<PAGE>
 
                               F O R M   1 0 - K

      S E C U R I T I E S   A N D   E X C H A N G E   C O M M I S S I O N

                            Washington, D.C.  20549

(Mark One)
[X]  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, 1997
 
                                      or

[_]  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
 
               L O W R A N C E   E L E C T R O N I C S,  I N C.
           ------------------------------------------------------  
            (Exact name of registrant as specified in its charter)

       Delaware                                44-0624411            
------------------------           ----------------------------------- 
(State of incorporation)           (I.R.S. Employer Identification No.)

                     12000 East Skelly Drive
                          Tulsa, Oklahoma                 74128
              --------------------------------------    ---------- 
              (Address of principal executive offices)  (Zip Code)

      Registrant's telephone number, including area code:  (918) 437-6881

          SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

                               Common Stock, par
                             value $.10 per share
                             --------------------
                               (Title of class)

     Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.    Yes   X     No 
                                                 -----      -----

     Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K for any amendment to
this Form 10-K.  [X]

              Aggregate Market Value of the Voting Stock Held By
                Non-Affiliates on October 27, 1997 - $5,436,002

                       Number of Shares of Common Stock
                  Outstanding on October 27, 1997 - 3,352,458

                      DOCUMENT INCORPORATED BY REFERENCE
         Proxy Statement for Annual Meeting of Stockholders to be held
                          December 9, 1997 - Part III
<PAGE>
 
                                   FORM 10-K

               Annual Report for Fiscal Year Ended July 31, 1997
 
                          LOWRANCE ELECTRONICS, INC.
                                                                 Page
                                                                 ----
                               Table of Contents
                               -----------------
 
                                    PART I
 
Item 1.     Business.............................................   1

Item 2.     Properties...........................................  12

Item 3.     Legal Proceedings....................................  12

Item 4.     Submission of Matters to a Vote of Security Holders..  12
 
 
                                  PART II
 
Item 5.     Market for Registrant's Common Equity and Related
            Stockholder Matters..................................  13

Item 6.     Selected Financial Data..............................  14

Item 7.     Management's Discussion and Analysis of Financial
            Condition and Results of Operations..................  15

Item 8.     Financial Statements and Supplementary Data..........  22

Item 9.     Changes in and Disagreements with Accountants on
            Accounting and Financial Disclosure..................  22


                                 PART III

Item 10.    Directors and Executive Officers of the Registrant...  23

Item 11.    Executive Compensation...............................  23

Item 12.    Security Ownership of Certain Beneficial Owners
            and Management.......................................  23

Item 13.    Certain Relationships and Related Transactions.......  23
 
                                 PART IV

Item 14.  Exhibits, Financial Statement Schedules, and
          Reports on Form 8-K  ..................................  24
                                                       and F-1 to F-17

Signatures  .....................................................  28
<PAGE>
 
                          LOWRANCE ELECTRONICS, INC.
                                 Annual Report
                       For the Year Ended July 31, 1997


                                    PART I

Item 1. Business
------- --------

General
-------

    The Company designs, manufactures, and markets sonars (also known as depth
sounders) and accessories for use in recreational and commercial boating.  The
Company's sonars are principally used by sports fishermen for detecting the
presence of fish and by sports fishermen and boaters as navigational and safety
devices for determining bottom depth in lakes, rivers, and coastal waters.  The
Company also designs, manufactures, and markets Global Positioning System (GPS)
navigational receivers that may be attached to and used with certain of the
Company's liquid crystal display (LCD) sonars or to provide stand-alone
navigational information.  The GPS navigational receivers can be used in a
variety of marine and non-marine applications, such as aviation, hunting,
hiking, and backpacking.  The sonars and GPS navigational receivers are marketed
under the Company's three trade names, "Lowrance" "Eagle", and "Sea", primarily
through wholesalers, original equipment manufacturers (OEMs), mail-order
catalogs, mass merchandisers, and other retail outlets in all fifty states and
to a lesser and limited extent in fifty-nine foreign countries.

    The Company was formed in 1957, incorporated in 1958, and re-organized as a
Delaware corporation in 1986.  As used herein, the term "Company" refers to
Lowrance Electronics, Inc., (including its subsidiaries) and its predecessors,
unless the context indicates otherwise.

    The Company's principal executive offices are located at 12000 East Skelly
Drive, Tulsa, Oklahoma, 74128, and its telephone number is (918) 437-6881.

Products
--------

    The Company's products consist of sonars and related equipment, such as
water temperature gauges, and Global Positioning System (GPS) navigational
products.

    Sonars
    ------

        Each sonar consists of a transmitter, receiver, display, and transducer.
    The transmitter, receiver, and display are normally combined in one housing
    connected by a cable to the transducer.  The housing containing the
    transmitter, receiver, and display is normally mounted where it may be
    viewed by the boat operator, and the transducer is mounted under or in the
    hull of a boat.  The transmitter takes electrical energy and sends it
    through the cable to the transducer, which converts the electrical energy to
    sound pulses.  These sound pulses travel through the water until they hit
    the bottom or an object such as fish or a shipwreck and then bounce back as
    an echo.  The transducer converts the echoes back to electrical impulses
    which are sent to the receiver.  The receiver processes the impulses and
    transmits the information to the display for use by the  boater.

                                       1
<PAGE>
 
        The Company's sonars are either waterproof or weatherproof and are
    designed to withstand the harsh environments and shocks encountered by sport
    boats.  Sport boats, unlike offshore commercial boats, are usually open and
    subject to shock, rain, salt spray, and temperature extremes that constantly
    test the durability of the sonar.  The Company's sonars are also designed
    for the needs of sport fishermen who, unlike their commercial counterparts,
    are sometimes more interested in the size, depth, and location of individual
    fish, depth of the thermocline, and underwater structures, rather than the
    location of large schools of fish.  The Company's sonars are designed for
    and used by both fresh and saltwater sports fishermen and boaters.  The
    Company's sonars feature a variety of transducers manufactured by the
    Company in different sizes and shapes to fit all types of boats and with
    different frequencies and angles for both deep and shallow water use.    The
    Company's sonars are distinguished by the type of display--graphic liquid
    crystal displays (LCDs) and flashers and digital LCDs (other sonars).

        Graphic Liquid Crystal Display (LCD) Sonars.  The Company's LCD products
        -------------------------------------------                             
        are easier to use, provide more advanced capabilities, and incorporate
        advanced signal processing, which allows automatic operation of LCD
        sonars in a way that sets the controls for best performance whether at
        trolling or high speeds.  The Company markets twenty-six LCD sonar
        models.  All of the models utilize advanced computer technology and are
        keyboard controlled.  The Company's LCD models graphically display the
        depth of the water, bottom contour, fish, and other underwater objects
        on a LCD and digitally display the water depth.  Twelve models can also
        digitally display the surface temperature of the water, boat speed, and
        distance traveled.  LCD sonars are easier to read and interpret than the
        Company's flasher sonars.  Because LCD sonars have no moving parts, they
        are more durable than other sonars.  The more advanced models usually
        retail from $350 to $550.  The other LCD models, with fewer features,
        usually retail from $99 to $300.  The Company's various LCD models range
        in maximum depth capabilities from 350 feet to 2,500 feet.

         Other Sonars.  The Company's others sonars include flasher displays and
         ------------                                                           
         digital displays.  Flasher models were the first type of sonar products
         designed and manufactured by the Company.  The display consists of a
         neon bulb affixed to a spinning disk.  The bulb lights when it receives
         a sonar signal, flashing next to the appropriate depth mark on a
         calibrated circular dial.  Digital sonars are marketed and used solely
         to determine water depth which is digitally depicted on a LCD.  The
         flasher and digital sonars have varying depth capabilities ranging from
         60 feet for flashers to 1,000 feet for digital sonars and range in
         retail price from $140 to $300.

                                       2
<PAGE>
 
    Global Positioning System (GPS).
    ------------------------------- 

            The Global Positioning System offers worldwide navigational
   information for users via a constellation of twenty-four satellites.  The
   system offers precise global navigation for land, sea, and air applications
   providing constant updates of an individual's or object's position in
   latitude, longitude, and altitude.  Additionally, GPS measures speed and
   direction of travel.  The Company's GPS navigational modules may be attached
   to and used with one of the Company's LCD sonars and one LCD mapping model.
   The combination sonar/GPS models (module included) usually retail from $800
   to $1000, and the stand-alone, gimbal-mounted GPS mapping model (module
   included) retails for about $1,000.

            The Company's gimbal mount Global Map 2000 product utilizes input
   from either a GPS or Loran module to display the user's position on a
   pictorial background map in addition to providing the navigational
   information and course plotter available in all Lowrance and Eagle GPS
   products.  Further, the user, at their option, can purchase mapping
   cartridges which contain over 7,000 highly detailed nautical charts.  The
   Global Map 2000 retails for approximately $1,000 including the GPS module and
   cartridge reader.  This unit is also sonar capable with the purchase of a
   sonar access module.

            In addition to the Company's gimbal-mounted GPS products, it offers
   an expanding range of portable, hand-held GPS navigation receivers.  The
   first such product, the Eagle AccuNav Sport, began shipping in fiscal 1994,
   followed by the Lowrance GlobalNav Sport in fiscal 1995.  These products are
   battery-powered and feature a high resolution LCD screen with full graphics
   capabilities which will display navigational information and course plotting.
   During fiscal 1996, the Company began shipping its first hand-held GPS
   mapping receiver, the Lowrance GlobalMap Sport, with capabilities similar to
   that of the GlobalMap 2000.  These products can be used in both marine and
   non-marine applications and retail from approximately $349 to $649.  Also
   during fiscal 1996, the Company manufactured and sold its first portable GPS
   receivers specifically designed for use by commercial and private pilots. The
   Lowrance AirMap GPS offers exceptionally detailed navigation displays
   including an HSI-style screen, and a detailed database of all North and South
   American airports including runway diagrams, restricted air spaces, tower and
   communication frequencies, and aviation services available.  The unit's free
   built-in background map shows U.S. cities, towns, state and federal highways,
   all permanent streams and rivers, and lakes and ponds down to as little as a
   few acres.  The unit can also utilize the Company's IMS SmartMap detailed
   mapping cartridges as well as marine mapping databases.  The AirMap retails
   for approximately $600.

            In fiscal year 1997, the Company began shipping its breakthrough 12-
   channel GPS receivers with the introduction of two new gimbal-mount units,
   the Eagle View and Lowrance GlobalNav 310, and two new hand-held GPS
   products, the Eagle Explorer and Lowrance GlobalNav 200.  The highly-compact
   Eagle View and Lowrance GlobalNav 310 GPS receivers feature an integrated 12
   parallel-channel receiver for outstanding performance at retail prices of
   $299 and $369 respectively.  Featuring a powerfully-fast and highly-
   dependable 12 parallel-channel receiver, advanced navigational software and
   exclusive rechargeable battery options, the Eagle Explorer and Lowrance
   GlobalNav 200 were introduced at retail prices of $199 and $239,
   respectively.

                                       3
<PAGE>
 
    Accessories
    -----------

        The Company also has a line of accessories consisting of water
    temperature gauges, cables, portable power packs, and various mounting
    brackets, which are used primarily in conjunction with the Company's sonars
    and GPS products.

Product Sales
-------------

    The following table sets forth the percentage of total sales of LCD and
other sonars and accessories, including GPS navigational products, sold by the
Company in the past three fiscal years.
<TABLE>
<CAPTION>
 
                                       Percent of Total Product Sales
                                      ---------------------------------
                                         1995       1996        1997
                                      ----------  ---------  ----------
<S>                                 <C>         <C>        <C>
Type of Sonar Displays -
 LCD's, including combination
   navigation units                      68.9%      62.8%       51.4%
 Other sonars                             4.6        4.0         4.0
GPS, including stand-alone units
 and modules                             16.3       23.7        35.8
Accessories                              10.2        9.5         8.8
                                        -----      -----       -----
 
   Total                                100.0%     100.0%      100.0%
                                        =====      =====       =====
 
</TABLE>

Distribution
------------

    The Company markets its products under three trade names, "Lowrance",
"Eagle", and "Sea".  Sales of the Lowrance and Eagle brand products account for
over 98% of total sales.  Sales of Eagle products, as a percentage of total
sales were approximately 58% in 1995, 50% in 1996 and 54% in 1997.

    The Lowrance line in both sonar and GPS, with its selection of eighteen
interchangeable transducers and its more complicated keyboard, is intended for
the more sophisticated user.  The wide choice of transducers available with the
Lowrance sonars allows for greater installation and operating flexibility
through selection of a transducer of the appropriate size, shape, and frequency
to meet the boater's specific needs.  As a result of recent developments in
transducer design, the Company packages its Lowrance sonar models with a high-
performance transducer suitable for use on nearly all types of boat hulls.
Lowrance customers can exchange this transducer for credit toward one which
better meets their specialized requirement for installation or operation.
Generally, the boater will require special assistance with the installation and
operation of a Lowrance sonar.  To this end, the Company sells its Lowrance line
primarily to boat manufacturers, wholesalers, and retailers that the Company
believes have basic knowledge of the installation, use, and service of the
Lowrance line and can pass on such knowledge to customers.  Wholesalers and
retailers purchasing products in the Lowrance line are parties to agreements
with the Company providing for non-exclusive authorized dealerships and
distributorships for a term of one year.  As of July 31, 1997, the Company had
approximately 2,400 wholesalers and retailers that were parties to such
agreements.  A sonar installation subsidy is offered to authorized dealers that
sell and install Lowrance products as a means of sharing the costs of the
installation.  The Company believes that, over the past three years, the
Lowrance line has been sold primarily through dealers having the requisite level
of knowledge to sell, install, and properly instruct the fisherman and boat
owner as to the product's use.  Terms of payment for products in the Lowrance
line vary based on the time of the season

                                       4
<PAGE>
 
with the longest dating terms of 90 days being offered for shipments during the
first quarter of the fiscal year.

