<PAGE> 1
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 JUNE 30, 2000
[ ] 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: 0-21044
UNIVERSAL ELECTRONICS INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 33-0204817
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
6101 GATEWAY DRIVE
CYPRESS, CALIFORNIA 90630
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (714) 820-1000
----------------------
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, and (2) has been subject to such filing requirements
for the past 90 days.
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date - 13,753,299 shares of Common
Stock, par value $.01 per share, of the Registrant were outstanding at June 30,
2000.
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UNIVERSAL ELECTRONICS INC.
INDEX
<TABLE>
<CAPTION>
Page
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<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets 3
Consolidated Statements of Operations 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
Item 3. Quantitative and Qualitative Disclosures about
Market Risk 14
PART II. OTHER INFORMATION
Item 2(a). Changes in Documents Defining Rights of
Registered Securities 15
Item 4. Submission of Matters to a Vote of Securities 15
Holders
Item 6. Exhibits and Reports on Form 8-K 16
Signature 17
</TABLE>
2
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ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
UNIVERSAL ELECTRONICS INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share-related data)
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
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<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 15,670 $ 13,286
Accounts receivable 21,886 27,933
Inventories 20,225 13,494
Prepaid expenses and other current assets 1,418 1,887
Deferred income taxes 4,128 3,906
-------- --------
Total current assets 63,327 60,506
Equipment, furniture and fixtures, net 3,368 3,697
Goodwill and other intangible assets, net 5,705 6,265
Other assets 1,233 1,662
Deferred income taxes -- 1,621
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Total assets $ 73,633 $ 73,751
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 6,298 $ 8,824
Accrued income taxes 275 794
Accrued compensation 1,542 1,928
Other accrued taxes 453 831
Other accrued expenses 2,659 2,623
-------- --------
Total current liabilities 11,227 15,000
Notes payable 209 240
-------- --------
Total liabilities 11,436 15,240
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value, 624,512 shares -- --
authorized; none issued or outstanding
Common stock, $.01 par value, 20,000,000 shares authorized; 154 153
15,404,667 and 15,317,304 shares issued at June 30, 2000 and
December 31, 1999, respectively
Paid-in capital 64,933 64,299
Currency translation adjustment (396) (237)
Retained earnings 4,266 1,087
Unamortized value of restricted stock grants (56) (83)
Common stock in treasury, 1,651,368 and 1,652,384 shares at June 30, 2000 and
December 31, 1999 (6,704) (6,708)
-------- --------
Total stockholders' equity 62,197 58,511
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Total liabilities and stockholders' equity $ 73,633 $ 73,751
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
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UNIVERSAL ELECTRONICS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
2000 1999 2000 1999
--------------------------- -------------------------
<S> <C> <C> <C> <C>
Net sales $ 28,291 $ 22,757 $ 50,955 $ 43,699
Cost of sales 16,837 13,590 29,823 26,249
--------------------------- -------------------------
Gross profit 11,454 9,167 21,132 17,450
Selling, general and administrative
expenses 8,164 7,146 16,304 14,597
--------------------------- -------------------------
Operating income 3,290 2,021 4,828 2,853
Interest expense (income) (302) (3) (507) 5
Other expense (income) (42) (8) (53) 54
--------------------------- -------------------------
Income before income taxes 3,634 2,032 5,388 2,794
Provision for income taxes (1,490) (833) (2,209) (1,145)
--------------------------- -------------------------
Net income $ 2,144 $ 1,199 $ 3,179 $ 1,649
=========================== =========================
Net income per share:
Basic $ 0.16 $ 0.09 $ 0.23 $ 0.13
=========================== =========================
Diluted $ 0.14 $ 0.08 $ 0.21 $ 0.12
=========================== =========================
Weighted average common stock outstanding:
Basic 13,743 13,262 13,717 13,128
=========================== =========================
Diluted 15,066 14,112 15,063 13,766
=========================== =========================
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
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UNIVERSAL ELECTRONICS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30,
-------------------------
2000 1999
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<S> <C> <C>
Cash provided by operating activities:
Net income $ 3,179 $ 1,649
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 2,014 1,796
Provision for doubtful accounts 39 494
Deferred income taxes 1,399 755
Other 207 --
Changes in operating assets and liabilities:
Accounts receivable 6,008 3,526
Inventory (6,731) 824
