<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, 1996
 
                                     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 22, 1996 - $5,585,142

                       Number of Shares of Common Stock
                  Outstanding on October 22, 1996 - 3,352,458

                      DOCUMENT INCORPORATED BY REFERENCE
         Proxy Statement for Annual Meeting of Stockholders to be held
                         December 10, 1996 - Part III
<PAGE>
 
                                 FORM 10-K

               Annual Report for Fiscal Year Ended July 31, 1996
 
                          LOWRANCE ELECTRONICS, INC.


<TABLE> 
<CAPTION> 
                             Table of Contents                     Page     
                             -----------------                     ----
 
                                  PART I
<S>         <C>                                                      <C> 
Item 1.     Business................................................  1

Item 2.     Properties.............................................. 11

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
</TABLE> 
<PAGE>
 
                          LOWRANCE ELECTRONICS, INC.
                                 Annual Report
                       For the Year Ended July 31, 1996


                                    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-five 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 began
     shipping in the first quarter of fiscal 1996 and 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 Global Map 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 $900.

      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.

                                       3
<PAGE>
 
  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
                                             ------------------------------
                                               1994        1995       1996 
                                             --------    -------    -------
  <S>                                        <C>         <C>        <C>
  Type of Sonar Displays -
   Liquid Crystal Graph (LCDs), including
     combination navigation units               69.1%      68.9%      62.8%
   Other sonars                                  5.1        4.6        4.0
  GPS, including stand-alone units                                  
   and modules                                  13.8       16.3       23.7
  Accessories                                   12.0       10.2        9.5
                                               -----      -----      -----
                                                                    
     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 99% of total sales. Sales of Eagle Products, as a percentage of total
  sales were approximately 63% in 1994, 58% in 1995 and 50% in 1996.

      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, 1996,
  the Company had approximately two thousand two hundred forty 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
  with the longest dating terms of 120 days being offered for shipments during
  the first quarter of the fiscal year.

                                       4
<PAGE>
 
      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 did not materially
  contribute to fiscal 1996 sales.

      The Company's products are sold in all fifty states and fifty-five
  countries internationally. The Company's international sales totaled
  $17,000,000 in fiscal 1994, $21,000,000 in fiscal 1995, and $20,000,000 in
  fiscal 1996, representing approximately , 21%, 23%, and 21% 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 1994, 1995, and 1996. The top ten customers,
  including Wal-Mart Stores, Inc., accounted for approximately 37%, 35%, and 34%
  in 1994, 1995 and 1996, 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 22, 1996, the Company's backlog of orders exceeded $10
  million, including orders for new products which represented 50% of the
  backlog. The backlog one year ago at this time was $10.7 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
  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
  
                                       5
<PAGE>
 
  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-eight
  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, and serious
  amateur fishermen trained and equipped by the Company to promote the Company's
  products at fishing tournaments, store promotions, club talks, seminars, and
  tackle and boat shows.

      The Company also advertises its products in newspapers, magazines, and on
  television.  In addition, the Company has a video department which produces
  and distributes video catalogs and buyer guides, specific instructional tapes,
  and sonar educational materials.  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.  Dealer and
  distributor support includes the availability of point-of-purchase displays,
  posters, videos, and product simulators to assist in displaying the Company's
  products.

                                       6
<PAGE>
 
  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 September 1996, the Company
  together with this competitor currently account for approximately 80% of sonar
  sales within this market segment in the United States.  In this 1996 study,
  the Company's total market share (Eagle and Lowrance brands combined) was
  found to be higher than that of Techsonic.  The Company believes that the
  study results reflect current market conditions.

      Competition in the sports fishing and 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 rapidly and is expected to surpass the
  size of the market for sonar products during 1997.  The Company believes that
  it has captured less than 10% of this market to date, although it has recently
  introduced two new GPS product designs which began shipping during the first
  quarter of fiscal 1997 at highly competitive low-end prices.  The Company's
  ability to capitalize on the rapid growth of recreational GPS products should
  be dramatically improved with these two new price-competitive products.  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 control in excess of 70% of the hand-
  held GPS market.  The primary reason for their success to date is that both
  companies have introduced and marketed products retailing for under $200.  It
  is the Company's belief that these low-cost products are being produced
  outside of the United States to take advantage of lower labor costs.  Both
  companies offer a range of higher priced products with more features including
  products specifically aimed at the avionics market.  One of these competitors
  recently introduced a combined GPS and sonar model, its first and to date only
  sonar product.  The Company does not believe that this model will have a
  significant impact on its own extensive lines of sonar products during fiscal
  1997.

                                       7
<PAGE>
 
      Currently, the Company offers three Eagle and four Lowrance hand-held
  products, which retail at prices between $199 and $899.  The Lowrance
  GlobalMap Sport began shipping in March 1996.  This hand-held product combines
  the features found in the GlobalNav Sport with mapping capabilities similar to
  the GlobalMap 2000 and retails for under $700.  The Eagle AccuMap Sport began
  shipping in June and retails for approximately $600.  There are currently no
  other products on the market with these features at or below these price
  points, although one major manufacturer has announced plans to sell a product
  it claims has similar capabilities.  The Company will begin shipping its new
  Eagle Explorer handheld GPS during the first quarter of fiscal 1997.  This
  product features a 12 parallel-channel receiver, high-resolution display,
  internal battery back-up of stored information and a unique rechargeable
  battery option for a retail price of approximately $199.

