<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
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OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 30, 2000
_____ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______
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Commission File Number: 33-9464
LOWRANCE ELECTRONICS, INC.
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(Exact Name of Registrant as Specified in its Charter)
Delaware 44-0624411
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State of Incorporation IRS Identification Number
12000 East Skelly Drive
Tulsa, Oklahoma 74128
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(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 _____
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At April 30, 2000, there were 3,768,796 shares of Registrant's $0.10 par value
Common Stock outstanding.
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LOWRANCE ELECTRONICS, INC.
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FORM 10-Q
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INDEX
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<TABLE>
<CAPTION>
PAGE
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PART I. FINANCIAL INFORMATION
<S> <C>
ITEM 1. Condensed Consolidated Balance Sheets -
April 30, 2000 and 1999, and July 31, 1999................................. 3
Consolidated Statements of Operations -
Three Months and Nine Months Ended
April 30, 2000 and 1999.................................................... 4
Consolidated Statements of Cash Flows -
Nine Months Ended April 30, 2000 and 1999.................................. 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.................................................................................. 11
</TABLE>
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<PAGE>
LOWRANCE ELECTRONICS, INC.
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CONDENSED CONSOLIDATED BALANCE SHEETS
-------------------------------------
(in thousands)
------------
<TABLE>
<CAPTION>
April 30, April 30, July 31,
2000 1999 1999
------------ ------------ --------
(Unaudited) (Unaudited)
ASSETS
------
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 653 $ 614 $ 457
Accounts receivable, less allowances 12,919 17,823 11,464
Inventories 11,629 18,060 13,348
Prepaid expenses 221 451 544
Current deferred income taxes 572 1,453 1,214
-------- -------- --------
Total current assets 25,994 38,401 27,027
PROPERTY, PLANT, AND EQUIPMENT, net 7,380 8,269 8,008
OTHER ASSETS 202 209 208
DEFERRED INCOME TAXES 1,353 457 751
-------- -------- --------
$ 34,929 $ 47,336 $ 35,994
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C> <C>
CURRENT LIABILITIES:
Current maturities of long-term debt $ 2,394 $ 4,380 $ 2,107
Accounts payable 4,822 7,081 3,321
Accrued liabilities 3,644 3,766 3,969
-------- -------- --------
Total current liabilities 10,860 15,227 9,397
LONG-TERM DEBT, less current
maturities 13,674 23,528 17,103
SERIES "A" REDEEMABLE PREFERRED STOCK,
$.50 par value, 40,000 shares authorized and issued -- -- --
STOCKHOLDERS' EQUITY:
Preferred stock, 230,000 shares authorized,
none issued -- -- --
Common stock, $.10 par value,
10,000,000 shares authorized, 3,768,796
shares issued 377 377 377
Paid-in capital 7,073 7,073 7,073
Retained earnings 3,238 1,349 2,328
Foreign currency translation adjustment (293) (218) (284)
-------- -------- --------
Total stockholders' equity 10,395 8,581 9,494
-------- -------- --------
$ 34,929 $ 47,336 $ 35,994
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
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<PAGE>
LOWRANCE ELECTRONICS, INC.
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CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------------- -------------------------
April 30, April 30, April 30, April 30,
2000 1999 2000 1999
----------- ----------- ----------- ------------
(in thousands) (in thousands)
<S> <C> <C> <C> <C>
NET SALES $ 25,366 $ 32,600 $ 56,150 $ 66,730
COST OF SALES 15,173 21,073 35,058 44,428
-------- -------- -------- --------
Gross profit 10,193 11,527 21,092 22,302
OPERATING EXPENSES:
Selling and administrative 5,163 5,619 13,521 15,307
Severance and merger costs -- 251 2,201 982
Research and development 770 470 2,186 1,697
-------- -------- -------- --------
Total operating expenses 5,933 6,340 17,908 17,986
-------- -------- -------- --------
Operating income 4,260 5,187 3,184 4,316
-------- -------- -------- --------
OTHER EXPENSES:
Interest expense 505 794 1,484 2,297
Other, net 363 301 790 889
-------- -------- -------- --------
Total other expenses 868 1,095 2,274 3,186
-------- -------- -------- --------
INCOME BEFORE
INCOME TAXES 3,392 4,092 910 1,130
PROVISION FROM INCOME TAXES 918 1,096 -- --
-------- -------- -------- --------
NET INCOME $ 2,474 $ 2,996 $ 910 $ 1,130
======== ======== ======== ========
NET INCOME PER SHARE $ .66 $ .80 $ .24 $ .30
======== ======== ======== ========
OTHER COMPREHENSIVE INCOME
(LOSS) NET OF TAX:
FOREIGN CURRENCY TRANSLATION
ADJUSTMENT (82) 80 (9) 279
-------- -------- -------- --------
COMPREHENSIVE INCOME $ 2,392 $ 3,076 $ 901 $ 1,409
======== ======== ======== ========
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 3,769 3,769 3,769 3,769
======== ======== ======== ========
DIVIDENDS NONE NONE NONE NONE
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
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LOWRANCE ELECTRONICS, INC.