    The Eagle line is sold primarily to mass merchandisers, mail-order catalog
companies, retail sporting goods stores, and wholesalers that usually do not
provide technical assistance to the consumer regarding the installation and
operation of sonars and GPS.  Recognizing that special assistance will not be
available as to the selection of an appropriate transducer or the operation of
an Eagle sonar or GPS, the Company prepackages each Eagle sonar with a universal
transducer designed to work adequately on most boats and has simplified the
sonar's operating requirements.  The Eagle sonars do not have all of the
installation and operating flexibility of the Lowrance sonars but are less
expensive to the consumer.  Terms of payment for products in the Eagle line are
generally thirty days.  However, dating terms similar to those for the Lowrance
line are also offered.

    Beginning in fiscal 1995, the Company began marketing a third brand of sonar
and GPS navigational products, "Sea".  These products are marketed through
select coastal dealers and sales of Sea products accounted for less than two
percent of fiscal 1997 sales.

    The Company's products are sold in all fifty states and fifty-nine countries
internationally.  The Company's international sales totaled $21,000,000 in
fiscal 1995, $20,000,000 in fiscal 1996, and $25,000,000 in fiscal 1997,
representing approximately , 23%, 21%, and 24% of total net sales in each
respective fiscal year.  See Note 9 to the consolidated financial statements.
The two largest international markets for the Company's products are Canada and
Australia, where the Company maintains its own distribution warehouses for sales
and distribution of its products.  Sales in neither of these two countries
represented 10% or more of the Company's total annual sales for the latest three
fiscal years.

    LEI Extras, Inc., a wholly-owned subsidiary, allows consumers to purchase by
mail-order extended warranties for their sonar units and accessories that
otherwise would be difficult to obtain.  Because LEI Extras, Inc., is not
intended to directly compete with retail outlets that carry the Company's
products, the Company does not expect revenues from its mail-order operations to
be significant.

    Sales to Wal-Mart Stores, Inc., accounted for 14% of the Company's net sales
in each of fiscal years 1995, 1996, and represented 10% of net sales in 1997.
The top ten customers, including Wal-Mart Stores, Inc., accounted for
approximately 35%, 34%, and 34% in 1995, 1996 and 1997, respectively, of the
Company's net sales.

Inventories and Backlog
-----------------------

    The Company normally manufactures its products in anticipation of, and not
in response to, customer orders and fills orders within a short period of time
after receipt.  Thus, the Company must maintain significant inventories of
finished goods to permit it to fill orders promptly after receipt.  The
Company's receipt of orders generally peaks upon the introduction of a new
product and during the peak sales months of January, February, March, and April.
See "Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations".

    As of October 27, 1997, the Company's backlog of orders exceeded $9.8
million, including orders for new products which represented 21% of the backlog.
The backlog one year ago at this time was $10 million.  Backlog is not
necessarily comparable from year to year because of the significant impact on
backlog resulting from the timing and pent-up demand for the introduction

                                       5
<PAGE>
 
of the Company's new products each year.  While the Company believes that the
present backlog of orders is firm, the orders for its products are subject to
cancellation without further obligation by the customer at any time prior to
shipment.

Advertising and Promotion
-------------------------

    To support the sales of its products to wholesalers, mass merchandisers,
mail-order catalog companies, and others, the Company actively promotes and
advertises its products to fishermen, boat owners, and increasingly to other
outdoor enthusiasts.  The highly-technical nature of the Company's products
makes education of the user an important aspect of the Company's promotional
activities.  Through educating and familiarizing the user with the practical
benefits and use of sonar and GPS products, the Company endeavors to create
demand for its products.

    To satisfy this need, the Company utilizes a sales force of twenty full-time
employees to promote its products worldwide.  The sales force replaces the more
traditional manufacturer's representative who may represent more than one brand
or product.  The sales personnel employed by the Company have the knowledge and
time necessary to educate wholesalers, dealers, fishermen, and boat owners on
sonar products and demonstrate the practical benefits of sonar.  The sales
personnel train wholesalers and dealers to sell the Company's products, give
demonstrations at tackle and boat shows, and participate in store promotions,
seminars, and talks.

    To supplement the sales force, the Company has a part-time independent sales
group known as the "pro-staff".  The pro-staff consists of approximately two
hundred and fifty fishing professionals, tournament fishermen, serious outdoors
enthusiasts and pilots trained and equipped by the Company to promote the
Company's products at fishing tournaments, store promotions, club talks,
seminars, and tackle, and boat, hunting and aviation shows.

    The Company also advertises its products in newspapers, magazines, and on
television.  Within such advertising expenditures are separate advertising
programs designed specifically for the Lowrance line and the Eagle line.

    Public relations activities include a variety of press releases covering new
products and feature stories highlighting use of sonar and navigational
products; press trips, where products are demonstrated to members of the outdoor
media; distribution of product photos and other technical support for writers
and broadcasters.

    In addition to advertising expenses and public relations activities, the
Company incurs promotional expenses which include sponsorship of fishing
tournaments, store promotions, and contributions to environmental groups.  In
fiscal 1992, the Company became an official sponsor of the Bass Angler's
Sportsman Society's (B.A.S.S.) professional tournament trail, replacing
Techsonic Industries, Inc.  The Company continues to be the official sponsor of
B.A.S.S., which is the nation's largest sportsman's organization with more than
550,000 active members.  In addition to conducting the country's largest and
best-known tournament trail, B.A.S.S. publishes four major national magazines
and has more than 2,200 affiliated clubs through which the Company can
strategically market its sonar and navigational products.  The Company, through
its Eagle brand, is also an Affiliate Sponsor of the new Wal-Mart FLW tournament
trail in 1998.  The Wal-Mart FLW tour offers the world's largest cash prize for
bass tournaments, including a $1,000,000 purse.  The Wal-Mart FLW tour is
sponsored by Genmar Holdings, which also owns numerous boat manufacturers
including Ranger, Lund, Crestliner and Carver Yachts, to whom the Company
provides OEM sonar products.  Dealer and distributor support

                                       6
<PAGE>
 
includes the availability of point-of-purchase displays, posters, videos, and
product simulators to assist in displaying the Company's products.

Competition
-----------

Sonar and Sonar/GPS Combination Units -
-------------------------------------  

    The Company encounters intense competition for its products from a number of
domestic and foreign manufacturers.  More than 300 brands of sonars have been
offered to the consumer since the Company's formation in 1957.  Presently, there
are more than twenty-five competitors worldwide.  Historically, the sonar
market, as it relates to sonars marketed primarily to sports fishermen and
recreational boat owners, has been dominated by the Company and Techsonic
Industries, Inc.  According to independent marketing research commissioned by
the Company and issued in June 1997, the Company together with this competitor
currently account for approximately 80% of sonar sales within this market
segment in the United States.  In this 1997 study, the Company's total market
share (Eagle and Lowrance brands combined) was found to be greater than 50%.
The Company believes that the study results reflect current market conditions.

    Competition in the sports fishing and recreational boating market for the
Company's products is based upon a number of factors, including quality,
technological development, performance, service, and price.  The primary basis
for competition is technological innovation and price.  In order to maintain its
competitive position, the Company must continually enhance and improve its
products and anticipate rapid, major technological innovations and changes
within the industry.  Further, the Company believes that the sonar market in the
United States and Canada is mature, with no significant influx of new
participants to either boating or fishing in recent years.  Accordingly, the
Company's primary opportunity for sales growth in these markets is to take
market share from its competitors.  The Company continues to identify and pursue
significant new market opportunities for its sonar products internationally.

Hand-held GPS Units -
---------------------

    The hand-held GPS market has expanded rapidly in the past two years.  Target
markets for these products include, but are not limited to boating, sport
fishing, hunting, hiking, off-road vehicles, and aviation.  The market for hand-
held GPS products is growing and is expected to approach the size of the market
for sonar products during 1997.  The Company believes that it has captured less
than 20% of this market to date.  It introduced two new GPS product designs last
year which began shipping during the first and second quarters of fiscal 1997 at
highly competitive low-end prices.  The Company's ability to capitalize on the
growth of recreational GPS products improved with these new price-competitive
products and two additional models which began shipping during the first quarter
of fiscal 1998.  Long term growth in the Company's GPS market share will require
continued development of advanced GPS technologies which can be quickly brought
to market at competitive prices.

    Two competing GPS companies currently dominate this market and the Company
believes these two competitors combined continue to control in excess of 70% of
the hand-held GPS market.  The primary reason for their success is that both
companies have introduced and marketed several products retailing for under $200
and have, as a result of the Company's new low-priced products with 12-channel
receivers, been forced to close-out large volumes of their single channel
products for under $130 retail.  Both companies offer a range of higher priced
products with more features than their lowest priced models including products
specifically aimed at the avionics market.  Last year, one of these competitors
introduced a combined GPS and sonar model and a sonar-

                                       7
<PAGE>
 
only model, to date, their only sonar products.  The Company does not believe
that these models will have a significant impact on its own extensive lines of
sonar products during fiscal 1998.

    Currently, the Company offers four Eagle and six Lowrance hand-held
products, which retail at prices between $179 and $799.  The Company began
shipping it's new Eagle Explorer hand-held GPS during the second quarter of
fiscal 1997.  This product features a 12 parallel-channel receiver, high-
resolution display, internal battery back-up for stored information and a unique
rechargeable battery option for a retail price of approximately $199.

    Together with the Lowrance GlobalNav 200, the Eagle Explorer was
instrumental in establishing the Company's immediate and increased presence in
multiple non-marine retail markets and outlets.  These products, combined with
an extensive advertising and promotion campaign, significantly increased
consumer awareness and recognition of the Eagle and Lowrance brand names in
historically non-traditional markets.  Currently, the Company enjoys
distribution through several new outdoor recreational outlets who serve hikers,
campers, skiers, climbers and other outdoor enthusiasts.

    The Company has attempted to differentiate its products through quality,
technological development, performance, price, and service.  The Company
believes its products offer a competitive advantage due to quality,
technological advancement, and the wide range of features.  This advantage
results from the Company's long history of product innovation, such as Advanced
Signal Processing (ASP), fully waterproof sonar/Loran-C and sonar/GPS
combination units, Grayline, interchangeable high-performance transducers and
dual-frequency capability, and innovative features such as optional Broadview
sonars, split screen sonar/navigational displays, mapping capabilities and
programmable "windows".

    The Company has been an industry leader in offering advanced performance
products at strategically acceptable price points.  Further, the Company
believes that its service programs, designed to rapidly respond to the
customers' needs, along with the extended warranty programs covering the
Lowrance, Eagle and Sea product lines, are the most comprehensive services
available to the customer in the industry.

Product Research and Development
--------------------------------

    The Company's operations and competitive position are dependent to a large
extent upon its ability to anticipate and react to the technological innovations
inherent in its industry.  The Company has been engaged in the development of
sonars and the refinement of its existing sonar models since its formation in
1957.  See "Patents and Trademarks" below.  In 1957, the Company invented and
marketed a portable sonar capable of locating individual fish and their depths.
Among other significant sonar advancements, the Company developed and patented
an effective interface suppression system and interchangeable high speed
transducers which permit operation of sonar at boat speeds of up to 70 miles per
hour.  The Company also introduced in 1979 a computer-controlled sonar with
microprocessor chip and software allowing high speed boating with accurate depth
readings and no false signals.  In 1987, the Company introduced the industry's
first high resolution and "Supertwist" high visibility liquid crystal displays.
In 1989, the Company introduced the first fully waterproof sonar/navigation
combination units featuring Loran-C circuitry and software contained solely in
the antenna coupler module.  Advanced Signal Processing (ASP), a breakthrough in
automatic sonar control developed in 1990, constantly evaluates the effect of
varying water conditions, boat speeds, and interference sources, adjusting the
sonar's many settings for optimum performance.  Based on the Company's belief
that the United States military's GPS would be the preferred method of
navigation in

                                       8
<PAGE>
 
the future, if it became affordable, the Company introduced six marine GPS
products in 1992, with most at breakthrough price points.  The SupraPro ID, a
new sonar model introduced in 1994, now retails for under $100, provided users
with four times the resolution of its nearest competitive model.  Another model
new in 1994, the GlobalMap 1000, represented the first fully waterproof mapping
unit with a built-in mapping database and the capability of using highly-popular
detailed mapping cartridges.  The AccuNav Sport hand-held GPS product, which
retails for under $400, revolutionized the GPS market in 1994 by offering users
all the highly-detailed navigation plotting features previously available only
on larger and more costly gimbal-mounted GPS products at less than half the
price.  In 1995, the Company introduced its latest generation of "3D" sonar
products, the ULTRA III 3D and the X-70A 3D, which provide expansive underwater
coverage and innovative "three dimensional" images of bottom contours in
addition to traditional detailed "2D" views.  Six new 1995 products offered the
Company's new "Broadview" technology.  By purchasing a "Broadview" accessory
transducer (which can be installed on the transom or on a trolling motor), users
can expand their sonar coverage to search out -- left or right -- to detect fish
and cover down and outward from the boat.  In 1996, the Company introduced and
delivered its first hand-held GPS mapping products.  In fiscal 1998, the Company
is introducing two new sonar products with enhanced display screen resolution
and newly designed cases, as well as operating software in several of its sonar
and GPS products.  Additionally, the Company will deliver four new hand-held GPS
products, each utilizing new 12 parallel-channel receiver technology.

