2021
Annual Report
TO OUR SHAREHOLDERS:
Twenty-five-plus years of ‘vision, innovation and reality’ has
positioned Universal Display Corporation as a leader in the
OLED industry. We have designed and executed on a blueprint
of innovation, agility and growth. From the invention of
phosphorescent OLED technology to the discovery,
development and delivery of next-generation OLED materials
and technologies, we are continuously envisioning, shaping
and strengthening our technology roadmap. Adding to these,
advances in our groundbreaking proprietary OVJP (organic
vapor jet printing) platform and the breakthrough
performance (in both energy efficiency and lifetime) of our
Plasmonic PHOLED architecture further enhance and extend
our roadmap and reinforce our global intellectual property
framework. This multifaceted strategic approach enables us to
support our customers, expand our market opportunities and
amplify our value proposition in the OLED ecosystem.
Looking back on 2021, we continued to build on our strong
partnerships, advance our innovation engine and fortify our
leadership position -- all of which has bolstered our first-mover
advantage in the OLED ecosystem and strengthened our
runway of growth.
• On the customer partnership front, we extended our long-
term agreements with LG Display, Visionox Technology
and Tianma Micro-electronics.
• On the global manufacturing front, we announced with
PPG, our foundry partner of over 20 years, the
establishment of a new manufacturing site in Shannon,
Ireland, for the production of our highly efficient, high-
performing UniversalPHOLED materials.
• On the financial front, we delivered record results across
the board. 2021 revenue was $554 million, operating
income was $228 million and net income was $184
million, or $3.87 per diluted share. We ended the year
with $823 million in cash, cash equivalents and
investments, or $17.37 of cash per diluted share.
2021 was another year of continued recognition for the
Company. We were honored by the Financial Times as one of
The Americas’ Fastest-Growing Companies, and in January
2022, we were named to Forbes’ list of America’s Best Mid-
Sized Companies.
For over two-and-a-half decades, we have focused on fostering
a global culture that promotes inventiveness, integrity,
inclusion and imagination. We have also enhanced our
sustainability initiatives through innovation and continuous
improvement. During the year, we were named by Newsweek
to be one of America’s Most Responsible Companies for the
second year in a row, awarded a Silver Rating for corporate
social responsibility from EcoVadis, a leading provider of
business sustainability ratings, and recognized again by The
Forum of Executive Women as a Champion of Board Diversity.
Additionally, we achieved ISO 45001 certification, an
internationally recognized standard that emphasizes the
continual improvement of an Occupational Health and Safety
Management System. This certification, coupled with our ISO
9001 and ISO 14001 certifications, reinforces our corporate
commitment towards best international practices.
On the research and development front, we remain at the
forefront of innovation. Our brilliant global team of scientists
and engineers are continually imagining, inventing and
commercializing energy-efficient and cost-effective OLED
material solutions and best-in-class enabling OLED
technologies for our customers.
Our portfolio of state-of-the-art, high-performing
phosphorescent materials continues to broaden with next-
generation reds, greens, yellows and hosts. We drive this
innovation through our exceptional team of experimental and
computational expertise utilizing advanced AI Machine
Learning. With respect to blue, we continue to make excellent
progress in our ongoing development work for a commercial
phosphorescent blue emissive system. Given recent
advancements, we believe that we are on track to meet
preliminary target specifications with our phosphorescent blue
by year-end 2022, which should enable the introduction of our
all-phosphorescent RGB (red, green and blue) stack into the
commercial market in 2024. We believe that the commercial
introduction of our full-color emissive stack has the potential
to unlock a vast array of opportunities for higher energy-
efficiency and higher performance across a broad range of
OLED applications.
We are also making continued advancements with our novel
and trailblazing manufacturing technology platform. The OVJP
team is progressing with our commercialization roadmap and
currently constructing the key subsystems of the alpha system
design. While a commercial system is still a few years away, we
believe that OVJP can pave a path for high-volume, cost-
effective manufacturing of large-area, side-by-side RGB OLED
TV panels.
We believe that we are well-positioned to continue our growth
through the strength of our existing industry-leading product
offerings and future commercial opportunities, including
phosphorescent blue and OVJP. Combined with our expanding
global scale and partnerships, we are excited for the
extraordinary and tremendous opportunities ahead!
We thank our employees around the world for their drive,
desire, dedication and heart in elevating and shaping Universal
Display’s accomplishments and advancements. To our
customers and partners, we thank you for collaborations that
create bright, beautiful and brilliant products for displays and
lighting. And to our shareholders, we thank you for your
continued support as we deliver on our vision of turning
innovation into reality.
Sherwin I. Seligsohn
Founder & Chairman of the Board
Steven V. Abramson
President & Chief Executive Officer
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2021
For the transition period from ____________ to ___________
Commission File Number 1-12031
UNIVERSAL DISPLAY CORPORATION
(Exact name of registrant as specified in its charter)
Pennsylvania
(State or other jurisdiction of
incorporation or organization)
250 Phillips Boulevard, Ewing, New Jersey
(Address of principal executive offices)
23-2372688
(I.R.S. Employer
Identification No.)
08618
(Zip Code)
Registrant’s telephone number, including area code: (609) 671-0980
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, $0.01 par value
Trading Symbol(s)
OLED
Name of each exchange on which registered
The NASDAQ Stock Market LLC
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
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 ☒ 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 ☒ 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.
Large accelerated filer
Non-accelerated filer
☒
☐
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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over
financial reporting under Section 404(b) of the Sarbanes-Oxley Act by the registered public accounting firm that prepared or issued its audit report. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant computed by reference to the closing sale price
of the registrant’s common stock on the NASDAQ Global Select Market as of June 30, 2021, was $9,594,897,936. Solely for purposes of this calculation, all executive
officers and directors of the registrant and all beneficial owners of more than 10% of the registrant’s common stock (and their affiliates) were considered affiliates.
As of February 21, 2022, the registrant had outstanding 48,496,383 shares of common stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s Proxy Statement for the 2022 Annual Meeting of Shareholders, which is to be filed with the Securities and Exchange Commission no
later than May 2, 2022 (the first business day after the 120th day following the end of the registrant's fiscal year), are incorporated by reference into Part III of this report.
Auditor Firm Id:
185
Auditor Name:
KPMG, LLP
Auditor Location:
Philadelphia, PA, USA
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TABLE OF CONTENTS
PART I
ITEM 1.
BUSINESS ...................................................................................................................................................................
ITEM 1A. RISK FACTORS ..........................................................................................................................................................
ITEM 1B. UNRESOLVED STAFF COMMENTS.......................................................................................................................
PROPERTIES...............................................................................................................................................................
ITEM 2.
LEGAL PROCEEDINGS.............................................................................................................................................
ITEM 3.
MINE SAFETY DISCLOSURES ................................................................................................................................
ITEM 4.
PART II
ITEM 5.
ITEM 6.
ITEM 7.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES...................................................................................................
RESERVED..................................................................................................................................................................
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS .............................................................................................................................................................
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ............................................
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.............................................................................
ITEM 8.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
ITEM 9.
DISCLOSURE..............................................................................................................................................................
ITEM 9A. CONTROLS AND PROCEDURES ............................................................................................................................
ITEM 9B. OTHER INFORMATION............................................................................................................................................
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS ...........................
PART III
ITEM 10.
ITEM 11.
ITEM 12.
ITEM 13.
ITEM 14.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.....................................................
EXECUTIVE COMPENSATION ...............................................................................................................................
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS .....................................................................................................................................
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE..........
PRINCIPAL ACCOUNTANT FEES AND SERVICES .............................................................................................
ITEM 15.
ITEM 16.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES...................................................................................
FORM 10-K SUMMARY ............................................................................................................................................
PART IV
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CAUTIONARY STATEMENT
CONCERNING FORWARD-LOOKING STATEMENTS
This report and the documents incorporated by reference in this report contain some “forward-looking statements” within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking
statements concern possible or assumed future events, results and business outcomes. These statements often include words such as
“believe,” “expect,” “anticipate,” “intend,” “plan,” “estimate,” “seek,” “will,” “may,” “project” or similar expressions. These statements
are based on assumptions that we have made in light of our experience in the industry, as well as our perceptions of historical trends,
current conditions, expected future developments and other factors we believe are appropriate under the circumstances.
As you read and consider this report, you should not place undue reliance on any forward-looking statements. You should
understand that these statements involve substantial risk and uncertainty and are not guarantees of future performance or results. They
depend on many factors that are discussed further under Item 1A (Risk Factors) below, including:
successful commercialization by organic light emitting diode (OLED) manufacturers of products incorporating our
OLED technologies and materials and their continued willingness to utilize our OLED technologies and materials;
the adequacy of protections afforded to us by the patents that we own or license and the cost to us of maintaining,
enforcing and defending those patents;
our ability to protect our patented and non-patented intellectual property;
our exposure to and ability to defend against third-party claims and challenges to our existing and future intellectual
property rights;
our ability to maintain our competitive position following the expiration of our fundamental phosphorescent organic
light-emitting diode (PHOLED) patents;
our ability to form and continue strategic relationships with manufacturers of OLED products;
the payments that we expect to receive under our existing contracts with OLED manufacturers and the terms of
contracts that we expect to enter into with OLED manufacturers in the future;
the potential commercial applications of and future demand for our OLED technologies and materials, and of OLED
products in general;
impacts of the COVID-19 pandemic on the global economy, consumer spending and global supply chains, as well as
volatility in and disruption of financial markets;
our ability to offer and our customers’ willingness to continue to purchase our materials in the event of substantial
increases in tariffs or restrictions resulting from international trade disputes;
our customers' development and use of more efficient manufacturing processes and material processing protocols that
result in the more efficient utilization of our materials, and therefore reduce their requirements for our materials;
the comparative advantages and disadvantages of our OLED technologies and materials versus existing and future
competing technologies and materials;
the outcomes of our ongoing and future research and development activities, and those of others, relating to OLED
technologies and materials;
our ability to acquire and supply OLED materials and technologies at cost competitive pricing;
our ability to compete against third parties with resources greater than ours;
our ability to respond to and address malicious cybersecurity and IT infrastructure attacks;
our quarterly cash dividend policy;
our future OLED technology licensing and OLED material revenues and results of operations, including supply and
demand for our OLED materials; and
general economic and market conditions, including impacts resulting from pandemic outbreaks and regional
geopolitical hostilities.
Changes or developments in any of these areas could affect our financial results or results of operations and could cause actual
results to differ materially from those contemplated by any forward-looking statements.
All forward-looking statements speak only as of the date of this report or the documents incorporated by reference, as the case
may be. We do not undertake any duty to update, correct, modify, or supplement any of these forward-looking statements to reflect
events or circumstances after the date of this report or to reflect the occurrence of unanticipated events.
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ITEM 1. BUSINESS
Our Company
PART I
We are a leader in the research, development and commercialization of organic light emitting diode (OLED) technologies and
materials for use in display and solid-state lighting applications. OLEDs are thin, lightweight and power-efficient solid-state devices
that emit light that can be manufactured on both flexible and rigid substrates, making them highly suitable for use in full-color displays
and as lighting products. OLED displays are capturing a growing share of the display market, especially in the mobile phone, television,
wearable, tablet, notebook and personal computer, augmented reality (AR), virtual reality (VR), portable media device and automotive
markets. We believe that this is because OLEDs offer potential advantages over competing display technologies with respect to power
efficiency, contrast ratio, viewing angle, video response time, form factor and manufacturing cost. We also believe that OLED lighting
products have the potential to replace many existing light sources in the future because of their high-power efficiency, excellent color
rendering index, low operating temperature and novel form factor. Our technology leadership, our current intellectual property position,
and our more than 20 years of experience working closely with leading OLED display manufacturers are some of the competitive
advantages that should enable us to continue to share in the revenues from OLED displays and lighting products as they gain wider
acceptance.
Our primary business strategy is to (1) develop new OLED materials and sell existing and new materials to product manufacturers
for display applications, such as mobile phones, televisions, wearables, tablets, portable media devices, notebook computers, personal
computers and automotive applications, and specialty and general lighting products; and (2) further develop and either license or
otherwise commercialize our proprietary OLED material, device design and manufacturing technologies to those manufacturers. We
have established a significant portfolio of proprietary OLED technologies and materials, primarily through our internal research and
development efforts and acquisitions of patents and patent applications, as well as maintaining long-standing, and establishing new
relationships with world-class universities, research institutions and strategic manufacturing partnerships. We currently own, exclusively
license or have the sole right to sublicense more than 5,500 patents issued and pending worldwide.
We manufacture and sell our proprietary OLED materials to customers for evaluation and use in commercial OLED products. We
also enter into agreements with manufacturers of OLED display and lighting products under which we grant them licenses to practice
under our patents and to use our proprietary know-how. At the same time, we work with these and other companies that are evaluating
our OLED material, device design and manufacturing technologies for possible use in commercial OLED display and lighting products.
Market Overview
The Display Panel Market
Thin, energy-efficient display panels that can be manufactured on glass or flexible substrates are essential for a wide variety of
portable consumer electronics products, such as mobile phones, AR/VR headsets, digital cameras, wearables, tablets and notebook
computers. Due to their narrow profile and light weight, flat panel displays are the display of choice for larger product applications, such
as computer monitors and televisions.
Liquid crystal displays, or LCDs, continue to dominate the flat panel display market. However, we believe that OLED displays
are an attractive alternative to LCDs, and OLED displays are gaining market share, because they offer a number of potential advantages,
including:
higher power efficiencies, thereby reducing energy consumption;
a thinner profile and lighter weight;
higher contrast ratios, leading to sharper picture images and graphics;
wider viewing angles;
deposition on non-rigid substrates which enable conformable and flexible displays;
faster response times for video and gaming; and
lower cost manufacturing methods and materials.
Based on these characteristics, product manufacturers have adopted small-area OLED displays for use in a wide variety of
electronic devices, such as smartphones, wearables and tablets. Manufacturers are increasingly commercializing large-area OLED
displays for use in televisions. We believe that if these efforts are successful, they could result in sizeable markets for OLED displays.
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Organic materials make technically possible the development of flexible displays for use in an entirely new array of product
applications. Such applications include display devices that fold in use, or conform to various shapes for wearable, rollable, industrial
and ruggedized applications. In addition, due to the inherent transparency of the organic materials and transparent electrode technologies,
OLEDs eventually may enable the production of transparent displays for use in products such as automotive windshields and windows
with embedded displays.
The Solid-State Lighting Market
Traditional incandescent light bulbs are inefficient because they convert only about 5% of the energy they consume into visible
light, with the rest emerging as heat. Fluorescent lamps use excited gases, or plasmas, to achieve a higher energy conversion efficiency
of about 20%. However, the color rendering index of most fluorescent lamps – in other words, the quality of their color compared to an
ideal light source – is inferior to that of an incandescent bulb. Fluorescent lamps also pose environmental concerns because they typically
contain mercury.
Solid-state lighting relies on the direct conversion of electricity to visible light using semiconductor materials. By avoiding the
heat and plasma-producing processes of incandescent bulbs and fluorescent lamps, respectively, solid-state lighting products can have
substantially higher energy conversion efficiencies.
There are currently two basic types of solid-state lighting devices: inorganic light emitting diodes, or LEDs, and OLEDs. Current
LEDs are very small in size (about one square millimeter) and are extremely bright. Having been developed about 25 years before
OLEDs, LEDs are already widely employed in a variety of lighting products, such as traffic lights, digital signage and billboards,
replacements for incandescent lighting, backlights for smartphones, computer monitors and televisions, and as border or accent lighting.
However, most commercial LED offerings are characterized by high operating temperatures and intense brightness which may make
them less desirable for many lighting applications.
OLEDs, on the other hand, can be designed to provide improved lighting characteristics because they can be larger in size and
can be viewed directly, without using diffusers that are required to temper the intense brightness of LEDs. OLEDs can be fabricated
onto any suitable surface, including glass, plastic or metal foil, and could be cost-effective to manufacture in high volume. Given these
characteristics, product manufacturers are working on and have introduced limited product applications of OLEDs for diffuse specialty
lighting applications and ultimately general illumination. If these efforts are successful, we believe that OLED lighting products could
begin to be used for applications currently addressed by other existing lighting technologies, as well as for new applications that take
advantage of the OLED form factor. In particular, the ability of OLED technology to produce uniform illumination over arbitrary shapes
is making OLED lighting very attractive to the automobile industry as well as the digital signage industry.
Our Competitive Strengths
We believe that we currently are one of the leading technology developers in the OLED industry because we were the first
company to develop and commercialize PHOLED emitter technology. Our experienced management and research teams have built an
extensive intellectual property portfolio around our OLED technologies and materials, particularly with regard to PHOLED emitter
materials, which we continually seek to enhance and grow. We work diligently, through the delivery of high-quality commercial
products, superior technical support and customer service, to enable our industry-leading customers, which primarily are large display
manufacturers, to adopt our OLED technologies and materials through implementation of long-term commercial material supply and
patent and know-how license agreements. Our key competitive strengths include:
Technology Leadership
We are a recognized technology leader in the OLED industry. We, along with world-class academic partners, pioneered the
development of our UniversalPHOLED® phosphorescent OLED technologies, which can be used to produce OLEDs that are up to four
times more efficient than fluorescent OLEDs and significantly more efficient than current LCDs, which are illuminated using backlights.
We believe that our PHOLED technologies and materials will continue to be well-suited for industry usage in the commercial production
of OLED displays and lighting products.
Through our internal, innovative research, which has produced the majority of our most critical commercial technologies, our
relationships with supplier companies, such as PPG Industries, Inc. (PPG), and our existing and new academic partners, we believe that
we can continue to advance the technology we have already developed and commercialized, and that we will continue to discover and
develop other important OLED technologies, as well as novel OLED materials, that will facilitate further adoption of our various OLED
technologies by product manufacturers. To this end, we operate two state-of-the-art laboratories, or Application Centers, near our larger
customers in the Asia-Pacific region. These Application Centers have provided us and our customers with the ability to more quickly
evaluate, develop and bring to market our newest OLED materials and technologies. We also are committing significant resources to
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further the development of next-generation emissive layer technologies and dry printing technologies such as organic vapor jet printing
(OVJP).
