1
- -------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 1997
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period From ______ to ______
Commission File Number: 0-21044
UNIVERSAL ELECTRONICS INC.
(Exact name of registrant as specified in its charter)
DELAWARE 33-0204817
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1864 ENTERPRISE PARKWAY WEST, TWINSBURG, OHIO 44087
(Address of principal executive offices) (Zip Code)
216-487-1110
(Registrant's telephone number, including area code)
-----------------------------------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
Yes X No
-------- --------
-----------------------------------------------------
Number of shares of Common Stock, $.01 par
value, outstanding at March 31, 1997 6,289,308
---------
- -------------------------------------------------------------------------------
THE INDEX OF EXHIBITS TO THIS QUARTERLY REPORT APPEARS ON PAGE 13
Page 1 of 16
2
UNIVERSAL ELECTRONICS INC.
--------------------------
INDEX
-----
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheet 3
Consolidated Statement of Income 4
Consolidated Statement of Cash Flows 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 13
Page 2 of 16
3
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
UNIVERSAL ELECTRONICS INC.
CONSOLIDATED BALANCE SHEET
(In thousands)
ASSETS
March 31, December 31, March 31,
1997 (1) 1996 1996 (1)
-------- -------- --------
Current assets:
Cash and cash equivalents $ 680 $ 510 $ 830
Accounts receivable 17,329 20,163 20,461
Inventories 21,191 21,208 30,319
Refundable income taxes 2 1 48
Prepaid expenses 3,482 3,330 2,251
Deferred income taxes 2,156 1,943 4,439
-------- -------- --------
Total current assets 44,840 47,155 58,348
Equipment, furniture, and
fixtures, net 6,933 6,697 7,327
Other assets 1,442 1,390 950
Deferred income taxes 4,209 4,209 --
-------- -------- --------
Total assets $ 57,424 $ 59,451 $ 66,625
======== ======== ========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities:
Revolving credit facility $ -- $ -- $ 4,569
Accounts payable 7,056 7,171 7,494
Accrued income taxes 163 198 350
Accrued compensation 321 519 261
Other accrued expenses 2,700 2,753 2,184
-------- -------- --------
Total current liabilities 10,240 10,641 14,858
-------- -------- --------
Long-term debt 2,233 3,183 2,000
Stockholders' equity:
Capital stock 68 68 68
Paid-in capital 54,055 53,951 53,743
Currency translation (49) (25) 4
Retain earnings (deficit) (6,053) (5,773) (4,048)
Cost of common stock held
in treasury (3,070) (2,594) --
-------- -------- --------
Total stockholders'
equity 44,951 45,627 49,767
-------- -------- --------
Total liabilities and
stockholders' equity $ 57,424 $ 59,451 $ 66,625
======== ======== ========
(1) Unaudited
The accompanying notes are an integral part of these financial statements.
Page 3 of 16
4
UNIVERSAL ELECTRONICS INC.
CONSOLIDATED STATEMENT OF INCOME
(In thousands, except per share amounts)(Unaudited)
Three Months Ended March 31,
1997 1996
-------- --------
Net Sales $ 22,380 $ 21,905
Cost of sales 15,623 16,063
-------- --------
Gross profit 6,757 5,842
Selling, general and
administrative expenses 7,071 7,111
-------- --------
Operating loss (314) (1,269)
Interest expense 99 159
Interest income (5) (9)
Other (income) and expenses 24 (140)
-------- --------
Loss before income taxes (432) (1,279)
Benefit for income taxes 151 709
-------- --------
Net loss $ (281) $ (570)
======== ========
Net loss per share $ (0.04) $ (0.08)
======== ========
Weighted average common and
common stock equivalents
outstanding 6,313 6,758
======== ========
The accompanying notes are an integral part of these financial statements.
