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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)


þ		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]

For the fiscal year ended July 31, 2005


o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

For the transition period from __________ to __________

Commission File Number: 0-15240

LOWRANCE ELECTRONICS, INC.

(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 þ No o

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. o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).

Yes þ No o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o No þ

Aggregate Market Value of the Voting Stock Held By
Non-Affiliates on September 6, 2005 — $88,614,211

Aggregate Market Value of the Voting Stock Held By

Non-Affiliates on January 31, 2005 — $115,815,934

Number of Shares of Common Stock
Outstanding on September 6, 2005 — 5,135,516

DOCUMENTS INCORPORATED BY REFERENCE
Proxy Statement for Annual Meeting of Stockholders to be held December 13, 2005 — Part III

Forward — Looking Statements

This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements relate to future events or our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to differ materially from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Given these risks and uncertainties, you should not place undue reliance on the forward-looking statements. You can identify forward-looking statements by terminology such as “may,” “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “continues” or the negative of these terms or other comparable terminology.

The forward-looking statements reflect our current expectations and view about future events and speak only as of the date the statements were made. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Important factors that could cause actual results to differ materially from our forward-looking statements are set forth in this Annual Report on Form 10-K. All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements set forth in this Annual Report on Form 10-K. Except as required by law, we do not undertake any obligation to update any forward-looking statements for any reason after the date of this Annual Report on Form 10-K or to conform these statements to actual results or to changes in our expectations.

LOWRANCE ELECTRONICS, INC.
Annual Report
For the Year Ended July 31, 2005

PART I

Item 1. Business

Business

Overview

We are a leader in the design, manufacturing and marketing of a comprehensive line of high quality, cost-effective, sound navigation and ranging (SONAR) and global positioning system (GPS) products. We market and sell our products domestically and in 65 countries throughout the world, focusing on three primary product markets: marine, consumer (which includes outdoor recreational use and vehicular navigation systems) and aviation.

Approximately 73% of our total annual revenue is currently derived from sales of SONAR and SONAR/GPS combination products to the marine market, used as fishfinders and as navigational and safety devices by inland, coastal and offshore fisherman as well as by recreational boaters. We also sell handheld and portable GPS products used in avionic and vehicular navigational applications and by outdoor enthusiasts for camping, hunting, hiking and other recreational uses, as well as accessories associated with all of our products. Revenue growth for our fiscal years ended July 31, 2003, 2004 and 2005 was 11.1%, 26.7% and 30.8%, respectively.

We are a leader in the marine electronics market, specifically in SONAR and SONAR/GPS combination products. Our position in the market is primarily attributable to our reputation for producing high quality products, new technology development and speed to market with product innovations. We believe that these attributes will enable us to gain market share in the fast growing handheld and portable GPS product markets. Many of the design engineering and manufacturing processes in our SONAR and SONAR/GPS production are currently being used to produce our handheld and portable GPS products. This allows us to expand faster into the GPS markets.

Our President and CEO, Darrell J. Lowrance, co-founded Lowrance in 1957. Our initial product offering was the fish LO-K-TOR, the first electronic fishfinder capable of displaying individual game fish, as well as schools of baitfish, bottom structure and water depth. Today, we market a comprehensive line of SONAR, SONAR/GPS combination and GPS products worldwide under two brand names, Lowrance and Eagle. We market our products to dealers, distributors, mass merchants and original equipment manufacturers who in turn sell our products in the consumer marketplace. We have established a global distribution network encompassing more than 1,470 wholesale and retail customers domestically and in 65 countries throughout the world.

We are headquartered in a 116,000 square foot facility in Tulsa, Oklahoma, where we maintain design engineering, sales, marketing, testing, product distribution, customer service operations and administration. Additionally, we own a 108,000 square foot manufacturing and design engineering facility in Ensenada, Mexico, where we manufacture all of our products. We also operate two distribution centers in Canada and Australia, our two largest markets outside of the United States.

Industry background

SONAR

The components of a typical SONAR system are: (1) a SONAR head unit with a liquid crystal display (LCD), (2) a transducer (which transmits and receives sound waves through the water), and (3) a power source. The SONAR first generates an electrical impulse, which is converted into ultrasonic sound waves in the transducer and transmitted down through the water. The ultrasonic waves rebound when they strike objects, creating echoes. The transducer converts these echoes back into electrical impulses and the receiver processes the impulses into graphic images displayed on the LCD for use by the boater. This sounding process repeats itself many times per second, each time at a slightly different location within a body of water (assuming the boat is moving), instantly and accurately painting detailed pictures of the underwater world by combining the results of numerous soundings.

Global Positioning Systems (GPS)

GPS utilizes a network of a minimum of 24 satellites that transmit orbital and time information that enable GPS receivers to accurately calculate latitude, longitude and altitude worldwide. The United States Department of Defense, which currently maintains the system, originally designed the system only for defense applications. However, in the 1980s, the United States government made the system available for civilian use. The GPS satellites broadcast several limited access codes and one unrestricted code for free-of-charge civilian use. In May of 2000, the United States government eliminated Selective Availability (SA), which while in place degraded the accuracy of GPS for security reasons. This elimination of SA improved consumer GPS positional accuracy greatly from a radius the size of a football field (100 yards worst performance on average) to a much smaller radius about the size of a tennis court (30 feet worst performance on average). The initialization of the United States Federal Aviation Administration’s new satellite signal correction system, the Wide Area Augmentation System (WAAS), has improved consumer GPS positional accuracy to a radius of approximately ten feet (best performance on average).

The markets for satellite-based GPS+WAAS navigational and mapping products are projected to grow rapidly over the next five years according to Frost & Sullivan. Fishermen, boaters, pilots and general outdoor recreational users in the WAAS coverage areas can now enjoy excellent positional accuracy while participating in their favorite outdoor activities.

According to a 2004 report by Frost & Sullivan, the North American GPS navigation market, which is comprised of automotive (aftermarket and OEM), outdoor and marine GPS markets, is projected to grow from an estimated $1.0 billion in 2003 to $2.8 billion in 2010, representing a compound annual growth rate (CAGR) of 16.2%.

Marine SONAR and SONAR/GPS Combination. A critical component to our continued growth is aftermarket marine electronics upgrades by existing fishing and recreational boaters. Similar to computer users upgrading memory, processing speed and screen sizes, fishermen and recreational boaters often upgrade the electronic systems on their boats in order to keep up with the most advanced technology. Sales of our SONAR and SONAR/GPS combination products grew by 16.4% in fiscal 2003, 26.8% in fiscal 2004 and 18.8% in fiscal 2005.

Marine GPS. Inland, coastal and offshore sport fishermen as well as boaters and commercial vessels have multiple uses for GPS receivers that range from worldwide navigation to locating and returning to a favorite fishing or mooring spot. According to Frost & Sullivan, the GPS Marine Market is expected to grow from $231 million in 2003 to $432 million in 2010, representing a CAGR of 9.3%.

General consumer GPS. Handheld, portable and fixed-mount GPS products with detailed street map displays, points-of-interest databases and “turn-by-turn” guidance currently offer navigational assistance to drivers around the world. Additionally, hikers, hunters, campers and bikers use GPS receivers recreationally to navigate through rural and wilderness terrain. GPS systems allow users to pinpoint their positions, map their routes and save specific locations to memory in order to return to those locations at a later time. According to Frost & Sullivan, the automotive navigation and outdoor recreation GPS markets are expected to grow from approximately $732 million in 2003 to approximately $2.3 billion in 2010, representing a CAGR of 17.9%.

