<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 April 30, 1996
TRANSITION REPORT PURSUANT TO SECTION 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 June 12, 1996, there were 3,352,458 shares of Registrant's $0.10 par value
Common Stock outstanding.
<PAGE>
LOWRANCE ELECTRONICS, INC.
--------------------------
FORM 10-Q
---------
INDEX
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PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ITEM 1. Condensed Consolidated Balance Sheets -
April 30, 1996, 1995, and July 31, 1995............. 3
Consolidated Statements of Operations -
Three Months and Nine Months Ended
April 30, 1996 and 1995............................. 4
Consolidated Statements of Cash Flows -
Nine Months Ended April 30, 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....... 9-11
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
</TABLE>
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<PAGE>
LOWRANCE ELECTRONICS, INC.
--------------------------
CONDENSED CONSOLIDATED BALANCE SHEETS
----------------------------------------
(IN THOUSANDS)
<TABLE>
<CAPTION>
Apr. 30, Apr. 30, July 31,
1996 1995 1995
-------- ------- -------
(Un- (Un-
audited) audited) (Audited)
ASSETS
------
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 494 $ 720 $ 643
Accounts receivable, less allowances 18,850 19,272 10,665
Inventories (Note 2) 21,407 17,717 17,976
Prepaid expenses 349 336 479
Deferred income taxes 1,368 1,326 1,326
------- ------- -------
Total current assets $42,468 $39,371 $31,089
PROPERTY, PLANT, AND EQUIPMENT, net (Note 2) 10,011 8,335 8,691
OTHER ASSETS 614 306 448
------- ------- -------
$53,093 $48,012 $40,228
======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Current maturities of long-term debt (Note 3) $ 9,757 $10,195 $ 3,499
Short-term debt (Note 7) - 560 -
Accounts payable 9,306 7,615 7,494
Accrued liabilities 5,239 5,743 5,319
------- ------- -------
Total current liabilities $24,302 $24,113 $16,312
DEFERRED INCOME TAXES 648 489 489
LONG-TERM DEBT, less current
maturities (Note 3) 13,904 9,983 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 8,343 7,662 7,661
Foreign currency translation adjustment (39) (170) (144)
------- ------- -------
Total stockholders' equity $14,239 $13,427 $13,452
------- ------- -------
$53,093 48,012 $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 Nine Months Ended
------------------- -------------------
April 30, April 30, April 30, April 30,
1996 1995 1996 1995
------- ------- ------- -------
(in thousands) (in thousands)
<S> <C> <C> <C> <C>
NET SALES $32,761 $32,151 $67,420 $71,783
COST OF SALES 20,813 20,481 43,778 47,356
------- ------- ------- -------
Gross profit $11,948 $11,670 $23,642 $24,427
OPERATING EXPENSES:
Selling and administrative $ 7,074 $ 6,840 $17,961 $17,000
Research and development 906 749 2,512 2,224
Unusual Item (Note 7) - - - 1,100
------- ------- ------- -------
Total operating expenses $ 7,980 $ 7,589 $20,473 $20,324
------- ------- ------- -------
Operating income $ 3,968 $ 4,081 $ 3,169 $ 4,103
------- ------- ------- -------
OTHER EXPENSES:
Interest expense $ 553 $ 510 $ 1,382 $ 1,118
Other, net 341 376 934 923
------- ------- ------- -------
Total other expenses $ 894 $ 886 $ 2,316 $ 2,041
------- ------- ------- -------
INCOME BEFORE
INCOME TAXES $ 3,074 $ 3,195 $ 853 $ 2,062
PROVISION FOR
INCOME TAXES 837 1,014 171 639
------- ------- ------- -------
NET INCOME $ 2,237 $ 2,181 $ 682 $ 1,423
======= ======= ======= =======
INCOME PER COMMON SHARE:
NET INCOME PER SHARE $ .67 $ .65 $ .20 $ .42
======== ======= ====== =======
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 3,352 3,352 3,352 3,352
====== ====== ===== =====
DIVIDENDS NONE NONE 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>
Nine Months Ended
----------------------
April 30, April 30,
1996 1995
---------- ----------
(in thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 682 $ 1,423
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation 1,927 1,848
(Gain) Loss on retirement of fixed assets 58 (7)
Changes in operating assets and liabilities:
Increase in accounts receivable (8,185) (10,114)
Increase in inventories (3,431) (4,839)
