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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 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
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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 - 13,735,273 shares of Common
Stock, par value $.01 per share, of the Registrant were outstanding at March 31,
2000.
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UNIVERSAL ELECTRONICS INC.
INDEX
<TABLE>
<CAPTION>
Page
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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 15
Market Risk
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 15
Signature 16
</TABLE>
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PART I FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
UNIVERSAL ELECTRONICS INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share-related data)
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
--------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 17,559 $ 13,286
Accounts receivable, net 20,569 27,933
Inventories 16,264 13,494
Prepaid expenses and other current assets 1,532 1,887
Deferred income taxes 3,906 3,906
-------- --------
Total current assets 59,830 60,506
Equipment, furniture and fixtures, net 3,416 3,697
Goodwill and other intangible assets, net 5,984 6,265
Other assets 1,318 1,662
Deferred income taxes 989 1,621
-------- --------
Total assets $ 71,537 $ 73,751
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 6,372 $ 8,824
Accrued income taxes 741 794
Accrued compensation 1,238 1,928
Other accrued expenses 2,956 3,454
-------- --------
Total current liabilities 11,307 15,000
-------- --------
Notes payable 221 240
-------- --------
Total liabilities 11,528 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; 15,387,137 and 15,317,304 shares issued at
March 31, 2000 and December 31, 1999, respectively 154 153
Paid-in capital 64,753 64,299
Currency translation adjustment (243) (237)
Retained earnings 2,121 1,087
Unamortized value of restricted stock grants (70) (83)
Common stock in treasury, 1,651,864 and 1,652,384 shares
at March 31, 2000 and December 31, 1999 (6,706) (6,708)
-------- --------
Total stockholders' equity 60,009 58,511
-------- --------
Total liabilities and stockholders' equity $ 71,537 $ 73,751
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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UNIVERSAL ELECTRONICS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
2000 1999
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<S> <C> <C>
Net sales $ 22,664 $ 20,941
Cost of sales 12,986 12,659
-------- --------
Gross profit 9,678 8,282
Selling, general and administrative expenses 8,141 7,451
-------- --------
Operating income 1,537 831
Interest expense (income) (179) 32
Other expense (income) (37) 38
-------- --------
Income before income taxes 1,753 761
Provision for income taxes (719) (312)
-------- --------
Net income $ 1,034 $ 449
======== ========
Net income per share:
Basic $ 0.08 $ 0.03
======== ========
Diluted $ 0.07 $ 0.03
======== ========
Weighted average common stock outstanding:
Basic 13,695 12,997
======== ========
Diluted 15,063 13,402
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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UNIVERSAL ELECTRONICS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
2000 1999
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<S> <C> <C>
Cash provided by operating activities:
Net income $ 1,034 $ 449
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 982 898
Provision for doubtful accounts 25 200
Deferred income taxes 632 312
Other 81 --
Changes in operating assets and liabilities:
Accounts receivable 7,339 2,900
Inventory (2,770) 2,232
Prepaid expenses and other assets 648 (204)
Accounts payable and accrued expenses (3,640) (615)
Accrued income taxes (53) (79)
-------- --------
Net cash provided by operating activities 4,278 6,093
Cash used for investing activities:
Acquisition of fixed assets (351) (352)
Payments for businesses acquired -- (800)
Other (18) (94)
-------- --------
Net cash used for investing activities (369) (1,246)
Cash used for financing activities:
Short-term bank borrowing -- 10,810
Short-term bank payments -- (15,596)
Proceeds from stock options exercised 388 763
Other (18)
-------- --------
Net cash provided by (used for) financing activities 370 (4,023)
Effect of exchange rate changes on cash (6) (31)
-------- --------
Net increase in cash and cash equivalents 4,273 793
Cash and cash equivalents at beginning of period 13,286 1,489
-------- --------
Cash and cash equivalents at end of period $ 17,559 $ 2,282
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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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. In
management's opinion, the financial information presented in the accompanying
statements reflects all adjustments that are 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>
March 31, December 31,
2000 1999
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<S> <C> <C>
Components $ 7,121 $ 5,710
Finished goods 9,143 7,784
-------- --------
Total inventories $ 16,264 $ 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
outstanding 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 March 31, 2000.
Reclassifications
Certain prior year amounts have been reclassified to conform to the presentation
utilized in the three-month period ended March 31, 2000.
