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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998 OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ________________ TO ________________ .
COMMISSION FILE NUMBER: 0-21044
UNIVERSAL ELECTRONICS INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 33-0204817
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
6101 GATEWAY DRIVE
CYPRESS, CALIFORNIA 90630
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (714) 820-1000
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, PAR VALUE $.01 PER SHARE
(TITLE OF CLASS)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of the Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the Registrant's outstanding common stock
held by non-affiliates of the Registrant on February 26, 1999, determined using
the per share closing sale price thereof on the National Market of The Nasdaq
Stock Market of $12.125 on that date, was approximately $88,423,114.
As of February 26, 1999, 7,344,107 shares of Common Stock, par value
$.01 per share, of the Registrant were outstanding.
Pursuant to Rule 12b-25, the following items have been omitted from
this filing: Items 6, 7, 8, 14(a)(1), 14(a)(2) and Exhibits 11.1, 23.1 and 27.1.
------------------------
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Registrant's definitive Proxy Statement for its 1999
Annual Meeting of Stockholders to be held on June 8, 1999 are incorporated by
reference into Part III of this Form 10-K.
Except as otherwise stated,
the information contained in this Form 10-K is as of December 31, 1998.
Page 1 of 59
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PART I
ITEM 1. BUSINESS
BUSINESS OF UNIVERSAL ELECTRONICS INC.
Universal Electronics Inc. was incorporated under the laws of Delaware in 1986
and began operations in 1987. The principal executive offices of the Company are
located at 6101 Gateway Drive, Cypress, California 90630, and its telephone
number is (714) 820-1000. As used herein, the terms "Universal" and the
"Company" refer to Universal Electronics Inc. and its subsidiaries unless the
context indicates to the contrary.
Universal develops and markets easy-to-use, preprogrammed universal remote
controls principally for home video and audio entertainment equipment. The
Company sells and licenses 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 sells its remote control products internationally under the One For
All(R) brand name. In addition, the Company has licensed certain of its
proprietary technology and its One For All brand name to third parties who in
turn sell products directly to U.S. retailers. The Company also markets a line
of home safety and automation products under the Eversafe(R) brand name. Sales
of home safety and automation products have been primarily focused on the
domestic retail hardware, food and drug, and mass marketing distribution
channels.
GENERAL BUSINESS INFORMATION
Universal has developed a broad line of easy-to-use, preprogrammed universal
remote control products, capable of controlling from one to eight video and
audio devices, which are marketed principally for home video and audio
entertainment equipment through various channels of distribution, including
international retailers, private label customers, OEMs, cable operators and
others in the subscription broadcast industry. The Company believes that its
universal remote controls can operate virtually all infrared remote controlled
TV's, VCR's, cable converters, CD players, audio components and satellite
receivers, as well as most other infrared remote controlled devices worldwide.
The Company believes its remote control products incorporate certain significant
technological advantages. First, the Company has compiled an extensive library
of over 74,000 infrared codes, which the Company believes is larger than any
other existing library of infrared codes for the operation of home video and
audio devices sold worldwide. The Company's library is updated on a daily basis
to add infrared codes used in newly introduced video and audio devices. Second,
the Company's proprietary software and know-how permit infrared codes to be
compressed before being loaded into a Read Only Memory ("ROM"), Random Access
Memory ("RAM") or an electronically erasable ROM ("E2") chip. This provides
significant cost and space efficiencies that enable the Company to include more
codes in the limited memory space of the chip than are included in similarly
priced products of competitors. Third, the Company has developed a patented
technology that provides the capability to easily upgrade the memory of the
remote control by adding codes from its library that were not originally
included. This technology utilizes both RAM and E2 chip technologies.
PRODUCTS
Universal Remote Controls
The Company's family of universal remote controls covers a broad spectrum of
suggested prices and performance capabilities. The Company sells customized
products to retailers, consumer electronic accessory suppliers, private label
customers, OEMs, cable operators, and others in the subscription broadcast
industry for resale under their respective brand names. Prior to its
restructuring in 1997, the Company sold its
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remote controls through a number of retailers and service centers under the One
For All brand name and to cable operators under the Uniwand(R) brand name. The
Company's products are capable of controlling from one to eight video and audio
devices, including, but not limited to, TVs, VCRs, cable converters, CD players,
satellite receivers, laser disc players, amplifiers, tuners, turntables,
cassette players, digital audio tape players, and surround sound systems.
Each of the Company's remotes is designed to simplify the use of video and audio
devices. To appeal to the mass market, the number of buttons is minimized to
include only the most popular functions. The Company's universal remotes are
also designed for ease of initial set-up. For most of the Company's products,
the consumer simply inputs a four-digit code for each video or audio device to
be controlled. Each remote contains either a RAM, a ROM, or a combination of ROM
and E2 chips. The RAM and the ROM and E2 combination products allow the remote
to be upgraded with additional codes.
The Company introduced its first product, the One For All, in 1987. In the
International markets, One For All brand name products accounted for 23.1%,
18.4%, and 21.7% of the Company's sales for the years ended December 31, 1998,
1997 and 1996, respectively. The Company discontinued retail operations in North
America in 1997 (see also discussion at "1997 RESTRUCTURING").
Many of the Company's products include its patented and highly proprietary
"upgradable" feature. These products are capable of controlling five to eight
video and audio devices. Each of these products utilizes the Company's E2
technology and, as a result of other improvements, retains memory while changing
batteries which eliminates the inconvenience experienced by consumers of having
to set-up the remote control each time the batteries are changed.
