e10vq
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2008
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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)
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Delaware
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33-0204817 |
(State or Other Jurisdiction
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(I.R.S. Employer |
of Incorporation or Organization)
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Identification No.) |
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6101 Gateway Drive |
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Cypress, California
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90630 |
(Address of Principal Executive Offices)
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(Zip Code) |
Registrants Telephone Number, Including Area Code: (714) 820-1000
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2)
has been subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
(Check one):
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o Large accelerated filer
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þ Accelerated filer
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o Non-accelerated filer
(do not check if smaller reporting company)
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o Smaller reporting company |
Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the
Exchange Act) Yes o No þ
Indicate the number of shares outstanding of each of the issuers classes of common stock, as of
the latest practicable date: 13,916,624 shares of Common Stock, par value $0.01 per share, of the
registrant were outstanding on August 5, 2008.
UNIVERSAL ELECTRONICS INC.
INDEX
2
PART I. FINANCIAL INFORMATION
ITEM 1. Consolidated Financial Statements
UNIVERSAL ELECTRONICS INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share-related data)
(Unaudited)
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June 30, |
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December 31, |
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2008 |
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2007 |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
88,215 |
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$ |
86,610 |
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Accounts receivable, net |
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58,464 |
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60,146 |
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Inventories, net |
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42,650 |
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34,906 |
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Prepaid expenses and other current assets |
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3,072 |
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1,874 |
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Deferred income taxes |
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2,876 |
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2,871 |
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Total current assets |
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195,277 |
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186,407 |
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Equipment, furniture and fixtures, net |
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9,008 |
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7,558 |
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Goodwill |
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11,043 |
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10,863 |
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Intangible assets, net |
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5,537 |
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5,700 |
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Other assets |
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394 |
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369 |
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Deferred income taxes |
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6,645 |
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6,388 |
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Total assets |
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$ |
227,904 |
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$ |
217,285 |
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LIABILITIES AND STOCKHOLDERS EQUITY |
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Current liabilities: |
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Accounts payable |
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$ |
40,829 |
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$ |
29,382 |
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Accrued sales discounts, rebates and royalties |
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4,446 |
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4,671 |
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Accrued income taxes |
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2,631 |
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1,720 |
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Accrued compensation |
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3,568 |
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3,737 |
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Other accrued expenses |
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5,921 |
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6,567 |
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Total current liabilities |
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57,395 |
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46,077 |
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Long-term liabilities: |
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Deferred income taxes |
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148 |
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127 |
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Income tax payable |
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1,506 |
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1,506 |
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Other long-term liabilities |
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1,263 |
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1,333 |
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Total liabilities |
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60,312 |
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49,043 |
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Commitments and Contingencies |
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Stockholders equity: |
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Preferred stock, $0.01 par value, 5,000,000
shares authorized; none issued or outstanding |
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Common stock, $0.01 par value, 50,000,000 shares
authorized; 18,615,390 and 18,547,019 shares
issued at June 30, 2008 and December 31, 2007,
respectively |
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186 |
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185 |
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Paid-in capital |
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117,559 |
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114,441 |
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Accumulated other comprehensive income |
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18,804 |
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11,221 |
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Retained earnings |
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94,476 |
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88,508 |
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231,025 |
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214,355 |
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Less cost of common stock in treasury, 4,718,093
and 3,975,439 shares at June 30, 2008 and
December 31, 2007, respectively |
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(63,433 |
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(46,113 |
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Total stockholders equity |
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167,592 |
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168,242 |
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Total liabilities and stockholders equity |
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$ |
227,904 |
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$ |
217,285 |
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The accompanying notes are an integral part of these financial statements.
3
UNIVERSAL ELECTRONICS INC.
CONSOLIDATED INCOME STATEMENTS
(In thousands, except per share amounts)
(Unaudited)
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Three Months Ended |
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Six Months Ended |
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June 30, |
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June 30, |
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2008 |
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2007 |
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2008 |
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2007 |
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Net sales |
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$ |
70,684 |
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$ |
71,478 |
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$ |
131,875 |
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$ |
137,497 |
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Cost of sales |
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46,472 |
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46,852 |
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85,928 |
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88,530 |
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Gross profit |
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24,212 |
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24,626 |
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45,947 |
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48,967 |
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Research and development expenses |
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2,121 |
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2,269 |
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4,317 |
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4,591 |
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Selling, general and administrative expenses |
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17,734 |
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16,385 |
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34,590 |
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32,218 |
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Operating income |
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4,357 |
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5,972 |
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7,040 |
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12,158 |
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Interest income, net |
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893 |
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732 |
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1,790 |
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1,320 |
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Other (expense) income, net |
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(2 |
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27 |
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180 |
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121 |
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Income before provision for income taxes |
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5,248 |
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6,731 |
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9,010 |
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13,599 |
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Provision for income taxes |
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(1,753 |
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(2,185 |
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(3,042 |
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(4,416 |
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Net income |
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$ |
3,495 |
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$ |
4,546 |
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$ |
5,968 |
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$ |
9,183 |
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Earnings per share: |
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Basic |
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$ |
0.25 |
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$ |
0.31 |
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$ |
0.42 |
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$ |
0.64 |
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Diluted |
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$ |
0.24 |
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$ |
0.30 |
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$ |
0.40 |
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$ |
0.61 |
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Shares used in computing earnings per share: |
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Basic |
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14,033 |
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14,437 |
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14,256 |
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14,282 |
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Diluted |
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14,547 |
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15,262 |
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14,755 |
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15,084 |
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The accompanying notes are an integral part of these financial statements.
4
UNIVERSAL ELECTRONICS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
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Six Months Ended |
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June 30, |
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2008 |
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2007 |
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Cash provided by operating activities: |
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Net income |
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$ |
5,968 |
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$ |
9,183 |
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Adjustments to reconcile net income to net cash provided by operating activities: |
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Depreciation and amortization |
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2,892 |
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2,160 |
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Provision for doubtful accounts |
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64 |
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10 |
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Provision for inventory write-downs |
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973 |
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952 |
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Provision (benefit) for deferred income taxes |
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(171 |
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853 |
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Tax benefit from exercise of stock options |
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171 |
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1,960 |
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Excess tax benefit from stock-based compensation |
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(134 |
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(1,091 |
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Shares issued for employee benefit plan |
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282 |
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394 |
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Stock-based compensation |
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2,311 |
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1,481 |
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Changes in operating assets and liabilities: |
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Accounts receivable |
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4,173 |
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(7,103 |
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Inventories |
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(7,462 |
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(1,419 |
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Prepaid expenses and other assets |
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(1,112 |
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(586 |
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Accounts payable and accrued expenses |
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8,795 |
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1,566 |
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Accrued income taxes |
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639 |
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(3,476 |
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Net cash provided by operating activities |
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17,389 |
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4,884 |
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Cash
used for investing activities:
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Acquisition of equipment, furniture and fixtures |
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(3,457 |
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(2,050 |
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Acquisition of intangible assets |
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(505 |
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(635 |
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Net cash used for investing activities |
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(3,962 |
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(2,685 |
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Cash (used for) provided by financing activities: |
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Proceeds from stock options exercised |
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525 |
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8,037 |
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Treasury stock purchased |
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(17,489 |
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(2,413 |
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Excess tax benefit from stock-based compensation |
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134 |
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1,091 |
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Net cash (used for) provided by financing activities |
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(16,830 |
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6,715 |
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Effect of exchange rate changes on cash |
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5,008 |
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1,450 |
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Net increase in cash and cash equivalents |
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1,605 |
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10,364 |
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Cash and cash equivalents at beginning of period |
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86,610 |
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66,075 |
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Cash and cash equivalents at end of period |
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$ |
88,215 |
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$ |
76,439 |
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The accompanying notes are an integral part of these financial statements.
5
UNIVERSAL ELECTRONICS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1: Basis of Presentation and Significant Accounting Policies
The accompanying consolidated financial statements include the accounts of the Company and its
wholly-owned subsidiaries. All significant intercompany accounts and transactions have been
eliminated in the consolidated financial statements. Certain information and footnote disclosures
normally included in financial statements, which are prepared in accordance with accounting
principles generally accepted in the United States of America, have been condensed or omitted
pursuant to the rules and regulations of the Securities and Exchange Commission.
The results of operations for the three and six months ended June 30, 2008 are not necessarily
indicative of the results to be expected for the full year. These financial statements should be
read in conjunction with the consolidated financial statements and related notes and Management
Discussion and Analysis of Financial Conditions and Results of Operations contained in our Annual
Report on Form 10-K for our fiscal year ended December 31, 2007. The financial information
presented in the accompanying statements reflects all adjustments that are, in the opinion of
management, necessary for a fair presentation of financial position, operations and cash flows for
the periods presented. All such adjustments are of a normal recurring nature. As used herein, the
terms Company, we, us and our refer to Universal Electronics Inc. and its subsidiaries,
unless the context indicates to the contrary.
Estimates and Assumptions
The preparation of financial statements in conformity with accounting principles generally accepted
in the United States of America requires us to make estimates and judgments 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. On an on-going basis, we evaluate our estimates and judgments, including those
related to revenue recognition, allowance for sales returns and doubtful accounts, warranties,
inventory valuation, our review for impairment of long-lived assets, intangible assets and
goodwill, income taxes and stock-based compensation expense. Actual results may differ from these
judgments and estimates, and they may be adjusted as more information becomes available. Any
adjustment could be significant.
Revenue Recognition
We recognize revenue on the sale of products when delivery has occurred, there is persuasive
evidence of an arrangement, the sales price is fixed or determinable and collectibility is
reasonably assured. We record a provision for estimated sales returns on product sales in the same
period as the related revenues are recorded. These estimates are based on historical sales returns,
analysis of credit memo data and other known factors. The provision recorded for estimated sales
returns and allowances is deducted from gross sales to arrive at net sales in the period the
related revenue is recorded.
We accrue for discounts and rebates on product sales in the same period as the related revenues are
recorded based on historical experience. Changes in such accruals may be required if future rebates
and incentives differ from our estimates. Rebates and incentives are recognized as a reduction of
sales if distributed in cash or customer account credits. Rebates and incentives are recognized as
cost of sales if we provide products or services for payment.
Sales allowances reduce gross accounts receivable to arrive at accounts receivable, net in the same
period the related receivable is recorded. We have no obligations after delivery of our products
other than the associated warranties (see Note 15). We maintain an allowance for doubtful accounts
for estimated losses resulting from the inability of our customers to make payments for products
sold or services rendered. The allowance for doubtful accounts is based on a variety of factors,
including historical experience, length of time receivables are past due, current economic trends
and changes in customer payment behavior. Also, we record specific provisions for individual
accounts when we become aware of a customers inability to meet its financial obligations to us,
such as in the case of bankruptcy filings or deterioration in the customers operating results or
financial position. If circumstances related to a customer change, our estimates of the
recoverability of the receivables would be further adjusted, either upward or downward.
6
UNIVERSAL ELECTRONICS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
We generate service revenue, which is paid monthly, as a result of providing consumer support
programs to some of our customers through our call centers. These service revenues are recognized
when services are performed, persuasive evidence of an arrangement exists, the sales price is fixed
or determinable, and collectibility is reasonably assured.
We may from time to time initiate the sale or license of certain intellectual property, including
patented technologies, trademarks, or a particular database of infrared codes. When a fixed upfront
fee is received in exchange for the conveyance of a patent, trademark, or database delivered that
represents the culmination of the earnings process we record revenue when delivery has occurred,
persuasive evidence of an arrangement exists, the sales price is fixed or determinable and
collectibility is reasonably assured. We record license revenue when our customers ship products
incorporating our intellectual property, persuasive evidence of an arrangement exists, the sales
price is fixed or determinable, and collectibility is reasonably assured.
When a sales arrangement contains multiple elements, such as software products, licenses and/or
services, we allocate revenue to each element based on its relative fair value. The fair values for
the multiple elements are determined based on vendor specific objective evidence (VSOE), or the
price charged when the element is sold separately. The residual method is utilized when VSOE exists
for all the undelivered elements, but not for the delivered element. This is performed by
allocating revenue to the undelivered elements (that have VSOE) and the residual revenue to the
delivered elements. When the fair value for an undelivered element cannot be determined, we defer
revenue for the delivered elements until the undelivered element is delivered. We limit the amount
of revenue recognition for delivered elements to the amount that is not contingent on the future
delivery of products or services or subject to customer-specified return or refund privileges.
We account for revenue under software licensing arrangements involving significant production,
modification or customization of software in accordance with SOP 81-1, Accounting for Performance
of Construction-Type and Certain Production-Type Contracts. We recognize revenue and profit as
work progresses on long-term, fixed price contracts using the percentage-of-completion method. When
applying the percentage-of-completion method, we rely on estimates of total expected contract
revenue and labor hours which are provided by our project managers. We follow this method because
reasonably dependable estimates of the revenue and labor applicable to various stages of a contract
can be made. Recognized revenue and profit are subject to revisions as the contract progresses to
completion. Revisions to revenue and profit estimates are charged to income in the period in which
the facts that give rise to the revision become known, and losses are accrued when identified.
In accordance with EITF Issue 06-3, How Taxes Collected from Customers and Remitted to
Governmental Authorities Should Be Presented in the Income Statement (That Is, Gross versus Net
Presentation) (EITF 06-3), we present all non-income government-assessed taxes (sales, use and
value added taxes) collected from our customers and remitted to governmental agencies on a net
basis (excluded from revenue) in our financial statements. The government-assessed taxes are
recorded in other accrued expenses until they are remitted to the government agency.
Recent Accounting Pronouncements
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (SFAS 157), which
defines fair value, establishes a framework for measuring fair value in generally accepted
accounting principles in the United States of America (GAAP), and expands disclosures about fair
value measurements for assets and liabilities. SFAS 157 applies when other accounting
pronouncements require or permit assets or liabilities to be measured at fair value. Accordingly,
SFAS 157 does not require new fair value measurements. SFAS 157 is effective for fiscal years
beginning after November 15, 2007. In February 2008, the FASB issued FASB Staff Position for SFAS
157 (FSP FAS 157-1) to amend SFAS 157 to exclude SFAS 13, Accounting for Leases, and other
accounting pronouncements that address fair value measurements for purposes of lease classification
or measurement under SFAS 13. However, this scope exception does not apply to assets acquired and
liabilities assumed in a business combination that are required to be measured at fair value under
SFAS 141, Business Combinations, or SFAS 141R, Business Combinations, regardless of whether
those assets and liabilities are related to leases. Additionally in February 2008 the FASB issued
FASB Staff Position for SFAS 157 (FSP FAS 157-2), which delays the
7
UNIVERSAL ELECTRONICS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
effective date of SFAS 157 for non-financial assets and non-financial liabilities, except for items
that are recognized or disclosed at fair value in an entitys financial statements on a recurring
basis (at least annually) until fiscal years beginning after November 15, 2008. We adopted the
provisions of SFAS 157 in the first quarter of 2008, except for those items within scope of FSP FAS
157-2, which we will adopt in the first quarter of 2009. We will apply the provisions as necessary (i.e.
annual year-end impairment review of goodwill and intangible assets). As a result, the adoption of
SFAS 157 had no impact on our consolidated results of operations and financial condition during the
six months ended June 30, 2008.
