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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 April 30, 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 April 30, 2005, there were 5,135,516 shares of Registrant’s $0.10 par value Common Stock outstanding.

 
 

 

LOWRANCE ELECTRONICS, INC.

FORM 10-Q

INDEX

             
        PAGE  
PART I. FINANCIAL INFORMATION
 
            
  Condensed Consolidated Balance Sheets - April 30, 2005 and 2004, and July 31, 2004     3  
 
            
 
   Condensed Consolidated Statements of Income and Comprehensive Income - Three Months and Nine Months Ended April 30, 2005 and 2004     4  
 
            
 
   Condensed Consolidated Statement of Stockholders’ Equity – Nine Months Ended April 30, 2005     5  
 
            
 
   Condensed Consolidated Statements of Cash Flows - Nine Months Ended April 30, 2005 and 2004     6  
 
            
 
   Notes to Condensed Consolidated Financial Statements     7-11  
 
            
  Management's Discussion and Analysis of Financial Condition and Results of Operations     11-17  
 
            
  Quantitative and Qualitative Disclosure about Market Risk     17  
 
            
  Controls and Procedures     17  
 
            
 
            
  Legal Proceedings     18  
 
            
  Unregistered Sales of Equity Securities and Use of Proceeds     18  
 
            
  Defaults Upon Senior Securities     18  
 
            
  Submission of Matters to a Vote of Security Holders     18  
 
            
  Other Information     18  
 
            
  Exhibits and Reports on Form 8-K     18-22  
 
            
    23  
 Certification of Principal Executive Officer
 Certification of Principal Financial Officer
 Certification Pursuant to 18 U.S.C. Section 1350

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LOWRANCE ELECTRONICS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(in thousands)

ASSETS

                         
    April 30,     April 30,     July 31,  
    2005     2004     2004  
            (As Restated,          
            See Note 1)          
 
                        
CURRENT ASSETS:
                        
Cash and cash equivalents
   $ 3,494     $ 1,193     $ 1,412  
Accounts receivable, less allowances
     30,165       21,406       10,276  
Inventories
     43,473       22,967       23,821  
Current deferred income taxes
     1,120       1,789       1,107  
Prepaid income taxes
     233       148       —  
Prepaid expenses
     2,766       1,360       2,041  
 
                  
 
                        
Total current assets
     81,251       48,863       38,657  
 
                        
PROPERTY, PLANT, AND EQUIPMENT, net
     18,931       9,745       10,005  
 
                        
OTHER ASSETS
     427       64       81  
 
                  
 
                        
TOTAL ASSETS
   $ 100,609     $ 58,672     $ 48,743  
 
                  
 
                        
LIABILITIES AND STOCKHOLDERS’ EQUITY
                        
 
                        
CURRENT LIABILITIES:
                        
Current maturities of long-term debt
   $ 742     $ 1,842     $ 1,874  
Accounts payable
     9,436       8,586       6,072  
Accrued liabilities:
                        
Compensation and benefits
     3,044       2,988       3,175  
Product costs
     2,093       2,291       1,968  
Income taxes
     871       2,312       671  
Other
     1,609       1,181       1,119  
 
                  
Total current liabilities
     17,795       19,200       14,879  
 
                        
LONG-TERM DEBT, less current maturities
     21,450       12,965       6,040  
 
                        
DEFERRED INCOME TAXES
     1,532       959       1,169  
 
                        
STOCKHOLDERS’ EQUITY:
                        
Common stock, $.10 par value, 10,000,000 shares authorized, 5,135,516 shares issued and outstanding at April 30, 2005; 3,761,196 shares issued and outstanding at April 30, 2004 and July 31, 2004.
     514       377       377  
Paid-in capital
     34,316       7,434       7,449  
Retained earnings
     24,684       17,615       18,721  
Accumulated other comprehensive income
     318       122       108  
 
                  
 
                        
Total stockholders’ equity
     59,832       25,548       26,655  
 
                  
 
                        
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
   $ 100,609     $ 58,672     $ 48,743  
 
                  

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

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LOWRANCE ELECTRONICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (UNAUDITED)
(in thousands, except per share information)
                                 
    Three Months Ended     Nine Months Ended  
    April 30,     April 30,     April 30,     April 30,  
    2005     2004     2005     2004  
            (As Restated,             (As Restated,  
            See Note 1)             See Note 1)  
 
                                
NET SALES
   $ 53,200     $ 46,296     $ 103,321     $ 84,800  
 
                                
COST OF SALES
     32,003       25,640       63,259       49,029  
 
                        
 
                                
Gross profit
     21,197       20,656       40,062       35,771  
 
                                
OPERATING EXPENSES:
                                
Selling and administrative
     10,055       9,206       24,617       21,277  
Research and development
     1,417       1,316       4,641       3,760  
 
                        
 
                                
Total operating expenses
     11,472       10,522       29,258       25,037  
 
                        
 
                                
Operating income
     9,725       10,134       10,804       10,734  
 
                        
 
                                
OTHER EXPENSES:
                                
Interest expense
     361       187       705       558  
Other, net
     24       48       80       210  
 
                        
 
                                
Total other expenses
     385       235       785       768  
 
                        
 
                                
INCOME BEFORE INCOME TAXES
     9,340       9,899       10,019       9,966  
 
                                
PROVISION FOR INCOME TAXES
     2,900       3,228       3,116       3,257  
 
                        
 
                                
NET INCOME
   $ 6,440     $ 6,671     $ 6,903     $ 6,709  
 
                        
 
                                
NET INCOME PER SHARE
                                
BASIC
   $ 1.25     $ 1.77     $ 1.41     $ 1.78  
 
                        
DILUTED
   $ 1.25     $ 1.68     $ 1.41     $ 1.69  
 
                        
 
