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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Quarterly Period Ended September 30, 1998
[ ] 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.)
6101 GATEWAY DRIVE, CYPRESS, CALIFORNIA 90630
(Address of principal executive offices) (Zip Code)
714-820-1000
(Registrant's telephone number, including area code)
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
Yes X No
----- -----
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date - 6,466,856 shares of the
Company's Common Stock, $.01 par value, were outstanding at September 30, 1998.
- --------------------------------------------------------------------------------
EXHIBITS TO THIS QUARTERLY REPORT APPEAR ON PAGE 13
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UNIVERSAL ELECTRONICS INC.
INDEX
Page
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PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheet 3
Consolidated Statement of Income and
Comprehensive 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 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
Signature 14
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ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
UNIVERSAL ELECTRONICS INC.
CONSOLIDATED BALANCE SHEET
(In thousands)
September 30, December 31,
1998 1997
------------ ------------
(Unaudited) (Audited)
ASSETS
Current assets:
Cash and cash equivalents $ 334 $ 1,097
Accounts receivable, net 21,239 26,049
Inventories 17,843 16,639
Prepaid and other 1,750 1,060
Deferred income taxes 5,027 5,027
Assets held for sale - 1,729
------------ ------------
Total current assets 46,193 51,601
------------ ------------
Equipment, furniture, and
fixtures, net 4,655 3,950
Goodwill and other intangibles, net 5,096 460
Other assets 605 475
Deferred income taxes 2,821 4,652
------------ ------------
Total assets $ 59,370 $ 61,138
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Revolving credit facility $ 6,149 $ 7,237
Accounts payable 7,986 7,775
Accrued income taxes 78 101
Accrued compensation 794 714
Accrued discontinuation expenses - 3,929
Other accrued expenses 2,466 2,495
------------ ------------
Total current liabilities 17,473 22,251
------------ ------------
Stockholders' equity:
Capital stock 72 68
Paid-in capital 56,960 54,454
Currency translation adjustment (99) (73)
Accumulated deficit (9,024) (12,291)
Cost of common stock held in
treasury (6,012) (3,271)
------------ ------------
Total stockholders'
equity 41,897 38,887
------------ ------------
Total liabilities and
stockholders' equity $ 59,370 $ 61,138
============ ============
The accompanying notes are an integral part of these financial statements.
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UNIVERSAL ELECTRONICS INC.
CONSOLIDATED STATEMENT OF INCOME AND
COMPREHENSIVE INCOME (In thousands,
except per share amounts) (Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
---- ---- ---- ----
Net sales $ 23,732 $ 33,499 $ 64,580 $ 79,810
Cost of sales 14,239 23,208 38,765 55,479
-------- -------- -------- --------
Gross profit 9,493 10,291 25,815 24,331
Selling, general, and
administrative expenses 6,837 8,333 20,396 22,138
-------- -------- -------- --------
Operating income 2,656 1,958 5,419 2,193
Interest expense 79 183 314 386
Interest income 2 (3) (1) (11)
Other (income) expenses,
net (92) (49) (80) (22)
-------- -------- -------- --------
Income before income
taxes 2,667 1,827 5,186 1,840
Income tax (expense)
benefit (1,058) (640) (1,919) (644)
-------- -------- -------- --------
Net income 1,609 1,187 3,267 1,196
-------- -------- -------- --------
Other comprehensive income (loss):
Foreign currency translation
adjustments 19 (11) (26) (47)
Tax benefit related to
foreign currency translation
adjustments (7) 4 10 16
-------- -------- -------- --------
Comprehensive net
income $ 1,621 $ 1,180 $ 3,251 $ 1,165
========= ========== ======== =========
Net income per share:
Basic $ 0.25 $ 0.19 $ 0.51 $ 0.19
========= ======== ======== ========
Diluted $ 0.24 $ 0.19 $ 0.49 $ 0.19
========= ======== ======== ========
Weighted average common
stock outstanding:
Basic 6,438 6,261 6,387 6,278
========= ======== ======== ========
Diluted 6,692 6,359 6,622 6,306
========= ======== ======== ========
The accompanying notes are an integral part of these financial statements.
