<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 SEPTEMBER 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 - 13,772,474 shares of Common
Stock, par value $.01 per share, of the Registrant were outstanding at September
30, 2000.
------------------
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UNIVERSAL ELECTRONICS INC.
INDEX
<TABLE>
<CAPTION>
Page
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<S> <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 14
Market Risk
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 15
Signature 16
</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>
September 30, December 31,
2000 1999
------------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 15,567 $ 13,286
Accounts receivable 29,780 27,933
Inventories 20,633 13,494
Prepaid expenses and other current assets 1,615 1,887
Deferred income taxes 1,857 3,906
-------- --------
Total current assets 69,452 60,506
Equipment, furniture and fixtures, net 3,502 3,697
Goodwill and other intangible assets, net 6,596 6,265
Other assets 1,178 1,662
Deferred income taxes -- 1,621
-------- --------
Total assets $ 80,728 $ 73,751
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 8,097 $ 8,824
Accrued income taxes 249 794
Accrued compensation 2,464 1,928
Other accrued taxes 198 831
Other accrued expenses 3,799 2,623
-------- --------
Total current liabilities 14,807 15,000
Notes payable 188 240
-------- --------
Total liabilities 14,995 15,240
-------- --------
Preferred stock, $.01 par value, 5,000,000 shares
authorized; none issued or outstanding -- --
Common stock, $.01 par value, 50,000,000 shares
authorized; 15,422,081 and 15,317,304 shares issued
at September 30, 2000 and December 31, 1999,
respectively 154 153
Paid-in capital 65,015 64,299
Currency translation adjustment (593) (237)
Retained earnings 7,904 1,087
Unamortized value of restricted stock grants (43) (83)
Common stock in treasury, 1,649,607 and 1,652,384 shares at
September 30, 2000 and December 31, 1999, respectively (6,704) (6,708)
-------- --------
Total stockholders' equity 65,733 58,511
-------- --------
Total liabilities and stockholders' equity $ 80,728 $ 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 September 30, Nine Months Ended September 30,
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales $ 34,979 $ 28,116 $ 85,935 $ 71,814
Cost of sales 20,702 16,328 50,525 42,577
-------- -------- -------- --------
Gross profit 14,277 11,788 35,410 29,237
Selling, general and
administrative expenses 8,639 7,935 24,944 22,532
-------- -------- -------- --------
Operating income 5,638 3,853 10,466 6,705
Interest income (248) (47) (755) (42)
Other income (280) (63) (333) (9)
-------- -------- -------- --------
Income before income taxes 6,166 3,963 11,554 6,756
Provision for income taxes 2,528 1,625 4,737 2,770
-------- -------- -------- --------
Net income $ 3,638 $ 2,338 $ 6,817 $ 3,986
======== ======== ======== ========
Net income per share:
Basic $ .26 $ .17 $ .50 $ .30
======== ======== ======== ========
Diluted $ .24 $ .16 $ .45 $ .29
======== ======== ======== ========
Weighted average common stock outstanding:
Basic 13,759 13,446 13,731 13,228
======== ======== ======== ========
Diluted 15,112 14,298 15,079 13,938
======== ======== ======== ========
</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>
Nine Months Ended September 30,
-------------------------------
2000 1999
-------- --------
<S> <C> <C>
Cash provided by operating activities:
Net income $ 6,817 $ 3,986
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 3,135 2,766
Provision for doubtful accounts 57 706
Deferred income taxes 3,670 2,370
Other 222 45
Changes in operating assets and liabilities:
Accounts receivable (1,904) (1,493)
Inventory (6,779) 369
Prepaid expenses and other assets 603 413
Accounts payable and accrued expenses 985 1,992
Accrued income taxes (1,178) 33
-------- --------
Net cash provided by operating activities 5,628 11,187
Cash used for investing activities:
Acquisition of fixed assets (1,874) (1,222)
Payments for businesses acquired (1,461) (1,550)
Trademarks and other intangibles (146) (245)
-------- --------
Net cash used for investing activities (3,481) (3,017)
Cash provided by (used for) financing activities:
Short-term bank borrowing -- 10,810
Short-term bank payments -- (15,596)
Proceeds from stock options exercised 542 2,414
Other (52) --
-------- --------
Net cash provided by (used for) financing
activities 490 (2,372)
Effect of exchange rate changes on cash (356) 4
-------- --------
Net increase in cash and cash equivalents 2,281 5,802
Cash and cash equivalents at beginning of period 13,286 1,489
-------- --------
Cash and cash equivalents at end of period $ 15,567 $ 7,291
======== ========
</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>
September 30, December 31,
2000 1999
------------- ------------
<S> <C> <C>
Components $ 8,290 $ 5,710
Finished goods 12,343 7,784
------- -------
Total inventories $20,633 $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.
