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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000
OR
[ ] 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
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, PAR VALUE $.01 PER SHARE
(TITLE OF CLASS)
----------
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 by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of the Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the Registrant's outstanding common stock
held by non-affiliates of the Registrant on February 28, 2001, determined using
the per share closing sale price thereof on the National Market of The NASDAQ
Stock Market of $18.875 on that date, was approximately $261,172,000.
As of February 28, 2001, 13,836,912 shares of Common Stock, par value
$.01 per share, of the Registrant were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Registrant's definitive Proxy Statement for its 2001
Annual Meeting of Stockholders to be held on June 21, 2001 are incorporated by
reference into Part III of this Form 10-K.
Except as otherwise stated, the information contained in this Form 10-K
is as of December 31, 2000.
Exhibit Index appears on page 46.
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UNIVERSAL ELECTRONICS INC.
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000
TABLE OF CONTENTS
ITEM PAGE
NUMBER NUMBER
------ ------
PART I
1 Business 3
2 Properties 8
3 Legal Proceedings 9
4 Submission of Matters to a Vote of Security Holders 9
PART II
5 Market for Registrant's Common Stock and Related 12
Stockholder Matters
6 Selected Consolidated Financial Data 13
7 Management's Discussion and Analysis of Financial 14
Condition and Results of Operations
7A Quantitative and Qualitative Disclosures about Market Risk 23
8 Financial Statements and Supplementary Data 24
9 Changes in and Disagreements with Accountants on 44
Accounting and Financial Disclosure
PART III
10 Directors and Executive Officers of the Registrant 44
11 Executive Compensation 44
12 Security Ownership of Certain Beneficial Owners 44
and Management
13 Certain Relationships and Related Transactions 44
PART IV
14 Exhibits, Financial Statement Schedule and Reports 44
on Form 8-K
Signatures 45
Exhibit Index 46
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PART I
ITEM 1. BUSINESS
BUSINESS OF UNIVERSAL ELECTRONICS INC.
Universal Electronics Inc. was incorporated under the laws of Delaware in 1986
and began operations in 1987. The principal executive offices of the Company are
located at 6101 Gateway Drive, Cypress, California 90630. As used herein, the
terms "Universal" and the "Company" refer to Universal Electronics Inc. and its
subsidiaries unless the context indicates to the contrary.
Universal develops and markets easy-to-use, preprogrammed universal wireless
control devices (i.e. remote controls, wireless keyboards, gaming controls,
etc.) and technologies principally for home video and audio entertainment
equipment. The Company sells and licenses its wireless control devices and
proprietary technologies worldwide to original equipment manufacturers ("OEMs"),
private label customers, and companies involved in the cable and satellite
(collectively referred to as "subscription broadcasting") industries. The
Company also sells its wireless control devices internationally under the One
For All(R) brand name. In addition, the Company has licensed certain of its
proprietary technology and its One For All brand name to a third party who in
turn sells products directly to United States retailers.
GENERAL BUSINESS INFORMATION
Universal has developed a broad line of easy-to-use, preprogrammed universal
wireless control products which are marketed principally for home video and
audio entertainment equipment through various channels of distribution,
including international retail, private label, OEMs, and cable and satellite
service providers. The Company believes that its universal wireless controls can
operate virtually all infrared remote controlled TV's, VCR's, DVD players, cable
converters, CD players, audio components and satellite receivers, as well as
most other infrared remote controlled devices worldwide.
The Company believes its wireless control products incorporate certain
significant technological advantages. First, the Company has compiled an
extensive library of over 90,000 infrared codes that cover nearly 100,000
individual device functions and over 1,500 individual consumer electronic
equipment brand names. The Company believes its database of infrared codes is
larger than any other existing library of infrared codes for the operation of
home video and audio devices sold worldwide. The Company's library is regularly
updated with new infrared codes used in newly introduced video and audio
devices. All such infrared codes are captured from the original manufacturer's
remote control devices to ensure the accuracy and integrity of the database.
Second, the Company's proprietary software and know-how permit infrared codes to
be compressed before being loaded into a Read Only Memory ("ROM"), Random Access
Memory ("RAM") or an electronically erasable programmable ROM ("E(2)") chip.
This provides significant cost and space efficiencies that enable the Company to
include more codes and features in the limited memory space of the chip than are
included in similarly priced products of competitors. Third, the Company has
developed a patented technology that provides the capability to easily upgrade
the memory of the remote control by adding codes from its library that were not
originally included. This technology utilizes both RAM and EEPROM ("E(2)") chip
technologies.
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PRODUCTS
Universal Wireless Controls
The Company's family of products includes universal standard and touch screen
remote controls, wireless keyboards, antennas, joysticks and other gaming
devices, custom and customizable chips that include the Company's library of
codes and proprietary software, and licensing of the Company's library of codes
and proprietary software. These products cover a broad spectrum of suggested
prices and performance capabilities. The Company sells its customized products
to international retailers, consumer electronic accessory suppliers, private
label customers, OEMs, cable operators and satellite service providers for
resale under their respective brand names. The Company's products are capable of
controlling from one to fifteen video and audio devices, including, but not
limited to, TVs, VCRs, DVD players, cable converters, CD players, satellite
receivers, laser disc players, amplifiers, tuners, turntables, cassette players,
digital audio tape players, and surround sound systems.
Each of the Company's wireless control devices is designed to simplify the use
of video and audio devices. To appeal to the mass market, the number of buttons
is minimized to include only what the Company believes to be the most popular
functions. The Company's universal remotes are also designed for ease of initial
set-up. For most of the Company's products, the consumer simply inputs a three
or four-digit code for each video or audio device to be controlled. Each remote
contains a RAM, a ROM, or a combination of ROM and E(2) chips. The RAM, and the
ROM and E(2) combination products allow the remote to be upgraded with
additional codes. Another proprietary ease of use feature the Company offers in
several of its universal remote controls is the user programmable macro key.
This feature allows the user to program a sequence of commands onto a single
key, to be played back each time that key is subsequently pressed.
The Company introduced its first product, the One For All, in 1987. In the
international markets, One For All brand name products accounted for 18.8%,
23.7%, and 23.1% of the Company's sales for the years ended December 31, 2000,
1999, and 1998, respectively. The Company discontinued direct retail operations
in North America in 1997 (see also discussion at "1997 Restructuring").
Many of the Company's products include its patented and highly proprietary
"upgradeability" feature. This feature provides the user with the capability to
easily upgrade the memory of the remote control by adding codes from its library
that were not originally included. Each of these products utilizes the E(2) chip
technology and, as a result of other improvements, also retains memory while
changing batteries which eliminates the inconvenience experienced by consumers
of having to set up the remote control each time the batteries are changed.
By providing its wireless control technology in many forms, including finished
products, integrated circuits on which the Company's software is embedded, or
custom software packages, the Company can meet the needs of its customers,
enabling those who manufacture or subcontract their manufacturing requirements
to use existing sources of supply and more easily incorporate the Company's
technology. In addition, the Company's products are easily customized to include
the features that are important to customers. These may include keys to control
electronic program guides, one-button VCR record keys, customized macro set-up
keys, and/or other features.
DISTRIBUTION AND CUSTOMERS
The Company's products are sold to a wide variety of customers in numerous
distribution channels. In the United States, the Company principally sells its
products and/or licenses its proprietary technology to cable operators, private
label customers and consumer electronics accessory manufacturers for resale
under their respective brand names. In addition, the Company sells its wireless
control products and licenses its proprietary technologies to OEMs for packaging
with their products. The Company has also licensed certain of its proprietary
technology and its One For All brand name to a third party who in turn sells the
products directly to certain domestic retailers. Outside of the United States,
the Company sells remotes, other wireless control devices, and certain
accessories under the One For All and certain other brand names to retailers and
to other customers under private labels through its international subsidiaries
and distributors. The Company also sells its products and/or licenses its
proprietary technology to OEMs, cable operators and satellite service providers
internationally.
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For the year ended December 31, 2000, sales to Media One and Philips accounted
for approximately 12.8% and 10.9%, respectively, of the Company's net sales for
the year. While management considers the Company's relationships with each of
its customers to be good, the loss of any one key customer could have a material
adverse effect on the Company's results of operations.
Subscription Broadcasting and OEM
The Company provides subscription broadcasters, namely cable operators and
satellite service providers both domestically and internationally, with
universal wireless control devices, integrated circuits on which the Company's
software is embedded, and/or customized software packages to support the
increased demand associated with the launch of digital set-top boxes and
services.
The Company also sells its universal wireless control devices, integrated
circuits on which the Company's software is embedded, and/or customized software
packages to OEMs which manufacture cable converters and satellite receivers for
resale with their products.
The Company continues to pursue further penetration of the more traditional
consumer electronics/OEM markets. Customers in these markets generally package
the Company's wireless control devices for resale with their audio and video
home entertainment products (i.e. TVs, DVD and CD players, VCRs, personal
digital recorders, etc.). The Company also sells customized chips, which include
the Company's software and/or customized software packages to these customers.
Growth in this line of business has been driven by the proliferation and
increasing complexity of home entertainment equipment, emerging digital
technology, the increase in multimedia and interactive internet applications,
and the increase in the number of OEMs.
The Company continues to place significant emphasis on expanding its sales and
marketing efforts to subscription broadcasters and OEMs in Asia, Latin America
and Europe. The Company added a cable sales representative for Latin America in
2000 and will add new sales people in the Asian market during the next year. In
addition, the Company continues to improve on its development processes to
increase cost savings and to provide more timely delivery of its products to its
customers.
Private Label
As a supplier of technology to private label customers, the Company is able to
achieve greater distribution of its proprietary technology. During 2000, the
Company continued to improve product design and planning to better meet the
needs of its customers.
International Retail
Throughout 2000, the Company continued its retail sales and marketing efforts in
Europe, Australia, New Zealand, South Africa, Mexico and selected countries in
Asia and Latin America. The Company has seven international subsidiaries,
Universal Electronics B.V., established in the Netherlands, One For All GmbH and
Ultra Control Consumer Electronics GmbH, both established in Germany, One for
All Iberia S.L., established in Spain, One For All Ltd. (UK), established in the
United Kingdom, One For All Argentina S.R.L., established in Argentina, and One
For All France S.A.S., established in France.
In the first quarter of 1998, the Company acquired substantially all of the
remote control business of one of its distributors in the United Kingdom (One
For All Ltd. (UK)). In the third quarter of 1999, the Company acquired a remote
control distributor in Spain (One For All Iberia S.L.). During the third quarter
of 2000, the Company established an office in Argentina (One For All Argentina
S.R.L.) and also completed its acquisition of a remote control distributor in
France (One For All France S.A.S.). The Company utilizes third party
distributors in certain other countries where it does not have subsidiaries.
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North American Retail
In December 1997, the Company announced its decision to discontinue its North
American Retail line of business. As the Company anticipated when it made its
announcement, the discontinuation occurred primarily during the first half of
1998 and was completed during the third quarter of 1998. During this transition,
the Company continued to support its retail customers by selling its remaining
inventory of North American Retail remote control products. Thereafter, in
accordance with the Company's plan, the Company licensed certain of its
proprietary technology and its One For All trademark to a third party overseas
manufacturer, to enable them to supply certain domestic retailers with a limited
number of remote control products on a direct import basis. See also discussion
at "1997 Restructuring".
CONSUMER SERVICE AND SUPPORT
Throughout 2000, the Company continued its strategy to review its consumer
support program and modify its "help line" service such that the majority of
calls received are directed through its automated "InterVoice" system. Live
agent help is also available through certain programs. The Company continues to
review its programs to determine their value in enhancing and improving the
sales of the Company's products. As a result of this continued review, some or
all of these programs may be modified or discontinued in the future and new
programs may be added. Our strength is our core technical support expertise in
the consumer electronics market. We currently provide and continue to market
these services to various universal remote control marketers, including
manufacturers, cable and satellite providers, retail distributors, and audio and
video original equipment manufacturers. Revenues from this service in 2000 were
not material to the consolidated financial statements.
RAW MATERIALS AND DEPENDENCE ON SUPPLIERS
The Company utilizes third-party manufacturers and suppliers in the Far East,
Mexico and the United States to produce its wireless control products. The
number of third party manufacturers or suppliers that provided the Company in
excess of 10% of the Company's manufacturing services and/or components were
three, two, and three for 2000, 1999, and 1998, respectively. In 2000, Philips,
Jetta and Samsung exceeded the 10% threshold. In 1999, Philips and Motorola
exceeded the 10% threshold. Motorola, Philips and Jetta exceeded the threshold
in 1998. As in the past, the Company continues to evaluate alternative and
additional third-party manufacturers and sources of supply.
During 2000, the Company continued its program of diversification of suppliers
and maintenance of duplicate tooling for certain of its products. The purpose of
this program is to allow the Company to stabilize its source for products and
negotiate more favorable terms with its suppliers. In addition, the Company
generally uses standard parts and components, which are available from multiple
sources. The Company continues to seek other sources for integrated circuit
chips to reduce the potential for manufacturing and shipping delays and to
maintain additional inventory of these component parts as safety stock by
purchasing some of its chips from a variety of sources.
PATENTS, TRADEMARKS AND COPYRIGHTS
The Company owns a number of United States and international patents relating to
its products and technology, has filed applications for other patents that are
pending, and has obtained copyright registration for various of its proprietary
software and libraries of infrared codes. The lives of the Company's patents
range from 7 to 17 years. While the Company follows the practice of obtaining
patents or copyright registration on new developments whenever advisable, in
certain cases, the Company has elected common law trade secret protection in
lieu of obtaining such protection. In the Company's opinion, engineering and
production skills and experience are of equal importance to its market position
as are patents and copyrights. The Company further believes that none of its
business is dependent to any material extent upon any single patent or trade
secret, or group of patents or trade secrets. The names of most of the Company's
products are registered or are being registered as trademarks in the United
States Patent and Trademark Office and in most of the other countries in which
such products are sold. These registrations are valid for a variety of terms
ranging from 10 to 20 years, which terms are renewable as long as the trademarks
continue to be used. Management regularly renews those registrations deemed by
them to be important to the Company's operations.
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SEASONALITY
The majority of the Company's sales are through the international retail,
private label, OEM, and subscription broadcasting markets. The Company has
generally experienced stronger demand for its products in the third and fourth
calendar quarters rather than in the first half of the year as retailers and
private label customers purchase products prior to the holiday selling season.
Generally, sales to private label customers peak in the third quarter and
branded product sales to international retailers peak in the fourth quarter.
See "ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA-Notes to Consolidated
Financial Statements-Note 18" for further details regarding the quarterly
results of the Company.
COMPETITION
The Company's principal competitors in the international retail and private
label markets for universal wireless controls are currently Philips, Thomson and
Sony, as well as various manufacturers of wireless controls in Asia. The
Company's primary competitors in the OEM market are the original equipment
manufacturers themselves and remote control manufacturers in Asia. In the
subscription broadcasting business line, the Company competes with various
distributors in the United States and several of the larger set-top
manufacturers, including Motorola, Inc. and Scientific-Atlanta, Inc. The Company
competes in its markets on the basis of product quality, product features,
price, and customer and consumer support. The Company believes that it will need
to continue to introduce new and innovative products to remain competitive and
to obtain and retain competent personnel to successfully accomplish its future
objectives. Certain of the Company's competitors have significantly larger
financial, technical, marketing and manufacturing resources than the Company,
and there can be no assurance that the Company will remain competitive in the
future.
ENGINEERING, RESEARCH AND DEVELOPMENT
During 2000, the Company's engineering efforts focused on modifying existing
products and technology to improve their features and lower their costs, and to
develop measures to protect the Company's proprietary technology and general
know-how. In an attempt to control costs, the Company is continually improving
the efficiency of its activities and systematizing its operations. In addition,
the Company continues to regularly update its library of infrared codes to
include codes for features and devices newly introduced both in the United
States and internationally. The Company also continues to explore ways to
improve its software to preprogram more codes into its memory chips and to
simplify the upgrading of its wireless control products.
Also during 2000, the Company's research and development efforts continued to
focus on the development of new and innovative wireless control devices with
enhanced capabilities, as well as new applications of wireless control
technology. Work on new applications to be used in combination with interactive
digital cable systems, personal computers and the internet continued as the
Company increased the number of customers with whom it worked with in this area.
The Company is also exploring various opportunities to supply wireless control
devices for the operation of additional electronic and other devices in the home
using infrared signals, as well as combinations of infrared signals, radio
frequencies, household electrical circuits and telephone lines. Company
personnel are actively involved with various industry organizations and bodies,
which are in the process of setting standards for infrared, radio frequency,
power line, telephone and cable communications and networking in the home. There
can be no assurance that any of the Company's research and development projects
will be successfully completed.
The Company's engineering, research and development departments, located in
Cypress, California, had approximately 56 full-time employees at December 31,
2000. The Company's expenditures on engineering, research and development in
2000, 1999, and 1998 were $4.5 million, $3.9 million, and $4.0 million,
respectively, of which approximately $2.8 million, $2.4 million, and $2.7
million, respectively, was for research and development.
