Return to Profitability Reflects PPL Growth
CHICAGO, May 1 /PRNewswire-FirstCall/ -- Cobra Electronics Corporation , a leading global designer and marketer of mobile communications and navigation products, today reported net income of $81,000, or $0.01 per fully diluted share in the first quarter of 2008, as compared to a net loss of $720,000, or $0.11 per share in the prior year's first quarter. The company reported improved profitability in spite of a decline in sales to $28.9 million from $32.0 million in the first quarter of the prior year as gross margins improved and operating expenses declined. Offsetting, in part, the significant improvement in year-over-year operating income was an increase in other expenses, primarily losses in the cash surrender value of life insurance polices that fund certain deferred compensation programs resulting from recent financial market declines. The company also reported that the Performance Products Limited ("PPL") segment was profitable and accretive to earnings, as sales increased by nearly 39 percent and gross margins improved.
"We are pleased with Cobra's improved performance in the first quarter and our return to profitability," said Jim Bazet, Cobra's President and Chief Executive Officer. "In particular, the performance of PPL was very strong, reflecting the broadening of their marketing and distribution channels beyond the U.K., new business opportunities and the availability of Cobra's resources to assist with product sourcing and development. As a result, PPL had earnings from operations in the first quarter of $596,000, as compared to $33,000 in the prior year. In the Cobra segment, earnings from operations were positive, as the mobile navigation product line generated an operating profit of $581,000, offsetting a seasonal operating loss of $568,000 in the other segment product lines. The mobile navigation operating income, which compared favorably to an operating loss of $472,000 in the prior year, was due to the timing of product returns and the sale of products at higher prices than anticipated as reserves were established in the fourth quarter of last year. The operating loss in the other product lines was somewhat greater than in the prior year, but generally in line with our normal seasonal patterns."
Net sales for the quarter declined to $28.9 million from $32.0 million in the prior year. Mobile navigation sales in the Cobra segment accounted for approximately $470,000 of this decline, as the company implemented its strategy to focus its efforts on niche opportunities. Excluding mobile navigation from both periods results in an overall decline of approximately 14 percent in net sales for the first quarter of 2008. In part, this reflects the effects of the overall economy, as key retailers have delayed planogram resets until the second quarter and consumer spending, particularly among professional drivers, has been adversely affected by climbing fuel prices. PPL reported a 38.6 percent increase in sales, to $4.3 million, including higher sales of mobile navigation and the sale of SD cards containing speed camera and other data for use in smartphones.
Cobra reported improved gross margins as compared to the first quarter of 2007. On a consolidated basis, Cobra's gross margin increased to 30.9 percent from 25.2 percent in the prior year. This reflected an improvement in gross margins in the Cobra reporting segment to 28.4 percent from 23.3 percent, as well as a 45.1 percent gross margin for the Performance Products segment of the company, an increase from 43.3 percent in the prior year. The gross margin in the Cobra segment was favorably impacted by the accounting treatment of mobile navigation product returns and reserves; however, even after adjusting both periods to eliminate the effects of mobile navigation, the gross margin improved from 25.8 percent in the first quarter of 2007 to 27.2 percent in 2008 as several product lines showed improvements.
Selling, general and administrative expenses declined to $8.3 million in the first quarter from $9.0 million in the prior year. This decline represents a concerted effort by management to curtail expenses and includes headcount reductions and lower professional fees. "We have communicated throughout the company that operating expenses must be watched closely and each expense scrutinized before making commitments," said Mr. Bazet. "Clearly, progress was made in the first quarter, but the pressure must be maintained if we are to meet our own goals and expectations."
Cobra also recorded other expenses of $192,000 in the quarter, as compared to other income of $257,000 in the first quarter of the prior year. The most significant element of this swing was a $349,000 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. The loss was generated as the investment vehicles in which the cash was invested declined in value in line with the overall financial markets.
Cobra maintained its strong balance sheet position during the first quarter. The company had interest-bearing debt of $19.7 million as of March 31, 2008 and cash of $6.2 million, for "net debt" of $13.4 million, as compared to "net debt" of $12.9 million the prior year. Inventory at the end of the first quarter increased to $32.9 million from $29.9 million the prior year, including $4.7 million of inventory at PPL. Accounts receivable at the end of the quarter, including $1.7 million at PPL, were $21.8 million, a decline from $24.3 million one year earlier. Net book value per share as of March 31, 2008 decreased to $9.99 from $10.58 one year ago.
Mr. Bazet also provided the company's outlook for the second quarter of 2008, and reaffirmed earlier guidance. "Cobra is forecasting that the company will return 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. This pattern is likely to be evident in second 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 May 1, 2008 at 11:00 a.m. EDT to discuss first 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. This press release includes adjusted sales, adjusted operating income and adjusted gross margin, amounts that are considered non-GAAP financial measures under Securities and Exchange Commission rules. These measures are believed to be useful to investors because they provide a means of evaluating the Company's operating performance and results from period to period on a comparable basis not otherwise apparent on a GAAP basis. As required, a reconciliation of these measures is included herein.
Condensed Consolidated Statements of Operations
(in thousands, except per share amounts, unaudited)
For the Three Months Ended
March 31, March 31,
2008 2007
Net sales $28,858 $32,036
Cost of sales 19,942 23,948
Gross profit 8,916 8,088
Selling, general and administrative expense 8,307 9,036
Earnings (loss) from operations 609 (948)
Other income (expense):
Interest expense (303) (319)
Other, net (192) 257
Earnings (loss) before taxes 114 (1,010)
Tax provision (benefit) 26 (298)
Minority interest (7) (8)
Net earnings (loss) $81 $(720)
Net earnings (loss) per common share:
Basic $0.01 $(0.11)
Diluted $0.01 $(0.11)
Weighted average shares outstanding:
Basic 6,471 6,438
Diluted 6,474 6,438
Dividends declared per common share $0.16 $0.16
Condensed Consolidated Balance Sheets
(in thousands, unaudited)
ASSETS: March 31, December 31, March 31,
2008 2007 2007
Current assets:
Cash $6,245 $1,860 $3,561
Accounts receivable, net 21,789 26,804 24,339
Inventories, net 32,920 33,054 29,924
Other current assets 13,652 13,621 13,783
Total current assets 74,606 75,339 71,607
Property, plant and equipment, net 6,390 6,803 7,451
Total other assets 31,078 32,176 36,021
Total assets $112,074 $114,318 $115,079
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities:
Accounts payable $7,343 $7,273 $10,414
Accrued liabilities 9,752 11,151 8,634
Short-term debt 1,240 1,240 1,370
Total current liabilities 18,335 19,664 20,418
Non-current liabilities:
Long-term debt 18,445 18,745 15,126
Deferred taxes 3,654 3,772 4,246
Deferred compensation 6,488 6,320 6,067
Other long-term liabilities 482 679 993
Total non-current liabilities 29,069 29,516 26,432
Minority interest 30 23 5
Total shareholders' equity 64,640 65,115 68,224
Total liabilities and shareholders'
equity $112,074 $114,318 $115,079
Reconciliation of GAAP Operating Earnings to Adjusted Operating Loss
Cobra Reporting Segment
(Dollars in Thousands)
For the Quarter Ended March 31, 2008
Mobile
Navigation/
GPS Product
Actual Lines (1) Adjusted
Net Sales $24,576 $1,123 $23,453
Cost of Sales 17,592 515 17,077
Gross Profit 6,984 608 6,376
Gross Margin 28.4% 54.2% 27.2%
Selling, general and administrative
expense 6,971 27 6,944
Earnings (loss) from operations $13 $581 $(568)
(1) Revenue and expenses attributable to the North American mobile
navigation and GPS products lines are those which are fully severable
and would not be realized in absence of these product lines
Reconciliation of GAAP Operating Loss to Adjusted Operating Loss
Cobra Reporting Segment
(Dollars in Thousands)
For the Quarter Ended March 31, 2007
Mobile
Navigation/
GPS Product
Actual Lines (1) Adjusted
Net Sales $28,946 $1,593 $27,353
Cost of Sales 22,197 1,902 20,295
Gross Profit 6,749 (309) 7,058
Gross Margin 23.3% -19.4% 25.8%
Selling, general and administrative
expense 7,730 163 7,567
Earnings (loss) from operations $(981) $(472) $(509)
(1) Revenue and expenses attributable to the North American mobile
navigation and GPS products lines are those which are fully severable
and would not be realized in absence of these product lines
Cobra Electronics Corporation
