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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

     
x   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
    OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended January 31, 2004

     
o   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: 0-15240

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  o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

YES  o   NO  x

At January 31, 2004, there were 3,761,196 shares of Registrant’s $0.10 par value Common Stock outstanding.

TABLE OF CONTENTS

CONDENSED CONSOLIDATED BALANCE SHEETS
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Part I, Item 2
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Item 4. CONTROLS AND PROCEDURES
Part II – OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Item 3. DEFAULTS UPON SENIOR SECURITIES
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Item 5. OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
SIGNATURES
Certification of Principal Executive Officer
Certification of Principal Financial Officer
Certification of Periodic Financial Report

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LOWRANCE ELECTRONICS, INC.

FORM 10-Q

INDEX

                 
              PAGE
             
 
PART I. FINANCIAL INFORMATION        
ITEM 1.  
Condensed Consolidated Balance Sheets - January 31, 2004 and 2003, and July 31, 2003
     3  
       
Condensed Consolidated Statements of Operations and Comprehensive Income - Three Months and Six Months Ended January 31, 2004 and 2003
     4  
       
Condensed Consolidated Statements of Cash Flows - Six Months Ended January 31, 2004 and 2003
     5  
       
Notes to Condensed Consolidated Financial Statements
     6 - 9  
ITEM 2.  
Management’s Discussion and Analysis of Financial Condition and Results of Operations
     10 - 15  
ITEM 3.  
Quantitative and Qualitative Disclosure about Market Risk
     15  
ITEM 4.  
Controls and Procedures
     15  
PART II. OTHER INFORMATION        
ITEM 1.  
Legal Proceedings
     16  
ITEM 2.  
Changes in Securities
     16  
ITEM 3.  
Defaults Upon Senior Securities
     16  
ITEM 4.  
Submission of Matters to a Vote of Security Holders
     16  
ITEM 5.  
Other Information
     16  
ITEM 6.  
Exhibits and Reports on Form 8-K
     16 - 20  
         SIGNATURES  
 
     21  

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LOWRANCE ELECTRONICS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)

                                 
            January 31,   January 31,   July 31,
            2004   2003   2003
           
 
 
            (in thousands)
       
ASSETS
                        
CURRENT ASSETS:
                        
   
Cash and cash equivalents
   $ 813     $ 705     $ 1,206  
   
Accounts receivable, less allowances
     15,582       14,350       8,431  
   
Inventories
     26,195       18,715       15,941  
   
Current deferred income taxes
     1,642       973       894  
   
Prepaid expenses
     1,456       1,134       1,290  
 
    
     
     
 
       
Total current assets
     45,688       35,877       27,762  
PROPERTY, PLANT, AND EQUIPMENT, net
     8,380       7,444       7,593  
OTHER ASSETS
     64       49       62  
DEFERRED INCOME TAXES
     —       1,441       —  
 
    
     
     
 
 
   $ 54,132     $ 44,811     $ 35,417  
 
    
     
     
 
       
LIABILITIES AND STOCKHOLDERS’ EQUITY
                        
CURRENT LIABILITIES:
                        
   
Current maturities of long-term debt
   $ 1,831     $ 1,909     $ 2,061  
   
Accounts payable
     10,926       8,572       2,951  
   
Accrued liabilities:
                        
       
Compensation and benefits
     2,463       2,441       2,704  
       
Product costs
     2,198       779       1,004  
       
Other
     1,436       1,257       893  
 
    
     
     
 
       
Total current liabilities
     18,854       14,958       9,613  
LONG-TERM DEBT, less current maturities
     15,650       16,215       5,825  
DEFERRED INCOME TAXES
     732       —       430  
STOCKHOLDERS’ EQUITY:
                        
   
Common stock, $.10 par value, 10,000,000 shares authorized, 3,761,196 shares issued and outstanding
     377       377       377  
   
Paid-in capital
     7,073       7,073       7,073  
   
Retained earnings
     11,258       6,389       12,132  
   
Accumulated other comprehensive income (loss)
     188       (201 )     (33 )
 
    
     
     
 
   
Total stockholders’ equity
     18,896       13,638       19,549  
 
    
     
     
 
 
   $ 54,132     $ 44,811     $ 35,417  
 
    
     
     
 

The accompanying notes are an integral part of these condensed consolidated financial statements.

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LOWRANCE ELECTRONICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(Unaudited)

                                     
        Three Months Ended   Six Months Ended
       
 
        January 31,   January 31,   January 31,   January 31,
        2004   2003   2004   2003
       
 
 
 
        (in thousands, except per share information)
NET SALES
   $ 24,468     $ 21,514     $ 38,504     $ 32,669  
COST OF SALES
     14,405       13,785       23,389       20,817  
 
    
     
     
     
 
   
Gross profit
     10,063       7,729       15,115       11,852  
 
    
     
     
     
 
OPERATING EXPENSES:
                                
 
Selling and administrative
     6,206       5,466       12,037       10,626  
 
Research and development
     1,214       961       2,444       2,011  
 
    
     
     
     
 
   
Total operating expenses
     7,420       6,427       14,481       12,637  
 
    
     
     
     
 
   
Operating income (loss)
     2,643       1,302       634       (785 )
 
    
     
     
     
 
OTHER EXPENSES:
                                
 
Interest expense
     165       319       371       520  
 
Other, net
     25       (28 )     162       8  
 
    
     
     
     
 
   
Total other expenses
     190       291       533       528  
 
    
     
     
     
 
INCOME (LOSS) BEFORE INCOME TAXES
     2,453       1,011       101       (1,313 )
PROVISION FOR (BENEFIT FROM) INCOME TAXES
     830       391       35       (501 )
 