By providing its remote control technology in many forms, including finished
remote control products, integrated circuits, or custom software packages, the
Company can meet the needs of its customers, enabling those who manufacture or
subcontract their manufacturing requirements to use existing sources of supply
and more easily incorporate the Company's technology. In addition, the Company's
products are easily customized to include the features important to cable
operators. These may include electronic program guides that enable consumers to
record programs for future viewing after identifying their selection in the
electronic program guide, the customer's unique brand name and logos as well as
special dedicated "tune-in" keys for selected premium channels such as HBO(R),
Showtime(R) and Encore(R). Such keys provide the Company's customer with the
added value of built-in advertising.
DISTRIBUTION AND CUSTOMERS
The Company's products are sold to a wide variety of customers in numerous
distribution channels. In the United States, the Company principally sells its
products and/or licenses its proprietary technology to subscription
broadcasting companies and to consumer electronics accessory manufacturers and
selected retailers for resale under their respective brand names. In addition,
the Company sells remote control products and licenses its proprietary
technologies to OEMs for packaging with their products. Internationally, the
Company sells remotes under the One For All brand name to retailers and to other
customers under private labels through its foreign subsidiaries and
distributors. The Company also sells its products to cable operators for sale or
rental to their subscribers. Finally, as a result of its 1997 restructuring, the
Company has licensed certain of its proprietary technology and its One For All
brand name and its Eversafe line of products to third parties who in turn sell
the products directly to United States retailers.
For the year ended December 31, 1998, sales to Media One accounted for
approximately 11.1% of the Company's net sales for the year. While management
considers the Company's relationships with each of its customers to be good, the
loss of any one key customer could have a material adverse effect on the
Company's results of operations.
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North American Retail
In December 1997, the Company announced its decision to discontinue its North
American Retail line of business. As the Company anticipated when it made its
announcement, the discontinuation occurred primarily during the first half of
1998 and was completed during the third quarter of 1998. During this transition,
the Company continued to support its retail customers by selling through its
remaining inventory of North American Retail remote control products.
Thereafter, in accordance with the Company's plan, the Company licensed certain
of its proprietary technology and its One For All trademark to a third party and
an overseas manufacturer, to enable them to supply several of these customers
with a limited number of remote control products on a direct import basis. See
also discussion at "1997 RESTRUCTURING."
International Retail
Throughout 1998, the Company continued its sales and marketing efforts in
Europe, Australia, Mexico and selected countries in East Asia and South America.
As part of these efforts, the Company has three foreign subsidiaries, One For
All B.V., a Netherlands company, One For All GmbH, established in Germany,
and One for All (UK) Ltd., in the United Kingdom. In the first quarter of 1998,
the Company, through its Netherlands subsidiary, acquired substantially all of
the remote control business of one of its distributors in the United Kingdom. In
addition to these subsidiaries, the Company utilizes third party distributors in
various European and South American countries and in Mexico. The Company's
Canadian sales have been impacted by the discontinuation discussed previously.
Private Label
As a supplier of technology to private label customers, the Company is able to
achieve greater distribution of its proprietary technology in the retail market,
both by distributing to additional retail outlets and by obtaining further
penetration in certain retail outlets also selling the Company's branded
products. During 1998, the Company continued its efforts to improve product
cycles and planning to better meet the needs of its customers.
Cable
During 1998, the Company continued to provide multiple system operators ("MSOs")
with customized remote controls to complement services offered to their
customers, such as the interactive electronic programming guide. The Company
also sells its remotes to manufacturers of cable converters for resale with
their products. The Company is continuing to expand its marketing efforts to
other MSOs providing cable services in the United States, Canada, Australia and
throughout Europe. In addition, the Company continues to improve on its
manufacturing process to increase cost savings and to provide more timely
delivery of its products to these cable customers.
The activities of the Company's existing customers can also provide additional
opportunities for the future. The Company has an existing agreement to supply
all the remotes, keyboards and other universal handheld devices to General
Instrument ("GI"), which in turn contracts with cable providers and others to
distribute these products along with its set-top boxes. The Company believes
that in 1999, GI signed a major supplier agreement with Tele-Communications,
Inc. ("TCI"), in which GI will exclusively supply remote controls, keyboards and
other devices yet to be determined to TCI through the year 2004.
OEM
During 1998, the Company continued pursuing a further penetration of the OEM
market in the Far East and Europe. Since 1993, the Company has been working with
a major Japanese supplier of dedicated remote controls to large consumer
electronics manufacturers, which the Company believes has enabled it to reach a
much larger audience of OEM customers with whom the Company does business.
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CONSUMER SERVICE AND SUPPORT
Throughout 1998, the Company continued its strategy to review its customer
support program and modified its service "help line" such that the majority of
calls received are directed through its automated "conversant" system. Live
agent help is still available in certain circumstances. In 1999, the Company
will continue to review these programs to determine their value in enhancing and
improving the sales of the Company's products. As a result of this continued
review, some or all of these programs may be modified or discontinued in the
future and new programs may be added.
RAW MATERIALS AND DEPENDENCE ON SUPPLIERS
The Company utilizes third-party manufacturers in the Far East, Mexico and the
United States to produce its remote control products. The number of third party
suppliers that provided the Company in excess of 10% of the Company's remote
control products were three, four and three for 1998, 1997 and 1996,
respectively. As in the past, the Company will continue to evaluate alternative
and additional sources of supply.
Commencing in 1996, the Company began a program of diversification of suppliers
and maintenance of duplicate tooling for its products. This program has allowed
the Company to stabilize its source for products and negotiate more favorable
terms with its suppliers. In addition, the Company generally uses standard parts
and components, which are available from multiple sources. The Company recently
developed a reliable second source for integrated circuit chips, the potential
for manufacturing and shipping delays and the need to maintain additional
inventory of these component parts as safety stock by purchasing some of its
chips from a variety of sources.