Page 4 of 16
5
UNIVERSAL ELECTRONICS INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)(Unaudited)
Three Months Ended March 31,
1997 1996
-------- --------
Cash provided by (used for)
operating activities:
Net loss $ (281) $ (570)
Adjustments to reconcile net loss
to net cash provided by operating
activities:
Depreciation and amortization 478 372
Deferred income taxes (214) (738)
Issuance of common stock for
retirement plan 39 --
Changes in operating assets and
liabilities:
Receivables 2,835 5,828
Inventories 17 (59)
Other assets (216) (20)
Payables and accruals (367) (3,419)
Accrued income taxes (28) 537
-------- --------
Net cash provided by operating
activities 2,263 1,931
-------- --------
Cash used for investing
activities:
Acquisition of fixed assets (683) (2,489)
Trademarks (27) (44)
Loan repayments by employees
for common stock purchases 66 --
-------- --------
Net cash used for investing
activities: (644) (2,533)
-------- --------
Cash provided by
(used for) financing activities:
Short-term bank borrowings -- 13,814
Short-term bank payments -- (15,366)
Long-term debt borrowings -- 2,000
Long-term debt payments (950) --
Proceeds from stock options
exercised -- 120
Treasury stock purchased (475) --
-------- --------
Net cash provided by (used for)
financing activities (1,425) 568
-------- --------
Effect of exchange rates on cash (24) (8)
-------- --------
Net increase (decrease) in cash and
cash equivalents 170 (42)
Cash and cash equivalents at
beginning of period 510 872
-------- --------
Cash and cash equivalents at end of
period $ 680 $ 830
======== ========
The accompanying notes are an integral part of these financial statements.
Page 5 of 16
6
UNIVERSAL ELECTRONICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Adjustments
- -----------
All adjustments, consisting of recurring adjustments necessary for a fair
presentation of financial position and results of operations of these unaudited
interim periods, have been included in the accompanying financial statements.
Inventories
- -----------
Inventories consist of the following (in thousands):
March 31, December 31, March 31,
1997 1996 1996
--------- ------------ ---------
Components $ 7,746 $ 8,155 $12,161
Finished goods 13,445 13,053 18,158
------- ------- -------
Total inventories $21,191 $21,208 $30,319
======= ======= =======
Net Income Per Share
- --------------------
Net income per share is computed by dividing net income by the weighted average
of common stock and common stock equivalents outstanding. Common stock
equivalents are computed using the treasury stock method.
Reclassification
- ----------------
Certain prior year amounts have been reclassified to conform with the
presentation utilized in the quarter ended March 31, 1997.
Page 6 of 16
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Net sales for the first quarter of 1997 were $22.4 million, compared with $21.9
million for the same quarter of 1996. The Company experienced a loss for the
first quarter of $281,000, or $0.04 per share, compared to a loss of $570,000,
or $0.08 per share, in the first quarter of 1996.
First quarter net sales in the Company's Technology Businesses (Cable, Cable
OEM, OEM) were up 12.5% to $9.5 million, which compares with net sales of $8.5
for the same period of 1996. The increase in the Technology Businesses was
driven primarily by the Company's strengths in the subscription broadcasting
market. In addition, aggressive order activity in this area should lead to
strong performance for the remainder of 1997. First quarter sales in the
Company's Retail Businesses were down 4%, from $13.4 million in 1996 to $12.8
million in 1997. The decrease in the Retail Businesses resulted primarily from
decreased volume and average selling prices in the domestic One For All(R) sales
and decreased volume in the International One For All(R) sales. Partially
offsetting the decrease was increased volume in the Eversafe(R) business.
Gross margins for the 1997 first quarter were 30.2% compared to 26.7% for the
same period in 1996. The increase in 1997 was primarily due to favorable shifts
to higher margin product. The 1996 gross margins were negatively impacted by the
sell-through of quantities of retail products at discounted prices in
anticipation of the new products which were launched in 1996. Gross profit
margins will fluctuate due to a variety of factors, including, among other
things, shifts in product mix, fluctuations in manufacturing and freight costs,
and changes in customer mix.
Selling, general and administrative expenses were flat at $7.1 million in the
first quarter of 1997, compared to 1996. As a percent of sales, selling, general
and administrative expenses were 31.6% and 32.5% in the first quarters of 1997
and 1996, respectively. Selling, general and administrative expenses as a
percent of sales decreased primarily due to managements cost control programs.
The Company recorded interest expense of approximately $99,000 related to
borrowings under its revolving credit line for the first quarter of 1997
compared to approximately $159,000 for the first quarter of 1996. The decrease
is the result of a lower average outstanding balance compared to the same period
in 1996.
The income tax benefit of approximately $151,000 for the first quarter of 1997
compared to a benefit of approximately $709,000 for the same quarter of 1996.
The 1996 benefit includes the recognition of certain research and development
credits and deferred state income taxes not previously provided for.
BACKLOG
As of the end of the first quarter of 1997, the Company had backlog orders of
$18.8 million. This reflects an increase in orders of 95.6% as of the same date
in 1996 when the Company had backlog orders representing $9.6 million in sales.