    
     
     
     
 
NET INCOME (LOSS)
   $ 1,623     $ 620     $ 66     $ (812 )
 
    
     
     
     
 
NET INCOME (LOSS) PER SHARE
                                
 
BASIC
   $ .43     $ .16     $ .02     $ (.22 )
 
    
     
     
     
 
 
DILUTED
   $ .41     $ .16     $ .02     $ (.22 )
 
    
     
     
     
 
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
                                
 
BASIC
     3,761       3,761       3,761       3,761  
 
    
     
     
     
 
 
DILUTED
     3,978       3,885       3,970       3,761  
 
    
     
     
     
 
DIVIDENDS
   $ 940     NONE   $ 940     NONE
 
    
     
     
     
 
OTHER COMPREHENSIVE INCOME (LOSS) NET OF TAX:
                                
NET INCOME (LOSS)
   $ 1,623     $ 620     $ 66     $ (812 )
FOREIGN CURRENCY TRANSLATION ADJUSTMENT
     58       57       221       91  
 
    
     
     
     
 
COMPREHENSIVE INCOME (LOSS)
   $ 1,681     $ 677     $ 287     $ (721 )
 
    
     
     
     
 

The accompanying notes are an integral part of these condensed consolidated financial statements.

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LOWRANCE ELECTRONICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

                       
          Six Months Ended
         
          January 31,   January 31,
          2004   2003
         
 
          (in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
                
   
Net income (loss)
   $ 66     $ (812 )
   
Adjustments to reconcile net income (loss) to net cash used in operating activities:
                
     
Depreciation and amortization
     1,271       1,119  
     
Gain on retirement of fixed assets
     (4 )     (21 )
     
Deferred income taxes
     (446 )     (545 )
   
Changes in operating assets and liabilities:
                
     
(Increase) decrease in trade accounts receivable
     (7,151 )     (6,655 )
     
(Increase) decrease in inventories
     (10,254 )     (6,585 )
     
(Increase) decrease in prepaids and other assets
     (168 )     (122 )
     
Increase (decrease) in accounts payable and accrued liabilities
     9,471       4,646  
 
    
     
 
     
Net cash used in operating activities
   $ (7,215 )   $ (8,975 )
 
    
     
 
CASH FLOWS FROM INVESTING ACTIVITIES:
                
   
Capital expenditures
   $ (1,026 )   $ (967 )
   
Proceeds from sales of property, plant and equipment
     4       21  
 
    
     
 
     
Net cash used in investing activities
   $ (1,022 )   $ (946 )
 
    
     
 
CASH FLOWS FROM FINANCING ACTIVITIES:
                
   
Borrowings under line of credit
   $ 40,113     $ 35,417  
   
Repayments of borrowings under line of credit
     (30,275 )     (24,856 )
   
Dividend payment
     (940 )     —  
   
Principal payments on term loan and capital lease obligations
     (1,275 )     (929 )
 
    
     
 
     
Net cash provided by financing activities
   $ 7,623     $ 9,632  
   
Effect of exchange rate changes on cash
     221       91  
 
    
     
 
     
Net decrease in cash and cash equivalents
   $ (393 )   $ (198 )
CASH AND CASH EQUIVALENTS - beginning of period
     1,206       903  
 
    
     
 
CASH AND CASH EQUIVALENTS - end of period
   $ 813     $ 705  
 
    
     
 
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
                
Cash paid during the period for:
                
 
Interest
   $ 371     $ 520  
 
Income taxes
     12       9  
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
                
Capital expenditures funded by capital lease borrowings
   $ 1,032     $ 492  

The accompanying notes are an integral part of these condensed consolidated financial statements.

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LOWRANCE ELECTRONICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS AND SIX MONTHS ENDED JANUARY 31, 2004 AND 2003
(Unaudited)

(1)   PRINCIPLES OF PREPARATION

      The financial statements subsequent to July 31, 2003 and with respect to the interim three and six month periods ended January 31, 2004 and 2003 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 accounting principles generally accepted in the United States 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 and six months ended January 31, 2004, are the same as those outlined in the Annual Report on Form 10-K filed relative to the year ended July 31, 2003. 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 for the year ended July 31, 2003 filed with the Securities and Exchange Commission on Form 10-K.
 
      Certain reclassifications have been made to the January 31, 2003 financial statements to conform to the classifications used for the period ended January 31, 2004.

(2)   BALANCE SHEET DETAIL

      Inventories -
 
      Inventories are priced at the lower of cost (first-in, first-out) or market and consist of the following:

                         
    Jan. 31,   Jan. 31,   July 31,
    2004   2003   2003
   
 
 
            (in thousands)        
Raw materials
   $ 10,398     $ 6,661     $ 4,290  
Work-in-process
     6,888       4,396       2,608  
Finished goods
     10,103       8,442       9,598  
Reserves
     (1,194 )     (784 )     (555 )
 
    
     
     
 
Total inventories
   $ 26,195     $ 18,715     $ 15,941  
 
    
     
     
 

      Discontinued finished goods inventory attributable to fiscal 2003 product decisions was approximately $39,000 at January 31, 2004 as compared to $156,000 at July 31, 2003. Inventory on hand at January 31, 2004 for products the Company discontinued during fiscal 2004 was $31,000 as compared to $723,000 at July 31, 2003. All discontinued finished goods inventories are carried at cost, which management believes to be lower than expected realizable value. The Company expects the remaining inventory of discontinued products to be sold during fiscal 2004.

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(3)   PRODUCT WARRANTIES

      The following represents a tabular presentation of the changes in the Company’s aggregate product warranty liability for the six-month reporting period.