      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
  military's GPS would be the preferred method of navigation in 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
  for 1994 which retails for under $100, provided users with four times the
  resolution of its nearest competitive model.  Another new 1994 model, the
  Global Map 1000, represented the first fully waterproof mapping unit with a
  built-in mapping database and the capability of using highly-popular detailed

                                       8
<PAGE>
 
  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 chart 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 "3D" 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 handheld GPS mapping products.  In fiscal 1997, the
  Company is introducing six new sonar products with unprecedented display
  screen resolution, newly designed cases and keypads and improved operating
  systems at breakthrough retail price points.  Additionally, the Company will
  deliver four new GPS products, two handheld receivers and two gimbal-mount
  products, each utilizing new 12 parallel-channel receiver technology at price
  points below $250 and $350 respectively.

      Research and development expenditures of the Company were $2,574,000 in
  fiscal 1994, $2,868,000 in fiscal 1995, and $3,439,000 in fiscal 1996.  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 will expand its production
  operation in Mexico by consolidating its existing manufacturing operations in
  Ensenada, Mexico into a newly constructed 88,000 square foot leased facility
  in Ensenada which has been constructed to allow expansion to 108,000 square
  feet as the Company requires more operating space.  Currently, the Company
  will utilize 70,000 square feet for manufacturing including a 26,000 square
  foot clean room of the 88,000 square feet presently occupied by the Company.
  The Company will combine its existing Mexico production with expanded Sonar
  and GPS manufacturing operations in this new facility.  The Company will also
  continue to manufacture product in its existing facility in Tulsa, Oklahoma.
  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 and its expanded Mexico operation,

                                       9
<PAGE>
 
  are sufficient to allow increased production without substantial 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 by the Company's 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.

  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

                                       10
<PAGE>
 
  from the Company's plant in Tulsa, Oklahoma, and from ten "depo" centers
  throughout the United States and from dealers and distributors in forty-one
  foreign countries.

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

      Since 1970, the Company has obtained thirty-five 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 thirty-one 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, 1996, the Company employed 970 persons on a full-time basis
  of whom approximately 753 were involved in manufacturing and materials.  Of
  the 753 full time employees involved in manufacturing and materials, 530
  employees are located in the Company's headquarters in Tulsa, Oklahoma and 223
  are located in the Company's leased manufacturing facility in Ensenada,
  Mexico.  The remaining 217 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.  At July 31, 1996, approximately 237 of such workers
  were engaged by the Company which 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.


  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 52,000 square feet are used for manufacturing
  operations, 19,000 square feet for warehousing, and 45,000 square feet for
  office and laboratory space.

      The Company, through its Mexican subsidiary, leases a manufacturing
  facility in Ensenada, Mexico.  The facility has approximately 25,000 square
  feet, and the Company uses this facility to manufacture most of its high
  volume transducer and cable assemblies.  In fiscal 1997, the Company has
  expanded its Ensenada, Mexico operations by leasing a new 88,000 square foot

                                       11
<PAGE>
 
  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.  The existing facility will
  be eliminated during 1997 and the Company will combine the transducer and
  cable assembly operations with Sonar and GPS assembly operations.

      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 22, 1996, 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>
 
                                            1995                  1996
                                     -----------------      ----------------
                                      High       Low         High      Low
                                       $          $           $         $   
                                     -----------------      ----------------
<S>                                  <C>        <C>         <C>       <C>
          1st Quarter                 5 3/4      3 1/4       6 1/2     4 1/2
          2nd Quarter                 6 1/4      3 3/4       5 1/2     3 3/4
          3rd Quarter                 7          5 1/4       6 1/2     4 3/4
          4th Quarter                 7 1/4      5           7 1/4     4 3/4
</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,
                               -------------------------------------------------
 
                                  1992      1993      1994       1995      1996
                                -------   -------   -------    -------   -------

                                    (in thousands, except per share amounts)
<S>                            <C>       <C>       <C>        <C>       <C> 
  Operating Data:
   Net sales                   $ 68,373  $ 79,634  $ 81,250   $ 91,116  $ 94,579
   Gross profit                $ 24,965  $ 28,182  $ 25,330   $ 31,069  $ 31,988
   Income (loss) before                                                   
     income taxes and                                                     
     extraordinary credit      $  2,697  $  4,423  $ (1,663)  $  2,061  $  2,199
   Extraordinary credit        $    863  $    -    $    -     $     -   $      -
   Net income (loss)           $  2,501  $  3,000  $   (672)  $  1,422  $  1,743
                                                     
  Per Share Data:                                    
   Weighted average number                           
     of shares outstanding        3,416     3,403     3,350      3,352     3,352
                                                     
   Income (loss) before                              
     extraordinary credit      $    .48  $    .88  $   (.20)       .42       .52
   Extraordinary credit             .25         -         -          -         -
                               --------  --------  --------   --------  --------
                                                     
