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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-K
  þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE
REQUIRED]
 For the fiscal year ended July 31, 2005
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
[NO FEE REQUIRED]
 For the transition period from __________ to __________
 Commission File Number: 0-15240
 
 LOWRANCE ELECTRONICS, INC.
  Delaware
    
    44-0624411(State of incorporation)
    
    (I.R.S. Employer Identification No.)12000 East Skelly DriveTulsa , Oklahoma
    
    74128(Address of principal executive offices)
    
    (Zip Code)
  value $.10 per share
  þ o
 o
  þ o
  o þ




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LOWRANCE ELECTRONICS, INC.
FORM 10-K
 PageTable of ContentsForward-Looking Statements
    
    
    1PART IItem 1.
    
    Business
    
    
    2Item 2.
    
    Properties
    
    
    9Item 3.
    
    Legal Proceedings
    
    
    10Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    10PART IIItem 5.
    
    Market for Registrants Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
    
    
    10Item 6.
    
    Selected Financial Data
    
    
    10Item 7.
    
    Managements Discussion and Analysis of Financial
Condition and Results of Operations
    
    
    11Item 7a.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    19Item 8.
    
    Financial Statements and Supplementary Data
    
    
    19Item 9.
    
    Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
    
    
    19Item 9a.
    
    Controls and Procedures
    
    
    19Item 9b.
    
    Other Information
    
    
    21PART IIIItem 10.
    
    Directors and Executive Officers of the Registrant
    
    
    21Item 11.
    
    Executive Compensation
    
    
    21Item 12.
    
    Security Ownership of Certain Beneficial Owners
and Management and Related Stockholder Matters
    
    
    21Item 13.
    
    Certain Relationships and Related Transactions
    
    
    21Item 14.
    
    Principal Accounting Fees and Services
    
    
    21PART IVItem 15.
    
    Exhibits, Financial Statement Schedules
    
    22 and F-1 to F-15Signatures
    
    
    
    
    27Consent of Deloitte & Touche LLPCertification of Principal Executive OfficerCertification of Principal Financial OfficerCertification Pursuant to 18 U.S.C. Section 1350




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Forward  Looking Statements
   1




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LOWRANCE ELECTRONICS, INC.
Annual Report
For the Year Ended July 31, 2005
 
 PART I
 
 Item 1. Business
 Business
 Overview
      Industry background
 SONAR
  2




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Global Positioning Systems (GPS)
    Marine SONAR and SONAR/GPS Combination.
 Marine GPS.
 General consumer GPS.
 Aviation GPS.
 Our key growth strategies
  3




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Continue to introduce new and enhanced products in our core markets
   Marine
  General consumer products
 Aviation
  Expand our existing technologies into new end-user markets
  Capitalize on our operating efficiencies and increase utilization of our existing manufacturing
capabilities
  4




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Products
  Marine
     General consumer
   5




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Aviation
   Accessories
  Product research and development
  
    
    Computer Aided Design (CAD) systems,
    
    Application Specific Integrated Circuits (ASICS),
    
    Tape Automated bonding (TAB),
    
    Chip-On-Flex (COF),
    
    Chip-On-Glass (COG),
    
    System-On-Chip (SOC) and
    
    Liquid Crystal Display (LCD) assembly.
  Manufacturing
  6




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Sales and marketing
     Customer service
  Intellectual property
  7




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Suppliers and materials
     Seasonality and working capital management
  Competition
  8




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Employees
  Access to our SEC Filings
  
 Item 2. Properties
     9




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Item 3. Legal proceedings
  
 Item 4. Submission of Matters to a Vote of Security Holders
  
 PART II
 
 Item 5. Market for Registrants Common Equity and Related Stockholder Matters
   2004
    
    
    2005High
    
    
    Low
    
    
    High
    
    
    Low$
    
    
    $
    
    
    $
    
    
    $1st Quarter
    
    
    23.81
    
    
    
    7.56
    
    
    
    30.17
    
    
    
    21.902nd Quarter
    
    
    25.27
    
    
    
    18.00
    
    
    
    34.38
    
    
    
    25.473rd Quarter
    
    
    26.96
    
    
    
    19.35
    
    
    
    32.65
    
    
    
    23.104th Quarter
    
    
    37.19
    
    
    
    21.00
    
    
    
    23.80
    
    
    
    19.16
 
 Item 6. Selected Financial Data
  Years Ended July 31,(in thousands, except per share amounts)2001
    
    
    2002
    
    
    2003
    
    
    2004
    
    
    2005Operating and Per Share DataOperating Data:Net sales
    
    $
    73,419
    
    
    $
    79,501
    
    
    $
    88,297
    
    
    $
    111,861
    
    
    $
    146,369Gross profit
    
    
    26,335
    
    
    
    29,926
    
    
    
    37,261
    
    
    
    47,304
    
    
    
    54,927Percent of sales
    
    
    35.9
    %
    
    
    37.6
    %
    
    
    42.2
    %
    
    
    42.3
    %
    
    
    37.5
    %Operating income
    
    
    2,103
    
    
    
    5,255
    
    
    
    7,881
    
    
    
    13,310
    
    
    
    13,971Percent of sales
    
    
    2.9
    %
    
    
    6.6
    %
    
    
    8.9
    %
    
    
    11.9
    %
    
    
    9.5
    %
 10




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Years Ended July 31,(in thousands, except per share amounts)2001
    
    
    2002
    
    
    2003
    
    
    2004
    
    
    2005Income before taxes
    
    
    99
    
    
    
    3,935
    
    
    
    6,862
    
    
    
    12,429
    
    
    
    12,876Percent of sales
    
    
    0.1
    %
    
    
    4.9
    %
    
    
    7.8
    %
    
    
    11.1
    %
    
    
    8.8
    %Net income
    
    
    37
    
    
    
    2,389
    
    
    
    4,645
    
    
    
    8,756
    
    
    
    9,412Percent of sales
    
    
    0.1
    %
    
    
    3.0
    %
    
    
    5.3
    %
    
    
    7.8
    %
    
    
    6.4
    %Per Share Data:Net incomeBasic
    
    $
    0.01
    
    
    $
    0.63
    
    
    $
    1.23
    
    
    $
    2.33
    
    
    $
    1.90Diluted
    
    
    0.01
    
    
    
    0.63
    
    
    
    1.19
    
    
    
    2.20
    
    
    
    1.90Cash dividends per
common share
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    0.50
    
    
    $
    0.55Balance Sheet Data:Working capital
    
    $
    16,503
    
    
    $
    12,681
    
    
    $
    18,149
    
    
    $
    23,778
    
    
    $
    49,180Total assets
    
    
    37,656
    
    
    
    30,762
    
    
    
    35,417
    
    
    
    48,743
    
    
    
    85,048Long term debt, less
current maturities
    
    
    14,418
    
    
    
    6,183
    
    
    
    5,825
    
    
    
    6,040
    
    
    
    7,214Stockholders equity
    
    
    11,877
    
    
    
    14,359
    
    
    
    19,608
    
    
    
    26,655
    
    
    
    60,851
 
 Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Company overview
    
    
    Surface Mount Technology (SMT) production equipment;
    
    Computer Aided Design (CAD) systems;
    
    Application Specific Integrated Circuits (ASICS);
 11




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
    
    Tape Automated Bonding (TAB);
    
    Chip-On-Flex (COF);
    
    Chip-On-Glass (COG);
    
