pierre LaBarge III, son of the founder. (In 1992, LaBarge Inc. agreed to pay $300,000 to settle an antitrust case related to alleged price-fixing by this unit in the late 1970s and early 1980s.)In 1986, LaBarge sold its furniture company, also at a loss. After defaulting on the debt it had taken on to acquire that company in October 1986, LaBarge exchanged its debentures for shares of preferred stock.

Soon, Cincinnati investment firm Pacholder Associates, owning a significant minority of both preferred and common stock, tried to force founder Pierre L. LaBarge, Jr., and two other directors out of the board. A complicated stock buyback scheme deflected this threat.

LaBarge undertook a partial restructuring in the late 1980s. Japan’s Sanwa Bank provided $18 million of credit to finance this after the company bought back millions of dollars in preferred stock. By 1989, the three-year-long restructuring process was beginning to show some results in terms of increased sales and profits, thanks to a new emphasis on low-cost production and a focus on electronics. Sales reached $69 million in fiscal 1989; profits of $4.4 million were double those of the year before. The company had also cut its debt from $57 million in 1987 to $28 million, not including $8 million in preferred stock.

Defense work accounted for about 80 percent of LaBarge’s revenues in the late 1980s. The company also supplied the aerospace, computer, and medical diagnostic equipment industries. Net earnings rose slightly to $502,000 in 1990, although sales slipped a bit to $17.7 million. Net earnings for the fiscal year ended June 30, 1991 were $2.5 million—up 50 percent from the previous year, as sales reached $73 million.

Expanding in the 1990s

In 1991, LaBarge signed a five-year, $2 million contract to have a unit of McDonnell Douglas Inc. electronically link LaBarge’s six factories with its headquarters. Unfortunately, McAuto (which McDonnell soon sold to EDS) consistently failed to meet price objectives, and LaBarge transferred the work to May & Speh, Inc. of Illinois.

Craig E. LaBarge succeeded his father, Pierre L. LaBarge, Jr., as CEO in August 1991. Pierre LaBarge retained the title of chairman. Craig LaBarge had been company president since 1986; he also had been president of the LaBarge Electronics unit for several years prior to that.

The company refinanced its debt again in 1992, giving it the ability to pursue potential acquisitions or expansions. The refinancing eliminated the company’s most expensive class of debt-convertible preferred stock.

At first, LaBarge seemed to benefit from the post-Glasnost cuts in military spending that had major defense contractors downsizing throughout the early 1990s. The company subcontracted to make electrical cables, wiring harnesses, printed circuits, and other electronic parts. In 1991, the company employed more than 1,200 people at factories in Missouri, Oklahoma, and Arkansas.

By the mid-1990s, it had become apparent that its defense electronics business was facing dwindling prospects. In 1994, LaBarge agreed to sell its Arkansas operations to Avnet Inc. The plant there, which manufactured cable assemblies, had accounted for a quarter of LaBarge’s revenues. Avnet paid LaBarge $10.5 million in cash and assumed $3 million of liabilities.

LaBarge employed 650 people in Arkansas, Missouri, and Oklahoma in 1995. It had net sales of $61.7 million, down from $73.1 million in 1994 and $81.6 million in 1993. Profits fell to $1.3 million from $2.4 million in 1994 and $1.9 million in 1993.

In 1996, LaBarge acquired SOREP Technology Corporation, a Houston firm that manufactured high temperature electronic assemblies used in the oil business. Its revenues were about $6 million a year. The subsidiary was renamed LaBarge/STC, Inc.; its acquisition cost LaBarge $3.1 million.

LaBarge Clayco Wireless L.L.C., a 1996 joint venture with Clayco Construction Company, provided interconnection systems and cell site services to major infrastructure vendors and telecom service providers. The focus on high-growth industries paid off handsomely in 1996, when LaBarge experienced a 408 percent profit surge, reported the St. Louis Post-Dispatch. In January of the year, newly licensed mobile phone service providers began flocking to LaBarge Clayco.

In 1993, LaBarge contracted to manufacture a small medical laser that could collect blood samples without the risk of handling needles or lancets. FDA approval for the Laser Lancet finally came in 1997. These blood laser perforators had been developed by Venisect Inc. of Little Rock, Arkansas (soon renamed Transmedica International, Inc.). The company claimed that 3,000 medical workers in the United States every year were accidentally pricked by sharps contaminated with the HIV virus; deadly hepatitis B could be spread the same way.