   Net income (loss)           $    .73  $    .88  $   (.20)  $    .42  $    .52
                                                                          
  Balance Sheet Data:                                                     
   Working capital             $  8,122  $ 11,090  $ 12,872   $ 14,777  $ 18,509
   Total assets                $ 24,391  $ 28,376  $ 35,028   $ 40,228  $ 47,108
   Long term debt, less                                                   
     current maturities        $  3,452  $  5,269  $  9,379   $  9,975  $ 13,705
   Stockholders' equity        $ 10,036  $ 12,630  $ 11,991   $ 13,452  $ 15,196
</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,      
                                      --------------------------------
                                         1994        1995       1996 
                                      ----------  ----------  --------
                                           (percent of net sales)
<S>                                   <C>         <C>         <C>
      Net sales                           100.0%      100.0%    100.0%
      Cost of sales                        68.8        65.9      66.2
                                          -----       -----     -----
 
          Gross profit                     31.2        34.1      33.8
 
      Operating expenses:
        Selling and administrative         27.0        24.2      24.6
        Research and development            3.2         3.2       3.6
        Unusual Item                          -         1.2         -
                                          -----       -----     -----
 
          Operating income                  1.0         5.5       5.6
 
      Interest expense                     (1.5)       (1.7)     (2.0)
      Other, net                           (1.5)       (1.5)     (1.3)
                                          -----       -----     -----
 
      Income (loss) before income
        taxes                              (2.0)        2.3       2.3
      Provision (benefit) for
        income taxes                       (1.2)         .7        .5
                                          -----       -----     -----
 
      Net income (loss)                     (.8)        1.6       1.8
                                          =====       =====     =====
 
</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>
             1994                                         
             ----                                         
  First Quarter (Aug.-Oct.)     $ 12,176    15.0%    $ (1,076)   (159.1)%
  Second Quarter (Nov.-Jan.)      18,583    22.9          (88)    (13.1)
  Third Quarter (Feb.-Apr.)       31,614    38.9          966     143.8
  Fourth Quarter (May-July)       18,877    23.2         (474)    (71.6)
                                 -------   -----      -------    ------
                                                       
      Total for Year            $ 81,250   100.0%    $   (672)   (100.0)%
                                 =======   =====      =======     =====
                                                       
             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%
                                 =======   =====      =======     =====
 
</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:  This, even though international sales for 1996 decreased from
  1995 by $1.3 million (6%) caused primarily by weak market conditions in
  Canada.  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
  recreational boating and sport fishing resulting from significant increases in
  oil prices, or new product introductions by competitors.

                                       16
<PAGE>
 
      Sales of sonar products including combination sonar/GPS units were up $6.7
  million (11%) from fiscal 1994 to 1995 and decreased approximately $3.8
  million (6%) from fiscal 1995 to 1996.  Sales of GPS products increased
  approximately $3.6 million (32%) from fiscal 1994 to 1995 and increased
  approximately $6.9 million (51%) from fiscal 1995 to 1996.  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 affect on sales and
  net income for the fourth quarter of 1996.

      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.  Working capital at July 31, 1996, increased significantly
  from previous years.  The reasons for which are discussed below under
  "Liquidity and Capital Resources."

      The Company uses a Material Requirements Planning 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
  Material Requirements Planning also results in a reduction of the Company's
  safety stock and a shorter manufacturing cycle.

      The following discussion and analysis relate to factors that have affected
  the financial condition and operating results of the Company for fiscal years
  1994 through 1996.  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 1996 increased 3.8% over fiscal 1995.  Unit sales,
  which include sonar units, combination sonar/navigation units, and stand-alone
  navigation units, 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.

      Net sales for fiscal 1995 increased 12% over fiscal 1994.  Unit sales,
  which include sonar units, combination sonar/navigation units, and stand-alone
  navigation units, increased 6% and the average price per unit increased 6%.

      When comparing fiscal 1995 to 1994, unit sales increased primarily due to:
  1) an increase in sales of substantially all of the Company's Lowrance sonar
  and sonar/navigation combination units which are sold primarily through boat
  and motor dealers, 2) higher sales of units to OEM's and 3) increased sales of
  the Company's GPS products.  Increased sales of Lowrance models and increased
  sales to OEM's can be attributed to continued strong demand for new boats in
  the United States.  The increased sales of Lowrance products were offset by a
  decrease in certain of the Company's Eagle products.  The decline in Eagle
  units results from competitive factors and an unusually cool and wet spring
  and early summer in a large number of the Company's markets.  As discussed
  above, the Company feels that Eagle product sales are more susceptible to the
  effects of adverse weather during the peak selling season.

      The 1995 average selling price increased 6% when compared to 1994 due
  primarily to the increased sales of Lowrance products, which generally carry
  higher prices and the corresponding decrease in Eagle sales which generally
  carry lower prices.  Also, increased sales of GPS products contributed to the
  increase in the average selling price between years.

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

     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.

     The gross profit margin increased to 34.1% in fiscal 1995 from 31.2% in
  1994 due primarily to: 1) the shift in mix of units sold to the Lowrance units
  which generally carry higher prices and corresponding higher margins and, 2)
  the Company's 1995 product offering, which began shipping in volume in the
  second quarter of 1995, generally carried higher overall margins than the 1994
  product offering.  This margin differential was enhanced by volume increases
  and increased manufacturing efficiencies.

