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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, 1998
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 and non-voting common equity (only
Common Sock) held by non-affiliates of the Registrant at March 17, 1999 was
approximately $23,221,617.
The number of shares of Registrant's Common Stock outstanding at that date was
6,090,916.
Portions of the Registrant's Definitive Proxy Statement relating to the Annual
Meeting of Shareholders to be held May 11, 1999, 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
James R. Bazet who had joined the company as Executive Vice President and
Chief Operating Officer in July 1997, assumed the position of President and
Chief Executive Officer effective January 1, 1998. Former President and Chief
Executive Officer, Jerry Kalov, retired on January 1, 1998 and remains as Vice
Chairman of the Board of Directors.
In 1998 the company focused on accomplishing two main initiatives: expanding
its distribution base and increasing the flow of fresh new products. During
the year, the company added several new major retail customers, expanded
placement among existing major retail accounts, and added sporting goods and
office supply as new channels of distribution. As a result, the company's
products are now in six of America's top ten electronics retailers: Best Buy,
Circuit City, Sears, Target, Kmart and Office Max. In addition, the company
expanded its distribution base in Europe by adding new distributors during
1998. The company also increased the flow of fresh new products during 1998
by expanding its line of CB radios featuring the company's proprietary
SoundTracker technology and introducing its exclusive line of 6 Band radar
detectors and its new MicroTALK series of Family Radio Service(FRS)two-way
radios.
Also in 1998 the company doubled, to 2000, the number of its patented, FCC-
approved Safety Alert transmitters in use on police, fire and emergency
vehicles throughout the fifty states. Part of this increase was due to orders
from the Lake Ponchartrain Causeway in New Oleans and two major cities, Las
Vegas and Salt Lake City.
SUPPLIERS
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, Thailand, Japan, Hong Kong and Korea. The company maintains stringent
control over the design and production quality of its products. The company
has a wholly owned 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, principally company-owned tooling at suppliers, had a
net book value of $1.2 million at December 31, 1998.
PRODUCTS
The company operates only in the consumer electronics industry. Principal
products include:
Citizen Band ("CB") Radios
CB accessories, including antennas, microphones and speakers
MicroTALK Family Radio Service (FRS) two-way radios
FRS accessories
Integrated 6 Band Radar/Laser Detectors
Safety Alert transmitters and receivers
Private Call 900 MHz and Intenna 25-channel Cordless Telephones
Power Inverters
The company competes primarily in the United States with various manufacturers
and distributors of consumer electronics 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 $0.9 million in 1998 and $0.8
million each year in 1997 and 1996.
Except for certain patents, such as its Safety Alert technology, 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.
SoundTracker CB radios and accessories, 6 Band integrated radar/laser
detectors, Safety Alert transmitters and receivers, MicroTALK Family Radio
Service two-way radios and accessories, power inverters and 900 MHz cordless
telephones, are marketed under the COBRA trademark.
Cobra is the leading brand in the domestic CB radio market, which in factory
sales is approximately $120 million annually. Approximately 75 percent of the
market is for mobile CB radios, most of which are purchased by professional
drivers. The remaining part of the market is for handheld CB radios used for
sport and recreational activities.
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. In 1997, the company introduced its Soundtracker technology. This
patent-pending 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.
At the January 1999 International Consumer Electronics Show, the company
continued its technology leadership by introducing a new line of CB radios
featuring an adjustable illuminated front panel. The new NightWatch line,
which the company expects to begin shipping in mid-1999, will enhance drivers'
safety by making it dramatically easier for them to see and adjust their CB
controls at night. The company also expects to ship in 1999 several new CB
models specifically designed for the European market.
In 1997, the company entered the market for FRS two-way radios and in the Fall
of 1998 began selling its new MicroTALK line. Because of the success of this
new line, the company is now the number two brand by a wide margin in this
fast growing category. The company estimates that the market for FRS two-way
radios in 1998, in factory sales, approximated that for CB radios and will
increase to approximately $200 million in 1999.
FRS two-way radios operate on UHF FM frequencies, which allow for an extremely
small handheld radio and exceptionally clear sound that penetrates through
buildings and other obstacles. Unlike cellular phones, these radios require no
monthly charge and provide coverage even in the most remote areas. Because of
their range--up to two miles--and exceptionally clear sound quality, the
radios enable families and friends to easily keep in touch in hundreds of
situations where they typically get separated and out of earshot, such as in
shopping malls, amusement parks and ski resorts. FRS two-way radios also
provide parents with an easy way to maintain contact with children when they
are outside playing. In addition, the number of potential business-related
applications for these radios is substantial, including construction crews,
retail stores, restaurants and warehouses.
The company's MicroTALK two-way radios have innovative features, which make
them easy to use. These include: incoming call alert that lets one user
"ring" another user; voice scrambling that keeps users' conversations private;
talk confirmation tones that subtly let users know when the other party is
done talking; and a retractable antenna that makes it easier to store the
unit. One model even has a unique VibrAlert feature that works like a silent
vibrating pager, which makes it perfect for situations where noiseless
operation is important or where a ring alert cannot be easily heard. Later in
1999 the company expects to begin shipping new MicroTALK models. As an
example, one model can receive ten National Weather Service channels and
several models are designed especially for the European market.
Cobra is also the number two brand in the market for domestic integrated
radar/laser detectors, which in factory sales is approximately $94 million.
Currently, there are approximately 190 million cars and light trucks on the
road and, of those, approximately 10 percent have detectors. Cobra commands
this 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 vehicles operated by these organizations. 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 who are not interested in radar detection.
Currently, there are approximately 2000 Safety Alert transmitters installed
and operating throughout the fifty states on police, fire and emergency
medical vehicles. Five cities-- Indianapolis, Dayton, Orlando, Las Vegas and
Salt Lake City--have a concentration of transmitters. Also, scheduled to
begin in mid-1999 is the previously announced Illinois Department of
Transportation's high-visibility study to enhance railroad crossing safety
though a system which utilizes Safety Alert transmitters and receivers. Around
the same time, Safety Alert transmitters will also be featured in a Federal
Highway Administration program to improve highway work zone safety in four
midwestern states.
In the Spring of 1998, the company began shipping its proprietary 6 Band line
of detectors. Unique to the industry, these detectors were designed to alert
drivers to each of the four current speed monitoring systems in use -- X,K,Ka
and Laser -- plus VG-2, the band that advises that a radar detector is being
used, The sixth band is 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 of the popularity of the company's unique 6 Band
technology, Cobra was the fastest growing radar detector brand in 1998, which
resulted in solid market share gains for the company.
Major competitors in the CB radio market are Radio Shack (Tandy Corporation)
and Uniden. The major competitor in the FRS market is Motorola. Major
competitors in the radar detector market are Whistler, Uniden, Beltronics and
Radio Shack.
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.
During 1998, the company shifted its cordless phone line from 25-channel
phones to a new line of 900 MHz cordless phones to capitalize on this rapidly
growing segment of the cordless phone market. The company currently sells
three 900 MHz models including a two-line model for the growing home-office
segment.
The cordless phone industry amounts to approximately $2 billion and is
dominated by large companies, including VTech, 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 somewhat seasonal and varies
according to channel of distribution. 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. Also, because a greater portion of
the company's business in 1998 was with mass retail accounts, the company
experienced a shift in orders from the third quarter to the fourth quarter
when the mass retailers normally begin their load-in for the holiday selling
season. As the company's channel mix continues to shift more towards retail,
the company expects additional shifts toward heavier third and fourth quarter
sales volumes.