    System-on-Chip (SOC); and
    
    Liquid Crystal Display (LCD) assembly.
   Executive summary
        Critical accounting policies and estimates
  12




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Revenue recognition
  Product warranties
  Inventory
   Results of operations
 Year ended July 31, 2005 (fiscal 2005), compared to year ended July 31, 2004 (fiscal 2004)
 Financial highlights.
 Fiscal year ended
    
    
    Increase (decrease)July 31,
    
    
    from 2004(Dollars in thousands)
    
    2004
    
    
    2005
    
    
    $
    
    
    %Net sales
    
    $
    111,861
    
    
    $
    146,369
    
    
    $
    34,508
    
    
    
    30.8
    %Gross profit
    
    
    47,304
    
    
    
    54,927
    
    
    
    7,623
    
    
    
    16.1
    %Selling and administrative expenses
    
    
    28,742
    
    
    
    34,650
    
    
    
    5,908
    
    
    
    20.6
    %Research and development expenses
    
    
    5,252
    
    
    
    6,306
    
    
    
    1,054
    
    
    
    20.1
    %Operating income
    
    
    13,310
    
    
    
    13,971
    
    
    
    661
    
    
    
    5.0
    %Interest expense
    
    
    689
    
    
    
    921
    
    
    
    232
    
    
    
    33.7
    %Pretax income
    
    
    12,429
    
    
    
    12,876
    
    
    
    447
    
    
    
    3.6
    %Net income
    
    $
    8,756
    
    
    $
    9,412
    
    
    $
    656
    
    
    
    7.5
    %
 13




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Fiscal year endedJuly 31,Expressed as a percent of net sales:
    
    2004
    
    
    2005Gross profit
    
    
    42.3
    %
    
    
    37.5
    %Selling and administrative expenses.
    
    
    25.7
    %
    
    
    23.7
    %Research and development expenses
    
    
    4.7
    %
    
    
    4.3
    %Operating income
    
    
    11.9
    %
    
    
    9.5
    %Interest expense
    
    
    0.6
    %
    
    
    0.6
    %Pretax income
    
    
    11.1
    %
    
    
    8.8
    %Net income
    
    
    7.8
    %
    
    
    6.4
    %
 Sales and margin.
 
    
    New automotive GPS products (the IWAY500C and 100M) which began to ship in October 2004.
    
    New GPS handhelds introduced during the fourth quarter of fiscal 2004 and the first quarter of fiscal 2005.
    
    New SONAR and SONAR/GPS navigation products at new price points in the upper end of our
price point range introduced during the first and second quarters of fiscal 2005.
  Operating expenses and income.
    Interest expense.
 Income taxes.
 14




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Year ended July 31, 2004 (fiscal 2004), compared to year ended July 31, 2003 (fiscal 2003)
 Financial highlights.
 Fiscal year ended
    
    
    Increase (decrease)July 31,
    
    
    from 2003(Dollars in thousands)
    
    2003
    
    
    2004
    
    
    $
    
    
    %Net sales
    
    $
    88,297
    
    
    $
    111,861
    
    
    $
    23,564
    
    
    
    26.7
    %Gross profit
    
    
    37,261
    
    
    
    47,304
    
    
    
    10,043
    
    
    
    27.0
    %Selling and administrative expenses
    
    
    25,189
    
    
    
    28,742
    
    
    
    3,553
    
    
    
    14.1
    %Research and development expenses
    
    
    4,191
    
    
    
    5,252
    
    
    
    1,061
    
    
    
    25.3
    %Operating income
    
    
    7,881
    
    
    
    13,310
    
    
    
    5,429
    
    
    
    68.9
    %Interest expense
    
    
    989
    
    
    
    689
    
    
    
    (300
    )
    
    
    (30.3
    )%Pretax income
    
    
    6,862
    
    
    
    12,429
    
    
    
    5,567
    
    
    
    81.1
    %Net income
    
    $
    4,645
    
    
    $
    8,756
    
    
    $
    4,111
    
    
    
    88.5
    %
 Fiscal year endedJuly 31,Expressed as a percent of net sales:
    
    2003
    
    
    2004Gross profit
    
    
    42.2
    %
    
    
    42.3
    %Selling and administrative expenses.
    
    
    28.5
    %
    
    
    25.7
    %Research and development expenses
    
    
    4.7
    %
    
    
    4.7
    %Operating income
    
    
    8.9
    %
    
    
    11.9
    %Interest expense
    
    
    1.1
    %
    
    
    0.6
    %Pretax income
    
    
    7.8
    %
    
    
    11.1
    %Net income
    
    
    5.3
    %
    
    
    7.8
    %
 Sales and margin.
 
    
    New SONAR and SONAR/GPS navigation products at new price points which began to ship in the
third quarter of 2004. These new price points were at the upper end of our price point
range;
    
    New high end SONAR/GPS navigation products introduced in fiscal 2003 at the end of the
second quarter and during the third quarter which were selling throughout fiscal 2004;
    
    New GPS handhelds which began to ship in the third quarter of fiscal 2004;
    
    Two new Aviation GPS products introduced in fiscal 2004 which began to ship in the first
and second quarters; and
    
    Increased sales from new product introductions at previously existing price points.
  Operating expenses and income.
   15




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Interest expense.
 Income taxes.
 Off-balance sheet arrangements
  Liquidity and capital resources
 General
  Sources of capital
      16




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Cash flows
     Contractual obligations
  Less than
    
    
    
    
    
    
    
    
    
    
    More than(Dollars in thousands)
    
    1 year
    
    
    1-3 years
    
    
    3-5 years
    
    
    5 years
    
    
    TotalLong-term debt
    
    $
    895
    
    
    $
    384
    
    
    $
    7,143
    
    
    
    
    
    
    $
    8,422Capital lease obligations
    
    
    447
    
    
    
    65
    
    
    
    10
    
    
    
    
    
    
    
    522Operating lease obligations
    
    
    292
    
    
    
    350
    
    
    
    253
    
    
    
    
    
    
    
    895Open purchase orders
    
    
    24,546
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    24,546Capital expenditure commitments
    
    
    213
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    213Total
    
    $
    26,393
    
    
    $
    799
    
    
    $
    7,406
    
    
    
    
    
    
    $
    34,598
  Effects of inflation
  Quarterly information
  17




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Sales, gross profit and net income (loss)
 NetYears ended July 31,
    
    Sales
    
    
    %
    
    
    Gross profit
    
    
    %
    
    
    income (loss)
    
    
    %(Dollars in thousands)2005First Quarter
    
    $
    17,475
    
    
    
    12.0
    %
    
    $
    6,544
    
    
    
    11.9
    %
    
    $
    (1,705
    )
    
    
    (18.1
    )%Second Quarter
    
    
    32,646
    
    
    
    22.3
    %
    
    
    12,321
    
    
    
    22.4
    %
    
    
    2,168
    
    
    
    23.0
    %Third Quarter
    
    
    53,200
    
    
    
    36.3
    %
    
    
    21,197
    
    
    
    38.6
    %
    
    
    6,440
    
    
    
    68.4
    %Fourth Quarter
    
    
    43,048
    
    
    
    29.4
    %
    
    
    14,865
    
    
    
    27.1
    %
    
    
    2,509
    
    
    
    26.7
    %Total for Year
    
    $
    146,369
    
    
    
    100.0
    %
    
    $
    54,927
    
    
    
