<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
________________________________________________________
X QUARTERLY REPORT PURSUANT TO SECTION 13
-----
OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 31, 1995
TRANSITION REPORT PURSUANT TO SECTION
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13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
------- --------
Commission File Number: 33-9464
LOWRANCE ELECTRONICS, INC.
------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
Delaware 44-0624411
- ---------------------- -------------------------
State of Incorporation IRS Identification Number
12000 East Skelly Drive
Tulsa, Oklahoma 74128
----------------------------------------
(Address of Principal Executive Offices)
Registrant's telephone number, including area code: (918) 437-6881
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
----- -----
At October 31, 1995, there were 3,352,458 shares of Registrant's $0.10 par value
Common Stock outstanding.
<PAGE>
LOWRANCE ELECTRONICS, INC.
--------------------------
FORM 10-Q
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INDEX
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PAGE
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PART I. FINANCIAL INFORMATION
ITEM 1. Condensed Consolidated Balance Sheets -
October 31, 1995, 1994, and July 31, 1995........... 3
Consolidated Statements of Operations -
Three Months Ended October 31, 1995 and 1994........ 4
Consolidated Statements of Cash Flows -
Three Months Ended October 31, 1995 and 1994........ 5
Notes to Condensed Consolidated Financial Statements 6 - 9
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations....... 10-11
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings................................... 12
ITEM 2. Changes in Securities............................... 12
ITEM 3. Defaults Upon Senior Securities..................... 12
ITEM 4. Submission of Matters to a Vote of Security Holders. 12
ITEM 5. Other Information................................... 12
ITEM 6. Exhibits and Reports on Form 8-K.................... 12
SIGNATURES .................................................... 13
- 2 -
<PAGE>
LOWRANCE ELECTRONICS, INC.
--------------------------
CONDENSED CONSOLIDATED BALANCE SHEETS
----------------------------------------
(IN THOUSANDS)
<TABLE>
<CAPTION>
Oct. 31, Oct. 31, July 31,
1995 1994 1995
-------- -------- --------
(Unaudited) (Unaudited) (Audited)
<S> <C> <C> <C>
ASSETS
------
CURRENT ASSETS:
Cash and cash equivalents $ 294 $ 919 $ 643
Accounts receivable, less allowances 9,026 9,193 10,665
Inventories (Note 2) 20,418 14,736 17,976
Prepaid expenses 735 618 479
Deferred income taxes 1,870 2,045 1,326
Income tax refunds receivable - 1,066 -
------- ------- -------
Total current assets $32,343 $28,577 $31,089
PROPERTY, PLANT, AND EQUIPMENT, net (Note 2) 10,336 8,395 8,691
OTHER ASSETS 496 176 448
------- ------- -------
$43,175 $37,148 $40,228
======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Current maturities of long-term debt (Note 3) $ 4,277 $ 3,058 $ 3,499
Accounts payable 9,211 9,152 7,494
Accrued liabilities 4,690 4,418 5,319
------- ------- -------
Total current liabilities $18,178 $16,628 $16,312
DEFERRED INCOME TAXES 510 436 489
LONG-TERM DEBT, less current
maturities (Note 3) 12,161 9,203 9,975
STOCKHOLDERS' EQUITY:
Preferred stock, 300,000 shares authorized,
none issued - - -
Common stock, $.10 par value,
10,000,000 shares authorized,
3,352,458 shares issued $ 335 $ 335 $ 335
Paid-in capital 5,600 5,600 5,600
Retained earnings 6,486 5,036 7,661
Foreign currency translation adjustment (95) (90) (144)
------- ------- -------
Total stockholders' equity $12,326 $10,881 $13,452
------- ------- -------
$43,175 $37,148 $40,228
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these
consolidated balance sheets.
- 3 -
<PAGE>
LOWRANCE ELECTRONICS, INC.
--------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
------------------------
Oct. 31, Oct. 31,
1995 1994
-------- --------
(in thousands)
<S> <C> <C>
NET SALES $13,967 $14,215
COST OF SALES 9,249 9,950
------- -------
Gross profit $ 4,718 $ 4,265
OPERATING EXPENSES:
Selling and administrative $ 4,975 $ 4,866
Research and development 762 739
------- -------
Total operating expenses $ 5,737 $ 5,605
------- -------
Operating loss $(1,019) $(1,340)
------- -------
OTHER EXPENSES:
Interest expense $ 351 $ 264
Other, net 307 252
------- -------
Total other expenses $ 658 $ 516
------- -------
LOSS BEFORE
INCOME TAXES $(1,677) $(1,856)
BENEFIT FOR
INCOME TAXES (502) (653)
------- -------
NET LOSS $(1,175) $(1,203)
======= =======
LOSS PER COMMON SHARE:
NET LOSS PER SHARE $ (.35) $ (.36)
======= =======
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 3,352 3,352
======= =======
DIVIDENDS NONE NONE
======= =======
</TABLE>
The accompanying notes are an integral part of these
consolidated statements.
