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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 June 30, 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)
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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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Number of shares of Common Stock, $.01 par
value, outstanding at June 30, 1997 6,254,125
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THE INDEX OF EXHIBITS TO THIS QUARTERLY REPORT APPEARS ON PAGE 12
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UNIVERSAL ELECTRONICS INC.
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INDEX
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Page
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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 12
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Item 1. Consolidated Financial Statements
UNIVERSAL ELECTRONICS INC.
CONSOLIDATED BALANCE SHEET
(In thousands)
ASSETS
------
JUNE 30, DECEMBER 31, JUNE 30,
1997 (1) 1996 1996 (1)
-------- ---- --------
Current assets:
Cash and cash equivalents $ 298 $ 510 $ 722
Accounts receivable 19,439 20,163 19,364
Inventories 23,348 21,208 32,868
Refundable income taxes 2 1 36
Prepaid expenses 3,698 3,330 3,518
Deferred income taxes 2,044 1,943 4,377
-------- -------- --------
Total current assets 48,829 47,155 60,885
Equipment, furniture, and
fixtures, net 7,137 6,697 7,278
Deferred income taxes 4,209 4,209 --
Other assets 1,454 1,390 969
-------- -------- --------
Total assets $ 61,629 $ 59,451 $ 69,132
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Revolving credit facility $ -- $ -- $ 4,986
Accounts payable 10,068 7,171 9,463
Accrued income taxes 161 198 339
Accrued compensation 495 519 363
Other accrued expenses 2,348 2,753 1,863
-------- -------- --------
Total current liabilities 13,072 10,641 17,014
-------- -------- --------
Long-term debt 3,487 3,183 2,000
Stockholders' equity:
Capital stock 68 68 68
Paid-in capital 54,124 53,951 53,869
Currency translation adjustment (61) (25) (19)
Retained (deficit) (5,765) (5,773) (3,800)
Cost of common stock held
in treasury (3,296) (2,594) --
-------- -------- --------
Total stockholders'
equity 45,070 45,627 50,118
-------- -------- --------
Total liabilities and
Stockholders' equity $ 61,629 $ 59,451 $ 69,132
======== ======== ========
(1) Unaudited
The accompanying notes are an integral part of these financial statements.
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UNIVERSAL ELECTRONICS INC.
CONSOLIDATED STATEMENT OF INCOME
(In thousands, except per share amounts) (Unaudited)
Three Months Ended June Six Months Ended June
30, 30,
1997 1996 1997 1996
---- ---- ---- ----
Net Sales $ 23,931 $ 21,526 $ 46,311 $ 43,431
Cost of sales 16,648 14,902 32,271 30,965
-------- -------- -------- --------
Gross profit 7,283 6,624 14,040 12,466
Selling, general and
administrative expenses 6,735 6,080 13,806 13,191
-------- -------- -------- --------
Operating income (loss) 548 544 234 (725)
Interest expense 105 186 203 344
Interest income (3) (11) (8) (20)
Other (income)expenses, net 3 (5) 27 (144)
-------- -------- -------- --------
Income (loss) before income
taxes 443 374 12 (905)
Income tax (expense) benefit (155) (126) (4) 583
-------- -------- -------- --------
Net (income)loss $ 288 $ 248 $ 8 $ (322)
======== ======== ======== ========
Net (income)loss per share $ 0.05 $ 0.04 $ 0.00 $ (0.05)
======== ======== ======== ========
Weighted average common and
common stock equivalents
outstanding 6,299 6,945 6,316 6,765
======== ======== ======== ========
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)
Six Months Ended June 30,
1997 1996
---- ----
Cash provided by (used for) operating activities:
Net income (loss) $ 8 $ (322)
Adjustments to reconcile net loss
to net cash used for operating
activities:
Depreciation and amortization 982 767
Deferred income taxes (102) (676)
Issuance of common stock for
retirement plan 64 --
Issuance of treasury stock for
Directors compensation 34 --
Changes in operating assets and liabilities:
Receivables 267 6,804
Inventories (2,141) (2,623)
Other assets (414) (1,327)
Payables and accruals 2,945 (1,273)
Accrued income taxes (28) 329
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Net cash provided by
operating activities 1,615 1,679
-------- --------
