<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, 1997
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 April 30, 1997, there were 3,352,458 shares of Registrant's $0.10 par value
Common Stock outstanding.
<PAGE>
LOWRANCE ELECTRONICS, INC.
--------------------------
FORM 10-Q
---------
INDEX
-----
PAGE
----
PART I. FINANCIAL INFORMATION
ITEM 1. Condensed Consolidated Balance Sheets -
April 30, 1997, 1996, and July 31, 1996............. 3
Consolidated Statements of Operations -
Three Months and Nine Months Ended
April 30, 1997 and 1996............................. 4
Consolidated Statements of Cash Flows -
Nine Months Ended April 30, 1997 and 1996.......... 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................................... 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>
April 30, April 30, July 31,
1997 1996 1996
----------- ----------- ---------
(Unaudited) (Unaudited) (Audited)
<S> <C> <C> <C>
ASSETS
------
CURRENT ASSETS:
Cash and cash equivalents $ 698 $ 494 $ 621
Accounts receivable, less allowances 23,811 18,850 12,821
Inventories (Note 2) 32,799 21,407 20,773
Prepaid expenses 638 349 1,304
Deferred income taxes 2,484 1,326 631
------- ------- -------
Total current assets $60,430 $42,468 $36,150
PROPERTY, PLANT, AND EQUIPMENT,
net (Note 2) 11,559 10,011 10,043
OTHER ASSETS 1,138 614 915
------- ------- -------
$73,127 $53,093 $47,108
======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Current maturities of long-term debt
(Note 3) $15,613 $ 9,757 $ 5,019
Accounts payable 26,453 9,306 8,158
Accrued liabilities 4,255 5,239 4,464
------- ------- -------
Total current liabilities $46,321 $24,302 $17,641
DEFERRED INCOME TAXES 449 648 566
LONG-TERM DEBT, less current
maturities (Note 3) 13,622 13,904 13,705
SERIES "A" REDEEMABLE PREFERRED STOCK,
$.50 par value, 70,000 shares authorized
and issued in 1996 and 1997 - - -
STOCKHOLDERS' EQUITY:
Preferred stock, 230,000 shares
authorized, None issued in 1996 and 1997 - - -
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 6,996 8,343 9,404
Foreign currency translation adjustment (196) (39) (143)
------- ------- -------
Total stockholders' equity $12,735 $14,239 $15,196
------- ------- -------
$73,127 $53,093 $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 Nine Months Ended
-------------------- ------------------
April 30, April 30, April 30, April 30,
1997 1996 1997 1996
--------- --------- -------- ---------
(in thousands) (in thousands)
<S> <C> <C> <C> <C>
NET SALES $39,594 $32,761 $73,818 $67,420
COST OF SALES 28,602 20,813 53,050 43,778
------- ------- ------- -------
Gross profit $10,992 $11,948 $20,768 $23,642
OPERATING EXPENSES:
Selling and administrative $ 6,924 $ 7,074 $18,778 $17,961
Research and development 943 906 2,994 2,512
------- ------- ------- -------
Total operating expenses $ 7,867 $ 7,980 $21,772 $20,473
------- ------- ------- -------
Operating income (loss) $ 3,125 $ 3,968 $(1,004) $ 3,169
------- ------- ------- -------
OTHER EXPENSES:
Interest expense $ 734 $ 553 $ 1,607 $ 1,382
Other, net 530 341 1,093 934
------- ------- ------- -------
Total other expenses $ 1,264 $ 894 $ 2,700 $ 2,316
------- ------- ------- -------
INCOME (LOSS) BEFORE
INCOME TAXES $ 1,861 $ 3,074 $(3,704) $ 853
PROVISION (BENEFIT) FROM 652 837 (1,296) 171
------- ------- ------- -------
INCOME TAXES
NET INCOME (LOSS) $ 1,209 $ 2,237 $(2,408) $ 682
======= ======= ======= =======
INCOME (LOSS) PER COMMON SHARE:
NET INCOME (LOSS) PER SHARE $ .36 $ .67 $ (.72) $ .20
======= ======= ======= =======
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 5)
<TABLE>
<CAPTION>
Nine Months Ended
----------------------
April 30, April 30,
1997 1996
---------- ----------
(in thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (2,408) $ 682
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 1,917 1,927
(Gain) Loss on retirement of fixed assets (7) 58
Changes in operating assets and liabilities:
Increase in accounts receivable (10,990) (8,185)
Increase in inventories (12,026) (3,431)
Increase in prepaids, deferred
income taxes, and other assets (1,410) (78)
Increase in liabilities and other 17,917 1,996
-------- --------
Net cash used in operating activities $ (7,007) $ (7,031)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures $ (2,365) $ (1,526)
-------- --------
Net cash used in investing activities $ (2,365) $ (1,526)
CASH FLOWS FROM FINANCING ACTIVITIES (Note 3):
Borrowings under line of credit $ 71,423 $ 67,421
Repayments of borrowings under line of credit (61,300) (59,341)
Borrowings under term loan agreement 500 1,506
Principal payments on term loans and capital
lease obligations (1,174) (1,178)
-------- --------
Net cash provided by financing activities $ 9,449 $ 8,408
-------- --------
Net increase (decrease)
in cash and cash equivalents $ 77 $ (149)
CASH AND CASH EQUIVALENTS - beginning of period 621 643