- 4 -
<PAGE>
LOWRANCE ELECTRONICS, INC.
--------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(Unaudited) (Note 6)
<TABLE>
<CAPTION>
Three Months Ended
--------------------------
October 31, October 31,
1995 1994
------------ ------------
(in thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $ (1,175) $ (1,203)
Adjustments to reconcile net loss to net cash (used in)
provided by operating activities:
Depreciation 644 608
Loss on retirement of fixed assets 30 58
Changes in operating assets and liabilities:
Decrease (Increase) in accounts receivable 1,639 (35)
Increase in inventories (2,442) (1,858)
Increase in prepaids, deferred
income taxes, and other assets (848) (489)
Increase in liabilities and other 1,158 3,154
-------- --------
Net cash (used in) provided by operating activities $ (994) $ 235
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures $ (818) $ (179)
-------- --------
Net cash used in investing activities $ (818) $ (179)
CASH FLOWS FROM FINANCING ACTIVITIES (Note 3):
Borrowings under lines of credit $ 17,117 $ 14,247
Repayments of borrowings under lines of credit (16,806) (13,988)
Borrowings under new term loan agreement 1,506 -
Principal payments on term loans and capital
lease obligations (354) (372)
-------- --------
Net cash provided by (used in) financing activities $ 1,463 $ (113)
-------- --------
Net decrease in cash and cash equivalents $ (349) $ (57)
CASH AND CASH EQUIVALENTS - beginning of period 643 976
-------- --------
CASH AND CASH EQUIVALENTS - end of period $ 294 $ 919
======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated statements.
- 5 -
<PAGE>
LOWRANCE ELECTRONICS, INC.
--------------------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
(Unaudited)
(1) PRINCIPLES OF PREPARATION
The financial statements included herein have been prepared by the Company,
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to
such rules and regulations, although the Company believes that the
disclosures contained herein are adequate to make the information presented
not misleading. Accounting policies for the three months ended October 31,
1995, are the same as those outlined in the Annual Report on Form 10-K filed
relative to the year ended July 31, 1995. In the opinion of management, all
adjustments necessary for a fair presentation of interim results of
operations have been made to the interim statements. All such adjustments
were of a normal, recurring nature. Certain reclassifications have been made
to the October 31, 1994, consolidated financial statements to conform to the
October 31, 1995, consolidated financial statements. The condensed
consolidated financial statements should be read in conjunction with the
consolidated financial statements and the notes thereto included in the
Company's Annual Report filed with the Securities and Exchange Commission on
Form 10-K.
(2) BALANCE SHEET DETAIL
Inventories -
-----------
Inventories are priced at the lower of cost (first-in, first-out) or
market and consist of the following:
<TABLE>
<CAPTION>
Oct. 31, Oct. 31, July 31,
1995 1994 1995
-------- -------- ---------
(in thousands)
<S> <C> <C> <C>
Raw materials $ 8,667 $ 7,051 $ 7,670
Work-in-process 4,995 4,356 4,764
Finished goods 7,579 3,813 6,332
Excess, obsolete, and
realization reserves (823) (484) (790)
------- ------- -------
Total inventories $20,418 $14,736 $17,976
======= ======= =======
</TABLE>
Property, Plant, and Equipment, Net -
-----------------------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Land $ 557 $ 557 $ 557
Building and improvements 3,630 3,392 3,420
Machinery and equipment 19,597 17,041 17,546
Office furniture and equipment 4,627 4,119 4,592
------- ------- -------
$28,411 $25,109 $26,115
Less - accumulated depreciation 18,075 16,714 17,424
------- ------- -------
Net property, plant, and equipment $10,336 $ 8,395 $ 8,691
======= ======= =======
</TABLE>
- 6 -
<PAGE>
(3) LONG-TERM DEBT AND REVOLVING CREDIT LINE
Long-term debt and revolving credit line are summarized below:
<TABLE>
<CAPTION>
Oct. 31, Oct. 31, July 31,
1995 1994 1995
-------- -------- --------
(in thousands)
<S> <C> <C> <C>
Revolving credit line $ 8,004 $ 6,204 $ 7,693
Term loan 3,474 2,745 2,037
Capitalized equipment lease obligations,
payable in monthly installments of
approximately $140,000 including
interest at rates from 7% to 13%,
with final payments ranging from
June 1995 through November 2000 4,960 3,312 3,744
------- ------- -------
$16,438 $12,261 $13,474
Less - current maturities 4,277 3,058 3,499
------- ------- -------
Total long-term debt $12,161 $ 9,203 $ 9,975
======= ======= =======
</TABLE>
Future maturities of the above debt obligations at October 31, 1995, are
$4,277,000, $1,757,000, $1,137,000, $8,108,000, and $1,159,000 for the years
ending October 31, 1996 through 2000, respectively.