    100.0
    %
    
    $
    9,412
    
    
    
    100.0
    %2004First Quarter
    
    $
    14,036
    
    
    
    12.5
    %
    
    $
    5,052
    
    
    
    10.7
    %
    
    $
    (1,571
    )
    
    
    (17.9
    )%Second Quarter
    
    
    24,468
    
    
    
    21.9
    %
    
    
    10,063
    
    
    
    21.3
    %
    
    
    1,609
    
    
    
    18.4
    %Third Quarter
    
    
    46,296
    
    
    
    41.4
    %
    
    
    20,656
    
    
    
    43.6
    %
    
    
    6,671
    
    
    
    76.2
    %Fourth Quarter
    
    
    27,061
    
    
    
    24.2
    %
    
    
    11,533
    
    
    
    24.4
    %
    
    
    2,047
    
    
    
    23.3
    %Total for Year
    
    $
    111,861
    
    
    
    100.0
    %
    
    $
    47,304
    
    
    
    100.0
    %
    
    $
    8,756
    
    
    
    100.0
    %2003First Quarter
    
    $
    11,155
    
    
    
    12.6
    %
    
    $
    4,123
    
    
    
    11.1
    %
    
    $
    (1,473
    )
    
    
    (31.7
    )%Second Quarter
    
    
    21,514
    
    
    
    24.4
    %
    
    
    7,729
    
    
    
    20.7
    %
    
    
    527
    
    
    
    11.3
    %Third Quarter
    
    
    32,414
    
    
    
    36.7
    %
    
    
    16,118
    
    
    
    43.3
    %
    
    
    4,352
    
    
    
    93.7
    %Fourth Quarter
    
    
    23,214
    
    
    
    26.3
    %
    
    
    9,291
    
    
    
    24.9
    %
    
    
    1,239
    
    
    
    26.7
    %Total for Year
    
    $
    88,297
    
    
    
    100.0
    %
    
    $
    37,261
    
    
    
    100.0
    %
    
    $
    4,645
    
    
    
    100.0
    %
 Earnings (loss) per share, basic and diluted
 Weighted average
    
    
    Earnings (loss)shares outstanding
    
    
    per shareYears Ended July 31,
    
    Basic
    
    
    Diluted
    
    
    Basic
    
    
    Diluted2005First Quarter
    
    
    4,394,516
    
    
    
    4,394,516
    
    
    $
    (0.39
    )
    
    $
    (0.39
    )Second Quarter
    
    
    5,135,516
    
    
    
    5,135,516
    
    
    
    0.42
    
    
    
    0.42Third Quarter
    
    
    5,135,516
    
    
    
    5,135,516
    
    
    
    1.25
    
    
    
    1.25Fourth Quarter
    
    
    5,135,516
    
    
    
    5,135,516
    
    
    
    0.49
    
    
    
    0.49Year-ended July 31, 2005.
    
    
    4,948,743
    
    
    
    4,948,743
    
    
    
    1.90
    
    
    
    1.902004First Quarter
    
    
    3,761,196
    
    
    
    3,761,196
    
    
    $
    (0.42
    )
    
    $
    (0.42
    )Second Quarter
    
    
    3,761,196
    
    
    
    3,978,435
    
    
    
    0.43
    
    
    
    0.40Third Quarter
    
    
    3,761,196
    
    
    
    3,981,774
    
    
    
    1.77
    
    
    
    1.68Fourth Quarter
    
    
    3,761,196
    
    
    
    3,987,626
    
    
    
    0.54
    
    
    
    0.51Year-ended July 31, 2004.
    
    
    3,761,196
    
    
    
    3,979,001
    
    
    
    2.33
    
    
    
    2.202003First Quarter
    
    
    3,761,196
    
    
    
    3,761,196
    
    
    $
    (0.39
    )
    
    $
    (0.39
    )Second Quarter
    
    
    3,761,196
    
    
    
    3,885,319
    
    
    
    0.14
    
    
    
    0.14Third Quarter
    
    
    3,761,196
    
    
    
    3,902,302
    
    
    
    1.15
    
    
    
    1.11Fourth Quarter
    
    
    3,761,196
    
    
    
    3,931,735
    
    
    
    0.33
    
    
    
    0.31Year-ended July 31, 2003.
    
    
    3,761,196
    
    
    
    3,893,324
    
    
    
    1.23
    
    
    
    1.19
 Outlook and Uncertainties
  18




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
    
    Financial performance and cash flow from operating activities in
fiscal 2006 are based on attaining current projections.
    
    Production delays due to raw material shortages or unforeseen
competitive pressures could have a materially adverse effect on
current projections.
    
    Because of the dynamic environment in which the Company operates,
one or more key factors discussed in Part I, Item 1. Business of
this Form 10-K could have an adverse effect on expected results
for fiscal 2006.
 
 Item 7a. Quantitative and Qualitative Disclosures About Market Risk
   
 Item 8. Financial Statements and Supplementary Data
  
 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures
  
 Item 9a. Controls and Procedures
    (a) Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
  19




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##### Table of Contents



(b) Managements Report on Internal Control over Financial Reporting
      (c) Attestation Report of the Independent Registered Public Accounting Firm
 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
  Managements Report on
Internal Control Over Financial Reporting Internal ControlIntegrated Framework
    20




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Internal ControlIntegrated Framework Internal ControlIntegrated Framework
   
 (d) Changes in Internal Control over Financial Reporting
  
 Item 9b. Other Information
  
 PART III
 
 Item 10. Directors and Executive Officers of the Registrant
  
 Item 11. Executive Compensation
  
 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
  
 Item 13. Certain Relationships and Related Transactions
  
 Item 14. Principal Accounting Fees and Services
  21




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##### Table of Contents



PART IV
 
 Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
   Page1.
Consolidated Financial Statements:Index to Consolidated Financial Statements
    
    
    F-1Report of Independent Registered Public Accounting Firm -Fiscal 2004 and 2005
    
    
    F-2Consolidated Balance Sheets - July 31, 2004 and 2005
    
    
    F-3Consolidated Statements of Income and ComprehensiveIncome for the Years Ended July 31, 2003, 2004, and 2005
    
    
    F-4Consolidated Statements of Stockholders Equity for theYears Ended July 31, 2003, 2004, and 2005
    
    
    F-5Consolidated Statements of Cash Flows for the YearsEnded July 31, 2003, 2004, and 2005
    
    
    F-6Notes to Consolidated Financial Statementsfor the Years Ended July 31, 2003, 2004, and 2005
    
    
    F-7
  3.1
    
    Restated Certificate of Incorporation of Lowrance Electronics, Inc., incorporated by
reference to Exhibit 3.1 to the Companys Quarterly Report on Form 10-Q dated October 31,
2002.3.2
    
    By-Laws of Lowrance Electronics, Inc., incorporated by reference to Exhibit 3.2 to the
Companys 2003 Annual Report on Form 10-K.4.1
    
    Shareholders Agreement dated December 22, 1978, by and between Darrell J. Lowrance,
James L. Knight, and Ben V. Schneider incorporated by reference to Exhibit 4.3 to the
Companys Registration Statement on Form S-1 (SEC File No. 33-9464).4.2
    
    First Amendment to Shareholders Agreement dated October 7, 1986 by and between Darrell
J. Lowrance, James L. Knight, and Ben V. Schneider incorporated by reference to Exhibit 4.4
to the Companys Registration Statement on Form S-1 (SEC File No. 33-9464).4.3
    