ENVIRONMENTAL MATTERS
The Company believes it has materially complied with all currently existing
federal, state and local statutes and regulations regarding environmental
standards and occupational safety and health matters to which it is subject.
During the years ended December 31, 2000, 1999 and 1998, the amounts incurred in
complying with federal, state and local statutes and
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regulations pertaining to environmental standards and occupational safety and
health laws and regulations did not materially affect the Company's earnings or
financial condition. However, future events, such as changes in existing laws
and regulations or enforcement policies, may give rise to additional compliance
costs that could have a material adverse effect upon the capital expenditures,
earnings or financial condition of the Company.
EMPLOYEES
At December 31, 2000, the Company employed approximately 259 employees, of whom
56 were in engineering, research and development, 58 in sales and marketing, 76
in consumer service and support, 22 in operations and warehousing and 47 in
executive and administrative staff. None of the Company's employees is subject
to a collective bargaining agreement or is represented by a union. The Company
considers its employee relations to be good.
INTERNATIONAL OPERATIONS
Financial information relating to the Company's international operations for the
years ended December 31, 2000, 1999 and 1998 is included in "ITEM 8. FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA-Notes to Consolidated Financial Statements-
Note 15".
1997 RESTRUCTURING
In December 1997, the Company announced its decision to discontinue its North
American One For All Retail line of business and the domestic retail
distribution channel supported by the operations in the Twinsburg, Ohio
facility. The Company continues to supply a limited line of remote control
products indirectly to several domestic retailers on a direct import basis. The
Company closed the Twinsburg, Ohio facility, with the exception of its consumer
service phone center, and moved its headquarters to Cypress, California,
formerly the site of the Company's Technology Center, during the second quarter
of 1998. The pre-tax restructuring charge of $8.4 million taken in the fourth
quarter of fiscal year 1997 was composed of severance and employee benefit
costs, a write-down of fixed assets to be disposed of to their estimated fair
market value, a write-down of intangibles by the amount for which no future
benefit existed, a write-off of prepaid advertising and other prepaid assets to
their estimated fair market value, certain of the Company's consumer service and
support costs, and other costs related to the discontinuation of the North
American Retail business. The restructuring was completed during 1998.
ITEM 2. PROPERTIES
The Company's headquarters are located in Cypress, California. The Company
utilizes the following office and warehouse facilities:
Square
Location Purpose or Use Feet Status
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Twinsburg, Ohio Consumer and customer call center 8,509 Leased, expires July 17, 2002
Cypress, California Corporate headquarters, 33,268 Leased, expires December 31, 2002
warehouse, engineering, research
and development
Enschede, Netherlands European headquarters 9,149 Leased, expires August 2002
Enschede, Netherlands European consumer call center 5,400 Leased, expires September 30, 2002
In addition to the facilities listed above, the Company leases space in various
international locations, primarily for use as sales offices. The Company
believes it will need to lease additional office space in its Cypress,
California location during 2001 to meet the Company's growth needs for the
foreseeable future and is currently evaluating its options. See "ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - Notes to Consolidated Financial
Statements - Note 11" for additional information regarding the Company's
obligations under leases.
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ITEM 3. LEGAL PROCEEDINGS
On November 15, 2000, the Company filed suit against Contec LLC alleging that
Contec has infringed certain of the Company's patents (Universal Electronics
Inc. v. Contec LLC, Civil Action No. SACV 00-1126 GLT (EEx)). The Company is
seeking damages and injunctive relief. Contec has answered the Complaint and has
denied infringement.
On November 15, 2000, the Company filed suit against The Thad Group alleging
that Thad has infringed certain of the Company's patents (Universal Electronics
Inc. v. The Thad Group, Civil Action No. SACV 00-1124 AHS (EEx)). The Company is
seeking damages and injunctive relief. The Thad Group has answered the
Corporation's Complaint and has denied infringement and asserted that the
aforementioned patents are invalid.
On November 15, 2000, the Company filed suit against Universal Remote Control
Inc. alleging that Universal Remote has infringed certain of the Company's
patents (Universal Electronics Inc. v. Universal Remote Control, Inc., Civil
Action No. SACV 00- 1125 AHS (EEx)). The Company is seeking damages and
injunctive relief. Universal Remote has not yet answered the complaint.
On November 15, 2000. the Company filed suit against U.S. Electronics alleging
that U.S. Electronics has infringed certain of the Company's patents (Universal
Electronics Inc. v. U.S. Electronics, Civil Action No. SACV 00-1127 DOC (EEx)).
The Company is seeking damages and injunctive relief. U.S. Electronics has
answered the Complaint in the aforementioned matter and has filed a counterclaim
seeking a declaratory judgment of the noninfringement and invalidity of
aforementioned patents.
There are no other material pending legal proceedings, other than litigation
that is incidental to the ordinary course of business, to which the Company or
any of its subsidiaries is a party or of which any of their property is subject.
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
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. In the opinion of management, final judgments, if any,
which might be rendered against the Company in potential or pending litigation,
would not have a material adverse effect on the Company's financial condition or
results of operations. Moreover, management believes that the Company's products
do not infringe any third parties' patent or other intellectual property rights.
The Company maintains directors' and officers' liability insurance which insures
individual directors and officers of the Company against certain claims such as
those alleged in the above lawsuits, as well as attorney's fees and related
expenses incurred in connection with the defense of such claims.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of the Company's fiscal year through the solicitation of proxies or
otherwise.
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EXECUTIVE OFFICERS OF THE REGISTRANT*
The following table sets forth certain information concerning the executive
officers of the Company as of February 28, 2001:
NAME AGE POSITION
- ---- --- --------
Camille Jayne 48 Executive Chairman of the Board
Paul D. Arling 38 President and Chief Executive Officer
J. Stewart Ames 42 Senior Vice President
Jerry L. Bardin 62 Senior Vice President
Mark Z. Belzowski 42 Vice President, Chief Financial Officer and Treasurer
Paul J.M. Bennett 45 Senior Vice President, Managing Director, Europe
Richard A. Firehammer, Jr. 43 Senior Vice President, General Counsel and Secretary
*Included pursuant to Instruction 3 to Item 401(b) of Regulation S-K.
Camille Jayne has been Executive Chairman of the Company since October 2000.
Prior to that, she was Chairman of the Company since December 1998 and has been
the Company's Chief Executive Officer since August 1998. She was President and
Chief Operating Officer of the Company since February 1998. Prior to that, she
was President and CEO of The Jayne Group (a consulting firm specializing in the
development, introduction and operation of digital cable TV products and
services) and a Senior Partner at BHC Consulting (a business management and
market research firm). Prior to The Jayne Group and BHC, Ms. Jayne was Senior
Vice President in charge of the digital TV business unit at Tele-Communications,
Inc (TCI). She holds both a BA and Masters degree from Stanford and an MBA from
the University of Michigan.
Paul D. Arling has been President and Chief Executive Officer since October
2000. Prior to that, he was President and Chief Operating Officer of the Company
since being rehired by the Company in September 1998. He was the Company's
Senior Vice President and Chief Financial Officer from May 1996 until August
1998. From 1993 through May 1996, he served in various capacities at LESCO, Inc.
(a manufacturer and distributor of professional turf care products) with the
most recent being Acting Chief Financial Officer. Prior to LESCO, he worked for
Imperial Wallcoverings (a manufacturer and distributor of wallcovering products)
as Director of Planning and The Michael Allen Company (a strategic management
consulting company) where he was employed as a management consultant. He
obtained a BS degree from the University of Pennsylvania and an MBA from the
Wharton School of the University of Pennsylvania.
J. Stewart Ames has been Senior Vice President of Sales, Product Development and
Marketing of Universal Electronics Inc., managing the marketing and sales
efforts for North America and Japan. Prior to this position at UEI, Ames served
as the Company's Vice President of Cable Sales, directing the United States
based sales force in selling universal wireless control products to multiple
system operators. Before joining UEI in January 1991, Mr. Ames worked for three
years as Sales Manager for Calmold, a plastic injection molder in Southern
California, managing its sales force and selling injection molding capacity for
three factories to a variety of OEM businesses. Prior to Calmold, Mr. Ames held
sales and sales management positions at Spirol International, a manufacturer of
specialty metal fasteners, assembly equipment and metal stampings, over a period
of seven years. Mr. Ames received a BS Degree in Biology from Bates College in
Lewiston, Maine.
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Jerry L. Bardin has been Senior Vice President of Engineering and Operations
since August 1998. Prior to UEI, Mr. Bardin was with Science Applications
International Corp. (SAIC), a high technology research and engineering company
for 15 years serving in several executive, management and consulting positions.
Most recently, as a Senior Systems Engineer, Mr. Bardin was part of a contract
consulting team providing engineering and management expertise on several
product development and rollout projects as well as business process
re-engineering projects. From 1983 to 1994, Mr. Bardin managed the study and
development of undersea systems for acoustic propagation and reception at SAIC.
Mr. Bardin earned his BS and Master of Science in Electrical Engineering at the
University of Texas at Austin.
Mark Z. Belzowski has been the Chief Financial Officer and Treasurer of the
Company since January 2000. He has been a Vice President and the Corporate
Controller of the Company since May 1998 when he joined the Company. From
February 1997 through April 1998, he was a financial management consultant for
various companies including a cellular reseller and a local area network switch
manufacturer. From September 1994 through January 1997, he was Vice President
Controller in the Turner Entertainment Group, a division of Turner Broadcasting
Systems, Inc. From September 1988 through August 1994, he served in various
capacities at Orion Pictures Corporation with the most recent being Vice
President Corporate Controller. Prior to that, Mr. Belzowski was a Senior
Auditor with Ernst and Young. He is a certified public accountant in the state
of California. Mr. Belzowski obtained a BS degree from California State
University at Fullerton.
Paul J.M. Bennett has been Managing Director and Senior Vice President
responsible for international retail and European OEM, Cable and Satellite
business lines. Prior to Universal Electronics, Mr. Bennett held various
positions at Philips Consumer Electronics over a seven year period, first as
Product Marketing Manager for the Accessories Product Group, initially set up to
support Philip's Audio division, and then as head of that division. Mr. Bennett
was educated at Terenure College and the College of Commerce in Dublin and
completed his studies at University College, where he gained a Bachelor of
Commerce Degree.
Richard A. Firehammer, Jr., Esq. has been Senior Vice President of the Company
since being rehired by the Company in February 1999. He has been the Company's
General Counsel since October 1993 and Secretary since February 1994, positions
he continued to hold after his employment with the Company ceased as part of the
1997 restructuring. He was the Company's Vice President from May 1997 until
August 1998. From November 1992 to September 1993, he was associated with the
Chicago, Illinois law firm, Shefsky & Froelich, Ltd. From 1987 to 1992, he was
with the law firm, Vedder, Price, Kaufman & Kammholz in Chicago, Illinois. He is
admitted to the Bars in the State of Illinois and the State of Ohio. Mr.
Firehammer is also a certified public accountant. He received a BS degree from
Indiana University and a JD degree from Whittier College School of Law.
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12
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Company's common stock trades on the National Market of The Nasdaq Stock
Market under the symbol "UEIC".
The following table sets forth, for the periods indicated, the high and low
reported sale prices for the Company's common stock, as reported on the National
Market of The Nasdaq Stock Market:
2000 1999
----------------------- -----------------------
High Low High Low
--------- --------- --------- ---------
First Quarter $ 32.3125 $ 14.7500 $ 7.8750 $ 5.1250
Second Quarter 27.0000 14.5000 15.2500 6.1875
Third Quarter 25.6250 16.6250 15.6875 9.5938
Fourth Quarter 24.1875 12.8750 24.1250 10.2500
Stockholders of record on February 28, 2001 numbered approximately 1,811.
On December 20, 1999, the Company's Board of Directors authorized a two-for-one
split of its common stock effective January 31, 2000, in the form of a 100
percent stock dividend for stockholders of record at the close of business on
January 10, 2000. All share and per-share amounts have been restated to give
retroactive effect to the stock split.
The Company has never paid cash dividends on its common stock and does not
intend to pay cash dividends on its common stock in the foreseeable future. The
Company intends to retain its earnings, if any, for the future operation and
expansion of its business. In addition, the terms of the Company's revolving
credit facility limit the Company's ability to pay cash dividends on its common
stock. See "ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS-Liquidity and Capital Resources" and "ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA-Notes to Consolidated Financial
Statements-Note 6."
RECENT SALES OF UNREGISTERED SECURITIES
On September 1, 1998, in connection with the Company's acquisition of H&S
Management Corp., the Company issued 168,422 shares of Common Stock, valued at
$5.1875 per share, as well as $1.5 million in cash to H&S Management Corp. as
consideration for the purchase price. Registration under the Securities Act of
1933 was not effected with respect to the transaction described above in
reliance upon the exemption from registration contained in Section 4(2) of the
Securities Act of 1933.
On November 9, 1998, the Company issued a warrant to purchase Company common
stock to General Instrument Corporation (subsequently merged with Motorola, Inc.
in 2000) as consideration for entering into an exclusive supply agreement with
the Company. The warrant is contingent upon General Instrument Corporation
purchasing a specified minimum number of units of products from the Company for
each of the calendar years 1999, 2000 and 2001. In 2000 and 1999, General
Instrument Corporation failed to purchase the minimum requirements for each
year. As such, General Instrument Corporation forfeited its right to acquire up
to 400,000 shares of Company common stock and may not recoup such forfeited
shares through the purchase of products in any subsequent years. Assuming such
minimum purchase requirements for 2001 are met, the warrant allows General
Instrument Corporation to purchase up to 200,000 shares of Company common stock
at an exercise price of $6.3125 per share (both the number of shares and the
exercise price have been adjusted due to the stock split previously discussed in
this ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS). Registration under the Securities Act of 1933 was not effected with
respect to the warrant in reliance upon the exemption from registration
contained in Section 4(2) of the Securities Act of 1933.
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ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
Year Ended December 31,
-------------------------------------------------------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
(in thousands, except per share data)
Net sales $ 124,740 $ 105,091 $ 96,123 $ 114,338 $ 98,589
Operating income (loss) $ 18,242 $ 12,968 $ 9,505 $ (9,289) $ (4,098)
Net income (loss) $ 11,601 $ 7,740 $ 5,638 $ (6,518) $ (2,295)
Net income (loss) per share:
Basic $ 0.84 $ 0.58 $ 0.44 $ (0.52) $ (0.17)
Diluted $ 0.78 $ 0.55 $ 0.43 $ (0.52) $ (0.17)
Weighted average common stock outstanding:
Basic 13,743 13,312 12,772 12,564 13,322
Diluted 14,941 14,126 13,200 12,564 13,322
Gross margin 41.3% 41.3% 37.7% 27.7% 24.9%
Operating margin (loss) 14.6% 12.4% 9.9% (8.1%) (4.2%)
Selling, general and administrative
expenses as a % of sales 26.7% 28.9% 27.8% 26.3% 29.0%
Net income (loss) as a % of sales 9.3% 7.4% 5.9% (5.7%) (2.3%)
Return on average assets 13.9% 11.5% 9.3% (10.8%) (3.5%)
Working capital $ 58,323 $ 45,506 $ 26,921 $ 29,350 $ 36,515
Ratio of current assets to current
liabilities 3.5 4.0 2.7 2.3 4.4
Total assets $ 93,766 $ 73,751 $ 60,677 $ 61,138 $ 59,451
Cash and cash equivalents $ 20,809 $ 13,286 $ 1,489 $ 1,097 $ 510
Long-term debt $ 163 $ 240 -- -- $ 3,183
Stockholders' equity $ 70,353 $ 58,511 $ 44,532 $ 38,887 $ 45,627
Book value per share $ 5.10 $ 4.28 $ 3.48 $ 3.08 $ 3.58
Ratio of liabilities to liabilities
and stockholders' equity 25.0% 20.7% 26.6% 36.4% 23.3%
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth the statement of operations data of the Company
expressed as a percentage of net sales for the periods indicated.
Year Ended December 31,
------------------------------
2000 1999 1998
---- ---- ----
Net sales
On-going business 100.0% 100.0% 92.6%
Discontinued North American Retail
business -- -- 7.4
----- ----- -----
100.0 100.0 100.0
Cost of sales
On-going business 58.7 58.7 54.8
Discontinued North American Retail
business -- -- 7.5
----- ----- -----
58.7 58.7 62.3
----- ----- -----
Gross profit 41.3 41.3 37.7
Selling, general and administrative
expenses 26.7 28.9 27.8
----- ----- -----
Operating income 14.6 12.4 9.9
Interest expense (income) (0.8) (0.1) 0.5
Other expense (income) (0.4) 0.0 0.1
----- ----- -----
Income before income taxes 15.8 12.5 9.3
Provision for income taxes 6.5 5.1 3.4
----- ----- -----
Net income 9.3% 7.4% 5.9%
===== ===== =====
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Year Ended December 31, 2000 Compared to Year Ended December 31, 1999
Net sales for the twelve months ended December 31, 2000 were $124.7 million, an
increase of 18.7% over the net sales of $105.1 million for the same period last
year. Net income for 2000 was $11.6 million or $0.84 per share (basic) and $0.78
per share (diluted), compared to $7.7 million or $0.58 per share (basic) and
$0.55 per share (diluted) for the same period last year.
