Cobra Electronics Reports Third Quarter Results |
6.1 Percent Increase in Sales Drives Return to Profitability
CHICAGO, Oct. 25 /PRNewswire-FirstCall/ -- Cobra Electronics
Corporation (Nasdaq: COBR), a leading global manufacturer of mobile
communications and navigation products, today announced a 6.1 percent
increase in sales to $35.5 million for its third quarter ended September
30, 2006, from $33.5 million in the third quarter of 2005. The company also
reported third quarter net income of $373,000, or $0.06 per fully diluted
share, compared to net income in the prior year of $1.9 million, or $0.29
per fully diluted share. In spite of higher sales, Cobra had lower net
income for the quarter as compared to the prior year due to the sale of
first generation mobile navigation and handheld GPS inventory at or near
net realizable values established in prior periods, a reserve taken for the
sale of mobile navigation products that have been returned as defective
products and higher airfreight expenses associated with the company's line
of lithium ion battery powered GMRS radios.
"We are pleased that Cobra has returned to profitability after two
quarters of losses, although we remain disappointed by gross margins," said
Jim Bazet, Cobra's President and Chief Executive Officer. "As we forecasted
in our guidance last quarter, the writedown of first generation mobile
navigation and handheld GPS inventory to net realizable value resulted in
significant sales of products with little or no gross profit. Sales of
these products totaled $2.2 million, resulting in an overall margin loss of
1.4 points. However, in light of the continuing price declines in these
markets and rapid advances in technology -- including our own new NAV
ONE(TM) 2500 -- we concluded that it was important to sell these products
quickly rather than risk further declines in net realizable value."
Cobra also addressed the market for mobile navigation units previously
returned as defective, or forecasted to be returned based on current and
projected sales, and concluded that it would be prudent to establish an
incremental reserve of $496,000 for estimated selling prices of these
units, resulting in additional gross margin erosion of 1.4 points. Finally,
Cobra has continued to incur unusually high airfreight expenses to satisfy
demand for lithium ion-powered two-way radios and in comparison to the
third quarter of last year saw gross margins eroded by nearly one point.
In providing further perspective on Cobra's performance, Mr. Bazet
continued, "A closer examination of results for the third quarter provides
a basis for optimism going forward. The release of the NAV ONE 2500 in
September set the stage for several generations of mobile navigation
products built on a flexible and cutting-edge navigation platform, which
will permit faster, less-costly development and more timely product
launches. We anticipate that Cobra will sell through our entire production
capacity of the NAV ONE 2500 and derivative models in the fourth quarter."
Cobra also experienced a 19 percent increase in sales of radar
detection products in the quarter as compared to last year and a sales
increase of more than 80 percent in marine products. Additionally, the
company's new line of lithium ion battery powered two-way radios -- the
world's smallest and most powerful two-way radios -- continued to
experience strong sell through at retail and now account for a significant
portion of Cobra's domestic two-way radio business.
Selling, general and administrative expenses in the third quarter were
$6.9 million, an increase of one percent from the third quarter of the
prior year. Variable selling expenses, both in absolute dollars and as a
percent of sales, declined due to the low program requirements associated
with the disposition of excess inventory of GPS and mobile navigation
products. Engineering expenses increased as Cobra has added internal
engineering resources as it has taken on the development of its own
proprietary platform for mobile navigation products. General and
administrative expenses declined from the prior year due to lower legal
expenses and a lower deferred compensation liability.
Cobra recorded a lower tax provision in the third quarter than was
applied in the first two quarters of 2006 due to the increased taxable
income from international operations relative to consolidated results.
Cobra maintained its strong balance sheet position during the third
quarter. The company had no interest-bearing debt as of September 30, 2006,
the same position as one year earlier, and $2.5 million in cash, as
compared to $6.7 million one year earlier. Inventory at the end of the
third quarter increased to $33.2 million from $27.4 million in the prior
year. Accounts receivable at the end of the quarter were $23.8 million,
increasing from $21.8 million one year earlier. Net book value per share as
of September 30, 2006 declined to $10.53 from $10.55 one year ago.
Subsequent to the end of the third quarter, as previously announced,
Cobra completed the acquisition of Performance Products Limited ("PPL"). In
connection with this acquisition, Cobra entered into an amended and
restated loan and security agreement with its lenders. As of October 20,
2006, the completion date of the transaction, Cobra had interest-bearing
debt of approximately $23.4 million.