Broad Portfolio of Intellectual Property
Generally, each of our commercial offerings is protected by multiple patents which can help us either to prevent or combat the
introduction of counterfeit and/or knock-off products that could potentially impact the market demand for our OLED materials and
technologies. Our strong patent and non-patented know-how portfolios in the areas of PHOLED emitter materials, complementary
PHOLED materials, OLED device designs, and OLED manufacturing technologies are reflective of our continued commitment to
innovate and invest. We believe that our extensive portfolio of patents and non-patented know-how provides us with a competitive
advantage in the OLED industry.
Through our internal development efforts, acquisitions, and long-standing relationships with academic partners, research
institutions and product manufacturers, we own, exclusively license or have the sole right to sublicense more than 5,500 patents issued
and pending worldwide. We continue to enhance and grow our OLED technology and materials patent portfolio organically through
internal research and development, partnering with third parties, and by acquisition. We also continue to accumulate valuable non-
patented technical know-how relating to our OLED technologies and materials.
Leading Supplier of UniversalPHOLED® Emitter Materials and Related Technology Licensing
We are the leading supplier of PHOLED emitter materials to OLED device manufacturers. The emitter material, which is designed
to efficiently convert electrical energy to a desired wavelength of light, is the key component in an OLED device. Our manufacturing
partner of over 20 years, PPG, continues to manufacture our materials for us, using proprietary manufacturing processes and know-how,
which materials we then qualify to our exacting product specifications and resell on a just-in-time basis to OLED device manufacturers.
We record revenues based on our sales of these materials to OLED device manufacturers. Our commercial supply agreements typically
require our customers to purchase minimum quantities of our materials, which purchases can be in the form of absolute annual minimum
purchase obligations or as a minimum percentage of their purchase requirements, or a combination of both.
Our commercial supply arrangements allow us to maintain close technical and business relationships with these OLED device
manufacturers purchasing our proprietary materials, and thereby further supports our technology licensing business. We do not directly
manufacture or sell OLED display or lighting products. Instead, we enter into non-exclusive licensing arrangements with OLED device
manufacturers, many of which also purchase our materials, that pay us fixed license fees and/or running royalties based on their sales
of licensed commercial products using our proprietary technology and patents. We believe this business model allows us to concentrate
on our core strengths of technology development and innovation, while at the same time provides significant operating leverage. We
also believe that this approach may reduce potential competitive conflicts with our customers.
Long-Standing Customer Relationships
We have long-standing customer relationships with OLED device manufacturers that are using, or are evaluating for use, our
OLED materials in commercial OLED products. We have more than 20 years of experience in working closely with OLED device
manufacturers and have provided support to them in their commercialization of OLED technology by delivering customer-specific
solutions for red, green, and yellow emitter materials, or dopants.
We have a proven track record of delivering consistent, high-quality OLED material to our customers. We provide just-in-time
supply to our customers and serve as a sole source to them for many of our critical materials. We believe that our unparalleled
manufacturing partners, namely PPG, our well-established supply chain, our multi-tier quality testing, and our product assurance
protocols make us a preferred partner for our customers and for any large-scale OLED display manufacturer that wants to deliver to
high-quality international end-customers.
In 2021, our largest customers for our PHOLED materials included Samsung Display Co., Ltd. (SDC), LG Display Co., Ltd. (LG
Display), BOE Technology Group Co., Ltd. (BOE), Tianma Micro-electronics Co., Ltd. (Tianma), Visionox Technology, Inc.
(Visionox), Wuhan China Star Optoelectronics Semiconductor Display Technology Co., Ltd. (CSOT), Shenzhen Royale Display
Technologies Co. Ltd., Japan Display, Inc., Sharp Corporation, and AU Optronics Corporation (AU Optronics). Other licensed
customers of our technology in 2021 included Kaneka Corporation, Pioneer Corporation, and OLEDWorks L.L.C.
Complementary UniversalPHOLED® Host Material Business
In addition to our proprietary UniversalPHOLED® emitter materials, we continue to develop, supply and offer for sale certain of
our proprietary phosphorescent host materials to OLED device manufacturers. In addition, we have entered into a number of host
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material strategic partnerships through development agreements with OLED material partners that are focused on combining our
proprietary PHOLED emitters with hosts and other OLED materials of these companies in order to optimize the performance of our
emitters in our customers’ newest product designs. We do not believe that revenue from our host development and third-party
collaboration agreements will be significant compared with our emitter business. However, we believe that development and
collaborative relationships such as these are important for ensuring the continued success of the OLED industry and the broader adoption
of our PHOLED and other OLED technologies in the marketplace.
Experienced Management and Scientific Advisory Team
Our management team has significant experience in developing business models focused on licensing disruptive technologies in
high growth industries. The team has strong relationships with, and deep understandings of, our customers and their needs, the
commercial marketplace and the OLED industry on the whole. We believe our management team’s experience and long-standing
relationships are important to maintaining good and accommodating working relationships with our customers, particularly when we
are confronted with challenging technical, regulatory and trade issues given our international reach. In addition, we employ and contract
with some of the leading researchers in the industry, and we maintain a long-standing Scientific Advisory Board that includes industry
pioneers, namely Professor Stephen R. Forrest of the University of Michigan (Michigan) and Professor Mark E. Thompson of the
University of Southern California (USC).
Our Business Strategy
Our current business strategy is to continue to promote and expand our portfolio of OLED technologies and materials for
widespread use in OLED displays and lighting products. We generate revenues primarily by selling our proprietary OLED materials
and licensing our OLED technologies to display and lighting product manufacturers. We are presently focused on the following steps
to implement our business strategy:
Expand Our Collaborative Relationships with Leading Product Manufacturers and Developers
We collaborate and partner with leading manufacturers of displays and lighting products who are commercial licensees of our
OLED technologies and purchasers of our OLED materials. We also supply our proprietary OLED materials to manufacturers and
developers of OLED displays and lighting products for evaluation and for use in product development and for pre-commercial activities,
and we provide technical assistance and support to these manufacturers and developers to foster ongoing relationships and new
commercial agreements. We concentrate on working closely with OLED device manufacturers and developers because we believe that
the successful incorporation of our technologies and materials into commercial products is critical to their widespread adoption.
Enhance Our Existing Portfolio of PHOLED Technologies and Materials
We believe that a strong portfolio of proprietary OLED technologies and materials for both displays and lighting products is
critical to our continued success, particularly as the utilization of PHOLED technologies and materials expands in the marketplace.
Consequently, we are continually seeking to expand this portfolio through our internal development efforts, our collaborative
relationships with existing and new academic and other research partners, and other strategic opportunities, such as funding early-stage
startup companies whose technology may be synergistic to ours. Since the acquisition of the early fundamental research developed by
our initial academic partners in the late 1990’s, one of our primary goals has been and continues to be the development of new and
improved PHOLED technologies and materials with increased efficiencies, enhanced color gamut and extended lifetimes, which are
compatible with different manufacturing methods, so that they can be used by various manufacturers in a broad array of OLED display
and lighting products.
Develop Next-Generation Organic Technologies
We continue to conduct research and development activities relating to next-generation OLED technologies for both displays and
lighting products, including next generation emissive layer technologies and dry printing technologies such as OVJP, which we discuss
in more detail below. We also are funding research by existing and new academic partners and research institutions on the use of OLED
related technologies in other applications. Our focus on next-generation technologies is designed to enable us to maintain our position
as a leading provider of OLED and other organic electronics technologies and materials as new markets emerge.
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Business and Geographic Markets
We derive revenue from the following:
sales of OLED materials for evaluation, development and commercial manufacturing;
intellectual property and technology licensing;
technology development and support, including third-party collaboration efforts and providing support to third parties
for commercialization of their OLED products; and
contract research services in the areas of chemical materials synthesis research, development and commercialization
for non-OLED applications.
Most manufacturers of displays and lighting products who are or might potentially be interested in our OLED technologies and
materials are currently located outside of the United States, particularly in the Asia-Pacific region. To provide on-the-ground support to
these manufacturers, we have established wholly-owned subsidiaries in Ireland, Korea, Japan, China and Hong Kong, as well as a
representative office in Taiwan. In 2019, we also completed the construction of new Application Centers in Hong Kong and Seoul,
Korea, which allow our Asia-based display manufacturers to evaluate our technology more quickly and incorporate the technology into
their commercial designs. Our wholly-owned subsidiary formed under the laws of the Republic of Ireland, UDC Ireland Ltd. (UDC
Ireland), is responsible for all material sales worldwide (excluding the United States) and for licensing and managing intellectual
property and undertaking certain other business transactions in all non-U.S. territories.
In 2021, we received a majority of our revenue from three customers domiciled in the Asia-Pacific region, BOE, LG Display and
SDC, each of which had revenue in excess of 10% of our consolidated revenue. Our business is heavily dependent on our relationships
with these customers. Substantially all revenue derived from our customers is denominated in U.S. dollars.
We generally enter into long-term agreements with our customers, which may include (1) a commercial supply agreement for the
purchase of specific OLED materials, and (2) patent and know-how license agreements that relate to the manufacture of display and
lighting devices. Generally, our commercial material supply agreements provide for multi-year purchase commitments, typically on a
price per gram basis, which entitle our customers to certain discounts, technical support on the use of our OLED materials in mass
production facilities, and access to certain future OLED materials. In order to secure preferential pricing and technology access, a
customer typically agrees to certain minimum purchase obligations which can be in the form of absolute annual minimum purchase
obligations or a percentage of their purchase requirements, or a combination of both. If a customer does not meet its minimum purchase
obligations, generally we would have the right to review pricing for future material sales and impose other financial penalties.
Our patent and know-how license agreements generally are made available to our customers for the manufacture of OLED devices.
In addition, we also may license to certain material company partners the right to manufacture certain OLED materials that are
complementary to our phosphorescent emitter materials. These licenses have included licenses to make host products and certain other
non-phosphorescent materials. We believe it is in our, and our customers’ best interests to facilitate the development of materials that
are complementary to our offerings and which assist our customers to produce more efficient and manufacturable devices with our
materials. These collaboration efforts are likely to generate additional licensing fees for us under our license agreements. Although our
customers generally pay us fixed license fees and/or running royalties for OLED licensed products that they manufacture, our material
partner licensees generally pay us a portion of their sales for materials that are developed under material collaboration agreements and
subsequently commercialized. To date, these material collaboration arrangements have not generated significant revenues for us.
For more information on our revenues, costs and expenses associated with our business, as well as a breakdown of revenues from
North America and foreign sources, please see our Consolidated Financial Statements and the notes thereto, as well as “Management’s
Discussion and Analysis of Financial Condition and Results of Operations,” included elsewhere in this report.
Our Technology and its Relation to OLED Technology and Structure
OLED devices are solid-state semiconductor devices made from thin films of organic material that emit light of various
wavelengths when electricity is selectively applied to the emissive layer of the device. OLED devices are typically referred to as
incorporating an “OLED stack.” OLED stacks vary in specific structure but those commonly used today may include a cathode, an
electron injection layer, an electron transport layer, an emissive layer, a hole transport layer, a hole injection layer and an anode, all of
which are placed on a substrate which may be made of a number of different materials, including glass, plastic and metal.
Our technology and materials are most commonly utilized in the emissive layer; the materials in the emissive layer are the light-
generating component of the OLED stack. Many of our key technologies relate primarily to phosphorescent emitter materials, which we
believe are more energy efficient than fluorescent emitter materials that can also be used to generate light within the emissive layer of
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the OLED device. We began selling emitter materials commercially in 2003. A manufacturer will use a small amount of emitter material
for each device through a process called “doping” into a host material. The emitter material(s) and the host material(s) together form an
emissive layer system. Depending on the nature of the OLED device, the emissive materials and emissive layer system may be designed
to emit different colors. We have commercially produced and sold phosphorescent emitter materials that produce red, yellow, green and
light-blue light, which are combined in various ways for the display and lighting markets.
Our current materials business, conducted outside the United States by UDC Ireland, is focused primarily on the delivery of such
emissive materials. We have also developed host materials for the emissive layer and began selling them commercially in 2011. In
addition to our materials, which are generally protected by patents covering various molecular structures, we also have system and
process patents that cover various fundamentally important aspects of the OLED device, device architectures, use of materials in devices
and OLED manufacturing processes. These patents are important to our licensing business because they enable us to provide our business
partners important OLED related technologies.
Our PHOLED Technologies
PHOLED technologies utilize specialized materials and device structures that allow OLEDs to emit light through a process known
as phosphorescence. Traditional fluorescent OLEDs emit light through an inherently less efficient process. Theory and experiment show
that PHOLEDs exhibit device efficiencies up to four times higher than those exhibited by fluorescent OLEDs. Phosphorescence
substantially reduces the power requirements of an OLED and is useful in displays for hand-held devices, such as smartphones, where
battery power is often a limiting factor.
Phosphorescence is also important for large-area displays such as televisions, where higher device efficiency and lower heat
generation may enable longer product lifetimes and increased energy efficiency.
We have a strong intellectual property portfolio surrounding our existing PHOLED technologies and materials for both displays
and lighting products which we market under the UniversalPHOLED® brand. We devote a substantial portion of our efforts to
developing new and improved proprietary PHOLED materials and device architectures for red, green, yellow, blue and white OLED
devices. In 2021, we continued our commercial supply relationships with companies such as BOE, LG Display, SDC, Tianma, CSOT
and Visionox to use our PHOLED materials to manufacture OLED displays. In addition, we have worked and continue to work closely
with customers evaluating and qualifying our proprietary PHOLED materials for commercial usage in both displays and lighting
products, and with other material suppliers to combine our PHOLED emitters with their phosphorescent hosts and other OLED materials.
Our Additional Proprietary OLED Technologies
Our intellectual property, research, development and commercialization efforts also encompass a number of other OLED device
and manufacturing technologies, including, but not limited to, the following:
FOLED ™ Flexible OLEDs
We are working on a number of technologies required for the fabrication of OLEDs on flexible substrates. Most other flat panel
displays are built on rigid glass substrates. In contrast, FOLEDs are OLEDs built on non-rigid substrates such as plastic or metal foil.
This has the potential to enhance durability and enable conformation to certain shapes or repeated bending or flexing. Many OLED
smartphone displays are built on plastic substrates including those produced by SDC and LG Display. Several of our customers
demonstrated different foldable and rollable FOLED displays at the 2021 CES (Consumer Electronics Show) in Las Vegas, NV. The
commercial introduction of such FOLED product offerings demonstrates the viability of new display product applications, such as
portable, roll-up communications televisions, tablets, notebook computers and smartphones, as well as enhance the usefulness of such
devices in ruggedized, industrial and wearable computing systems. Manufacturers also may be able to produce FOLEDs using more
efficient continuous, or roll-to-roll, processing methods in the future. Our internal research and development efforts are expected to
enhance and promote the future adoption of consumer and industrial FOLED devices.
OVJP® Organic Vapor Jet Printing
OLEDs could be manufactured using other processes as well, including OVJP. As a direct printing technique, OVJP technology
has the potential to offer high deposition rates for large-area OLEDs. In addition, OVJP technology reduces OLED material waste
associated with use of a shadow mask (i.e., the waste of material that deposits on the shadow mask itself when fabricating an OLED).
By comparison to inkjet printing, an OVJP process does not use liquid solvents and therefore the OLED materials utilized are not limited
by their viscosity or solvent solubility. OVJP also avoids generation of solvent wastes and eliminates the additional step of removing
residual solvent from the OLED device. In 2019, we installed a new red-green-blue OVJP pilot tool at our Ewing, New Jersey facility,
and we continue to collaborate on OVJP technology development with Professor Forrest of Michigan. In June 2020, a wholly-owned
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subsidiary, OVJP Corporation (OVJP Corp), was formed as a Delaware corporation. Based in California, OVJP Corp was founded to
advance the commercialization of our proprietary OVJP technology. As of December 31, 2021, OVJP employed a team of 25 research,
mechanical, electrical and software engineers and laboratory technicians. We believe the successful implementation of the OVJP
technology has the potential to increase the addressable market for large-size OLED panels while also serving another potential growth
market for our proprietary PHOLED materials and technologies.
Our Strategic Relationships with Product Manufacturers
We have established early-stage evaluation programs, development and pre-commercial programs, and commercial arrangements
with a substantial number of manufacturers or potential manufacturers of OLED display and lighting products. Many of these
relationships are directed towards tailoring our proprietary OLED technologies and materials for use by individual manufacturers. Our
ultimate objective is to license our OLED technologies and sell our OLED materials to these manufacturers for their commercial
production of OLED products.
Relationships with OLED Display Manufacturers
We license our OLED technologies and patents to display manufacturers for use in commercial products and supply our
proprietary OLED materials to these manufacturers for both commercial use and evaluative purposes. We have been collaborating with
some of these display manufacturers for over 20 years.
We have been working with SDC and providing our PHOLED materials to SDC for evaluation since 2001. Under the terms of a
2011 patent license agreement, we licensed our patents and technologies to SDC for its manufacture and sale of AMOLED display
products. Under the terms of a 2011 supplemental purchase agreement, we supplied our proprietary PHOLED materials to SDC for its
use in manufacturing licensed products. We also continue to supply SDC with our proprietary UniversalPHOLED materials for use in
its development efforts under a 2001 joint development agreement.
The 2011 license and purchase agreements with SDC expired on December 31, 2017, and on February 13, 2018, we entered into
new patent license and supplemental purchase agreements, both with an effective date of January 1, 2018. These agreements, which
cover the manufacture and sale of specified OLED display materials, last through the end of 2022 with an additional two-year extension
option. Under these agreements, we are being paid a license fee, payable in quarterly installments over the agreement term of five years.
