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UNITED STATES SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549





FORM 10Q





(Mark One)


x

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934For the quarterly period ended March 31, 2002OR ̈

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 $.331/3Per 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.





YESxNO  ̈





Number of shares of Common Stock of Registrant outstanding at May 6, 2002: 6,348,677





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PART I    FINANCIAL INFORMATION





Item 1.  Financial Statements





Cobra Electronics Corporation and Subsidiaries





Consolidated Statements of Operations





(in thousands, except per share amounts)





For the Three Months Ended(Unaudited)March 31, 2002


March 31, 2001Net sales

$
21,042


$
30,008Cost of sales


16,281



22,166Gross profit


4,761



7,842Selling, general and administrative expense


5,073



6,205Operating income (loss)


(312
)


1,637Other income (expense):Interest expense


(92
)


(174
)Other income (expense), net


12



(291
)Income (loss) before taxes


(392
)


1,172Tax provision (benefit)


(156
)


450Net income (loss)

$
(236
)

$
722Net income (loss) per common share:Basic

$
(0.04
)

$
0.12Diluted

$
(0.04
)

$
0.11Weighted average shares outstanding:Basic


6,315



6,178Diluted


6,460



6,440Cash dividends


None



None

















See notes to consolidated financial statements.




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Cobra Electronics Corporation and Subsidiaries





Consolidated Balance Sheets


(dollars in thousands)


As of March 31, 2002 (Unaudited)


As of December 31, 2001ASSETS:Current assets:Cash

$
640


$
675Receivables, less allowance or claims and doubtful accounts of $1,593 at March 31, 2002 and $2,518 at December 31, 2001


20,560



41,798Inventories, primarily finished goods


22,934



22,190Deferred income taxes


7,661



7,661Other current assets


3,440



2,488Total current assets


55,235



74,812Property, plant and equipment at cost:Land


330



330Building and improvements


4,318



4,008Tooling and equipment


18,813



17,96623,461



22,304Accumulated depreciation


(15,624
)


(14,843
)Net property, plant and equipment


7,837



7,461Other assets:Cash surrender value of officers life insurance policies


5,749



5,753Other


1,419



1,566Total other assets


7,168



7,319Total assets

$
70,240


$
89,592





See notes to consolidated financial statements.




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Cobra Electronics Corporation and Subsidiaries





Consolidated Balance Sheets


(dollars in thousands)


As of March 31, 2002 (Unaudited)


As of December 31, 2001LIABILITIES AND SHAREHOLDERS EQUITY:Current liabilities:Accounts payable

$
3,346


$
2,935Accrued salaries and commissions


516



1,445Accrued advertising and sales promotion costs


2,044



4,182Accrued product warranty costs


2,407



2,721Other accrued liabilities


230



1,246Total current liabilities


8,543



12,529Non-current liabilities:Deferred compensation


3,445



3,328Deferred income taxes


4,385



4,385Long-term debt


20



15,378Total non-current liabilities


7,850



23,091Total liabilities


16,393



35,620Shareholders 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 2002 and 2001


2,345



2,345Paidin capital


19,745



19,899Retained earnings


36,093



36,32958,183



58,573Treasury stock, at cost (690,423 for 2002 and 736,048 for 2001)


(4,336
)


(4,601
)Total shareholders equity


53,847



53,972Total liabilities and shareholders equity

$
70,240


$
89,592





See notes to consolidated financial statements.




