COBRA ELECTRONICS CORP - FORM 10-Q

Attached files

Attached files

Stock widget

Investing forum

COBRA ELECTRONICS CORP Reports

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

file	filename
EXCEL - IDEA: XBRL DOCUMENT - COBRA ELECTRONICS CORP	Financial_Report.xls
EX-31.1 - EX-31.1 - COBRA ELECTRONICS CORP	d606832dex311.htm
EX-32.2 - EX-32.2 - COBRA ELECTRONICS CORP	d606832dex322.htm
EX-10.1 - EX-10.1 - COBRA ELECTRONICS CORP	d606832dex101.htm
EX-32.1 - EX-32.1 - COBRA ELECTRONICS CORP	d606832dex321.htm
EX-31.2 - EX-31.2 - COBRA ELECTRONICS CORP	d606832dex312.htm

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 1934

For the quarterly period ended September 30, 2013

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 0-511

COBRA ELECTRONICS CORPORATION

(Exact name of Registrant as specified in its Charter)


DELAWARE		36-2479991
(State or other Jurisdiction of Incorporation or Organization)		(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

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 whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES x NO ¨

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definition of “large accelerated filer”, “accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ¨ NO x

Number of shares of Common Stock of Registrant outstanding as of November 6, 2013: 6,602,980

TABLE OF CONTENTS


		Page No.
PART I	FINANCIAL INFORMATION

Item 1	Financial Statements		3
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations		20
Item 3	Quantitative and Qualitative Disclosures About Market Risk		27
Item 4	Controls and Procedures		27

PART II	OTHER INFORMATION

Item 1	Legal Proceedings		28
Item 1A	Risk Factors		28
Item 6	Exhibits		28

SIGNATURE			29

PART I

FINANCIAL INFORMATION

Item 1. Financial Statements

Cobra Electronics Corporation and Subsidiaries

Consolidated Statements of Operations—Unaudited

(In Thousands, Except Per Share Amounts)


	Three Months Ended						Nine Months Ended
	September 30						September 30
	2013			2012			2013			2012
Net sales	$	29,038		$	27,672		$	76,245		$	83,174
Cost of sales		21,579			19,893			55,872			58,949

Gross profit		7,459			7,779			20,373			24,225
Selling, general and administrative expense		7,335			7,475			23,840			22,315

Earnings (loss) from operations		124			304			(3,467	)		1,910
Interest expense		(205	)		(277	)		(515	)		(765	)
Other income		359			336			798			685

Earnings (loss) before income taxes		278			363			(3,184	)		1,830
Tax (benefit) provision		(116	)		(201	)		(103	)		25

Net earnings (loss)	$	394		$	564		$	(3,081	)	$	1,805

Net earnings (loss) per common share:
Basic	$	0.06		$	0.09		$	(0.47	)	$	0.27
Diluted	$	0.06		$	0.09		$	(0.47	)	$	0.27
Weighted average shares outstanding:
Basic		6,611			6,611			6,611			6,595
Diluted		6,611			6,633			6,611			6,610

The accompanying notes are an integral part of these financial statements.

Cobra Electronics Corporation and Subsidiaries

Consolidated Statements of Comprehensive Income (Loss)—Unaudited

(In Thousands)


	Three Months Ended September 30				Nine Months Ended September 30
	2013		2012		2013			2012
Net earnings (loss)	$	394	$	564	$	(3,081	)	$	1,805
Other comprehensive income, net of tax:
Foreign currency translation		717		422		159			314
Interest rate swap		13		21		46			69

Other comprehensive income		730		443		205			383

Comprehensive income (loss)	$	1,124	$	1,007	$	(2,876	)	$	2,188

The accompanying notes are an integral part of these financial statements.

Cobra Electronics Corporation and Subsidiaries

Consolidated Balance Sheets

(In Thousands)


	September 30,			December 31,
	2013			2012
	(Unaudited)
ASSETS
Current assets:
Cash	$	2,258		$	1,785
Receivables, net of allowance for doubtful accounts of $80 in 2013 and $679 in 2012		15,238			20,943
Inventories, primarily finished goods, net		37,507			38,068
Other current assets		3,448			3,071

Total current assets		58,451			63,867
Property, plant and equipment, at cost:
Buildings and improvements		7,000			6,865
Tooling and equipment		14,838			13,796

		21,838			20,661
Accumulated depreciation		(16,549	)		(15,568	)
Land		230			230

Property, plant and equipment, net		5,519			5,323
Other assets:
Cash surrender value of life insurance policies		7,054			5,907
Deferred income taxes, non-current		445			544
Intangible assets		7,364			7,634
Other assets		181			215

Total other assets		15,044			14,300

Total assets	$	79,014		$	83,490

The accompanying notes are an integral part of these financial statements.

Cobra Electronics Corporation and Subsidiaries

Consolidated Balance Sheets

(In Thousands, Except Share Data)


	September 30,			December 31,
	2013			2012
	(Unaudited)
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Revolving bank loan facility	$	19,849		$	20,284
Accounts payable		6,034			5,598
Accrued salaries and commissions		1,374			2,053
Accrued advertising and sales promotion costs		528			1,012
Accrued product warranty costs		800			1,040
Accrued income taxes		—			425
Deferred income taxes, current		55			33
Other accrued liabilities		3,393			3,368

Total current liabilities		32,033			33,813
Non-current liabilities:
Deferred compensation		7,896			7,780
Deferred income taxes		783			886
Other long-term liabilities		714			751

Total non-current liabilities		9,393			9,417

Total liabilities		41,426			43,230
Commitments and contingencies		—			—
Shareholders’ equity:
Preferred stock, $1 par value Authorized: 1,000,000 shares Issued: None		—			—
Common stock, $.33 1/3 par value Authorized: 12,000,000 shares Issued: 7,178,400 shares Outstanding: 6,610,580 shares		2,392			2,392
Additional paid-in capital		21,473			21,269
Retained earnings		19,378			22,459
Accumulated other comprehensive loss		(1,818	)		(2,023	)

		41,425			44,097
Treasury stock, at cost (567,820 shares)		(3,837	)		(3,837	)

Total shareholders’ equity		37,588			40,260

Total liabilities and shareholders’ equity	$	79,014		$	83,490

The accompanying notes are an integral part of these financial statements.