In 1998, sales to Kmart and DAS Distributors were 12.9 percent and 11.9
percent, respectively. In 1997 there were no sales in excess of 10 percent of
total net sales to a single customer or a group of entities under common
control. In 1996, sales to Sprint represented 10.7 percent 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
international sales were $7.4 million, $19.1 million, and $10.1 million in
1998, 1997 and 1996, 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 300 retailers and distributors located primarily in the United
States. Approximately 60 percent 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. 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, 1998, the company employed 119 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
also leases 2,300 square feet of office space in Hong Kong for its
international operations. The company believes that these facilities are
adequate to meet its current needs.
3. LEGAL PROCEEDINGS:
The company is subject to various unresolved legal actions which arise in the
normal course of its business, none of which is expected to have a material
adverse effect on the company's business or financial condition.
During 1996, the company received notice from the Internal Revenue Service
asserting deficiencies in federal excise tax. The excise tax relates to the
use of ozone-depleting chemicals. The company had protested the deficiencies
and had filed an environmental excise tax protest. During the first quarter of
1998, the company was notified by the Internal Revenue Service that there are
no deficiencies in the company's federal excise tax returns and the
contingency has been eliminated.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS:
None.
PART II
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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, 1999, the company had approximately 932 shareholders of
record and approximately 2,499 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
1998 1997 1996
(in thousands)
------------------- ------------------- -----------------
- ------------------------
Quarter High Low High Low High Low
1998 1997 1996
- ----------- --------- --------- --------- --------- -------- --------
- ------ ------ -----
First...... $ 8 5/8 $ 5 5/8 $ 3 5/8 $ 2 1/2 $ 4 1/8 $ 2 1/4
2,931 704 1,624
Second..... 6 3/4 4 3/4 3 3/8 2 1/2 3 1/8 1 15/16
2,050 583 725
Third...... 5 5/8 3 1/2 8 7/8 2 13/16 3 1/8 2
1,684 9,402 344
Fourth..... 6 1/4 3 5/8 10 7/8 5 1/4 3 7/8 2 1/8
1,304 4,966 1,265
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) 1998 1997 1996
1995 1994
- ---------------------------------------------------- -------- ----------
- ---------- ---------- ----------
Operating Data:
Net sales......................................... $ 103,414 $104,098 $ 90,324
$ 90,442 $ 82,131
Gross profit...................................... 24,661 21,551 16,370
16,577 14,466
Selling, general and administrative expense....... 19,747 16,655 14,374
16,097 14,602
Operating income (loss)........................... 4,914 4,896 1,996
480 (136)
Gain on sale of building.......................... -- 1,132 --
-- --
Tax provision (benefit)........................... (10,403) - --
-- --
Net income (loss)................................. 14,200 4,692 601
(1,145) (1,515)
Net Income (loss) per share:
Basic ............................................ 2.30 0.76 0.10
(0.18) (0.24)
Diluted .......................................... 2.20 0.73 0.10
(0.18) (0.24)
As of December 31:
Total assets...................................... 64,419 48,279
42,596 50,081 40,342
Short-term debt .................................. 14,316 10,995
13,277 19,368 11,461
Shareholders' equity.............................. 37,496 23,673
18,713 18,174 19,429
Book value per share.............................. 6.18 3.81
3.29 3.20 3.38
Shares outstanding................................ 6,066 6,218
6,242 6,227 6,227
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
CORPORATE OVERVIEW
Strong domestic sales--up 14 percent from the prior year--helped offset a
substantial decline in international detector sales because of the poor
Russian economy. Domestic sales were driven by sales of new MicroTALK
two-way radios and 6-Band radar detectors. Sales of higher-margin new
products led to a significant improvement in gross margin, which hit its
highest level in the 1990s. The increase in gross margin and a one-time
income tax benefit of $10.4 million resulted in net income of $14.2 million
for 1998. Excluding the effects of the 1998 income tax benefit and a 1997
one-time gain of $1.1 million on the sale of a building, net income per
diluted share increased 7.3 percent in 1998.
The tax benefit was due to the elimination of the company's deferred tax
valuation allowance. This valuation allowance had substantially offset the
company's net deferred tax asset, a significant portion of which related to
the company's net operating loss carryforwards. In the fourth quarter of
1998, due to the continued positive trend in earnings and the successful
launch of the company's new products, management determined that this
valuation allowance was no longer needed because the company expects to
fully utilize its remaining net operating loss carryforwards and other
deferred tax assets, arising from temporary differences between financial
and tax reporting, to offset future taxable income. At December 31, 1998, the
company had net operating loss carryforwards of $26.3 million.
RESULTS OF OPERATIONS
1998 Compared to 1997
- ---------------------
Net income for 1998 increased to $14.2 million or $2.20 per diluted share from
$4.7 million or $0.73 per diluted share in 1997. Included in net income for
1998 and 1997 were a $10.4 million income tax benefit and a $1.1 million one-
time gain on the sale of a building, respectively. Excluding the tax benefit
and the prior year's one-time gain, net income and net income per diluted
share for 1998 increased $237,000 (or 6.7 percent) and $0.04 (or 7.3 per-
cent), respectively.
Net sales for 1998 remained relatively flat at $103.4 million compared to $104.1
million in 1997. However, domestic sales, boosted by increased retail distri-
bution and strong demand for the new MicroTALK FRS two-way radios and the com-
pany's proprietary 6-Band radar detectors, were up 14 percent from 1997. This
helped offset a $11.7 million drop in international sales, primarily because
of lower sales of radar detectors into Russia as a result of that country's
ongoing severe economic problems.
Strong sales of FRS two-way radios and domestic radar detectors were partially
offset by an $11 million decline in sales of radar detectors into Russia be-
cause of that country's ongoing economic problems. FRS two-way radio sales
benefitted from the new MicroTALK line, which the company began shipping in
September 1998. This new line has helped the company add several new
customers, expand placement among existing major retail accounts and add
sporting goods and office supply as new channels of distribution. The
increase in domestic radar detector sales was due to the popularity of the
company's proprietary six-band technology. These new models, which began
shipping at the end of the first quarter of 1998, enabled the company
to achieve steady market share gains during the year. Sales of cordless
telephones decreased $5.8 million, or 36 percent. This decline reflected
lower sales of 25-channel products as the company shifts its business to the
new line of 900 MHz cordless telephones, which it began shipping in the third
quarter of 1998.
Gross margin for 1998 improved to 23.8 percent from 20.7 percent in 1997
primarily due to a greater portion of higher-margin SoundTracker CB radios,
MicroTALK two-way radios and 6 Band radar detectors in the sales mix.
Selling, general and administrative expense increased $3.1 million during 1998
and, as a percentage of net sales, increased to 19.1 percent from 16.0 per-
cent in 1997. Much of the increase was due to higher selling and marketing
costs. One reason for the increase was a shift in sales mix in 1998 to more
domestic sales, which have much higher selling expenses associated with them
compared to the selling expenses associated with international sales. Also,
selling and marketing expenses increased as the company continued to invest
significantly in new product development, retail account expansion and distri-
bution channel gains. These investments have resulted in increased placement
of Cobra products as well as gross margin improvement. Also contributing to
the increase in selling, general and administrative costs was consulting
expense incurred to make the company's data processing systems year 2000
compliant and higher legal and related costs incurred to register and protect
the company's trademarks world wide. Offsetting some of the increase was the
fact that 1997 selling, general and administrative expense included a charge
of $1.1 million to reduce advertising credits to their net realizable value.
Interest expense for 1998 decreased slightly to $1.2 million from $1.3 million,
primarily due to a more favorable banking agreement, entered into in early
1998, and lower overall interest rates. In 1997, the company sold a building
that was not needed for operations and was being leased to an outside party
for approximately $2 million, resulting in a one-time gain of $1.1 million.
Other income was $87,000 in 1998 compared to other expense of $60,000 in
1997. The net favorable change was due to decreased bank fees resulting from
the new bank agreement mentioned above.