PATENTS, TRADEMARKS AND COPYRIGHTS
The Company owns a number of United States and foreign patents relating to its
products and technology and has filed applications for other patents that are
pending and has obtained copyright registration for various of its proprietary
software and libraries of infrared codes. The lives of the Company's patents
range from eight to 17 years. While the Company follows the practice of
obtaining patents or copyright registration on new developments whenever
advisable, in certain cases, the Company has elected common law trade secret
protection in lieu of obtaining such protection. In the Company's opinion,
engineering and production skills and experience are of more importance to its
market position than are patents and copyrights. The Company further believes
that none of its business is dependent to any material extent upon any single
patent or trade secret or group of patents or trade secrets. The names of most
of the Company's products are registered or are being registered as trademarks
in the United States Patent and Trademark Office and in most of the other
countries in which such products are sold. These registrations are valid for a
variety of terms ranging from ten to 20 years, which terms are renewable as long
as the trademarks continue to be used. Management regularly renews those
registrations deemed by them to be important to the Company's operations.
SEASONALITY
Prior to the discontinuation of the Company's North American retail line, the
majority of the Company's sales were to retailers either directly under its One
For All brand name or indirectly through its private label and OEM customers.
The Company has, accordingly, in the past, experienced stronger demand for its
products in the third and fourth calendar quarters rather than in the first
half of the year as retailers purchase remote controls prior to the holiday
selling season. Retail, private label and to a lesser degree OEM customers
generally commit to carry new and existing products for the year in the first
and second quarters and initial manufacturing and deliveries take place in the
second and third quarters. Generally, sales to private label customers peak in
the third quarter and branded product sales to retailers peak in the fourth
quarter.
With the discontinuation of the Company's North American retail line and the
increasing significance of the Company's other lines of business including
subscription broadcasting and OEM, the seasonality effect on the Company's
business has lessened. See "ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- - - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - NOTE 17" for further details
regarding the quarterly results of the Company.
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BACKLOG
As of December 31, 1998, the Company had backlog orders representing
approximately $14.1 million in net sales compared to approximately $14.8 million
in net sales at December 31, 1997. Although the Company believes current orders
are firm and expects that substantially all of the backlog will be shipped in
1999, there can be no assurance that such orders will be shipped. The Company
believes that backlog is not a meaningful indicator of its future performance.
COMPETITION
The Company's principal competitors in the international retail and private
label markets for universal remote controls are currently Philips, RCA and Sony.
The Company's primary competitors in the OEM market are the original equipment
manufacturers themselves. In the subscription broadcasting business, the Company
competes with U.S. Electronics and ICX, two privately-held remote control
manufacturers, and several of the larger set-top manufacturers, including
General Instrument Corp, and Scientific-Atlanta Inc. The Company has a small
share of the home safety and automation market, which consists of a few large
and many small competitors operating in relatively small markets. The Company
competes in its markets on the basis of product quality, product features,
price, and customer and consumer support. The Company believes that it will need
to continue to introduce new and innovative products to remain competitive and
to obtain and retain competent personnel to successfully accomplish its future
objectives. Certain of the Company's competitors have significantly larger
financial, technical, marketing and manufacturing resources than the Company,
and there can be no assurance that the Company will remain competitive in the
future.
ENGINEERING, RESEARCH AND DEVELOPMENT
During 1998, the Company's engineering efforts focused on modifying existing
products and technology to improve their features and lower their costs, and to
develop measures to protect the Company's proprietary technology and general
know-how. In addition to taking steps in an attempt to control costs by
improving the efficiency of its activities and systematizing its operations, the
Company continued to update its library of infrared codes daily to include codes
for features and devices newly introduced both in the United States and
internationally and for uncommon devices. New infrared codes are identified by
the Company through many of its activities. The Company also continually
explores ways to improve its software to preprogram more codes into its memory
chips and to ease the upgrading of its remote control products.
Also during 1998, the Company's research and development efforts continued to
focus on the development of new and innovative remotes with enhanced
capabilities, as well as new applications of remote control technology. Work on
new applications to be used in combination with personal computers and the
internet continued as the Company increased the number of customers with whom it
worked in this area.
The Company is also exploring various opportunities to supply remote controls
for the operation of additional electronic and other devices in the home using
infrared signals, as well as combinations of infrared signals, radio
frequencies, household electrical circuits and telephone lines. Company
personnel are actively involved with various industry organizations and bodies,
which are in the process of setting standards for infrared, radio frequency,
power line, telephone and cable communications and networking in the home. There
can be no assurance that any of the Company's research and development projects
will be successfully completed.
The Company's engineering, research and development departments, located in
Cypress, California, had approximately 53 full-time employees at December 31,
1998. The Company's expenditures on engineering, research and development in
1998, 1997 and 1996 were $4.0 million, $5.1 million, and $2.6 million,
respectively, of which approximately $1,230,000, $1,072,000, and $288,000,
respectively, was for research and development.
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ENVIRONMENTAL MATTERS
The Company believes it has materially complied with all currently existing
federal, state and local statutes and regulations regarding environmental
standards and occupational safety and health matters to which it is subject.
During the years ended December 31, 1998, 1997 and 1996, the amounts incurred in
complying with federal, state and local statutes and regulations pertaining to
environmental standards and occupational safety and health laws and regulations
did not materially affect the Company's earnings or financial condition.
However, future events, such as changes in existing laws and regulations or
enforcement policies, may give rise to additional compliance costs that could
have a material adverse effect upon the capital expenditures, earnings or
financial condition of the Company.