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Cobra Electronics Corporation and Subsidiaries


Consolidated Statements of Cash Flows


(dollars in thousands)


For the Three Months Ended(Unaudited)March 31, 2002


March 31, 2001Cash flows from operating activities:Net income (loss)

$
(236
)

$
722Adjustments to reconcile net income (loss) to net cash provided by (used for) operating activities:Depreciation and amortization


799



579Loss (gain) on cash surrender value of life insurance


8



280Changes in assets and liabilities:Receivables


21,238



6,261Inventories


(744
)


(3,552
)Other current assets


(971
)


1,050Other assets


48



(473
)Accounts payable


411



474Accrued liabilities


(4,397
)


(1,626
)Deferred compensation


117



95Net cash flows from (used for) operating activities


16,273



3,810Cash flows from investing activities:Capital expenditures


(1,057
)


(438
)Cash surrender value of life insurance


(4
)


Net cash flows from (used in) investing activities


(1,061
)


(438
)Cash flows from financing activities:Net borrowings (repayments) under the line-of-credit agreement


(15,358
)


(3,130
)Transactions related to exercise of common stock options, net


111



132Net cash flows from (used in) financing activities


(15,247
)


(2,998
)Net increase (decrease) in cash


(35
)


374Cash at beginning of period


675



54Cash at end of period

$
640


$
428Supplemental disclosure of cash flow informationCash paid during the period for:Interest

$
55


$
248Taxes


600



500





See notes to consolidated financial statements.




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Cobra Electronics Corporation and Subsidiaries


Notes to Consolidated Financial Statements


(Unaudited)





The consolidated financial statements included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission.
Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted pursuant to such rules and regulations,
although the Company believes that the disclosures are adequate to make the information presented not misleading. The Consolidated Balance Sheet as of December 31, 2001 has been derived from the audited consolidated balance sheet as of that date. It
is suggested that these financial statements be read in conjunction with the financial statements and the notes thereto included in the Companys latest annual report on Form 10K for the year ended December 31, 2001. In the opinion of
management, the information contained herein reflects all adjustments necessary to make the results of operations for the interim periods a fair statement of such operations. All such adjustments are of a normal recurring nature. Due to the
seasonality of the Companys business, the results of operations of any interim period are not necessarily indicative of the results that may be expected for a fiscal year.





(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, Canada and Europe. A majority of the Companys products are purchased from
overseas suppliers, primarily in China, Thailand, Japan, Hong Kong and South Korea. 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 intercompany balances and transactions have been eliminated in consolidation.





Use of EstimatesThe preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 that are largely
based on the current business conditions, including economic climate, revenue growth, sales returns rates and changes in certain working capital amounts. The Company believes its estimates and assumptions are reasonable. However, actual results and
the timing of the recognition of such amounts 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

LifeBuildings

30 yearsBuilding improvements

20 yearsMotor vehicles

35 yearsEquipment

510 yearsTools, dies and molds

2 years







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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.





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.





ReclassificationCertain previously reported amounts have been reclassified to conform to the
current period presentation.





(2)    PURCHASE ORDERS AND COMMITMENTS





At March 31, 2002 and 2001, the Company had outstanding purchase orders with suppliers totaling approximately $36.1 million and $37.6 million, respectively.





(3)    EARNINGS PER SHARE





For the Three Months Ended(Unaudited)March 31, 2002


March 31, 2001Income:Income (loss) available to common shareholders (thousands)

$
(236
)

$
722Basic earnings (loss) per share:Weighted-average shares outstanding


6,315,053



6,177,930Basic earnings (loss) per share

$
(0.04
)

$
0.12Diluted earnings (loss) per share:Weighted-average shares outstanding


6,315,053



6,177,930Dilutive shares issuable in connection with stock option plans


757,500



866,713Less: shares purchasable with proceeds


(612,054
)


(604,813
)Total


6,460,499



6,439,830Diluted earnings (loss) per share

$
(0.04
)

$
0.11





(4)    COMPREHENSIVE INCOME





The Company does not have any significant items of comprehensive income other




7




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than net income for the three month periods ending March 31, 2002 and 2001.