The Company has a $30 million financing facility. The financing consists of
a $3.5 million term loan together with a $26.5 million revolving credit
line. The revolving credit line provides for borrowings based on varying
percentages of qualifying categories of receivables and inventories and,
together with the term loan was originally to mature in December 1996.
Borrowings against inventories are limited to $11 million in total.
During October 1995, the Company's $30 million financing package was
amended. Significant provisions of the amendment include: 1) The due date
was extended to December 1998 from December 1996; 2) The interest rate for
the revolver was reduced from prime plus 1.00% to prime plus .75%; and 3)
The term loan was funded to its original $3.5 million amount with monthly
principal payments of $23,167 plus interest at prime plus 1.5%. Additional
principal payments of $500,000 will be due on May 31, 1996 and May 31, 1997
with the remaining principal due in December 1998. In addition to the
financing described above, the Company has arranged a $2.5 million lease
line to finance its qualifying capital additions during fiscal 1996 of which
$1.5 million has been utilized as of October 31, 1995.
Current maturities for the revolving credit line are estimated based on
future results and collateral limitations. The terms of the foregoing
agreement include a commitment fee based on the unused portion of the bank
credit line in lieu of compensating balances.
The agreement requires, among other things, that the Company maintain a
minimum tangible net worth and limits the ratio of total liabilities to
tangible net worth. Additionally, the agreement limits capital expenditures
and capital leases. Violation of any of these provisions would constitute
an event of default which, if not cured, would empower the lender to declare
all amounts immediately payable.
The Company's indebtedness is collateralized by substantially all of the
Company's assets.
- 7 -
<PAGE>
(4) STOCKHOLDERS' EQUITY
During the three months ended October 31, 1995, stockholders' equity changed
for the following items: Net loss of ($1,175,000) and a $49,000 decrease in
the negative Foreign Currency translation adjustment.
(5) INCOME TAXES
The Company has adopted Statement No. 109 of the Financial Accounting
Standards Board which requires an asset and liability approach to financial
accounting and reporting for income taxes. The difference between the
financial statement and tax bases of assets and liabilities is determined
and deferred tax assets or liabilities are computed for those differences
that have future tax consequences. The Company's deferred tax liability
arises solely from the use of accelerated depreciation methods for tax
purposes. The Company has a deferred tax asset resulting from reserves for
product costs, bad debts, and compensation and benefits. The Company
determined that no valuation allowance is necessary as of October 31, 1995.
(6) CONSOLIDATED STATEMENTS OF CASH FLOWS
The Company acquired $1,501,000 and $138,000 in equipment under capital
lease obligations during the three months ended October 31, 1995, and
October 31, 1994, respectively. These transactions were accounted for as
non-cash investing and financing activities and, therefore, are not included
in the Consolidated Statements of Cash Flows. During the three months ended
October 31, 1995, and October 31, 1994, the Company paid interest of
$351,000 and $264,000, respectively.
(7) UNUSUAL ITEM
On January 10, 1995, the Company entered into a Settlement Agreement with
Computrol, Inc., resolving a patent infringement lawsuit filed against the
Company in November 1993. This legal proceeding was previously disclosed by
the Company on its Form 10-Q in Item 1 of Part II filed with the Securities
and Exchange Commission on March 15, 1994, June 15, 1994, December 15, 1994,
March 17, 1995, June 14, 1995, and the Company's 8-K, in Item 5, filed on
January 11, 1995, as well as in Item 3 of Part I of the Company's Form 10-
K's filed on October 29, 1994 and October 30, 1995.
