LOWRANCE ELECTRONICS INC - 10-Q Quarterly Report

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended January 31, 2005

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 þ 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 þ

At January 31, 2005, there were 5,135,516 shares of Registrant’s $0.10 par value Common Stock outstanding.

LOWRANCE ELECTRONICS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(in thousands)


	January 31,		January 31,		July 31,
	2005		2004		2004
			(As Restated,
			See Note 1)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	1,308	$	813	$	1,412
Trade accounts receivable, less allowances		23,353		15,582		10,276
Inventories		50,626		26,195		23,821
Current deferred income taxes		1,345		1,642		1,107
Prepaid income taxes		1,600		—		—
Prepaid expenses		3,033		1,456		2,041


Total current assets		81,265		45,688		38,657

PROPERTY, PLANT, AND EQUIPMENT, net		19,131		8,380		10,005

OTHER ASSETS		500		64		81


TOTAL ASSETS	$	100,896	$	54,132	$	48,743


LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt	$	1,073	$	1,831	$	1,874
Accounts payable		11,286		10,926		6,072
Accrued liabilities:
Compensation and benefits		2,938		2,463		3,175
Product costs		2,371		2,198		1,968
Income taxes		152		197		671
Other		1,733		1,239		1,119


Total current liabilities		19,553		18,854		14,879

LONG-TERM DEBT, less current maturities		26,752		15,650		6,040

DEFERRED INCOME TAXES		1,167		702		1,169

STOCKHOLDERS’ EQUITY:
Common stock, $.10 par value, 10,000,000 shares authorized, 5,135,516 shares issued and outstanding at January 31, 2005; 3,761,196 shares issued and outstanding at January 31, 2004 and July 31, 2004		514		377		377
Paid-in capital		34,316		7,417		7,449
Retained earnings		18,244		10,944		18,721
Accumulated other comprehensive income		350		188		108

Total stockholders’ equity		53,424		18,926		26,655


TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	100,896	$	54,132	$	48,743

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

LOWRANCE ELECTRONICS, INC.

CONSENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(UNAUDITED)

(in thousands, except per share information)


	Three Months Ended					Six Months Ended
	January 31,			January 31,		January 31,		January 31,
	2005			2004		2005		2004
				(As Restated,				(As Restated,
				See Note 1)				See Note 1)
NET SALES	$	32,646		$	24,468	$	50,121	$	38,504

COST OF SALES		20,325			14,405		31,256		23,389


Gross profit		12,321			10,063		18,865		15,115


OPERATING EXPENSES:
Selling and administrative		7,429			6,223		14,562		12,071
Research and development		1,533			1,214		3,224		2,444


Total operating expenses		8,962			7,437		17,786		14,515


Operating income		3,359			2,626		1,079		600


OTHER EXPENSES:
Interest expense		222			165		344		371
Other, net		(9	)		25		56		162


Total other expenses		213			190		400		533


INCOME BEFORE INCOME TAXES		3,146			2,436		679		67

PROVISION FOR INCOME TAXES		978			827		216		29


NET INCOME	$	2,168		$	1,609	$	463	$	38


NET INCOME PER SHARE
BASIC	$	0.42		$	0.43	$	0.10	$	0.01

DILUTED	$	0.42		$	0.40	$	0.10	$	0.01


WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
BASIC		5,135			3,761		4,765		3,761

DILUTED		5,135			3,978		4,765		3,970


DIVIDENDS	NONE			NONE		$	940	$	940


OTHER COMPREHENSIVE INCOME
NET OF TAX:

NET INCOME	$	2,168		$	1,609	$	463	$	38

FOREIGN CURRENCY TRANSLATION ADJUSTMENT		(15	)		58		242		221


COMPREHENSIVE INCOME	$	2,153		$	1,667	$	705	$	259

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

LOWRANCE ELECTRONICS, INC.

