Higher Gross Margins and Lower Expenses Drive Operating Gains
CHICAGO, Oct. 29 /PRNewswire-FirstCall/ -- Cobra Electronics Corporation
(Nasdaq: COBR), a leading global designer and marketer of mobile
communications and navigation products, today reported net income of $142,000,
or $0.02 per fully diluted share, for the third quarter of 2008, as compared
to net income of $404,000, or $0.06 per fully diluted share, in the prior
year's third quarter. Operating income increased to $793,000 from $17,000 in
the prior year's quarter but was eroded by a loss of $318,000 in the cash
surrender value of life insurance that the company carries to recapture the
costs of deferred compensation programs for certain current and former
officers of Cobra. Increased operating income was generated by improved gross
margins and reduced operating expenses, offsetting a decline in sales to $33.2
million from $39.3 million in the prior year's third quarter. On a
year-to-date basis, Cobra reported net income of $1.9 million, or $0.30 per
fully diluted share, as compared to a loss of $750,000, or $0.12 per share, in
the prior year.
"We are pleased with Cobra's improved operating income in the third
quarter and our turnaround for the year-to-date," said Jim Bazet, Cobra's
Chairman and Chief Executive Officer. "It is unfortunate that the turmoil in
the financial markets overshadowed our operating results, which reflected good
execution by our team to manage costs and reduce operating expenses. In spite
of lower sales, gross profits were essentially equal to those of the prior
year's quarter and operating income was substantially greater due to higher
gross margins and lower SG&A expenses. Although I hesitate to predict the
timing of a recovery in the cash surrender value of our life insurance
products, this loss is very likely to be reversed over time and the company's
strategy to use these policies to ultimately recover the costs of our deferred
compensation programs has not been adversely affected."
Net sales for the quarter declined to $33.2 million from $39.3 million in
the prior year. Mobile navigation sales in the Cobra segment accounted for
approximately $1.2 million of this decline, reflecting the company's strategy
to discontinue development of mass marketed mobile navigation products for the
North American market and focus its efforts on niche opportunities.
Additionally, sales of two-way radios, radar detectors and Citizens Band
radios declined due to weak store traffic and competitive pressures.
International sales for the Cobra segment increased relative to the prior
year's quarter primarily due to the strength of the two-way radio line in
Canada. Net sales in the PPL segment decreased by $1.1 million, reflecting
aggressive sales efforts in the second quarter, as well as a marked slowdown
in the UK economy as retail same-store sales declined by more than 1% as
compared to the prior year.
Cobra reported nearly across-the-board improvements in gross margins as
compared to the third quarter of 2007. On a consolidated basis, Cobra's gross
margin increased to 29.2 percent from 24.8 percent in the prior year. This
reflected an improvement in gross margin in the Cobra reporting segment to
27.3 percent from 23.2 percent, as well as a 52.8 percent gross margin for the
PPL segment, an increase from 40.6 percent in the prior year. The gross
margin in the Cobra segment was favorably impacted by a substantial reduction
in airfreight, improved margins from new products and better management of
inventory as fewer products were available for sale to discounters and
liquidators. Additionally, results in the prior year's quarter included
significant losses on mobile navigation products that are no longer being
incurred as sales of such products have been principally curtailed. PPL's
gross margin improved as the sales mix shifted to higher margin sales of
proprietary data, including download fees for mobile navigation and GPS speed
camera locator products.
Selling, general and administrative expenses declined to $8.9 million in
the third quarter from $9.7 million in the prior year. This decline
represents a concerted effort by management to curtail expenses and includes
headcount reductions and lower professional fees, as well as lower variable
selling expenses on lower sales. "As noted in our prior press releases, we
have communicated throughout the company that operating expenses must be
watched closely and each expense scrutinized before making commitments," said
Mr. Bazet. "We are pleased with the continued progress in this area and
intend to remain focused on these efforts."
Cobra also recorded other expenses of $135,000 in the third quarter, as
compared to other income of $212,000 in the same quarter of the prior year.
The most significant element of this swing was a $318,000 loss on the cash
surrender value of life insurance that the company owns for the purpose of
funding deferred compensation programs for several current and former officers
of the company; in the prior year's quarter, the company had a cash surrender
loss of $27,500. The loss was generated as the investment vehicles in which
the cash was invested declined in value in line with the overall financial
markets. Additionally, there was $254,000 of foreign exchange income in 2007
compared to foreign exchange income of $20,000 in 2008.
Results for the first nine months of 2008 also demonstrated considerable
improvement as compared to the prior year. As noted above, net income for the
year-to-date was $1.9 million or $0.30 per fully diluted share as compared to
a net loss of $750,000, or $0.12 per share, for the first three quarters of
2007. This substantial improvement in earnings, generated in spite of a
decline in sales to $96.4 million from $110.5 million last year, was driven by
improved gross margins, which increased to 31.2 percent from 23.7 percent last
year, and by lower operating expenses, which declined to $26.0 million in the
current year from $28.4 million in the prior year. Offsetting, in part, these
improved operating results were other expenses of $441,000 as compared to
other income of $827,000 last year. The primary driver for these expenses was
a decline of $780,000 in the cash surrender value of life insurance that is
used to fund deferred compensation programs for certain current and former
executives of the company; this decline is the result of the overall decline
in the financial markets and will not affect the company's ability to meet its
obligations to these executives or recover the designated costs of the
deferred compensation programs. Other income in the prior year included a
gain on the cash surrender value of life insurance of $193,000, as well as
exchange gains, royalty income and promotional funds from a provider of
navigation data.