    Research and development expenditures of the Company were $2,868,000 in
fiscal 1995, $3,439,000 in fiscal 1996, and $3,936,000 in fiscal 1997.  The
Company plans additional development of its LCD sonars to increase performance
and versatility and is conducting research and development into other marine
electronic equipment utilizing technology with which it is familiar.  Also, the
Company intends to develop additional GPS products for use in marine and non-
marine applications.

    To augment its continued investment in product research and development, the
Company has invested in several new manufacturing and design technologies:
Surface Mount Technology (SMT) production equipment, Computer Aided Design (CAD)
systems, Application Specific Integrated Circuits (ASICS), Tape Automated
Bonding (TAB), Tab-On-Glass (TOG), and Liquid Crystal Display (LCD) assembly.
These advanced technologies, which were essential to the development of the
Company's new sonar and GPS products, have allowed the Company to reduce its
material and manufacturing costs and to provide even greater product
performance.

Manufacturing and Suppliers
---------------------------

    Through fiscal 1993, the Company manufactured substantially all of its
products at its plant in Tulsa, Oklahoma.  In fiscal 1994, the Company began
manufacturing most of its high volume transducer and cable assemblies in a
25,000 square foot leased manufacturing facility in Ensenada, Mexico, with the
finished assemblies shipped to Tulsa for final inspection, packaging, and
shipping.  During fiscal 1997, the Company expanded its production operation in
Mexico by consolidating its existing manufacturing operations in Ensenada,
Mexico into a newly constructed 88,000 square foot leased facility which has
been constructed to allow expansion to 108,000 square feet as the Company
requires more operating space.  Currently, the Company utilizes 70,000 square
feet for manufacturing, including a 26,000 square foot clean room within the
88,000 square feet presently occupied by the Company.  In the expanded Mexico
facility, the Company manufactures its transducer and cable assemblies as well
as assembles most of the liquid crystal displays used in its products.
Additionally, the Company performs final assembly, final testing and packing
operations on most of its products in the Mexico facility.  The transfer of

                                       9
<PAGE>
 
the final assembly and liquid crystal display assembly operations from the
Company's Tulsa facility began in August 1996 and was completed in July 1997.
The Company will continue to assemble and test all circuit boards in its
existing facility in Tulsa.  The manufacturing process primarily involves the
assembly of component parts purchased from suppliers.  Quality control and
functional testing, including component testing, sub-assembly testing, and final
testing of finished products, are an integral part of the Company's
manufacturing process.  The Company's Tulsa manufacturing facilities, with its
expanded Mexico operation, are sufficient to allow increased production without
substantial future capital investments.

    Certain component parts of the Company's products are technologically
advanced and/or specifically designed for the Company's use, and thus are
presently available only through single-source suppliers, some of which are
located in foreign countries.  Certain other component parts are available from
a number of suppliers, but the Company largely relies on single-source suppliers
for these parts.  Purchasing from a single source in these instances allows the
Company to have more consistent quality in the component parts and to receive
quantity discounts and permits the Company to establish long-standing
relationships with its suppliers.  The Company believes long-standing
relationships lead to better performance with suppliers by shortening delivery
time, improving quality, and fostering a better understanding of and adaptation
to the nature of the Company's needs and the suppliers' capabilities.

    With respect to plastic component parts, such as housings for sonars, the
Company, because of the expense, generally maintains only one mold for each
plastic part.  Although typically the Company owns each mold and could move it
to another supplier, the Company is limited to one supplier at a time.

    The Company has never experienced a substantial interruption in product
shipment resulting in the loss of any material amount of sales due to
unavailability of or delay in receiving component parts.  However, if for any
reason (such as a protracted strike, war, fire, explosion, or wind damage
affecting production at the supplier's manufacturing plant or import
restrictions or a damaged or destroyed mold or a supplier being unable to obtain
certain raw materials necessary to produce component parts), certain critical
component parts were to become unavailable or the shipment of such parts were to
be substantially delayed, such unavailability or delay could materially and
adversely affect the Company's ability to produce its products on a timely basis
until an alternative source of supply or a replacement mold could be made
available.  This could adversely affect the Company's results of operations.
The use of alternate components may, in some cases, require the Company to
redesign other components or its sub-assemblies and the Company could experience
manufacturing delays.  The extent of the impact upon the Company's sales and
earnings would depend upon the products affected and the time of year of the
interruption.

    To protect against interruptions and loss of sales, the Company maintains a
limited amount of safety inventory of component parts and some insurance
coverage against loss of supply.  The Company limits the amount of safety stock
to avoid the cost of carrying raw material inventory and problems associated
with obsolescence.  To further protect against interruptions, the Company is
selective of its suppliers, and with limited exceptions, relies upon those who
are substantial in size, financial strength, background, and experience.

                                       10
<PAGE>
 
Product Warranty and Support Services
-------------------------------------

    Substantially all of the Company's products are sold with a full one-year
warranty.  The Company offers the consumer the right to extend the warranty for
an additional two years on sonar products by purchasing an extended warranty
package.  Warranty expenses have averaged approximately 2.0% of sales during the
last three fiscal years.  The Company emphasizes service after the sale in
connection with its products by providing a prepaid, pre-addressed shipping
label packed with each unit for use by the consumer located in the United States
electing to return the unit to the Company for warranty or non-warranty repairs.
(The Company guarantees a three-day in-house turnaround on units sent in for
repair.)  Warranty and non-warranty repairs are available from the Company's
plant in Tulsa, Oklahoma, and from ten "depot" centers throughout the United
States and from dealers and distributors in fifty-nine foreign countries.

Patents and Trademarks
----------------------

    Since 1970, the Company has obtained thirty-seven patents expiring at
various dates from 1987 through 2015.  Since 1970, eleven design patents have
also been issued.  See "Product Research and Development" above.  All of the
Company's patents have been assigned to secure the Company's accounts receivable
and inventory line of credit financing.  The Company does not expect that the
expiration of patents will have an adverse impact on the Company's operations.

    Notwithstanding the number of patents it has obtained, the Company believes
that its technical and proprietary expertise and continuation of technological
advances are more important factors to the protection of its ongoing proprietary
interests and markets than its patents.  However, the Company will under certain
limited circumstances continue to file patent applications to insure its
products remain protected from attack from competitors.

    The Company has registered forty trademarks with the United States Patent
Office including the trademark, "Lowrance" and the trademark "Eagle", with an
accompanying logo and has additional trademark applications filed.

Employees
---------

    As of July 31, 1997, the Company employed 1,338 persons on a full-time basis
of whom approximately 1,122 were involved in manufacturing and materials.  Of
the 1,122 full time employees involved in manufacturing and materials, 386
employees are located in the Company's headquarters in Tulsa and 736 are located
in the Company's leased manufacturing facility in Ensenada, Mexico.  The
remaining 216 employees were engaged in research and development, sales and
marketing, and administration.  During the year, the Company utilizes temporary
workers to allow it to adjust its workforce as its production needs change.  All
of the temporary workers are located in the Tulsa facility.  At July 31, 1997,
approximately 150 of such workers were engaged by the Company and are included
in the above amounts.  Additionally, the Company retains, on a part-time basis,
over 250 independent contractors, the "pro-staff", that assist in promoting its
products.

    The Company has never experienced a work stoppage, and none of its employees
are represented by a union.  Management considers its employee relations to be
excellent.

                                       11
<PAGE>
 
Item 2. Properties
------- ----------

    The Company maintains its offices and manufacturing and warehouse facilities
at 12000 East Skelly Drive, Tulsa, Oklahoma, 74128.  The Company's Tulsa
facilities are located on approximately 23 acres of land and consist primarily
of a masonry building containing approximately 116,000 square feet of floor
space, of which 35,000 square feet are used for manufacturing operations, 36,000
square feet for warehousing, and 45,000 square feet for office and laboratory
space.

    Prior to fiscal 1997, the Company, through its Mexican subsidiary, leased a
25,000 square foot manufacturing facility in Ensenada, Mexico.  In fiscal 1997,
the Company expanded its Ensenada, Mexico operations by leasing a new 88,000
square foot manufacturing facility which has been constructed to permit the
Company to expand into the built out, but unfinished 20,000 square foot, second
floor affording the Company 108,000 square feet.   The Company presently is
using 70,000 square feet for manufacturing including a 26,000 square foot clean
room of the 88,000 square feet occupied by the Company.  During fiscal 1997, the
existing facility was eliminated and combined with operations in the new
facility.

    The Company also leases a 79,000 square foot facility for warehousing and
shipping in Tulsa, Oklahoma and 2,500 square feet and 3,500 square feet of
warehousing, shipping and office space in Australia and Canada, respectively.

    The Company believes that its facilities and equipment are well suited to
its needs and are properly maintained.  The Company's current manufacturing
facilities, including the expanded Mexico facility are sufficient to allow for
increased production without significant capital investment.  The facilities and
equipment are believed to be operating in substantial compliance with all
current regulations.  All the facilities and equipment are, in the opinion of
the Company, adequately insured.


Item 3. Legal Proceedings
------- -----------------

    None.

Item 4. Submission of Matters to a Vote of Security Holders
------- ---------------------------------------------------


    None.

                                       12
<PAGE>
 
                                 PART II


Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
------- ---------------------------------------------------------------------

    As of October 27, 1997, the Company had more than 400 actual holders of its
Common Stock.  The Company has not paid cash dividends for over twenty years.
The Company's inventory and accounts receivable line of credit agreement
prohibits the payment of dividends without the prior written consent of the
lender.  The Company anticipates that for the foreseeable future its earnings
will be retained for use in its business and no cash dividends will be paid on
the Common Stock.  Declaration of dividends in the future will remain within the
discretion of the Company's Board of Directors and will depend upon the
Company's growth, profitability, financial condition, and other relevant
factors.

    The Company's Common Stock is traded in the over-the-counter market and is
listed with the NASDAQ National Market System under the NASDAQ symbol of "LEIX".
The table below reflects the high and low trade prices for each of the Company's
fiscal quarters for the latest two fiscal years.  The trade prices reflect
inter-dealer prices, without retail mark up, mark down, or commission and do not
necessarily represent actual transactions.
<TABLE>
<CAPTION>
 
                        1996            1997     
                   --------------  --------------
                    High     Low     High   Low
                      $       $       $      $   
                   ------  ------  ------  ------
<S>                <C>     <C>     <C>     <C>
    1st Quarter     6 1/2   4 1/2   8 1/4   5
    2nd Quarter     5 1/2   3 3/4   11      6 1/2
    3rd Quarter     6 1/2   4 3/4   10      7 1/2
    4th Quarter     7 1/4   4 3/4   8 5/8   5
</TABLE>

                                       13
<PAGE>
 
Item 6. Selected Financial Data
------- -----------------------

    The selected financial information shown below has been extracted from the
consolidated financial statements included elsewhere in this report and from
other financial information of the Company not appearing herein.  The balance
sheet information is presented as of the end of the fiscal years shown.  The
information set forth below should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the consolidated financial statements and related notes included elsewhere
herein.
<TABLE>
<CAPTION>
                                                           Years Ended July 31,
                                                -----------------------------------------------
                                                   1993      1994       1995      1996      1997
                                                -------   -------    -------   -------  --------
                                                     (in thousands, except per share amounts)
<S>                                             <C>       <C>        <C>       <C>       <C>
Operating Data:
 Net sales                                      $79,634   $81,250    $91,116   $94,579  $104,659
 Gross profit                                   $28,182   $25,330    $31,069   $31,988  $ 26,881
 Income (loss) before
  income taxes and
  extraordinary credit                          $ 4,423   $(1,663)   $ 2,061   $ 2,199  $ (7,877)
 Net income (loss)                              $ 3,000   $  (672)   $ 1,422   $ 1,743  $ (5,190)
 
Per Share Data:
 Weighted average number
  of shares outstanding                           3,403     3,350      3,352     3,352     3,352
 
 Net income (loss)                                 $.88     $(.20)      $.42      $.52    $(1.55)
 
Balance Sheet Data:
 Working capital                                $11,090   $12,872    $14,777   $18,509  $ 18,427
 Total assets                                   $28,376   $35,028    $40,228   $47,108  $ 61,366
 Long term debt, less
  current maturities                            $ 5,269   $ 9,379    $ 9,975   $13,705  $ 21,805
 Stockholders' equity                           $12,630   $11,991    $13,452   $15,196  $  9,952
</TABLE>

                                       14
<PAGE>
 
Item 7. Management's Discussion and Analysis of Financial Condition and Results
------- -----------------------------------------------------------------------
        of Operations
        -------------

General
-------

    The following table sets forth for the periods indicated the relative
percentages that certain items of income and expense bear to net sales:
<TABLE>
<CAPTION>
 
                                          Years Ended July 31,     
                                         -----------------------
                                         1995    1996      1997  
                                         -----   -----     -----
                                         (percent of net sales)
<S>                                      <C>     <C>       <C>
    Net sales                            100.0%  100.0%    100.0%
    Cost of sales                         65.9    66.2      74.3
                                         -----   -----     -----
                                      
        Gross profit                      34.1    33.8      25.7
                                      
    Operating expenses:               
      Selling and administrative          24.2    24.6      25.7
      Research and development             3.2     3.6       3.8
      Unusual Item                         1.2       -         -
                                         -----   -----     -----
                                      
        Operating income (loss)            5.5     5.6      (3.8)
                                      
    Interest expense                      (1.7)   (2.0)     (2.3)
    Other, net                            (1.5)   (1.3)     (1.4)
                                         -----   -----     -----
                                      
    Income (loss) before income       
      taxes                                2.3     2.3      (7.5)
    Provision (benefit) for           
      income taxes                          .7      .5      (2.6)
                                         -----   -----     -----
                                      
    Net income (loss)                      1.6     1.8      (4.9)
                                         =====   =====     =====
 
</TABLE>

    Demand for the Company's products is seasonal with approximately 35% to 40%
of its sales and a majority of its net income usually occurring in the third
quarter (February, March, and April).  During this period, the Company's
customers purchase the Company's products so that the products will be available
to sport fishermen and recreational boat owners for the peak fishing and boating
season.  Generally, with the exception of the third quarter, quarterly results
are dependent on the timing and acceptance of new product introductions,
advertising, and product availability, and as such, the Company does not
experience any consistent quarterly trends for those three quarters.