In 1998 the company recorded an income tax benefit of $10.4 million. The tax
benefit was due to the elimination of the company's deferred tax valuation
allowance. This valuation allowance had substantially offset the company's net
deferred tax asset, a significant portion of which related to the company's
net operating loss carryforwards. Prior to 1996, the company had a history
of net losses resulting in a significant net deferred tax asset and a
corresponding 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. However, SFAS No. 109 requires management to
periodically access the need for a valuation allowance. In the fourth
quarter of 1998, due to the continued positive trend in earnings and the
successful launch of the company's new products, management concluded that
there was no need for a valuation allowance because it is more likely than
not that all of the net deferred tax assets will be realized through future
taxable earnings. In the future, the company will report a tax provision
since the deferred tax valuation allowance no longer exists to offset
any tax expense. At December 31, 1998, the company had net operating loss
carryforwards of $26.3 million.
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 sale of a building
during the third quarter 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 percent, 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 percent.
Sales of CB radios increased 28 percent 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, which consisted principally of radar detector sales
increased $9.8 million in 1997.
Sales of 25-channel cordless phones and integrated cordless phone answering
systems decreased $10 million because of lower sales 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 sought to de-emphasize this product line in favor of the rapidly
growing 900 MHz segment which the company introduced 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 these products increased as a percentage of total sales from 67 per-
cent in 1996 to approximately 81% in 1997. In addition, gross margin on
radar detectors increased due to the new radar detector lineup, which in-
cluded 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 adjust-
ment because of improvement in the quality of the receivable portfolio and
favorable collections experience. As in 1996, 1997 included a charge for the
write-down of advertising barter credits to estimated net realizable value
amounting to $1.1 million in 1997 compared to a charge of $1.2 million in
1996.
Interest expense for 1997 decreased to $1.3 million from $1.7 million. Debt
levels declined due to lower average inventory and receivable levels.
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.
LIQUIDITY AND CAPITAL RESOURCES
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 an existing $30 million credit agreement. Loans outstand-
ing under the new agreement bear interest, at the company's option, at the
prime rate or 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 exist-
ing agreement.
On October 10, 1998, the company and its lenders signed an amendment
increasing the credit line from $35 million dollars to $38.7 million. This
increase reflected a separate line of credit under which borrowings are
secured by the cash surrender value of certain life insurance policies owned
by the company. To date, there have been no borrowings under this amendment,
which expires on August 31, 1999.
The credit agreement specifies that the company may not pay cash dividends and
contains a material adverse change clause, which, under certain circumstances,
could accelerate the payment of the debt. The company classifies the debt as
short-term for financial reporting purposes. At December 31, 1998, the
company had approximately $8 million available under the credit line.
Net cash flows used by operating activities were $2.9 million for the year
ended December 31, 1998. Operating cash flows were generated principally from
net income of $14.2 million, depreciation of $1.6 million and a $5.6 million
reduction in inventories, offset by the elimination of the income tax valua-
tion allowance of $10.4 million, an $11.4 million increase in accounts
receivable, and a $1.0 million increase in other assets. Receivables
increased compared to the prior year because of higher fourth quarter sales
volume and an overall increase in average payment terms. Inventories
decreased mainly because of the strong fourth quarter sales and
lower inventories of 25-channel phone products, which are being phased out to
make way for the new 900 MHz products. Accrued liabilities decreased due to
lower product warranty costs as a result of the lower mix of 25-channel
products and decreased accrued salaries and commissions due to a lower bonus
accrual.
Investing activities required cash of $1.6 million in 1998, principally for
the purchase of tooling and equipment and an increase in the cash surrender
value of officers' life insurance.
Financing activities provided cash flows of $2.7 million in 1998, reflecting
changes in the company's borrowing requirements under its line-of-credit
agreement, offset by the repurchase of 179,500 shares of company common stock
for an aggregate cost of $683,000. In August 1998, the company's Board of
Directors authorized a repurchase of up to $1 million of the company's common
stock.
At December 31, 1998, the company had no material commitments, other than
approximately $29.1 million in outstanding purchase orders for products
compared with $21.1 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 1999 to fund its working
capital needs. In addition, the majority of any taxable income in 1999 and
the forseeable future will be offset by net operating loss carryforwards that
totaled $26.3 million at December 31, 1998. Until the company has utilized
its net operating loss carryforwards, the cash payment of federal income
taxes will be minimal.
YEAR 2000
The company initiated the process of preparing its computer systems and
applications for the Year 2000 in 1997. This process primarily involved two
parts: replacing certain company hardware and modifying software maintained
by the company, as well as inquiring into the Year 2000 compliance of the
company's major customers and vendors. In February 1999, the replacement of
hardware and software modifications were completed by an outside consulting
firm. The company has tested the hardware and modified software for Year 2000
compliance. The company believes its hardware and software are Year 2000
compliant, but it will continue testing during 1999. The company has also
queried all major customers and vendors as to their preparedness. The
responses received to date indicate that the company's major customers and
vendors are or will be Year 2000 compliant by year end.
The final total cost to the company of these Year 2000 compliance activities
is approximately $818,000 and is not expected to be material to its financial
position or results of operations in any given year.
The failure to correct a Year 2000 problem could interrupt, or result in a
failure of, normal business operations and consequently materially affect the
company's financial position or results of operations. While the company
believes its own hardware and software are Year 2000 compliant, the Year 2000
readiness of the company's customers and vendors is inherently uncertain and
beyond the company's control. Accordingly, the company cannot determine at
this time whether the consequences of Year 2000 interruptions or failures
will materially affect the company's financial position or results of opera-
tions.
The company has not developed formal contingency plans to date. However, as
described under Item 1 (Business) in this report, the company has a network of
suppliers and the company does not enter into long-term supply contracts. The
company believes that, if necessary, other suppliers could be found. As
stated above, customer responses to company inquiries indicate that the
company's major customers are or will be Year 2000 compliant by year-end. In
the event a major customer is not Year 2000 compliant, the company believes
that such non-compliance is unlikely to materially affect the company's
financial condition or results of operations.
ITEM 7A MARKET RISK AND FINANCIAL INSTRUMENTS
The company is subject to market risk associated principally with changes in
interest rates. Interest rate exposure is principally limited to the $14.3
million of debt of the company outstanding at December 31, 1998. The debt is
priced at interest rates that float with the market, which therefore mini-
mizes interest rate exposure. A 50 basis point movement in the interest rate
on the floating rate debt would result in an approximately $70,000 increase
or decrease in interest expense and cash flows. The company does not use
derivative financial or commodity instruments for trading or other purposes.
The company's suppliers are located in foreign countries, principally in the
Far East, and the company made approximately 7.2% of its sales outside the
United States in 1998, however, the company minimizes its foreign currency
exchange rate risk by conducting all of its transactions in US dollars.
FORWARD-LOOKING STATEMENTS
In addition to the historical information presented in this annual report, the
company has made and will make certain forward-looking statements in this
report, other reports filed by the company with the Securities and Exchange
Commission, reports to stockholders and in certain other contexts relating to
future net sales, costs of sales, other expenses, profitability, financial
resources, or products and production schedules. Statements relating to the
foregoing or that predict or indicate future events and trends and which do
not relate solely to historical matters identify forward-looking statements.
Forward-looking statements are made pursuant to the safe harbor provisions of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934 and are based on management's beliefs as well as
assumptions made by and information currently available to management.
Accordingly, the company's actual results may differ materially from those
expressed or implied in such forward-looking statements due to known and
unknown risks and uncertainties that exist in the company's operations
and business environment, including, among other factors, the failure by the
Company to produce anticipated cost savings or improve productivity, the
failure by the Company or its suppliers or customers to achieve Year 2000
compliance, the timing and magnitude of capital expenditures and acquisi-
tions, currency exchange rates, economic and market conditions in the United
States and the rest of the world, changes in customer spending levels, the
demand for existing and new products, the continuing availability of
suppliers, and other risks associated with the Company's operations.