These agreements convey to SDC the non-exclusive right to use certain of our intellectual property assets for a limited period of time
that is less than the estimated life of the assets. The 2018 supplemental purchase agreement provides for minimum annual purchase
obligations of phosphorescent emitter material from us for use in the manufacture of licensed products. The minimum commitment is
subject to SDC's requirements for phosphorescent emitter materials and our ability to meet these requirements over the term of the
supplemental agreement. SDC is currently the largest manufacturer of AMOLED displays for smartphones and other personal electronic
devices and produces displays for a number of different smartphone and electronic device manufacturers.
We have been working with LG Display and its affiliates for over 15 years. In 2015, we entered into an OLED patent license
agreement and an OLED commercial supply agreement with LG Display which were effective as of January 1, 2015 and superseded
the existing 2007 commercial supply agreement between the parties. The new agreements were set to expire by the end of 2022. The
patent license agreement provides LG Display a non-exclusive, royalty bearing portfolio license to make and sell OLED displays under
our patent portfolio. The patent license agreement calls for license fees, prepaid royalties and running royalties on licensed products.
The agreements include customary provisions relating to warranties, indemnities, confidentiality, assignability and business terms. The
agreements provide for certain other minimum obligations relating to the volume of material sales anticipated over the life of the
agreements as well as minimum royalty revenue to be generated under the patent license agreement. We generate revenue under these
agreements that are predominantly tied to LG Display’s sales of OLED licensed products. The OLED commercial supply agreement
provides for the sales of materials for use by LG Display, which may include phosphorescent emitters and host materials.
In 2021, we entered into amendments of the 2015 OLED patent license agreement and the 2015 OLED commercial supply
agreement with LG Display, which amendments were effective as of January 1, 2021. The amended agreements included a term
extension and are set to expire by the end of 2025. LG Display is currently the largest manufacturer of AMOLED displays for large-
area televisions and produces display panels for a number of different television manufacturers.
In 2016, we entered into long-term, multi-year OLED patent license and material purchase agreements with Tianma. Under the
license agreement, we have granted Tianma non-exclusive license rights under various patents owned or controlled by us to manufacture
and sell OLED display products. The license agreement calls for license fees and running royalties on licensed products. Additionally,
we supply phosphorescent OLED materials to Tianma for use in its licensed products. In 2021, we mutually agreed to extend the terms
of both the patent license and material purchase agreements for an additional multi-year term.
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In 2017, we entered into long-term, multi-year agreements with BOE. Under these agreements, we have granted BOE non-
exclusive license rights under various patents owned or controlled by us to manufacture and sell OLED display products. We also supply
phosphorescent OLED materials to BOE for use in its licensed products.
In 2018, we entered into long-term, multi-year OLED patent license and material purchase agreements with Visionox. Under the
license agreement, we have granted certain of Visionox's affiliates a non-exclusive license rights under various patents owned or
controlled by us to manufacture and sell OLED display products. The license agreement calls for license fees and running royalties on
licensed products. Additionally, we supply phosphorescent OLED materials to Visionox for use in its licensed products. On April 22,
2021, we announced an extension of the Visionox agreement by entering into new five-year OLED material supply and license
agreements with a new affiliate of Visionox, Visionox Hefei Technology Co. Ltd.
In 2019, we entered into an evaluation and commercial supply relationship with CSOT. In 2020, we entered into long-term, multi-
year agreements with CSOT. Under these agreements, we have granted CSOT non-exclusive license rights under various patents owned
or controlled by us to manufacture and sell OLED display products. We also supply phosphorescent OLED materials to CSOT for use
in licensed products.
We have been collaborating with AU Optronics since 2001, and we continue to provide our proprietary PHOLED materials to
AU Optronics under a 2016 commercial supply agreement through which AU Optronics also has certain license rights.
We also continue to support numerous display manufacturers in their evaluation of our technologies and proprietary OLED
materials, through evaluation arrangements in which we provide our proprietary OLED materials to such manufacturers for limited scale
commercial production, evaluation and for purposes of development, manufacturing qualification and product testing. Many of these
strategic relationships have been in place for longer than a decade, and we continue to establish new relationships.
Relationships with OLED Lighting Manufacturers
We license our OLED technologies and patents to lighting manufacturers for use in commercial products and supply our
proprietary OLED materials to these manufacturers for both commercial use and evaluative purposes. Many of these strategic
relationships have also been in place for longer than a decade.
Since 2004, we have been supporting Konica Minolta in its efforts to develop OLED lighting products. We continue to license
our patents and technology to Konica Minolta under a 2008 OLED technology license agreement for its manufacture and sale of OLED
lighting products that utilize our phosphorescent and other OLED technologies. We also continue to provide Konica Minolta with our
proprietary PHOLED materials for its manufacture of commercial OLED lighting products under a 2011 commercial material supply
agreement, and for evaluation purposes under a 2012 evaluation agreement.
We also continue to license our OLED patents to Sumitomo under a 2015 OLED patent portfolio license agreement in which we
granted Sumitomo a non-exclusive, world-wide, royalty bearing license to make and sell OLED lighting panels using a solution-based
manufacturing process. Under the license agreement, Sumitomo may also purchase certain of our phosphorescent materials.
We continue to license our OLED patents, and to provide our OLED materials, to OLEDWorks for use in OLED lighting products
under patent license and commercial supply agreements signed in 2015. We have also extended the rights under these agreements to
OLEDWorks GmbH, the German company and facility that OLEDWorks acquired in 2015 from Philips Technologie GmbH.
We continue to license our technologies and patents to Kaneka for the manufacture and sale of OLED lighting products, under
the terms of a 2013 license agreement, and we continue to supply our materials to Kaneka under a 2014 commercial material supply
agreement. We also have a license agreement for the manufacture and sale of OLED lighting products with Pioneer, among others.
Similar to our arrangements with display manufacturers, we continue to support numerous lighting manufacturers in their
evaluation of our technologies and proprietary OLED materials, typically through evaluation agreements under which we provide our
proprietary OLED materials to such manufacturers for evaluation and potential commercial application.
Relationships with Manufacturers for Other Commercial Products
In addition to our relationships with lighting and display manufacturers, we have agreements and arrangements with manufacturers
or potential manufacturers to use our proprietary OLED technologies and materials in other commercial products, such as in automotive
interiors and exteriors.
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Our OLED Materials Manufacturing Business
We supply our proprietary UniversalPHOLED® materials to display manufacturers, lighting manufacturers and others. These
materials are produced in batch quantities by PPG to our exacting product specifications using our manufacturing process and know-
how. We qualify each batch of emitters at our device qualification facilities to ensure that they meet required specifications, and we
store qualified product inventory for delivery to our customers. We believe that our inventory-carrying practices, along with the terms
under which we sell our OLED materials (including payment terms), are typical for the markets in which we operate. In 2021, our OLED
materials business received recertification in accordance with ISO 9001:2015 Quality Management Systems. In 2021, UDC’s Ewing,
NJ facility also received certification in accordance with ISO 14001:2015 Environmental Management Systems. In 2021, UDC’s Ewing,
NJ facility received certification in accordance with ISO 45001:2018 Occupational Health and Safety Management Systems.
PPG
We have maintained a close working relationship with PPG since 2000. In 2011, we entered into an agreement with PPG, the term
of which, by amendment in February 2021, continues through December 31, 2024 and thereafter is automatically renewed for additional
one-year terms, unless terminated by us with prior notice of one year or terminated by PPG with prior notice of two years. Under that
agreement, PPG is responsible, under our direction, for manufacturing scale-up of our proprietary OLED materials, and for supplying
us with those materials. We use these materials for our own research and development as well as for resale to our customers, both for
their evaluation and for use in commercial OLED products. Through our collaboration with PPG, key raw materials are sourced from
multiple suppliers to ensure that we are able to meet the needs of our customers on a timely basis. We have not had any issues with
obtaining access to adequate amounts of any key raw materials.
In February 2021, we entered into an amendment to the PPG agreement extending the term of the agreement and specifying
operation and maintenance services that will be provided by PPG affiliate, PPG SCM Ireland Limited, to UDC Ireland at our new
manufacturing site in Shannon, Ireland, currently being leased by a wholly-owned subsidiary of UDC Ireland, OLED Material
Manufacturing Limited (OMM), for the production of OLED materials. Facility improvements and regulatory improvements are
expected to be completed and operations are scheduled to commence by mid-year 2022. As with the initial agreement with PPG, we
will compensate PPG on a cost-plus basis for the services provided at the Shannon manufacturing facility.
Collaborations with Other OLED Material Manufacturers
We continued our non-exclusive collaborative relationships with OLED material manufacturing customers during 2021. Most of
these relationships are focused on combining our proprietary PHOLED emitters with hosts and other OLED materials of these companies
in an effort to optimize our PHOLED emitter products and deliver a high-performance system to the end customer. Our product
manufacturing customers are not required to purchase host materials from us. As a result, we do not believe these collaboration efforts
will generate significant revenue for us as compared to our emitter and licensing businesses. We believe, however, that collaborative
relationships such as these are important for ensuring success of the OLED industry and broader adoption of our PHOLED and other
OLED technologies.
Research and Development
Our research and development activities are focused on the advancement of our OLED technologies and materials for displays,
lighting and other applications. We conduct this research and development primarily internally and also through various relationships
with commercial business partners, academic partners, and research institutions. Our venture capital company, UDC Ventures LLC,
continues to seek to invest in companies that we believe are developing synergistic or complementary technologies to ours.
Internal Development Efforts
Ewing, New Jersey Facility
We conduct a substantial portion of our OLED development activities at our state-of-the-art development and testing facility in
Ewing, New Jersey. At this expanded facility, which now exceeds 50,000 square feet, we perform technology development, including
device and process optimization, prototype fabrication, manufacturing scale-up studies, process and product testing, characterization
and reliability studies, and technology transfer with our business partners.
Our Ewing facility houses multiple OLED deposition systems, including a full-color flexible OLED system and an OVJP system.
In addition, the facility contains equipment for substrate patterning, organic material deposition, display packaging, module assembly
and extensive testing in Class 100 and 100,000 clean rooms and opto-electronic test laboratories. Our facility also includes state-of-the-
art synthetic and analytical chemistry laboratories in which we conduct OLED materials research and make small quantities of new
materials that we then test in OLED devices.
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Application Centers
In addition to our laboratory facilities in Ewing, New Jersey, in 2019 we completed the construction of new, leased, Application
Centers in Hong Kong and Seoul, Korea. These centers, which include state-of-the-art OLED laboratories, better assist our Asia-based
customers in their timely evaluation and adoption of our proprietary PHOLED materials, know-how and technologies in their respective
PHOLED designs.
Our Contract Research Organization Business: Adesis, Inc.
In 2016, we acquired Adesis, Inc. (Adesis). Adesis is a contract research organization (CRO) that provides support services to the
OLED, pharma, biotech, catalysis and other industries. Adesis currently operates in its headquarters facility, which it purchased in 2017
and consists of over 47,500 square feet in New Castle, Delaware and another, leased, over 30,700 square foot facility in Wilmington,
Delaware. As of December 31, 2021, Adesis employed a team of 135 research scientists, chemists, engineers and laboratory technicians.
Although we expect to continue to utilize the majority of its technology research capacity for the benefit of our OLED technology
development, Adesis is expected to continue operating as a CRO in the above-mentioned industries.
University-Sponsored Research
Original Academic Partners
We have long-standing relationships with Princeton University (Princeton) and USC for the conduct of research relating to our
OLED and other organic thin-film technologies and materials for applications such as displays and lighting. This research, subject to an
agreement entered into by the parties (as amended, the 1997 Amended License Agreement), generated many of the original fundamental
PHOLED concepts and underlying patents that we commercialized, and had been performed at Princeton under the direction of Professor
Forrest and at USC under the direction of Professor Thompson. In 2006, Professor Forrest transferred to Michigan, where we continue
to fund his research.
Since 2006, in connection with Dr. Forrest’s transfer, we entered into a new sponsored research agreement with USC under which
we are funding organic electronics research being conducted by Drs. Forrest and Thompson (the 2006 Research Agreement). Work by
Professor Forrest is being funded through a subcontract between USC and Michigan.
The 2006 Research Agreement extends through April 2023 with an option to further extend for an additional two years. We make
payments under the 2006 Research Agreement to USC on a quarterly basis as actual expenses are incurred. As of December 31, 2021,
we were obligated to pay USC up to $4.3 million for work to be performed during the remaining extended term.
Other Academic Relationships
We entered into a contract research agreement with the Chitose Institute of Science and Technology of Japan (CIST) in 2004.
Under that agreement, we funded a research program headed by Professor Chihaya Adachi relating to high-efficiency OLED materials
and devices. We were granted exclusive rights to all intellectual property developed under this program. Our relationship with CIST
ended in 2006 when Professor Adachi transferred to Kyushu University. However, we have continued our relationship with Professor
Adachi under a separate consulting arrangement.
In 2006 and 2007, we entered into one-year research agreements with Kyung Hee University to sponsor research programs on
flexible, amorphous silicon thin-film transistor (TFT) backplane technology. The programs were directed by Professor Jin Jang. In 2008
and 2009, we entered into contract research agreements with Silicon Display Technology, Ltd. (SDT), a company founded by Professor
Jang, and in 2013, we entered into another one-year agreement with SDT. We continue to maintain a good working relationship with
Professor Jang.
Over the years, we have also entered into research agreements with various universities and research institutions that have been
able to provide tailored research capabilities and insights relating to our PHOLED technology. As the utilization of PHOLED technology
continues to expand, we intend to further engage key researchers at other universities and research institutions to help identify additional
fundamental technologies that could benefit PHOLED technology implementation.
U.S. Government-Funded Research
In the past, we have entered into U.S. government contracts and subcontracts to fund a portion of our efforts to develop next-
generation OLED technologies concentrated primarily in the area of solid-state lighting. On contracts for which we were the prime
contractor, we subcontracted portions of the work to various entities and institutions. All of the U.S. government contracts and
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subcontracts that we have entered into were subject to termination at the election of the contracting governmental agency. We do not
believe that any of these U.S. governmental contracts and subcontracts, or any inventions developed to date under these contracts and
subcontracts, are material to our business.
Intellectual Property
Along with our personnel, our primary and most fundamental assets are patents and other intellectual property. This includes more
than 5,500 U.S. and foreign patents and patent applications that we own, exclusively license or have the sole right to sublicense. It also
includes a substantial body of non-patented technical know-how that we have accumulated over time.
Our Patents
Our research and development activities, conducted both internally and through collaborative programs with third parties, have
resulted in our filing of a substantial number of patent applications relating to our OLED technologies and materials. These patents that
we own represent, among other things, innovations beyond the original fundamental PHOLED conceptual patents that we license from
our university research partners, described below. Although many of these licensed fundamental conceptual patents have expired, our
internal research efforts include essential innovations that have generated commercially viable implementations of the original PHOLED
concepts and patents.
As of December 31, 2021, we owned more than 5,000 unexpired issued patents and pending patent applications around the world
in addition to the hundreds of patents and patent applications we exclusively license from our research partners, as discussed below.
Patents We License from Research Partners
We exclusively license patent rights from a number of university research partners. Generally, we sponsor scientific researchers
at universities to undertake pre-defined research programs, and in exchange we receive license rights to patents that may be developed
under the programs. As part of these programs, we may provide compensation in the form of support for research program-related
activities, reimbursement for patent related costs, as well as providing for some forms of licensing and/or sublicensing fees for licensed
technology that is commercialized by us or our customers. We have expanded our sponsored research programs over the past 10 years
to include additional scientific researchers at a number of different institutions that we believe can provide breakthroughs in promising
new fields of research that may benefit the OLED marketplace. As of December 31, 2021, the patent rights we exclusively license from
all our university research partners included more than 650 issued patents and pending patent applications in jurisdictions around the
world. Under our university patent license agreements, we are generally free to sublicense to third parties all or any portion of the
licensed patent rights for the life of the licensed patents, though our rights are subject to termination for an uncured material breach or
default by us, or if we become bankrupt or insolvent.
As part of our university license agreements, we may be required to compensate the universities to the extent we, or our
sublicensees, utilize the licensed technology in commercial products. Under the 1997 Amended License Agreement we are required to
pay Princeton royalties for licensed products sold by us or our sublicensees. These royalties amount to 3% of the net sales price for
licensed products sold by us and 3% of the revenues we receive for licensed patents used by our sublicensees. Princeton shares portions
of these royalties with USC and Michigan under their inter-institutional agreements. We owed royalties under the 1997 Amended
License Agreement with Princeton of $691,000 for 2021.
Acquired Patents and Other Intellectual Property
From time to time we acquire patents and other intellectual property that we believe provide strategic business opportunities, such
as the patent and technology portfolio we acquired from Motorola Solutions, Inc. (f/k/a Motorola, Inc.) (Motorola) in 2011, and the
following portfolios from Fujifilm Corporation and BASF:
Patents We Acquired from Fujifilm Corporation
In 2012, we entered into a Patent Sale Agreement (the Fujifilm Agreement) with Fujifilm. Under the Fujifilm Agreement, Fujifilm
sold more than 1,200 OLED-related patents and patent applications for a total cost of $109.5 million. The Fujifilm Agreement contains
customary representations and warranties and covenants, including respective covenants not to sue by both parties thereto. The Fujifilm
Agreement permitted us to assign all of our rights and obligations under the Fujifilm Agreement to our affiliates, and we assigned, prior
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to the consummation of the transactions contemplated by the Fujifilm Agreement, our rights and obligations to UDC Ireland. The
transactions contemplated by the Fujifilm Agreement were consummated on July 26, 2012.
