actively traded common stock is a better indicator of expected volatility and future stock price trends than implied volatility. The assumptions used in calculating the fair value of share-based payment awards represent management’s best estimates, but these estimates involve inherent uncertainties and the application of management’s judgment. As a result, if factors change and we use different assumptions, our stock-based compensation expense could be materially different in the future. In addition, we are required to estimate the expected forfeiture rate and only recognize expense for those shares expected to vest. If our actual forfeiture rate is materially different from our estimate, the amount of stock-based compensation expense could be significantly different from the amount recorded. If the forfeiture rate decreased by 1%, stock-based compensation expense would have increased by approximately 3% for the three months ended March 31, 2007. During the three months ended March 31, 2007, we granted 14,000 stock options to employees. Due to the minimal amount of stock options granted during the first three months of 2007, our stock-based compensation expense relating to these stock options will not be materially affected by changes in our assumptions.

Refer to Note 2 captioned “Stock-based Compensation” included in the “Notes to the Consolidated Financial Statements” set forth above for additional disclosure regarding stock-based compensation expense.

Recent Accounting Pronouncements

Refer to Note 1 to the Consolidated Financial Statements in Part 1, Item I for a full description of recent accounting pronouncements, including the expected dates of adoption and estimated effects on results of operations and financial condition. Note 1 is incorporated in this discussion by reference.

Results of Operations

The following table sets forth our results of operations expressed as a percentage of net sales for the three months ended March 31, 2007 and 2006:

		Three Months Ended
		March 31,
		2007				2006
Net sales			100.0	%			100.0	%
Cost of sales			63.1				65.9
Gross profit			36.9				34.1
Research and development expenses			3.5				3.4
Selling, general and administrative expenses			24.0				24.9
Operating expenses			27.5				28.3
Operating income			9.4				5.8
Interest income, net			0.9				0.5
Other income (expense)			0.1				(0.3	)
Income before income taxes			10.4				6.0
Provision for income taxes			(3.4	)			(2.0	)
Net income			7.0	%			4.0	%

Three Months Ended March 31, 2007 versus Three Months Ended March 31, 2006:

The following table sets forth our net sales by our Business and Consumer lines for the three months ended March 31, 2007 and 2006:

		2007								2006
		$ (millions)				% of total				$ (millions)				% of total
Net sales:
Business		$	50.2				76.0	%		$	42.7				78.9	%
Consumer			15.8				24.0	%			11.5				21.1	%
Total net sales		$	66.0				100.0	%		$	54.2				100.0	%

Overview

Net sales for the first quarter of 2007 were $66.0 million, an increase of 22% compared to $54.2 million for the first quarter of 2006. Net income for the first quarter of 2007 was $4.6 million or $0.33 per share (basic) and $0.31 per share (diluted) compared to $2.1 million or $0.16 per share (basic) and $0.15 per share (diluted) for the first quarter of 2006.

Consolidated

Net sales in our Business lines (subscription broadcasting, OEM and computing companies) were approximately 76% of net sales in the first quarter of 2007 compared to approximately 79% in the first quarter of 2006. Net sales in our Business lines for the first quarter of 2007 increased by 18% to $50.2 million from $42.7 million in the first quarter of 2006. This increase in sales resulted primarily from an increase in the volume of remote control sales. The increase in remote control sales volume was attributable to the continued deployment of advanced function set-top boxes by the service operators and market share gains with a few key subscription broadcasting customers. These advanced functions include digital video recording (“DVR”), video-on-demand (“VOD”), and high definition television (“HDTV”). We expect that the deployment of the advanced function set-top boxes by the service operators will continue into the foreseeable future as penetration for each of the functions cited continues to increase. As a result, we expect Business category revenue to range between $210 and $220 million in 2007.

Net sales in our Consumer lines (One For All^® retail, private label, custom installers and direct import) were approximately 24% of net sales for the first quarter of 2007 compared to approximately 21% for the first quarter of 2006. Net sales in our Consumer lines for the first quarter of 2007 increased by 38% to $15.8 million, from $11.5 million in the first quarter of 2006. European retail sales increased by $2.8 million compared to 2006, driven by strength in the UK, Germany and the Nordic countries. The increase in Europe retail sales was also driven by the strengthening of both the Euro and the British Pound compared to the U.S. Dollar, which resulted in an increase in net sales of approximately $1.1 million. Net of this positive currency effect, Europe retail sales increased by $1.7 million. This increase in our consumer lines was also driven by our expanding presence in the CEDIA market, as CEDIA sales increased by $2.3 million from 2006. Partially offsetting these increases were private label sales, which decreased by $0.2 million or 25%, to $0.6 million in 2007 from $0.8 million in 2006. Additionally, United States direct import licensing and product revenues for 2007 decreased by $0.3 million or 50%, to $0.3 million in 2007 from $0.6 million in 2006, due to a decline in Kameleon sales in North America. We expect Consumer category revenue to range between $60 and $70 million in 2007.