Although the Company believes that its forward-looking statements are based
on reasonable assumptions, there can be no assurance that actual results,
performance or achievements will not differ materially from any future
results, performance or achievements expressed or implied by such forward-
looking statements. Readers are cautioned not to place undue reliance on
forward-looking statements.
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 38.
CONSOLIDATED STATEMENTS OF INCOME
Cobra Electronics Corporation
Years Ended December 31 (in
thousands, except per share amounts) 1998 1997 1996
- ----------------------------------- -------- -------- -------
Net sales.......................... $103,414 $104,098 $90,324
Cost of sales...................... 78,753 82,547 73,954
-------- -------- --------
Gross profit....................... 24,661 21,551 16,370
Selling, general and administrative
expense.......................... 19,747 16,655 14,374
-------- ------- --------
Operating income .................. 4,914 4,896 1,996
Other income (expense):
Interest expense................. (1,204) (1,276) (1,670)
Gain on sale of building......... -- 1,132 --
Other income (expense), net ..... 87 (60) 275
-------- ------- --------
Income before income taxes......... 3,797 4,692 601
Tax provision (benefit)............ (10,403) --- ---
-------- ------- --------
Net income......................... $14,200 $ 4,692 601
======= ======= ========
Net income per common share:
Basic $ 2.30 $ .76 $ 0.10
Diluted $ 2.20 $ .73 $ 0.10
Weighted average shares outstanding:
Basic 6,181 6,207 6,231
Diluted 6,469 6,459 6,285
See notes to consolidated financial statements.
CONSOLIDATED BALANCE SHEETS
Cobra Electronics Corporation
At December 31 (in thousands) 1998 1997
- --------------------------------------- ----------- -----------
ASSETS:
Current assets:
Cash.................................. $ 100 $ 1,815
Receivables, less allowance for doubtful
accounts of $985 in 1998 and $958
in 1997........................... 27,055 15,685
Inventories, primarily finished goods. 14,213 19,830
Deferred income taxes................. 6,945 --
Other current assets.................. 1,747 1,337
------- --------
Total current assets.................. 50,060 38,667
------- --------
Property, plant and equipment, at cost:
Land.................................. 330 330
Buildings and improvements............. 3,614 3,553
Tooling and equipment................. 12,765 11,264
------- --------
16,709 15,147
Accumulated depreciation and
amortization.......................... (11,960) (10,436)
-------- --------
Net property, plant and equipment..... 4,749 4,711
-------- --------
Other assets:
Deferred income taxes................. 4,089 406
Cash surrender value of officers'
life insurance policies............. 4,553 3,930
Other................................. 968 565
-------- --------
Total other assets.................... 9,610 4,901
-------- --------
Total assets............................ $64,419 $48,279
======== ========
See notes to consolidated financial statements.
CONSOLIDATED BALANCE SHEETS
Cobra Electronics Corporation
At December 31 (in thousands, except
share data) 1998 1997
- ----------------------------------------- ----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities:
Accounts payable...................... $ 3,145 $ 3,637
Accrued salaries and commissions...... 844 1,307
Accrued advertising and sales promotion
costs.............................. 1,804 1,093
Accrued product warranty costs........ 2,211 4,173
Other accrued liabilities............. 2,283 1,170
Short-term debt....................... 14,316 10,995
------- -------
Total current liabilities............. 24,603 22,375
Deferred compensation.................... 2,320 2,231
------- -------
Total liabilities........................ 26,923 24,606
------- -------
Commitments and Contingencies
Shareholders' equity:
Preferred stock, $1 par value, shares
authorized-1,000,000; none issued.... --- ---
Common stock, $.33 1/3 par value,
12,000,000 shares authorized,
7,039,100 issued for 1998 and 1997... 2,345 2,345
Paid-in capital........................ 20,799 20,681
Retained earnings...................... 20,472 6,272
------- -------
43,616 29,298
Treasury stock, at cost
(973,184 shares for 1998 and 821,309
shares for 1997)................... (6,120) (5,625)
-------- --------
Total shareholders' equity............. 37,496 23,673
-------- --------
Total liabilities and shareholders'
equity................................. $64,419 $48,279
======== ========
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Cobra Electronics Corporation
Years Ended December 31(in thousands) 1998 1997 1996
- ------------------------------------- -------- -------- --------
Cash flows from operating activities:
Net income ......................... $14,200 $ 4,692 $ 601
Adjustments to reconcile net income
to net cash flows from
operating activities:
Depreciation and amortization..... 1,541 3,198 3,080
Deferred taxes.................... (10,403) -- --
Gain on sale of fixed assets...... (1) (1,132) (123)
Changes in assets and liabilities:
Receivables..................... (11,370) (3,371) 3,447
Inventories..................... 5,617 (4,412) 2,287
Other current assets............ (410) (686) 138
Other Assets.................... (1,026) (754) 666
Accounts payable................ (492) 302 (2,735)
Accrued liabilities............. (601) 2,465 571
Deferred compensation........... 89 238 231
-------- -------- --------
Net cash flows from (used by)
operating activities.............. (2,856) 540 8,163
-------- ------- --------
Cash flows from investing activities:
Proceeds from sale of fixed assets.. 1 1,999 1,086
Capital expenditures................ (1,579) (1,316) (1,789)
-------- ------- --------
Net cash flows from (used in)
investing activities.............. (1,578) 683 (703)
-------- ------- --------
Cash flows from financing activities:
Net borrowings (repayments) under the
line-of-credit agreement.......... 3,321 (2,282) (6,091)
Transactions related to exercise of
stock options, net................ 81 268 (62)
Transactions related to stock
repurchase........................ (683) --- ---
-------- ------- --------
Net cash flows from (used in)
financing activities.............. 2,719 (2,014) (6,153)
-------- ------- --------
Net increase (decrease)in cash........ (1,715) (791) 1,307
Cash at beginning of year............. 1,815 2,606 1,299
-------- ------- --------
Cash at end of year................... $ 100 $ 1,815 $ 2,606
======== ======= ========
1998 1997 1996
-------- -------- --------
Supplemental disclosure of cash flow information
Cash paid during the year for:
Interest $ 1,230 $ 1,274 $ 1,716
Income Taxes -- 338 83
Non-cash investing and financing
activities:
Tax benefit related to stock
options 225 -- --
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Cobra Electronics Corporation
Note
Three Years Ended Rec.
December 31, 1998 Common Paid-In Retained Treasury from
(dollars in thousands) Stock Capital Earnings Stock Officer
- ---------------------------- ------- ------- -------- ------- -------
Balance-January 1, 1996..... $ 2,345 $ 22,118 $ 979 $ 5,545 $ 1,723
Net income................ --- --- 601 --- ---
Note receivable interest.. --- --- --- --- 101
Translations 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 ---
Net income................ --- --- 14,200 --- ---
Treasury stock purchase... --- --- --- 683 ---
Transactions related to
exercise of options, net.. --- (107) --- (188) ---
Tax benefit related to
stock options............. --- 225 --- --- ---
------- --------- -------- -------- --------
Balance-December 31, 1998 .. $ 2,345 $ 20,799 $ 20,472 $ 6,120 $ ---
======= ======== ======== ======== ========
See notes to consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Cobra Electronics Corporation
Three years ended December 31, 1998
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS -- The company designs and markets consumer electronics products,
which it sells under the COBRA brand name principally in the United States.
A majority of the company's products are purchased from overseas suppliers,
primarily in China, Thailand, Korea, Hong Kong 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. All significant inter-
company balances and transactions have been eliminated in consolidation.
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 $0.9 million in 1998 and $0.8 million in 1997
and 1996.