Net sales in the Company's technology lines (subscription broadcasting, OEM and
private label) in 2000 increased by $21.5 million, or 27.5%, to $99.7 million
from $78.2 million in 1999. Net sales in the Company's technology lines were
approximately 79.9% of net sales in 2000 compared to 74.4% in 1999. Sales to
subscription broadcasting service providers and OEMs increased by $23.0 million,
or 34.2%, from $67.2 million in 1999 to $90.2 million in 2000 principally due to
the continued deployment of digital set top boxes by our U.S. cable customers,
growth in the European satellite service market and increased demand in the US
and European OEM markets. Private label sales decreased by $2.3 million, or
20.5%, from $11.0 million in 1999 to $8.7 million in 2000 due to decreased
demand for products in 2000.
Net sales from the continuing retail lines (One For All(R) international retail,
Eversafe and direct import) decreased $1.9 million, or 6.9%, from $26.9 million
in 1999 to $25.0 million in 2000. Net sales from the continuing retail lines
accounted for approximately 20.1% of total 2000 net sales compared to 25.6% in
1999. One For All(R) international retail sales decreased by $1.5 million, or
6.0%, from $24.9 million in 1999 to $23.4 million in 2000 due primarily to
reduced orders from major retail customers in England and Germany, and the
unfavorable effect of the loss in value of the European currencies against the
U.S. dollar. Revenue in the Eversafe line of products decreased by $0.5 million,
or 93.8%, from $563,000 in 1999 to $35,000 in 2000 as the Company discontinued
the sale of product in this only remaining direct domestic retail line. Direct
import sales increased by $0.2 million or 13.0% from $1.4 million in 1999 to
$1.6 million in 2000. There were no retail sales from the discontinued North
American Retail business line during 2000 and 1999.
Gross profit was $51.6 million in 2000 as compared to $43.4 million in 1999, or
41.3% of net sales in both years.
Selling, general and administrative expenses increased to $33.3 million in 2000,
compared to $30.4 million in 1999. As a percentage of net sales, selling,
general and administrative expenses improved to 26.7% in 2000 compared to 28.9%
in 1999. The increase was attributable to increased delivery and freight
expenses, increased payroll and bonus-related costs, and increased professional
fees, partially offset by reduced bad debt and telephone expenses. Delivery and
freight expenses increased $1.4 million, from $1.5 million in 1999 to $2.9
million in 2000, primarily due to higher sales volumes and increased use of air
shipments to meet customer demand. Employee payroll, bonus, and related fringe
costs were $14.7 million in 2000 compared to $12.7 million in 1999, an increase
of $2.0 million, principally due to additional hiring of personnel in technology
development and sales as well as higher management bonuses and employee profit
sharing payments based on the Company's stronger performance in 2000.
Professional fees primarily associated with the Company's corporate development
activity including acquisitions and evaluation of acquisition candidates
resulted in an increase of $0.8 million to $1.7 million in 2000 compared to $0.9
million in 1999. The Company recorded income of $0.5 million as an offset to bad
debt expense to reflect the settlement and collection of an older U.S. retail
receivable, previously fully reserved. Telephone costs decreased by $0.5 million
in 2000 compared to 1999 due primarily to rate reductions as a result of
increased provider competition and the implementation of more efficient
telephone systems and consumer support programs.
Interest income increased by $0.8 million in 2000 to $0.9 million as compared to
$0.1 million in 1999, primarily due to interest earned on higher accumulated
cash balances in 2000.
Other income increased by $457,000 to $500,000 in 2000 compared to $43,000 in
1999. This increase is primarily attributable to the favorable settlement of
foreign currency exchange agreements entered into by the Company to manage its
exposure on cash flows arising from the devaluation of the European currencies
against the U.S. dollar.
The Company recorded income tax expense of $8.1 million for the year ended 2000
compared to $5.4 million for the same period of 1999. The increase was due to
improved results in 2000. The Company's effective tax rate was 41% for the years
ended 2000 and 1999.
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16
Year Ended December 31, 1999 Compared to Year Ended December 31, 1998
Net sales for the twelve months ended December 31, 1999 were $105.1 million, an
increase of 18.0% over the net sales of $89.0 million for the same period in
1998 (after excluding net sales of $7.1 million related to the Company's
discontinued North American Retail business). Net income for 1999 was $7.7
million or $0.58 per share (basic) and $0.55 per share (diluted), compared to
$5.6 million or $0.44 per share (basic) and $0.43 per share (diluted) for the
same period in 1998.
Net sales in the Company's technology lines (subscription broadcasting, OEM and
private label) in 1999 increased by $15.4 million, or 24.5%, to $78.2 million
from $62.8 million in 1998. Net sales in the Company's technology lines were
approximately 74.4% of net sales in 1999 compared to 65.3% in 1998. Sales to
subscription broadcasting providers and OEMs increased by $11.3 million, or
20.3%, from $55.9 million in 1998 to $67.2 million in 1999 driven primarily by
increased demand for digital technology and related services, growth in cable
and satellite household penetration, the proliferation of home entertainment
equipment, and the increase in the number of OEMs. The Company lost a
significant customer in early 1999 when that customer was acquired by a third
party. Excluding sales to that customer, sales to subscription broadcasting
providers and OEMs increased by 43.9% from 1998 to 1999. Private label sales
increased by $4.2 million, or 61.8%, from $6.8 million in 1998 to $11.0 million
in 1999 due to strong demand for a new line of products introduced in 1999.
Net sales from the continuing retail lines (One For All(R) international retail,
Eversafe(R) and direct import) increased $0.7 million, or 2.7%, from $26.2
million in 1998 to $26.9 million in 1999 due to growth in international retail
sales offset by reduced sales of Eversafe product and reduced chip sales in the
direct import lines. Net sales from the continuing retail lines accounted for
approximately 25.6% of total 1999 net sales compared to 27.3% in 1998. One For
All(R) international retail sales grew by $2.7 million, or 12.2%, from $22.2
million in 1998 to $24.9 million in 1999 primarily due to increased demand in
the larger European countries including Spain and France, as well as increased
growth in Australia, New Zealand and South America. Revenue in the Eversafe line
of products decreased by $1.3 million, or 69.1%, from $1.8 million for the year
ended 1998 to $0.6 million in 1999 as the Company focused less on this remaining
domestic direct retail line. Direct import sales decreased by $0.8 million or
35.2% from $2.2 million in 1998 to $1.4 million in 1999, due to higher initial
chip sales in 1998 to fill the pipeline. There were no retail sales from the
discontinued North American Retail business line during 1999 and none are
expected in the future.
Gross margins for the year ended December 31, 1999 were 41.3% compared to 37.7%
for the same period in 1998. This increase can be attributed to the sale by the
Company of substantially all of its remaining inventory in the discontinued
North American Retail business at average selling prices that approximated book
value during the first half of 1998. In the Company's continuing product lines,
gross margins increased to 41.3% in 1999 compared to 40.8% in 1998. This
increase can be attributed to higher margins in the Company's technology product
lines due to the introduction of new products in 1999, and cost reductions in
certain component parts in late 1998 and throughout 1999.
Selling, general and administrative expenses increased to $30.4 million in 1999,
compared to $26.7 million in 1998. As a percentage of net sales, selling,
general and administrative expenses was 28.9% in 1999 compared to 27.8% in 1998.
The increase in selling, general and administrative expenses was primarily due
to increases in payroll and bonus related costs, increased bad debt expense, and
increased depreciation and amortization expense, offset by lower telephone
costs. Employee payroll and bonus, and related fringe costs were $12.7 million
in 1999 compared to $11.3 million in 1998, an increase of $1.4 million due to
increases in headcount, and higher management bonuses and employee profit
sharing payments based on the Company's stronger performance in 1999. For the
year ended December 31, 1999, bad debt expense increased by $1.2 million from
the year ended December 31, 1998 due to increased reserves on certain domestic
and international accounts.
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17
Depreciation and amortization expense increased by $1.0 million in 1999.
Depreciation expense increased as a result of the $1.4 million increase in fixed
assets with a shorter useful life during 1999. The increase in amortization
expense can be attributed to a full year of amortization expense in 1999 on
goodwill from acquisitions and non-compete agreements entered into in 1998
compared to a partial year of amortization expense in 1998 on such intangibles
as well as additional amortization expense on the goodwill associated with the
acquisition of a Spanish distributor in 1999. Telephone costs decreased by $0.4
million in 1999 compared to 1998 due primarily to rate reductions in Europe as a
result of increased provider competition, and cost efficiencies from the
elimination of unused toll free lines and the implementation of more efficient
telephone systems and consumer support programs.
Interest expense (income) decreased by $564,000 in 1999 to $108,000 of interest
income from $456,000 of interest expense for the same period in 1998 due to
reduced borrowing under the Company's revolving credit agreement and interest
earned on accumulated cash balances in 1999.
Other expense (income) increased by $143,000 in 1999 when compared to 1998. This
is primarily attributed to favorable changes in currency rates in Europe
resulting in a gain on currency exchange transactions of $30,000 in 1999
compared to a $127,000 loss on currency exchange transactions in 1998.
The Company recorded income tax expense of $5.4 million for the year ended 1999
compared to $3.3 million for the same period of 1998. The increase
was due to increased income in 1999. In 1999, the Company's effective tax rate
was 41% compared to an effective tax rate of 37% in 1998. The difference in the
1999 rate as compared to the 1998 rate was primarily due to differences in NOL
carryforward limitations in California versus Ohio due to the relocation of the
Company's headquarters from Ohio to California and a decrease in the valuation
allowance during 1998.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal sources of funds are its operations and bank credit
facility. Cash provided by operating activities for 2000 was $11.4 million as
compared to cash provided by operating activities during 1999 of $17.5 million
and $9.7 million during 1998. The decrease in cash flow from operating
activities during 2000 is principally due to increases in accounts receivable
and inventory balances at year end due to the increased sales levels.
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 December 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 7.81%. 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
December 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 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 December 31, 2000, no amounts were outstanding under
this credit facility. The Company had no outstanding import letters of credit as
of December 31, 2000.
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18
Open market purchases of the Company's common stock under a program announced in
1996 amounted to zero in 2000 and 1999 and approximately $3.5 million during
1998. The Company holds all of these shares 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 2000, the Company received proceeds of approximately $0.6 million from
the exercise of stock options granted to the Company's current and former
employees, as compared to approximately $3.0 million in 1999 and $1.5 million in
1998.
Capital expenditures in 2000, 1999, and 1998 were approximately $2.8 million,
$1.4 million and $2.4 million, respectively. Annual capital expenditures relate
primarily to acquiring product tooling each year and relocating the Company's
headquarters from Twinsburg, Ohio to Cypress, California during 1998.
On August 25, 2000, the Company completed its acquisition of a remote control
distributor in France for approximately $1.8 million, of which $1.5 million was
paid during 2000. The remaining amount will be paid in installments through the
end of 2002.
Effective July 1, 1999, the Company completed its acquisition of a remote
control distributor in Spain for $750,000 in cash. During the third quarter of
1998, the Company acquired a remote control company in the United States for
$2.4 million, for which 168,422 shares of newly issued Company common stock
valued at $874,000 were issued and $1.5 million was paid in cash. 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.
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. At
December 31, 2000, the Company had $58.3 million of working capital compared to
$45.5 million and $26.9 million at December 31,1999 and 1998, respectively. The
increase in working capital is principally due to increases in accumulated cash
and cash equivalents and higher accounts receivable balances due from customers
at December 31,2000.
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 2001, however, there can be no assurances that this will occur.
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," effective for fiscal years beginning after
June 15, 1999, which establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities. SFAS 133 requires that an entity
recognize all derivatives as either assets or liabilities on the balance sheet,
measured at fair value. Gains and losses resulting from changes in the values of
those derivatives would be accounted for as either components of earnings or
accumulated other comprehensive income depending on the use of the derivative
and whether it qualifies for hedge accounting. Derivatives that are not hedges
must be adjusted to fair value through earnings. In June 1999, the FASB issued
SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities -
Deferral of the Effective Date of FASB Statement No. 133," which defers the
effective date of SFAS 133 to fiscal years beginning after June 15, 2000. In
June 2000, the FASB issued SFAS No. 138, "Accounting for Certain Derivative
Instruments and Certain Hedging Activities - an Amendment of FASB Statement No.
133," which amends the accounting and reporting standards of SFAS 133. Adoption
of these new accounting pronouncements is not expected to have a material effect
on the Company's consolidated financial statements.
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19
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, which provides guidance on the recognition, presentation
and disclosure of revenue in financial statements, was adopted in the fourth
quarter of 2000. The adoption did not have a material impact on the Company's
consolidated financial statements.
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 Annual Report on Form 10-K, 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 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 Annual Report on Form 10-K 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. 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 a majority 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
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20
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 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.
20
21
In addition, the introduction of new products that 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. During 2000, the Company had three
customers that acquired more than ten percent of the Company's products and the
loss of any 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. In the fourth quarter of
2000, the Company filed lawsuits against four separate companies claiming that
each of the four companies is infringing certain of the Company's patents. In
these actions, the Company is seeking money damages and injunctive relief. 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, including
the four matters discussed in this Annual Report on Form 10-K, 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.
21
22
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 2001 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 product lines. In addition, the Company
will increase its focus on diversifying product lines and 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 2001 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 2001, 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 Annual Report on Form 10-K and the
Company's other filings with the Securities and Exchange Commission.
22
23
ITEM 7A. 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 December 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
December 31, 2000 was 7.81%. The Company has wholly owned subsidiaries in the
Netherlands, United Kingdom, Germany, France, Argentina and Spain. Sales from
these operations are typically denominated in local currencies including Euros,
Dutch Guilders, British Pounds, German Marks, French Francs, Argentine Pesos 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 that affect cash flows. The
Company had a number of forward exchange contracts outstanding at December 31,
2000 with an aggregate notional value of approximately $5.1 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 December 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 effect.
23
24
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
Report of Independent Accountants 25
Consolidated Balance Sheets at December 31, 2000 and 1999 26
Consolidated Income Statements for the years ended December 31, 2000,
1999 and 1998 27
Consolidated Statements of Stockholders' Equity for the years
ended December 31, 2000, 1999 and 1998 28
Consolidated Statements of Cash Flows for the years ended December 31,
2000, 1999 and 1998 29
Notes to Consolidated Financial Statements 30
Financial Statement Schedule:
Schedule for the years ended December 31, 2000, 1999 and 1998
II - Valuation and Qualifying Accounts and Reserves 43
All other schedules are omitted because they are not applicable or the required
information is shown in the financial statements or notes thereto.
24
25
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Universal Electronics Inc.
In our opinion, the consolidated financial statements listed in the accompanying
index present fairly, in all material respects, the financial position of
Universal Electronics Inc. and its subsidiaries at December 31, 2000 and 1999,
and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 2000, in conformity with accounting
principles generally accepted in the United States of America. In addition, in
our opinion, the financial statement schedule listed in the accompanying index
presents fairly, in all material respects, the information set forth therein
when read in conjunction with the related consolidated financial statements.
These financial statements and financial statement schedule are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements and financial statement schedule based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of America, which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Orange County, California
January 22, 2001
25
26
UNIVERSAL ELECTRONICS INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
-------------------------------
2000 1999
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents $ 20,808,716 $ 13,286,219
Accounts receivable, net 38,139,721 27,932,794
Inventories 18,847,336 13,493,813
Prepaid expenses and other current assets 1,111,387 1,887,367
Deferred income taxes 2,665,801 3,906,102
------------ ------------
Total current assets 81,572,961 60,506,295
Equipment, furniture and fixtures, net 3,925,900 3,696,906
Goodwill and other intangible assets, net 6,898,074 6,264,603
Other assets 726,923 1,661,867
Deferred income taxes 642,200 1,621,795
------------ ------------
Total assets $ 93,766,058 $ 73,751,466
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 12,845,860 $ 8,824,212
Accrued income taxes 3,617,249 793,902
Accrued compensation 3,036,927 1,928,110
Other accrued taxes 292,709 830,953
Other accrued expenses 3,456,726 2,623,271
------------ ------------
Total current liabilities 23,249,471 15,000,448
Notes payable 163,245 239,821
------------ ------------
Total liabilities 23,412,716 15,240,269
Commitments and contingencies (note 16)
Stockholders' equity:
Preferred stock, $.01 par value, 5,000,000 shares
authorized; none issued or outstanding -- --
Common stock, $.01 par value, 50,000,000 shares
authorized; 15,429,584 and 15,317,304 shares issued at
December 31, 2000 and 1999, respectively 154,296 153,173
Paid-in capital 64,937,078 64,299,603
Accumulated other comprehensive income (705,957) (236,778)
Retained earnings 12,687,392 1,086,760
Unamortized value of restricted stock grants (29,260) (83,117)
------------ ------------
77,043,549 65,219,641
Less cost of common stock in treasury, 1,647,892 and
1,652,384 shares in 2000 and 1999, respectively 6,690,207 6,708,444
------------ ------------
Total stockholders' equity 70,353,342 58,511,197
------------ ------------
Total liabilities and stockholders' equity $ 93,766,058 $ 73,751,466
============ ============
The accompanying notes are an integral part of these financial statements.