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and
Financial LiabilitiesIncluding an amendment of FASB Statement No. 115 (SFAS 159). SFAS 159
expands the use of fair value accounting but does not affect existing standards that require assets
or liabilities to be carried at fair value. Under SFAS 159, a company may elect to use fair value
to measure accounts and loans receivable, available-for-sale and held-to-maturity securities,
equity method investments, accounts payable, guarantees and issued debt. Other eligible items
include firm commitments for financial instruments that otherwise would not be recognized at
inception and non-cash warranty obligations where a warrantor is permitted to pay a third party to
provide the warranty goods or services. If the use of fair value is elected, any upfront costs and
fees related to the item must be recognized in earnings and cannot be deferred, such as debt
issuance costs. The fair value election is irrevocable and generally made on an
instrument-by-instrument basis, even if a company has similar instruments that it elects not to
measure based on fair value. At the adoption date, unrealized gains and losses on existing items
for which fair value has been elected are reported as a cumulative adjustment to beginning retained
earnings. Subsequent to the adoption of SFAS 159, changes in fair value are recognized in earnings.
SFAS 159 is effective for fiscal years beginning after November 15, 2007 and was adopted by us in
the first quarter of 2008. The
adoption of SFAS 159 had no impact on our consolidated results of operations and financial
condition during the six months ended June 30, 2008.
In June 2007, the FASB ratified EITF 07-3, Accounting for Nonrefundable Advance Payments for Goods
or Services Received for Use in Future Research and Development Activities (EITF 07-3). EITF
07-3 requires that nonrefundable advance payments for goods or services that will be used or
rendered for future research and development activities be deferred and recognized as an expense as
the goods are delivered or the related services are performed. EITF 07-3 is effective, on a
prospective basis, for fiscal years beginning after December 15, 2007 and was adopted by us in the
first quarter of 2008. We did not have any arrangements with advance payments and therefore the
adoption of EITF 07-3 did not have a material effect on our consolidated financial position,
results of operations or cash flows.
In December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations (SFAS
141R). SFAS 141R establishes principles and requirements for how an acquirer recognizes and
measures in its financial statements the identifiable assets acquired, the liabilities assumed, any
noncontrolling interest in the acquiree and the goodwill acquired. SFAS 141R also establishes
disclosure requirements to enable the evaluation of the nature and financial effects of the
business combination. SFAS 141R is effective as of the beginning of an entitys fiscal year that
begins after December 15, 2008, and will be adopted by us in the first quarter of fiscal 2009. We
do not believe that the adoption of Statement 141R will have a material effect on our financial
statements; however, the effect is dependent upon whether we make any future acquisitions and the
specifics of those acquisitions.
In December 2007, the FASB ratified EITF 07-1, Accounting for Collaborative Arrangements Related
to the Development and Commercialization of Intellectual Property (EITF 07-1). EITF 07-1 defines
collaborative arrangements and establishes disclosure requirements for transactions between
participants in a collaborative arrangement and between participants in the arrangement and third
parties. EITF 07-1 is effective as of the beginning of an entitys fiscal year that begins after
December 15, 2008 and should be applied retrospectively to all prior periods presented for all
collaborative arrangements existing as of the effective date. EITF 07-1 is effective for us
beginning January 1, 2009. Currently, we do not have any collaborative arrangements; therefore, we
do not believe that the adoption of EITF 07-1 will have an impact on our consolidated results of
operations and financial condition.
8
UNIVERSAL ELECTRONICS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial
Statements: an amendment of ARB No. 51 (SFAS 160). SFAS 160 changes the accounting for, and the
financial statement presentation of, noncontrolling equity interests in a consolidated subsidiary.
SFAS 160 replaces the existing minority-interest provisions of Accounting Research Bulletin 51
(ARB 51), Consolidated Financial Statements, by defining a new term-noncontrolling interests-to
replace what were previously called minority interests. The new standard establishes noncontrolling
interests as a component of the equity of a consolidated entity. The underlying principle of the
new standard is that both the controlling interest and the noncontrolling interests are part of the
equity of a single economic entity: the consolidated reporting entity. Classifying noncontrolling
interests as a component of consolidated equity is a change from the current practice of treating
minority interests as a mezzanine item between liabilities and equity or as a liability. The change
affects both the accounting and financial reporting for noncontrolling interests in a consolidated
subsidiary. SFAS 160 includes reporting requirements intended to clearly identify and differentiate
the interests of the parent and the interests of the noncontrolling owners. The reporting
requirements are required to be applied retrospectively. SFAS 160 is effective for fiscal years and
interim periods within those fiscal years beginning on or after December 15, 2008. Early adoption
is prohibited. We currently do not believe that the adoption of SFAS 160 will have a significant
effect on our financial statements as we do not have any noncontrolling equity interests of a
consolidated subsidiary.
In March 2008, the FASB issued SFAS No. 161, Disclosures About Derivative Instruments and Hedging
Activitiesan amendment of FASB Statement No. 133 (SFAS 161). SFAS 161 amends and expands the
disclosure requirements of SFAS 133, Accounting for Derivative Instruments and Hedging
Activities, to provide improved transparency into the uses and financial statement impact of
derivative instruments and hedging activities. We will be required to provide enhanced disclosures
about how and why we use derivative instruments, how they are accounted for, and how they affect
our financial performance. This Statement is effective for financial statements issued for fiscal
years and interim periods beginning after November 15, 2008, with early application encouraged.
SFAS 161 encourages, but does not require, comparative disclosures for earlier periods at initial
adoption. SFAS 161 is effective for us beginning December 31, 2008. We are currently assessing the
impact that SFAS 161 will have on our consolidated results of operations and financial condition.
In April 2008, the FASB issued FASB Staff Position No. FAS 142-3 Determination of the Useful Life
of Intangible Assets (FSP FAS 142-3). FSP FAS 142-3 amends the factors that should be considered
in developing renewal or extension assumptions used to determine the useful life of a recognized
intangible asset under SFAS No. 142, Goodwill and Other Intangible Assets. The intent of this FSP
is to improve the consistency between the useful life of a recognized intangible asset under
Statement 142 and the period of expected cash flows used to measure the fair value of the asset
under FASB Statement No. 141 (revised 2007), Business Combinations, and other U.S. GAAP. FSP FAS
142-3 is effective for fiscal years and interim periods within those fiscal years beginning on or
after December 15, 2008. The guidance for determining the useful life of a recognized intangible
asset in paragraphs 711 of this FSP shall be applied prospectively to intangible assets acquired
after the effective date. The disclosure requirements in paragraphs 1315 shall be applied
prospectively to all intangible assets recognized as of, and subsequent to, the effective date.
Early adoption is prohibited. FSP FAS 142-3 is effective for us beginning January 1, 2009. We are
currently assessing the impact that FSP FAS 142-3 will have on our consolidated results of
operations and financial condition.
In May 2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted Accounting
Principles (SFAS 162). SFAS 162 identifies the sources of accounting principles and the
framework for selecting the principles used in the preparation of financial statements of
nongovernmental entities that are presented in conformity with generally accepted accounting
principles (the GAAP hierarchy). Statement 162 will become effective 60 days following the SECs
approval of the Public Company Accounting Oversight Board amendments to AU Section 411, The
Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles. We do not
expect the adoption of SFAS 162 to have a material effect on our consolidated results of operations
and financial condition.
In June 2008, the FASB issued FASB Staff Position on EITF 03-6, Determining Whether Instruments
Granted in Share-Based Payment Transactions Are Participating Securities (FSP EITF 03-6-1). FSP
EITF 03-6-1 addresses whether instruments granted in share-based payment transactions are
participating securities prior to vesting and,
9
UNIVERSAL ELECTRONICS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
therefore, need to be included in the earnings allocation in computing earning per share under FASB
Statement No. 128, Earnings per Share. EITF 03-6-1 is effective for financial statements issued
for fiscal years and interim periods beginning after December 15, 2008 and should be applied
retrospectively to all prior periods. Early adoption is prohibited. FSP EITF 03-6-1 is effective
for us beginning January 1, 2009. We do not expect the adoption of FSP EITF 03-6-1 to have a
material effect on our consolidated results of operations and financial condition.
Note 2: Stock-Based Compensation
We follow the fair value recognition provisions of SFAS No. 123R, Share-Based Payment (SFAS
123R) using the modified-prospective transition method. Stock-based compensation expense is
presented in the same income statement caption as cash compensation paid to the same employees or
directors. During the three months ended June 30, 2008 and 2007, we recorded $1.1 million and $0.8
million, respectively in pre-tax stock-based compensation expense. Included in selling, general
and administrative (SG&A) stock-based compensation expense is $206 thousand and $117 thousand in
pre-tax compensation expense for the three months ended June 30, 2008 and 2007, respectively,
related to stock awards granted to outside directors.
During the six months ended June 30, 2008 and 2007, we recorded $2.3 million and $1.5 million,
respectively in pre-tax stock-based compensation expense. Included in selling, general and
administrative (SG&A) stock-based compensation expense is $387 thousand and $234 thousand in
pre-tax compensation expense for the six months ended June 30, 2008 and 2007, respectively, related
to stock awards granted to outside directors.
Additionally, during the first quarter of 2008, as part of the annual review cycle, the
Compensation Committee of the Board of Directors granted 115,926 shares of restricted stock to our
executives under the 2006 Stock Incentive Plan. The awards were granted as part of a long-term
incentive compensation plan to assist us in meeting our performance and retention objectives. Each
executive grant is subject to a three-year vesting period. In accordance with SFAS 123R,
compensation expense related to restricted stock awards is based on the fair value of the shares
awarded as of the grant date. The fair value of non-vested shares is determined based on the
average of the high and low trade prices of our Companys shares on the grant date. For the three
and six months ended June 30, 2008, the stock-based compensation expense related to this award was
$228 thousand and $456 thousand, respectively, and is included in SG&A.
The income tax benefit under SFAS 123R from the recognition of stock-based compensation for the
three and six months ended June 30, 2008 was $0.2 million and $0.5 million, respectively. The
income tax benefit under SFAS 123R from the recognition of stock-based compensation for the three
and six months ended June 30, 2007 was $0.2 million and $0.4 million, respectively.
Stock-based compensation expense was included in the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
(In thousands) |
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
Cost of sales |
|
$ |
5 |
|
|
$ |
7 |
|
|
$ |
9 |
|
|
$ |
13 |
|
Research and development |
|
|
106 |
|
|
|
106 |
|
|
|
205 |
|
|
|
185 |
|
Selling, general and administrative |
|
|
1,021 |
|
|
|
692 |
|
|
|
2,097 |
|
|
|
1,283 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense before income taxes |
|
$ |
1,132 |
|
|
$ |
805 |
|
|
$ |
2,311 |
|
|
$ |
1,481 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
UNIVERSAL ELECTRONICS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
We estimate the fair value of share-based payment awards using the Black-Scholes option pricing
model with the following assumptions and weighted average fair values:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
|
|
June 30, |
|
June 30, |
|
|
2008 (1) |
|
2007 (1) |
|
2008 (1) |
|
2007 (1) |
Weighted average fair value of grants |
|
$ |
10.57 |
|
|
$ |
11.86 |
|
|
$ |
9.07 |
|
|
$ |
11.73 |
|
Risk-free interest rate |
|
|
3.03 |
% |
|
|
4.58 |
% |
|
|
2.74 |
% |
|
|
4.58 |
% |
Expected volatility |
|
|
41.42 |
% |
|
|
38.83 |
% |
|
|
40.84 |
% |
|
|
39.06 |
% |
Expected life in years |
|
|
4.72 |
|
|
|
5.24 |
|
|
|
4.74 |
|
|
|
5.24 |
|
|
|
|
(1) |
|
The fair value calculation was based on stock options granted during the period. |
Stock option activity as of June 30, 2008 and changes for the six months ended June 30, 2008 were
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted- |
|
|
|
|
|
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
|
Weighted- |
|
Remaining |
|
|
|
|
Number of |
|
Average |
|
Contractual |
|
Aggregate |
|
|
Options |
|
Exercise |
|
Term |
|
Intrinsic Value |
|
|
(in thousands) |
|
Price |
|
(in years) |
|
(in thousands) |
Outstanding at December 31, 2007 |
|
|
1,739 |
|
|
$ |
16.83 |
|
|
|
|
|
|
|
|
|
Granted |
|
|
139 |
|
|
|
23.46 |
|
|
|
|
|
|
|
|
|
Exercised |
|
|
(48 |
) |
|
|
11.00 |
|
|
|
|
|
|
$ |
675 |
|
Forfeited/ cancelled/ expired |
|
|
(21 |
) |
|
|
26.05 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at June 30, 2008 |
|
|
1,809 |
|
|
$ |
17.39 |
|
|
|
5.45 |
|
|
$ |
8,764 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and expected to vest at June 30, 2008 |
|
|
1,761 |
|
|
$ |
16.75 |
|
|
|
5.21 |
|
|
$ |
8,775 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at June 30, 2008 |
|
|
1,306 |
|
|
$ |
14.99 |
|
|
|
4.28 |
|
|
$ |
8,252 |
|
The aggregate intrinsic value in the table above represents total pre-tax intrinsic value
(difference between Universal Electronics Inc.s average of the high and low trades of the last
trading day of the second quarter of 2008 (June 30, 2008) and the option exercise price, multiplied
by the number of the in-the-money options) that option holders would have received had all option
holders exercised their options on June 30, 2008. This amount changes based on the fair market
value of our common stock. The total intrinsic value of options exercised for the three and six
months ended June 30, 2008 was $0.5 million and $0.7 million, respectively. The total intrinsic
value of options exercised for the three and six months ended June 30, 2007 was $4.7 million and
$7.9 million, respectively.
As of June 30, 2008, we expect to recognize $4.0 million of total unrecognized compensation expense
related to non-vested employee stock options over a weighted-average life of 2.2 years.