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 June 1997, the Financial Accounting
Standards Board (FASB) issued Statement of Financial Accounting Standard
(SFAS) No. 130, Reporting Comprehensive Income, which establishes standards
for reporting and displaying comprehensive income and its components (net
income with non-owner sources of other comprehensive income) in a full set of
financial statements. SFAS No. 130 did not have an effect on the company's
financial statements because the company has no items of other comprehensive
income.
In June 1997, the FASB issued SFAS No. 131, Disclosure about Segments of an
Enterprise and Related Information, which changes the way public companies
report information about operating segments. This Statement, which is based
on the management approach to segment reporting, establishes requirements to
report selected segment information. Management of the company considers the
company to have one reportable segment, consumer electronics, and assesses
performance on a single segment basis. Therefore, the adoption of this new
standard did not have an effect on the content of the company's disclosures.
In February 1998, the FASB issued SFAS No. 132, Employers' Disclosures about
Pensions and Other Postretirement Benefits. This Statement revises employers'
disclosures about pension and other postretirement benefit plans. It does not
change the measurement or recognition of those plans. The adoption of this
new standard did not have an effect on the company's financial statements
because the company had no such benefit plans.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 133 establishes accounting and
reporting standards for derivative instruments and for hedging activities. It
requires that an entity recognize all derivatives as either assets or
liabilities in the balance sheet and measure these instruments at fair value.
This statement is effective on the first day of the first fiscal year
beginning after June 15, 1999, or January 1, 2000 in the case of the company.
The company is in the process of assessing the impact that adopting SFAS No.
133 will have on its financial position and results of operations when such
statement is adopted.
RECLASSIFICATION -- Certain amounts for prior years have been reclassified to
conform with 1998 financial statement presentations.
(2) TAXES ON INCOME
The components of income tax expense consist of the reversal of the valuation
allowance of $10.4 million. In addition to the 1998 income tax benefit of
$10.4 million, the company received tax benefits of $225,000, which were
credited to shareholders' equity, from the disqualifying disposition of
common shares by an employee after the exercise of stock options.
Deferred tax assets (liabilities) by component at December 31, 1998 and 1997
were:
(in thousands) 1998 1997
- ------------------------------------------ --------- ---------
Net operating loss carryforwards.......... $ 10,207 $ 12,006
Investment tax credit carryforwards....... 134 1,938
Alternative minimum tax credit carryforwards 1,159 1,298
Tax lease income.......................... (6,872) (7,354)
Receivable reserves....................... 218 202
Warranty reserves......................... 1,108 1,444
Inventory reserves........................ 416 901
Accrued promotion expenses................ 2,144 1,824
Sales related reserves.................... 681 634
Compensation reserves..................... 1,047 1,153
Other, net................................ 792 116
--------- ---------
Net deferred tax assets................... 11,034 14,162
Valuation allowance....................... -- (13,756)
--------- ---------
Net deferred tax assets................... $ 11,034 $ 406
========= =========
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 realizes 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.
Prior to 1996, the company had a history of net losses resulting in a
significant net deferred tax asset and a corresponding 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. However, SFAS No. 109 requires management to
periodically assess the need for a valuation allowance. In the fourth quarter
of 1998, due to the continued positive trend in earnings and the successful
launch of the company's new products, management concluded that there was no
need for a valuation allowance because it is more likely than not that all of
the net deferred tax assets will be realized through future taxable earnings.
At December 31, 1998, 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
$1,159,000, do not expire. During 1998, $1,804,000 of investment tax credit
carryforwards expired.
The net operating loss and investment tax credit carryforwards expire as
follows (in thousands):
Year of Expiration NOL ITC
- ----------------------- --------- ---------
1999................... $ -- $ 112
2000................... -- 22
2002................... -- --
2006................... 1,498 --
2007................... 11,575 --
2008................... 9,920 --
2009................... 3,355 --
--------- ---------
Total.................. $ 26,348 $ 134
========= =========
Until the company has utilized its significant NOL carryforwards, the cash
payment of Federal income taxes will be minimal.
The statutory federal income tax rates are reconciled to the effective income
tax rates as follows: (in thousands)
Description 1998 1997 1996
- -------------------------------------- ------ ------ ------
Income taxes at statutory federal
income tax rate.................... $ 1,291 $ 1,595 $ 204
State taxes, net of federal income
tax benefits....................... 178 221 28
Utilization of net operating loss
carryforwards...................... (1,527) (1,816) (232)
Reversal of the valuation allowance... (10,403) -- --
Other................................. 58 -- --
------ ------ ------
Income tax expense (benefit)..........$(10,403) $ -- $ --
====== ====== ======
(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. Interest was payable monthly at prime (8.50% at
December 31, 1997) plus one and one-half percent.
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 at LIBOR plus 2 percent. Outstanding
borrowings at December 31, 1998 bear interest at 7.61 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.
Maximum borrowings outstanding at any month-end were $27.5 million and $15.7
million in 1998 and 1997, respectively. The maximum value of letters of
credit outstanding at any month end were $7.4 million and $11.0 million in
1998 and 1997, respectively. At December 31, 1998, the company had
approximately $8 million available under its unused credit line.
Aggregate average borrowings outstanding were $15 million during 1998 and $12
million during 1997 with weighted average interest rates thereon of 8.2% and
10.3% during 1998 and 1997, respectively. On October 10, 1998, the company
and its lenders signed an amendment increasing the credit line from $35
million to $38.7 million. This increase reflected a separate line of credit
under which borrowings are secured by the cash surrender value of certain
life insurance policies owned by the company. To date, there have been no
borrowings under this amendment, which expires on August 31, 1999.
The credit agreement specifies that the company may not pay cash dividends
and contains a material adverse change clause, which, under certain
circumstances, could accelerate the payment of the debt. The company
classifies the debt as short-term for financial reporting purposes. At
December 31, 1998, the company had approximately $8 million available under
the credit line.
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 carrying
values of cash, accounts receivable and accounts payable approximate their
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, 1998 and 1997 was $5.7 million and $8 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 agree-
ments also provide the company with the option to purchase the related assets
at the end of the respective initial lease terms.
Total minimum rental amounts committed in future years as of December 31,
1998 are as follows:
Operating Capital
(in thousands) Leases Leases Total
-------------- --------- ------- -----
1999 $ 7 $ 118 $ 125
2000 7 104 111
2001 1 -- 1
----- ----- -----
Total $ 15 $ 222 $ 237
===== ===== =====
Total rental expense amounted to $7,000 in 1998, $6,000 in 1997 and $16,000 in
1996. Future capital lease rental payments include executory costs of
$71,000, interest expense of $10,000 and principal payments of $141,000,
which are included in other accrued liabilities in the consolidated balance
sheet.
6) SHAREHOLDERS' EQUITY
PREFERRED STOCK -- Preferred stock is issuable from time to time in one or
more series, each of which may have such voting powers, designations,
preferences, 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
1998 1997 1996
Income:
Income available to common
shareholders (thousands) $14,200 $4,692 $601
Basic Earnings Per Share:
Weighted-Average Shares
Outstanding 6,180,592 6,206,812 6,231,075
Basic Earnings Per Share $2.30 $0.76 $0.10
========= ========= =========
Diluted Earnings Per Share:
Weighted-Average Shares
Outstanding 6,180,592 6,206,812 6,231,075
Dilutive Shares issuable
in connection with
Stock option plans 706,750 739,375 298,375
Less: Shares purchasable
With proceeds (418,645) (487,363) (244,182)
--------- --------- ---------
Total 6,468,697 6,458,824 6,285,268
========= ========= =========
Diluted Earnings Per Share $2.20 $0.73 $0.10
========= ========= =========
7) STOCK OPTION PLANS
The company has seven Stock Option Plans-- 1998, 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.
The company applies Accounting Principles Board Opinion No. 25 and related
Interpretations in accounting for the Plans. Accordingly, no compensation
cost has been recognized as options are granted with an exercise price equal
to the fair market value of the company's common stock on the date of grant.