EMPLOYEES
At December 31, 1998, the Company employed approximately 179 employees, of whom
53 were in engineering, research and development, 34 in sales and marketing, 40
in consumer service and support, 28 in operations and warehousing and 24 in
executive and administrative staff. None of the Company's employees is subject
to a collective bargaining agreement or is represented by a union. The Company
considers its employee relations to be good.
FOREIGN OPERATIONS
Financial information relating to the Company's foreign operations for the years
ended December 31, 1998, 1997 and 1996, is included in "ITEM 8. FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA-NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS-NOTE 14".
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ITEM 2. PROPERTIES
The Company's headquarters are located in Cypress, California. The Company
utilizes the following office and warehouse facilities:
Square
Location Purpose or Use Feet Status
- - -------- -------------- ------ ------
Twinsburg, Ohio Customer call center 8,509 Leased, expires July 17, 2002
Cypress, California Corporate headquarters and warehouse 30,768 Leased, expires December 31,
Engineering, research and development 2002
Enschede, Netherlands European headquarters and consumer support 9,149 Leased, expires August 2002
The Company believes its existing facilities will be adequate to meet the
Company's needs for the foreseeable future. See "ITEM 8. FINANCIAL STATEMENTS
AND SUPPLEMENTARY DATA - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - NOTE 11"
for additional information regarding the Company's obligations under leases.
ITEM 3. LEGAL PROCEEDINGS
On December 20, 1995, Jasco Products Co., Inc. filed a breach of contract action
against the Company in the U.S. District Court for the Western District of
Oklahoma, Jasco Products Co., Inc. v. Universal Electronics Inc., Case No.
CIV-95-1988T, alleging that the Company was in breach of warranties with respect
to product delivered by the Company, failed to return certain tooling and must
continue providing telephonic customer support. On January 5, 1996, the Company
filed a breach of contract action against Jasco Products Co., Inc. in the U.S.
District Court for the Northern District of Ohio, Universal Electronics Inc. v.
Jasco Products Co., Inc., Case No. 5:96CV0029, alleging that Jasco has failed to
pay for product delivered to and received by them. In the first quarter of 1996,
these two cases were consolidated, with the Ohio matter being transferred to
Oklahoma. In January 1997, the Company amended its complaint against Jasco by
adding allegations that Jasco defrauded the Company in connection with and in
addition to breaching its agreement with the Company. Throughout this
litigation, the Company vigorously denied liability. Jasco admitted owing monies
to the Company, but it sought to offset these amounts against amounts which it
believed it was owed by the Company. During the second quarter of 1998, the
parties entered into a settlement agreement and these matters were dismissed
with prejudice to forgive a receivable owed by Jasco to the Company in the
amount of approximately $450,000, in exchange for the forgiveness of certain
debts Jasco claimed were owed to Jasco by the Company.
On March 25, 1997, Furst Energy Incorporated and David A. Benoit filed an action
against the Company in the U.S. District Court for the District of New Jersey,
Furst Energy Incorporated, et.al. v. Universal Electronics Inc., Case No.
97CV1479 (JEI) alleging, among other things, that the Company's "The Finder J"
and "Five Device Remote Control with Finder" products contain material which was
misappropriated from Furst. At all times with respect to this matter and
particularly in its answer, the Company denied these allegations. On October 12,
1998, the parties entered into a Settlement Agreement and, in the first quarter
of 1999, this matter was dismissed with prejudice.
On June 23, 1998, Circuit Solutions, Inc. filed a suit against the Company in
the Court of Common Pleas, Lorain County, Ohio, Circuit Solutions, Inc. v.
Universal Electronics Inc., Case No. 98CV121418 alleging breach of contract and
further alleging damages in the amount of $110,000. On July 20, 1998, due to a
motion by the Company, the suit was transferred to the United States District
Court for the Northern District of Ohio,
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Eastern Division, Circuit Solutions, Inc. v. Universal Electronics Inc., Case
No. 1:98 CV 1647. In January 1999, this matter was dismissed with prejudice
after the Company entered into a Release and Settlement Agreement with Circuit
Solutions in which all claims made by Circuit Solutions against the Company were
settled in exchange for which the Company has agreed to pay $55,000.
On June 25, 1998, a former executive officer of the Company, Bruce V. Vereecken,
filed suit against the Company in the Court of Common Pleas, Summit County,
Ohio, Bruce V. Vereecken v. Universal Electronics Inc., Case No. CV 98 06 2506,
alleging the Company has breached its Separation Agreement and General Release
with the plaintiff and, in addition, claiming promissory estoppel, unjust
enrichment and bad faith. The plaintiff is seeking damages in excess of $25,000.
This case is in the preliminary stages of pleading, with the Company filing its
answer on August 13, 1998 denying plaintiff's allegations and claims and it
intends to vigorously defend this action.
On November 8, 1998, SKR Resources, Inc. filed suit against the Company in the
United States District Court for the Northern District of Ohio, Eastern
Division, SKR Resources, Inc. v. Universal Electronics Inc., Case No. 1:98CV
2561, alleging the Company has breached a Sales Agreement alleged to have been
made in December 1997 with the plaintiff. The plaintiff is seeking damages in
excess of $630,000 and is also seeking specific performance on the Agreement. On
January 15, 1999, the Company filed its answer denying plaintiff's allegations.