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UNIVERSAL ELECTRONICS INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)(Unaudited)
Nine Months Ended September 30,
1998 1997
---- ----
Cash provided by (used for) operating activities:
Net income $ 3,267 $ 1,196
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,584 1,531
Deferred income taxes 1,833 521
Issuance of common stock for retirement plan 88 73
Provision for bad debts 609 -
Issuance of treasury shares to directors 36 45
Changes in operating assets and liabilities:
Receivables 4,202 (8,158)
Inventories (1,203) (5,770)
Other assets (692) (463)
Accrued discontinuation expense (3,929) -
Payables and accruals (186) 8,316
Accrued income taxes 424 (21)
------------ -------------
Cash provided by operating activities 6,033 (2,730)
------------ -------------
Cash provided by (used for) investing activities:
Acquisition of fixed assets (1,729) (2,183)
Payments for businesses acquired (3,200) -
Sale of building 1,680 -
Other (1,205) (33)
------------ -------------
Cash provided by (used for) investing activities: (4,454) (2,216)
------------ -------------
Cash provided by (used for) financing activities:
Short-term debt borrowings 36,026 31,424
Short-term debt payments (37,112) (28,178)
Proceeds from stock options exercised 1,530 28
Long-term debt - 2,147
Treasury stock purchased (2,761) (688)
------------ -------------
Cash provided by (used for) financing activities (2,317) 4,733
------------ -------------
Effect of exchange rates on cash (25) (66)
------------ -------------
Net decrease in cash and cash equivalents (763) (279)
Cash and cash equivalents at beginning of period 1,097 510
=========== ===========
Cash and cash equivalents at end of period $ 334 $ 231
=========== ===========
The accompanying notes are an integral part of these financial statements.
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UNIVERSAL ELECTRONICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Adjustments
The accompanying consolidated financial statements include the accounts of the
company and all subsidiaries after elimination of all material intercompany
accounts and transactions. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to the rules and
regulations of the Securities and Exchange Commission. These financial
statements should be read in conjunction with the consolidated financial
statements and related notes contained in the company's 1997 Form 10-K. The
financial information presented in the accompanying statements reflects all
adjustments which are, in the opinion of management, necessary for a fair
presentation of the periods indicated. All such adjustments are of a normal
recurring nature.
Inventories
Inventories consist of the following (in thousands):
September 30, December 31,
1998 1997
------------- ------------
Components $ 6,210 $ 6,479
Finished goods 11,633 10,160
------------- ------------
Total inventories $17,843 $16,639
============= ============
Net Income (Loss) Per Share
Basic net income (loss) per share is computed by dividing net income (loss) by
the weighted average number of common shares outstanding. Diluted net income
(loss) per share is computed by dividing the net income (loss) by the weighted
average number of common shares and dilutive potential common shares
outstanding. Dilutive potential common shares for all periods presented are
computed utilizing the treasury stock method.
Comprehensive Income
Effective in the first quarter of fiscal 1998, the Company adopted Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income." This
statement establishes standards for reporting and display of comprehensive
income and its components in the Company's consolidated financial statements.
Comprehensive income represents the change in equity (net assets) of a business
enterprise during a period from transactions and other events and circumstances
from nonowner sources. It includes all changes in equity during a period, except
those resulting from investments by owners and distributions to owners. Total
comprehensive income and its components are included in the accompanying
Consolidated Statement of Income and Comprehensive Income.
Reclassification
Certain prior year amounts have been reclassified to conform with the
presentation utilized in the three and nine month periods ended September 30,
1998.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Third Quarter 1998 versus 1997
Net sales for the 1998 third quarter were $23.7 million, a decrease of 8.8% over
the net sales of $26.0 million for the same quarter last year, after excluding
net sales of $7.5 million related to the Company's discontinued North American
retail business. Net income increased in the third quarter to $1,609,000 or
$0.25 per share (basic) and $0.24 per share (diluted), from $1,187,000 or $0.19
per share (basic and diluted) for the third quarter of 1997.
