<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
--- OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 31, 1996
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
--- OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______
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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, 1996, 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
----
PART I. FINANCIAL INFORMATION
ITEM 1. Condensed Consolidated Balance Sheets -
October 31, 1996, 1995, and July 31, 1996................... 3
Consolidated Statements of Operations -
Three Months Ended October 31, 1996 and 1995................ 4
Consolidated Statements of Cash Flows -
Three Months Ended October 31, 1996 and 1995................ 5
Notes to Condensed Consolidated Financial Statements......... 6-8
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations............... 9-10
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings............................................ 11
ITEM 2. Changes in Securities........................................ 11
ITEM 3. Defaults Upon Senior Securities.............................. 11
ITEM 4. Submission of Matters to a Vote of Security Holders.......... 11
ITEM 5. Other Information............................................ 11
ITEM 6. Exhibits and Reports on Form 8-K............................. 11
SIGNATURES............................................................. 12
-2-
<PAGE>
LOWRANCE ELECTRONICS, INC.
--------------------------
CONDENSED CONSOLIDATED BALANCE SHEETS
----------------------------------------
(IN THOUSANDS)
<TABLE>
<CAPTION>
Oct. 31, Oct. 31, July 31,
1996 1995 1996
----------- ----------- -----------
(Unaudited) (Unaudited) (Audited)
ASSETS
------
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 457 $ 294 $ 621
Accounts receivable, less allowances 9,827 9,026 12,821
Inventories (Note 2) 22,525 20,418 20,773
Prepaid expenses 555 735 631
Deferred income taxes 2,678 1,870 1,304
------- ------- -------
Total current assets $36,042 $32,343 $36,150
PROPERTY, PLANT, AND EQUIPMENT, net (Note 2) 11,213 10,336 10,043
OTHER ASSETS 1,199 496 915
------- ------- -------
$48,454 $43,175 $47,108
======= ======= =======
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Current maturities of long-term debt (Note 3) $ 3,557 $ 4,277 $ 5,019
Accounts payable 14,459 9,211 8,158
Accrued liabilities 3,996 4,690 4,464
------- ------- -------
Total current liabilities $22,012 $18,178 $17,641
DEFERRED INCOME TAXES 628 510 566
LONG-TERM DEBT, less current
maturities (Note 3) 12,966 12,161 13,705
Series "A" Redeemable Preferred Stock,
$.50 par value, 70,000 shares authorized
and issued in 1996 - - -
STOCKHOLDERS' EQUITY:
Preferred stock, 300,000 shares authorized,
none issued in 1995 and 230,000 authorized,
none issued in 1996 - - -
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 7,033 6,486 9,404
Foreign currency translation adjustment (120) (95) (143)
------- ------- -------
Total stockholders' equity $12,848 $12,326 $15,196
------- ------- -------
$48,454 $43,175 $47,108
======= ======= =======
</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,
1996 1995
-------- --------
(in thousands)
<S> <C> <C>
NET SALES $14,110 $13,967
COST OF SALES 10,038 9,249
------- -------
Gross profit $ 4,072 $ 4,718
OPERATING EXPENSES:
Selling and administrative $ 5,999 $ 4,975
Research and development 1,025 762
------- -------
Total operating expenses $ 7,024 $ 5,737
------- -------
Operating loss $(2,952) $(1,019)
------- -------
OTHER EXPENSES:
Interest expense $ 404 $ 351
Other, net 292 307
------- -------
Total other expenses $ 696 $ 658
------- -------
LOSS BEFORE
INCOME TAXES $(3,648) $(1,677)
BENEFIT FOR
INCOME TAXES (1,277) (502)
------- -------
NET LOSS $(2,371) $(1,175)
======= =======
LOSS PER COMMON SHARE:
NET LOSS PER SHARE $ (.71) $ (.35)
======= =======
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 5)
<TABLE>
<CAPTION>
Three Months Ended
--------------------------
October 31, October 31,
1996 1995
------------ ------------
(in thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $ (2,371) $ (1,175)
Adjustments to reconcile net loss to net cash (used in)
provided by operating activities:
Depreciation 633 644
Loss on retirement of fixed assets 4 30
Changes in operating assets and liabilities:
Decrease in accounts receivable 3,003 1,639
Increase in inventories (1,752) (2,442)
Increase in prepaids, deferred
income taxes, and other assets (1,582) (848)
Increase in liabilities and other 5,909 1,158
--------
Net cash provided by (used in) operating activities $ 3,844 $ (994)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures $ (1,806) $ (818)
-------- --------
Net cash used in investing activities $ (1,806) $ (818)
CASH FLOWS FROM FINANCING ACTIVITIES (Note 3):
Borrowings under lines of credit $ 14,521 $ 17,117
Repayments of borrowings under lines of credit (16,333) (16,806)
Borrowings under new term loan agreement - 1,506
Principal payments on term loans and capital
lease obligations (390) (354)
-------- --------
Net cash provided by (used in) financing activities $ (2,202) $ 1,463
-------- --------
Net decrease in cash and cash equivalents $ (164) $ (349)
CASH AND CASH EQUIVALENTS - beginning of period 621 643
-------- --------
CASH AND CASH EQUIVALENTS - end of period $ 457 $ 294
======== ========
</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,
1996, are the same as those outlined in the Annual Report on Form 10-K
filed relative to the year ended July 31, 1996. 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, 1995, consolidated financial statements
to conform to the October 31, 1996, consolidated financial statements.