    Agreement between Stockholders dated October 7, 1986, by and between the Company and
Darrell J. Lowrance, James L. Knight, and Ben V. Schneider incorporated by reference to
Exhibit 4.5 to the Companys Registration Statement on Form S-1 (SEC File No. 33-9464).10.2
    
    Lowrance Retirement Plan and Trust incorporated by reference to Exhibit 10.2 to the
Companys Registration Statement on Form S-1 (SEC File No. 33-9464).10.3
    
    Form of Distributor Agreements incorporated by reference to Exhibit 10.4 to the
Companys Registration Statement on Form S-1 (SEC File No. 33-9464).
 22




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##### Table of Contents



10.13
    
    Loan and Security Agreement dated December 15, 1993, by the Company in favor of
Barclays Business Credit, Inc., incorporated by reference to Exhibit 10.13 to the Companys
Registration Statement on Form S-1 (SEC File No. 333-116490).10.14
    
    Amended and Restated Secured Promissory Note dated October 16, 1995, by and
between the Company and Shawmut Capital Corporation (formerly Barclays Business Credit,
Inc.), incorporated by reference to Exhibit 10.14 to the Companys Registration
Statement on Form S-1 (SEC File No. 333-116490).10.15
    
    Amended and Restated Revolving Credit Notes dated October 16, 1995, by and
between the Company and Shawmut Capital Corporation (formerly Barclays Business Credit,
Inc.), incorporated by reference to Exhibit 10.15 to the Companys Registration
Statement on Form S-1 (SEC File No. 333-116490).10.16
    
    First Amendment to Loan and Security Agreement dated October 16, 1995, by and
between the Company and Shawmut Capital Corporation (formerly Barclays Business Credit,
Inc.), incorporated by reference to Exhibit 10.16 to the Companys Registration
Statement on Form S-1 (SEC File No. 333-116490).10.17
    
    Amended and Restated Stock Pledge Agreement dated October 16, 1995, by and
between the Company and Shawmut Capital Corporation (formerly Barclays Business Credit,
Inc.), incorporated by reference to Exhibit 10.17 to the Companys Registration
Statement on Form S-1 (SEC File No. 333-116490).10.18
    
    Unconditional Guaranty dated October 16, 1995, by and between Sea Electronics,
Inc. and Shawmut Capital Corporation, incorporated by reference to Exhibit 10.18 to the
Companys Registration Statement on Form S-1 (SEC File No. 333-116490).10.19
    
    First Amendment to Mortgage, Security Agreement, Financing Statement and
Assignment of Rents dated October 16, 1995, by and between the Company and Shawmut
Capital Corporation (formerly Barclays Business Credit, Inc.) incorporated by reference
to Exhibit 10.19 to the Companys Registration Statement on Form S-1 (SEC File No.
333-116490).10.20
    
    Lease Agreement entered into by and between Eric Juan De Dios Flourie Geffroy
and Electronica Lowrance De Mexico, S. A. de C. V. dated August 30, 1996 incorporated
by reference to Exhibit 10.20 to the Companys Registration Statement on Form S-1 (SEC
File No. 333-116490).10.21
    
    Lease Agreement entered into by and between Refugio Geffroy De Flourie, Eric
Juan De Dios Flourie Geffroy, Elizabeth Flourie Geffroy, Edith Flourie Geffroy and
Electronica Lowrance De Mexico, S. A. de C. V. dated August 30, 1996 incorporated by
reference to Exhibit 10.21 to the Companys Registration Statement on Form S-1 (SEC
File No. 333-116490).10.22
    
    Second Amendment to Loan and Security Agreement dated November 1, 1996, by and
between the Company and Fleet Capital Corporation (formerly Shawmut Capital
Corporation), incorporated by reference to Exhibit 10.22 to the Companys Registration
Statement on Form S-1 (SEC File No. 333-116490).10.23
    
    Third Amendment to Loan and Security Agreement dated December 31, 1996, by and
between the Company and Fleet Capital Corporation (formerly Shawmut Capital
Corporation), incorporated by reference to Exhibit 10.23 to the Companys Registration
Statement on Form S-1 (SEC File No. 333-116490).10.24
    
    Fourth Amendment to Loan and Security Agreement dated August 14, 1997, by and
between the Company and Fleet Capital Corporation (formerly Shawmut Capital
Corporation), incorporated by reference to Exhibit 10.24 to the Companys Registration
Statement on Form S-1 (SEC File No. 333-116490).
 23




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##### Table of Contents



10.25
    
    Fifth Amendment to Loan and Security Agreement dated August 25, 1997, by and
between the Company and Fleet Capital Corporation (formerly Shawmut Capital
Corporation), incorporated by reference to Exhibit 10.25 to the Companys Registration
Statement on Form S-1 (SEC File No. 333-116490).10.26
    
    Sixth Amendment to Loan and Security Agreement dated August 28, 1997, by and
between the Company and Fleet Capital Corporation (formerly Shawmut Capital
Corporation), incorporated by reference to Exhibit 10.26 to the Companys Registration
Statement on Form S-1 (SEC File No. 333-116490).10.27
    
    Seventh Amendment to Loan and Security Agreement dated November 6, 1997, by
and between the Company and Fleet Capital Corporation (formerly Shawmut Capital
Corporation), incorporated by reference to Exhibit 10.27 to the Companys Registration
Statement on Form S-1 (SEC File No. 333-116490).10.28
    
    Eighth Amendment to Loan and Security Agreement dated December 9, 1997, by and
between the Company and Fleet Capital Corporation (formerly Shawmut Capital
Corporation), incorporated by reference to Exhibit 10.28 to the Companys Registration
Statement on Form S-1 (SEC File No. 333-116490).10.29
    
    Ninth Amendment to Loan and Security Agreement dated September 14, 1998, by
and between the Company and Fleet Capital Corporation (formerly Shawmut Capital
Corporation), incorporated by reference to Exhibit 10.29 to the Companys Registration
Statement on Form S-1 (SEC File No. 333-116490).10.30
    
    Tenth Amendment to Loan and Security Agreement dated November
12, 1998, by and between the Company and Fleet Capital Corporation (formerly
Shawmut Capital Corporation incorporated by reference to Exhibit 10.30 to the
Companys Registration Statement on Form S-1 (SEC File No. 333-116490).10.31
    
    Eleventh Amendment to Loan and Security Agreement dated March
14, 2000, by and between the Company and Fleet Capital, incorporated by
reference to Exhibit 10.31 to the Companys 2000 Annual Report on Form 10-K.10.32
    
    Twelfth Amendment to Loan and Security Agreement dated October
18, 2000, by and between the Company and Fleet Capital, incorporated by
reference to Exhibit 10.32 to the Companys October 31, 2000 Quarterly Report on
Form 10-Q.10.33
    
    Employment Agreement for Douglas J. Townsdin, dated as of April
7, 2000, incorporated by reference to Exhibit 10.33 to the Companys 2001 Annual
Report on Form 10-K.10.34
    
    Employment Agreement for Bob G. Callaway, dated as of March 27,
2000, incorporated by reference to Exhibit 10.34 to the Companys 2001 Annual
Report on Form 10-K.10.35
    
    Employment Agreement for Mark C. McQuown, dated as of April 7,
2000, incorporated by reference to Exhibit 10.35 to the Companys 2001 Annual
Report on Form 10-K.10.36
    