The decrease in net sales was primarily attributable to a 18.3% decrease in net
sales in the Company's Technology businesses (subscription broadcasting, OEM and
private label) in the third quarter of 1998 to $16.6 million from $20.4 million
for the same period last year. Reduced shipments in satellite broadcasting and
private label businesses partially offset by increased shipments in the cable
business accounted for lower comparable third quarter sales in 1998. Net sales
in the international One For All(R) business increased by 14.2% in the third
quarter of 1998 to $5.7 million from $5.0 million in the corresponding period
last year. During the third quarter of 1998, the Company also generated revenues
from its new Direct Import business of $1.0 million.
Gross margins for the third quarter of 1998 were 40.0% compared to 30.7% for the
same period in 1997. This can be attributed to the discontinuation of the
Company's lower margin North American retail business and improved margins in
the subscription broadcasting and international One For All businesses.
Selling, general and administrative expenses decreased to $6.8 million in the
third quarter of 1998, compared to $8.3 million in 1997 due to lower overall
expenses from the elimination of the North American retail business.
The Company recorded interest expense of approximately $79,000 related to
borrowings under its revolving credit line for the third quarter of 1998
compared to approximately $183,000 for the third quarter of 1997.
The Company recorded income tax expense of $1,058,000 for the third quarter of
1998 compared to approximately $640,000 for the same quarter of 1997 primarily
due to the increase in net income.
Nine Months 1998 versus 1997
Net sales for the nine months ended September 30, 1998 were $64.6 million, an
increase of 8.9% over the net sales of $59.3 million for the same period last
year, after excluding the net sales of $20.5 million related to the Company's
discontinued North American retail business. Net income increased substantially
in the nine month period ended September 30, 1998 to $3,267,000 or $0.51 per
share (basic) and $0.49 per share (diluted), from $1,196,000 or $0.19 per share
(basic and diluted) for the same period in 1997.
The increase in net sales was partially attributable to a 6.2% increase in net
sales in the Company's Technology businesses (subscription broadcasting, OEM and
private label) for the nine months ended September 30, 1998 to $47.0 million
from $44.3 million for the same period last year. Increased shipments in the
cable business partially offset by reduced shipments in the satellite
broadcasting and private label businesses accounted for the higher comparable
sales in 1998. The international One For All business posted substantial sales
growth in the nine months ended September 30, 1998 up about 18.1% to $14.3
million from the $12.1 million for the corresponding period in 1997.
Gross margins for the first nine months of 1998 were 40.0% compared to 30.5% for
the same period in 1997. This can be attributed to the discontinuation of the
Company's lower margin North American retail business and improved margins in
the subscription broadcasting and international One For All businesses.
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Selling, general and administrative expenses decreased by 7.9% to $20.4 million
in the first nine months of 1998, compared to $22.1 million in the first half of
1997 due to lower overall expenses from the elimination of the North American
retail business.
Interest expense related to borrowings under the Company's revolving credit line
for the first nine months of 1998 decreased to approximately $314,000 compared
to approximately $386,000 for the first nine months of 1997. This decrease was a
result of a lower average outstanding balance during the nine months ended
September 30, 1998.
The Company recorded income tax expense of approximately $1,919,000 for the
first nine months of 1998 compared to $644,000 for the same period in 1997
primarily due to the increase in net income.
BACKLOG
As of September 30, 1998, the Company had backlog orders of $9.8 million. This
reflects a decrease in orders of 38.8% as of the same date in 1997 when the
Company had backlog orders representing $16.0 million in sales. This decrease is
primarily attributable to the discontinuation of the North American Retail
business in 1997 in which longer lead times were required compared to the
Company's continuing business lines in 1998. Although the Company believes
current orders to be firm and expects that the majority of the backlog will be
shipped in 1998, 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.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal sources of funds are its operations and bank credit
facilities. Cash provided by operating activities was $6.0 million for the nine
months ended September 30, 1998 compared to cash used by operating activities of
$2.7 million for the same period in 1997. The improvement in cash flow is due to
efforts taken by management to reduce accounts receivable balances offset by
nonrecurring expenditures of $3.9 million related to the Company's
restructuring.
