<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, 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 October 31, 1997, 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, 1997, 1996, and July 31, 1997........... 3
Consolidated Statements of Operations -
Three Months Ended October 31, 1997 and 1996........ 4
Consolidated Statements of Cash Flows -
Three Months Ended October 31, 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....... 9-10
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,
1997 1996 1997
----------- ----------- ---------
(Unaudited) (Unaudited) (Audited)
ASSETS
------
CURRENT ASSETS:
<S> <C> <C> <C>
Cash and cash equivalents $ 1,376 $ 457 $ 866
Accounts receivable, less allowances 14,057 9,827 16,346
Inventories (Note 2) 24,777 22,525 27,880
Prepaid expenses 674 555 400
Prepaid income taxes 1,587 2,678 1,587
Income tax refund receivable - - 957
------- ------- -------
Total current assets $42,471 $36,042 $48,036
PROPERTY, PLANT, AND EQUIPMENT, net (Note 2) 10,636 11,213 11,209
OTHER ASSETS 506 1,199 1,106
DEFERRED INCOME TAXES 1,015 - 1,015
------- ------- -------
$54,628 $48,454 $61,366
======= ======= =======
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C> <C>
CURRENT LIABILITIES:
Current maturities of long-term debt
(Note 3) $ 4,468 $ 3,557 $ 4,149
Accounts payable 14,364 14,459 21,496
Accrued liabilities 4,054 3,996 4,593
------- ------- -------
Total current liabilities $22,886 $22,012 $30,238
DEFERRED INCOME TAXES - 628 -
LONG-TERM DEBT, less current
maturities (Note 3) 22,651 12,966 21,176
Series "A" Redeemable Preferred Stock,
$.50 par value, 70,000 shares authorized
and issued in 1996 - - -
STOCKHOLDERS' EQUITY:
Preferred stock, 230,000 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 3,376 7,033 4,214
Foreign currency translation adjustment (220) (120) (197)
------- ------- -------
Total stockholders' equity $ 9,091 $12,848 $ 9,952
------- ------- -------
$54,628 $48,454 $61,366
======= ======= =======
</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,
1997 1996
-------- --------
(in thousands)
<S> <C> <C>
NET SALES $20,039 $14,110
COST OF SALES 14,698 10,038
------- -------
Gross profit $ 5,341 $ 4,072
OPERATING EXPENSES:
Selling and administrative $ 4,796 $ 5,999
Research and development 790 1,025
------- -------
Total operating expenses $ 5,586 $ 7,024
------- -------
Operating loss $ (245) $(2,952)
------- -------
OTHER EXPENSES:
Interest expense $ 741 $ 404
Other, net 304 292
------- -------
Total other expenses $ 1,045 $ 696
------- -------
LOSS BEFORE
INCOME TAXES $(1,290) $(3,648)
BENEFIT FOR
INCOME TAXES (452) (1,277)
------- -------
NET LOSS $ (838) $(2,371)
======= =======
LOSS PER COMMON SHARE:
NET LOSS PER SHARE $ (.25) $ (.71)
======= =======
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,
1997 1996
------------ ------------
(in thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $ (838) $ (2,371)
Adjustments to reconcile net loss to net cash (used in)
provided by operating activities:
Depreciation 696 633
Loss on retirement of fixed assets (1) 4
Changes in operating assets and liabilities:
Decrease in accounts receivable 2,289 3,003
Decrease (increase) in inventories 3,103 (1,752)
Decrease (increase) in prepaids, deferred
income taxes, and other assets 1,283 (1,582)
Increase (decrease) in liabilities and other (7,694) 5,909
-------- --------
Net cash provided by (used in) operating activities $ (1,162) $ 3,844
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures $ (122) $ (1,806)
-------- --------
Net cash used in investing activities $ (122) $ (1,806)
CASH FLOWS FROM FINANCING ACTIVITIES (Note 3):
Borrowings under lines of credit $ 21,655 $ 14,521
Repayments of borrowings under lines of credit (23,503) (16,333)
Borrowings under new term loan agreement 4,000 -
Principal payments on term loans and capital
lease obligations (358) (390)
-------- --------
Net cash provided by (used in) financing activities $ 1,794 $ (2,202)
-------- --------
Net increase (decrease) in cash and cash equivalents $ 510 $ (164)
CASH AND CASH EQUIVALENTS - beginning of period 866 621
-------- --------
CASH AND CASH EQUIVALENTS - end of period $ 1,376 $ 457
======== ========
</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,
1997, are the same as those outlined in the Annual Report on Form 10-K
filed relative to the year ended July 31, 1997. 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, 1996, consolidated financial statements
to conform to the October 31, 1997, 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,
1997 1996 1997
-------- -------- --------
(in thousands)
<S> <C> <C> <C>
Raw materials $ 9,053 $ 8,877 $ 9,928
Work-in-process 5,568 6,902 9,327
