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 September 30, 2000
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 $.33 1/3 Per Share
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
----- -----
Number of shares of Common Stock of Registrant outstanding at
November 8, 2000: 6,166,384
<PAGE>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Cobra Electronics Corporation and Subsidiaries
Consolidated Statements of Income
(In thousands, except per share amounts)
For the Three For the Nine
Months Ended Months Ended
(Unaudited) (Unaudited)
-------------------- --------------------
Sept 30, Sept 30, Sept 30, Sept 30,
2000 1999 2000 1999
-------- -------- -------- --------
Net sales............$ 38,573 $ 34,346 $ 95,719 $ 80,433
Cost of sales........ 27,702 26,082 68,745 60,591
-------- -------- -------- -------
Gross profit....... 10,871 8,264 26,974 19,842
Selling, general and
administrative
expense............ 7,435 6,362 19,337 16,282
-------- -------- -------- -------
Operating income.... 3,436 1,902 7,637 3,560
Other income(expense):
Interest expense... (256) (197) (519) (697)
Other, net......... (18) (378) (242) (201)
-------- -------- -------- -------
Income before
taxes.............. 3,162 1,327 6,876 2,662
Provision
for income taxes... 1,213 442 2,641 907
-------- --------- --------- --------
Net income...........$ 1,949 $ 885 $ 4,235 $ 1,755
======== ========= ========= ========
Net income per common share:
-Basic....... $0.32 $0.15 $0.69 $0.29
-Diluted..... 0.30 0.15 0.66 0.28
======== ======== ======== ========
Weighted average
shares outstanding
-Basic....... 6,132 5,981 6,136 6,025
-Diluted..... 6,443 6,077 6,398 6,162
======== ======== ======== ========
Cash dividends....... None None None None
======== ======== ======== ========
See notes to consolidated financial statements.
Cobra Electronics Corporation and Subsidiaries
Consolidated Balance Sheets
(Dollars in thousands)
As of As of
Sept 30, December 31,
2000 1999
(Unaudited)
------------- ------------
ASSETS:
Current assets:
Cash.......................$ 701 $ 93
Receivables, less allowance
for claims and doubtful
accounts of $2,032 at
Sept 30, 2000, and $1,381
at December 31,1999...... 31,295 25,565
Inventories, primarily
finished goods............. 26,004 8,689
Deferred income taxes....... 4,997 4,997
Other current assets........ 1,660 4,192
------------ ------------
Total current assets........ 64,657 43,536
------------ ------------
Property, plant and equipment, at cost:
Land........................ 330 330
Building and improvements... 4,146 3,619
Tooling and equipment....... 15,009 13,915
------------ ------------
19,485 17,864
Accumulated depreciation.... (14,338) (13,042)
------------- -------------
Net property, plant and
equipment................. 5,147 4,822
------------ ------------
Other assets:
Deferred income taxes...... 1,941 4,581
Cash surrender value of
officers' life insurance
policies.................. 5,879 5,499
Other ..................... 985 1,141
------------ ------------
Total other assets......... 8,805 11,221
------------ ------------
Total assets..................$ 78,609 $ 59,579
============ ============
See notes to consolidated financial statements.
<PAGE>
Cobra Electronics Corporation and Subsidiaries
Consolidated Balance Sheets
(Dollars in thousands)
As of As of
Sept 30, December 31,
2000 1999
(Unaudited)
------------ ------------
LIABILITIES AND SHAREHOLDERS'
EQUITY:
Current liabilities:
Accounts payable............ $ 5,453 $ 2,792
Accrued salaries and
commissions................ 1,417 1,326
Accrued advertising and
sales promotion costs...... 2,770 2,800
Accrued product warranty
costs...................... 2,937 2,916
Other accrued liabilities... 1,058 1,456
Short-term debt............. 16,474 4,083
------------ ------------
Total current liabilities... 30,109 15,373
------------ ------------
Deferred compensation....... 2,909 2,634
----------- ------------
Total liabilities............. 33,018 18,007
----------- ------------
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 2000 and 1999.. 2,345 2,345
Paid-in capital............. 20,103 20,301
Retained earnings........... 28,690 24,455
------------ ------------
51,138 47,101
Treasury stock, at cost..... (5,547) (5,529)
(898,966 shares for 2000 and
921,009 shares for 1999.
------------ ------------
Total shareholders' equity.. 45,591 41,572
------------ ------------
Total liabilities and share-
holders' equity............. $ 78,609 $ 59,579
============ ============
See notes to consolidated financial statements.