Net income per share for the quarters and the nine months ended September 30,
2000 and September 30, 1999 are calculated as follows:
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
----------------------------- -----------------------------
September 30, September 30, September 30, September 30,
2000 1999 2000 1999
------------- ------------- ------------- -------------
(in 000's, except per share data)
<S> <C> <C> <C> <C>
BASIC
Net Income $ 3,638 $ 2,338 $ 6,817 $ 3,986
======= ======= ======= =======
Weighted-average common
shares outstanding 13,759 13,446 13,731 13,228
------- ------- ------- -------
Basic earnings per share $ .26 $ .17 $ .50 $ .30
======= ======= ======= =======
DILUTED
Net Income $ 3,638 $ 2,338 $ 6,817 $ 3,986
======= ======= ======= =======
Weighted-average common
shares outstanding for basic 13,759 13,446 13,731 13,228
Dilutive effect of stock
options 1,353 852 1,348 710
------- ------- ------- -------
Weighted-average common
shares outstanding on
a diluted basis 15,112 14,298 15,079 13,938
------- ------- ------- -------
Diluted earnings per share $ .24 $ .16 $ .45 $ .29
======= ======= ======= =======
</TABLE>
6
<PAGE> 7
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 September 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.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the presentation
utilized in the three and nine-month periods ended September 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 and identifiable assets by geographic area in thousands
are presented below:
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-----------------------
2000 1999
------- -------
<S> <C> <C>
Net Sales
United States $54,119 $50,041
Netherlands 15,717 5,450
United Kingdom 5,187 5,358
Germany 4,215 4,935
All Other 6,697 6,030
------- -------
Total Net Sales $85,935 $71,814
======= =======
</TABLE>
<TABLE>
<CAPTION>
September 30, 2000 December 31, 1999
------------------ -----------------
<S> <C> <C>
Identifiable Assets
United States $ 6,493 $ 7,619
All Other Countries 4,783 4,005
------- -------
Total Identifiable Assets $11,276 $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
Third Quarter 2000 versus 1999
Net sales for the 2000 third quarter were $35.0 million compared to $28.1
million for the same quarter last year. Net sales in the Company's technology
lines (subscription broadcasting, OEM and private label) were approximately
82.7% of net sales for the third quarter of 2000 compared to 73.5% for the third
quarter of 1999. Net sales from the retail lines (One For All(R) international,
Eversafe and direct import) accounted for approximately 17.3% of total third
quarter 2000 net sales compared to 26.5% for the corresponding period in 1999.
Net sales in the Company's technology lines for the third quarter of 2000
increased by approximately 40.1% from $20.6 million for the same period last
year to $29.0 million in 2000. The increase in technology sales is principally
due to increased shipments in U.S. and European digital cable, satellite and OEM
lines offset by reduced orders in the private label line.
The Company's net sales for the 2000 third quarter from its retail lines were
$6.0 million, a decrease of 19.1% from net sales of $7.5 million in 1999 for the
same quarter last year. Direct import revenues increased 61.6% for the third
quarter of 2000 from $399,000 to $646,000 due to increased royalties resulting
from increased volume as well as product revenues from the introduction of the
Company's new Mosaic(TM) touch screen remotes into the direct import market. One
For All international revenues, the largest component of the retail line,
decreased 22.7% for the third quarter of 2000 from $7.0 million for the 1999
third quarter to $5.4 million in 2000 as a result of reduced orders from
retailers in Germany and England.
The Company's overall gross margin for the third quarter of 2000 was 40.8%
compared to a gross margin of 41.9% for the same period last year. Changes in
product mix and an increase in sales to higher volume customers with related
discounts attributed to the decrease in gross margin.
Selling, general and administrative expenses increased 8.9% from the third
quarter of 1999 to the third quarter of 2000. In dollars, the Company's selling,
general and administrative expenses increased $700,000 during the third quarter
of 2000 to $8.6 million from $7.9 million in 1999 principally due to increased
delivery and freight costs associated with higher sales volumes.
In the third quarter of 2000, the Company recorded $248,000 of interest income
compared to $47,000 for the third quarter of 1999. This increase resulted from
interest earned on higher average cash balances.
The Company recorded income tax expense of $2.5 million for the third quarter of
2000 compared to approximately $1.6 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 third quarter of 2000 and the third quarter of 1999.
Nine Months 2000 versus 1999
Net sales for the nine months ended September 30, 2000 were $85.9 million, an
increase of 19.7% over the net sales of $71.8 million for the same period last
year. Net income for the first nine months of 2000 was $6.8 million or $0.50 per
share (basic) and $0.45 per share (diluted), compared to $4.0 million or $0.30
per share (basic) and $0.29 per share (diluted) for the same period last year.