Prepaid expenses and other assets 798 (529)
Accounts payable and accrued expenses (2,876) (658)
Accrued income taxes (897) 291
-------- --------
Net cash provided by operating activities 3,140 8,148
Cash used for investing activities:
Acquisition of fixed assets (986) (620)
Payments for businesses acquired -- (1,550)
Other (39) (174)
-------- --------
Net cash used for investing activities (1,025) (2,344)
Cash used for financing activities:
Short-term bank borrowing -- 10,810
Short-term bank payments -- (15,596)
Proceeds from stock options exercised 459 2,106
Other (31) --
-------- --------
Net cash provided by (used for) for financing activities 428 (2,680)
Effect of exchange rate changes on cash (159) (67)
-------- --------
Net increase in cash and cash equivalents 2,384 3,057
Cash and cash equivalents at beginning of period 13,286 1,489
-------- --------
Cash and cash equivalents at end of period $ 15,670 $ 4,546
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
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UNIVERSAL ELECTRONICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Adjustments
The accompanying consolidated financial statements include the accounts of the
Company and all subsidiaries after elimination of all material intercompany
accounts and transactions. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to the rules and
regulations of the Securities and Exchange Commission. These financial
statements should be read in conjunction with the consolidated financial
statements and related notes contained in the Company's 1999 Form 10-K. The
financial information presented in the accompanying statements reflects all
adjustments that are, in the opinion of management, necessary for a fair
presentation of the periods indicated. All such adjustments are of a normal
recurring nature.
Inventories
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
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<S> <C> <C>
Components $ 9,986 $ 5,710
Finished goods 10,239 7,784
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Total inventories $20,225 $13,494
======= =======
</TABLE>
Net Income Per Share
Basic net income per share is computed by dividing net income by the weighted
average number of common shares outstanding. Diluted net income per share is
computed by dividing net income by the weighted average number of common shares
and dilutive potential common shares, which includes the dilutive effect of
stock options. Dilutive potential common shares for all periods presented are
computed utilizing the treasury stock method.
Stock Split
On December 20, 1999, the Board of Directors declared a two-for-one split of the
Company's common stock effective January 31, 2000, in the form of a stock
dividend for stockholders of record at the close of business on January 10,
2000. All share and per-share amounts in the accompanying consolidated financial
statements and notes to consolidated financial statements have been restated to
give retroactive effect to the stock split.
New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 133 "Accounting for Derivative
Instruments and Hedging Activities". The statement is effective for fiscal years
beginning after June 15, 2000. The Company is assessing the impact this
statement will have on the consolidated financial statements and has not yet
adopted the provisions of SFAS No. 133 as of June 30, 2000.
In December 1999, the Securities and Exchange Commission released Staff
Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial
Statements," which was amended by SAB No. 101A in March 2000 and SAB No. 101B in
June 2000. SAB No. 101A and SAB No. 101B delayed the implementation date of SAB
No. 101. SAB No. 101 provides guidance on the recognition, presentation and
disclosure of revenue in financial statements, and is effective in the fourth
quarter of 2000, as amended. The Company is currently assessing the impact of
adoption on its consolidated financial statements.
6
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Reclassifications
Certain prior year amounts have been reclassified to conform to the presentation
utilized in the six-month period ended June 30, 2000.
Business Segments and Foreign Operations
The Company operates in a single industry segment and is engaged in the
development and marketing of pre-programmed wireless control devices and related
products principally for home video and audio entertainment equipment and the
subscription broadcast market.
The Company's operations by geographic area in thousands are presented below:
<TABLE>
<CAPTION>
Six Months Ended June 30,
------------------------
2000 1999
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<S> <C> <C>
Net Sales
United States $32,312 $31,891
United Kingdom 3,669 2,560
Germany 2,815 2,644
All Other 12,159 6,604
------- -------
Total Net Sales $50,955 $43,699
======= =======
</TABLE>
<TABLE>
<CAPTION>
June 30, 2000 December 31, 1999
------------- -----------------
<S> <C> <C>
Identifiable Assets
United States $ 6,547 $ 7,619
All Other Countries 3,758 4,005
------- -------
Total Identifiable Assets $10,305 $11,624
======= =======
</TABLE>
Specific identification of customer location was the basis used for attributing
revenues from external customers to individual countries.
