Note 1 - Basis of Presentation and Significant Accounting Policies
Note 2 - Cash and Cash Equivalents
Note 3 - Accounts Receivable, Net and Revenue Concentrations
Note 4 - Inventories, Net and Significant Suppliers
Note 5 - Leases
Note 6 - Goodwill and Intangible Assets, Net
Note 7 - Line of Credit
Note 8 - Income Taxes
Note 9 - Accrued Compensation
Note 10 - Other Accrued Liabilities
Note 11 - Commitments and Contingencies
Note 12 - Treasury Stock
Note 13 - Foreign Operations
Note 14 - Stock-Based Compensation
Note 15 - Performance-Based Common Stock Warrants
Note 16 - Other Income (Expense), Net
Note 17 - Earnings (Loss) per Share
Note 18 - Derivatives
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II. Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 6. Exhibits
Exhibits
EX-31.1
uei-03312019x10qxex311.htm
EX-31.2
uei-03312019x10qxex312.htm
EX-32
uei-03312019x10qxex32.htm
Universal Electronics Earnings 2019-03-31
UEIC 10Q Quarterly Report
Balance Sheet
Income Statement
Cash Flow
10-Q 1 uei-03312019x10q.htm 10-Q Document
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________________________________
FORM 10-Q
_______________________________________
(Mark One)
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2019
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 of
Incorporation or Organization)
(I.R.S. Employer
Identification No.)
15147 N. Scottsdale Road, Suite H300
Scottsdale, Arizona
85254-2494
(Address of Principal Executive Offices)
(Zip Code)
Registrant's telephone number, including area code: (480) 530-3000
__________________________________
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 (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ý No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
¨
Accelerated filer
ý
Non-accelerated filer
¨
Smaller reporting company
¨
Emerging growth company
¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨ No ý
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbols
Name of each exchange on which registered
Common Stock, par value $0.01 per share
UEIC
The NASDAQ Stock Market LLC
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: 13,859,401 shares of Common Stock, par value $0.01 per share, of the registrant were outstanding on May 6, 2019.
Preferred stock, $0.01 par value, 5,000,000 shares authorized; none issued or outstanding
—
—
Common stock, $0.01 par value, 50,000,000 shares authorized; 24,018,606 and 23,932,703 shares issued on March 31, 2019 and December 31, 2018, respectively
240
239
Paid-in capital
278,801
276,103
Treasury stock, at cost, 10,159,205 and 10,116,459 shares on March 31, 2019 and December 31, 2018, respectively
(277,104
)
(275,889
)
Accumulated other comprehensive income (loss)
(18,548
)
(20,281
)
Retained earnings
281,783
282,788
Total stockholders' equity
265,172
262,960
Total liabilities and stockholders' equity
$
582,355
$
555,596
See Note 4 for further information concerning our purchases from related party vendors.
The accompanying notes are an integral part of these consolidated financial statements.
Note 1 — Basis of Presentation and Significant Accounting Policies
In the opinion of management, the accompanying consolidated financial statements of Universal Electronics Inc. and its subsidiaries contain all the adjustments necessary for a fair presentation of financial position, results of operations and cash flows for the periods presented. All such adjustments are of a normal recurring nature and certain reclassifications have been made to prior year amounts in order to conform to the current year presentation. Information and footnote disclosures normally included in financial statements, which are prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP"), have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission. As used herein, the terms "Company," "we," "us," and "our" refer to Universal Electronics Inc. and its subsidiaries, unless the context indicates to the contrary.
Our results of operations for the three months ended March 31, 2019 are not necessarily indicative of the results to be expected for the full year. These financial statements should be read in conjunction with the "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Quantitative and Qualitative Disclosures About Market Risk," and the "Financial Statements and Supplementary Data" included in Items 1A, 7, 7A, and 8, respectively, of our Annual Report on Form 10-K for the year ended December 31, 2018.
Estimates, Judgments and Assumptions
The preparation of financial statements in conformity with U.S. GAAP requires us to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an on-going basis, we evaluate our estimates and assumptions, including those related to revenue recognition, allowances for doubtful accounts, inventory valuation, our review for impairment of long-lived assets, intangible assets and goodwill, business combinations, income taxes, stock-based compensation expense and performance-based common stock warrants. Actual results may differ from these estimates and assumptions, and they may be adjusted as more information becomes available.
Summary of Significant Accounting Policies
We adopted Accounting Standards Update ("ASU") 2016-02, "Leases," and all related amendments as of January 1, 2019. The impact of this new guidance on our accounting policies and consolidated financial statements is also described below. There have been no other significant changes in our accounting policies during the three months ended March 31, 2019 compared to the significant accounting policies described in our Annual Report on Form 10-K for the year ended December 31, 2018.
Leases
We determine if an arrangement is a lease at inception and determine the classification of the lease, as either operating or finance, at commencement. Operating leases are included in operating lease right-of-use (“ROU”) assets, other accrued liabilities and long-term operating lease liabilities on our consolidated balance sheets. We presently do not have any finance leases.
ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at the commencement date of the lease based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at the commencement date, including the lease term, in determining the present value of lease payments. Operating lease ROU assets also factor in any lease payments made, initial direct costs and lease incentives received. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term.
Leases with an initial term of twelve months or less are not recorded on the balance sheet and are recognized on a straight-line basis over the lease term. If applicable, we combine lease and non-lease components, which primarily relate to ancillary expenses associated with real estate leases such as common area maintenance charges and management fees.
In February 2016, the Financial Accounting Standards Board ("FASB") issued ASU 2016-02 (with amendments issued in 2018), which changes the accounting for leases and requires expanded disclosures about leasing activities. This new guidance also requires lessees to recognize a right-of-use asset and a lease liability at the commencement date for all leases with terms greater than twelve months. Accounting by lessors is largely unchanged. ASU 2016-02 is effective for fiscal periods beginning after December 15, 2018. We adopted ASU 2016-02 on January 1, 2019 using the modified retrospective optional transition method. Thus, the standard was applied starting January 1, 2019 and prior periods were not restated.
We applied the package of practical expedients permitted under the transition guidance. As a result, we did not reassess the identification, classification and initial direct costs of leases commencing before the effective date. We also applied the practical expedient to not separate lease and non-lease components to all new leases as well as leases commencing before the effective date.
Upon adoption, ASU 2016-02 resulted in the recognition of lease ROU assets, accrued liabilities and long-term liabilities related to operating leases of $20.7 million, $3.3 million and $17.0 million, respectively. In addition, assets and liabilities totaling $2.5 million and $2.3 million, respectively, were reclassified into the opening ROU asset balance. The adoption of ASU 2016-02 did not result in any cumulative-effect adjustment to the opening balance of retained earnings and did not have any impact on our results of operations, cash flows or debt covenants.
See Note 5 for additional information.
Other Accounting Pronouncements
In June 2018, the FASB issued ASU 2018-07, "Improvements to Non-employee Share-Based Payment Accounting." This guidance expands the scope of Topic 718, "Compensation - Stock Compensation" to include share-based payment transactions for acquiring goods and services from non-employees, but excludes awards granted in conjunction with selling goods or services to a customer as part of a contract accounted for under ASC 606, "Revenue from Contracts with Customers." The adoption of ASU 2018-07 did not have a material impact on our consolidated financial statements.
Recent Accounting Updates Not Yet Effective
In June 2016, the FASB issued ASU 2016-13, “Measurement of Credit Losses on Financial Instruments.” This guidance updates existing guidance for measuring and recording credit losses on financial assets measured at amortized cost by replacing the “incurred loss” model with an “expected loss” model. Accordingly, these financial assets will be presented at the net amount expected to be collected. ASU 2016-13 is effective for fiscal years beginning after December 15, 2020. Early adoption is permitted. We are currently evaluating the impact that ASU 2016-13 will have on our consolidated financial statements.
In January 2017, the FASB issued ASU 2017-04, "Simplifying the Test for Goodwill Impairment." This guidance simplifies how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Instead, if the carrying amount of a reporting unit exceeds its fair value, an impairment loss will be recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to the reporting unit. ASU 2017-04 is effective for fiscal periods beginning after December 31, 2019. Early adoption is permitted. We do not expect the adoption of ASU 2017-04 to have a material impact on our consolidated financial statements.
In August 2018, the FASB issued ASU 2018-15, "Customer’s Accounting for implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract," which amends ASC 350-40, "Intangibles - Goodwill and Other - Internal-Use Software." The ASU aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software and requires the capitalized implementation costs to be expensed over the term of the hosting arrangement. The accounting for the service element of a hosting arrangement that is a service contract is not affected. ASU 2018-15 is effective for fiscal periods beginning after December 15, 2019, and interim periods within those fiscal years. We are currently evaluating the impact that ASU 2018-07 will have on our consolidated financial statements.
Trade receivables associated with these significant customers that totaled more than 10% of our accounts receivable, net were as follows:
March 31, 2019
December 31, 2018
$ (thousands)
% of Accounts Receivable, Net
$ (thousands)
% of Accounts Receivable, Net
Comcast Corporation
$
17,917
11.3
%
—
(1)
—
(1)
(1) Trade receivables associated with this customer did not total more than 10% of our accounts receivable, net at December 31, 2018.
Note 4 — Inventories, Net and Significant Suppliers
Inventories, net were as follows:
(In thousands)
March 31, 2019
December 31, 2018
Raw materials
$
71,784
$
68,834
Components
16,759
25,071
Work in process
8,858
5,577
Finished goods
58,053
50,006
Reserve for excess and obsolete inventory
(5,488
)
(5,138
)
Inventories, net
$
149,966
$
144,350
Reserve for Excess and Obsolete Inventory
Changes in the reserve for excess and obsolete inventory were as follows:
(In thousands)
Three Months Ended March 31,
2019
2018
Balance at beginning of period
$
5,138
$
4,288
Additions charged to costs and expenses (1)
1,422
643
Sell through (2)
(378
)
(315
)
(Write-offs)/Foreign exchange effects
(694
)
(388
)
Balance at end of period
$
5,488
$
4,228
(1)
The additions charged to costs and expenses do not include inventory directly written-off that was scrapped during production totaling $1.1 million and $0.1 million for the three months ended March 31, 2019 and 2018, respectively. These amounts are production waste and are not included in management's reserve for excess and obsolete inventory.
(2)
These amounts represent the reduction in reserves associated with inventory items that were sold during the period.
Significant Suppliers
We purchase integrated circuits, components and finished goods from multiple sources. No suppliers totaled more than 10% of our total inventory purchases for the three months ended March 31, 2019 and 2018.
Related Party Supplier
During the three months ended March 31, 2018, we purchased certain printed circuit board assemblies from a related party supplier. The supplier was considered a related party for financial reporting purposes because our Senior Vice President of Strategic Operations owned 40% of this supplier. In the second quarter of 2018, our Senior Vice President sold his interest in this supplier, and thus this supplier is no longer considered a related party.
Total inventory purchases made from this supplier while it was a related party were $1.1 million during the three months ended March 31, 2018.