                                       15
<PAGE>
 
    The following table sets forth the quarterly results for the past three
fiscal years:
<TABLE>
<CAPTION>
 
 
    Years Ended July 31            Sales         Net Income (Loss)
----------------------------  ----------------  -------------------
                                     (dollars in thousands)
<S>                           <C>       <C>     <C>        <C>
        1995
        ----
First Quarter (Aug.-Oct.)     $ 14,215   15.6%   $(1,203)    (84.6)%
Second Quarter (Nov.-Jan.)      25,417   27.9        445      31.3
Third Quarter (Feb.-Apr.)       32,151   35.3      2,181     153.3
Fourth Quarter (May-July)       19,333   21.2         (1)      0.0
                              --------  -----    -------   -------
 
     Total for Year           $ 91,116  100.0%   $ 1,422     100.0%
                              ========  =====    =======   =======
 
        1996
        ----
First Quarter (Aug.-Oct.)     $ 13,967   14.8%   $(1,175)    (67.4)%
Second Quarter (Nov.-Jan.)      20,692   21.9       (380)    (21.8)
Third Quarter (Feb.-Apr.)       32,761   34.6      2,237     128.3
Fourth Quarter (May-July)       27,159   28.7      1,061      60.9
                              --------  -----    -------   -------
 
     Total for Year           $ 94,579  100.0%   $ 1,743     100.0%
                              ========  =====    =======   =======
 
        1997
        ----
First Quarter (Aug.-Oct.)     $ 14,110   13.5%   $(2,371)    (45.7)%
Second Quarter (Nov.-Jan.)      20,114   19.2     (1,246)    (24.0)
Third Quarter (Feb.-Apr.)       39,594   37.8      1,209      23.3
Fourth Quarter (May-July)       30,841   29.5     (2,782)    (53.6)
                              --------  -----    -------   -------
 
     Total for Year           $104,659  100.0%   $(5,190)   (100.0)%
                              ========  =====    =======   =======
</TABLE>

    Demand for the Company's products is affected by the rapidly changing
technological environment of consumer electronics.  If the Company fails to
anticipate technological innovations advanced by its competitors and introduce
technologically competitive products, demand for the Company's products will
diminish.  In each of the past three fiscal years, new product sales have
accounted for more than 20% of total sales.

    Additionally, sales of the Company's products are affected by adverse
changes in economic conditions, increased oil prices or adverse weather
conditions.  The Company believes that the lower-priced and easier to use LCD
sonar products available in recent years attracted an increased number of less
serious fishermen to the marketplace who are more likely to reduce their
purchase of sonar products during adverse economic conditions and /or prolonged
adverse weather conditions.  The Company believes that the sonar market in the
United States and Canada is mature, with no significant growth in boating or
fishing participation in recent years.  Any opportunity for growth in these
markets will rely on the ability of the Company to increase its market share.
Some market growth for sonar products is anticipated as related to international
markets as the Company continues to focus efforts in these areas.  International
sales for 1997 increased over 1996 by $5.4 million (25%).  Canadian sales grew
37%, Australian sales were up 19%, and all other International sales increased
25%, primarily because of improving European economies, expanded points of
distribution and increased sales of GPS products.  The market for GPS products,
both domestic and international, is expected to continue to expand.  The
Company's future success in GPS is heavily dependent upon keeping pace with
competitors who are rapidly introducing new products and new pricing strategies
in the increasingly competitive marketplace.  Accordingly, the Company's future
sales could be adversely affected by a reduction in consumer spending, a decline
in

                                       16
<PAGE>
 
recreational boating and sport fishing resulting from significant increases in
oil prices, or new product introductions by competitors.

    Sales of sonar products including combination sonar/GPS units were down $5.9
million (9.5%) from fiscal 1996 to 1997, following a decrease of approximately
$3.8 million (6%) from fiscal 1995 to 1996.  The decline in sonar sales when
comparing 1996 to 1997 results from limited product availability caused by
production delays on the Company's new mid and upper series sonar products in
1997.  Sales of GPS products increased approximately $6.9 million (51%) from
fiscal 1995 to 1996 and increased approximately $15.1 million (84%) from fiscal
1996 to 1997.  A significant percentage of the increase for GPS in fiscal 1996
related to the shipment, late in the year, of two portable mapping units, the
GlobalMap Sport and the AirMap.  The shipment of these two products had a
positive effect on sales and net income for the fourth quarter of 1996.  The
1997 increase is primarily attributable to the introduction of the low-cost
gimbal-mount and hand-held GPS products.

    The Company's production of its products is scheduled on the basis of sales
forecasts rather than actual orders.  Products are designed and manufactured and
parts are ordered in advance of the peak sales period so that products can be
shipped within days of receipt of customers' orders.  The Company's
profitability is largely dependent upon its ability to accurately forecast and
plan for market demand for its products in advance of the peak selling season
and to meet the demand of the peak sales months with technologically acceptable
products at acceptable prices.

    The Company begins planning for sales during each fiscal year in February or
March of the preceding year.  The planning includes the preparation of an annual
sales forecast for the upcoming fiscal year.  The forecast is reviewed by the
Company at least monthly, and if necessary, the forecast is revised.  The
forecast of products must allow time for ordering raw materials and parts, which
may take as long as five months for delivery following the Company's order, and
for manufacturing so that the Company has a build-up of finished goods inventory
sufficient to meet demand prior to the peak sales months.  Failure by the
Company to accurately forecast market trends, introduction of technological
advancements, or the demand for particular models can result in a build-up of
raw material and finished goods inventory that is obsolete or must be liquidated
at reduced prices.  The build-up of raw material and finished goods inventory in
anticipation of orders during the peak selling season, the cash outlays required
to purchase tooling to manufacture new products, together with extended payment
terms of up to 120 days offered by the Company, which historically, results in a
significant increase in working capital requirements from a low in June through
August to a high in September through December.

    The Company uses a Material Requirements Planning (MRP) system to control
inventory by eliminating stockpiling and by utilizing a continuous flow method
of manufacturing.  Under the continuous flow method of manufacturing, parts and
supplies are ordered and scheduled for purchase and delivery only at such time
as they are expected to be needed in the manufacturing process.  The MRP system
also results in a reduction of the Company's safety stock and a shorter
manufacturing cycle.  However, extenuating circumstances can and do occur which
render a MRP system ineffective at controlling inventory levels.  Such
circumstances were experienced during 1997 and are discussed below in "Working
Capital".

    The following discussion and analysis relate to factors that have affected
the financial condition and operating results of the Company for fiscal years
1995 through 1997.  Reference should also be made to the Consolidated Financial
Statements and the notes thereto included elsewhere herein.

                                       17
<PAGE>
 
Results of Operations
---------------------

Net Sales
---------

    Net sales for fiscal 1997 increased 10.7% over fiscal 1996.  Unit sales,
which include sonar units, combination sonar/navigation units, and stand-alone
navigation units, increased 19.4% and the average price per unit decreased 7.9%.

    When comparing fiscal 1997 to 1996, unit sales increased because of higher
sales of the Company's new low-cost hand-held GPS products which are sold
primarily to mass merchandisers, mail order catalog companies, retail sporting
goods stores and wholesalers.  This increase was slightly offset by decreased
sales of the Company's sonar products. The increase in GPS sales resulted from
the continuing expansion of this market, as well as the Company's introduction
of the $199 Eagle Explorer and the $239 Lowrance GlobalNav 200 models which
began shipping in the second and third quarters of fiscal 1997, respectively.
Also, the two new portable GPS products with mapping capabilities, which began
shipping in late 1996, were available for the entire year in 1997.  The decrease
in the average price per unit resulted from increased sales of the Explorer and
GlobalNav units and an increased weighting in the sonar sales mix toward low-
priced sonar units.  This weighting was the result of limited availability of
the Company's six new mid and upper priced sonar products.  Production delays
resulted in several of these products shipping in limited quantities until late
in the third quarter.  Additionally, retailers are allocating more shelf space
and are open to allocate more inventory dollars to GPS at the expense of sonar
products due to the rapid growth and market potential of GPS.

    Net sales for fiscal 1996 increased 3.8% over fiscal 1995.  Unit sales
decreased 2.7% and the average price per unit increased 10%.

    When comparing fiscal 1996 to 1995, unit sales decreased primarily due to
decreased sales of the Company's Eagle Sonar products which are sold primarily
to mass merchandisers, mail order catalog companies, retail sporting goods store
and wholesalers.  Management believes that the following factors contributed to
reduced Eagle sonar sales:  1.) lack of sonar market growth in North America in
general,  2.) inventory dollars at retailers, historically committed to sonar,
are being redirected to Global Positioning System (GPS) products,  3.) an
unusually cold winter and cool spring in many of the Company's key markets in
the United States.  The target market for Eagle sonar products is more affected
by adverse weather,  4.) a generally weak fishing tackle market, and  5.)
reduced sales to one of the Company's mass merchant retailers.  Additionally,
sonar sales to Original Equipment Manufacturers (OEM's) were down from 1995
levels.  OEM sonar sales were down in line with an overall decrease in new boat
production versus 1995.  Lowrance unit sales increased versus 1995 primarily as
the result of the expansion of the Lowrance product line into several national
retail chains.

    Reduced unit sales for sonar products were partially offset by increased
sales of the Company's GPS products.  The increase in GPS sales resulted from
the continuing expansion of this market as well as the introduction of two new
portable GPS products with mapping capabilities which began shipping in late
1996.  The increase in the average price per unit resulted from decreased sales
of the Eagle and OEM sonar products offset by increased sales of the higher
priced GPS products.

                                       18
<PAGE>
 
Gross Profit
------------

   The gross profit margin decreased from 33.8% in fiscal 1996 to 25.7% in 1997
due primarily to: 1) the shift in mix of units sold to the low-priced GPS units
which generally have a correspondingly low profit margin; 2) unplanned
production of certain new 1997 products in the Company's Tulsa production
facility versus in the new Mexico facility; 3) inefficiencies in certain
production processes in the Tulsa production facility; and 4) high production
labor cost and employee turnover in Tulsa due to record low unemployment in that
labor market.  Additionally, the new sonar products, which began shipping in
volume in the second and third quarters of 1997, generally carry above average
margins for the Company, but were not available for much of the year.

   The gross profit margin decreased slightly to 33.8% in 1996 from 34.1% in
1995.  Price decreases on existing GPS products caused by competitive market
factors resulted in this decline.

Operating Expenses
------------------

    Operating expenses, as a percentage of net sales increased from 28.3% in
fiscal 1996 to 29.5% in 1997.  Total costs increased $4,106,000.  The major
factors contributing to this increase were 1) $3,400,000 additional advertising
and marketing expenses related to the Company's push to acquire market share in
the GPS market and in introducing the new sonar products;  2) other variable
selling expenses, such as freight-out and product returns cost, were up
approximately $700,000 due to increased volumes, and 3) research and development
expenditures were up $500,000 due to the Company's continuing efforts to develop
new products.  Expense reductions in general and administrative costs partially
offset the effects of the above increases.

    Operating expenses, comprised of selling, administration and research and
development expenses, as a percentage of net sales, decreased from 28.6% in
fiscal 1995 to 28.3% in 1996.  Total costs increased $661,000.  The major
factors contributing to this increase were,  1.) increased sales and marketing
costs associated with efforts aimed at existing sonar markets as well as new GPS
markets, and  2.) increased research and development expenses which resulted
from the Company's efforts in new product development, primarily GPS.  These
cost increases were offset by a decrease of $1,100,000 in costs associated with
the Settlement Agreement and License Agreement with Computrol reached on January
10, 1995, and a decrease in other variable selling expenses consisting of
products returns costs.

Interest Expense
----------------

    Interest expense in fiscal 1997 increased by $517,000 from 1996 due to
increased borrowing levels primarily associated with the Company's revolving
credit line.  The increased borrowings under the revolving credit line resulted
from higher working capital needs to support increased sales levels, the buildup
of  inventories, and for support of the move of certain manufacturing operations
to the Company's Mexico manufacturing facility.

    Interest expense in fiscal 1996 increased by $300,000 from 1995 due to
increased borrowing levels primarily associated with the Company's revolving
credit line.

Income Taxes
------------

    The effective tax rate for fiscal 1995, 1996 and 1997 was 31%, 20.7%, and
(34.1)%, respectively.  For Fiscal 1996, the effective tax rate is less than the
statutory federal tax rate of 34% due primarily to increases in state

                                       19
<PAGE>
 
income tax credits and refunds of prior years income taxes and related
adjustments.  For Fiscal 1995, the effective tax rate is less than the statutory
federal tax rate of 34% due primarily to the research and development credit
offset by state income tax provisions.