In addition, the Company has filed a counterclaim asserting that SKR breached a
Sales Agreement entered into in April 1996 with the Company and in addition the
Company has claimed that SKR was unjustly enriched. The Company is seeking
damages in excess of $1,600,000. As a result of the Company's counterclaim, SKR
admitted its obligations under the April 1996 Sales Agreement, and the Company
dismissed its counterclaim without prejudice. This case is in the preliminary
stages of pleading and the Company intends to vigorously defend this action.
There are no other material pending legal proceedings, other than litigation
that is incidental to the ordinary course of business, to which the Company or
any of its subsidiaries is a party or of which any of their property is subject.
As is typical in the Company's industry and the nature and kind of business in
which the Company is engaged, from time to time, various claims, charges and
litigation are asserted or commenced by third parties against the Company
arising from or related to product liability, infringement of patent or other
intellectual property rights, breach of warranty, contractual relations, or
employee relations. The amounts claimed may be substantial but may not bear any
reasonable relationship to the merits of the claims or the extent of any real
risk of court awards. In the opinion of management, final judgments, if any,
which might be rendered against the Company in potential or pending litigation,
would not have a material adverse effect on the Company's financial condition or
results of operations. Moreover, management believes that the Company's products
do not infringe any third parties' patent or other intellectual property rights.
The Company maintains directors' and officers' liability insurance which insures
individual directors and officers of the Company against certain claims such as
those alleged in the above lawsuits, as well as attorney's fees and related
expenses incurred in connection with the defense of such claims.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of the Company's fiscal year through the solicitation of proxies or
otherwise.
EXECUTIVE OFFICERS OF THE REGISTRANT*
The following table sets forth certain information concerning the executive
officers of the Company as of February 28, 1999:
NAME AGE POSITION
---- --- --------
Paul D. Arling 36 President, Chief Operating Officer, and Chief Financial Officer
Richard A. Firehammer, Jr. 41 Senior Vice President, General Counsel and Secretary
Camille Jayne 46 Chairman and Chief Executive Officer
Mark Belzowski 40 Vice President and Corporate Controller
*Included pursuant to Instruction 3 to Item 401(b) of Regulation S-K.
Paul D. Arling has been President, Chief Operating Officer, and Chief Financial
Officer of the Company since being rehired by the Company in September 1998. He
was the Company's Senior Vice President and Chief Financial Officer from May
1996. From 1993 through May 1996 until August 1998, he served in various
capacities at LESCO, Inc. (a manufacturer and distributor of professional turf
care products) with the most recent being Acting Chief Financial Officer. Prior
to LESCO, he worked for Imperial Wallcoverings (a manufacturer and distributor
of wallcovering products) as Director of Planning and The Michael Allen Company
(a strategic management consulting company) where he was employed as a
management consultant. He obtained a BS degree from the University of
Pennsylvania in 1985 and an MBA from the Wharton School of the University of
Pennsylvania in 1992.
Richard A. Firehammer, Jr., Esq. has been Senior Vice President of the Company
since being rehired by the Company in February 1999. He has been the Company's
General Counsel since October 1993 and Secretary since February 1994, positions
he continued to hold after his employment with the Company ceased as part of the
1997 restructuring. He was the Company's Vice President from May 1997 until
August 1998. From November 1992 to September 1993, he was associated with the
Chicago, Illinois law firm, Shefsky & Froelich, Ltd. From 1987 to 1992, he was
with the law firm, Vedder, Price, Kaufman & Kammholz in Chicago, Illinois. He is
admitted to the Bars in the State of Illinois and the State of Ohio. Mr.
Firehammer is also a certified public accountant. He received a BS degree from
Indiana University and a JD degree from Whittier College School of Law.
Camille Jayne has been Chairman of the Company since December 1998 and has been
the Company's Chief Executive Officer since August 1998. She was the Company's
President and Chief Operating Officer of the Company since February 1998. Prior
to that, she was President and CEO of The Jayne Group (a consulting firm
specializing in the development, introduction and operation of digital cable TV
products and services) and a Senior Partner at BHC Consulting (a business
management and market research firm). Prior to The Jayne Group and BHC, Ms.
Jayne was Senior Vice President in charge of the digital TV business unit at
Tele-Communications, Inc (TCI). She holds both a BA and Masters degree from
Stanford and an MBA from the University of Michigan.
Mark Belzowski has been Vice President and Corporate Controller of the Company
since May 1998 when he joined the Company. From February 1997 through April
1998, he was a financial management consultant for various companies including a
cellular reseller and a local area network switch manufacturer. From September
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1994 through January 1997, he was Vice President Controller for three companies
(two of which were start-up companies) in the Turner Entertainment Group, a
division of Turner Broadcasting Systems, Inc. From September 1988 through August
1994, he served in various capacities at Orion Pictures Corporation with the
most recent being Vice President Corporate Controller. Prior to that, Mr.
Belzowski was a Senior Auditor with Ernst and Young, Certified Public
Accountants. He is a certified public accountant in the State of California. Mr.
Belzowski obtained a BS degree from California State University at Fullerton.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Company's common stock trades on the National Market of The Nasdaq Stock
Market under the symbol "UEIC".
The following table sets forth, for the periods indicated, the high and low last
reported sale prices for the Company's common stock, as reported on the National
Market of The Nasdaq Stock Market:
1998 1997
---------------------- -----------------------
High Low High Low
------- ------- ------- -------
First Quarter $11-7/8 $9-5/8 $6-1/8 $4-1/2
Second Quarter 13-1/4 10-1/8 6-7/8 4-1/4
Third Quarter 14-1/2 10 8-11/16 6-3/16
Fourth Quarter 11-3/4 8-1/4 10-7/8 8-1/8
Stockholders of record on December 31, 1998 numbered approximately 175.