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

      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.

      Operating expenses, as a percentage of net sales decreased from 30.2% in
  fiscal 1994 to 28.6% in 1995.  Total costs increased $1,523,000.  The major
  factors contributing to this increase were 1) the $1,100,000 unusual item
  related to the settlement Agreement and License Agreement with Computrol,  2)
  other variable selling expenses, such as freight-out and products returns
  cost, were up approximately $800,000 due to increased volumes, and 3) research
  and development expenditures were up $294,000 due to the Company's continuing
  efforts to develop new products.  Expense reductions in sales and marketing
  partially offset the effects of the above increases.

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

      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.  The increased borrowings under the revolving credit line
  resulted from higher working capital needs to support increased sales levels
  and to build inventory to support the move of certain manufacturing operations
  to the Company's Mexican manufacturing facility.

      Interest expense in fiscal 1995 increased by $317,000 from 1994 due to an
  increase in the Company's effective interest rate as the prime rate, to which
  most of the Company's borrowings are tied, was increased several times.

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

      The effective tax rate for fiscal 1994, 1995 and 1996 was (59.6)%, 31%,
  and 20.7% respectively.  For Fiscal 1996, the effective tax rate is less than
  the statutory federal tax rate of 34% due primarily to increases in state
  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.  The effective rate

                                       19
<PAGE>
 
  for fiscal 1994 was positively impacted due to the realization of tax benefits
  from the research and development credit, the recognition of foreign tax loss
  carryforwards, and state income tax credits.

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

      Net income (loss), as a percentage of net sales, was 1.8% in fiscal 1996,
  1.6% in fiscal 1995, and (.8%) in fiscal 1994.  The higher percentages in 1996
  and 1995 were primarily the result of increased sales, higher gross margin
  percentages during both of those years combined with increased operating
  expenses as a percentage of net sales in fiscal 1994.  The margin declines in
  1994 were the result of price reductions and certain of the operating expense
  increases in 1994 were made in response to competitive market conditions.

  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 $12,000,000.  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 with the historical increase in sales, 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 is 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,
  which is the period that the Company will use for the transition of its
  production operations to Mexico.

      Management expects these sources discussed above to satisfy the Company's
  financing needs for the short and long-term.  At July 31, 1996, there were
  approximately $1.9 million of additional 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
  1996.  As is consistent with prior years, management expects to be at maximum
  borrowing limits through the first two quarters of fiscal 1996.  

                                       20
<PAGE>
 
  Because the line of credit will be at its maximum levels during this period,
  the Company must delay payments to vendors during these months. Management
  does not expect any significant long-term effect from these delayed payments
  as most vendors have supplied the Company for years and the overall financial
  performance of the Company was improved in 1996 compared to the previous year.

      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.  Cash
  flows provided by financing activities for fiscal 1994 were used to finance
  capital additions (not financed by leases) of $2 million and to provide funds
  consumed in operating activities of $1.2 million.

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

      The Company's working capital ratio was 1.9 at July 31, 1995 and 2.1 at
  July 31, 1996.

      Inventory levels at July 31, 1996 are up $2.8 million or 16% from July 31,
  1995.  The increase in inventory levels can be attributed to the buildup
  associated with the start-up of the expanded Mexican manufacturing facility.

      The Company does not expect substantial realization problems with this
  inventory.


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

      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 1/2% over prime with maximum borrowings of up
  to $26,500,000 on the revolving line of credit.  In addition to the financing
  described above, the Company has arranged a $2.5 million lease line to finance
  its qualifying capital additions during fiscal 1997.  Also, in October, 1996,
  the Company's primary lender agreed to increase funding under the term loan by
  $500,000 to be repaid on May 31, 1998.

                                       21
<PAGE>
 
  Capital Expenditures
  --------------------

      Capital expenditures were $4,221,000, $2,461,000, and $3,968,000 for the
  years ended July 31, 1994, 1995, and 1996, respectively.  Of the fiscal 1996
  total, approximately $2.9 million is related to tooling, molds, dies, and
  equipment to design and manufacture the Company's products.  The Company
  currently plans for capital expenditures of approximately $4 million in fiscal
  1997 with approximately $1.6 million for leasehold improvements associated
  with the Mexican manufacturing facility, and approximately $2 million for
  tooling, molds, dies, and production equipment.

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

      A significant portion of the Company's cost and expenses consist of
  materials, supplies, salaries, and wages that are impacted 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 continued profitability in fiscal 1997, primarily
  as the result of continuing strong economic and market conditions and market
  acceptance of the Company's 1997 product offering which includes nine new
  models.  Management currently anticipates positive cash flows from operations
  in fiscal 1997 based on attaining current projections for net income and
  inventory levels.  These current projections are heavily dependent on the
  success of the new products, particularly GPS products, and continued success
  of the GlobalMap Sport and AirMap, which began shipping during the fourth
  quarter of 1996 and contributed positively to 1996 results.  For 1997, the
  Company has three new GPS units which are projected to contribute
  significantly to the Company's net sales and net income projections.  The
  Company also has six new sonar products for 1997.  Overall, the Company is
  expecting new products to generate in excess of 35% of the 1997 net sales
  projections.  If the Company experiences production delays with its new
  products 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
  1996 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
  1996 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
  1996 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
  1996 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, 1995 and 1996            F-3
 