Non-vested restricted stock awards as of June 30, 2008 and changes during the six months ended June
30, 2008 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted- |
|
|
Shares |
|
Average |
|
|
Granted |
|
Grant Date |
|
|
(in thousands) |
|
Fair Value |
Non-vested at December 31, 2007 |
|
|
10 |
|
|
$ |
36.25 |
|
Granted |
|
|
117 |
|
|
|
23.62 |
|
Vested |
|
|
(30 |
) |
|
|
27.86 |
|
Forfeited |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-vested at June 30, 2008 |
|
|
97 |
|
|
$ |
23.59 |
|
|
|
|
|
|
|
|
|
|
As of June 30, 2008, we expect to recognize $2.3 million in unrecognized compensation expense
related to non-vested restricted stock awards over a weighted-average life of 2.5 years.
11
UNIVERSAL ELECTRONICS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 3: Cash and Cash Equivalents
Cash and cash equivalents include cash accounts and all investments purchased with initial
maturities of three months or less. We maintain cash and cash equivalents with various financial
institutions. These financial institutions are located in many different geographic regions. We
mitigate our exposure to credit risk by placing our cash and cash equivalents with high quality
financial institutions.
At June 30, 2008, we had approximately $7.2 million and $81.0 million of cash and cash equivalents
in the United States and Europe, respectively. At December 31, 2007, we had approximately $12.2
million and $74.4 million of cash and cash equivalents in the United States and Europe,
respectively.
Note 4: Accounts Receivable and Revenue Concentrations
Accounts receivable consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
(In thousands) |
|
2008 |
|
|
2007 |
|
Trade receivable, gross |
|
$ |
62,813 |
|
|
$ |
63,528 |
|
Allowance for doubtful accounts |
|
|
(2,362 |
) |
|
|
(2,330 |
) |
Allowance for sales returns |
|
|
(2,411 |
) |
|
|
(1,482 |
) |
|
|
|
|
|
|
|
Net trade receivable |
|
|
58,040 |
|
|
|
59,716 |
|
Other receivables (1) |
|
|
424 |
|
|
|
430 |
|
|
|
|
|
|
|
|
Accounts receivable, net |
|
$ |
58,464 |
|
|
$ |
60,146 |
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Other receivables as of June 30, 2008 and December 31, 2007 consisted primarily of a
tenant improvement allowance provided by our landlord for the renovation and expansion of our
corporate headquarters in Cypress, California. Construction was completed during the first
quarter of 2008. We expect the tenant improvement allowance to be collected in the third
quarter of 2008. |
Significant Customers
We had sales to one significant customer and its sub-contractors that, when combined, totaled $13.8
million and $12.1 million, accounting for 19.5% and 17.0% of net sales, for the three months ended
June 30, 2008 and 2007, respectively. Sales made to this customer during the six months ended June
30, 2008 and 2007 amounted to $23.1 million and $23.0 million, representing 17.5% and 16.7% of
total net sales, respectively. Trade receivables with this customer and its sub-contractors
amounted to $7.8 million and $7.9 million, or 13.3% and 13.3% of our net trade receivable at June
30, 2008 and December 31, 2007, respectively.
For the three and six months ended June 30, 2007, we had sales to another customer that contributed
more than 10% of total net sales. Sales made to this customer were $12.4 million and $22.5
million, representing 17.4% and 16.4%, respectively, of our total net sales for the three and six
months ended June 30, 2007. Trade receivables with this customer amounted to $2.3 million, or 3.8%
of our net trade receivable at December 31, 2007.
The loss of these customers or any key customer, either in the United States or abroad, due to the
financial weakness or bankruptcy of any such customer or our inability to obtain orders or maintain
our order volume with our major customers, may have a material adverse effect on our financial
condition, results of operations and cash flows.
Note 5: Inventories and Significant Suppliers
Inventories
Inventories, which consist of wireless control devices, including universal remote controls,
antennas and related component parts, are valued at the lower of cost or market. Cost, which is
determined using the first-in, first-out method includes the purchase of integrated circuits,
sub-contractor costs and freight-in. We carry inventory in amounts necessary to satisfy our
customers inventory requirements on a timely basis.
12
UNIVERSAL ELECTRONICS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Product innovations and technological advances may shorten a given products life cycle. We
continually monitor inventory to control inventory levels and dispose of any excess or obsolete
inventories on hand. We write down our inventory for estimated obsolescence or unmarketable
inventory, in an amount equal to the difference between the cost of the inventory and its estimated
market value based upon our best estimates about future demand and market conditions. If actual
market conditions are less favorable than those projected by management, additional inventory
write-downs may be required.
Net inventories consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
(In thousands) |
|
2008 |
|
|
2007 |
|
Components |
|
$ |
10,559 |
|
|
$ |
6,750 |
|
Finished goods |
|
|
33,738 |
|
|
|
29,982 |
|
Reserve for inventory scrap |
|
|
(1,647 |
) |
|
|
(1,826 |
) |
|
|
|
|
|
|
|
Inventory, net |
|
$ |
42,650 |
|
|
$ |
34,906 |
|
|
|
|
|
|
|
|
During the three months ended June 30, 2008 and 2007, inventory write-downs totaled $0.7 million
and $0.5 million, respectively. During the six months ended June 30, 2008 and 2007, inventory
write-downs totaled $1.0 million and $1.0 million, respectively. Inventory write-downs are a normal
part of our business and result primarily from product life cycle estimation variances.
Significant Suppliers
Most of the components used in our products are available from multiple sources. We have elected to
purchase integrated circuits (IC), used principally in our wireless control products, from two
main sources. Purchases from one supplier amounted to more than 10% of total inventory purchases.
Purchases from this major supplier amounted to $7.2 million and $5.5 million, representing 15.7%
and 13.3% of total inventory purchases for the three months ended June 30, 2008 and 2007,
respectively. Purchases from this major supplier amounted to $13.8 million and $10.7 million,
representing 16.4% and 14.0% of total inventory purchases for the six months ended June 30, 2008
and 2007, respectively. Accounts payable with that supplier amounted to $3.4 million and $3.2
million, representing 8.2% and 9.7% of total accounts payable at June 30, 2008 and December 31,
2007, respectively.
In addition, during the three months ended June 30, 2008, we purchased component and finished good
products from two major suppliers. Purchases from these two major suppliers amounted to $12.9
million and $6.4 million, representing 28.3% and 14.1%, respectively, of total inventory purchases
for the three months ended June 30, 2008. During the three months ended June 30, 2007 purchases
from the same two suppliers amounted to $11.5 million and $9.1 million, representing 27.9% and
21.8%, respectively, of total inventory purchases. During the six months ended June 30, 2008
purchases from these two major suppliers amounted to $24.8 million and $13.0 million, representing
29.4% and 15.5%, respectively, of total inventory purchases. During the same period last year,
purchases from the same two suppliers amounted to $21.3 million and $14.3 million, representing
27.7% and 18.7%, respectively, of total inventory purchases. Accounts payable with these suppliers
of component and finished good products amounted to $13.1 million and $7.2 million, representing
32.2% and 17.6%, respectively, of total accounts payable at June 30, 2008. At December 31, 2007,
accounts payable with the same suppliers amounted to $10.8 million and $6.3 million, representing
32.6% and 19.1%, respectively, of total accounts payable.
For the three and six months ended June 30, 2007, one other supplier provided more than 10% of
total inventory purchases. Purchases from this supplier amounted to $4.6 million and 8.4 million,
representing 11.1% and 11.0%, respectively, of total inventory purchases for the three and six
months ended June 30, 2007.
13
UNIVERSAL ELECTRONICS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
We have identified alternative sources of supply for these integrated circuits, components, and
finished goods; however, there can be no assurance that we will be able to continue to obtain these
inventory purchases on a timely basis. We generally maintain inventories of our 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 our products, or a reduction in their quality or reliability, or a significant
increase in prices of components, would have an adverse effect on our business, results of
operations and cash flows.
Note 6: Income Taxes
We use the estimated annual effective tax rate to determine our provision for income taxes for
interim periods. We recorded income tax expense of $1.8 million for the three months ended June 30,
2008 compared to $2.2 million for the same period last year. Our estimated effective tax rate was
33.4% and 32.5% during the three months ended June 30, 2008 and 2007, respectively. We recorded
income tax expense of $3.0 million for the six months ended June 30, 2008 compared to $4.4 million
for the same period last year. Our estimated effective tax rate was 33.8% and 32.5% during the six
months ended June 30, 2008 and 2007, respectively. The increase in our effective tax rate is due
primarily to the federal research and development tax credit statute
which expired at the end of 2007.
Effective January 1, 2007, we adopted the provisions of FASB Interpretation 48, Accounting for
Uncertainty in Income Taxes- an interpretation of FASB Statement No. 109 (FIN 48). As a result
of the implementation of FIN 48, we recognized a $0.2 million increase in the liability for
unrecognized tax benefits, which was accounted for as a reduction to the January 1, 2007 balance of
retained earnings. We also recognized a decrease of $0.3 million in other comprehensive income
related to foreign currency translation as of December 31, 2007.
At June 30, 2008, we had gross
unrecognized tax benefits of approximately $9.2 million, including interest and penalties, of which
approximately $7.6 million of this amount would affect the annual effective tax rate, if
these tax benefits are realized. Further, we are unaware of any positions for which it is reasonably possible that the
total amounts of unrecognized tax benefits will significantly increase within the next twelve
months. However, based on federal, state and foreign statute expirations in various jurisdictions,
we anticipate a decrease in unrecognized tax benefits of approximately $0.7 million within the next
twelve months.
In accordance with FIN 48, we have elected to classify interest and penalties as components of tax
expense. Accrued interest and penalties were $1.0 million at December 31, 2007 and $1.2 million at
June 30, 2008 and are included in the unrecognized tax benefits.
We file income tax returns in the U.S. federal jurisdiction, various states and foreign
jurisdictions. As of June 30, 2008, the open statute of limitations for our significant tax
jurisdictions are as follows: federal for 2004 through 2007, state for 2003 through 2007 and
non-U.S. for 2001 through 2007. Approximately $5.1 million of
gross unrecognized tax benefits at June 30, 2008 are classified
as short term in accrued income taxes as prescribed by FIN 48
because we anticipate payment of cash within the next twelve months.
The accrued income taxes are net of a U.S. income tax receivable of
approximately $0.7 million. This unrecognized tax benefit
relates to a foreign currency loss claimed on our Netherlands tax
return for the years ended 2002 and 2003. We are currently under audit by the Dutch
tax authorities and we expect this issue to be resolved within the
next twelve months. The majority of the remaining gross unrecognized
tax benefits is attributable to U.S. income taxes and is classified
as long-term income taxes payable.
Note 7: Earnings Per Share
Basic earnings per share are 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.
In the computation of diluted earnings per common share for the three months ended June 30, 2008
and 2007, we have excluded 413,916 and 305,750 stock options, respectively, with exercise prices
greater than the average market price of the underlying common stock, because their inclusion would
have been antidilutive. In the computation of diluted earnings per common share for the six months
ended June 30, 2008 and 2007, we have excluded 385,308 and 155,063 stock options, respectively,
with exercise prices greater than
the average market price of the underlying common stock, because their inclusion would have been
antidilutive.
14
UNIVERSAL ELECTRONICS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Earnings per share for the three and six months ended June 30, 2008 and 2007 are calculated as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
(In thousands, except per-share amounts) |
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
BASIC |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
3,495 |
|
|
$ |
4,546 |
|
|
$ |
5,968 |
|
|
$ |
9,183 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding |
|
|
14,033 |
|
|
|
14,437 |
|
|
|
14,256 |
|
|
|
14,282 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share |
|
$ |
0.25 |
|
|
$ |
0.31 |
|
|
$ |
0.42 |
|
|
$ |
0.64 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DILUTED |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
3,495 |
|
|
$ |
4,546 |
|
|
$ |
5,968 |
|
|
$ |
9,183 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding for
basic |
|
|
14,033 |
|
|
|
14,437 |
|
|
|
14,256 |
|
|
|
14,282 |
|
Dilutive effect of stock options and restricted stock |
|
|
514 |
|
|
|
825 |
|
|
|
499 |
|
|
|
802 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding on a
diluted basis |
|
|
14,547 |
|
|
|
15,262 |
|
|
|
14,755 |
|
|
|
15,084 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share |
|
$ |
0.24 |
|
|
$ |
0.30 |
|
|
$ |
0.40 |
|
|
$ |
0.61 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 8: Comprehensive Income
The components of comprehensive income are listed below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
(In thousands) |
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
Net income |
|
$ |
3,495 |
|
|
$ |
4,546 |
|
|
$ |
5,968 |
|
|
$ |
9,183 |
|
Other comprehensive (loss) income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translations (1) |
|
|
(263 |
) |
|
|
1,168 |
|
|
|
7,583 |
|
|
|
1,940 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income: |
|
$ |
3,232 |
|
|
$ |
5,714 |
|
|
$ |
13,551 |
|
|
$ |
11,123 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The foreign currency translation gains of $7.6 million and $1.9 million for the six
months ended June 30, 2008 and 2007, respectively, were due to the weakening of the U.S.
dollar against the Euro. The U.S. dollar/Euro spot rate was 1.58 and 1.46 at June 30, 2008 and
December 31, 2007, respectively, and 1.35 and 1.32 at June 30, 2007 and December 31, 2006,
respectively. |
Note 9: Revolving Credit Line
We have a $15 million unsecured revolving credit agreement (Credit Facility) with Comerica Bank,
which expires on August 31, 2009. Under the Credit Facility, the interest payable is variable and
is based on the banks cost of funds or LIBOR plus a fixed margin of 1.25%. The interest rate in
effect as of June 30, 2008 using LIBOR plus a fixed margin of 1.25% was 4.56%. We pay a commitment
fee ranging from zero to a maximum rate of 1/4 of 1% per year on the unused portion of the credit
line depending on the amount of cash investment retained with Comerica during each quarter. At June
30, 2008, the commitment fee rate was 0.25%. Under the terms of the Credit Facility, dividend
payments are allowed for up to 100% of the prior fiscal years net income, to be paid within 90
days of this periods year end. We are subject to certain financial covenants related to our net
worth, quick ratio and net income. Amounts available for borrowing under the Credit Facility are
reduced by the outstanding balance of import letters of credit. As of June 30, 2008, we did not
have any amounts outstanding under the Credit Facility or any outstanding import letters of credit.
The available balance on the line of credit was $15 million as of June 30, 2008. Furthermore, as of
June 30, 2008, we were in compliance with all financial covenants required by the Credit Facility.
Under our Credit Facility, we have authority to acquire up to an additional 2.0 million shares of
our common stock in the open market. From August 31, 2006 through June 30, 2008, we have purchased
1,321,804 shares of our common stock, leaving 678,196 shares available for purchase under the
Credit Facility.