As of September 30, 1998, the Company's bank credit facilities included a
revolving credit line with The Provident Bank, which was available to fund the
Company's seasonal working capital needs and for general operating purposes.
This revolving credit facility, which was renewed on April 30, 1998, provided
the Company with borrowing availability of $15 million and beared interest equal
to the bank's prime rate minus one-quarter percent as of September 30, 1998. The
credit facility was secured by a first priority security interest in the
accounts receivable, inventory, equipment, and general intangibles of the
Company. At September 30, 1998, the interest rate charged on the outstanding
balance of this credit line was 7.75%. 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 was generally restricted, however, the
Company had authority under this credit facility to acquire up to 1,000,000
shares of its common stock in market purchases. As of September 30, 1998, the
Company had acquired approximately 760,000 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 September 30, 1998, the Company had
utilized approximately $6.1 million of the credit facility for business
acquisitions, payments to acquire fixed assets, treasury stock purchases and
other working capital needs. The Company had no outstanding import letters of
credit as of September 30, 1998. The Company's borrowings under the revolving
credit facility and outstanding import letters of credit have fluctuated due to,
among other things, seasonality of the business, the timing of supplier
shipments, customer orders and payments, and vendor payments.
On October 23, 1998, the Company paid off its outstanding credit line with The
Provident Bank and entered into a new $15 million revolving credit agreement
with Bank of America
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National Trust and Savings Association ("B of A"). Under the revolving credit
agreement with B of A, the Company can choose from several interest rate options
at its discretion. The interest rate option selected by the Company as of
November 12, 1998 was the Fixed Rate option as defined in the agreement (6.81%),
which is intended to approximate B of A's cost of funds, plus one and
three-quarters percent. The revolving credit facility, which expires October 23,
2001, is secured by a first priority security interest in the Company's cash and
cash equivalents, accounts receivable, inventory, equipment, and general
intangibles of the Company. The Company pays a commitment fee of a maximum rate
of 3/16 of 1% per year on the unused portion of the credit line. Under the terms
of this revolving credit agreement, the company's ability to pay cash dividends
on its common stock is restricted and the Company is subject to certain
financial covenants and other restrictions, however, the Company has authority
under this credit facility to acquire up to 1,000,000 shares of its common stock
in market purchases. Amounts available for borrowing under this credit facility
are reduced by the outstanding balance of the Company's import letters of
credit.
On September 1, 1998, the Company entered into an agreement to acquire H & S
Management, Inc., a remote control company, for $1,500,000 in cash and 84,211
shares of the Company's common stock valued at $874,000. The shares used were
newly issued securities and are restricted securities issued pursuant to an
exemption from registration under the applicable securities law.
Capital expenditures during the nine months ended September 30, 1998 and 1997
were approximately $1,729,000 and $2,183,000, respectively. The 1998 and 1997
capital expenditures related primarily to product tooling and the relocation of
the Company's facilities from Ohio to California in 1998 and relocation of the
California facility in 1997.
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.
YEAR 2000 READINESS DISCLOSURES
In connection with the Year 2000 Information and Readiness Disclosure Act which
was signed by President Clinton on October 19, 1998 and its eventual passage
into law on December 3, 1998, the Company makes these Year 2000 readiness
disclosures in connection with addressing the universal problem commonly
referred to as "Year 2000 Compliance," which relates to the ability of computer
programs and systems to properly recognize and process date sensitive
information before and after January 1, 2000. Many existing computer systems
and software programs currently in use are coded to accept only two digit
entries in the date code field. These systems and programs were designed and
developed without considering the impact of the upcoming change in the century.
If not corrected, many computer applications could fail or create erroneous
results by or at the year 2000. The Company has continually evaluated the
potential impact of the year 2000 issue on its information systems and
products. In this connection, the Company recently upgraded the software it
uses for all of its internal information technology systems to a new version
that is Year 2000 compliant. At the same time, the Company also replaced its
main computer hardware with Year 2000 compliant equipment. These program and
system changes did not have a material adverse effect on the financial
condition of the Company. The Company now believes that its internal
information systems are Year 2000 Compliant. In addition, the company has
performed an internal evaluation of its products. Based upon that evaluation
and certain ongoing tests that the company performs from time to time, it
believes that its products are Year 2000 compliant. Furthermore, the company is
not aware that any of its suppliers and customers are not addressing the Year
2000 issue and, where appropriate, taking corrective action in connection with
any Year 2000 problems they may have discovered.