Aviation GPS. In the aviation sector, the technological advancement of portable GPS has resulted in significant cost savings due to direct routings to destinations and increases in safety and air traffic control system efficiency. Many general aviation users are installing GPS airborne receivers for use in en route, terminal area and non-precision approach operations. Likewise, many aviation authorities have realized that GPS offers a navigation service that is equal to, and in some respects better than, the existing ground-based systems and are taking the necessary steps to allow for more advanced use of GPS within their respective airspace. We believe these factors will reduce aviation VFR (visual flight rules) users’ reliance on the existing air traffic control system.

Our key growth strategies

Our key growth strategies are based on our ability to continually develop technological innovations for products in our core markets and to expand our product lines into other applicable end-user markets. Additionally, we must efficiently utilize our existing manufacturing facility and take advantage of our inherent operating leverage. We are focused on research and development of new technologies that will enhance the performance and quality of our products. Over the past 48 years we have maintained our position as a leader in the markets we serve by seeking to be first-to-market with new product enhancements. We intend to expand our position by implementing the following strategies:

• Continue to introduce new and enhanced products in our core markets

We believe our future success depends upon our ability to be first-to-market with technological advances and consistently deliver new products that provide value-added enhancements to our core markets. Historically, one of our main priorities has been to bring new products and technologies quickly to market. This is evidenced by our increase in new product introductions in recent years from ten in fiscal 2001, twelve in fiscal 2002, 28 in fiscal 2003, over 30 in fiscal 2004 and over 50 in fiscal 2005.

We intend to continue this focus on research and development, and the introduction of new products in all of our core markets. As noted below, in fiscal 2005 we won major awards for several of our new products in each of our marine/sport fishing, general consumer and aviation core markets.

Marine
In fiscal 2005, we introduced a series of multi-function gauges and an integrated system (LowranceNET) which is compatible with the National Marine Electronics Association (NMEA) standard for data transmission. This highly intelligent electronic system permits various networks of multiple instruments (e.g., SONAR/GPS, radar, autopilot, radio, etc.) and provides the ability to display digital data transmitted from boat engines in multiple formats to accommodate a consumer’s preference. We are also continuing our ongoing research and development projects, which we believe will allow us to expand our current marine product offerings to cover a full suite of boat instruments within the next year. Our marine SONAR and SONAR/GPS combination products revenue grew $16.8 million in fiscal 2005 compared to fiscal 2004.

Two of our new products in this core market won awards. In July 2005 at the American Sport Fishing Association’s ICAST (International Convention of Allied Sportfishing Trades) tradeshow, we were presented the New Product Showcase “Best in Category” award for our LCX-111C HD SONAR/GPS model with a built in 20GB harddrive.

General consumer products
In fiscal 2005, we significantly increased our product offerings in the handheld and portable GPS market, including the shipment of our award-winning iWay 500C automotive navigation product. The iWay 500C won Best New Mobile Electronics Entertainment Product for 2005 at the Specialty Equipment Market Association (SEMA) show in November 2004. In May 2005, PC Magazine gave the iWay 500C its Editors’ Choice Award. Our new handheld units included the GO and GO2 (full mapping handhelds targeted for retail at $79 and $99), the iFinder M&M (includes a MP3 player) and the iFinder Hunt. Our general consumer products revenue grew $16.3 million in fiscal 2005 compared to fiscal 2004.

Aviation
In the first quarter of fiscal 2005, we began shipping a color aviation GPS product. This introduction followed the two new aviation GPS products which we began to ship in fiscal 2004. Our aviation products revenue grew $1.0 million during fiscal 2005 compared to fiscal 2004.

In July 2005, we won the “Best Product Of The Year” award at the Oshkosh Airshow, for our AirMap 2000C portable model.

• Expand our existing technologies into new end-user markets

We believe that there is a significant growth opportunity to apply the technologies currently found in our core product set to alternative product lines which will appeal to new end-user markets. For example, we see significant opportunities to expand our presence in automotive turn-by-turn applications, additional handheld GPS applications and various industrial, governmental and commercial applications.

• Capitalize on our operating efficiencies and increase utilization of our existing manufacturing capabilities

We believe we have a competitive advantage with our integrated design engineering and manufacturing processes, allowing us to adjust our product mix according to market demand and ensuring high-quality production. By controlling a significant portion of the design engineering and manufacturing processes, we expect to continue to benefit from increased speed to market. We intend to capitalize on our technological advancements by rapidly

providing new product enhancements and product lines to the market.

We are poised to take advantage of the significant leverage inherent in our operations. We have the capacity to significantly expand our production in our Ensenada, Mexico manufacturing facility. We believe this increase is possible without significant increases in fixed costs due to available manufacturing capacity during our off-peak season. By continuing to add certain non-seasonal products to our product set, we expect to utilize this operating leverage and smooth our production, while decreasing volatility in our sales and earnings. Expansion into non-seasonal and counter-seasonal markets allows us to spread our fixed manufacturing costs over a larger base of products.

Products

We design products that provide high-performance features at highly competitive prices. We have established a reputation as a high quality, technologically advanced innovator in the industry for the past 48 years. For 2005, we are marketing the widest lineup of Eagle and Lowrance SONAR and GPS products in our 48-year history, including 26 Eagle and 60 Lowrance products. Our current primary product markets include marine, general consumer and aviation, with additional sales of related accessories and mapping software for all three markets.

Marine

Our marine products are extremely durable, completely waterproof and are designed to withstand harsh cold, hot and salt-spray environments. Our products are designed specifically for inland and coastal sport fishermen interested in the size, depth and location of individual game fish, thermoclines, or underwater structure (e.g., drop-offs, channels, humps, tree stumps and rock piles), as well as the location of large schools of baitfish. The retail price points of our marine products range from $79 to $2,449.

LowranceNET is a NMEA 2000 compatible networking system utilizing one data communications line which allows data from virtually an infinite number of Lowrance intelligent sensors and from the boat engine to display on multi-function gauges or on SONAR and SONAR/GPS displays. LowranceNET is both an original equipment (OEM) product and an after-market product.

We introduced new Lowrance products in fiscal 2005 equipped with internal hard drives. The hard drives are preloaded with high-detail marine and inland cartography which, if purchased separately, would cost thousands of dollars. However, the hard-drive units retail for only $200 more than the non hard-drive units.

In fiscal 2005, we launched new Eagle color SONAR and SONAR/GPS models of our domestic and international products. The Eagle color products offer high resolution screens at price points which range from $220 to $1,250.

General consumer

We currently market seven cost-effective handheld GPS mapping model families for outdoor recreational use (e.g. camping, hunting, backpacking and fishing) and one for vehicular (e.g. auto, SUV, ATV and RV) navigation applications. The handheld mapping units are sold under the iFINDER and iWay product names and can be used for marine applications as well. All models come with a built-in background map that provides coverage of major cities, highways, lakes, rivers and coastal areas of the United States, including navigation aids and wrecks/obstructions, plus interstate exit services. Price points for the handhelds range from $79 to $549.