15
UNIVERSAL ELECTRONICS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 10: Other Accrued Expenses
The components of other accrued expenses are listed below:
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
(In thousands) |
|
2008 |
|
|
2007 |
|
Accrued freight |
|
$ |
701 |
|
|
$ |
1,435 |
|
Accrued professional fees |
|
|
723 |
|
|
|
580 |
|
Accrued advertising and marketing |
|
|
769 |
|
|
|
735 |
|
Deferred income taxes |
|
|
428 |
|
|
|
511 |
|
Accrued third-party commissions |
|
|
476 |
|
|
|
204 |
|
Accrued sales and VAT taxes |
|
|
176 |
|
|
|
499 |
|
Other |
|
|
2,648 |
|
|
|
2,603 |
|
|
|
|
|
|
|
|
Total other accrued expenses |
|
$ |
5,921 |
|
|
$ |
6,567 |
|
|
|
|
|
|
|
|
Note 11: Treasury Stock
During the six months ended June 30, 2008 and 2007, we repurchased 753,904 and 71,300 shares of our
common stock at a cost of $17.5 million and $2.4 million, respectively. Repurchased shares are
recorded as shares held in treasury at cost. We generally hold shares for future use as management
and the Board of Directors deem appropriate, including compensating outside directors and
executives of the Company. During the six months ended June 30, 2008 and 2007, we issued 11,250 and
12,188 shares, respectively, to outside directors for services performed (see Note 2).
Note 12: Goodwill and Intangible Assets
Under the requirements of SFAS 142, Goodwill and Intangible Assets, the unit of accounting for
goodwill is at a level of reporting referred to as a reporting unit. SFAS 142 defines a reporting
unit as either (1) an operating segment as defined in SFAS 131, Disclosures about Segments of an
Enterprise and Related Information or (2) one level below an operating segment referred to as a
component. Our domestic and international components are reporting units within our one operating
segment Core Business. Goodwill is reviewed for impairment as of December 31st of each year.
Goodwill of a reporting unit is tested for impairment between annual tests, if an event occurs or
circumstances change that would more likely than not reduce the fair value of a reporting unit
below its carrying amount.
Goodwill for the domestic operations was generated from the acquisition of a remote control company
in 1998 and the acquisition of a software and firmware solutions company, SimpleDevices, in 2004.
Goodwill for international operations resulted from the acquisition of remote control distributors
in the UK in 1998, Spain in 1999 and France in 2000.
16
UNIVERSAL ELECTRONICS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Domestic and international goodwill are as follows:
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
(In thousands) |
|
2008 |
|
|
2007 |
|
Goodwill |
|
|
|
|
|
|
|
|
United States |
|
$ |
8,314 |
|
|
$ |
8,314 |
|
International (1) |
|
|
2,729 |
|
|
|
2,549 |
|
|
|
|
|
|
|
|
Total |
|
$ |
11,043 |
|
|
$ |
10,863 |
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The difference in international goodwill reported at June 30, 2008, as compared to
the goodwill reported at December 31, 2007, was the result of fluctuations in the foreign
currency exchange rates used to translate the balance into U.S. dollars. |
Besides goodwill, our intangible assets consist principally of distribution rights, patents,
trademarks, purchased technologies and capitalized software
development costs. Capitalized amounts related to
patents represent external legal costs for the application and maintenance of patents. Intangible
assets are amortized using the straight-line method over their estimated period of benefit, ranging
from one to ten years.
Information regarding our other intangible assets is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
June
30, 2008 (1) |
|
December 31, 2007 (1) |
Carrying amount: |
|
|
|
|
|
|
|
|
Distribution rights (10 years) |
|
$ |
452 |
|
|
$ |
419 |
|
Patents (10 years) |
|
|
6,774 |
|
|
|
6,335 |
|
Trademark and trade names (10 years) |
|
|
840 |
|
|
|
840 |
|
Developed and core technology (5 years) |
|
|
1,630 |
|
|
|
1,630 |
|
Capitalized software (1-2 years) |
|
|
513 |
|
|
|
499 |
|
Other (5-7 years) |
|
|
370 |
|
|
|
370 |
|
|
|
|
|
|
|
|
Total carrying amount |
|
$ |
10,579 |
|
|
$ |
10,093 |
|
|
|
|
|
|
|
|
Accumulated amortization: |
|
|
|
|
|
|
|
|
Distribution rights |
|
$ |
60 |
|
|
$ |
56 |
|
Patents |
|
|
2,987 |
|
|
|
2,695 |
|
Trademark and trade names |
|
|
315 |
|
|
|
273 |
|
Developed and core technology |
|
|
1,223 |
|
|
|
1,060 |
|
Capitalized software |
|
|
179 |
|
|
|
68 |
|
Other |
|
|
278 |
|
|
|
241 |
|
|
|
|
|
|
|
|
Total accumulated amortization |
|
$ |
5,042 |
|
|
$ |
4,393 |
|
|
|
|
|
|
|
|
Net carrying amount: |
|
|
|
|
|
|
|
|
Distribution rights |
|
$ |
392 |
|
|
$ |
363 |
|
Patents |
|
|
3,787 |
|
|
|
3,640 |
|
Trademark and trade names |
|
|
525 |
|
|
|
567 |
|
Developed and core technology |
|
|
407 |
|
|
|
570 |
|
Capitalized software |
|
|
334 |
|
|
|
431 |
|
Other |
|
|
92 |
|
|
|
129 |
|
|
|
|
|
|
|
|
Total net carrying amount |
|
$ |
5,537 |
|
|
$ |
5,700 |
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
This table excludes fully amortized intangible assets of $5.5 million as of June 30,
2008 and December 31, 2007. |
Amortization
expense, including the amortization of capitalized software
development, which is recorded in cost
of sales, for the three and six months ended June 30, 2008 was approximately $0.3 million and $0.7
million, respectively. Amortization expense for the three and six months ended June 30, 2007 was
approximately $0.4 million and $0.7 million, respectively.
17
UNIVERSAL ELECTRONICS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Estimated amortization expense for existing intangible assets for each of the five succeeding years
ending December 31 and thereafter are as follows:
|
|
|
|
|
(In thousands) |
|
|
|
|
2008 (remaining 6 months) |
|
$ |
697 |
|
2009 |
|
|
1,235 |
|
2010 |
|
|
744 |
|
2011 |
|
|
737 |
|
2012 |
|
|
737 |
|
Thereafter |
|
|
1,387 |
|
|
|
|
|
Total |
|
$ |
5,537 |
|
|
|
|
|
Note 13: Business Segment and Foreign Operations
Business Segment
SFAS 131, Disclosures about Segments of an Enterprise and Related Information, defines an
operating segment, in part, as a component of an enterprise whose operating results are regularly
reviewed by the chief operating decision maker to make decisions about resources to be allocated to
the segment and assess its performance. Operating segments may be aggregated only to the limited
extent permitted by the standard. We currently operate in one business segment Core Business.
Foreign Operations
Our sales to external customers and long-lived tangible assets by geographic area are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
(In thousands) |
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
Net Sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
$ |
37,453 |
|
|
$ |
43,143 |
|
|
$ |
69,812 |
|
|
$ |
82,822 |
|
International: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asia |
|
|
13,988 |
|
|
|
8,462 |
|
|
|
24,694 |
|
|
|
14,076 |
|
United Kingdom |
|
|
5,134 |
|
|
|
7,087 |
|
|
|
10,742 |
|
|
|
16,353 |
|
Spain |
|
|
2,119 |
|
|
|
1,567 |
|
|
|
4,846 |
|
|
|
2,976 |
|
Germany |
|
|
1,453 |
|
|
|
1,214 |
|
|
|
3,573 |
|
|
|
2,818 |
|
France |
|
|
1,362 |
|
|
|
774 |
|
|
|
2,731 |
|
|
|
1,682 |
|
South Africa |
|
|
1,318 |
|
|
|
1,643 |
|
|
|
2,172 |
|
|
|
2,594 |
|
Australia |
|
|
1,727 |
|
|
|
226 |
|
|
|
2,604 |
|
|
|
753 |
|
Switzerland |
|
|
96 |
|
|
|
1,638 |
|
|
|
652 |
|
|
|
2,977 |
|
All Other |
|
|
6,034 |
|
|
|
5,724 |
|
|
|
10,049 |
|
|
|
10,446 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total International |
|
|
33,231 |
|
|
|
28,335 |
|
|
|
62,063 |
|
|
|
54,675 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Net Sales |
|
$ |
70,684 |
|
|
$ |
71,478 |
|
|
$ |
131,875 |
|
|
$ |
137,497 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Specific identification of the customer location was the basis used for attributing revenues from
external customers to individual countries.
Our geographic long-lived asset information is as follows:
|
|
|
|
|
|
|
|
|
(In thousands) |
|
June 30, 2008 |
|
|
December 31, 2007 |
|
Long-lived Tangible Assets |
|
|
|
|
|
|
|
|
United States |
|
$ |
6,237 |
|
|
$ |
5,238 |
|
International |
|
|
3,165 |
|
|
|
2,689 |
|
|
|
|
|
|
|
|
Total |
|
$ |
9,402 |
|
|
$ |
7,927 |
|
|
|
|
|
|
|
|
18
UNIVERSAL ELECTRONICS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 14: Derivatives
Our foreign currency exposures are primarily concentrated in the Euro and British Pound. Depending
on the predictability of future receivables, payables and cash flows in each operating currency, we
periodically enter into foreign currency exchange contracts with terms normally lasting less than
nine months to protect against the adverse effects that exchange-rate fluctuations may have on our
foreign currency-denominated receivables, payables, cash flows and reported income. We do not enter
into financial instruments for speculation or trading purposes. These derivatives have not
qualified for hedge accounting. The gains and losses on both the derivatives and the foreign
currency-denominated balances are recorded as foreign exchange transaction gains or losses and are
classified in other (expense) income, net. Derivatives are recorded on the balance sheet at fair
value. The estimated fair value of derivative financial instruments represents the amount required
to enter into similar offsetting contracts with similar remaining maturities based on quoted market
prices.
We held foreign currency exchange contracts which resulted in a net pre-tax loss of approximately
$101 thousand for the three months ended June 30, 2008 and a net pre-tax gain of approximately $51
thousand for the three months ended June 30, 2007. For the six months ended June 30, 2008 and
2007, we had a pre-tax gain of approximately $533 thousand and $233 thousand, respectively. We had
two foreign currency exchange contracts outstanding at June 30, 2008. These are forward contracts
with the notional values of $7.0 million and $2.0 million. At December 31, 2007 we had one foreign
currency exchange contract outstanding, a forward contract with a notional value of $5.0 million,
which settled on January 25, 2008. The fair value of the outstanding forward contract as of
December 31, 2007 was $11 thousand, which was included in prepaid expenses and other current
assets.
We held one US dollar/ Euro forward contract with a notional value of $7.0 million and a forward
rate of $1.5766 US dollar/ Euro, respectively as of June 30, 2008. We also held one GBP/ Euro
forward contract with a notional value $2.0 million and a forward rate of £ 0.7966 GBP/ Euro as of
June 30, 2008. We held the Euro position on these contracts, which are both due for settlement on
July 25, 2008. The aggregate loss on these contracts as of June 30, 2008 was $29 thousand and is
included in other accrued expenses.
Note 15: Contingencies
Indemnities
We indemnify our directors and officers to the maximum extent permitted under the laws of the State
of Delaware and we have entered into Indemnification Agreements with each of our directors and
executive officers. In addition, we purchased directors and officers insurance to insure our
individual directors and officers against certain claims and attorneys fees and related expenses
incurred in connection with the defense of such claim. The amounts and types of coverage may vary
from period to period as dictated by market conditions. Management is not aware of any matters that
require indemnification of its officers or directors.
Product Warranties
We warrant our products against defects in materials and workmanship arising during normal use. We
service warranty claims directly through our customer service department or contracted third-party
warranty repair facilities. Our warranty period ranges up to three years. We provide for estimated
product warranty expenses, which are included in cost of sales, as we sell the related products.
Since warranty expense is a forecast primarily based on historical claims experience, actual claim
costs may differ from the amounts provided.
19
UNIVERSAL ELECTRONICS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Changes in the liability for product warranties are presented below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accruals for |
|
Settlements |
|
|
|
|
Balance at |
|
Warranties |
|
(in Cash or in |
|
Balance at |
|
|
Beginning of |
|
Issued During |
|
Kind) During |
|
End of |
Description |
|
Period |
|
the Period |
|
the Period |
|
Period |
Six Months Ended June 30, 2008 (1) |
|
$ |
178 |
|
|
|
|
|
|
$ |
(86 |
) |
|
$ |
92 |
|
Six Months Ended June 30, 2007 (1) |
|
$ |
416 |
|
|
$ |
(146 |
) |
|
$ |
(170 |
) |
|
$ |
100 |
|
|
|
|
(1) |
|
In the second quarter of 2007, we renegotiated pricing terms with our third party
warranty repair vendor which resulted in lower warranty costs per unit. As a result, our
warranty accrual was reduced to reflect the lower pricing. |
Litigation
In 2002, one of our subsidiaries (One For All S.A.S.) brought an action against a former
distributor of the subsidiarys products seeking a recovery of accounts receivable. The distributor
filed a counterclaim against our subsidiary seeking payment for amounts allegedly owed for
administrative and other services rendered by the distributor for our subsidiary. In January 2005,
the parties agreed to include in that action all claims between the distributor and two of our
other subsidiaries, Universal Electronics BV and One For All Iberia SL. As a result, the single
action covers all claims and counterclaims between the various parties. The parties further agreed
that, before any judgment is paid, all disputes between the various parties would be concluded.
These additional claims involve nonpayment for products and damages resulting from the alleged
wrongful termination of agency agreements. On March 15, 2005, the court in one of the litigation
matters brought by the distributor against one of our subsidiaries, rendered judgment against our
subsidiary and awarded damages and costs to the distributor in the amount of approximately
$102,000. The amount of this judgment was charged to operations during the second quarter of 2005
and has been paid. With respect to the remaining matters before the court, we are awaiting the
expert to finalize and file his pre-trial report with the court and when completed, we will
respond. Management is unable to estimate the likelihood of an unfavorable outcome, and the amount
of loss, if any, in the case of an unfavorable outcome.
On February 7, 2008, we filed suit against Gibson Audio, a Division of Gibson Guitar Corp., Gibson
Guitar Corp., and Gibson Musical Instruments, Inc. seeking payment of the remaining balance of a
minimum royalty fee due us under a software agreement. On March 10, 2008 the Gibson companies
answered our complaint with a general denial of all of our allegations. Also, the Gibson companies
counterclaimed that we breached various aspects of the software agreement and that they are seeking
unspecified damages. We disagree vigorously with their denials of liability and with their
counterclaims and will continue to pursue this matter. As we are in the early stages of discovery,
we are unable to estimate the likely outcome of this matter and the amount, if any, of recovery of
the balance due us at this time.