    Employment Agreement for Jane M. Kaiser, dated as of April 7,
2000, incorporated by reference to Exhibit 10.36 to the Companys 2001 Annual
Report on Form 10-K.10.37
    
    Lease Agreement entered into by and between Eric Juan de Dios
Flourie Geffroy, Refugio Geffroy de Flourie, Elizabeth Pierret Pepita Flourie
Geffroy, Edith Elizabeth Cuquita Flourie Geffroy and Lowrance Electronica de
Mexico, S.A. de C.V. dated May 11, 2001, incorporated by reference to Exhibit
10.37 to the Companys 2001 Annual Report on Form 10-K.
 24




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##### Table of Contents



10.38
    
    Amended and Restated 2001 Stock Option Plan for the Company,
incorporated by reference to Exhibit 10.38 to the Companys 2003 Annual Report
on Form 10-K.10.39
    
    Second Amended and Restated Nonqualified Stock Option Agreement
between the Company and Ron G. Weber dated April 23, 2004, incorporated by
reference to Exhibit 10.39 to the Companys April 30, 2004 Quarterly Report on
Form 10-Q.10.40
    
    Second Amended and Restated Incentive Stock Option Agreement
between the Company and Ron G. Weber dated April 23, 2004, incorporated by
reference to Exhibit 10.40 to the Companys April 30, 2004 Quarterly Report on
Form 10-Q.10.41
    
    Second Amended and Restated Incentive Stock Option Agreement
between the Company and Douglas Townsdin dated April 23, 2004, incorporated by
reference to Exhibit 10.41 to the Companys April 30, 2004 Quarterly Report on
Form 10-Q.10.42
    
    Second Amended and Restated Incentive Stock Option Agreement
between the Company and Bob G. Callaway dated April 23, 2004, incorporated by
reference to Exhibit 10.42 to the Companys April 30, 2004 Quarterly Report on
Form 10-Q.10.43
    
    Second Amended and Restated Incentive Stock Option Agreement
between the Company and Mark McQuown dated April 23, 2004, incorporated by
reference to Exhibit 10.43 to the Companys April 30, 2004 Quarterly Report on
Form 10-Q.10.44
    
    Second Amended and Restated Incentive Stock Option Agreement
between the Company and Jane M. Kaiser dated April 23, 2004, incorporated by
reference to Exhibit 10.44 to the Companys April 30, 2004 Quarterly Report on
Form 10-Q.10.45
    
    Thirteenth Amendment to Loan and Security Agreement dated
October 19, 2001, by and between the Company and Fleet Capital, incorporated by
reference to Exhibit 10.45 to the Companys October 31, 2001 Quarterly Report on
Form 10-Q.10.46
    
    Fourteenth Amendment to Loan and Security Agreement dated March
11, 2002 by and between the Company and Fleet Capital, incorporated by reference
to Exhibit 10.46 to the Companys January 31, 2002 Quarterly Report on Form
10-Q.10.47
    
    Fifteenth Amendment to Loan and Security Agreement dated
November 26, 2002, by and between the Company and Fleet Capital, incorporated by
reference to Exhibit 10.47 to the Companys October 31, 2002 Quarterly Report on
Form 10-Q.10.48
    
    Letter agreement dated September 10, 2003 by and between the
Company and Fleet Capital, incorporated by reference to Exhibit 10.48 to the
Companys 2003 Annual Report on Form 10-K.10.49
    
    Amendment No. 1 to Employment Agreement between the Company and
Mark C. McQuown dated April 7, 2004, incorporated by reference to Exhibit 10.49
to the Companys April 30, 2004 Quarterly Report on Form 10-Q.10.50
    
    Amendment No. 1 to Employment Agreement between the Company and
Douglas J. Townsdin dated April 7, 2004, incorporated by reference to Exhibit
10.50 to the Companys April 30, 2004 Quarterly Report on Form 10-Q.10.51
    
    Amendment No. 1 to Employment Agreement between the Company and
Bob G. Callaway dated April 7, 2004, incorporated by reference to Exhibit 10.51
to the Companys April 30, 2004 Quarterly Report on Form 10-Q.10.52
    
    Amendment No. 1 to Employment Agreement between the Company and
Jane M. Kaiser dated April 7, 2004, incorporated by reference to Exhibit 10.52
to the Companys April 30, 2004 Quarterly Report on Form 10-Q.
 25




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##### Table of Contents



10.53
    
    Amendment to Loan and Security Agreement dated May 1, 2004 by
and between the Company and Fleet Capital, incorporated by reference to Exhibit
10.53 to the Companys 2004 Annual Report on Form 10-K.10.54
    
    December 2004 Amendment to Loan and Security Agreement by and
between the Company and Fleet Capital, incorporated by Reference to Exhibit
10.54 to the Companys January 31, 2005 Quarterly Report on Form 10-Q.14.0
    
    Code of Ethics and Business Conduct, incorporated by reference to
Exhibit 14.0 to the Companys Report on Form 8-K dated May 10, 2004.23.1
    
    Consent of Deloitte & Touche LLP, filed herewith.22.13
    
    Subsidiaries of the Company as of July 31, 2001, incorporated by
reference to Exhibit 22.13 to the Companys 2001 Annual Report on Form 10-K.31.1
    
    Certification of the Principal Executive Officer, pursuant to
Exchange Act Rules 13a-14 and 15d-14, executed by Darrell J. Lowrance, President
and Chief Executive Officer of Lowrance Electronics, Inc., filed herewith.31.2
    
    Certification of the Principal Financial Officer, pursuant to
Exchange Act Rules 13a-14 and 15d-14, executed by Douglas J. Townsdin, Vice
President of Finance and Chief Financial Officer of Lowrance Electronics, Inc.,
filed herewith.32.1
    
    Certification of Periodic Financial Report, pursuant to 18 U.S.C.
Section 1350, executed by Darrell J. Lowrance, President and Chief Executive
Officer of Lowrance Electronics, Inc. and Douglas J. Townsdin, Vice President of
Finance and Chief Financial Officer of Lowrance Electronics, Inc., filed
herewith.
   26




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##### Table of Contents



PageReport of Independent Registered Public Accounting Firm
    
    
    F-2Consolidated Balance Sheets  July 31, 2004 and 2005
    
    
    F-3Consolidated Statements of Income and Comprehensive Income
for the Years Ended July 31, 2003, 2004, and 2005
    
    
    F-4Consolidated Statements of Stockholders Equity for the
Years Ended July 31, 2003, 2004, and 2005
    
    
    F-5Consolidated Statements of Cash Flows for the Years Ended
July 31, 2003, 2004, and 2005
    
    
    F-6Notes to Consolidated Financial Statements for the Years Ended
July 31, 2003, 2004, and 2005
    
    
    F-7
 F- 1




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
      Internal ControlIntegrated Framework
   
 F- 2




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##### Table of Contents



LOWRANCE ELECTRONICS, INC.  CONSOLIDATED BALANCE SHEETS
  ASSETS
 JULY 31,2004
    
    
    2005CURRENT ASSETS:Cash and cash equivalents
    
    $
    1,412
    
    
    $
    3,792Trade accounts receivable, net of reserves
of $993 in 2004 and $1,161 in 2005
    
    
    10,128
    
    
    
    19,908Inventories
    
    
    23,500
    
    
    
