<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 January 31, 1998
_____ 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 January 31, 1998, there were 3,762,296 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 -
January 31, 1998, 1997, and July 31, 1997........... 3
Consolidated Statements of Operations -
Three Months and Six Months Ended
January 31, 1998 and 1997........................... 4
Consolidated Statements of Cash Flows -
Six Months Ended January 31, 1998 and 1997......... 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
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<PAGE>
LOWRANCE ELECTRONICS, INC.
--------------------------
CONDENSED CONSOLIDATED BALANCE SHEETS
----------------------------------------
(IN THOUSANDS)
<TABLE>
<CAPTION>
Jan. 31, Jan. 31, July 31,
1998 1997 1997
----------- ----------- ----------
(Unaudited) (Unaudited) (Audited)
<S> <C> <C> <C>
ASSETS
------
CURRENT ASSETS:
Cash and cash equivalents $ 586 $ 421 $ 866
Accounts receivable, less allowances 18,059 13,566 16,346
Inventories (Note 2) 25,024 26,934 27,880
Prepaid expenses 616 635 400
Prepaid income taxes 1,587 2,403 1,587
Income tax refund receivable 649 640 957
------- ------- -------
Total current assets $46,521 $44,599 $48,036
PROPERTY, PLANT, AND EQUIPMENT, net (Note 2) 10,343 11,862 11,209
OTHER ASSETS 722 1,196 1,106
DEFERRED INCOME TAXES 1,015 - 1,015
------- ------- -------
$58,601 $57,657 $61,366
======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Current maturities of long-term debt (Note 3) $ 7,070 10,270 $ 4,149
Accounts payable 15,996 17,841 21,496
Accrued liabilities 3,421 4,058 4,593
------- ------- -------
Total current liabilities $26,487 $32,169 $30,238
DEFERRED INCOME TAXES - 354 -
LONG-TERM DEBT, less current
maturities (Note 3) 21,945 13,585 21,176
SERIES "A" REDEEMABLE PREFERRED STOCK,
$.50 par value, 70,000 shares authorized and issued - - -
STOCKHOLDERS' EQUITY:
Preferred stock, 230,000 shares authorized,
none issued - - -
Common stock, $.10 par value, 10,000,000 shares
authorized, 3,762,296 shares issued in 1998 and
3,352,458 shares issued in 1997 $ 376 $ 335 $ 335
Paid-in capital 7,059 5,600 5,600
Retained earnings 3,039 5,787 4,214
Foreign currency translation adjustment (305) (173) (197)
------- ------- -------
Total stockholders' equity $10,169 $11,549 $ 9,952
------- ------- -------
$58,601 $57,657 $61,366
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
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<PAGE>
LOWRANCE ELECTRONICS, INC.
--------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------------- -------------------------
January 31, January 31, January 31, January 31,
1998 1997 1998 1997
---------- ----------- ----------- -----------
(in thousands) (in thousands)
<S> <C> <C> <C> <C>
NET SALES $20,324 $20,114 $40,363 $34,224
COST OF SALES 14,495 14,410 29,193 24,448
------- ------- ------- -------
Gross profit $ 5,829 5,704 $11,170 9,776
OPERATING EXPENSES:
Selling and administrative $ 4,490 $ 5,855 $ 9,286 $11,854
Research and development 778 1,026 1,568 2,051
------- ------- ------- -------
Total operating expenses $ 5,268 $ 6,881 $10,854 $13,905
------- ------- ------- -------
Operating income (loss) $ 561 $(1,177) $ 316 $(4,129)
------- ------- ------- -------
OTHER EXPENSES:
Interest expense $ 821 469 $ 1,562 $ 873
Other, net 258 271 562 563
------- ------- ------- -------
Total other expenses $ 1,079 $ 740 $ 2,124 $ 1,436
------- ------- ------- -------
LOSS BEFORE
INCOME TAXES $ (518) $(1,917) $(1,808) $(5,565)
BENEFIT FROM INCOME TAXES (181) (671) (633) (1,948)
------- ------- ------- -------
NET LOSS $ (337) $(1,246) $(1,175) $(3,617)
======= ======= ======= =======
LOSS PER COMMON SHARE:
NET LOSS PER SHARE $ (.09) $ (.37) $(.34) $(1.08)
======= ======= ======= =======
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 3,584 3,352 3,468 3,352
====== ====== ====== =======
DIVIDENDS NONE NONE NONE NONE
==== ==== ==== ====
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
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<PAGE>
LOWRANCE ELECTRONICS, INC.