7
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
Second Quarter 2000 versus 1999
Net sales for the second quarter of 2000 increased by $5.5 million, or 24.3%,
from $22.8 million in the second quarter of 1999 to $28.3 million. Net sales in
the Company's technology lines (subscription broadcasting, OEM and private
label) were approximately 77.5% of net sales for the second quarter of 2000
compared to 79.5% for the second quarter of 1999. Net sales from the retail
lines (One For All(R) international, Eversafe and direct import) accounted for
approximately 22.5% of total second quarter 2000 net sales compared to 20.5% for
the corresponding period in 1999.
Net sales in the Company's technology lines for the second quarter of 2000
increased 21.1% to $21.9 million from $18.1 million for the same quarter last
year. The increase in technology sales is primarily due to increased demand in
U.S. and European OEM markets.
The Company's net sales from its retail lines for the second quarter of 2000
were $6.4 million, an increase of 36.7% from net sales of $4.7 million for the
same quarter last year. One For All international revenues (the largest
component of the retail business group) increased 41.5% from $4.2 million for
the second quarter of 1999 to $6.0 million in second quarter of 2000. This was
due to increased demand in the major European countries.
The Company's overall gross profit for the second quarter of 2000 was $11.5
million, or 40.5% of net sales, compared to $9.2 million, or 40.3% of net sales,
for the same period last year. The gross margin was slightly higher due to
higher margins associated with the introduction of new products to new and
existing customers in 2000.
Selling, general and administrative expenses increased $1.1 million, or 14.2% to
$8.2 million for the second quarter of 2000 from $7.1 million for the same
quarter in 1999. The increase was attributable to increased payroll costs due to
additional hiring of personnel associated with technology development and sales
and overall increases in payroll and bonus related costs, partially offset by
lower bad debt expense and reduced telephone costs.
In the second quarter of 2000, the Company recorded $302,000 of interest income
compared to $3,000 interest income (net) in the second quarter of 1999. This
difference was a result of the absence of borrowing under the Company's
revolving credit agreement during the second quarter of 2000 and interest earned
on accumulated cash balances in 2000.
The Company recorded income tax expense of $1.5 million for the second quarter
of 2000 compared to $0.8 million for the same quarter of 1999. The increase was
due to improved results in 2000. The Company's effective tax rate was 41% in the
second quarter of 2000 and the second quarter of 1999.
Six Months 2000 versus 1999
Net sales for the six months ended June 30, 2000 were $51.0 million, an increase
of 16.6% over the net sales of $43.7 million for the same period last year. Net
income increased to $3.2 million or $0.23 per share (basic) and $0.21 per share
(diluted) for the six month period ended June 30, 2000, compared to $1.6 million
or $0.13 per share (basic) and $0.12 per share (diluted) for the same period
ended June 30, 1999.
Net sales in the Company's technology lines (subscription broadcasting, OEM and
private label) for the first half of 2000 increased 18.8% to $39.7 million from
$33.4 million for the same period last year due to increased shipments in U.S.
and European OEM markets and stronger sales to cable providers.
8
<PAGE> 9
Net sales from the retail lines (One For All(R) international, Eversafe and
direct import) for the first half of 2000 increased 9.6% to $11.3 million from
$10.3 million for the same period last year. The increase is attributable to the
continued growth in universal remote control business in Europe.
Gross margins for the first six months of 2000 were 41.5% compared to 39.9% for
the same period last year. The gross margin was higher due to the higher margins
associated with the introduction of new products to new and existing customers
during the first half of 2000.
Selling, general and administrative expenses increased to $16.3 million in the
first half of 2000, compared to $14.6 million in the first half of 1999. The
increase was attributable to increased delivery and freight, depreciation
expense, increased payroll costs due to additional hiring of personnel
associated with technology development and sales, overall increases in payroll
and bonus related costs, and increased professional fees associated with the
Company's corporate development activity including evaluation of acquisition
candidates, partially offset by lower bad debt expense and reduced telephone
costs.