The increase is primarily due to increased orders in the Company's Technology
Businesses. Although the Company believes current orders to be firm and expects
that substantially all of the backlog will be shipped in 1997, there can be no
assurance that such orders will be shipped. The Company further believes that
backlog is not a meaningful indicator of its future performance.
Page 7 of 16
8
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal sources of funds are its operations and bank credit
facilities. Cash provided from operating activities was $2.3 million for the
first quarter of 1997 compared to $1.9 million for the same period in 1996. The
improvement in cash flow is due to efforts taken by management to reduce
inventory and accounts receivable balances.
The Company's bank credit facilities include a revolving credit line which is
available to fund the Company's seasonal working capital needs and for general
operating purposes. This revolving credit facility provides the Company with
borrowing availability of $22 million and bears interest equal to the bank's
prime rate plus one-quarter percent. The credit facility is secured by a first
priority security interest in the accounts receivable, inventory, equipment, and
general intangibles of the Company. At March 31, 1997, the interest rate charged
on the outstanding balance of this credit line was 8.75%. Under the terms of
this revolving credit facility, the Company's ability to pay cash dividends on
its common stock and the acquisition of treasury shares is generally restricted,
however, the Company has authority under this credit facility to acquire up to
1,000,000 shares of its common stock in market purchases and, to date, the
Company has acquired approximately 508,000 shares of stock which it holds as
treasury shares and are available for reissue by the company. Presently, except
for using a small number of these treasury shares to compensate its outside
board members, the Company has no plans to distribute these shares.
Amounts available for borrowing are reduced by the outstanding balance of the
Company's import letters of credit. As of March 31, 1997, the Company had
utilized approximately $2.2 million of the credit facility for the acquisition
of its facility in Ohio and treasury stock purchases and had approximately
$200,000 of outstanding import letters of credit. The Company's borrowing under
this revolving credit facility and outstanding import letters of credit
fluctuates due to, among other things, seasonality of the business, the timing
of supplier shipments, customer orders and payments, and vendor payments.
Capital expenditures in the first quarters of 1997 and 1996 were approximately
$683,000 and $2.5 million, respectively. The 1997 capital expenditures related
primarily to product tooling and the relocation of the Company's California
facility. Approximately $1.7 million of the 1996 first quarter capital
expenditures were for the acquisition of the Twinsburg, Ohio facility. The
balance of the 1996 capital expenditures were primarily for product tooling.
It is the Company's policy to carefully monitor the state of its business, cash
requirements and capital structure. The Company believes that funds generated
from operations and available from its borrowing capacity will be sufficient to
fund its currently anticipated cash needs, however, there can be no assurances
that this will occur.
RISKS AND SAFEHARBOR STATEMENT
The Company cautions that the following important factors, among others
(including but not limited to factors mentioned from time to time in the
Company's reports filed with the Securities and Exchange Commission), could
affect the Company's actual results and could cause the Company's actual
consolidated results to differ materially from those expressed in any
forwardlooking statements of the Company made by or on behalf of the Company.
The factors included here are not exhaustive. Further, any forward-looking
Page 8 of 16
9
statement speaks only as of the date on which such statement is made, and the
Company undertakes no obligation to update any forward-looking statement or
statements to reflect events or circumstances after the date on which such
statement is made or to reflect the occurrence of unanticipated events. New
factors emerge from time to time and it is not possible for management to
predict all of such factors, nor can it assess the impact of each such factor on
the business or the extent to which any factor, or combination of factors, may
cause actual results to differ materially from those contained in any
forwardlooking statements. Therefore, forward-looking statements should not be
relied upon as a prediction of actual future results.
Dependence Upon Key Suppliers
- -----------------------------
Most of the components used in the Company's products are available from
multiple sources; however, the Company has elected to purchase integrated
circuit components used in the Company's products, principally its remote
control products, and certain other components used in the Company's products,
from single sources. The Company has recently developed alternative sources of
supply for these integrated circuit components. However, there can be no
assurance that the Company will be able to continue to obtain these components
on a timely basis. The Company generally maintains inventories of its integrated
chips, which could be used in part to mitigate, but not eliminate, delays
resulting from supply interruptions. An extended interruption or termination in
the supply of any of the components used in the Company's products, or a
reduction in their quality or reliability, would have an adverse effect on the
Company's business and results of operations.