26
27
UNIVERSAL ELECTRONICS INC.
CONSOLIDATED INCOME STATEMENTS
Year Ended December 31,
-----------------------------------------------------
2000 1999 1998
------------- ------------- -------------
Net sales
On-going business $ 124,739,877 $ 105,091,183 $ 89,035,707
Discontinued North American Retail
business -- -- 7,086,912
------------- ------------- -------------
124,739,877 105,091,183 96,122,619
Cost of sales
On-going business 73,167,971 61,714,724 52,717,177
Discontinued North American Retail
business -- -- 7,161,912
------------- ------------- -------------
73,167,971 61,714,724 59,879,089
Gross profit 51,571,906 43,376,459 36,243,530
Selling, general and administrative expenses 33,330,047 30,408,321 26,738,845
------------- ------------- -------------
Operating income 18,241,859 12,968,138 9,504,685
Interest expense (income), net (920,520) (107,594) 455,577
Other expense (income), net (499,709) (43,051) 100,355
------------- ------------- -------------
Income before income taxes 19,662,088 13,118,783 8,948,753
Provision for income taxes 8,061,456 5,378,701 3,311,103
------------- ------------- -------------
Net income $ 11,600,632 $ 7,740,082 $ 5,637,650
============= ============= =============
Net income per share:
Basic $ 0.84 $ 0.58 $ 0.44
============= ============= =============
Diluted $ 0.78 $ 0.55 $ 0.43
============= ============= =============
Weighted average common stock Outstanding:
Basic 13,742,635 13,311,594 12,772,796
============= ============= =============
Diluted 14,941,153 14,126,210 13,199,814
============= ============= =============
The accompanying notes are an integral part of these financial statements.
27
28
UNIVERSAL ELECTRONICS INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Unamortized
Accumulated Retained Value of
Common Stock in Other Earnings/ Restricted
Common Stock Issued Treasury Paid in Comprehensive (Accumulated Stock
Shares Amount Shares Amount Capital Income Deficit) Grants Totals
------ ------ ------ ------ ------- ------ -------- ------ ------
----------------------------------------------------------------------------------------------------------
Balance at December 31,
1997 13,708,820 $ 137,088 (1,084,422) $(3,271,117) $54,385,496 $ (73,261) $(12,290,972) -- $38,887,234
----------------------------------------------------------------------------------------------------------
Comprehensive income:
Net income -- -- -- -- -- -- 5,637,650 -- 5,637,650
Currency translation
adjustment -- -- -- -- -- (48,492) -- -- (48,492)
-----------
Total comprehensive
income -- -- -- -- -- -- -- -- 5,589,158
Additional shares issued
for employee retirement
plan 16,274 163 -- -- 88,520 -- -- -- 88,683
Issuance of warrant to
customer -- -- -- -- 1,006,000 -- -- -- 1,006,000
Stock options exercised 559,698 5,597 -- -- 1,524,820 -- -- -- 1,530,417
Purchase of treasury
shares -- -- (583,600) (3,492,576) -- -- -- -- (3,492,576)
Shares issued to
Directors -- -- 8,812 27,537 22,332 -- -- -- 49,869
Shares issued in
connection with
business acquired 168,422 1,684 -- -- 872,005 -- -- -- 873,689
----------------------------------------------------------------------------------------------------------
Balance at December 31,
1998 14,453,214 144,532 (1,659,210) (6,736,156) 57,899,173 (121,753) (6,653,322) -- 44,532,474
----------------------------------------------------------------------------------------------------------
Comprehensive income:
Net income -- -- -- -- -- -- 7,740,082 -- 7,740,082
Currency translation
adjustment -- -- -- -- -- (115,025) -- -- (115,025)
-----------
Total comprehensive
income -- -- -- -- -- -- -- -- 7,625,057
Additional shares issued
for employee retirement
plan 20,222 202 -- -- 194,719 -- -- -- 194,921
Stock options exercised 835,918 8,359 -- -- 3,027,862 -- -- -- 3,036,221
Shares issued to
Directors -- -- 6,826 27,712 23,313 -- -- -- 51,025
Restricted stock grants 7,950 80 -- -- 107,633 -- -- $(107,713) --
Amortization of
restricted stock grants -- -- -- -- -- -- -- 24,596 24,596
Income tax benefit
related to the exercise
of non-qualified stock
options -- -- -- -- 3,046,903 -- -- -- 3,046,903
----------------------------------------------------------------------------------------------------------
Balance at December 31,
1999 15,317,304 153,173 (1,652,384) (6,708,444) 64,299,603 (236,778) 1,086,760 (83,117) 58,511,197
----------------------------------------------------------------------------------------------------------
Comprehensive income:
Net income -- -- -- -- -- -- 11,600,632 -- 11,600,632
Currency translation
adjustment -- -- -- -- -- (469,179) -- -- (469,179)
-----------
Total comprehensive
income 11,131,453
Additional shares issued
for employee retirement
plan 14,216 142 -- -- 293,230 -- -- -- 293,372
Stock options exercised 97,864 979 -- -- 591,096 -- -- -- 592,075
Shares issued to
Directors -- -- 4,492 18,237 76,342 -- -- -- 94,579
Restricted stock grants 200 2 -- -- 4,398 -- -- 53,857 58,257
Income tax benefit
related to the exercise
of non-qualified stock
options -- -- -- -- 477,206 -- -- -- 477,206
Adjustment to fair
value of warrant issued
to a customer -- -- -- -- (804,797) -- -- -- (804,797)
----------------------------------------------------------------------------------------------------------
Balance at December 31,
2000 15,429,584 $ 154,296 (1,647,892) $(6,690,207) $64,937,078 $(705,957) $ 12,687,392 $ (29,260) $70,353,342
----------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
28
29
UNIVERSAL ELECTRONICS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31,
--------------------------------------------------
2000 1999 1998
------------ ------------ ------------
Cash provided by operating activities:
Net income $ 11,600,632 $ 7,740,082 $ 5,637,650
Adjustments to reconcile net income to net cash
provided by operating
activities:
Depreciation and amortization 3,784,586 3,616,267 2,600,514
Provision for doubtful accounts (91,493) 1,504,275 342,661
Deferred income taxes 2,697,102 4,253,354 2,944,948
Other 446,209 246,914 138,552
Changes in operating assets and liabilities:
Accounts receivable (10,964,373) (5,518,015) 2,067,594
Inventory (4,993,472) 1,340,245 1,805,336
Prepaid expenses and other assets 861,258 (369,755) (841,762)
Accounts payable and accrued expenses 5,798,588 3,808,594 (1,258,126)
Accrued restructuring expense -- -- (3,928,933)
Accrued income and other taxes 2,300,898 853,731 230,766
------------ ------------ ------------
Net cash provided by operating activities 11,439,935 17,475,692 9,739,200
------------ ------------ ------------
Cash used for investing activities:
Acquisition of fixed assets (2,751,440) (1,441,601) (2,395,498)
Sale of building and other assets -- -- 1,862,711
Payments for businesses acquired (1,493,926) (2,050,000) (3,200,000)
Acquisition of intangible assets (486,737) (321,447) (1,153,228)
------------ ------------ ------------
Net cash used for investing activities (4,732,103) (3,813,048) (4,886,015)
------------ ------------ ------------
Cash provided by (used for) financing activities:
Short-term bank borrowing -- 10,810,000 49,931,280
Short-term bank payments -- (15,596,293) (52,381,753)
Payments on note payable (60,910) -- --
Proceeds from stock options exercised 592,075 3,036,221 1,530,417
Treasury stock purchased -- -- (3,492,576)
------------ ------------ ------------
Net cash provided by (used for)
financing activities 531,165 (1,750,072) (4,412,632)
------------ ------------ ------------
Effect of exchange rate changes on cash 283,500 (115,025) (48,492)
------------ ------------ ------------
Net increase in cash and cash equivalents 7,522,497 11,797,547 392,061
Cash and cash equivalents at beginning of year 13,286,219 1,488,672 1,096,611
------------ ------------ ------------
Cash and cash equivalents at end of year $ 20,808,716 $ 13,286,219 $ 1,488,672
============ ============ ============
The accompanying notes are an integral part of these financial statements.
29
30
UNIVERSAL ELECTRONICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND DESCRIPTION OF BUSINESS
Business
Universal Electronics develops and markets easy-to-use, pre-programmed universal
wireless control devices and technologies principally for home video and audio
entertainment equipment. The Company sells its wireless control products and
proprietary technologies to private label customers, original equipment
manufacturers ("OEMs"), retail businesses, and companies involved in the
subscription broadcasting industry. In December 1997, the Company decided to
discontinue its North American One For All Retail business. The Company
continues to sell its wireless control products internationally under the One
for All(R) brand name. The Company also marketed a line of home automation
products under the Eversafe(R) brand name, principally a universal garage door
opener.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its subsidiaries. All intercompany accounts and significant transactions have
been eliminated in the consolidated financial statements.
Revenue Recognition
Product revenues are recognized when title transfers and risks of ownership are
passed to the customer. For the majority of the Company's sales, this occurs
when products are shipped. The company provides allowances for estimated product
returns and for sales promotions and discounts in the same period as the related
revenues.
Foreign Currency Translation
The assets and liabilities of foreign subsidiaries are translated to U.S.
dollars using the exchange rates in effect at the balance sheet date. Results of
operations are translated using the average exchange rates during the period.
Resulting translation adjustments are recorded in a separate component of
stockholders' equity, "Accumulated other comprehensive income."
Cash and Cash Equivalents
Cash and cash equivalents include cash accounts and all investments purchased
with initial maturities of three months or less.
Inventories
Inventories consist of wireless control devices, including universal remote
controls, wireless keyboards, antennas, and related component parts, and home
safety and automation devices and are valued at the lower of cost or market.
Cost is determined using the first-in, first-out method.
Equipment, Furniture and Fixtures
Fixed assets are recorded at cost. Depreciation is provided using the
straight-line method over the estimated useful lives of the assets. Tooling and
equipment are depreciated over two to seven years. Furniture and fixtures are
depreciated over five to seven years. Leasehold improvements are amortized over
the terms of the related leases. When fixed assets are retired or otherwise
disposed of, the cost and accumulated depreciation are removed from the
appropriate accounts and any gain or loss is included in current income.
Goodwill and Other Intangible Assets
Goodwill and other intangible assets are stated on the basis of cost and are
amortized on a straight-line basis over the estimated future periods to be
benefited. The amortization periods range from five to ten years. Goodwill and
other intangible assets are periodically reviewed for impairment based on an
assessment of undiscounted future
30
31
cash flows to ensure that they are appropriately valued. At December 31, 2000,
1999, and 1998, accumulated amortization was $3,354,613, $2,098,780, and
$962,178, respectively. Amortization expense was $1,262,141 $1,339,799, and
$737,497 for the years ended December 31, 2000, 1999, and 1998, respectively.
Income Taxes
Deferred income taxes are provided utilizing an asset and liability method that
requires the recognition of deferred tax assets and liabilities for the expected
future tax consequences of events that have been recognized in different periods
for financial statement purposes versus tax return purposes. A valuation
allowance is established to reduce deferred tax assets if it is more likely than
not that all, or some portion, of the deferred tax assets will not be realized.
Research and Development
Research and development expenditures are expensed as incurred. Research and
development expense was $2,764,000, $2,391,000,and $2,712,000 for the years
ended December 31, 2000, 1999, and 1998, respectively.
Advertising
Advertising costs are expensed as incurred. Advertising expense was $1,282,519,
$1,263,344, and $1,511,065 for the years ended December 31,2000, 1999, and 1998,
respectively.
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," effective for fiscal years beginning after
June 15, 1999, which establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities. SFAS 133 requires that an entity
recognize all derivatives as either assets or liabilities on the balance sheet,
measured at fair value. Gains and losses resulting from changes in the values of
those derivatives would be accounted for as either components of earnings or
accumulated other comprehensive income depending on the use of the derivative
and whether it qualifies for hedge accounting. Derivatives that are not hedges
must be adjusted to fair value through earnings. In June 1999, the FASB issued
SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities -
Deferral of the Effective Date of FASB Statement No. 133," which defers the
effective date of SFAS 133 to fiscal years beginning after June 15, 2000. In
June 2000, the FASB issued SFAS No. 138, "Accounting for Certain Derivative
Instruments and Certain Hedging Activities - an Amendment of FASB Statement No.
133," which amends the accounting and reporting standards of SFAS 133. Adoption
of these new accounting pronouncements is not expected to have a material effect
on the Company's consolidated financial statements.
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, which provides guidance on the recognition, presentation
and disclosure of revenue in financial statements, was adopted in the fourth
quarter of 2000. The adoption did not have a material impact on the Company's
consolidated financial statements.
Estimates and Assumptions
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
31
32
Reclassifications
Certain prior year amounts have been reclassified to conform with the
presentation utilized in the year ended December 31, 2000.
NOTE 2 - ACQUISITIONS
On August 25, 2000, the Company completed its acquisition of a remote control
distributor in France for approximately $1.8 million, of which $1,494,000 was
paid during 2000. The remaining amount will be paid in installments through the
end of 2002.
Effective July 1, 1999, the Company completed its acquisition of a remote
control distributor in Spain for $750,000 in cash. On September 1, 1998, the
Company acquired a domestic remote control company for approximately $2.4
million. The acquisition was funded with $1.5 million in cash and 168,422 shares
of the Company's newly issued common stock valued at $874,000. 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 1998 and the
remaining $1.3 million was paid in 1999.
The excess of the aggregate purchase prices for these acquisitions over the fair
market value of net assets acquired is recorded as goodwill and is being
amortized over periods ranging from five to ten years.
Results of operations for the acquired entities are included in the Company's
consolidated income statements from the date of acquisition. Pro forma results
for 2000, 1999, and 1998, assuming the acquisitions had occurred at the
beginning of each year previous to the acquisition date, would not have been
materially different from the Company's historical results for the periods
presented.
NOTE 3 - ACCOUNTS RECEIVABLE
Accounts receivable consist of the following:
DECEMBER 31,
-------------------------------
2000 1999
------------ ------------
Accounts receivable, gross $ 39,819,821 $ 29,812,725
Allowance for doubtful accounts (1,680,100) (1,879,931)
------------ ------------
$ 38,139,721 $ 27,932,794
============ ============
As of December 31, 2000, 1999 and 1998, accounts receivable for the Company's
North American Retail business were $572,000, $678,000 and $2,011,000,
respectively. Write-offs in 2000, 1999 and 1998 attributable to the accounts
receivable for the Company's North American Retail business were $106,000,
$1,226,000, and $1,320,000 respectively.
NOTE 4 - INVENTORIES
Inventories consist of the following:
DECEMBER 31,
----------------------------
2000 1999
----------- -----------
Components $10,079,116 $ 5,710,349
Finished goods 8,768,220 7,783,464
----------- -----------
$18,847,336 $13,493,813
=========== ===========
32
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The Company carries some additional amounts of inventory in order to satisfy
certain of its customers' inventory requirements on a timely basis. New product
innovations and technological advances may shorten a given product's life cycle.
Management continually monitors the inventory status to control inventory levels
and dispose of any excess or obsolete inventories on hand. Management believes
an adequate provision has been made in the financial statements for any loss on
disposition of inventory.
NOTE 5 - EQUIPMENT, FURNITURE AND FIXTURES
Fixed assets consist of the following:
DECEMBER 31,
-------------------------------
2000 1999
------------ ------------
Tooling $ 5,781,477 $ 4,564,749
Equipment 4,703,982 4,214,863
Furniture and fixtures 926,193 762,343
Leasehold improvements 1,115,941 889,140
------------ ------------
12,527,593 10,431,095
Accumulated depreciation (8,601,693) (6,734,189)
------------ ------------
$ 3,925,900 $ 3,696,906
============ ============
Depreciation expense was $2,522,445, $2,276,468, and $1,863,667 for the years
ended December 31, 2000, 1999, and 1998, respectively.
NOTE 6 - REVOLVING CREDIT LINE
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 December 31, 2000 and 1999
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 7.81% and
7.08%, respectively. 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 December 31, 2000 and 1999, the applicable
margin for the Company 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. 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 which
it holds as treasury shares and which are available for reissue by the Company.
Amounts available for borrowing under the credit facility are reduced by the
outstanding balance of the Company's import letters of credit.
The Company had no amounts outstanding under the revolving credit facility and
no import letters of credit outstanding at December 31, 2000 and 1999. Total
interest paid was $0, $28,422 and $488,144 for the years ended December 31,
2000, 1999 and 1998, respectively.
NOTE 7 - FINANCIAL INSTRUMENTS
The Company's financial instruments consist primarily of investments in cash and
cash equivalents, accounts receivable and accounts payable, as well as
obligations under the credit facility described above. The carrying values of
these instruments approximate fair value because of their short maturity.