There are no other material pending legal proceedings, other than litigation that is incidental to
the ordinary course of our business, to which we or any of our subsidiaries is a party or of which
our respective property is the subject. We do not believe that any of the claims made against us in
any of the pending matters have merit and we intend to vigorously defend ourselves against them.
Long-Term Incentive Plan
During the second quarter of 2007, we adopted a Long-Term Incentive Plan (LTIP), effective
January 1, 2007, that provides a bonus pool for the executive management team contingent on
achieving certain performance goals for the two-year period commencing on January 1, 2007 and
ending on December 31, 2008, involving sales growth and earnings per diluted share. Vesting in the
bonus pool will occur in eight equal quarterly increments commencing with the quarter ending March
31, 2009 and will continue as long as the participant remains an employee of our company. Payment
of the vested portion of the bonus pool will occur on the vesting date, unless the participant
elects to defer such payment, and will be made in cash, our common stock, or a combination of cash
and stock (at our companys discretion). Our Board of Directors believes that a four-year
performance and vesting time period is
appropriate. The LTIP commits a maximum of $12 million in bonus if the highest performance goals
are met. During the first quarter of 2008, due to lower net sales projections for 2008, we lowered
our annual LTIP accrual from $1.0 million at December 31,
2007 to $0.8 million at March 31, 2008
resulting in a $175 thousand benefit to pre-tax income. The LTIP accrual is approximately $1.0
million at June 30, 2008 and is included in other long-term liabilities.
20
ITEM 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with the Consolidated Financial Statements
and the related notes that appear elsewhere in this document.
Overview
We have developed a broad line of pre-programmed universal wireless control products and
audio-video accessories that are marketed to enhance home entertainment systems. Our channels of
distribution include international retail, U.S. retail, private label, OEMs, cable and satellite
service providers, CEDIA (Custom Electronic Design and Installation Association) and companies in
the computing industry. We believe that our universal remote control database contains device codes
that are capable of controlling virtually all infrared remote (IR) controlled TVs, VCRs, DVD
players, cable converters, CD players, audio components and satellite receivers, as well as most
other infrared remote controlled devices worldwide.
Beginning in 1986 and continuing today, we have compiled an extensive library that covers over
355,000 individual device functions and over 3,400 individual consumer electronic equipment brand
names. Our library is regularly updated with new IR codes used in newly introduced video and audio
devices. All such IR codes are captured from the original manufacturers remote control devices or
manufacturers specifications to ensure the accuracy and integrity of the database. We have also
developed patented technologies that provide the capability to easily upgrade the memory of the
wireless control device by adding IR codes from the library that were not originally included.
Since the third quarter of 2006, we have been operating as one business segment. We have eleven
operating subsidiaries located in Argentina, France, two in Germany, Hong Kong, India, Italy, the
Netherlands, Singapore, Spain, and the United Kingdom.
To recap our results for the first six months of 2008:
|
|
|
revenue declined year-over-year in the first six months of 2008 by 4.1%, from $137.5
million in the first six months of 2007 to $131.9 million in the first six months of 2008,
and net income was $6.0 million, or $0.40 per diluted share in the first six months of
2008, compared to $9.2 million, or $0.61 per diluted share in the first six months of 2007; |
|
|
|
|
we repurchased 753,904 shares of common stock for $17.5 million, at an average price of
$23.20 per share; |
Our business objectives for the remainder of 2008 include the following:
|
|
|
increase our share with existing customers; |
|
|
|
|
acquire new customers in historically strong regions; |
|
|
|
|
continue our expansion into new regions, Asia in particular; |
|
|
|
|
continue to develop industry-leading technologies and products; and |
|
|
|
|
continue to evaluate potential merger and acquisition opportunities that may enhance
our business. |
We intend for the following discussion of our financial condition and results of operations to
provide information that will assist in understanding our consolidated financial statements, the
changes in certain key items in those financial statements from period to period, and the primary
factors that accounted for those changes, as well as how certain accounting principles, policies
and estimates affect our consolidated financial statements.
21
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with accounting principles generally accepted
in the United States of America requires us to make estimates and judgments 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. On an on-going basis, we evaluate our estimates and judgments, including those
related to revenue recognition, allowance for sales returns and doubtful accounts, warranties,
inventory valuation, business combination purchase price allocations, our review for impairment of
long-lived assets, intangible assets and goodwill, income taxes and stock-based compensation
expense. Actual results may differ from these judgments and estimates, and they may be adjusted as
more information becomes available. Any adjustment could be significant.
An accounting policy is deemed to be critical if it requires an accounting estimate to be made
based on assumptions about matters that are highly uncertain at the time the estimate is made, if
different estimates reasonably could have been used, or if changes in the estimate that are
reasonably likely to occur could materially impact the financial statements. For further
information regarding critical accounting policies and estimates, other than stock-based
compensation discussed below, refer to Item 7, Managements Discussion and Analysis of Financial
Condition and Results of Operations contained in our Annual Report on Form 10-K for our fiscal
year ended December 31, 2007.
Stock-Based Compensation
We follow the fair value recognition provisions of SFAS No. 123R, Share Based Payment (SFAS
123R) using the modified-prospective transition method. Stock-based compensation expense is
presented in the same income statement line as cash compensation paid to the same employees or
directors. During the three months ended June 30, 2008 and 2007, we recorded $1.1 million and $0.8
million, respectively, of pre-tax stock-based compensation expense. During the six months ended
June 30, 2008 and 2007, we recorded $2.3 million and $1.5 million, respectively, of pre-tax
stock-based compensation expense.
Stock-based compensation expense was included in the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
(In thousands) |
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
Cost of sales |
|
$ |
5 |
|
|
$ |
7 |
|
|
$ |
9 |
|
|
$ |
13 |
|
Research and development |
|
|
106 |
|
|
|
106 |
|
|
|
205 |
|
|
|
185 |
|
Selling, general and administrative |
|
|
1,021 |
|
|
|
692 |
|
|
|
2,097 |
|
|
|
1,283 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense before income taxes |
|
$ |
1,132 |
|
|
$ |
805 |
|
|
$ |
2,311 |
|
|
$ |
1,481 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2008, we expect to recognize $4.0 million of total unrecognized compensation expense
related to non-vested stock options over a weighted-average life of 2.2 years.
Included in SG&A stock-based compensation expense is $206 thousand and $117 thousand in pre-tax
compensation expense for the three months ended June 30, 2008 and 2007, respectively, related to
stock awards granted to outside directors. Included in SG&A stock-based compensation expense is
$387 thousand and $234 thousand in pre-tax compensation expense for the six months ended June 30,
2008 and 2007, respectively, related to stock awards granted to outside directors. We issue
restricted stock awards to the outside directors for services performed. Compensation expense for
the restricted stock awards is recognized on a straight-line basis over the requisite service
period of one year.
Additionally, in the first quarter of 2008 during the annual review cycle, the Compensation
Committee granted our executives 115,926 shares of restricted stock under the 2006 Stock Incentive
Plan. The awards were granted as part of long-term incentive compensation to assist us in meeting
our performance and retention objectives. Each executive grant is subject to a three-year vesting
period. For the three and six months ended June 30, 2008, the stock-based compensation expense
related to this award was $228 thousand and $456 thousand, respectively, and is included in SG&A.
22
Under SFAS 123R, compensation expense related to restricted stock awards granted to outside
directors and executives is based on the fair value of the shares awarded as of the grant date. The
fair value of non-vested shares is determined based on the average of the high and low trade prices
of our companys shares on the grant date.
As of June 30, 2008, we expect to recognize $2.3 million in unrecognized compensation expense
related to non-vested restricted stock awards over a weighted-average life of 2.5 years.
Determining the appropriate fair value model and calculating the fair value of share-based payment
awards requires the utilization of highly subjective assumptions, including the expected life of
the share-based payment awards and stock price volatility. Management determined that historical
volatility calculated based on our actively traded common stock is a better indicator of expected
volatility and future stock price trends than implied volatility. The assumptions used in
calculating the fair value of share-based payment awards represent managements best estimates, but
these estimates involve inherent uncertainties and the application of managements judgment. As a
result, if factors change and we use different assumptions, our stock-based compensation expense
could be materially different in the future. In addition, we are required to estimate the expected
forfeiture rate and only recognize expense for those shares expected to vest.
We do not believe there is a reasonable likelihood that there will be a material change in the
future estimates or assumptions used to determine stock-based compensation expense. However, if
actual results are not consistent with our estimates and assumptions we may be exposed to material
stock-based compensation expense. Refer to Note 2 captioned Stock-based Compensation included in
the Notes to the Consolidated Financial Statements set forth above for additional disclosure
regarding stock-based compensation expense.
Results of Operations
The following table sets forth our results of operations expressed as a percentage of net sales for
the three and six months ended June 30, 2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
|
|
2008 |
|
2007 |
|
2008 |
|
2007 |
Net sales |
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
Cost of sales |
|
|
65.7 |
|
|
|
65.5 |
|
|
|
65.2 |
|
|
|
64.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
34.3 |
|
|
|
34.5 |
|
|
|
34.8 |
|
|
|
35.6 |
|
Research and development expenses |
|
|
3.0 |
|
|
|
3.2 |
|
|
|
3.3 |
|
|
|
3.3 |
|
Selling, general and administrative expenses |
|
|
25.1 |
|
|
|
22.9 |
|
|
|
26.2 |
|
|
|
23.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
28.1 |
|
|
|
26.1 |
|
|
|
29.5 |
|
|
|
26.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
6.2 |
|
|
|
8.4 |
|
|
|
5.3 |
|
|
|
8.8 |
|
Interest income, net |
|
|
1.2 |
|
|
|
1.0 |
|
|
|
1.4 |
|
|
|
1.0 |
|
Other income (expense), net |
|
|
0.0 |
|
|
|
0.0 |
|
|
|
0.1 |
|
|
|
0.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
7.4 |
|
|
|
9.4 |
|
|
|
6.8 |
|
|
|
9.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes |
|
|
(2.5 |
) |
|
|
(3.1 |
) |
|
|
(2.3 |
) |
|
|
(3.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
4.9 |
% |
|
|
6.3 |
% |
|
|
4.5 |
% |
|
|
6.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2008 versus Three Months Ended June 30, 2007:
The following table sets forth our net sales by our Business and Consumer lines for the three
months ended June 30, 2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
2007 |
|
|
|
$ (millions) |
|
|
% of total |
|
|
$ (millions) |
|
|
% of total |
|
Net sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business |
|
$ |
56.8 |
|
|
|
80.3 |
% |
|
$ |
60.5 |
|
|
|
84.6 |
% |
Consumer |
|
|
13.9 |
|
|
|
19.7 |
% |
|
|
11.0 |
|
|
|
15.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales |
|
$ |
70.7 |
|
|
|
100.0 |
% |
|
$ |
71.5 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
23
Overview
Net sales for the second quarter of 2008 were $70.7 million, a decrease of 1% compared to $71.5
million for the second quarter of 2007. Net income for the second quarter of 2008 was $3.5 million
or $0.25 per share (basic) and $0.24 per share (diluted) compared to $4.5 million or $0.31 per
share (basic) and $0.30 per share (diluted) for the second quarter of 2007.
Consolidated
Net sales in our Business lines (subscription broadcasting, OEM and computing companies) were
approximately 80% of net sales in the second quarter of 2008 compared to approximately 85% in the
second quarter of 2007. Net sales in our Business line for the second quarter of 2008 decreased by
6% to $56.8 million from $60.5 million in the second quarter of 2007. This decrease in sales
resulted primarily from a decrease in the volume of remote control sales with our subscription
broadcasting customers. Sales in the second quarter of 2007 were favorably impacted by the mid-year
Open Cable Application Platform (OCAP) compliance deadline, as some of our key customers ordered
additional product ahead of the deadline. In spite of the difficult comparison with the second
quarter of 2007, the roll out of advanced functions such as digital video recording (DVR),
video-on-demand (VOD), and high definition television (HDTV) continues. We expect that the
deployment of the advanced function set-top boxes by the service operators will continue into the
foreseeable future as penetration for each of the functions cited continues to increase. We expect
Business category revenue to range between $234 million and $244 million for the full year 2008.
Net sales in our Consumer lines (One For All® retail, private label, custom installers and direct
import) were approximately 20% of net sales for the second quarter of 2008 compared to
approximately 15% for the second quarter of 2007. Net sales in our Consumer lines for the second
quarter of 2008 increased by 26.5% to $13.9 million, from $11.0 million in the second quarter of
2007. CEDIA sales increased by $1.8 million compared to the second quarter of 2007, primarily due
to the launch of a new Nevo product that occurred in the second quarter of 2008. International
retail sales increased by $1.7 million compared to the second quarter of 2007, mainly due to
increased distribution in the UK market. International retail sales were favorably impacted by the
strengthening of both the Euro and the British Pound compared to the U.S. Dollar, which resulted in
an increase in net sales of approximately $0.5 million. Net of this positive currency effect,
international retail sales increased by $1.2 million. Partially offsetting these increases were
private label sales, which decreased $0.6 million, to $0.4 million in the second quarter of 2008
from $1.0 million in the second quarter of 2007. This was due to a decline in the volume of remote
control sales to our private label partners. We expect Consumer category revenue to range between
$67 million and $77 million for the full year 2008.
Gross profit for the second quarter of 2008 was $24.2 million compared to $24.6 million for the
second quarter of 2007. Gross profit as a percent of sales for the second quarter of 2008 was 34.3%
compared to 34.5% for the same period in the prior year. The decrease in gross profit as a
percentage of net sales was primarily attributable to product mix within our
business lines, partially offset by a shift in mix towards our higher-margin consumer lines, which
generally have a higher gross profit rate as compared to our other sales. This change in mix
resulted in a 1.4% decrease in the gross profit rate. Included in this mix calculation is an
increase in royalty revenue of $1.0 million which favorably impacted the gross margin rate by 1.0%.
Partially offsetting the decrease in the gross profit rate was a reduction of $1.0 million of
freight, handling and duty expense, which increased the gross profit rate by 1.3%. In the second
quarter of 2008, there was a decrease in the percentage of units shipped by air compared to the
second quarter of 2007.
Research and development expenses decreased 6% from $2.3 million in the second quarter of 2007 to
$2.1 million in the second quarter of 2008. The decrease is due to the completion of the latest
development phase for the Nevo® platform that took place in late 2007. We expect research and
development expenses to remain near current levels for the remaining quarters of 2008.
