<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, 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 April 30, 1998, there were 3,768,796 shares of Registrant's $0.10 par value
Common Stock outstanding.
<PAGE>
LOWRANCE ELECTRONICS, INC.
--------------------------
FORM 10-Q
---------
INDEX
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PAGE
----
PART I. FINANCIAL INFORMATION
ITEM 1. Condensed Consolidated Balance Sheets -
April 30, 1998, 1997, and July 31, 1997.................... 3
Consolidated Statements of Operations -
Three Months and Nine Months Ended
April 30, 1998 and 1997.................................... 4
Consolidated Statements of Cash Flows -
Nine Months Ended April 30, 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 - 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)
------------
April 30, April 30, July 31,
1998 1997 1997
------- ------- -------
(Unaudited) (Unaudited)
ASSETS
------
CURRENT ASSETS:
Cash and cash equivalents $ 1,077 $ 698 $ 866
Accounts receivable, less allowances 19,817 23,811 16,346
Inventories (Note 2) 25,942 32,799 27,880
Prepaid expenses 637 638 400
Prepaid income taxes 1,400 2,484 1,587
Income tax refund receivable - - 957
------- ------- -------
Total current assets $48,873 $60,430 $48,036
PROPERTY, PLANT, AND EQUIPMENT, net (Note 2) 10,563 11,559 11,209
OTHER ASSETS 373 1,138 1,106
DEFERRED INCOME TAXES 1,551 - 1,015
------- ------- -------
$61,360 $73,127 $61,366
======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Current maturities of long-term debt (Note 3) $ 9,527 $15,613 $ 4,149
Accounts payable 15,791 26,453 21,496
Accrued liabilities 3,407 4,255 4,593
------- ------- -------
Total current liabilities $28,725 $46,321 $30,238
DEFERRED INCOME TAXES - 449 -
LONG-TERM DEBT, less current
maturities (Note 3) 21,815 13,622 21,176
SERIES "A" REDEEMABLE PREFERRED STOCK,
$.50 par value, 70,000 shares authorized
and issued in 1997 and 1998 - - -
STOCKHOLDERS' EQUITY:
Preferred stock, 230,000 shares authorized,
None issued in 1996 and 1997 - - -
Common stock, $.10 par value,
10,000,000 shares authorized, 3,768,796
shares issued in 1998 and 3,352,458 shares
issued in 1997 $ 377 $ 335 $ 335
Paid-in capital 7,073 5,600 5,600
Retained earnings 3,658 6,996 4,214
Foreign currency translation adjustment (288) (196) (197)
------- ------- -------
Total stockholders' equity $10,820 $12,735 $ 9,952
------- ------- -------
$61,360 $73,127 $61,366
======= ======= =======
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,
1998 1997 1998 1997
--------- --------- --------- ---------
(in thousands) (in thousands)
<S> <C> <C> <C> <C>
NET SALES $ 28,354 $ 39,594 $ 68,717 $ 73,818
COST OF SALES 20,108 28,602 49,301 53,050
--------- --------- --------- ---------
Gross profit $ 8,246 $ 10,992 $ 19,416 $ 20,768
OPERATING EXPENSES:
Selling and administrative $ 5,229 $ 6,924 $ 14,515 $ 18,778
Research and development 789 943 2,357 2,994
--------- --------- --------- ---------
Total operating expenses $ 6,018 $ 7,867 $ 16,872 $ 21,772
--------- --------- --------- ---------
Operating income (loss) $ 2,228 $ 3,125 $ 2,544 $ (1,004)
--------- --------- --------- ---------
OTHER EXPENSES:
Interest expense $ 885 $ 734 $ 2,447 $ 1,607
Other, net 391 530 953 1,093
--------- --------- --------- ---------
Total other expenses $ 1,276 $ 1,264 $ 3,400 $ 2,700
--------- --------- --------- ---------
INCOME (LOSS) BEFORE
INCOME TAXES $ 952 $ 1,861 $ (856) $ (3,704)
PROVISION (BENEFIT) FROM
INCOME TAXES 333 652 (300) (1,296)
--------- --------- --------- ---------
NET INCOME (LOSS) $ 619 $ 1,209 $ (556) $ (2,408)
========= ========= ========= =========
INCOME (LOSS) PER COMMON SHARE:
NET INCOME (LOSS) PER SHARE
(Both, Basic and Diluted) $ .16 $ .36 $ (.16) $ (.72)
========= ========= ========= =========
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 3,769 3,352 3,582 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)
Nine Months Ended
----------------------
April 30, April 30,
1998 1997
---------- ----------
(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (556) $ (2,408)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 1,942 1,917
(Gain) Loss on retirement of fixed assets (3) (7)
Changes in operating assets and liabilities:
Increase in accounts receivable (3,471) (10,990)
(Increase) decrease in inventories 1,938 (12,026)
(Increase) decrease in prepaids, deferred
