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, 1994
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 60635
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (312) 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
11, 1994: 6,226,648
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
Cobra Electronics Corporation and Subsidiaries
Condensed Consolidated Statements of Operations
(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,
1994 1993 1994 1993
--------- --------- --------- ---------
Net sales $ 21,823 $ 29,592 $ 61,436 $ 72,249
Cost of sales 17,755 24,386 50,125 62,035
--------- --------- --------- ---------
Gross profit 4,068 5,206 11,311 10,214
Selling, general and
administrative expense 4,348 4,098 10,963 12,791
Restructuring costs --- --- --- 1,076
--------- --------- --------- ---------
Operating income(loss) (280) 1,108 348 (3,653)
Other expense:
Interest expense (275) (328) (735) (934)
Other, net (141) (104) (153) (178)
--------- --------- --------- ---------
Income(loss)
before taxes (696) 676 (540) (4,765)
Provision (benefit)
for taxes --- --- --- ---
--------- --------- --------- ---------
Net income(loss) $ (696) $ 676 $ (540) $ (4,765)
========= ========= ========= =========
Net income(loss)
per share $ (0.11) $ 0.11 $ (0.09) $ (0.77)
========= ========= ========= =========
Weighted average number
of common shares and
common share equiva-
lents outstanding
during the period 6,241 6,227 6,245 6,228
========= ========= ========= =========
Cash dividends None None None None
========= ========= ========= =========
The accompanying notes are an integral part of these financial
statements.
Cobra Electronics Corporation and Subsidiaries
Condensed Consolidated Balance Sheets
(dollars in thousands)
As of As of
September 30, December 31,
1994 1993
(Unaudited) (Unaudited)
-------------- --------------
ASSETS:
Current assets:
Cash and cash equivalents $ 561 $ 176
Receivables, less allowance for
doubtful accounts of $748 at
September 30, 1994 and $795
at December 31, 1993. 13,876 15,657
Inventories, primarily
finished goods 15,407 16,128
Prepaid taxes and expenses 5,581 5,449
-------------- --------------
Total current assets 35,425 37,410
-------------- --------------
Property, plant and equipment,
at cost:
Land 593 593
Building and improvements 6,833 6,815
Equipment 13,632 12,717
-------------- --------------
21,058 20,125
Accumulated depreciation
and amortization (13,969) (12,738)
-------------- --------------
Net property, plant and equipment 7,089 7,387
-------------- --------------
Other assets 5,562 4,929
-------------- --------------
Total assets $ 48,076 $ 49,726
============== ==============
The accompanying notes are an integral part of these financial
statements.
Cobra Electronics Corporation and Subsidiaries
Condensed Consolidated Balance Sheets
(dollars in thousands)
As of As of
September 30, December 31,
1994 1993
(Unaudited) (Unaudited)
-------------- --------------
LIABILITIES AND
SHAREHOLDERS' EQUITY:
Current liabilities:
Accounts payable $ 3,783 $ 3,442
Accrued expenses 7,610 8,289
Short-term debt 12,917 13,689
-------------- --------------
Total current liabilities 24,310 25,420
Deferred taxes 3,346 3,346
-------------- --------------
Total liabilities 27,656 28,766
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
and 6,226,648 outstanding at
both September 30, 1994 and
December 31, 1993. 2,345 2,345
Paid-in capital 22,118 22,118
Retained earnings 3,099 3,639
-------------- --------------
27,562 28,102
Treasury stock, at cost (5,545) (5,545)
Note receivable from officer's
exercise of stock options (1,597) (1,597)
-------------- --------------
Total shareholders' equity 20,420 20,960
-------------- --------------
Total liabilities and
shareholders' equity $ 48,076 $ 49,726
============== ==============
The accompanying notes are an integral part of these financial
statements.