The Settlement Agreement called for four payments beginning January 10,
1995, and ending June 30, 1995, totaling $1,000,000 in exchange for a mutual
release and settlement of the lawsuit. All required payments were made by
the Company in fiscal 1995.
The Company also entered into a License Agreement with Computrol, Inc., and
paid a one-time license fee of $100,000. The License Agreement allows the
Company to use the Computrol patent on any new products or the existing
product which was the subject of the lawsuit.
At this time, the Company has no current products that utilize the
technologies covered by this License Agreement and has no immediate plans to
produce and market such products. Accordingly, the $100,000 license fee
along with the $1 million settlement amount has been expensed in full in
fiscal 1995.
- 8 -
<PAGE>
(8) FOOTNOTES INCORPORATED BY REFERENCE
Certain footnotes are applicable to the consolidated financial statements
but would be substantially unchanged from those presented on Form 10-K filed
with the Securities and Exchange Commission on October 30, 1995.
Accordingly, reference should be made to the Company's Annual Report filed
with the Securities and Exchange Commission on Form 10-K for the following:
Note Description
---- -------------------------------------------------------
1 Business and Summary of Significant Accounting Policies
4 Capital Leases
5 Stockholders' Equity and Related Items
6 Retirement Plans
7 Income Taxes
- 9 -
<PAGE>
PART I, ITEM 2
- --------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS
- ----------------------
Net sales for the three months ended October 31, 1995, decreased 1.7% compared
to the same period in 1994. Unit sales decreased 16%, and the price per unit
increased 15% for the three months ended October 31, 1995, compared to the same
period in fiscal 1995. The decreased unit sales resulted primarily from
decreased sales of the Company's higher volume, lowest priced Eagle products
(under $150 retail), coupled with decreased sales to original equipment
manufacturers (OEM's). The unit decreases in the lowest-priced Eagle products
were partially offset by increases in mid-priced ($200 to $350 retail) and
highest-priced (over $350 retail) Lowrance products. The average selling price
per unit increased for the three months ended October 31, 1995, compared to
fiscal 1995 resulting primarily from the increase in unit sales of the highest-
priced Lowrance units and the corresponding decrease in the lowest-priced Eagle
products. The Company's 1996 product offering consists of nine new products.
The Company began shipping five of the new products during the first quarter in
limited quantities.
Gross profit as a percentage of net sales increased 3.8% for the three months
ended October 31, 1995, compared to the same period in fiscal 1995. The 3.8%
increase is attributable to (1) the shift in mix of the products sold to the
higher-priced/higher margin units, (2) the Company's 1995 product offering which
contained margins significantly higher than the 1994 product offering, did not
start shipping in volume until the second quarter of 1995 and, as a result,
margins suffered early in fiscal 1995.
Operating expenses as a percentage of net sales for the three months ended
October 31, 1995, were 41.1% compared to 39.4% for the same period in fiscal
1995. Total costs increased by $132,000. The increase relates to increased
marketing costs associated with the Company's 1996 product offering, increased
research and development expenditures as the Company continues to develop new
products and the 1.7% decrease in net sales discussed above.
The Company's effective income tax rate is lower in 1996, resulting from, A)
the formation of a Foreign Sales Corporation to take advantage of tax incentives
related to export sales, B) state tax credits which have been generated from
increases in employment and capital spending, and C) increased tax credits
related to research and development expenditures.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Company's working capital needs increase in the fall and winter months as
the Company manufactures and stockpiles its products for the peak sales months
of January through May.
The Company's primary sources of liquidity are cash flow from operations and an
accounts receivable and inventory line of credit. The line of credit allows the
Company to borrow certain percentages of its qualifying accounts receivable and
inventories. Borrowings from inventories, however, are limited to $11 million
in total and $3.25 million for raw materials. The terms of the line of credit,
including the October 1995 amendment, are described in Notes to Condensed
Consolidated Financial Statements contained elsewhere in this report.
Net cash used in operating activities increased $1.2 million during the first
three months of fiscal 1996 over the same period in fiscal 1995. This increase
resulted primarily from a larger increase in inventory levels during the first
three months of fiscal 1996 versus the first three months of fiscal 1995,
coupled with a smaller increase in accounts payable. The above were offset by a
$1.6 million decrease in accounts receivable during 1996 versus a slight
increase during the same period in fiscal 1995.