The Company recorded $507,000 of interest income for the first half of 2000
compared to $5,000 of interest expense (net) for the same period in 1999. This
difference was a result of the absence of borrowing under the Company's
revolving credit agreement during the first half of 2000 and interest earned on
accumulated cash balances in 2000.
The Company recorded income tax expense of $2.2 million for the first half of
2000 compared to approximately $1.1 million for the same period of 1999. The
increase was due to improved results in 2000. The Company's effective tax rate
was constant at 41% for the first half of 2000 and for the corresponding period
in 1999.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal sources of funds are its operations and bank credit
facilities. Cash provided by operating activities for the six months ended June
30, 2000 was $3.1 million compared to cash provided by operating activities of
$8.1 million for the same period in 1999. The decrease in cash flow from
operating activities is principally due to an increase in inventory to replenish
reduced levels of safety stock and a reduction of accounts payable, partially
offset by a reduction in accounts receivable due to increased collections of
higher than normal year end balances during the six months ended June 30, 2000.
On October 23, 1998, the Company entered into a $15 million revolving credit
agreement with Bank of America National Trust and Savings Association ("B of
A"). Under the revolving credit agreement with B of A, the Company can choose
from several interest rate options at its discretion. The interest rate in
effect as of June 30, 2000 using the Fixed Rate option as defined in the
agreement, which is intended to approximate B of A's cost of funds, plus an
applicable margin, was 7.89%. The applicable margin varies with a range from
1.25% to 2.00% per annum depending on the Company's net income before interest,
taxes, depreciation and amortization. At June 30, 2000, the applicable margin
was 1.25 percent. The revolving credit facility, which expires on October 23,
2001, is secured by a first priority security interest in the Company's cash and
cash equivalents, accounts receivable, inventory, equipment, and general
intangibles of the Company. The Company pays a commitment fee of a maximum rate
of 3/16 of 1% per year on the unused portion of the credit line. Under the terms
of this revolving credit agreement, the Company's ability to pay cash dividends
on its common stock is restricted and the Company is subject to certain
financial covenants and other restrictions that are standard for these types of
agreements. However, the Company has authority under this credit facility to
acquire up to 1,000,000 shares of its common stock in market purchases and,
since the date of this agreement, the Company has acquired approximately 109,000
shares of stock, at a cost of approximately $564,500, which it holds as treasury
shares and are available for reissue by the Company. Amounts available for
borrowing under this credit facility are reduced by the outstanding balance of
the Company's import letters of credit. As of June 30, 2000, no amounts were
outstanding under this credit facility. The Company had no outstanding import
letters of credit as of June 30, 2000.
9
<PAGE> 10
There were no open market purchases of the Company's common stock in 2000 or
1999 under a program announced in 1996. The Company holds shares purchased on
the open market as treasury stock and they are available for reissue by the
Company. Presently, except for using a small number of these treasury shares to
compensate its outside board members, the Company has no plans to distribute
these shares although the Company may change these plans if necessary to fulfill
its on-going business objectives. In addition, during the six months ended June
30, 2000, the Company received proceeds of approximately $459,000 from the
exercise of stock options granted to the Company's current and former employees,
as compared to approximately $2,106,000 during the same period in 1999.
Capital expenditures in the first half of 2000 and 1999 were approximately
$986,000 and $620,000, respectively. These expenditures related primarily to the
acquisition of product tooling.
During the first quarter of 1998, the Company acquired a remote control
distributor in the United Kingdom for $3.0 million in cash, of which $1.7
million was paid in 1998 and the remaining $1.3 million was paid in 1999.
$800,000 of the $1.3 million was paid during the first quarter of 1999.
Effective July 1, 1999, the Company acquired a remote control distributor in
Spain for $750,000. The acquisition was paid for in June and recorded as a
prepaid asset in the June 30, 1999 balance sheet.
It is the Company's policy to carefully monitor the state of its business, cash
requirements and capital structure. The Company believes that funds generated
from operations and available from its borrowing capacity will be sufficient to
fund current business operations as well as anticipated growth at least through
the end of 2000, however, there can be no assurances that this will occur.