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (UNAUDITED)

FOR THE SIX MONTHS ENDED JANUARY 31, 2005

(in thousands)


											Accumulated
											Other
	Common Stock				Paid-In			Retained			Comprehensive		Total
	Shares		Amount		Capital			Earnings			Income		Equity
Balance-July 31, 2004		3,761	$	377	$	7,449		$	18,721		$	108	$	26,655
Net income		—		—		—			463			—		463
Stock option plan expense		—		—		393			—			—		393
Net proceeds from secondary public offering		1,150		115		25,115			—			—		25,230
Cashless exercise of stock options		224		22		(22	)		—			—		—
Tax benefit from stock option exercises		—		—		1,381			—			—		1,381
Other comprehensive income:
Foreign currency translation adjustment		—		—		—			—			242		242
Dividends ($0.25 per common share)		—		—		—			(940	)		—		(940	)


Balance-January 31, 2005		5,135	$	514	$	34,316		$	18,244		$	350	$	53,424

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

LOWRANCE ELECTRONICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(in thousands)


	Six Months Ended
	January 31,			January 31,
	2005			2004
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	463		$	38
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization		1,535			1,271
(Gain) loss on retirement of fixed assets		13			(4	)
Deferred income taxes		(240	)		(452	)
Stock option plan expense		393			34
Tax benefit of stock options exercised		1,381			—
Changes in operating assets and liabilities:
(Increase) decrease in trade accounts receivable		(13,077	)		(7,151	)
(Increase) decrease in inventories		(26,805	)		(10,254	)
(Increase) decrease in prepaids and other assets		(3,011	)		(168	)
Increase (decrease) in accounts payable and accrued liabilities		5,475			9,471


Net cash used in operating activities		(33,873	)		(7,215	)


CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures		(10,643	)		(1,026	)
Proceeds from sales of property, plant and equipment		—			4

Net cash used in investing activities		(10,643	)		(1,022	)


CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under line of credit		68,487			40,113
Repayments of borrowings under line of credit		(47,178	)		(30,275	)
Dividend payment		(940	)		(940	)
Net proceeds from secondary public offering		25,230			—
Principal payments on term loan and capital lease obligations		(1,429	)		(1,275	)


Net cash provided by financing activities		44,170			7,623

Effect of exchange rate changes on cash		242			221


Net decrease in cash and cash equivalents		(104	)		(393	)

CASH AND CASH EQUIVALENTS - beginning of period		1,412			1,206


CASH AND CASH EQUIVALENTS - end of period	$	1,308		$	813


SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest	$	344		$	371
Income taxes		1,117			12

SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Capital expenditures funded by capital lease borrowings	$	31		$	1,032
Cashless exercise of stock options		22			—

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

LOWRANCE ELECTRONICS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THREE MONTHS AND SIX MONTHS ENDED JANUARY 31, 2005 AND 2004 (UNAUDITED)

(1) BASIS OF PRESENTATION

The financial statements subsequent to July 31, 2004 and with respect to the interim three and six month periods ended January 31, 2005 and 2004 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 of America 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, 2005, are the same as those outlined in the Annual Report on Form 10-K filed relative to the year ended July 31, 2004. 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, 2004 filed with the Securities and Exchange Commission on Form 10-K.

Certain reclassifications have been made to the January 31, 2004 financial statements to conform to the classifications used for the period ended January 31, 2005.

In May 2004, the Company adopted the fair value method of accounting for stock based compensation prescribed by SFAS No. 123 under the modified prospective method permitted by SFAS No. 148. The adoption of SFAS No. 123 was effective August 1, 2003 and was reflected in the Company’s annual consolidated financial statements for the year ended July 31, 2004. Accordingly, the January 31, 2004 interim financial statements presented herein have been restated to reflect the adoption of SFAS No. 123.

The following is a summary of the effects of adoption of SFAS No. 123 on the Company’s previously reported condensed consolidated financial statements as of and for the three and six months ended January 31, 2004.