(5)    NEW ACCOUNTING PRONOUNCEMENTS





On August 16, 2001, the Financial Accounting Standards
Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 143, Accounting for Asset Retirement Obligations, which is effective for all fiscal years beginning after June 15, 2002. SFAS No. 143
addresses financial accounting and reporting for obligations associated with the retirement of tangible long lived assets and associated asset retirement costs. On October 3, 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or
Disposal of Long Lived Assets, which is effective for all fiscal years beginning after December 15, 2001. SFAS No. 144 addresses accounting and reporting for the impairment or disposal of long lived assets, including discontinued operations,
and establishes a single accounting model for long lived assets to be disposed of by sale. The Company has determined that SFAS No. 143 and 144 have no material impact on its financial statements.





Effective January 1, 2002, the Company adopted EITF 00-14, Accounting for Certain Sales Incentives (EITF 00-14), which requires the Company
to classify costs incurred as a result of offering sales incentives to retailers as a reduction of revenue instead of as a selling expense. The Company offers cash rebate programs both on a national basis and through individual programs with
retailers, which allow customers of these retailers who purchase the Companys products to obtain cash rebates on their purchases. Additionally, other price related discounts are offered through individual programs with certain customers. Due
to the adoption of EITF 00-14, certain previously reported amounts have been reclassified to conform to the current period presentation. Approximately $625,000 was reclassified from selling expense to a reduction in sales for the first quarter 2001.





Item 2.  Managements Discussion and Analysis of Financial Condition and Results of Operations





ANALYSIS OF RESULTS OF OPERATIONS





First Quarter 2002 vs. First Quarter 2001:





For the first quarter ended March 31, 2002, the Company reported a
net loss of $236,000, or $(0.04) per diluted share, compared to net income of $722,000, or $0.11 per diluted share, in the first quarter of 2001. The decrease in net income from 2001 resulted primarily from lower sales and gross margin as discussed
below.





Sales for the first quarter of 2002 decreased to $21.0 million, from sales of $30.0 million in the first quarter of
2001. The drop in sales was due to lower domestic sales of Family Radio Service (FRS), which in 2001 benefited from sales to two large retailers that purchased significant quantities of product to support promotions. These promotions
were undertaken earlier in the year than is typical in the FRS market. Offsetting a small amount of this decline in FRS sales was an increase in sales of General Mobile Radio Service (GMRS) radios, a growing segment in which Cobra is the
market leader. GMRS radios have become a factor in the market place as consumers are demanding a greater operating range than conventional FRS radios provide.





Gross margin decreased in the current quarter to 22.6% from 26.1%, primarily as a result of lower pricing on sales of older models of Detection and FRS products, which were sold off prior to the introduction of new
models planned for the second quarter of 2002.




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Net selling, general and administrative expenses decreased $1.1 million in the first quarter of
2002 from the same period a year ago. The decrease in operating expenses was due to lower variable selling and fixed expenses. Variable selling expense decreased approximately $700,000, mainly as a result of the decrease in sales volume. The decline
in fixed expense of approximately $430,000 resulted from a reduction in bad debt expense and lower advertising costs.





The
$82,000 decline in interest expense resulted from lower average debt levels and lower average interest rates. The reduction in debt levels was driven by the decrease in accounts receivable. The decrease in other expense was due to a reduction of the
net loss on investments for the cash surrender value of life insurance policies, and an increase in vendor royalty income.





For
the first quarter of 2002, the Company had an income tax benefit of $156,000 compared to a $450,000 tax provision for the prior years quarter. The effective tax rate was 39.8% for the first quarter of 2002, and 38.4% for the year ago quarter.





LIQUIDITY AND CAPITAL RESOURCES





On January 31, 2002, the Company executed a new three-year revolving credit agreement for $55 million with three financial institutions. Borrowings and letters of credit issued under the agreement are secured by
substantially all of the assets of the Company, with the exception of real property and the cash surrender value of certain life insurance policies owned by the Company. Loans outstanding under the agreement bear interest, at the Companys
option, at the prime rate less 25 basis points or at LIBOR plus 175 basis points. The credit agreement specifies that the Company may not pay cash dividends and contains certain financial and other covenants. At March 31, 2002, the amount available
to draw on by the Company, under borrowing base limitations, was approximately $24.2 million.