We have entered into various operating lease agreements for automobiles, offices and manufacturing facilities throughout the world. At March 31, 2019, our operating leases had remaining lease terms of up to 42 years.
Lease balances within our consolidated balance sheet were as follows:
(In thousands)
March 31, 2019
Assets:
Operating lease right-of-use assets
$
21,315
Liabilities:
Other accrued liabilities
$
3,762
Long-term operating lease obligations
17,520
Total lease liabilities
$
21,282
Operating lease expense, including short-term and variable lease costs, and operating lease cash flows and supplemental cash flow information were as follows:
(In thousands)
Three months ended March 31, 2019
Cost of sales
$
592
Selling, general and administrative expenses
1,384
Total operating lease expense
$
1,976
Operating cash outflows from operating leases
$
1,767
Operating lease right-of use assets obtained in exchange for lease obligations
$
1,524
Lease terms and discount rates were as follows:
March 31, 2019
Weighted average lease term (in years)
9.20
Weighed average discount rate
4.78
%
The following table reconciles the undiscounted cash flows for each of the first five years and thereafter to the operating lease liabilities recognized in our consolidated balance sheet at March 31, 2019. The reconciliation excludes short-term leases that are not recorded on the balance sheet.
(In thousands)
March 31, 2019
2019 (remaining 9 months)
$
3,424
2020
5,121
2021
5,276
2022
4,435
2023
2,358
Thereafter
3,394
Total lease payments
24,008
Less: imputed interest
(2,726
)
Total lease liabilities
$
21,282
As of March 31, 2019, we have an operating lease for a facility that has not yet commenced with an initial lease liability of approximately $1.6 million and a five-year term, which is not reflected within the maturity schedule above.
Changes in the carrying amount of goodwill were as follows:
(In thousands)
Balance at December 31, 2018
$
48,485
Foreign exchange effects
(37
)
Balance at March 31, 2019
$
48,448
Intangible Assets, Net
The components of intangible assets, net were as follows:
March 31, 2019
December 31, 2018
(In thousands)
Gross (1)
Accumulated
Amortization (1)
Net
Gross (1)
Accumulated
Amortization (1)
Net
Distribution rights
$
322
$
(189
)
$
133
$
329
$
(188
)
$
141
Patents
14,902
(5,837
)
9,065
14,560
(5,704
)
8,856
Trademarks and trade names
2,786
(1,976
)
810
2,786
(1,900
)
886
Developed and core technology
12,560
(8,591
)
3,969
12,560
(8,087
)
4,473
Capitalized software development costs
222
—
222
155
—
155
Customer relationships
32,683
(23,645
)
9,038
32,534
(22,675
)
9,859
Total intangible assets, net
$
63,475
$
(40,238
)
$
23,237
$
62,924
$
(38,554
)
$
24,370
(1)
This table excludes the gross value of fully amortized intangible assets totaling $7.1 million and $7.1 million at March 31, 2019 and December 31, 2018, respectively.
Amortization expense is recorded in selling, general and administrative expenses, except amortization expense related to capitalized software development costs, which is recorded in cost of sales. Amortization expense by statement of operations caption was as follows:
Three Months Ended March 31,
(In thousands)
2019
2018
Cost of sales
$
—
$
55
Selling, general and administrative expenses
1,784
1,747
Total amortization expense
$
1,784
$
1,802
Estimated future annual amortization expense related to our intangible assets at March 31, 2019, was as follows:
Our Second Amended and Restated Credit Agreement ("Second Amended Credit Agreement") with U.S. Bank National Association ("U.S. Bank") provides for a $130.0 million revolving line of credit ("Credit Line") through June 30, 2019 and a $125.0 million Credit Line thereafter and through its expiration date on November 1, 2020. The Credit Line may be used for working capital and other general corporate purposes including acquisitions, share repurchases and capital expenditures. Amounts available for borrowing under the Credit Line are reduced by the balance of any outstanding letters of credit, of which there were $2.7 million at March 31, 2019.
All obligations under the Credit Line are secured by substantially all of our U.S. personal property and tangible and intangible assets as well as 65% of our ownership interest in Enson Assets Limited, our wholly-owned subsidiary which controls our manufacturing factories in the PRC.
Under the Second Amended Credit Agreement, we may elect to pay interest on the Credit Line based on LIBOR plus an applicable margin (varying from 1.25% to 1.75%) or base rate (based on the prime rate of U.S. Bank or as otherwise specified in the Second Amended Credit Agreement) plus an applicable margin (varying from 0.00% to 0.50%). The applicable margins are calculated quarterly and vary based on our cash flow leverage ratio as set forth in the Second Amended Credit Agreement. The interest rate in effect at March 31, 2019 was 4.25%. There are no commitment fees or unused line fees under the Second Amended Credit Agreement.
The Second Amended Credit Agreement includes financial covenants requiring a minimum fixed charge coverage ratio and a maximum cash flow leverage ratio. In addition, the Second Amended Credit Agreement contains other customary affirmative and negative covenants and events of default. As of March 31, 2019, we were in compliance with the covenants and conditions of the Second Amended Credit Agreement.
At March 31, 2019, we had $106.5 million outstanding under the Credit Line. Our total interest expense on borrowings was $1.3 million and $1.1 million during the three months ended March 31, 2019 and 2018, respectively.
Note 8 — Income Taxes
We utilize our estimated annual effective tax rate to determine our provision for income taxes for interim periods. The income tax provision is computed by taking the estimated annual effective rate and multiplying it by the year-to-date pre-tax book income.
We recorded income tax expense of $1.0 million for the three months ended March 31, 2019 and an income tax benefit of $0.2 million for the three months ended March 31, 2018. Income tax expense for the three months ended March 31, 2019 increased primarily due to the remeasurement of certain deferred tax assets, partly offset by a tax refund received, both resulting from tax incentives at one of our China manufacturing facilities.
At December 31, 2018, we assessed the realizability of the Company's deferred tax assets by considering whether it is "more than likely not" some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. We considered taxable income in carryback years, the scheduled reversal of deferred tax liabilities, tax planning strategies and projected future taxable income in making this assessment. At December 31, 2018, we had a three year cumulative operating loss for our U.S. operations and accordingly, provided a full valuation allowance on our U.S. and state deferred tax assets. During the three months ended March 31, 2019, there has been no change to the Company's valuation allowance position.
At March 31, 2019, we had gross unrecognized tax benefits of $4.6 million, including interest and penalties, of which approximately $4.3 million of this amount, if not for the state Research and Experimentation income tax credit valuation allowance, would affect the annual effective tax rate, if these tax benefits are realized. Further, we are unaware of any positions for which it is reasonably possible that the total amount of unrecognized tax benefits will significantly change within the next twelve months. However, based on federal, state and foreign statute expirations in various jurisdictions, we anticipate a decrease in unrecognized tax benefits of $0.2 million within the next twelve months. We have classified uncertain tax positions as non-current income tax liabilities unless expected to be paid within one year.
We have elected to classify interest and penalties as a component of tax expense. Accrued interest and penalties of $0.5 million and $0.5 million at March 31, 2019 and December 31, 2018, respectively, are included in the unrecognized tax benefits.
The components of accrued compensation were as follows:
(In thousands)
March 31, 2019
December 31, 2018
Accrued social insurance (1)
$
16,866
$
16,735
Accrued salary/wages
8,631
8,783
Accrued vacation/holiday
3,168
2,954
Accrued bonus (2)
2,263
2,361
Accrued commission
541
1,432
Other accrued compensation
2,395
1,700
Total accrued compensation
$
33,864
$
33,965
(1)
PRC employers are required by law to remit the applicable social insurance payments to their local government. Social insurance is comprised of various components such as pension, medical insurance, job industry insurance, unemployment insurance, and a housing assistance fund, and is administered in a manner similar to social security in the United States. This amount represents our estimate of the amounts due to the PRC government for social insurance on March 31, 2019 and December 31, 2018.
(2)
Accrued bonus includes an accrual for an extra month of salary ("13th month salary") to be paid to employees in certain geographies where it is the customary business practice. This 13th month salary is paid to these employees if they remain employed with us through December 31st. The total accrued for the 13th month salary was $0.3 million and $0.4 million at March 31, 2019 and December 31, 2018, respectively.
Note 10 — Other Accrued Liabilities
The components of other accrued liabilities were as follows:
(In thousands)
March 31, 2019
December 31, 2018
Duties
$
6,451
$
4,865
Freight and handling fees
5,543
3,217
Operating lease obligations
3,762
—
Professional fees
1,808
1,930
Sales taxes and VAT
146
1,050
Short-term contingent consideration
4,590
4,190
Tooling (1)
2,327
1,770
Other
7,042
6,989
Total other accrued liabilities
$
31,669
$
24,011
(1)
The tooling accrual balance relates to unearned revenue for tooling that will be sold to customers.
Changes in the liability for product warranty claim costs were as follows:
(In thousands)
Three Months Ended March 31,
2019
2018
Balance at beginning of period
$
276
$
339
Accruals for warranties issued during the period
—
—
Settlements (in cash or in kind) during the period
—
(100
)
Balance at end of period
$
276
$
239
Litigation
On or about June 10, 2015, FM Marketing GmbH ("FMH") and Ruwido Austria GmbH ("Ruwido") filed a Summons in Summary Proceedings in Belgium court against one of our subsidiaries, Universal Electronics BV ("UEBV"), and one of its customers, Telenet N.V. ("Telenet"), claiming that one of the products UEBV supplied to Telenet violates two design patents and one utility patent owned by FMH and/or Ruwido. By this summons, FMH and Ruwido sought to enjoin Telenet and UEBV from continued distribution and use of the product at issue. After the September 29, 2015 hearing, the court issued its ruling in our and Telenet’s favor, rejecting FMH and Ruwido’s request entirely. On October 22, 2015, Ruwido filed its notice of appeal in this ruling. The parties have fully briefed and argued before the appellate court and we are awaiting the appellate court’s ruling. In addition, on or about February 9, 2016, Ruwido filed a writ of summons for proceeding on the merits with respect to the asserted patents. UEBV and Telenet have replied, denying all of Ruwido's allegations, and in June 2017, a hearing was held before the trial court. During this hearing, Ruwido sought to have a second product which we are currently selling to Telenet included in this case. In September 2017, the Court ruled in our favor that our current product cannot be made part of this case. The Court also refused to rule on whether the original product (which we are no longer selling) infringes the Ruwido patent, instead deciding to wait until the European Patent Office (the "EPO") has ruled on our Opposition (see below). Finally, the Court ruled that our original product (which we are no longer selling) infringes certain of Ruwido’s design rights, but stayed any decision of compensation and/or damages until all aspects of the case have been decided. We have filed an appeal as to the Court’s ruling of infringement, and submissions by the parties were due to the Court during the second quarter of 2018 with a hearing expected to take place in late 2018. Subsequent to the Court's ruling that a second product could not be added to the first case on the merits, Ruwido filed a separate case on the merits with respect to this second product, claiming that it too infringes the same patent at issue in the first suit. We have denied these claims. According to the Court’s trial schedule, briefs from both parties were due during the second half of 2018 and early 2019 with a trial date set for January 2019. This trial date has since been moved to June 4, 2019. In September 2015, UEBV filed an Opposition with the EPO seeking to invalidate the one utility patent asserted against UEBV and Telenet by Ruwido. The hearing on this opposition was held in July 2017. During this hearing the panel requested additional information. We have assembled this additional information and the final hearing was scheduled for January 29, 2019. The EPO held this hearing on January 29 and 30, 2019 and revoked Ruwido's patent as originally filed. The EPO, however, maintained the patent in an amended form with a much narrower claim. The parties have the right to appeal the EPO's decision, but at this time, neither have done so. On September 5, 2017, Ruwido and FMH filed a patent infringement case on the merits against UEBV and Telenet in the Netherlands alleging the same claims of infringement as in the Belgium Courts (see above). We have denied these claims and filed a counterclaim seeking to invalidate the Ruwido patent. A November 30, 2018 hearing date was set by the Court but it deferred its decision until the decision from the EPO has become final.