<PAGE>
Cobra Electronics Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(Dollars in thousands)
For the Nine Months Ended
(Unaudited)
--------------------------------
Sept 30, Sept 30,
2000 1999
-------------- -------------
Cash flows from operating Activities:
Net income from operations $ 4,235 $ 1,755
Adjustments to reconcile net income
from operations to net
cash provided by (used for)
operating activities:
Depreciation and amortization 1,519 1,281
Deferred taxes 2,640 0
Changes in assets and
liabilities:
Receivables................ (5,730) 1,948
Inventories................ (17,315) (1,089)
Other current assets....... 2,472 (256)
Other assets............... (8) (295)
Accounts payable........... 2,661 1,917
Deferred compensation...... 275 95
Accrued liabilities........ (316) 359
-------- ---------
Net cash (used for) provided by
operating activities......... (9,567) 5,715
--------- ---------
Cash flows from investing activities:
Capital expenditures........... (1,621) (948)
Cash Surrender Value of Life
Insurance...................... (380) (483)
--------- ---------
Net cash used in investing
activities................... (2,001) (1,431)
--------- ---------
Cash flows from financing activities:
Net borrowings (repayments) under
the line-of-credit agreement. 12,391 (3,249)
Transactions related to stock
repurchase ................... (386) (535)
Transactions related to exercise
of common stock options, net.... 171 132
--------- ---------
Net cash provided by (used for)
financing activities......... 12,176 (3,652)
-------- ---------
Net increase in cash.. 608 632
Cash at beginning of period...... 93 100
-------- ---------
Cash at end of period............ 701 $ 732
======== =========
Supplemental disclosure of cash flow
information Cash paid during the period
for:
Interest $ 371 $ 739
Taxes 286 63
See notes to consolidated financial statements.
<PAGE>
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
principles generally accepted in the United States of America have been
condensed or omitted pursuant to such rules and regulations, although the
Company believes that the disclosures are adequate to make the information
presented not misleading. 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. 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. All such adjustments are of a normal recurring nature. 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 September 30, 2000, the Company had outstanding purchase orders with
suppliers totaling approximately $41.8 million compared to $31.8 million as of
September 30, 1999.
(2) EARNINGS PER SHARE
For the Three For the Nine
Months Ended Months Ended
(Unaudited) (Unaudited)
-------------------- --------------------
Sept 30, Sept 30, Sept 30, Sept 30,
2000 1999 2000 1999
-------- -------- -------- --------
Income:
Income available to common
shareholders (thousands).... $ 1,949 $ 885 $4,235 $1,755
Basic Earnings Per Share:
Weighted-average shares
outstanding.............. 6,132,164 5,980,738 6,135,719 6,024,990
-------- -------- --------- ---------
Basic Earnings Per Share $0.32 $0.15 $0.69 $0.29
======== ======== ========= =========
Diluted Earnings Per Share:
Weighted-average shares
outstanding 6,132,164 5,980,738 6,135,719 6,024,990
Dilutive shares issuable
in connection with
stock option plans 894,625 370,250 894,625 691,250
Less: shares purchasable
with proceeds (583,398) (273,722) (632,284) (554,607)
---------- --------- ---------- ---------
Total 6,443,391 6,077,266 6,398,060 6,161,633
========== ========= ========= =========
Diluted Earnings Per Share $0.30 $0.15 $0.66 $0.28
========== ========= ========= =========
<PAGE>
(3) NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133
establishes accounting and reporting standards for derivative instruments and
for hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the balance sheet and measure these instruments
at fair value. This statement also requires changes in the fair value of
derivatives to be recorded each period in current earnings or comprehensive
income depending on the intended use of derivatives. In June 1999, the FASB
deferred the effective date of SFAS No. 133 to fiscal years beginning as of June
15, 2000. The Company must adopt SFAS No. 133 no later than the first quarter of
fiscal year 2001. The Company is in the process of assessing the impact that
adopting SFAS No. 133 will have on its financial position and results of
operations when such statement is adopted.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
ANALYSIS OF RESULTS OF OPERATIONS
Third Quarter 2000 vs. Third Quarter 1999:
--------------------------------------------
For the third quarter ended September 30, 2000, net income was $1,949,000, or
$0.30 per diluted share. This compares to net income of $885,000, or $0.15 per
diluted share, in the third quarter of 1999.
Sales for the third quarter of 2000 increased $4.2 million, or 12%, to $38.6
million from $34.4 million for the same period a year ago. The increase was due
to strong sales of MicroTALK(TM) Family Radio Service (FRS) two-way radios in
the United States, Canada and Europe. Partially offsetting these increases were
lower sales of Citizen Band radios due mainly to the impact of higher fuel
prices on the disposable income of professional drivers.
Gross margin for the third quarter of 2000 increased to 28.2% from 24.1% in the
prior year's quarter. The increase in margin was due to improved margins on the
new lines of MicroTALK FRS radios and 9 Band(TM) radar detectors as well as a
decrease in airfreight shipments, which are more expensive than the normal ocean
shipments.
Selling, general and administrative expenses increased $1.1 million in the third
quarter of 2000 from the same period a year ago, and, as a percentage of net
sales, increased to 19.3% compared to 18.5% for the third quarter of 1999. The
increase represented higher selling costs due to the increase in sales volume,
higher accrued management incentive bonuses because of the higher profitability,
and increased costs associated with a growing international business, including
the formation of an Irish subsidiary, Cobra Electronics Europe Limited, with an
office in Dublin.