RISK FACTORS
Forward Looking Statements
The Company cautions that the following important factors, among others
(including but not limited to factors discussed below, in the "Management's
Discussion and Analysis of Financial Condition and Results of Operations," as
well as those discussed elsewhere in this Quarterly Report on Form 10-Q, and as
mentioned from time to time in the Company's other reports filed with the
Securities and Exchange Commission), could affect the Company's actual results
and could cause or contribute to the Company's actual consolidated results to
differ materially from those expressed in any forward-looking statements of the
Company made by or on behalf of the Company. The factors included here are not
exhaustive. Further, any forward-looking statement speaks only as of the date on
which such statement is made, and the Company undertakes no obligation to update
any forward-looking statement or statements to reflect events or circumstances
after the date on which such statement is made or to reflect the occurrence of
unanticipated events. New factors emerge from time to time and it is not
possible for management to predict all of such factors, nor can it assess the
impact of each such factor on the business or the extent to which any factor, or
combination of factors, may cause actual results to differ materially from those
contained in any forward-looking statements. Therefore, forward-looking
statements should not be relied upon as a prediction of actual future results.
While management believes that the forward looking statements made in this
report are based on reasonable assumptions, the actual outcome of such
statements is subject to a number of risks and uncertainties, including
continued acceptance of the Company's technology and products, the impact of
competitive pressures, including products and pricing, locating and finalizing
acceptable acquisition targets and/or strategic partners, the availability of
financing for acquisitions on terms acceptable to the Company, fluctuations in
currency exchange rates, the consolidation of and new competition experienced by
members in the cable industry, principally from satellite and other similar
broadcast providers, general economic and stock market conditions and other
risks which are otherwise set forth in this Quarterly Report on Form 10-Q and
the Company's other filings with the Securities and Exchange Commission.
Dependence Upon Key Suppliers
Most of the components used in the Company's products are available from
multiple sources; however, the Company has elected to purchase integrated
circuit components used in the Company's products, principally its wireless
control products, and certain other components used in the Company's products,
from two main sources, each of which provide in excess of ten percent (10%) of
the Company's microprocessors for use in its products. The Company has developed
alternative sources of supply for these integrated circuit components. However,
there can be no assurance that the Company will be able to continue to obtain
these components on a timely basis.
10
<PAGE> 11
The Company generally maintains inventories of its integrated chips, which could
be used in part to mitigate, but not eliminate, delays resulting from supply
interruptions. An extended interruption, shortage or termination in the supply
of any of the components used in the Company's products, or a reduction in their
quality or reliability, or a significant increase in prices of components, would
have an adverse effect on the Company's business and results of operations.
Dependence on Foreign Manufacturing
Third-party manufacturers located in foreign countries manufacture all of the
Company's wireless controls. The Company's arrangements with its foreign
manufacturers are subject to the risks of doing business abroad, such as import
duties, trade restrictions, work stoppages, political instability and other
factors which could have a material adverse effect on the Company's business and
results of operations. The Company believes that the loss of any one or more of
its manufacturers would not have a long-term material adverse effect on the
Company's business and results of operations because numerous other
manufacturers are available to fulfill the Company's requirements, however, the
loss of any of the Company's major manufacturers could adversely effect the
Company's business until alternative manufacturing arrangements are secured.
Potential Fluctuations in Quarterly Results
The Company's quarterly financial results may vary significantly depending
primarily upon factors such as the timing of significant orders, the timing of
new product offerings by the Company and its competitors and product
presentations and the loss or acquisition of any significant customers. In
addition, historically the Company's business has been seasonal, with the
largest proportion of sales occurring in September, October and November of each
calendar year. Factors such as quarterly variations in financial results could
adversely affect the market price of the Common Stock and cause it to fluctuate
substantially. In addition, the Company (i) may from time to time increase its
operating expenses to fund greater levels of research and development, increase
its sales and marketing activities, develop new distribution channels, improve
its operational and financial systems and broaden its customer support
capabilities and (ii) may incur significant operating expenses associated with
any new acquisitions. To the extent that such expenses precede or are not
subsequently followed by increased revenues, the Company's business, operating
results and financial condition will be materially adversely effected.