Cobra Electronics Corporation and Subsidiaries

Consolidated Statements of Cash Flows—Unaudited

(In Thousands)


	Nine Months Ended
	September 30
	2013			2012
Cash flows from operating activities:
Net (loss) earnings	$	(3,081	)	$	1,805
Adjustments to reconcile net (loss) earnings to net cash flows from operating activities:
Depreciation and amortization		2,395			2,743
Deferred income taxes		25			(233	)
Gain on cash surrender value (CSV) life insurance		(865	)		(509	)
Stock-based compensation		204			262
Changes in assets and liabilities:
Receivables		5,727			5,574
Inventories		590			(4,634	)
Other assets		(610	)		(976	)
Accounts payable		461			(1,536	)
Other liabilities		(1,787	)		(2,434	)

Net cash provided by operating activities		3,059			62

Cash flows from investing activities:
Property, plant and equipment		(1,164	)		(862	)
Premiums on CSV life insurance		(282	)		(317	)
Intangible assets		(806	)		(523	)

Net cash used in investing activities		(2,252	)		(1,702	)

Cash flows from financing activities:
Bank (payments) borrowings		(435	)		3,922
Capital lease obligations		(31	)		—

Net cash (used in) provided by financing activities		(466	)		3,922
Effect of exchange rate changes on cash and cash equivalents		132			119

Net increase in cash		473			2,401
Cash at beginning of period		1,785			1,033

Cash at end of period	$	2,258		$	3,434

Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest	$	383		$	489
Income taxes	$	563		$	902
Non-cash items for:
Capital lease obligations	$	—		$	86

The accompanying notes are an integral part of these financial statements.

Cobra Electronics Corporation and Subsidiaries

Consolidated Statement of Shareholders’ Equity and Comprehensive Income (Loss)—Unaudited

(In Thousands)


	Common Stock		Additional Paid-in Capital		Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Treasury Stock			Total
Balance—December 31, 2012	$	2,392	$	21,269	$	22,459		$	(2,023	)	$	(3,837	)	$	40,260
Net loss		—		—		(3,081	)		—			—			(3,081	)
Accumulated other comprehensive income:
Foreign currency translation adjustment		—		—		—			159			—			159
Interest rate swap, no tax benefit		—		—		—			46			—			46
Stock compensation expense		—		204		—			—			—			204

Balance—September 30, 2013	$	2,392	$	21,473	$	19,378		$	(1,818	)	$	(3,837	)	$	37,588

The accompanying notes are an integral part of these financial statements.

Cobra Electronics Corporation and Subsidiaries

Notes to Consolidated Financial Statements

For the Nine Months Ended September 30, 2013 and 2012

(Unaudited)

The consolidated financial statements for the nine months ended September 30, 2013 and 2012 included herein have been prepared by Cobra Electronics Corporation (the “Company”), without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been omitted pursuant to such rules and regulations, although the Company believes that the disclosures contained herein are adequate to make the information presented not misleading. The Consolidated Balance Sheet as of December 31, 2012 has been derived from the audited consolidated balance sheet as of that date. These consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the Company’s latest Annual Report on Form 10-K for the year ended December 31, 2012 as filed with the SEC. In the opinion of management, the information contained herein reflects all adjustments necessary to make the results of operations for the interim period a fair statement of such operations. 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 — Cobra designs and markets consumer electronics products, which it sells primarily under the Cobra brand name, principally in the United States, Canada and Europe. The Company’s Performance Products Limited (“PPL”) subsidiary sells its products under the Snooper trade name, principally in the United Kingdom, as well as elsewhere in Europe. A majority of the Company’s products are purchased from overseas suppliers, primarily in China, 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 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 on 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, in certain limited circumstances, reimburse the Company for lost profits resulting from a supplier’s inability to fulfill its commitments to the Company.

Principles of Consolidation — The consolidated financial statements include the accounts of the Company and its subsidiaries. The consolidated entities are collectively referred to as the “Company”. All intercompany balances and transactions have been eliminated in consolidation.

Accounts Receivable — The majority of the Company’s accounts receivables are due from retailers and two-step distributors. Credit is extended based on an evaluation of a customer’s financial condition, including, at times, the availability of credit insurance, and generally, collateral is not required. Accounts receivable are due within various time periods specified in the terms applicable to the specific customer and are stated at amounts due from customers net of an allowance for doubtful accounts.

The Company determines its allowance by considering a number of factors, including the length of time trade accounts receivable are past due, the Company’s previous loss history, the customer’s current ability to pay its obligation to the Company, availability of credit insurance and the condition of the general economy and the industry as a whole. The Company writes off accounts receivable against the allowance for doubtful accounts when they are judged to be uncollectible, and payments subsequently received on such receivables are credited to customer claims or bad debt expense.

(2) SEGMENT INFORMATION

The Company operates in two business segments: (1) Cobra Consumer Electronics (“Cobra”) and (2) Performance Products Limited (“PPL”). The Cobra segment is comprised of Cobra Electronics Corporation, Cobra Hong Kong Limited and Cobra Electronics Europe Limited (“CEEL”). The Company has separate sales departments and distribution channels for each segment, which provide segment exclusive product lines to all customers for that segment. The results for the PPL segment for the nine month period ending September 30, 2013 excludes intersegment sales of $37,000 and intersegment operating profit of $3,000. There were no intersegment sales for the third quarter of 2013 and for the third quarter and nine month period for 2012. The financial information by business segment for the three months and nine months ended September 30, 2013 and 2012 follows:

Three months — 2013 vs. 2012


	2013									2012
	COBRA			PPL			TOTAL			COBRA			PPL			TOTAL
	(In Thousands)
Net sales	$	25,450		$	3,588		$	29,038		$	23,962		$	3,710		$	27,672
Cost of sales		19,164			2,415			21,579			17,494			2,399			19,893

Gross profit		6,286			1,173			7,459			6,468			1,311			7,779
Selling, general and administrative expense		6,191			1,144			7,335			6,202			1,273			7,475

Earnings from operations		95			29			124			266			38			304
Interest expense		(205	)		—			(205	)		(277	)		—			(277	)
Other income		318			41			359			315			21			336

Earnings before income taxes		208			70			278			304			59			363
Tax (benefit) provision		(49	)		(67	)		(116	)		41			(242	)		(201	)

Net earnings	$	257		$	137		$	394		$	263		$	301		$	564

Nine months — 2013 vs. 2012


	2013									2012
	COBRA			PPL			TOTAL			COBRA			PPL			TOTAL
	(In Thousands)
Net sales	$	65,885		$	10,360		$	76,245		$	72,071		$	11,103		$	83,174
Cost of sales		49,062			6,810			55,872			51,901			7,048			58,949

Gross profit		16,823			3,550			20,373			20,170			4,055			24,225
Selling, general and administrative expense		20,268			3,572			23,840			18,631			3,684			22,315

(Loss) earnings from operations		(3,445	)		(22	)		(3,467	)		1,539			371			1,910
Interest expense		(515	)		—			(515	)		(765	)		—			(765	)
Other income (expense)		876			(78	)		798			632			53			685

(Loss) earnings before income taxes		(3,084	)		(100	)		(3,184	)		1,406			424			1,830
Tax (benefit) provision		(5	)		(98	)		(103	)		296			(271	)		25

Net (loss) earnings	$	(3,079	)	$	(2	)	$	(3,081	)	$	1,110		$	695		$	1,805

(3) MULTIPLE ELEMENT ARRANGEMENTS

PPL bundles the sales of its navigation products with access to the AURA database and map updates. The deferred revenue was calculated using the relative selling price method based on Vendor Specific Objective Evidence (“VSOE”) and recognized over the applicable subscription period, generally two years. A summary of PPL’s deferred revenue at September 30, 2013 and December 31, 2012 follows:


	September 30, 2013		December 31, 2012
	(In Thousands)
Deferred revenue—PPL	$	1,054	$	914

In addition, the Company’s domestic business sells products bundled with access to the AURA database and map updates. Revenues deferred from these arrangements were calculated using the relative fair market value method and recognized over the applicable subscription period, generally two years. A summary of deferred revenue for Cobra U.S. at September 30, 2013 and December 31, 2012 follows:


	September 30, 2013		December 31, 2012
	(In Thousands)
Deferred revenue—Cobra U.S.	$	305	$	401

(4) INCOME TAXES

Each quarter, the Company estimates the annual effective income tax rate (“ETR”) for the full year and applies that rate to the Earnings (Loss) Before Income Taxes for tax jurisdictions not subject to a valuation allowance in determining its provision for income taxes for the interim periods. The determination of the consolidated provision for income taxes, deferred tax assets and liabilities, and the related valuation allowance requires management to make certain judgments and estimates. Changes in the estimated level of annual pre-tax earnings, tax laws, and changes resulting from tax audits can affect the overall effective income tax rate, which impacts the level of income tax expense and net income. Judgments and estimates related to the Company’s projections and assumptions are inherently uncertain; therefore, actual results could differ materially from projections.

The year-to-date ETR was less than the statutory U.S. federal income tax rate, mainly due to the taxing jurisdictions in which the Company and its foreign subsidiaries generate taxable income or loss and judgments as to the realizability of the Company’s deferred tax assets.

The Company reviews the need for a valuation allowance at each quarter-end. The U.S. operations were in a loss position for the nine month period ending September 30, 2013. Based on this and other relevant information, management concluded at September 30, 2013 that the Company did not meet the more likely than not criteria for concluding that the valuation allowance related to the deferred tax assets for its U.S. operations, which totaled $9.1 million at September 30, 2013 (compared to $8.7 million at December 31, 2012), was no longer required in part or total. The Company will continue to monitor the need for a valuation allowance throughout 2013. Should the Company demonstrate a favorable and sustainable trend for its historic and projected operating results in the U.S., a reduction in the valuation allowance and a corresponding income tax benefit may result.

(5) FINANCING ARRANGEMENTS

On December 7, 2012, the Credit Agreement (the “Credit Agreement”) among the Company, BMO Harris, as administrative agent (the “Administrative Agent”), and the lenders party thereto from time to time (the “Lenders”) was amended to extend the maturity date to July 16, 2016, increase the maximum availability under the Credit Agreement to $35.0 million and decrease the applicable margin used to determine the interest rates applicable to borrowings under the Credit Agreement. On August 8, 2013, the Credit Agreement was amended to permit the exclusion of the Fleming patent litigation and settlement agreement expenses from the covenant calculations, effective with the quarter ending June 30, 2013, and to increase the applicable margin under the Credit Agreement. See Note 12, Commitments and Contingencies, for a discussion of the Fleming litigation and settlement agreement.

In the third quarter of 2013, the Company did not meet the required minimum Fixed Charge Coverage Ratio (as defined in the Credit Agreement). On November 11, 2013, the Credit Agreement was amended to waive any non-compliance with the Fixed Charge Coverage Ratio for the third quarter of 2013, increase the applicable margin under the Credit Agreement and add a $100,000 interest reserve.

Pursuant to the terms of its Credit Agreement, the Company is required to make mandatory prepayments on the amounts outstanding thereunder in the event that the Company receives proceeds under certain circumstances or in connection with other specified events. Borrowings under the Credit Agreement bear interest at either the base rate or the LIBOR lending rate (each as defined in the Credit Agreement), as applicable, plus the applicable margin set forth in the Credit Agreement. The Company will also pay certain fees and expenses, including (i) a commitment fee on the unused portion of the Lenders’ aggregate revolving commitment and (ii) a letter of credit fee equal to the product of the applicable margin set forth in the Credit Agreement times the face amount of the standby letters of credit and the commercial letters of credit outstanding at such time. The Credit Agreement contains customary covenants, including but not limited to financial covenants requiring the Company to maintain a minimum twelve month Fixed Charge Coverage Ratio (as defined in the Credit Agreement). Certain fees and covenants for the Credit Agreement follow:


Commitment fee		0.25	%
Fixed charge coverage ratio		1.10 to 1.00
Annual capital expenditures limit (in thousands)	$	4,000
Annual dividend to shareholders limit (in thousands)	$	1,250

The Company’s Fixed Charge Coverage Ratio is based on adjusted EBITDA less capital expenditures and cash tax payments in relation to interest expense. As a condition to the extension of the loan and the issuance of the letters of credit under the Credit Agreement, the Company has granted a security interest to the Administrative Agent, for the benefit of the Lenders, in substantially all the assets of the Company except (i) life insurance policies not collaterally assigned to the Lenders, (ii) any equipment subject to liens permitted under the Credit Agreement if such equipment is also subject to an agreement prohibiting the pledge of such equipment to the Lenders, (iii) deposit accounts used exclusively by the Company for payroll and employee retiree benefit purposes and (iv) the Company’s interest in the outstanding voting equity securities of any of its directly-owned foreign subsidiaries to the extent such interests exceed 65 percent of the outstanding voting equity securities of such foreign subsidiary.

The Company’s interest bearing debt outstanding under the revolving credit facility and credit availability under the revolving credit facility at September 30, 2013 follows:


	September 30, 2013
	(In Thousands)
Interest bearing debt	$	19,849
Credit availability	$	6,853

The borrowing base formula to determine credit availability includes the following:


Percentage of eligible accounts receivable	85.0	%
The lesser of:
Percentage of lower of cost or market of eligible inventory	65.0	%
Percentage of appraised net orderly liquidation value of eligible inventory	85.0	%
Percentage of commercial letters of credit	65.0	%

The borrowing base is also subject to certain limitations and reserves established at the Lenders’ discretion. If necessary, the Credit Agreement permits an “overadvance” of up to $1,000,000 for sixty consecutive days.

The weighted average interest rate for the three and nine months ending September 30, 2013 and 2012, which includes the amortization charges associated with the terminated interest rate swap described in Note 7, Derivatives, follows:


	Three Months Ended						Nine Months Ended
	2013			2012			2013			2012
Weighted average interest rate		3.9	%		4.7	%		3.4	%		4.9	%

(6) 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 approximated their fair value because of the short-term maturity of these instruments. The carrying amounts of the Company’s bank borrowings under its Credit Agreement approximated fair value because the interest rates are reset periodically to reflect current market rates. The letters of credit approximated fair value due to the short-term nature of the instruments. The fair value of letters of credit at September 30, 2013 and December 31, 2012 follows:


	September 30, 2013		December 31, 2012
	(In Thousands)
Letters of credit at fair value	$	5,146	$	2,688

(7) DERIVATIVES

The Company transacts business globally with various manufacturing and distribution facilities. The Company may reduce its exposure to fluctuations in foreign exchange rates by creating offsetting positions through derivative financial instruments. The Company currently does not use derivative financial instruments for trading or speculative purposes. The Company regularly monitors foreign exchange exposures and ensures hedge contract amounts do not exceed the amounts of the underlying exposures.