Had compensation cost been determined consistent with SFAS No. 123, Account-
ing for Stock-Based Compensation, which requires measuring compensation cost
at the fair value of the options granted, the company's net income and net
income per common share would have been adjusted to the pro forma amounts
indicated below (in thousands, except per share amounts):
1998 1997 1996
Net income: As reported $14,200 $4,692 $ 601
Pro forma 13,545 4,366 467
Net income per common share:
Basic: As reported $2.30 $0.76 $ 0.10
Pro forma 2.19 0.70 0.07
Diluted: As reported $2.20 $0.73 $ 0.10
Pro forma 2.09 0.68 0.07
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 48 percent; risk-free
interest rate of 5 percent; and expected lives of 5 years.
A summary of certain provisions and amounts related to the Plans follows:
1998 1997 1995 1988
1987 1986 1985
Plan Plan Plan Plan
Plan Plan Plan
--------------------------------------- --------- -------- ------- --------
- -------- ------- ------
Authorized, unissued shares originally
available for grant.................. 310,000 300,000 300,000 500,000
150,000 225,000 525,000
Shares granted........................... 150,000 259,625 283,875 500,000
150,000 225,000 525,000 Shares available for grant at December 31,
1998.................................. 160,000 40,375 16,125 -0- -0- -0- -0-
Options exercisable at December 31, 1998. -0- 37,500 67,875 324,250
12,563 50,500 25,188
A summary of the status of the Plans as of December 31, 1998, 1997 and 1996, and
changes during the years ended on those dates is presented below:
1998 1997
1996
----------------- ----------------
----------------
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 914 $3.82 935 $3.06
855 $3.06
Granted 288 6.36 374 4.46
114 2.88
Exercised (28) 2.88 (328) 2.63
(16) 2.56
Cancellations and Expirations (50) 6.13 (67) 2.65
(18) 2.68
------- -------
-------
Outstanding at end of year 1,124 4.39 914 3.82
935 3.06
Options exercisable at year end 518 388
584
Weighted-average fair value of options
granted during the year $ 3.07 $2.20
$1.29
The following table summarizes information about stock options outstanding at
December 31, 1998:
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 36 $1.88 1.3 19
$1.88
$2.01 to $3.00 221 2.78 2.3 94
2.67
$3.01 to $4.00 434 3.72 0.7 367
3.80
$4.01 to $5.00 -- -- -- --
--
$5.01 to $6.00 300 5.63 4.1 38
5.63
$6.01 to $7.00 95 6.80 4.1 --
--
$7.01 to $8.00 38 8.00 4.2 --
--
--- ---
1,124 4.39 2.4 518
3.65
=== ===
(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 1998, 1997 and 1996 was $179,000, $169,000
and $55,000, respectively.
As of December 31, 1998 and 1997, deferred compensation of $2.3 million and
$2.2 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,
1998 and 1997. Deferred compensation obligations arise pursuant to outstand-
ing 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
former 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, 1998 and 1997, the company had outstanding inventory purchase
orders with suppliers totaling approximately $29.1 million and $21.1 million,
respectively.
(11) INDUSTRY SEGMENT INFORMATION
The company operates in only one business segment--consumer electronics (see
Note 1). The company has a single sales department and distribution channel
which provides all product lines to all customers. Excluding company-owned
tooling at suppliers with a net book value of $1.2 million at December 31,
1998, assets located outside the United States are not material. Interna-
tional sales were $7.4 million, $19.1 million and $10.1 million in 1998, 1997
and 1996, respectively. For 1997, approximately 64 percent of the interna-
tional sales were to customers in Russia. For 1998 and 1996, sales to one
particular country were not material. For 1998, sales to two customers
totaled 12.9 percent and 11.9 percent of consolidated net sales. For 1996,
sales to one customer totaled 10.7 percent of consolidated net sales. There
were no sales in excess of 10 percent of consolidated net sales to a single
customer or a group of entities under common control in 1997. The company
does not believe that the loss of any one customer would have a material
adverse effect on its results of operations or financial condition.
(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 date, which has been extended to December 1999. 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 1998, 1997, and 1996, the company
utilized credits of approximately $6,000, $10,000, and $20,000, respectively.
In 1997 and 1996 the company recorded charges of $1.1 million and $1.2
million, respectively, to reduce the credits to their estimated net
realizable value. The credits had no net carrying value at December 31, 1998
and 1997.
(13) OTHER ASSETS
Other assets at December 31, 1998 and 1997 included the cash surrender value
of officers' life insurance policies. The cash value of officers' 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. None of these matters is expected to have a
material adverse effect on the company's financial position or results of
operations. However, the ultimate resolution of these matters could result in
a change in the company's estimate of its liability for these matters.
During 1996, the company received notice from the Internal Revenue Service
asserting deficiencies in federal excise tax. The excise tax relates to the
use of ozone-depleting chemicals (ODC'S). The company had protested the
deficiencies and had filed an environmental excise tax protest. During the
first quarter of 1998, the company was notified by the Internal Revenue
Service that there are no deficiencies in the company's federal excise tax
returns and the contingency has been eliminated. Also in 1996, the company
recognized $373,000 of income related to a lawsuit against a former distri-
butor for violation of a licensing agreement.
Quarterly Financial Data (Unaudited)
(In thousands, except per share amounts)
Quarter Ended
- ------------------------------------------------------------------------------------------
March 31 June 30 September 30
December 31
--------------------- ---------------------
- --------------------- ---------------------
1998 1997 1998 1997 1998 1997
1998 1997
---------- ---------- ---------- ---------- ----------
- ---------- ---------- ----------
Net sales.........$ 21,172 $ 17,915 $ 22,440 $ 29,472 $26,223 $ 31,353
$ 33,579 $ 25,358
Cost of sales..... 16,921 14,403 16,976 23,776 19,720 24,585
25,136 19,783
Gross profit...... 4,251 3,512 5,464 5,696 6,503 6,768
8,443 5,575
Selling, general
and administra-
tive expense.... 3,737 3,134 4,096 4,147 5,300 5,022
6,614 4,352
Operating income.. 514 378 1,368 1,549 1,203 1,746
1,829 1,223
Gain on sale of
building........ -- -- -- -- -- 1,132
-- --
Tax provision (benefit) -- -- -- -- -- --
(10,403) --
Net income 237 93 1,265 1,249 678 2,625
12,020 725
Net income
per share (a):
Basic............. 0.04 0.01 0.20 0.20 0.11 0.43
1.98 0.12
Diluted........... 0.04 0.01 0.19 0.20 0.11 0.39
1.92 0.11
Weighted average
shares outstanding:
Basic............. 6,218 6,242 6,235 6,242 6,210 6,170
6,066 6,173
Diluted........... 6,625 6,332 6,539 6,308 6,383 6,652
6,273 6,643
Stock Price:
High 8 5/8 3 5/8 6 3/4 3 3/8 5 5/8 8 7/8
6 1/4 10 7/8
Low 5 5/8 2 1/2 4 3/4 2 1/2 3 1/2 2
13/16 3 5/8 5 1/4
End of Quarter 6 1/4 2 7/8 5 1/16 3 5/32 3 3/4 7 3/8
4 11/16 6 5/16
Trading Volume 2,931 704 2,050 583 1,684 9,402
1,304 4,966
(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, 1998 and 1997,
and the related consolidated statements of income, shareholders' equity, and
cash flows for each of the three years in the period ended December 31, 1998.