The Company has never paid cash dividends on its common stock and does not
intend to pay cash dividends on its common stock in the foreseeable future. The
Company intends to retain its earnings, if any, for the future operation and
expansion of its business. In addition, the terms of the Company's revolving
credit facility limit the Company's ability to pay cash dividends on its common
stock. See "ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS-LIQUIDITY AND CAPITAL RESOURCES" and "ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA-NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS-NOTE 6."
RECENT SALES OF UNREGISTERED SECURITIES
On September 1, 1998, in connection with the Company's acquisition of H&S
Management Corp., the Company issued 84,211 shares of Common Stock, valued at
$10.379 per share, as well as $1.5 million in cash to H & S Management Corp. as
consideration for the purchase price. Registration under the Securities Act of
1933 was not effected with respect to the transaction described above in
reliance upon the exemption from registration contained in Section 4(2) of the
Securities Act of 1933.
On November 9, 1998, the Company issued 300,000 warrants to purchase Company
common stock to General Instrument Corporation as consideration for entering
into an exclusive supply agreement with the Company. The warrants are
contingent upon General Instrument Corporation purchasing a specified minimum
number of units of products from the Company for each of the calendar years
1999, 2000 and 2001. Assuming such minimum purchase requirements are met, the
warrants allow General Instrument Corporation to purchase up to 300,000 shares
of Company common stock at an exercise price of $12.625 per share. Registration
under the Securities Act of 1933 was not effected with respect to the warrants
in reliance upon the exemption from registration contained in Section 4(2) of
the Securities Act of 1933.
12
12
ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to various market risks, including interest rate and
foreign currency exchange rate fluctuations. The Company has established
policies, procedures and internal processes governing its management of market
risks and the use of financial instruments to manage its exposure to such risks.
The interest payable under the Company's revolving credit agreement with B of A
is variable and generally based on either the bank's cost of funds or the IBOR
rate, and therefore, affected by changes in market interest rates. At December
31, 1998, approximately $4.8 million was outstanding on the credit line. The
interest rate as of December 31, 1998 was 7.375%. The Company has wholly-owned
subsidiaries in the Netherlands, United Kingdom and Germany. Sales from these
operations are typically denominated in Dutch Gilders, French Francs, British
Pounds, or German Marks, respectively, thereby creating exposures to changes in
exchange rates. Changes in local currencies/U.S. Dollars exchange rate may
positively or negatively affect the Company's sales, gross margins and retained
earnings. The Company, from time to time, enters into foreign currency exchange
agreements to manage its exposure arising from fluctuating exchange rates
related to specific transactions, primarily foreign currency forward contracts
for inventory purchases. The Company does not enter into any derivative
transactions for speculative purposes. The sensitivity of earnings and cash
flows to variability in exchange rates is assessed by applying an appropriate
range of potential rate fluctuations to the Company's assets, obligations and
projected results of operations denominated in foreign currencies. Based on the
Company's overall foreign currency rate exposure at December 31, 1998, movements
in foreign currency rates would not materially affect the financial position of
the Company.
25
13
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
48
14
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information required by Item 401 of Regulation S-K with respect to the directors
of the Company will be contained in and is hereby incorporated by reference to
the Company's definitive Proxy Statement for its 1999 Annual Meeting of
Stockholders to be filed pursuant to Regulation 14A promulgated by the
Securities and Exchange Commission under the Securities Exchange Act of 1934.
Information regarding executive officers of the Company is set forth in Part I
of this Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
Information required by Item 402 of Regulation S-K will be contained in and is
hereby incorporated by reference to the Company's definitive Proxy Statement for
its 1999 Annual Meeting of Stockholders to be filed pursuant to Regulation 14A
promulgated by the Securities and Exchange Commission under the Securities
Exchange Act of 1934.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required by Item 403 of Regulation S-K will be contained in and is
hereby incorporated by reference to the Company's definitive Proxy Statement for
its 1999 Annual Meeting of Stockholders to be filed pursuant to Regulation 14A
promulgated by the Securities and Exchange Commission under the Securities
Exchange Act of 1934.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by Item 404 of Regulation S-K will be contained in and is
hereby incorporated by reference to the Company's definitive Proxy Statement for
its 1999 Annual Meeting of Stockholders to be filed pursuant to Regulation 14A
promulgated by the Securities and Exchange Commission under the Securities
Exchange Act of 1934.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(3) LIST OF EXHIBITS REQUIRED TO BE FILED BY ITEM 601(a) OF THE
REGULATION S-K ARE INCLUDED AS EXHIBITS TO THIS REPORT.
(b) No reports on Form 8-K were filed by the Company during the quarter
ended December 31, 1998.
49
15
SIGNATURES
Pursuant to the requirement of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Company has duly caused this Report to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Cypress, State of
California on the 31st day of March, 1999.
UNIVERSAL ELECTRONICS INC.
By:/s/Camille Jayne
-------------------
Camille Jayne
Chairman and Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Camille Jayne
and Paul D. Arling as true and lawful attorneys-in-fact and agents, each acting
alone, with full powers of substitution, for her/him and in her/his name, place
and stead, in any and all capacities, to sign any and all amendments to this
Annual Report on Form 10-K, and to file the same, with all exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, each acting alone,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully for all
intents and purposes as she/he might or could do in person, thereby ratifying
and confirming all that said attorneys-in-fact and agents, each acting alone, or
her/his substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below on the 31st day of March, 1999, by the following persons
in the capacities indicated.