The Company may experience significant fluctuations in future quarterly
operating results that may be caused by many factors, including demand for the
Company's products, introduction or enhancement of products by the Company and
its competitors, the loss or acquisition of any significant customers, market
acceptance of new products, price reductions by the Company or its competitors,
mix of distribution channels through which products are sold, level of product
returns, mix of customers and products sold, component pricing, mix of
international and domestic revenues, and general economic conditions. In
addition, as a strategic response to changes in the competitive environment, the
Company may from time to time make certain pricing or marketing decisions or
acquisitions that could have a material adverse effect on the Company's
business, results of operations or financial condition. As a result, the Company
believes that period-to-period comparisons of its results of operations are not
necessarily meaningful and should not be relied upon as any indication of future
performance. Due to all of the foregoing factors, it is likely that in some
future quarters the Company's operating results will be below the expectations
of public market analysts and investors. In such event, the price of the
Company's common stock would likely be materially adversely effected.
Dependence on Consumer Preference
The Company is susceptible to fluctuations in its business based upon consumer
demand for its products. The Company believes that its success depends in
substantial part on its ability to anticipate, gauge and respond to such
fluctuations in consumer demand. However, it is impossible to predict with
complete accuracy the occurrence and effect of any such event that will cause
such fluctuations in consumer demand for the Company's products. Moreover, the
Company cautions that any increases in sales or growth in revenue or increases
in its gross margins that it achieves may be transitory and should by no means
be construed to mean that such increases or growth will continue.
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<PAGE> 12
Dependence Upon Timely Product Introduction
The Company's ability to remain competitive in the wireless control products
market will depend in part upon its ability to successfully identify new product
opportunities and to develop and introduce new products and enhancements on a
timely and cost effective basis. There can be no assurance that the Company will
be successful in developing and marketing new products or in enhancing its
existing products, or that such new or enhanced products will achieve consumer
acceptance, and if acquired, will sustain that acceptance, that products
developed by others will not render the Company's products non-competitive or
obsolete or that the Company will be able to obtain or maintain the rights to
use proprietary technologies developed by others which are incorporated in the
Company's products. Any failure by the Company to anticipate or respond
adequately to technological developments and customer requirements, or any
significant delays in product development or introduction, could have a material
adverse effect on the Company's financial condition and results of operations.
In addition, the introduction of new products which the Company may introduce in
the future may require the expenditure of a significant amount of funds for
research and development, tooling, manufacturing processes, inventory and
marketing. In order to achieve high volume production of any new product, the
Company may have to make substantial investments in inventory and expand its
production capabilities.
Dependence on Major Customers
The Company's performance is affected by the economic strength and weakness of
its worldwide customers. The Company sells its wireless control products and
proprietary technologies to private label customers, original equipment
manufacturers ("OEMs"), and companies involved in the subscription broadcasting
industry. The Company also supplies its products to its wholly-owned, non-U.S.
subsidiaries and to independent foreign distributors, who in turn distribute the
Company's products worldwide, with Europe, Australia, New Zealand, Mexico and
selected countries in Asia and Latin America currently representing the
Company's principal foreign markets. In 1999, the Company lost a significant
customer in its subscription broadcasting business due to that customer being
acquired by a third party. During 1999, the Company had two customers that
acquired more than ten percent of the Company's products and the loss of either
of these customers or any of the Company's other key customers either in the
United States or abroad due to the financial weakness or bankruptcy of any such
customer or the inability of the Company to obtain orders or maintain its order
volume with its major customers may have an adverse effect on the Company's
financial condition or results of operations.
Competition
The wireless control industry is characterized by intense competition based
primarily on product availability, price, speed of delivery, ability to tailor
specific solutions to customer needs, quality and depth of product lines. The
Company's competition is fragmented across its product lines, and accordingly,
the Company does not compete with any one company across all product lines. The
Company competes with a variety of entities, some of which have greater
financial and other resources than the Company. The Company's ability to remain
competitive in this industry depends in part on its ability to successfully
identify new product opportunities and develop and introduce new products and
enhancements on a timely and cost effective basis as well as its ability to
identify and enter into strategic alliances with entities doing business within
the industries the Company serves. There can be no assurances that the Company
and its product offerings will be and/or remain competitive or that any
strategic alliances, if any, which the Company enters into will achieve the
type, extent and amount of success or business that the Company expects or hopes
to achieve.