33
34
The Company enters into forward exchange contracts to hedge foreign currency
transactions on a continuing basis for periods consistent with its committed
exposures. These contracts are with major financial institutions and the risk of
loss due to the financial institutions' nonperformance is considered remote. The
gains and losses on these forward contracts are recognized in net income when
the underlying foreign currency gain or loss is recognized. The Company had a
number of forward exchange contracts outstanding at December 31, 2000 with an
aggregate notional value of approximately $5.1 million.
NOTE 8 - STOCKHOLDERS' EQUITY
Fair Price Provisions and Other Anti-Takeover Measures
The Company's Restated Certificate of Incorporation, as amended, contains
certain provisions restricting business combinations with interested
stockholders under certain circumstances and imposing higher voting requirements
for the approval of certain transactions ("fair price" provision). Any of these
provisions could delay or prevent a change in control of the Company.
The "fair price" provisions require that holders of at least two-thirds of the
outstanding shares of voting stock approve certain business combinations and
significant transactions with interested stockholders.
Treasury Stock
During 2000 and 1999, no treasury stock was purchased by the Company. During
1998, 583,600 shares of common stock were purchased by the Company on the open
market at an aggregate cost of approximately $3.5 million. These shares are
recorded as shares held in treasury at cost. The shares will generally be held
by the Company for future use as management and the Board of Directors shall
deem appropriate. In addition, some of these shares will be used by the Company
to compensate the outside directors of the Company. During 2000, 1999, and 1998,
4,492, 6,826, and 8,812 shares, respectively, were issued to the outside
directors.
Warrant Issued to Customer
On November 9, 1998, the Company entered into an exclusive supply agreement with
a customer. As a result of this agreement, the Company issued a warrant
entitling the customer to purchase up to 600,000 shares of the Company's common
stock at $6.3125 per share. In 1999, based on the expected number of shares to
be issued, the fair value of this warrant of $1,006,000 was recorded as
additional paid in capital of the Company with a corresponding increase in other
assets. The fair value of the warrant was determined using the Black-Scholes
Model. The following assumptions were used for the warrant: risk-free interest
rate of approximately 4.84%; expected volatility of approximately 48.11%; and
expected life of five years. During 2000, the value of the warrant was adjusted
by approximately $805,000. Subject to achieving the minimum purchase
requirements of the warrant, the warrant will vest 50% on January 1, 2003 and
the remaining 50% will vest on January 1, 2004. In 2000 and 1999, the customer
failed to purchase the minimum requirement for these years and thus, has
forfeited its right to acquire up to 400,000 shares of Company common stock and
may not recoup such forfeited shares through the purchase of products in a
subsequent year.
Stock Split
On December 20, 1999, the Company's Board of Directors declared a two-for-one
stock split effected in the form of a 100 percent stock dividend to be
distributed on January 31, 2000 to stockholders of record on January 10, 2000.
Stockholders' equity has been restated to give retroactive recognition to the
stock split for all periods presented by reclassifying the par value of the
additional shares arising from the split from paid-in capital to common stock.
In addition, all references in the financial statements and the notes to the
financial statements to number of shares, per share amounts, stock option data,
and market prices of the Company's common stock have been restated.
Restricted Stock Awards
During the year ended December 31, 1999, a total of 7,950 restricted shares of
the Company's common stock were reserved for issuance to certain employees. The
restricted shares vest over a two-year period and had a market value of $107,713
at the award date. These awards have been recorded as a separate component of
stockholders'
34
35
equity. The carrying value of the restricted stock grants is being amortized
over the two year vesting period. Amortization expense amounted to $53,857 and
$24,596 in 2000 and 1999, respectively.
NOTE 9 - STOCK OPTIONS
1993 Stock Incentive Plan
On January 19, 1993, the 1993 Stock Incentive Plan ("1993 Plan") was approved.
Under the 1993 Plan, 400,000 shares of Common Stock are reserved for the
granting of incentive and other stock options to officers, key employees and
non-affiliated directors. The 1993 Plan provides for the granting of incentive
and other stock options through January 19, 2003. All options outstanding at the
time of termination of the 1993 Plan shall continue in full force and effect in
accordance with their terms. The option price for incentive stock options and
non-qualified stock options will not be less than the fair market value at the
date of grant. The Compensation Committee shall determine when each option is to
expire, but no option shall be exercisable more than ten years after the date
the option is granted. The 1993 Plan also provides for the award of stock
appreciation rights subject to terms and conditions specified by the
Compensation Committee. No stock appreciation rights have been awarded under
this 1993 Plan.
1995 Stock Incentive Plan
On May 19, 1995, the 1995 Stock Incentive Plan ("1995 Plan") was approved. Under
the 1995 Plan, 800,000 shares of Common Stock are available for distribution to
the Company's key officers, employees and non-affiliated directors. The 1995
Plan provides for the issuance of stock options, stock appreciation rights,
performance stock units, or any combination thereof through May 19, 2005, unless
otherwise terminated by resolution of the Board of Directors. The option price
for the stock options will be equal to the fair market value at the date of
grant. The Compensation Committee shall determine when each option is to expire,
but no option shall be exercisable more than ten years after the date the option
is granted. No stock appreciation rights or performance stock units have been
awarded under this 1995 Plan.
1996 Stock Incentive Plan
On December 1, 1996, the 1996 Stock Incentive Plan ("1996 Plan") was approved.
Under the 1996 Plan, 800,000 shares of Common Stock are available for
distribution to the Company's key officers and employees. The 1996 Plan provides
for the issuance of stock options, stock appreciation rights, performance stock
units, or any combination thereof through November 30, 2007, unless otherwise
terminated by the resolution of the Company's Board of Directors. The option
price for the stock options will be equal to the fair market value at the date
of grant. The Compensation Committee shall determine when each option is to
expire, but no option shall be exercisable more than ten years after the date
the option is granted. No stock appreciation rights or performance stock units
have been awarded under this 1996 Plan.
1998 Stock Incentive Plan
On May 27, 1998, the 1998 Stock Incentive Plan ("1998 Plan") was approved. Under
the 1998 Plan, 630,000 shares of Common Stock are available for distribution to
the Company's key officers and employees. The 1998 Plan provides for the
issuance of stock options, stock appreciation rights, performance stock units,
or any combination thereof through May 27, 2008, unless otherwise terminated by
resolution of the Company's Board of Directors. The option price for the stock
options will not be less than the fair market value at the date of grant. The
Compensation Committee shall determine when each option is to expire, but no
option shall be exercisable more than ten years after the date the option is
granted. No stock appreciation rights or performance stock units have been
awarded under this 1998 Plan.
1999 Stock Incentive Plan
On January 27, 1999, the 1999 Stock Incentive Plan ("1999 Plan") was approved.
Under the 1999 Plan, 630,000 shares of Common Stock are available for
distribution to the Company's key officers and employees. The 1999 Plan provides
for the issuance of stock options, stock appreciation rights, performance stock
units, or any combination thereof through January 27, 2009, unless otherwise
terminated by resolution of the Company's Board of Directors. The option price
for the stock options will not be less than the fair market value at the date of
grant.
35
36
The Compensation Committee shall determine when each option is to expire, but no
option shall be exercisable more than ten years after the date the option is
granted. No stock appreciation rights or performance stock units have been
awarded under this 1999 Plan.
1999A Stock Incentive Plan
On October 7, 1999, the 1999A Nonqualified Stock Plan ("1999A Plan") was
approved and on February 1, 2000, the 1999A Plan was amended. Under the 1999A
Plan, 1,000,000 shares of Common Stock are available for distribution to the
Company's key officers and employees. The 1999A Plan provides for the issuance
of stock options, stock appreciation rights, performance stock units, or any
combination thereof through October 7, 2009, unless otherwise terminated by
resolution of the Company's Board of Directors. The option price for the stock
options will not be less than the fair market value at the date of grant. The
Compensation Committee shall determine when each option is to expire, but no
option shall be exercisable more than ten years after the date the option is
granted. No stock appreciation rights or performance stock units have been
awarded under this 1999A Plan.
The Company applies the provisions of APB Opinion No. 25 in accounting for
stock-based employee compensation; therefore, no compensation expense has been
recognized for its fixed stock option plans as options generally are granted at
fair market value on the date of the grant. In October 1995, Statement of
Financial Accounting Standards No. 123 "Accounting for Stock-Based Compensation"
("SFAS No. 123"), was issued. The Company adopted the disclosure requirements of
this Statement in 1996 and accordingly, had compensation expense been determined
consistent with SFAS No. 123, the Company's 2000 net income and basic and
diluted earnings per share would have been $9,818,172, $0.71 and $0.66,
respectively. The Company's 1999 net income and basic and diluted earnings per
share would have been $6,627,088, $0.50 and $0.47, respectively. The Company's
1998 net income and basic and diluted earnings per share would have been
$5,080,578, $0.40 and $0.38, respectively.
The fair value of options at date of grant was estimated using the Black-Scholes
model. The following assumptions were used for the grants in 2000, 1999, and
1998, respectively: risk-free interest rate of approximately 6.18%, 5.56%, and
5.28%; expected volatility of approximately 62.61%, 51.75%, and 45.26%; expected
life of five years for 2000, 1999, and 1998; and the common stock will pay no
dividends. The per share weighted average grant date fair values of the options
granted in 2000, 1999, and 1998 was $11.35, $9.95, and $4.97.
The following table summarizes the changes in the number of shares of Common
Stock under option:
2000 1999 1998
------------------------- ------------------------- -------------------------
Shares Weighted-Average Shares Weighted-Average Shares Weighted-Average
(000) Exercise Price (000) Exercise Price (000) Exercise Price
Outstanding at beginning
of year 2,142 $7.89 1,688 $4.29 1,452 $3.18
Granted 484 19.93 1,352 9.58 804 5.22
Exercised (98) 6.05 (836) 3.63 (560) 2.74
Expired and/or forfeited (73) 9.41 (62) 4.31 (8) 3.47
----- ----- -----
Outstanding at end of
year 2,455 $10.29 2,142 $7.89 1,688 $4.29
===== ===== =====
Options exercisable at
year-end 749 181 788
Significant option groups outstanding at December 31, 2000 and related weighted
average price and life information follows:
Options Outstanding Options Exercisable
---------------------------------------------------- --------------------------------
Number Weighted-Average Weighted-Average Number Weighted-Average
Range of Outstanding Remaining Exercise Exercisable Exercise
Exercise Prices At 12/31/00 Contractual Life Price At 12/31/00 Price
- --------------- ----------- ---------------- ---------------- ------------ ----------------
$2.09 to $3.84 87,500 5.88 $2.85 77,875 $2.84
4.97 to 5.94 588,250 7.37 5.17 294,750 5.17
6.19 to 12.00 1,293,968 8.48 9.58 376,535 9.32
13.00 to 22.78 485,000 9.57 19.92 250 13.00
--------- -------
$2.09 to $22.78 2,454,718 8.34 $10.33 749,410 $7.02
========= =======
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NOTE 10 - SIGNIFICANT CUSTOMERS AND SUPPLIERS
The Company had annual sales to two customers that individually exceeded 10% of
total Company sales in each of the years ended December 31, 2000, 1999, and
1998. The sales to these customers amounted to $15.9 million and $13.6 million
in 2000, $12.2 million and $10.8 million in 1999, and $11.8 million and $10.6
million in 1998. Trade receivables with the previously mentioned customers
amounted to $7.0 million, $2.1 million, and $5.3 million at December 31, 2000,
1999, and 1998, respectively.
Trade receivables subject the Company to a concentration of credit risk. The
risk is limited due to the large number of customers comprising the Company's
customer base, the relative size and strength of most of the Company's customers
and the Company's performance of ongoing credit evaluations.
The Company utilizes third-party manufacturers in the Far East, Mexico and the
United States to produce its wireless control products. The number of third
party manufacturers or suppliers that provided the Company in excess of 10% of
the Company's wireless control products and/or components were three, two, and
three for 2000, 1999, and 1998, respectively. Additionally, the Company
currently purchases a significant portion of its integrated circuit chips from
two vendors.
NOTE 11 - LEASES
The Company leases office and warehouse space and certain office equipment under
operating leases. Rental expense under operating leases was $900,849, $953,475,
and $837,976, for the years ended December 31, 2000, 1999, and 1998,
respectively.
The following summarizes future minimum non-cancelable operating lease payments
at December 31, 2000:
Year ending December 31: AMOUNT
----------
2001 $747,766
2002 572,703
2003 119,316
2004 16,669
2005 and beyond 7,297
----------
Total lease commitments $1,463,751
==========
NOTE 12 - EMPLOYEE BENEFIT PLANS
The Company maintains a retirement and profit sharing plan under Section 401(k)
of the Internal Revenue Code for all of its domestic employees that meet certain
qualifications. Participants in the plan may elect to contribute from 1% to 15%
of their annual salary to the plan. The Company may, at its discretion, make
contributions to the plan. The Company's match was 25% of participants'
contributions for the year ended December 31, 1998 and the expense for the year
amounted to $123,332. The Company's match was increased from 25% to 50% of
participants' contributions effective April 22, 1999 and the expense recorded
for the years ended December 31, 2000 and 1999 amounted to $292,388 and
$200,236, respectively. The Company's match in 2000, 1999, and 1998 was in the
form of newly issued shares of common stock of the Company.
NOTE 13 - INCOME TAXES
In 2000, 1999, and 1998, pretax income was attributed to the following
jurisdictions:
YEAR ENDED DECEMBER 31,
---------------------------------------------
2000 1999 1998
----------- ----------- -----------
Domestic operations $19,393,318 $13,032,767 $ 8,210,501
Foreign operations 268,770 86,016 738,252
----------- ----------- -----------
Total $19,662,088 $13,118,783 $ 8,948,753
=========== =========== ===========
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The provision for income taxes charged to operations was as follows:
YEAR ENDED DECEMBER 31,
------------------------------------------
2000 1999 1998
---------- ---------- ----------
Current tax expense:
U.S. federal $4,060,306 $3,458,002 $ --
State and local 1,687,181 685,003 114,999
Foreign 94,073 29,245 251,156
---------- ---------- ----------
Total current 5,841,560 4,172,250 366,155
---------- ---------- ----------
Deferred tax expense:
U.S. federal 2,205,254 1,004,848 2,521,779
State and local 14,642 201,603 423,169
Foreign -- -- --
---------- ---------- ----------
Total deferred 2,219,896 1,206,451 2,944,948
---------- ---------- ----------
Total provision $8,061,456 $5,378,701 $3,311,103
========== ========== ==========
The Company made income tax payments of $2,578,766, $726,857 and $75,414 in
2000, 1999 and 1998, respectively.
Net deferred tax assets (liabilities) comprised the following at December 31:
2000 1999 1998
----------- ----------- -----------
Capitalized packaging costs $ 18,446 $ 37,188 $ 72,365
Advertising allowance 12,033 38,935 41,570
Inventory reserves 1,043,041 660,310 256,441
Allowance for doubtful
accounts 609,913 738,390 256,440
Sales return reserve 60,742 64,882 57,885
Capitalized inventory costs 310,507 218,855 259,983
NOL and credit carry forwards -- 2,983,469 6,278,675
Amortization of intangibles 537,593 421,701 183,825
State Taxes 321,133 78,106 --
Other 433,131 471,457 50,768
----------- ----------- -----------
Gross deferred tax assets 3,346,539 5,713,293 7,457,952
----------- ----------- -----------
Depreciation (38,538) (185,396) (723,604)
----------- ----------- -----------
Gross deferred tax liabilities (38,538) (185,396) (723,604)
----------- ----------- -----------
Less valuation allowance -- -- --
----------- ----------- -----------
$ 3,308,001 $ 5,527,897 $ 6,734,348
=========== =========== ===========
In management's opinion, future taxable income will be sufficient to utilize the
tax benefit recognized as deferred tax assets.
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The provision for income taxes differs from the amount of income tax determined
by applying the applicable U.S. statutory federal income tax rate to pre-tax
income from operations as a result of the following:
YEAR ENDED DECEMBER 31,
---------------------------------------------
2000 1999 1998
----------- ----------- -----------
Tax provision at statutory
U.S. rate $ 6,882,000 $ 4,460,386 $ 3,042,704
Increase (decrease) in tax provision resulting from:
State and local taxes, net 1,150,860 782,280 423,169
Nondeductible items 22,777 28,763 28,763
Reduction in valuation allowance -- -- (174,199)
Other 5,819 107,272 (9,334)
----------- ----------- -----------
Tax provision as above $ 8,061,456 $ 5,378,701 $ 3,311,103
=========== =========== ===========
No income taxes have been provided on the undistributed earnings of foreign
subsidiaries as the earnings are expected to be permanently reinvested in the
foreign operations. Determination of the amount of unrecognized deferred tax
liability for temporary differences related to the undistributed earnings of the
Company's foreign operations is not practicable.
NOTE 14 - EARNINGS PER SHARE
Basic earnings per share is computed by dividing net income available to common
stockholders by the weighted average number of common shares outstanding.
Diluted earnings 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 and restricted stock grants.
Dilutive potential common shares for all periods presented are computed
utilizing the treasury stock method.