income taxes, and other assets 1,104 (1,410)
Increase (decrease) in liabilities and other (6,982) 17,917
-------- --------
Net cash used in operating activities $ (6,028) $ (7,007)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures $ (1,291) $ (2,365)
CASH FLOWS FROM FINANCING ACTIVITIES (Note 3):
Borrowings under line of credit $ 68,327 $ 71,423
Repayments of borrowings under line of credit (66,207) (61,300)
Borrowings under term loan agreement 5,000 500
Borrowings under term loan agreement - equipment line 721 -
Principal payments on term loans, capital
lease obligations and other (2,128) (1,174)
Other borrowings 302 -
Proceeds from issuance common stock 1,515 -
-------- --------
Net cash provided by financing activities $ 7,530 $ 9,449
-------- --------
Net increase (decrease)
in cash and cash equivalents $ 211 $ 77
CASH AND CASH EQUIVALENTS - beginning of period 866 621
-------- --------
CASH AND CASH EQUIVALENTS - end of period $ 1,077 $ 698
======== ========
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,
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:
April 30, April 30, July 31,
1998 1997 1997
---------- ---------- ---------
(in thousands)
Raw materials $ 9,554 $ 15,236 $ 9,928
Work-in-process 3,573 8,386 9,327
Finished goods 13,652 10,048 9,851
Excess, obsolete and realization reserves (837) (871) (1,226)
------- ------- -------
Total inventories $ 25,942 $ 32,799 $ 27,880
======= ======= =======
Property, Plant, and Equipment, Net -
- -----------------------------------
Land $ 557 $ 557 $ 557
Building and improvements 4,467 4,421 4,470
Machinery and equipment 24,901 23,584 23,607
Office furniture and equipment 5,152 4,890 5,152
------- ------- -------
$ 35,077 $ 33,452 $ 33,786
Less - accumulated depreciation 24,514 21,893 22,577
------- ------- -------
Net property, plant, and equipment $ 10,563 $ 11,559 $ 11,209
======= ======= =======
-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,
1998 1997 1997
--------- --------- --------
(in thousands)
<S> <C> <C> <C>
Revolving credit line $20,740 $21,645 $18,621
Term loan 6,479 3,057 2,487
Term loan - equipment line 709 - -
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 November 2001 3,334 4,533 4,217
Other 80 - -
------- ------- -------
$31,342 $29,235 $25,325
Less - current maturities 9,527 15,613 4,149
------- ------- -------
Total long-term debt $21,815 $13,622 $21,176
======= ======= =======
</TABLE>
Future maturities of the above debt obligations at April 30, 1998, are
$9,527,000, $2,033,000, $19,514,000 and $268,000 for the years ending April
30, 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%. Borrowing against inventories was limited to $12 million in
total.
During August and December 1997, the Company's financing package was
amended. Significant provisions of the amendments included: 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 made in May 1998 and payments of $66,666
beginning monthly in August 1998, and the interest rate is prime plus 1.5%,
3) an additional $1,000,000 was funded on the term loan to be repaid in
July 1998, 4) 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, 5) the interest rate on
the revolving line of credit was increased to prime plus 1.5%, and 6) the
total facility was increased from $30,000,000 to $33,911,000.
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 nine months ended April 30, 1998, Stockholders' Equity changed
for the following items: Increase in Common stock of $42,000; increase in
Paid-in capital of $1,473,000; Net loss of $556,000 and a $91,000 increase
in the negative Foreign currency translation adjustment.
(5) CONSOLIDATED STATEMENTS OF CASH FLOWS
The Company acquired $1,060,000 in equipment under capital lease
obligations during the nine months ended April 30, 1998. 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, 1998, and April 30, 1997, the
Company paid interest of $2,447,000 and $1,607,000, 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 April 30, 1998, decreased 28% compared to
the same period in fiscal 1997. Unit sales decreased 26.7% and the average
price per unit decreased 2.3%. The third quarter of fiscal 1997 was a record
sales quarter for the Company, due in part to delayed production of the
Company's new products during last year's first and second quarters during the
transition of certain manufacturing processes to its new Mexico facility.