Prior to the execution of the new
credit agreement, the Company had a revolving credit agreement for $38 million. Borrowings and letters of credit were secured by substantially all of the assets of the Company. Loans outstanding under the agreement bore interest, at the
Companys option, at the prime rate or at LIBOR plus 200 basis points.





Operating activities generated cash of $16.3
million during the first quarter of 2002 compared to $3.8 million during the first quarter of 2001, due to a decrease in accounts receivable, which was partially offset by a decrease in accrued liabilities. The lower accounts receivable reflected
collections, principally from record fourth quarter 2001 sales, and lower sales volume in the current quarter. Accrued liabilities decreased due to lower required accruals for commissions, sales promotion costs and product warranty, reflecting cash
payouts from 2001 and lower sales volume in the current quarter. Investing activities required cash of $1.1 million in 2002, principally for the purchase of tooling. Financing activities used cash of $15.2 million during the first quarter,
reflecting the pay down of long-term debt.





In late August 1998, the Companys Board of Directors authorized a program to
repurchase up to $1 million of the Companys common shares. On May 17, 1999, the Company announced that a second repurchase program had been approved to acquire up to an additional $1 million of common stock. During the first quarter of 2002,
the Company did not repurchase any of its common shares. Through March 31, 2002, the Company has repurchased 387,900 of its common shares at a total cost of approximately $1.6 million.




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Item 3.  Quantitative and Qualitative Disclosures About Market Risk





The Company is subject to market risk associated principally with changes in interest rates. Interest rate exposure is limited principally to the line
of credit available to the Company. The Company currently has a balance of $20,000 outstanding at March 31, 2002. The line of credit, when drawn on, is priced at interest rates that float with the market, which therefore minimizes interest rate
exposure. A 50 basis point movement in the interest rate on the floating rate debt would result in an approximately $100 increase or decrease in interest expense and cash flows. The Company does not use derivative financial or commodity instruments
for trading or other purposes but will evaluate regularly the need to do so for its European business, where it has euro-based transactions.





The Companys suppliers are located in foreign countries, principally in Asia, and the Company made approximately 8.0% of its sales outside the United States, principally in Europe and Canada, in the first
quarter of 2002. The Company minimizes its foreign currency exchange rate risk by conducting all of its transactions in U.S. dollars, except for some of the billings of its European business, which are conducted in euros.





Forward-Looking Statements





This
Managements Discussion and Analysis contains statements, which are not historical facts and are considered forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements
are identified by their use of the terms: expects, intends, may impact, plans, should, anticipates or similar terms. These forward-looking statements involve a number of risks
and uncertainties that may cause actual results to differ materially from expected results. These risks and uncertainties include, but are not limited to, the following: business conditions and growth of markets in which the Company competes,
including changes in economic conditions in the geographic areas where the Companys operations exist or products are sold; timing, start-up and customer acceptance of newly designed products; competitive factors, such as price competition and
new product introductions; significant loss of business from a major national retailer; the cost and availability of raw materials and purchased components; the impact of business acquisitions or dispositions; the costs of complying with
governmental regulations; level of share repurchases; litigation and other risk factors.




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PART II





OTHER
INFORMATION





Items 1, 2, 3, 4 and 5





Not Applicable.





Item 6.  Exhibits and Reports on Form 8K





During the three months ended March 31, 2002, the Company filed no Reports on Form 8-K.




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SIGNATURE





Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.





| | CO | BRA ELECTRONICS CORPORATION
| | -- | ---------------------------




| | /S/    MICHAEL SMITH
| | --------------------

| | By ________________________________________
| | -------------------------------------------

| | Michael Smith
| | -------------

| | Senior Vice President and
| | -------------------------

| | Chief Financial Officer
| | -----------------------

| | (Duly Authorized Officer and
| | ----------------------------

| | Principal Financial Officer)
| | ----------------------------




Dated: May 15, 2002




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