Income/(Loss)
-------------

    Net income (loss) as a percentage of net sales was (4.9%) in fiscal 1997,
1.8% in fiscal 1996, and 1.6% in fiscal 1995.  The loss in 1997 was attributable
to the factors discussed above in this section.

Liquidity and Capital Resources
-------------------------------

    The Company's working capital needs increase in the fall and winter months
as the Company manufactures and stockpiles its products for the peak sales
months of January, February, March, and April.  Also, the days outstanding in
the Company's accounts receivable increase in the off-season due to favorable
purchase terms offered to customers in order to stimulate sales during these
slow periods.

    The Company's primary sources of liquidity are cash flow from operations, an
accounts receivable and inventory line of credit, and lease financing.  The line
of credit allows the Company to borrow up to 85% of its qualifying accounts
receivable, 30% of qualifying raw materials inventory, and 60% of qualifying
finished goods inventory.  Borrowings for inventory, however, are limited to
$13,000,000.  A yearly lease line of credit is usually established to finance
the acquisition of qualifying equipment and certain other assets.

    Traditionally, the Company's near-term liquidity is at its lowest during the
period August through December due to limits on borrowings against inventories,
cash outlays required to purchase tooling to manufacture new products, and
extended payment terms offered to customers to stimulate sales during the
seasonally slow period.  As previously described, it is during this period that
the Company begins to manufacture and build-up inventory levels in anticipation
of product demands for the peak sales months.  By the end of the second quarter,
sales historically increase and the Company's sources of liquidity begin to
improve.

    In fiscal 1996, the Company announced plans to expand its Mexican
manufacturing operation to meet increasing demand for its products, particularly
GPS models.  The Company entered into a long-term lease for a new manufacturing
facility and was responsible for funding a large portion of the leasehold
improvements necessary for the building to meet its specific production needs.
In addition to funding the leasehold improvements, it was necessary to build
additional inventory levels during the last few months of fiscal 1996 to support
expected sales during the first quarter of fiscal 1997.

    During fiscal 1997, the Company began relocating certain of its
manufacturing operations to its new plant in Mexico.  The start-up of the new
facility in Mexico was substantially on schedule.  However, record low
unemployment rates in Tulsa resulted in excessive turnover of production workers
and an inability to maintain sufficient trained staff to support the Company's
substantially increased production schedule intended to support record demand
for its GPS products.  This problem was magnified by management's focus on the
start-up of the new Mexico facility and production delays of the Company's six
new sonar models.  These problems caused an excessive build-up of raw material
and work-in process inventories that the Company could not convert to finished
goods until after the peak selling season.  These factors resulted in
inventories remaining well above historical levels throughout fiscal 1997.
Management has implemented controls to better

                                       20
<PAGE>
 
manage production scheduling and inventory levels.  Inventory is expected to
gradually decline throughout fiscal 1998.

    Management expects the sources discussed above, combined with a new
$4,000,000 term loan and up to $3,000,000 of expanded borrowings under its
existing line of credit, to satisfy the Company's current financing needs.  At
July 31, 1997, there were approximately $2.3 million of borrowings available
under the Company's revolving line of credit.  This additional availability was
related solely to the timing of payments to vendors and was depleted in early
August 1997.  As is consistent with prior years, management expects to be at
maximum borrowing limits through the first three quarters of fiscal 1998.
Because the line of credit will be at its maximum during this period, the
Company will be required to delay payments to vendors as it has historically
done.  Management does not expect any significant long-term effect from these
delayed payments as most vendors have supplied the Company for many years.
Additionally, because of the additional financing noted above, overall lower
projected inventory levels and an expected return to profitability in fiscal
1998, the Company does not expect payment delays to the levels experienced in
fiscal 1997.

    Cash flows provided by financing activities for fiscal 1997 were used to
finance capital additions (not financed by leases) of $2.7 million and to
provide funds consumed in operating activities of $2.6 million.  In fiscal 1996,
net cash provided by financing activities was used to finance capital additions
(not financed by leases) of $1.9 million and to provide funds consumed in
operating activities of $1.3 million.  In fiscal 1995, net cash provided by
operating and financing activities was used to finance capital additions (not
financed by leases) of $1.3 million.

Working Capital
---------------

    The Company's working capital ratio was 1.6 at July 31, 1997 and 2.1 at July
31, 1996.  Change in this ratio is due to the loss in fiscal 1997 and the
increased inventories at July 31, 1997, as discussed above and below.

    Inventory levels at July 31, 1997 were up $7.1 million or 34% from July 31,
1996.  This increase resulted from production delays related to a longer-than-
planned transition to the Company's new facility in Mexico, as well as unplanned
delays in producing the Company's new products introduced in 1997.  Also,
unexpected inefficiencies in the Tulsa production facility, discussed above in
"Gross Profit", compounded the build-up in inventories.  The increase in trade
payables directly relates to the increase in inventories and the delays in
payments to vendors discussed above.

    Management expects that inventories will continue to decline during fiscal
1998.  As the inventory level declines, management also expects payments to
vendors to continue to improve correspondingly.  The Company does not expect
substantial realization problems with this inventory.


Long-Term Debt and Revolving Credit Agreement
---------------------------------------------

    At July 31, 1997, the Company's term and revolving credit loan agreement,
which is more fully described in Note 3 to the Consolidated Financial
Statements, provided for interest at a rate up to 1.5% over prime with maximum
borrowings of up to $26,500,000 on the revolving line of credit.

    In August 1997, the Company expanded the borrowings available under its term
and revolving credit loan agreements.  This expanded the financing available by
$7 million, including an additional $4 million term loan and up to $3 million of
additional borrowings under its revolving line of credit

                                       21
<PAGE>
 
secured by certain inventories and receivables located outside the United
States.

Capital Expenditures
--------------------

    Capital expenditures were $2,461,000, $3,968,000, and $3,790,000 for the
years ended July 31, 1995, 1996, and 1997, respectively.  Of the fiscal 1997
total, approximately $2.7 million is related to tooling, molds, dies, and
equipment to design and manufacture the Company's products.  For 1998, the
Company plans to spend approximately $1.7 million on capital expenditures with
substantially all of this amount allocated to production equipment and tooling.

Effects of Inflation
--------------------

    A significant portion of the Company's cost and expenses consist of
materials, supplies, salaries, and wages that are affected by inflation.  Due to
the intense market pressures on prices, the Company does not believe that it
will be able to pass on inflationary increases in its selling prices.
Accordingly, the Company concentrates on changes in design, manufacturing
process, material scheduling, and sourcing to help contain costs.  The Company
does not expect that the effects of inflation will have a significant impact on
its profitability in the near future.  Additionally, a significant portion of
the Company's raw material items are sourced overseas.  Significant devaluation
of the dollar relative to these currencies would not be able to be passed on in
the form of price increases to consumers.

Outlook
-------

    The Company anticipates a return to profitability in fiscal 1998, primarily
as the result of continuing favorable economic and market conditions, market
acceptance of the Company's 1997 product offering, full year availability of the
new 1997 product offering, lower manufacturing cost relating to a full years
production from the Company's new Mexico manufacturing facility and lower
selling and administrative cost.  Management currently anticipates positive cash
flows from operations in fiscal 1998 based on attaining current projections for
net income and inventory levels.  The Company is not expecting additional new
products to contribute significantly to the 1998 net sales projections.  The
expectation for returned profitability based on the above factors constitutes
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934.  The Company
believes that these forecasts are based on reasonable assumptions, however, no
assurances can be given that these goals will be achieved.  If the Company
experiences production delays due to raw materials shortages or unforeseen
competitive pressures, this could have a material adverse affect on current
projections.  Also, because of the dynamic environment in which the Company
operates, one or more key factors which are discussed in "Part I, Item 1.
Business" could have an adverse effect on results for the upcoming year.


Item 8.  Financial Statements and Supplementary Data
-------  -------------------------------------------

    The Consolidated Financial Statements and Supplementary Data are indexed in
Item 14 hereof.


Item 9.  Changes in and Disagreements with Accountants on Accounting and
-------  ---------------------------------------------------------------
         Financial Disclosures
         ---------------------

    None.

                                       22
<PAGE>
 
                                 PART III

Item 10.  Directors and Executive Officers of the Registrant
--------  --------------------------------------------------

    Incorporated by reference to the Company's Proxy Statement to be filed with
the Securities and Exchange Commission in connection with the Company's 1997
annual meeting.


Item 11.  Executive Compensation
--------  ----------------------

    Incorporated by reference to the Company's Proxy Statement to be filed with
the Securities and Exchange Commission in connection with the Company's 1997
annual meeting.


Item 12.  Security Ownership of Certain Beneficial Owners and Management
--------  --------------------------------------------------------------

    Incorporated by reference to the Company's Proxy Statement to be filed with
the Securities and Exchange Commission in connection with the Company's 1997
annual meeting.


Item 13.  Certain Relationships and Related Transactions
--------  ----------------------------------------------

    Incorporated by reference to the Company's Proxy Statement to be filed with
the Securities and Exchange Commission in connection with the Company's 1997
annual meeting.

                                       23
<PAGE>
 
                                 PART IV

Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
-------  ----------------------------------------------------------------

  (a) Financial Statements, Schedules, and Exhibits:
      --------------------------------------------- 

                                                                          Page
                                                                          ----
      1. Consolidated Financial Statements and Schedules:
 
           Index to Consolidated Financial Statements                      F-1
 
           Report of Independent Public Accountants                        F-2
 
           Consolidated Balance Sheets - July 31, 1996 and 1997            F-3
 
           Consolidated Statements of Income (Loss) for the Years
             Ended July 31, 1995, 1996, and 1997                           F-4
 
           Consolidated Statements of Stockholders' Equity for the
             Years Ended July 31, 1995, 1996, and 1997                     F-5
 
           Consolidated Statements of Cash Flows for the Years
             Ended July 31, 1995, 1996, and 1997                           F-6
 
           Notes to Consolidated Financial Statements
             for the Years Ended July 31, 1995, 1996, and 1997             F-7
 
           Schedules for the Years Ended July 31, 1995, 1996, and 1997
 
             II - Valuation and Qualifying Accounts                       F-17
 

         Other schedules are omitted because of the absence of conditions under
         which they are required or because the required information is included
         in the consolidated financial statements or notes thereto.

      2. Exhibits:

         3.1      Certificate of Incorporation of Lowrance Electronics, Inc.,
                  previously filed as Exhibit 3.1 to the Company's Registration
                  Statement on Form S-1 (SEC File No. 33-9464), which is
                  incorporated herein by reference thereto.

         3.2      By-Laws of Lowrance Electronics, Inc., previously filed as
                  Exhibit 3.2 to the Company's Registration Statement on Form S-
                  1 (SEC File No. 33-9464), which is incorporated herein by
                  reference thereto.

         4.1      Shareholders' Agreement dated December 22, 1978, by and
                  between Darrell J. Lowrance, James L. Knight, and Ben V.
                  Schneider previously filed as Exhibit 4.3 to the Company's
                  Registration Statement on Form S-1 (SEC File No. 33-9464),
                  which is incorporated by reference thereto.

                                       24
<PAGE>
 
         4.2      First Amendment to Shareholders' Agreement dated October 7,
                  1986 by and between Darrell J. Lowrance, James L. Knight, and
                  Ben V. Schneider previously filed as Exhibit 4.4 to the
                  Company's Registration Statement on Form S-1 (SEC File No. 33-
                  9464), which is incorporated by reference thereto.

         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 previously filed as Exhibit 4.5 to the
                  Company's Registration Statement on Form S-1 (SEC File No. 33-
                  9464), which is incorporated herein by reference thereto.

         10.1     1986 Incentive Stock Option Plan of the Company previously
                  filed as Exhibit 10.1 to the Company's Registration Statement
                  on Form S-1 (SEC File No. 33-9464), which is incorporated
                  herein by reference thereto.

         10.2     Lowrance Retirement Plan and Trust previously filed as Exhibit
                  10.2 to the Company's Registration Statement on Form S-1 (SEC
                  File No. 33-9464), which is incorporated herein by reference
                  thereto.

         10.3     Form of Distributor Agreements previously filed as Exhibit
                  10.4 to the Company's Registration Statement on Form S-1 (SEC
                  File No. 33-9464), which is incorporated herein by reference
                  thereto.

         10.4     Form of Service Center Agreement previously filed as Exhibit
                  10.5 to the Company's Registration Statement on Form S-1 (SEC
                  File No. 33-9464), which is incorporated herein by reference
                  thereto.

         10.5     Credit Agreement dated April 27, 1989, by and between the
                  Company and Norwest Business Credit, Inc., previously filed as
                  Exhibit 10.8 to the Company's 1989 Annual Report on Form 10-K,
                  which is incorporated herein by reference thereto.

         10.6     Promissory note dated April 27, 1989, by the Company in favor
                  of Norwest Leasing, Inc., previously filed as Exhibit 10.7 to
                  the Company's 1989 Annual Report on Form 10-K, which is
                  incorporated herein by reference thereto.

         10.7     1989 Stock Option Plan of the Company previously filed as
                  Appendix A to the Company's Proxy Statement for its Annual
                  Meeting of Stockholders held on December 12, 1989, which is
                  incorporated herein by reference thereto.