Dependence on Foreign Manufacturing
- -----------------------------------
Third-party manufacturers located in foreign countries manufacture substantially
all of the Company's remote controls. The Company's arrangements with its
foreign manufacturers are subject to the risks of doing business abroad, such as
import duties, trade restrictions, work stoppages, political instability and
other factors which could have a material adverse effect on the Company's
business and results of operations. The Company believes that the loss of any
one or more of its manufacturers would not have a long-term material adverse
effect on the Company's business and results of operations because numerous
other manufacturers are available to fulfill the Company's requirements,
however, the loss of any of the Company's major manufacturers could adversely
affect the Company's business until alterative manufacturing arrangements are
secured. In addition to continuing to seek out alternative and additional third
party manufacturers both nationally and internationally, the Company has
recently commenced manufacturing a small amount of its remote controls in-house.
Such in-house manufacturing, however, does not presently reduce its dependence
on its third party manufacturers.
Potential Fluctuations in Quarterly Results
- -------------------------------------------
The Company's quarterly financial results may vary significantly depending
primarily upon factors such as the timing of significant orders, the timing of
new product offerings by the Company and its competitors and product
presentations. In addition, the Company's business historically has been
seasonal, with the largest proportion of sales occurring in September, October
and November of each calendar year. Factors such as quarterly variations in
financial results could aversely affect the market price of the Common Stock and
cause it to fluctuate substantially. In addition, the Company (i) may from time
to time increase its operating expenses to fund greater levels of research and
development, increase its sales and marketing activities, develop new
Page 9 of 16
10
distribution channels, improve its operational and financial systems and broaden
its customer support capabilities and (ii) may incur significant operating
expenses associated with any new acquisitions. To the extent that such expenses
precede or are not subsequently followed by increased revenues, the Company's
business, operating results and financial condition will be materially adversely
affected.
The Company expects to experience significant fluctuations in future quarterly
operating results that may be caused by many factors, including demand for the
Company's products, introduction or enhancement of products by the Company and
its competitors, market acceptance of new products, price reductions by the
Company or its competitors, mix of distribution channels through which products
are sold, level of product returns, mix of products sold, component pricing, mix
of international and North American revenues, and general economic conditions.
In addition, as a strategic response to changes in the competitive environment,
the Company may from time to time make certain pricing or marketing decisions or
acquisitions that could have a material adverse effect on the Company's
business, results of operations or financial condition. As a result, the Company
believes that period-to-period comparisons of its results of operations are not
necessarily meaningful and should not be relied upon as any indication of future
performance. Due to all of the foregoing factors, it is likely that in some
future quarters the Company's operating results will be below the expectations
of public market analysts and investors. In such event, the price of the
Company's common stock would likely be materially adversely affected.
Dependence on Consumer Preference
- ---------------------------------
The Company is susceptible to fluctuations in its business based upon consumer
demand for its products. The Company believes that its success depends in
substantial part on its ability to anticipate, gauge and respond to such
fluctuation in consumer demand. However, it is impossible to predict with
complete accuracy the occurrence and effect of any such event that will cause
such fluctuations in consumer demand for the Company's products.
Dependence Upon Timely Product Introduction
- -------------------------------------------
The Company's ability to remain competitive in the remote control products
market will depend in part upon its ability to successfully identify new product
opportunities and to develop and introduce new products and enhancements on a
timely and cost effective basis. There can be no assurance that the Company will
be successful in developing and marketing new products or in enhancing its
existing products, that new products such as its Finder(TM), its universal
garage door opener or its Producer series of home theater remote control
products will achieve consumer acceptance and if acquired, will sustain that
acceptance, that products developed by others will not render the Company's
products noncompetitive or obsolete or that the Company will be able to obtain
or maintain the rights to use proprietary technologies developed by others which
are incorporated in the Company's products. Any failure by the Company to
anticipate or respond adequately to technological developments and customer
requirements, or any significant delays in product development or introduction,
could have a material adverse effect on the Company's financial condition and
results of operations.
In addition, the introduction of new products which the Company may introduce in
the future may require the expenditure of a significant amount of funds for
research and development, tooling, manufacturing processes, inventory and
marketing. In order to achieve high volume production of any new product, the
Page 10 of 16
11
Company may have to make substantial investments in inventory and expand its
production capabilities.
