-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VVGtRPkcU+jjskTVXa3nPUjTgnk+VLPkRnItmPrtIVBD4kjwCU4ZsMRyBIvH3RmR pXk+wG0RbjngtpLbdZKxVw== 0000030828-01-500014.txt : 20010814 0000030828-01-500014.hdr.sgml : 20010814 ACCESSION NUMBER: 0000030828-01-500014 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010630 FILED AS OF DATE: 20010813 FILER: COMPANY DATA: COMPANY CONFORMED NAME: COBRA ELECTRONICS CORP CENTRAL INDEX KEY: 0000030828 STANDARD INDUSTRIAL CLASSIFICATION: RADIO & TV BROADCASTING & COMMUNICATIONS EQUIPMENT [3663] IRS NUMBER: 362479991 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-00511 FILM NUMBER: 1706730 BUSINESS ADDRESS: STREET 1: 6460 W CORTLAND ST CITY: CHICAGO STATE: IL ZIP: 60635 BUSINESS PHONE: 3128898870 MAIL ADDRESS: STREET 1: 6460 W CORTLAND ST CITY: CHICAGO STATE: IL ZIP: 60635 10-Q 1 junq2001.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) --- OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2001 OR --- TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 0-511 COBRA ELECTRONICS CORPORATION (Exact name of Registrant as specified in its Charter) DELAWARE 36-2479991 (State of incorporation) (I.R.S. Employer Identification No.) 6500 WEST CORTLAND STREET CHICAGO, ILLINOIS 60707 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code:(773) 889-8870 Securities registered pursuant to Section 12(g) of the Act: Common Stock, Par Value $.33 1/3 Per Share Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO ----- ----- Number of shares of Common Stock of Registrant outstanding at August 8, 2001: 6,226,302 PART I FINANCIAL INFORMATION Item 1. Financial Statements Cobra Electronics Corporation and Subsidiaries Consolidated Statements of Income (In thousands, except per share amounts) For the Three For the Six Months Ended Months Ended (Unaudited) (Unaudited) ---------------------- --------------------- June 30, June 30, June 30, June 30, 2001 2000 2001 2000 --------- --------- -------- -------- Net sales.................$ 35,232 $ 35,847 $ 65,865 $ 57,146 Cost of sales............. 25,901 25,880 48,067 41,043 --------- --------- -------- -------- Gross profit............. 9,331 9,967 17,798 16,103 Selling, general and administrative expenses.. 7,232 6,746 14,062 11,902 Expenses for the terminated acquisition of Lowrance 1,402 --- 1,402 --- --------- --------- -------- -------- Operating income......... 697 3,221 2,334 4,201 Other income (expense): Interest expense........ (199) (189) (373) (263) Other, net ....... 109 (337) (182) (224) --------- --------- -------- -------- Income before taxes....... 607 2,695 1,779 3,714 Income taxes.............. 233 1,037 683 1,428 --------- --------- -------- -------- Net income ............... $ 374 $ 1,658 $ 1,096 $2,286 ========= ========= ======== ======== Net income per common share: Basic.................... $ 0.06 $ 0.27 $ 0.18 $ 0.37 Diluted.................. $ 0.06 $ 0.26 $ 0.17 $ 0.36 Weighted average shares outstanding: Basic..................... 6,221 6,130 6,200 6,138 Diluted................... 6,490 6,383 6,439 6,371 Cash dividends............. None None None None See notes to consolidated financial statements. Cobra Electronics Corporation and Subsidiaries Consolidated Balance Sheets (Dollars in thousands) As of As of June 30, December 31, 2001 2000 (Unaudited) ------------ ------------ ASSETS: Current assets: Cash........................ $ 25 $ 54 Receivables, less allowance for claims and doubtful accounts of $1,627 at June 30, 2001 and $1,869 at December 31, 2000 ........ 25,153 36,116 Inventories, primarily finished goods............ 27,381 18,873 Deferred income taxes....... 4,031 4,031 Other current assets........ 2,932 3,200 ------------ ------------ Total current assets........ 59,522 62,274 ------------ ------------ Property, plant and equipment, at cost: Land........................ 330 330 Building and improvements... 3,883 3,567 Tooling and equipment....... 16,438 15,668 ------------ ------------ 20,651 19,565 Accumulated depreciation.... (14,291) (13,308) ------------ ------------ Net property, plant and equipment................. 6,360 6,257 ------------ ------------ Other assets: Deferred income taxes...... 1,688 1,688 Cash surrender value of officers life insurance policies................... 5,635 5,670 Other...................... 1,206 2,016 ------------ ------------ Total other assets 8,529 9,374 ------------ ------------ Total assets.................. $ 74,411 $ 77,905 ============ ============ See notes to consolidated financial statements. Cobra Electronics Corporation and Subsidiaries Consolidated Balance Sheets (Dollars in thousands) As of As of June 30, December 31, 2001 2000 (Unaudited) ------------ ------------ LIABILITIES AND SHAREHOLDERS' EQUITY: Current liabilities: Accounts payable............ $ 4,046 $ 3,400 Accrued salaries and commissions............... 680 1,911 Accrued advertising and sales promotion costs..... 2,820 3,051 Accrued product warranty costs..................... 2,646 2,692 Other accrued liabilities... 