Cash used for investing activities:
Acquisition of fixed assets (1,370) (2,820)
Trademarks (90) (99)
Repayments from employees for Common
Stock purchases 109 --
-------- --------
Net cash used for investing activities (1,351) (2,919)
-------- --------
Cash provided by financing activities:
Short-term bank borrowings -- 28,715
Short-term bank payments -- (29,849)
Long-term debt 303 2,000
Treasury stock purchased (736) --
Proceeds from stock options
exercised -- 246
-------- --------
Net cash provided by (used for)financing
activities (433) 1,112
-------- --------
Effect of exchange rates on cash (43) (22)
-------- --------
Net decrease in cash and cash equivalents (212) (150)
Cash and cash equivalents at beginning of
period 510 872
-------- --------
Cash and cash equivalents at end of period $ 298 $ 722
======== ========
The accompanying notes are an integral part of these financial statements.
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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 for these unaudited
interim periods, have been included in the accompanying consolidated financial
statements.
INVENTORIES
Inventories consist of the following (in thousands):
June 30, 1997 December 31, 1996 June 30, 1996
Components $ 7,722 $ 8,155 $12,649
Finished goods 15,626 13,053 20,219
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Total inventories $23,348 $21,208 $32,868
======= ======= =======
The Company provides certain components to its contract manufacturers for
inclusion in the Company's finished goods.
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 June 30, 1997.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Second quarter net sales totaled $23.9 million, an increase of 11.2% from $21.5
million for the same quarter a year earlier. Net income was $288,000, or $0.05
per share, for the three months ended June 30, 1997 as compared to net income of
$248,000, or $0.04 per share, for the same period of 1996.
In the first half of 1997, net sales reached $46.3 million, an increase of 6.6%
from $43.4 million a year ago. Net income for the first six months was $8,000,
or break-even on a per share basis, compared with a loss of $322,000, or $0.05
per share, in 1996.
Net sales in the Company's retail businesses were $14.3 million in the second
quarter of 1997, compared to $13.4 for the same period of 1996, an increase of
7.3%. On a year-to-date basis, the Company's retail businesses' net sales
increased 1.5% to $27.2 million from $26.8 million. The increase in the second
quarter and on a year-to-date basis is primarily due to increased volume and
selling prices in the Eversafe business and volume in the Private Label
business. Offsetting these increases were decreased volume and average selling
prices in the domestic and international One for All(R) retail sales.
Second quarter net sales in the Company's technology businesses (Cable, Cable
OEM, OEM) were $9.6 million in 1997, increasing 17.6% from $8.2 million in the
second quarter of 1996. For the first six months of 1997, the Company's
technology businesses net sales were $19.1 million, compared to $16.7 million in
the corresponding period of 1996. The increase in the technology businesses
continues to be driven primarily by the Company's strengths in the subscription
broadcasting market. Based on aggressive order activity in this area, a strong
performance for the remainder of 1997 is expected.
Gross margins were 30.4% in the second quarter 1997 compared to 30.8% in the
second quarter of 1996, and 30.3% in the first half of 1997 compared to 28.7% in
the first half of 1996. The decrease in the 1997 second quarter gross margin
primarily reflects the shift in the sales mix from European retail business in
1996 to the technology business in 1997. The increase in the first half was
primarily due to favorable shifts to higher margin product lines which were
first introduced in the second half of 1996. 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, changes in product
pricing, fluctuations in manufacturing and freight costs, and changes in
customer mix.
Selling, general and administrative expenses were $13.8 million in the first
half of 1997 as compared to $13.2 million in the first half of 1996. As a
percentage of sales, these expenses remained flat at 30.0%. The 1997 increases
were due principally to the Company's sales growth.