Gross profit for the first quarter of 2007 was $24.3 million compared to $18.5 million for the first quarter of 2006. Gross profit as a percent of sales for the first quarter of 2007 was 36.9% compared to 34.1% for the same period in the prior year. The increase in gross profit as a percentage of net sales was primarily attributable to sales in our consumer lines, which generally have a higher gross profit rate as compared to our other sales, representing a larger percentage of our total business. This change in mix resulted in a 3.0% increase in the gross profit rate. Gross profit was also favorably impacted by the strengthening of both the Euro and British Pound compared to the U.S. Dollar, which resulted in an increase in gross profit of approximately $1.0 million and an increase of 0.9% in the gross profit rate. A reduction of sub-contract labor increased the gross profit rate by 0.5%, and a reduced royalty rate on certain products in our consumer lines added 0.2% to the gross profit rate. Partially offsetting these increases in the gross profit rate was an increase of $0.9 million of freight expense recorded in 2007 as compared to 2006. In 2007, there was an increase in the percentage of units shipped by air; air freight is significantly more costly than ocean freight. Higher freight expense reduced the gross profit rate by 1.1%. In addition, an increase in inventory scrap expense of $0.4 million reduced the gross profit rate by 0.7%.

Research and development expenses increased 26% from $1.8 million in the first quarter of 2006 to $2.3 million in the first quarter of 2007. The increase is related to the continued expansion of the Nevo^® platform, development efforts taking place at our San Mateo location, and the development of products for sale in our retail channel. We expect research and development expenses to decline slightly from current levels for the remaining quarters of 2007.

Selling, general and administrative expenses increased 17% from $13.5 million in the first quarter of 2006 to $15.8 million in the first quarter of 2007. Payroll and benefits increased by $1.0 million due to new hires and merit increases, the strengthening of both the Euro and British Pound compared to the U.S. Dollar resulted in an increase of $0.5 million, additional use of external tax and legal services resulted in an increase of $0.4 million and additional travel resulted in an increase of $0.2 million. We expect that selling, general and administrative expenses will range between $66.0 and $69.0 million for the full year 2007.

In the first quarter of 2007, we recorded $0.6 million of interest income compared to $0.3 million in the first quarter of 2006. This increase is due to higher money market rates and a higher average cash balance. Net interest income will range between $2.3 and $2.8 million in 2007.

In the first quarter of 2007, other income, net was $0.1 million which resulted from a foreign currency gain as compared to other expense, net of $0.2 million in the first quarter of 2006 which resulted from a foreign currency loss.

We recorded income tax expense of $2.2 million in the first quarter of 2007 compared to $1.1 million in the first quarter of 2006. Our effective tax rate was 32.5% in the first quarter of 2007 compared to 34.1% in the first quarter of 2006. The decrease in our effective tax rate is due primarily to the re-enactment of the federal research and development tax credit statute which was passed by Congress in the fourth quarter of 2006 as well as the Netherlands’ statutory tax rate decreasing from 31.5% in 2006 to 25.5% in 2007, offset partially by increased pre-tax income in higher tax rate jurisdictions. We estimate that our effective tax rate will range between 31.5% and 33.5% for the full year 2007.

Liquidity and Capital Resources

Financial Condition (Sources and Uses of Cash)

		Three months ended				Increase				Three months ended
		March 31, 2007				(decrease)				March 31, 2006
Net cash provided by operating activities		$	8,096			$	2,062			$	6,034
Net cash used for investing activities			(1,090	)			280				(1,370	)
Net cash provided by financing activities			4,635				2,680				1,955
Effect of exchange rate changes on cash			497				(622	)			1,119

		March 31, 2007				Increase				December 31, 2006
Cash and cash equivalents		$	78,213			$	12,138			$	66,075
Working capital			124,796				18,617				106,179

Net cash provided by operating activities for the first three months of 2007 was $8.1 million as compared to $6.0 million in the first three months of 2006. The increase in cash provided by operating activities was primarily driven by an increase in sales of 22% in the first three months of 2007 compared to the first three months of 2006 which resulted in lower inventory levels, coupled by an increase in accounts payable.