Patents We Acquired from BASF
In 2016, UDC Ireland entered into an IP Transfer Agreement (the BASF Agreement) with BASF. Under the BASF Agreement,
BASF sold us more than 500 OLED-related patents and patent applications for a total cost of $96.0 million. The transactions
contemplated by the BASF Agreement were consummated on June 28, 2016.
Intellectual Property Developed under Our Government Contracts
We and our subcontractors have developed, and may continue to develop, patentable OLED technology inventions under our
various U.S. government contracts and subcontracts, primarily in the area of solid-state lighting. Under these arrangements, we or our
subcontractors generally can elect to take title to any patents on these inventions, and to control the manner in which these patents are
licensed to third parties. However, the U.S. government reserves rights to these inventions and associated technical data that could
restrict our ability to market them to the government for military and other applications, or to third parties for commercial applications.
In addition, if the U.S. government determines that we or our subcontractors have not taken effective steps to achieve practical
application of these inventions in any field of use in a reasonable time, the government may require that we or our subcontractors license
these inventions to third parties in that field of use. We do not believe that our current U.S. governmental contracts and subcontracts, or
any inventions developed to date under these contracts and subcontracts, are material to our business.
Non-patented Technical Know-How
We have accumulated, and continue to accumulate, a substantial amount of non-patented technical know-how relating to OLED
technologies and materials. Where practicable, we share portions of this information with display manufacturers and other business
partners on a confidential basis. We also employ various methods to protect this information from unauthorized use or disclosure,
although no such methods can afford complete protection. Moreover, because we derive some of this information and know-how from
academic institutions, there is an increased potential for public disclosure. We also cannot prevent the actual independent development
of the same or similar information and know-how by third parties.
Competition
The industry in which we operate is highly competitive. We compete against alternative display technologies, in particular LCDs,
as well as other OLED technologies. We also compete in the lighting market against incumbent technologies, such as incandescent and
fluorescent bulbs, and inorganic LEDs, and against emerging technologies, such as other OLED technologies.
Display Panel Industry Competitors
Numerous domestic and foreign companies have developed or are developing and improving LCD, which includes quantum dot
LCDs (which are sometimes referred to as QLEDs), and other display technologies that compete with our OLED display technologies.
We believe that OLED display technologies can compete with LCDs, QLEDs and other display technologies for many product
applications on the basis of lower power consumption, better contrast ratios, faster video rates, form factor and lower manufacturing
cost. However, other companies may succeed in continuing to improve these competing display technologies, or in developing new
display technologies, that are superior to OLED display technologies in various respects. We cannot predict the timing or extent to
which such improvements or developments may occur.
Lighting Industry Competitors
Although there has been a movement to phase out traditional incandescent bulbs throughout many countries, traditional
incandescent bulbs and fluorescent lamps remain well-entrenched products in the lighting industry. In addition, compact fluorescent
lamps and solid-state LEDs have been introduced into the market and would compete with OLED lighting products. LEDs have realized
significant market adoption in the general lighting market. Having attributes different from fluorescent lamps and LEDs, OLEDs may
compete directly with these products for certain lighting applications. However, manufacturers of LEDs and compact fluorescent lamps
may succeed in more broadly adapting their products to various lighting applications, or others may develop competing solid-state
lighting technologies that are superior to OLEDs. Again, we cannot predict whether or when this might occur.
OLED Technologies and Materials Competitors
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Eastman Kodak Company (Kodak) developed and patented the original fluorescent OLED technology in 1987. Cambridge Display
Technology, Ltd. (CDT), which was acquired by Sumitomo Chemical Company in 2007, developed and patented polymer OLED
technology in 1989. Display and lighting manufacturers, including customers of ours, are engaged in their own OLED research,
development and commercialization activities, and have developed and may continue to develop proprietary OLED technologies that
are necessary or useful for commercial OLED devices. In addition, other material manufacturers, such as Sumitomo, Idemitsu Kosan
Co., Ltd. (Idemitsu Kosan), Merck KGaA, Cynora Gmbh and Kyulux Inc., are selling or sampling competing OLED materials to
customers, including companies to which we sell our proprietary PHOLED materials.
Our licensing business is based on our control of a broad portfolio of OLED-related device patents and technologies. We believe
this portfolio includes fundamental patents in the field of phosphorescent OLED materials and devices, as well as certain additional
complementary OLED technologies. As discussed above, alternative technologies, such as fluorescent OLED emitter materials, exist
and could be competitive to our phosphorescent OLED material solutions. However, fluorescent materials have characteristics that we
believe many market participants consider less desirable than those of phosphorescent materials. Suppliers of fluorescent emitter
materials include Doosan Solus, Dow Chemical (previously Gracel Display), Idemitsu Kosan and SFC Co. Ltd. Fluorescent materials
may also be viewed as complementary in that they can be used in the same OLED stack as phosphorescent materials.
The competitive landscape with respect to our host materials business is characterized by a larger number of established chemical
material suppliers who have long-term relationships with many of our existing customers and licensees. We have elected to partner with
certain of these companies to manufacture and deliver host solutions to our customers, as well as selling our host materials directly to
device manufacturers. We believe our competitive advantage stems, in part, from our deep knowledge of our phosphorescent emitter
materials, which are complementary with the host solutions. We believe that our understanding of phosphorescent emitter materials
enables us to create host material solutions that are especially well suited for use with a certain class of emitter materials that are
implemented commercially today. However, we note that many of our technology partners have their own host solutions and the
competitive landscape includes many well-established companies such as Solus, Advanced Materials Co., Dow Chemical, Duksan
Neolux Co., Ltd., Idemitsu Kosan, Merck KGaA, NSCC and Samsung SDI Co. Ltd. These companies have significant resources, and
some may aggressively pursue such business in the future.
Our existing business relationships with SDC and other product manufacturers suggest that our OLED technologies and materials,
particularly our PHOLED technologies and materials, may achieve a significant level of market penetration in the display and lighting
industries. However, others, such as those working to develop thermally activated delayed fluorescence (TADF) and micro-LED
alternative technologies, may succeed in developing new OLED technologies, materials and alternative solutions that may supplement
or be utilized in place of ours. We cannot be sure of the extent to which product manufacturers will adopt and continue to utilize our
OLED technologies and materials for the production of commercial displays and lighting products.
Our Venture Capital Business: UDC Ventures LLC
We formed a wholly-owned subsidiary, UDC Ventures LLC, in March 2019, as a corporate venture capital entity that funds
companies we believe are developing innovative products and technologies that may be synergistic or complementary to our business
and/or business strategies or which may otherwise provide favorable investment opportunities.
Human Capital
As of December 31, 2021, we had 409 active full-time employees and eight part-time employees, none of whom are unionized.
Of these employees, 298 are research scientists, engineers and laboratory technicians at our domestic and international facilities. This
team includes chemists, physicists, engineers and technicians with physics, electrical engineering, mechanical engineering and
organic/inorganic chemistry backgrounds, and highly-trained theoreticians and experimentalists. We believe that relations with our
employees are good.
The COVID-19 pandemic continues to impact lives and businesses around the world. We have taken proactive steps to help
protect the health and safety of our employees and maintain business continuity. We have required our workforce to be vaccinated, and
a significant majority of our office workers continue to work on a hybrid schedule. Within our production and office areas we have
established a number of safety protocols, including face covering and physical distance requirements, enhanced cleaning, encouraging
daily self-health checks, and mandatory temperature screening stations managed by health professionals. We have also implemented a
coronavirus testing protocol in certain of our offices where the incidence of COVID outbreaks may impact critical operations. As part
of that reporting process, we have developed a robust contact tracing program to identify employees who were in close contact with any
ill employee in the workplace. All of the actions above are overseen by a Crisis Management Working Group, a multi-functional, multi-
discipline team tasked with integrating all aspects of our COVID-19 response.
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Our goal is to be a diverse and inclusive company. Guided by our values, we are committed to creating a company where everyone
is included and respected, and where we support each other in reaching our full potential. We are committed to diverse representation
across all levels of our workforce to reflect the vibrant and thriving diversity of the communities in which we live and work. Women
represent 33% of our executive management team, 22% of our leadership (Director level and above) and 23% of our total workforce, as
well as 33% of our Board of Directors. We have employees from over 25 countries in our workforce, and we believe that a diverse
workforce made up of people with different ideas, strengths, interests and cultural backgrounds drives employee and business success.
In 2021 our voluntary turnover rate was 11%, and we had overall employee growth rate of 16%. Additional data, including historical
turnover and diversity information, as well as our corporate policies relating to our employee engagement and human capital, are updated
on our website www.oled.com, and included in our annual Corporate Responsibility Report.
Our Company History
Our corporation was organized under the laws of the Commonwealth of Pennsylvania in 1985. Our business was commenced in
1994 by a company then known as Universal Display Corporation, which had been incorporated under the laws of the State of New
Jersey. In 1995, a wholly-owned subsidiary of ours merged into this New Jersey corporation. The surviving corporation in this merger
became a wholly-owned subsidiary of ours and changed its name to UDC, Inc. Simultaneously with the consummation of this merger,
we changed our name to Universal Display Corporation. UDC, Inc. functions as an operating subsidiary of ours and has certain
overlapping officers and directors. We have also formed or acquired other wholly-owned subsidiaries, including Universal Display
Corporation Hong Kong, Limited (2008), Universal Display Corporation Korea, Y.H. (2010), Universal Display Corporation Japan GK
(2011), UDC Ireland Limited (2012), Universal Display Corporation China, Ltd. (2016), Adesis, Inc. (2016), UDC Ventures LLC
(2019), OLED Material Manufacturing Limited (2020), and OVJP Corporation (2020), and we established a representative office in
Taiwan (2011).
Our Compliance with Environmental Protection Laws
We are not aware of any material effects that compliance with Federal, State or local environmental protection laws or regulations
will have on our business. We have not incurred substantial costs to comply with any environmental protection laws or regulations, and
we do not anticipate having to do so in the foreseeable future.
Our Internet Site
Our Internet address is www.oled.com. We make available through our Internet website, free of charge, our annual reports on
Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant
to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as soon as reasonably practicable after we file such material with the
Securities and Exchange Commission (the SEC). The SEC maintains a website that contains these reports as well as proxy statements
and information regarding issuers who file electronically, with the address www.sec.gov. In addition, we have made available on our
Internet website under the heading “Corporate Governance” the charter for the Audit Committee of our Board of Directors, the charter
for the Human Capital Committee of our Board of Directors, the charter for the Nominating & Corporate Governance Committee of our
Board of Directors, our Code of Ethics & Business Conduct for Employees, our Code of Conduct for Directors, and our Corporate
Governance Guidelines. We intend to make available on our website any future amendments or waivers to our Code of Ethics & Business
Conduct for Employees and our Code of Conduct for Directors. The information on our Internet site is not part of this report.
INFORMATION ABOUT OUR EXECUTIVE OFFICERS
The following table sets forth certain information with respect to our executive officers as of February 23, 2022:
Name
Sherwin I. Seligsohn
Steven V. Abramson
Sidney D. Rosenblatt
Julia J. Brown
Janice K. Mahon
Mauro Premutico
Age
Position
Founder and Chairman of the Board of Directors
President, Chief Executive Officer and Director
Executive Vice President, Chief Financial Officer, Treasurer, Secretary and Director
Executive Vice President and Chief Technical Officer
Senior Vice President of Technology Commercialization and General Manager,
Commercial Sales Business
Senior Vice President, Planning and General Manager, Patents and Licensing
86
70
74
60
64
56
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Our Board of Directors has appointed these executive officers to hold office until their successors are duly appointed.
Sherwin I. Seligsohn is our Founder and has been the Chairman of our Board of Directors since June 1995. He also served as our
Chief Executive Officer from June 1995 through December 2007, and as our President from June 1995 through May 1996. Mr. Seligsohn
serves as a Director and the President and Secretary of American Biomimetics Corporation, International Multi-Media Corporation, and
Wireless Unified Network Systems Corporation. He was also previously the Chairman of the Board of Directors, President and Chief
Executive Officer of NanoFlex Power Corporation (formerly known as Global Photonic Energy Corporation) (NanoFlex) until April
2012, when he resigned from his positions at NanoFlex. Since that time, Mr. Seligsohn’s only relationship with NanoFlex is as a
shareholder and option holder. From June 1990 to October 1991, Mr. Seligsohn was Chairman Emeritus of InterDigital
Communications, Inc. (InterDigital), formerly International Mobile Machines Corporation. He founded InterDigital and from August
1972 to June 1990 served as its Chairman of the Board of Directors. Mr. Seligsohn is a member of the Industrial Advisory Board of the
Princeton Institute for the Science and Technology of Materials (“PRISM”) at Princeton University.
Steven V. Abramson is our President and Chief Executive Officer, and has been a member of our Board of Directors since May
1996. Mr. Abramson served as our President and Chief Operating Officer from May 1996 through December 2007. From March 1992
to May 1996, Mr. Abramson was Vice President, General Counsel, Secretary and Treasurer of Roy F. Weston, Inc., a worldwide
environmental consulting and engineering firm. From December 1982 to December 1991, Mr. Abramson held various positions at
InterDigital, including General Counsel, Executive Vice President and General Manager of the Technology Licensing Division.
Sidney D. Rosenblatt is an Executive Vice President and has been our Chief Financial Officer, Treasurer and Secretary since June
1995. He also has been a member of our Board of Directors since May 1996. Mr. Rosenblatt was the owner of S. Zitner Company from
August 1990 through August 2010 and served as its President from August 1990 through December 1998. From May 1982 to August
1990, Mr. Rosenblatt served as the Senior Vice President, Chief Financial Officer and Treasurer of InterDigital. Mr. Rosenblatt is on
the Board of Managers of the Overbrook School for the Blind and previously served as a member of the Board of Careers through the
school’s Culinary Arts Program.
Julia J. Brown, Ph.D. became an Executive Vice President in April 2021, prior to which she served as a Senior Vice President
since June 2008. She has been our Chief Technical Officer since June 2002 and joined us in June 1998 as our Vice President of
Technology Development. From 1991 to 1998, Dr. Brown was a Research Department Manager at Hughes Research Laboratories where
she directed the pilot line production of high-speed Indium Phosphide-based integrated circuits for insertion into advanced airborne
radar and satellite communication systems. Dr. Brown received an M.S. and Ph.D. in Electrical Engineering/Electrophysics at USC and
a B.S.E.E. from Cornell University. Dr. Brown holds a number of distinguished elected awards including Fellow of the Institute of
Electrical and Electronics Engineers (IEEE), Fellow of the Society of Information Display (SID), and the National Academy of
Engineers (NAE).
Janice K. Mahon became our Senior Vice President, Technology Commercialization and General Manager, Commercial Sales
Business in April 2021, and previously served as our Vice President of Technology Commercialization since January 1997, and General
Manager of our PHOLED Material Sales Business since January 2007. From 1992 to 1996, Ms. Mahon was Vice President of SAGE
Electrochromics, Inc., a thin-film electrochromic technology company, where she oversaw a variety of business development, marketing
and finance and administrative activities. From 1984 to 1989, Ms. Mahon was a Vice President and General Manager for Chronar
Corporation, a leading developer and manufacturer of amorphous silicon photovoltaic (PV) panels. Prior to that, Ms. Mahon worked as
Senior Engineer for the Industrial Chemicals Division of FMC Corporation. Ms. Mahon received her B.S. in Chemical Engineering
from Rensselaer Polytechnic Institute in 1979, and an M.B.A. from Harvard University in 1984. Ms. Mahon was a member of the
Technical Council of the FlexTech Alliance from 1997 through 2010, and a member of its Governing Board from 2008 through 2010.
Ms. Mahon was a member of the Board of Directors and Marketing Committee Chairperson of the OLED Association from 2009-2014.
Mauro Premutico became our Senior Vice President, Planning and General Manager, Patents and Licensing in April 2021, and
previously served as our Vice President of Legal and General Manager of Patents and Licensing since April 2012. Prior to joining us,
Mr. Premutico was the Managing Vice President and Chief Patent Counsel for The Walt Disney Company from 2009 to 2012, and Vice
President of Intellectual Property and Associate General Counsel for Lenovo Group Ltd. from 2005 to 2009. Mr. Premutico was also
Special Counsel at the law firm of Cleary, Gottlieb, Steen & Hamilton from 2002 until 2005 where he served as the co-head of the New
York office’s Intellectual Property and Technology Law practice. Mr. Premutico received a J.D. from Boston University School of Law,
an M.B.A. from Yale University and a B.S.E.E. from Worcester Polytechnic Institute.
ITEM 1A. RISK FACTORS
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You should carefully consider the following risks and uncertainties when reading this Annual Report on Form 10-K. The following
factors, as well as other factors affecting our operating results and financial condition, could cause our actual future results and financial
condition to differ materially from those projected.
Risks Related to Our Intellectual Property
If we cannot obtain and maintain appropriate patent and other intellectual property protection for our OLED technologies and
materials, our business will suffer.
The value of our OLED technologies and materials is dependent on our ability to secure and maintain appropriate patent and other
intellectual property rights protection. Although we own or license many patents respecting our OLED technologies and materials that
have already been issued, there can be no assurance that additional patents applied for will be obtained, or that any of these patents, once
issued, will afford commercially significant protection for our OLED technologies and materials, or will be found valid if challenged.
Also, there is no assurance that we will be successful in defending the validity of our current or future patents in pending and future
patent oppositions, invalidation trials, interferences, reexaminations, reissues, or other administrative or court proceedings. Moreover,
we have not obtained patent protection for some of our OLED technologies and materials in all foreign countries in which OLED
products or materials might be manufactured or sold.