             Consolidated Statements of Income (Loss) for the Years
               Ended July 31, 1994, 1995, and 1996                           F-4
 
             Consolidated Statements of Stockholders' Equity for the
               Years Ended July 31, 1994, 1995, and 1996                     F-5
 
             Consolidated Statements of Cash Flows for the Years
               Ended July 31, 1994, 1995, and 1996                           F-6
 
             Notes to Consolidated Financial Statements
               for the Years Ended July 31, 1994, 1995, and 1996             F-7
 
             Schedules for the Years Ended July 31, 1994, 1995, and 1996

               II - Valuation and Qualifying Accounts                       F-15
 

           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.

                                       24
<PAGE>
 
           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.

           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.

                                       25
<PAGE>
 
           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.

           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.

                                       26
<PAGE>
 
           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.

           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 1995 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, filed herewith.

           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,
                    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:
        ------------------- 

        May 13, 1996:  Item 5 "Other Events - Legal Proceedings" related to
        issuance of Series "A" Redeemable Preferred Stock.

                                       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, 1996         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, 1996
                               Officer, and Director
                               (Principal Executive Officer)


  /s/ Mark C. Wilmoth
  ---------------------------
  Mark C. Wilmoth              Vice President of Finance and    October 28, 1996
                               Chief Financial Officer
                               (Principal Financial Officer and
                               Principal Accounting Officer)


  /s/ Alpo F. Crane
  ---------------------------
  Alpo F. Crane                Director                         October 28, 1996



  /s/ Willard P. Britton
  ---------------------------
  Willard P. Britton           Director                         October 28, 1996



  /s/ Peter F. Foley, III
  ---------------------------
  Peter F. Foley, III          Director                         October 28, 1996



  /s/ Ronald G. Weber
  ---------------------------
  Ronald G. Weber              Executive Vice President of      October 28, 1996
                               Engineering and Director


  /s/ Robert F. Biolchini
  ---------------------------
  Robert F. Biolchini          Secretary and Director           October 28, 1996

                                       28
<PAGE>
 
                  INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
 
 
                                                                    Page
------------------------------------------------------------------------
<S>                                                                 <C>
 
  Report of Independent Public Accountants                           F-2
 
  Consolidated Balance Sheets - July 31, 1995 and 1996               F-3
 
  Consolidated Statements of Income (Loss) for the Years
    Ended July 31, 1994, 1995, and 1996                              F-4
 
  Consolidated Statements of Stockholders' Equity for the
    Years Ended July 31, 1994, 1995, and 1996                        F-5
 
  Consolidated Statements of Cash Flows for the Years Ended
    July 31, 1994, 1995, and 1996                                    F-6
 
  Notes to Consolidated Financial Statements for the Years Ended
    July 31, 1994, 1995, and 1996                                    F-7
 
</TABLE>



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


  Schedule II - Valuation and Qualifying Accounts
   for the Years Ended July 31, 1994, 1995, and 1996                 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,
  1995 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, 1996.  These consolidated 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 consolidated 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, 1995 and 1996, and the results of their
  operations and their cash flows for each of the three years in the period
  ended July 31, 1996, 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 3, 1996

                                      F-2
<PAGE>
 
<TABLE>
<CAPTION>
                           LOWRANCE ELECTRONICS, INC.
                           --------------------------            
                          CONSOLIDATED BALANCE SHEETS
                          ---------------------------            
 
                                    ASSETS
                                    ------
                                                                 JULY 31,
                                                           -------------------
                                                            1995         1996
                                                            ----         ----
                                                              (in thousands)
<S>                                                         <C>      <C>     
CURRENT ASSETS:                             
 Cash and cash equivalent                                   $   643  $   621
 Trade accounts receivable, net of reserves 
  of $480,000 in 1995 and $539,000 in 1996                   10,665   12,821
 Inventories (Note 2)                                        17,976   20,773
 Prepaid income taxes                                         1,326    1,304
 Prepaid expenses                                               479      631
                                                            -------  -------
   Total current assets                                      31,089   36,150
                                            
PROPERTY, PLANT, AND EQUIPMENT, net (Note 2)                  8,691   10,043
                                            
OTHER ASSETS                                                    448      915
                                                            -------  -------
                                                            $40,228  $47,108
                                                            =======  ======= 
</TABLE>
                       LIABILITIES AND STOCKHOLDERS' EQUITY
                       ------------------------------------
<TABLE>
<CAPTION>
 
CURRENT LIABILITIES:
<S>                                                         <C>      <C>
  Current maturities of long-term debt                      $ 3,499  $ 5,019
  Accounts payable                                            7,494    8,158
  Accrued liabilities:                                               
   Compensation and benefits                                  2,418    2,482
   Product costs                                              1,656    1,113
   Other                                                      1,245      869
                                                            -------  -------
    Total current liabilities                                16,312   17,641
                                                            -------  -------
                                                                     
DEFERRED INCOME TAXES                                           489      566
                                                            -------  -------
                                                                     
LONG-TERM DEBT, less current maturities                              
 (Note 3)                                                     9,975   13,705
                                                            -------  -------
 