         10.8     First, Second, and Third Amendments to Credit Agreement dated
                  April 27, 1989, by and between the Company and Norwest
                  Business Credit, Inc., previously filed as Exhibit 10.8 to the
                  Company's 1990 Annual Report on Form 10-K, which is
                  incorporated herein by reference thereto.

                                       25
<PAGE>
 
         10.9     Fourth and Fifth Amendments to Credit Agreement dated April
                  27, 1989, by and between the Company and Norwest Business
                  Credit, Inc., previously filed as Exhibit 10.9 to the
                  Company's 1992 Annual Report on Form 10-K, which is
                  incorporated herein by reference thereto.

         10.10    Sixth Amendment to Credit Agreement dated March 17, 1993, by
                  and between the Company and Norwest Business Credit, Inc.,
                  which is incorporated herein by reference thereto.

         10.11    Seventh Amendment to Credit Agreement dated October 21, 1993,
                  by and between the Company and Norwest Business Credit, Inc.,
                  previously filed as Exhibit 10.11 to the Company's 1993 Annual
                  Report on Form 10-K, which is incorporated herein by reference
                  thereto.

         10.12    Eighth Amendment to Credit Agreement dated September 29, 1993,
                  by and between the Company and Norwest Business Credit, Inc.,
                  previously filed as Exhibit 10.12 to the Company's 1993 Annual
                  Report on Form 10-K, which is incorporated herein by reference
                  thereto.

         10.13    Loan and Security Agreement dated December 15, 1993, by the
                  Company in favor of Barclays Business Credit, Inc., which is
                  incorporated herein by reference thereto.

         10.14    Amended and Restated Secured Promissory Note dated October 16,
                  1995, by and between the Company and Shawmut Capital
                  Corporation (formally Barclays Business Credit, Inc.), which
                  is incorporated herein by reference thereto.

         10.15    Amended and Restated Revolving Credit Notes dated October 16,
                  1995, by and between the Company and Shawmut Capital
                  Corporation (formally Barclays Business Credit, Inc.), which
                  is incorporated herein by reference thereto.

         10.16    First Amendment to Loan and Security Agreement dated October
                  16, 1995, by and between the Company and Shawmut Capital
                  Corporation (formally Barclays Business Credit, Inc.), which
                  is incorporated herein by reference thereto.

         10.17    Amended and Restated Stock Pledge Agreement dated October 16,
                  1995, by and between the Company and Shawmut Capital
                  Corporation (formally Barclays Business Credit, Inc.), which
                  is incorporated herein by reference thereto.

         10.18    Unconditional Guaranty dated October 16, 1995, by and between
                  Sea Electronics, Inc. and Shawmut Capital Corporation, which
                  is incorporated herein by reference thereto.

                                       26
<PAGE>
 
         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
                  (formally Barclays Business Credit, Inc.) previously filed as
                  Exhibit 10.19 to the Company's 1996 Annual Report on Form 10-
                  K, which is incorporated herein by reference thereto.

         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, previously filed as Exhibit 10.20
                  to the Company's 1996 Annual Report on Form 10-K, which is
                  incorporated herein by reference thereto.

         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, previously filed
                  as Exhibit 10.21 to the Company's 1996 Annual Report on Form
                  10-K, which is incorporated herein by reference thereto.

         10.22    Second Amendment to Loan and Security Agreement dated November
                  1, 1996, by and between the Company and Fleet Capital
                  Corporation (formally Shawmut Capital Corporation), filed
                  herewith.

         10.23    Third Amendment to Loan and Security Agreement dated December
                  31, 1996, by and between the Company and Fleet Capital
                  Corporation (formally Shawmut Capital Corporation), filed
                  herewith.

         10.24    Fourth Amendment to Loan and Security Agreement dated August
                  14, 1997, by and between the Company and Fleet Capital
                  Corporation (formally Shawmut Capital Corporation), filed
                  herewith.

         10.25    Fifth Amendment to Loan and Security Agreement dated August
                  25, 1997, by and between the Company and Fleet Capital
                  Corporation (formally Shawmut Capital Corporation), filed
                  herewith.

         22.1     Subsidiaries of the Company previously filed as Exhibit 22.1
                  to the Company's 1993 Annual Report on Form 10-K, which is
                  incorporated herein by reference thereto.

         22.12    Subsidiaries of the Company previously filed as Exhibit 22.12
                  to the Company's 1995 Annual Report on Form 10-K, which is
                  incorporated herein by reference thereto.

  (b) Reports on Form 8-K:
      ------------------- 

      No reports on Form 8-K were filed for the three months ended July 31,
      1997.

                                       27
<PAGE>
 
                                   SIGNATURES

    Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                LOWRANCE ELECTRONICS, INC.


DATE:    October 28, 1997         BY:/s/ Darrell J. Lowrance
       -------------------------     -------------------------------------      
                                     Darrell J. Lowrance,
                                     President and
                                     Chief Executive Officer


    Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated and on the dates indicated:

/s/ Darrell J. Lowrance
---------------------------
Darrell J. Lowrance         President, Chief Executive        October 28, 1997
                            Officer, and Director
                            (Principal Executive Officer)


/s/ Mark C. Wilmoth
---------------------------
Mark C. Wilmoth             Vice President of Finance and     October 28, 1997
                            Chief Financial Officer
                            (Principal Financial Officer and
                            Principal Accounting Officer)


/s/ Alpo F. Crane
---------------------------
Alpo F. Crane               Director                          October 28, 1997



/s/ Willard P. Britton
---------------------------
Willard P. Britton          Director                          October 28, 1997



/s/ Peter F. Foley, III
---------------------------
Peter F. Foley, III         Director                          October 28, 1997



/s/ Ronald G. Weber
---------------------------
Ronald G. Weber             Executive Vice President of       October 28, 1997
                            Technology and Engineering
                            and Director


/s/ Robert F. Biolchini
---------------------------
Robert F. Biolchini         Secretary and Director            October 28, 1997

                                       28
<PAGE>
 
                  INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 
                                                                  Page
----------------------------------------------------------------------
 
Report of Independent Public Accountants                           F-2
 
Consolidated Balance Sheets - July 31, 1996 and 1997               F-3
 
Consolidated Statements of Income (Loss) for the Years
  Ended July 31, 1995, 1996, and 1997                              F-4
 
Consolidated Statements of Stockholders' Equity for the
  Years Ended July 31, 1995, 1996, and 1997                        F-5
 
Consolidated Statements of Cash Flows for the Years Ended
  July 31, 1995, 1996, and 1997                                    F-6
 
Notes to Consolidated Financial Statements for the Years Ended
  July 31, 1995, 1996, and 1997                                    F-7
 

                             Supplemental Schedule
                             ---------------------


Schedule II - Valuation and Qualifying Accounts
 for the Years Ended July 31, 1995, 1996, and 1997                F-17

                                      F-1
<PAGE>
 
                   REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS


To the Shareholders and Board of Directors of Lowrance Electronics, Inc.:

We have audited the accompanying consolidated balance sheets of LOWRANCE
ELECTRONICS, INC., (a Delaware corporation) and subsidiaries as of July 31, 1997
and 1996, and the related consolidated statements of income (loss),
stockholders' equity, and cash flows for each of the three years in the period
ended July 31, 1997.  These financial statements and the schedule referred to
below are the responsibility of the Company's management.  Our responsibility is
to express an opinion on these financial statements and schedule based on our
audits.

We conducted our audits in accordance with generally accepted auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Lowrance Electronics, Inc., and
subsidiaries as of July 31, 1997 and 1996, and the results of their operations
and their cash flows for each of the three years in the period ended July 31,
1997, in conformity with generally accepted accounting principles.

Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole.  The supplemental schedule listed in the
index to financial statements is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not a required part of the
basic financial statements.  This information has been subjected to the auditing
procedures applied in our audits of the basic financial statements and, in our
opinion, is fairly stated in all material respects in relation to the basic
financial statements taken as a whole.



                                    ARTHUR ANDERSEN LLP



Tulsa, Oklahoma
October 10, 1997

                                      F-2
<PAGE>
 
                          LOWRANCE ELECTRONICS, INC.
                          --------------------------
                          CONSOLIDATED BALANCE SHEETS
                          ---------------------------
                                    ASSETS
                                    ------
<TABLE>
<CAPTION>
                                                              JULY 31,
                                                          ------------------
                                                            1996      1997
                                                          --------  --------
                                                            (in thousands)
<S>                                                       <C>      <C>
CURRENT ASSETS:
 Cash and cash equivalent                                 $   621   $   866
 Trade accounts receivable, net of reserves
  of $539,000 in 1996 and $907,000 in 1997                 12,821    16,346
 Inventories (Note 2)                                      20,773    27,880
 Prepaid income taxes                                       1,304     1,587
 Prepaid expenses                                             631       400
 Income tax refund receivable                                   -       957
                                                          -------   -------
   Total current assets                                    36,150    48,036
 
PROPERTY, PLANT, AND EQUIPMENT, net (Note 2)               10,043    11,209
 
OTHER ASSETS                                                  915     1,106

DEFERRED INCOME TAXES                                           -     1,015
                                                          -------   -------
 
                                                          $47,108   $61,366
                                                          =======   =======
</TABLE>
                     LIABILITIES AND STOCKHOLDERS' EQUITY
                     ------------------------------------
<TABLE>
<CAPTION>
 
CURRENT LIABILITIES:
<S>                                                       <C>       <C>
 Current maturities of long-term debt                     $ 5,019   $ 4,149
 Accounts payable                                           8,158    21,496
 Accrued liabilities:
   Compensation and benefits                                2,482     2,664
   Product costs                                            1,113     1,076
   Other                                                      869       853
                                                          -------   -------
     Total current liabilities                             17,641    30,238
                                                          -------   -------
 
DEFERRED INCOME TAXES                                         566         -
                                                          -------   -------
 
LONG-TERM DEBT, less current maturities
  (Note 3)                                                 13,705    21,176
                                                          -------   -------
 
Series "A" Redeemable Preferred Stock, $.50 par
   value, 70,000 shares authorized and issued (Note 5)          -         -
 
STOCKHOLDERS' EQUITY, per accompanying
 statements (Note 5):
 Preferred stock, no par value, 230,000 shares
 authorized, none issued                                        -         -
 Common stock, $.10 par value, 10,000,000
   shares authorized, 3,352,458 shares issued                 335       335
 Paid-in capital                                            5,600     5,600
 Retained earnings                                          9,404     4,214
 Foreign currency translation adjustment                     (143)     (197)
                                                          -------   -------
     Total stockholders' equity                            15,196     9,952
                                                          -------   -------
                                                          $47,108   $61,366
                                                          =======   =======
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.

                                      F-3
<PAGE>
 
                          LOWRANCE ELECTRONICS, INC.
                          --------------------------
                   CONSOLIDATED STATEMENTS OF INCOME (LOSS)
                   ----------------------------------------
<TABLE>
<CAPTION>
  
                                              FOR THE YEARS ENDED JULY 31,
                                              -----------------------------
                                                1995      1996      1997
                                              --------  --------  ---------
<S>                                           <C>       <C>       <C>
                                        (in thousands, except per share amounts)
NET SALES                                      $91,116   $94,579  $104,659
COST OF SALES                                   60,047    62,591    77,778
                                               -------   -------  --------
 
 Gross profit                                   31,069    31,988    26,881
                                               -------   -------  --------
 
OPERATING EXPENSES:
 Selling and administrative                     22,095    23,285    26,894
 Research and development                        2,868     3,439     3,936
 Unusual item (Note 12)                          1,100         -         -
                                               -------   -------  --------
 
 Total operating expenses                       26,063    26,724    30,830
                                               -------   -------  --------
 
 Operating income (loss)                         5,006     5,264    (3,949)
                                               -------   -------  --------
 
OTHER EXPENSES:
 Interest                                        1,581     1,881     2,398
 Other                                           1,364     1,184     1,530
                                               -------   -------  --------
 
 Total other expenses                            2,945     3,065     3,928
                                               -------   -------  --------
 
INCOME (LOSS) BEFORE INCOME TAXES                2,061     2,199    (7,877)
 
PROVISION (BENEFIT) FOR INCOME
 TAXES (Note 7)                                    639       456    (2,687)
                                               -------   -------  -------- 


NET INCOME (LOSS)                             $  1,422  $  1,743  $ (5,190)
                                               =======   =======  ======== 


NET INCOME (LOSS) PER COMMON SHARE (Note 5)   $    .42  $    .52  $  (1.55)
                                               =======   =======   ======= 


WEIGHTED AVERAGE COMMON
 SHARES OUTSTANDING (Note 5)                     3,352     3,352     3,352
                                               =======   =======   =======

</TABLE> 

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

                                      F-4
<PAGE>
 
                          LOWRANCE ELECTRONICS, INC.
                          --------------------------
                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                -----------------------------------------------
               FOR THE YEARS ENDED JULY 31, 1995, 1996, AND 1997
               -------------------------------------------------
                                   (NOTE 5)
                                   --------
<TABLE>
<CAPTION>
 
 
                                                                  
                                                                  Foreign
                             Common Stock                         Currency 
                            --------------  Paid-In  Retained   Translation
                            Shares  Amount  Capital  Earnings    Adjustment
                            ------  ------  -------  ---------  ------------
                                             (in thousands)
<S>                         <C>     <C>     <C>      <C>        <C>
 
Balance -
  July 31, 1994              3,352    $335   $5,600   $ 6,239         $(183)
Net income                       -       -        -     1,422             -
Foreign currency
  translation adjustment         -       -        -         -            39
                            ------  ------  -------   -------         -----
 