We believe that the strength of our current intellectual property position results primarily from the essential nature of our
fundamental patents covering phosphorescent OLED devices and certain materials utilized in these devices. Certain of our existing
fundamental phosphorescent OLED patents expired in the United States in 2017 and 2019; and expired in other countries of the world
in 2018 and 2020. While we hold a wide range of additional patents and patent applications relating to our commercial OLED materials
and technologies whose expiration dates extend (and in the case of patent applications, will extend) beyond 2021, many of which are
also of importance in the OLED industry, none may be of an equally essential nature as our original fundamental patents, and therefore
our competitive position may be less certain as a result of the expiration of these patents.
We have more than 5,500 issued and pending patents relating to our OLED technologies. There is no assurance that these patents
and applications will not be challenged prior to their respective expirations in any of the jurisdictions in which they are utilized, or that
if challenged, we will be able to secure sufficient breadth of protection, and monetary and injunctive relief for the violation of our rights
to make up for the business harm resulting from such activities. Moreover, there can be no assurance that competitors will not develop
or produce competing PHOLED material designs that may be outside of our existing patents. There may also be fundamental new
advancements in the field of OLED technology that could enable the commercial use of older and unpatented PHOLED materials or the
adoption of new OLED materials that do not require the utilization of our proprietary PHOLED materials to achieve superior
performance characteristics.
We may become engaged in litigation to protect or enforce our patent and other intellectual property rights, or in International
Trade Commission proceedings to abate the importation of goods that would compete unfairly with those of our licensees. In addition,
we are participating in or have participated in, and in the future will likely have to participate in, interference, reissue, or reexamination
proceedings before the U.S. Patent and Trademark Office, and opposition, nullity or other proceedings before foreign patent offices,
with respect to some of our patents or patent applications. All of these actions place our patents and other intellectual property rights at
risk and may result in substantial costs to us as well as a diversion of management attention from our business and operations. Moreover,
if successful, these actions could result in the loss of patent or other intellectual property rights protection for the key OLED technologies
and materials on which our business depends.
We rely, in part, on several non-patented proprietary technologies to operate our business. Others may independently develop the
same or similar technologies or otherwise obtain access to our unpatented technologies. Furthermore, these parties may obtain patent
protection for such technology, inhibiting or preventing us from practicing the technology. To protect our trade secrets, know-how and
other non-patented proprietary information, we require employees, consultants, financial advisors and strategic partners to enter into
confidentiality agreements. These agreements may not ultimately provide meaningful protection for our trade secrets, know-how or
other non-patented proprietary information. In particular, we may not be able to fully or adequately protect our proprietary information
as we conduct discussions with potential strategic partners.
Additionally, although we take many measures and implement safeguards to prevent unauthorized use, including by theft and
misuse, of our intellectual property and proprietary information, third parties may attempt to obtain, copy, reverse-engineer, use or
disclose, illegally or otherwise, such intellectual property and proprietary information. We also may face attempts by others to gain
unauthorized access through the Internet to our information technology systems or to our intellectual property, which might be the result
of industrial or other espionage or actions by hackers seeking to harm our company or its products. If we are unable to protect the
proprietary nature of our intellectual property and proprietary information, it will harm our business.
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We or our customers may incur substantial costs or lose important rights as a result of litigation or other proceedings relating to our
patent and other intellectual property rights or with respect to our OLED materials business.
There are a number of other companies and organizations that have been issued patents and are filing patent applications relating
to OLED technologies and materials, including, without limitation, Kodak (substantially all of whose OLED assets were sold to a group
of LG companies in 2009), CDT (acquired by Sumitomo in 2007), Canon, Inc., Semiconductor Energy Laboratories Co., Idemitsu Kosan
and Mitsubishi Chemical Corporation. In addition, some of our customers such as SDC and LG Display have been issued patents and
are filing patent applications relating to OLED technologies and materials. As a result, there may be issued patents or pending patent
applications of third parties that would be infringed by the use of our OLED technologies or materials, thus subjecting our customers to
possible suits for patent infringement in the future. Such lawsuits could result in our customers being liable for damages or require our
customers to obtain additional licenses that could increase the cost of their products. This, in turn, could have an adverse effect on our
customers’ sales and thus our royalties or material sales revenues, or cause our customers to seek to renegotiate our royalty rates or
pricing. In addition, we have agreed to indemnify customers purchasing our OLED materials for commercial usage against certain claims
of patent infringement by third parties, as a result of which we may incur substantial legal costs in connection with defending these
customers from such claims.
Our licensees may also seek to avoid paying future royalties by attempting to have our patents declared invalid and unenforceable
by a court. Our licensees may be more likely to file such declaratory actions in light of the U.S. Supreme Court’s decision in MedImmune,
Inc. v. Genentech, Inc. (2007), in which the Court found that a licensee need not refuse to pay royalties and commit material breach of
the license agreement before bringing an action to declare a licensed U. S. patent invalid and unenforceable.
In addition, we may be required, from time-to-time, to assert our intellectual property rights by instituting legal proceedings
against others. We cannot be assured that we will be successful in enforcing our patents in any lawsuits we may commence. Defendants
in any litigation we may commence to enforce our patents may attempt to establish that our patents are invalid or are unenforceable.
Thus, any patent litigation we commence could lead to a determination that one or more of our patents are invalid or unenforceable. If
a third party succeeds in invalidating one or more of our patents, that party and others could compete more effectively against us. Our
ability to derive licensing revenues from products or technologies covered by these patents would also be adversely affected.
Whether our customers are defending the assertion of third-party intellectual property rights against their businesses arising as a
result of the use of our technology, or we are asserting our own intellectual property rights against others, such litigation can be complex,
costly, protracted and highly disruptive to our or our customers’ business operations by diverting the attention and energies of
management and key technical personnel. As a result, the pendency or adverse outcome of any intellectual property litigation to which
we or our customers are subject could disrupt business operations, require the incurrence of substantial costs and subject us or our
customers to significant liabilities, each of which could severely harm our business. Costs associated with these actions are likely to
increase as AMOLED products using our PHOLED and other OLED technologies and materials continue to enter the consumer
marketplace.
Plaintiffs in intellectual property cases often seek injunctive relief in addition to money damages. Any intellectual property
litigation commenced against our customers may force them to take actions that could be harmful to their businesses and thus to
revenues, including the halting of sales of products that incorporate or otherwise use our technology or materials.
Furthermore, the measure of damages in intellectual property litigation can be complex and is often subjective or uncertain. If our
customers were to be found liable for infringement of proprietary rights of a third party, the amount of damages they might have to pay
could be substantial and is difficult to predict. Decreased sales of our customers’ products incorporating our technology or materials
would have an adverse effect on our royalty revenues under existing licenses and material sales under our existing sales agreements.
Were this to occur, it would likely harm our ability to (i) obtain new licensees which would have an adverse effect on the terms of the
royalty arrangements we could enter into with any new licensees, and (ii) sell our UniversalPHOLED® materials to existing and new
customers. Moreover, to the extent any third party claims are directed specifically to materials supplied by us to our customers, we may
be required to incur significant costs associated with the defense of such claims and potential damages associated with such claims that
may be awarded against our customers.
As is commonplace in technology companies, we employ individuals who were previously employed at other technology
companies. To the extent our employees are involved in research areas that are similar to those areas in which they were involved at
their former employers, we may be subject to claims that such employees or we have, inadvertently or otherwise, used or disclosed the
alleged trade secrets or other proprietary information of the former employers. Litigation may be necessary to defend against such
claims. The costs associated with these actions or the loss of rights critical to our or our customers’ businesses could negatively impact
our revenues or cause our business to fail.
Recent court decisions in various patent cases may make it more difficult for us to obtain future patents, enforce our patents against
third parties or obtain favorable judgments in cases where the patents are enforced.
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Recent case law may make it more difficult for patent holders to secure future patents and/or enforce existing patents. For example,
in KSR International Co. vs. Teleflex, Inc. (2007), the U.S. Supreme Court mandated a more expansive and flexible approach to
determine whether a patent is obvious and invalid. As a result of the less rigid approach to assessing obviousness, defending the validity
of or obtaining patents may be more difficult.
Recent court decisions may also impact the enforcement of our patents. For example, we may not be able to enjoin certain third
party uses of products or methods covered by our patents following the initial authorized sale, even where those uses are expressly
proscribed in an agreement with the buyer. Also, we may face increased difficulty enjoining infringement of our patents. The U.S.
Supreme Court has held that an injunction should not automatically issue based on a finding of patent infringement, but should be
determined based on a test balancing considerations of the patentee’s interest, the infringer’s interest, and the public’s interest. Obtaining
enhanced damages for willful infringement of our patents may also be more difficult even in those cases where we successfully prove a
third party has infringed our patents, as a recent case set a more stringent standard for proving willful infringement.
Therefore, as a result of such rulings, it may be more difficult for us to defend our currently issued patents, obtain additional
patents in the future or achieve the desired competitive effect even when our patents are enforced. If we are unable to so defend our
currently issued patents, or to obtain new patents for any reason, our business would suffer.
Risks Related to Our Business and Operations
If we cannot form and maintain lasting business relationships with OLED product manufacturers, our business strategy will fail.
Our business strategy ultimately depends upon our development and maintenance of commercial licensing and material supply
relationships with high-volume manufacturers of OLED products. We have entered into a limited number of such relationships from
which most of our material sales and licensing revenue are generated. Our other relationships with product manufacturers currently are
limited to technology development and the evaluation of our OLED technologies and materials for possible use in commercial products.
Some or all of these relationships may not succeed or, even if they are successful, may not result in the product manufacturers entering
into commercial licensing and material supply relationships with us.
Many of our agreements with product manufacturers last for only limited periods of time, such that our relationships with these
manufacturers will expire unless they are renewed. These product manufacturers may not agree to renew their relationships with us on
a continuing basis or may agree to do so on terms that are less favorable to us. In addition, we regularly continue working with product
manufacturers after our existing agreements with them have expired while we are attempting to negotiate contract extensions or new
agreements with them. Should our relationships with the various product manufacturers not continue or be renewed on less favorable
terms, or if we are not able to identify other product manufacturers and enter into contracts with them, our business may materially
suffer.
Our ability to enter into additional commercial licensing and material supply relationships, or to maintain our existing
relationships, may depend on our ability to make certain financial or other commitments. We might not be able, for financial or other
reasons, to enter into or continue these relationships on commercially acceptable terms, or at all. Failure to do so may cause our business
strategy to fail.
If we fail to continue to make advances in our OLED research and development activities, we might not succeed in continuing to
commercialize our OLED technologies and materials.
Further advances in our OLED technologies and materials depend, in part, on the success of the research and development work
we conduct, both alone and with our research partners. We cannot be certain that this work will yield additional advances in the research
and development of these technologies and materials.
Our research and development efforts remain subject to all of the risks associated with the development of new products based on
emerging and innovative technologies, including, without limitation, unanticipated technical or other problems and the possible
insufficiency of funds for completing development of these products. Technical problems may result in delays and cause us to incur
additional expenses that would increase our losses. If we cannot complete research and development of our OLED technologies and
materials successfully, or if we experience delays in completing research and development of our OLED technologies and materials for
use in potential commercial applications, particularly after incurring significant expenditures, our business may fail.
Conflicts or other problems may arise with our customers or joint development partners, resulting in renegotiation, breach or
termination of, or litigation related to, our agreements with them. This would adversely affect our revenues.
19
Conflicts or other problems could arise between us and our customers or joint development partners, some of which we have made
strategic investments in, as to royalty rates, milestone payments or other commercial terms. Similarly, we may disagree with our
customers or joint development partners as to which party owns or has the right to commercialize intellectual property that is developed
during the course of the relationship or as to other non-commercial terms. If such a conflict were to arise, a customer or joint development
partner might attempt to compel renegotiation of certain terms of their agreement or terminate their agreement entirely, and we might
lose the royalty revenues, material sales revenues and other benefits of the agreement. Either we or the customer or joint development
partner might initiate litigation to determine commercial obligations, establish intellectual property rights or resolve other disputes under
the agreement. Such litigation could be costly to us and require substantial attention of management. If we were unsuccessful in such
litigation, we could lose the commercial benefits of the agreement, be liable for financial damages and suffer losses of intellectual
property or other rights that are the subject of dispute.
If our OLED technologies and materials are not feasible for broad-based product applications, we may not be able to continue to
generate revenues sufficient to support ongoing operations.
Our main business strategy is to sell our OLED materials and license our OLED technologies to manufacturers for incorporation
into the display and lighting products that they sell. Consequently, our success depends on the ability and willingness of manufacturers
to continue to develop, manufacture and sell commercial products integrating our technologies and materials.
Before product manufacturers will agree to expand the use of our OLED technologies and materials for wider scale commercial
production, they will likely require us to demonstrate to their satisfaction that our OLED technologies and materials are feasible for
broad-based product applications beyond current commercial application, such as smartphones, wearables and television displays. This,
in turn, may require additional advances in our technologies and materials, as well as those of others, for applications in a number of
areas, including, without limitation, advances with respect to the development of:
OLED materials with improved lifetimes, efficiencies and color coordinates for larger area full-color OLED displays
and general lighting products;
more robust OLED materials for use in more demanding large-scale manufacturing environments; and
scalable and cost-effective methods and technologies for the fabrication of large volume OLED materials and
products.
We cannot be certain that these advances will occur, and hence our OLED technologies and materials may not be feasible for
additional broad-based product applications and expansion.
Even if our OLED materials and technologies are technically feasible, they may not be further adopted by product manufacturers
for broad-based product applications.
The potential size, timing and viability of market opportunities targeted by us remain uncertain. Market acceptance of our OLED
materials and technologies beyond current product offerings and sales volumes will depend, in part, upon these materials and
technologies providing benefits comparable or superior to competing display and lighting technologies at an advantageous cost to
manufacturers, and the adoption of products incorporating these technologies by consumers. Many current and potential customers for
our OLED technologies utilize and have invested significant resources in competing technologies, and may, therefore, be reluctant to
redesign their products or manufacturing processes to incorporate our OLED technologies.
During the entire product development process for a new product, we face the risk that our materials or technologies will fail to
meet the manufacturer’s technical, performance or cost requirements or will be replaced by a competing product or alternative
technology. Even if we offer materials and technologies that are satisfactory to a product manufacturer, the manufacturer may choose
to delay or terminate its product development efforts for reasons unrelated to our materials or technologies. In addition, our agreements
with our customers do not require them to purchase our host materials in order to utilize our phosphorescent emitter materials, and those
customers may elect not to purchase our host materials.
Mass production of new mass market OLED products will require the availability of suitable manufacturing equipment,
components and materials, many of which are available only from a limited number of suppliers. In addition, there may be a number of
other technologies that manufacturers need to utilize in conjunction with our OLED technologies in order to bring these new OLED
products to the market. Thus, even if our OLED technologies are a viable alternative to competing approaches, if product manufacturers
are unable to obtain access to this equipment and these components, materials and other technologies, they may not utilize our OLED
technologies.
20
There are numerous potential alternatives to OLEDs, which may limit our ability to commercialize our OLED technologies and
materials.
The display market is currently, and will likely continue to be for some time, dominated by displays based on LCD technology.
Numerous companies are making substantial investments in, and conducting research to improve characteristics of, LCDs; additionally,
other competing display technologies have been, or are being, developed. A similar situation exists in the solid-state lighting market,
which is currently dominated by LED products. Advances in any of these various technologies may overcome their current limitations
and permit them to become the leading technologies in their field, either of which could limit the potential market for products utilizing
our OLED technologies and materials. This, in turn, would cause product manufacturers to avoid entering into commercial relationships
with us, or to terminate or not renew their existing relationships with us.
Other OLED technologies may be more successful or cost-effective than ours, which may limit the commercial adoption of our
OLED technologies and materials.
Our competitors have developed and continue to develop OLED technologies that differ from or compete with our OLED
technologies. In particular, competing fluorescent and thermally activated delayed fluorescence OLED technology may become a viable
alternative to our phosphorescent OLED technology. Moreover, our competitors may succeed in developing new OLED technologies
that may become more cost-effective or have fewer limitations than our OLED technologies. If our OLED technologies, and particularly
our phosphorescent OLED technology, are unable to continue to capture a substantial portion of the OLED product market, our business
strategy may fail.
The consumer electronics industry experiences significant downturns from time to time, any of which may adversely affect the
demand for and pricing of our OLED technologies and materials.
Our success depends upon the ability and continuing willingness of our customers to manufacture and sell products utilizing our
technologies and materials, specifically our phosphorescent emitters and host materials, and the widespread acceptance of our customers’
products in the consumer marketplace. Any slowdown in the demand for our customers’ products or a decrease in our customers’ use
of or demand for our materials would adversely affect our material sales and royalty revenues and thus our business. Our customers’
decrease in the use of or demand for our materials may depend on several factors, including pricing, availability, continued technical
improvements and competitive product offerings. The markets for flat panel displays and lighting products are highly competitive.
Success in the market for end-user products that may integrate our OLED technologies and materials also depends on factors beyond
the control of our customers and us, including the cyclical and seasonal nature of the end-user markets that our customers serve, as well
as industry and general economic conditions.
The markets that we hope to penetrate have experienced significant periodic downturns, often in connection with, or in anticipation
of, declines in general economic conditions. These downturns have been characterized by lower product demand, production
overcapacity and erosion of average selling prices. Our business strategy is dependent on manufacturers building and selling products
that incorporate our OLED technologies and materials. Industry-wide fluctuations and downturns in the demand for displays and solid-
state lighting products could cause significant harm to our business.
Our customers may develop new or more efficient manufacturing processes, which may adversely affect demand for our OLED
materials.
By developing enhanced material processing methods and more efficient manufacturing techniques, our customers who purchase
our phosphorescent emitter and host materials could become more efficient in the utilization of our materials by developing designs that
require less materials on a per square meter basis, or by modifying their manufacturing process to make more efficient use of our
materials, which could limit or reduce the amount of materials they purchase from us. Thus, demand for our materials may not expand
in proportion to the number of OLED related products manufactured by our customers, and may result in reduced demand for our
materials and technologies relative to our customers' manufacture and sale of products made with such materials.