On September 5, 2018, we filed a lawsuit against Roku, Inc. (“Roku”) in the United States District Court, Central District of California (Universal Electronics Inc. v. Roku, Inc.) alleging that Roku is willfully infringing nine of our patents that are in four patent families related to remote control set-up and touchscreen remotes. On December 5, 2018, we amended our complaint to add additional details supporting our infringement and willfulness allegations. We have alleged that this complaint relates to multiple Roku streaming players and components therefore and certain universal control devices, including but not limited to the Roku App, Roku TV, Roku Express, Roku Streaming Stick, Roku Ultra, Roku Premiere, Roku 4, Roku 3, Roku 2, Roku Enhanced Remote and any other Roku product that provides for the remote control of an external device such as a TV, audiovisual receiver, sound bar or Roku TV Wireless Speakers. Roku has answered our complaint with a general denial. In December 2018, the Court set a trial date of June 16, 2020. We are currently proceeding with discovery and motions.
There are no other material pending legal proceedings to which we or any of our subsidiaries is a party or of which our respective property is the subject. However, as is typical in our industry and to the nature and kind of business in which we are engaged, from time to time, various claims, charges and litigation are asserted or commenced by third parties against us or by us 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 assessed against us or in our favor. However, no assurances can be made as to the outcome of any of these matters, nor can we estimate the range of potential losses to us. In our opinion, final judgments, if any, which might be rendered against us in potential or pending litigation would not have a material adverse effect on our consolidated financial condition, results of operations, or cash flows. Moreover, we believe that our products do not infringe any third parties' patents or other intellectual property rights.
We maintain directors' and officers' liability insurance which insures our individual directors and officers against certain claims, as well as attorney's fees and related expenses incurred in connection with the defense of such claims.
Note 12 — Treasury Stock
From time to time, our Board of Directors authorizes management to repurchase shares of our issued and outstanding common stock on the open market. On October 30, 2018, our Board approved an adjustment to the amount of common stock that we could purchase under our existing repurchase plan to an amount not to exceed $5.0 million of our common stock. As of March 31, 2019, we had $3.9 million of authorized repurchases remaining under the Board's authorizations. We may utilize various methods to effect the repurchases, which could include open market repurchases, negotiated block transactions, accelerated share repurchases or open market solicitations for shares, some of which may be effected through Rule 10b5-1 plans. The timing and amount of future repurchases, if any, will depend upon several factors, including market and business conditions, and such repurchases may be discontinued at any time.
Repurchased shares of our common stock were as follows:
Three Months Ended March 31,
(In thousands)
2019
2018
Shares repurchased
43
13
Cost of shares repurchased
$
1,215
$
615
Repurchased shares are recorded as shares held in treasury at cost. We hold these shares for future use as management and the Board of Directors deem appropriate.
Note 13 — Foreign Operations
Foreign Operations
Our net sales to external customers by geographic area were as follows:
Three Months Ended March 31,
(In thousands)
2019
2018
United States
$
98,936
$
79,751
Asia (excluding PRC)
24,076
27,400
People's Republic of China
22,308
20,117
Europe
23,299
19,130
Latin America
7,787
10,030
Other
7,757
8,270
Total net sales
$
184,163
$
164,698
Specific identification of the customer billing location was the basis used for attributing revenues from external customers to geographic areas.
Long-lived tangible assets by geographic area were as follows:
(In thousands)
March 31, 2019
December 31, 2018
United States
$
13,673
$
14,504
People's Republic of China
74,001
79,382
All other countries
8,728
6,569
Total long-lived tangible assets
$
96,402
$
100,455
Note 14 — Stock-Based Compensation
Stock-based compensation expense for each employee and director is presented in the same statement of operations caption as their cash compensation. Stock-based compensation expense by statement of operations caption and the related income tax benefit were as follows:
Three Months Ended March 31,
(In thousands)
2019
2018
Cost of sales
$
28
$
17
Research and development expenses
220
155
Selling, general and administrative expenses:
Employees
1,424
1,528
Outside directors
246
504
Total employee and director stock-based compensation expense
$
1,918
$
2,204
Income tax benefit
$
399
$
463
Stock Options
Stock option activity was as follows:
Number of Options
(in 000's)
Weighted-Average Exercise Price
Weighted-Average Remaining Contractual Term
(in years)
Aggregate Intrinsic Value
(in 000's)
Outstanding at December 31, 2018
597
$
44.27
Granted
150
27.07
Exercised
—
—
$
—
Forfeited/canceled/expired
—
—
Outstanding at March 31, 2019 (1)
747
$
40.80
4.45
$
4,020
Vested and expected to vest at March 31, 2019(1)
747
$
40.80
4.45
$
4,020
Exercisable at March 31, 2019(1)
486
$
42.99
3.44
$
2,500
(1)
The aggregate intrinsic value represents the total pre-tax value (the difference between our closing stock price on the last trading day of the first quarter of 2019 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had they all exercised their options on March 31, 2019. This amount will change based on the fair market value of our stock.
The assumptions we utilized in the Black-Scholes option pricing model and the resulting weighted average fair value of stock option grants were the following:
Three Months Ended March 31,
2019
2018
Weighted average fair value of grants
$
10.28
$
14.26
Risk-free interest rate
2.49
%
2.51
%
Expected volatility
41.64
%
33.09
%
Expected life in years
4.54
4.53
As of March 31, 2019, we expect to recognize $3.1 million of total unrecognized pre-tax stock-based compensation expense related to non-vested stock options over a remaining weighted-average life of 2.1 years.
Restricted Stock
Non-vested restricted stock award activity was as follows:
Shares
(in 000's)
Weighted-Average Grant Date Fair Value
Non-vested at December 31, 2018
204
$
49.23
Granted
225
28.36
Vested
(77
)
49.11
Forfeited
(4
)
39.53
Non-vested at March 31, 2019
348
$
35.90
As of March 31, 2019, we expect to recognize $11.6 million of total unrecognized pre-tax stock-based compensation expense related to non-vested restricted stock awards over a weighted-average life of 2.2 years.
Note 15 — Performance-Based Common Stock Warrants
On March 9, 2016, we issued common stock purchase warrants to Comcast to purchase up to 725,000 shares of our common stock at a price of $54.55 per share. The right to exercise the warrants is subject to vesting over three successive two-year periods (with the first two-year period commencing on January 1, 2016) based on the level of purchases of goods and services from us by Comcast and its affiliates, as defined in the warrants. The table below presents the purchase levels and number of warrants that will vest in each period based upon achieving these purchase levels.
Incremental Warrants That Will Vest
Aggregate Level of Purchases by Comcast and Affiliates
January 1, 2016 - December 31, 2017
January 1, 2018 - December 31, 2019
January 1, 2020 - December 31, 2021
$260 million
100,000
100,000
75,000
$300 million
75,000
75,000
75,000
$340 million
75,000
75,000
75,000
Maximum Potential Warrants Earned by Comcast
250,000
250,000
225,000
If total aggregate purchases by Comcast and its affiliates are below $260 million in any of the two-year periods above, no warrants will vest related to that two-year period. If total aggregate purchases of goods and services by Comcast and its affiliates exceed $340 million during either the first or second two-year period, the amount of any such excess will count toward aggregate purchases in the following two-year period. At March 31, 2019, 175,000 vested warrants were outstanding. To fully vest in the rights to purchase all of the remaining unearned 475,000 underlying shares, Comcast and its affiliates must purchase an aggregate of $680 million in goods and services from us during the remaining four-year vesting period.
Any and all warrants that vest will expire on January 1, 2023. The warrants provide for certain adjustments that may be made to the exercise price and the number of shares issuable upon exercise due to customary anti-dilution provisions. Additionally, in connection with the common stock purchase warrants, we have also entered into a registration rights agreement with Comcast under which Comcast may from time to time request that we register the shares of common stock underlying vested warrants with the SEC.
Because the warrants contain performance criteria under which Comcast must achieve specified aggregate purchase levels for the warrants to vest, as detailed above, the measurement date for the warrants is the date on which the warrants vest. Through March 31, 2019, none of the warrants had vested for the two-year period beginning January 1, 2018.
The assumptions we utilized in the Black Scholes option pricing model and the resulting weighted average fair value of the warrants were the following:
Three Months Ended March 31,
2019
2018
Fair value
$9.00
$16.88
Price of Universal Electronics Inc. common stock
$37.46
$52.43
Risk-free interest rate
2.22%
2.54%
Expected volatility
44.45%
34.53%
Expected life in years
3.75
4.75
The impact to net sales recorded in connection with the warrants and the related income tax benefit were as follows:
Three Months Ended March 31,
(In thousands)
2019
2018
Reduction to net sales
$
434
$
471
Income tax benefit
108
118
We estimate the number of warrants that will vest based on projected future purchases that will be made by Comcast and its affiliates. These estimates may increase or decrease based on actual future purchases. The aggregate unrecognized estimated fair value of unvested warrants at March 31, 2019 was $3.7 million.
Note 16 — Other Income (Expense), Net
Other income (expense), net consisted of the following:
Three Months Ended March 31,
(In thousands)
2019
2018
Net gain (loss) on foreign currency exchange contracts (1)
$
(271
)
$
(1,331
)
Net gain (loss) on foreign currency exchange transactions
(132
)
725
Other income (expense)
(63
)
19
Other income (expense), net
$
(466
)
$
(587
)
(1)
This represents the gains (losses) incurred on foreign currency hedging derivatives (see Note 18 for further details).