The following table sets forth the computation of basic and diluted earnings per
share (in thousands, except per share data):
Year Ended
----------
December 31, December 31, December 31,
2000 1999 1998
------- ------- -------
BASIC
Net Income $11,601 $ 7,740 $ 5,638
======= ======= =======
Weighted-average common
shares outstanding 13,743 13,312 12,773
Basic earnings per share $ 0.84 $ 0.58 $ 0.44
======= ======= =======
DILUTED
Net Income $11,601 $ 7,740 $ 5,638
======= ======= =======
Weighted-average common
shares outstanding for basic 13,743 13,312 12,773
Dilutive effect of stock
options and restricted stock 1,198 814 427
------- ------- -------
Weighted-average common
shares outstanding on
a diluted basis 14,941 14,126 13,200
Diluted earnings per share $ 0.78 $ 0.55 $ 0.43
======= ======= =======
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NOTE 15 - BUSINESS SEGMENTS AND FOREIGN OPERATIONS
The Company operates in a single industry segment and is engaged in the
development and marketing of universal wireless controls and related products
principally for video and audio entertainment equipment. The Company's customers
consist primarily of international retailers, private label customers, original
equipment manufacturers and subscription broadcasting operators.
The Company's operations by geographic area are presented below:
2000 1999 1998
------------ ------------ -------------
Net Sales
United States $ 82,292,109 $ 70,067,412 $ 70,667,968
Netherlands 19,013,186 10,118,979 3,822,568
United Kingdom 7,511,173 8,889,076 8,807,684
Germany 5,227,083 6,467,420 5,865,240
All Other 10,696,326 9,548,296 6,959,159
------------ ------------ -------------
Total Net Sales $124,739,877 $105,091,183 $ 96,122,619
============ ============ ============
Identifiable Assets
United States $ 6,590,934 $ 7,617,945 $ 8,344,489
All Other Countries 4,959,963 4,005,430 3,801,234
------------ ------------ -------------
Total Identifiable Assets $ 11,550,897 $ 11,623,375 $ 12,145,723
============ ============ ============
Specific identification was the basis used for attributing revenues from
external customers to individual countries. Foreign currency exchange gains
(losses) of $512,623, $30,344, and $(97,066) were included in the determination
of net income for the years ended December 31, 2000, 1999, and 1998,
respectively.
NOTE 16 - COMMITMENTS AND CONTINGENT LIABILITIES
The Company is a party to lawsuits and claims arising in the normal course of
its business. In the opinion of management, the Company's liability or recovery,
if any, under pending litigation and claims would not materially adversely
affect its results of operations, cash flows, or financial condition.
NOTE 17 - RESTRUCTURING
In December 1997, the Company announced its decision to discontinue its North
American One For All Retail line of business and the domestic retail
distribution channel supported by the operations in the Twinsburg, Ohio
facility. The Company licensed certain of its proprietary technology and its One
For All trademark to a third party overseas manufacturer, to enable them to
supply certain domestic retailers with a limited number of remote control
products on a direct import basis. The Company closed the Twinsburg, Ohio
facility, with the exception of its consumer service phone center, and moved its
headquarters to its Technology Center in Cypress, California during the second
quarter of 1998. The pre-tax restructuring charge of $8,419,000 taken in the
fourth quarter of fiscal year 1997 primarily related to severance and employee
benefit costs ($3,260,000), the write-down of fixed assets to be disposed of to
their estimated fair market value ($1,738,000), the write-down of intangibles by
the amount for which no future benefit existed ($460,000), consumer support and
service costs relating to contractual obligations of the Company to provide
telephonic support for certain of its products that were discontinued as part of
the restructuring ($393,000), write-off of prepaid advertising and other prepaid
assets to their estimated fair market value ($2,129,000 and $163,000,
respectively), and other costs related to the discontinuation of the North
American Retail business ($276,000). The restructuring was completed during
1998.
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41
NOTE 18 - QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data for the years ended December 31, 2000, 1999,
and 1998.
2000
--------------------------------------------------------------
MARCH JUNE SEPTEMBER DECEMBER
31, 30, 30, 31,
----------- ----------- ----------- -----------
Net Sales $22,664,092 $28,291,338 $34,979,256 $38,805,191
Gross profit 9,678,066 11,454,242 14,277,627 16,161,971
Operating income 1,536,816 3,290,726 5,638,890 7,775,427
Net income $ 1,034,435 $ 2,144,411 $ 3,638,428 $ 4,783,358
----------- ----------- ----------- -----------
Net income per share:
Basic $ 0.08 $ 0.16 $ 0.26 $ 0.35
----------- ----------- ----------- -----------
Diluted $ 0.07 $ 0.14 $ 0.24 $ 0.33
----------- ----------- ----------- -----------
Weighted average common stock outstanding:
Basic 13,695,000 13,743,000 13,759,000 13,776,000
----------- ----------- ----------- -----------
Diluted 15,063,000 15,066,000 15,112,000 14,526,000
----------- ----------- ----------- -----------
1999
--------------------------------------------------------------
MARCH JUNE SEPTEMBER DECEMBER
31, 30, 30, 31,
----------- ----------- ----------- -----------
Net sales $20,941,528 $22,756,972 $28,115,949 $33,276,734
Gross profit 8,282,374 9,167,183 11,787,577 14,139,324
Operating income 831,221 2,021,426 3,852,979 6,262,512
Net income $ 448,763 $ 1,199,413 $ 2,338,057 $ 3,753,849
----------- ----------- ----------- -----------
Net income per share:
Basic $ 0.03 $ 0.09 $ 0.17 $ 0.28
----------- ----------- ----------- -----------
Diluted $ 0.03 $ 0.08 $ 0.16 $ 0.26
----------- ----------- ----------- -----------
Weighted average common stock outstanding:
Basic 12,997,000 13,262,000 13,446,000 13,537,000
----------- ----------- ----------- -----------
Diluted 13,402,000 14,112,000 14,299,000 14,667,000
----------- ----------- ----------- -----------
41
42
1998
-------------------------------------------------------------
MARCH JUNE SEPTEMBER DECEMBER
31, 30, 30, 31,
------------ ------------ ------------ ------------
Net sales
On-going business $ 18,575,778 $ 22,272,821 $ 23,731,761 $ 24,455,346
Discontinued North American
Retail business 4,356,540 2,446,099 284,274 --
------------ ------------ ------------ ------------
Gross profit (loss) 22,932,318 24,718,920 24,016,035 24,455,346
On-going business 7,249,639 9,073,208 9,567,461 10,428,222
Discontinued North American
Retail business -- -- (75,000) --
------------ ------------ ------------ ------------
7,249,639 9,073,208 9,492,461 10,428,222
Operating income 646,875 2,116,671 2,655,658 4,085,481
Net income $ 343,903 $ 1,313,777 $ 1,609,322 $ 2,370,648
------------ ------------ ------------ ------------
Net income per share:
Basic $ 0.03 $ 0.10 $ 0.12 $ 0.18
------------ ------------ ------------ ------------
Diluted $ 0.03 $ 0.10 $ 0.12 $ 0.18
------------ ------------ ------------ ------------
Weighted average common stock outstanding:
Basic 12,676,000 12,732,000 12,876,000 12,836,000
------------ ------------ ------------ ------------
Diluted 13,300,000 13,446,000 13,384,000 13,162,000
------------ ------------ ------------ ------------
There were no sales or cost of sales associated with the discontinued North
American Retail business in the years ended December 31, 2000 and 1999.
42
43
UNIVERSAL ELECTRONICS INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999, AND 1998
ADDITIONS
BALANCE AT CHARGED TO WRITE-OFFS BALANCE AT
BEGINNING OF COSTS AND AND END OF
DESCRIPTION PERIOD EXPENSES DEDUCTIONS PERIOD
- -------------------------------- ------------ ---------- ---------- ----------
Valuation account for accounts
receivable:
Year Ended December 31, 2000 $1,879,931 $ (91,493) $ 108,338 $1,680,100
Year Ended December 31, 1999 $1,611,468 $1,504,275 $1,235,812 $1,879,931
Year Ended December 31, 1998 $2,950,548 $ 342,661 $1,681,741 $1,611,468
43
44
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information required by Item 401 of Regulation S-K with respect to the directors
of the Company will be contained in and is hereby incorporated by reference to
the Company's definitive Proxy Statement for its 2001 Annual Meeting of
Stockholders to be filed pursuant to Regulation 14A promulgated by the
Securities and Exchange Commission under the Securities Exchange Act of 1934.
Information regarding executive officers of the Company is set forth in Part I
of this Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
Information required by Item 402 of Regulation S-K will be contained in and is
hereby incorporated by reference to the Company's definitive Proxy Statement for
its 2001 Annual Meeting of Stockholders to be filed pursuant to Regulation 14A
promulgated by the Securities and Exchange Commission under the Securities
Exchange Act of 1934.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required by Item 403 of Regulation S-K will be contained in and is
hereby incorporated by reference to the Company's definitive Proxy Statement for
its 2001 Annual Meeting of Stockholders to be filed pursuant to Regulation 14A
promulgated by the Securities and Exchange Commission under the Securities
Exchange Act of 1934.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by Item 404 of Regulation S-K will be contained in and is
hereby incorporated by reference to the Company's definitive Proxy Statement for
its 2001 Annual Meeting of Stockholders to be filed pursuant to Regulation 14A
promulgated by the Securities and Exchange Commission under the Securities
Exchange Act of 1934.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) LIST OF FINANCIAL STATEMENTS
See "ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA-Index to
Consolidated Financial Statements" for a list of the consolidated
financial statements included herein.
(a)(2) LIST OF FINANCIAL STATEMENT SCHEDULES
See "ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA-Index to
Consolidated Financial Statements" for a list of the consolidated
financial statement schedules included herein.
(a)(3) LIST OF EXHIBITS REQUIRED TO BE FILED BY ITEM 601(a) OF THE REGULATION
S-K ARE INCLUDED AS EXHIBITS TO THIS REPORT:
See EXHIBIT INDEX at page 46 to Item 601(a) of this Regulation S-K.
(b) No reports on Form 8-K were filed by the Company during the quarter ended
December 31, 2000.
44
45
SIGNATURES
Pursuant to the requirement of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Company has duly caused this Report to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Cypress, State of
California on the 28th day of March, 2001.
UNIVERSAL ELECTRONICS INC.
By:/s/Paul D. Arling
--------------------
Paul D. Arling
President and Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Camille Jayne
and Paul D. Arling as true and lawful attorneys-in-fact and agents, each acting
alone, with full powers of substitution, for her/him and in her/his name, place
and stead, in any and all capacities, to sign any and all amendments to this
Annual Report on Form 10-K, and to file the same, with all exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, each acting alone,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully for all
intents and purposes as she/he might or could do in person, thereby ratifying
and confirming all that said attorneys-in-fact and agents, each acting alone, or
her/his substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below on the 28th day of March, 2001, by the following persons
in the capacities indicated.
NAME & TITLE SIGNATURE
Paul D. Arling
President, Chief Executive Officer
and Director /s/Paul D. Arling
(Principal Executive Officer) -----------------
Camille Jayne
Executive Chairman and Director /s/Camille Jayne
----------------
Mark Belzowski
Vice President, Chief Financial Officer
and Treasurer /s/Mark Belzowski
(Principal Financial and Accounting Officer) -----------------
David Beddow /s/David Beddow
Director ---------------
Bruce A. Henderson /s/Bruce A. Henderson
Director ---------------------
William C. Mulligan /s/William C. Mulligan
Director ----------------------
J. C. Sparkman /s/J.C. Sparkman
Director ----------------
45
46
EXHIBIT INDEX
EXHIBIT
NUMBER DOCUMENT DESCRIPTION
------- -----------------------------------------------------------------------------
2.1 Asset Purchase Agreement dated September 1, 1998 by and among Universal
Electronics Inc., H&S Management Corp., J.C. Sparkman and Steven Helbig
(Incorporated by reference to Exhibit 2.1 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1998 filed on March 31, 1999 (File
No. 0-21044))
2.2 Contract for Sale of Participations of Unimand Espana, S.L. dated June 30,
1999 by and among Universal Electronics, BV and Diffusion Artistique et
Musicale D.A.M. S.A. and Mr. Francisco Muro (Incorporated by reference to
Exhibit 2.2 to the Company's Annual Report on Form 10-K for the year ended
December 31, 1999 filed on March 30,2000 (File No. 0-21044)
3.1 Restated Certificate of Incorporation of Universal Electronics Inc., as
amended (Incorporated by reference to Exhibit 3.1 to the Company's Form S-1
Registration filed on or about December 24, 1992 (File No. 33-56358))
3.2 Amended and Restated By-laws of Universal Electronics Inc. (Incorporated by
reference to Exhibit 3.2 to the Company's Form S-1 Registration filed on or
about December 24, 1992 (File No. 33-56358))
3.3 Certificate of Amendment to Restated Certificate of Incorporation of
Universal Electronics Inc. (Incorporated by reference to Exhibit 3.3 to the
Company's Annual Report on Form 10-K for the year ended December 31, 1995
filed on April 1, 1996 (File No. 0-21044))
*10.1 Form of Universal Electronics Inc. 1993 Stock Incentive Plan (Incorporated by
reference to Exhibit 10.13 to Amendment No. 1 to the Company's Form S-1
Registration filed on or about January 21, 1993 (File No. 33-56358))
10.2 Form of Secured Promissory Note by and between Universal Electronics Inc. and
certain employees used in connection with loans made to the employee to
enable them to make open market purchases of shares of Universal
Electronics Inc. Common Stock (Incorporated by reference to Exhibit 10.5 to
the Company's Quarterly Report on Form 10-Q for the quarter ended June 30,
1994 (File No. 0-21044))
10.3 Form of Stock Pledge Agreement by and between Universal Electronics Inc. and
certain employees used in connection with loans made to the employees to
enable them to make open market purchases of shares of Universal Electronics
Inc. Common Stock (Incorporated by reference to Exhibit 10.6 to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1994 (File No.
0-21044))
10.4 Loan and Security Agreement dated November 21, 1995 by and between Universal
Electronics Inc. and The Provident Bank (Incorporated by reference to Exhibit
10.20 to the Company's Annual Report on Form 10-K for the year ended December
31, 1995 filed on April 1, 1996 (File No. 0-21044))
10.5 Copy of Promissory Note dated November 21, 1995 by and between Universal
Electronics Inc. and The Provident Bank (Incorporated by reference to Exhibit
10.21 to the Company's Annual Report on Form 10-K for the year ended December
31, 1995 filed on April 1, 1996 (File No. 0-21044))
46
47
EXHIBIT
NUMBER DOCUMENT DESCRIPTION
------- ------------------------------------------------------------------------------
10.6 Commercial Letters of Credit Master Agreement dated November 21, 1995 by and
between Universal Electronics Inc. and The Provident Bank (Incorporated by
reference to Exhibit 10.22 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1995 filed on April 1, 1996 (File No. 0-21044))
10.7 Intercreditor Agreement dated November 21, 1995 by and between The Provident
Bank and Society National Bank and acknowledged and agreed to by Universal
Electronics Inc. (Incorporated by reference to Exhibit 10.23 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1995 filed on April
1, 1996 (File No. 0-21044))
10.8 Lockbox Service Contract dated November 10, 1995 by and between Universal
Electronics Inc. and The Provident Bank (Incorporated by reference to Exhibit
10.24 to the Company's Annual Report on Form 10-K for the year ended December
31, 1995 filed on April 1, 1996 (File No. 0-21044))
*10.9 Form of Universal Electronics Inc. 1995 Stock Incentive Plan (Incorporated by
reference to Exhibit B to the Company's Definitive Proxy Materials for the 1995
Annual Meeting of Stockholders of Universal Electronics Inc. filed on May 1,
1995 (File No. 0-21044))
*10.10 Form of Stock Option Agreement by and between Universal Electronics Inc. and
certain employees used in connection with options granted to the employees
pursuant to the Universal Electronics Inc. 1995 Stock Incentive Plan
(Incorporated by reference to Exhibit 10.20 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1996 filed on March 28, 1997 (File
No. 0-21044))
*10.11 Form of Stock Option Agreement by and between Universal Electronics Inc. and
certain non-affiliated directors used in connection with options granted to the
non-affiliated directors pursuant to the Universal Electronics Inc. 1995 Stock
Incentive Plan (Incorporated by reference to Exhibit 10.21 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1996 filed on March
28, 1997 (File No. 0-21044))
10.12 First Amendment to Loan and Security Agreement dated July 31, 1996 by and
between Universal Electronics Inc. and The Provident Bank (Incorporated by
reference to Exhibit 10.22 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1996 filed on March 28, 1997 (File No. 0-21044))
*10.13 Form of Universal Electronics Inc. 1996 Stock Incentive Plan (Incorporated by
reference to Exhibit 4.5 to the Company's Form S-8 Registration Statement filed
on March 26, 1997 (File No. 333-23985))
*10.14 Form of Stock Option Agreement by and between Universal Electronics Inc. and
certain employers used in connection with options granted to the employees
pursuant to the Universal Electronics Inc. 1996 Stock Incentive Plan
(Incorporated by reference to Exhibit 4.6 to the Company's Form S-8
Registration Statement filed on March 26, 1997 (File No. 333-23985))
*10.15 Form of Salary Continuation Agreement by and between Universal Electronics Inc.