Selling, general and administrative expenses increased 8% from $16.4 million in the second quarter
of 2007 to $17.7 million in the second quarter of 2008. The strengthening of both the Euro and
British Pound compared to the U.S. Dollar resulted in an increase of $1.2 million, stock-based
compensation increased by $0.3 million due to grants that
24
occurred in the first quarter of 2008, sales commissions increased by $0.3 million, payroll and
benefits increased by $0.2 million, and depreciation increased by $0.2 million. These increases
were partially offset by lower delivery and freight expense, which decreased by $0.4 million,
long-term incentive plan expense, which decreased by $0.3 million, and travel, which decreased by
$0.3 million. We expect that selling, general and administrative expenses to range between $68
million and $72 million for the full year 2008.
In the second quarter of 2008, we recorded $0.9 million of net interest income compared to $0.7
million in the second quarter of 2007. This increase is due to higher money market rates and a
higher average cash balance. We expect net interest income to range between $3.3 million and $3.8
million for the full year 2008.
We recorded income tax expense of $1.8 million in the second quarter of 2008 compared to $2.2
million in the second quarter of 2007. Our effective tax rate was 33.4% in the second quarter of
2008 compared to 32.5% in the second quarter of 2007. The increase in our effective tax rate is due
primarily to the expiration of the federal research and development tax credit statute, which
occurred on December 31, 2007. We estimate that our effective tax rate will range between 33% and
35% for the full year 2008.
Six Months Ended June 30, 2008 versus Six Months Ended June 30, 2007:
The following table sets forth our net sales by our Business and Consumer lines for the six months
ended June 30, 2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
2007 |
|
|
|
$ (millions) |
|
|
% of total |
|
|
$ (millions) |
|
|
% of total |
|
Net sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business |
|
$ |
105.1 |
|
|
|
79.7 |
% |
|
$ |
110.7 |
|
|
|
80.5 |
% |
Consumer |
|
|
26.8 |
|
|
|
20.3 |
% |
|
|
26.8 |
|
|
|
19.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales |
|
$ |
131.9 |
|
|
|
100.0 |
% |
|
$ |
137.5 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Overview
Net sales for the six months ended June 30, 2008 were $131.9 million, a decrease of 4% compared to
$137.5 million for the six months ended June 30, 2007. Net income for the six months ended June 30,
2008 was $6.0 million or $0.42 per share (basic) and $0.40 per share (diluted) compared to $9.2
million or $0.64 per share (basic) and $0.61 per share (diluted) for the six months ended June 30,
2007.
Consolidated
Net sales in our Business lines (subscription broadcasting, OEM and computing companies) were
approximately 80% of net sales for the six months ended June 30, 2008 compared to approximately 81%
for the six months ended June 30, 2007. Net sales in our Business lines for the six months ended
June 30, 2008 decreased by 5% to $105.1 million from $110.7 million for the same period last year.
This decrease in sales resulted primarily from a decrease in the volume of remote control sales
with our subscription broadcasting customers. Sales in the first half of 2007 were favorably
impacted by the mid-year Open Cable Application Platform (OCAP) compliance deadline, as some of
our key customers ordered additional product ahead of the deadline. In spite of the difficult
comparison with the first half of 2007, the roll out of advanced functions such as digital video
recording (DVR), video-on-demand (VOD), and high definition television (HDTV) continues. We
expect the deployment of the advanced function set-top boxes by the service operators to continue
into the foreseeable future as penetration for each of these functions continues to increase. We
expect Business category revenue to range between $234 million and $244 million for the full year
2008.
Net sales in our Consumer lines (One For All® retail, private label, custom installers
and direct import) were approximately 20% of net sales for the six months ended June 30, 2008
compared to approximately 19% for the six months ended June 30, 2007. Net sales in our Consumer
lines for the six months ended June 30, 2008 and 2007 were flat at $26.8 million for both periods.
International retail sales increased 5% to $22.1 million for the six months ended June 30, 2008
from $21.1 million for the six months ended June 30, 2007. This increase was primarily attributable
to the strengthening of both the Euro and British Pound compared to the U.S. Dollar. The impact of
the stronger currencies resulted in an increase in net sales of approximately $1.1 million. Net of
this positive currency
25
effect, international retail sales were relatively flat. There were decreases in private label
sales, which decreased $0.6 million, to $1.0 million in the first six months of 2008 from $1.6
million in the first six months of 2007. This was due to a decline in the volume of remote control
sales to our private label partners. United States direct import licensing and product revenues for
the first six months of 2008 decreased by $0.3 million or 37% to $0.4 million in 2008 from $0.7
million in 2007, due to a decline in Kameleon sales in North America and the expiration of a
license agreement. We expect Consumer category revenue to range between $67 million and $77 million
for the full year 2008.
Gross profit for the six months ended June 30, 2008 was $45.9 million compared to $49.0 million for
the six months ended June 30, 2007. Gross profit as a percentage of net sales for the six months
ended June 30, 2008 was 34.8% compared to 35.6% for the six months ended June 30, 2007. The
decrease in gross profit as a percentage of net sales was primarily attributable to product mix within our business lines, partially offset by a shift in mix towards our higher-margin
consumer lines, which generally have a higher gross profit rate as compared to our other sales.
This change in mix resulted in a 2.4% decrease in the gross profit rate. Included in this mix
calculation is an increase in royalty revenue of $1.9 million which favorably impacted the gross
margin rate by 0.9%. Partially offsetting the decrease in the gross profit rate was a reduction of
$1.6 million of freight, handling and duty expense, which increased the gross profit rate by 1.1%.
In the first half of 2008, there was a decrease in the percentage of units shipped by air compared
to the first half of 2007. Royalty expense decreased by $0.7 million, resulting from lower sales of
SKY-branded retail products, which added 0.5% to the gross profit rate.
Research and development expenses decreased 6% from $4.6 million in the six months ended June 30,
2007 to $4.3 million in the six months ended June 30, 2008. The decrease is due to the completion
of the latest development phase for the Nevo® platform that took place in late 2007. We expect
research and development expenses to remain near current levels for the remaining quarters of 2008.
Selling, general and administrative expenses increased 7% from $32.2 million in the six months
ended June 30, 2007 to $34.6 million in the six months ended June 30, 2008. The strengthening of
both the Euro and British Pound compared to the U.S. Dollar resulted in an increase of $2.2
million, and stock-based compensation increased by $0.8 million due to grants that occurred in the
first quarter of 2008. These increases were partially offset by long-term incentive plan expense,
which decreased by $0.5 million. We expect that selling, general and administrative expenses to
range between $68 million and $72 million for the full year 2008.
In the six months ended June 30, 2008, we recorded $1.8 million of net interest income compared to
$1.3 million during the six months ended June 30, 2007. This increase was due to higher money
market rates and a higher average cash balance in Europe. We expect net interest income to range
between $3.3 million and $3.8 million for the full year 2008.
For the six months ended June 30, 2008, net other income was $0.2 million as compared to $0.1
million for the six months ended June 30, 2007. Approximately $0.2 million of net other income in
the six months ended June 30, 2008 was the result of a foreign exchange gain, compared to a foreign
exchange gain of $0.1 million for the six months ended June 30, 2007, net of gains/losses on
foreign currency forward contracts.
We recorded income tax expense of $3.0 million for the six months ended June 30, 2008 compared to
$4.4 million for the six months ended June 30, 2007. Our effective tax rate was 33.8% during the
six months ended June 30, 2008 compared to 32.5% during the six months ended June 30, 2007. The
increase in our effective tax rate is due primarily to the expiration of the federal research and
development tax credit statute, which occurred on December 31, 2007. We estimate that our effective
tax rate will range between 33% and 35% for the full year 2008.
26
Liquidity and Capital Resources
Financial Condition (Sources and Uses of Cash):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended |
|
(Decrease)/ |
|
Six months ended |
(In thousands) |
|
June 30, 2008 |
|
Increase in cash |
|
June 30, 2007 |
Net cash provided by operating activities
|
|
$ |
17,389 |
|
|
$ |
12,505 |
|
|
$ |
4,884 |
|
Net cash used for investing activities
|
|
|
(3,962 |
) |
|
|
(1,277 |
) |
|
|
(2,685 |
) |
Net cash (used for) provided by financing activities
|
|
|
(16,830 |
) |
|
|
(23,545 |
) |
|
|
6,715 |
|
Effect of exchange rate changes on cash
|
|
|
5,008 |
|
|
|
3,558 |
|
|
|
1,450 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2008 |
|
Increase/(Decrease) |
|
December 31, 2007 |
Cash and cash equivalents
|
|
$ |
88,215 |
|
|
$ |
1,605 |
|
|
$ |
86,610 |
|
Working capital
|
|
|
137,882 |
|
|
|
(2,448 |
) |
|
|
140,330 |
|
Net cash provided by operating activities for the first six months of 2008 was $17.4 million as
compared to $4.9 million in the first six months of 2007. The increase in cash provided by
operating activities was primarily driven by a comparative improvement in our days sales
outstanding from the first six months of 2007 to the first six months of 2008. During the first
six months of 2007, days sales outstanding increased from 67 days at December 31, 2006 to 75 days
at June 30, 2007 compared to an improvement in days sales outstanding from 82 days at December 31,
2007 to 74 days at June 30, 2008. In addition, in an effort to improve our cash conversion cycle,
we have extended the payment cycle to various vendors.
Partially offsetting the aforementioned improvement in our cash conversion cycle is a decrease in
our inventory turns from 7.1 turns in the second quarter of 2007 to
4.4 turns in the second quarter of 2008. Inventory levels are higher
at June 30, 2008 compared to June 30, 2007 as we are
building product in advance of the two upcoming strong volume
quarters.
Net cash used for investing activities for the first six months of 2008 was $4.0 million as
compared to $2.7 million for the first six months of 2007. The increase in cash used for investing
activities was primarily due to an increase in leasehold improvements and acquisition of furniture
and fixtures related to the renovation of our corporate headquarters. During the first quarter of
2007, we began to renovate and expand our corporate headquarters. Construction was completed during
the first quarter of 2008. The total cost of this renovation was approximately $2.0 million, which
was financed through our current operations, and a $0.4 million tenant improvement allowance to be
collected from the landlord in the third quarter of 2008.
We also plan to make a significant investment to upgrade our information systems, which we expect
to cost approximately $1.0 million. The strategic planning for the upgrade of our information
systems commenced in 2007 and we expect implementation to be completed in 2009. In addition, in
order to support our future sales growth, we expect annual purchases of tooling equipment to
increase throughout the years.
Net cash used for financing activities for the first six months of 2008 was $16.8 million as
compared to cash provided by financing activities of $6.7 million for the first six months of 2007.
The increase in cash used for financing activities was primarily due to the repurchase of 753,904
shares of our common stock for a total cost of $17.5 million in the first six months of 2008.
During the first six months of 2007, we repurchased 71,300 shares of our common stock for a total
cost of $2.4 million. We hold repurchased shares as treasury stock and they are available for
reissue. Presently, except for using a small number of these treasury shares to compensate our
outside board members, we have no plans to distribute these shares. However, we may change these
plans if necessary to fulfill our on-going business objectives.
In addition, proceeds from stock exercises were $0.5 million during the first six months of 2008
compared to $8.0 million in the first six months of 2007.
Effective August 31, 2006, we amended our original Credit Facility with Comerica, extending our
line of credit through August 31, 2009. Under the amended Credit Facility, we have authority to
acquire up to an additional 2.0 million shares of our common stock in the open market. From August
31, 2006, through June 30, 2008, we purchased 1,321,804 shares of our common stock, leaving 678,196
shares available for purchase under the Credit Facility. During 2008 we may continue to purchase
shares of our common stock if we believe conditions are
favorable and to offset the dilutive effect of stock option exercises.
27
Contractual Obligations
At June 30, 2008 our contractual obligations were $36.0 million compared to $25.6 million as
reported on our Annual Report on Form 10-K as of December 31, 2007. The following table summarizes
our contractual obligations at June 30, 2008 and the effect these obligations are expected to have
on our liquidity and cash flow in future periods.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period |
|
|
|
|
|
|
|
Less than |
|
|
1 - 3 |
|
|
4 - 5 |
|
|
After |
|
(in thousands) |
|
Total |
|
|
1 year |
|
|
Years |
|
|
years |
|
|
5 years |
|
Contractual obligations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating lease obligations |
|
$ |
6,136 |
|
|
$ |
1,870 |
|
|
$ |
3,720 |
|
|
$ |
546 |
|
|
$ |
|
|
Purchase obligations(1) |
|
|
29,901 |
|
|
|
9,661 |
|
|
|
14,720 |
|
|
|
5,520 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual obligations |
|
$ |
36,037 |
|
|
$ |
11,531 |
|
|
$ |
18,440 |
|
|
$ |
6,066 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Purchase obligations include payments due under two vendor agreements to purchase
minimum quantities of inventory. |
Liquidity
We generally use cash provided by operations as our primary source of liquidity, since internally
generated cash flows are typically sufficient to support business operations, capital expenditures
and discretionary share repurchases. We are able to supplement this near term liquidity, if
necessary, with our Credit Facility, as discussed below.
Historically, our 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 June 30 2008, we had $137.9 million of working capital as compared to
$140.3 million at December 31, 2007.
Our cash balances are held in the United States and Europe. At June 30, 2008, we had approximately
$7.2 million and $81.0 million of cash and cash equivalents in the United States and Europe,
respectively.
We have a $15 million unsecured revolving credit agreement (Credit Facility) with Comerica Bank,
which expires on August 31, 2009. Under the Credit Facility, the interest payable is variable and
is based on the banks cost of funds or the LIBOR rate plus a fixed margin of 1.25%. The interest
rate in effect as of June 30, 2008 using the LIBOR Rate option plus a fixed margin of 1.25% was
4.56%. We pay a commitment fee ranging from zero to a maximum rate of 1/4 of 1% per year on the
unused portion of the credit line depending on the amount of cash investment retained with Comerica
during each quarter. Under the terms of the Credit Facility, dividend payments are allowed for up
to 100% of the prior fiscal years net income, to be paid within 90 days of this periods year end.
We are subject to certain financial covenants related to our net worth, quick ratio, and net
income. Amounts available for borrowing under the Credit Facility are reduced by the outstanding
balance of import letters of credit. As of June 30, 2008, we did not have any amounts outstanding
under the Credit Facility or any outstanding import letters of credit. As of June 30, 2008, we had
available $15 million on the line of credit. Furthermore we were in compliance with all financial
covenants required by the Credit Facility as of June 30, 2008.