In addition to the handheld portable models, we also manufacture ten larger fixed-mount mapping models in the GlobalMap Series designed for navigational guidance on water or land. These larger models with monochrome or color displays feature diagonal screen sizes from 5” to 10.4”. They feature the same built-in background map coverage previously discussed for the handhelds. Moreover, most of these models are packaged with the exclusive MapCreate CD software with two million searchable points-of-interest such as restaurants, hotels, airports, marinas, emergency services and shopping. The GlobalMap models all have from one to two slots for use of pre-programmed, plug-&-play, electronic charts including Lowrance FreedomMaps and Navionics HotMaps charts for users that do not have or make use of computer map-making. There are also two GlobalMap units equipped with internal hard drives. Price points for this product series range from $399 to $1,899.

Aviation

We currently ship three portable avionics models, the AirMap 500, AirMap 1000 and the AirMap 2000C. The AirMap 500 is a handheld model with a Moving Map, Jeppesen aviation database, exclusive obstructions database and has plug-&-play digital media card (MMC/SD) capability. The AirMap 1000 is a larger portable model with larger display and additional features including the exclusive new Airport Orientation and Horizontal Situation Indicator (HSI) steering guidance navigational displays, as well as digital media card capability. The AirMap 2000C packs all of the aviation-specific features of the two monochrome models into a color display model that is highly visible in direct sunlight. The new AirMap 2000C can also be used for land-based navigation, such as in rental vehicles.

All three AirMap models are true “buy-&-fly” values in that they will be packaged with the important accessories pilots need: the Jeppesen and Obstructions databases on one 32MB digital media card; MapCreate mapping software with two million searchable points-of-interest; memory card reader/writer; remote amplifying antenna; control yoke and windscreen mounting systems; cigarette plug power adapter; and AA batteries.

Accessories

In addition to our SONAR and GPS products, we offer a broad set of accessories such as transducers, water temperature/boat speed/distance traveled sensors, cables, portable power packs, ice fishing accessories, GPS antenna/receivers, detailed mapping CD-ROM software, reusable digital media cards, a PC computer memory card reader/writer, power adapter cables and various mounting brackets.

Product research and development

We believe that our successful operations and strong competitive position are dependent to a great extent upon our ability to anticipate and react to the technological innovations inherent within our industry. As a result, we devote a substantial portion of our resources to developing new products and enhancing existing product offerings. Our research and development expenditures, which primarily consist of personnel and personnel related costs, were $2.7 million in fiscal 2002, $4.2 million in fiscal 2003, $5.3 million in fiscal 2004 and $6.3 million in fiscal 2005. As of July 31, 2005, we employed approximately 55 design engineers. To augment our continued investment in product research and development, we utilize several manufacturing and design technologies, which have been essential to the development of our breakthrough SONAR and GPS products. These technologies have allowed us to reduce our material and manufacturing costs and have provided improved product performance. They include:

	•		Computer Aided Design (CAD) systems,

	•		Application Specific Integrated Circuits (ASICS),

	•		Tape Automated bonding (TAB),

	•		Chip-On-Flex (COF),

	•		Chip-On-Glass (COG),

	•		System-On-Chip (SOC) and

	•		Liquid Crystal Display (LCD) assembly.

For fiscal 2003, we announced 26 new models and delivered 28 new Lowrance and Eagle models, more than we ever introduced in a single model year. For fiscal 2004, we announced 26 new models and delivered a total of over 30 models. For fiscal 2005, we again increased an aggressive design schedule by announcing and delivering over 50 new Lowrance and Eagle models.

Manufacturing

During fiscal 1997, we expanded our production operation in Mexico by consolidating our existing manufacturing operations in Ensenada, Mexico, which began in 1993, into a newly constructed leased facility. We had purchase options on both the Ensenada facility and adjacent undeveloped land. During fiscal 2005, we exercised both of our

purchase options and also purchased some additional undeveloped land adjacent to the facility for a total purchase price of $6.8 million. Currently, we utilize 86,000 square feet of manufacturing space within the 108,000 square foot facility. From fiscal 1997 through fiscal 2000 we transitioned the balance of our United States automated high-technology manufacturing to our Ensenada facility. We currently manufacture, test and package all of our products in Ensenada. Our highly qualified Ensenada technical staff is comprised of 114 college graduates, including a total of 79 engineers. Of the 79 engineers, there are 25 design/software engineers; 6 project engineers; 23 manufacturing engineers; 4 quality control engineers; and 21 industrial engineers.

The manufacturing process primarily involves the use of automated surface mount technology (SMT) equipment in the placement of electronic components on printed circuit boards and the assembly of other 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 our manufacturing process.

Sales and marketing

We market and sell our products worldwide through a combination of sporting good stores, mass merchants, consumer electronics retailers, computer specialty retailers, mail-order catalogs, wholesalers, boat dealers and OEM boat manufacturers. Education of the consumer is important due to the high-tech nature of our products. Our internet websites play a major role in educating consumers about our product lines. The information included on these websites is not a part of this annual report on Form 10-K. We also educate and support the sale of our products through technical product promotion, technical selling, and participation in industry tradeshows and after-sales support.

We believe our dual-brand (Lowrance and Eagle) marketing strategy allows us to attract a broader range of consumers and more effectively attract new customers. We sell our Lowrance line primarily to retailers, wholesalers and boat manufacturers (OEMs) who provide technical installation and product operation assistance to the consumer. We sell our Lowrance automotive products through national and regional retailers. We sell the Eagle line primarily through mass merchants, mail-order catalog companies, retail sporting goods stores and wholesalers that do not usually provide technical assistance to the consumer.

LEI Extras, Inc., a wholly-owned subsidiary, allows consumers to purchase accessories that might not be stocked by a dealer via the internet, toll-free phone or mail-order.

We sell to over 1,470 customers in 65 countries. Some of our largest United States customers include Bass Pro Shops, Bell Industries, Cabela’s, Wal-Mart and Boaters World. The two largest international markets for our products are Canada and Australia, where we maintain our own sales and distribution operations. Our products are carried in a number of retail giants including the large European sporting goods retailer, Decathlon. Since fiscal 2001, no customer has accounted for over 10% of our net sales.

Customer service

Substantially all of our products are sold with a full one-year warranty. We emphasize “service after the sale” in connection with our products by providing free shipping, through a prepaid Return Authorization (R.A.) system, when requested by consumers located in the United States electing to return their units to us for warranty repairs. Warranty and non-warranty repairs are available from our plant in Tulsa, Oklahoma, with “depot” inventories maintained in foreign countries to handle warranty issues in a timely manner. Because technology in the electronics industry changes rapidly, creating obsolescence in repair components, we have developed a program that generally allows consumers either repair or the ability to upgrade for products manufactured within the past five years. We also offer two-year extended warranties for an additional one-time fee through our LEI Extras, Inc. subsidiary.

Intellectual property

Our technical and proprietary expertise and the continuation of technological advances have resulted in our being a leader in the design, manufacture and marketing of SONAR and GPS products. Our strategy is to predict future changes in the market and to strive to be first to design and develop new products incorporating the technological advances for, and to introduce these new products into, the rapidly changing markets. In those circumstances where the life cycle of the new products or technological advances is of sufficient length, we seek to protect our proprietary interests and markets through the patent process. As of July 31, 2005, we had five issued design patents, ten issued utility patents and four patent applications pending in the United States. All of our patents have been assigned to

secure our revolving credit line. We intend to continue to assess appropriate occasions for seeking patent protection for those aspects of our technology that we believe provide significant competitive advantages.