Net sales in the Company's technology lines (subscription broadcasting, OEM and
private label) for the first nine months of 2000 increased 26.9% to $68.6
million from $54.0 million for the same period last year. This is principally
due to increased shipments to U.S. and European OEMs and satellite providers and
increased sales to U.S. cable service providers.
Net sales from the Company's retail lines (One For All(R) international,
Eversafe and direct import) for the first nine months of 2000 decreased 2.4% to
$17.3 million from $17.8 million for the same period last year primarily due to
decreased shipments of the Eversafe product line as the Company has discontinued
the sale of product in this only remaining direct domestic retail line.
8
<PAGE> 9
Gross margins for the first nine months of 2000 were 41.2% compared to 40.7% for
the same period last year primarily due to higher margins associated with the
introduction of new products and cost reductions in certain component parts in
2000.
Selling, general and administrative expenses increased to $24.9 million in the
first nine months of 2000, compared to $22.5 million in the first nine months of
1999. The increase was attributable to increased delivery and freight expenses
associated with increased sales volumes and higher rates, 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
reduced bad debt and telephone expenses.
Interest income increased by $713,000 to $755,000 for the first nine months of
2000 from $42,000 for the same period in 1999 due to interest earned on higher
accumulated cash balances in 2000.
The Company recorded income tax expense of $4.7 million for the first nine
months of 2000 compared to approximately $2.8 million for the same period of
1999. The increase was due to improved results in 2000. The Company's effective
tax rate was 41% in the nine-month periods ended September 30, 2000 and
September 30, 1999.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal sources of funds are its operations and bank credit
facilities. Cash provided by operating activities was $5.6 million for the nine
months ended September 30, 2000 compared to $11.1 million for the same period in
1999. The decrease in cash flow is primarily due to an increase in inventory to
replenish stock levels in anticipation of our seasonal peaks coupled with an
increase in accounts receivable resulting from the increased level of sales.
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"), which was amended on September 19, 2000 (the "Agreement"). Under the
Agreement with B of A, the Company can choose from several interest rate options
at its discretion. The interest rate in effect as of September 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 7.87%. 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 September 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 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 September 30, 2000, no amounts were outstanding under this
credit facility. The Company had no outstanding import letters of credit as of
September 30, 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 nine-months ended
September 30, 2000, the Company received proceeds of approximately $542,000 from
the exercise of stock options granted to the Company's current and former
employees, as compared to approximately $2,414,000 during the same period in
1999.
Capital expenditures in the first nine months of 2000 and 1999 were $1.9 million
and $1.2 million, respectively. These expenditures related primarily to
acquiring product tooling.
9
<PAGE> 10
During the first quarter of 1998, the Company acquired a remote control
distributor in the United Kingdom for $3.0 million, of which $1.7 million was
paid in cash in 1998, $800,000 was paid in cash in the first quarter of 1999 and
the remaining $500,000 was paid in the fourth quarter of 1999.
Effective July 1, 1999, the Company completed its acquisition of a remote
control distributor in Spain for $750,000.
On August 25, 2000, the Company acquired a remote control distributor in France
for approximately $ 1.8 million, of which $ 1,461,000 was paid during the third
quarter of 2000. The remaining amount will be paid in installments through the
end of 2002.
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 three 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.
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.
10
<PAGE> 11
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, availability of production capacity,
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.
In addition, 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.
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.
11
<PAGE> 12
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.
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.
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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, throughout 2000 has and will 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 continue 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.
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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 September 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
September 30, 2000 was 7.87%. The Company has wholly owned subsidiaries in the
Netherlands, United Kingdom, Germany, France and Spain. Sales from these
operations are typically denominated in local currencies including Euros,
British Pounds, German Marks, French Francs 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 September 30, 2000 with an aggregate
notional value of approximately $3.1 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
September 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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PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
<S> <C>
(A) Exhibits pursuant to Item 601 of
Regulation S-K
10.1 First Amendment to Revolving Loan
and Security Agreement dated
September 19, 2000 by and between
Universal Electronics Inc. and Bank
of America, N.A.
10.2 Form of Executive Officer Employment
Agreement dated October 27, 2000 by
and between Universal Electronics
Inc. and Camille K. Jayne
10.3 Form of Nonqualified Stock Option
Agreement dated August 24, 2000 by
and between Universal Electronics
Inc. and Camille K. Jayne
10.4 Form of First Amendment to Stock
Option Agreement dated October 27,
2000 by and between Universal
Electronics Inc. and Camille K. Jayne
10.5 Form of Executive Officer Employment
Agreement dated October 27, 2000 by
and between Universal Electronics
Inc. and Paul D. Arling
27 Financial Data Schedule
(B) Reports on Form 8-K
There were no reports on Forms 8-K filed during
the quarter ended September 30, 2000.
</TABLE>
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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: November 14, 2000 /s/ Mark Belzowski
------------------------------------------
Mark Belzowski
Vice President and Chief Financial Officer
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