The Company maintained an interest rate swap, which was terminated on July 16, 2010, to fix the interest rate for the term of the revolving credit facility and term loan under its previous Credit Agreement, thereby protecting the Company from future interest rate increases. The interest rate swap represented a cash flow hedge and was recorded at fair value and classified as a non-current liability.

Changes in the recorded fair value of the interest rate swap were recorded to Accumulated Other Comprehensive Income (Loss). The termination cost of the interest rate swap will be amortized into interest expense through the March 31, 2014 expiration of the swap agreement. The interest amortization for the Company’s terminated interest rate swaps reclassified from Accumulated Other Comprehensive Income (Loss) into Interest Expense during the three and nine months ended September 30, 2013 and 2012 follows:


	Three Months Ended				Nine Months Ended
Income Statement Location	2013		2012		2013		2012
	(In Thousands)				(In Thousands)
Interest expense	$	13	$	21	$	46	$	69

(8) EARNINGS (LOSS) PER SHARE

Basic earnings (loss) per share excludes any dilution and is computed by dividing net earnings (loss) available to common shareholders by the weighted-average number of common shares outstanding for the period. Diluted earnings (loss) per share reflects the potential dilution that could occur if securities or other contracts to issue common stock resulted in the issuance of common stock. If the common stock equivalents have an anti-dilutive effect, they are excluded from the computation of diluted earnings (loss) per share. The earnings or loss per share for the three and nine months ended September 30, 2013 and 2012 follows:


	Three Months Ended				Nine Months Ended
	2013		2012		2013			2012
	(In Thousands, Except Per Share Data)				(In Thousands, Except Per Share Data)
Net earnings (loss)	$	394	$	564	$	(3,081	)	$	1,805
Weighted-average shares outstanding
Basic		6,611		6,611		6,611			6,595
Diluted		6,611		6,633		6,611			6,610
Basic earnings (loss) per share	$	0.06	$	0.09	$	(0.47	)	$	0.27
Diluted earnings (loss) per share	$	0.06	$	0.09	$	(0.47	)	$	0.27

The diluted earnings per share calculations include the incremental shares of common stock issuable upon the exercise of stock options that have a market price in excess of the exercise price. When the exercise price of an option exceeds its market price, the incremental shares are excluded from the diluted earnings per share calculation. A summary of the options outstanding, the options includable and excludable from the diluted earnings per share calculations and the incremental shares included in the diluted earnings per share calculation for the three and nine months ended September 30, 2013 and 2012 follows:


	Three Months Ended				Nine Months Ended
	2013		2012		2013		2012
	(In Thousands)				(In Thousands)
Options included in diluted earnings (loss) per share calculation		—		217		—		217
Options excluded from diluted earnings (loss) per share calculation		352		137		352		137

Total options outstanding		352		354		352		354


	Three Months Ended				Nine Months Ended
	2013		2012		2013		2012
	(In Thousands)				(In Thousands)
Incremental shares included in the diluted earnings (loss) per share		—		22		—		15

(9) COMPREHENSIVE INCOME (LOSS)

Comprehensive income (loss) is defined as the change in equity of a business enterprise from transactions and other events from non-owner sources. Comprehensive income (loss) includes net earnings (loss) and other non-owner changes in equity that bypass the statement of operations and are reported in a separate component of equity. For the three and nine months ended September 30, 2013 and 2012, Accumulated Other Comprehensive Income (Loss) included the foreign currency translation adjustment and a terminated interest rate swap.

A summary of the change in the Accumulated Other Comprehensive Income (Loss) from December 31, 2012 to September 30, 2013 follows:


	Interest		Foreign
	Rate		Currency
	Swap		Translation			Total
	(In Thousands)
Balance, December 31, 2012	$	48	$	(2,071	)	$	(2,023	)
Other comprehensive income (loss) before reclassifications		—		159			159
Amounts reclassified from accumulated other comprehensive income (loss)		46		—			46

Balance, September 30, 2013	$	94	$	(1,912	)	$	(1,818	)

A summary of the amounts reclassified out of Accumulated Other Comprehensive Income (Loss) for the nine months ended September 30, 2013 follows:


Accumulated Other Comprehensive
Income Components	2013
	(In Thousands)
Interest rate swap—amortization	$	46

(10) OTHER CURRENT ASSETS

The following table summarizes the components of other current assets at September 30, 2013 and December 31, 2012:


	September 30,		December 31,
	2013		2012
	(In Thousands)
Prepayments	$	2,202	$	2,170
Vendor and miscellaneous receivables		1,246		901

	$	3,448	$	3,071

(11) INTANGIBLE ASSETS

The following table summarizes the components of intangible assets at September 30, 2013 and December 31, 2012:


	September 30,			December 31,
	2013			2012
	(In Thousands)
Internal use software	$	3,086		$	2,879
Less accumulated amortization		(2,676	)		(2,543	)

		410			336

ERP internal software system		4,393			4,368
Less accumulated amortization		(4,224	)		(4,148	)

		169			220

Trademarks, trade names and patents		7,131			6,844
Less accumulated amortization		(2,328	)		(2,110	)

		4,803			4,734

Product software, net of impairment		1,547			1,468
Less accumulated amortization, net of impairment		(1,102	)		(1,041	)

		445			427

Customer relationships		5,035			5,040
Less accumulated amortization		(3,498	)		(3,123	)

		1,537			1,917

Total	$	7,364		$	7,634

Product software assets and accumulated amortization shown in the preceding table are shown net of the respective impairment charges. There were no intangible asset impairment charges for the three and nine months ended September 30, 2013 and 2012. The anticipated amortization expense of intangible assets over the next five years ending December 31 follows:


Year	Cost
	(In Thousands)
2014	$	800
2015		800
2016		700
2017		300
2018		300

	$	2,900

(12) COMMITMENTS AND CONTINGENCIES

On August 3, 2012, Hoyt A. Fleming filed a complaint in the United States District Court for the District of Idaho against the Company alleging infringement of certain patents and seeking unspecified damages and injunctive relief. The allegations related to approximately 30 of the Company’s radar detection products that were sold with GPS or capable of receiving a GPS attachment or that have compass directional ability.

On July 16, 2013, the Company executed an agreement with Mr. Fleming to settle the Fleming patent litigation. The settlement agreement provides the Company with a license to certain patents in exchange for certain payments. Although the settlement occurred subsequent to June 30, 2013, the expense for an upfront payment was recorded in the second quarter financial results in accordance with GAAP. On July 30, 2013, the court entered an order dismissing with prejudice all of Mr. Fleming’s claims.

In addition, the Company is subject to various unresolved legal actions which arise in the normal course of its business. None of these matters are expected to have a material adverse effect on the Company’s financial position or results of operations. However, the ultimate resolution of these matters cannot be determined at this time.