Interest expense for the current quarter increased $59,000 compared to the third
quarter of 1999 due to higher average debt levels, driven by higher inventory
levels.
Other expense for the third quarter of 2000 was $18,000 compared to other
expense of $378,000 in the prior year's third quarter. The decrease reflected
higher investment income on the cash surrender value of life insurance policies
and lower expense from the third quarter of 1999 due to a settlement of a patent
infringement lawsuit in that period.
For the third quarter of 2000, the Company had a provision for income taxes of
$1,213,000 compared to $442,000 in the third quarter of 1999 reflecting
primarily the substantially higher pre-tax income.
Nine Months 2000 vs. Nine Months 1999
-------------------------------------
For the nine months ended September 30, 2000, the Company's net income was $4.2
million or $0.66 per diluted share compared to net income of $1.8 million, or
$0.28 per diluted share for the first nine months of 1999.
Sales for the nine months ended September 30, 2000 increased $15.3 million, or
19%, to $95.7 million from $80.4 million for the nine months ended September 30,
1999. The increase represented strong sales of MicroTALK FRS two-way radios in
the United States, Canada, and Europe as well as higher sales of 9 Band radar
detectors, introduced in the first quarter of 2000. Partially offsetting these
increases were lower sales of Citizen Band radios for the reason discussed
above.
Gross margin increased to 28.2% for the nine months ended September 30, 2000
from 24.7% in the prior year period. The increase was due primarily to higher
margins on the new MicroTALK radios and 9 Band radar detectors.
Selling, general and administrative expenses increased $3.1 million for the
first nine months of 2000 from the same period a year ago, but, as a percentage
of net sales, remained flat at 20.2%. These expenses increased because of higher
variable selling costs, as a result of the increased sales volume, and because
of payroll related expenses. The additional payroll expenses included a higher
management incentive bonus accrual because of the increased profitability and
higher salary, recruitment and relocation costs for several new and replacement
positions, including a Corporate Controller and E-Commerce Director.
Interest expense for the period decreased $178,000 compared to the prior year
due to lower average debt levels and more borrowings under a more favorable
LIBOR interest rate option. Other expenses increased $41,000 due to lower
investment income on the cash surrender value of life insurance policies.
For the first nine months of 2000, the Company had a provision for income taxes
of $2,641,000 compared to $907,000 for the prior year because of the
significantly higher pre-tax income.
LIQUIDITY AND CAPITAL RESOURCES
Operating activities used cash of $9.6 million during the nine months ended
September 30, 2000, primarily due to seasonal increases in inventories and
accounts receivable, partially offset by decreases in other current assets and
other assets as well as an increase in accounts payable. The increase in
receivables reflected higher third quarter sales that occurred later in the
quarter as compared to the fourth quarter of 1999. Inventories increased
primarily due to purchases to support anticipated holiday sales. Citizen Band
radios inventories increased due to lower than expected sales to professional
drivers as a result of the significant increase in fuel prices. Other current
assets decreased due to a reduction of certain prepaid items relating to
inventory in transit. Other assets decreased due to a reduction in the deferred
tax asset for income tax net operating loss carry forwards. Accounts payable
increased due to an increase in letters of credit presented but not yet paid for
inventory placed in transit by the Company's vendors. Debt increased $12.4
million during the first nine months of 1999, primarily due to the higher
receivables and inventory levels. At September 30, 2000, the Company had
approximately $7.9 million of unused credit line. At December 31, 1999, the
Company had net operating loss carry forwards amounting to $20.1 million.
Because of these, the Company pays substantially no Federal income taxes even
though the income statement reflects a provision for income taxes.
In late 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 another $1 million of common stock. During the first nine months of 2000,
the Company spent approximately $386,000 to repurchase 68,700 of its common
shares. Since the program's inception through September 30, 2000, the Company
has repurchased 387,900 of its common shares at a total cost of approximately
$1.6 million.
Item 3 Qualitative and Quantitative 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 Company's
$16.5 million of debt outstanding at September 30, 2000. The debt is priced at
interest rates that float with the market, which therefore minimizes interest
rate exposure. A 50 basis point movement in the interest rate on the floating
rate debt would result in an approximately $82,370 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 11.3% of its sales outside the United
States in the first nine months of 2000. The Company minimizes its foreign
currency exchange rate risk by conducting all of its transactions in US dollars.
<PAGE>
PART II
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
-----------------------------------------
a) Exhibits:
Exhibit No. Description
----------- ---------------------------------------
27 Financial data schedule required under
Article 5 of Regulation S-X
b) During the quarter, the Company filed no Current 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/ Gerald M. Laures
------------------------
Gerald M. Laures
Vice President - Finance,
and Corporate Secretary
(Authorized Officer and
Principal Financial Officer)
Dated: November 13, 2000
<PAGE>