SERIES "A" REDEEMABLE PREFERRED STOCK, $.50 par
value, 70,000 share authorized and issued in 1996                -        -
                                                                     
STOCKHOLDERS' EQUITY, per accompanying                               
  statements (Note 5):                                               
  Preferred stock, no par value, 300,000 shares                      
  authorized, none issued in 1995 and 230,000                        
  authorized, none issued in 1996                                -        -
  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                                           7,661    9,404
  Foreign currency translation adjustment                      (144)    (143)
                                                            -------  -------
    Total stockholders' equity                               13,452   15,196
                                                            -------  -------
                                                            $40,228  $47,108
                                                            =======  =======
</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,
                                             -----------------------------
                                               1994       1995      1996
                                             ---------  --------  --------
<S>                                          <C>        <C>       <C>
                                        (in thousands, except per share amounts)
NET SALES                                      $81,250    $91,116   $94,579
COST OF SALES                                   55,920     60,047    62,591
                                               -------    -------   -------
 
 Gross profit                                   25,330     31,069    31,988
                                               -------    -------   -------
 
OPERATING EXPENSES:
 Selling and administrative                     21,966     22,095    23,285
 Research and development                        2,574      2,868     3,439
 Unusual Item (Note 12)                             -       1,100        -
                                               -------    -------   -------
 
  Total operating expenses                      24,540     26,063    26,724
                                               -------    -------   -------
 
 Operating income                                  790      5,006     5,264
                                               -------    -------   -------
 
OTHER EXPENSES:
 Interest                                        1,264      1,581     1,881
 Other                                           1,189      1,364     1,184
                                                -------    -------   -------
 
  Total other expenses                           2,453      2,945     3,065
                                                -------    -------   -------
 
INCOME (LOSS) BEFORE INCOME TAXES               (1,663)     2,061     2,199
                                                -------    -------   -------
 
PROVISION (BENEFIT) FOR INCOME
 TAXES (Note 7)                                   (991)       639       456
                                                --------    -------   -------


NET INCOME (LOSS)                              $  (672)   $ 1,422  $  1,743
                                               =======    =======   =======


NET INCOME (LOSS) PER COMMON SHARE (Note 5)    $  (.20)   $   .42  $    .52
                                                =======    =======  =======


WEIGHTED AVERAGE COMMON
 SHARES OUTSTANDING (Note 5)                     3,350      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, 1994, 1995, AND 1996
               -------------------------------------------------
                                   (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, 1993               3,347  $  335  $  5,589  $  6,911       $  (205)
  Net loss                        -       -         -       (672)           -
  Exercised options                5      -         11        -             -
  Foreign currency
    translation adjustment        -       -         -         -             22
                                -----    ----    ------    ------         -----
 
  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)
                               ======   =====    ======    ======         =====
 
</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,  
                                                  ------------------------------
                                                    1994       1995       1996
                                                  --------   --------   --------
                                                         (in thousands)
<S>                                               <C>        <C>        <C>    
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income (loss)                               $   (672)  $  1,422   $  1,743
  Adjustments to reconcile net income (loss)
   to net cash provided by (used in) operating
   activities:
   Depreciation                                      2,212      2,480      2,561
   (Gain)loss on sale of fixed assets                   (1)        (8)        55
  Change in operating assets and liabilities:
   Increase in trade accounts
    receivable                                        (861)    (1,507)    (2,156)
   Increase in inventories                          (1,808)    (5,098)    (2,797)
   Decrease (increase) in
    income tax refunds receivable                   (1,066)     1,066         -
   (Increase)decrease in prepaid expenses
     and prepaid income taxes                         (559)       254       (130)
   Decrease (increase) in other assets                  80       (301)      (467)
   Increase in accounts payable                      2,254      1,824        664
   Increase (decrease) in accrued liabilities         (397)       581       (855)
   Increase (decrease) in other liabilities           (365)       135         76
                                                  --------   --------   --------
 
   Net cash provided by (used in)
    operating activities                            (1,183)       848     (1,306)
                                                  --------   --------   --------
 
CASH FLOWS FROM INVESTING ACTIVITIES:
 Capital expenditures                               (2,018)    (1,346)    (1,942)
 Proceeds from sale of property, plant
    and equipment                                        1          8          2
                                                  --------   --------   --------
   Net cash used in investing activities            (2,017)    (1,338)    (1,940)
                                                  --------   --------   --------
 
CASH FLOWS FROM FINANCING ACTIVITIES:
 Borrowings under lines of credit                   81,918     91,257     96,406
 Repayments of borrowings under lines of
   credit                                          (78,188)   (89,477)   (92,574)
 Borrowings under term loan                          3,500         -       1,507
 Principal payments on term loans and
   capital lease obligations                        (3,600)    (1,623)    (2,115)
 Additional common stock issued                         11         -          -
                                                  --------   --------   --------
 
   Net cash provided by
     financing activities                            3,641        157      3,224
                                                  --------   --------   --------
 
   Net increase(decrease)in cash and
     cash equivalent                                   441       (333)       (22)
CASH AND CASH EQUIVALENT - beginning of year           535        976        643
                                                  --------   --------   --------
 
CASH AND CASH EQUIVALENT - end of year            $    976   $    643   $    621
                                                  ========   ========   ========
</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, 1994, 1995, and 1996
               -------------------------------------------------

(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 $10 million is still in use.