These reclassifications had no impact on the net loss. 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,
1996 1995 1996
-------- -------- --------
(in thousands)
<S> <C> <C> <C>
Raw materials $ 8,877 $ 8,667 $ 5,985
Work-in-process 6,902 4,995 4,998
Finished goods 7,524 7,579 10,466
Excess, obsolete, and realization reserves (778) (823) (676)
------- ------- -------
Total inventories $22,525 $20,418 $20,773
======= ======= =======
</TABLE>
Property, Plant, and Equipment, Net -
-----------------------------------
<TABLE>
<S> <C> <C> <C>
Land $ 557 $ 557 $ 557
Building and improvements 4,485 3,630 3,766
Machinery and equipment 22,061 19,597 20,880
Office furniture and equipment 4,730 4,627 4,824
------- ------- -------
$31,833 $28,411 $30,027
Less - accumulated depreciation 20,620 18,075 19,984
------- ------- -------
Net property, plant, and equipment $11,213 $10,336 $10,043
======= ======= =======
</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,
1996 1995 1996
-------- -------- --------
(in thousands)
<S> <C> <C> <C>
Revolving credit line $ 9,712 $ 8,004 $11,524
Term loan 2,696 3,474 2,766
Capitalized equipment lease obligations,
payable in monthly installments of approx-
imately $160,000 including interest at rates
from 7% to 13%, with final payments ranging
from April 1997 through July 2001 4,115 4,960 4,434
------- ------- -------
$16,523 $16,438 $18,724
Less - current maturities 3,557 4,277 5,019
------- ------- -------
Total long-term debt $12,966 $12,161 $13,705
======= ======= =======
</TABLE>
Future maturities of the above debt obligations at October 31, 1996, are
$3,557,000, $1,773,000, $10,022,000, $997,000, and $174,000 for the years
ending October 31, 1997 through 2001, respectively.
The Company has a $30 million financing package which consists of a $3.5
million term loan together with a $26.5 million revolving credit line. The
financing package expires in December 1998. The term loan is payable in
monthly installments of $23,167 plus interest at national prime (currently
8.25%) plus 1.5%. A principal payment for the term loan of $500,000 was
paid on May 31, 1996, and another principal payment of $500,000 is payable
on May 31, 1997. The revolving credit line provides for borrowings up to
$26.5 million based on varying percentages of qualifying categories of
receivables and inventories and carries an interest rate of national prime
plus .75%. Borrowings against inventories are limited to $12 million in
total.
During November 1996, $500,000 was refunded on the term loan to be repaid
on May 31, 1998.
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.
(4) STOCKHOLDERS' EQUITY
During the three months ended October 31, 1996, stockholders' equity
changed for the following items: Net loss of ($2,371,000) and a $23,000
decrease in the negative Foreign Currency translation adjustment.
-7-
<PAGE>
(5) CONSOLIDATED STATEMENTS OF CASH FLOWS
The Company acquired $1,501,000 in equipment under capital lease
obligations during the three months ended October 31, 1995. 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, 1996, and October
31, 1995, the Company paid interest of $404,000 and $351,000, respectively.
(6) 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, 1996.
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
-8-
<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, 1996, increased 1% compared to
the same period in 1995. Unit sales which include sonar units, combination
sonar/navigation units and stand alone navigation units decreased by 3.1% and
the average price per unit increased by 4.0%
Unit sales decreased due to lower sales of the Company's sonar products. Sales
during the first quarter, which is historically the weakest quarter due to the
seasonal nature of the marine market, are heavily influenced by the timing of
new products. For fiscal 1997, the Company announced six new sonar products,
none of which began shipping during the first quarter. Correspondingly the
Company discontinued sonar products which shipped only in minimal quantities in
the first quarter of fiscal 1997 as substantially all remaining inventory was
sold during the fourth quarter of fiscal 1996. During the first quarter of
fiscal 1996 no products were discontinued.
Reduced unit sales for sonar products were partially offset by increased sales
of GPS units. The increase in the average price per unit resulted from
increased sales of the higher priced GPS products.