The Company recorded interest expense of approximately $203,000 related to
borrowings under its revolving credit line for the first half of 1997 compared
to approximately $344,000 for the first half of 1996. The decrease is the result
of a lower average outstanding balance. However, the interest rate on the
borrowing increased in the first half of 1997 compared to the same period in
1996.
The Company recorded income tax expense of approximately $4,000 for the first
half of 1997 as compared to a benefit of approximately $583,000 for the same
period 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 second quarter of 1997, the Company had backlog orders of
$22.5 million. This reflects an increase of 184.9% as of the same date in 1996
when the Company had backlog orders representing $7.9 million in sales. Although
the Company believes current orders to be firm and expects that substantially
all of the backlog will be
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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.
Liquidity and Capital Resources
The Company's principal sources of funds are its operations and bank credit
facilities. Cash provided from operating activities was $1.6 million for the
first half of 1997 compared to $1.7 in 1996. The cash flow from operations
remains strong. In spite of the sales growth during the first six months of
1997, accounts receivable showed a modest increase, inventory levels were
reduced and control was maintained over costs and expenses.
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, which expires April 30,
1998, provides the Company with borrowing availability of $22 million and bears
interest equal to the bank's prime rate plus one-quarter percent. It is
management's intention to extend the revolving credit facility beyond its
current maturity. In accordance with the provisions of Statement of Financial
Accounting Standards No. 6, "Classification of Short-Term Obligations Expected
to be Refinanced", the Company has classified a portion of the amount
outstanding under the agreement as long-term debt in the accompanying financial
statements. The credit facility is secured by a first priority security interest
in the accounts receivable, inventory, equipment, and general intangibles of the
Company. At June 30, 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 552,000 shares of stock which it holds as treasury shares and are
available for reissuance 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 June 30, 1997, the Company had
utilized approximately $3.5 million of the credit facility for the acquisition
of its facility in Ohio and treasury stock purchases and had approximately
$502,000 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 half of 1997 and 1996 were approximately $1.4
and $2.8, respectively. The 1997 capital expenditures relate primarily to
product tooling, computer equipment and the relocation of the Company's
California facility. Approximately $1.7 million of the 1996 capital expenditures
were for the acquisition of the Twinsburg, Ohio facility. The balance of the
1996 capital expenditures were primarily for product tooling.
RISK FACTORS PERTAINING TO THE SECOND QUARTER 1997
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, 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 a couple of selected sources. The Company continues to develop alternative
sources of supply for these components, however, there can be no assurance that
the Company will be able to continue to obtain these components on a timely
basis or in the quantities necessary to maintain or meet the forecasted
requirements. 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 a material 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 products. 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 domestically and abroad, 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
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
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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 Producer(TM) series of remote
control products will achieve ongoing consumer 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 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 products to mass merchants, such
as Wal-Mart, and to technology oriented business such as companies doing
business in the cable and telecommunications industries. 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.
LIQUIDITY
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. Moreover, while it is the Company's present intention to
extend its existing revolving credit facility beyond the facility's current
maturity, until such an extension is formally executed, there can be no
assurances that such an extension will occur or
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that, if extended, it will be done upon terms and conditions that are no less
favorable than those under the current facility, although management knows of no
reason why any such extension would not occur on terms and conditions acceptable
to management.
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.
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.
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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 14
Share Earnings (filed herewith).
(B) Reports on Form 8-K
There were no reports on Forms 8-K filed during the
quarter ended June 30, 1997.
(C) Exhibit 27 Financial Data Schedule 15
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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: August 13, 1997 /s/David M. Gabrielsen
--------------------------------
David M. Gabrielsen
President and Chief Executive
Officer
Date: August 13, 1997 /s/Dennis P. Mansour
--------------------------------
Dennis P. Mansour
Corporate Controller
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