Finished goods 11,299 7,524 9,851
Excess, obsolete, and realization reserves (1,143) (778) (1,226)
------- ------- -------
Total inventories $24,777 $22,525 $27,880
======= ======= =======
</TABLE>
Property, Plant, and Equipment, Net -
-----------------------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Land $ 557 $ 557 $ 557
Building and improvements 4,470 4,485 4,470
Machinery and equipment 23,736 22,061 23,607
Office furniture and equipment 5,146 4,730 5,152
------- ------- -------
$33,909 $31,833 $33,786
Less - accumulated depreciation 23,273 18,075 22,577
------- ------- -------
Net property, plant, and equipment $10,636 $11,213 $11,209
======= ======= =======
</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,
1997 1996 1997
-------- -------- --------
(in thousands)
<S> <C> <C> <C>
Revolving credit line $16,773 $ 9,712 $18,621
Term loan 6,418 2,696 2,487
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 3,928 4,115 4,217
------- ------- -------
$27,119 $16,523 $25,325
Less - current maturities 4,468 3,557 4,149
------- ------- -------
Total long-term debt $22,651 $12,966 $21,176
======= ======= =======
</TABLE>
Future maturities of the above debt obligations at October 31, 1997, are
$4,468,000, $2,231,000, $2,273,000, $18,010,000, and $137,000 for the years
ending October 31, 1998 through 2002, respectively.
At October 31, 1996 and July 31, 1997, the Company had a $30 million
financing package which consisted of a $3.5 million term loan together with
a $26.5 million revolving credit line. The revolving credit line provided
for borrowings up to $26.5 million based on varying percentages of
qualifying categories of receivables and inventories and carried an
interest rate of national prime plus .75%. Borrowings against inventories
were limited to $12 million in total.
During August 1997, the Company's financing package was amended.
Significant provisions of the amendment include: 1) the due date was
extended to December 2000, 2) an additional term loan of $4,000,000 was
funded with an $800,000 payment scheduled for May 1998 and payments of
$66,666 beginning monthly in August 1998, and the interest rate is prime
plus 1.5%, 3) up to an additional $3,000,000 in borrowings were made
available under the revolving line of credit secured by certain inventories
and receivables located outside the United States, 4) the interest rate on
the revolving line of credit was increased to prime plus 1.5%, and 5) the
total facility was increased from $30,000,000 to $33,011,000.
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, limits the ratio of total liabilities to
tangible net worth and requires the Company to maintain a minimum fixed
charge ratio. 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, 1997, stockholders' equity
changed for the following items: Net loss of $838,000 and a $23,000
increase in the negative Foreign Currency translation adjustment.
(5) CONSOLIDATED STATEMENTS OF CASH FLOWS
During the three months ended October 31, 1997, and October 31, 1996, the
Company paid interest of $740,000 and $404,000, 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, 1997.
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, 1997, increased 42% compared to
the same period the previous year. Unit sales which include sonar units,
combination sonar/GPS navigation units and stand alone GPS navigation units
increased by approximately 24,000 units (37.9%) and the average price per unit
increased by 14.2%
Unit sales increased due to the availability of the Company's new fiscal 1997
sonar and hand-held GPS products that were shipped subsequent to the first
quarter of fiscal 1997. During the first quarter of fiscal 1997 the Company
discontinued several sonar products. These products shipped only in minimal
quantities in the quarter, as substantially all remaining inventory was sold
during the fourth quarter of fiscal 1996. No products were discontinued in the
first quarter of 1998, however certain models were available in limited
quantities due to the Company's conservative production plan during its off
season.
The increase in the average price per unit resulted from sales of the sonar
models introduced during fiscal 1997, as offset by the sales of the new low-
priced GPS products.
Gross profit as a percentage of net sales decreased 2.1% for the three months
ended October 31, 1997, compared to the same period last year. This decrease
resulted primarily from the Company's honoring of lower prices on certain
products which were ordered by vendors at fiscal 1997 prices prior to year end
1997, but not shipped until the first quarter of fiscal 1998. The prices on
these models were increased in the first quarter of fiscal 1998.