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CONSOLIDATED STATEMENTS OF CASH FLOWS
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(Unaudited) (Note 5)
<TABLE>
<CAPTION>
Nine Months Ended
--------------------------------
April 30, April 30,
2000 1999
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(in thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 910 $ 1,130
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation 1,655 1,963
(Gain) loss on retirement of fixed assets (31) (12)
Change in unrealized foreign translation adjustment (9) 279
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (1,455) (4,081)
(Increase) decrease in inventories 1,719 7,164
(Increase) decrease in prepaids, deferred
income taxes, and other assets 369 183
Increase (decrease) in liabilities and other 1,176 (7,692)
--------- ---------
Net cash provided by (used in) operating activities 4,334 (1,066)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (1,012) (353)
Proceeds from sales of property 16 25
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Net cash used in investing activities (996) (328)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under revolving credit line 51,857 61,994
Repayments of borrowings under revolving credit line (53,416) (60,626)
Borrowings under term loan agreement - 1,800
Principal payments on term loans, capital
lease obligations and other (1,583) (1,797)
--------- ---------
Net cash provided by (used in)financing activities (3,142) 1,371
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Net increase (decrease)
in cash and cash equivalents 196 (23)
CASH AND CASH EQUIVALENTS - beginning of period 457 637
--------- ---------
CASH AND CASH EQUIVALENTS - end of period $ 653 $ 614
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
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LOWRANCE ELECTRONICS, INC.
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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,
2000, are the same as those outlined in the Annual Report on Form 10-K
filed relative to the year ended July 31, 1999. 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,
2000 1999 1999
-------- -------- --------
(in thousands)
<S> <C> <C> <C>
Raw materials $ 4,291 $ 5,873 $ 4,255
Work-in-process 1,238 2,462 2,579
Finished goods 7,364 11,061 7,818
Excess, obsolete and realization reserves (1,264) (1,336) (1,304)
-------- -------- --------
Total inventories $ 11,629 $ 18,060 $ 13,348
======== ======== ========
Property, Plant, and Equipment, Net -
-----------------------------------
Land $ 557 $ 557 $ 557
Building and improvements 5,012 4,491 4,491
Machinery and equipment 25,660 24,920 25,230
Office furniture and equipment 3,594 3,512 3,549
-------- -------- --------
34,823 33,480 33,827
Less - accumulated depreciation 27,443 25,211 25,819
-------- -------- --------
Net property, plant, and equipment $ 7,380 $ 8,269 $ 8,008
======== ======== ========
</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>
April 30, April 30, July 31,
2000 1999 1999
-------- -------- --------
(in thousands)
<S> <C> <C> <C>
Revolving credit line $ 9,121 $ 18,773 $ 10,680
Term loan 5,323 6,561 6,251
Capitalized equipment lease obligations,
payable in monthly installments of approx-
imately $74,000 including interest at rates
from 7% to 11%, with final payments ranging
from June 2000 through December 2002 1,624 2,574 2,279
-------- -------- --------
16,068 27,908 19,210
Less - current maturities 2,394 4,380 2,107
-------- -------- --------
Total long-term debt $ 13,674 $ 23,528 $ 17,103
======== ======== ========
</TABLE>
Future maturities of the above debt obligations at April 30, 2000, are
$2,394,000, $1,651,000, and $12,023,000 for the years ending April 30,
2001 through 2002, respectively.