Potential for Litigation
As is typical in the Company's industry and the nature and kind of business in
which the Company is engaged, from time to time, various claims, charges and
litigation are asserted or commenced by third parties against the Company or by
the Company against third parties arising from or related to product liability,
infringement of patent or other intellectual property rights, breach of
warranty, contractual relations, or employee relations. The amounts claimed may
be substantial but may not bear any reasonable relationship to the merits of the
claims or the extent of any real risk of court awards. While it is the opinion
of management that the Company's products do not infringe any third parties'
patent or other intellectual property rights, the costs associated with
defending or pursuing any such claims or litigation could be substantial and
amounts awarded as final judgments, if any, in any such potential or pending
litigation, could have a significant and material adverse effect on the
Company's financial condition or results of operations.
12
<PAGE> 13
General Economic Conditions
General economic conditions, both domestic and foreign, have an impact on the
Company's business and financial results. From time to time the markets in which
the Company sells its products experience weak economic conditions that may
negatively affect the sales of the Company's products. To the extent that
general economic conditions affect the demand for products sold by the Company,
such conditions could have an adverse effect on the Company's business.
Effects on the Company Due to International Operations
By operating its business in countries outside of the United States, the Company
is exposed to fluctuations in foreign currency exchange rates, exchange ratios,
nationalization or expropriation of assets, import/export controls, political
instability, variations in the protection of intellectual property rights,
limitations on foreign investments and restrictions on the ability to convert
currency. These risks are inherent in conducting operations in geographically
distant locations, with customers speaking different languages and having
different cultural approaches to the conduct of business, any one of which alone
or collectively, may have an adverse effect on the Company's international
operations, and consequently on the Company's business, operating results and
financial condition. While the Company will continue to work toward minimizing
any adverse effects of conducting its business abroad, no assurance can be made
that the Company will be successful in minimizing any such effects.
OUTLOOK
The Company's focus in 2000 is to continue to seek ways to increase its customer
base worldwide, particularly in the areas of subscription broadcasting, OEM, and
its One For All international retail business. In addition, the Company will
increase its focus on creating new applications for its proprietary and/or
patented technologies in the consumer electronics/OEM market, and
computer/internet control markets.
The Company will also continue in 2000 to control its overall cost of doing
business. Management believes that through product design changes and its
purchasing efforts, improvements in the Company's gross margins and efficiencies
in its selling, general and administrative expenses can be accomplished,
although there can be no assurances that there will be any improvements to the
Company's gross margin or that the Company will achieve any cost savings through
these efforts and if obtained, that any such improvements or savings will be
significant or maintained.
In addition, during 2000, management will continue to pursue its overall
strategy of seeking out ways to operate all aspects of the Company more
profitably. This strategy will include looking at acceptable acquisition targets
and strategic partnership opportunities. The Company cautions, however, that no
assurances can be made that any suitable acquisition targets or partnership
opportunities will be identified and, if identified, that a transaction can be
consummated. Moreover, if consummated, no assurances can be made that any such
acquisition or partnership will profitably add to the Company's operations.
While management believes that the forward looking statements made in this
report are based on reasonable assumptions, the actual outcome of such
statements is subject to a number of risks and uncertainties, including
continued acceptance of the Company's technology and products, the impact of
competitive pressures, including products and pricing, locating and finalizing
acceptable acquisition targets and/or strategic partners, the availability of
financing for acquisitions on terms acceptable to the Company, fluctuations in
currency exchange rates, the consolidation of and new competition experienced by
members in the cable industry, principally from satellite and other similar
broadcast providers, general economic and stock market conditions and other
risks which are otherwise set forth in this Quarterly Report on Form 10-Q and
the Company's other filings with the Securities and Exchange Commission.
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<PAGE> 14
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to various market risks, including interest rate and
foreign currency exchange rate fluctuations. The Company has established
policies, procedures and internal processes governing its management of market
risks and the use of financial instruments to manage its exposure to such risks.