Cobra Electronics Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(dollars in thousands)
For the Nine Months Ended
(Unaudited)
-----------------------------
September 30, September 30,
1994 1993
------------- -------------
Cash flows from operating activities:
Net loss from operations $ (540) $ (4,765)
Adjustments to reconcile net loss
from operations to net cash
provided by (used for) operating
activities:
Depreciation and amortization 1,570 1,217
Changes in assets and liabilities:
Receivables 1,781 2,517
Inventories 721 (665)
Prepaid taxes and expenses (466) 437
Other assets (444) 68
Accounts payable 341 900
Accrued expenses (679) 260
------------- -------------
Net cash provided by (used
for) operating activities 2,284 (31)
------------- -------------
Cash flows from investing activities:
Capital expenditures (938) (1,260)
Net cash used for discontinued
operation (189) (155)
------------- -------------
Net cash used for investing activities (1,127) (1,415)
------------- -------------
Cash flows from financing activities:
Net (repayments) borrowing under
line-of-credit agreement (772) 935
------------- -------------
Net cash used for financing activities (772) 935
------------- -------------
Net increase (decrease) in cash
and cash equivalents 385 (511)
Cash and cash equivalents at
beginning of period 176 558
------------- -------------
Cash and cash equivalents at
end of period $ 561 $ 47
============= =============
The accompanying notes are an integral part of these financial
statements.
Cobra Electronics Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The condensed 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 generally accepted accounting
principles 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. The
Condensed Consolidated Balance Sheet as of December 31, 1993 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. 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) EARNINGS PER COMMON SHARE:
The number of common shares used in the computation of earnings per
common share for the three month periods ended September 30, 1994 and
1993 include average common share equivalents of 14,466 and 526,
respectively. The number of common shares used in the computation of
earnings per common share for the nine month periods ended September 30,
1994 and 1993 include average common share equivalents of 18,367 and
1,825, respectively.
(2) PURCHASE ORDERS AND COMMITMENTS:
At September 30, 1994, the Company had outstanding purchase orders with
foreign suppliers totaling approximately $24.8 million compared to $24.1
million as of September 30, 1993.
(3) FINANCING ARRANGEMENTS:
The Company has in place a secured credit agreement which extends until
January 11, 1995. Management expects to have in place a new credit
agreement prior to the expiration date of the current agreement.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
ANALYSIS OF RESULTS OF OPERATIONS
Third Quarter 1994 vs. Third Quarter 1993:
- --------------------------------------------
Sales for the third quarter of 1994 declined $7.8 million compared to
the prior year third quarter. The decline reflected mainly lower unit
sales volumes in all principal product lines except for CB radios. In
addition, the prior year quarter included sales from the Company's
former Professional Products Group, which was sold in late 1993.
CB sales increased significantly in the third quarter of 1994 compared
to the prior period, which reflected strong demand for several of the
Company's models, including the new weather-alert CBs that were
introduced in the second quarter of 1994. Sales of integrated
laser/radar detectors, however, were down compared to the prior year.
The prior year benefited from the introduction of two new integrated
detector models while the sales boost from 1994 new product
introductions--a radar/laser detector with digital display and an entry
level model--are not expected to be realized until the fourth quarter.
Also, the Company made the decision to limit its purchases of certain
models to better assist in controlling inventory, which resulted in
lower sales during the current quarter.
Sales of telecommunication products decreased during the current quarter
from the prior year because of declines in cordless phone and answering
system sales. Cordless phone sales fell because of product shortages
and the year ago period included a large close-out sale of single-
channel cordless phones that were being phased out. The product
shortages, which the Company believes are temporary, were the result of
production delays for several new models and the Company's underestimate
of demand for several existing models when it placed orders with its
vendors earlier in the year. Sales of phone answering systems fell
during the current quarter as a result of the Company's strategy to
refocus the product line to offer only all-digital models, which will
not be available until early 1995. Year ago answering system sales also
benefited from the introduction of a new answering system model.
Gross margin increased to 18.6% in the third quarter of 1994 from 17.6%
for the third quarter of 1993. The improvement was due primarily to a
shift in sales mix between product categories. Sales of higher-margin
CB radios increased while at the same time sales of lower-margin
laser/radar detectors declined. The margin improvement as a result of
the shift in sales mix was partially offset by costs associated with the
first quarter of 1994 expansion of the Company's consumer hotline, (1-
800-COBRA22). This expansion was implemented to enable the Company to
answer all of its calls from consumers for installation and operational
assistance--to partially offset the lack of skilled sales personnel in
many retail stores--as well as for information on where to purchase
Company products.