It is our policy to carefully monitor the state of our business, cash requirements and capital
structure. As previously mentioned, we believe that cash generated from our operations and funds
available from our borrowing facility will be sufficient to fund current business operations and
anticipated growth at least over the next twelve months; however, there can be no assurance that
such funds will be adequate for that purpose.
Off Balance Sheet Arrangements
We do not participate in any off balance sheet arrangements.
28
Recent Accounting Pronouncements
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (SFAS 157), which
defines fair value, establishes a framework for measuring fair value in generally accepted
accounting principles (GAAP), and expands disclosures about fair value measurements for assets
and liabilities. SFAS 157 applies when other accounting pronouncements require or permit assets or
liabilities to be measured at fair value. Accordingly, SFAS 157 does not require new fair value
measurements. SFAS 157 is effective for fiscal years beginning after November 15, 2007. In February
2008, the FASB issued FASB Staff Position for SFAS 157 (FSP FAS 157-1) to amend SFAS 157 to
exclude SFAS 13, Accounting for Leases, and other accounting pronouncements that address fair
value measurements for purposes of lease classification or measurement under SFAS 13. However, this
scope exception does not apply to assets acquired and liabilities assumed in a business combination
that are required to be measured at fair value under SFAS 141, Business Combinations, or SFAS
141R, Business Combinations, regardless of whether those assets and liabilities are related to
leases. Additionally in February 2008 the FASB issued FASB Staff Position for SFAS 157 (FSP FAS
157-2), which delays the effective date of SFAS 157 for non-financial assets and non-financial
liabilities, except for items that are recognized or disclosed at fair value in an entitys
financial statements on a recurring basis (at least annually) until fiscal years beginning after
November 15, 2008. We adopted the provisions of SFAS 157 in the first quarter of 2008, except for
those items within scope of FSP FAS 157-2, which we will adopt in the first quarter of 2009. We will apply
the provisions as necessary (i.e. annual year-end impairment review of goodwill and intangible
assets). As a result, the adoption of SFAS 157 had no impact on our consolidated results of
operations and financial condition during the six months ended June 30, 2008.
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and
Financial LiabilitiesIncluding an amendment of FASB Statement No. 115 (SFAS 159). SFAS 159
expands the use of fair value accounting but does not affect existing standards that require assets
or liabilities to be carried at fair value. Under SFAS 159, a company may elect to use fair value
to measure accounts and loans receivable, available-for-sale and held-to-maturity securities,
equity method investments, accounts payable, guarantees and issued debt. Other eligible items
include firm commitments for financial instruments that otherwise would not be recognized at
inception and non-cash warranty obligations where a warrantor is permitted to pay a third party to
provide the warranty goods or services. If the use of fair value is elected, any upfront costs and
fees related to the item must be recognized in earnings and cannot be deferred, such as debt
issuance costs. The fair value election is irrevocable and generally made on an
instrument-by-instrument basis, even if a company has similar instruments that it elects not to
measure based on fair value. At the adoption date, unrealized gains and losses on existing items
for which fair value has been elected are reported as a cumulative adjustment to beginning retained
earnings. Subsequent to the adoption of SFAS 159, changes in fair value are recognized in earnings.
SFAS 159 is effective for fiscal years beginning after November 15, 2007 and was adopted by us in
the first quarter of 2008. The
adoption of SFAS 159 had no impact on our consolidated results of operations and financial
condition during the six months ended June 30, 2008.
In June 2007, the FASB ratified EITF 07-3, Accounting for Nonrefundable Advance Payments for Goods
or Services Received for Use in Future Research and Development Activities (EITF 07-3). EITF
07-3 requires that nonrefundable advance payments for goods or services that will be used or
rendered for future research and development activities be deferred and recognized as an expense as
the goods are delivered or the related services are performed. EITF 07-3 is effective, on a
prospective basis, for fiscal years beginning after December 15, 2007 and was adopted by us in the
first quarter of 2008. The adoption of EITF 07-3 did not have a material effect on our consolidated
financial position, results of operations or cash flows.
In December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations (SFAS
141R). SFAS 141R establishes principles and requirements for how an acquirer recognizes and
measures in its financial statements the identifiable assets acquired, the liabilities assumed, any
noncontrolling interest in the acquiree and the goodwill acquired. SFAS 141R also establishes
disclosure requirements to enable the evaluation of the nature and financial effects of the
business combination. SFAS 141R is effective as of the beginning of an entitys fiscal year that
begins after December 15, 2008, and will be adopted by us in the first quarter of fiscal 2009. We
do not believe that the adoption of Statement 141R will have a material effect on our financial
statements; however, the effect is dependent upon whether we make any future acquisitions and the
specifics of those acquisitions.
29
In December 2007, the FASB ratified EITF 07-1, Accounting for Collaborative Arrangements Related
to the Development and Commercialization of Intellectual Property (EITF 07-1). EITF 07-1 defines
collaborative arrangements and establishes disclosure requirements for transactions between
participants in a collaborative arrangement and between participants in the arrangement and third
parties. EITF 07-1 is effective as of the beginning of an entitys fiscal year that begins after
December 15, 2008 and should be applied retrospectively to all prior periods presented for all
collaborative arrangements existing as of the effective date. EITF 07-1 is effective for us
beginning January 1, 2009. Currently, we do not have any collaborative arrangements; therefore, we
do not believe that the adoption of EITF 07-1 will have an impact on our consolidated results of
operations and financial condition.
In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial
Statements: an amendment of ARB No. 51 (SFAS 160). SFAS 160 changes the accounting for, and the
financial statement presentation of, noncontrolling equity interests in a consolidated subsidiary.
SFAS 160 replaces the existing minority-interest provisions of Accounting Research Bulletin 51
(ARB 51), Consolidated Financial Statements, by defining a new term-noncontrolling interests-to
replace what were previously called minority interests. The new standard establishes noncontrolling
interests as a component of the equity of a consolidated entity. The underlying principle of the
new standard is that both the controlling interest and the noncontrolling interests are part of the
equity of a single economic entity: the consolidated reporting entity. Classifying noncontrolling
interests as a component of consolidated equity is a change from the current practice of treating
minority interests as a mezzanine item between liabilities and equity or as a liability. The change
affects both the accounting and financial reporting for noncontrolling interests in a consolidated
subsidiary. SFAS 160 includes reporting requirements intended to clearly identify and differentiate
the interests of the parent and the interests of the noncontrolling owners. The reporting
requirements are required to be applied retrospectively. SFAS 160 is effective for fiscal years and
interim periods within those fiscal years beginning on or after December 15, 2008. Early adoption
is prohibited. We currently do not believe that the adoption of SFAS 160 will have a significant
effect on our financial statements as we do not have any noncontrolling equity interests of a
consolidated subsidiary.
In March 2008, the FASB issued SFAS No. 161, Disclosures About Derivative Instruments and Hedging
Activitiesan amendment of FASB Statement No. 133 (SFAS 161). SFAS 161 amends and expands the
disclosure requirements of SFAS 133, Accounting for Derivative Instruments and Hedging
Activities, to provide improved transparency into the uses and financial statement impact of
derivative instruments and hedging activities. We will be required to provide enhanced disclosures
about how and why we use derivative instruments, how they are accounted for, and how they affect
our financial performance. This Statement is effective for financial statements issued for fiscal
years and interim periods beginning after November 15, 2008, with early application encouraged.
SFAS 161 encourages, but does not require, comparative disclosures for earlier periods at initial
adoption. SFAS 161 is effective for us beginning December 31, 2008. We are currently assessing the
impact that SFAS 161 will have on our consolidated results of operations and financial condition.
In April 2008, the FASB issued FASB Staff Position No. FAS 142-3 Determination of the Useful Life
of Intangible Assets (FSP FAS 142-3). FSP FAS 142-3 amends the factors that should be considered
in developing renewal or extension assumptions used to determine the useful life of a recognized
intangible asset under SFAS No. 142, Goodwill and Other Intangible Assets. The intent of this FSP
is to improve the consistency between the useful life of a recognized intangible asset under
Statement 142 and the period of expected cash flows used to measure the fair value of the asset
under FASB Statement No. 141 (revised 2007), Business Combinations, and other U.S. GAAP. FSP FAS
142-3 is effective for fiscal years and interim periods within those fiscal years beginning on or
after December 15, 2008. The guidance for determining the useful life of a recognized intangible
asset in paragraphs 711 of this FSP shall be applied prospectively to intangible assets acquired
after the effective date. The disclosure requirements in paragraphs 1315 shall be applied
prospectively to all intangible assets recognized as of, and subsequent to, the effective date.
Early adoption is prohibited. FSP FAS 142-3 is effective for us beginning January 1, 2009. We are
currently assessing the impact that FSP FAS 142-3 will have on our consolidated results of
operations and financial condition.
In May 2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted Accounting
Principles (SFAS 162). SFAS 162 identifies the sources of accounting principles and the
framework for selecting the principles used in the preparation of financial statements of
nongovernmental entities that are presented in conformity with generally accepted accounting
principles (the GAAP hierarchy). Statement 162 will become effective 60 days following the SECs
approval of the Public Company Accounting Oversight Board amendments to
AU Section 411, The Meaning of Present Fairly in Conformity With Generally Accepted Accounting
Principles. We do not expect the adoption of SFAS 162 to have a material effect on our
consolidated results of operations and financial condition.
30
In June 2008, the FASB issued FASB Staff Position on EITF 03-6, Determining Whether Instruments
Granted in Share-Based Payment Transactions Are Participating Securities (FSP EITF 03-6-1). FSP
EITF 03-6-1 addresses whether instruments granted in share-based payment transactions are
participating securities prior to vesting and, therefore, need to be included in the earnings
allocation in computing earning per share under FASB Statement No. 128, Earnings per Share. EITF
03-6-1 is effective for financial statements issued for fiscal years and interim periods beginning
after December 15, 2008 and should be applied retrospectively to all prior periods. Early adoption
is prohibited. FSP EITF 03-6-1 is effective for us beginning January 1, 2009. We do not expect the
adoption of FSP EITF 03-6-1 to have a material effect on our consolidated results of operations and
financial condition.
Factors That May Affect Financial Condition and Future Results
Forward Looking Statements
We caution that the following important factors, among others (including but not limited to factors
discussed below or above in Managements Discussion and Analysis of Financial Condition and
Results of Operations, as well as those factors discussed in our 2007 Annual Report on Form 10-K,
or in our other reports filed from time to time with the Securities and Exchange Commission), could
affect our actual results and could contribute to or cause our actual consolidated results to
differ materially from those expressed in any of our forward-looking statements. 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 we undertake no obligation to update any forward-looking
statement 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 we 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 we believe 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 the failure of our markets to continue growing and expanding in the manner
we anticipated; the failure of our customers to grow and expand as we anticipated; the effects of
natural or other events beyond our control, including the effect a war or terrorist activities may
have on us or the economy; the economic environments effect on us or our customers; the growth of,
acceptance of and the demand for our products and technologies in various markets and geographical
regions, including cable, satellite, consumer electronics, retail, digital media/ technology,
CEDIA, interactive TV, automotive, and cellular industries not materializing or growing as we
believed; our inability to add profitable complementary products which are accepted by the
marketplace; our inability to continue to maintain our operating costs at acceptable levels through
our cost containment efforts; our inability to realize tax benefits from various tax projects
initiated from time to time; our inability to maintain the strength of our balance sheet; our
inability to continue selling our products or licensing our technologies at higher or profitable
margins; our inability to obtain orders or maintain our order volume with new and existing
customers; the possible dilutive effect our stock option and other stock-based compensation
programs may have on our earnings per share and stock price; our inability to continue to obtain
adequate quantities of component parts or secure adequate factory production capacity on a timely
basis; and other factors listed from time to time in our press releases and filings with the
Securities and Exchange Commission.
Outlook
Our focus is to build technology and products that make the consumers interaction with devices and
content within the home easier and more enjoyable. The pace of change in the home is increasing.
The growth of new devices, such as DVD players, PVR/DVR technologies, HDTV and home theater
solutions, to name only a few, has transformed control of the home entertainment center into a
complex challenge for the consumer. The more recent introduction and projected growth of digital
media technologies in the consumers life will further increase this complexity. We have set out to
create the interface for the connected home, building a bridge between the home devices of today
and
the networked home of the future. We intend to invest in new products and technology, particularly
in the connected home space, which will expand our business beyond the control of devices to the
control of and access to content, such as digital media, to enrich the entertainment experience.
31
We will continue enhancing our leadership position in our core business by developing custom
products for our subscription broadcasting, OEM, retail and computing customers, growing our
capture expertise in infrared technology and radio frequency standards, adding to our portfolio of
patented or patent pending technologies and developing new platform products. We are also
developing new ways to enhance remote controls and other accessory products.
We are continuing to seek ways to use our technology to make the set-up and use of control
products, and the access to and control of digital entertainment within the home entertainment
network, easier and more affordable. In addition, we are working on product line extensions to our
One For All® branded products which include digital antennas, signal boosters, and other A/V
accessories.
We are also seeking ways to increase our customer base worldwide, particularly in the areas of
subscription broadcasting, OEM and One For All® retail. We will continue to work on strengthening
existing relationships by working with customers to understand how to make the consumer interaction
with products and services within the home easier and more enjoyable. We intend to invest in new
products and technology to meet our customer needs now and into the future.
We will continue developing software and firmware solutions that can enable devices such as TVs,
set-top boxes, stereos, automotive audio systems and other consumer electronic products to
wirelessly connect and interact with home networks and interactive services to deliver digital
entertainment and information. This smart device category is emerging, and in the remainder of
2008 we look to continue to build relationships with our customers in this category.
Throughout 2008, we will continue to evaluate acceptable acquisition targets and strategic
partnership opportunities in our core business lines as well as in the networked home marketplace.
We caution, however, that no assurance can be made that any suitable acquisition target or
partnership opportunity will be identified and, if identified, that a transaction can be
consummated. Moreover, if consummated, no assurance can be made that any such acquisition or
partnership will profitably add to our operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to various market risks, including interest rate and foreign currency exchange rate
fluctuations. We have established policies, procedures and internal processes governing our
management of these risks and the use of financial instruments to mitigate our risk exposure.
On August 31, 2006, we amended our credit facility to extend for an additional three years,
expiring on August 31, 2009. The interest payable under our revolving Credit Facility with our bank
is variable and based on either (i) the banks cost of funds or (ii) the LIBOR rate plus a fixed
margin of 1.25%; the rate is affected by changes in market interest rates. At June 30, 2008, we had
no borrowings on our credit facility. The interest rate in effect on the credit facility as of June
30, 2008 using the LIBOR Rate option plus a fixed margin of 1.25% was 4.56%.