The COVID-19 pandemic has had, and we expect it to continue to have, a material adverse effect on our operations and business.
Any similar future epidemic or pandemic could also have such an effect.
The COVID-19 pandemic has negatively impacted the global economy, disrupted consumer spending and global supply chains,
and created significant volatility and disruption of financial markets. We expect the COVID-19 pandemic to continue to have an adverse
impact on our business and financial performance. The extent of the impact of the COVID-19 pandemic on our business and financial
21
performance, including our ability to execute our near-term and long-term business strategies and initiatives in the expected time frame,
will depend on future developments, including the duration and severity of the pandemic, which are uncertain and cannot be predicted.
As a result of the COVID-19 pandemic, and in response to government mandates or recommendations, as well as decisions we
have made to protect the health and safety of our employees and communities, we have taken proactive measures to adopt social
distancing policies at all of our locations, including a hybrid work from home arrangement, reducing the number of people in our sites
at any one time, and suspending employee travel. In the future, we may face closure requirements and other operational restrictions with
respect to some or all of our physical locations for prolonged periods of time due to, among other factors, evolving and increasingly
stringent governmental restrictions including public health directives, quarantine policies or social distancing measures. In addition,
many of our customers may reduce their operations, as demand for their products becomes negatively affected, which would adversely
impact our revenues from these customers. As a result, we would expect our financial results to be materially adversely impacted.
In addition, consumer spending generally may also be negatively impacted by general macroeconomic conditions and consumer
confidence, including the impact of any recession, resulting from the COVID-19 pandemic. This may negatively impact sales for our
customers and may also have an impact on their development of new products.
As a result of the COVID-19 pandemic, we have implemented a hybrid work from home policy for many of our corporate
employees and have established other policies, such as vaccine requirements, for certain of our employees. One or more of these policies
may negatively impact productivity and cause other disruptions to our business, and have material and adverse effects on our business,
financial condition and results of operations.
The extent of the impact of the COVID-19 pandemic on our business is highly uncertain and difficult to predict, as information is
rapidly evolving with respect to the duration and severity of the pandemic. At this point, we cannot reasonably estimate the duration and
severity of the COVID-19 pandemic, or its overall impact on our business, financial condition and results of operations.
Should there be in the future any similar epidemic or pandemic that harms the global economy in general, our business, financial
condition and results of operations could be adversely affected. We may also experience impacts to certain of our customers as a result
of health epidemic or other outbreak occurring in one or more locations, which in turn may materially and adversely affect our business,
financial condition and results of operations.
Any downturn in U.S. or global economic conditions may have a significant adverse effect on our business.
There have been significant and sustained economic downturns in the U.S. and globally in the past. These downturns have placed
pressure on consumer demand, and the resulting impact on consumer spending has had a material adverse effect on the demand for
consumer electronic products. Similar downturns in the future may have a significant adverse effect on one or more of our licensees as
an enterprise, which could result in those licensees reducing their efforts to commercialize products that incorporate our OLED
technologies and materials. Consumer demand and the condition of the display and lighting industries may also be impacted by other
external factors such as war, terrorism, geopolitical uncertainties, epidemics and other business interruptions. The impact of these
external factors is difficult to predict, and one or more of these factors could adversely impact the demand for our customers’ products,
and thus our business.
Many of our competitors have greater resources, which may make it difficult for us to compete successfully against them.
The display and solid-state lighting industries are characterized by intense competition. Many of our competitors have better name
recognition and greater financial, technical, marketing, personnel and research capabilities than we do. Because of these differences, we
may never be able to compete successfully in these markets or maintain any competitive advantages we are able to achieve over time.
If we cannot keep our key employees or hire other talented persons as we grow, our business might not succeed.
Our performance is substantially dependent on the continued services of our executive officers and other key technical and
managerial personnel, and on our ability to offer competitive salaries and benefits to these and our other employees. We do not have
employment agreements with any of our executive officers or other key technical or managerial personnel that require them to continue
to work for us for any specified period and, therefore, they could terminate their employment with us at any time. Additionally,
competition for highly skilled technical and managerial personnel is intense. We might not be able to attract, hire, train, retain and
motivate the highly skilled employees we need to be successful. If we fail to attract and retain the necessary technical and managerial
personnel, our business will suffer and might fail.
22
We rely solely on PPG to manufacture the OLED materials we use and sell to product manufacturers.
Our business prospects depend significantly on our ability to obtain proprietary OLED materials for our own use and for sale to
product manufacturers. Our agreement with PPG provides us with a source for these materials for development, evaluation and
commercial purposes. Our agreement with PPG currently runs through the end of 2024 and shall be automatically renewed for additional
one-year terms, unless terminated by us with prior notice of one year or terminated by PPG with prior notice of two years. Our inability
to continue obtaining these OLED materials from PPG or another source at cost-competitive prices and to continue obtaining these
OLED materials in sufficient quantities to meet our product manufacturers' current and future demands and timetables would have a
material adverse effect on our revenues and cost of goods sold relating to sales of these materials to OLED product manufacturers, as
well as on our ability to perform future development work.
Additionally, PPG manufactures our materials at its facilities based in the United States. As a result, such materials may be subject
to tariffs or other barriers from or to countries where some of our product manufacturer customers have operations and to where we
would need to ship product.
We strive to maintain sufficient levels of inventory to accommodate our manufacturing customers. Inventory management relating
to our material sales is complex, and excess inventory may harm our business and cause it to suffer.
Inventory management remains an area of focus as we balance the need to maintain strategic inventory levels of our OLED
materials to ensure competitive lead times against the risk of inventory obsolescence because of rapidly changing technology and
customer requirements. As a just-in-time supplier to our customers, we carry sufficient inventory to accommodate their capacity
requirements, sometimes without firm purchase commitments. Our dependence on third-party manufacturers to provide our materials
to us exposes us to longer lead times than if we were a direct manufacturer, increasing our risk of inventory obsolescence comparatively.
Our customers may increase orders during periods of product shortages, cancel orders if their inventory is too high, or delay orders in
anticipation of new products. They also may adjust their orders in response to the supply and demand of their products by end-users, or
the supply and demand of our products and the products of our competitors that are available to them.
Inventory management risks are heightened when our largest customers launch new products and retire existing products. At such
times, these customers tend to change product designs and may introduce some of our new materials into new designs. The production
of these materials requires us to purchase essential raw material and commence manufacturing well in advance of receiving firm
customer orders for such materials. Accordingly, we are subject to the risk of unanticipated changes in our customers’ manufacturing
plans and designs. Unanticipated product cessation and product introduction delays or cancellation may cause us to order or produce
excess or insufficient inventory. Excess inventory of our OLED materials is subject to the risk of inventory obsolescence. In the event
that a substantial portion of our inventory becomes obsolete, it could have a material adverse effect on earnings due to the resulting costs
associated with the inventory impairment charges and inventory write-downs.
We are the sole source supplier for certain critical components used in OLED technologies, which subjects customers to risk if we
are unable to meet the demand for such components.
Our customers depend on us as the sole source for certain proprietary PHOLED materials used in manufacturing OLED products,
which makes them susceptible to supply shortages if we are unable to meet their demand for such components. A potential customer
could be hesitant to adopt OLED technology given the risks inherent in depending on a sole source for critical components and the
inability to establish alternate supply relationships. If we are unable to supply the components needed by our existing customers in a
timely manner, or if potential customers do not utilize OLED technology because of concerns about our ability to meet supply demands,
our business may materially suffer.
Because the vast majority of OLED product manufacturers are located in the Asia-Pacific region, we are subject to international
operational, financial, legal and political risks which may negatively impact our operations.
Many of our customers and prospective customers have a majority of their operations in countries other than the United States,
particularly in the Asia-Pacific region, and revenue outside the United States represents a majority of our total net revenue. We also
have offices in various countries located outside of the United States. Risks associated with our doing business outside of the United
States include, without limitation:
compliance with a wide variety of U.S. and foreign laws and regulations, including foreign anti-corruption laws and
certain registration requirements for the OLED materials we sell;
legal uncertainties regarding taxes, tariffs, quotas, export controls, export licenses and other trade barriers;
economic instability in the countries of our customers, causing delays or reductions in orders for their products and
therefore our royalties;
23
political instability in the countries in which we and/or our customers operate, particularly in South Korea relating to
its disputes with and proximity to North Korea, in Hong Kong relating to anti-government protests and in Taiwan
relating to its disputes with China;
third party theft or compromise of our products, technology, data or intellectual property, including by means of
counterfeiting or reverse-engineering;
difficulties in collecting accounts receivable and longer accounts receivable payment cycles;
potentially adverse tax and tariff consequences; and
trade conflicts between and among various geopolitical factions.
Any of these factors could impair our ability to license our OLED technologies and sell our OLED materials, thereby harming our
business. Compliance with changing laws and regulations may involve significant costs or require changes in business practice that
could result in reduced profitability.
We rely on information technology systems to operate various elements of our business and a cyber-attack or other breach of our
systems, or those of third parties on whom we may rely, could subject us to liability or interrupt the operation of our business.
We are dependent on information technology systems to operate various elements of our business. A breakdown, invasion,
corruption, destruction or interruption of critical information technology systems by employees, others with authorized access to our
systems or unauthorized persons could negatively impact operations. In the ordinary course of business, we collect, store and transmit
important data and it is critical that we do so in a secure manner to maintain the confidentiality and integrity of such information.
Additionally, we outsource certain elements of our information technology systems to third parties. As a result of this outsourcing, our
third-party vendors may or could have access to our confidential information making such systems vulnerable. Data breaches of our
information technology systems, or those of our third-party vendors, may pose a risk that sensitive data may be exposed to unauthorized
persons or to the public. While we believe that we have taken appropriate security measures to protect our data and information
technology systems, and have been informed by our third-party vendors that they have as well, there can be no assurance that our efforts
will prevent breakdowns or breaches in our systems, or those of our third-party vendors, that could adversely affect our business.
Natural disasters or other unforeseen catastrophic events could unfavorably affect our business.
Natural disasters, such as hurricanes, tsunamis, or earthquakes, particularly in Asia-Pacific region, where many of our customers
are located, or the occurrence of other unforeseen catastrophic events, such a fire or flood, could unfavorably affect our business and
financial performance. Such events could unfavorably affect our customers in many ways, such as causing physical damage to one or
more of their properties, the temporary or permanent closure of one or more plants, the disruption or cessation of manufacturing of
product lines, and the temporary or long-term disruption in the supply or demand for their products. A resulting by-product of such
natural disasters or other unforeseen catastrophic events could be a temporary or long-term disruption in the supply of or demand for
our products.
Risks Related to Legal, Regulatory and Tax Matters
We may be subject to environmental laws and regulations that impose additional compliance costs and that could negatively impact
our business.
Changes in environmental laws or regulations of our products could result in higher operating and compliance expenses and limit
the markets in which we can manufacture and to which we can export our products. Changes in environmental laws or regulations,
including laws relating to manufacturing operations and export restrictions, also could lead to new or additional investment in product
designs and an increase in raw materials costs, and could increase our environmental compliance expenditures. If environmental laws
or regulations are either changed or adopted and impose additional operational restrictions and compliance requirements upon us or our
products, they could negatively impact our business, capital expenditures, results of operations and financial condition.
The U.S. government has rights to intellectual property derived from our government-funded work that might prevent us from
realizing the full benefits of our intellectual property portfolio.
The U.S. government, through various government agencies, has provided and continues to provide funding to us and university
research partners for work related to certain aspects of our OLED technologies. Because we have been provided with this funding, the
government has rights to any intellectual property derived from this work that could restrict our ability to market OLED products to the
government for military and other applications, or to license this intellectual property to third parties for commercial applications.
Moreover, if the government determines that we have not taken effective steps to achieve practical application of this intellectual
24
property in any field of use in a reasonable time, the government could require us to license this intellectual property to other parties in
that field of use. Any of these occurrences would limit our ability to obtain maximum value from our intellectual property portfolio.
Our effective tax rate may increase or decrease.
We are subject to income taxes in the U.S. and numerous foreign jurisdictions. Significant judgment is required in determining
our worldwide provision for income taxes. In the ordinary course of our business, there are many transactions and calculations where
the ultimate tax determination is uncertain. We are subject to audit by tax authorities where we do business. Although we believe that
our tax estimates and tax positions are reasonable, they could be materially affected by many factors including the final outcome of tax
audits and related litigation, the introduction of new tax accounting standards, legislation, regulations, and related interpretations, our
global mix of earnings and the realizability of deferred tax assets. An increase or decrease in our effective tax rate could have a material
adverse impact on our financial condition and results of operations.
In addition, at any time, U.S. federal tax laws or the administrative interpretations of those laws may be changed. We also cannot
predict whether, when or to what extent other new U.S. federal tax laws, regulations, interpretations or rulings will be issued. As a result,
changes in U.S. federal tax laws could negatively impact our operating results, financial condition and business operations, and adversely
impact our shareholders.
Occasionally, changes in state and local tax laws or regulations are enacted that may result in an increase in our tax liability.
Shortfalls in tax revenues for states and municipalities in recent years may lead to an increase in the frequency and size of such changes.
If such changes occur, we may be required to pay additional taxes on our assets or income.
Risks Related to Our Stock and Capitalization
We may require additional funding in the future in order to continue our business.
Our capital requirements have been and will continue to be significant. We may require additional funding in the future for the
research, development and commercialization of our OLED technologies and materials, to obtain and maintain patents and other
intellectual property rights in these technologies and materials, and for working capital and other purposes, the timing and amount of
which are difficult to ascertain. Our cash on hand may not be sufficient to meet all of our future needs. When we need additional funds,
such funds may not be available on commercially reasonable terms or at all. If we cannot obtain more money when needed, our business
might fail. Additionally, if we attempt to raise money in an offering of shares of our common stock, preferred stock, warrants or
depositary shares, or if we engage in acquisitions involving the issuance of such securities, the issuance of these shares will dilute our
then-existing shareholders.
The market price of our common stock may be highly volatile.
The market price of our common stock may be highly volatile, as has been the case with our common stock in the past as well as
the securities of many companies, particularly other emerging-growth companies in the technology industry. Factors such as the
following may have a significant impact on the market price of our common stock in the future:
our revenues, expenses and operating results;
announcements by us, by our licensors, customers, or our competitors of technological developments, new product
applications or contractual arrangements;
announcements relating to dividends and share repurchases; and
other factors affecting the display and solid-state lighting industries in general.
Our operating results may have significant period-to-period fluctuations, which would make it difficult to predict our future
performance.
Due to the current stage of commercialization of our OLED technologies and materials, current geopolitical risks, the limited
number of commercially successful consumer products utilizing our OLED technologies that customers have introduced in the
marketplace, the relatively short product lifetimes of these consumer products, and the significant development and manufacturing
objectives that we and our customers must achieve for the widespread inclusion of our OLED technologies in consumer products such
25
as mobile phones, tablets, television displays and lighting products, our quarterly operating results are difficult to predict and may vary
significantly from quarter to quarter.
We believe that period-to-period comparisons of our operating results are not a reliable indicator of our future performance at this
time. Among other factors affecting our period-to-period results, our license and technology development fees often consist of large
one-time, annual, semi-annual or quarterly payments, which may result in significant fluctuations in our revenues. In addition, our
reliance on a relatively small number of licensees with large volumes of consumer product sales makes our quarterly operating results
subject to our licensees’ specific plans and the success of their specific product offerings.
With respect to material sales, our sales are primarily dependent on purchases made by a relatively small number of customers.
In addition to the other factors described above relating to our customers’ sales opportunities, our quarter-to-quarter sales may be
materially impacted by our customers’ inventory management plans, which may vary substantially based on financial management
considerations, changes in their product mix plans, modified material processing techniques and manufacturing line modifications.
If, in some future period, our operating results or business outlook fall below the expectations of securities analysts or investors,
our stock price would be likely to decline and investors in our common stock may not be able to resell their shares at or above their
purchase price. Broad market, industry and global economic factors may also materially reduce the market price of our common stock,
regardless of our operating performance.
The issuance of additional shares of our common stock could drive down the price of our stock.
The price of our common stock could decrease if:
shares of our common stock that are currently subject to restriction on sale become freely salable, whether through
an effective registration statement or based on Rule 144 under the Securities Act of 1933, as amended; or
we issue additional shares of our common stock that might be or become freely salable, including shares that would
be issued upon conversion of our preferred stock or the exercise of outstanding stock options.
We can issue shares of preferred stock that may adversely affect the rights of shareholders of our common stock.
Our Articles of Incorporation authorize us to issue up to 5,000,000 shares of preferred stock with designations, rights and
preferences determined from time-to-time by our Board of Directors. Accordingly, our Board of Directors is empowered, without
shareholder approval, to issue preferred stock with dividend, liquidation, conversion, voting or other rights superior to those of
shareholders of our common stock. For example, an issuance of shares of preferred stock could:
adversely affect the voting power of the shareholders of our common stock;
make it more difficult for a third party to gain control of us;
discourage bids for our common stock at a premium; or
otherwise adversely affect the market price of our common stock.
As of February 23, 2022, we have issued and outstanding 200,000 shares of Series A Nonconvertible Preferred Stock, all of which
are held by an entity controlled by members of the family of Sherwin I. Seligsohn, our Founder and Chairman of the Board of Directors.
Our Board of Directors has authorized and issued other shares of preferred stock in the past, none of which are currently outstanding,
and may do so again at any time in the future.
Any decisions to reduce or discontinue paying cash dividends to our shareholders could cause the market price for our common
stock to decline.