Earnings (loss) per share was calculated as follows:
Three Months Ended March 31,
(In thousands, except per-share amounts)
2019
2018
BASIC
Net income (loss)
$
(1,005
)
$
(587
)
Weighted-average common shares outstanding
13,827
14,087
Basic earnings (loss) per share
$
(0.07
)
$
(0.04
)
DILUTED
Net income (loss)
$
(1,005
)
$
(587
)
Weighted-average common shares outstanding for basic
13,827
14,087
Dilutive effect of stock options, restricted stock and common stock warrants
—
—
Weighted-average common shares outstanding on a diluted basis
13,827
14,087
Diluted earnings (loss) per share
$
(0.07
)
$
(0.04
)
The following number of stock options, shares of restricted stock and common stock warrants were excluded from the computation of diluted earnings per common share as their inclusion would have been anti-dilutive:
Three Months Ended March 31,
(In thousands)
2019
2018
Stock options
543
574
Restricted stock awards
227
203
Performance-based warrants
175
175
Note 18 — Derivatives
The following table sets forth the total net fair value of derivatives:
March 31, 2019
December 31, 2018
Fair Value Measurement Using
Total Balance
Fair Value Measurement Using
Total Balance
(In thousands)
Level 1
Level 2
Level 3
Level 1
Level 2
Level 3
Foreign currency exchange contracts
$
—
$
132
$
—
$
132
$
—
$
(249
)
$
—
$
(249
)
We held foreign currency exchange contracts, which resulted in a net pre-tax loss of $0.3 million and a net pre-tax loss of $1.3 million for the three months ended March 31, 2019 and 2018, respectively (see Note 16).
Details of foreign currency exchange contracts held were as follows:
Date Held
Currency
Position Held
Notional Value
(in millions)
Forward Rate
Unrealized Gain/(Loss) Recorded at Balance Sheet
Date
(in thousands)(1)
Settlement Date
March 31, 2019
USD/Brazilian Real
USD
$
1.0
3.8757
$
10
April 26, 2019
March 31, 2019
USD/Euro
USD
$
22.0
1.1331
$
181
April 26, 2019
March 31, 2019
USD/Chinese Yuan Renminbi
USD
$
28.0
6.7365
$
(59
)
April 26, 2019
December 31, 2018
USD/Euro
USD
$
20.0
1.1421
$
(97
)
January 25, 2019
December 31, 2018
USD/Chinese Yuan Renminbi
USD
$
27.0
6.8969
$
(116
)
January 25, 2019
December 31, 2018
USD/Chinese Yuan Renminbi
USD
$
5.0
6.9245
$
(41
)
January 25, 2019
December 31, 2018
USD/Brazilian Real
USD
$
1.0
3.8651
$
5
January 25, 2019
(1)
Unrealized gains on foreign currency exchange contracts are recorded in prepaid expenses and other current assets. Unrealized losses on foreign currency exchange contracts are recorded in other accrued liabilities.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Consolidated Financial Statements and the related notes that appear elsewhere in this document.
Overview
We develop control and sensor technology solutions and manufacture a broad line of pre-programmed and universal remote control products, AV accessories and intelligent wireless security and smart home products dedicated to redefining the home entertainment, automation and security experience. Our customers operate primarily in the consumer electronics market and include subscription broadcasters, OEMs, international retailers, private label brands, pro-security installers and companies in the computing industry. We also sell integrated circuits, on which our software and device control database is embedded, and license our device control database to OEMs that manufacture televisions, digital audio and video players, streamer boxes, cable converters, satellite receivers, set-top boxes, room air conditioning equipment, game consoles, and wireless mobile phones and tablets.
Since our beginning in 1986, we have compiled an extensive device control code database that covers over one million individual device functions and approximately 8,800 unique consumer electronic brands. QuickSet®, our proprietary software, can automatically detect, identify and enable the appropriate control commands for home entertainment, automation and appliances like air conditioners. Our library is regularly updated with new control functions captured directly from devices, remote controls and manufacturer specifications to ensure the accuracy and integrity of our database and control engine. Our universal remote control library contains device codes that are capable of controlling virtually all set-top boxes, televisions, audio components, DVD players, Blu-Ray players, and CD players, as well as most other remote controlled home entertainment devices and home automation control modules worldwide.
With the wider adoption of more advanced control technologies, emerging radio frequency ("RF") technologies, such as RF4CE, Bluetooth, and Bluetooth Smart, have increasingly become a focus in our development efforts. Several new recently released platforms utilize RF to effectively implement popular features like voice search.
We have developed a comprehensive patent portfolio of over 500 issued and pending United States patents related to remote control, home security, safety and automation as well as hundreds of foreign counterpart patents and applications in various territories around the world.
We operate as one business segment. We have 24 international subsidiaries located in Argentina, Brazil, British Virgin Islands, Cayman Islands, France, Germany, Hong Kong (3), India, Italy, Japan, Korea, Mexico, the Netherlands, People's Republic of China (the "PRC") (6), Singapore, Spain, and the United Kingdom.
To recap our results for the three months ended March 31, 2019:
•
Net sales increased 11.8% to $184.2 million for the three months ended March 31, 2019 from $164.7 million for the three months ended March 31, 2018.
•
Our gross margin percentage decreased from 22.6% for the three months ended March 31, 2018 to 21.7% for the three months ended March 31, 2019.
•
Operating expenses, as a percent of net sales, decreased from 22.0% for the three months ended March 31, 2018 to 20.7% for the three months ended March 31, 2019.
•
Our operating income increased from $0.9 million for the three months ended March 31, 2018 to $1.7 million for the three months ended March 31, 2019, and our operating margin percentage increased from 0.5% for the three months ended March 31, 2018 to 0.9% for the three months ended March 31, 2019.
•
Income tax expense was $1.0 million for the three months ended March 31, 2019, compared to an income tax benefit of $0.2 million for the three months ended March 31, 2018.
Our strategic business objectives for 2019 include the following:
•
continue to develop and market the advanced remote control products and technologies that our customer base is adopting;
•
continue to broaden our home control and automation product offerings;
•
further penetrate international subscription broadcasting markets;
•
acquire new customers in historically strong regions;
•
increase our share with existing customers; and
•
continue to seek acquisitions or strategic partners that complement and strengthen our existing business.
We intend for the following discussion of our financial condition and results of operations to provide information that will assist in understanding our consolidated financial statements, the changes in certain key items in those financial statements from period to period, and the primary factors that accounted for those changes, as well as how certain accounting principles, policies and estimates affect our consolidated financial statements.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with accounting principles accepted in the United States of America requires us to make estimates and judgments that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an on-going basis, we evaluate our estimates and judgments, including those related to revenue recognition, allowances for doubtful accounts, inventory valuation, our review for impairment of long-lived assets, intangible assets and goodwill, business combinations, income taxes, stock-based compensation expense and performance-based common stock warrants. Actual results may differ from these judgments and estimates, and they may be adjusted as more information becomes available. Any adjustment may be significant and may have a material impact on our consolidated financial position or results of operations.
An accounting policy is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, if different estimates reasonably may have been used, or if changes in the estimate that are reasonably likely to occur may materially impact the financial statements. We do not believe that there have been any significant changes during the three months ended March 31, 2019 to the items that we disclosed as our critical accounting policies and estimates in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" contained in our Annual Report on Form 10-K for our fiscal year ended December 31, 2018.
Recent Accounting Pronouncements
See Note 1 contained in the "Notes to Consolidated Financial Statements" for a discussion of recent accounting pronouncements.
Results of Operations
The following table sets forth our reported results of operations expressed as a percentage of net sales for the periods indicated.
Three Months Ended March 31,
2019
2018
Net sales
100.0
%
100.0
%
Cost of sales
78.3
77.4
Gross profit
21.7
22.6
Research and development expenses
3.7
3.7
Selling, general and administrative expenses
17.1
18.4
Operating income
0.9
0.5
Interest income (expense), net
(0.7
)
(0.6
)
Other income (expense), net
(0.2
)
(0.4
)
Income (loss) before provision for income taxes
0.0
(0.5
)
Provision for income taxes (benefit)
0.5
(0.1
)
Net income (loss)
(0.5
)%
(0.4
)%
Three Months Ended March 31, 2019 versus Three Months Ended March 31, 2018
Net sales. Net sales for the three months ended March 31, 2019 were $184.2 million, an increase of 11.8% compared to $164.7 million for the three months ended March 31, 2018. The increase in net sales was primarily due to the recent launches of higher end platforms by existing customers, both in the subscription broadcasting and OEM channels, a newly acquired customer and continued strength in home automation.
Gross profit. Gross profit for the three months ended March 31, 2019 was $39.9 million compared to $37.2 million for the three months ended March 31, 2018. Gross profit as a percent of sales decreased to 21.7% for the three months ended March 31, 2019 compared to 22.6% for the three months ended March 31, 2018. The gross margin percentage was unfavorably impacted by higher U.S tariffs on many of our products that are manufactured in China and imported into the U.S. In an effort to mitigate the effect of the increased tariffs, we are in the process of transitioning the production of goods destined for the U.S. from our China factories
to our factory in Mexico. In connection with this transition, which began in the fourth quarter of 2018, we have incurred costs related to the movement of materials and duplicative labor efforts as well as indirect costs including unabsorbed duplicative overhead and manufacturing inefficiencies. We expect this manufacturing transition to be completed by the summer of 2019. Until then, we expect our gross margin rate to continue to be negatively impacted by increased U.S. tariffs and manufacturing transition inefficiencies. These unfavorable impacts were partially offset by raw material cost savings.
Research and development ("R&D") expenses. R&D expenses increased 12.2% to $6.8 million for the three months ended March 31, 2019 from $6.1 million for the three months ended March 31, 2018 primarily due to our continued investment in the development of new products that enhance the user experience in home entertainment and home automation.
Selling, general and administrative ("SG&A") expenses. SG&A expenses increased to $31.4 million for the three months ended March 31, 2019 from $30.2 million for the three months ended March 31, 2018, primarily due to an increase in the amount of contingent consideration recorded in connection with our acquisition of the net assets of Ecolink Intelligent Technology, Inc. ("Ecolink"). This increase was partially offset by a decrease in payroll related expenses in connection with ongoing corporate restructuring initiatives.
Interest income (expense), net. Net interest expense was $1.2 million for the three months ended March 31, 2019 compared to net interest expense of $1.1 million for the three months ended March 31, 2018 as a result of a higher interest rate on our line of credit offset by a decrease in our average quarterly loan balance.
Other income (expense), net. Net other expense was $0.5 million for the three months ended March 31, 2019 compared to net other expense of $0.6 million for the three months ended March 31, 2018.
Provision for income taxes (benefit). Income tax expense was $1.0 million for the three months ended March 31, 2019 compared to a $0.2 million income tax benefit for the three months ended March 31, 2018. Income tax expense for the three months ended March 31, 2019 increased primarily due to the remeasurement of certain deferred tax assets, partly offset by a tax refund received, both resulting from tax incentives at one of our China manufacturing facilities.