Selling, general and administrative expenses increased to $4.3 million
in the current quarter compared to $4.1 million in the prior year. More
than offsetting the elimination of expenses related to the Professional
Products Group, which was sold in late 1993, was increased marketing
costs incurred to implement the Company's strategy of a planned shift of
distribution from low-margin, mass volume merchandisers to higher margin
retailers.
Interest expense for the current quarter declined 16% compared to the
prior year because of lower borrowing under the Company's line-of-credit
agreement.
Nine Months 1994 vs. Nine Months 1993:
- --------------------------------------------
Compared to a year ago, sales for the nine months ended September 30,
1994 declined $10.8 million. The decline reflected mainly lower unit
sales of detectors and answering system products and the fact that the
prior year period included sales from the Company's former Professional
Products Group, which was sold in late 1993. Some of this decrease was
offset by higher CB sales.
In addition to an overall increase in demand for CB radios compared to
the prior year, the current period benefited from sales of the Company's
new weather-alert CBs which were introduced in the second quarter of
1994. Sales of integrated laser/radar detectors were down due to the
Company's decision to limit its purchases of certain models to better
assist in controlling inventory, which resulted in lower sales during
the current period. In addition, the prior year benefited from the
introduction of two new integrated detector models. The decline in
sales of answering systems reflected the Company's decision to switch
its answering system business to all-digital models, which will not be
available until early 1995.
Gross margins for the first nine months of 1994 increased to 18.4% from
14.1% a year ago. The margin improvement reflected an improved customer
mix as well as increased sales of higher-margin cordless phones and
integrated laser/radar detectors compared to the prior year period.
During 1993, both of these product lines had sizable close-out sales of
discontinued models, which was minimized in the current period through
better inventory control.
During the second quarter of 1993, the Company recorded a one-time
charge of $1.1 million to cover the estimated costs of a restructuring
program. Approximately 40% of the charge was for severance and
termination costs related to a significant downsizing of the Company's
workforce, which was implemented in the third quarter of 1993. Annual
savings from this workforce reduction in payroll-related expenses were
estimated be approximately $2.1 million. The remaining portion of the
restructuring charge was to cover additional one-time costs to be
incurred as a result of the lower staffing levels. As of December 31,
1993, all restructuring costs had been incurred. For the first six
months of 1994, overall payroll-related savings realized primarily as a
result of the workforce reduction approximated $1.2 million.
Selling, general and administrative expenses for the first nine months
of 1994 declined $1.8 million compared to the prior year. Approximately
half of the above decline was realized as a result of reduced payroll-
related expenses in connection with this workforce reduction. The
majority of the remaining decline was due to the elimination of expenses
for the Professional Products Group, which was sold in late 1993.
Interest expense declined $199,000 during the first nine months of 1994
compared to the prior year due to lower borrowing under the Company's
line-of-credit agreement.
LIQUIDITY AND CAPITAL RESOURCES
Operating activities generated cash of $2.3 million during the first
nine months of 1994, primarily because of a $1.8 million reduction in
accounts receivable. Accounts receivable declined from the end of last
year due to reduced sales volumes during the third quarter of 1994
compared to the prior year fourth quarter.
Capital expenditures of $938,000 related primarily to investments in
tooling for new products. Despite these capital expenditures, cash
flows from operating activities during the first nine months of 1994
were sufficient to enable the Company to reduce borrowing under its
line-of-credit agreement by $772,000.
The Company has in place a secured credit agreement which extends until
January 11, 1995. Management expects to have in place a new credit
agreement prior to the expiration date of the current agreement.
PART II
OTHER INFORMATION
Items 1, 2, 3, 4 and 5 Not Applicable.
- -------------------------------------------
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 Current Reports on Form 8-K
as follows:
Form Type Date of Report Items Reported
---------- -------------- --------------------------------------
Form 8-K 7/19/94 Item 4. Changes in Registrant's
Certifying Accountant
Form 8-K/A 7/19/94 Item 4. Changes in Registrant's
Certifying Accountant
Form 8-K 8/15/94 Item 4. Changes in Registrant's
Certifying Accountant
SIGNATURES
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 Gerald M. Laures
Gerald M. Laures
Vice President - Finance,
and Corporate Secretary
Dated: November 14, 1994