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CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(Unaudited) (Note 6)
<TABLE>
<CAPTION>
Six Months Ended
--------------------------
January 31, January 31,
1998 1997
------------ ------------
(in thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (1,175) $ (3,617)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 1,327 1,283
(Gain) Loss on retirement of fixed assets (4) (7)
Changes in operating assets and liabilities:
Increase in accounts receivable (1,713) (745)
(Increase) decrease in inventories 2,856 (6,161)
(Increase) decrease in prepaids, deferred
income taxes, and other assets 476 (2,024)
Increase (decrease) in liabilities and other (6,780) 9,035
-------- --------
Net cash used in operating activities $ (5,013) $ (2,236)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures $ (454) $ (2,502)
-------- --------
Net cash used in investing activities $ (454) $ (2,502)
CASH FLOWS FROM FINANCING ACTIVITIES (Note 3):
Borrowings under line of credit $ 39,928 $ 36,964
Repayments of borrowings under line of credit (40,785) (32,147)
Borrowings under term loan agreement 5,000 500
Principal payments on term loans and capital
lease obligations (758) (779)
Other borrowings 302 -
Proceeds from issuance common stock 1,500 -
-------- --------
Net cash provided by financing activities $ 5,187 $ 4,538
-------- --------
Net decrease in cash and cash equivalents $ (280) $ (200)
CASH AND CASH EQUIVALENTS - beginning of period 866 621
-------- --------
CASH AND CASH EQUIVALENTS - end of period $ 586 $ 421
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
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<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 six months ended January 31,
1998, 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. 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>
Jan. 31, Jan. 31, July 31,
1998 1997 1997
--------- --------- ---------
(in thousands)
<S> <C> <C> <C>
Raw materials $ 9,518 $10,675 $ 9,928
Work-in-process 5,984 10,662 9,327
Finished goods 10,738 6,359 9,851
Excess, obsolete and realization reserves (1,216) (762) (1,226)
------- ------- -------
Total inventories $25,024 $26,934 $27,880
======= ======= =======
Property, Plant, and Equipment, Net -
-----------------------------------
Land $ 557 $ 557 $ 557
Building and improvements 4,503 4,423 4,470
Machinery and equipment 24,037 23,295 23,607
Office furniture and equipment 5,142 4,842 5,152
------- ------- -------
$34,239 $33,117 $33,786
Less - accumulated depreciation 23,896 21,255 22,577
------- ------- -------
Net property, plant, and equipment $10,343 $11,862 $11,209
======= ======= =======
</TABLE>
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<PAGE>
(3) LONG-TERM DEBT AND REVOLVING CREDIT LINE
Long-term debt and revolving credit line are summarized below:
<TABLE>
<CAPTION>
Jan. 31, Jan. 31, July 31,
1998 1997 1997
-------- -------- --------
(in thousands)
<S> <C> <C> <C>
Revolving credit line $17,764 $16,341 $18,621
Term loan 7,348 3,126 2,487
Capitalized equipment lease obligations,
payable in monthly installments of approx-
imately $118,000 including interest at rates
from 7% to 12%, with final payments ranging
from August 1998 through December 2001 3,601 4,388 4,217
Other 302 - -
------- ------- -------
$29,015 $23,855 $25,325
Less - current maturities 7,070 10,270 4,149
------- ------- -------
Total long-term debt $21,945 $13,585 $21,176
======= ======= =======
</TABLE>
Future maturities of the above debt obligations at January 31, 1998, are
$7,070,000, $2,103,000, $4,915,000 and $14,927,000 for the years ending
January 31, 1999 through 2002, respectively.
At 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.
During December 1997, an additional $1,000,000 was funded on the term loan
to be repaid in July 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, 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 six months ended January 31, 1998, Stockholders' Equity changed
for the following items: Increase in Common stock of $41,000; increase in
Paid-in capital of $1,459,000; Net loss of $1,175,000 and a $108,000
increase in the negative Foreign currency translation adjustment.
(5) CONSOLIDATED STATEMENTS OF CASH FLOWS
The Company acquired $588,000 in equipment under capital lease obligations
during the six months ended January 31, 1997. 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 six months ended January 31, 1998, and January 31, 1997, the
Company paid interest of $1,562,000 and $873,000, 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 January 31, 1998, increased 1.0% compared
to the same period in fiscal 1997. The average price per unit increased 1.4%
while unit sales were approximately the same. The increase in the average price
per unit resulted from increased sales of the Company's mid and upper priced
sonar units in the second quarter of fiscal 1998 compared to fiscal 1997. For
fiscal 1997, the Company announced six new mid and upper priced sonar products.
None of these new products were shipped during the first quarter and only three
of these products were shipped in limited quantities in the second quarter. No
products were discontinued or unavailable for shipping during the second quarter
of fiscal 1998. A decrease in unit sales of the Company's lower priced sonars
offset the increase in sales of the mid and upper priced products.