Liquidity and Capital Resources
Sources and Uses of Cash
(In thousands)
Three Months Ended March 31, 2019
Increase
(Decrease)
Three Months Ended March 31, 2018
Cash provided by (used for) operating activities
$
(4,547
)
$
7,396
$
(11,943
)
Cash provided by (used for) investing activities
(3,453
)
6,432
(9,885
)
Cash provided by (used for) financing activities
(466
)
568
(1,034
)
Effect of exchange rate changes on cash, cash equivalents and restricted cash
154
(678
)
832
Net increase (decrease) in cash, cash equivalents and restricted cash
$
(8,312
)
$
13,718
$
(22,030
)
March 31, 2019
Increase
(Decrease)
December 31, 2018
Cash and cash equivalents
$
44,895
$
(8,312
)
$
53,207
Working capital
101,770
1,173
100,597
Net cash used for operating activities was $4.5 million during the three months ended March 31, 2019 compared to $11.9 million of net cash used for operating activities during the three months ended March 31, 2018. The decrease in cash used for operating activities was primarily due to working capital needs associated with accounts receivable and contract assets, inventories and accounts payable. Accounts receivable and contract assets increased during the three months ended March 31, 2019 as a result of increased sales levels. At the same time, days sales outstanding decreased from 83 days at March 31, 2018 to 78 days at March 31, 2019. With respect to inventories, our inventory turns decreased to 3.4 turns at March 31, 2019 from 3.5 turns at March 31, 2018, largely as a result of holding higher levels of inventory at March 31, 2019 due to the transition of manufacturing activities from China to Mexico for certain products destined for the U.S. market. We expect inventory turns to improve in 2019 as we complete this transition. Cash outflows associated with accounts payable increased largely as a result of the timing of inventory purchases in 2018.
Net cash used for investing activities during the three months ended March 31, 2019 was $3.5 million compared to net cash used for investing activities of $9.9 million during the three months ended March 31, 2018. The decrease in cash used for investing activities was primarily due to investments in factory equipment and a new global ERP system in the prior year period.
Net cash used for financing activities was $0.5 million during the three months ended March 31, 2019, which was consistent with the $1.0 million of net cash used for financing activities during the three months ended March 31, 2018. Over the last twelve months, we have reduced outstanding borrowings on our line of credit by $34.5 million. As we improve our working capital management over the remainder of 2019, we expect to continue to reduce the level of borrowings on our line of credit.
During the three months ended March 31, 2019, we repurchased 42,746 shares of our common stock at a cost of $1.2 million compared to our repurchase of 13,538 shares at a cost of $0.6 million during the three months ended March 31, 2018. We hold these shares as treasury stock and they are available for reissue. Presently, we have no plans to distribute these shares, although we may change these plans if necessary to fulfill our on-going business objectives. See Note 12 contained in "Notes to Consolidated Financial Statements" for further information regarding our share repurchase programs.
Contractual Obligations
The following table summarizes our contractual obligations and the effect these obligations are expected to have on our liquidity and cash flow in future periods.
Payments Due by Period
(In thousands)
Total
Less than
1 year
1 - 3
years
4 - 5
years
After
5 years
Operating lease obligations
$
25,030
$
5,485
$
10,564
$
5,956
$
3,025
Purchase obligations (1)
4,968
4,968
—
—
—
Contingent consideration (2)
9,436
4,590
4,653
193
—
Total contractual obligations
$
39,434
$
15,043
$
15,217
$
6,149
$
3,025
(1)
Purchase obligations primarily consist of contractual payments to purchase property, plant and equipment.
(2)
Contingent consideration consists of contingent payments related to our purchases of the net assets of Ecolink and Residential Control Systems, Inc. ("RCS").
Liquidity
Historically, we have utilized cash provided from operations as our primary source of liquidity, as internally generated cash flows have been sufficient to support our business operations, capital expenditures and discretionary share repurchases. More recently, we have utilized our revolving line of credit to fund an increased level of share repurchases and our acquisitions of the net assets of Ecolink and RCS. We anticipate that we will continue to utilize both cash flows from operations and our revolving line of credit to support ongoing business operations, capital expenditures and future discretionary share repurchases. We believe our current cash balances, anticipated cash flow to be generated from operations and available borrowing resources will be sufficient to cover expected cash outlays during the next twelve months; however, because our cash is located in various jurisdictions throughout the world, we may at times need to increase borrowing from our revolving line of credit or take on additional debt until we are able to transfer cash among our various entities.
Our liquidity is subject to various risks including the risks discussed under "Item 3. Quantitative and Qualitative Disclosures about Market Risk."
(In thousands)
March 31, 2019
December 31, 2018
Cash and cash equivalents
$
44,895
$
53,207
Available borrowing resources
20,800
28,500
Our cash balances are held in numerous locations throughout the world. The majority of our cash is held outside of the United States and may be repatriated to the United States but, under current law, may be subject to state income taxes and foreign withholding taxes. Additionally, repatriation of some foreign balances is restricted by local laws. We have not provided for the state income tax liability or foreign withholding tax on these amounts for financial statement purposes as this cash is considered indefinitely reinvested outside of the United States. Our intent is to meet our domestic liquidity needs through ongoing cash flows, external borrowings, or both.
On March 31, 2019, we had $6.1 million, $13.0 million, $7.9 million, $8.7 million and $9.2 million of cash and cash equivalents in the United States, the PRC, Asia (excluding the PRC), Europe, and South America, respectively. On December 31, 2018, we
had $1.2 million, $20.9 million, $2.4 million, $19.9 million, and $8.9 million of cash and cash equivalents in the United States, the PRC, Asia (excluding the PRC), Europe and South America, respectively. We attempt to mitigate our exposure to liquidity, credit and other relevant risks by placing our cash and cash equivalents with financial institutions we believe are high quality.
Our Second Amended and Restated Credit Agreement ("Second Amended Credit Agreement") with U.S. Bank National Association ("U.S. Bank") provides for a $130.0 million revolving line of credit ("Credit Line") through June 30, 2019 and a $125.0 million Credit Line thereafter and through its expiration date on November 1, 2020. The Credit Line may be used for working capital and other general corporate purposes including acquisitions, share repurchases and capital expenditures. Amounts available for borrowing under the Credit Line are reduced by the balance of any outstanding letters of credit, of which there were $2.7 million at March 31, 2019.
All obligations under the Credit Line are secured by substantially all of our U.S. personal property and tangible and intangible assets as well as 65% of our ownership interest in Enson Assets Limited, our wholly-owned subsidiary that controls our manufacturing factories in the PRC.
Under the Second Amended Credit Agreement, we may elect to pay interest on the Credit Line based on LIBOR plus an applicable margin (varying from 1.25% to 1.75%) or base rate (based on the prime rate of U.S. Bank or as otherwise specified in the Second Amended Credit Agreement) plus an applicable margin (varying from 0.00% to 0.50%). The applicable margins are calculated quarterly and vary based on our cash flow leverage ratio as set forth in the Second Amended Credit Agreement. The interest rate in effect at March 31, 2019 was 4.25%. There are no commitment fees or unused line fees under the Second Amended Credit Agreement.
The Second Amended Credit Agreement includes financial covenants requiring a minimum fixed charge coverage ratio and a maximum cash flow leverage ratio. In addition, the Second Amended Credit Agreement contains other customary affirmative and negative covenants and events of default. As of March 31, 2019, we were in compliance with the covenants and conditions of the Second Amended Credit Agreement.
At March 31, 2019, we had an outstanding balance of $106.5 million on our Credit Line and $20.8 million of availability.
Off-Balance Sheet Arrangements
We do not participate in any material off-balance sheet arrangements.
Factors That May Affect Financial Condition and Future Results
Forward-Looking Statements
We caution that the following important factors, among others (including but not limited to factors discussed in "Management's Discussion and Analysis of Financial Condition and Results of Operations," as well as those discussed in our 2018 Annual Report on Form 10-K, or in our other reports filed from time to time with the Securities and Exchange Commission), may affect our actual results and may contribute to or cause our actual consolidated results to differ materially from those expressed in any of our forward-looking statements. The factors included here are not exhaustive. Further, any forward-looking statement speaks only as of the date on which such statement is made, and we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of unanticipated events. New factors emerge from time to time, and it is not possible for management to predict all such factors, nor can we assess the impact of each such factor on the business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statement. Therefore, forward-looking statements should not be relied upon as a prediction of actual future results.
While we believe that the forward-looking statements made in this report are based on reasonable assumptions, the actual outcome of such statements is subject to a number of risks and uncertainties, including the significant percentage of our revenue attributable to a limited number of customers; the failure of our markets to continue growing and expanding in the manner we anticipated; the loss of market share due to competition; the delay by or failure of our customers to order products from us due to delays by them of their new product rollouts, their efforts to refocus their operations to broadband and OTT versus traditional linear video, their failure to grow as we anticipated, their internal inventory control measures, including to mitigate effects due to increases in tariffs, or their loss of market share; the effects of natural or other events beyond our control, including the effects political unrest, war or terrorist activities may have on us or the economy; the economic environment's effect on us or our customers; the effects of doing business internationally, including the effects that changes in laws, regulations and policies may have on our business including the impact of new or additional tariffs and surcharges; the growth of, acceptance of and the demand for our products and technologies in various markets and geographical regions, including cable, satellite, consumer electronics, retail, and digital media and interactive technology; our inability to add profitable complementary products which are accepted by the marketplace; our inability to attract and retain a quality workforce at adequate levels in all regions of the world, and particularly those jurisdictions
where we are moving our operations; our inability to continue to maintain our operating costs at acceptable levels through our cost containment efforts including moving our operations and manufacturing facilities to lower cost jurisdictions; an unfavorable ruling in any or all of the litigation matters to which we are party; our inability to continue selling our products or licensing our technologies at higher or profitable margins; our inability to obtain orders or maintain our order volume with new and existing customers; our inability to develop new and innovative technologies and products that are accepted by our customers; our inability to successfully, timely and profitably restructure and/or relocate our manufacturing facilities and activities; possible dilutive effect our stock incentive programs may have on our earnings per share and stock price; the continued ability to identify and execute on opportunities that maximize stockholder value, including the effects repurchasing the company's shares have on the company's stock value; our inability to continue to obtain adequate quantities of component parts or secure adequate factory production capacity on a timely basis; and other factors listed from time to time in our press releases and filings with the Securities and Exchange Commission.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to various market risks, including interest rate and foreign currency exchange rate fluctuations. We have established policies, procedures and internal processes governing our management of these risks and the use of financial instruments to mitigate our risk exposure.
Interest Rate Risk
We are exposed to interest rate risk related to our debt. From time to time we borrow amounts on our Credit Line for working capital and other liquidity needs. Under our Second Amended Credit Agreement, we may elect to pay interest on outstanding borrowings on our Credit Line based on LIBOR or a base rate (based on the prime rate of U.S. Bank) plus an applicable margin as defined in the Second Amended Credit Agreement. Accordingly, changes in interest rates would impact our results of operations in future periods. A 100 basis point increase in interest rates would have an approximately $0.8 million annual impact on net income based on our outstanding line of credit balance at March 31, 2019.
We cannot make any assurances that we will not need to borrow additional amounts in the future or that funds will be extended to us under comparable terms or at all. If funding is not available to us at a time when we need to borrow, we would have to use our cash reserves, including potentially repatriating cash from foreign jurisdictions, which may have a material adverse effect on our operating results, financial position and cash flows.