We also rely on a combination of copyright, trademark, trade secret and contractual provisions to protect our proprietary rights. We have 37 active trademark registrations with the United States Patent and Trademark Office including the Lowrance trademark and the Eagle trademark with accompanying logos. We also have 53 trademark registrations in 19 foreign countries, and have three applications pending for trademark registrations in two foreign countries. We also enter into patent, trade secret and confidentiality agreements with our employees that require them to disclose to us any inventions they create during employment, that convey all rights to inventions to us and that restrict the distribution of proprietary information.

We license certain databases from third parties for use in our GPS products in the marine, general consumer and aviation markets. We convert the data into a format which allows our software interfaces to provide user-friendly access to the detailed water, land, points of interest and aviation data. We license both domestic and international data.

Suppliers and materials

During fiscal 1997, we expanded our production operation in Mexico by consolidating our existing manufacturing operations in Ensenada, Mexico, into a newly constructed facility. The manufacturing process primarily involves the assembly of component parts purchased from suppliers. We purchase certain components from sole or limited source providers, some of which are located in foreign countries.

Certain component parts of our products are technologically advanced and/or specifically designed by us for our exclusive 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 we largely rely on single-source suppliers for these parts. Purchasing from a single source in these instances allows us to have more consistent quality and to receive quantity discounts and permits us to establish long-standing relationships with our suppliers. We believe long-standing relationships lead to better performance with suppliers by shortening delivery time, improving quality and fostering a better understanding of an adaptation to the nature of our needs and the suppliers’ capabilities.

With respect to plastic component parts, such as the housings for our units, because of the expense, we generally maintain only one mold for each plastic part. Although typically we own each mold and could move it to another supplier, we are limited to one concurrent supplier.

We have never experienced a substantial interruption in product distribution due to unavailability of, or delay in, receiving component parts, which has resulted in the loss of any material amount of sales. To protect against interruptions and loss of sales, we maintain a limited amount of safety inventory of component parts and some insurance coverage against loss of supply. We limit the amount of safety stock to avoid the cost of carrying raw material inventory and problems associated with obsolescence. To further protect against interruptions, we are selective of our suppliers and, with limited exceptions, rely upon those who are substantial in size, strong financially, and offer proven track records and experience.

Seasonality and working capital management

Our current business is seasonal, with a concentration of revenue in the months of January through May each year due to marine consumer purchases in anticipation of the fishing and boating seasons. We normally manufacture our products in anticipation of, and not in response to, customer orders and fill orders within a short period of time after receipt. Thus, we must maintain inventories of finished goods to fill orders promptly. We are subject to customer demands, which may not correlate with our forecasts utilized to schedule the inventory production. Our working capital needs fluctuate as a result of our current seasonality. As our general consumer business becomes larger, we expect our business to become less seasonal.

Competition

The marine, consumer and aviation markets in which we compete are highly competitive, subject to rapid change and significantly affected by new product introductions and other market activities of industry participants. Competition in the markets for our products is based upon a number of factors including quality, technological

development, performance, service and price. We encounter competition from a number of domestic and foreign competitors. We compete with a variety of competitors in each of our target markets and we encounter some of the same competitors in each market.

The primary basis for competition in the marine sports fishing and recreational boating market is technological innovation and price. In order to maintain our competitive position, we must continue to enhance and improve our products and anticipate rapid, major technological innovations and changes within the industry. Presently, there are more than ten competitors worldwide in this market including Humminbird (Johnson Outdoors), RayMarine, Garmin International, Inc. and Furuno Electronic Company.

The general consumer GPS mapping market has expanded rapidly over the past several years. Target markets for these products include, but are not limited to, camping, hunting, hiking, cross-country skiing, automotive, snowmobile, RV and off-road vehicles, plus general business and pleasure travel (in addition to marine and aviation use).

The two primary competitors in the GPS market are Garmin International, Inc. and the Magellan product line of Thales Navigation. Both companies have introduced and marketed several non-mapping products retailing for under $150 and were among the first to market handheld GPS products. The two companies also offer a full range of higher priced products with more features than their lower priced models.

Our principal competitor in the marketing of portable aviation GPS mapping products is Garmin International, Inc.

Employees

As of July 31, 2005, we employed 1,246 people of whom approximately 1,027 were involved in manufacturing, quality and materials. Of the 1,027 employees involved in manufacturing, quality and materials, 60 employees are located in our headquarters in Tulsa and 967 are located in our manufacturing facility in Ensenada, Mexico. The remaining 219 employees were engaged in research and development, sales and marketing and administration. Additionally, we retain, on a part-time basis, approximately 200 independent contractors, or “Pro-Staff”, who assist in promoting our products. We have never experienced a work stoppage and none of our employees are represented by an outside union organization. Electronica Lowrance, our Mexican subsidiary, has a collective work agreement with Guadalupe Victoria Union, a company sponsored union. Company sponsored unions are common in Mexico. Management considers our employee relations to be satisfactory.

Access to our SEC Filings

You may access our SEC filings through our website at www.lowrance.com.

Item 2. Properties

We have maintained our corporate offices at 12000 East Skelly Drive, Tulsa, Oklahoma, since 1970. Our facility includes a 116,000 square foot building and approximately 23 acres of land. We lease 28,500 square feet of warehouse space in Tulsa.

We maintain a 108,000 square foot manufacturing facility in Ensenada, Mexico. We presently are using approximately 86,000 square feet for manufacturing, including a 42,000 square foot, dust-free, atmospherically-controlled, manufacturing area. The building was also designed for additional expansion. In addition, we lease 13,450 square feet of warehouse space in Ensenada.

We also lease 5,800 square feet and 4,500 square feet of warehousing, shipping and office facilities in Australia and Canada, respectively.

We believe that our facilities and equipment are well suited to our needs and are properly maintained. Our current manufacturing facilities are sufficient to allow for significantly increased production. We believe we operate the facilities and equipment in substantial compliance with all current regulations. All the facilities and equipment are, in our opinion, adequately insured.

Item 3. Legal proceedings

From time to time we may become involved in litigation relating to claims arising from our ordinary course of business. We believe that there are no claims or actions pending or threatened against us, the ultimate disposition of which would have a material adverse effect on us.

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

None.

PART II

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

As of September 6, 2005, the Company had 65 holders of its Common Stock, not including the number of persons whose stock is held in nominee or “street name” accounts through brokers. Our revolving credit line prohibits the payment of dividends without the prior written consent of our lender. We have not historically declared regular cash dividends. However, after obtaining approval from our lender, we announced dividends of $0.25 per common share payable on August 15, 2003 to stockholders of record as of August 13, 2003, payable on May 26, 2004 to stockholders of record as of May 24, 2004 and payable on August 16, 2004 to stockholders of record as of August 12, 2004 and announced a dividend of $0.30 per common share payable on June 17, 2005 to stockholders of record as of June 10, 2005. Declaration of dividends in the future will remain within the discretion of our Board of Directors and will depend upon, among other things, our financial results, the favorable tax treatment of dividend payments and obtaining the requisite approvals from our lender.

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 most recent 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.


	2004				2005
	High		Low		High		Low
	$		$		$		$
1st Quarter		23.81		7.56		30.17		21.90
2nd Quarter		25.27		18.00		34.38		25.47
3rd Quarter		26.96		19.35		32.65		23.10
4th Quarter		37.19		21.00		23.80		19.16

Item 6. Selected Financial Data

The selected financial information shown below has been derived from the consolidated financial statements included elsewhere in this report and from other consolidated financial statements filed previously and 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.