At April 30, 2000, the Company had a $33.9 million financing package which
consisted of $7.4 million in term loans together with a $26.5 million
revolving credit line. The revolving credit line provides for borrowings up
to $26.5 million based on varying percentages of qualifying categories of
receivables and inventories. Borrowing against inventories is limited to
$13 million in total. At April 30, 2000, the Company had $3.3 million
available under the revolving credit line.
During March 2000, the Company's financing package was amended. This
amendment extended the term of the agreement from December 31, 2000 to
December 31, 2002 and includes a renewal option through December 31, 2003
assuming neither party terminates. Significant provisions of the amendment
include changes in certain financial covenants and the lowering of the
interest rate on the revolving credit line and term loan from prime plus
1.5% to prime plus .5%.
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 the amount of operating
leases, capital expenditures and capital leases. Violation of any of these
provisions, except for the fixed charge ratio, would constitute an event of
default which, if not cured, would empower the lender to declare all
amounts immediately payable. Violation of the fixed charge ratio results in
an increase in the interest rate on the revolving credit line and term loan
of .5%. The agreement also contains a provision that in the event of a
defined change of ownership, the agreement may be terminated. The company
was in compliance with all debt covenants at April 30, 2000.
The Company's indebtedness is collateralized by substantially all of the
Company's assets.
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<PAGE>
(4) CONSOLIDATED STATEMENTS OF CASH FLOWS
During the nine months ended April 30, 2000, and April 30, 1999, the
Company paid interest of approximately $1,484,000 and $2,297,000,
respectively.
(5) SEVERANCE AND MERGER COSTS
During the nine months ended April 30, 2000, the Company recognized
$1,906,000 in severance costs primarily related to transferring certain
production related jobs to the Company's Mexico manufacturing facility.
Severance costs for all identified employees were fully accrued as of
January 31, 2000. For the same period in fiscal 1999, the Company
recognized $688,000 in severance costs, $598,000 of which was related to
the Mexico move and $90,000 of which was related to cost reduction efforts
via headcount elimination during the first quarter of fiscal 1999. The
total number of employees affected to date was 161.
For the nine months ended April 30, 2000 and April 30, 1999, the Company
incurred $295,000 and $294,000, respectively, in costs associated with its
now terminated merger with Orbital Sciences Corporation. The Company does
not anticipate further costs relative to the merger.
(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 26, 1999.
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
(7) MERGER WITH ORBITAL SCIENCES CORPORATION
On December 27, 1999 the Company terminated its Agreement and Plan of
Merger with Orbital Sciences Corporation ("Orbital") when Orbital was
unable to perform its obligations under the merger agreement. Had the
merger been consummated, Orbital would have purchased all of the
outstanding common stock of the Company at $7.30 per share.
-8-
<PAGE>
Part I, Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Results of Operations
---------------------
For the three months ended April 30, 2000, sonar and combination sonar/GPS
navigation sales decreased 4.8% as compared to the same period last year. Sonar
and combination sonar/GPS navigation unit sales decreased 5.7% year over year
while stand-alone GPS navigation sales decreased 61.9% from last year due
primarily to the discontinuance of certain non-mapping portable GPS navigation
units. Total stand-alone GPS navigation unit sales decreased 64.4% year over
year.
Net sales decreased in total by 22.2% for the three months ended April 30, 2000
as compared to the same period last year. Total unit sales decreased by
approximately 24,300 units (16.6%).
For the nine months ended April 30, 2000, sonar and combination sonar/GPS
navigation sales increased 3.5% as compared to the same period last year; unit
sales increased 4.1% year over year. Stand-alone GPS navigation sales decreased
56.8% from last year due primarily to the discontinuance of certain non-mapping
portable GPS navigation units. Total stand-alone GPS navigation unit sales
decreased 62.2% year over year.
Net sales decreased in total by 15.9% for the nine months ended April 30, 2000
as compared to the same period last year. Total unit sales decreased by
approximately 31,800 units (10.3%).
Gross profit as a percentage of net sales increased from 35.4% for the three
months ended April 30, 1999 to 40.2% for the three months ended April 30, 2000.
For the nine months ended April 30, 2000, gross profit increased to 37.6% from
33.4% for the same period in fiscal 1999. The increase results from (1) lower
manufacturing costs resulting from the relocation of the remaining manufacturing
operations from the Company's Tulsa facility to the Company's Mexico facility,
(2) the discontinuance of certain low margin, non-mapping portable GPS
navigation units and (3) lower raw material costs.