Our audits also included the financial statement schedule for the three years
ended December 31, 1998, listed in the Index at Item 14. These financial
statements and financial statement schedule are the responsibility of the
Company's management. Our responsibility 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 signifi-
cant 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, 1998 and 1997, and the results of their opera-
tions and their cash flows for each of the three years in the period ended
December 31, 1998 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 24, 1999
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 will be set forth in a definitive proxy
statement to be filed by the company pursuant to Regulation 14A under
Directors and Nominees, which information is hereby incorporated by
reference. The information under Section 16(a) Beneficial Ownership
Reporting Complilance included in the definitive proxy statement is hereby
incorporated by reference.
The executive officers of the company are as follows:
Name, Age and Has Held Present Prior Business Experience
Present Position Position Since in Past Five Years
- -------------------- ---------------- -------------------------
James Bazet, 51, Jan. 1998 Executive Vice President and
President and Chief Chief Operating Officer,
Executive Officer* July 1997 to December 1997.
President and Chief
Executive Officer, Ryobi
Motor Products Floor Care
Division, 1995 - 1997,
President and Chief
Executive Officer, Code-A-
Phone Corporation, 1991-
1994.
Carl Korn, 77, Nov. 1961
Chairman*
Jerry Kalov, 63, July 1997 President and Chief
Vice Chairman* Executive Officer, 1986-
January 1, 1998; retired
January 1, 1998
Gerald M. Laures, 51, Mar. 1994 Corporate Secretary,
Vice President-Finance July 1989 to present;
and Corporate Secretary* Corporate Controller
June 1988 to March 1994.
Anthony Mirabelli, 57, 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 1998 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 1998 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 1998 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 Income for the
three years ended December 31,1998........... 17
Consolidated Balance Sheets as of December 31,
1998 and 1997................................ 18-19
Consolidated Statements of Cash Flows for the
three years ended December 31, 1998.......... 20-21
Consolidated Statements of Shareholders' Equity
for the three years ended December 31, 1998.. 22
Notes to Consolidated Financial Statements...... 23-33
Quarterly Financial Data........................ 34
Independent Auditors' Report.................... 35
2. Schedule:
Valuation and Qualifying Accounts - 1998, 1997
and 1996..................................... 39
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.
3. Exhibits:
See Index to Exhibits on pages 41 through 42.
[b] During the three months ended December 31, 1998 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, 1998
(in thousands)
-------------------------------------------
Balance at Additions Deductions
Balance at
beginning charged to from
end of
of period expense reserves
Other,net period
---------- ---------- ----------
- ---------- -----------
1998
- ----------------------------------
Allowance for doubtful account.... $ 958 $ 321 $ (294)[a] $
--- $ 985
Advertising barter credit
valuation allowance.............. $ 3,185 $ --- $ --- $
(5) $ 3,180
Tax valuation allowance........... $ 13,756 $ --- $ --- $
(13,756)[c] $ 0
1997
- ----------------------------------
Allowance for doubtful account.... $ 792 $ 127 $ (7)[a] $
46 [b] $ 958
Reserve for disposal of
discontinued operation.......... $ 658 $ --- $ (658)[d] $
--- $ 0
Advertising barter credit
valuation allowance.............. $ 2,041 $ 1,144 $ --- $
--- $ 3,185
Tax valuation allowance........... $ 15,596 $ --- $ --- $
(1,840)[c] $ 13,756
1996
- ----------------------------------
Allowance for doubtful account.... $ 1,451 $ (400) $ (349)[a] $
90[b] $ 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)[c] $ 15,596
[a] Uncollectible accounts written off.
[b] Net adjustments to the reserve with an offsetting entry to receivables.
[c] Decrease in allowance reflects the change in net deferred tax assets
excluding alternative minimum income tax paid. 1998 amount includes reversal
of remaining $10,403 valuation allowance on December 31, 1998, as management
has assessed that such valuation allowance is no longer necessary.
[d] All assets related to discontinued operations were sold in 1997.
[e] Reversal of Tax Valuation Reserve
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 31, 1999
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) * Restated certificate of Incorporation, as amended October 28,1998.
3(ii) * Amended and Restated Bylaws, as amended October 28, 1998.
10-1 # 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.
10-2 # 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.
10-3 # 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.
10-4 # 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.
10-5 # 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.
10-6 # 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.
10-7 # 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.
10-8 1995 Key Employees Nonqualified and Incentive Stock
Option Plan.-- filed as Exhibit No. 10-23 to the Registrant's
Form 10-K for the year ended December 31, 1995 (File No. 0-511).
10-9 Non-Exclusive License Agreement between Cobra Electronics
Corporation and Yupiteru Industries Co., Ltd. dated as of
May 21, 1996 -- filed as Exhibit No. 10-27 to the Registrant's
Form 10-K for the year ended December 31, 1996 (File No. 0-511).
10-10 Non-Exclusive License Agreement between Cobra Electronics Corporation
and Sunkyong America, Inc. dated as of May 1, 1996.-- filed as
Exhibit No. 10-28 to the Registrant's Form 10-K for the year ended
December 31, 1996 (File No. 0-511).
10-11 Employment Agreement between Cobra Electronics Corporation
and Anthony Mirabelli dated January 31, 1997.-- filed as Exhibit
No. 10-29 to the Registrant's Form 10-K for the year ended
December 31, 1996 (File No. 0-511).
10-12 Termination of Safe Harbor Lease between Cobra Electronics
Corporation and the Department of Transportation of Maryland
dated as of November 15, 1996.-- filed as Exhibit No. 10-30 to the
Registrant's Form 10-K for the year ended December 31, 1996
(File No. 0-511.
10-13 Employment Agreement between Cobra Electronics Corporation and
James R. Bazet dated April 21, 1997 -- filed as Exhibit No. 10-33
to the Registrant's Form 10-K for the year ended December 31, 1997
(File No. 0-511).
10-14 Loan and Security Agreement dated February 3, 1998, by and between
the Registrant and LaSalle Business Credit, Inc. and LaSalle National
Bank.
10-15 1998 Stock Option Plan, as amended, (incorporated by reference to
Exhibit 99.1 of the Registration Statement On Form S-8, File No, 333-
63501)
21 * Subsidiaries of the Registrant.
23 * Consent of Deloitte & Touche LLP dated March 30, 1999.
27 * Financial data schedule required under Article 5 of
Regulation S-X.
- -----------------------------------------------------------------
* Filed herewith.
# Executive compensation plan or arrangement.
EXHIBIT 21 COBRA ELECTRONICS CORPORATION
SUBSIDIARIES OF REGISTRANT
=============================
STATE OR OTHER
NAME UNDER WHICH SUBSIDIARY OWNERSHIP JURISDICTION
DOES BUSINESS PERCENTAGE OF INCORPORATION
=========================== ========== ================
Cobra Electronics (HK) Limited 100% Hong Kong
Cobra Electronics Corporation
Europe Limited 100% England
EXHIBIT 23
INDEPENDENT AUDITORS CONSENT
============================
We consent to the incorporation by reference in Registration Statement (File
Number 333-63501) of Cobra Electronics Corporation and subsidiaries on Form
S-8 of our report dated February 24, 1999, appearing in the Annual Report on
Form 10-K of Cobra Electronics Corporation and subsidiaries for the year
ended December 31, 1998.
DELOITTE AND TOUCHE LLP
Chicago, Illinois
March 30, 1999
EXHIBIT 3(ii)
As Amended and Restated
October 28, 1998
BY-LAWS
OF
COBRA ELECTRONICS CORPORATION
ARTICLE I
Stockholders' Meetings
Section 1. Annual Meeting. The annual meeting of stockholders for the
election of directors and the transaction of such other business as may
properly come before it shall be held at 2:00 P.M., local time, on the last
Tuesday of April of each year, or on such other date or at such other time as
shall be fixed by the Board of Directors. If the day fixed for the annual
meeting is a legal holiday, such meeting shall be held on the next
succeeding business day.