- 10 -
<PAGE>
The increase in inventory build-up during the first quarter of fiscal 1996
versus fiscal 1995 relates to (1) management's belief that sales levels for
fiscal year 1996 will surpass 1995 levels, necessitating higher inventory
levels. (2) The Company continues to maintain higher safety stocks of certain
key raw material parts. These parts are used in the computer and cellular phone
industries which have been subject to a worldwide shortage, and (3) The Company
continues to "level-load" production from its Mexican manufacturing facility
which leads to higher inventory levels during the first quarter. The smaller
increase in accounts payable relates primarily to the additional term loan
financing of $1.5 million received in October 1995 which was used for the most
part to pay down accounts payable. The decrease in accounts receivable relates
to collections for 1996 exceeding 1995 based primarily on the higher accounts
receivable balance at July 31, 1995, versus July 31, 1994. Higher sales levels
during the fourth quarter of fiscal 1995 versus 1994, particularly toward the
end of the quarter, lead to the higher accounts receivable balance.
Capital expenditures (including leased assets) were $2,000,000 higher during the
first three months of fiscal 1996 than the first three months of fiscal 1995.
The increase relates to capital additions necessary to increase production
capacity to meet expected demand and to produce new products for 1996.
OUTLOOK
- -------
Current backlog is approximately $11 million compared to approximately $23
million at October 31, 1994. The decrease in the backlog number can be
attributed to continuing changes in distribution and customer purchasing
patterns, especially with some of the Company's larger customers. Additionally,
the Company was behind on shipments of product for most of 1994 and during the
first quarter of 1995. As a result, during this period, customers were more apt
to place orders in advance. Inventory availability has not been a significant
issue for several months and as a result of this as well as the distribution and
purchasing pattern changes discussed above, advance orders for the Company's
products have decreased when compared to last year. It should be noted that the
fall and winter backlog numbers are not necessarily indicative of sales trends
for the year. Also, while the backlog numbers are supported by purchase orders
from customers, cancellations and/or delays of requested delivery times can, and
often do, occur.
The Company currently anticipates continued profitability for fiscal 1996,
primarily as a result of continuing economic growth and favorable market
conditions as well as increased advertising and marketing efforts aimed at
strengthening existing customer relationships as well as expanding the customer
base. Management believes that sales levels and profitability through the
second quarter will be below fiscal 1995 levels based primarily on the timing of
shipments of new products and changes in buying patterns of certain larger key
customers. This will increase the Company's dependence on sales and profits
during the peak sales months. It should be noted that the earnings history of
the Company has been sporadic including several years in which the Company
incurred a net loss. Additionally, because of the dynamic environment in which
the Company operates, any one of several factors, including but not limited to
perceived general economic conditions, weather conditions, raw material
availability and new product introductions by competitors, could rapidly
deteriorate, any one of which could have an adverse effect on expected results
for the remainder of the year.
Management expects inventory levels by July 31, 1996, to be below inventory
levels at July 31, 1995. The Company does not expect substantial realization
problems with inventory.
- 11 -
<PAGE>
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
Not applicable
Item 2. Changes in Securities
---------------------
Not applicable
Item 3. Defaults upon Senior Securities
-------------------------------
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
Not applicable
Item 5. Other Information
-----------------
Not applicable
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
Not applicable
- 12 -
<PAGE>
SIGNATURES
----------
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.
LOWRANCE ELECTRONICS, INC.
By: /s/ Mark C. Wilmoth
-------------------------------------
Mark C. Wilmoth
Vice President Finance &
Chief Financial Officer
Dated: December 15, 1995
---------------------------
- 13 -
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUL-31-1996
<PERIOD-START> AUG-01-1995
<PERIOD-END> OCT-31-1995
<CASH> 294
<SECURITIES> 0
<RECEIVABLES> 9,537
<ALLOWANCES> 511
<INVENTORY> 20,418
<CURRENT-ASSETS> 32,343
<PP&E> 28,411
<DEPRECIATION> 18,075
<TOTAL-ASSETS> 43,175
<CURRENT-LIABILITIES> 18,178
<BONDS> 0
<COMMON> 335
0
0
<OTHER-SE> 11,991
<TOTAL-LIABILITY-AND-EQUITY> 43,175
<SALES> 13,967
<TOTAL-REVENUES> 13,967
<CGS> 9,249
<TOTAL-COSTS> 14,986
<OTHER-EXPENSES> 307
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 351
<INCOME-PRETAX> (1,667)
<INCOME-TAX> (502)
<INCOME-CONTINUING> (1,175)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,175)
<EPS-PRIMARY> (.35)
<EPS-DILUTED> (.35)
</TABLE>