Dependence on Major Retail Customers
- ------------------------------------
The Company's performance is affected by the economic strength and weakness of
its worldwide retail customers. The Company sells its products to mass
merchants, such as Wal-Mart, Kmart, and Sears. The Company also supplies its
products to its wholly-owned, non-U.S. subsidiaries and to independent foreign
distributors, who in turn distribute the Company's products worldwide, with the
United Kingdom, Europe, and Australia currently representing the Company's
principal foreign markets. The loss of any one or more of the Company's key
retail customers either in the United States or abroad due to the financial
weakness or bankruptcy of any such retailer customer may have an adverse affect
on the Company's financial condition or results of operations.
Competition
- -----------
The remote control industry is characterized by intense competition based
primarily on product availability, price, speed of delivery, ability to tailor
specific solutions to customer needs, quality and depth of product lines. The
Company's competition is fragmented across its product lines, and accordingly,
the Company does not compete with any one company across all product lines. The
Company competes with a variety of entities, some of which have greater
financial and other resources than the Company. The Company's ability to remain
competitive in this industry depends in part on its ability to successfully
identify new product opportunities and develop and introduce new products and
enhancements on a timely and cost effective basis. In addition, as is typical in
the Company's industry and the nature and kind of business in which the Company
is engaged, from time to time, various claims, charges and litigation are
asserted or commenced by third parties against the Company of by the Company
against third parties arising from or related to product liability, infringement
of patent or other intellectual property rights, breach of warranty, contractual
relations, or employee relations. The amounts claimed may be substantial but may
not bear any reasonable relationship to the merits of the claims or the extent
of any real risk of court awards. While it is the opinion of management that the
Company's products do not infringe any third parties' patent or other
intellectual property rights, the costs associated with defending or pursuing
any such claims or litigation could be substantial and amounts awarded as final
judgments, if any, in any such potential or pending litigation, could have a
significant effect on the Company's financial condition or results of
operations.
General Economic Conditions
- ---------------------------
General economic conditions, both domestic and foreign, have an impact on the
Company's business and financial results. From time to time the markets in which
the Company sells its products experience weak economic conditions that may
negatively affect the sales of the Company's products. To the extent that
general economic conditions affect the demand for products sold by the Company,
such conditions could have an adverse effect on the Company's business.
Moreover, operating its business in countries outside of the United States
exposes the Company to fluctuations in foreign currency exchange rates, exchange
ratios, nationalization or expropriation of assets, import/export controls,
political instability, variations in the protection of intellectual property
rights, limitations on foreign investments and restrictions on the ability to
convert currency are risks inherent in conducting operations in geographically
distant locations, with customers speaking different languages and having
Page 11 of 16
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different cultural approaches to the conduct of business, any one of which alone
or collectively, may have an adverse affect on the Company's international
operations, and consequently on the Company's business, operating results and
financial condition.
Page 12 of 16
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PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibits Page
----
11.1 Statement re: Computation of Per 15
Share Earnings (filed herewith).
(B) Reports on Form 8-K
There were no reports on Forms 8-K filed during the
quarter ended March 31, 1997.
(C) Exhibit 27 Financial Data Schedule 16
Page 13 of 16
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SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
(Registrant) Universal Electronics Inc.
Date: May 13, 1997 \s\Paul D. Arling
-----------------------------------------------
Paul D. Arling
Senior Vice President & Chief Financial Officer
Page 14 of 16
1
Exhibit 11.1
UNIVERSAL ELECTRONICS INC.
COMPUTATION OF PER SHARE EARNINGS
Three Months Ended
--------------------------
March 31,
--------------------------
1997 1996
----------- -----------
Common stock
outstanding, beginning
of period 6,372,025 6,750,898
----------- -----------
Weighted average common
stock outstanding from
exercise of stock options,
treasury stock purchases
and employee benefit plan (59,352) 7,476
----------- -----------
Weighted average common
stock outstanding 6,312,673 6,758,374
=========== ===========
Net income (loss)
attributable to common
stockholders $ (280,786) $ (570,152)
=========== ===========
Net income (loss) per
common and common stock
equivalents $ (0.04) $ (0.08)
=========== ===========
Page 15 of 16
5
3-MOS
DEC-31-1996
JAN-01-1997
MAR-31-1997
680
0
17,645
(316)
21,191
44,840
10,980
(4,047)
57,424
10,240
2,233
68
0
0
44,883
57,424
22,380
22,380
15,623
7,071
0
81
99
(432)
151
(281)
0
0
0
(281)
(.04)
0