      When properties are 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 or 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.

      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>
                                                        1995      1996
                                                      --------  --------
                                                        (in thousands)
<S>                                                   <C>       <C>
        Raw materials                                 $ 7,670   $ 5,985
        Work-in-process                                 4,764     4,998
        Finished goods                                  6,332    10,466
        Excess, obsolete, and realization reserves       (790)     (676)
                                                      -------   -------
 
          Total inventories                           $17,976   $20,773
                                                      =======   =======
 
 
      Property, Plant, and Equipment -                  1995      1996
      ------------------------------                  -------   -------
                                                        (in thousands)
        Land                                          $   557   $   557
        Building and improvements                       3,420     3,766
        Machinery and equipment                        17,546    20,880
        Office furniture and fixtures                   4,592     4,824
                                                      -------   -------
                                                       26,115    30,027
        Less - accumulated depreciation                17,424    19,984
                                                      -------   -------
         Net property, plant, and equipment           $ 8,691   $10,043
                                                      =======   =======
 
      The property, plant, and equipment accounts include the following amounts
      for leased property under capitalized leases:
                                                        1995     1996
                                                      -------   -------
                                                        (in thousands)
        Machinery and equipment                        $5,383    $7,371
        Office furniture and fixtures                   1,629     1,661
                                                       ------    ------
                                                        7,012     9,032
        Less - accumulated depreciation                 3,750     4,745
                                                       ------    ------
         Net property, plant, and equipment
           under capitalized leases                    $3,262    $4,287
                                                       ======    ======
</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>
 
                                                 1995     1996
                                                -------  -------
                                                 (in thousands)
<S>                                             <C>      <C>
 
        Revolving credit line                   $ 7,693  $11,524
        Term loan, payable in monthly
          installments of $23,167 with
          interest at prime plus 1.5%, with
          the final payment due December 1998     2,037    2,766
        Capitalized equipment lease
          obligations, payable in monthly
          installments of approximately
          $160,000, including interest at
          rates from 7% to 13%, with final
          payments ranging from April 1997
          through July 2001                       3,744    4,434
                                                 ------   ------
                                                 13,474   18,724
        Less - current maturities                 3,499    5,019
                                                 ------   ------
 
          Total long-term debt                  $ 9,975  $13,705
                                                 ======   ======
 
</TABLE>

      Future maturities of the above debt obligations at July 31, 1996, are
      $5,019,000, $1,867,000, $10,660,000, $427,000, and $751,000 for the years
      ending July 31, 1997 through 2001, respectively.

      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 8.25%).  A principal payment for the term loan of $500,000 was
      paid on May 31, 1996, and another principal payment of $500,000 is payable
      on May 31, 1997.  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 October 1995, the Company's financing package was amended.
      Significant provisions of the amendment included: 1) The due date was
      extended to December 1998 from December 1996;  2)The interest rate for the
      revolver was reduced from prime plus 1.00% to prime plus .75% and to prime
      plus .50% effective August 1, 1996, and  3) The term loan was funded to
      its original $3.5 million amount with monthly principal payments of
      $23,167 plus interest at prime plus 1.5%.

      During October 1996, $500,000 was refunded on the term loan to be repaid
      on May 31, 1998.

                                      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 and limits the ratio of total liabilities to
      tangible net worth.  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,     
                                         --------------------------------
                                            1994        1995       1996  
                                         ----------  ----------  --------
                                                  (in thousands)
<S>                                      <C>         <C>         <C>
       Highest amount borrowed             $14,824     $14,422    15,773
       Average amount borrowed             $ 9,796       9,552    11,850
       Weighted average interest rate          8.3%        9.8%      9.2%
</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, 1996, (in thousands):

<TABLE>
<CAPTION>
 
     Years ending July 31:
<S>                                                     <C>
            1997                                                       $1,532
            1998                                                        1,217
            1999                                                        1,243
            2000                                                          596
            2001                                                          794
                                                                       ------
         Total minimum lease payments                                   5,382
         Less amounts representing interest                               948
                                                                       ------
 
         Present value of net minimum lease payments                   $4,434
                                                                       ======
 
         Current portion of obligations under
          capital leases                                               $1,216
 
         Long-term portion of obligations under
          capital leases                                               $3,218
</TABLE>

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

      During 1994, 1995 and 1996 the Company recorded $754,300, $732,971 and
      $1,119,082, respectively, of expense related to operating leases.

      At July 31, 1996, future minimum rental payments for operating leases
      totaled $7,825,000.  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 will be accounted for as an operating lease.  Payments for
      this facility will be approximately $46,500 per month and will begin
      November 1, 1996 total future minimum rental payments under operating
      leases for the years ending July 31, 1997 through July 31, 2001 (including
      the rental for the Mexican facility assuming the purchase option is not
      made) are $1,498,000, $1,353,000, 790,000, $691,000, and $564,000,
      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:

<TABLE>
<CAPTION>
 
                                              1994      1995     1996 
                                             -------  -------  -------
<S>                                          <C>      <C>      <C>    
        Total outstanding                     92,500   92,500   75,000
        Average option price                 $  2.92  $  2.92  $  2.93 
</TABLE>

      No options were exercised in 1995 or 1996.  In 1994, options on 5,000
      shares were exercised and options on 32,500 shares expired.  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.