Foreign Currency Exchange Rate Risk
At March 31, 2019, we had wholly-owned subsidiaries in Argentina, Brazil, the British Virgin Islands, Cayman Islands, France, Germany, Hong Kong, India, Italy, Japan, Korea, Mexico, the Netherlands, the PRC, Singapore, Spain and the United Kingdom. We are exposed to foreign currency exchange rate risk inherent in our sales commitments, anticipated sales, anticipated purchases, operating expenses, assets and liabilities denominated in currencies other than the U.S. Dollar. The most significant foreign currencies to our operations are the Chinese Yuan Renminbi, Euro, British Pound, Argentinian Peso, Mexican Peso, Brazilian Real, Indian Rupee, Philippine Peso and Japanese Yen. Our most significant foreign currency exposure is to the Chinese Yuan Renminbi as this is the functional currency of our China-based factories where the majority of our products are manufactured. If the Chinese Yuan Renminbi were to strengthen against the U.S. Dollar, our manufacturing costs would increase. We are generally a net payor of the Euro, Mexican Peso, Indian Rupee, Philippine Peso and Japanese Yen and therefore benefit from a stronger U.S. Dollar and are adversely affected by a weaker U.S. Dollar relative to the foreign currency. For the British Pound, Argentinian Peso and Brazilian Real, we are generally a net receiver of the foreign currency and therefore benefit from a weaker U.S. Dollar and are adversely affected by a stronger U.S. Dollar relative to the foreign currency. Even where we are a net receiver, a weaker U.S. Dollar may adversely affect certain expense figures taken alone.
From time to time, we enter into foreign currency exchange agreements to manage the foreign currency exchange rate risks inherent in our forecasted income and cash flows denominated in foreign currencies. The terms of these foreign currency exchange agreements normally last less than nine months. We recognize the gains and losses on these foreign currency contracts in the same period as the re-measurement losses and gains of the related foreign currency-denominated exposures.
It is difficult to estimate the impact of fluctuations on reported income, as it depends on the opening and closing rates, the average net balance sheet positions held in a foreign currency and the amount of income generated in local currency. We routinely forecast what these balance sheet positions and income generated in local currency may be and we take steps to minimize exposure as we deem appropriate. Alternatively, we may choose not to hedge the foreign currency risk associated with our foreign currency exposures, primarily if such exposure acts as a natural foreign currency hedge for other offsetting amounts denominated in the same currency or the currency is difficult or too expensive to hedge. We do 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 approximate range of potential rate fluctuations to our assets, obligations and projected results of operations denominated in foreign currency with all other variables held constant. The analysis includes all of our foreign currency contracts offset by the underlying exposures. Based on our overall foreign currency rate exposure at March 31, 2019, we believe that movements in foreign currency rates may have a material effect on our financial position and results of operations. We estimate that if the exchange rates for the Chinese Yuan Renminbi, Euro, British Pound, Argentinian Peso, Mexican Peso, Brazilian Real, Indian Rupee, Philippine Peso and Japanese Yen relative to the U.S. Dollar fluctuate 10% from March 31, 2019, net income in the second quarter of 2019 would fluctuate by approximately $11.5 million.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Exchange Act Rule 13a-15(d) defines "disclosure controls and procedures" to mean controls and procedures of a company that are designed to ensure that information required to be disclosed by the company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. The definition further states that disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that the information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company's management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
An evaluation was performed under the supervision and with the participation of our management, including our principal executive and principal financial officers, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, our principal executive and principal financial officers have concluded that our disclosure controls and procedures were effective, as of the end of the period covered by this report, to provide reasonable assurance that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and is accumulated and communicated to our management to allow timely decisions regarding required disclosures.
Changes in Internal Control Over Financial Reporting
During the first quarter of 2019, we implemented the provisions of ASU 2016-02, which impacted certain of our accounting processes and polices around accounting for leases. As a result, we added and/or enhanced certain internal controls around the accumulation of accounting information and recording of right-of-use lease assets and lease liabilities.
Except as described above, there have been no other changes in our internal control over financial reporting during the fiscal quarter covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
We are subject to lawsuits arising out of the conduct of our business. The discussion of our litigation matters contained in "Notes to Consolidated Financial Statements - Note 11" is incorporated herein by reference.
ITEM 1A. RISK FACTORS
The reader should carefully consider, in connection with the other information in this report, the risk factors discussed in "Part I, Item 1A: Risk Factors" of the Company's 2018 Annual Report on Form 10-K incorporated herein by reference. These factors may cause our actual results to differ materially from those stated in forward-looking statements contained in this document and elsewhere.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The following table sets forth, for the three months ended March 31, 2019, our total stock repurchases, average price paid per share and the maximum number of shares that may yet be purchased on the open market under our plans or programs:
Period
Total Number of Shares Purchased (1)
Weighted
Average
Price Paid
per Share
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs
Total Dollar Value of Shares Purchased as Part of Publicly Announced Plans or Programs (2)
Maximum Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (3)
January 1, 2019 - January 31, 2019
12,094
$
27.84
10,500
$
297,054
$
4,116,634
February 1, 2019 - February 28, 2019
29,891
28.44
6,500
182,373
3,934,261
March 1, 2019 - March 31, 2019
761
36.58
—
—
3,934,261
Total
42,746
$
28.42
17,000
$
479,427
(1)
Of the repurchases in January, February and March, 1,594, 23,391 and 761 shares, respectively, represent common shares of the Company that were owned and tendered by employees to satisfy tax withholding obligations in connection with the vesting of restricted shares.
(2)
Amounts in this column reflect the weighted average price paid for shares purchased under our share repurchase authorizations, inclusive of commissions paid to brokers.
(3)
On October 30, 2018, our board of directors approved a repurchase plan authorizing the repurchase of up to $5.0 million of our common stock. Under these authorizations, shares may be repurchased in privately negotiated and/or open market transactions, including under plans complying with Rule 10b5-1 under the Exchange Act. As of March 31, 2019, we had $3.9 million of authorized repurchases remaining under the Board's authorizations.
Pursuant to the requirement of Section 13 or 15(d) 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.
falsedesktopUEIC2019-03-31000010198419000021{"post_metric": "https://q10k.com/post-metric", "tbl_copy_plus_disp": "https://q10k.com/tbl-copy-plus-disp", "tbl_copy_plus_copy": "https://q10k.com/tbl-copy-plus-copy", "tbl_sim": "https://q10k.com/tbl-sim", "search": "https://q10k.com/search"}{"q10k_tbl_0": "Delaware\t33-0204817\n(State or Other Jurisdiction of Incorporation or Organization)\t(I.R.S. Employer Identification No.)