Operating expenses as a percentage of net sales for the three months ended
October 31, 1997, were 28.0% compared to 49.8% for the same period in fiscal
1997. Total costs decreased by $1,379,000. The decrease was primarily the
result of substantially lower advertising and marketing expenses during the
first quarter of fiscal 1998 compared to last year's first quarter. Last year
the Company was aggressively promoting its ten new sonar and GPS products and
expanding into several new markets. Additionally, the Company has implemented
an austerity program intended to insure a return to profitability in fiscal
1998.
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, extended payment terms offered to customers to stimulate sales during
the seasonally slow period and this year's liquidity is tighter than normal. 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>
During fiscal 1997, the Company began relocating certain of its manufacturing
operations to its new plant in Mexico. The start-up of the new facility in
Mexico was substantially on schedule. However, record low unemployment rates in
Tulsa resulted in excessive turnover of production workers and an inability to
maintain sufficient trained staff to support the Company's substantially
increased production schedule intended to support record demand for its GPS
products. This problem was magnified by management's focus on the start-up of
the new Mexico facility and production delays of the Company's six new sonar
models. These problems caused an excessive build-up of raw material and work-in
process inventories that the Company could not convert to finished goods until
after the peak selling season. These factors resulted in inventories remaining
well above historical levels throughout fiscal 1997. Management has implemented
controls to better manage production scheduling and inventory levels. Inventory
is expected to gradually decline throughout fiscal 1998.
As is consistent with prior years, the Company was at maximum borrowing limits
through the first quarter of fiscal 1998, 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. Although liquidity is extremely tight,
management does not expect any significant long-term effect from these delayed
payments as most vendors have supplied the Company for years.
The increase of inventory in the first quarter of fiscal 1998 versus fiscal 1997
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 producing
the new products introduced in 1997. Also, unexpected inefficiencies in the
Tulsa plant compounded the build-up of raw materials inventories throughout
fiscal 1997. Management expects the total inventories to continue to decline to
normal historical levels during fiscal 1998. The large increase in accounts
receivable at October 31, 1997 when compared to the same point last year results
from higher sales during the first quarter of fiscal 1998 versus 1997. The
increase in trade payables results from the required delays in payments to
vendors described above.
Capital expenditures were $1,684,000 lower during the first three months of
fiscal 1998 than the first three months of fiscal 1997. The expenditures were
unusually high in 1997 due to the construction of the Mexico facility and other
capital additions necessary to increase production capacity to meet expected
demand and to produce new products for fiscal 1997.
OUTLOOK
- -------
Current backlog is approximately $11 million compared to approximately $21
million at the same time last year. The fiscal 1997 backlog was 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 included seven new models of sonar and
GPS products. Most of these new models did 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 a return to profitability for fiscal 1998,
primarily as the result of continuing favorable economic and market conditions,
market acceptance of the Company's 1997 product offering, the availability of
the entire product line for a full year, lower costs resulting from a full year
of production in the Company's Mexico facility and lower selling and
administrative costs. 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: November 26, 1997
---------------------------
-12-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> JUL-31-1998 JUL-31-1997
<PERIOD-START> AUG-01-1997 AUG-01-1996
<PERIOD-END> OCT-31-1997 OCT-31-1996
<CASH> 1,376 457
<SECURITIES> 0 0
<RECEIVABLES> 14,057 9,827
<ALLOWANCES> (486) (580)
<INVENTORY> 24,777 22,525
<CURRENT-ASSETS> 42,471 36,042
<PP&E> 33,909 31,833
<DEPRECIATION> 23,273 18,075
<TOTAL-ASSETS> 54,628 48,454
<CURRENT-LIABILITIES> 22,886 22,012
<BONDS> 0 0
0 0
0 0
<COMMON> 335 335
<OTHER-SE> 8,756 12,513
<TOTAL-LIABILITY-AND-EQUITY> 54,628 48,454
<SALES> 20,039 14,110
<TOTAL-REVENUES> 20,039 14,110
<CGS> 14,698 10,038
<TOTAL-COSTS> 20,284 17,062
<OTHER-EXPENSES> 304 292
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 741 404
<INCOME-PRETAX> (1,290) (3,646)
<INCOME-TAX> (452) (1,271)
<INCOME-CONTINUING> (838) (2,371)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (838) (2,371)
<EPS-PRIMARY> (.25) (.71)
<EPS-DILUTED> (.25) (.71)
</TABLE>