    36,116Current deferred income taxes
    
    
    1,107
    
    
    
    1,129Prepaid income taxes
    
    
    148
    
    
    
    303Prepaid expenses
    
    
    2,362
    
    
    
    3,781Total current assets
    
    
    38,657
    
    
    
    65,029PROPERTY, PLANT, AND EQUIPMENT, net
    
    
    10,005
    
    
    
    18,519OTHER ASSETS
    
    
    81
    
    
    
    1,500TOTAL ASSETS
    
    $
    48,743
    
    
    $
    85,048LIABILITIES AND STOCKHOLDERS EQUITYCURRENT LIABILITIES:Current maturities of long-term debt
    
    $
    1,874
    
    
    $
    438Accounts payable
    
    
    6,072
    
    
    
    6,948Accrued liabilities:Compensation and benefits
    
    
    3,175
    
    
    
    3,205Product costs
    
    
    1,968
    
    
    
    2,285Accrued taxes
    
    
    671
    
    
    
    1,255Other
    
    
    1,119
    
    
    
    1,718Total current liabilities
    
    
    14,879
    
    
    
    15,849LONG-TERM DEBT, less current maturities
    
    
    6,040
    
    
    
    7,214DEFERRED INCOME TAXES
    
    
    1,169
    
    
    
    1,134STOCKHOLDERS EQUITY:Common stock, $.10 par value, 10,000,000 shares
authorized, 3,761,196 shares issued and
outstanding at July 31, 2004 and 5,135,516
issued and outstanding at July 31, 2005
    
    
    377
    
    
    
    514Paid-in capital
    
    
    7,449
    
    
    
    34,316Retained earnings
    
    
    18,721
    
    
    
    25,652Accumulated other comprehensive income
    
    
    108
    
    
    
    369Total stockholders equity
    
    
    26,655
    
    
    
    60,851TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    48,743
    
    
    $
    85,048
  F- 3




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LOWRANCE ELECTRONICS, INC.  CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
 FOR THE YEARS ENDED JULY 312003
    
    
    2004
    
    
    2005NET SALES
    
    $
    88,297
    
    
    $
    111,861
    
    
    
    146,369COST OF SALES
    
    
    51,036
    
    
    
    64,557
    
    
    
    91,442Gross profit
    
    
    37,261
    
    
    
    47,304
    
    
    
    54,927OPERATING EXPENSES:Selling and administrative
    
    
    25,189
    
    
    
    28,742
    
    
    
    34,650Research and development
    
    
    4,191
    
    
    
    5,252
    
    
    
    6,306Total operating expenses
    
    
    29,380
    
    
    
    33,994
    
    
    
    40,956Operating income
    
    
    7,881
    
    
    
    13,310
    
    
    
    13,971OTHER EXPENSES:Interest
    
    
    989
    
    
    
    689
    
    
    
    921Other
    
    
    30
    
    
    
    192
    
    
    
    174Total other expenses
    
    
    1,019
    
    
    
    881
    
    
    
    1,095INCOME BEFORE INCOME TAXES
    
    
    6,862
    
    
    
    12,429
    
    
    
    12,876PROVISION FOR INCOME TAXES
    
    
    2,217
    
    
    
    3,673
    
    
    
    3,464NET INCOME
    
    $
    4,645
    
    
    $
    8,756
    
    
    $
    9,412NET INCOME PER COMMON SHAREBasic
    
    $
    1.23
    
    
    $
    2.33
    
    
    $
    1.90Diluted
    
    $
    1.19
    
    
    $
    2.20
    
    
    $
    1.90WEIGHTED AVERAGE COMMON
SHARES OUTSTANDINGBasic
    
    
    3,761
    
    
    
    3,761
    
    
    
    4,949Diluted
    
    
    3,893
    
    
    
    3,979
    
    
    
    4,949DIVIDENDS
    
    NONE
    
    $
    1,881
    
    
    $
    2,481COMPREHENSIVE INCOME:NET INCOME
    
    $
    4,645
    
    
    $
    8,756
    
    
    $
    9,412FOREIGN CURRENCY TRANSLATION ADJUSTMENT,
NET OF TAX
    
    
    259
    
    
    
    141
    
    
    
    261COMPREHENSIVE INCOME
    
    $
    4,904
    
    
    $
    8,897
    
    
    $
    9,673
  F- 4




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##### Table of Contents



LOWRANCE ELECTRONICS, INC.  CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY  FOR THE YEARS ENDED JULY 31, 2003, 2004, and 2005
 AccumulatedOtherCommon Stock
    
    
    Paid-In
    
    
    Treasury
    
    
    Retained
    
    
    Comprehensive
    
    
    TotalShares
    
    
    Amount
    
    
    Capital
    
    
    Stock
    
    
    Earnings
    
    
    Income(Loss)
    
    
    EquityBalance-
July 31, 2002
    
    
    3,761
    
    
    $
    377
    
    
    $
    7,073
    
    
    $
    (26
    )
    
    $
    7,227
    
    
    $
    (292
    )
    
    $
    14,359Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,645
    
    
    
    
    
    
    
    4,645Stock option plan expense
    
    
    
    
    
    
    
    
    
    
    345
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    345Other comprehensive income:Foreign currency
translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    259
    
    
    
    259Retirement of treasury stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    26
    
    
    
    (26
    )
    
    
    
    
    
    
    Balance-
July 31, 2003
    
    
    3,761
    
    
    
    377
    
    
    
    7,418
    
    
    
    
    
    
    
    11,846
    
    
    
    (33
    )
    
    
    19,608Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,756
    
    
    
    
    
    
    
    8,756Stock option plan expense
    
    
    
    
    
    
    
    
    
    
    55
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    55Impact of SFAS No. 123 adoption (Note 1)
    
    
    
    
    
    
    
    
    
    
    (24
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (24
    )Other comprehensive income:Foreign currency translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    141
    
    
    
    141Dividends ($0.50 per common share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,881
    )
    
    
    
    
    
    
    (1,881
    )Balance-
July 31, 2004
    
    
    3,761
    
    
    
    377
    
    
    
    7,449
    
    
    
    
    
    
    
    18,721
    
    
    
    108
    
    
    
    26,655Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,412
    
    
    
    
    
    
    
    9,412Stock option plan expense
    
    
    
    
    
    
    
    
    
    
    393
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    393Net proceeds from secondary public
offering
    
    
    1,150
    
    
    
    115
    
    
    
    25,115
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    25,230Cashless exercise of stock options
    
    
    224
    
    
    
    22
    
    
    
    (22
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Tax benefit from stock option exercises
    
    
    
    
    
    
    
    
    
    
    1,381
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,381Other comprehensive income:Foreign currency translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    261
    
    
    
    261Dividends ($0.55 per common share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,481
    )
    
    
    
    
    
    
    (2,481
    )Balance-
July 31, 2005
    
    
    5,135
    
    
    $
    514
    
    
    $
    34,316
    
    
    $
    
    
    
    $
    25,652
    
    
    $
    369
    
    
    $
    60,851
  F- 5




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##### Table of Contents



LOWRANCE ELECTRONICS, INC.  CONSOLIDATED STATEMENTS OF CASH FLOWS
 FOR THE YEARS ENDED JULY 31,2003
    
    
    2004
    
    
    2005CASH FLOWS FROM OPERATING ACTIVITIES:Net income
    
    $
    4,645
    
    
    $
    8,756
    
    
    $
    9,412Adjustments to reconcile net income to net cash provided
by (used in) operating activities:Depreciation and amortization
    