The Company’s outstanding inventory purchase orders with suppliers at September 30, 2013 and December 31, 2012 were as follows:


	September 30,		December 31,
	2013		2012
	(In Thousands)
Open purchase orders	$	22,667	$	15,165

(13) PRODUCT WARRANTY COSTS AND INVENTORY VALUATION RESERVES

The Company warrants to the consumer who purchases its products that it will repair or replace, without charge, defective products within one year of purchase. The Company also has a return policy for its customers that allows them to return, to the Company, products returned to them by their customers for full or partial credit based on when the Company’s customer last purchased these products. Accordingly, the Company maintains a warranty reserve and a liquidation reserve.

The warranty reserve reflects historical return rates by product category multiplied by the most recent six months of unit sales and the unit standard cost of each model. The Company uses the most recent six months of unit sales in its estimate, as historical experience indicates that most returns will occur within six months of the Company’s original sale date. Therefore, judgments must be made based on historical return rates and how the returned product will be disposed of by, either liquidation or return to vendors for credit on new purchases. The amount of the reserve reflects the estimated quantity of future returns and the expected return costs. The expected return cost is based on the difference between the purchase cost and the return credit from the vendor or the difference between the purchase cost and the liquidation sale. This reserve may vary based upon the level of sales and changes in historical return rates from quarter to quarter as well as estimated costs of disposal, either liquidation prices or the credit given by vendors. A roll-forward of the warranty reserve follows:


	Nine Months			Year
	Ended			Ended
	September 30,			December 31,
	2013			2012
	(In Thousands)
Accrued product warranty costs, beginning of period	$	1,040		$	1,191
Warranty provision		1,406			2,387
Warranty expenditures		(1,646	)		(2,538	)

Accrued product warranty costs, end of period	$	800		$	1,040

The liquidation reserve represents the write-down of returned product from our customers to its net realizable value. Returned inventory is either sold to various liquidators or returned to vendors for partial credit against similar, new models; this decision depends upon the estimated future demand for the models. Judgments are made as to whether various models are to be liquidated or returned to the vendor, taking into consideration the liquidation prices expected to be received and the amount of vendor credit. The amount of the reserve reflects the quantity of returned products on-hand and the expected return costs. The expected return cost is the difference between the purchase cost and the return credit from the vendor or the difference between the purchase cost and the liquidation sale. This reserve can fluctuate significantly from quarter to quarter depending upon quantities of returned inventory on hand and the estimated liquidation price or vendor credit per unit. A roll-forward of the liquidation reserve, which is classified as a contra inventory item on the balance sheet, follows:


	Nine Months			Year
	Ended			Ended
	September 30,			December 31,
	2013			2012
	(In Thousands)
Liquidation reserve, beginning of period	$	1,134		$	999
Liquidation provision		1,820			2,300
Liquidation of models		(2,047	)		(2,165	)

Liquidation reserve, end of period	$	907		$	1,134

The Company maintains a net realizable value (“NRV”) reserve to write-down, as necessary, certain inventory not previously sold to customers, except for that covered by the liquidation reserve discussed above, below cost. The reserve includes models where it is determined that the NRV is less than cost. Thus, judgments must be made about which slow-moving, excess or non-current models are to be included in the reserve and the estimated NRV of such models. The estimated NRV of each model is the per unit price that it is estimated to be received if the model was sold in the marketplace. This reserve will vary depending upon the specific models selected, the estimated NRV for each model and quantities of each model that are determined will be sold below cost from quarter to quarter. A roll-forward of the NRV reserve, which is classified as a contra inventory item on the balance sheet, follows:


	Nine Months			Year
	Ended			Ended
	September 30,			December 31,
	2013			2012
	(In Thousands)
Net realizable reserve, beginning of period	$	263		$	118
NRV provision		365			512
NRV write-offs		(240	)		(367	)

Net realizable reserve, end of period	$	388		$	263

(14) INTEREST EXPENSE AND OTHER INCOME (EXPENSE)

The following table shows the components of Interest Expense for the three and nine months ended September 30, 2013 and 2012:


	Three Months Ended				Nine Months Ended
	2013		2012		2013		2012
	(In Thousands)				(In Thousands)
Interest on debt	$	162	$	193	$	391	$	506
Amortization of loan fees		30		63		78		190
Interest rate swap amortization		13		21		46		69

	$	205	$	277	$	515	$	765

The following table shows the components of Other Income (Expense) for the three and nine months ended September 30, 2013 and 2012:


	Three Months Ended					Nine Months Ended
	2013			2012		2013			2012
	(In Thousands)					(In Thousands)
CSV income	$	301		$	274	$	865		$	509
Foreign exchange (expense) income		(7	)		17		(113	)		48
Other—net		65			45		46			128

	$	359		$	336	$	798		$	685

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

ANALYSIS OF RESULTS OF OPERATIONS

Executive Summary – Third Quarter

The operating earnings for the third quarter of 2013 totaled $124,000 compared to operating earnings of $304,000 for the year ago quarter, a decrease of $180,000. Key factors contributing to the overall decrease in operating earnings were as follows:

•

Net sales increased $1.4 million, or 4.9 percent, primarily attributable to the Cobra segment.

•

Gross profit decreased $320,000 mainly due to lower net sales in the PPL segment and lower margins for both the Cobra and PPL segments. Gross margin decreased to 25.7 percent from 28.1 percent in the third quarter of 2012.

•

Selling, general and administrative expenses decreased $140,000, or 1.9 percent.

Interest expense declined $72,000 from the year ago quarter. Other income was $359,000 for the third quarter of 2013 compared to $336,000 of other income for the year ago quarter, an increase of $23,000. The combined impact of the unfavorable change in operating results partially offset by the decrease in interest expense and the increase in other income resulted in an $85,000 decrease to operating earnings. Pre-tax income for the current quarter totaled $278,000 compared to pre-tax income of $363,000 in the prior year’s quarter.

The tax benefit was $116,000 for the third quarter of 2013 compared to a $201,000 tax benefit in the same quarter last year. The decline in the tax benefit was principally due to a lower deferred tax benefit in the U.K., which resulted from a 2 percent tax rate decrease from 23.0 percent to 21.0 percent.

For the third quarter of 2013, the Company reported net income of $394,000, or $0.06 per share, compared to net income of $564,000, or $0.09 per share, for the third quarter of 2012.

Executive Summary – Nine Months

The operating loss for the first nine months of 2013 totaled $3.5 million compared to operating earnings of $1.9 million for the year ago period, an unfavorable swing of $5.4 million in operating results. Key factors contributing to the unfavorable change were as follows:

•

Net sales decreased $6.9 million, or 8.3 percent, mainly in the Cobra segment.

•

Gross profit decreased $3.9 million primarily as a result of the lower net sales, while gross margin decreased to 26.7 percent from 29.1 percent in the first nine months of 2012.

•

Selling, general and administrative expenses increased $1.5 million, or 6.8 percent, mainly due to higher costs related to the Fleming patent litigation, including the cost of a settlement that was agreed to by the parties in July 2013 and recorded in the second quarter.