Decrease (Increase) in prepaids, deferred
income taxes, and other assets (78) 1,304
Increase in short-term debt (Note 7) - 560
Increase in liabilities and other 1,996 3,059
-------- --------
Net cash used in operating activities $ (7,031) $ (6,766)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures $ (1,526) $ (1,165)
-------- --------
Net cash used in investing activities $ (1,526) $ (1,165)
CASH FLOWS FROM FINANCING ACTIVITIES (Note 3):
Borrowings under line of credit $ 67,421 $ 70,304
Repayments of borrowings under line of credit (59,341) (61,795)
Borrowings under term loan agreement 1,506 -
Principal payments on term loans and capital
lease obligations (1,178) (834)
-------- --------
Net cash provided by financing activities $ 8,408 $ 7,675
-------- --------
Net decrease in cash and cash equivalents $ (149) $ (256)
CASH AND CASH EQUIVALENTS - beginning of period 643 976
-------- --------
CASH AND CASH EQUIVALENTS - end of period $ 494 $ 720
======== ========
</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 nine months ended
April 30, 1996, 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. 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>
Apr. 30, Apr. 30, July 31,
1996 1995 1995
--------- --------- ---------
(in thousands)
<S> <C> <C> <C>
Raw materials $ 8,440 $ 8,335 $ 7,670
Work-in-process 4,989 2,886 4,764
Finished goods 9,146 7,259 6,332
Excess, obsolete, and realization reserves (1,168) (763) (790)
------- ------- ------
Total inventories $21,407 $17,717 $17,976
======= ======= =======
Property, Plant, and Equipment, Net -
-----------------------------------
Land $ 557 $ 557 $ 557
Building and improvements 3,781 3,385 3,420
Machinery and equipment 20,380 17,895 17,546
Office furniture and equipment 4,644 4,241 4,592
------- ------- -------
$29,362 $26,078 $26,115
Less - accumulated depreciation 19,351 17,743 17,424
------- ------- -------
Net property, plant, and equipment $10,011 $ 8,335 $ 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>
Apr. 30, Apr. 30, July 31,
1996 1995 1995
-------- -------- --------
(in thousands)
<S> <C> <C> <C>
Revolving credit line $15,773 $14,422 $ 7,693
Term loan 3,335 2,606 2,037
Capitalized equipment lease obligations,
payable in monthly installments of approx-
imately $145,000 including interest at rates
from 7% to 13%, with final payments ranging
from August 1996 through March 2001 4,553 3,150 3,744
------- ------- -------
$23,661 $20,178 $13,474
Less - current maturities 9,757 10,195 3,499
------- ------- -------
Total long-term debt $13,904 $ 9,983 $ 9,975
======= ======= =======
</TABLE>
Future maturities of the above debt obligations at April 30, 1996, are
$9,757,000, $1,750,000, $10,839,000, $503,000, and $812,000 for the years
ending April 30, 1997 through 2001, 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.
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 (currently 8.25%) 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 $1.8 million has been utilized as of April 30, 1996.
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 nine months ended April 30, 1996, stockholders' equity changed for
the following items: Net income of $682,000 and a $105,000 decrease in the
negative Foreign Currency translation adjustment.
-7-
<PAGE>
(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 April 30, 1996.
(6) CONSOLIDATED STATEMENTS OF CASH FLOWS
The Company acquired $1,779,000 and $267,000 in equipment under capital lease
obligations during the nine months ended April 30, 1996, and April 30, 1995,
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 nine months ended April 30, 1996 and
1995, the Company paid interest of $1.4 million and $1.1 million,
respectively. Additionally, an income tax refund of $1.1 million was
received during the nine months ended April 30, 1995.
(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.
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. At April 30, 1995, the unpaid portion
of the Settlement Agreement, $560,000, is reflected in the Condensed
Consolidated Balance Sheets as Short-term debt.
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 was expensed in full in the nine-
month period ending April 30, 1995.