Balance -
  July 31, 1995              3,352     335    5,600     7,661          (144)
Net income                       -       -        -     1,743             -
Foreign currency
  translation adjustment         -       -        -         -             1
                            ------  ------  -------   -------         -----
 
Balance -
  July 31, 1996              3,352     335    5,600     9,404          (143)
Net loss                         -       -        -    (5,190)            -
Foreign currency
  translation adjustment         -       -        -         -           (54)
                            ------  ------  -------   -------         -----
 
Balance -
  July 31, 1997              3,352    $335   $5,600   $ 4,214         $(197)
                            ======  ======  =======   =======         =====
 
</TABLE>



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

                                      F-5
<PAGE>
 
                          LOWRANCE ELECTRONICS, INC.
                          --------------------------
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                     -------------------------------------
                                   (Note 8)
<TABLE>
<CAPTION>
 
                                                       FOR THE YEARS ENDED JULY 31,
                                                     --------------------------------
                                                        1995        1996      1997
                                                     ---------   ---------  ---------
                                                              (in thousands)                 
<S>                                                   <C>        <C>        <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income (loss)                                   $  1,422   $  1,743   $ (5,190)
  Adjustments to reconcile net income (loss)
   to net cash provided by (used in) operating
    activities:
   Depreciation                                          2,480      2,561      2,632
   (Gain)loss on sale of fixed assets                       (8)        55         (7)
   Foreign currency translation adjustment                  39          1        (54)
  Change in operating assets and liabilities:
   Increase in trade accounts
    receivable                                          (1,507)    (2,156)    (3,525)
   Increase in inventories                              (5,098)    (2,797)    (7,107)
   Decrease (increase) in
    income tax refund receivable                         1,066          -       (957)
   (Increase)decrease in prepaid expenses,
    prepaid income taxes and deferred income taxes         350        (55)    (1,633)
   Increase in other assets                               (301)      (467)      (191)
   Increase in accounts payable                          1,824        664     13,338
   Increase (decrease) in accrued liabilities              581       (855)       129
                                                      --------   --------   --------
 
   Net cash provided by (used in)
    operating activities                                   848     (1,306)    (2,565)
                                                      --------   --------   --------
 
CASH FLOWS FROM INVESTING ACTIVITIES:
 Capital expenditures                                   (1,346)    (1,942)    (2,722)
 Proceeds from sale of property, plant
   and equipment                                             8          2          -
                                                      --------   --------   --------
 
  Net cash used in investing activities                 (1,338)    (1,940)    (2,722)
                                                      --------   --------   --------
 
CASH FLOWS FROM FINANCING ACTIVITIES:
 Borrowings under lines of credit                       91,257     96,406    104,213
 Repayments of borrowings under lines of
   credit                                              (89,477)   (92,574)   (97,117)
 Borrowings under term loan                                  -      1,507        500
 Principal payments on term loans and
   capital lease obligations                            (1,623)    (2,115)    (2,064)
                                                      --------   --------   --------
 
  Net cash provided by
     financing activities                                  157      3,224      5,532
                                                      --------   --------   --------
 
  Net increase(decrease)in cash and
     cash equivalent                                      (333)       (22)       245
CASH AND CASH EQUIVALENT - beginning of year               976        643        621
                                                      --------   --------   --------
 
CASH AND CASH EQUIVALENT - end of year                $    643   $    621   $    866
                                                      ========   ========   ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.

                                      F-6
<PAGE>
 
                          LOWRANCE ELECTRONICS, INC.
                          --------------------------
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  ------------------------------------------
              FOR THE YEARS ENDED JULY 31, 1995, 1996, and  1997
              --------------------------------------------------


(1) BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

    Business -
    --------  

    Lowrance Electronics, Inc., and subsidiaries (the Company) design,
    manufacture, and market sonars (also known as depth-sounders and fish-
    finders) and other marine electronic products and accessories for use in
    recreational and commercial boating.  The Company's sonars are principally
    used by sports fishermen for detecting the presence of fish and by sports
    fishermen and boaters as navigational and safety devices for determining
    bottom depth in lakes, rivers, and coastal waters.  The Company's Loran-C
    and Global Positioning System (GPS) navigational modules are used in
    conjunction with certain of its sonar units or with stand-alone displays to
    provide navigational information.

    Principles of Consolidation -
    ---------------------------  

    The consolidated financial statements include the accounts of the Company
    and its wholly-owned subsidiaries.  All material intercompany transactions
    and accounts have been eliminated in consolidation.

    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 building
    is being depreciated using an estimated useful life of thirty years, while
    the estimated lives for other assets range from two to fifteen years.  Fully
    depreciated property and equipment with a cost of approximately $17 million
    is still in use as of July 31, 1997.

    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.

    Research and Development Costs -
    ------------------------------  
    Costs associated with the development of new products and changes to
    existing products are charged to expense as incurred and include an
    allocation of indirect costs.

                                      F-7
<PAGE>
 
    Foreign Currency Translations -
    -----------------------------  

    Foreign currency transactions and financial statements are translated in
    accordance with Statement of Financial Accounting Standards ("SFAS") No. 52.
    Assets and liabilities are translated to U.S. dollars at the current
    exchange rate.  Income and expense accounts are translated using the
    weighted average exchange rate for the period.  Adjustments arising from
    translation of foreign financial statements are reflected in the cumulative
    translation adjustment in the equity section of the consolidated balance
    sheet.  Transaction gains and losses are included in net income (loss).

    Derivatives -
    -----------  

    The Company uses forward sales contracts to hedge against losses due to
    changes in foreign currencies.  Gains and losses realized from the contracts
    are recognized currently as other income or expense.  Gains and losses
    resulting from the contracts have not had a material impact on the Company's
    results of operations.  There are no open forward sales contracts at July
    31, 1997.

    Use of Estimates in the Preparation of Financial Statements -
    -----------------------------------------------------------  

    The preparation of financial statements in conformity with generally
    accepted accounting principles requires management to make estimates and
    assumptions that affect the reported amounts of assets and liabilities and
    disclosure of contingent assets and liabilities at the date of the financial
    statements and the reported amounts of revenues and expenses during the
    reporting period.  Actual results could differ from those estimates.

    Accrued Product Costs -
    ---------------------  

    Product Warranties - The majority of the Company's sales are made under a
    one-year product warranty.  A provision is made at the time of sale for the
    estimated future warranty costs.

    Dealer Premium Coupons - The Company offers a sonar installation subsidy to
    qualified boat and motor dealers of its Lowrance product line.  At the time
    of shipment, the Company provides for the estimated cost of this program.

    Returns and Refurbishments - Estimated costs related to refurbishment of
    returned goods are accounted for by providing a reserve based on the
    Company's historical experience.  These reserves are analyzed and adjusted
    quarterly.  Returns are recorded as a reduction of net sales at the time of
    receipt of the goods.

    Cash and Cash Equivalent -
    ------------------------  
    For purposes of the Consolidated Statements of Cash Flows, the Company
    considers only certificates of deposit with a maturity of three months or
    less to be cash equivalents.

                                      F-8
<PAGE>
 
(2) BALANCE SHEET DETAIL
 
    Inventories -
    -----------
    Inventories are priced at the lower of cost (first-in, first-out) or market
    and consist of the following:

<TABLE>
<CAPTION>
                                                      1996      1997
                                                    -------   -------
                                                      (in thousands)
<S>                                                 <C>       <C>
      Raw materials                                 $ 5,985   $ 9,928
      Work-in-process                                 4,998     9,327
      Finished goods                                 10,466     9,851
      Excess, obsolete, and realization reserves       (676)   (1,226)
                                                    -------   -------
 
       Total inventories                            $20,773   $27,880
                                                    =======   =======
 
 
    Property, Plant, and Equipment -                 1996       1997
    ------------------------------                  -------   -------
                                                      (in thousands)
      Land                                          $   557   $   557
      Building and improvements                       3,766     4,470
      Machinery and equipment                        20,880    23,607
      Office furniture and fixtures                   4,824     5,152
                                                    -------   -------
                                                     30,027    33,786
      Less - accumulated depreciation                19,984    22,577
                                                    -------   -------
       Net property, plant, and equipment           $10,043   $11,209
                                                    =======   =======
 
</TABLE>
    The property, plant, and equipment accounts include the following amounts
    for leased property under capitalized leases:
<TABLE>
<CAPTION>
                                                      1996     1997
                                                    -------   -------
                                                      (in thousands)
<S>                                                  <C>      <C>
      Machinery and equipment                       $ 7,371   $ 5,856
      Office furniture and fixtures                   1,661     1,086
                                                    -------   -------
                                                      9,032     6,942
      Less - accumulated depreciation                 4,745     2,785
                                                    -------   -------
       Net property, plant, and equipment
         under capitalized leases                   $ 4,287   $ 4,157
                                                    =======   =======
</TABLE>

                                      F-9
<PAGE>
 
(3) LONG-TERM DEBT AND REVOLVING CREDIT LINE

    Long-term debt and the revolving credit line are summarized below:
<TABLE>
<CAPTION>
                                               1996     1997
                                              -------  -------
                                               (in thousands)
<S>                                           <C>      <C>
 
      Revolving credit line                   $11,524  $18,621
      Term loan                                 2,766    2,487
      Capitalized equipment lease
       obligations, payable in monthly
       installments of approximately
       $127,000, including interest at
       rates from 7% to 11%, with final
       payments ranging from November 1997
       through November 2001                    4,434    4,217
                                              -------  -------
                                               18,724   25,325
      Less - current maturities                 5,019    4,149
                                              -------  -------
 
       Total long-term debt                   $13,705  $21,176
                                              =======  =======
 
</TABLE>

    Future maturities of the above debt obligations at July 31, 1997, are
    approximately $4,149,000, $3,471,000, $738,000, $16,779,000, and $188,000
    for the years ending July 31, 1998 through 2002, respectively.  Future
    maturities are computed using December 2000 maturity date for the revolver.

    The Company has a $30 million financing package which consists of a $3.5
    million term loan together with a $26.5 million revolving credit line.  The
    financing package expires in December 1998.  The term loan is payable in
    monthly installments of $23,167 plus interest at 1.5% over prime (currently
    8.5%).  Principal payments for the term loan of $500,000 were paid on May
    31, 1996, and on May 31, 1997.  Additionally, $500,000 was refunded on the
    term loan in November 1996.  The revolving credit line provides for
    borrowings up to $26.5 million based on varying percentages of qualifying
    categories of receivables and inventories and carries an interest rate of
    prime plus .75%.  Borrowings against inventories are limited to $12 million
    in total.
 
    During August 1997, the Company's financing package was amended.
    Significant provisions of the amendment include:  1) the due date was
    extended to December 2000,  2) an additional term loan of $4,000,000 was
    funded with an $800,000 payment scheduled for May 1998 and payments of
    $66,666 beginning monthly in August 1998, and the interest rate is prime
    plus 1.5%, 3) up to an additional $3,000,000 in borrowings were made
    available under the revolving line of credit secured by certain inventories
    and receivables located outside the United States,  4) the interest rate on
    the revolving line of credit was increased to prime plus 1.5%, and  5) the
    total facility was increased from $30,000,000 to $33,011,000.

                                      F-10
<PAGE>
 
    Current maturities for the revolving credit line are estimated based on
    future results and collateral limitations.  The terms of the foregoing
    agreement include a commitment fee based on the unused portion of the bank
    credit line in lieu of compensating balances.

    The agreement requires, among other things, that the Company maintain a
    minimum tangible net worth, limits the ratio of total liabilities to
    tangible net worth and requires the Company to maintain a minimum fixed
    charge ratio.  Additionally, the agreement limits capital expenditures and
    capital leases.  Violation of any of these provisions would constitute an
    event of default which, if not cured, would empower the lender to declare
    all amounts immediately payable.

    The Company's indebtedness is collateralized by substantially all of the
    Company's assets.

    Average short-term borrowings under the revolving credit line and related
    interest rates shown in the following table are weighted by using the
    average month-end principal balances.
<TABLE>
<CAPTION>
 
                                              Years Ended July 31, 
                                       ---------------------------------
                                          1995        1996       1997
                                       ----------  ----------  ---------
                                                (in thousands)
<S>                                    <C>         <C>         <C>
     Highest amount borrowed             $14,422     $15,773    $24,095
     Average amount borrowed             $ 9,552     $11,850    $16,202
     Weighted average interest rate          9.8%        9.2%       9.1%
</TABLE>

    The carrying value of the Company's debt approximates fair value.

(4) LEASES

    Capital Leases -
    --------------  

    Certain equipment is leased under agreements that are structured as capital
    leases.  Accordingly, such equipment has been recorded as an asset, and the
    discounted value of the remaining lease obligations has been recorded as a
    liability in the accompanying Consolidated Balance Sheets (See Note 3).

    The following is a schedule by years of future minimum lease payments under
    capital leases, together with the present value of the net minimum lease
    payments as of July 31, 1997, (in thousands):
<TABLE>
<CAPTION>
<S>                                                                  <C> 
       Years ending July 31:
          1998                                                       $1,499
          1999                                                        1,525
          2000                                                          841
          2001                                                          898
          2002                                                          195
                                                                     ------
       Total minimum lease payments                                   4,958
       Less amounts representing interest                               741
                                                                     ------
 
       Present value of net minimum lease payments                   $4,217
                                                                     ======
 
       Current portion of obligations under
        capital leases                                               $1,172
 
       Long-term portion of obligations under
         capital leases                                              $3,045
</TABLE>

                                      F-11
<PAGE>
 
    Operating Leases -
    ----------------  

    During 1995, 1996 and 1997, the Company recorded $733,000, $1,119,000 and
    $1,765,000, respectively, of expense related to operating leases.