                                
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
                                
BASIC
     5,135       3,761       4,886       3,761  
 
                        
DILUTED
     5,135       3,982       4,886       3,975  
 
                        
 
                                
DIVIDENDS
   NONE   NONE   $ 940     $ 940  
 
                        
 
                                
OTHER COMPREHENSIVE INCOME
                                
NET OF TAX:
                                
 
                                
NET INCOME
   $ 6,440     $ 6,671     $ 6,903     $ 6,709  
 
                                
FOREIGN CURRENCY TRANSLATION ADJUSTMENT
     32       (66 )     210       155  
 
                        
 
                                
COMPREHENSIVE INCOME
   $ 6,472     $ 6,605     $ 7,113     $ 6,864  
 
                        

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

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LOWRANCE ELECTRONICS, INC.

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (UNAUDITED)
FOR THE NINE MONTHS ENDED APRIL 30, 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
     —       —       —       6,903       —       6,903  
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
     —       —       —       —       210       210  
Dividends ($0.25 per common share)
     —       —       —       (940 )     —       (940 )
 
                                    
Balance- April 30, 2005
     5,135     $ 514     $ 34,316     $ 24,684     $ 318     $ 59,832  
 
                                    

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)
(in thousands)
                 
    Nine Months Ended  
    April 30,     April 30,  
    2005     2004  
CASH FLOWS FROM OPERATING ACTIVITIES:
                
Net income
   $ 6,903     $ 6,709  
Adjustments to reconcile net income to net cash used in operating activities:
                
Depreciation and amortization
     2,392       1,930  
(Gain) loss on retirement of fixed assets
     13       (4 )
Deferred income taxes
     350       (342 )
Stock option plan expense
     393       51  
Tax benefit of stock options exercised
     1,381       —  
Changes in operating assets and liabilities:
                
(Increase) decrease in trade accounts receivable
     (19,889 )     (13,123 )
(Increase) decrease in inventories
     (19,652 )     (7,026 )
(Increase) decrease in prepaids and other assets
     (1,304 )     (72 )
Increase (decrease) in accounts payable and accrued liabilities
     4,048       9,806  
 
            
 
                
Net cash used in operating activities
     (25,365 )     (2,071 )
 
            
 
                
CASH FLOWS FROM INVESTING ACTIVITIES:
                
Capital expenditures
     (11,287 )     (2,857 )
Proceeds from sales of property, plant and equipment
     (13 )     4  
 
            
Net cash used in investing activities
     (11,300 )     (2,853 )
 
            
 
                
CASH FLOWS FROM FINANCING ACTIVITIES:
                
Borrowings under line of credit
     106,937       75,686  
Repayments of borrowings under line of credit
     (90,880 )     (68,211 )
Dividend payment
     (940 )     (940 )
Net proceeds from secondary public offering
     25,230       —  
Principal payments on term loans and capital lease obligations
     (1,810 )     (1,779 )
 
            
 
                
Net cash provided by financing activities
     38,537       4,756  
Effect of exchange rate changes on cash
     210       155  
 
            
Net increase (decrease) in cash and cash equivalents
     2,082       (13 )
 
                
CASH AND CASH EQUIVALENTS — beginning of period
     1,412       1,206  
 
            
 
                
CASH AND CASH EQUIVALENTS — end of period
   $ 3,494     $ 1,193  
 
            
 
                
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
                
Cash paid during the period for:
                
Interest
   $ 705     $ 527  
Income taxes
     1,117       566  
 
                
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
                
Capital expenditures funded by capital lease borrowings
     31     $ 1,225  
Cashless exercise of stock options
     22       —  

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 NINE MONTHS ENDED APRIL 30, 2005 AND 2004 (UNAUDITED)

(1)   BASIS OF PRESENTATION
 
    The financial statements subsequent to July 31, 2004 and with respect to the interim three and nine month periods ended April 30, 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 nine months ended April 30, 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 prior period financial statements presented to conform to the classifications used for the period ended April 30, 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 April 30, 2004 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 nine months ended April 30, 2004.

                 
            As Restated for the  
    As Previously     Adoption of SFAS  
    Reported     No. 123  
 
                
For the three months ended:
                
Selling and Administrative Expenses
   $ 9,391     $ 9,206  
Operating Income
     9,949       10,134  
Income Before Income Taxes
     9,714       9,899  
Net Income
     6,517       6,671  
Net Income Per Share:
                
Basic
   $ 1.73     $ 1.77  
Diluted
   $ 1.64     $ 1.68  
 
                
For the nine months ended:
                
Selling and Administrative Expenses
   $ 22,352     $ 21,277  
Operating Income
     9,659       10,734  
Income Before Income Taxes
     8,891       9,966  
Net Income
     5,818       6,709  
Net Income Per Share:
                
Basic
   $ 1.55     $ 1.78  
Diluted
   $ 1.46     $ 1.69  
 
                
As of April 30:
                
Stockholders’ Equity
   $ 25,766     $ 25,548  

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(2)   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,  
    2005     2004     2004  
            (in thousands)          
Raw materials
   $ 14,757     $ 5,980     $ 6,895  
Work-in-process
     10,826       4,439       4,445  
Finished goods
     19,042       13,677       13,171  
Excess, obsolete and realization reserves
     (1,152 )     (1,129 )     (690 )
 
                  
 
                        
Total inventories
   $ 43,473     $ 22,967     $ 23,821  
 
                  

    Discontinued finished goods inventory attributable to fiscal 2005 product decisions was approximately $264,000 at April 30, 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.
 
(3)   PRODUCT WARRANTIES
 
    The following represents a tabular presentati