\n15147 N. Scottsdale Road, Suite H300 Scottsdale, Arizona\t85254-2494\n(Address of Principal Executive Offices)\t(Zip Code)\n", "q10k_tbl_1": "Large accelerated filer\t¨ Accelerated filer\tý\nNon-accelerated filer\t¨ Smaller reporting company\t¨\n\t Emerging growth company\t¨\nIf an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨\t \t\nIndicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨ No ý\t \t\n", "q10k_tbl_2": "\tPage Number\nPART I. FINANCIAL INFORMATION\t3\nItem 1. Consolidated Financial Statements (Unaudited)\t3\nConsolidated Balance Sheets\t3\nConsolidated Statements of Operations\t4\nConsolidated Comprehensive Income (Loss) Statements\t5\nConsolidated Statements of Stockholders' Equity\t6\nConsolidated Statements of Cash Flows\t7\nNotes to Consolidated Financial Statements\t8\nItem 2. Management's Discussion and Analysis of Financial Condition and Results of Operations\t23\nItem 3. Quantitative and Qualitative Disclosures About Market Risk\t28\nItem 4. Controls and Procedures\t29\nPART II. OTHER INFORMATION\t30\nItem 1. Legal Proceedings\t30\nItem 1A. Risk Factors\t30\nItem 2. Unregistered Sales of Equity Securities and Use of Proceeds\t30\nItem 6. Exhibits\t31\nSignatures\t32\n", "q10k_tbl_3": "\tMarch 31, 2019\tDecember 31, 2018\nASSETS\t\t\nCurrent assets:\t\t\nCash and cash equivalents\t44,895\t53,207\nAccounts receivable, net\t158,071\t144,689\nContract assets\t26,001\t25,572\nInventories, net\t149,966\t144,350\nPrepaid expenses and other current assets\t10,024\t11,638\nIncome tax receivable\t2,255\t997\nTotal current assets\t391,212\t380,453\nProperty, plant and equipment, net\t94,036\t95,840\nGoodwill\t48,448\t48,485\nIntangible assets, net\t23,237\t24,370\nOperating lease right-of-use assets\t21,315\t-\nDeferred income taxes\t1,741\t1,833\nOther assets\t2,366\t4,615\nTotal assets\t582,355\t555,596\nLIABILITIES AND STOCKHOLDERS' EQUITY\t\t\nCurrent liabilities:\t\t\nAccounts payable\t107,715\t107,282\nLine of credit\t106,500\t101,500\nAccrued compensation\t33,864\t33,965\nAccrued sales discounts, rebates and royalties\t7,813\t9,574\nAccrued income taxes\t1,881\t3,524\nOther accrued liabilities\t31,669\t24,011\nTotal current liabilities\t289,442\t279,856\nLong-term liabilities:\t\t\nOperating lease obligations\t17,520\t-\nContingent consideration\t4,846\t8,435\nDeferred income taxes\t3,722\t930\nIncome tax payable\t1,640\t1,647\nOther long-term liabilities\t13\t1,768\nTotal liabilities\t317,183\t292,636\nCommitments and contingencies\t\t\nStockholders' equity:\t\t\nPreferred stock, $0.01 par value, 5,000,000 shares authorized; none issued or outstanding\t-\t-\nCommon stock, $0.01 par value, 50,000,000 shares authorized; 24,018,606 and 23,932,703 shares issued on March 31, 2019 and December 31, 2018, respectively\t240\t239\nPaid-in capital\t278,801\t276,103\nTreasury stock, at cost, 10,159,205 and 10,116,459 shares on March 31, 2019 and December 31, 2018, respectively\t(277,104)\t(275,889)\nAccumulated other comprehensive income (loss)\t(18,548)\t(20,281)\nRetained earnings\t281,783\t282,788\nTotal stockholders' equity\t265,172\t262,960\nTotal liabilities and stockholders' equity\t582,355\t555,596\n", "q10k_tbl_4": "\tThree Months Ended March 31,\t\n\t2019\t2018\nNet sales\t184,163\t164,698\nCost of sales\t144,289\t127,496\nGross profit\t39,874\t37,202\nResearch and development expenses\t6,791\t6,051\nSelling, general and administrative expenses\t31,420\t30,247\nOperating income\t1,663\t904\nInterest income (expense), net\t(1,206)\t(1,070)\nOther income (expense), net\t(466)\t(587)\nIncome (loss) before provision for income taxes\t(9)\t(753)\nProvision for income taxes (benefit)\t996\t(166)\nNet income (loss)\t(1,005)\t(587)\nEarnings (loss) per share:\t\t\nBasic\t(0.07)\t(0.04)\nDiluted\t(0.07)\t(0.04)\nShares used in computing earnings (loss) per share:\t\t\nBasic\t13,827\t14,087\nDiluted\t13,827\t14,087\n", "q10k_tbl_5": "\tThree Months Ended March 31,\t\n\t2019\t2018\nNet income (loss)\t(1,005)\t(587)\nOther comprehensive income (loss):\t\t\nChange in foreign currency translation adjustment\t1,733\t3,646\nComprehensive income (loss)\t728\t3,059\n", "q10k_tbl_6": "\tCommon Stock Issued\t\tCommon Stock in Treasury\t\tPaid-in Capital\tAccumulated Other Comprehensive Income (Loss)\tRetained Earnings\tTotals\n\tShares\tAmount\tShares\tAmount\t\nBalance at January 1, 2018\t23,760\t238\t(9,703)\t(262,065)\t265,195\t(16,599)\t270,864\t257,633\nNet income (loss)\t\t\t\t\t\t\t(587)\t(587)\nCurrency translation adjustment\t\t\t\t\t\t3,646\t\t3,646\nShares issued for employee benefit plan and compensation\t42\t-\t\t\t336\t\t\t336\nPurchase of treasury shares\t\t\t(13)\t(615)\t\t\t\t(615)\nStock options exercised\t20\t-\t\t\t439\t\t\t439\nShares issued to directors\t8\t-\t\t\t-\t\t\t-\nEmployee and director stock-based compensation\t\t\t\t\t2,204\t\t\t2,204\nPerformance - based common stock warrants\t\t\t\t\t471\t\t\t471\nBalance at March 31, 2018\t23,830\t238\t(9,716)\t(262,680)\t268,645\t(12,953)\t270,277\t263,527\nBalance at January 1, 2019\t23,933\t239\t(10,116)\t(275,889)\t276,103\t(20,281)\t282,788\t262,960\nNet income (loss)\t\t\t\t\t\t\t(1,005)\t(1,005)\nCurrency translation adjustment\t\t\t\t\t\t1,733\t\t1,733\nShares issued for employee benefit plan and compensation\t78\t1\t\t\t346\t\t\t347\nPurchase of treasury shares\t\t\t(43)\t(1,215)\t\t\t\t(1,215)\nShares issued to directors\t8\t-\t\t\t-\t\t\t-\nEmployee and director stock-based compensation\t\t\t\t\t1,918\t\t\t1,918\nPerformance-based common stock warrants\t\t\t\t\t434\t\t\t434\nBalance at March 31, 2019\t24,019\t240\t(10,159)\t(277,104)\t278,801\t(18,548)\t281,783\t265,172\n", "q10k_tbl_7": "\tThree Months Ended March 31,\t\n\t2019\t2018\nCash provided by (used for) operating activities:\t\t\nNet income (loss)\t(1,005)\t(587)\nAdjustments to reconcile net income (loss) to net cash provided by (used for) operating activities:\t\t\nDepreciation and amortization\t8,019\t8,243\nProvision for doubtful accounts\t3\t4\nProvision for inventory write-downs\t2,537\t756\nDeferred income taxes\t2,966\t913\nShares issued for employee benefit plan\t347\t336\nEmployee and director stock-based compensation\t1,918\t2,204\nPerformance-based common stock warrants\t434\t471\nChanges in operating assets and liabilities:\t\t\nAccounts receivable and contract assets\t(14,056)\t(266)\nInventories\t(6,519)\t1,372\nPrepaid expenses and other assets\t735\t(455)\nAccounts payable and accrued liabilities\t3,017\t(21,160)\nAccrued income taxes\t(2,943)\t(3,774)\nNet cash provided by (used for) operating activities\t(4,547)\t(11,943)\nCash provided by (used for) investing activities:\t\t\nAcquisitions of property, plant and equipment\t(2,800)\t(9,314)\nAcquisitions of intangible assets\t(653)\t(571)\nNet cash provided by (used for) investing activities\t(3,453)\t(9,885)\nCash provided by (used for) financing activities:\t\t\nBorrowings under line of credit\t25,000\t13,000\nRepayments on line of credit\t(20,000)\t(10,000)\nProceeds from stock options exercised\t-\t439\nTreasury stock purchased\t(1,215)\t(615)\nContingent consideration payments in connection with business combinations\t(4,251)\t(3,858)\nNet cash provided by (used for) financing activities\t(466)\t(1,034)\nEffect of exchange rate changes on cash, cash equivalents and restricted cash\t154\t832\nNet increase (decrease) in cash, cash equivalents and restricted cash\t(8,312)\t(22,030)\nCash, cash equivalents and restricted cash at beginning of year\t53,207\t67,339\nCash, cash equivalents and restricted cash at end of period\t44,895\t45,309\nSupplemental cash flow information:\t\t\nIncome taxes paid\t1,942\t2,893\nInterest paid\t1,186\t1,164\n", "q10k_tbl_8": "(In thousands)\tMarch 31, 2019\tDecember 31, 2018\nUnited States\t6,113\t1,156\nPeople's Republic of China (\"PRC\")\t12,981\t20,885\nAsia (excluding the PRC)\t7,889\t2,398\nEurope\t8,694\t19,907\nSouth America\t9,218\t8,861\nTotal cash and cash equivalents\t44,895\t53,207\n", "q10k_tbl_9": "(In thousands)\tMarch 31, 2019\tDecember 31, 2018\nTrade receivables, gross\t143,752\t133,774\nAllowance for doubtful accounts\t(1,120)\t(1,121)\nAllowance for sales returns\t(547)\t(731)\nNet trade receivables\t142,085\t131,922\nOther\t15,986\t12,767\nAccounts receivable, net\t158,071\t144,689\n", "q10k_tbl_10": "(In thousands)\tThree Months Ended March 31,\t \n2019\t\t2018 \nBalance at beginning of period\t1,121\t $1,064\nAdditions to costs and expenses\t3\t 4\n(Write-offs)/Foreign exchange effects\t(4)\t 9\nBalance at end of period\t1,120\t $1,077\n", "q10k_tbl_11": "\tThree Months Ended March 31,\t\t\t \t\n\t2019\t\t2018\t \t\n\t (thousands)\t% of Net Sales\t (thousands)\t % of Net Sales\t\nComcast Corporation\t29,246\t15.9%\t37,975\t 23.1%\t\nDish Network L.L.C.\t19,678\t10.7%\t-\t(1) -\t(1)\n", "q10k_tbl_12": "\tMarch 31, 2019\t\tDecember 31, 2018\t \n\t (thousands)\t% of Accounts Receivable, Net\t (thousands)\t % of Accounts Receivable, Net\nComcast Corporation\t17,917\t11.3%\t-\t(1)-(1) \n", "q10k_tbl_13": "(In thousands)\tMarch 31, 2019\tDecember 31, 2018\nRaw materials\t71,784\t68,834\nComponents\t16,759\t25,071\nWork in process\t8,858\t5,577\nFinished goods\t58,053\t50,006\nReserve for excess and obsolete inventory\t(5,488)\t(5,138)\nInventories, net\t149,966\t144,350\n", "q10k_tbl_14": "(In thousands)\tThree Months Ended March 31,\t \n2019\t\t2018 \nBalance at beginning of period\t5,138\t $4,288\nAdditions charged to costs and expenses (1)\t1,422\t 643\nSell through (2)\t(378)\t (315)\n(Write-offs)/Foreign exchange effects\t(694)\t (388)\nBalance at end of period\t5,488\t $4,228\n", "q10k_tbl_15": "(In thousands)\tMarch 31, 2019\nAssets:\t\nOperating lease right-of-use assets\t21,315\nLiabilities:\t\nOther accrued liabilities\t3,762\nLong-term operating lease obligations\t17,520\nTotal lease liabilities\t21,282\n", "q10k_tbl_16": "(In thousands)\tThree months ended March 31, 2019\nCost of sales\t592\nSelling, general and administrative expenses\t1,384\nTotal operating lease expense\t1,976\nOperating cash outflows from operating leases\t1,767\nOperating lease right-of use assets obtained in exchange for lease obligations\t1,524\n", "q10k_tbl_17": "(In thousands)\tMarch 31, 2019\n2019 (remaining 9 months)\t3,424\n2020\t5,121\n2021\t5,276\n2022\t4,435\n2023\t2,358\nThereafter\t3,394\nTotal lease payments\t24,008\nLess: imputed interest\t(2,726)\nTotal lease liabilities\t21,282\n", "q10k_tbl_18": "(In thousands)\t\nBalance at December 31, 2018\t48,485\nForeign exchange effects\t(37)\nBalance at March 31, 2019\t48,448\n", "q10k_tbl_19": "\tMarch 31, 2019\t\t\tDecember 31, 2018\t\t\n(In thousands)\tGross (1)\tAccumulated Amortization (1)\tNet\tGross (1)\tAccumulated Amortization (1)\tNet\nDistribution rights\t322\t(189)\t133\t329\t(188)\t141\nPatents\t14,902\t(5,837)\t9,065\t14,560\t(5,704)\t8,856\nTrademarks and trade names\t2,786\t(1,976)\t810\t2,786\t(1,900)\t886\nDeveloped and core technology\t12,560\t(8,591)\t3,969\t12,560\t(8,087)\t4,473\nCapitalized software development costs\t222\t-\t222\t155\t-\t155\nCustomer relationships\t32,683\t(23,645)\t9,038\t32,534\t(22,675)\t9,859\nTotal intangible assets, net\t63,475\t(40,238)\t23,237\t62,924\t(38,554)\t24,370\n", "q10k_tbl_20": "\tThree