				As Restated
				for the
	As Previously			Adoption of SFAS
	Reported			No.123
For the three months ended:
Selling and Administrative Expenses	$	6,309		$	6,223
Operating Income		2,540			2,626
Income Before Income Taxes		2,350			2,436
Net Income		1,538			1,609
Net Income Per Share:
Basic	$	0.41		$	0.43
Diluted	$	0.39		$	0.40
For the six months ended:
Selling and Administrative Expenses	$	12,961		$	12,071
Operating Income (Loss)		(290	)		600
Income (Loss) Before Income Taxes		(823	)		67
Net Income (Loss)		(699	)		38
Net Income (Loss) Per Share:
Basic	$	(0.19	)	$	0.01
Diluted	$	(0.19	)	$	0.01

As of January 31:
Stockholders’ Equity	$	19,113		$	18,926

In December 2004 the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based Payment, which is effective for the Company beginning August 1, 2005. The Company is evaluating the revised standard but expects no significant impact upon adoption since it had previously adopted the fair value method of accounting for stock based compensation prescribed by SFAS No. 123.

(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,
	2005			2004			2004
	(in thousands)
Raw materials	$	18,529		$	10,398		$	6,895
Work-in-process		12,753			6,888			4,445
Finished goods		20,419			10,103			13,171
Reserves		(1,075	)		(1,194	)		(690	)


Total inventories	$	50,626		$	26,195		$	23,821

Discontinued finished goods inventory approximately attributable to fiscal 2005 product decisions was approximately $791,000 at January 31, 2005 as compared to approximately $3.4 million at July 31, 2004. 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 2005.

In December 2004, the Company exercised its purchase option on the Ensenada manufacturing facility and adjacent undeveloped land. In addition, the Company purchased additional undeveloped land adjacent to the leased property. The total purchase price was approximately $6.8 million.

(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.


	Six Months Ended
	Jan. 31,			Jan. 31,
	2005			2004
	(in thousands)
Beginning balance	$	1,193		$	1,004
Warranty cost incurred		(980	)		(1,054	)
New warranties issued		747			1,065
Change in beginning of period estimate		(8	)		24


Ending balance	$	952		$	1,039

(4) LONG-TERM DEBT AND REVOLVING CREDIT LINE

Long-term debt and the revolving credit line are summarized below:


	Jan. 31,		Jan. 31,		July 31,
	2005		2004		2004
	(in thousands)
Revolving credit line	$	26,604	$	14,347	$	5,295
Term loan		—		680		542
Capitalized equipment lease obligations (net), payable in monthly installments of approximately $155,000 including interest at rates from 3.7% to 9.1%, with final payments ranging from March 2005 through October 2009		1,221		2,454		2,077

		27,825		17,481		7,914
Less - current maturities		1,073		1,831		1,874

Total long-term debt	$	26,752	$	15,650	$	6,040


	PAGE
PART I. FINANCIAL INFORMATION
ITEM 1. Condensed Consolidated Balance Sheets - January 31, 2005 and 2004, and July 31, 2004		3
Condensed Consolidated Statements of Operations and Comprehensive Income - Three Months and Six Months Ended January 31, 2005 and 2004		4
Condensed Consolidated Statement of Stockholders’ Equity-Six Months Ended January 31, 2005		5
Condensed Consolidated Statements of Cash Flows - Six Months Ended January 31, 2005 and 2004		6
Notes to Condensed Consolidated Financial Statements		7 - 11
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		11 - 17
ITEM 3. Quantitative and Qualitative Disclosure about Market Risk		17
ITEM 4. Controls and Procedures		18
PART II.OTHER INFORMATION
ITEM 1. Legal Proceedings		18
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds		18
ITEM 3. Defaults Upon Senior Securities		18
ITEM 4. Submission of Matters to a Vote of Security Holders		18
ITEM 5. Other Information		18
ITEM 6. Exhibits and Reports on Form 8-K		18 - 23
SIGNATURES		24
December 2004 Amendment to Loan and Security Agreement
Certification of Principal Executive Officer
Certification of Principal Financial Officer
Certification of Periodic Financial Report

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