1,177 1,881 Short-term debt............. 9,988 13,376 ------------ ------------ Total current liabilities... 21,357 26,311 ------------ ------------ Deferred compensation....... 3,158 2,968 ----------- ------------ Total liabilities:............ 24,515 29,279 ----------- ------------ Shareholders' equity: Preferred stock, $1 par value, shares authorized- 1,000,000; none issued.... --- --- Common stock, $.33 1/3 par value, 12,000,000 shares authorized; 7,039,100 issued for 2001 and 2000. 2,345 2,345 Paid-in capital............. 19,858 20,032 Retained earnings........... 32,740 31,644 ------------ ------------ 54,943 54,021 Treasury stock, at cost (812,798 shares for 2001 and 872,716 shares for 2000) . (5,047) (5,395) ------------ ------------ Total shareholders' equity.. 49,896 48,626 ------------ ------------ Total liabilities and share- holders' equity............. $ 74,411 $ 77,905 ============ ============ See notes to consolidated financial statements. Cobra Electronics Corporation and Subsidiaries Consolidated Statements of Cash Flows (Dollars in thousands) For the Six Months Ended (Unaudited) -------------------------------- June 30, June 30, 2001 2000 ---------- ---------- Cash flows from operating activities: Net income $ 1,096 $ 2,286 Adjustments to reconcile net income to net cash provided by (used for) operating activities: Depreciation and amortization 1,176 1,017 Loss (gain) on cash surrender value of life insurance 35 (87) Changes in assets and liabilities: Receivables.................. 10,963 (507 Inventories.................. (8,508) (9,898) Other current assets......... 268 2,243 Other assets................. 628 5 Accounts payable............. 646 2,022 Accrued liabilities.......... (2,212) (333) Deferred compensation........ 190 180 ---------- ---------- Net cash flows from (used by) operating activities........ 4,282 (3,072) ---------- ---------- Cash flows from investing activities: Capital expenditures.......... (1,099) (699) ---------- ---------- Net cash flows from (used in) investing activities......... (1,099) (699) ---------- ---------- Cash flows from financing activities: Net borrowings (repayments) under the line-of-credit agreement..... (3,388) 5,403 Transactions related to exercise of common stock options, net. 176 131 Transactions related to stock repurchase................... --- (386) ---------- ---------- Net cash flows from (used in) financing activities......... (3,212) 5,148 ---------- ---------- Net increase (decrease) in cash.. (29) 1,377 Cash at beginning of period...... 54 93 ---------- ---------- Cash at end of period............ $ 25 $ 1,470 ========== ========== Supplemental disclosure of cash flow information Cash paid during the period for: Interest $ 440 $ 154 Taxes 550 115 See notes to consolidated financial statements. Cobra Electronics Corporation and Subsidiaries Notes to Consolidated Financial Statements (Unaudited) The consolidated financial statements included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting princi- ples generally accepted in the United States of America have been omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. The Consolidated Balance Sheet as of December 31, 2000 has been derived from the audited consolidated balance sheet as of that date. It is suggested that these financial statements be read in conjunction with the financial statements and the notes thereto included in the Company's latest annual report on Form 10-K for the year ended December 31, 2000. In the opinion of management, the information contained herein reflects all adjustments necessary to make the results of operations for the interim periods a fair statement of such operations. Due to the seasonality of the Company's business, the results of operations of any interim period are not necessarily indicative of the results that may be expected for a fiscal year. (1) PURCHASE ORDERS AND COMMITMENTS At June 30, 2001 and 2000, the Company had outstanding purchase orders with suppliers totaling approximately $26.5 million and $60.2 million, respectively. The decrease is due to higher inventories from a year ago and significantly shorter vendor lead times. (2) EARNINGS PER SHARE For the Three For the Six Months Ended Months Ended (Unaudited) (Unaudited) -------------------- ---------------------- June 30, June 30, June 30, June 30, 2001 2000 2001 2000 ------- -------- -------- ------- Income: Income available to common shareholders (thousands) $ 374 $1,658 $1,096 $2,286 Basic earnings per share: Weighted-average shares outstanding 6,221,024 6,129,532 6,199,596 6,137,545 ========= ========= ========= ========= Basic earnings per share $0.06 $0.27 $0.18 $0.37 ========= ========= ========= ========= Diluted earnings per share: Weighted-average shares outstanding 6,221,024 6,129,532 6,199,596 6,137,545 Dilutive shares issuable in connection with stock option plans 817,832 894,625 817,832 894,625 Less shares purchasable with proceeds (549,165) (641,349) (578,453) (661,561) --------- --------- --------- ---------- Total 6,489,691 6,382,808 6,438,975 6,370,609 ========= ========= ========= ========== Diluted earnings per share $0.06 $0.26 $0.17 $0.36 ========= ========= ========= ========== (3) TERMINATED ACQUISITION On January 5, 2001, the Company announced that it had entered into a Merger Agreement and Plan of Merger dated January 4, 2001 pursuant to which the Company commenced a tender offer for all of the outstanding shares of common stock of Lowrance Electronics, Inc. ("Lowrance"). On May 2, 2001, the Company terminated its tender offer for Lowrance common stock and the related Merger Agreement due to a material adverse change in Lowrance's net sales and earnings relative to financial projections provided to Cobra by Lowrance. At December 31, 2000, $613,000 in costs incurred in connection with this transaction had been capitalized in "Other Assets" in the Consolidated Balance Sheet. The Company continued to capitalize costs related to the transaction through May 1, 2001. During the second quarter of 2001, the Company recorded a $1.4 million non-recurring charge for expenses associated with this terminated acquisition. (4) NEW ACCOUNTING PRONOUNCEMENTS The Financial Accounting Standards Board has issued Statement of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations" and SFAS No. 142, "Goodwill and Other Intangible Assets". These statements establish new accounting and reporting standards for business combinations and associated goodwill and intangible assets. They require, among other things, elimination of the pooling of interests method of accounting, no amortization of acquired goodwill, separate identification of certain identifiable intangible assets, and a periodic assessment for impairment of all goodwill and intangible assets acquired in a business combination. SFAS No. 141 is effective for all business combinations accounted for by the purchase method that are completed after June 30, 2001. SFAS No. 142 is effective for fiscal years beginning after December 15, 2001. The Company has determined that SFAS No. 142 has no impact on its financial statements as no goodwill currently exists. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations ANALYSIS OF RESULTS OF OPERATIONS Second Quarter 2001 vs. Second Quarter 2000: - -------------------------------------------- For the second quarter ended June 30, 2001, net income was $374,000, or $0.06 per diluted share, which included a charge of $1.4 million for nonrecurring expenses for the terminated acquisition of Lowrance. In the year ago quarter, net income was $1.7 million, or $0.26 per diluted share. Excluding the nonrecur- ring expenses, the Company would have had net income of $1.2 million, or $0.19 per diluted share, approximately $420,000 less than the second quarter of 2000. The decrease was primarily due to lower gross margins and higher operating expenses, partially offset by other income. Net sales for the second quarter of 2001 decreased slightly to $35.2 million from sales of $35.8 million in the second quarter of 2000. Despite the relatively flat sales for the quarter and the slow down in the economy, sales of domestic MicroTALK Family Radio Service ("FRS") two-way radios remained strong, with sales increasing 26% over the second quarter of 2000. Offsetting the increase in FRS sales were lower sales of Citizens Band radios and radar detectors. Sales of Citizens Band radios continued to be negatively impacted by higher fuel prices, which have reduced the discretionary income of professional drivers, as well as by the slow down in the economy. Lower sales of radar detectors reflected the effects of a slow down in the economy as well as the fact that the second quarter of 2000 experienced strong opening order sales of 9 Band detectors, which were introduced late in the first quarter of 2000. Gross margins decreased in the current quarter to 26.5% from 27.8%, primarily due to pricing pressures in the marketplace, particularly in the FRS category. To help maintain MicroTALK's sales momentum at retail and market share, the Company reduced effective prices on some models through a combination of price reductions to customers and rebates to consumers. Partially offsetting some of the negative impact on gross margin was a decrease of approximately $500,000 relative to the prior year in charges to write down inventory to its net realizable value. In 2000, certain inventory unrelated to the Company's core product lines required sizeable write-downs. Selling, general and administrative expense, excluding the expenses for the terminated acquisition of Lowrance, increased $486,000 in the second quarter of 2001 from the same period in 2000. The overall increase reflected additional variable and fixed selling expenses. The increase in variable selling expenses was due primarily to a change in customer mix and the variances in programs among customers. The higher fixed selling expenses resulted primarily from expenses of the Company's European subsidiary based in Dublin, Ireland, which began operation late in 2000. On January 5, 2001, the Company announced that it had entered into a Merger