Net cash used for investing activities for the first three months of 2007 was $1.1 million as compared to $1.4 million for the first three months of 2006. The decrease in cash used for investing activities was primarily due to a decrease in acquisition of fixed assets. Capital expenditures in the first three months of 2007 and 2006 were approximately $0.9 million and $1.1 million, respectively.

In order to accommodate the growth of our company, we plan to renovate and expand our corporate headquarters during 2007. Costs of this renovation are estimated to be approximately $1.0 million and will be financed through our current operations as well as a $0.4 million tenant improvement allowance. We are currently evaluating our existing and future information system requirements, and we may make a significant investment to upgrade our systems in 2007.

Net cash provided by financing activities for the first three months of 2007 was $4.6 million as compared to cash provided by financing activities of $2.0 million for the first three months of 2006. The increase in cash provided by financing activities was due to an increase in the proceeds from stock options exercised in the first three months of 2007 compared to the first three months of 2006. We hold repurchased shares as treasury stock and they are available for reissue. Presently, except for using a small number of these treasury shares to compensate our outside

board members, we have no plans to distribute these shares. However, we may change these plans if necessary to fulfill our on-going business objectives. Under our amended Credit Facility with Comerica Bank, we have authority to acquire up to an additional 2.0 million shares of our common stock in the open market. We did not purchase any shares of our common stock during the three months ended March 31, 2007 or 2006. As of March 31, 2007, 1,903,400 shares were available for purchase under the Credit Facility. During 2007 we may purchase shares of our common stock if we believe conditions are favorable or to manage the dilutive effect of stock option exercises.

Contractual Obligations

At March 31, 2007 our contractual obligations were $20.1 million compared to $26.9 million as previously reported on our Annual Report on Form 10-K. Purchase obligations primarily consist of an agreement with a specific vendor to purchase approximately 80% of our integrated circuits through December 31, 2007 from this vendor. Included in our contractual obligations are future obligations on existing operating leases. On January 31, 2007, we amended our existing lease agreement for our consumer and customer call center facility located in Twinsburg, Ohio to increase our leased square footage, which is effective after certain leasehold improvements have been made. We expect the amended lease to become effective in May 2007. The future obligations related to the amended lease was $0.3 million and $0.3 million as of March 31, 2007 and December 31, 2006, respectively.

Liquidity

We generally use cash provided by operations as our primary source of liquidity, since internally generated cash flows are typically sufficient to support business operations, capital expenditures and discretionary share repurchases. We are able to supplement this near term liquidity, if necessary, with our Credit Facility, as discussed below.

Our cash balances are held in the United States and Europe. At March 31, 2007, we had approximately $18.7 million and $59.5 million of cash and cash equivalents in the United States and Europe, respectively. At December 31, 2006, we had approximately $6.1 million and $60.0 million of cash and cash equivalents in the United States and Europe, respectively.

We have a $15 million unsecured revolving credit agreement (“Credit Facility”) with Comerica Bank, which expires on August 31, 2009. Under the Credit Facility, the interest payable is variable and is based on the bank’s cost of funds or LIBOR plus a fixed margin of 1.25%. The interest rate in effect as of March 31, 2007 using LIBOR plus a fixed margin of 1.25% was 6.57%. We pay a commitment fee ranging from zero to a maximum rate of 1/4 of 1% per year on the unused portion of the credit line depending on the amount of cash investment retained with Comerica during each quarter. Under the terms of the Credit Facility, dividend payments are allowed for up to 100% of the prior fiscal year’s net income, to be paid within 90 days of this period’s year end. We are subject to certain financial covenants related to our net worth, quick ratio, and net income. Amounts available for borrowing under the Credit Facility are reduced by the outstanding balance of import letters of credit. As of March 31, 2007, we did not have any amounts outstanding under the Credit Facility or any outstanding import letters of credit. Furthermore, as of March 31, 2007, we were in compliance with all financial covenants required by the Credit Facility.