    
    2,319
    
    
    
    2,601
    
    
    
    3,247(Gain) loss on sale of fixed assets
    
    
    (21
    )
    
    
    (9
    )
    
    
    10Deferred income taxes
    
    
    1,346
    
    
    
    561
    
    
    
    (57
    )Stock option plan expense
    
    
    345
    
    
    
    55
    
    
    
    393Tax benefit of stock options exercised
    
    
    
    
    
    
    
    
    
    
    1,381Change in operating assets and liabilities:(Increase)decrease in trade accounts
receivable
    
    
    (736
    )
    
    
    (1,845
    )
    
    
    (9,780
    )(Increase)decrease in inventories
    
    
    (3,811
    )
    
    
    (7,559
    )
    
    
    (12,616
    )(Increase)decrease in prepaid expenses
    
    
    (278
    )
    
    
    (1,072
    )
    
    
    (1,574
    )(Increase)decrease in other assets
    
    
    (13
    )
    
    
    (19
    )
    
    
    (1,419
    )Increase(decrease) in accounts payable
    
    
    (1,469
    )
    
    
    3,121
    
    
    
    876Increase(decrease) in accrued liabilities
    
    
    618
    
    
    
    2,332
    
    
    
    1,530Net cash provided by (used in) operating activities
    
    
    2,945
    
    
    
    6,922
    
    
    
    (8,597
    )CASH FLOWS FROM INVESTING ACTIVITIES:Capital expenditures
    
    
    (1,566
    )
    
    
    (3,473
    )
    
    
    (11,750
    )Proceeds from sale of property, plant and equipment
    
    
    21
    
    
    
    9
    
    
    
    10Net cash used in investing activities
    
    
    (1,545
    )
    
    
    (3,464
    )
    
    
    (11,740
    )CASH FLOWS FROM FINANCING ACTIVITIES:Borrowings under line of credit
    
    
    83,968
    
    
    
    105,366
    
    
    
    143,365Repayments of borrowings under line of credit
    
    
    (83,391
    )
    
    
    (104,580
    )
    
    
    (141,517
    )Dividends paid
    
    
    
    
    
    
    (1,881
    )
    
    
    (2,481
    )Net proceeds from secondary public offering
    
    
    
    
    
    
    
    
    
    
    25,230Principal payments on term loan and capital lease obligations
    
    
    (1,933
    )
    
    
    (2,298
    )
    
    
    (2,141
    )Net cash provided by (used in) financing activities
    
    
    (1,356
    )
    
    
    (3,393
    )
    
    
    22,456Effect of exchange rate changes on cash
    
    
    259
    
    
    
    141
    
    
    
    261Net increase in cash and cash equivalents
    
    
    303
    
    
    
    206
    
    
    
    2,380CASH AND CASH EQUIVALENTS  beginning of year
    
    
    903
    
    
    
    1,206
    
    
    
    1,412CASH AND CASH EQUIVALENTS  end of year
    
    $
    1,206
    
    
    $
    1,412
    
    
    $
    3,792SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:Cash paid during the year for:Interest
    
    $
    989
    
    
    $
    689
    
    
    $
    921Income taxes
    
    
    1,346
    
    
    
    1,845
    
    
    
    1,492SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING
AND FINANCING ACTIVITIES:Capital expenditures funded by capital lease borrowings
    
    $
    1,242
    
    
    $
    1,540
    
    
    $
    31
  F- 6




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##### Table of Contents



LOWRANCE ELECTRONICS, INC.  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  FOR THE YEARS ENDED JULY 31, 2003, 2004 and 2005
 (1) Business and summary of significant accounting policies
 Business
  Principles of consolidation
  Revenue recognition
  Property and depreciation
    Inventory
  Research and development costs
  F- 7




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##### Table of Contents



Foreign currency translations
  Use of estimates in the preparation of financial statements
  Accrued product costs
 Product warranties
 Dealer premium coupons
 Returns and refurbishments
 Cash and cash equivalents
  Advertising
  Fair value of financial instruments
 Cash and cash equivalents, accounts receivable and accounts payable
 Long-term debt and revolving credit line
 Stock based compensation
 Accounting for
Stock-Based Compensation
 F- 8




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##### Table of Contents



Accounting for Stock Issued to Employees
  (In thousands, except per share amounts)Net income:As reported
    
    $
    4,645Compensation cost  as reported
    
    
    286Compensation cost-fair value method, net of tax
    
    
    (43
    )Pro forma
    
    $
    4,888Earnings per share:Basic  as reported
    
    $
    1.23Diluted  as reported
    
    
    1.19Pro forma  Basic
    
    
    1.30Pro forma  Diluted
    
    
    1.26
  Taxes
 Accounting for Income Taxes,
 Reclassifications
  F- 9




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##### Table of Contents



(2) Balance sheet detail
 Inventories
  (In thousands)
    
    2004
    
    
    2005Raw materials
    
    $
    6,574
    
    
    
    11,990Work-in-process
    
    
    4,445
    
    
    
    8,859Finished goods
    
    
    13,171
    
    
    
    16,844Reserves
    
    
    (690
    )
    
    
    (1,577
    )Total inventories
    
    $
    23,500
    
    
    
    36,116
  Property, plant, and equipment
  (In thousands)
    
    2004
    
    
    2005Land
    
    $
    557
    
    
    $
    4,190Building and improvements
    
    
    5,345
    
    
    
    8,403Machinery and equipment
    
    
    30,880
    
    
    
    35,012Office furniture and fixtures
    
    
    4,966
    
    
    
    5,56541,748
    
    
    
    53,170Lessaccumulated depreciation
    
    
    31,743
    
    
    
    34,651Net property, plant, & equipment
    
    $
    10,005
    
    
    $
    18,519
   (In thousands)
    
    2004
    
    
    2005Land
    
    $
    
    
    
    $
    3,633Building and improvements
    
    
    1,311
    
    
    
    4,063Machinery and equipment
    
    
    10,229
    
    
    
    12,412Office furniture and equipment
    
    
    81
    
    
    
    19011,621
    
    
    
    20,298Lessaccumulated depreciation
    
    
    7,780
    
    
    
    8,665Net property, plant, & equipment
    
    $
    3,841
    
    
    $
    11,633
  (In thousands)
    
    2004
    
    
    2005Machinery and equipment
    
    $
    3,634
    
    
    $
    3,160Lessaccumulated depreciation
    
    
    1,442
    
    
    
    1,816Net property, plant, & equipment
under capitalized leases
    
    $
    2,192
    
    
    $
    1,344
 F- 10




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##### Table of Contents



Reserves for doubtful accounts, sales returns and cash discounts
  (In thousands)
    
    2004
    
    
    2005Balance, beginning of period
    
    $
    732
    
    
    $
    993Adjustment to provision
    
    
    263
    
    
    
    215Write-offs
    
    
    (2
    )
    
    
    (47
    )Balance, end of period
    
    $
    993
    
    
    $
    1,161
 Inventory reserves
  (In thousands)
    
    2004
    
    
    2005Balance, beginning of period
    
    $
    555
    
    
    $
    690Adjustment to provision
    
    
    682
    
    
    
    1,055Inventory dispositions
    
    
    (547
    )
    