and certain employees (Incorporated by reference to Exhibit 10.25 to the
Company's Annual Report on Form 10-K for the year ended December 31, 1997,
filed on March 30, 1998 (File No. 0-21044))
*10.16 Form of Amendment to Salary Continuation Agreement by and between Universal
Electronics Inc. and certain employees (Incorporated by reference to Exhibit
10.26 to the Company's Annual Report on Form 10-K for the year ended December
31, 1997, filed on March 30, 1998 (File No. 0-21044))
48
EXHIBIT
NUMBER DOCUMENT DESCRIPTION
------- -----------------------------------------------------------------------------
10.17 Second Amendment to Loan and Security Agreement dated January 24, 1997 by and
between Universal Electronics Inc. and The Provident Bank (Incorporated by
reference to Exhibit 10.27 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1997, filed on March 30, 1998 (File No. 0-21044))
10.18 Lease dated November 1, 1997 by and between Universal Electronics Inc. and
Warland Investments Company (Incorporated by reference to Exhibit 10.28 to the
Company's Annual Report on Form 10-K for the year ended December 31, 1997,
filed on March 30, 1998 (File No. 0-21044))
10.19 Letter Agreement in Principal dated March 18, 1998 by and between Universal
Electronics Inc. and The Provident Bank further amending that certain Loan and
Security Agreement (Incorporated by reference to Exhibit 10.29 to the
Company's Annual Report on Form 10-K for the year ended December 31, 1997,
filed on March 30, 1998 (File No. 0-21044))
*10.20 Form of Universal Electronics Inc. 1998 Stock Incentive Plan (Incorporated
by reference to Exhibit A to the Company's Definitive Proxy Materials for
the 1998 Annual Meeting of Stockholders of Universal Electronics Inc. filed
on April 20, 1998 (File No. 0-21044))
*10.21 Form of Stock Option Agreement by and between Universal Electronics Inc.
and certain employees used in connection with options granted to the
employees pursuant to the Universal Electronics Inc. 1998 Stock Incentive
Plan (Incorporated by reference to Exhibit 10.24 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1998 filed on March 31,
1999 (File No. 0-21044))
10.22 Agreement for Purchase and Sale of Property dated May 29, 1998 by and between
Universal Electronics Inc., and Duke Realty Limited Partnership (Incorporated
by reference to Exhibit 10.25 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1998 filed on March 31, 1999 (File No. 0-21044))
10.23 Agreement dated August 12, 1998 by and between Universal Electronics Inc.,
and David M. Gabrielsen (Incorporated by reference to Exhibit 10.26 to the
Company's Annual Report on Form 10-K for the year ended December 31, 1998
filed on March 31, 1999 (File No. 0-21044))
10.24 Stock Acquisition Representations and Covenants Certificate dated September
1, 1998 from H & S Management Corp., J.C. Sparkman and Steven Helbig
(Incorporated by reference to Exhibit 10.27 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1998 filed on March 31, 1999 (File
No. 0-21044))
10.25 Non-Compete Agreement dated September 1, 1998 by and among Universal
Electronics Inc., H & S Management Corp., J.C. Sparkman and Steven Helbig
(Incorporated by reference to Exhibit 10.28 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1998 filed on March 31, 1999 (File
No. 0-21044))
10.26 Consulting Agreement dated September 1, 1998 by and between Universal
Electronics Inc. and J.C. Sparkman (Incorporated by reference to Exhibit 10.29
to the Company's Annual Report on Form 10-K for the year ended December 31,
1998 filed on March 31, 1999 (File No. 0-21044))
10.27 Revolving Loan and Security Agreement dated October 2, 1998 by and between
Universal Electronics Inc. and Bank of America National Trust and Savings
Association (Incorporated by reference to Exhibit 10.31 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1998 filed on March
31, 1999 (File No. 0-21044))
49
EXHIBIT
NUMBER DOCUMENT DESCRIPTION
------- --------------------------------------------------------------
10.28 Copy of Revolving Note dated October 2, 1998 by and between Universal
Electronics Inc. and Bank of America National Trust and Savings Association
(Incorporated by reference to Exhibit 10.32 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1998 filed on March 31, 1999 (File
No. 0-21044))
10.29 Patent and Trademark Collateral Assignment dated October 2, 1998 by and
between Universal Electronics Inc. and Bank of America National Trust and
Savings Association (Incorporated by reference to Exhibit 10.33 to the
Company's Annual Report on Form 10-K for the year ended December 31, 1998
filed on March 31, 1999 (File No. 0-21044))
10.30 Purchase Agreement dated November 8, 1998 by and between Universal
Electronics Inc. and General Instrument Corporation (Incorporated by
reference to Exhibit 10.34 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1998 filed on March 31, 1999 (File No. 0-21044))
10.31 Warrant dated November 9, 1998 by and between Universal Electronics Inc. and
General Instrument Corporation (Incorporated by reference to Exhibit 10.35 to
the Company's Annual Report on Form 10-K for the year ended December 31, 1998
filed on March 31, 1999 (File No. 0-21044))
10.32 Agreement dated January 30, 1998, as amended on December 30, 1998 by and
among Universal Electronics BV, a wholly owned subsidiary of Universal
Electronics Inc. and Euro quality Assurance Ltd. And T. Maeizumi
(Incorporated by reference to Exhibit 10.37 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1998 filed on March 31, 1999 (File
No. 0-21044))
10.33 Agreement dated February 3, 1998, as amended on December 30, 1998 by and
among Universal Electronics BV, a wholly owned subsidiary of Universal
Electronics Inc., Strand Europe Ltd. and Ashok Suri (Incorporated by
reference to Exhibit 10.37 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1998 filed on March 31, 1999 (File No. 0-21044))
*10.34 Form of Universal Electronics Inc. 1999 Stock Incentive Plan (Incorporated by
reference to Exhibit A to the Company's Definitive Proxy Materials for the
1999 Annual Meeting of Stockholders of Universal Electronics Inc. filed on
April 29, 1999 (File No. 0-21044))
*10.35 Form of Stock Option Agreement by and between Universal Electronics Inc.
and certain employees used in connection with options granted to the
employees pursuant to the Universal Electronics Inc. 1999 Stock Incentive
Plan (Incorporated by reference to Exhibit A to the Company's Definitive
Proxy Materials for the 1999 Annual Meeting of Stockholders of Universal
Electronics Inc. filed on April 29, 1999 (File No. 0-21044))
*10.36 Form of Salary Continuation Agreement by and between Universal Electronics
Inc. and certain employees (Incorporated by reference to Exhibit 10.39 to the
Company's Annual Report on Form 10-K for the year ended December 31, 1999
filed on March 30, 2000 (File No. 0-21044))
*10.37 Form of Universal Electronics Inc. 1999A Nonqualified Stock Plan effective
October 7, 1999 and subsequently amended February 1, 2000 (Incorporated by
reference to Exhibit 10.42 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1999 filed on March 30,2000 (File No. 0-21044))
*10.38 Form of Stock Option Agreement by and between Universal Electronics Inc. and
certain employees used in connection with options granted to the employees
pursuant to the Universal Electronics Inc. 1999A Nonqualified Stock Plan
(Incorporated by reference to Exhibit 10.43 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1999 filed on March 30, 2000 (File
No. 0-21044))
50
EXHIBIT
NUMBER DOCUMENT DESCRIPTION
------- ---------------------------------------------------------------
10.39 First Amendment to Revolving Loan and Security Agreement dated September 19,
2000 by and between Universal Electronics Inc. and Bank of America, N.A.
(Incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report
on Form 10-Q for the quarter ended September 30, 2000 filed on November 14,
2000 (File No. 0-21044))
*10.40 Executive Officer Employment Agreement dated October 27, 2000 by and between
Universal Electronics Inc. and Camille Jayne (Incorporated by reference to
Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 2000 filed on November 14, 2000 (File No. 0-21044))
*10.41 Nonqualified Stock Option Agreement dated August 24, 2000 by and between
Universal Electronics Inc. and Camille K. Jayne (Incorporated by reference to
Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 2000 filed on November 14, 2000 (File No. 0-21044))
*10.42 Form of First Amendment to Stock Option Agreement dated October 27, 2000 by
and between Universal Electronics Inc. and Camille K. Jayne (Incorporated
by reference to Exhibit 10.4 to the Company's Quarterly Report on Form 10-Q
for the quarter ended September 30, 2000 filed on November 14, 2000 (File No.
0-21044))
*10.43 Executive Officer Employment Agreement dated October 27, 2000 by and between
Universal Electronics Inc. and Paul D. Arling (Incorporated by reference to
Exhibit 10.5 to the Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 2000 filed on November 14, 2000 (File No. 0-21044))
10.44 Purchase Agreement dated August 25, 2000 by and between
Universal Electronics BV, a wholly owned subsidiary of Universal
Electronics Inc. and DAM Company (filed herewith)
21.1 List of Subsidiaries of the Registrant (filed herewith)
23.1 Consent of PricewaterhouseCoopers LLP (filed herewith)
24.1 Power of Attorney (filed as part of the signature page hereto)
* Management contract or compensation plan or arrangement identified pursuant
to Item 14(c) of the Form 10-K.
1
Exhibit 21.1
UNIVERSAL ELECTRONICS INC.
LIST OF SUBSIDIARIES OF THE REGISTRANT
Universal Electronics B.V. (organized under the laws of the Netherlands)
One For All GmbH (organized under the laws of Germany)
Ultra Control Consumer Electronics GmbH (organized under the laws of Germany)
One For All (UK) Ltd. (organized under the laws of the United Kingdom)
One For All Iberia S.L. (organized under the laws of Spain)
One For All Argentina S.R.L. (organized under the laws of Argentina)
One For All France S.A.S. (organized under the laws of France)
1
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Forms S-8 No. 33-66426 filed on or about July 23, 1993, No.
333-09021 filed on July 26, 1996, No. 333-23985 filed on March 26, 1997, No.
333-91101 filed on November 17, 1999, No. 333-95715 filed on January 31, 2000,
and No. 333-47378 filed on October 5, 2000 of Universal Electronics Inc. of our
report dated January 22, 2001, relating to the financial statements and
financial statement schedule, which appears in this Form 10-K.
PricewaterhouseCoopers LLP
Orange County, California
March 28, 2001
1
Exhibit 10.44
PURCHASE AGREEMENT
ARTICLE 1 - DEFINITIONS
In the framework of this agreement, the terms used hereinafter shall have the
following meanings:
ACTIVITY means the activity of distributing "One For All" products manufactured
by the Universal Electronics Inc. company, conducted by the Transferor. From
time to time, the activity as is stipulated herein shall mean exclusively of
_____________ also conducted by the Transferor.
BUSINESS means the business involving the distribution of One For All products
manufactured by Universal Electronics Inc., as run by the Transferor, including
intangible and tangible assets as defined in ARTICLE 2 hereinbelow.
COMPLETION DATE means the date when the transfer, assignment of property and
rights of the Business is final. The Completion Date is set at the date of
execution of this business transfer agreement.
ESCROW means the Bank NSM located ______________ avenue Hoche in Paris (75008),
which will fulfil the role of escrow as defined in ARTICLE 6 of this business
transfer agreement.
PREMISES means those premises in which the business is run, located __________
in Fontainebleau (77300), ______________ (to be stipulated), representing a
surface area of ______________ square meters.
ARTICLE 2 - BUSINESS TRANSFER - DESIGNATION
DAM hereby transfers the Business, with all the assets and property defined
herein, to Universal Electronics France which accepts, under the conditions set
forth herein. ______________ moreover, undertakes to fulfill all the de facto
and de jure guarantees. The transfer of ownership and use of the Business shall
take ipso jure effect this day.
The Business hereby transferred includes the following tangible and intangible
assets:
- - the clientele and related goodwill;
- - the benefits of any contracts and agreements related to contracts concluded
with the Business running as defined in SCHEDULE 7;
- - the merchandise on stock in the Business, as inventoried by both the
Transferor and the Transferee on 24/8/00 defined in SCHEDULE 2;
- - [the machinery and office equipment necessary to the running of the Business
including the tools of the Firstline products and the tools for the Remote
Control Protectors at bookvalue, as inventoried by both the Transferor and
the Transferee on 24/8/00 defined in Schedule 1];
1
2
- -- the employment contracts concerning the personnel connected to the
Business, as listed in Schedule 4, for which the Transferee shall be
subrogated to all rights and obligations of Transferor as from the date of
registration of the company One For All with the Trade and Companies
Register. However, for practical purposes, the transferred employees shall
be paid by the Transferee as of September 1 2000.
The Business as it presently stands, with all tangible and intangible assets
defined hereabove, is an on-going concern and all the authorisations necessary
for its continued activity have been obtained and are valid without any
exceptions or reservations.
ARTICLE 3 - CONDITIONS
This Business transfer is consented and accepted under the usual de jure terms
and conditions, namely as follows:
3.1 TRANSFEROR COMMITMENTS
- -- sign any additional clauses and assignments of agreements (and policies)
presently in effect and connected to the running of the Business by the
Transferee as from the Completion Date,
- -- cease any activity connected with the running of the Business at the
Completion Date,
- -- expressly agree not to exercise the option of taking an interest in,
operating, managing or participating in anyway whatsoever (whether as a
representative, consultant, employee, corporate officer, or otherwise)
directly or indirectly, on its own behalf or on behalf of any third party,
company, grouping, association or any entity, in any activity which is
directly or indirectly in competition with the running of the Business
and/or with products related to the product range offered by Universal
Electronics Inc. at Completion Date or known by the Transferor at
Completion Date or during the period the Transferor acts as a free business
consultant except for the products listed in Schedule 9, in France for a
period of two (2) years as from the day of Completion Date, subject to
damages which would be paid to Transferee or business successors and to the
closing of the Business run in violation of this clause. As consideration
for the non competition undertaking provided above, the Transferee will pay
to the Transferor by way of a bank wire to the nominated account of the
Transferor at completion Date a total amount of fifty thousand (50,000)
Euros, i.e three hundred and twenty seven thousand nine hundred and seventy
eight point give (327,978.5) Francs
- -- keep the corporate accounts available to Transferee for a period of three
(3) years as from the Completion Date,
- -- bear any fees and expenses owing to the Escrow holding the price amount,
possible duties for cancellation of pledges, or releases of mortgages or
liens of any type, striking off of any registers, consignments and price
allocation,
- -- bear prorata temporis the fraction of vacation pay due, end of the year
bonuses, incentives, salaries, and more generally any amounts outstanding
to be paid to employees in connection with the Business concerning the
period prior to the
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Completion Date, as well as payment of amounts which might be owing to
employees after the Completion Date, as well as the related social
security contributions, with said Transferee being authorised to offset
these amounts concerned against the price for the transfer of the
Business at the time of settlement of said price to Transferor.
3.2 FOR THE TRANSFEREE
- - [take at the Completion Date any furnishings or movable property,
equipment and installations that make up the business as listed in
SCHEDULE 1, in the state in which they are at the Completion Date,]
- - [take at the Completion Date, any merchandise making up the Business, a
list of which is given in SCHEDULE 2, in the state in which it is found
at Completion Date,]
- - continue and take in charge as from Completion Date, those contracts
which have been transferred in connection with the running of the
Business, (as well as any insurance policies which may have been taken
out for the purposes of said Business); notwithstanding, however,
provisions to the contrary, the Transferee in compliance with the July
12, 1930 law article 19 paragraph 2, retains the option of having the
right to cancel the insurance policy or policies in progress providing
it immediately subscribes to a new insurance policy with insurance
companies of a financially sound reputation,
- - bear, as from Completion Date, all of the city and public order taxes
to which the Business is subject, as well as pay any contributions of
any kind incumbent upon that Business, and to be personally responsible
for any gas, electric, water and telephone utilities contracts.
ARTICLE 4 - PRICE
4.1 TERMS AND CONDITIONS DEFINING THE BUSINESS TRANSFER PRICE
The Business transfer price, not including the merchandise related thereto
represents a total amount of (one million eleven thousand two hundred and sixty
five (1,011,265) Euros, i.e six million six hundred and thirty three thousand
four hundred and sixty three point six (6,633,463.6) French francs, allocated as
follows:
- - nine hundred and forty nine thousand four hundred and twenty one
(949,421) Euros, i.e, six million two hundred and twenty seven thousand
seven hundred and ninety three point fifty five (6,227,793.55) Francs
for the intangible assets referred to in ARTICLE 2 hereinabove
- - sixty one thousand eight hundred and forty four (61,844) Euros, i.e
four hundred and five thousand six hundred and seventy point zero five
(405,670.05) francs for the tangible assets referred to in ARTICLE 2
hereinabove
[The transfer price of the merchandise that belongs to the Business represents a
French Franc amount, taxes not included of FF 6.224.232,60].
The above mentioned price allocation is solely for the purpose of compliance
with the provisions of article 1 of March 17, 1909 law and the Transferor and
the Transferee covenant
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by mutual agreement that this price allocation shall under no circumstances give
right to any consequence or claim regarding the valuation of the assets taken
separately.