It is our policy to carefully monitor the state of our business, cash requirements and capital structure. As previously mentioned, we believe that cash generated from our operations and funds available from our borrowing facility will be sufficient to fund current business operations and anticipated growth at least over the next twelve months; however, there can be no assurance that such funds will be adequate for that purpose.

Off Balance Sheet Arrangements

We do not participate in any 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 below or above in “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” as well as factors discussed in our 2006 Annual Report on Form 10-K, or in our other reports filed from time to time with the Securities and Exchange Commission (“SEC”)), could affect our actual results and could 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 us to predict all such factors, nor can we assess the impact of each such factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Therefore, forward-looking statements should not be relied upon as a prediction of actual future results.

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 failure of our markets to continue growing and expanding in the manner we anticipated; the failure of our customers to grow and expand as we anticipated; the effects of natural or other events beyond our control, including the effect of a war or terrorist activities on us or the economy; the economic environment’s effect on us and our customers; the growth of, acceptance of and demand for our products and technologies in various markets and geographical regions, including cable, satellite, consumer electronics, retail and interactive TV and home automation, not materializing as we believe; our inability to add profitable complementary products which are accepted by the marketplace; our inability to continue to maintain our operating costs at acceptable levels through our cost containment efforts; our inability to realize tax benefits from various tax projects initiated from time to time; our inability to maintain the strength of our balance sheet; our inability to continue selling our products or licensing our technologies at higher or profitable margins; the failure of various markets and industries to grow or emerge as rapidly or as successfully as we believe; the lack of continued growth of our technologies and product lines addressing the market for digital media; our inability to obtain orders or maintain our order volume with new and existing customers; the possible dilutive effect our stock option program may have on our earnings per share and stock price; our inability to continue to obtain adequate quantities of component parts or secure adequate factory production capacity on a timely basis; the effect the value of the Euro and other foreign currencies relative to the U.S. dollar could have on our financial results; and other factors that may be listed from time to time in our press releases and filings with the SEC.

Outlook

Our focus is to build technology and products that make the consumer’s interaction with devices and content within the home easier and more enjoyable. The pace of change in the home is increasing. The growth of new devices, such as DVD players, PVR/DVR technologies, HDTV and home theater solutions, to name only a few, has transformed control of the home entertainment center into a complex challenge for the consumer. The more recent introduction and projected growth of digital media technologies in the consumer’s life will further increase this complexity. We have set out to create the interface for the connected home, building a bridge between the home devices of today and the networked home of the future. We intend to invest in new products and technology, particularly in the connected home space, which will expand our business beyond the control of devices to the control of and access to content, such as digital media, to enrich the entertainment experience.

We will continue enhancing our leadership position in our core business by developing custom products for our subscription broadcasting, OEM, retail and computing customers, growing our capture expertise in infrared technology and radio frequency standards, adding to our portfolio of patented or patent pending technologies and developing new platform products. We are also developing new ways to enhance remote controls and other accessory products.

Throughout 2007, we will continue development of our Nevo^® technology, an embedded solution that transforms an electronic display into a sophisticated and easy-to-use wireless home control and automation device. New Nevo^® products will help us to increase the strength we have built in our custom installation business worldwide. We are continuing to seek ways to use our technology to make the set-up and use of control products, and the access to and control of digital entertainment within the home entertainment network, easier and more affordable. In addition, we are working on product line extensions to our One For All^® branded products which include digital antennas, signal boosters and other A/V accessories.

We are also seeking ways to increase our customer base worldwide, particularly in the areas of subscription broadcasting, OEM and One For All^® international retail. We will continue to work on strengthening existing relationships by working with customers to understand how to make the consumer interaction with products and services within the home easier and more enjoyable. We intend to invest in new products and technology to meet our customer needs now and into the future.

We will continue developing software and firmware solutions that can enable devices such as TVs, set-top boxes, stereos, automotive audio systems and other consumer electronic products to wirelessly connect and interact with home networks and interactive services to deliver digital entertainment and information. This “smart device” category is emerging, and in the remainder of 2007 we look to continue to build relationships with our customers in this category.

Throughout 2007, we will continue to evaluate acceptable acquisition targets and strategic partnership opportunities in our core business lines as well as in the networked home marketplace. We caution, however, that no assurance can be made that any suitable acquisition target or partnership opportunity will be identified and, if identified, that a transaction can be consummated. Moreover, if consummated, no assurance can be made that any such acquisition or partnership will profitably add to our operations.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

For quantitative and qualitative disclosure about market risk affecting the Company, refer to “Quantitative and Qualitative Disclosures About Market Risk” in Item 7A of Part II, of our Annual Report on Form 10-K for the year ended December 31, 2006, which is incorporated herein by reference. Our exposure to market risk has not changed materially since December 31, 2006.

ITEM 4. 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 Commission’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.

There were no changes in our internal control over financial reporting that occurred during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

In 2002, one of our subsidiaries (One For All S.A.S.) brought an action against a former distributor of the subsidiary’s products seeking a recovery of accounts receivable. The distributor filed a counterclaim against our subsidiary seeking payment for amounts allegedly owed for administrative and other services rendered by the distributor for our subsidiary. In January 2005, the parties agreed to include in that action all claims between the distributor and two of our other subsidiaries, Universal Electronics BV (“UEBV”) and One For All Iberia SL. As a result, the single action covers all claims and counterclaims between the various parties. The partiers further agreed that, before any judgment is paid, all disputes between the various parties would be concluded. These additional claims involve nonpayment for products and damages resulting from the alleged wrongful termination of agency agreements. On March 15, 2005, the court in one of the litigation matters brought by the distributor against one of our subsidiaries, rendered judgment against our subsidiary and awarded damages and costs to the distributor in the amount of approximately $102,000. The amount of this judgment was charged to operations during the second quarter of 2005 and has been paid. With respect to the remaining matters before the court, the parties met with the court appointed expert in December 2006 and at that time, the expert again asked the court for an extension to finalize and file his pre-trial report with the court and the court granted this request. We are awaiting the expert to finalize his pre-trial report with the court and when completed, we will respond.

On June 20, 2006, we filed suit against Remote Technologies, Inc. (“RTI”) alleging that RTI has infringed certain of our patents. On July 28, 2006, we served RTI with a complaint, and RTI answered our complaint on August 28, 2006, denying our claims of infringement. In its answer, RTI also filed a counterclaim alleging that our patents are invalid and not infringed. On September 19, 2006, we answered RTI’s counterclaim by denying its allegations and reasserting our original complaint. Principals of both companies have been involved in settlement discussions, and those discussions will continue. Because of the settlement discussions, we have not yet commenced significant

discovery in this matter. If we are not able to settle this matter, we will vigorously pursue this matter against RTI and will defend against RTI’s counterclaims.

There are no other material pending legal proceedings, other than litigation incidental to the ordinary course of our business, to which we or any of our subsidiaries is a party or of which our respective property is the subject. We do not believe that any of the claims made against us in any of the pending matters has merit and we intend to vigorously defend ourselves against each claim.

We maintain directors’ and officers’ liability insurance to insure our individual directors and officers against certain claims, including the payment of claims such as those alleged in the above lawsuits and attorney’s fees and related expenses incurred in connection with the defense of such claims.

ITEM 1A. RISK FACTORS

For risk factors, see “Risk Factors” in Part 1, Item 1A, of our Annual Report on Form 10-K for the fiscal year ended December 31, 2006, which is incorporated herein by reference.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

During the quarter ended March 31, 2007, we did not sell any equity securities that were not registered under the Securities Act of 1934. In addition, we did not repurchase any shares of our common stock during the quarter ended March 31, 2007.

ITEM 6. EXHIBITS

31.1		Rule 13a-14(a) Certifications of Paul D. Arling, Chief Executive Officer (principal executive officer) of Universal Electronics Inc.
31.2		Rule 13a-14(a) Certifications of Bryan Hackworth, Chief Financial Officer (principal financial officer and principal accounting officer) of Universal Electronics Inc.
32		Section 1350 Certifications of Paul D. Arling, Chief Executive Officer (principal executive officer) of Universal Electronics Inc., and Bryan Hackworth, Chief Financial Officer (principal financial officer and principal accounting officer) of Universal Electronics Inc. pursuant to 18 U.S.C. Section 1350

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

EXHIBIT INDEX

Exhibit No		Description
31.1		Rule 13a-14(a) Certifications of Paul D. Arling, Chief Executive Officer (principal executive officer) of Universal Electronics Inc.
31.2		Rule 13a-14(a) Certifications of Bryan M. Hackworth, Chief Financial Officer (principal financial officer and principal accounting officer) of Universal Electronics Inc.
32		Section 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