Although the Company believes that it has taken and will continue to take
appropriate precautions against disruptions of its systems and products due to
the Year 2000 issue, there can be no assurance that the Company will identify
all Year 2000 problems in advance of their occurrence, or that the Company will
be able to successfully remedy any problems that are discovered. Furthermore,
there can be no assurance that the Company's suppliers and customers will not
be adversely affected by the Year 2000 issue. Any resulting system or product
failures or interruptions at the Company or its suppliers or customers could
have a material adverse effect on the Company's business, financial condition
and operating results.
RISK FACTORS 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
forward-looking statements of the Company made by or on behalf of the Company.
The factors included here are not exhaustive. Further, any forward-looking
statement speaks only as of the date on which such statement is made, and the
Company undertakes no obligation to update any forward-looking statement or
statements to reflect events or circumstances after the date on which such
statement is made or to reflect the occurrence of unanticipated events. New
factors emerge from time to time and it is not possible for
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management to predict all of such factors, nor can it assess the impact of each
such factor on the business or the extent to which any factor, or combination of
factors, may cause actual results to differ materially from those contained in
any forward-looking statements. Therefore, forward-looking statements should not
be relied upon as a prediction of actual future results.
Dependence Upon Key Suppliers
Most of the components used in the Company's products are available from
multiple sources. However, there can be no assurance that the Company will be
able to continue to obtain these components on a timely basis. While the Company
generally maintains inventories of its components, including its integrated
chips, that 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 alternative manufacturing arrangements are
secured.
Potential Fluctuations in Quarterly Results
The Company's quarterly financial results may vary significantly depending
primarily upon factors such as the timing of significant orders, the timing of
new product offerings by the Company and its competitors and product
presentations. 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 adversely affect the market price of the Common Stock
and cause it to fluctuate substantially. In addition, the Company (i) may from
time to time increase its operating expenses to fund greater levels of research
and development, increase its sales and marketing activities, develop new
distribution channels, improve its operational and financial systems and broaden
its customer support capabilities and (ii) may incur significant operating
expenses associated with any new acquisitions. To the extent that such expenses
precede or are not subsequently followed by increased revenues, the Company's
business, operating results and financial condition will be materially adversely
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
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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, or that such new or enhanced products will achieve consumer
acceptance, and if acquired, will sustain that acceptance, that products
developed by others will not render the Company's products non-competitive or
obsolete or that the Company will be able to obtain or maintain the rights to
use proprietary technologies developed by others which are incorporated in the
Company's products. Any failure by the Company to anticipate or respond
adequately to technological developments and customer requirements, or any
significant delays in product development or introduction, could have a material
adverse effect on the Company's financial condition and results of operations.
In addition, the introduction of new products which the Company may introduce in
the future may require the expenditure of a significant amount of funds for
research and development, tooling, manufacturing processes, inventory and
marketing. In order to achieve high volume production of any new product, the
Company may have to make substantial investments in inventory and expand its
production capabilities.
Dependence on Major Customers
The Company's performance is affected by the economic strength and weakness of
its worldwide customers. The Company sells its remote control products and
proprietary technologies to private label customers, original equipment
manufacturers ("OEMs"), and companies involved in the subscription broadcast
industry. The Company also supplies its products to its wholly-owned, non-U.S.
subsidiaries and to independent foreign distributors, who in turn distribute the
Company's products worldwide, with 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 customers either in the United States or abroad
due to the financial weakness or bankruptcy of any such customer may have an
adverse affect on the Company's financial condition or results of operations.
