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SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

QUARTERLY REPORT UNDER SECTION 13 or 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934

LaBARGE, INC.

(314) 997-0800

N/A

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 o.

Indicate the number of shares outstanding of each of the Issuer’s classes of common stock as of March 30, 2003 15,773,253 shares of common stock.

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LaBarge, Inc.

FORM 10-Q

For the Quarter Ended March 30, 2003

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             Financial Information (Unaudited)

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LaBARGE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

(dollars in thousands, except per-share data)

See accompanying notes to consolidated financial statements.

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LaBARGE, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(dollars in thousands)

See accompanying notes to consolidated financial statements.

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LaBARGE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

(dollars in thousands)

See accompanying notes to consolidated financial statements.

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LaBARGE, INC.
FORM 10-Q

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1. CONSOLIDATED FINANCIAL STATEMENTS — BASIS OF PRESENTATION

The consolidated balance sheets at March 30, 2003 and June 30, 2002, the related consolidated statements of operations for the three and nine months ended March 30, 2003 and March 31, 2002, and the consolidated statements of cash flows for the nine months ended March 30, 2003 and March 31, 2002, 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 June 30, 2002.

2.     GROSS AND NET SALES

Gross and net sales consist of the following:
(dollars in thousands)

The Company accepts sales discounts from a number of customers in the normal course of business.

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3.     ACCOUNTS AND OTHER RECEIVABLES

Accounts and other receivables consist of the following:
(dollars in thousands)

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 March 30, 2003 and June 30, 2002, other current receivables include $510,000 and $318,000, of customer payments expected to be received as settlement for a prior claim for material under a long-term contract. See Note 11, “Litigations and Contingencies.”

At March 30, 2003, the amounts due from the three largest accounts receivable debtors and the percentage of total accounts receivable those amounts represented were $2.2 million (15.7%), $2.0 million (14.2%) and $1.5 million (10.4%), respectively. This compares with $3.3 million (21.0%), $2.0 million (12.6%) and $1.6 million (10.0%) at June 30, 2002, respectively. The Company does not believe that concentration of accounts receivable is a significant credit risk due to the financial strength of the account debtors and collection experience. See “Results of Operations,” under “Management’s Discussion and Analysis.”

4.     INVENTORIES

Inventories consist of the following:
(dollars in thousands)

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.

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5.     INTANGIBLE ASSETS, NET

Intangible assets, net, is summarized as follows:
(dollars in thousands)

The Company adopted the provisions of Statement 142, “Goodwill and Other Intangible Assets,” in the first quarter ended September 30, 2001. Goodwill amortization expense was $0 for the three and nine months ended March 30, 2003 and March 31, 2002 respectively. The net present value of the cash flow of the operation to which the goodwill relates is sufficient to substantiate that there is no impairment to the value of goodwill. For this calculation, the Company assumes cash flow from operations to continue at current levels over a five-year period.

Software amortization expense was $43,000 and $53,000 for the three months ended March 30, 2003 and March 31, 2002, respectively. Software amortization expense was $137,000 and $131,000 for the nine months ended March 30, 2003 and March 31, 2002, respectively. Software is amortized over a three-year period.

6.     OTHER ASSETS

Other assets is summarized as follows:
(dollars in thousands)

Investments in businesses primarily refers to the Company’s securities in Norwood Abbey, Ltd. Please see Note 2, “Notes to Consolidated Financial Statements,” for additional information.

Restricted cash refers to cash in an escrow account which is related to the sale of the railroad industry portion of the Company’s ScadaNET Network™ remote equipment monitoring business to GE Transportation Systems Global Signaling, LLC. See Note 8, “Discontinued Operations.”

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)

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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 March 30, 2003, the maximum allowable was $13.0 million, net of letters of credit outstanding of $2.0 million. The revolver borrowing at March 30, 2003 was $0. Unused revolving credit available at March 30, 2003 was $13.0 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 began in December 2002 with a final balloon payment due in October 2009. The balance at March 30, 2003 was $6.3 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 4.87%.
•		Covenants and performance criteria consist of Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”) in relation to debt, EBITDA in relation to interest, and minimum tangible net worth. The Company is in compliance with its borrowing agreement covenants as of March 30, 2003.

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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 third quarter or first nine months of fiscal 2003. 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. In January 2003, $1.3 million of the subordinated notes were repaid.

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 March 30, 2003 was $829,000.

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 amounting to approximately $38,000 and $89,000 for the three and nine months ended March 30, 2003, respectively, was recorded to other comprehensive loss.

Other Long-Term Liabilities:

Other long-term liabilities consist of customer advances in the amount of $3.5 million.

The aggregate maturities of long-term obligations are as follows:
(dollars in thousands)

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8.     DISCONTINUED OPERATIONS

On November 1, 2002, LaBarge, Inc. sold the railroad industry portion of its ScadaNET Network™ remote equipment monitoring business to GE Transportation Systems Global Signaling, LLC (“GETS Global Signaling”), Grain Valley, Missouri.

The sale was valued at approximately $6.8 million, including $5.3 million in cash and GETS Global Signaling’s assumption of approximately $1.5 million in certain liabilities. The $5.3 million of cash includes $795,000 held in an escrow account against any claims GETS Global Signaling has for breaches of representations and warranties. The unclaimed balance will be released in equal increments over the next three years on the anniversary date of the sale. LaBarge and GETS Global Signaling have entered into a manufacturing agreement under which LaBarge will continue to produce the ScadaNET hardware. The pricing and other terms of the manufacturing agreement were negotiated as an arms-length contract at market terms. Under a separate service agreement, LaBarge will also provide back-end network services to GETS Global Signaling through the earlier of June 2003 or such date as GETS Global Signaling integrates the service. The Company recognized a pre-tax gain of $2.2 million and a book tax expense of $(2.4 million), netting to a loss of $212,000.

The Company has recorded a deferred tax asset of $1.8 million related to the disposition of assets of the railroad business. Due to the uncertainty of realization of this asset, a reserve of $1.8 million has also been established.

On March 28, 2003, the Company determined it will exit its remaining ScadaNET Network™ business. As a result the remaining assets and liabilities are classified, “discontinued operations.” The results of discontinued operations are divided between the railroad industry portion, sold on November 1, 2002 and other ScadaNET Network business as follows:

9.     CASH FLOWS

Total cash payments for interest for the three and nine months ended March 30, 2003 were $252,000 and $674,000, respectively, compared with $407,000 and $976,000, for the three and nine months ended March 31, 2002, respectively. Net cash payments for federal and state income taxes were $1.8 million and $1.1 million for the three and nine months ended March 30, 2003, respectively, compared with cash payments of $139,000 and $1.4 million for the three and nine months ended March 31, 2002, respectively.

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10.     EARNINGS PER COMMON SHARE

Basic and diluted earnings per share are computed as follows:

Basic earnings per share are calculated using the weighted average number of common shares outstanding during the period. Diluted earnings per share is calculated using the weighted average number of common shares outstanding during the period plus shares issuable upon the assumed exercise of dilutive common share options by using the treasury stock method.

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The number of shares used in the calculation of earnings per share for each period presented is as follows: