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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
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 [ ]
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the voting stock held by
non-affiliates of the Registrant at March 12, 1998 was
approximately $47,415,422.
The number of shares of Registrant's Common Stock outstanding at
that date was 6,218,416.
Portions of the Registrant's Definitive Proxy Statement relating
to the Annual Meeting of Shareholders to be held May 12, 1998,
are incorporated by reference into Part III of this Report.
PART I
------
ITEM 1. BUSINESS:
GENERAL
Cobra Electronics Corporation (the "company") was incorporated in
Delaware in 1961 and is a designer and wholesale marketer of
consumer electronics products, primarily communications products.
The company markets products under the COBRA brand name.
Management believes that the company's future success will depend
upon its ability to predict and respond in a timely and effective
manner to changes in the markets it serves. Product performance,
reliability, price, availability and service are the main
competitive factors, with sales also being dependent upon timely
introduction of new products which incorporate new features
desired by consumers at competitive prices.
RECENT DEVELOPMENTS
During the second quarter of 1997, Jerry Kalov, President and
Chief Executive Officer of the company, announced his retirement
effective January 1, 1998. Also in the second quarter, Mr. Kalov
assumed the position of Vice Chairman of the Board of Directors,
which he will continue to serve in after his retirement. James
R. Bazet joined the company as Executive Vice President and Chief
Operating Officer in July 1997 and was appointed President and
Chief Executive Officer effective January 1, 1998.
Mr. Bazet, a consumer products veteran, has managed companies in
both the consumer electronics and housewares industries. Before
joining the company, he was President and Chief Executive Officer
of Ryobi Motor Products Floor Care Division, which marketed
products under the Ryobi, Singer and Kenmore brand names. Prior
to Ryobi, Mr. Bazet served as President and Chief Executive
Officer of Code-A-Phone Corporation where he was among the first
to develop and market state-of-the-art 900 MHz cordless phones.
PAGE
PRODUCTS
The company operates only in the consumer electronics industry.
Principal products include:
Mobile Electronics: Citizen Band ("CB") Radios
Accessories, including power
inverters and CB microphones and
antennas
Family Radio Service handheld
radios
Integrated Radar/Laser Detectors
Safety Alert transmitters
Safety Alert receivers
Telecommunication: Intenna 25-channel Cordless
Telephones
Integrated Intenna Cordless
Telephone Answering Systems
The following table shows the company's percentages of net sales
by product category for the three years ended December 31, 1997.
1997 1996 1995
---- ---- ----
Mobile Electronics Products 81% 67% 69%
Telecommunication Products 19% 33% 31%
---- ---- ----
Total Net Sales 100% 100% 100%
==== ==== ====
One of the company's primary strengths is its product sourcing
ability. Substantially all of the company's products are
manufactured to its specifications and engineering designs by a
number of suppliers, primarily in China, Malaysia, Thailand,
Japan and Korea. The company maintains stringent control over
the design and production quality of its products. The company
has a subsidiary in Hong Kong which helps to seek out new
suppliers, monitor technological changes, perform source
inspection of key suppliers, and expedite shipments from vendors.
Over a period of years, the company has developed a network of
suppliers for its products. To maintain flexibility in product
sourcing, the company has not entered into long-term contracts
with any of its suppliers. Despite management's belief that it
maintains strong relationships with its current suppliers, it
also believes that, if necessary, other suppliers could be found.
The extent to which a change in a supplier would have an adverse
effect on the company's business depends upon the timing of the
change, the product or products that the supplier produces for
the company and the volume of that production. The company also
maintains insurance coverage that would, under certain limited
circumstances, reimburse the company for lost profits resulting
from a vendor's inability to fulfill its commitments to the
company. The company negotiates substantially all of its
purchases in U.S. Dollars to protect itself from currency
fluctuations. Assets located outside of the United States,
excluding company-owned tooling at suppliers with a net book
value of $906,000 at December 31, 1997, are not material.
The company competes primarily in the United States with various
manufacturers and distributors of mobile electronics and
telecommunication products. The company competes principally on
the basis of product features and price and expects the market
for its products to remain highly competitive.
Research, engineering and product development expenditures are
expensed as incurred. These expenditures amounted to $.8 million
in 1997 and 1996 and $1.1 million in 1995.
Except for certain patents, such as its Safety Alert and Intenna
technologies, the company does not believe that patents are of
material importance to its products. However, should the company
develop a unique technology (such as SoundTracker noise reduction
technology), patents will be applied for to preserve exclusivity,
wherever possible.
Mobile Electronics Products: These products, which include CB
radios, integrated radar/laser detectors, Family Radio Service
handheld radios and accessories, including power inverters and CB
microphones and antennas, are marketed under the COBRA trademark.
Cobra is the leading brand in the CB radio market, which in
factory sales is approximately $125 million annually. This
market continues to expand, with growth mainly coming from
broader consumer use, especially the growing popularity of
handheld CB radios with campers, hikers and other outdoor
enthusiasts.
The company has been the technology leader in the CB radio
market. The company's patent-pending SoundTracker noise
reduction technology, which dramatically improves the sound
quality of the CB radios, is the first significant product
innovation in this category in several years. This new feature
significantly reduces "white noise", or static, when the CB is in
receiving mode. Additionally, SoundTracker technology allows
the user's voice to break through cluttered airwaves and to be
more easily heard when transmitting.
The company has a history of being the technology leader in the
CB market. The company was the first CB radio marketer to
combine a National Weather Service receiver with a mobile CB
radio, enabling motorists to obtain weather and travel
information broadcasts. As a major enhancement of this feature,
the company also introduced the industry's first mobile CB radio
that incorporates an automatic alert feature to warn of National
Weather Service emergency advisories. The company also markets
CB radios to nonprofessional drivers and handheld CB radios for
sport and recreational use.
In 1997 the company began to ship Family Radio Service handheld
radios. Family Radio Service operates on UHF FM frequencies,
which allows for exceptionally clear sound quality and
penetration through buildings and other obstacles. It also
allows for an extremely small handheld radio, measuring only 3.78
inches in height and weighing less than one-half pound. And
while Family Radio Service models from other competitors must be
held in front of the user's face, Cobra's unique, convenient
design allows the user to hold the radio like a cellular phone
but unlike a cellular phone, FRS radios require no monthly charge
and provide coverage even in the most remote areas. The FRS 200
is ideal for a variety of occasions where a larger hand-held
radio is not practical, including outdoor activities such as
skiing, and bicycling, and for family outings to amusement parks
and shopping malls.
Also in 1997, the company entered a new accessories category,
power inverters. Power inverters convert a vehicle's battery
power to power that can run appliances and accessories normally
powered by household current. The primary users of inverters are
professional truck drivers.
Cobra is also one of the leading brands in the market for
integrated radar/laser detectors, which in factory sales is
approximately $120 million. Currently, there are approximately
190 million cars and light trucks on the road and, of those,
approximately 10 percent have detectors. Cobra commands
significant market share by offering innovative products with the
latest technology.
In addition, the company has been a leader in applying
laser-detection technology, including introducing the industry's
first laser-signal detector and the industry's first integrated
radar/laser detector with 360 degree laser detection capability.
The company was the first to introduce to the retail channel
"intelligent" detection systems capable of alerting drivers with
a differentiated signal for each of the frequencies emitted by
the company's patented, FCC-approved Safety Alert transmitter.
This transmitter is being marketed to organizations that operate
police, fire, emergency medical service, construction and public
utility vehicles. The company's Safety Alert Traffic Warning
System is designed to help drivers avoid potentially serious
accidents with these organizations' vehicles. In 1997 the
company began shipments of its new Safety Alert Traffic Warning
Detector. This detector receives all three Safety Alert signals,
but does not detect radar or laser guns. It is targeted at those
consumers who want to enhance their driving safety but choose not
to own a radar detector.
Currently, there are over one-thousand Safety Alert transmitters
installed and operating throughout the country on police, fire
and emergency medical vehicles. Three cities - Indianapolis,
Dayton and Orlando - have a concentration of approximately 50
transmitters each. Also, scheduled to begin in Spring of 1998 is
the Illinois Department of Transportation's high-visibility study
to enhance railroad crossing safety though a system which
utilizes Safety Alert transmitters and receivers.
In early 1998 the company introduced the industry's first line of
six-band radar detectors for shipment beginning in the Spring.
The company has designed these detectors to alert drivers to each
of the four current speed monitoring systems in use -- X,K,Ka and
Laser -- plus VG-2, the "detector detector" monitoring band, and
the Safety Alert Traffic Warning System band. This makes the
unique Cobra six-band detector the most comprehensive alert
system in the industry and for the first time allows drivers to
be aware of all four speed monitoring systems as well as the
presence of VG-2 and Safety Alert transmissions.
Major competitors in the CB radio market are Radio Shack (Tandy
Corporation) and Uniden while major competitors in the radar
detector market include Beltronics, Whistler, Escort and Uniden.
Telecommunication Products: These products, which include
25-channel cordless phones and integrated cordless telephone
answering systems, are principally marketed under the COBRA
trademark. The company entered the telecommunications market in
1979 with its first integrated cordless telephone and has since
supplemented that entry with other innovative products. For
example, the company introduced the market's first two-line
cordless phone and the first integrated cordless phone answering
system. In 1989, the company introduced its first Intenna
cordless phone, which utilized the company's patented technology
to eliminate the external handset antenna, an industry first.
The company later refined this technology to also make it
possible to eliminate the base antenna, as well. The company also
offered Intenna cordless phones in designer colors, which was an
industry first. Currently, Cobra offers the only cordless phones
in the marketplace with the antenna in the phone, not in the way,
without sacrificing voice quality or range. This makes it easier
to mount the phone under cabinets in the kitchen or on book
shelves in other rooms.
In 1993, the company began offering Intenna models with Private
Call technology, which electronically scrambles voice signals
between the handset and the base to ensure complete security by
eliminating potential eavesdropping over scanning radios, baby
monitoring devices and other cordless phones.
In 1996 the company began supplying Sprint an exclusive model of
the company's proprietary Intenna telephone, which Sprint sells
under its own brand. The phone also carries the Intenna
trademark.
Also in 1996, the company introduced Intenna cordless phones with
the Power Protector feature, which allows the phone to be used
during a power outage.
In 1997, the company introduced two Intenna cordless phones with
caller ID.
In late 1998 the company will be introducing several 900MHz
cordless phones to capitalize on this rapidly growing segment of
the cordless phone market.
In the market for integrated telephone answering systems, the
company markets Intenna all-digital cordless phone answering
systems. Ideal for home or office use, these models offer
electronic voice mail and multiple mailboxes combined with an
Intenna cordless phone.
The cordless phone and integrated telephone answering systems
segment of the telecommunications market amounts to approximately
$2.3 billion and is dominated by large companies, including AT&T,
General Electric, Panasonic, Sony, Southwestern Bell, and Uniden.
Because of this, the company's strategy is to look for profitable
niches and position Cobra as an alternative line of quality
products with innovative features at competitive prices.
SALES AND DISTRIBUTION
Demand for consumer electronics products is seasonal.
Historically, sales in the last half of the year are greater than
in the first half, reflecting increased purchases by retailers
for the holiday selling season.
In 1997 and 1995 there were no sales in excess of 10% of total
net sales to a single customer or a group of entities under
common control. In 1996, sales to Sprint represented 10.7% of
net sales. The company does not believe that the loss of any one
customer would have a material adverse effect on the business of
the company. The company's foreign sales were $19.1 million,
$10.1 million, and $12.2 million in 1997, 1996 and 1995,
respectively.
The company's return policies and payment terms are consistent
with those of other companies serving the consumer electronics
market. Market conditions are such that products generally must
be shipped within a short time after an order is received. As a
result, order backlog is not significant.
Cobra products are distributed through a strong, well-established
network of approximately 460 retailers and distributors located
primarily in the United States. Approximately half of the sales
are made directly to domestic mass marketers, such as catalog
showrooms, consumer electronics specialty stores, large
department store chains, television home-shopping,
direct-response merchandisers, home centers and specialty stores,
which feature telephone products or mobile electronics products.
Because of changes in the retail marketplace, the company has
sought to expand its distribution to retailers that offer
assisted-selling environments to help consumers be better
informed about product features and functions when making
purchase decisions. The company believes that these retailers
are more profitable because they receive higher margins and
experience lower servicing costs. Most of the remaining sales
are through two-step wholesale distributors, that carry Cobra
products to fill orders for truck stops, small department stores,
appliance dealers, and for export, as well as direct sales to a
large truck stop chain. Cobra's primary sales force is comprised
of independent sales representatives who work on a straight
commission basis. They do not sell products of the company's
competitors.
The company's right to sell products under the COBRA trademark is
substantially worldwide. The company believes the COBRA
trademark, which is indefinitely renewable by the company, is a
significant factor in the successful marketing of its products.
EMPLOYEES
As of December 31, 1997, the company employed 117 persons in the
U.S. and 8 in its international operations. None of the
company's employees is a member of a union.
ITEM 2. PROPERTIES:
The company owns one building in Chicago, Illinois
containing a total of approximately 93,000 square feet of office
and warehouse space. The company believes that this facility is
adequate to meet its current needs.
ITEM 3. LEGAL PROCEEDINGS:
The company is subject to various unresolved legal actions which
arise in the normal course of its business, the most prevalent of
which relates to federal excise tax. During 1996, the company
received notice from the Internal Revenue Service (IRS) asserting
deficiencies in federal excise taxes for filing periods October
1, 1993 through December 31, 1995. The excise tax relates to the
use of ozone-depleting chemicals ("ODCs"). The company has
protested the deficiencies and has filed an environmental excise
tax protest. Management believes that they have substantial
defenses and intends to defend these actions vigorously.
Although it is not possible to predict with certainty the outcome
of this tax dispute, management believes the ultimate outcome of
this dispute will not result in a material impact on the
company's consolidated results of operations or financial
position. Also in 1996, the company recognized $373,000 of
income related to a lawsuit against a former distributor for
violation of a licensing agreement.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS:
None.
PART II
-------
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
SHAREHOLDER MATTERS:
The company's common stock trades on The Nasdaq Stock Market
under the symbol COBR. As of March 12, 1998 the company had
approximately 1,164 shareholders of record and approximately
2,736 shareholders for whom securities firms acted as nominees.
The company's common stock is the only class of equity securities
outstanding. Before April 1, 1993, the common stock of the
company traded under the symbol DYNA.
Under the terms of its credit agreement, the company may not pay
cash dividends.
STOCK PRICE AND TRADING VOLUME DATA
STOCK PRICE RANGE
- -------------------------------------------------------------
TRADING VOLUME
1997 1996
1995 (in thousands)
------------------- -------------------
- ----------------- ------------------------
Quarter High Low High Low High
Low 1997 1996 1995
- ----------- --------- --------- --------- ---------
- -------- -------- ------ ------ -----
First...... $ 3 5/8 $ 2 1/2 $ 4 1/8 $ 2 1/4 $ 2 5/8
$ 1 5/8 704 1,624 1,073
Second..... 3 3/8 2 1/2 3 1/8 1 15/16 2 1/8
1 1/2 583 725 917
Third...... 8 7/8 2 13/16 3 1/8 2 2 5/8
1 11/16 9,402 344 1,189
Fourth..... 10 7/8 5 1/4 3 7/8 2 1/8 3 3/8
2 4,966 1,265 2,114
Note: Data compiled from The Nasdaq Stock Market monthly Summary
of Activity reports.
ITEM 6. SELECTED FINANCIAL DATA:
FIVE YEAR FINANCIAL SUMMARY
Years Ended December 31
(in thousands, except per share amounts) 1997
1996 1995 1994 1993
- ---------------------------------------------------- --------
- ---------- ---------- ---------- ----------
Operating Data:
Net sales......................................... $ 104,098 $
90,324 $ 90,442 $ 82,131 $ 98,844
Gross profit...................................... 21,551
16,370 16,577 14,466 13,903
Selling, general and administrative expense....... 16,655
14,374 16,097 14,602 15,741
Operating income (loss)........................... 4,896
1,996 480 (136) (2,914)
Gain on sale of building.......................... 1,132
- -- -- -- --
Net income (loss)................................. 4,692
601 (1,145) (1,515) (4,392)
Net Income (loss) per share:
Basic earnings (loss)............................. .76
.10 (0.18) (0.24) (0.70)
Diluted earnings (loss)........................... .73
.10 (0.18) (0.24) (0.70)
As of December 31:
Total assets...................................... 48,279
42,596 50,081 40,342 46,389
Short-term debt .................................. 10,995
13,277 19,368 11,461 13,689
Shareholders' equity.............................. 23,673
18,713 18,174 19,429 20,960
Book value per share.............................. 3.81
3.29 3.20 3.38 3.62
Shares outstanding................................ 6,218
6,242 6,227 6,227 6,227
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS:
CORPORATE OVERVIEW
Higher sales and gross margin and a $1.1 million one-time gain on
the sale of a building resulted in $4.7 million of net income in
1997. An increase in sales of both CB radios, with the company's
exclusive, patent-pending SoundTracker technology, and radar
detector, both domestically and internationally, fueled the sales
growth and improved the gross margin to its highest level in the
1990s.
Also late in 1997, the company announced the industry's first
line of
six-band radar detectors, scheduled for shipment beginning in the
Spring of 1998. The company has designed these detectors to
alert
drivers to each of the four current speed monitoring systems in
use -- X,K,Ka and Laser -- plus VG-2, the "detector detector"
monitoring band, and the Safety Alert Traffic Warning System
band.
This makes the unique Cobra six-band detector the most
comprehensive alert system in the industry and for the first time
allows drivers to be aware of all four speed monitoring systems
as
well as the presence of VG-2 and Safety Alert transmissions.
Because 6 Band technology represents the first really
significant
innovation since the introduction several years ago of the
current
four-band models, retailer demand for these proprietary units has
been very strong and has resulted in new distribution
opportunities for Cobra. For example, the company recently added
Best Buy and Circuit City as radar detector customers for 1998
because of six band detectors.
RESULTS OF OPERATIONS
1997 Compared to 1996
- ---------------------
Net income for 1997 increased to $4.7 million from $601,000 in
1996. Included in net income for 1997 was a $1.1 million gain on
the third quarter sale of a building that the company did not
need
for its operations and was leasing to an outside party. Net
income, excluding the gain on the sale of the building, increased
$3.0 million to $3.6 million in 1997 from $601,000 in 1996. Net
sales increased $13.8 million, or 15.2%, to $104.1 million from
$90.3 million in 1996. Selling, general and administrative
expense increased to $16.7 million from $14.4 million, but, as a
percentage of net sales, remained substantially unchanged at 16%.
Sales of mobile electronics products (mainly CB radios, Family
Radio Service two-way radios and integrated radar/laser
detectors)
increased approximately $23.8 million, or 39.6% in 1997 compared
to 1996. Sales of CB radios increased 28% mainly because of
strong demand for radios with the company's exclusive, patent-
pending SoundTracker technology, introduced early in the year.
Additionally, an all-new radar detector lineup helped drive sales
volume in the U.S., while internationally the company capitalized
on the strong demand in Russia for radar detectors. In total,
international sales of mobile electronics products increased $9.8
million in 1997.
Telecommunication products sales decreased $10 million because of
lower sales of both 25-channel cordless phones and integrated
cordless phone answering systems to several large retail
customers.
Also contributing to the sales decrease was lower sales of
factory
reconditioned products as a result of agreements with some of the
company's vendors that allow product returned from the company's
customers to be returned to the vendor for partial credit towards
future purchases. Prior to these agreements, which were entered
into in 1996, the company repaired and resold this returned
merchandise as factory reconditioned product. The company also
restricted expanding distribution for its 25-channel cordless
phones as it seeks to de-emphasize this product line in favor of
the rapidly growing 900 MHz segment which the company will enter
in the Fall of 1998 with several 900 MHz cordless phone models.
Gross margin for 1997 increased to 20.7% from 18.1% in 1996
primarily due to an improvement in sales mix of higher margin CB
and radar detector products. Sales of mobile electronics
products
increased as a percentage of total sales from 67% in 1996 to 81%
in 1997. In addition, gross margin on radar detectors increased
due to the new radar detector lineup, which included lower cost
models that replaced higher cost models. Also contributing to
the
gross margin improvement was lower repair costs on returned
products, which declined because of return to vendor agreements
discussed above. Partially offsetting the favorable impact of
these items was $555,000 of increased air freight expense mainly
to satisfy the strong demand for CB radios with the SoundTracker
system. Normally the company uses significantly less expensive
ocean freight to import its products.
Selling, general and administrative expense increased $2.3
million
during 1997 and, as a percentage of net sales, remained
relatively
unchanged from 1996. Sales and marketing expenses increased due
to: higher variable expenses resulting from the increase in sales
volume; the addition of a senior vice president of marketing and
sales, a newly created position, in February 1997; and increased
promotional spending mainly to promote the new SoundTracker
technology. In addition, higher bonus and bad debt expense in
1997 also contributed to the increase in selling, general and
administrative expenses. Bad debt expense increased because of
the bankruptcy of a small customer and a potential preference
payment issue for a prior year's bankruptcy. In addition, prior
year's bad debt expense reflected a favorable reserve adjustment
because of improvement in the quality of the receivable portfolio
and favorable collections experience.
Interest expense for 1997 decreased to $1.3 million from $1.7
million. Debt levels declined due to lower average inventory and
receivable levels. In addition, the company sold a building,
which was not needed for operations and was being leased to an
outside party, in the third quarter of 1997 for approximately $2
million. The sale resulted in a $1.1 million gain.
Other expense was $60,000 in 1997 compared to other income of
$275,000 in 1996. In 1996 there was a gain of $373,000 from a
suit against a former distributor for violation of a licensing
agreement and $217,000 of royalty income from Safety Alert
licensing agreements, offset by a $384,000 writedown of a
building
related to a discontinued operation.
1996 Compared to 1995
- ---------------------
Net income for 1996 was $601,000 compared to a net loss of $1.1
million in the year ago period. Selling, general and
administrative expense decreased $1.7 million to 15.9 percent of
net sales from 17.8 percent of net sales in the prior year. 1996
net sales were substantially unchanged from the prior year.
Sales of mobile electronics products (mainly CB radios and
integrated radar/laser detectors) declined approximately $900,000
in 1996 compared to 1995. Higher domestic CB sales were offset by
a large drop in international CB sales, mainly because of a
trademark dispute that limited shipments to a South American
distributor. Also, offsetting some of this drop was increased
sales of integrated radar/laser detectors primarily because of
expanded distribution overseas.
Telecommunications product sales increased $1.6 million in 1996
compared to 1995, primarily due to increased sales to Sprint of
the exclusive Sprint-branded Intenna cordless telephone and
Cobra-branded integrated Intenna cordless phone/answering
systems. 1996
sales to Sprint doubled from their 1995 levels. Partially
offsetting this increase was a decrease in international sales of
telecommunications products due to a lack of cordless phone
availability because of constraints in capacity at the company's
cordless phone supplier as well as compliance issues with local
regulatory requirements.
Gross margin for 1996 and 1995 was 18.1 percent and 18.3 percent,
respectively. Increased cordless phone margins, which reflected
strong demand for 25-channel phones that were not available in
1995, were offset by lower answering system margins due mainly to
increased air freight expenses to import the company's popular
Intenna answering systems in order to take advantage of customer
orders that exceeded original forecasts. As a result, the
company
was not able to use less expensive ocean freight as it normally
does and still satisfy this demand in a timely manner. Also
offsetting the higher cordless phone margins were a decrease in
detector margins, which was due to downward pricing pressures on
several higher-priced models. CB margins were essentially
unchanged from the prior year.
Selling, general and administrative expenses decreased $1.7
million due to lower sales and marketing expenses, which declined
because of lower advertising expenses, a change in sales
commission programs, and the implementation of other cost
reduction programs such as bringing in house some packaging and
print media design activities. In addition, 1995 expenses
included higher than normal marketing and product development
costs incurred to build sales volume. Partially offsetting the
lower selling and marketing expenses was a $1.2 million charge to
reduce advertising credits to their net realizable value, which
was partially offset by a decline in bad debts expense because of
improvement in the quality of the receivable portfolio and
favorable collections experience.
Interest expense for 1996 decreased to $1.7 million from $1.8
million in the prior year due primarily to lower interest rates.
In addition, as a result of consolidation of warehousing
activities the Company sold one of its three Chicago buildings
for
approximately $1 million, which reduced borrowings.
Other income increased to $275,000 in 1996 from $127,000 in 1995
and reflects a gain of $373,000 from a suit against a former
distributor for violation of a licensing agreement and $217,000
of
royalty income from Safety Alert licensing agreements, offset by
a
$384,000 writedown of a building related to a discontinued
operation.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1997, the company had a $30 million secured
credit
facility that included a fixed term loan. Borrowings and letters
of credit issued under this agreement were collateralized by the
company's assets, and usage of the non-term loan portion was
limited to certain percentages of accounts receivable and
inventory. The fixed term loan was secured by the company's
buildings and equipment and required both monthly principal
payments of $43,000 and a balloon payment of $2 million at the
time of expiration.
The credit agreement specified that the company may not pay cash
dividends and contained a material adverse change clause, which,
under certain circumstances, could accelerate the payment of the
debt. Because of this clause the company classified the debt as
short-term for financial reporting purposes. The company does
not
believe a material adverse change is likely. At December 31,
1997, the company had approximately $8.4 million of unused credit
line.
On February 3, 1998, the company entered into a new $35 million
secured credit agreement with two financial institutions for a
three-year revolving credit facility, replacing the existing $30
million credit agreement. Loans outstanding under the new
agreement bear interest, at the company's option, at the prime
rate or, under a LIBOR option, at LIBOR plus 2 percent.
Additionally, the new agreement provides for higher advance rates
on eligible inventory and receivables and eliminates the 2
percent per annum charge that the company was obligated to pay on
its average outstanding balance of letters of credit under the
previously existing agreement.
Cash flows provided by operating activities were $540,000 for the
year ended December 31, 1997. Receivables increased compared to
the prior year because of higher sales volume. Inventories
increased mainly because of higher CB and radar detector
inventories as well as investment in inventories for the new
power
inverter line and for the growing Safety Alert transmitter
business. CB inventory increased in anticipation of continued
strong demand for SoundTracker models in the first quarter of
1998.
Radar detector inventories increased because of lower than
anticipated year end domestic sales. Accrued liabilities
increased due to: higher product warranty costs as a result of
the
higher sales volume in 1997 compared to 1996; and increased
accrued salaries and commissions due to higher bonus and deferred
compensation accruals.
Cash flows provided by operating activities were $8.2 million for
the year ended December 31, 1996. Receivables decreased compared
to the prior year because the 1995 balance included amounts from
several large customers which were due prior to year end but were
received shortly thereafter. Inventories decreased because soft
demand at retail during the fourth quarter of 1995 resulted in
lower than anticipated sales and higher than expected inventory
levels at the end of 1995. Other assets decreased due to a
charge
to reduce advertising credits to their net realizable value.
Accounts payable declined because of reduced purchases of product
on open account from a domestic supplier and lower unpaid letters
of credit due to timing of payments.
Cash flows used in operating activities were $4.8 million for the
year ended December 31, 1995; losses from operations of $1.1
million together with an increase in working capital requirements
provided for the cash outflow. The increase in receivables is
due
mainly to higher fourth quarter sales compared to the prior year
as well as payments from several large customers which were due
prior to year end but were received shortly thereafter.
Inventories increased mainly as a result of lower than
anticipated
sales during the year-end holiday selling season because of soft
demand at the retail level. Accounts payable increased because
of
additional purchases of product on open account from a domestic
supplier. The majority of the company's purchases are from
foreign suppliers and are financed with letters of credit, which
require payment at the time of shipment.
Investing activities provided cash of $683,000 in 1997 and
required cash of $703,000 and $1.9 million in 1996 and 1995,
respectively. Most of the cash outflows during these years
related to the purchase of tooling and equipment. In 1997 the
company sold a building that the company did not need for
operations and was leasing to an outside party for approximately
$2 million. In 1996 due to consolidation of the warehousing
activities, the company sold a building for approximately $1
million.
Cash flows provided by and used for financing activities for the
three years ending December 31, 1997, primarily reflect changes
in
the company's borrowing requirements under its line-of-credit
agreement.
At December 31, 1997, the company had no material commitments,
other than approximately $21.1 million in outstanding purchase
orders for products compared with $23.8 million at the end of the
prior year.
The company believes that cash generated from operations and from
borrowings under its credit agreement will be sufficient
in 1997 to fund its working capital needs. In addition, the
majority of any taxable income in 1997 will be offset by net
operating loss carryforwards that totaled $40.0 million at
December 31, 1996.
YEAR 2000
The company initiated the process of preparing its computer
systems and applications for the Year 2000 in 1997. This process
involves modifying or replacing certain hardware and software
maintained by the company. Management expects to have
substantially all of the system and application changes completed
by the end of 1998 and believes its level of preparedness is
appropriate.
The total cost to the company of these Year 2000 Compliance
activities has not been and is not anticipated to be material to
its financial position or results of operations in any given
year.
The costs and the date on which the company plans to complete the
Year 2000 modification are based on management's best estimates,
which were derived utilizing numerous assumptions of future
events
including the continued availability of certain resources, third
party modification plans and other factors. However, there can
be
no guarantee that these estimates will be achieved and actual
results could differ from those plans.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA:
Financial Statements and quarterly financial data are included in
this Annual Report on Form 10-K, as indicated in the index on
page 39.
CONSOLIDATED STATEMENTS OF OPERATIONS
Cobra Electronics Corporation
Years Ended December 31 (in
thousands, except per share amounts) 1997 1996 1995
- ----------------------------------- -------- --------
- -------
Net sales.......................... $104,098 $ 90,324
$90,442
Cost of sales...................... 82,547 73,954
73,865
-------- --------
- --------
Gross profit....................... 21,551 16,370
16,577
Selling, general and administrative
expense.......................... 16,655 14,374
16,097
-------- -------
- --------
Operating income .................. 4,896 1,996
480
Other income (expense):
Interest expense................. (1,276) (1,670)
(1,752)
Gain on sale of building......... 1,132 -- --
Other income (expense), net ..... (60) 275
127
-------- -------
- --------
Income (loss) before income taxes.. 4,692 601
(1,145)
Income taxes....................... --- ---
- ---
-------- -------
- --------
Net income(loss)................... $ 4,692 $ 601
$(1,145)
======= =======
========
Net income (loss) per common share:
Basic $ .76 $ .10 $
(0.18)
Diluted $ .73 $ .10 $
(0.18)
Weighted average shares outstanding:
Basic 6,207 6,231 6,227
Diluted 6,459 6,285 6,227
See notes to consolidated financial statements.
CONSOLIDATED BALANCE SHEETS
Cobra Electronics Corporation
At December 31 (in thousands) 1997 1996
- --------------------------------------- -----------
- -----------
ASSETS:
Current assets:
Cash.................................. $ 1,815 $ 2,606
Receivables, less allowance for doubtful
accounts of $958 in 1997 and $792
in 1996........................... 15,685 12,314
Inventories, primarily finished goods. 19,830 15,418
Other current assets.................. 1,337 733
------- --------
Total current assets.................. 38,667 31,071
------- --------
Property, plant and equipment, at cost:
Land.................................. 330 482
Buildings and improvements............. 3,553 5,804
Tooling and equipment................. 11,264 10,091
------- --------
15,147 16,377
Accumulated depreciation and
amortization.......................... (10,436) (10,244)
-------- --------
Net property, plant and equipment..... 4,711 6,133
-------- --------
Other assets............................ 4,901 5,392
-------- --------
Total assets............................ $48,279 $42,596
======== ========
See notes to consolidated financial statements.
CONSOLIDATED BALANCE SHEETS
Cobra Electronics Corporation
At December 31 (in thousands, except
share data) 1997 1996
- ----------------------------------------- -----------
- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities:
Accounts payable...................... $ 3,637 $ 3,335
Accrued salaries and commissions...... 1,307 340
Accrued advertising and sales promotion
costs.............................. 1,093 654
Accrued product warranty costs........ 4,173 2,838
Other accrued liabilities............. 1,170 1,446
Short-term debt....................... 10,995 13,277
------- -------
Total current liabilities............. 22,375 24,890
------- -------
Long-term liability:
Deferred compensation................. 2,231 1,993
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 6,217,791
outstanding for 1997 and 6,241,648
outstanding for 1996................. 2,345 2,345
Paid-in capital........................ 20,681 22,062
Retained earnings...................... 6,272 1,580
------- -------
29,298 25,987
Treasury stock, at cost
(821,309 shares for 1997 and 797,452
shares for 1996)................... (5,625)
(5,450)
Note receivable from officer's
exercise of stock options.......... ---
(1,824)
--------
- --------
Total shareholders' equity............. 23,673 18,713
--------
- --------
Total liabilities and shareholders'
equity................................. $48,279 $42,596
======== ========
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Cobra Electronics Corporation
Years Ended December 31(in thousands) 1997 1996 1995
- ------------------------------------- -------- --------
- --------
Cash flows from operating activities:
Net income (loss)................... $ 4,692 $ 601
$(1,145)
Adjustments to reconcile net income
(loss) to net cash flows from
operating activities:
Depreciation and amortization..... 3,198 3,080
1,826
Gain on sale of fixed assets...... (1,132) (123) ---
Changes in assets and liabilities:
Receivables..................... (3,371) 3,447
(4,948)
Inventories..................... (4,412) 2,287
(2,611)
Other current assets............ (686) 138
466
Other assets.................... (754) 666
(1,429)
Accounts payable................ 302 (2,735)
2,648
Accrued liabilities............. 2,703 802
439
Deferred compensation........... 2,238 231
162
-------- --------
- --------
Net cash flows from
operating activities.............. 540 8,163
(4,754)
-------- -------
- --------
Cash flows from investing activities:
Proceeds from sale of fixed assets.. 1,999 1,086 ---
Capital expenditures................ (1,316) (1,789)
(1,678)
Net cash used for discontinued
operation......................... --- ----
(263)
-------- -------
- --------
Net cash flows from
investing activities.............. 683 (703)
(1,941)
-------- -------
- --------
Cash flows from financing activities:
Net borrowings (repayments) under the
line-of-credit agreement.......... (2,282) (6,091)
7,907
Transactions related to exercise of
stock options, net................ 268 (62)
(110)
-------- -------
- --------
Net cash flows from
financing activities.............. (2,014) (6,153)
7,797
-------- -------
- --------
Net increase (decrease)in cash........ (791) 1,307
1,102
Cash at beginning of year............. 2,606 1,299
197
-------- -------
- --------
Cash at end of year................... $ 1,815 $2,606 $
1,299
======== =======
========
Supplemental disclosure of cash flow information
Cash paid during the year for:
Interest $ 1,274 $ 1,716 $
1,654
Taxes 338 83 ---
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Cobra Electronics Corporation
Note
Three Years Ended
Rec.
December 31, 1997 Common Paid-In Retained
Treasury from
(dollars in thousands) Stock Capital Earnings Stock
Officer
- ---------------------------- ------- ------- --------
- ------- -------
Balance-January 1, 1995..... $ 2,345 $ 22,118 $ 2,124 $
5,545 $ 1,613
Net loss.................. --- --- (1,145)
- --- ---
Note receivable interest.. --- --- ---
- --- 110
------- -------- ---------
- ------- --------
Balance-December 31, 1995... 2,345 22,118 979
5,545 1,723
Net income................ --- --- 601 ---
---
Note receivable interest.. --- --- --- ---
101
Transactions related to
exercise of options, net.. --- (56) ---
(95) ---
------- --------- --------
- -------- --------
Balance-December 31, 1996... 2,345 22,062 1,580
5,450 1,824
Net income................ --- --- 4,692 ---
---
Note receivable interest.. --- --- --- ---
81
Exchange of note receivable
for common stock (Note 9)
1,905 (1,905) Transactions related to
exercise of options, net.. --- (1,381) ---
(1,730) ---
------- --------- --------
- -------- --------
Balance-December 31, 1997 .. $ 2,345 $ 20,681 $ 6,272 $
5,625 $ ---
======= ======== ========
======== ========
See notes to consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Cobra Electronics Corporation
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS -- The company designs and markets consumer
electronics products, a majority of which are purchased from
overseas suppliers, primarily in China, Malaysia, Thailand,
Korea, and Japan. The consumer electronics market is
characterized by rapidly changing technology and certain
products may have limited life cycles. Management believes
that it maintains strong relationships with its current
suppliers and, if necessary, other suppliers could be found.
Production delays or a change in suppliers, however, could
cause a delay in obtaining inventories and a possible loss of
sales, which could adversely affect operating results.
PRINCIPLES OF CONSOLIDATION -- The consolidated financial
statements include the accounts of the company and its
subsidiaries.
USE OF ESTIMATES -- The preparation of financial statements in
conformity with generally accepted accounting principles
requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could
differ from those estimates.
INVENTORIES -- Inventories are recorded at the lower of cost,
on a first-in, first-out basis, or market.
DEPRECIATION -- Depreciation of buildings, improvements,
tooling and equipment is computed using the straight-line
method and the following estimated useful lives:
Classification Life
- ------------------------- ----------
Buildings................ 30 years
Building improvements.... 20 years
Motor vehicles........... 3-5 years
Equipment................ 5-10 years
Tools, dies and molds.... 2 years
LONG-LIVED ASSETS -- Long-lived assets are reviewed for
possible impairment whenever events indicate that the carrying
amount of such assets may not be recoverable. If such a review
indicates an impairment, the carrying amount of such assets is
reduced to estimated recoverable value.
RESEARCH, ENGINEERING AND PRODUCT DEVELOPMENT EXPENDITURES --
Research, engineering and product development expenditures are
expensed as incurred and amounted to $.8 million in 1997 and
1996 and $1.1 million in 1995.
INCOME TAXES -- The company provides for income taxes under the
asset and liability method of accounting for deferred income
taxes. Deferred tax assets and liabilities are recorded based on
the expected tax effects of future taxable income or deductions
resulting from differences in the financial statement and tax
bases of assets and liabilities. A valuation allowance is
recorded when necessary to reduce net deferred tax assets to the
amount considered more likely than not to be realized.
REVENUE RECOGNITION -- Revenue from the sale of goods is
recognized at the time of shipment. Obligations for sales
returns and allowances and product warranties are recognized at
the time of sale on an accrual basis.
NEW ACCOUNTING PRONOUNCEMENTS -- In 1997, the Financial
Accounting Standards Board issued SFAS No. 130, "Reporting
Comprehensive Income," and SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information" and, in 1998
they issued SFAS No. 132, " Employers' Disclosures about
Pensions and Other Postretirement Benefits." SFAS No. 130
establishes standards for reporting and display of
comprehensive income and its components. SFAS No. 131
establishes standards for reporting information about operating
segments and related disclosures about products and services,
geographic areas and major customers. SFAS No. 132 revises
current disclosure requirements for employers' pensions and
other retiree benefits. These standards are effective for
years beginning after December 15, 1997. These standards
expand or modify current disclosures and accordingly, are not
expected to have a significant impact on the company's reported
financial position, results of operations and cash flows.
In 1997, the company adopted Statement of Financial Standard
No. 128, "Earnings Per Share". This statement establishes
standards for computing and presenting earnings per share
("EPS") and applies to all entities with publicly held common
stock or potential common stock and requires restatement of
earnings per share for all periods reported. This statement
replaces the presentation of primary EPS and fully diluted EPS
with a presentation of basic EPS and diluted EPS, respectively.
Basic EPS excludes dilution and is computed by dividing
earnings available to common stockholders by the weighted-average
number of common shares outstanding for the period.
Similar to fully diluted EPS, diluted EPS reflects the
potential dilution of securities that could share in the
earnings.
RECLASSIFICATION -- Certain amounts for prior years have been
reclassified to conform with 1997 financial statement
presentation.
(2) TAXES ON INCOME
Deferred tax assets (liabilities) by component at December 31,
1997 and 1996 were:
(in thousands) 1997 1996
- ------------------------------------------ --------- ---------
Net operating loss carryforwards.......... $ 12,006 $ 15,768
Investment tax credit carryforwards....... 1,938 1,938
Alternative minimum tax credit carryforwards 1,298 1,097
Tax lease income.......................... (7,354) (7,785)
Receivable reserves....................... 202 128
Warranty reserves......................... 1,444 1,100
Inventory reserves........................ 901 590
Accrued promotion expenses................ 1,824 1,036
Sales related reserves.................... 634 575
Compensation reserves..................... 1,153 793
Other, net................................ 116 558
--------- ---------
Net deferred tax assets................... 14,162 15,798
Valuation allowance....................... (13,756) (15,596)
--------- ---------
Net deferred tax assets................... $ 406 $ 202
========= =========
Net deferred tax assets are classified with other noncurrent
assets in the consolidated balance sheets.
The tax lease income resulted from the purchase of several 1983
tax lease agreements to acquire tax benefits under the provisions
of the Economic Recovery Tax Act of 1981. The total cash price
paid by the company was $12.4 million. The economic value of
these leases was not impaired by the Tax Reform Act of 1986. The
company realized temporary tax savings from accelerated
depreciation and permanent tax savings from credits associated
with the leases, subject to statutory limitations. These savings
offset current taxes payable which would otherwise have been due
on income from normal operations. In 1996 approximately
$6,917,000 of net operating loss carryforwards were scheduled to
expire. Effective December 31, 1996, the company terminated one
of its tax lease agreements which resulted in the recognition of
approximately $5.8 million in taxable income.
Prior to 1996, the company had a history of net losses resulting
in a significant net deferred tax asset and valuation allowance.
Under SFAS No. 109, a history of operating losses in recent years
generally requires recognition of such an allowance. Accordingly,
the company recorded a valuation allowance for substantially all
of the net deferred tax asset as of December 31, 1997. If the
company continues its growth in net income, SFAS No. 109 will
require management to assess the need for a valuation allowance.
If it is determined that the valuation allowance is not needed,
it will be credited to income. In 1997, the valuation allowance
for net deferred tax assets was reduced by approximately
$1,840,000 to recognize the utilization of net operating loss
carryforwards and net changes in temporary differences.
At December 31, 1997, the company has net operating loss
carryforwards("NOL") available to offset future taxable income,
and both investment tax credit ("ITC")and alternative minimum tax
credit carryforwards to offset future income tax payments. The
alternative minimum tax credit carryforwards, amounting to
$1,298,000, do not expire.
In 1997, the company utilized approximately $9.6 million of net
operating loss carryforwards to offset taxable income. The
company's taxable income for 1997 exceeded its book income mainly
because of charges to reserves which are not expensed for tax
purposes until actually incurred in future periods.
The net operating loss and investment tax credit carryforwards
expire as follows (in thousands):
Year of Expiration NOL ITC
- ----------------------- --------- ---------
1998................... $ -- $ 1,804
1999................... -- 112
2000................... -- 22
2002................... -- ---
2006................... 5,509 ---
2007................... 11,575 ---
2008................... 9,920 ---
2009................... 3,355 ---
--------- ---------
Total.................. $ 30,359 $ 1,938
========= =========
The statutory Federal income tax rates are reconciled to the
effective income tax rates as follows:
Description 1997 1996 1995
- -------------------------------------- ------ ------ ------
Statutory Federal income tax rate. ... 34.0% 34.0% 34.0%
State taxes, net of Federal income tax
benefits........................... 4.7 4.7 4.7
Utilization of net operating loss
carryforwards...................... (38.7) (38.7) (38.7)
------ ------ ------
Effective tax rate.................... ---% ---% ---%
====== ====== ======
(3) FINANCING ARRANGEMENTS
The company had a $30 million secured credit facility that
included a fixed term loan. In October, 1996 the agreement for
this credit facility was extended to March 31, 1998.
Borrowings and letters of credit issued under this agreement were
collateralized by the company's assets, and usage of the non-term
loan portion was limited to certain percentages of accounts
receivable and inventory. The fixed term loan was secured by the
company's buildings and equipment and required both monthly
principal payments of $43,000 and a balloon payment of $2
million at the time of expiration. Interest was payable monthly
at prime (8.50% at December 31, 1997) plus one and one-half
percent.
The credit agreement specified that the company may not pay cash
dividends and contained a material adverse change clause, which,
under certain circumstances, could accelerate the payment of the
debt. Because of this clause, the company classified the debt as
short-term for financial reporting purposes. Management does not
believe a material adverse change is likely and does not believe
that repayment of the debt will be accelerated. Maximum
borrowings outstanding at any month-end were $15.7 million and
$19.8 million in 1997 and 1996, respectively. Aggregate average
borrowings outstanding were $12 million during 1997 and $17
million during 1996 with weighted average interest rates thereon
of 10.3% and 9.5% during 1997 and 1996, respectively.
The maximum value of letters of credit outstanding at any month
end were $11.0 million and $8.4 million in 1997 and 1996,
respectively. At December 31, 1997, the company had
approximately $8.4 million of unused credit line.
During 1997, 1996 and 1995, the company made interest payments of
$1.3 million, $1.7 million and $1.7 million, respectively.
On February 3, 1998, the company entered into a new $35 million
secured credit agreement with two financial institutions for a
three-year revolving credit facility, replacing the existing $30
million credit agreement with another lender. Loans outstanding
under the new agreement bear interest, at the company's option,
at the prime rate or, under a LIBOR option, at LIBOR plus 2
percent. Additionally, the new agreement provides for higher
advance rates on eligible inventory and receivables and
eliminates the 2 percent per annum charge that the company was
obligated to pay on its average outstanding balance of letters of
credit under the previously existing agreement.
4) FAIR VALUE OF FINANCIAL INSTRUMENTS
The company's financial instruments include cash, accounts
receivable, accounts payable, short term debt and letters of
credit. The fair values of cash, accounts receivable and
accounts payable approximate fair value because of the short
maturity of these instruments. The carrying amounts of the
Company's bank borrowings under its credit facility approximate
fair value because the interest rates are reset periodically to
reflect current market rates. The letters of credit reflect fair
value as a condition of their underlying purpose and are subject
to fees competitively determined in the marketplace. The
contract value/fair value of the letters of credit at December
31, 1997 and 1996 was $8.0 million and $5.6 million,
respectively. These letters of credit are only executed with
major financial institutions, and full performance is
anticipated.
5) LEASE TRANSACTIONS
The company leases facilities and equipment under noncancellable
leases with remaining terms of one year or more. The terms of
these agreements provide that the company pay certain operating
expenses. Some of these lease agreements also provide the
company with the option to purchase the related assets at the end
of the respective initial lease terms.
Rental amounts committed in future years are summarized at
December 31, 1997 as follows:
Operating Capital
(in thousands) Leases Leases Total
-------------- --------- ------- -----
1998 $ 7 $ 111 $ 118
1999 7 72 79
2000 7 59 66
2001 1 -- 1
2002 0 -- 0
----- ----- -----
Total $ 22 $ 242 $ 264
Total rental expense amounted $6,000 in 1997, $16,000 in 1996 and
$225,000 in 1995. Future capital lease rental payments include
executory costs of $82,000, interest expense of $9,000 and
principal payments of $151,000.
6) SHAREHOLDERS' EQUITY
PREFERRED STOCK -- Preferred stock is issuable from time to time
in one or more series, which series may have such voting powers,
and such designations, preferences, and relative participating,
optional or other special rights, and qualifications, limitations
or restrictions thereof, as shall be stated and expressed in the
resolution or resolutions providing for the issue of such stock
adopted by the Board of Directors. No preferred stock has been
issued.
EARNINGS PER SHARE -- Weighted average common shares outstanding
used in the basic earnings per share calculation were 6,206,812
in 1997 and 6,231,075 in 1996 and 6,226,648 in 1995. Diluted
earnings per share are calculated using the treasury stock method
and giving effect to common share equivalents. Weighted average
common shares outstanding used in the diluted earnings per share
calculation includes the effect of stock options of 252,012 in
1997, 54,193 in 1996 and none in 1995.
(7) STOCK OPTION PLANS
The company has six Stock Option Plans-- 1997, 1995, 1988, 1987,
1986 and 1985 ("the Plans"). Under the terms of the Plans, the
consideration received by the company upon exercise of the
options may be paid in cash or by the surrender and delivery to
the company of shares of its common stock, or by a combination
thereof. The optionee is credited with the fair market value of
any stock surrendered and delivered as of the exercise date.
Options granted under the 1985 nonqualified plan may include
provisions that are similar to stock appreciation rights in that
they entitle the holder to additional compensation at the date of
exercise or, if later, at the date when the exercise transaction
becomes taxable. The anticipated cost is recognized over the
vesting period of the options, which ranges from one to five
years. Currently there are no options outstanding that include
these provisions.
The company applies Accounting Principles Board Opinion No. 25
and related Interpretations in accounting for the Plans.
Accordingly, no compensation cost has been recognized. Had
compensation cost been determined consistent with Statement of
Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation", the company's net income (loss) and
earnings (loss) per share would have been adjusted to the pro
forma amounts indicated below (in thousands, except per share
amounts):
1997 1996 1995
Net income As Reported $ 4,692 $ 601 $(1,145)
Pro forma 4,366 467 (1,178)
Earnings (Loss) Per Share:
Basic As Reported $ .76 $ .10 $ (.18)
Pro forma .70 .07 (.19)
Diluted As Reported $ .73 $ .10 $ (.18)
Pro forma .68 .07 (.19)
A summary of certain provisions and amounts related to the Plans
follows:
1997
1995
1988 1987 1986 1985
Plan Plan Plan Plan
Plan
Plan -------------------------------------------------
- --------
- ------- -------- -------- -------- ------
Authorized, unissued shares available for grant.. 300,000
300,000
500,000 150,000 225,000 525,000
Nonqualified options granted at not less than
80% of fair value at date of grant............ -0-
- -0-
-0- -0- -0- -0-
Incentive stock options granted at 100% of
fair value at date of grant................... -0-
- -0-
-0- -0- -0- -0-
Shares exercisable at December 31, 1997.......... -0-
4,875
322,250 -0- 42,500 18,750
The fair value of each option is estimated on the date of grant
using the Black-Scholes option-pricing model with the following
weighted average assumptions used: no dividends; expected
volatility of 49 percent; risk-free interest rate of 5.4 percent;
and expected lives of 5 years.
A summary of the status of the Plans as of December 31, 1997,
1996
and 1995, and changes during the years ended on those dates is
presented below:
1997
1996 1995
-----------------
- ---------------- ----------------
Weighted
Weighted Weighted
Average
Average Average
Shares Exercise
Shares Exercise Shares Exercise
Fixed Options (000) Price
(000) Price (000) Price
- --------------------------------------- ------- ---------
- ------- -------- ------- --------
Outstanding at beginning of year 935 $3.06
855 $3.06 1,039 $3.24
Granted 374 4.46
114 2.88 178 2.44
Exercised (328) 2.63
(16) 2.56 --- ---
Cancellations and Expirations (67) 2.65
(18) 2.68 (362) 3.24
-------
- ------- -------
Outstanding at end of year 914
935 855
Options exercisable at year end 388
584 476
Weighted-average fair value of options
granted during the year $ 2.20
$1.29 $.97
The following table summarizes information about stock options
outstanding at December 31, 1997:
Options Outstanding
Options Exercisable
- -------------------------------------
-------------------------
Weighted
Weighted Average
Weighted
Number Average
Remaining
Number Average
Range of Outstanding Exercise
Contractual
Exercisable Exercise
Exercise Prices (000) Price Life
(000) Price
- ---------------- --------- ----------- -----------
- -----------
-------- ---------
Less than $2 39 $1.88 2.1
2 $1.90
$2.01 to $3.00 257 2.79 3.1
48 2.62
$3.01 to $4.00 443 3.71 1.7
338 3.84
$4.01 to $5.00 -- -- --
-- --
$5.01 to $6.00 150 5.63 4.6
$6.01 to $7.00 -- -- --
-- --
$7.01 to $8.00 -- -- --
-- --
$8.01 to $9.00 25 8.50 4.6
-- --
---
---
914 3.82 2.7
388 3.68
===
===
(8) RETIREMENT BENEFITS
The only qualified retirement plan for employees is the Cobra
Electronics Corporation Profit Sharing and 401(k) Incentive
Savings Plan (the "Plan"). The company may make a discretionary
annual profit sharing contribution that is allocated among
accounts of persons employed by the company for more than one
year, prorated based on the compensation paid to such persons
during the year. Profit sharing expense for 1997 and 1996 was
$169,000 and $55,000, respectively. There were no profit sharing
contributions in 1995.
As of December 31, 1997 and 1996, deferred compensation of $2.2
million and $2.0 million, respectively, was recorded as a
long-term liability. The current portion of the deferred
compensation
liability was included in accrued salaries and commissions, and
amounted to $253,000 at December 31, 1997. There was no current
portion at December 31, 1996. Deferred compensation obligations
arise pursuant to outstanding key executive employment
agreements, the majority of which relates to the former president
and chief executive officer.
(9) RELATED PARTY TRANSACTIONS
In August 1997, the company exchanged its note receivable from
the
company's president and chief executive officer, of approximately
$1.9 million, for 300,000 common shares owned by the executive.
In 1990, pursuant to an employment agreement, the executive
exercised options on 375,000 common shares by executing a note
with the company in the amount of $1.25 million. The face amount
of the note plus accrued interest amounted to $1.9 million at the
date of exchange.
(10) COMMITMENTS
At December 31, 1997 and 1996, the company had outstanding
inventory purchase orders with suppliers totaling approximately
$21.1 million and $23.8 million, respectively.
(11) INDUSTRY SEGMENT INFORMATION
The company operates in only one business segment--consumer
electronics. Excluding company-owned tooling at suppliers with a
net book value of $906,000 at December 31, 1997, assets located
outside the United States are not material. Foreign sales were
$19.1 million, $10.1 million and $12.2 million in 1997, 1996 and
1995, respectively. For 1996, sales to one customer totaled
10.7%
of consolidated net sales. There were no sales in excess of 10%
of consolidated net sales to a single customer or a group of
entities under common control in 1997 and 1995. The company does
not believe that the loss of any one customer would have a
material adverse effect on its business.
(12) ADVERTISING BARTER CREDITS
During 1992, the company received $3.8 million of advertising
credits in exchange for certain discontinued products. These
credits can be used to reduce the cash cost of a variety of media
services (by 30 to 50 percent) prior to their expiration in
December 1998. The company is exploring opportunities to
exchange
a portion of the credits for various goods and services used by
the company as well as the outright sale of the credits to third
parties. During 1997, 1996, and 1995, the company utilized
credits of approximately $10,000, $20,000, and $329,000,
respectively. In 1997, 1996 and 1995 the company recorded charges
of $1.1 million, $1.2 million and $.1 million, respectively to
reduce the credits to their estimated net realizable value. The
net carrying value of the credits at December 31, 1997 and 1996
was $0 and $1.2 million, respectively.
(13) OTHER ASSETS
In addition to the advertising barter credits, other assets at
December 31, 1997 and 1996 included the cash value on officer
life
insurance policies of $3.9 million and $3.4 million,
respectively.
The cash value of officer life insurance policies is pledged as
collateral for the company's secured lending agreement and is
maintained to fund deferred compensation obligations (see Notes 3
and 8).
(14) CONTINGENCIES
The company is subject to various unresolved legal actions which
arise in the normal course of its business, the most prevalent of
which relates to federal excise tax. During 1996, the company
received notice from the Internal Revenue Service (IRS) asserting
deficiencies in federal excise taxes for filing periods October
1,
1993 through December 31, 1995. The excise tax relates to the
use of
ozone-depleting chemicals ("ODCs"). The company has protested
the
deficiencies and has filed an environmental excise tax protest.
Management believes that they have substantial defenses and
intends to defend these actions vigorously. Although it is not
possible to predict with certainty the outcome of this tax
dispute, management believes the ultimate outcome of this dispute
will not result in a material impact on the company's
consolidated
results of operations or financial position. Also in 1996, the
company recognized $373,000 of income related to a lawsuit
against a
former distributor for violation of a licensing agreement.
Quarterly Financial Data (Unaudited)
(In thousands, except per share amounts)
Quarter
Ended
- ------------------------------------------------------------------------------------------
March 31 June 30
September 30 December 31
--------------------- ---------------------
- --------------------- ---------------------
1997 1996 1997 1996
1997 1996 1997 1996
---------- ---------- ---------- ----------
- ---------- ---------- ---------- ----------
Net sales.........$ 17,915 $ 19,272 $29,472 $ 21,395
$31,353 $ 25,388 $ 25,358 $ 24,269
Cost of sales..... 14,403 16,139 23,776 17,260
24,585 20,657 19,783 19,898
Gross profit...... 3,512 3,133 5,696 4,135
6,768 4,731 5,575 4,371
Selling, general
and administra-
tive expense.... 3,134 3,417 4,147 3,622
5,022 3,873 4,352 3,462
Operating income
(loss).......... 378 (284) 1,549 513
1,746 858 1,223 909
Gain on sale of
building........ -- -- -- --
1,132 -- -- --
Net income (loss). 93 (583) 1,249 284
2,625 410 725 490
Net income (loss)
per share (a):
Basic............. 0.01 (0.09) 0.20 0.05
0.43 0.07 0.12 0.08
Diluted........... 0.01 (0.09) 0.20 0.05
0.39 0.07 0.11 0.08
Weighted average
shares outstanding
Basic............. 6,242 6,230 6,242 6,230
6,170 6,230 6,173 6,231
Diluted........... 6,332 6,230 6,308 6,263
6,652 6,272 6,643 6,306
(a) The total quarterly income per share may not equal the annual
amount because net income per share is calculated independently
for
each quarter.
INDEPENDENT AUDITORS' REPORT
- ----------------------------
To the Board of Directors and Shareholders of
Cobra Electronics Corporation
Chicago, Illinois
We have audited the accompanying consolidated balance sheets of
Cobra Electronics Corporation and subsidiaries as of December 31,
1997 and 1996, and the related consolidated statements of
operations, shareholders' equity, and cash flows for each of the
three years in the period ended December 31, 1997. Our audits
also
included the financial statement schedule for the three years
ended December 31, 1997, listed in the Index at Item 14.
These financial statements and financial statement schedule are
the responsibility of the Company's management. Our responsi-
bility is to express an opinion on the financial statements and
financial statement schedule based on our audits. We conducted
our
audits in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial
statements
are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes assessing
the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, such consolidated financial statements present
fairly, in all material respects, the financial position of Cobra
Electronics Corporation and subsidiaries at December 31, 1997 and
1996, and the results of their operations and their cash flows
for
each of the three years in the period ended December 31, 1997 in
conformity with generally accepted accounting principles. Also,
in our opinion, such financial statement schedule, when
considered
in relation to the consolidated financial statements taken as a
whole, presents fairly in all material respects the information
set forth therein.
DELOITTE & TOUCHE LLP
Chicago, Illinois
February 27, 1998
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None
PART III
--------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information in response to this item is set forth in the
company's
definitive proxy statement filed pursuant to Regulation 14A under
"Directors and Nominees," which information is hereby
incorporated
by reference. The information under "Section 16(a) Reports"
included in the definitive proxy statement is hereby incorporated
by reference.
The executive officers of the Registrant are as follows:
Name, Age and Has Held Present Prior Business Experience
Present Position Position Since in Past Five Years
- -------------------- ---------------- -------------------------
James Bazet, 49, January 1998 President and Chief
President
and Executive Officer, Ryobi
Chief Executive Officer* Motor Products Floor Care
Division, 1995 - 1997,
President and Chief
Executive Officer,
Code-A-
Phone Corporation, 1991-
1994.
Carl Korn, 76, Nov. 1961
Chairman*
Jerry Kalov, 62, July 1997 President and Chief
Vice Chairman* Executive Officer, 1986-
January 1, 1998; retired
January 1, 1998
Gerald M. Laures, 50, Mar. 1994 Corporate Secretary,
Vice President-Finance July 1989 to present;
and Corporate Secretary* Corporate Controller
June 1988 to March 1994.
Anthony Mirabelli, 56, Feb. 1997 Vice President of
Senior Vice President, Marketing, Uniden
America
Marketing and Sales Corporation, 1992 -
1997.
* Is also a director.
ITEM 11. EXECUTIVE COMPENSATION
Information in response to this item will be set forth in a
definitive proxy statement to be filed by the company pursuant to
Regulation 14A within 120 days after the close of the company's
1997 fiscal year, and such information, other than the
information
required by Item 402(k) ("Board Compensation Committee Report on
Executive Compensation") and Item 402(l) ("Performance Graph")
under Regulation S-K adopted by the Securities and Exchange
Commission, is hereby incorporated by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Information in response to this item will be set forth in a
definitive proxy statement to be filed by the company pursuant to
Regulation 14A within 120 days after the close of the company's
1997 fiscal year, and such information is hereby incorporated by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information in response to this item will be set forth in a
definitive proxy statement to be filed by the company pursuant to
Regulation 14A within 120 days after the close of the company's
1997 fiscal year, and such information is hereby incorporated by
reference.
PART IV
-------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
Index to Consolidated Financial Statements and Schedules
--------------------------------------------------------
Page or
Schedule
Description Number
------------------------------------------------ --------
[a] 1. Consolidated Statements of Operations for the
three years ended December 31,997............ 18
Consolidated Balance Sheets as of December 31,
1997 and 1996................................ 19-20
Consolidated Statements of Cash Flows for the
three years ended December 31, 1997.......... 21
Consolidated Statements of Shareholders' Equity
for the three years ended December 31, 1997.. 22
Notes to Consolidated Financial Statements...... 23-34
Quarterly Financial Data........................ 35
Independent Auditors' Report.................... 36
[a] 2. Schedule:
Valuation and Qualifying Accounts - 1997, 1996
and 1995.....................................
All other financial schedules have been omitted
because the required information is contained in
the consolidated financial statements and notes
thereto, or such information is not applicable.
[a] 3. Exhibits:
See Index to Exhibits on pages 41 through 44
[b] During the three months ended December 31, 1997 the
Company
filed no Current Reports on Form 8-K.
Schedule II
COBRA ELECTRONICS CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
FOR THE THREE YEARS ENDED DECEMBER 31, 1997
(in thousands)
-------------------------------------------
Balance at Additions
Deductions Balance at
beginning charged to
from end of
of period expense
reserves Other,net period
---------- ----------
- ---------- ---------- -----------
1997
- ----------------------------------
Allowance for doubtful account.... $ 792 $ 127
$
(7)[a] $ 46 [c] $ 958
Reserve for disposal of
discontinued operation.......... $ 658 $
$
(658)[e] $ --- $ 0
Advertising barter credit
valuation allowance.............. $ 2,041 $ 1,144
$
- --- $ --- $ 3,185
Tax valuation allowance........... $ 15,596 $ ---
$
- --- $ (1,840)[d] $ 13,756
1996
- ----------------------------------
Allowance for doubtful account.... $ 1,451 $ (400)
$
(349)[a] $ 90 [c] $ 792
Reserve for disposal of
discontinued operation.......... $ 274 $ 384
$
- --- $ --- $ 658
Advertising barter credit
valuation allowance.............. $ 841 $ 1,200
$
- --- $ --- $ 2,041
Tax valuation allowance........... $ 15,675 $ ---
$
- --- $ (79) [d] $ 15,596
1995
- ----------------------------------
Allowance for doubtful account.... $ 638 $ 440
$
(42) [a] $ 415 [c] $ 1,451
Reserve for disposal of
discontinued operation.......... $ 501 $ ---
$
(227) $ --- $ 274
Advertising barter credit
valuation allowance.............. $ 715 $ 126
$
- --- $ --- $ 841
Tax valuation allowance........... $ 15,671 $ ---
$
- --- $ 4 [b] $ 15,675
[a] Uncollectible accounts written off.
[b] Increase in allowance to offset additional net operating loss
carryforwards generated during the year, net of carryforwards
expiring, and the inability of the company to realize certain tax
assets because of its operating loss.
[c] Net adjustments to the reserve with an offsetting entry to
receivables.
[d] Decrease in allowance reflects the change in net deferred tax
assets excluding alternative minimum income tax paid in 1997 and
1996.
[e] All assets related to discontinued operations were sold in
1997.
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15 (d) 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
/S/ Gerald M. Laures
--------------------------
Gerald M. Laures
Vice President - Finance
and Corporate Secretary
Dated: March 27, 1998
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following
persons on behalf of the Registrant and in the capacities
and on the date indicated above.
/S/ James Bazet Director, President
and Chief Executive --------------------- Officer
James Bazet
/S/ Carl Korn Director and Chairman of the
Board
- ---------------------
Carl Korn
/S/ Jerry Kalov Director and Vice Chairman of
the Board ---------------------
Jerry Kalov
/S/ William P. Carmichael Director
- ---------------------
William P. Carmichael
/S/ Samuel B. Horberg Director
- ----------------------
Samuel B. Horberg
/S/ Gerald M. Laures Director, Vice President -
Finance and
- ---------------------- Secretary (Principal Financial and
Gerald M. Laures Accounting Officer)
/S/ Harold D. Schwartz Director
- -----------------------
Harold D. Schwartz
INDEX TO EXHIBITS
-----------------
Exhibit
Number Description of Document
- -------
- --------------------------------------------------------
3(i)(a) Articles of Incorporation, as amended February 23,
1990-
-Filed as exhibit No. 3-1 to the Registrant's Form
10-K
for the year ended December 31, 1990 (File No.
0-511),
hereby incorporated by reference.
3(i)(b) Certificate of Ownership and Merger, filed with the
Secretary of State of Delaware on March 29,
1993--Filed
as exhibit No. 3-2 to the Registrant's Form 10-K
for the
year ended December 31, 1992 (File No. 0-511),
hereby
incorporated by reference.
3(ii) Bylaws, as amended December 6, 1983--Filed as
exhibit
No. 3-2 to the Registrant's Form 10-K for the year
ended
December 31, 1990 (File No. 0-511), hereby
incorporated
by reference.
10-1 # 1981 Nonqualified and Incentive Stock Option
Plan--Filed
as exhibit No. 10-1 to the Registrant's Form 10-K
for
the year ended December 31, 1992 (File No. 0-511),
hereby incorporated by reference.
10-2 # Amendment No. 1 to 1981 Nonqualified and Incentive
Stock
Option Plan--Filed as exhibit No. 10-2 to the
Registrant's Form 10-K for the year ended December
31,
1992 (File No. 0-511), hereby incorporated by
reference.
10-3 # 1985 Key Employees Nonqualified Stock Option
Plan--Filed
as exhibit No. 10-6 to the Registrant's Form 10-K
for
the year ended December 31, 1985 (File No. 0-511),
hereby incorporated by reference.
10-4 # Key Executive Employment Agreement dated as of
January
1, 1988--Filed as exhibit No. 10-15 to the
Registrant's
Form 10-K for the year ended December 31, 1987
(File No.
0-511), hereby incorporated by reference.
10-5 # 1986 Key Employees Nonqualified and Incentive Stock
Option Plan--Filed as exhibit No. 10-6 to the
registrant's Form 10-K for the year ended December
31,
1990 (File No. 0-511), hereby incorporated by
reference.
10-6 # 1987 Key Employees Nonqualified and Incentive Stock
Option Plan--Filed as exhibit No. 10-7 to the
Registrant's Form 10-K for the year ended December
31,
1990 (File No. 0-511), hereby incorporated by
reference.
10-7 # 1988 Key Employees Nonqualified and Incentive Stock
Option Plan--Filed as exhibit No. 10-8 to the
Registrant's Form 10-K for the year ended December
31,
1990 (File No. 0-511), hereby incorporated by
reference.
10-8 Lease Agreement dated August 16, 1989 between
Registrant
and CMD Midwest Eight Limited Partnership for
Aurora,
Illinois facility--Filed as exhibit No. 10-9 to the
Registrant's Form 10-K for the year ended December
31,
1990 (File No. 0-511), hereby incorporated by
reference.
10-9 # Key Executive Pledge Agreement and Term Loan
Promissory
Note dated December 31, 1990--Filed as exhibit No.
10-12
to the Registrant's Form 10-K for the year ended
December 31, 1990 (File No. 0-511), hereby
incorporated
by reference.
10-10 Sublease Agreement dated December 1, 1992 between
Registrant and Petcare Plus, Inc. for Aurora,
Illinois
facility--Filed as exhibit No. 10-16 to the
Registrant's
Form 10-K for the year ended December 31, 1992
(File No.
0-511), hereby incorporated by reference.
10-11 Lease Agreement dated October 15, 1987, including
Amendment Numbers 1, 2 and 3, between Registrant
and
Maxtec International Corp. for approximately 85% of
the
Registrant's building located at 6460 West Cortland
Street, Chicago, IL--Filed as exhibit No. 10-17 to
the
Registrant's Form 10-K for the year ended December
31, 1992 (File No. 0-511), hereby incorporated by
reference.
10-12 Loan and Security Agreement dated November 12,
1992,
including Amendment No. 1, by and between the
Registrant
and Congress Financial Corporation (Central)--Filed
as
exhibit No. 10-18 to the Registrant's Form 10-K for
the
year ended December 31, 1992 (File No. 0-511),
hereby
incorporated by reference.
10-13 # Deferred Compensation Plan dated as of December 23,
1992--Filed as exhibit No. 10-19 to the
Registrant's
Form 10-K for the year ended December 31, 1992
(File No.
0-511), hereby incorporated by reference.
10-14 Asset Purchase Agreement between Registrant and
Superscope Technologies, Inc. dated as of September
30,
1993--Filed as exhibit No. 10-18 to the
Registrant's
Form 10-K for the year ended December 31, 1993
(File No.
0-511), hereby incorporated by reference.
10-15 Omnibus Amendment To All Loan Documents between
Registrant and Congress Financial Corporation
(Central)
dated as of March 29, 1993--Filed as exhibit No.
10-16 Amendment No. 3 to the Loan and Security Agreement
between Registrant and Congress Financial
Corporation
(Central) dated as of August 17, 1993--Filed as
exhibit
No. 10-20 to the Registrant's Form 10-K for the
year
ended December 31, 1993 (File No. 0-511), hereby
incorporated by reference.
10-17 Amendment No. 4 to the Loan and Security Agreement
between Registrant and Congress Financial
Corporation
(Central) dated as of December 29, 1993--Filed as
exhibit No. 10-21 to the Registrant's Form 10-K for
the
year ended December 31, 1993 (File No. 0-511),
hereby
incorporated by reference.
10-18 Amendment No. 5 to the Loan and Security Agreement
between Registrant and Congress Financial
Corporation
(Central) dated as of February 25, 1994--Filed as
exhibit
No. 10-22 to the Registrant's Form 10-K for the
year
ended December 31, 1993 (File No. 0-511), hereby
incorporated by reference.
10-19 Amendment No. 6 to the Loan and Security Agreement
between Registrant and Congress Financial
Corporation (Central) dated as of November 12,
1994--Filed as exhibit No. 10-17 to the
Registrant's Form 10-K for the year ended December
31, 1994 (File No. 0-511), hereby incorporated by
reference.
10-20 Amendment No. 7 to the Loan and Security Agreement
between Registrant and Congress Financial
Corporation (Central) dated as of December 14,
1994--Filed as exhibit No. 10-18 to the
Registrant's Form 10-K for the year ended December
31, 1994 (File No. 0-511), hereby incorporated by
reference.
10-21 Amendment No. 8 to the Loan and Security Agreement
between Registrant and Congress Financial
Corporation (Central) dated as of January 20,
1995--Filed as exhibit No. 10-19 to the
Registrant's Form 10-K for the year
ended December 31, 1994 (File No. 0-511), hereby
incorporated by reference.
10-22 # Executive Employment Agreement dated as of
September 23, 1994--Filed as exhibit No. 10-20 to
the Registrant's Form 10-K for the year ended
December 31, 1994 (File No. 0-511), hereby
incorporated by reference.
10-23 # Amendment to the Key Executive Employment Agreement
dated as of December 15, 1994--Filed as exhibit No.
10-21 to the Registrant's Form 10-K for the year
ended
December 31, 1994 (File No. 0-511), hereby
incorporated
by reference.
10-24 # Amended and Restated Term Loan Promissory Note
dated as
of December 15, 1994--Filed as exhibit No. 10-22 to
the
Registrant's Form 10-K for the year ended December
31,
1994 (File No. 0-511), hereby incorporated by
reference.
10-25 1995 Key Employees Nonqualified and Incentive Stock
Option Plan.
10-26 Letter of Intent with Code 3.
10-27 Trademark License Agreement with General Motors
Corporation Service Parts Operations.
10-28 Amendment No. 9 to the Loan and Security Agreement
between Registrant and Congress Financial
Corporate (Central) dated as of October 31, 1996.
10-29 Non-Exclusive License Agreement between Cobra
Electronics Corporation and Yupiteru Industries
Co., Ltd. dated as of May 21, 1996.
10-30 Non-Exclusive License Agreement between Cobra
Electronics Corporation and Sunkyong America, Inc.
Dated as of May 1, 1996.
10-31 Employment Agreement between Cobra Electronics
Corporation and Anthony Mirabelli dated January
31, 1997.
10-32 Termination of Safe Harbor Lease between Cobra
Electronics Corporation and the Department of
Transportation of Maryland dated as of
November 15, 1996.
10-33 Employment Agreement between Cobra Electronics
Corporation and James R.Bazet dated April 21, 1997--
filed as Exhibit No. 10-31 to the Registrant's Form
10-Q for the quarter ended June 30, 1997.
10-34 Amendment to Employment Agreement between Cobra
Electronics Corporation and Jerry Kalov dated December
15, 1994, as amended thereafter--filed as Exhibit No.
10-32 to the Registrant's Form 10-Q for the quarter
ended June 30, 1997.
10-35* Loan and Security Agreement between Cobra
Electronics Corporation, LaSalle Business Credit,
Inc., and LaSalle National Bank dated as of
February 3, 1998.
21 * Subsidiaries of the Registrant.
23 * Consent of Deloitte & Touche LLP
27 * Financial data schedule required under Article 5 of
Regulation S-X.
- ------------------------------------------------------------
* Filed herewith.
# Executive compensation plan or arrangement.
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration
Statement Nos. 33-25973, 33-24459 and 33-32609 of Cobra
Electronics Corporation on Forms S-8 of our report dated February
27, 1998, appearing in this Annual Report on Form 10-K of Cobra
Electronics Corporation for the year ended December 31, 1997.
Deloitte & Touche LLP
Chicago, Illinois
February 27, 1998
EXHIBIT NO. 35
LOAN AND SECURITY AGREEMENT
Dated as of February 3, 1998
among COBRA ELECTRONICS CORPORATION, as Borrower
and LASALLE BUSINESS CREDIT, INC., as Collateral Agent and
Lender
and LASALLE NATIONAL BANK, as Administrative Agent and
Lender
$35,000,000
TABLE OF CONTENTS
Page
1. DEFINITIONS 1
2. REVOLVING LOANS
3. LETTERS OF CREDIT 14
4. INTEREST, FEES AND CHARGES 15
5. LOAN ADMINISTRATION 18
6. SETTLEMENTS, DISTRIBUTIONS AND
APPORTIONMENT OF PAYMENTS 21
7. GRANT OF SECURITY INTEREST 22
8. PRESERVATION OF COLLATERAL AND PERFECTION
OF SECURITY INTERESTS THEREIN 23
9. POSSESSION OF COLLATERAL AND RELATED MATTERS 23
10. COLLECTIONS 23
11. SCHEDULES AND REPORTS 23
12. TERMINATION 27
13. REPRESENTATIONS AND WARRANTIES 28
14. COVENANTS 32
15. CONDITIONS PRECEDENT 37
16. DEFAULT 38
17. REMEDIES UPON AN EVENT OF DEFAULT 40
18. AGENT 41
19. INDEMNIFICATION 46
20. NOTICES 47
21. CHOICE OF GOVERNING LAW AND CONSTRUCTION 47
22. FORUM SELECTION AND SERVICE OF PROCESS 47
23. ASSIGNABILITY 48
24. AMENDMENTS, ETC. 50
25. NONLIABILITY OF AGENT AND LENDERS 51
26. HEADINGS OF SUBDIVISIONS 51
27. POWER OF ATTORNEY 51
28. WAIVER OF JURY TRIAL; OTHER WAIVERS; CONFIDENTIALITY 51
LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT ("Agreement") is made as of
this 3rd day of February, 1998 by and among LASALLE BUSINESS
CREDIT, INC., a Delaware corporation ("LBCI"), as a lender
and as collateral agent ("Collateral Agent") for all
"Lenders" (as hereinafter defined) with its principal office
at 135 South LaSalle Street, Chicago, Illinois 60603,
LASALLE NATIONAL BANK, a national banking association
("LaSalle") as a lender and as administrative agent
("Administrative Agent") for all Lenders with an address at
135 South LaSalle Street, Chicago, Illinois 60603, all other
Lenders from time to time a party to the Agreement and COBRA
ELECTRONICS CORPORATION, a Delaware corporation
("Borrower"), with its principal office at 6500 West
Cortland Street, Chicago, Illinois 60707.
W I T N E S S E T H
WHEREAS, from time to time Borrower may request Agents and
Lenders to make loans and advances to and extend certain
credit accommodations to Borrower, and the parties wish to
provide for the terms and conditions upon which such loans,
advances and credit accommodations shall be made;
NOW, THEREFORE, in consideration of any loans, advances and
credit accommodations (including any loans by renewal or
extension) hereafter made to Borrower by Agents and Lenders,
and for other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged by
Borrower, the parties agree as follows:
DEFINITIONS
General Definitions
"Account," "Account Debtor," "Chattel Paper," "Documents,"
"Equipment," "General Intangibles," "Goods," "Instruments,"
"Inventory," and "Investment Property" shall have the
respective meanings assigned to such terms, as of the
date of this Agreement, in the Illinois Uniform Commercial
Code.
"Administrative Agent" shall mean LaSalle or its successor
appointed pursuant to paragraph 18 hereof, acting in its
capacity as administrative agent on behalf of all Lenders.
"Affiliate" shall mean, with respect to any Person, any
other Person (i) directly or indirectly controlling or
controlled by or under direct or indirect common control
with such Person or (ii) directly or indirectly owning
or holding five percent (5%) or more of the equity interest
in such Person. For purposes of this definition, "control"
when used with respect to any Person means the power to
direct the management and policies of such Person, directly
or indirectly, whether through the ownership of voting
securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to
the foregoing.
"Agents" shall mean Collateral Agent and Administrative
Agent, collectively.
"Aggregate Revolving Loan Commitment" shall mean the sum of
the Revolving Loan Commitments of each Lender.
"Benefit Plan" shall mean an employee pension benefit plan
of any Borrower or an ERISA Affiliate, as defined in Section
3(2) of ERISA, which is subject to Title IV of ERISA.
"Borrowing Base" shall have the meaning specified in
paragraph 2(b)(i) hereof.
"Breakage Costs" shall have the meaning specified in
paragraph 5(c)(iv) hereof.
"Business Day" shall mean (i) any day other than a Saturday,
Sunday, or such other day as banks in Chicago, Illinois are
authorized or required to be closed for business, and (ii)
with respect to notices and determinations in connection
with LIBOR Loans, any day included in (i) above and which is
also a day for trading by and between banks in U.S. dollar
deposits in London, England.
"Capital Expenditures" shall mean, with respect to any
period, the aggregate of all expenditures (whether paid in
cash or accrued as liabilities and including expenditures
for capitalized lease obligations) by Borrower during
such period that are required by GAAP to be included in or
reflected by the property, plant or equipment or similar
fixed asset accounts (or in intangible accounts subject to
amortization) in the balance sheet of Borrower.
"Change of Control" shall mean the acquisition by any
Person, or two or more Persons acting in concert (other than
any member of existing management as of the date hereof), of
beneficial ownership (within the meaning of Rule 13-d-3
of the Securities and Exchange Commission under the federal
Securities Exchange Act of 1934, as amended) of more than
fifty percent (50%) of the outstanding shares of voting
stock of Borrower.
"Closing Date" shall mean the date upon which the initial
Loan is made.
"Closing Document List" shall have the meaning specified in
paragraph 15(a)(i) hereof.
"Collateral" shall mean all of the personal property of
Borrower described in paragraph 8 hereof, all of the real
property of Borrower described in the Mortgages and all
other real or personal property of any Obligor or any other
Person now or hereafter pledged to Collateral Agent, for the
benefit of Agents and Lenders, to secure, either directly or
indirectly, repayment of any of the Liabilities.
"Continuation" shall have the meaning specified in paragraph
5 hereof.
"Conversion" shall have the meaning specified in paragraph 5
hereof.
"Default" shall mean any event, condition or default which
with the giving of notice, the lapse of time or both would
be an Event of Default.
"Eligible Account" shall mean an Account owing to Borrower
which is acceptable to Collateral Agent, in its reasonable
credit judgment for lending purposes. Collateral Agent
shall, in general, consider an Account to be an Eligible
Account if it meets, and so long as it continues to meet,
the following requirements:
it is genuine and in all respects is what it purports to be;
it is owned by Borrower and Borrower has the right to
subject it to a security interest in favor of Collateral
Agent;
it arises from (A) the performance of services by Borrower
and such services have been fully performed and acknowledged
and accepted by the Account Debtor thereunder; or (B) the
sale of Goods by Borrower, and such Goods have been
completed in accordance with the Account Debtor's
specifications (if any) and delivered to and accepted by the
Account Debtor, such Account Debtor has not refused to
accept and has not returned or offered to return any of the
Goods, or has not refused to accept any of the services,
which are the subject of such Account, and Borrower has
possession of, or has delivered to Collateral Agent, at
Collateral Agent's request, shipping and delivery receipts
evidencing delivery of such Goods;
it is evidenced by an invoice rendered to the Account Debtor
thereunder, is due and payable within one hundred eighty
(180) days after the stated invoice date thereof and does
not remain unpaid more than sixty (60) days past the due
date thereof; provided, however, that if more than fifty
percent (50%) of the aggregate dollar amount of invoices
owing by a particular Account Debtor are due and payable
more than one hundred eighty (180) days past the stated
invoice dates thereof or remain unpaid for more than sixty
(60) days past the due dates thereof, then all Accounts
owing to Borrower by that Account Debtor shall be deemed
ineligible;
it is not subject to any prior assignment, claim, lien,
security interest or encumbrance whatsoever, other than
Permitted Liens;
it is a valid, legally enforceable and unconditional
obligation of the Account Debtor thereunder, and is not
subject to setoff, counterclaim, credit, allowance or
adjustment by such Account Debtor, or to any claim by such
Account Debtor denying liability thereunder in whole or in
part;
it does not arise out of a contract or order which fails in
any material respect to comply with the requirements of
applicable law;
the Account Debtor thereunder is not a director, officer,
employee or agent of Borrower, or a Subsidiary, Parent or
Affiliate of Borrower;
it is not an Account with respect to which the Account
Debtor is the United States of America or any department,
agency or instrumentality thereof, unless Borrower assigns
its right to payment of such Account to Collateral Agent
pursuant to, and in full compliance with, the Assignment of
Claims Act of 1940, as amended;
it is not an Acco