4.2 TERMS AND CONDITIONS FOR PAYMENT OF THE BUSINESS TRANSFER PRICE
(i) The transfer price of the intangible and tangible assets of the Business
referred to in ARTICLE 2 hereinabove paid today by the Transferee to:
- the Escrow by way of bank wire, for an amount of five hundred thousand
(500,000) Euros, i.e. three million two hundred and seventy nine
thousand seven hundred and eighty five (3,279,785) French Francs,
(hereinafter referred to as the "Portion of transfer price payable on
account to the escrow")
- the Transferor's nominated account by way of a bank wire for an amount
of one hundred and sixty one thousand two hundred and sixty five
(161,265) Euros, i.e. one million fifty seven thousand eight hundred
and twenty nine point one (1,057,829.1) French Francs,
The balance of the transfer price corresponding to the intangible assets
[and tangible assets] of the Business, i.e. three hundred fifty thousand
(350,000) Euros or two million two hundred and ninety five thousand
eight hundred and forty nine point fifty (2,295,849.50) French Francs,
will be paid by the Transferee to the Transferor according to the
following terms and conditions:
- thirty seven thousand five hundred (37,500) Euros (i.e. two hundred
and forty five thousand nine hundred and eighty four (245,984) French
Francs) as at December 1, 2000, March 1, 2001, June 1, 2001 and
September 1, 2001
- fifty thousand (50,000) Euros (i.e. three hundred twenty seven
thousand nine hundred and seventy eight point fifty (327,978.50)
French Francs) as at December 1, 2001, March 1, 2002, June 1, 2002 and
September 1, 2002.
(ii) [The transfer price for the merchandise belonging to the Business
referred to in ARTICLE 2 will be paid by the Transferee to the
Transferor at Completion Date, after deduction of the amounts referred
to in paragraph 3.1 [and, after off-setting of the amounts due by
Transferor to Transferee by virtue of the "Receivables on Contracts in
Progress].
ARTICLE 5 - REPRESENTATIONS AND WARRANTIES
5.1 THE TRANSFEROR REPRESENTS AND WARRANTS THAT:
Transferor represent and warrants to Transferee the following, with it being
stipulated that the representations and warranties are an essential factor in
the consent of the Transferee to the acquisition of the Business as defined in
ARTICLE 2 herein above.
5.1.1 TRANSFEROR FINANCIAL POSITION
The corporate accounts of the DAM Company regarding the most recent financial
year ended June 30, 1999, a copy of which is given in Schedule 6 have been
established in conformity with the generally accepted accounting principles of
France. These principles have been
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applied in an on-going manner. These accounts are an exact reflection of the
actual financial position of the DAM Company at the closing of the most recent
financial year.
The corporate accounts have been kept in compliance with standard practices and
give an accurate account of the business financial standing; all of the
financial information regarding the Business has been communicated to
Transferee; this information has been prepared in compliance with the standard
and acceptable trade and accounting practices and are neither incorrect nor
likely to be misleading in any way.
At this time, the Transferor is not likely to be nor has said Transferor ever
been in a state of default on payments, court ordered financial recovery or
bankruptcy proceedings. Transferor has never been in a position of insolvency or
inability to pay its debts and no court ordered receiver or negotiater has ever
been appointed to manage the DAM company. There has been no "bankruptcy alert
procedure", whether in application of the March 1, 1984 law or any other texts
applicable intended to prevent financial difficulties for the DAM company, and
the latter has never entered into nor is it about to enter into any such
procedure.
5.1.2 BUSINESS OWNERSHIP
Transferor is the lawful owner, without contest, restriction, reservation or
any obstacle whatsoever of the Business which it has created; Transferor
represents and warrants that the Business has never been entrusted into a
management lease situation and more generally that no third party has ever held
any right whatsoever on the Business likely to enable such a third party to
claim all or part of the ownership or the right to run the Business.
The Business has not been subject to any registration of pledge whatsoever as
certified by the statement of preferential rank or any other type of lien
obtained as of today from the clerk of the Montereau commercial court.
The transfer of the Business is not in contradiction with any of the
obligations of the DAM company.
There is no prohibition of an administrative court or any other type to the
running of the Business or its transfer.
More generally, there is nothing which is in opposition to the Transferee
having unencumbered enjoyment of ownership of the Business as from Completion
Date.
5.1.3 ASSETS MAKING UP THE BUSINESS
(i) EQUIPMENT AND FURNITURE
The equipment and furniture transferred under the terms of this
agreement are free of any pledge, surety or restriction of use or of
any other charge whatsoever.
(ii) [MERCHANDISE
The Business consists of merchandise in sufficient quantity and of good
and marketable quality; this merchandise is not subject to any lien,
pledge, preferential,
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rank and more generally to any surety; this merchandise may be used
in the standard normal Business activities].
(iii) EMPLOYMENT CONTRACTS
There are no other employees contributing to the running of the
Business other than those whose names and employment contracts are
listed in SCHEDULE 4. In this respect, the Transferor shall expressly
indemnify the Transferee for full damages which could be incurred in
case of inaccuracy of this representation.
The employees connected to the Business are subject to the following
collective bargaining agreement: Whole sale ("Commerce de gros").
With the exception of the application of the above mentioned
collective bargaining agreement, the employees are not entitled to
any specific benefits, whether in kind or on an exceptional basis,
nor are they entitled to payment of any pensions or any other
severance pay for departures due to any reasons whatsoever.
None of the employees connected to the Business have served notice of
resignation nor have they received notice of dismissal, nor are there
any dismissal proceedings being notified. There is no amount due to
any of these employees by virtue of a dismissal or a resignation.
Social security contributions owed by virtue of salaries paid to
these employees have been duly paid in a timely manner.
(iv) CONTINUITY OF CONTRACTUAL RELATIONS
The transfer of the Business will have no impact on on-going
contractual relations of the Business for which the Transferor
guarantees namely to Transferee the free transfer thereof, to the
latter's benefit.
Any trade transactions have been made by the Transferor under normal
operating conditions of the Business at ARM'S LENGTH, without any
illicit discrimination.
No contracts have been entered into in connection with the running of
the Business other than those listed in SCHEDULE 7.
(v) INSURANCE POLICIES
The running of the Business is sufficiently and appropriately insured
with an insurance company having a reputation of solvency covering
the property making up the Business and the risks to which the
Business may be exposed as well as the employees related thereto
namely as regards civil liability. A list of the insurance policies
is given in SCHEDULE 8.
Transferor is up to date in payment of all premiums and has complied
with all formalities required for these insurance policies. These
policies are in conformity with the provisions of the lease indicated
in SCHEDULE 8.
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The running of the Business has not been subject to any loss of a nature
such that it would entail a slowing down of the normal continuance of
business activity, or entail a material increase of premiums or excess
deductible amounts.
(vi) DISPUTES
Running of the Business has not given rise to any court cases,
litigation, disputes or arbitration, whether as plaintiff or defendant
[with the exception of a case with (i) the AUCHAN company described in
SCHEDULE ___ for which Transferor undertakes to be fully responsible
regarding all costs in connection with the follow-up of this case as
well as make payment for any amounts which would be owed by the
Transferee as a result of this dispute] and (ii) M6/Australian for
which the outcome will be respected by both parties except for the part
of the court decision for expenses allowance which will be 100% for the
benefit of the Transferee since he has paid all the expenses for legal
advise.
There is no procedure, action, or any claim of any nature whatsoever,
nor is there about to be any such event by virtue of the running of the
Business by the Transferor, action against the Transferor, or against
any party whose action would be likely to involve the liability of the
Transferor. There is no likelihood of any such action, procedure or
claim taking place.
(vii) LEASE
The lease indicated in SCHEDULE 3, which namely concerns the Premises
has been amended by a rider dated 18/8/00, which is indicated in
SCHEDULE 3 to this Business Transfer Agreement, in order to exclude
said Premises from the lease as from the Completion Date. Therefore, at
this time, the Transferor is no longer bound by any lease whatsoever
with regard to the Premises.
(viii) TAX REGULATIONS
All taxes, contributions, duties and other legal charges or contractual
charges regarding the running of the Business by the Transferor have
been fully paid by said Transferor.
5.2 TRANSFEREE REPRESENTATIONS AND WARRANTIES
The Transferee represents and warrants the following:
(i) The Transferee represents that all of the conditions for qualified
running of the business have been fulfilled.
(ii) The Transferee has never been subject to any court sentence or civil
suit sanctions of a nature that would prohibit the running of the
Business.
(iii) The Transferee shall be solely responsible all for contracts and
insurance policies related to the Business as from the Completion Date
such that the Transferor shall be held harmless.
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(iv) The Transferee will pay all the direct and indirect charges of its
running of the Business as from the Completion Date. In particular, said
Transferee will pay as from said date the taxes, duties, contributions,
business licence fees and other charges of any nature whatsoever related
to the running of the Business which could arise as from the Completion
Date.
5.3 REPRESENTATIONS ACCORDING TO THE JUNE 29, 1935 LAW (ARTICLE 12)
The Transferor represents as follows in compliance with the June 29, 1935 law:
(i) ORIGIN OF TITLE
The Transferor represents that it is the owner of the Business and had created
it as of October 19, 1992, date when it entered into an agreement with
Universal Electronics Inc. concerning exclusive distribution of products for
the French territory.
(ii) LEASE
It is pointed out that the Premises are no longer the subject of any lease
granted to Transferor.
The Premises where necessary will be the subject of the new lease to be granted
by DAM SA company to the benefit of the Transferee.
(iii) TURNOVER AND TRADING PROFITS
The Transferor represents that as regards turnover and trading profits, and
according to tax returns and accounting documents submitted, the turnover for
the running of the Business has been for the preceding three financial years:
- - Financial year ended on June 30, 1998: 23,991,337 FRF
- - Financial year ended on June 30, 1999: 19,106,177 FRF
- - Financial year ended on June 30, 2000: 21,400,000 FRF
From July 1, 2000 to the Completion Date: 2,768,000 FRF
Trading profits realised during the same period represent:
- - Financial year ended on June 30, 1998: 2,445,423 FRF
- - Financial year ended on June 30, 1999: 2,344,801 FRF
- - Financial year ended on June 30, 2000: 2,380,000 FRF
From July 1, 2000 to the Completion Date: 304,480 FRF
The parties hereby review and approve all of the accounting documents for the
preceding three financial years as well as the inventory which has been drawn
up and for which each of the parties represents having a copy.
ARTICLE 6 - ESCROW
The Portion of the Price Payable on Account to the Escrow has been paid today
by the Transferee to the Escrow by bank wire for an amount of five hundred
thousand (500,000)
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Euros, i.e. three million two hundred and seventy nine thousand seven hundred
and eighty five (3,279,785) French Francs to the order of the Escrow.
The Parties acknowledge that the total amount of interests generated by the
Portion of the Price Payable on Account to the Escrow will be paid by the
Escrow to the Transferor at the end of the period for any creditor opposition
to the transfer.
The Portion of the Price Payable on Account to the Escrow cannot be paid by the
Escrow to the Transferor without the presence and cooperation of the Transferee
and this cannot take place until the end of the period for any creditor
opposition to the transfer and upon substantiating documents submitted by the
Transferor regarding:
1. the striking off from of any records of encumbrances on the Business,
2. the withdrawal of any oppositions which may have been made,
3. the payment of any direct and indirect taxes which could be owing by the
Transferor prior to or because of the transfer of the Business,
4. the settlement of any amounts which could be owing to the URSSAF, the
ASSEDIC by the Transferor and, more generally, to any agencies responsible
for the collection of taxes and other specific taxes,
all in such a way that the Transferee is held harmless at all times from
any court action taken by possible creditors of Transferor and is not
subject in any way to any prejudice in the running of the Business.
The Transferor and the Transferee entrust the Escrow with the irrevocable
assignment of settling any outstanding payments owed to creditors of the
Transferor, after the end of the period for opposition and according to the
rank conferred upon them by law, except for unsettled claims with Universal
Electronics Inc. company or any related companies in connection with the
previous distribution agreement.
In case of insufficient amount to pay creditors of a preferential rank who may
have opposed the transfer and after failure to reach an out of court
settlement regarding the price allocation, failing the parties being able to do
so, at the end of a period of 3 months as provided by article 19 of the June
29, 1935 law, the Escrow will be able to petition the presiding judge of the
court of commerce for an interim decision under a summary proceeding, to be
released from the assignment of Escrow into the hands of whomsoever it shall
concern.
ARTICLE 7 -- PRICE ALLOCATION
The Escrow will be released from its assignment:
(i) if there are no creditors:
by making payment of the price to the Transferor, at the end of the legal
period for creditor oppositions and after submission by said Transferor of
substantiating documents proving payments of the taxes owed by the latter
as indicated herein above.
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(ii) if there are creditors:
- - either by settlement of their respective debts, in conformity with the law,
and payment to Transferor of the available balance,
- - or by the payment of the amount, held in escrow, into the hands of the
party appointed by the presiding judge ruling under the summary proceeding,
accounting to the conditions stipulated herein above.
The fees for the Escrow and possibly for the price allocation shall be at the
charge of the Transferor and calculated according to the method which follows:
- - escrow fees:
- - allocation fees:
ARTICLE - FORMALITIES
The Transferee shall ensure that the legal announcement and registration
formalities resulting from the establishment of this agreement are carried out
within the legal time period set forth, under the March 17, 1909 law.
If the carrying out of the legal announcement formalities reveals any
restrictions and/or oppositions on the Business or regarding the price of this
transfer made by claimants, then the Transferor shall undertake to bear all the
charges necessary to withdraw said oppositions within a thirty (30) day period
following receipt of such oppositions served to its elected domiciliation as
indicated herein below.
ARTICLE 9 - WAIVER WITH REGARD TO THE PARTY DRAFTING THIS DOCUMENT
The parties acknowledge that they have not asked the party drafting this
Business Transfer Agreement to verify the accuracy of the representations made
by the Transferor according to the terms of this agreement and in this respect,
they release the party drafting this agreement from any liability by virtue of
other facts which may arise subsequent to this agreement regardless of their
nature and their scope.
ARTICLE 10 -- DECLARATION OF SINCERITY
The Parties have been informed by the party drafting this agreement and
acknowledge that they are aware of sanctions applicable in case of inaccurate on
intentionally misleading information regarding transfer prices, or regarding
wrongful representation of sincerity or of the State's preemptive right on
Business assets sold.
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The Transferor and Transferee represent and warrant, under penalties provided
by article 1938 of the French tax code and by article 8 of the law of April
8,1915 that this transfer agreement stipulates the total amount of the agreed
price at the Date of Completion.
ARTICLE 11 -- VAT REGISTRATION
The parties require registration of this Business Transfer Agreement.
For the purposes of registration, it is stipulated that to the knowledge of the
Transferor, there is no liability in connection with the financing of the
assets transferred.
The Transferee undertakes to subject all future transfers of assets to VAT tax
and to perform, as necessary all formalities provided under articles 210 and
215 of Annex II of the French Tax Code as would have been required if the
Transferor had continued to use such assets.
ARTICLE 12 -- ONE FOR ALL MERCHANDISE NOT TRANSFERRED TO THE TRANSFEREE
The parties acknowledge that the One For All merchandise, listed hereafter,
which were not transferred by the Transferor in the framework of this business
transfer agreement and thereby remaining the property of the Transferor, may
only be transferred to the current clients of the Business after notification
to the Transferee in case this could affect the relationship between clients
and the Transferee and under the further condition that such products are only
sold on behalf of DAM and this without warranty being given by the Transferee
or related company. The Transferor will be held solely liable for any defects
in such products and other obligations related thereto. It is agreed that the
products not transferred shall henceforth be deemed to be manufactured by the
Transferor.
ARTICLE 13 -- ELECTION OF DOMICILE
For the performance of this agreement and its subsequent terms, the Parties
elect domicile at their respective registered offices as indicated herein above.
For receipt, notification and payment of claims made by creditors on transfer
price, correspondence and return of documents, the parties elect domiciles at
Fontainebleau.
ARTICLE 14 -- JURISDICTION
The parties covenant that for any dispute arising over this agreement the
Montereau Commercial Court shall be the competent jurisdiction.
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ARTICLE 15 -- COSTS AND POWERS OF ATTORNEY
Duties, expenses and fees incurred in the setting up and performance of this
agreement, including registration fees, shall be borne by the Transferee who
undertakes to ensure their payment.
ARTICLE 16 -- SCHEDULES
Schedule 1: list of equipment and furniture
Schedule 2: list of merchandise
Schedule 3: lease and rider to this lease agreement
Schedule 4: list of employees connected with the Business
Schedule 5: list of agreements in the process of being transferred
Schedule 6: Transferor's corporate accounts
Schedule 7: contracts and agreements connected with the running of the Business
for which the term extends beyond December 31, 2000.
Schedule 8: list of insurance policies.
Schedule 9: list of products not purchased by the Transferee
Established in 25/8/00.
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On FONTAINEBLEAU.
------------------------
In 2 originals
-
For the DAM Company /s/ LOUIS RADEMAKERS
Mr. Didier Briad -----------------------------------------
/s/ DIDIER BRIAD Mr. Louis Rademakers acting for and on
behalf of the company One For All in the
process of being incorporated.
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