Interest expense declined $250,000 from the year ago quarter. Other income increased $113,000 mainly due to an increase in CSV income for the life insurance policies the Company holds to fund deferred compensation programs for certain current and former officers of the Company. The combined impact of the unfavorable change in operating results and the favorable variances in interest expense and other income generated a pre-tax loss of $3.2 million compared to pre-tax income of $1.8 million for the nine months ended September 30, 2012.

The tax benefit was $103,000 for the first nine months of 2013 compared to a tax provision of $25,000 in the same period last year. The favorable tax benefit change was principally due to lower pre-tax earnings of the Company’s Irish subsidiary.

For the nine month period ended September 30, 2013, the Company reported a net loss of $3.1 million, or $0.47 per share, compared to net earnings of $1.8 million, or $0.27 per share, for the same period in 2012.

Valuation Allowance

The U.S. operations were in a loss position for the nine month period ending September 30, 2013. Based on this and other relevant information, management concluded at September 30, 2013 that the Company did not meet the more likely than not criteria for concluding that the valuation allowance related to the deferred tax assets for its U.S. operations, which totaled $9.1 million at September 30, 2013 (compared to $8.7 million at December 31, 2012), was no longer required in part or total. The Company will continue to monitor the need for a valuation allowance throughout 2013. Should the Company demonstrate a favorable and sustainable trend for its historic and projected operating results in the U.S., a reduction in the valuation allowance and a corresponding income tax benefit may result.

EBITDA

The following table shows the reconciliation of net earnings to EBITDA and EBITDA As Defined for the three and nine months ending September 30, 2013 and 2012:


	Three Months Ended						Nine Months Ended
	2013			2012			2013			2012
	(In Thousands)						(In Thousands)
Net earnings (loss)	$	394		$	564		$	(3,081	)	$	1,805
Depreciation/amortization		722			768			2,395			2,743
Interest expense, excluding loan fee amortization		175			214			437			575
Income tax (benefit) provision		(116	)		(201	)		(103	)		25

EBITDA		1,175			1,345			(352	)		5,148
Stock option expense		65			65			204			262
CSV gain		(301	)		(274	)		(865	)		(509	)
Other non-cash items		(128	)		172			(415	)		(31	)

EBITDA As Defined	$	811		$	1,308		$	(1,428	)	$	4,870

Other non-cash items shown in the preceding EBITDA reconciliation include exchange gains and losses and deferred revenue.

EBITDA represents earnings before interest, taxes, depreciation and amortization. EBITDA As Defined represents EBITDA adjusted to conform with the EBITDA measurement used to measure compliance with the financial covenants under the Credit Agreement dated July 16, 2010 among the Company, BMO Harris, as administrative agent, and the lenders party thereto, as amended (the “Credit Agreement”). The Company believes EBITDA is a useful performance indicator and is frequently used by management, securities analysts and investors to judge operating performance between time periods and among other companies. The Company uses EBITDA As Defined to assess operating performance and ensure compliance with financial covenants.

EBITDA and EBITDA As Defined are non-GAAP performance indicators that should be used in conjunction with GAAP performance measurements such as net sales, operating profit and net income to evaluate the Company’s operating performance. EBITDA and EBITDA As Defined are not alternatives to net income or cash flow from operations determined in accordance with GAAP. Furthermore, EBITDA and EBITDA As Defined may not be comparable to the calculation of similarly titled measures reported by other companies.

Third Quarter — 2013 vs. 2012

The following table summarizes net sales and pre-tax income by business segment for the three months ended September 30, 2013 and 2012:


									2013 vs. 2012
	2013				2012				Increase (Decrease)
	(In Thousands)
	Net		Pre-tax		Net		Pre-tax		Net			Pre-tax
Business Segment	Sales		Income		Sales		Income		Sales			Income (Loss)
Cobra	$	25,450	$	208	$	23,962	$	304	$	1,488		$	(96	)
PPL		3,588		70		3,710		59		(122	)		11

Total Company	$	29,038	$	278	$	27,672	$	363	$	1,366		$	(85	)

Cobra Business Segment

Net sales increased $1.5 million, or 6.2 percent, in the third quarter of 2013 to $25.5 million compared to $24.0 million in the third quarter of 2012. Higher sales of two-way radios and detection products offset in part, by lower sales of Trucker Navigation, Inverters and Citizen Band radios, accounted for the overall increase from 2012. Sales of the new high performance SPX detectors, the 29 LX CAMO Citizens Band Radio and Dash Cams contributed to the increase in sales for the third quarter of 2013 as compared to 2012. Lower sell-through at major travel centers has contributed to the decline in net sales for Citizens Band radios, Trucker Navigation and Inverter products.

Despite higher sales, gross profit decreased $182,000, or 2.8 percent, to $6.3 million for the third quarter of 2013. Gross margin declined 2.3 points from the prior year period to 24.7 percent mainly due to sales mix and close-out sales activity in the third quarter of 2013 as compared to 2012.

Selling, general and administrative (SG&A) expense decreased $11,000, or 0.2 percent, to $6.2 million for the third quarter of 2013. Variable selling expenses increased $191,000 due to higher sales. Fixed expenses, mainly sales and marketing, decreased $202,000 or nearly 4% compared to 2012 due to the Company’s cost saving efforts, as well as a lower management incentive expense.

Interest expense declined $72,000, or 26.0 percent, from the year ago period mainly because of a lower interest rate, resulting from a more favorable applicable margin that is added to the base rate or LIBOR lending rate secured when the Credit Agreement was amended in December 2012. For the third quarter of 2013, other income, mainly CSV income, totaled $318,000 compared to other income of $315,000 in the third quarter of 2012.

As a result of the above, the Cobra segment had pre-tax income of $208,000 for the current year’s quarter compared to pre-tax income of $304,000 for the prior year’s quarter.

Performance Products Limited (“PPL”) Business Segment

Net sales for the third quarter of 2013 decreased $122,000, or 3.3 percent, to $3.6 million from $3.7 million for the third quarter of 2012. The decrease from 2012 was mainly due to lower renewals for download revenue. Increased sales for GPS products, mainly the new DVR product launched in 2013 and Tracking Devices, were offset by lower sales of the Satellite Navigation and AVN units compared to the prior year period.

Gross profit decreased $138,000, or 10.5 percent, to $1.2 million for the third quarter of 2013 mainly due to lower sales volume and unfavorable sales mix. The unfavorable sales mix, particularly sales of the low margin tracker and golf products account for the 2.6 point margin decrease from the prior year’s quarter to a 32.7 percent gross margin.

Selling, general and administrative expenses for the third quarter of 2013 totaled $1.2 million, compared to $1.3 million for the third quarter of 2012 and as a percentage of net sales were 31.9 percent and 34.3 percent, respectively. The decrease from the prior year is due to lower fixed expenses, and decreased marketing spending for travel and promotions due to Company’s cost savings efforts for 2013.

Other income for the third quarter of 2013 amounted to $41,000 compared to other income of $21,000 for the third quarter of 2012, principally due to higher exchange gains in the current quarter compared to the prior year’s quarter.