Selling and administrative costs increased as a percentage of sales due
primarily to lower revenue year over year. Research and development expense
increased as a percentage of sales as a result of the Company's renewed focus on
new product offerings. Severance and merger costs increased as a percentage of
sales year over year as the Company transferred additional production related
jobs to its Mexico facility during the first quarter of fiscal 2000 and incurred
additional costs relative to its now terminated merger with Orbital Sciences
Corporation. Operating expenses decreased by $407,000 for the three months ended
April 30, 2000 as compared to the same period last year. Total operating expense
as a percentage of sales increased from 19.5% to 23.4% for the same period.
There were no severance and merger costs for the period as the remaining
liability was fully accrued as of January 31, 2000. For the nine months ended
April 30, 2000, operating expenses decreased by $78,000 as compared to last year
and total operating expense as a percentage of sales increased from 27.0% to
31.9%.
Interest expense for the three and nine months ended April 30, 2000 was $289,000
and $813,000 lower, respectively, than for the same periods in fiscal 1999.
Increased cash flows from operations and reduced inventories and accounts
receivable enabled the Company to reduce its debt and, thereby, its interest
expense.
The after-tax net income for the three months ended April 30, 2000 was $2.5
million as compared to $3.0 million for the same period in fiscal 1999. For the
nine months ended April 30, 2000, the after-tax net income was $910,000 as
compared to $1.1 million for the same period in fiscal 1999. Excluding severance
and merger costs, the after-tax net income for the nine-month period would have
been $3.1 million as compared to $2.1 million for the same period in fiscal
1999. This improvement is due to higher gross profits and lower operating
expenses as described above.
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<PAGE>
Liquidity and Capital Resources
-------------------------------
The Company's primary sources of liquidity are cash flows from operations, a
$26.5 million revolving credit line and lease financing. The revolving credit
line includes a borrowing base of 85% of qualifying accounts receivable, 30% of
qualifying raw material inventory and 60% of qualifying finished goods inventory
with borrowings from inventories limited to $13 million.
Consistently lower inventory and receivables combined with higher gross margins
and lower operating expenses resulted in an improvement in operating cash flows
of $5.4 million for the nine months ended April 30, 2000 as compared to the same
period in fiscal 1999. Cash flows from operations were $4.3 million for the nine
months ended April 30, 2000 while cash flows used in operations were $1.1
million during the same period in fiscal 1999. The cash flows from operations
were utilized to reduce outstanding debt and to fund $1.0 million in capital
expenditures.
In March 2000, the Company amended its agreement covering the revolving credit
line and its term loan. The amendment extended the maturity of the agreement
from December 31, 2000 to December 31, 2002 with a renewal option to extend the
agreement to December 31, 2003. The amendment also reduced the interest rate on
the revolving credit line and the term loan to prime plus .5% from prime plus
1.5%. At April 30, 2000, the Company had $3.3 million available under the
revolving credit line.
Management believes the sources of liquidity discussed above are adequate to
satisfy the Company's current financing needs.
Quantitative and Qualitative Disclosure About Market Risk
---------------------------------------------------------
The Company is exposed to cash flow and interest rate risk due to changes in
interest rates with respect to its long-term debt. See Note 3 to the
consolidated financial statements for details on the Company's long-term debt.
Outlook
-------
The Company anticipates continued profitability in fiscal 2000, primarily as the
result of continuing cost reduction efforts, continuing favorable economic and
market conditions and lower manufacturing costs related to the relocation of
additional manufacturing operations to Mexico. Management currently anticipates
positive cash flows from operations in fiscal 2000 based on attaining current
projections for net income and inventory levels. The expectation for continued
profitability based on the above factors constitutes forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934. While the Company believes that these
forecasts are based on reasonable assumptions, no assurances can be given that
these goals will be achieved. If the Company experiences production delays due
to raw material shortages or unforeseen competitive pressures, this could have a
materially adverse effect on current projections. 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, thereby having an adverse effect 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
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/ Douglas J. Townsdin
-----------------------------
Douglas J. Townsdin
Vice President Finance &
Chief Financial Officer
Dated: June 14, 2000
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