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Business Segments and Foreign Operations
The Company operates in a single industry segment and is engaged in the
development, manufacturing 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>
Three Months Ended
March 31,
------------------------
2000 1999
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<S> <C> <C>
Net Sales
United States $ 14,328 $ 14,340
United Kingdom 1,887 1,172
Germany 903 1,332
All Other 5,546 4,097
-------- --------
Total Net Sales $ 22,664 $ 20,941
======== ========
</TABLE>
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
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<S> <C> <C>
Identifiable Assets
United States $ 6,810 $ 7,619
All Other Countries 3,908 4,005
-------- --------
Total Identifiable Assets $ 10,718 $ 11,624
======== ========
</TABLE>
Specific identification of customer location was the basis used for attributing
revenues from external customers to individual countries.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations
First Quarter 2000 versus 1999
Net sales for the 2000 first quarter increased by $1.7 million, or 8.2%, to
$22.7 million from $20.9 million for the same quarter last year. Net sales in
the Company's technology lines (subscription broadcasting, OEM and private
label) were approximately 78.2% of net sales for the first quarter of 2000
compared to 72.9% for the first quarter of 1999. Net sales from the retail lines
(One For All(R) international, Eversafe and direct import) accounted for
approximately 21.8% of total first quarter 2000 net sales compared to 27.1% for
the corresponding period in 1999. The Company lost a significant customer in
early 1999 when Primestar, a satellite customer, was acquired by DirectTV.
Excluding sales to Primestar in the first quarter of 1999, the Company's net
sales increased by 20%.
Net sales in the Company's technology lines for the first quarter of 2000
increased by approximately 16% from $15.3 million for the same period last year
to $17.7 million in 2000. The increase in technology sales is primarily due to
increased shipments in U.S. digital cable and OEM markets, and in European OEM
and satellite markets.
The Company's net sales for the 2000 first quarter from its retail lines were
$5.0 million, a decrease of 12.6% from net sales of $5.7 million for the same
quarter last year. The decrease in retail sales was primarily due to lower sales
of high end product in Europe and decreased shipments of the Eversafe product
line as the Company has focused less on this remaining direct domestic retail
line.
The Company's overall gross profit for the first quarter of 2000 was $9.7
million, or 42.7% of net sales, compared to $8.3 million or 39.5% of net sales,
for the same period last year. The increase in gross margin was primarily
attributable to the introduction of new products to new and existing customers,
and the higher margins associated with those products.
Selling, general and administrative expenses increased 9.3% from the first
quarter of 1999 to the first quarter of 2000. In dollars, the Company's selling,
general and administrative expenses increased $0.7 million during the first
quarter of 2000 to $8.1 million from $7.4 million in 1999. The increase was
primarily attributable to increased payroll costs due to additional hiring of
personnel associated with technology development, 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.
In the first quarter of 2000, the Company recorded $179,000 of interest income
compared to $32,000 of interest expense for the first quarter of 1999. This
$211,000 difference was a result of the absence of borrowing under the Company's
revolving credit agreement during the first quarter of 2000 and interest earned
on accumulated cash balances in 2000.
The Company recorded income tax expense of $0.7 million for the first quarter of
2000 compared to $0.3 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
first quarter of 2000 and the first quarter of 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 three months ended
March 31, 2000 was $4.3 million compared to $6.1 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 offset by a reduction in accounts receivable due
to increased collections of higher than normal year end balances during the
quarter ended March 31, 2000.
On October 23, 1998, the Company paid off its outstanding credit line with The
Provident Bank and entered
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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 March 31, 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 7.38%. 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 March 31, 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 that 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 March 31,
2000, no amounts were outstanding under this credit facility. The Company had no
outstanding import letters of credit as of March 31, 2000.
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 first quarter of 2000,
the Company received proceeds of approximately $388,000 from the exercise of
stock options granted to the Company's current and former employees, as compared
to approximately $763,000 during the first quarter of 1999.
Capital expenditures in the first quarter of 2000 and 1999 were approximately
$351,000 and $352,000, 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.
Historically, the Company's working capital needs have typically been greatest
during the third and fourth quarters when accounts receivable and inventories
increase in connection with the fourth quarter holiday selling season. However,
due to the discontinuation of the Company's North American Retail line and the
increasing significance of the Company's other lines of business including
subscription broadcasting and OEM, this seasonality has been lessened. At March
31, 2000, the Company had $48.5 million of working capital compared to $45.5
million at December 31, 1999. The increase in working capital is principally due
to seasonal decreases in accounts payable balances and increases in accumulated
cash and cash equivalents.
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.
YEAR 2000 READINESS DISCLOSURES
As previously reported, over the past several years the Company developed and
implemented a plan to address the anticipated impacts of the so-called Year 2000
problem on its information technology (IT) systems and non-IT systems. The
Company also surveyed selected third parties to determine the status of their
Year 2000 compliance programs. In addition, contingency plans were developed
specifying what the Company would do if it or important third parties
experienced disruptions to critical business activities as a result of the
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Year 2000 problem.