Also in October 1997, LaBarge acquired 10 percent of one-year-old Open Cellular Systems, Inc., a St. Louis-based provider of telecom products. (LaBarge would buy the remaining shares for $5.8 million in March 1999.)

By the end of 1997, it appeared that LaBarge would meet its ambitious goal to raise annual revenues to $200 million by 2000. Yet, a lack of visibility among analysts kept its stock price from rebounding in the bull market of the late 1990s, noted the Post-Dispatch.

The company continued to pick up lucrative defense orders in the late 1990s despite its focus on more rapidly growing markets. Lockheed Martin contracted it to produce electronic assemblies for the U.S. Navy’s AEGIS Weapons System. (Lockheed Martin sales accounted for nearly a quarter of LaBarge’s total revenues.)The company also was supplying cable assemblies for the Space Shuttle and printed circuit board assemblies for military radar systems. In 1997, LaBarge had a 52/48 percent ratio of commercial sales to defense sales.

Company Perspectives:

LaBarge’s operating philosophy is to build close relationships with our customers, working to provide them total solutions rather than just selling them products or services. Our objective is to work in tandem with our customers to create the results they need to achieve their goals. To accomplish this, we often participate at the concept stage of a project’s development, providing input on design, engineering, cost and “manufacturability. “Later, project management teams oversee the manufacturing process from prototype through full-scale manufacturing.

LaBarge invested in Transmedica, formerly Venisect, its medical laser partner. By 1998, LaBarge owned 9.5 percent of its common stock. In June 1999, Transmedica defaulted on payment of a $2 million note due LaBarge, which had yet to make a profit on this relationship. In December 1999, LaBarge settled litigation pending with Transmedica, taking $2.2 million and shares in Norwood Abbey, an Australian medical device manufacturer that acquired Transmedica.

Open Cellular Systems, Inc. (OCS) was acquired in March 1999, forming the basis of LaBarge’s Network Technologies Group. LaBarge had bought a 10 percent share of OCS for $500,000 in October 1997; it paid $5.6 million for the remainder of shares.

Slimming Down Again in 1999

LaBarge reorganized into three groups in August 1999: Manufacturing Services, LaBarge Clayco Wireless, and Network Technologies. Electronics manufacturing remained LaBarge’s core line of business. Network Technologies Group’s ScadaNET Network for remotely monitoring rail crossings was gaining acceptance in the railroad industry, however.

In fiscal 1999, LaBarge bought an additional 39 percent of the LaBarge Clayco Wireless joint venture from Clayco Construction Company for $300,000, bringing its ownership to 90 percent. In June 2000, LaBarge sold its 90 percent interest in LaBarge Clayco Wireless to Phoenix-based Evolution Holdings, Inc. for $4.7 million.

Energy companies reduced their capital expenditures in the late 1990s, resulting in a sales decline at LaBarge’s related units. LaBarge posted loss of $3.9 million and $1.9 million in 1999 and 2000 as annual revenues approached $80 million—down from 1998’s $95.6 million.

One enterprise that LaBarge would not focus on was its short-lived joint venture with Global Research Systems, Inc. called Noticom L.L.C. Its BusCall service electronically informed parents when their children’s school buses would be late. Although installed in a number of school districts beginning in 1998, LaBarge exited the venture early in 2001, taking a $2.6 million write-off.

Principal Divisions

Manufacturing Services; Network Technologies.

Principal Operating Units

Telecommunications; Geophysical; Aerospace and Defense; Network Technologies Group—ScadaNET Network.

Principal Competitors

General Cable Corporation; Raytheon Company; Schlumberger Limited.

Key Dates:

1953:: LaBarge Pipe and Steel Company is founded.
1967:: LaBarge merges with Dorsett Electronics.
1975:: A big new wire and cable plant is built in California.
1982:: LaBarge enters furniture business.
1984:: LaBarge sells steel business at a loss.
1986:: LaBarge sells furniture business at a loss.
1993:: LaBarge contracts to develop Laser Lancet blood-collecting device.
1994:: Arkansas cable manufacturing operations are sold.
1996:: LaBarge buys SOREP Technology Corporation, forms Clayco Wireless joint venture.
1999:: Remainder of Open Cellular Systems is acquired.
2000:: LaBarge Clayco Wireless is sold.
2001:: LaBarge writes off its Noticom investment.