As a result of the above, the PPL segment had a pre-tax income of $70,000 for the third quarter of 2013 compared to pre-tax income of $59,000 for the third quarter of 2012.

Nine Months — 2013 vs. 2012

The following table summarizes net sales and pre-tax income by business segment for the nine months ended September 30, 2013 and 2012:


										2013 vs. 2012
	2013					2012				Increase (Decrease)
	(In Thousands)
	Net		Pre-tax			Net		Pre-tax		Net			Pre-tax
Business Segment	Sales		Loss			Sales		Income		Sales			Income (Loss)
Cobra	$	65,885	$	(3,084	)	$	72,071	$	1,406	$	(6,186	)	$	(4,490	)
PPL		10,360		(100	)		11,103		424		(743	)		(524	)

Total Company	$	76,245	$	(3,184	)	$	83,174	$	1,830	$	(6,929	)	$	(5,014	)

Cobra Business Segment

Net sales decreased $6.2 million, or 8.6 percent, in the first nine months of 2013 to $65.9 million from $72.1 million in the first nine months of 2012. Domestic sales decreased by 9.5 percent and international sales decreased by 11.6 percent. Driving the domestic sales decreases were lower net sales of Citizens Band radios, Trucker Navigation products and Inverter products. Both Citizens Band radios and Trucker Navigation sales were down in part due to the fact that each category benefited from initial load-in sales of two new models in 2012, which were not repeated in 2013. Additionally, increased competition in the Trucker Navigation market adversely affected the selling prices. Lower sell-through at major travel centers was also a contributing factor to the decline in net sales for Citizens Band radios, Trucker Navigation and Inverter products. The decrease in international sales was mainly due to lower CEEL shipments into Eastern Europe.

Gross profit decreased $3.3 million, or 16.6 percent, to $16.8 million for the nine month period ended September 30, 2013 due to lower sales and lower margins. The decline in gross margin from the 28.0 percent reported for 2012 to 25.5 percent for 2013 was driven by lower gross margins for most domestic products and at CEEL. Domestically, gross margin was lower mainly because of unfavorable sales mix and pricing programs to help drive sales in the slow economy. For CEEL, the gross margin decline was principally due to lower gross margins on radar detectors sold into Eastern Europe because of increased competition.

Selling, general and administrative expense increased $1.6 million, or 8.8 percent, to $20.2 million for the first nine months of 2013 compared to $18.6 million in the prior year period. Variable selling expenses decreased 8.9 percent, mainly due to the sales shortfall from the prior year, and administrative expenses increased $1.9 million or 12.3 percent from the prior year period. The increase in administrative expenses for 2013 as compared to 2012 was due to the significant Fleming litigation expenses incurred in the first half of 2013. When the Fleming litigation is excluded, fixed expenses for 2013 were nearly 1.0 percent lower than 2012 spending due to the Company’s cost savings efforts, as well as a lower management incentive expense.

Interest expense declined $250,000, or 32.7 percent, from the year ago period mainly because of a lower interest rate, resulting from a more favorable applicable margin that is added to the base rate or LIBOR lending rate under the Credit Agreement as a result of the amendment to the Credit Agreement in December 2012. Other income for the first nine months of 2013 increased to $876,000 from $632,000 in the same 2012 period and included CSV income of $865,000 for 2013 and $509,000 for 2012.

As a result of the above, the Cobra segment had a pre-tax loss of $3.1 million for the nine months ended September 30, 2013 compared to pre-tax income $1.4 million for the same period in 2012.

Performance Products Limited (“PPL”) Business Segment

Net sales for the first nine months of 2013 decreased $743,000, or 6.7 percent, to $10.4 million from $11.1 million for the first nine months of 2012. Most of the decrease was attributable to lower sales of Satellite Navigation products, which fell 4.8 percent and lower download revenue which was down 19.7 percent due to lower renewals. The decrease for Satellite Navigation was primarily due to lower European sales of Truckmate™ units, which reflected both the difficult economic conditions in Western Europe and increased competition from two large competitors. Overall, the lower discretionary consumer spending in the weak U.K. economy continues to adversely affect sales.

Gross profit decreased $505,000, or 12.5 percent, to $3.6 million for the first nine months of 2013 due to lower sales and a 2.2 point decline in gross margin from the prior year to 34.3 percent. The decline in gross margin from the prior year period was mainly due to a summer promotion on two Satellite Navigation models designed specifically for caravans and motorhomes, as well as higher sales of older GPS trackers, which had a low gross margin. Also contributing to the decline in gross margin was an exchange loss in the first nine months of 2013 compared to an exchange gain for the same period last year.

Selling, general and administrative expenses (SG&A) for the first nine months of 2013 totaled $3.6 million compared to $3.7 million for the first nine months of 2012 and as a percentage of net sales were 34.5 percent and 33.2 percent, respectively. The decrease from the prior year was due to decreased marketing spending, which reflected the Company’s cost savings efforts.

Other expense for the first nine months of 2013 was $78,000 compared to other income of $53,000 for the first nine months of 2012, principally due to exchange losses for 2013 compared to exchange gains reported for the same period in 2012.

As a result of the above, the PPL segment had a pre-tax loss of $100,000 for the nine months ended September 30, 2013 compared to pre-tax income of $424,000 for the nine months ended September 30, 2012.

LIQUIDITY AND CAPITAL RESOURCES

At September 30, 2013, the Company had interest bearing debt outstanding of $19.8 million borrowed and credit availability of approximately $6.9 million under the Credit Agreement. On August 8, 2013, the Credit Agreement was amended to permit the exclusion of the Fleming litigation and settlement agreement expenses from the covenant calculations, effective with the quarter ended June 30, 2013 and to increase the applicable margin used to determine the interest rates applicable to borrowings under the Credit Agreement. The Company did not meet the required minimum Fixed Charge Coverage Ratio for the third quarter of 2013. On November 11, 2013, the Credit Agreement was amended to, among other things, waive any non-compliance with the Fixed Charge Coverage Ratio for the third quarter of 2013. Refer to Note 5, Financing Arrangements for a discussion of the amendment to the Credit Agreement. Absent a waiver from the lenders, a failure to comply with the covenants contained in the Credit Agreement could result in any outstanding indebtedness under the Credit Agreement becoming immediately due and payable and in the inability to borrow additional funds under the Credit Agreement. The Company believes that, for the foreseeable future, it will be able to continue to fund its operations and seasonal working capital requirements with cash generated from operations and borrowings under the Credit Agreement.

For the nine months ending September 30, 2013, net cash flows provided by operating activities totaled $3.1 million. Net cash inflows from operations and non-cash add-backs included a net loss of $3.1 million, non-cash depreciation and amortization of $2.4 million, and a decrease in accounts receivable of $5.7 million. Offsetting these inflows were decreases in other liabilities of $1.8 million. The decrease in accounts receivable was due to normal cash collections and lower sales for the third quarter of 2013 as compared to the fourth quarter of 2012. The decrease in other liabilities was attributable to year-end management incentive payment, income tax payments and lower promotional and warranty accruals due to a sales decline from the prior year’s fourth quarter.