	Years Ended July 31,
	(in thousands, except per share amounts)
	2001			2002			2003			2004			2005
Operating and Per Share Data
Operating Data:
Net sales	$	73,419		$	79,501		$	88,297		$	111,861		$	146,369
Gross profit		26,335			29,926			37,261			47,304			54,927
Percent of sales		35.9	%		37.6	%		42.2	%		42.3	%		37.5	%

Operating income		2,103			5,255			7,881			13,310			13,971
Percent of sales		2.9	%		6.6	%		8.9	%		11.9	%		9.5	%


	Years Ended July 31,
	(in thousands, except per share amounts)
	2001			2002			2003			2004			2005
Income before taxes		99			3,935			6,862			12,429			12,876
Percent of sales		0.1	%		4.9	%		7.8	%		11.1	%		8.8	%

Net income		37			2,389			4,645			8,756			9,412
Percent of sales		0.1	%		3.0	%		5.3	%		7.8	%		6.4	%

Per Share Data:
Net income
Basic	$	0.01		$	0.63		$	1.23		$	2.33		$	1.90
Diluted		0.01			0.63			1.19			2.20			1.90

Cash dividends per common share		—			—			—		$	0.50		$	0.55

Balance Sheet Data:
Working capital	$	16,503		$	12,681		$	18,149		$	23,778		$	49,180
Total assets		37,656			30,762			35,417			48,743			85,048
Long term debt, less current maturities		14,418			6,183			5,825			6,040			7,214
Stockholders’ equity		11,877			14,359			19,608			26,655			60,851

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

Company overview

We design, manufacture, market and sell a comprehensive range of high quality, cost-effective sound navigation and ranging (SONAR) and global positioning system (GPS) products and digital mapping systems under two different trade names (Lowrance and Eagle) for use in marine, general consumer (includes outdoor recreational use and vehicular navigation systems) and aviation markets. Our SONAR and combination SONAR/GPS products graphically display underwater information and are used as fishfinders, navigational and safety devices by both inland, coastal and offshore fishermen as well as recreational boaters. Our handheld and portable GPS products are used in avionic and vehicular navigational applications and by outdoor enthusiasts for camping, hunting, hiking and other recreational uses. Currently, we offer approximately 86 different marine, automotive, outdoor, aviation and original equipment manufacturer products.

We market our products to dealers, distributors, mass merchants and original equipment manufacturers who in turn sell our products in the consumer marketplace. Demand for our products has historically been seasonal, with the lowest sales occurring in our first fiscal quarter (August through October) and the highest sales occurring in our third fiscal quarter (February through April) due to marine consumer purchases during the beginning of the boating season. We focus on developing product lines that address most price points in our markets in order to provide a broad range of capabilities and features to consumers. We have increased the number of new product introductions in each of the last three fiscal years and the current fiscal year. For the fiscal year 2005, we introduced more than 50 new SONAR and GPS products. The introduction of new products in the last three fiscal years has resulted in the increase in sales and gross margin discussed below.

Our successful operations and strong competitive position are dependent to a great extent upon our ability to anticipate and react to the technological innovations inherent within our industry. To augment our continued investment in product research and development, we utilize several manufacturing and design technologies, which have been essential to the development of our breakthrough SONAR and GPS products. These advanced technologies have allowed us to reduce our material and manufacturing costs and have provided improved product performance. They include:

	•		Surface Mount Technology (SMT) production equipment;

	•		Computer Aided Design (CAD) systems;

	•		Application Specific Integrated Circuits (ASICS);

	•		Tape Automated Bonding (TAB);

	•		Chip-On-Flex (COF);

	•		Chip-On-Glass (COG);

	•		System-on-Chip (SOC); and

	•		Liquid Crystal Display (LCD) assembly.

We believe that we were first to utilize many of these manufacturing and design technologies, which helped provide a competitive advantage and differentiation in the marketplace. We intend to continue our focus on developing and delivering leading-edge products based upon our innovations.

Our products are sold domestically and in 65 countries throughout the world. International sales totaled approximately $32 million, or 22% of total net sales for fiscal 2005 and $26 million, or 23% of total net sales for fiscal 2004. The majority of our international sales are conducted in Canada, Australia and Europe. As of July 31, 2005, we had approximately 1,470 wholesalers and retailers purchasing our products.

Executive summary

During the three fiscal years ended July 31, 2005, we noted:

• Sales for fiscal 2005 were $146.4 million, a 30.8% increase from fiscal 2004. Sales for fiscal 2004 were $111.9 million, a 26.7% increase from fiscal 2003.

• Fully diluted net income per share for fiscal 2005 was $1.90, as compared to $2.20 for fiscal 2004 and $1.19 for fiscal 2003. Fully diluted shares were 4.9 million in fiscal 2005, 4.0 million in fiscal 2004 and 3.9 million in fiscal 2003.

• Gross profit margin increased by $7.6 million in fiscal 2005, a 16.1% increase from 2004. Gross profit margin increased by $10.0 million in fiscal 2004, a 27.0% increase from fiscal 2003.

• As part of an on-going commitment to develop new technology and improve existing technology, we had an average of six additional design engineers in fiscal 2005 compared to fiscal 2004. We had an average of eight additional design engineers in fiscal 2004 compared to fiscal 2003.

• During the first quarter of fiscal 2005, we received $25.2 million in net proceeds from our secondary public offering. We utilized those proceeds to pay off our remaining term loan, pay down our revolving credit line outstanding as of that date, for the purchase of the Ensenada facility and for general operating uses.

• During fiscal 2005, we incurred significant costs ($0.9 million) related to our reporting requirements under Section 404 of the Sarbanes-Oxley Act. These costs were three times the initial estimates we received from our outside consultants.

Critical accounting policies and estimates

Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these statements requires us 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. The estimates and assumptions are based on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. We evaluate the estimates and assumptions on an on-going basis. We are not aware of any circumstances in the past which have caused these estimates and assumptions to be materially wrong. We are not currently aware of any material changes in our business that might cause these assumptions or estimates to differ significantly. The most significant estimates and assumptions relate to the product warranty reserve and the excess and obsolete inventory

reserve. Actual results could differ from any of our estimates under different assumptions or conditions. Historically, differences between actual results and our estimates have not been material.

Our significant accounting policies are described in Note 1 to the consolidated financial statements included in Part IV of this annual report on Form 10-K. Below is a discussion of the accounting policies that we believe are most critical to an understanding of our consolidated financial statements.

Revenue recognition

We recognize revenue at the time of product shipment in accordance with our FOB, shipping point terms of sale. Revenue is recorded net of certain reserves for dealer premium coupons and product returns which are only accepted on a limited case-by-case basis. Dealer premium coupons are rebates ranging from $10 to $100 to qualified boat and motor dealers who install SONAR units for consumers and return to us the appropriate rebate card. Although the reserves for dealer premium coupons and product returns fluctuate over time, historically those fluctuations have not been significant.

Product warranties

The majority of our sales are made under a one-year product warranty. We provide an estimate of future warranty costs based on recent historical product unit return rates and the average repair costs per unit incurred during the year. The estimate is adjusted, as necessary, for any specific knowledge that would impact the historical trend. The reserve for warranty costs is sensitive to a change in the historical rate of units returned during the warranty period. A 10% change in the expected return rate for fiscal 2005 would change the reserve by approximately $99,000. Historically, the average change in the estimated return rate has been less than 10%.