-------- --------
CASH AND CASH EQUIVALENTS - end of period $ 698 $ 494
======== ========
</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,
1997, 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. 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>
April 30, April 30, July 31,
1997 1996 1996
---------- ---------- ---------
(in thousands)
<S> <C> <C> <C>
Raw materials $15,236 $ 8,440 $ 5,985
Work-in-process 8,386 4,989 4,998
Finished goods 10,048 9,146 10,466
Excess, obsolete and realization reserves (871) (1,168) (676)
------- ------- -------
Total inventories $32,799 $21,407 $20,773
======= ======= =======
Property, Plant, and Equipment, Net -
-------------------------------------
Land $ 557 $ 557 $ 557
Building and improvements 4,421 3,781 3,766
Machinery and equipment 23,584 20,380 20,880
Office furniture and equipment 4,890 4,644 4,824
------- ------- -------
$33,452 $29,362 $30,027
Less - accumulated depreciation 21,893 19,351 19,984
------- ------- -------
Net property, plant, and equipment $11,559 $10,011 $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>
April 30, April 30, July 31,
1997 1996 1996
--------- --------- --------
(in thousands)
<S> <C> <C> <C>
Revolving credit line $21,645 $15,773 $11,524
Term loan 3,057 3,335 2,766
Capitalized equipment lease obligations,
payable in monthly installments of approx-
imately $170,000 including interest at rates
from 7% to 13%, with final payments ranging
from July 1997 through December 2001 4,533 4,553 4,434
------- ------- -------
$29,235 $23,661 $18,724
Less - current maturities 15,613 9,757 5,019
------- ------- -------
Total long-term debt $13,622 $13,904 $13,705
======= ======= =======
</TABLE>
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
8.5%) 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 1%.
Borrowings against inventories are limited to $12 million in total.
During January 1997, the Company was advanced an additional $4,000,000 over
the qualifying categories of receivables and inventories. The advance was
repaid in installments of $1,000,000 from January 31, 1997 to March 30,
1997.
During November 1996, an additional $500,000 was borrowed 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.
-7-
<PAGE>
(4) STOCKHOLDERS' EQUITY
During the nine months ended April 30, 1997, Stockholders' Equity changed
for the following items: Net loss of $2,408,000 and a $53,000 increase in
the negative Foreign Currency translation adjustment.
(5) CONSOLIDATED STATEMENTS OF CASH FLOWS
The Company acquired $1,060,000 and $1,779,000 in equipment under capital
lease obligations during the nine months ended April 30, 1997, and April 30,
1996, 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, 1997, and April 30, 1996, the Company paid interest of $1,607,000 and
$1,382,000, 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 April 30, 1997, increased 21% compared to
the same period in fiscal 1996. Unit sales increased 27.5% and the average
price per unit decreased 4.9%. The increase in unit sales was attributable to:
1) increased unit sales of the Company's Global Positioning System (GPS)
products; 2) improved sales of sonars to original equipment manufacturers
(OEM's); and 3) introductory sales of the Company's new mid and high-priced
sonar products. Substantially all of the sales increase in the GPS products is
attributable to the new $199 Eagle Explorer and $239 Lowrance GlobalNav 200
hand-held models which began shipping during the second quarter of fiscal 1997.
These increases were partially offset by reduced sales of the low-priced Eagle
sonar units.
The decrease in the average price per unit resulted from the sales mix being
wighted toward the lower-priced hand-held GPS units, as well as price reductions
on certain other GPS products.
Gross profit as a percentage of net sales decreased to 27.8% from 36.5% for the
three months ended April 30, 1997, compared to the same period in fiscal 1996.
This decrease is attributable to: 1) the increase in sales of the low-end GPS
units, which generally carry lower margins than other products; 2) unplanned
continued production of the Company's new 1997 sonar products in the Tulsa
production facility versus planned production in the Company's new Mexico
facility; 3) inefficiencies in certain production processes in the Tulsa
production facility; and 4) high production labor costs and employee turnover in
Tulsa due to record low unemployment in that labor market.
Net sales for the nine months ended April 30, 1997, increased 9.6% compared to
the same period in fiscal 1996. Unit sales were 13.9% above 1996 levels, while
the average price per unit decreased 5.5%. The unit increase results from
higher sales of the Company's GPS products, partially offset by a decline in
sales of the low-end Eagle products, as noted above. The average price per unit
declined due to the same factors noted for the third quarter.