Additionally, as part of the Company's austerity plan for fiscal 1998,
advertising was substantially reduced during the spring of 1998. Accordingly,
the Company's fiscal 1998 sales projections reflected a decline when compared to
1997. The decrease in sales and unit sales was not limited to any particular
product or brand, but was most significant among the low-priced GPS units as
numerous competitive GPS models have been introduced at these lower price
points. Contributing to the decrease in sales for the quarter were the weather-
related events of 1) the early closure of the salmon fishing season in the
Northwest region of the United States, and 2) severe weather and flooding in the
Southeast region.
Gross profit as a percentage of net sales increased to 29.1% from 27.8% for the
three months ended April 30, 1998, compared to the same period in fiscal 1997.
This increase is attributable to: 1) the decrease in sales of the low-end GPS
units, which generally carry lower margins than other products; and 2) planned
improvement in margins due to improved manufacturing efficiencies in both the
Company's Tulsa and Ensenada, Mexico facilities.
Net sales for the nine months ended April 30, 1998, decreased 6.9% compared to
the same period in fiscal 1997. Unit sales were 7.3% below 1997 levels, while
the average price per unit increased 0.5%. The unit decrease resulted from
discontinuation of the Company's mid-priced GPS products and a decline in sales
of the low-end Eagle sonar products.
Gross profit as a percentage of net sales for the nine months ended April 30,
1998, was 28.3% compared to 28.1% for the same period in fiscal 1997. This
increase results from the same factors that contributed to the quarterly
improvement noted above.
Operating expenses as a percentage of net sales for the three months ended
April 30, 1998, were 21.2% compared to 19.8% during the same period in 1997.
Total operating expenses decreased by $1,849,000. 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 nine months ended
April 30, 1998, were 24.5% compared to 29.5% for the same period in 1997 and
total operating expenses decreased $4,900,000. This decrease results from the
factors discussed above.
-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 1998.
As is consistent with prior years, the Company was at maximum borrowing limits
through the first nine months of fiscal 1998, 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.
During the first nine months 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. Management
anticipates that inventories will continue to decrease through year-end The
decrease in accounts receivables between years is directly related to the
current quarter sales volumes versus the record sales volumes realized in the
same quarter of fiscal 1997. The reduction in trade payables directly relates
to the expenditure austerity program implemented during the first quarter and
management's focus on accomplishing such a reduction, along with increased
borrowings under the Company's term loan agreement and reduced inventories.
Capital expenditures were $1,074,000 lower during the first nine months of
fiscal 1998 than the same period of fiscal 1997.
OUTLOOK
- -------
Current backlog is approximately $10.2 million, compared to approximately $10.8
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 and fourth quarters of fiscal 1997. All
products are in production and are shipping at this time. 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 somewhat lower sales in the fourth quarter of 1998 versus
the same period last year. However, the Company expects to be profitable for
the quarter due primarily to its initial shipment of eight new GPS products and
continued savings under the Company's austerity program. Management also
anticipates a profitable result for fiscal 1998. 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. These factors include, but are not limited to, perceived
general economic conditions, weather conditions, raw material availability and
new product introductions by competitors.
-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: June 15, 1998
-----------------------
-12-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 9-MOS
<FISCAL-YEAR-END> JUL-31-1998 JUL-31-1997
<PERIOD-START> AUG-01-1997 AUG-01-1996
<PERIOD-END> APR-30-1998 APR-30-1997
<CASH> 1,077 698
<SECURITIES> 0 0
<RECEIVABLES> 20,278 24,476
<ALLOWANCES> 461 665
<INVENTORY> 25,942 32,799
<CURRENT-ASSETS> 48,873 60,430
<PP&E> 35,077 33,452
<DEPRECIATION> 24,514 21,893
<TOTAL-ASSETS> 61,630 73,127
<CURRENT-LIABILITIES> 28,725 46,321
<BONDS> 0 0
377 335
0 0
<COMMON> 0 0
<OTHER-SE> 10,443 12,400
<TOTAL-LIABILITY-AND-EQUITY> 61,630 73,127
<SALES> 68,717 73,818
<TOTAL-REVENUES> 68,717 73,818
<CGS> 49,301 53,050
<TOTAL-COSTS> 66,173 74,822
<OTHER-EXPENSES> 953 1,093
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 2,447 1,607
<INCOME-PRETAX> (856) (3,704)
<INCOME-TAX> (300) (1,296)
<INCOME-CONTINUING> (556) (2,408)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (556) (2,408)
<EPS-PRIMARY> (.16) (.72)
<EPS-DILUTED> (.16) (.72)
</TABLE>