Gross profit as a percentage of net sales increased to 28.7% from 28.4% for the
three months ended January 31, 1998, compared to the same period in fiscal 1997.
This increase is attributable to the improved sales of the mid and upper priced
sonar products, which generally carry higher profit margins.
Net Sales for the six months ended January 31, 1998, increased 17.9% compared to
the same period in fiscal 1997. Unit sales increased 15.2%, while the average
price per unit increased 2.3%. The increase in the average selling price
results from the factors discussed above. Sonar unit sales increased when
compared to the prior year due to sales of the mid and upper priced products as
noted above. An increase in GPS unit sales, primarily in the low-cost hand-held
products, also contributed to the sales increase.
Gross profit as a percentage of net sales for the six months ended January 31,
1998, was 27.7% compared to 28.6% for the same period in fiscal 1997. This
decrease results primarily from the Company's honoring of price discounts on
certain products which were ordered by customers at discounted prices prior to
year end 1997, but not shipped until the first quarter of fiscal 1998. The
first quarter results were partially offset by the second quarter improvements
noted above.
Operating expenses as a percentage of net sales for the three months ended
January 31, 1998, were 25.9% compared to 34.2% during the same period in 1997.
Total expenses decreased by $1,613,000. The decrease primarily relates to
reduced marketing, administrative and research and development expenditures
created by an austerity program implemented by management during the first
quarter of fiscal 1998. Advertising, marketing and research and development
costs were elevated in fiscal 1997 due the development and introduction of the
Company's extensive new 1997 product offering.
Operating expenses as a percentage of net sales for the six months ended January
31, 1998, were 26.9% compared to 40.6% for the same period in 1997. Total
operating expenses decreased $3,051,000. This decrease results from the factors
discussed above.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Company's need for working capital increases in the fall and winter months
as the Company manufactures and stockpiles its products for the peak sales
months of January through May.
As is consistent with prior years, the Company was at maximum borrowing limits
through the first half of fiscal 1998, and expects to be at the maximum limit
throughout the third 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 has
improved in fiscal 1998 compared to the previous year.
-9-
<PAGE>
During the first half of fiscal 1998, the Company continued to reduce the high
levels of inventory that 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 seven new products for 1997. The increase in
accounts receivables is directly related to the increase in sales for fiscal
1998, as is the reduction in inventories and trade payables. Trade payables
grew during fiscal 1997 as a result of the production delays and the delay in
payments to vendors described above.
Capital expenditures were $2,048,000 lower during the first half of fiscal 1998
than the same period of fiscal 1997. The fiscal 1997 capital expenditures
relate to the construction of the Company's Mexican production facility. No
similar project is anticipated for 1998.
OUTLOOK
- -------
Current backlog is approximately $7.5 million, compared to approximately $21
million at the same time last year. The decrease is attributable to the fact
that production delays limited or delayed most shipments of the Company's 1997
product offering until the third quarter of fiscal 1997. All products are in
production and are shipping at this time. 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 1998 product offerings, the availability of
the entire product lines 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
--------------------------------
The Company filed a Form 8-K dated December 18, 1997 with the SEC on
December 19, 1997, disclosing a private placement of 341,338 shares of
unregistered shares of the Company's Common Stock for $1,310,738 to the
Company's six directors pursuant to Section 4(2) of the Securities Act
of 1933, as amended.
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<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: March 16, 1998
------------------------
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 6-MOS
<FISCAL-YEAR-END> JUL-31-1998 JUL-31-1997
<PERIOD-START> AUG-01-1997 AUG-01-1996
<PERIOD-END> JAN-31-1998 JAN-31-1997
<CASH> 586 421
<SECURITIES> 0 0
<RECEIVABLES> 18,424 14,127
<ALLOWANCES> 365 561
<INVENTORY> 25,024 26,934
<CURRENT-ASSETS> 46,521 44,599
<PP&E> 34,239 33,117
<DEPRECIATION> 23,896 21,255
<TOTAL-ASSETS> 58,601 57,657
<CURRENT-LIABILITIES> 26,487 32,169
<BONDS> 0 0
0 0
0 0
<COMMON> 376 335
<OTHER-SE> 9,793 11,214
<TOTAL-LIABILITY-AND-EQUITY> 58,601 57,657
<SALES> 40,363 34,224
<TOTAL-REVENUES> 40,363 34,224
<CGS> 29,193 24,448
<TOTAL-COSTS> 40,047 38,353
<OTHER-EXPENSES> 562 563
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 1,562 873
<INCOME-PRETAX> (1,808) (5,565)
<INCOME-TAX> (633) (1,948)
<INCOME-CONTINUING> (1,808) (5,565)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (1,175) (3,617)
<EPS-PRIMARY> (.34) (1.08)
<EPS-DILUTED> (.34) (1.08)
</TABLE>