Gross profit as a percentage of net sales for the nine months ended April 30,
1997, was 28.1% compared to 35.1% for the same period in fiscal 1996. This
decrease results from the same factors that contributed to the quarterly decline
noted above.
Operating expenses as a percentage of net sales for the three months ended
April 30, 1997, were 19.8% compared to 24.4% during the same period in 1996.
Total operating expenses decreased by $113,000. The decrease is primarily in
General and Administrative expenses, offset by increased marketing and promotion
costs associated with the Company's expansion into several strategically
important non-marine GPS markets.
Operating expenses as a percentage of net sales for the nine months ended
April 30, 1997, were 29.5% compared to 30.4% for the same period in 1996 and
total operating expenses increased $1,299,000. Marketing and Advertising
expenses were up as a result of the Company's efforts to expand its retail
distribution network and to promote its seven new sonar and GPS products.
Research and Development increased due to the Company's emphasis on developing
new GPS products and applications. General and Administrative expenses during
the first nine months of fiscal 1997 declined $670,000 compared to the same
period in fiscal 1996.
-9-
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Company's need for working capital normally increases in the fall and winter
months as the Company manufactures and stockpiles its products for the
traditional "fishing season" peak sales months of January through May. Due to
the reasons discussed below, the Company's working capital needs have remained
higher than normal through the third quarter of 1997.
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
was 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 to support the expansion of sales during fiscal 1997 and to
enable the transition of certain production operations to Mexico.
As is consistent with prior years, the Company was at maximum borrowing limits
through the first nine months of fiscal 1997, and expects to be at or near the
maximum limit throughout much of the fourth quarter. Because of this, the
Company has had to delay payments to vendors during the year. Management does
not expect any significant long-term effect from these delayed payments as most
vendors are long-term suppliers of the Company.
Inventory levels grew significantly, primarily in raw materials and work-in-
process during the first nine months of fiscal 1997 versus fiscal 1996. This
increase resulted from production delays related to a longer than planned
transition to the Company's new facility in Mexico, as well as unplanned delays
in developing and producing the seven new products for 1997 and unexpected
inefficiencies in its Tulsa production facility. The increase in trade payables
directly relates to the inventory increase and the delay in payments to vendors
described above. Management expects that inventories will decline during the
fourth quarter and continue to decline during fiscal 1998 such that by the end
of next year's first quarter inventories will be lower than the comparable
period in fiscal 1997. As the inventory declines, management expects payments
to vendors to improve correspondingly.
Capital expenditures were $120,000 higher during the first nine months of fiscal
1997 than the same period of fiscal 1996. Substantially all of the increase
relates to the establishment of the Mexican facility.
OUTLOOK
- -------
Current backlog is approximately $10.8 million, compared to approximately $7.4
million at the same time last year. This increase is attributable to the
expansion of the Company's GPS product offerings to include three portable
models priced below $200 retail and strong consumer acceptance of the Company's
additional 1997 product offering, which includes seven new models of sonar and
GPS products. While some of these new models began shipping late in the second
quarter, production delays limited or delayed most shipments until the third
quarter. The Company is currently producing all of the new products; however,
it was not able to meet demand during the first nine months of fiscal 1997.
Management feels that sales would have been at least $5,000,000 higher had
production output been equal to plan. It should be noted 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.
The Company expects sales to increase in the fourth quarter of 1997 over the
same period last year and to be profitable for the quarter. However, management
anticipates a net loss for fiscal 1997. This is primarily a result of three
items: 1) production inefficiencies and increased labor costs in the Tulsa
production facility; 2) delayed production and timing of shipments of new
products; and 3) increased sales and marketing costs associated with an expanded
presence in the GPS market. 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 could rapidly deteriorate and would
have an adverse affect on expected results for the remainder of the year.
-10-
<PAGE>
These factors include, but are not limited to, perceived general economic
conditions, weather conditions, raw material availability and new product
introductions by competitors.
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: June 13, 1997
-----------------------
-12-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUL-31-1996
<PERIOD-START> AUG-01-1996
<PERIOD-END> APR-30-1997
<CASH> 698
<SECURITIES> 0
<RECEIVABLES> 24,476
<ALLOWANCES> 665
<INVENTORY> 32,799
<CURRENT-ASSETS> 60,430
<PP&E> 33,452
<DEPRECIATION> 21,893
<TOTAL-ASSETS> 73,127
<CURRENT-LIABILITIES> 46,321
<BONDS> 0
335
0
<COMMON> 0
<OTHER-SE> 12,400
<TOTAL-LIABILITY-AND-EQUITY> 73,127
<SALES> 73,818
<TOTAL-REVENUES> 73,818
<CGS> 53,050
<TOTAL-COSTS> 74,822
<OTHER-EXPENSES> 1,093
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,607
<INCOME-PRETAX> (3,704)
<INCOME-TAX> (1,296)
<INCOME-CONTINUING> (2,408)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,408)
<EPS-PRIMARY> (.72)
<EPS-DILUTED> (.72)
</TABLE>