Cobra maintained its strong balance sheet position during the third
quarter. The company had interest-bearing debt of $14.2 million as of
September 30, 2008 and cash of $3.6 million, for net debt of $10.6 million, as
compared to net debt of $18.2 million in the prior year. Inventory at the end
of the third quarter declined to $29.6 million from $37.0 million the prior
year and accounts receivable at the end of the quarter were $22.8 million, an
increase from $21.1 million one year earlier. Net book value per share as of
September 30, 2008 decreased to $10.06 from $10.56 one year ago.
The second and final earn-out period under the purchase agreement pursuant
to which the company acquired PPL concluded as of May 31, 2008. The aggregate
amount of the earn-out payment payable to the former shareholders of PPL was
£4.6 million and is included on the September 30, 2008 balance sheet as
accounts payable with a corresponding increase in goodwill of $8.5 million.
This payment was made to the shareholders in October 2008 using cash on hand
and borrowings under the company's credit facility.
Mr. Bazet concluded with the company's outlook for the fourth quarter of
2008, and reaffirmed earlier guidance. "We remain cautious regarding the
course of the economy and the pace of consumer spending in response to the
significant decline in the financial markets, higher gas prices, increased
unemployment and the decline in housing values. Nevertheless, Cobra expects
to meet our goal of returning to profitability in 2008, although revenue is
likely to decline from the prior year, as we only selectively pursue niche
opportunities in mobile navigation in North America and store traffic
moderates. This pattern is likely to be evident in fourth quarter results, as
we anticipate lower revenue but an improved bottom line relative to the prior
year."
Cobra will be conducting a conference call on October 29, 2008 at 11:00
a.m. EDT to discuss third quarter results as well as its current strategies
and outlook. The call can also be accessed live or through replay via the
Internet at http://www.cobra.com.
About Cobra Electronics
Cobra Electronics is a leading global designer and marketer of
communication and navigation products, with a track record of delivering
innovative and award-winning products. Building upon its leadership position
in the GMRS/FRS two-way radio, radar detector and Citizens Band radio
industries, Cobra identified new growth opportunities and has aggressively
expanded into the marine market and has expanded its European operations. The
Consumer Electronics Association, Forbes and Deloitte & Touche have all
recently recognized Cobra for the company's innovation and industry
leadership. To learn more about Cobra Electronics, please visit the Cobra
site at http://www.cobra.com.
Safe Harbor
This release contains forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. These statements are based
on management's current expectations and are subject to risks and
uncertainties. Actual results may differ materially from these expectations
due to factors such as the acceptance of Cobra's new and existing products by
customers, the continued success of Cobra's cost containment efforts and the
continuation of key distribution channel relationships. Please refer to
Cobra's filings with the Securities and Exchange Commission, including its
Annual Report on Form 10-K, for a more detailed discussion of factors that may
affect Cobra's performance.
Condensed Consolidated Statements of Operations
(in thousands, except per share amounts, unaudited)
For the Three For the Nine
Months Ended Months Ended
September September September September
30, 30, 30, 30,
2008 2007 2008 2007
Net sales $33,242 $39,283 $96,418 $110,534
Cost of sales 23,538 29,550 66,358 84,333
Gross profit 9,704 9,733 30,060 26,201
Selling, general and
administrative expense 8,911 9,716 26,002 28,384
Earnings (loss) from
operations 793 17 4,058 (2,183)
Other income (expense):
Interest expense (231) (419) (775) (1,149)
Other, net (135) 212 (441) 827
Earnings (loss) before taxes 427 (190) 2,842 (2,505)
Tax provision (benefit) 285 (596) 895 (1,768)
Minority interest 0 (2) (14) (13)
Net earnings (loss) $142 $404 $1,933 $(750)
Net earnings (loss) per
common share:
Basic $0.02 $0.06 $0.30 $(0.12)
Diluted $0.02 $0.06 $0.30 $(0.12)
Weighted average shares
outstanding:
Basic 6,471 6,469 6,471 6,454
Diluted 6,471 6,576 6,471 6,454
Dividends declared per
common share $-- $-- $0.16 $0.16
Condensed Consolidated Balance Sheets
(in thousands, unaudited)
ASSETS: September 30, September 30,
2008 2007
Current assets:
Cash $3,552 $1,492
Accounts receivable, net 22,775 21,065
Inventories, net 29,568 36,986
Other current assets 11,367 15,853
Total current assets 67,262 75,396
Property, plant and equipment, net 5,803 7,300
Total other assets 37,857 35,921
Total assets $110,922 $118,617
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities:
Accounts payable $13,163 $8,415
Accrued liabilities 7,892 9,628
Short-term debt 1,240 1,490
Total current liabilities 22,295 19,533
Non-current liabilities:
Long-term debt 13,000 18,206
Deferred taxes 2,630 5,213
Deferred compensation 6,809 6,339
Other long-term liabilities 1,039 960
Total non-current liabilities 23,478 30,718
Minority interest 34 13
Total shareholders' equity 65,115 68,353
Total liabilities and shareholders' equity $110,922 $118,617
SOURCE Cobra Electronics Corporation
investors, Michael Smith, Senior Vice President and CFO of Cobra Electronics
Corporation, +1-773-804-6281, msmith@cobra.com; or media, Elizabeth Dolezal of
Financial Relations Board, +1-312-640-6771, edolezal@frbir.com, for Cobra
Electronics Corporation