Mr. Bazet also provided the company's outlook for the fourth quarter of
2006. "Without consideration of the impact of the acquisition of
Performance Products, Cobra is forecasting that net sales in the fourth
quarter will exceed those of 2005. This sales increase will be driven by
mobile navigation, including anticipated strong sales of our newest
product, the NAV ONE 2500. We expect pretax earnings to be nearly the same
as earnings from the prior year's fourth quarter after excluding the
benefit of $876,000 realized from the termination of the Horizon Navigation
contract and repayment by Horizon Navigation of the associated loan, the
$299,000 gain associated with the payment of a lump-sum settlement of
deferred compensation obligations, and a $312,000 gain in the cash
surrender value of life insurance polices owned by Cobra to fund certain
deferred compensation programs to former and current officers.
Additionally, Cobra benefited from a low tax rate in 2005 due to the
non-taxable nature of life insurance proceeds received in the first quarter
of that year; this beneficial tax rate is not anticipated to be applicable
to Cobra's results in 2006. As a result of these factors, we anticipate
that net income will decline in the fourth quarter as compared to the prior
year. Performance Products will provide additional benefit in sales and
earnings, although its impact will be limited by the brief time that PPL
will be included in Cobra's consolidated results for the quarter and period
expenses associated with post-acquisition regulatory requirements,
including the preparation of financial statements in accordance with U.S.
GAAP."
Cobra will be conducting a conference call on October 25, 2006 at 11:00
a.m. EDT to discuss third quarter results as well as its current strategies
and outlook. The call can be accessed live or through replay via the
Internet at http://www.cobra.com.
About Cobra Electronics
Cobra Electronics Corporation ("Cobra") is a leading global
manufacturer of navigation and communication 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 expanded into the GPS, mobile navigation and marine markets over
the past few years. Cobra's acquisition of Performance Products Limited
("PPL"), a manufacturer of award- winning GPS locators for speed camera
detection, personal navigation devices and vehicle entertainment and
security systems, vastly expands the company's reach in the U.K. and
Europe. The acquisition also provides access to PPL's downloadable database
of speed camera locations and other intellectual property. The Consumer
Electronics Association, Forbes and Deloitte & Touche have all recognized
Cobra for the company's innovation and industry leadership. For more
information regarding Cobra, please go to the company's website,
http://www.cobra.com. For more information on PPL and its products, please
go to http://www.snooperuk.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 Income
(in thousands, except per share amounts, unaudited)
For the Three Months Ended For the Nine Months Ended
September 30, September 30, September 30, September 30,
2006 2005 2006 2005
Net sales $35,548 $33,511 $100,441 $86,474
Cost of sales 28,511 25,213 84,209 65,383
Gross profit 7,037 8,298 16,232 21,091
Selling, general
and administrative
expenses 6,850 6,782 21,555 20,845
Operating
income (loss) 187 1,516 (5,323) 246
Other income (expense):
Interest expense (25) (23) (84) (72)
Other, net 222 138 85 9,261
Earnings (loss)
before taxes 384 1,631 (5,322) 9,435
Tax provision
(benefit) 11 (250) (1,881) 1,164
Net earnings (loss) $373 $1,881 $(3,441) $8,271
Net earnings (loss) per
common share:
Basic $0.06 $0.29 $(0.53) $1.28
Diluted $0.06 $0.29 $(0.51) $1.26
Weighted average shares
outstanding:
Basic 6,489 6,445 6,489 6,445
Diluted 6,677 6,595 6,741 6,582
Condensed Consolidated Balance Sheets
(in thousands, unaudited)
ASSETS: September 30, December 31, September 30,
2006 2005 2005
Current assets:
Cash $2,485 $6,704 $6,673
Accounts receivable, net 23,785 28,710 21,785
Inventories, net 33,189 21,837 27,440
Other current assets 13,422 14,225 15,269
Total current assets 72,881 71,476 71,167
Net property, plant and equipment 6,487 6,898 6,925
Total other assets 12,383 14,548 13,379
Total assets $91,751 $92,922 $91,471
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities:
Accounts payable $9,182 $5,292 $6,963
Accrued liabilities 6,678 8,239 8,359
Total current liabilities 15,860 13,531 15,322
Non-current liabilities:
Deferred taxes 1,587 1,691 1,578
Deferred compensation 5,579 5,062 6,155
Other long-term liabilities 374 386 392
Total non-current liabilities 7,540 7,139 8,125
Total shareholders' equity 68,351 72,252 68,024
Total liabilities and
shareholders' equity $91,751 $92,922 $91,471
SOURCE Cobra Electronics Corporation
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CONTACT:
Investor: Michael Smith, Senior Vice
President and CFO of Cobra Electronics Corporation,
+1-773-804-6281, msmith@cobra.com; or Media: John Waelti of
Financial Relations Board, +1-312-640-6760, jwaelti@frbir.com