Months Ended March 31,\t\n(In thousands)\t2019\t2018\nCost of sales\t-\t55\nSelling, general and administrative expenses\t1,784\t1,747\nTotal amortization expense\t1,784\t1,802\n", "q10k_tbl_21": "(In thousands)\t\n2019 (remaining 9 months)\t5,400\n2020\t6,052\n2021\t2,459\n2022\t2,259\n2023\t2,100\nThereafter\t4,967\nTotal\t23,237\n", "q10k_tbl_22": "(In thousands)\tMarch 31, 2019\tDecember 31, 2018\nAccrued social insurance (1)\t16,866\t16,735\nAccrued salary/wages\t8,631\t8,783\nAccrued vacation/holiday\t3,168\t2,954\nAccrued bonus (2)\t2,263\t2,361\nAccrued commission\t541\t1,432\nOther accrued compensation\t2,395\t1,700\nTotal accrued compensation\t33,864\t33,965\n", "q10k_tbl_23": "(In thousands)\tMarch 31, 2019\tDecember 31, 2018\nDuties\t6,451\t4,865\nFreight and handling fees\t5,543\t3,217\nOperating lease obligations\t3,762\t-\nProfessional fees\t1,808\t1,930\nSales taxes and VAT\t146\t1,050\nShort-term contingent consideration\t4,590\t4,190\nTooling (1)\t2,327\t1,770\nOther\t7,042\t6,989\nTotal other accrued liabilities\t31,669\t24,011\n", "q10k_tbl_24": "(In thousands)\tThree Months Ended March 31,\t \n2019\t\t2018 \nBalance at beginning of period\t276\t $339\nAccruals for warranties issued during the period\t-\t -\nSettlements (in cash or in kind) during the period\t-\t (100)\nBalance at end of period\t276\t $239\n", "q10k_tbl_25": "\tThree Months Ended March 31,\t\n(In thousands)\t2019\t2018\nShares repurchased\t43\t13\nCost of shares repurchased\t1,215\t615\n", "q10k_tbl_26": "\tThree Months Ended March 31,\t\n(In thousands)\t2019\t2018\nUnited States\t98,936\t79,751\nAsia (excluding PRC)\t24,076\t27,400\nPeople's Republic of China\t22,308\t20,117\nEurope\t23,299\t19,130\nLatin America\t7,787\t10,030\nOther\t7,757\t8,270\nTotal net sales\t184,163\t164,698\n", "q10k_tbl_27": "(In thousands)\tMarch 31, 2019\tDecember 31, 2018\nUnited States\t13,673\t14,504\nPeople's Republic of China\t74,001\t79,382\nAll other countries\t8,728\t6,569\nTotal long-lived tangible assets\t96,402\t100,455\n", "q10k_tbl_28": "\tThree Months Ended March 31,\t\n(In thousands)\t2019\t2018\nCost of sales\t28\t17\nResearch and development expenses\t220\t155\nSelling, general and administrative expenses:\t\t\nEmployees\t1,424\t1,528\nOutside directors\t246\t504\nTotal employee and director stock-based compensation expense\t1,918\t2,204\nIncome tax benefit\t399\t463\n", "q10k_tbl_29": "\tNumber of Options (in 000's)\tWeighted-Average Exercise Price\tWeighted-Average Remaining Contractual Term (in years)\tAggregate Intrinsic Value (in 000's)\nOutstanding at December 31, 2018\t597\t44.27\t\t\nGranted\t150\t27.07\t\t\nExercised\t-\t-\t\t-\nForfeited/canceled/expired\t-\t-\t\t\nOutstanding at March 31, 2019 (1)\t747\t40.80\t4.45\t4,020\nVested and expected to vest at March 31, 2019(1)\t747\t40.80\t4.45\t4,020\nExercisable at March 31, 2019(1)\t486\t42.99\t3.44\t2,500\n", "q10k_tbl_30": "\tThree Months Ended March 31,\t\n\t2019\t2018\nWeighted average fair value of grants\t10.28\t14.26\nRisk-free interest rate\t2.49%\t2.51%\nExpected volatility\t41.64%\t33.09%\nExpected life in years\t4.54\t4.53\n", "q10k_tbl_31": "\tShares (in 000's)\tWeighted-Average Grant Date Fair Value\nNon-vested at December 31, 2018\t204\t49.23\nGranted\t225\t28.36\nVested)\t(77\t49.11\nForfeited)\t(4\t39.53\nNon-vested at March 31, 2019\t348\t35.90\n", "q10k_tbl_32": "\tIncremental Warrants That Will Vest\t\t\nAggregate Level of Purchases by Comcast and Affiliates\tJanuary 1, 2016 - December 31, 2017\tJanuary 1, 2018 - December 31, 2019\tJanuary 1, 2020 - December 31, 2021\n260 million\t100,000\t100,000\t75,000\n300 million\t75,000\t75,000\t75,000\n340 million\t75,000\t75,000\t75,000\nMaximum Potential Warrants Earned by Comcast\t250,000\t250,000\t225,000\n", "q10k_tbl_33": "\tThree Months Ended March 31,\t\n\t2019\t2018\nFair value\t9.00\t16.88\nPrice of Universal Electronics Inc. common stock\t37.46\t52.43\nRisk-free interest rate\t2.22%\t2.54%\nExpected volatility\t44.45%\t34.53%\nExpected life in years\t3.75\t4.75\n", "q10k_tbl_34": "\tThree Months Ended March 31,\t\n(In thousands)\t2019\t2018\nReduction to net sales\t434\t471\nIncome tax benefit\t108\t118\n", "q10k_tbl_35": "\tThree Months Ended March 31,\t\n(In thousands)\t2019\t2018\nNet gain (loss) on foreign currency exchange contracts (1)\t(271)\t(1,331)\nNet gain (loss) on foreign currency exchange transactions\t(132)\t725\nOther income (expense)\t(63)\t19\nOther income (expense), net\t(466)\t(587)\n", "q10k_tbl_36": "\tThree Months Ended March 31,\t\n(In thousands, except per-share amounts)\t2019\t2018\nBASIC\t\t\nNet income (loss)\t(1,005)\t(587)\nWeighted-average common shares outstanding\t13,827\t14,087\nBasic earnings (loss) per share\t(0.07)\t(0.04)\nDILUTED\t\t\nNet income (loss)\t(1,005)\t(587)\nWeighted-average common shares outstanding for basic\t13,827\t14,087\nDilutive effect of stock options, restricted stock and common stock warrants\t-\t-\nWeighted-average common shares outstanding on a diluted basis\t13,827\t14,087\nDiluted earnings (loss) per share\t(0.07)\t(0.04)\n", "q10k_tbl_37": "\tThree Months Ended March 31,\t\n(In thousands)\t2019\t2018\nStock options\t543\t574\nRestricted stock awards\t227\t203\nPerformance-based warrants\t175\t175\n", "q10k_tbl_38": "\tMarch 31, 2019\t\t\t \tDecember 31, 2018 \t \t\t\n\tFair Value Measurement Using\t\t\tTotal Balance \tFair Value Measurement Using \t \t\tTotal Balance\n(In thousands)\tLevel 1\tLevel 2\tLevel 3\t Level 1\t Level 2\t Level 3\t\nForeign currency exchange contracts\t-\t132\t-\t132 \t- \t(249) \t-\t(249)\n", "q10k_tbl_39": "Date Held\tCurrency\tPosition Held\tNotional Value (in millions)\tForward Rate\tUnrealized Gain/(Loss) Recorded at Balance Sheet Date (in thousands)(1)\tSettlement Date\nMarch 31, 2019\tUSD/Brazilian Real\tUSD\t1.0\t3.8757\t10\tApril 26, 2019\nMarch 31, 2019\tUSD/Euro\tUSD\t22.0\t1.1331\t181\tApril 26, 2019\nMarch 31, 2019\tUSD/Chinese Yuan Renminbi\tUSD\t28.0\t6.7365\t(59)\tApril 26, 2019\nDecember 31, 2018\tUSD/Euro\tUSD\t20.0\t1.1421\t(97)\tJanuary 25, 2019\nDecember 31, 2018\tUSD/Chinese Yuan Renminbi\tUSD\t27.0\t6.8969\t(116)\tJanuary 25, 2019\nDecember 31, 2018\tUSD/Chinese Yuan Renminbi\tUSD\t5.0\t6.9245\t(41)\tJanuary 25, 2019\nDecember 31, 2018\tUSD/Brazilian Real\tUSD\t1.0\t3.8651\t5\tJanuary 25, 2019\n", "q10k_tbl_40": "\tThree Months Ended March 31,\t\n\t2019\t2018\nNet sales%\t100.0\t100.0%\nCost of sales\t78.3\t77.4\nGross profit\t21.7\t22.6\nResearch and development expenses\t3.7\t3.7\nSelling, general and administrative expenses\t17.1\t18.4\nOperating income\t0.9\t0.5\nInterest income (expense), net)\t(0.7\t(0.6)\nOther income (expense), net)\t(0.2\t(0.4)\nIncome (loss) before provision for income taxes\t0.0\t(0.5)\nProvision for income taxes (benefit)\t0.5\t(0.1)\nNet income (loss))%\t(0.5\t(0.4)%\n", "q10k_tbl_41": "(In thousands)\tThree Months Ended March 31, 2019\tIncrease (Decrease)\tThree Months Ended March 31, 2018\nCash provided by (used for) operating activities\t(4,547)\t7,396\t(11,943)\nCash provided by (used for) investing activities\t(3,453)\t6,432\t(9,885)\nCash provided by (used for) financing activities\t(466)\t568\t(1,034)\nEffect of exchange rate changes on cash, cash equivalents and restricted cash\t154\t(678)\t832\nNet increase (decrease) in cash, cash equivalents and restricted cash\t(8,312)\t13,718\t(22,030)\n", "q10k_tbl_42": "\tMarch 31, 2019\tIncrease (Decrease)\tDecember 31, 2018\nCash and cash equivalents\t44,895\t(8,312)\t53,207\nWorking capital\t101,770\t1,173\t100,597\n", "q10k_tbl_43": "\tPayments Due by Period\t\t\t\t\n(In thousands)\tTotal\tLess than 1 year\t1 - 3 years\t4 - 5 years\tAfter 5 years\nOperating lease obligations\t25,030\t5,485\t10,564\t5,956\t3,025\nPurchase obligations (1)\t4,968\t4,968\t-\t-\t-\nContingent consideration (2)\t9,436\t4,590\t4,653\t193\t-\nTotal contractual obligations\t39,434\t15,043\t15,217\t6,149\t3,025\n", "q10k_tbl_44": "(In thousands)\tMarch 31, 2019\tDecember 31, 2018\nCash and cash equivalents\t44,895\t53,207\nAvailable borrowing resources\t20,800\t28,500\n", "q10k_tbl_45": "Period\tTotal Number of Shares Purchased (1)\tWeighted Average Price Paid per Share\tTotal Number of Shares Purchased as Part of Publicly Announced Plans or Programs\tTotal Dollar Value of Shares Purchased as Part of Publicly Announced Plans or Programs (2)\tMaximum Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (3)\nJanuary 1, 2019 - January 31, 2019\t12,094\t27.84\t10,500\t297,054\t4,116,634\nFebruary 1, 2019 - February 28, 2019\t29,891\t28.44\t6,500\t182,373\t3,934,261\nMarch 1, 2019 - March 31, 2019\t761\t36.58\t-\t-\t3,934,261\nTotal\t42,746\t28.42\t17,000\t479,427\t\n", "q10k_tbl_46": "31.1\tRule 13a-14(a) Certifications of Paul D. Arling, Chief Executive Officer (principal executive officer) of Universal Electronics Inc.\n31.2\tRule 13a-14(a) Certifications of Bryan M. Hackworth, Chief Financial Officer (principal financial officer and principal accounting officer) of Universal Electronics Inc.\n32\tSection 1350 Certifications of Paul D. Arling, Chief Executive Officer (principal executive officer) of Universal Electronics Inc., and Bryan M. Hackworth, Chief Financial Officer (principal financial officer and principal accounting officer) of Universal Electronics Inc., pursuant to 18 U.S.C. Section 1350\n101.INS\tXBRL Instance Document\n101.SCH\tXBRL Taxonomy Extension Schema Document\n101.CAL\tXBRL Taxonomy Extension Calculation Linkbase Document\n101.DEF\tXBRL Taxonomy Extension Definition Linkbase Document\n101.LAB\tXBRL Taxonomy Extension Label Linkbase Document\n101.PRE\tXBRL Taxonomy Extension Presentation Linkbase Document\n"}{"bs": "q10k_tbl_3", "is": "q10k_tbl_4", "cf": "q10k_tbl_7"}