NAME & TITLE SIGNATURE
- - ------------ ---------
Paul D. Arling
President and Chief Operating Officer,
Chief Financial Officer and Director /s/Paul D. Arling
(Principal Financial Officer) --------------------------------
Camille Jayne
Chairman and Chief Executive Officer
and Director /s/Camille Jayne
(Principal Executive Officer) --------------------------------
Mark Belzowski
Vice President and Corporate Controller /s/Mark Belzowski
(Principal Accounting Officer) --------------------------------
Peter L. Gartman /s/Peter L. Gartman
Director --------------------------------
Bruce A. Henderson /s/Bruce A. Henderson
Director --------------------------------
William C. Mulligan /s/William C. Mulligan
Director --------------------------------
J. C. Sparkman /s/J.C. Sparkman
Director --------------------------------
Rush McKnight /s/Rush McKnight
Director --------------------------------
50
16
EXHIBIT INDEX
EXHIBIT
NUMBER DOCUMENT DESCRIPTION
------ --------------------
2.1 Asset Purchase Agreement dated September 1, 1998 by and among
Universal Electronics Inc., H & S Management Corp., J.C.
Sparkman and Steven Helbig (filed herewith)
3.1 Restated Certificate of Incorporation of Universal Electronics
Inc., as amended (Incorporated by reference to Exhibit 3.1 to
the Company's Form S-1 Registration filed on or about December
24, 1992 (File No. 33-56358))
3.2 Amended and Restated By-laws of Universal Electronics Inc.
(Incorporated by reference to Exhibit 3.2 to the Company's Form
S-1 Registration filed on or about December 24, 1992 (File No.
33-56358))
3.3 Certificate of Amendment to Restated Certificate of
Incorporation of Universal Electronics Inc. (Incorporated by
reference to Exhibit 3.3 to the Company's Annual Report on Form
10-K for the year ended December 31, 1995 filed on April 1, 1996
(File No. 0-21044))
*10.1 Form of Universal Electronics Inc. 1993 Stock Incentive Plan
(Incorporated by reference to Exhibit 10.13 to Amendment No. 1
to the Company's Form S-1 Registration filed on or about January
21, 1993 (File No. 33-56358))
10.2 Standard Industrial Lease dated January 24, 1992 by and between
Universal Electronics Inc. and RREEF USA Fund II, Inc.
(Incorporated by reference to Exhibit 10.24 to the Company's
Form S-1 Registration filed on or about June 25, 1993 (File No.
33-65082))
10.3 Form of Secured Promissory Note by and between Universal
Electronics Inc. and certain employees used in connection with
loans made to the employee to enable them to make open market
purchases of shares of Universal Electronics Inc. Common Stock
(Incorporated by reference to Exhibit 10.5 to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30,
1994 (File No. 0-21044))
10.4 Form of Stock Pledge Agreement by and between Universal
Electronics Inc. and certain employees used in connection with
loans made to the employees to enable them to make open market
purchases of shares of Universal Electronics Inc. Common Stock
(Incorporated by reference to Exhibit 10.6 to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30,
1994 (File No. 0-21044))
10.5 Loan and Security Agreement dated November 21, 1995 by and
between Universal Electronics Inc. and The Provident Bank
(Incorporated by reference to Exhibit 10.20 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1995
filed on April 1, 1996 (File No. 0-21044))
10.6 Copy of Promissory Note dated November 21, 1995 by and between
Universal Electronics Inc. and The Provident Bank (Incorporated
by reference to Exhibit 10.21 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1995 filed on April 1,
1996 (File No. 0-21044))
10.7 Commercial Letters of Credit Master Agreement dated November 21,
1995 by and between Universal Electronics Inc. and The Provident
Bank (Incorporated by reference to Exhibit 10.22 to the
Company's Annual Report on Form 10-K for the year ended December
31, 1995 filed on April 1, 1996 (File No. 0-21044))
10.8 Intercreditor Agreement dated November 21, 1995 by and between
The Provident Bank and Society National Bank and acknowledged
and agreed to by Universal Electronics Inc. (Incorporated by
reference to Exhibit 10.23 to the
17
EXHIBIT
NUMBER DOCUMENT DESCRIPTION
------ --------------------
Company's Annual Report on Form 10-K for the year ended December
31, 1995 filed on April 1, 1996 (File No. 0-21044))
10.9 Lockbox Service Contract dated November 10, 1995 by and between
Universal Electronics Inc. and The Provident Bank (Incorporated
by reference to Exhibit 10.24 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1995 filed on April 1,
1996 (File No. 0-21044))
*10.10 Form of Universal Electronics Inc. 1995 Stock Incentive Plan
(Incorporated by reference to Exhibit B to the Company's
Definitive Proxy Materials for the 1995 Annual Meeting of
Stockholders of Universal Electronics Inc. filed on May 1, 1995
(File No. 0-21044))
*10.11 Form of Stock Option Agreement by and between Universal
Electronics Inc. and certain employees used in connection with
options granted to the employees pursuant to the Universal
Electronics Inc. 1995 Stock Incentive Plan (Incorporated by
reference to Exhibit 10.20 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1996 filed on March
28, 1997 (File No. 0-21044))
*10.12 Form of Stock Option Agreement by and between Universal
Electronics Inc. and certain non-affiliated directors used in
connection with options granted to the non-affiliated directors
pursuant to the Universal Electronics Inc. 1995 Stock Incentive
Plan (Incorporated by reference to Exhibit 10.21 to the
Company's Annual Report on Form 10-K for the year ended December
31, 1996 filed on March 28, 1997 (File No. 0-21044))
10.13 First Amendment to Loan and Security Agreement dated July 31,
1996 by and between Universal Electronics Inc. and The Provident
Bank (Incorporated by reference to Exhibit 10.22 to the
Company's Annual Report on Form 10-K for the year ended December
31, 1996 filed on March 28, 1997 (File No. 0-21044))
*10.14 Form of Universal Electronics Inc. 1996 Stock Incentive Plan
(Incorporated by reference to Exhibit 4.5 to the Company's Form
S-8 Registration Statement filed on March 26, 1997 (File No.