Working capital requirements are seasonal, with demand for working capital being higher later in the year as customers begin purchasing for the holiday selling season. The Company believes that cash generated from operations and from borrowings under its Credit Agreement will be sufficient in 2013 to fund its working capital needs.

Net cash used in investing activities for the first nine months of 2013 totaled $2.3 million. Property, plant and equipment additions, which totaled $1.2 million, were primarily for tooling, building improvements and office equipment. Premiums for life insurance totaled $282,000 and intangible asset additions, which totaled $806,000, included in-house development of software for new products, patents and trademarks.

Net cash used in financing activities for the nine months ending September 30, 2013 totaled $466,000 and primarily resulted from the reduction of bank debt.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Critical accounting policies and estimates consist of those that reflect significant judgments and uncertainties and could potentially result in materially different results under different assumptions. For a description of the Company’s critical accounting policies and estimates refer to the Company’s Annual Report on Form 10-K for the year ended December 31, 2012. The application of certain of these policies requires significant judgments or a historical based estimation process that can affect the results of operations and financial position of the Company as well as the related footnote disclosures. The Company bases its estimates on historical experience and other assumptions that it believes are reasonable. If actual amounts ultimately differ from previous estimates, the revisions are included in the Company’s results of operations for the period in which the actual amounts become known.

FORWARD-LOOKING STATEMENTS

This report contains forward-looking statements within the meaning of that term in the Private Securities Litigation Reform Act of 1995 found at Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”). Additional written or oral forward-looking statements may be made by the Company from time to time in filings with the SEC, press releases or otherwise. Statements contained in this report that are not historical facts are forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act. Forward-looking statements may include, but are not limited to, projections of revenue, income or loss and capital expenditures, statements regarding future operations, anticipated financing needs, compliance with financial covenants in loan agreements, liquidity, plans for acquisitions or sales of assets or businesses, plans relating to products or services, assessments of materiality, expansion into international markets, growth trends in the consumer electronics industry, technological and market developments in the consumer electronics industry, the availability of new consumer electronics products and predictions of future events, as well as assumptions relating to these statements. In addition, when used in this report, the words “anticipates,” “believes,” “should,” “estimates,” “expects,” “intends,” “plans” and variations thereof and similar expressions are intended to identify forward-looking statements.

Forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified based on current expectations. Consequently, future events and actual results could differ materially from those set forth in, contemplated by or underlying the forward-looking statements contained in this report or in other Company filings, press releases, or otherwise. Factors that could contribute to or cause such differences include, but are not limited to, unanticipated developments in any one or more of the following areas:

•

Global economic and market conditions, including continuation of or changes in the current economic environment;

•

Ability of the Company to introduce new products to meet consumer needs, including timely introductions as new consumer technologies are introduced, and customer and consumer acceptance of these new product introductions;

•

Pressure for the Company to reduce prices for older products as newer technologies are introduced;

•

Significant competition in the consumer electronics business, including introduction of new products and changes in pricing;

•

Factors related to foreign manufacturing, sourcing and sales (including foreign government regulation, trade and importation, and health and safety concerns, and effects of fluctuation in exchange rates);

•

Ability of the Company to maintain adequate financing, to bear the interest cost of such financing and to remain in compliance with financing covenants;

•

Impairment of intangible assets due to market conditions and/or the Company’s operating results;

•

Ability of the Company to defend its intellectual property rights and the costs associated with such defense;

•

Changes in law; and

•

Other risk factors, which may be detailed from time to time in the Company’s SEC filings.

Readers are cautioned not to place undue reliance on any forward-looking statements contained in this report, which speak only as of the date set forth on the signature page hereto. The Company undertakes no obligation to publicly release the result of any revisions to these forward-looking statements that may be made to reflect events or circumstances after such date or to reflect the occurrence of anticipated or unanticipated events.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Market risks related to changes in foreign currency exchange and interest rates are inherent to the Company’s operations. Changes to these factors could cause fluctuations in the Company’s net earnings, cash flows and the fair values of financial instruments subject to market risks. Future changes in the applicable interest rate will affect the interest expense incurred by the Company on its outstanding indebtedness.

There have been no material changes in the Company’s market risk since December 31, 2012.

Item 4. Controls and Procedures

The Company has established disclosure controls and procedures designed to ensure that information required to be disclosed in the reports that the Company files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms. The Company’s disclosure controls and procedures have also been designed to ensure that information required to be disclosed in the reports that the Company files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including the principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

As of September 30, 2013, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s principal executive officer and principal financial officer, of the effectiveness of the Company’s disclosure controls and procedures. Based on this evaluation, the principal executive officer and principal financial officer of the Company have concluded that the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) were effective as of September 30, 2013.

There has been no change in the Company’s internal control over financial reporting that occurred during the quarter ended September 30, 2013 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II

OTHER INFORMATION

Item 1. Legal Proceedings

Refer to Note 12, Commitments and Contingencies, for a discussion of the Fleming litigation and settlement agreement.

Item 1A. Risk Factors

There have been no material changes to the risk factors as previously disclosed under Item 1A in our Annual Report on Form 10-K for the year ended December 31, 2012.

Item 6. Exhibits

a)	Exhibit 10.1 Waiver and Fifth Amendment to Credit Agreement dated November 11, 2013 among Cobra Electronics Corporation, BMO Harris Bank N.A. (formerly known as Harris N.A.), as administrative agent, and the lenders party thereto.

b)	Exhibit 31.1 Rule 13a-14(a)/15d-14(a) Certification of the Chief Executive Officer.

c)	Exhibit 31.2 Rule 13a-14(a)/15d-14(a) Certification of the Chief Financial Officer.

d)	Exhibit 32.1 Section 1350 Certification of the Chief Executive Officer.

e)	Exhibit 32.2 Section 1350 Certification of the Chief Financial Officer.

f)	Exhibit 101 Financial statements and footnotes formatted in XBRL (eXtensible Business Reporting Language).

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.


COBRA ELECTRONICS CORPORATION

By		/s/ Robert J. Ben
		Robert J. Ben Senior Vice President and Chief Financial Officer (Principal Financial Officer and duly authorized signatory)

Dated: November 13, 2013

INDEX TO EXHIBITS


Exhibit Number		Description of Document

10.1		Waiver and Fifth Amendment to Credit Agreement dated November 11, 2013 among Cobra Electronics Corporation, BMO Harris Bank N.A. (formerly known as Harris N.A.), as administrative agent, and the lenders party thereto.

31.1		Rule 13a-14(a)/15d-14(a) Certification of the Chief Executive Officer.

31.2		Rule 13a-14(a)/15d-14(a) Certification of the Chief Financial Officer.

32.1		Section 1350 Certification of the Chief Executive Officer.

32.2		Section 1350 Certification of the Chief Financial Officer.

101		Financial statements and footnotes formatted in XBRL (eXtensible Business Reporting Language).

Large accelerated filer

Accelerated filer

Non-accelerated filer

¨ (Do not check if a smaller reporting company)

Smaller reporting company