  (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, 1994, 1995, and 1996
      were $547,000, $596,000, and $586,000, respectively.

  (7) INCOME TAXES

      The provision (benefit) for income taxes consists of the following:

<TABLE>
<CAPTION>
 
                                                Years Ended July 31,     
                                            ---------------------------- 
                                               1994      1995     1996   
                                               ----      ----     ----   
                                                   (in thousands)        
<S>                                         <C>          <C>       <C>   
        Current                                $(1,066)   $ 505   $ 365  
        Deferred                                    75      134      91  
                                               -------    -----   -----  
                                                                         
          Total                                $  (991)   $ 639   $ 456  
                                               =======    =====   =====   
 
</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:

                                      F-13
<PAGE>
 
<TABLE>
<CAPTION>
 
                                             Years Ended July 31,  
                                          --------------------------
                                            1994      1995    1996
                                          -------    ------  -------
<S>                                       <C>        <C>     <C>
        Statutory rate                       (34.0)%  34.0%    34.0%
        State income taxes                   (10.1)    3.8     (3.8)
        Refunds of prior year taxes
          and related adjustments                -       -     (8.6)
        Research & development credits        (7.2)   (6.0)       -
        Realized loss of
          foreign subsidiary                  (9.7)      -        -
        Other                                  1.4     (.8)     (.9)
                                            ------    ----    -----
 
        Effective rate                      (59.6)%   31.0%    20.7%
                                            ======    ====    =====
 
</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,
      1996.

      The tax effect of temporary differences giving rise to the Company's
      consolidated deferred income taxes at July 31 are as follows:

<TABLE>
<CAPTION>
 
                                                      1995    1996
                                                     ------  ------
         <S>                                         <C>     <C>
         Deferred tax assets -
           Reserves for product costs                $  560  $  441
           Reserves for compensation and benefits       410     389
           State tax credit carryforwards               198     281
           Accounts receivable reserves                 112     144
           Other accruals                                46      49
                                                     ------  ------
                                                     $1,326  $1,304
                                                     ======  ======
 
         Deferred tax liabilities -
           Depreciation                              $  489  $  566
                                                     ======  ======
</TABLE>

  (8) CONSOLIDATED STATEMENTS OF CASH FLOWS

      During 1994, 1995, and 1996, the Company acquired approximately
      $2,191,000, $1,081,000, and $2,026,000, 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
      $1,264,000, $1,581,000, and $1,881,000 was paid during 1994, 1995, and
      1996, respectively.  Income tax payments for 1994, 1995, and 1996 were
      $378,000, $475,000, and $541,000, respectively.  An income tax refund of
      $1,066,000 was received in 1995.

                                      F-14
<PAGE>
 
  (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>
 
                              1994      1995      1996
                            --------  --------  --------
                                   (in thousands)
<S>                         <C>       <C>       <C>
         Net sales:
           Domestic          $63,789   $69,846   $74,560
           Export sales        6,329     8,779     9,598
           Foreign sales      11,132    12,491    10,421
                             -------   -------   -------
 
    Total                    $81,250   $91,116   $94,579
                             =======   =======   =======
</TABLE>

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


(10)  SALES TO A MAJOR CUSTOMER

      During 1994, 1995, and 1996, one customer accounted for approximately 14%
      of consolidated net sales in each year.  No other customer accounted for
      10% or more of consolidated net sales in 1994, 1995, and 1996.

(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,
      1996.

      At July 31, 1995 and 1996, trade receivables related to these group
      concentrations were:

<TABLE>
<CAPTION>
 
                       1995   1996
                       -----  -----
<S>                    <C>    <C>
 
         Marine          55%    49%
         Non-Marine      45%    51%
</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 has been expensed in full
      during fiscal 1995.

                                      F-16
<PAGE>
 
                          LOWRANCE ELECTRONICS, INC.
                          --------------------------          
                SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
                -----------------------------------------------           
               FOR THE YEARS ENDED JULY 31, 1994, 1995, and 1996
               -------------------------------------------------
                                (in thousands)
<TABLE> 
<CAPTION> 

       COLUMN A              COLUMN B          COLUMN C                COLUMN D              COLUMN E 
---------------------------  ------------    -------------       --------------------       ---------
<S>                          <C>             <C>                 <C>                        <C>      

                                                                   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
  ---------------------------
  
  Year Ended July 31, 1994       $733            $(103)              $(147)                   $483
  Year Ended July 31, 1995       $483            $  58               $ (61)                   $480
  Year Ended July 31, 1996       $480            $ 220               $(161)                   $539
 
Excess, Obsolete, and
---------------------      
  Realizability Reserves
  ----------------------    
 
  Year Ended July 31, 1994       $399            $ 375               $(326)                   $448    
  Year Ended July 31, 1995       $448            $ 465               $(123)                   $790
  Year Ended July 31, 1996       $790            $ 515               $(629)                   $676
 
</TABLE>

                                      F-17