Agreement and Plan of Merger dated January 4, 2001 (the "Merger Agreement") pursuant to which the Company commenced a tender offer for all of the outstand- ing shares of common stock of Lowrance. On May 2, 2001, the Company terminated its tender offer for Lowrance common stock and the related Merger Agreement due to a material adverse change in Lowrance's net sales and earnings relative to financial projections provided to Cobra by Lowrance. During the second quarter of 2001, the Company recorded a $1.4 million non-recurring charge for expenses associated with the Lowrance acquisition. These expenses consisted of bank, legal and due diligence fees as well as travel expenses. All charges pertaining to the terminated acquisition were recorded in the second quarter and no further charges are anticipated. Interest expense for the quarter ended June 30, 2001 increased $10,000 compared to the prior year's second quarter, primarily due to higher average debt levels because of increased accounts receivable and inventory from the second quarter of 2000. Other expense was $446,000 lower primarily due to income on investments for the cash surrender value of life insurance policies in the second quarter of 2001 compared to losses on these investments in the year ago quarter. For the second quarter of 2001, the Company's effective tax rate was 38.4%, which approximated the effective rate incurred in the second quarter of 2000. Six months ended June 30, 2001 vs. Six months ended June 30, 2000 - ------------------------------------------------------------------ For the six months ended June 30, 2001, net income was $1.1 million, or $0.17 per diluted share, which included a charge of $1.4 million of nonrecurring expenses for the terminated acquisition of Lowrance. For the six months ended June 30, 2000, net income was $2.3 million, or $0.36 per diluted share. Excluding the expenses pertaining to the Lowrance transaction, the Company would have had net income of $2.0 million, or $0.31 per diluted share. The decrease was primarily due to a lower gross margin and higher operating expenses. Net sales for the six months ended June 30, 2001 increased 15.3% to $65.9 million from sales of $57.1 million for the same period of 2000. Contributing to this increase was an 83% increase in sales of domestic microTALK FRS two-way radios as well as increased sales of MicroTALK European PMR two-way radios and HIGHGEAR accessories, which was a new line added in 2000. The strong growth of domestic FRS radios reflected mainly the impact of placing FRS with certain major new and existing customers after the second half of 2000 together with shipments of the Company's new SNAP replacement front models in the U.S. Sales of European PMR radios increased 32% and represented continued penetration of this market. HIGHGEAR sales nearly tripled from the same period a year ago due to the introduction of a new line of power inverters. Gross margins decreased during the period to 27.0% from 28.2%, primarily due to pricing pressures in the marketplace, particularly in the FRS category. To help maintain MicroTALK sales momentum at retail and market share, the Company reduced effective prices on some models through a combination of price reductions to customers and rebates to consumers. Selling, general and administrative expense, excluding the expenses for the terminated acquisition of Lowrance, increased $2.2 million, or 0.5% of net sales, in the six months ended June 30, 2001 from the same period of 2000. The overall increase reflected additional variable and fixed selling expenses. The increase in variable selling expenses was due to both higher sales volume and a change in customer mix and the variances in programs among customers. The increased fixed selling expenses resulted primarily from expenses of the Company's European subsidiary based in Dublin, Ireland, which began operation in late 2000. On May 2, 2001, the Company terminated its tender offer for Lowrance common stock and the related Merger Agreement due to a material adverse change in Lowrance's net sales and earnings relative to financial projections provided to Cobra by Lowrance. During the second quarter of 2001, the Company recorded a $1.4 million non-recurring charge for expenses associated with the terminated acquisition of Lowrance. These expenses consisted of bank, legal and due dili- gence fees as well as travel expenses. All charges pertaining to the terminated acquisition were recorded in the second quarter and no further charges are anticipated. Interest expense for the period increased $110,000 compared to the prior year, primarily due to higher average debt levels, which were driven by higher accounts receivable and inventory for the period, partially offset by a lower interest rate. For the first six months of 2001, the Company's effective tax rate was 38.4%, which approximated the effective rate incurred in the prior year's period. LIQUIDITY AND CAPITAL RESOURCES Operating activities generated cash of approximately $4.3 million during the six months ended