    At July 31, 1997, future minimum rental payments for operating leases
    totaled $7,183,000. On August 30, 1996, the Company entered into a ten year
    non-cancelable lease for a manufacturing facility in Ensenada, Mexico. The
    lease has a fair market purchase option after three years and accordingly
    was accounted for as an operating lease. Payments for this facility are
    approximately $46,500 per month and began November 1, 1996. Total future
    minimum rental payments under operating leases for the years ending July 31,
    1998 through July 31, 2002 (including the rental for the Mexican facility
    assuming the purchase option is not excercised) are aproximately $1,720,000,
    $1,069,000, $847,000, $614,000, and $562,000, respectively.

(5) STOCKHOLDERS' EQUITY AND RELATED ITEMS

    The Company's 1986 and 1989 Stock Option Plans provide for a maximum of
    400,000 common shares to be issued under these Plans.  Options and stock
    appreciation rights granted cannot have terms greater than ten years.  The
    Plans provide for non-qualified stock options to be granted at an option
    price of not less than 100% of the fair market value of the Company's Common
    Stock at the date of grant.

    Following is a summary of outstanding and exercisable options under the
    Plans as of July 31 for the respective years set forth below:

                                      1996    1997
                                     ------  ------ 
      Total outstanding              75,000  75,000
      Average option price            $2.93   $2.93

    No options were exercised in 1995,1996 or 1997.  In 1996, options on 17,500
    shares were terminated.

    On May 13, 1996, the Company issued 70,000 shares of Series "A" Redeemable
    Preferred Stock in a private placement to five key officers of the Company.
    The Series "A" Preferred Stock is a nonvoting stock paying a noncumulative
    dividend of 2 1/2 cents.  Each share of Series "A" Preferred Stock is
    convertible into five shares of the Company's Common Stock at a cash
    purchase price of $5.00 per share of Common Stock, but only if (i) the Chief
    Executive Officer of the Company sells in excess of 30 percent of his Common
    Stock of the Company or (ii) the Company sells substantially all of its
    assets and operations to a third party.  The Series "A" Preferred Stock has
    been issued for a term of ten years for a purchase price of $6.875 per
    share.  The Company financed the total purchase price of $481,250 for the
    five key officers of the Company pursuant to Promissory Notes bearing
    interest at Chase prime and Security Agreements where all of such Series "A"
    Preferred Stock is pledged to the Company to secure the Promissory Notes.
    In the event the Series "A" Preferred Stock is not converted within the ten
    year term, the holder is required to surrender the Series "A" Preferred
    Stock for cancellation by the Company in exchange for the Company forgiving
    the principal amount of the Promissory Note.  If any of the key officers
    terminate their employment with the Company for any reason, except death,
    they immediately forfeit ownership rights to the Series "A" Preferred Stock

                                      F-12
<PAGE>
 
    which is immediately surrendered to the Company for cancellation in exchange
    for cancellation of the principal amount owing on the Promissory Note,
    provided all accrued interest on the Promissory Note is paid to the date of
    the key employee's termination.  The Promissory Notes receivables have been
    netted against Preferred Stock in the Consolidated Balance Sheets.

    Earnings per share were computed using the weighted average number of common
    shares, including common share equivalents outstanding during each year.
    Stock options, including the Redeemable Preferred Stock, were not considered
    in the calculation of earnings per share since they are immaterial.
    Earnings per share assuming full dilution would be the same as primary
    earnings per share.

    The Company adopted the disclosure-only provisions of SFAS 123 "Accounting
    for Stock-Based Compensation."  Accordingly, no compensation cost has been
    recognized for the stock option plans.  Had compensation cost for the
    Company's stock option plans been determined consistent with the provisions
    of SFAS 123, the Company's net income (loss) and earnings (loss) per share
    would have been changed to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
 
                                         1997     1996
                                       --------  ------
<S>                                    <C>       <C>
         NET INCOME (LOSS):
             As reported               $(5,190)  $1,743
             Pro forma                  (5,427)   1,694
 
         EARNINGS (LOSS) PER SHARE:
             As reported               $ (1.55)  $  .52
             Pro forma                   (1.62)  $  .51
 
</TABLE>

    Because the SFAS 123 method of accounting has not been applied to options
    granted prior to August 1, 1995, the resulting pro forma compensation cost
    may not be representative of that to be expected in future years.

    The fair value of each option grant is estimated on the date of grant using
    the Modified Black-Scholes European option pricing model with the following
    weighted average assumption:  dividend yield of 0%, expected volatility of
    85.84%, risk-free interest rate of 6.41% and expected life of five years.

    At August 1, 1997, the Company will adopt the provisions of SFAS 128
    "Earnings per Share."  Management does not expect the adoption of this new
    pronouncement to have a material impact on the consolidated financial
    statements.

(6) RETIREMENT PLANS

    Substantially all Company employees participate in the Lowrance Savings
    Plans which require the Company to contribute 3% of the participants'
    qualified earnings to the Plans. Also, each participant may make
    contributions of qualified earnings into the Plans which will be matched by
    the Company at 100% for the first $10 per pay period and 50% thereafter, not
    to exceed 3% of compensation. Contributions made by the Company to the Plans
    for the years ended July 31, 1995, 1996, and 1997 were approximately
    $596,000, $586,000, and $678,000, respectively.

                                      F-13
<PAGE>
 
(7) INCOME TAXES

    The provision (benefit) for income taxes consists of the following:
<TABLE>
<CAPTION>
 
                                  Years Ended July 31,
                                  ---------------------
                                  1995   1996    1997
                                  -----  -----  -------
                                     (in thousands)
<S>                               <C>    <C>    <C>
       Current                    $ 505  $ 365  $  (823)
       Deferred                     134     91   (1,864)
                                  -----  -----  -------
 
         Total                    $ 639  $ 456  $(2,687)
                                  =====  =====  =======
</TABLE>

    The provision (benefit) for income taxes differs from the amount calculated
    by multiplying income (loss) before provision (benefit) for income taxes by
    the statutory Federal income tax rate due to the following:
<TABLE>
<CAPTION>
 
                                         Years Ended July 31,
                                         ---------------------
                                         1995   1996    1997
                                         -----  -----  -------
<S>                                      <C>    <C>    <C> 
       Statutory rate                    34.0%  34.0%   (34.0)%  
       State income taxes                 3.8   (3.8)    (3.8)
       Refunds of prior year taxes
         and related adjustments            -   (8.6)       -
       Research & development credits    (6.0)     -
       Other                              (.8)   (.9)     3.7
                                         ----   ----   ------
 
       Effective rate                    31.0%  20.7%   (34.1)%
                                         ====   ====   ======
 
</TABLE>

    The Company accounts for income taxes in accordance with Statement No. 109
    of the Financial Accounting Standards Board which requires an asset and
    liability approach to financial accounting and reporting for income taxes.
    The difference between the financial statement and tax bases of assets and
    liabilities is determined and deferred tax assets or liabilities are
    computed for those differences that have future tax consequences.  The
    Company determined that no valuation allowance is necessary as of July 31,
    1997.  The Company had a NOL carryforward of $5.6 million at July 31, 1997
    that expires July 31, 2012.

    The tax effect of temporary differences giving rise to the Company's
    consolidated deferred income taxes at July 31 are as follows:
<TABLE>
<CAPTION>
 
                                                    1996    1997
                                                   ------  ------
<S>                                                <C>     <C>
       Deferred tax assets -
         Reserves for product costs                $  441  $  412
         Reserves for compensation and benefits       389     620
         State tax credit carryforwards               281     314
         Accounts receivable reserves                 144     183
         Other accruals                                49      58
         NOL carryforward                               -   1,961
                                                   ------  ------
                                                   $1,304  $3,548
                                                   ======  ======
 
       Deferred tax liabilities -
         Depreciation                              $  566  $  946
                                                   ======  ======
</TABLE>

                                      F-14
<PAGE>
 
(8) CONSOLIDATED STATEMENTS OF CASH FLOWS

    During 1995, 1996, and 1997, the Company acquired approximately $1,081,000,
    $2,026,000, and $1,068,000, respectively, in equipment under capital lease
    obligations.  These transactions were accounted for as non-cash investing
    and financing activities, and therefore, are not included in the
    Consolidated Statements of Cash Flows.  Interest of approximately
    $1,581,000, $1,881,000, and $2,398,000 was paid during 1995, 1996, and 1997,
    respectively.  Income tax payments for 1995 and 1996 were $475,000, and
    $541,000, respectively.  No income tax payments were made in 1997 and an
    income tax refund receivable of $957,000 has been recorded.  An income tax
    refund of $1,066,000 was received in 1995.

(9) SALES BY GEOGRAPHIC REGION

    The Company markets its products internationally through foreign
    distributors, except in Canada and Australia where it has established its
    own distribution operation.  The following table presents a summary of
    domestic, export, and foreign sales:
<TABLE>
<CAPTION>
 
                            1995      1996      1997
                          --------  --------  --------
                                 (in thousands)
<S>                       <C>       <C>       <C>
       Net sales:
         Domestic          $69,846   $74,560  $ 79,217
         Export sales        8,779     9,598    12,010
         Foreign sales      12,491    10,421    13,432
                           -------   -------  --------
 
           Total           $91,116   $94,579  $104,659
                           =======   =======  ========
</TABLE>

    The majority of export and foreign sales are concentrated in Canada,
    Australia and Europe.

(10)  SALES TO A MAJOR CUSTOMER

    During 1995, 1996, and 1997, one customer accounted for approximately 14%,
    14% and 10%, respectively, of consolidated net sales in each year.  No other
    customer accounted for 10% or more of consolidated net sales in 1995, 1996,
    and 1997.

(11)  CONCENTRATIONS OF CREDIT RISK

    The Company extends credit to various companies in the marine and non-marine
    markets in the normal course of business.  Within these markets, certain
    concentrations of credit risk exist.  These concentrations of credit risk
    may be similarly affected by changes in economic or other conditions and
    may, accordingly, impact the Company's overall credit risk.  However,
    management believes that receivables are well diversified, thereby reducing
    the potential credit risk and that allowances for doubtful accounts are
    adequate to absorb estimated losses at July 31, 1997.

    At July 31, 1996 and 1997, trade receivables related to these group
    concentrations were:
<TABLE>
<CAPTION>
                      1996   1997
                      -----  -----
<S>                  <C>    <C>
 
       Marine          49%    42%
       Non-Marine      51%    58%
</TABLE>

                                      F-15
<PAGE>
 
(12)  UNUSUAL ITEM

      On January 10, 1995, the Company entered into a Settlement Agreement with
      Computrol, Inc., resolving a patent infringement lawsuit filed against the
      Company in November 1993. This legal proceeding was previously disclosed
      by the Company on its Form 10-Q in Item 1 of Part II filed with the
      Securities and Exchange Commission on March 15, 1994, June 15, 1994,
      December 15, 1994, March 17, 1995, June 14, 1995, and the Company's 8-K,
      in Item 5, filed on January 11, 1995, as well as in Item 3 of Part I of
      the Company's Form 10-K filed on October 29, 1994.

      The Settlement Agreement called for four payments beginning January 10,
      1995, and ending June 30, 1995, totaling $1,000,000 in exchange for a
      mutual release and settlement of the lawsuit. All required payments were
      made by the Company in fiscal 1995.

      The Company also entered into a License Agreement with Computrol, Inc.,
      and paid a one-time license fee of $100,000. The License Agreement allows
      the Company to use the Computrol patent on any new products or the
      existing product which was the subject of the lawsuit.

      At this time, the Company has no current products that utilize the
      technologies covered by this License Agreement and has no immediate plans
      to produce and market such products. Accordingly, the $100,000 license fee
      along with the $1 million settlement amount was expensed in full during
      fiscal 1995.

                                      F-16
<PAGE>
 
                          LOWRANCE ELECTRONICS, INC.
                          --------------------------
                SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
                -----------------------------------------------
               FOR THE YEARS ENDED JULY 31, 1995, 1996, and 1997
               -------------------------------------------------
                                (in thousands)
<TABLE> 
<CAPTION> 
 
   COLUMN A                                   COLUMN B        COLUMN C        COLUMN D        COLUMN E
--------------------------                   ----------      ----------   ----------------   ----------
 
                                                                          Net (write-offs)
                                              Balance at                     recoveries      Balance at
                                              beginning      Charged to    charged against      end of
      Classification                          of period        expense         reserve         period
--------------------------                   ----------      ----------   ----------------   ----------

Reserve for Doubtful                   
--------------------                   
 Accounts and Sales Returns            
 --------------------------            
<S>                                             <C>              <C>            <C>            <C> 
 Year Ended July 31, 1995                       $483             $ 58           $ (61)         $  480
 Year Ended July 31, 1996                       $480             $220           $(161)         $  539
 Year Ended July 31, 1997                       $539             $437           $ (69)         $  907
                                                                                   
                                                                                   
Excess, Obsolete, and                                                              
---------------------
 Realizability Reserves                                                             
 ----------------------
                                                                                    
 Year Ended July 31, 1995                       $448             $465           $(123)         $  790
 Year Ended July 31, 1996                       $790             $515           $(629)         $  676
 Year Ended July 31, 1997                       $676             $773           $(223)         $1,226
                                                                                   
</TABLE>

                                      F-17