Inventory

Inventories are stated at the lower of cost or market using the first-in, first-out method, net of excess, obsolete and realization reserves. We estimate the level of reserves based upon expected usage information for raw materials and historical selling trends for finished goods.

Excess and obsolete inventory reserves are recorded by comparing available quantities of raw materials and finished goods to work order requirements for those raw materials and forecasted sales for finished goods. We adjust the required reserves for anticipated changes in scheduled work orders resulting from factors such as process or design changes that impact the raw materials usage and changes in sales forecasts resulting in changes in finished goods quantities. Increases or decreases in the required excess and obsolete inventory reserves impact our gross margin. A 10% change in the results of this process for the year ended July 31, 2005 would change the required reserve by approximately $144,000. Historical fluctuations in this reserve have related primarily to inventory levels and the ability to accurately forecast product needs, although process and design changes in the products also have a direct impact on the required reserve when they occur.

Results of operations

Year ended July 31, 2005 (fiscal 2005), compared to year ended July 31, 2004 (fiscal 2004)

Financial highlights. The following tables set forth selected amounts, ratios and relationships calculated from the consolidated statements of income and comprehensive income for the fiscal years ended July 31, 2005 and 2004:


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


	Fiscal year ended
	July 31,
Expressed as a percent of net sales:	2004			2005
Gross profit		42.3	%		37.5	%
Selling and administrative expenses.		25.7	%		23.7	%
Research and development expenses		4.7	%		4.3	%
Operating income		11.9	%		9.5	%
Interest expense		0.6	%		0.6	%
Pretax income		11.1	%		8.8	%
Net income		7.8	%		6.4	%

Sales and margin. During fiscal 2005, we introduced and shipped over 50 new SONAR, SONAR/GPS navigation, GPS and GPS Aviation products. Total net sales increased by $34.5 million, or 30.8%, during fiscal 2005 as compared to fiscal 2004, while total unit sales increased by approximately 15.9%. This year over year increase in sales is due to:

	•		New automotive GPS products (the IWAY500C and 100M) which began to ship in October 2004.

	•		New GPS handhelds introduced during the fourth quarter of fiscal 2004 and the first quarter of fiscal 2005.

	•		New SONAR and SONAR/GPS navigation products at new price points in the upper end of our price point range introduced during the first and second quarters of fiscal 2005.

Our gross profit margin increased by $7.6 million, or 16.1%, during fiscal 2005 as compared to fiscal 2004. The gross margin percentage decreased to 37.5% as compared to 42.3% in fiscal 2004. The year over year decrease in the gross profit percentage is a result of increases in sales of our Automotive GPS and GPS handheld products, which have lower gross profit percentages than our marine products.

Operating expenses and income. Operating expenses increased by $7.0 million during fiscal 2005 as compared to fiscal 2004. Operating expenses as a percentage of sales decreased to 28.0% in fiscal 2005 from 30.4% in fiscal 2004.

During fiscal 2005, selling and administrative expenses increased by $5.9 million due primarily to increased advertising, selling and marketing efforts focused on new products, in particular, the IWAY 500C. We incurred $0.9 million of costs in fiscal 2005 related to the initial year of our reporting requirements under Section 404 of the Sarbanes-Oxley Act. These costs were three times the estimates we were given by our outside consultants at the beginning of fiscal 2005. In addition, there were year over year cost increases for variable selling costs such as freight and cash discounts as a result of increased sales. Selling and administrative expenses as a percentage of sales decreased to 23.7% during fiscal 2005 as compared to 25.7% for fiscal 2004.

Research and development expenses increased by $1.1 million primarily due to new product design for our new product introductions. Research and development expenses as a percentage of sales decreased to 4.3% during fiscal 2005 as compared to 4.7% for fiscal 2004.

Operating income increased by $661,000, or 5.0%, in fiscal 2005 and was 9.5% of sales as compared to 11.9% of sales in fiscal 2004.

Interest expense. Interest expense increased by $232,000 in fiscal 2005 as compared to fiscal 2004, an increase of 33.7%. This increase is related to carrying, on average, $4.7 million in higher debt balances, and to interest rate increases which averaged 1.4% higher during the year. The interest rate on our credit facility ranged from 4.5% to 6.25% during fiscal 2005 as compared to rates from 4.25% to 4.5% for fiscal 2004. The prime rate ranged from 4.25% to 6.25% for fiscal 2005 as compared to rates from 4.0% to 4.25% for fiscal 2004.

Income taxes. The effective tax rates were 26.9% and 29.6%, respectively, for the fiscal years ended July 31, 2005 and 2004. The effective tax rates differ from the statutory rates due to the impact of foreign taxes, research and development credits, the United States treatment of foreign operations, state taxes and permanent differences in the treatment of items from an income tax versus financial reporting perspective. The decrease in the effective tax rate from fiscal 2004 was primarily related to research and development credits.

Year ended July 31, 2004 (fiscal 2004), compared to year ended July 31, 2003 (fiscal 2003)


	Fiscal year ended				Increase (decrease)
	July 31,				from 2003
(Dollars in thousands)	2003		2004		$			%
Net sales	$	88,297	$	111,861	$	23,564			26.7	%
Gross profit		37,261		47,304		10,043			27.0	%
Selling and administrative expenses		25,189		28,742		3,553			14.1	%
Research and development expenses		4,191		5,252		1,061			25.3	%
Operating income		7,881		13,310		5,429			68.9	%
Interest expense		989		689		(300	)		(30.3	)%
Pretax income		6,862		12,429		5,567			81.1	%
Net income	$	4,645	$	8,756	$	4,111			88.5	%


	Fiscal year ended
	July 31,
Expressed as a percent of net sales:	2003			2004
Gross profit		42.2	%		42.3	%
Selling and administrative expenses.		28.5	%		25.7	%
Research and development expenses		4.7	%		4.7	%
Operating income		8.9	%		11.9	%
Interest expense		1.1	%		0.6	%
Pretax income		7.8	%		11.1	%
Net income		5.3	%		7.8	%

Sales and margin. During fiscal 2004, we introduced and shipped over 30 new SONAR, SONAR/GPS navigation, GPS and GPS Aviation products. Total net sales increased by $23.6 million, or 26.7%, during fiscal 2004 as compared to fiscal 2003, while total unit sales increased by approximately 21.1%. This year over year increase in sales is due to:

	•		New SONAR and SONAR/GPS navigation products at new price points which began to ship in the third quarter of 2004. These new price points were at the upper end of our price point range;

	•		New high end SONAR/GPS navigation products introduced in fiscal 2003 at the end of the second quarter and during the third quarter which were selling throughout fiscal 2004;

	•		New GPS handhelds which began to ship in the third quarter of fiscal 2004;

	•		Two new Aviation GPS products introduced in fiscal 2004 which began to ship in the first and second quarters; and

	•		Increased sales from new product introductions at previously existing price points.

Our gross profit margin increased by $10.0 million, or 27.0%, during fiscal 2004 as compared to fiscal 2003. The gross margin percentage increased slightly to 42.3% in fiscal 2004 as compared to 42.2% in fiscal 2003.