Section 2. Special Meetings. Any action required or permitted to be taken by
the stockholders of the corporation must be effected at a duly called annual
or special meeting of stockholders of the corporation and may not be effected
by any consent in writing by such stockholders. Special meetings of
stockholders of the corporation may be called only by the Board of Directors
pursuant to a resolution approved by a majority of the entire Board of
Directors, upon not less than 10 or more than 50 days' written notice.
Notwithstanding anything contained in these By-Laws to the contrary, the
affirmative vote of the holders of at least 67 percent of the shares of the
corporation entitled to vote for the election of directors shall be required
to amend or repeal, or to adopt any provision inconsistent with, this
section 2.
Section 3. Place of Meetings. Each meeting of stockholders for the election of
directors shall be held in the City of Chicago, State of Illinois, at such
place as may be fixed from time to time by the Board of Directors. Meetings
of stockholders for any other purpose may be held at such time and place,
within or without the State of Delaware, as shall be determined pursuant to
Section 2 of Article I and stated in the notice of the meeting or in a duly
executed waiver of notice thereof.
Section 4. Notice of Meetings and Adjourned Meetings. Written notice of
every meeting of stockholders stating the place, date and hour thereof, and,
in the case of a special meeting, the purpose or purposes for which the
meeting is called, shall, except when otherwise required by the laws of
Delaware be given, in the case of the annual meeting of stockholders, not
less than ten nor more than sixty days before the date of the meeting to each
stockholder of record entitled to vote thereat, and in the case of special
meetings, not less than ten nor more than fifty days before the date of the
meeting to each stockholder of record entitled to vote thereat. Only such
business shall be conducted at a special meeting of stockholders as shall
have been brought before the meeting pursuant to the corporation's notice of
meeting. Any meeting at which a quorum of stockholders is present, in person
or by proxy, may adjourn from time to time without notice other than
announcement at such meeting until its business is completed. At the
adjourned meeting the corporation may transact any business which might have
been transacted at the original meeting. If the adjournment is for more than
thirty days, or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting.
Section 5. Quorum. The holders of a majority of the shares of stock issued
and outstanding and entitled to vote, present in person or by proxy, shall,
except as otherwise provided by law or the certificate of incorporation,
constitute a quorum for the transaction of business at all meetings Of stock-
holders. If at any meeting a quorum is not present, the chairman of the
meeting or the holders of the majority of the shares of stock present or
represented may adjourn the meeting from time to time without notice other
than announcement at such meeting until a quorum is present. At the adjourned
meeting the corporation may transact any business which might have been
transacted at the original meeting. If the adjournment is for more than
thirty days, or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned to each stockholder of record
entitled meeting shall be given to the stockholders present or represented to
vote at the meeting is present at a duly called or held meeting at which a
quorum may continue to transact business until final adjournment notwith-
standing the withdrawal of enough stockholders to leave less than a quorum.
Section 6. Voting. Each holder of stock entitled to vote at a stockholders
meeting shall, as to all matters before such meeting in respect of which such
stock has voting rights, be entitled to one vote in person or by written
proxy for each share of stock owned of record by him. No holder of stock
shall have any cumulative voting rights in respect of any share of Stock held
by him. No proxy shall be voted or acted upon after three years from its
date unless the proxy provides for a longer period. No vote upon any matter
need be by ballot unless demanded by the holders of at least ten per cent of
the shares represented and entitled to vote at the meeting. All elections
shall be decided by a plurality of the votes cast and all other questions or
matters shall be decided by a majority of the votes cast, unless otherwise
required by the laws of Delaware or the certificate of incorporation.
Section 7. List of Stockholders. At least ten days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder, and the number of shares registered in the name of each
stockholder, shall be prepared by the Secretary. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten days prior to
the meeting, either at a place within the city where the meeting is to be
held, which place shall be specified in the notice of the meeting, or, if not
specified, at the place where the meeting is to be held. The list shall also
be produced and kept at the time and place of the meeting during the whole
time thereof, and may be inspected by any stockholder who is present. The
original or duplicate stock ledger shall be the only evidence as to who are
stockholders entitled to examine the stock ledger, the list required by
this section or the books of the corporation, or to vote in person or by
proxy at any meeting of stockholders.
Section 8. Notice of Stockholder Business and Nominations.
(a) Annual Meetings of Stockholders. (1) Nominations of persons for election to
the Board of Directors of the corporation and the proposal of business to be
considered by the stockholders may be made at an annual meeting of
stockholders (i) pursuant to the corporation's notice of meeting delivered
pursuant to Article I, Section 4 of these By-Laws, (ii) by or at the
direction of the Board of Directors or (iii) by any stockholder of the
corporation who is entitled to vote at the meeting, who complied with the
notice procedures set forth in clauses (2) and (3) of this paragraph (a) of
this Section 8 and who was a stockholder of record at the time such notice
was delivered to the Secretary of the corporation.
(2) For nominations or other business to be properly brought before an annual
meeting by a stockholder pursuant to clause (iii) of paragraph (a)(1) of this
Section 8, the stockholder must have given timely notice thereof in writing
to the Secretary of the corporation and such other business must otherwise be a
proper matter for stockholder action. To be timely, a stockholder's notice
shall be delivered to the Secretary at the principal office of the corpora-
tion not earlier than the close of business on the 100th calendar day nor
later than the close of business on the 75th calendar day prior to the date
of the first anniversary of the preceding year's annual meeting; provided,
however, that in the event that the date of an annual meeting is more than 30
calendar days before or more than 30 calendar days after the date of the
first anniversary of the preceding year's annual meeting, notice by the
stockholder to be timely must be so delivered not earlier than the close of
business on the 100th calendar day prior to such annual meeting and not later
than the close of business on the later of the 75th calendar day prior to
such annual meeting and the 10th calendar day after the day on which
public announcement of the date of such annual meeting is first made by the
corporation. Such stockholder's notice shall set forth (i) as to each person
whom the stockholder proposes to nominate for election or reelection as a
director all information relating to such person that is required to be dis-
closed in solicitations of proxies for election of directors, or is otherwise
required, in each case pursuant to Regulation 14A under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and the regulations
promulgated thereunder, including such person's written consent to being
named in the proxy statement as a nominee and to serving as a director if
elected; (ii) as to any other business that the stockholder proposes to bring
before the meeting, a brief description of the business desired to be brought
before the meeting, the reasons for conducting such business at the meeting
and any material interest in such business of such stockholder and the
beneficial owner, if any, on whose behalf the proposal is made; and (iii) as
to the stockholder giving the notice and the beneficial owner, if any,
on whose behalf the nomination or proposal is made, the name and address of
such stockholder, as they appear on the corporation's stock transfer books,
and of such beneficial owner and the class and number of shares of the cor-
poration which are owned beneficially and of record by such stockholder and
such beneficial owner.
(3) Notwithstanding anything in the second sentence of paragraph (a)(2) of
this Section 8 to the contrary, in the event that the number of directors to
be elected to the Board of Directors of the corporation is increased and
there is no public announcement by the corporation naming all of the nominees
for director or specifying the size of the increased Board of Directors made
by the corporation at least 80 calendar days prior to the date of the first
anniversary of the preceding year's annual meeting, a stockholder's notice
required by this Section 8 shall also be considered timely, but only with
respect to nominees for any new positions created by such increase, if it
shall be delivered to the Secretary at the principal office of the corpora-
tion not later than the close of business on the 10th calendar day after the
day on which such public announcement is first made by the corporation.
(b) Special Meetings of Stockholders. Subject to the rights of the holders of
any Preferred Stock, only such business shall be conducted at a special meet-
ing of stockholders as shall have been brought before the meeting pursuant to
the corporation's notice of meeting pursuant to Article I, Section 4 of these
By-Laws.
(c) General. (1) Subject to the rights of the holders of any Preferred Stock,
only persons who are nominated in accordance with the procedures set forth i