Gross profit as a percentage of new sales decreased 4.9% for the three months
ended October 31, 1996, compared to the same period last year. This decrease
resulted from the discontinuation of sonar products noted above. The products
which were discontinued represent the bulk of the Company's mid and upper priced
sonar models which generally carry higher gross profit margins. Also
contributing to the decline were price reductions made on three of the Company's
existing GPS products for competitive market reasons.
Operating expenses as a percentage of net sales for the three months ended
October 31, 1996, were 49.8% compared to 41.1% for the same period in fiscal
1996. Total costs increased by $1,287,000. The increase relates to increased
marketing costs associated with the Company's 1997 product offering and
increased research and development expenditures as the Company continues to
develop new products.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
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 $12 million
in total. The terms of the line of credit are described in Notes to Condensed
Consolidated Financial Statements contained elsewhere in this report.
Traditionally, the Company's near-term liquidity is at its lowest during the
period August through December due to the limits on borrowings against
inventories, cash outlays required to purchase tooling to manufacture new
products, and extended payment terms offered to customers to stimulate sales
during the seasonally slow period. It is during this period that the Company
begins to manufacture and build-up inventory levels in anticipation of product
demands for the peak sales months. By the end of the second quarter sales
historically increase and the Company's sources of liquidity begin to improve.
-9-
<PAGE>
In 1996, the Company announced plans to expand its Mexican manufacturing
operation to meet increasing demand for its products, particularly GPS models.
The Company entered into a long-term lease for a new manufacturing facility and
is responsible for funding a large portion of the leasehold improvements
necessary for the building to meet its specific production needs. In addition
to funding the leasehold improvements, it was necessary to build additional
inventory levels during the last few months of fiscal 1996 to support sales
during the first quarter of fiscal 1997 when the Company transitioned some of
its production operations to Mexico.
As is consistent with prior years, the Company was at maximum borrowing limits
through the first quarter of fiscal 1997, and expects to be at the maximum limit
throughout the second quarter. Because of this, the Company must delay payments
to vendors during these months. Management does not expect any significant
long-term effect from these delayed payments as most vendors have supplied the
Company for years and the overall financial performance of the Company was
improved in 1996 compared to the previous year.
The decrease in the build-up of inventory during the first quarter of fiscal
1997 versus fiscal 1996 resulted from beginning the normal first quarter
inventory build-up during the fourth quarter of 1996 in order to facilitate the
transition of production to the Company's new Mexican facility. The larger
decrease in accounts receivable during the first quarter of 1997 when compared
to the same period last year results from higher collections during 1997, based
on the higher accounts receivable balance at July 31, 1996, versus July 31,
1995. The increase in trade payables results from these delays in payments to
vendors described above.
Capital expenditures were $1,000,000 higher during the first three months of
fiscal 1997 than the first three months of fiscal 1996. The increase relates to
capital additions necessary to increase production capacity to meet expected
demand and to produce new products for fiscal 1997.
OUTLOOK
- -------
Current backlog is approximately $21 million compared to approximately $12
million at the same time last year. This increase is attributable to the
expansion of the Company's GPS product offering to include a portable model
priced at under $200 retail and strong market place acceptance of the Company's
additional 1997 product offering which includes seven new models of sonar and
GPS products. Most of these new models will not begin shipping until late in
the second quarter. It should be noted that 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 profitability for fiscal 1997, primarily as a
result of continuing economic growth and favorable market conditions, increased
advertising and marketing efforts aimed at strengthening existing customer
relationships as well as expanding the customer base and the markets acceptance
of the Company's new and expanded sonar and GPS product offering. Management
believes that profitability through the first half of fiscal 1997 will be below
fiscal 1996 levels based primarily on the timing of shipments of new products.
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 would have an adverse affect on expected results for the remainder of the
year.
-10-
<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
-11-
<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 16, 1996
---------------------------
-12-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUL-31-1997
<PERIOD-START> AUG-01-1996
<PERIOD-END> OCT-31-1996
<CASH> 457
<SECURITIES> 0
<RECEIVABLES> 10,146
<ALLOWANCES> 319
<INVENTORY> 22,525
<CURRENT-ASSETS> 36,042
<PP&E> 31,833
<DEPRECIATION> 20,620
<TOTAL-ASSETS> 48,454
<CURRENT-LIABILITIES> 22,012
<BONDS> 0
0
0
<COMMON> 335
<OTHER-SE> 12,513
<TOTAL-LIABILITY-AND-EQUITY> 48,454
<SALES> 14,110
<TOTAL-REVENUES> 14,110
<CGS> 10,038
<TOTAL-COSTS> 17,062
<OTHER-EXPENSES> 292
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 404
<INCOME-PRETAX> (3,648)
<INCOME-TAX> (1,277)
<INCOME-CONTINUING> (2,371)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,371)
<EPS-PRIMARY> (.71)
<EPS-DILUTED> (.71)
</TABLE>