June 30 2001, primarily due to a decrease in accounts receivable, partially offset by an increase in inventories and a decrease in accrued liabilities. Accounts receivable decreased by $11.0 million due to collections of significantly higher first quarter 2001 sales as compared to the first quarter of 2000 coupled with lower second quarter 2001 sales. Inventories increased primarily in MicroTALK radios, reflecting mainly a normal seasonal build in anticipation of increasing promotional activities by major retail customers. Accrued liabilities decreased because payments, related to awards earned in 2000 under the Company's incentive bonus and profit sharing programs, were made in the first quarter of 2001 and as a result of lower sales commissions. Debt decreased $3.4 million primarily due to lower accounts receivable levels. At June 30, 2001, the Company had approximately $17.0 million of unused credit line. In August 1998, the Company's Board of Directors authorized a program to repurchase up to $1 million of the Company's common shares. On May 17, 1999, the Company announced that a second repurchase program had been approved to acquire up to an additional $1 million of common stock. During the first half of 2001, the Company did not repurchase any of its common shares. Since the program's inception through June 30, 2001, the Company has repurchased 387,900 of its common shares at a total cost of approximately $1.6 million. Item 3 Quantitative and Qualitative Disclosures About Market Risk The Company is subject to market risk associated principally with changes in interest rates. Interest rate exposure is principally limited to the $10.0 million of debt outstanding at June 30, 2001. The debt is priced at interest rates that float with the market, which therefore mitigates interest rate exposure. A 50 basis point movement in the interest rate on the floating rate debt would result in an approximately $50,000 increase or decrease in interest expense and cash flows. The Company does not use derivative financial or commodity instruments for trading or other purposes. The Company's suppliers are located in foreign countries, principally in the Far East. The Company made approximately 8.3% of its sales outside the United States in the first half of 2001. The Company minimizes its foreign currency exchange rate risk by conducting all of its transactions in US dollars. However, begin- ning on July 1, 2001, the Company will conduct the billing for its European sales and the majority of the purchases associated therewith in euros. Forward-Looking Statements This Management's Discussion and Analysis contains statements which are not historical facts and are considered "forward-looking" within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are identified by their use of the terms: "expects," "intends," "may impact," "plans," "should," "anticipates" or similar terms. These forward- looking statements involve a number of risks and uncertainties that may cause actual results to differ materially from expected results. These risks and uncertainties include, but are not limited to, the following: business condi- tions and growth of industries in which the Company competes, including changes in economic conditions in the geographic areas where the Company's operations exist or products are sold; timing, start-up and customer acceptance of newly designed products; competitive factors, such as price competition and new product introductions; significant loss of business from a major national retailer; the cost and availability of raw materials and purchased components; the impact of business acquisitions or dispositions; the costs of complying with governmental regulations; level of share repurchases; litigation and other risk factors. PART II OTHER INFORMATION Items 1, 2, 3, and 5 - ---------------------------------------- Not Applicable. Item 4. Submission of Matters to a Vote of Security Holders - ------------------------------------------------------------- a) The 2001 Annual Meeting of Shareholders was held on May 8, 2001. b);(c) The following persons were elected Directors of the Company to serve until the annual meeting of the term specified below: Name Class Votes for Votes withheld Term --------------------- ----- --------- -------------- ---- James R. Bazet I 5,396,021 340,332 2002 William P. Carmichael III 5,685,719 50,634 2004 James W. Chamberlain II 5,684,619 51,734 2003 Gerald M. Laures II 5,676,249 60,104 2003 Carl Korn III 5,396,021 340,332 2004 Ian R. Miller III 5,693,819 42,534 2004 Harold D. Schwartz I 5,695,498 40,855 2002 d) Not applicable Item 6. Exhibits and Reports on Form 8-K - ----------------------------------------- a) During the quarter, the Company filed no Reports on Form 8-K. SIGNATURE Pursuant to the requirements 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. COBRA ELECTRONICS CORPORATION By: /s/ Michael Smith ------------------------ Michael Smith Senior Vice President and Chief Financial Officer Dated: August 14, 2001 -----END PRIVACY-ENHANCED MESSAGE-----