In 2017, our Board of Directors began declaring quarterly cash dividends on our common stock, which we have consistently paid
since then and we intend to continue to pay in the future. However, payment of future cash dividends will be at the discretion of our
Board of Directors and will depend upon our results of operations, earnings, capital requirements, contractual restrictions and other
factors deemed relevant by our Board of Directors. As such, we may modify, suspend or cancel our cash dividend policy in any manner
and at any time. Any reduction or discontinuance by us of the payment of quarterly cash dividends could cause the market price of our
common stock to decline. Moreover, in the event our payment of quarterly cash dividends are reduced or discontinued, our failure or
inability to resume paying cash dividends at historical levels could cause the market price of our common stock to decline. There is no
26
guarantee that our common stock will appreciate in value or even maintain the price at which current shareholders purchased their
shares.
Our executive officers and directors own a significant percentage of our common stock and could exert significant influence over
matters requiring shareholder approval, including takeover attempts.
Our executive officers and directors and their respective affiliates and the adult children of Sherwin Seligsohn, beneficially own,
as of February 23, 2022, approximately 7.9% of the outstanding shares of our common stock. Accordingly, these individuals may, as a
practical matter, be able to exert significant influence over matters requiring approval by our shareholders, including the election of
directors and the approval of mergers or other business combinations. This concentration also could have the effect of delaying or
preventing a change in control of us.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
Our corporate offices and research and development laboratories are located at 250, 300 and 375 Phillips Boulevard in Ewing,
New Jersey. In 2004, we acquired the building and property at which the 375 Phillips Boulevard facility is located. During 2005, we
conducted a two-stage expansion of our laboratory and office space in the building, as well as a recent expansion in 2013 and 2015. We
currently occupy the entire newly expanded facility. In 2017, we acquired the building and property at which the Adesis facility is
located at 27 McCullough Drive in New Castle, Delaware. In 2019, we purchased 250 and 300 Phillips Boulevard in Ewing, New Jersey,
adjacent to our corporate offices. The new facilities added approximately 88,000 square feet and will allow for the expansion of research
and development activities, collaboration, manufacturing logistics and other corporate functions. In 2021, we leased with an option to
purchase a manufacturing facility in Shannon, Ireland for the production by PPG of our PHOLED materials.
ITEM 3. LEGAL PROCEEDINGS
Patent Related Challenges and Oppositions
Each major jurisdiction in the world that issues patents provides both third parties and applicants an opportunity to seek a further
review of an issued patent. The process for requesting and considering such reviews is specific to the jurisdiction that issued the patent
in question, and generally does not provide for claims of monetary damages or a review of specific claims of infringement. The
conclusions made by the reviewing administrative bodies tend to be appealable and generally are limited in scope and applicability to
the specific claims and jurisdiction in question.
We believe that opposition proceedings are frequently commenced in the ordinary course of business by third parties who may
believe that one or more claims in a patent do not comply with the technical or legal requirements of the specific jurisdiction in which
the patent was issued. We view these proceedings as reflective of our goal of obtaining the broadest legally permissible patent coverage
permitted in each jurisdiction. Once a proceeding is initiated, as a general matter, the issued patent continues to be presumed valid until
the jurisdiction’s applicable administrative body issues a final non-appealable decision. Depending on the jurisdiction, the outcome of
these proceedings could include affirmation, denial or modification of some or all of the originally issued claims. We believe that as
OLED technology becomes more established and our patent portfolio increases in size, so will the number of these proceedings.
Below is a summary of an active proceeding that has been commenced against an issued patent that is exclusively licensed to us.
We do not believe that the confirmation, loss or modification of our rights in any individual claim or set of claims that are the subject
of the following legal proceeding would have a material impact on our materials sales or licensing business or on our Consolidated
Financial Statements, including our Consolidated Statements of Income, as a whole. In certain circumstances, when permitted, we may
also utilize a proceeding to request modification of the claims to better distinguish the patented invention from any newly identified
prior art and/or improve the claim scope of the patent relative to commercially important categories of the invention.
Opposition to European Patent No. 1390962
On November 16, 2011, Osram AG and BASF SE each filed a Notice of Opposition to European Patent No. 1390962 (the EP '962
patent), which relates to the Company’s white phosphorescent OLED technology. The EP '962 patent, which was issued on February
16, 2011, is a European counterpart patent to U.S. patents 7,009,338 and 7,285,907. They are exclusively licensed to us by Princeton,
and we are required to pay all legal costs and fees associated with this proceeding.
The European Patent Office (EPO) combined the oppositions into a single opposition proceeding, and a hearing on this matter
was held in December 2015, wherein the EPO Opposition Division revoked the patent claims for alleged insufficiencies under European
27
Patent Convention Article 83. We believe the EPO's decision is erroneous and appealed the decision. Subsequent to the filing of the
appeal, BASF withdrew its opposition to the patent. On appeal, the Appeals Division withdrew the lower Opposition Division’s
rejections with respect to a portion of the original subject matter and remanded the matter to the lower Opposition Division for further
consideration. The patent, as originally granted, is deemed valid during the pendency of the opposition process.
At this time, based on our current knowledge, we believe that the patent being challenged should be declared valid and that a
significant portion of our claims should be upheld. However, we cannot make any assurances of this result.
In addition to the above proceeding and now concluded proceedings which have been referenced in prior filings, from time to
time, we may have other proceedings that are pending which relate to patents we acquired as part of the Fujifilm patent or BASF OLED
patent acquisitions or which relate to technologies that are not currently widely used in the marketplace.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
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PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
Our Common Stock
Our common stock is quoted on the NASDAQ Global Select Market website under the symbol “OLED.” As of February 23, 2022,
there were approximately 291 holders of record of our common stock.
During 2019, 2020 and 2021, we declared and paid cash dividends on our common stock. While we intend to pay regular quarterly
dividends in the future, payment of future cash dividends will be at the discretion of our Board of Directors and will depend upon our
results of operations, earnings, capital requirements, contractual restrictions and other factors deemed relevant by our Board of Directors.
As such, we may modify, suspend or cancel our cash dividend policy in any manner and at any time.
29
Performance Graph
The performance graph below compares the change in the cumulative shareholder return of our common stock from December
31, 2016 to December 31, 2021, with the percentage change in the cumulative total return over the same period on (i) the Russell 2000
Index, and (ii) the Nasdaq Electronics Components Index. This performance graph assumes an initial investment of $100 on December
31, 2016 in each of our common stock, the Russell 2000 Index and the Nasdaq Electronics Components Index.
Universal Display Corp.
Russell 2000
NASDAQ Electronic Components
Cumulative Total Return
$
12/16
100.00 $
100.00
100.00
12/17
306.97 $
114.65
142.31
12/18
166.73 $
102.02
124.99
12/19
368.04 $
128.06
187.76
12/20
411.96 $
153.62
271.08
12/21
297.06
176.39
409.17
Securities Authorized for Issuance under Equity Compensation Plans
The information required by this item with respect to our equity compensation plans will be set forth in our definitive Proxy
Statement for the 2022 Annual Meeting of Shareholders, and is incorporated herein by reference.
ITEM 6. [RESERVED]
None.
30
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the
section entitled “Selected Financial Data” in this report and our Consolidated Financial Statements and related notes to this report.
This discussion and analysis contains forward-looking statements based on our current expectations, assumptions, estimates and
projections. These forward-looking statements involve risks and uncertainties. Our actual results could differ materially from those
indicated in these forward-looking statements as a result of certain factors, as more fully discussed in Item 1A of this report, entitled
“Risk Factors.”
OVERVIEW
We are a leader in the research, development and commercialization of organic light emitting diode (OLED), technologies and
materials for use in display applications, such as mobile phones, televisions, wearables, tablets, portable media devices, notebook
computers, personal computers and automotive applications, as well as specialty and general lighting products. Since 1994, we have
been engaged and expect to continue to be primarily engaged, in funding and performing research and development activities relating
to OLED technologies and materials, and commercializing these technologies and materials. We derive our revenue primarily from the
following:
sales of OLED materials for evaluation, development and commercial manufacturing;
intellectual property and technology licensing;
technology development and support, including third-party collaboration efforts and providing support to third parties
for commercialization of their OLED products; and
contract research services in the areas of chemical materials synthesis research, development and commercialization
for non-OLED applications.
Material sales relate to our sale of OLED materials for incorporation into our customers’ commercial OLED products or for their
OLED development and evaluation activities. Material sales are generally recognized at the time title passes, which is typically at the
time of shipment or at the time of delivery, depending upon the contractual agreement between the parties.
We receive license and royalty payments under certain commercial, development and technology evaluation agreements, some of
which are non-refundable advances. These payments may include royalty and license fees made pursuant to license agreements and also
license fees included as part of certain commercial supply agreements. These payments are included in the estimate of total contract
consideration by customer and recognized as revenue over the contract term based on material units sold at the estimated per unit fee
over the life of the contract.
In 2018, we entered into a commercial patent license agreement with Samsung Display Co., Ltd. (SDC). This agreement, which
covers the manufacture and sale of specified OLED display materials, was effective as of January 1, 2018 and lasts through the end of
2022 with an additional two-year extension option. Under this agreement, we are being paid a license fee, payable in quarterly
installments over the agreement term of five years. The agreement conveys to SDC the non-exclusive right to use certain of our
intellectual property assets for a limited period of time that is less than the estimated life of the assets.
At the same time that we entered into the current commercial license agreement with SDC, we also entered into a material purchase
agreement with SDC. Under the material purchase agreement, SDC agrees to purchase from us a minimum amount of phosphorescent
emitter materials for use in the manufacture of licensed products. This minimum commitment is subject to SDC’s requirements for
phosphorescent emitter materials and our ability to meet these requirements over the term of the supplemental agreement.
In 2015, we entered into an OLED patent license agreement and an OLED commercial supply agreement with LG Display Co.,
Ltd. (LG Display), which were effective as of January 1, 2015. The terms of the agreements were set to expire by the end of 2022. The
patent license agreement provides LG Display a non-exclusive, royalty bearing portfolio license to make and sell OLED displays under
our patent portfolio. The patent license calls for license fees, prepaid royalties and running royalties on licensed products. The
agreements include customary provisions relating to warranties, indemnities, confidentiality, assignability and business terms. The
agreements provide for certain other minimum obligations relating to the volume of material sales anticipated over the life of the
agreements as well as minimum royalty revenue to be generated under the patent license agreement. We generate revenue under these
agreements that are predominantly tied to LG Display’s sales of OLED licensed products. The OLED commercial supply agreement
provides for the sales of materials for use by LG Display, which may include phosphorescent emitters and host materials.
31
In 2021, we entered into amendments of the 2015 OLED patent license agreement and the 2015 OLED commercial supply
agreement with LG Display, which amendments were effective as of January 1, 2021. The amended agreements included a term
extension and are set to expire by the end of 2025.
In 2016, we entered into long-term, multi-year OLED patent license and material purchase agreements with Tianma Micro-
electronics Co., Ltd. (Tianma). Under the license agreement, we have granted Tianma non-exclusive license rights under various patents
owned or controlled by us to manufacture and sell OLED display products. The license agreement calls for license fees and running
royalties on Tianma’s sales of licensed products. Additionally, we supply phosphorescent OLED materials to Tianma for use in its
licensed products. In 2021, we mutually agreed to extend the terms of both the patent license and material purchase agreements for an
additional multi-year term.
In 2017, we entered into long-term, multi-year agreements with BOE Technology Group Co., Ltd. (BOE). Under these agreements,
we have granted BOE non-exclusive license rights under various patents owned or controlled by us to manufacture and sell OLED
display products. We also supply phosphorescent OLED materials to BOE for use in its licensed products.
In 2018, we entered into long-term, multi-year OLED patent license and material purchase agreements with Visionox Technology,
Inc. (Visionox). Under the license agreement, we have granted certain of Visionox’s affiliates a non-exclusive license rights under
various patents owned or controlled by us to manufacture and sell OLED display products. The license agreement calls for license fees
and running royalties on licensed products. Additionally, we supply phosphorescent OLED materials to Visionox for use in its licensed
products. On April 22, 2021, we announced an extension of the Visionox agreement by entering into new five-year OLED material
supply and license agreements with a new affiliate of Visionox, Visionox Hefei Technology Co. Ltd.
In 2019, we entered into an evaluation and commercial supply relationship with Wuhan China Star Optoelectronics Semiconductor
Display Technology Co., Ltd. (CSOT). In 2020, we entered into long-term, multi-year agreements with CSOT. Under these agreements,
we have granted CSOT non-exclusive license rights under various patents owned or controlled by us to manufacture and sell OLED
display products. We also supply phosphorescent OLED materials to CSOT for use in its licensed products.
In 2016, we acquired Adesis, Inc. (Adesis) with operations in New Castle, Delaware. Adesis is a contract research organization
(CRO) that provides support services to the OLED, pharma, biotech, catalysis and other industries. As of December 31, 2021, Adesis
employed a team of 135 research scientists, chemists, engineers and laboratory technicians. Prior to our acquisition of Adesis in 2016,
we utilized more than 50% of Adesis’ technology service and production output. We continue to utilize a significant portion of its
technology research capacity for the benefit of our OLED technology development, and Adesis uses the remaining capacity to operate
as a CRO in the above-mentioned industries by providing contract research services for non-OLED applications to those third-party
customers. Contract research services revenue is earned by providing chemical materials synthesis research, development and
commercialization for non-OLED applications on a contractual basis for those third-party customers.
In June 2020, a wholly-owned subsidiary, OVJP Corporation (OVJP Corp), was formed as a Delaware corporation. Based out of
California, OVJP Corp was founded to advance the commercialization of our proprietary Organic Vapor Jet Printing (OVJP) technology.
As of December 31, 2021, OVJP employed a team of 25 research, mechanical, electrical and software engineers and laboratory
technicians. As a direct printing technique, OVJP technology has the potential to offer high deposition rates for large-area OLEDs. In
addition, OVJP technology reduces OLED material waste associated with use of a shadow mask (i.e., the waste of material that deposits
on the shadow mask itself when fabricating an OLED). By comparison to inkjet printing, an OVJP process does not use liquid solvents
and therefore the OLED materials utilized are not limited by their viscosity or solvent solubility. OVJP also avoids generation of solvent
wastes and eliminates the additional step of removing residual solvent from the OLED device. We believe the successful implementation
of the OVJP technology has the potential to increase the addressable market for large-size OLED panels while also serving another
potential growth market for our proprietary PHOLED materials and technologies.
In February 2021, we announced the establishment of a new manufacturing site in Shannon, Ireland and an agreement between
UDC Ireland Limited and PPG for the production of our OLED materials. The new facility is expected to double our production capacity
and allow for the diversification of our manufacturing base for phosphorescent emitters. We anticipate the facility to be operational by
mid-year 2022.
We also generate technology development and support revenue earned from development and technology evaluation agreements
and commercialization assistance fees, along with, to a minimal extent, government contracts. Relating to our government contracts, we
may receive reimbursements by government entities for all or a portion of the research and development costs we incur. Revenues are
recognized as services are performed, proportionally as research and development costs are incurred, or as defined milestones are
achieved.
32
We anticipate fluctuations in our annual and quarterly results of operations due to uncertainty regarding, among other factors:
the timing, cost and volume of sales of our OLED materials;
the timing of our receipt of license fees and royalties, as well as fees for future technology development and
evaluation;
the timing and magnitude of expenditures we may incur in connection with our ongoing research and development
and patent-related activities; and
the timing and financial consequences of our formation of new business relationships and alliances.
Further, we continue to monitor the impact of COVID-19 on our business. Our global operations, and the global nature of our
customer base and their respective customers, expose us to risks associated with public health crises, such as pandemics and epidemics.
The ongoing COVID-19 pandemic had a substantial impact on our operations and financial results during the year ended December 31,
2020 and continued to have an impact during the year ended December 31, 2021. We expect that as the pandemic continues to evolve,
it may potentially have a further adverse impact on the results of our operations due to uncertainties involving the continued disruption
of the global economy, uncertainties associated with consumer demand for finished OLED goods, and the potential resulting impact on
our customers and their demand for our phosphorescent emitters.
At this time, the crisis has not had a significant impact on our ability to fulfill shipments of commercial materials as required by
our customers. However, the sustainability of maintaining our testing and manufacturing operations at levels needed to meet fluctuating
customer demand is uncertain and is dependent upon the rapidly evolving situations being encountered by our logistics and supply chain
partners. In an effort to protect the health and safety of our employees, we have taken proactive measures to adopt social distancing
policies at all of our locations, employing nurses to check everyone entering our buildings, working from home, reducing the number
of people in our sites at any one time, and suspending employee travel.
While the ultimate health and economic impact of the COVID-19 pandemic is highly uncertain, we expect that our business
operations and results of operations, including our revenues, net income and cash flows, will continue to be adversely impacted for at
least the first half of 2022, including as a result of:
temporary closure of electronics and other retail stores through which our customers sell the products for which they
use our technology and materials;
consumer confidence and consumer spending habits, including spending for the products that our customers sell and
negative trends in consumer purchasing patterns due to consumers’ disposable income, credit availability and debt
levels;
possible disruption to the supply chain caused by distribution and other logistical issues, which may impact suppliers
of our raw materials as well as our ability to ship our materials to customers on a timely basis;
decreased productivity due to travel ban, work-from-home policies or shelter-in-place orders;
a slowdown in the U.S. economy, and uncertain global economic outlook or a credit crisis; and
uncertain trade restrictions amongst jurisdictions seeking to manage their respective exposure to risks, including the
COVID-19 pandemic.
We are focused on navigating these recent challenges presented by COVID-19 through preserving our liquidity and managing our
cash flow. We continue to actively monitor the COVID-19 situation and may take further actions altering our business operations that
we determine are in the best interests of our employees, customers, partners, suppliers, and stakeholders, or as required by federal, state,
or local authorities. It is not clear what the potential effects any such alterations or modifications may have on our business, including
the effects on our customers, employees, and on our financial results for the 2022 fiscal year.
Critical Accounting Policies and Estimates
The discussion and analysis of our financial condition and results of operations is based on our Consolidated Financial Statements,
which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial
statements requires us to make estimates and judgments that affect our reported assets and liabilities, revenues and expenses, and other
financial information. Actual results may differ significantly from our estimates under other assumptions and conditions.