(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
-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 April 30, 1996, increased 1.9% compared to
the same period in 1995. Unit sales decreased 3.4% and the average price per
unit increased 5.4%. The decrease in unit sales was attributable to lower sales
of most of the Company's Eagle sonar products which generally carry lower prices
and lower margins. The Eagle sonar products are sold primarily to mass
merchants, mail-order catalog companies, retail sporting goods stores and
wholesalers. Management believes that the following factors contributed to the
reduced Eagle sonar sales; 1.) lack of new breakthroughs in technology for the
sonar industry in general, 2.) inventory dollars at retailers, historically
committed to sonar, are being redirected to Global Positioning System (GPS)
products, 3.) an unusually cold winter and cool spring in many of the Company's
key markets in the United States. The target market for Eagle sonar products is
more affected by adverse weather, 4.) a generally weak fishing tackle market,
and 5.) reduced sales to one of the Company's mass merchant retailers.
Additionally, sonar sales to Original Equipment Manufacturers (OEM's) were down
from 1995 levels. OEM sonar sales are down in line with an overall decrease in
new boat production versus 1995.
Reduced unit sales for sonar products were partially offset by increased sales
of the Company's GPS products. The increase in GPS sales resulted from the
continuing expansion of this market as well as the introduction of a new
portable GPS product with mapping capabilities which began shipping in late
March 1996. The increase in the average price per unit resulted from decreased
sales of the Eagle and OEM sonar products offset by increased sales of the
higher priced GPS products.
Gross profit as a percentage of net sales increased slightly from 36.3% to 36.5%
for the three months ended April 30, 1996, compared to the same period in fiscal
1995.
Net sales for the nine months ended April 30, 1996 decreased 6.1% compared to
the same period in fiscal 1995. Unit sales decreased 15.1% while the average
price per unit increased 10.1%. The decrease in unit sales and increase in
average selling price results from the factors discussed above, combined with
modest increases in sales of Lowrance brand sonar products during the nine
months ended April 30, 1996, when compared to the same period in 1995. The
Lowrance sonar products are sold primarily to wholesalers and retailers who
possess basic knowledge of installation, use and service of the products and can
pass on such knowledge to customers. The Company has increased efforts in the
sales and marketing areas aimed at strengthening the Lowrance distribution and
dealer network and, as a result, sales have shown modest increases.
Gross profit as a percentage of net sales for the nine months ended April 30,
1996 was 35.1% compared to 34% for the same period in 1995. This increase is
primarily attributable to; 1.) decreased sales of Eagle sonar and OEM products
which generally carry lower margins, and 2.) increased sales of Lowrance
products which generally carry higher margins.
Operating expenses as a percentage of net sales for the three months ended April
30, 1996, were 24.4% compared to 23.6% during the same period in 1995. Total
operating expenses increased $391,000. The increase results from increases in
Advertising and Marketing and Research and Development. The increase in
Advertising and Marketing expense results from the Company's efforts to expand
its retail distribution network and to expand consumer awareness of its GPS
products. The increase in Research and Development results from the Company's
emphasis on new product development, primarily GPS.
Operating expenses as a percentage of net sales for the nine months ended April
30, 1996, were 30.4% compared to 28.3% for the same period in 1995. Total
operating expenses increased $149,000. The increase relates to Advertising and
Marketing and Research and Development as discussed above offset by a one time
charge of $1.1 million in January 1995, related to the Settlement and Licensing
Agreement with Computrol, Inc.
-9-
<PAGE>
Interest expense is up for both the three-month and nine-month periods ending
April 30, 1996, compared to fiscal 1995, because of higher average borrowing
levels on the Company's term loan and revolving credit facility.
The Company's effective income tax rate is lower for 1996, resulting from 1.)
the formation of a Foreign Sales Corporation to take advantage of incentives
related to export sales, 2.) state tax credits which have been generated from
increases in employment and capital spending, and 3.) 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
are described in Notes to Condensed Consolidated Financial Statements contained
elsewhere in this report.
Net cash used in operating activities increased by $265,000 during the first
nine months of fiscal 1996 compared to the same period in fiscal 1995. This
increase results from a smaller net income, receipt of a $1.1 million income tax
refund in fiscal 1995 and an increase in short-term debt related to the
Computrol settlement in 1995. These items were offset by reduced working
capital increases during the first nine months of 1996 compared to the same
period in 1995.
Capital expenditures (including leased assets) were $1.9 million higher during
the first nine months of fiscal 1996 than the first nine months of fiscal 1995,
due to capital additions to expand production capacity and to support production
of new products.
