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Q4 2008 Cobra Electronics Corporation Earnings Conference Call - Final.

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OPERATOR: Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the Cobra Electronics Corp. fourth quarter 2008 conference call.

(Operator Instructions)

At this time I'd like to turn the conference over to our Chairman and Chief Executive Officer of Cobra Electronics, Jim Bazet. Please go ahead, sir.

JIM BAZET, CHAIRMAN, CEO, COBRA ELECTRONICS CORP.: Thank you very much and welcome to our 2008 investor conference call.

I have with me today Michael Smith, our senior vice president and CFO, and Tony Mirabelli, our senior vice president in charge of marketing and sales.

Before we begin, I'd like Michael to read the Safe Harbor statement. Michael?

MICHAEL SMITH, CFO, COBRA ELECTRONICS CORP.: Good morning.

Before we begin, please keep in mind that our call today will include certain forward-looking statements and that actual results could differ materially from the results projected in the forward-looking statements. We refer you to our Forms 10-K and 10-Q, especially the risk factors, for information that could cause actual results to differ materially from the results projected in the forward-looking statements.

Our call also includes certain non-GAAP measures such as adjusted sales, gross margins and pretax earnings, which we believe are useful to investors because they provide a means of evaluating the Company's operating performance and results from period to period on a comparable basis not otherwise apparent on a GAAP basis. Reconciliations to these measures with GAAP measurements are included in the press release issued this morning, which is available on the Cobra website.

Please also keep in mind that this conference call is being simultaneously broadcast over the internet and a replay will be available on the Cobra website for 30 days.

Now I'd like to turn the call back to Jim to cover highlights from the fourth quarter and share his thoughts on the strategic context for our performance.

JIM BAZET: Thanks, Michael.

This morning, we reported to our shareholders breakeven results for the fourth quarter on an adjusted basis. Efforts to control operating expenses, manage inventory in the midst of current economic upheaval were repaid at a substantial decline and sales were offset in part by higher gross margins and lower selling, general and administrative expenses. The adjusted pretax loss for the quarter as a result was $65,000 as compared to adjusted pretax earnings of $1.1 million in the fourth quarter of last year.

It was a tough quarter for all. We will not declare these results successful in the light of the overall global decline in economic activity and consumer spending. We do believe our discipline and foresight averted a far more serious outcome.

Adjusted results for the most recent quarter exclude two losses that were the direct result of turmoil in the global financial markets. First, as a result of the substantial decline in our stock price, the Company's market capitalization was well below book value as of December 31st, which triggered a review of goodwill impairment. Reconciliation of market value to book value resulted in an impairment charge of $20.1 million in the fourth quarter.

Though we have taken appropriate accounting steps, we believe that our stock is substantially undervalued and remind investors to consider the underlying cash flows generated by our company and the brand equity associated with both Cobra and the Snooper brands. We believe the market is not giving us full credit for these assets.

Net earnings also reflected the adverse impact of that broad-based decline in the financial markets and what they have on a cash surrender value of life insurance that the Company carries to recover the cost of deferred compensation programs made available to certain current and former officers. This loss of $778,000 is equivalent to a decline of approximately $0.075 in earnings per share at the statutory tax rate. However, the decline in cash surrender value does not impair in any way the underlying purpose of the investment in life insurance that is to recover the cost of these programs through death benefits.

As of the end of the fourth quarter, the liability associated with the Company's deferred compensation programs was $6.6 million, while the associated death benefits were $18.8 million. For the year, Cobra had adjusted pretax earnings of $3.6 million as compared to adjusted pretax of $1.5 million in the prior year.

These earnings reflect the strong performance from PPL, which contributed some $2 million of the adjusted pretax earnings for that year. We continue to have confidence in PPL and our management team and we don't believe that the write-down of goodwill is reflective of the earnings potential of this business.

Let's turn to the outlook for a minute for 2009. It is clear that we're facing an economic climate that is highly uncertain. The February consumer confidence index fell to the lowest level since the index began in 1967. There is a divided opinion among economists as to whether we will see a recovery in the US by the fourth quarter of 2009 or we won't see any upswing until sometime in 2010.

Nevertheless, as a result of the introduction of new products, some increases in market shares of our existing product lines, and a tight management of expenses and...

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