333-23985))
*10.15 Form of Stock Option Agreement by and between Universal
Electronics Inc. and certain employers used in connection with
options granted to the employees pursuant to the Universal
Electronics Inc. 1996 Stock Incentive Plan (Incorporated by
reference to Exhibit 4.6 to the Company's Form S-8 Registration
Statement filed on March 26, 1997 (File No. 333-23985))
10.16 Sublease dated January 10, 1997 by and between Universal
Electronics Inc. and Edgemont Sales Company, a division of IKON
Office Solutions, Inc. (Incorporated by reference to Exhibit
10.25 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1996 filed on March 28, 1997 (File No.
0-21044))
*10.17 Form of Salary Continuation Agreement by and between Universal
Electronics Inc. and certain employees (Incorporated by
reference to Exhibit 10.25 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1997, filed on March
30, 1998 (File No. 0-21044))
*10.18 Form of Amendment to Salary Continuation Agreement by and
between Universal Electronics Inc. and certain employees
(Incorporated by reference to Exhibit 10.26 to the Company's
Annual Report on Form 10-K for the year ended
18
EXHIBIT
NUMBER DOCUMENT DESCRIPTION
------ --------------------
December 31, 1997, filed on March 30, 1998 (File No. 0-21044))
10.19 Second Amendment to Loan and Security Agreement dated January 24,
1997 by and between Universal Electronics Inc. and The Provident
Bank (Incorporated by reference to Exhibit 10.27 to the
Company's Annual Report on Form 10-K for the year ended December
31, 1997, filed on March 30, 1998 (File No. 0-21044))
10.20 Lease dated November 1, 1997 by and between Universal
Electronics Inc. and Warland Investments Company (Incorporated
by reference to Exhibit 10.28 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1997, filed on March
30, 1998 (File No. 0-21044))
10.21 Letter Agreement in Principal dated March 18, 1998 by and
between Universal Electronics Inc. and The Provident Bank
further amending that certain Loan and Security Agreement
(Incorporated by reference to Exhibit 10.29 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1997,
filed on March 30, 1998 (File No. 0-21044))
*10.22 Executive Officer Employment Agreement dated January 29, 1998 by
and between Universal Electronics Inc. and Camille Jayne (filed
herewith)
*10.23 Form of Universal Electronics Inc. 1998 Stock Incentive Plan
(Incorporated by reference to Exhibit A to the Company's
Definitive Proxy Materials for the 1998 Annual Meeting of
Stockholders of Universal Electronics Inc. filed on April 20,
1998 (File No. 0-21044))
*10.24 Form of Stock Option Agreement by and between Universal
Electronics Inc. and certain employees used in connection with
options granted to the employees pursuant to the Universal
Electronics Inc. 1998 Stock Incentive Plan (filed herewith)
10.25 Agreement for Purchase and Sale of Property dated May 29, 1998
by and between Universal Electronics Inc. and Duke Realty
Limited Partnership (filed herewith)
10.26 Agreement dated August 12, 1998 by and between Universal
Electronics Inc., and David M. Gabrielsen (filed herewith)
10.27 Stock Acquisition Representations and Covenants Certificate
dated September 1, 1998 from H & S Management Corp., J.C.
Sparkman and Steven Helbig (filed herewith)
10.28 Non-Compete Agreement dated September 1, 1998 by and among
Universal Electronics Inc., H & S Management Corp., J.C.
Sparkman and Steven Helbig (filed herewith)
10.29 Consulting Agreement dated September 1, 1998 by and between
Universal Electronics Inc. and J.C. Sparkman (filed herewith)
*10.30 Form of Executive Officer Employment Agreement dated September
29, 1998 by and between Universal Electronics Inc. and Paul D.
Arling (filed herewith)
10.31 Revolving Loan and Security Agreement dated October 2, 1998 by
and between Universal Electronics Inc. and Bank of America
National Trust and
19
EXHIBIT
NUMBER DOCUMENT DESCRIPTION
------ --------------------
Savings Association (filed herewith)
10.32 Copy of Revolving Note dated October 2, 1998 by and between
Universal Electronics Inc. and Bank of America National Trust
and Savings Association (filed herewith)
10.33 Patent and Trademark Collateral Assignment dated October 2, 1998
by and between Universal Electronics Inc. and Bank of America
National Trust and Savings Association (filed herewith)
10.34 Purchase Agreement dated November 8, 1998 by and between
Universal Electronics Inc. and General Instrument Corporation
(filed herewith)
10.35 Warrant dated November 9, 1998 by and between Universal
Electronics Inc. and General Instrument Corporation (filed
herewith)
10.36 Agreement dated January 30, 1998, as amended on December 30,
1998 by and among Universal Electronics BV, a wholly owned
subsidiary of Universal Electronics Inc., and Euro Quality
Assurance Ltd. and T. Macizumi (filed herewith)
10.37 Agreement dated February 3, 1998, as amended on December 30,
1998 by and among Universal Electronics BV, a wholly owned
subsidiary of Universal Electronics Inc., Strand Europe Ltd. and
Ashok Suri (filed herewith)
21.1 List of Subsidiaries of the Registrant (filed herewith)
24.1 Power of Attorney (filed as part of the signature page hereto)
* Management contract or compensation plan or arrangement identified
pursuant to Item 14(c) of the Form 10-K.