The net cash used in operating activities during the first nine months of fiscal
1996 was financed primarily through borrowings under the Company's revolving
line of credit and the increase in the term loan of $1.5 million.
FORWARD-LOOKING INFORMATION
- ---------------------------
Current backlog is approximately $7.4 million compared to approximately $7.3
million in May 1995. It should be noted that the 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.
Sales during the first nine months of 1996 were negatively impacted by a
generally weak retail environment, particularly during the first six months of
fiscal 1996, with a corresponding reluctance on the part of many retailers to
take large, early-season sonar stocking orders. Also, as discussed above under
Results of Operations, Eagle sonar sales through April have been less than
planned for the reasons outlined. Additionally, GPS sales levels were below
expectations due to later than planned shipments of two new portable products
with background mapping capabilities. However, GPS sales continue to increase,
impacted by the expanding market and new product introductions. In recent
weeks, the Company has seen an increase in retail sales of its sonar products at
certain outlets. Additionally, the Company plans to begin shipment of two new
GPS products in May and June and expects that demand for these models will
remain strong throughout the remainder of the year. Management believes that
Eagle and Lowrance sonar sales for the fourth quarter of 1996 will exceed 1995
levels and that GPS sales for the fourth quarter will be up significantly when
compared to 1995 levels. Management feels that these factors will result in
increased sales and profits during the last three months of fiscal 1996 when
compared to the same period in fiscal 1995. Further, the Company currently
anticipates modest gains in sales and profits for the entire fiscal year ending
July 31, 1996, compared to fiscal 1995.
-10-
<PAGE>
Management currently expects inventory levels at July 31, 1996, to be above
inventory levels at July 31, 1995, by 15 to 20 percent. The increased inventory
levels will be needed to support the relocation of certain manufacturing
functions to its Mexican plant. This move is planned for August and September
of 1996, and will require a build up of finished goods inventory as production
during this period will be limited. The Company does not expect substantial
realization problems with inventory.
This report includes forward-looking statements within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934. Management believes that its expectations are based on reasonable
assumptions. No assurances, however, can be given that its goals will be
achieved. 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, new product
introductions by competitors or unexpected delays with the Company's new
products currently expected for release during the last three months of 1996,
could rapidly deteriorate. Any one of these variables could cause actual
results to differ materially from those in the forward-looking statements
included herein.
-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
--------------------------------
(a.) Exhibit (4.4): The Certificate of the Designation of Preferences,
Rights and Limitations of the Lowrance Electronics, Inc. Series "A"
Preferred Stock.
(b.) On May 21, 1996, the Company filed a Form 8-K, dated May 20, 1996
(for an event occurring on May 13, 1996), which 8-K is hereby
incorporated herein by this reference and made a part hereof. The
Company's Form 8-K reports the issuance on May 13, 1996 of 70,000 shares
of Series "A" Preferred Stock in a private placement to five key officers
(Darrell J. Lowrance - President and Chief Executive Officer, 20,000
shares; Ronald G. Weber - Executive Vice-President of Technology and
Engineering, 20,000 shares; Steven L. Schneider - Senior Vice-President
of Sales and Marketing, 10,000 shares; Terry R. Nimmo - Vice-President of
Manufacturing and Materials, 10,000 shares and Mark C. Wilmoth - Vice-
President of Finance and Treasurer, 10,000 shares) of the Company. The
Series "A" Preferred Stock has been issued for a term of ten (10) years
for a purchase price of $6.88 per share and is non-voting, paying a non-
cumulative dividend of 2 1/2c per share. Each share of Series "A"
Preferred Stock is convertible into five (5) shares of the Company's
common stock at a cash purchase price of $5.00 per share of common stock,
but only if (i) the Chief Executive Officer of the Company sells in
excess of 30% of his common stock in the Company, or (ii) the Company
sells substantially all of its assets and operations to a third party.
See Exhibit (4.4) attached hereto (Certificate of the Designation of
Preferences, Rights and Limitations of the Lowrance Electronics, Inc.
Series "A" Preferred Stock) for more detail on the Company's Series "A"
Preferred Stock. The Company financed the total purchase price of
$481,250.00 for the five key officers of the Company pursuant to five
separate Promissory Notes each bearing interest at Chase prime and five
separate Security Agreements; all of such Series "A" Preferred Stock
issued by the Company (70,000 shares) is pledged to the Company to secure
the five Promissory Notes.