At June 30, 2008 we had wholly owned subsidiaries in the Netherlands, United Kingdom, Germany,
France, Argentina, Spain, Italy, Singapore, Hong Kong and India. Sales from these operations are
typically denominated in local currencies such as the Euro and the British Pound, thereby creating
exposure to changes in exchange rates. Changes in local currency exchange rates relative to the
U.S. Dollar and, in some cases, to each other, may positively or negatively affect our sales, gross
margins and net income. From time to time, we enter into foreign currency exchange agreements to
manage our exposure arising from fluctuating exchange rates that affect cash flows and our reported
income. Contract terms for the foreign currency exchange agreements normally last less than nine
months. We do not enter into any derivative transactions for speculative purposes.
The value of our net balance sheet positions held in foreign currency can also be impacted by
fluctuating exchange rates, as can the value of the income generated by our European subsidiaries.
It is difficult to estimate the impact of fluctuations on reported income, as it depends on the
opening and closing rates, the average net balance sheet
positions held in a foreign currency and the amount of income generated in local currency. We
routinely forecast what these balance sheet positions and income generated in local currency may
be, and we take steps to minimize exposure as we deem appropriate.
32
The sensitivity of earnings and cash flows to the variability in exchange rates is assessed by
applying an approximate range of potential rate fluctuations to our assets, obligations and
projected results of operations denominated in foreign currency. Based on our overall foreign
currency rate exposure at June 30, 2008, we believe that movements in foreign currency rates could
have a material affect on our financial position. We estimate that if the exchange rates for the
Euro and the British Pound relative to the U.S. Dollar fluctuate 10% from June 30, 2008, net income
and cash flows in the third quarter of 2008 would fluctuate by approximately $0.2 million and $9.6
million, respectively.
ITEM 4. CONTROLS AND PROCEDURES
Exchange Act Rule 13a-15(d) defines disclosure controls and procedures to mean controls and
procedures of a company that are designed to ensure that information required to be disclosed by
the company in the reports that it files or submits under the Exchange Act is recorded, processed,
summarized and reported, within the time periods specified in the Commissions rules and forms. The
definition further states that disclosure controls and procedures include, without limitation,
controls and procedures designed to ensure that the information required to be disclosed by a
company in the reports that it files or submits under the Exchange Act is accumulated and
communicated to the companys management, including its principal executive and principal financial
officers, or persons performing similar functions, as appropriate to allow timely decisions
regarding required disclosure.
An evaluation was performed under the supervision and with the participation of our management,
including our principal executive and principal financial officers, of the effectiveness of the
design and operation of our disclosure controls and procedures as of the end of the period covered
by this report. Based on that evaluation, our principal executive and principal financial officers
have concluded that our disclosure controls and procedures were effective, as of the end of the
period covered by this report, to provide reasonable assurance that information required to be
disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in SEC rules and forms.
There were no changes in our internal control over financial reporting that occurred during the
most recent fiscal quarter that have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In 2002, one of our subsidiaries (One For All S.A.S.) brought an action against a former
distributor of the subsidiarys products seeking a recovery of accounts receivable. The distributor
filed a counterclaim against our subsidiary seeking payment for amounts allegedly owed for
administrative and other services rendered by the distributor for our subsidiary. In January 2005,
the parties agreed to include in that action all claims between the distributor and two of our
other subsidiaries, Universal Electronics BV and One For All Iberia SL. As a result, the single
action covers all claims and counterclaims between the various parties. The parties further agreed
that, before any judgment is paid, all disputes between the various parties would be concluded.
These additional claims involve nonpayment for products and damages resulting from the alleged
wrongful termination of agency agreements. On March 15, 2005, the court in one of the litigation
matters brought by the distributor against one of our subsidiaries, rendered judgment against our
subsidiary and awarded damages and costs to the distributor in the amount of approximately
$102,000. The amount of this judgment was charged to operations during the second quarter of 2005
and has been paid. With respect to the remaining matters before the court, we are awaiting the
expert to finalize and file his pre-trial report with the court and when completed, we will
respond. Management is unable to estimate the likelihood of an unfavorable outcome, and the amount
of loss, if any, in the case of an unfavorable outcome.
On February 7, 2008, we filed suit against Gibson Audio, a Division of Gibson Guitar Corp., Gibson
Guitar Corp., and Gibson Musical Instruments, Inc. seeking payment of the remaining balance of a
minimum royalty fee due us under a software agreement. On March 10, 2008 the Gibson companies
answered our complaint with a general
33
denial of all of our allegations. Also, as is typical, the Gibson companies counterclaimed that we
breached various aspects of the software agreement and that they are seeking unspecified damages.
We disagree vigorously with their denials of liability and with their counterclaims and will
continue to pursue this matter. As we are in the early stages of discovery, we are unable to
estimate the likely outcome of this matter and the amount, if any, of recovery of the balance due
us at this time.
There are no other material pending legal proceedings, other than litigation incidental to the
ordinary course of our business, to which we or any of our subsidiaries is a party or of which our
respective property is the subject. We do not believe that any of the claims made against us in any
of the pending matters has merit and we intend to vigorously defend ourselves against each claim.
We maintain directors and officers liability insurance to insure our individual directors and
officers against certain claims and attorneys fees and related expenses incurred in connection
with the defense of such claims.
ITEM 1A. RISK FACTORS
For risk factors, see Risk Factors in Part 1, Item 1A, of our Annual Report on Form 10-K for the
fiscal year ended December 31, 2007, which is incorporated herein by reference.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
During the quarter ended June 30, 2008, we did not sell any equity securities that were not
registered under the Securities Act of 1933.
We have authority under the Credit Facility to acquire up to 2.0 million shares of our common stock
in market purchases. Between August 31, 2006, the date of amendment of the Credit Facility, and
June 30, 2008, we purchased 1,321,804 shares of our common stock leaving 678,196 remaining shares
authorized for purchase under the Credit Facility. We repurchased 253,904 shares during the quarter
ended June 30, 2008, and we may continue to repurchase shares of our common stock during the
remainder of the year, if we believe conditions are favorable, or to manage dilution created by
shares issued under the employee stock plans. Purchase information for the second quarter of 2008
is set forth by month in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Number of |
|
|
|
|
|
|
|
|
|
|
|
|
Shares |
|
Maximum Number of |
|
|
|
|
|
|
|
|
|
|
Purchased as Part of |
|
Shares that May Yet |
|
|
Total Number |
|
Average |
|
Publicly Announced |
|
Be Purchased |
|
|
of Shares |
|
Price Paid |
|
Plans or |
|
Under the Plans or |
Period |
|
Purchased |
|
per Share |
|
Programs |
|
Programs |
April 1, 2008 April 30, 2008 |
|
|
3,904 |
|
|
$ |
24.21 |
|
|
|
N/A |
|
|
|
N/A |
|
May 1, 2008 May 31, 2008 |
|
|
206,500 |
|
|
|
23.50 |
|
|
|
N/A |
|
|
|
N/A |
|
June 1, 2008 June 30, 2008 |
|
|
43,500 |
|
|
|
24.97 |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Q2 2008 |
|
|
253,904 |
|
|
$ |
23.76 |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
We held our Annual Meeting on June 12, 2008. The terms of all of our directors expired at the
meeting. All of the directors nominated were re-elected by the stockholders for the term indicated.
In addition, the stockholders ratified the appointment of our independent registered public
accounting firm.
Results of the voting were as follows:
Election of Directors:
|
|
|
|
|
|
|
|
|
|
|
|
|
Nominee |
|
Term Expiring in |
|
In Favor |
|
Withheld |
Paul D. Arling
|
|
|
2009 |
|
|
|
13,282,757 |
|
|
|
300,709 |
|
Satjiv S. Chahil
|
|
|
2010 |
|
|
|
13,422,870 |
|
|
|
160,596 |
|
William C. Mulligan
|
|
|
2010 |
|
|
|
13,174,917 |
|
|
|
408,549 |
|
J. C. Sparkman
|
|
|
2010 |
|
|
|
13,418,285 |
|
|
|
165,181 |
|
Gregory P. Stapleton
|
|
|
2010 |
|
|
|
13,409,220 |
|
|
|
174,246 |
|
Edward K. Zinser
|
|
|
2010 |
|
|
|
13,422,170 |
|
|
|
161,296 |
|
Ratification of the appointment of Grant Thornton, as our independent registered public accounting
firm for the year ending December 31, 2008:
|
|
|
|
|
In Favor |
|
Opposed |
|
Abstain |
13,574,583
|
|
4,885
|
|
3,998 |
35
ITEM 6. EXHIBITS
|
31.1 |
|
Rule 13a-14(a) Certifications of Paul D. Arling, Chief Executive
Officer (principal executive officer) of Universal Electronics Inc. |
|
|
31.2 |
|
Rule 13a-14(a) Certifications of Bryan Hackworth, Chief Financial
Officer (principal financial officer and principal accounting
officer) of Universal Electronics Inc. |
|
|
32 |
|
Section 1350 Certifications of Paul D. Arling, Chief Executive
Officer (principal executive officer) of Universal Electronics Inc.,
and Bryan Hackworth, Chief Financial Officer (principal financial
officer and principal accounting officer) of Universal Electronics
Inc. pursuant to 18 U.S.C. Section 1350 |
36
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
Date: August 8, 2008
|
|
Universal Electronics Inc. |
|
|
|
|
|
/s/ Bryan Hackworth |
|
|
|
|
|
Bryan Hackworth |
|
|
Chief Financial Officer |
|
|
(principal financial officer and |
|
|
principal accounting officer) |
37
EXHIBIT INDEX
|
|
|
Exhibit No |
|
Description |
31.1
|
|
Rule 13a-14(a) Certifications of Paul D. Arling, Chief
Executive Officer (principal executive officer) of Universal
Electronics Inc. |
|
|
|
31.2
|
|
Rule 13a-14(a) Certifications of Bryan M. Hackworth, Chief
Financial Officer (principal financial officer and principal
accounting officer) of Universal Electronics Inc. |
|
|
|
32
|
|
Section 1350 Certifications of Paul D. Arling, Chief Executive
Officer (principal executive officer) of Universal Electronics
Inc., and Bryan M. Hackworth, Chief Financial Officer
(principal financial officer and principal accounting officer)
of Universal Electronics Inc. pursuant to 18 U.S.C. Section
1350 |
38
exv31w1
Exhibit 31.1
Rule 13a-14(a) Certifications
I, Paul D. Arling, certify that:
1. |
|
I have reviewed this quarterly report on Form 10-Q of Universal Electronics Inc.; |
|
2. |
|
Based on my knowledge, this report does not contain any untrue statement of a material fact
or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the period
covered by this report; |
|
3. |
|
Based on my knowledge, the financial statements, and other financial information included in
this report, fairly present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the periods presented in this
report; |
|
4. |
|
The registrants other certifying officer and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and have: |
|
a) |
|
designed such disclosure controls and procedures, or caused such disclosure controls
and procedures to be designed under our supervision, to ensure that material information
relating to the registrant, including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the period in which this report is
being prepared; |
|
|
b) |
|
designed such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with generally accepted
accounting principles; |
|
|
c) |
|
evaluated the effectiveness of the registrants disclosure controls and procedures
and presented in this report our conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered by this report based on such
evaluation; and |
|
|
d) |
|
disclosed in this report any change in the registrants internal control over
financial reporting that occurred during the registrants most recent fiscal quarter that
has materially affected, or is reasonably likely to materially affect, the registrants
internal control over financial reporting; and |
5. |
|
The registrants other certifying officer and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrants auditors and the
audit committee of registrants board of directors: |
|
a) |
|
all significant deficiencies and material weaknesses in the design or operation of
internal control over financial reporting which are reasonably likely to adversely affect
the registrants ability to record, process, summarize and report financial information;
and |
|
|
b) |
|
any fraud, whether or not material, that involves management or other employees who
have a significant role in the registrants internal control over financial reporting. |
Date: August 8, 2008
/s/ Paul D. Arling
Paul D. Arling
Chief Executive Officer
(principal executive officer)
exv31w2
Exhibit 31.2
I, Bryan M. Hackworth, certify that:
1. |
|
I have reviewed this quarterly report on Form 10-Q of Universal Electronics Inc.; |
|
2. |
|
Based on my knowledge, this report does not contain any untrue statement of a material fact
or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the period
covered by this report; |
|
3. |
|
Based on my knowledge, the financial statements, and other financial information included in
this report, fairly present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the periods presented in this
report; |
|
4. |
|
The registrants other certifying officer and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and have: |
|
a) |
|
designed such disclosure controls and procedures, or caused such disclosure controls
and procedures to be designed under our supervision, to ensure that material information
relating to the registrant, including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the period in which this report is
being prepared; |
|
|
b) |
|
designed such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with generally accepted
accounting principles; |
|
|
c) |
|
evaluated the effectiveness of the registrants disclosure controls and procedures
and presented in this report our conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered by this report based on such
evaluation; and |
|
|
d) |
|
disclosed in this report any change in the registrants internal control over
financial reporting that occurred during the registrants most recent fiscal quarter that
has materially affected, or is reasonably likely to materially affect, the registrants
internal control over financial reporting; and |
5. |
|
The registrants other certifying officer and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrants auditors and the
audit committee of registrants board of directors: |
|
a) |
|
all significant deficiencies and material weaknesses in the design or operation of
internal control over financial reporting which are reasonably likely to adversely affect
the registrants ability to record, process, summarize and report financial information;
and |
|
|
b) |
|
any fraud, whether or not material, that involves management or other employees who
have a significant role in the registrants internal control over financial reporting. |
Date: August 8, 2008
/s/ Bryan M. Hackworth
Bryan M. Hackworth
Chief Financial Officer
(principal financial officer
and principal accounting officer)
exv32
Exhibit 32
SECTION 1350 CERTIFICATIONS
Pursuant to 18 U.S.C. Section 1350, each of the undersigned officers of Universal Electronics Inc.
(the Company), hereby certifies that the (i) Companys Form 10-Q for the fiscal quarter ended
June 30, 2008 (the Report) fully complies with the requirements of Section 13(a) or 15(d), as
applicable, of the Securities Exchange Act of 1934 and (ii) the information contained in the Report
fairly presents, in all material respects, the financial condition and results of operations of the
Company.
|
|
|
|
|
|
|
|
Dated: August 8, 2008 |
By: |
/s/ Paul D. Arling
|
|
|
|
Chief Executive Officer |
|
|
|
(principal executive officer) |
|
|
|
|
|
|
By: |
/s/ Bryan M. Hackworth
|
|
|
|
Chief Financial Officer |
|
|
|
(principal financial officer and
principal accounting officer) |
|
|
A signed original of this written statement has been provided to Universal Electronics Inc. and
will be retained by it and furnished to the Securities and Exchange Commission or its staff upon
request.