The interest payable under the Company's revolving credit agreement with its
bank is variable and generally based on either the bank's cost of funds, or the
IBOR rate, and is affected by changes in market interest rates. At June 30,
2000, the Company had no borrowings on its credit line. The interest rate in
effect on the credit line using the bank's cost of funds rate as the base as of
June 30, 2000 was 7.89%. The Company has wholly owned subsidiaries in the
Netherlands, United Kingdom, Germany and Spain. Sales from these operations are
typically denominated in local currencies including Euros, British Pounds,
German Marks, and Spanish Pesetas thereby creating exposures to changes in
exchange rates. Changes in the local currencies/U.S. Dollars exchange rate may
positively or negatively affect the Company's sales, gross margins and retained
earnings. The Company, from time to time, enters into foreign currency exchange
agreements to manage its exposure arising from fluctuating exchange rates
related to specific transactions, primarily foreign currency forward contracts
for inventory purchases. The Company had a number of forward exchange contracts
outstanding at June 30, 2000 with an aggregate notional value of approximately
$8.0 million. The Company does not enter into any derivative transactions for
speculative purposes. The sensitivity of earnings and cash flows to variability
in exchange rates is assessed by applying an approximate range of potential rate
fluctuations to the Company's assets, obligations and projected results of
operations denominated in foreign currencies. Based on the Company's overall
foreign currency rate exposure at June 30, 2000, the Company believes that
movements in foreign currency rates should not materially affect the financial
position of the Company, although no assurance can be made that any such foreign
currency rate movements in the future will not have a material effect.
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<PAGE> 15
PART II. OTHER INFORMATION
ITEM 2(a). CHANGES IN DOCUMENTS DEFINING RIGHTS OF REGISTERED SECURITIES
An amendment to the Company's Restated Certificate of Incorporation to increase
the number of shares of stock the Company has authority to issue from 21,000,000
shares (consisting of an initial authorization of 1,000,000 shares of Preferred
Stock, par value $.01 per share and 20,000,000 shares of Common Stock, par value
$.01 per share) to 55,000,000 shares (consisting of 5,000,000 shares of
Preferred Stock, par value $.01 per share and 50,000,000 shares of Common Stock,
par value $.01 per share) was approved by stockholders at the Annual Meeting of
Stockholders held on June 21, 2000. A certificate of amendment was filed with
the State of Delaware, Office of the Secretary of State on July 26, 2000.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
The Company's Annual Meeting of Stockholders' was held on June 21, 2000. In
connection with the Annual Meeting of Stockholders, the following are the
results of the vote taken on the various matters presented to the Company's
stockholders.
Proposal One: The election of the Company's Board of Directors
<TABLE>
<CAPTION>
Nominee - Class I Directors In Favor Withheld
--------------------------- ---------- ---------
<S> <C> <C>
Paul D. Arling 12,421,191 483,704
Camille Jayne 11,421,307 1,483,588
Nominee - Class II Directors
----------------------------
David Beddow 12,427,641 477,254
Bruce Henderson 12,429,291 475,604
William C. Mulligan 12,429,291 475,604
J.C. Sparkman 12,422,091 482,804
</TABLE>
Proposal Two: The approval of the amendment to Universal Electronics Inc.
Restated Certificate of Incorporation
<TABLE>
<CAPTION>
In Favor Opposed Abstained Broker Non-Vote
---------- --------- --------- ---------------
<S> <C> <C> <C>
10,026,384 2,648,671 229,840 0
</TABLE>
Proposal Three: The ratification of the approval of PricewaterhouseCoopers LLP
as the Company's independent auditors for the year ending
December 31, 2000
<TABLE>
<CAPTION>
In Favor Opposed Abstained Broker Non-Vote
---------- --------- --------- ---------------
<S> <C> <C> <C>
12,733,848 90,602 80,442 0
</TABLE>
15
<PAGE> 16
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
(A) Exhibits
11.1 Statements re: Computation of
Per Share Earnings (filed herewith) 18
(B) Reports on Form 8-K
There were no reports on Forms 8-K filed during the
quarter ended June 30, 2000.
(C) Exhibit 27 Financial Data Schedule 19
</TABLE>
16
<PAGE> 17
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.
(Registrant) Universal Electronics Inc.
Date: August 14, 2000 \s\ Mark Belzowski
---------------------------------------------
Mark Belzowski
Vice President and Chief Financial Officer
17
