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Cobra Posts Q3 Operating Income Gain

Chicago — Cobra Electronics cut costs and improved its operating income in its third quarter, while reporting declines in net sales and net earnings.

Operating income increased to $793,000, from $17,000 in the prior year’s quarter, but was eroded by a loss of $318,000 in the cash surrender value of life insurance that the company carries to recapture the costs of deferred compensation programs for certain current and former officers of Cobra, the company reported.

Increased operating income was generated by improved gross margins and reduced operating expenses, offsetting a decline in net sales to $33.2 million, from $39.3 million in the prior year’s third quarter.

Net income for the quarter was $142,000, down from $404,000 in the previous year’s third quarter.

Cobra said it is looking into showing various products at International CES in January including an Internet radio. It noted that its performance products (PPL) segment, purchased in 2006, supplies tracking products for pets, homes and boats.

The company said sales of Bluetooth headsets that have been licensed under the Cobra name are performing well and additional products are now under development. In addition, “one of the largest toy retailers in the world has secured an exclusive two-way radio with us targeting young girls,” said Cobra marketing and sales senior VP Tony Mirabelli on an earnings conference call. The two-way radios will have a unique design and packaging.

Bazet noted that PPL has begun selling SD cards loaded with speed and red-light camera locations as add-on accessory for smartphones. During the last quarter, Nokia also offered these SD cards bundled with some of its phones.

On a year-to-date basis, Cobra reported net income of $1.9 million, compared with a loss of $750,000 in the prior year.

“We are pleased with Cobra’s improved operating income in the third quarter and our turnaround for the year-to-date,” said Jim Bazet, Cobra’s chairman/CEO.

In net sales for the quarter, mobile navigation sales in the Cobra segment accounted for approximately $1.2 million of this decline, reflecting the company’s strategy to discontinue development of mass-marketed mobile navigation products for the North American market and focus its efforts on niche opportunities.

Additionally, sales of two-way radios, radar detectors and citizens band radios declined due to weak store traffic and competitive pressures. International sales for the Cobra segment increased relative to the prior year’s quarter primarily due to the strength of the two-way radio line in Canada.

Bazet concluded with the company’s outlook for the fourth quarter of 2008, and reaffirmed earlier guidance and remains “cautious” about the course of the economy. Cobra said it expects to meet its goal of returning to profitability in 2008: “We only selectively pursue niche opportunities in mobile navigation in North America and store traffic moderates. This pattern is likely to be evident in fourth quarter results, as we anticipate lower revenue but an improved bottom line relative to the prior year.”