    
    (168
    )Balance, end of period
    
    $
    690
    
    
    $
    1,577
 Product warranties
  (In thousands)
    
    2004
    
    
    2005Balance, beginning of period
    
    $
    1,004
    
    
    $
    1,194Warranty cost incurred
    
    
    (2,174
    )
    
    
    (2,307
    )New warranties issued
    
    
    2,357
    
    
    
    2,470Change in beginning of period estimate
    
    
    7
    
    
    
    3Balance, end of period
    
    $
    1,194
    
    
    $
    1,360
 (3) Long-term debt and revolving credit line
  (In thousands)
    
    2004
    
    
    2005Revolving credit line
    
    $
    5,295
    
    
    $
    7,143Term loans paid in fiscal 2005
    
    
    542
    
    
    
    Capitalized equipment lease obligations, payable in
monthly installments of approximately $113,000,
including interest at rates from 3.7% to 9.1%, with
final payments ranging from September 2005 through
October 2009
    
    
    2,077
    
    
    
    5097,914
    
    
    
    7,652Lesscurrent maturities
    
    
    1,874
    
    
    
    438Total long-term debt
    
    $
    6,040
    
    
    $
    7,214
    F- 11




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##### Table of Contents



Years ended July 31,(In thousands)
    
    2004
    
    
    2005Highest amount borrowed
    
    $
    16,282
    
    
    
    26,604Average amount borrowed
    
    
    8,910
    
    
    
    13,638Weighted average interest rate
    
    
    4.1
    %
    
    
    5.5
    %
 (4) Leases
 Capital leases
   Years ending July 31:2006
    
    $
    4472007
    
    
    442008
    
    
    212009
    
    
    82010
    
    
    2Total minimum lease payments
    
    
    522Less-amounts representing interest
    
    
    13Present value of net minimum lease payments
    
    
    509Current portion of obligations under capital leases
    
    
    438Long-term portion of obligations under capital
leases
    
    $
    71
 Operating leases
   F- 12




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##### Table of Contents



(5) Stockholders equity and related items
   (6) Earnings per share
  Income
    
    
    Shares
    
    
    Per-share(numerator)
    
    
    (denominator)
    
    
    amountFor the year ended July 31, 2005Basic and Diluted EPSNet income available to common stockholders
    
    $
    9,412,000
    
    
    
    4,948,743
    
    
    $
    1.90For the year ended July 31, 2004Basic EPSNet income available to common stockholders
    
    $
    8,756,000
    
    
    
    3,761,196
    
    
    $
    2.33Effect of dilutive securities2001 Stock Option Plan options
    
    
    
    
    
    
    217,805Diluted EPSNet Income available to common
stockholders and assumed conversions
    
    $
    8,756,000
    
    
    
    3,979,001
    
    
    $
    2.20For the year ended July 31, 2003Basic EPSNet Income available to common stockholders
    
    $
    4,645,000
    
    
    
    3,761,196
    
    
    $
    1.23Effect of dilutive securities2001 Stock Option Plan options
    
    
    
    
    
    
    132,128Diluted EPSNet income available to common
stockholders and assumed conversions
    
    $
    4,645,000
    
    
    
    3,893,324
    
    
    $
    1.19
 Related party disclosures
 (7) Retirement plan
  F-13




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##### Table of Contents



(8) Income taxes
  Years ended July 31,(In thousands)
    
    2003
    
    
    2004
    
    
    2005Current
U.S
    
    $
    878
    
    
    $
    2,947
    
    
    $
    3,226Foreign
    
    
    182
    
    
    
    266
    
    
    
    1811,060
    
    
    
    3,213
    
    
    
    3,407Deferred
U.S.
    
    
    1,157
    
    
    
    460
    
    
    
    45Foreign
    
    
    
    
    
    
    
    
    
    
    121,157
    
    
    
    460
    
    
    
    57Total
    
    $
    2,217
    
    
    $
    3,673
    
    
    $
    3,464
   Years ended July 31,2003
    
    
    2004
    
    
    2005Statutory rate
    
    
    34.0
    %
    
    
    34.0
    %
    
    
    34.0
    %Foreign income taxes
    
    
    2.7
    
    
    
    2.1
    
    
    
    1.4State income taxes
    
    
    0.3
    
    
    
    4.1
    
    
    
    3.2Non-deductible life insurance premiums
and entertainment expenses
    
    
    0.7
    
    
    
    0.5
    
    
    
    0.9U.S. tax treatment of foreign operations
    
    
    (2.3
    )
    
    
    (1.8
    )
    
    
    (1.4
    )Research and development credits
    
    
    (3.6
    )
    
    
    (8.2
    )
    
    
    (12.4
    )Other
    
    
    0.5
    
    
    
    (1.1
    )
    
    
    1.2Effective rate
    
    
    32.3
    %
    
    
    29.6
    %
    
    
    26.9
    %
   (In thousands)
    
    2004
    
    
    2005Deferred tax assets
Reserves for product costs
    
    $
    515
    
    
    $
    632Reserves for compensation and benefits
    
    
    373
    
    
    
    352Accounts receivable reserves
    
    
    135
    
    
    
    64Other
    
    
    119
    
    
    
    139Deferred tax assets
    
    
    1,142
    
    
    
    1,187Deferred tax liabilities
Depreciation
    
    
    885
    
    
    
    1,192Research and development
    
    
    319
    
    
    
    Deferred tax liabilities
    
    
    1,204
    
    
    
    1,192Net deferred tax liability
    
    $
    (62
    )
    
    $
    (5
    )
  F-14




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##### Table of Contents



(9) Operating segment information
   Years ended July 31,(In thousands)
    
    2003
    
    
    2004
    
    
    2005Net sales:Domestic
    
    $
    67,960
    
    
    $
    85,769
    
    
    $
    113,940Foreign
    
    
    20,337
    
    
    
    26,092
    
    
    
    32,429Total
    
    $
    88,297
    
    
    $
    111,861
    
    
    $
    146,369
  Years ended July 31,(In thousands)
    
    2003
    
    
    2004
    
    
    2005Net sales (foreign):Canada
    
    $
    5,413
    
    
    $
    6,752
    
    
    
    8,618Australia
    
    
    5,552
    
    
    
    6,843
    
    
    
    7,118Other
    
    
    9,372
    
    
    
    12,497
    
    
    
    16,693Total
    
    $
    20,337
    
    
    $
    26,092
    
    
    
    32,429
 Property, Plant and Equipment.
 (10) Sales to a major customer
  (11) Concentrations of credit risk
  F-15




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##### Table of Contents



LOWRANCE ELECTRONICS, INC.DATE: September 9, 2005
    BY:/s/ Darrell J. LowranceDarrell J. Lowrance,President and
Chief Executive Officer  /s/ Darrell J. LowranceDarrell J. Lowrance
    
    President and Chief Executive
    
    September 9, 2005(Principal Executive Officer)/s/ Douglas J. TownsdinDouglas J. Townsdin
    
    Vice President of Finance and
    
    September 9, 2005Chief Financial Officer(Principal Financial Officer andPrincipal Accounting Officer)/s/ George W. JonesGeorge W. Jones
    
    Director
    
    September 9, 2005/s/ Jason C. SaueyJason C. Sauey
    
    Director
    
    September 9, 2005/s/ M. Wayne WilliamsM. Wayne Williams
    
    Director
    
    September 9, 2005
 27