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L owrance E lectronics, Inc.

L owrance E lectronics, Inc. ACG2021 Section 002. Anthony R. Harmon. Executive Summary.

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L owrance E lectronics, Inc.

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  1. LowranceElectronics, Inc. ACG2021 Section 002 Anthony R. Harmon

  2. Executive Summary • Lowrance is a company that has a market that will be expanding in the future allowing for growth and increased revenues. After reviewing their past financial statements the company is solid and has resources to build upon. Competition is fierce in this market segment, however, and efficiency and first to market tactics will be crucial in Lowrance continuing to be a market leader. • Lowrance Electronics, Inc. F/S

  3. Part A. Introduction • CEO: Darrell J. Lowrance • Home Office: 12000 East Skelly Drive Tulsa , Oklahoma 74128 • End Date of Latest Fiscal Year: 6/31/05 • Leader in the design, manufacturing and marketing of a comprehensive line of high quality, cost-effective, sound navigation and ranging (SONAR) and global positioning system (GPS) products. • Market and sell their products domestically and in 65 countries throughout the world, focusing on three primary product markets: marine, consumer (which includes outdoor recreational use and vehicular navigation systems) and aviation.

  4. Part A. Audit Report • Independent Auditor:Deloitte & Touche, LLP • Deloitte & Touche, LLP statements on company: The consolidated financial statements present fairly the financial position of Lowrance Electronics, Inc. and subsidiaries as of July 31, 2004 and 2005, and the results of their operations and their cash flows for each of the three years in the period ended July 31, 2005 in conformity with accounting principles generally accepted in the United States of America. Effective August 1, 2003 the Company adopted the fair value method of accounting for stock-based compensation. The effectiveness of the Company’s internal control over financial reporting was up to standards.

  5. Part A. Stock Market Info. • As of March 3, 2006 LEIX’s stock price was $36.97 • The 12 month trading range was from $19.16 - $39.50 • The Dividends/Share are $ 0.60 • The information above was retrieved on 3/5/06 • My opinion about the company stock as an investment is to HOLD. Currently the stock is high and has not historically seen greater earnings. I would wait until it drops again and reconsider buying at that point. If I already held stocks I would also HOLD and see if stocks will go higher with introduction of NEMA.

  6. Industry Situation and Part B. Company Plans • Lowrance’s industry of GPS, Sonar and navigation equipment and software looks bright. There are plenty of current and future applications of the products that Lowrance produces. The marine industry is always searching for better products to integrate and network with complete systems in vessels to inform the users of all situations. General uses are opening up from recreational land use to companies using GPS technology to more efficiently run their ground based operations. Aviation use all these technologies to make their operations more efficient and safe. Lowrance’s key growth strategies are based on its ability to continually develop technological innovations for products in their core markets and to expand their product lines into other applicable end-user markets. Research and development of new technologies that will enhance the performance and quality of their products is another focal point.

  7. Part C. Income Statement • This income statement is in a multi-step format • The greatest cause of the differences between 2004 and 2005 gross profit is the difference in net sales from $ 111,861,000 to $ 146,369,000.

  8. Part C. Balance Sheet • Retained earnings increased by $ 6,931,000 & contributed capital increased by $ 15,595,00 in 2005. These contributions and earnings allowed the company to invest back into itself and show an increase in assets of $ 36,305,000.

  9. Statement of Cash Part C. Flows • Cash flows from operations are less than net income for the past two years • The company is growing through investing in property, plant & equipment. • The company’s primary source of financing for 2005 was stock sales • Overall cash has increased over the past two years

  10. Part D. Accounting Policies Significant Accounting Policies: • Revenue recognition - Revenue for product sales is recognized at the time of product shipment since the terms of sale are FOB, shipping point. Sales are recorded net of certain costs as described below under Accrued Product Costs. Due to the seasonality of certain products, the Company will offer extended credit terms of up to 120 days during certain periods. • Property and depreciation - Property, plant, and equipment is stated at cost. For financial reporting purposes, depreciation is provided on a straight-line basis over the estimated service lives of the respective classes of property. The buildings are being depreciated using an estimated useful life of thirty years, while the estimated lives for other assets are as follows: leasehold and building improvements, 15-20 years; machinery and equipment, 5-7 years; and office furniture and fixtures, 3-5 years. Fully depreciated property and equipment with a cost of approximately $26.3 million is still in use as of July 31, 2005. • When property is retired, or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts, and the resulting gain or loss is credited or charged to operations. • Maintenance, repairs, and renewals, including replacement of minor items of physical properties, are charged to income; major additions and betterments to physical properties are capitalized. • Inventory - Inventories are stated at the lower of cost (first-in, first-out) or market. All discontinued finished goods inventories are carried at cost, which management believes to be lower than expected realizable value. Management monitors the carrying value of inventories using inventory control and review processes which include, but are not limited to, sales forecast review, inventory status reports and inventory reduction programs. Excess and obsolete inventory reserves are recorded by comparing available quantities of raw materials and finished goods to work order requirements for raw materials and forecasted sales for finished goods. The required reserves are adjusted based on anticipated changes in scheduled work orders resulting from process or design changes that impact raw material usage and from changes in sales forecasts resulting in changes in finished goods quantities. Actual results could vary from these estimates. • Cash and cash equivalents - For purposes of the consolidated statements of cash flows, the Company considers all highly liquid investments with original maturities of three months or less at time of purchase to be cash equivalents.

  11. Part D. Accounting Policies (Cont.) Topics of Notes to Financial Statements: • Balance sheet detail • Long-term debt and revolving credit lineCash and cash equivalents • Leases • Stockholders’ equity and related items • Earnings per share • Retirement plan • Income taxes • Operating segment information • Sales to a major customer • Concentrations of credit risk

  12. Financial Analysis Part E. Liquidity Ratios • Working Capital- Increased mostly due to contributed capital • Current Ratio- Banks would like to see >2.0 and LEIX has 4.1 in 2006 • Receivable Turnover & AVG Days Sales Uncollected- indicate that LEIX is getting paid more often and have to carry receivables for less time • Inv. Turnover & AVG Days Inv. On Hand- indicate that LEIX is holding on to inventory for less time and that it is getting processed faster than the previous year

  13. Financial Analysis Part E. Profitability Ratios • Profit Margin- Decreased due to • Asset Turnover- Indicates that LEIX is doing more with its assets than last year • ROA & ROE- indicate that there has been a small percentage of improvement over last years numbers in getting the most out of its assets and equity

  14. Financial Analysis Part E. Solvency Ratio • A Debt to Equity Ratio < 1.0 means that the stock holders own LEI. The numbers show that this past year they own even more than they did the year before that. When the ratio becomes to low there becomes a concern, however, that not enough is being done with the equity invested in the company to earn more money.

  15. Financial Analysis Part E. Market Strength Ratios • The Price/Earnings per share amount has gone down due to the increase in the total amount of shares in the company • Dividend Yield has remained roughly the same between this year and last

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