-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: June 14, 1996
-----------------------
-13-
<PAGE>
CERTIFICATE OF THE DESIGNATION OF
PREFERENCES, RIGHTS AND LIMITATIONS
OF THE LOWRANCE ELECTRONICS, INC.
SERIES "A" PREFERRED STOCK
- --------------------------------------------------------------------------------
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
- --------------------------------------------------------------------------------
We, Darrell J. Lowrance, President, and Robert F. Biolchini, Secretary, of
Lowrance Electronics, Inc. (the "Corporation"), a corporation organized and
existing under the General Corporation Law of the State of Delaware, in
accordance with the provisions of Section 151 thereof, do hereby certify:
That pursuant to authority conferred upon the Board of Directors of the
corporation by the Certificate of Incorporation of the Corporation, as amended
(the "Certificate of Incorporation"), said Board of Directors, at a meeting duly
held and convened on February 28, 1996, at which a quorum was present and acting
throughout, duly authorized and adopted the following resolution providing for
the issuance of 70,000 shares of a series of the Corporation's Preferred Stock
of the par value of $.50 per share, to be designated "Series "A" Preferred
Stock":
"RESOLVED, that the officers of the Company be and they hereby are
authorized to file a Certificate of Designation Preferences, Rights and
Limitations for the Lowrance Electronics, Inc., Series A Preferred Stock
pursuant to Section 151 of the general corporate laws of the State of Delaware
with the Secretary of State of Delaware, and
"RESOLVED, that pursuant to Article IV of the Certificate of Incorporation
of the Company, that the Board of Directors hereby expressly authorizes the
issuance of 70,000 shares of Series "A" Preferred Stock ("Preferred Stock")
issued for a term of ten (10) years, having the following rights, limitations,
preferences, powers and designations: The Series "A" Preferred Stock
("Preferred Stock") upon issuance shall be (i) nonvoting stock, no par value;
and (ii) allow the declaration of a noncumulative dividend payable at 2 1/2c per
share annually on such Preferred Stock, if and when declared by the Board of
Directors of the Company; and (iii) nontransferable and nonpledgable Preferred
Stock (except (a) if pledged to the Company by the holder to secure the purchase
price for such Preferred Stock; and (b) except upon the death of the holder when
Preferred Stock may be transferred to the holder's estate pursuant to the
holder's will); and (iv) with such Preferred Stock to be surrendered to the
Company by the holder for the price paid by the
<PAGE>
holder if the holder elects to leave the employment of the Company); and (v)
with each share of Preferred Stock convertible into five shares of Common Stock
of the Company at the purchase price of Five Dollars ($5.00) per share of Common
Stock (payable by the holder to the Company at conversion) which conversion is
permitted only upon the occurrence of either one of the following events: (a)
ninety (90) days after the sale by the Chief Executive Officer of the Company of
in excess of 30% of the Common Stock of the Company currently (February 28,
1996) directly owned by the Chief Executive Officer (exclusive of any stock
options or Series "A" Preferred Stock) by sale in a private placement or public
offering or through Rule 144 sales; or (b) upon the sale by the Company of all
or substantially all of the Company's assets and operations to a third party.
All rights under the Series "A" Preferred Stock shall terminate ten (10) years
after the date first issued and the holder shall surrender such Series "A"
Preferred Stock to the Company for zero consideration for cancellation at the
end of ten years and thereafter such Series "A" Preferred Stock shall be null
and void and of no value."
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
signed by Darrell J. Lowrance, President and Chief Executive Officer, and its
corporate seal to be hereunto affixed and attested by Robert F. Biolchini, as
Secretary, this 30th day of April, 1996, and each of said persons by his
signature hereto affirms that this Certificate is his act and deed and the act
and deed of said Corporation, and that the facts stated therein are true.
LOWRANCE ELECTRONICS, INC.
By /s/ DARRELL J. LOWRANCE
-------------------------------------
DARRELL J. LOWRANCE
President and Chief Executive Officer
[SEAL]
Attest:
/S/ ROBERT F. BIOLCHINI
- -----------------------------
Robert F. Biolchini
(Secretary)
2
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<PAGE>
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<FISCAL-YEAR-END> JUL-31-1996
<PERIOD-START> AUG-01-1995
<PERIOD-END> APR-30-1996
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0
0
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