Competition/Litigation
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,
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some of which have greater financial and other resources than the Company. The
Company's ability to remain competitive in this industry depends in part on its
ability to successfully identify new product opportunities and develop and
introduce new products and enhancements on a timely and cost effective basis as
well as its ability to identify and enter into strategic alliances with entities
doing business within the industries the Company serves. There can be no
assurances that the Company and its product offerings will be and/or remain
competitive or that any strategic alliances, if any, which the Company enters
into will achieve the type, extent and amount of success or business that the
Company expects or hopes to achieve. 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 or by the Company against third
parties arising from or related to product liability, infringement of patent or
other intellectual property rights, breach of warranty, contractual relations,
or employee relations. The amounts claimed may be substantial but may not bear
any reasonable relationship to the merits of the claims or the extent of any
real risk of court awards. While it is the opinion of management that the
Company's products do not infringe any third parties' patent or other
intellectual property rights, the costs associated with defending or pursuing
any such claims or litigation could be substantial and amounts awarded as final
judgments, if any, in any such potential or pending litigation, could have a
significant and material adverse effect on the Company's financial condition or
results of operations.
General Economic Conditions
General economic conditions, both domestic and foreign, have an impact on the
Company's business and financial results. From time to time the markets in which
the Company sells its products experience weak economic conditions that may
negatively affect the sales of the Company's products. To the extent that
general economic conditions affect the demand for products sold by the Company,
such conditions could have an adverse effect on the Company's business.
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
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
13
PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION
On August 12, 1998, the Company announced that Camille Jayne, the Company's
President and Chief Operating Officer, assumed the additional responsibilities
of Chief Executive Officer, replacing David M. Gabrielsen who relinquished all
of his positions as an officer and employee of the Company. On November 11,
1998, the Company announced that David M. Gabrielsen resigned as a member of the
Board of Directors. On September 29, 1998, the Company announced that Paul D.
Arling had rejoined the Company as its President and Chief Operating Officer.
Mr. Arling also continues as a member of the Company's Board of Directors.
Finally, also on September 29, 1998, the Company announced that Roger T. Monaco
resigned as the Company's Senior Vice President and Chief Financial Officer. Mr.
Monaco's duties have been assumed by Mr. Arling.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Page
----
(A) Exhibits
11.1 Statement re: Computation of Per Share
Earnings (filed herewith) 15
(B) Reports on Form 8-K
There were no reports on Forms 8-K filed during the
quarter ended September 30, 1998.
(C) Exhibit 27 Financial Data Schedule 16
Page 13
14
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
(Registrant) Universal Electronics Inc.
Date: November 16, 1998 /s/ PAUL ARLING
-------------------------------------
Paul Arling
President and Chief Operating Officer
Page 14
1
EXHIBIT 11.1
UNIVERSAL ELECTRONICS INC.
COMPUTATION OF PER SHARE EARNINGS
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
---------- ---------- ---------- ----------
Common stock outstanding
beginning of period 6,312,000 6,372,000 6,312,000 6,372,000
---------- ---------- ---------- ----------
Weighted average common
stock outstanding from
exercise of stock
options, treasury stock
purchases and employee
benefit plan 126,000 (111,000) 75,000 (94,000)
---------- ---------- ---------- ----------
Weighted average common
stock outstanding 6,438,000 6,261,000 6,387,000 6,278,000
========== ========== ========== ==========
Stock options 254,000 98,000 235,000 28,000
========== ========== ========== ==========
Weighted average common
and common stock
equivalents outstanding 6,692,000 6,359,000 6,622,000 6,306,000
========== ========== ========== ==========
Net income attributable
to common stockholders $1,609,000 $1,187,000 $3,267,000 $1,196,000
========== ========== ========== ==========
Net income per common
and common stock
equivalents:
Basic $ 0.25 $ 0.19 $ 0.51 $ 0.19
========== ========== ========== ==========
Diluted $ 0.24 $ 0.19 $ 0.49 $ 0.19
========== ========== ========== ==========
Page 15
5
9-MOS
DEC-31-1998
JAN-01-1998
SEP-30-1998
334
0
23,303
(2,064)
17,843
46,193
8,747
(4,092)
59,370
17,473
0
0
0
72
41,825
59,370
64,580
64,580
38,765
20,396
(80)
0
314
5,186
(1,919)
0
0
0
0
3,267
.51
.49