Operating expenses and income. Operating expenses increased by $4.6 million during fiscal 2004 as compared to fiscal 2003. Operating expenses as a percentage of sales decreased from 33.2% in fiscal 2003 to 30.4% in fiscal 2004.

During fiscal 2004, selling and administrative expenses increased by $3.6 million due primarily to increased advertising and marketing efforts relative to our 2004 product introductions. Selling and administrative expenses as a percentage of sales decreased to 25.7% during fiscal 2004 as compared to 28.5% for fiscal 2003.

and fiscal 2003. In preparation for the new fiscal 2005 products, we hired thirteen additional design engineers in the third and fourth quarters of fiscal 2004.

Operating income increased by $5.4 million, or 68.9%, in fiscal 2004 and was 11.9% of sales as compared to 8.9% of sales in fiscal 2003.

Interest expense. Interest expense decreased by $300,000 in fiscal 2004 as compared to fiscal 2003, a decrease of 30.3%. This decrease is related to carrying, on average, $1.0 million in lower debt balances. The interest rate on our credit facility ranged from 4.5% down to 4.25% during fiscal 2004 as compared to rates from 5.75% down to 4.5% for fiscal 2003. The prime rate ranged from 4.0% to 4.25% for fiscal 2004 as compared to rates from 4.75% to 4.0% for fiscal 2003.

Income taxes. The effective tax rates were 29.6% and 32.3%, respectively, for the fiscal years ended July 31, 2004 and 2003. The effective tax rates differ from the statutory rates due to the impact of foreign taxes, research and development credits, the United States treatment of foreign operations, state taxes and permanent differences in the treatment of items from an income tax versus financial reporting perspective. The change in effective tax rates is primarily due to higher research and development credits in fiscal 2004.

Off-balance sheet arrangements

We have no off-balance sheet arrangements as described in Section 13(j) of the Securities Exchange Act of 1934.

Liquidity and capital resources

General

We require capital principally for capital expenditures, working capital and interest payments. Our capital expenditures relate primarily to new product tooling and manufacturing equipment. Working capital is required principally to fund inventory through payments to suppliers and manufacturing payroll costs until the inventory is sold and the receivables are collected. Our working capital requirements are seasonal and vary from period to period depending on manufacturing volumes, timing of shipments and the payment cycles of our customers and suppliers.

Sources of capital

Our primary sources of liquidity are cash flows from operating activities, our revolving credit facility and lease financing. Our revolving credit facility consists of a $26.5 million line. The line of credit includes a borrowing base of 85% of qualifying accounts receivable, 30% of qualifying raw material inventory and 60% of qualifying finished goods inventory with borrowings from inventories limited to $15 million. At July 31, 2005, we had $15.9 million available under the revolving credit line.

During the first quarter of fiscal 2005, we completed a secondary public offering in which we sold 1,150,000 shares. The net proceeds from the secondary public offering were $25.2 million. At the close of the secondary public offering, we utilized the proceeds to pay off our remaining term loan and pay down our revolving credit line outstanding at the time.

Since the execution of this revolving credit facility, we have on numerous occasions amended the facility to, among other things, reset certain financial covenants. In particular, during December 2004 we amended our credit facility to extend the term of the agreement for the revolving credit line from December 31, 2005 to December 31, 2008. Significant provisions of the amendment include changes in certain financial covenants, the lowering of the interest rate options and raising the limit on borrowings from inventory to $15 million.

The credit facility requires, among other things, that we maintain a minimum fixed charge ratio. Additionally, the credit facility limits the amount of operating leases, capital expenditures and capital leases and prohibits the payment of dividends without the prior written consent of the lender.

We were in compliance with all loan covenants at July 31, 2005.

Cash flows

Cash flows used in operating activities were $8.6 million for fiscal 2005 as compared to cash flows provided by operating activities of $6.9 million for fiscal 2004. The decrease was primarily due to higher inventories and accounts receivable during fiscal 2005 as compared to fiscal 2004. Our inventories increased as a result of sales increases and the increase in the number of products in our product lines. The 59% increase in fourth quarter sales was the primary reason for the increase in accounts receivable. Cash utilized for capital expenditures was $11.8 million. The capital expenditures primarily related to the purchase of the Ensenada facility, new product tooling, manufacturing equipment and computer equipment.

At the beginning of fiscal 2005, discontinued finished goods inventory attributable to fiscal 2005 product decisions was approximately $3.4 million. At the end of fiscal 2005, this amount had declined to approximately $227,000. We are entering fiscal 2006 with approximately $614,000 of product inventory which we expect to discontinue during fiscal 2006. All discontinued inventories are carried at cost, which management believes to be lower than expected realizable value. We expect the remaining inventory of discontinued products to be sold during fiscal 2006. Management monitors all inventories via various inventory control and review processes which include, but are not limited to, forecast review and inventory reduction meetings, graphical presentations and forecast versus inventory status reports. Management believes these processes are adequate.

Cash flows provided by operating activities were $6.9 million in fiscal 2004 compared to $2.9 million in fiscal 2003. The increase was primarily due to higher net income during fiscal 2004 as compared to fiscal 2003. Cash used for capital expenditures was $3.5 million. An additional $1.5 million in capital expenditures was funded by capital lease borrowings. The capital expenditures primarily related to new product tooling, manufacturing equipment and computer equipment.

Demand for our products is seasonal. We utilize the revolving credit line to address our seasonal liquidity needs. Management believes the sources of liquidity discussed above are adequate to satisfy our working capital and capital equipment needs for the next year. However, if we decide to pursue future acquisitions or make capital expenditures not currently anticipated, we may need to raise additional capital. No assurance can be made that we will be able to raise such capital on commercially reasonable terms, if at all.

Contractual obligations

The following table summarizes our contractual obligations as of July 31, 2005:


	Less than						More than
(Dollars in thousands)	1 year		1-3 years		3-5 years		5 years		Total
Long-term debt	$	895	$	384	$	7,143		—	$	8,422
Capital lease obligations		447		65		10		—		522
Operating lease obligations		292		350		253		—		895
Open purchase orders		24,546		—		—		—		24,546
Capital expenditure commitments		213		—		—		—		213

Total	$	26,393	$	799	$	7,406		—	$	34,598

The long-term debt and capital lease obligations line items presented in the table above include an estimated interest portion. The open purchase orders are subject to change or cancellation.

Effects of inflation

A significant portion of our costs and expenses consist of materials, supplies, salaries and wages that are affected by inflation. In addition, certain electronic parts that are in high industry demand are subject to market-driven price increases. We may not be able to pass on the full effect of inflationary increases in our selling prices in the near term. Accordingly, we concentrate on changes in design, manufacturing processes, material scheduling and sourcing to help contain costs. A significant portion of our 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.

Quarterly information

Demand for our products is seasonal. During our peak third quarter, customers purchase our products so that the

products will be available to sport fishermen and recreational boat owners for the peak fishing and boating season. We do not experience any consistent quarterly trends for the remaining three quarters.