The Company's Year 2000 plan was completed in all material respects prior to the
anticipated Year 2000 failure dates. As of April 28, 2000, the Company has not
experienced any materially important business disruptions or system failures as
a result of Year 2000 issues, nor is it aware of any Year 2000 issues that have
impacted its customers, suppliers or other significant third parties to an
extent significant to the Company. However, Year 2000 compliance has many
elements and potential consequences, some of which may not be foreseeable or may
be realized in future periods. Consequently, there can be no assurance that
unforeseen circumstances may not arise, or that the Company will not in the
future identify equipment or systems which are not Year 2000 compliant.
As of March 31, 2000, the Company's total incremental costs of addressing Year
2000 issues were approximately $165,000. This amount has been expensed and was
funded through operating cash flow.
In addition, the Company has performed a full internal evaluation of its
non-information technology systems and products. Based upon that evaluation and
certain ongoing tests that the Company performs from time to time, it believes
that its non-information technology systems and products are Year 2000
compliant. Because of these ongoing evaluations, the Company sells its products
with Year 2000 compliance warranties. Although the Company strongly believes
that its products are Year 2000 compliant and provides Year 2000 compliance
warranties with its products, there can be no assurance that the Company has
identified all possible Year 2000 product issues and that any such issues would
not have an adverse financial impact on the Company.
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 of 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
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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. 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 control devices. 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 that 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,
fluctuations in interest rates and in currency exchange rates in various
applicable parts of the world, 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
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for the Company's products. Moreover, the Company cautions that any increases in
sales, 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.
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
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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.
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, such as
decreasing the Company's working capital or causing the Company to borrow on its
credit line.
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 affect 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 affects of conducting its business abroad, no assurance can be made
that the Company will be successful in minimizing any such affects.
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
13
<PAGE> 14
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.
14
<PAGE> 15
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 March 31,
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
March 31, 2000 was 7.38%. 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. Dollar exchange rates 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 March 31, 2000 with an aggregate notional value of approximately
$5.3 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 March 31, 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 affect.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
Page
<S> <C>
(A) Exhibits
11.1 Statements re: Computation of
Per Share Earnings (filed herewith) 17
(B) Reports on Form 8-K
There were no reports on Forms 8-K filed
during the quarter ended March 31, 2000.
(C) Exhibit 27 Financial Data Schedule 18
</TABLE>
15
<PAGE> 16
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: May 15, 2000 \s\ Paul Arling
---------------------------------------------
Paul Arling
President and Chief Operating Officer
16
<PAGE> 1
Exhibit 11.1
UNIVERSAL ELECTRONICS INC.
COMPUTATION OF PER SHARE EARNINGS
(Unaudited)
Three Months Ended March 31,
<TABLE>
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
Common stock outstanding
beginning of period 13,665,000 12,794,000
----------- -----------
Weighted average common
stock outstanding from
exercise of stock options,
treasury stock purchases
and employee benefit plan 30,000 203,000
----------- -----------
Weighted average common
stock outstanding 13,695,000 12,997,000
=========== ===========
Stock options 1,368,000 405,000
Weighted average common
stock and common stock
equivalents outstanding 15,063,000 13,402,000
=========== ===========
Net income attributable to
common stockholders $ 1,034,000 $ 449,000
=========== ===========
Net income per common
stock and common stock
equivalents:
Basic $ 0.08 $ 0.03
=========== ===========
Diluted $ 0.07 $ 0.03
=========== ===========
</TABLE>
17
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 17,559
<SECURITIES> 0
<RECEIVABLES> 22,444
<ALLOWANCES> (1,875)
<INVENTORY> 16,264
<CURRENT-ASSETS> 59,830
<PP&E> 10,808
<DEPRECIATION> (7,392)
<TOTAL-ASSETS> 71,537
<CURRENT-LIABILITIES> 11,307
<BONDS> 0
0
0
<COMMON> 154
<OTHER-SE> 59,855
<TOTAL-LIABILITY-AND-EQUITY> 71,537
<SALES> 22,664
<TOTAL-REVENUES> 22,664
<CGS> 12,986
<TOTAL-COSTS> 8,141
<OTHER-EXPENSES> (37)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (179)
<INCOME-PRETAX> 1,753
<INCOME-TAX> 719
<INCOME-CONTINUING> 1,034
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,034
<EPS-BASIC> .08
<EPS-DILUTED> .07
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