Sales, gross profit and net income (loss)


											Net
Years ended July 31,	Sales		%			Gross profit		%			income (loss)			%
	(Dollars in thousands)

2005
First Quarter	$	17,475		12.0	%	$	6,544		11.9	%	$	(1,705	)		(18.1	)%
Second Quarter		32,646		22.3	%		12,321		22.4	%		2,168			23.0	%
Third Quarter		53,200		36.3	%		21,197		38.6	%		6,440			68.4	%
Fourth Quarter		43,048		29.4	%		14,865		27.1	%		2,509			26.7	%

Total for Year	$	146,369		100.0	%	$	54,927		100.0	%	$	9,412			100.0	%

2004
First Quarter	$	14,036		12.5	%	$	5,052		10.7	%	$	(1,571	)		(17.9	)%
Second Quarter		24,468		21.9	%		10,063		21.3	%		1,609			18.4	%
Third Quarter		46,296		41.4	%		20,656		43.6	%		6,671			76.2	%
Fourth Quarter		27,061		24.2	%		11,533		24.4	%		2,047			23.3	%

Total for Year	$	111,861		100.0	%	$	47,304		100.0	%	$	8,756			100.0	%

2003
First Quarter	$	11,155		12.6	%	$	4,123		11.1	%	$	(1,473	)		(31.7	)%
Second Quarter		21,514		24.4	%		7,729		20.7	%		527			11.3	%
Third Quarter		32,414		36.7	%		16,118		43.3	%		4,352			93.7	%
Fourth Quarter		23,214		26.3	%		9,291		24.9	%		1,239			26.7	%

Total for Year	$	88,297		100.0	%	$	37,261		100.0	%	$	4,645			100.0	%

Earnings (loss) per share, basic and diluted


	Weighted average				Earnings (loss)
	shares outstanding				per share
Years Ended July 31,	Basic		Diluted		Basic			Diluted

2005
First Quarter		4,394,516		4,394,516	$	(0.39	)	$	(0.39	)
Second Quarter		5,135,516		5,135,516		0.42			0.42
Third Quarter		5,135,516		5,135,516		1.25			1.25
Fourth Quarter		5,135,516		5,135,516		0.49			0.49
Year-ended July 31, 2005.		4,948,743		4,948,743		1.90			1.90
2004
First Quarter		3,761,196		3,761,196	$	(0.42	)	$	(0.42	)
Second Quarter		3,761,196		3,978,435		0.43			0.40
Third Quarter		3,761,196		3,981,774		1.77			1.68
Fourth Quarter		3,761,196		3,987,626		0.54			0.51
Year-ended July 31, 2004.		3,761,196		3,979,001		2.33			2.20
2003
First Quarter		3,761,196		3,761,196	$	(0.39	)	$	(0.39	)
Second Quarter		3,761,196		3,885,319		0.14			0.14
Third Quarter		3,761,196		3,902,302		1.15			1.11
Fourth Quarter		3,761,196		3,931,735		0.33			0.31
Year-ended July 31, 2003.		3,761,196		3,893,324		1.23			1.19

Outlook and Uncertainties

Certain matters discussed in this report, excluding historical information, include certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities and Exchange Act of 1934, as amended, that involve risks and uncertainties. The Company and its representatives may from time to time make written or verbal forward-looking statements, including statements contained in filings with the Securities and Exchange Commission and in the report to stockholders. Statements that address the Company’s operating performance, events or developments that the Company expects or anticipates will occur in the future, including statements relating to sales and earnings growth, statements expressing general optimism about future operating results and statements relating to liquidity and future financing plans are forward-looking statements. Although the Company believes that such forward-looking statements are based on management’s then-current views and reasonable assumptions, no assurance can be given that every objective will be reached. Such statements are made in reliance on the “safe harbor” protections provided under the Private Securities Litigation Reform Act of 1995.

As required by the Private Securities Litigation Reform Act of 1995, the Company hereby identifies the following factors that could cause actual results to differ materially from any results projected, forecasted, estimated or budgeted by the Company in forward-looking statements:

•		Financial performance and cash flow from operating activities in fiscal 2006 are based on attaining current projections.

•		Production delays due to raw material shortages or unforeseen competitive pressures could have a materially adverse effect on current projections.

•		Because of the dynamic environment in which the Company operates, one or more key factors discussed in “Part I, Item 1. Business” of this Form 10-K could have an adverse effect on expected results for fiscal 2006.

Item 7a. Quantitative and Qualitative Disclosures About Market Risk

We are exposed to cash flow and interest rate risk due to changes in interest rates with respect to our long-term debt. See Note 3 to the consolidated financial statements included herein for details on our long-term debt. A 0.5% increase in the prime rate for the fiscal year ended July 31, 2005 would have had a negative after-tax impact on earnings of approximately $48,000.

We are subject to foreign currency risk due to the location of our manufacturing facility in Mexico and sales from each of our distribution facilities in Canada and Australia, which are denominated in the local currencies. Sales to countries other than Canada and Australia are denominated in United States dollars. Although fluctuations have occurred in the Mexican peso, the Canadian dollar and the Australian dollar, such fluctuations have not historically had a significant impact on our financial statements taken as a whole. A 10% unfavorable change in the currency exchange rates would result in a foreign exchange loss of approximately $146,000 on intercompany balances recorded at July 31, 2005.

Item 8. Financial Statements and Supplementary Data

The consolidated financial statements and supplementary data are indexed in Items 15 and 7 hereof, respectively.

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

None.

Item 9a. Controls and Procedures

The following sections present the required information concerning internal control over financial reporting and the effectiveness of disclosure controls and procedures. This reporting is mandated under various sections of the Sarbanes-Oxley Act (SOX), including Section 404 (404).

We incurred significant costs ($0.9 million) related to the 404 reporting. These costs were three times the initial estimates we received from our outside consultants.

We are in compliance with 404 and the other provisions of SOX. We are, however, hopeful the SEC will act quickly to reduce the burden of this section of SOX.

(a) Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures

The Principal Executive Officer and Principal Financial Officer have evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) as of July 31, 2005, the end of the period covered by this report. Based on that evaluation, the Company’s Principal Executive Officer and Principal Financial Officer have concluded that these controls and procedures were effective as of that date to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in Securities Exchange Commission rules and forms.

(b) Management’s Report on Internal Control over Financial Reporting

Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting. The Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management of the Company assessed the effectiveness of the Company’s internal control over financial reporting as of July 31, 2005. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in “Internal Control-Integrated Framework”.

Based on such assessment and those criteria, management believes that the Company maintained effective internal control over financial reporting as of July 31, 2005.

Deloitte and Touche LLP, the independent registered public accounting firm that audited the Company’s consolidated financial statements, issued an attestation report on management’s assessment of the Company’s internal control over financial reporting. That attestation report appears below.

(c) Attestation Report of the Independent Registered Public Accounting Firm

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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

We have audited management’s assessment, included in the accompanying Management’s Report on Internal Control Over Financial Reporting, that Lowrance Electronics, Inc. and subsidiaries (the “Company”) maintained effective internal control over financial reporting as of July 31, 2005, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over

financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, management’s assessment that the Company maintained effective internal control over financial reporting as of July 31, 2005, is fairly stated, in all material respects, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of July 31, 2005, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements as of and for the year ended July 31, 2005 of the Company and our report dated September 9, 2005 expressed an unqualified opinion on those financial statements and included an explanatory paragraph regarding the Company’s adoption of the fair value method of accounting for stock-based compensation.

DELOITTE & TOUCHE LLP

Tulsa, Oklahoma
September 9, 2005

(d) Changes in Internal Control over Financial Reporting

There have been no changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended July 31, 2005 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Item 9b. Other Information

Not applicable.

PART III

Item 10. Directors and Executive Officers of the Registrant