33
We believe that our accounting policies related to revenue recognition and deferred revenue and income taxes, as described below,
are our “critical accounting policies” as contemplated by the SEC. These policies, which have been reviewed with our Audit Committee,
are discussed in greater detail below.
Revenue Recognition and Deferred Revenue
Material sales relate to the sale of our OLED materials for incorporation into our customers’ commercial OLED products or for
their OLED development and evaluation activities. Revenue associated with material sales is generally recognized at the time title
passes, which is typically at the time of shipment or at the time of delivery, depending upon the contractual agreement between the
parties. Revenue may be recognized after control of the material passes in the event the transaction price includes variable consideration.
For example, a customer may be provided an extended opportunity to stock materials prior to use in mass production and given a general
right of return not conditioned on breaches of warranties associated with the specific product. In such circumstances, revenue will be
recognized at the earlier of the expiration of the customer’s general right of return or once it becomes unlikely that the customer will
exercise its right of return.
The rights and benefits to our OLED technologies are conveyed to the customer through technology license agreements and
material supply agreements. We believe that the licenses and materials sold under these combined agreements are not distinct from each
other for financial reporting purposes and as such, are accounted for as a single performance obligation. Accordingly, total contract
consideration is estimated and recognized over the contract term based on material units sold at the estimated per unit fee over the life
of the contract. Total contract consideration is allocated to material sales and royalty and licensing fees on the Consolidated Statements
of Income based on contract pricing.
Various estimates are relied upon to recognize revenue. We estimate total material units to be purchased by our customers over
the contract term based on historical trends, industry estimates and our forecast process. Our management uses the expected value
method to estimate the material per unit fee. Additionally, our management estimates the total sales-based royalties based on the
estimated net sales revenue of our customers over the contract term.
Accounting for Income Taxes
We are subject to income taxes in both the U.S. and foreign jurisdictions. Significant judgments and estimates are required in
evaluating our tax positions for future realization and determining our provision for income taxes. Our income tax expense, deferred tax
assets and liabilities, and reserves for unrecognized tax benefits reflect management's best assessment of estimated future taxes to be
paid.
In assessing the realizability of deferred tax assets, we consider whether it is more likely than not that some portion or all of our
deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent on our ability to generate future
taxable income to obtain benefit from the reversal of temporary differences, net operating loss carryforwards and tax credits. As part of
our assessment we consider the scheduled reversal of deferred tax assets and liabilities, projected future taxable income, and tax planning
strategies.
During the year ended December 31, 2021, based on previous earnings history, a current evaluation of expected future taxable
income and other evidence, we determined to retain the valuation allowance that relates to New Jersey research and development credits.
Actual results could differ from our assessments if adequate taxable income is generated in future periods. To the extent we establish a
new valuation allowance or change a previously established valuation allowance in a future period, income tax expense will be impacted.
34
RESULTS OF OPERATIONS
For a discussion of our results of operations comparison for the years ended December 31, 2020 and 2019, refer to our Annual
Report on Form 10-K for the fiscal year ended December 31, 2020 filed on February 18, 2021.
Comparison of the Years Ended December 31, 2021 and 2020
REVENUE:
Material sales
Royalty and license fees
Contract research services
Total revenue
COST OF SALES
Gross margin
OPERATING EXPENSES:
Research and development
Selling, general and administrative
Amortization of acquired technology and other intangible assets
Patent costs
Royalty and license expense
Total operating expenses
OPERATING INCOME
Interest income, net
Other income, net
Interest and other income, net
INCOME BEFORE INCOME TAXES
INCOME TAX EXPENSE
NET INCOME
Revenue
Year Ended December 31,
2020
2021
(Decrease) Increase
$
$
318,623 $
219,032
15,870
553,525
114,991
438,534
99,673
80,372
21,994
8,160
691
210,890
227,644
505
98
603
228,247
(44,034)
184,213 $
229,749 $
185,054
14,064
428,867
85,478
343,389
83,894
61,346
21,969
7,529
11,125
185,863
157,526
5,139
864
6,003
163,529
(30,157)
133,372 $
88,874
33,978
1,806
124,658
29,513
95,145
15,779
19,026
25
631
(10,434)
25,027
70,118
(4,634)
(766)
(5,400)
64,718
(13,877)
50,841
Our total material sales were $318.6 million for the year ended December 31, 2021, as compared to $229.7 million for the year
ended December 31, 2020, an increase of 39% with a commensurate increase in unit material volume of 34%. The increase in material
sales was due to the recovery in sales that were adversely impacted due to the COVID-19 pandemic during the year ended December
31, 2020, as well as strengthened demand for OLED products utilizing our emitter material. Even though we believe we have experienced
the worst effects of the COVID-19 pandemic, we remain uncertain as to the possibility of its re-emergence and corresponding negative
impact on OLED market demand.
Green emitter sales for the year ended December 31, 2021, which include our yellow-green emitters, were $242.9
million as compared to $177.8 million for the year ended December 31, 2020, with unit material volumes increasing
by 36%.
Red emitter sales for the year ended December 31, 2021 were $75.2 million as compared to $51.0 million for the year
ended December 31, 2020, with unit material volumes increasing by 31%.
Revenue from royalty and license fees was $219.0 million for the year ended December 31, 2021 as compared to $185.1 million
for the year ended December 31, 2020, an increase of 18%. This increase was due primarily to an overall strengthening of our customers’
sales of royalty-bearing OLED licensed products and was partially offset by a $3.3 million reduction in the cumulative catch-up
adjustment arising from changes in estimates of transaction price, net, arising from revisions in our customers' forecasted demand of
emitters anticipated to be procured over their respective contract lives.
Contract research services revenue was $15.9 million for the year ended December 31, 2021 as compared to $14.1 million for the
year ended December 31, 2020, an increase of 13%. Revenue from contract research services consists of revenue earned by our
subsidiary, Adesis, which provides support services to the pharma, biotech, catalysis and other industries on a contractual basis for those
third-party customers.
35
Cost of Sales
Cost of sales for the year ended December 31, 2021 increased by $29.5 million as compared to the year ended December 31, 2020,
primarily due to an increase in the level of material sales. Included in the cost of sales for the years ended December 31, 2021 and 2020
were increases in inventory reserve of $3.6 million and $1.1 million, respectively, due to excess inventory levels in certain products. As
a result of the increase in revenue from material sales and royalty and license fees, gross margin for the year ended December 31, 2021
increased by $95.1 million as compared to the year ended December 31, 2020, with gross margin as a percentage of revenue decreasing
to 79% from 80%.
Research and development
Research and development expenses increased to $99.7 million for the year ended December 31, 2021, as compared to $83.9
million for the year ended December 31, 2020. The increase in research and development expenses was primarily due to higher
employee-related compensation expenses and operating costs, including those associated with OVJP technology development, increased
contract research, and PPG development activity.
Selling, general and administrative
Selling, general and administrative expenses increased to $80.4 million for the year ended December 31, 2021, as compared to
$61.3 million for the year ended December 31, 2020. The increase in selling, general and administrative expenses was primarily due to
higher employee-related compensation expenses, increased pre-production costs associated with the new manufacturing facility in
Shannon, Ireland, as well as an increase in depreciation expenses resulting from corporate expansion.
Amortization of acquired technology and other intangible assets
Amortization of acquired technology and other intangible assets was $22.0 million for each of the years ended December 31, 2021
and 2020. See Note 7 in Notes to Consolidated Financial Statements for further discussion.
Patent costs
Patent costs increased to $8.2 million for the year ended December 31, 2021, as compared to $7.5 million for the year ended
December 31, 2020. The increase in patent costs reflected higher internal patent prosecution related costs.
Royalty and license expense
Royalty and license expense decreased to $691,000 for the year ended December 31, 2021, as compared to $11.1 million for the
year ended December 31, 2020. The decrease was due to decreased royalties incurred under our amended license agreement with
Princeton, USC and Michigan, resulting from a decrease in qualifying material sales. See Note 11 in Notes to the Consolidated Financial
Statements for further discussion.
Interest and other income, net
Interest income, net was $505,000 for the year ended December 31, 2021, as compared to $5.1 million for the year ended
December 31, 2020. The decrease in interest income, net was primarily due to a decrease in bond yields on available-for-sale investments
held during the year ended December 31, 2021 compared to bond yields on available-for-sale investments held during the year ended
December 31, 2020. Other income, net primarily consisted of net exchange gains and losses on foreign currency transactions and rental
income. We recorded other income, net of $98,000 for the year ended December 31, 2021 as compared to $864,000 for the year ended
December 31, 2020.
Income tax expense
We are subject to income taxes in both the United States and foreign jurisdictions. The effective income tax rate was an expense
of 19.3% and 18.4% for the years ended December 31, 2021 and 2020, respectively, and we recorded income tax expense of $44.0
million and $30.2 million, respectively, for those periods.
36
Liquidity and Capital Resources
Our principal sources of liquidity are our cash and cash equivalents and short-term investments. As of December 31, 2021, we
had cash and cash equivalents of $312.0 million, short-term investments of $351.2 million, and long-term U.S. Government bond
investments of $159.6 million for a total of $822.8 million. This compares to cash and cash equivalents of $630.0 million, short-term
investments of $100.0 million and no long-term U.S. Government bonds investments for a total of $730.0 million as of December 31,
2020.
Cash provided by operating activities for the year ended December 31, 2021 was $191.1 million resulting from $184.2 million of
net income and $140.4 million due to changes in our operating assets and liabilities, partially offset by a $133.5 million, net reduction
due to non-cash items including amortization of deferred revenue, stock-based compensation and amortization of intangibles. Changes
in our operating assets and liabilities related to an increase in deferred revenue of $201.5 million, an increase in other liabilities of $22.2
million and an increase in accounts payable and accrued expenses of $1.9 million, partially offset by an increase in inventory of $46.1
million, an increase in accounts receivable of $25.4 million and an increase in other assets of $13.7 million.
Cash provided by operating activities for the year ended December 31, 2020 was $148.8 million resulting from $133.4 million of
net income and $136.6 million due to changes in our operating assets and liabilities, partially offset by a $121.2 million reduction, net
due to non-cash items including amortization of deferred revenue, amortization of intangibles and stock-based compensation. Changes
in our operating assets and liabilities related to an increase in deferred revenue of $192.4 million and an increase in other liabilities of
$10.1 million, partially offset by an increase in inventory of $28.8 million, an increase in accounts receivable of $21.8 million, a decrease
in accounts payable and accrued expenses of $8.3 million and an increase in other assets of $7.0 million.
Cash used in investing activities was $457.8 million for the year ended December 31, 2021, as compared to cash provided by
investing activities of $391.3 million for the year ended December 31, 2020. The increase was due to the timing of maturities and
purchases of investments resulting in net purchases of $414.3 million for the year ended December 31, 2021, as compared to net sales
and maturities of $419.3 million for the year ended December 31, 2020, and an increase in purchases of intangibles and property, plant
and equipment of $15.5 million for the year ended December 31, 2021 as compared to the year ended December 31, 2020. The increase
in property, plant and equipment purchases during 2021 was primarily due to improvements to our Ewing facilities in New Jersey.
Cash used in financing activities was $51.4 million for the year ended December 31, 2021, as compared to $41.7 million for the
year ended December 31, 2020. The increase was due to an increase in the cash payment of dividends in the current year of $9.5 million
and an increase in the payment of withholding taxes related to stock-based compensation to employees of $555,000, partially offset by
an increase in proceeds from the issuance of common stock of $331,000.
Working capital was $738.0 million as of December 31, 2021, as compared to $759.6 million as of December 31, 2020. The
decrease was primarily due to a decrease in cash and cash equivalents, partially offset by an increase in short-term investments, an
increase in inventory and an increase in accounts receivable.
Several significant contractual obligations are anticipated to be incurred in future periods and include payments for retirement
benefit plan obligations, lease obligations and PPG inventory commitments. Payments towards the retirement plan obligations are
anticipated to commence during fiscal year 2023 in the amount of $10.9 million and total $82.8 million over the life of the plan. Existing
lease obligations are $4.1 million for fiscal year 2022, $8.0 million for both fiscal years 2023 and 2024 and $14.2 million thereafter.
Existing PPG inventory commitments are $25.7 million and will fluctuate based on PPG production needs to fulfill to our demand for
commercial emitter material.
We anticipate, based on our internal forecasts and assumptions relating to our operations (including, among others, assumptions
regarding our working capital requirements, the progress of our research and development efforts, the availability of sources of funding
for our research and development work, and the timing and costs associated with the preparation, filing, prosecution, maintenance,
defense and enforcement of our patents and patent applications), that we have sufficient cash, cash equivalents and short-term
investments to meet our obligations for at least the next twelve months. However, the extent to which the COVID-19 pandemic and our
precautionary measures in response thereto may impact our business and thus our liquidity will depend on future developments, which
are highly uncertain and cannot be precisely estimated at this time.
We believe that potential additional financing sources for us include long-term and short-term borrowings and public and private
sales of our equity and debt securities. It should be noted, however, that additional funding may be required in the future for research,
development and commercialization of our OLED technologies and materials, to obtain, maintain and enforce patents respecting these
technologies and materials, and for working capital and other purposes, the timing and amount of which are difficult to ascertain. There
can be no assurance that additional funds will be available to us when needed, on commercially reasonable terms or at all, particularly
in the current economic environment.
37
Recently Issued Accounting Pronouncements
Recently issued accounting pronouncements are addressed in Note 2 in the Notes to Consolidated Financial Statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We do not utilize financial instruments for trading purposes and hold no derivative financial instruments, other financial
instruments or derivative commodity instruments that could expose us to significant market risk other than our investments disclosed in
“Fair Value Measurements” in Note 4 to the Consolidated Financial Statements included herein. We generally invest in investment
grade financial instruments to reduce our exposure related to investments. Our primary market risk exposure with regard to such financial
instruments is to changes in interest rates, which would impact interest income earned on investments. However, based upon the
conservative nature of our investment portfolio and current experience, we do not believe a decrease in investment yields would have a
material negative effect on our interest income.
Substantially all our revenue is derived from outside of North America. All revenue is primarily denominated in U.S. dollars and
therefore we bear no significant foreign exchange risk.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Our Consolidated Financial Statements and the related notes to those statements are attached to this report beginning on page F-
1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness
of our disclosure controls and procedures as of December 31, 2021. Based on that evaluation, the Chief Executive Officer and Chief
Financial Officer concluded that our disclosure controls and procedures, as of the end of the period covered by this report, are effective
to provide reasonable assurance that the information required to be disclosed by us in reports filed or submitted under the Securities
Exchange Act of 1934, as amended, is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s
rules and forms, and (ii) accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial
Officer, as appropriate to allow timely decisions regarding disclosure. However, a controls system, no matter how well designed and
operated, cannot provide absolute assurance that the objectives of the controls system are met, and no evaluation of controls can provide
absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.
Management’s Report on Internal Control over Financial Reporting and Report of Independent Registered Public Accounting
Firm on Internal Control over Financial Reporting
The report of management on our internal control over financial reporting and the associated attestation report of our independent
registered public accounting firm are set forth in Item 8 of this report.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during the quarter ended December 31, 2021 that have
materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
None.
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
None.
38
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Information with respect to this item is set forth in our definitive Proxy Statement for the 2022 Annual Meeting of Shareholders,
which is to be filed with the Securities and Exchange Commission no later than May 2, 2022 (the first business day after the 120th day
following the end of our fiscal year) (our Proxy Statement), and which is incorporated herein by reference. Information regarding our
executive officers is included at the end of Item 1 in Part I of this report.
ITEM 11. EXECUTIVE COMPENSATION
Information with respect to this item will be set forth in our Proxy Statement, and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
Information with respect to this item will be set forth in our Proxy Statement, and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Information with respect to this item will be set forth in our Proxy Statement, and is incorporated herein by reference.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Information with respect to this item will be set forth in our Proxy Statement, and is incorporated herein by reference.
39
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) The following documents are filed as part of this report:
(1) Financial Statements:
PART IV
Management’s Report on Internal Control Over Financial Reporting.............................................................................................
Reports of Independent Registered Public Accounting Firm ..........................................................................................................
Consolidated Balance Sheets ...........................................................................................................................................................
Consolidated Statements of Income.................................................................................................................................................
Consolidated Statements of Comprehensive Income.......................................................................................................................
Consolidated Statements of Shareholders’ Equity...........................................................................................................................
Consolidated Statements of Cash Flows ..........................................................................................................................................
Notes to Consolidated Financial Statements....................................................................................................................................
F-2
F-3
F-6
F-7
F-8
F-9
F-10
F-11
(2) Financial Statement Schedules:
None.
(3) Exhibits:
The following is a list of the exhibits filed as part of this report. Where so indicated by footnote, exhibits that were previously
filed are incorporated by reference. For exhibits incorporated by reference, the location of the exhibit in the previous filing is indicated
parenthetically, together with a reference to the filing indicated by footnote.
Exhibit
Number
3.1
3.2
4
10.1#
10.2#
10.3#
10.4#
10.5#
10.6#
10.7#
10.8#
10.9#
10.10#
10.11#
Amended and Restated Articles of Incorporation of the registrant (1)
Amended and Restated Bylaws of the registrant (2)
Description of Securities(3)
Description
Amended and Restated Change in Control Agreement between the registrant and Sherwin I. Seligsohn, dated as of
November 4, 2008 (4)
Amended and Restated Change in Control Agreement between the registrant and Steven V. Abramson, dated as of
November 4, 2008 (4)
Amended and Restated Change in Control Agreement between the registrant and Sidney D. Rosenblatt, dated as of
November 4, 2008 (4)
Amended and Restated Change in Control Agreement between the registrant and Julia J. Brown, dated as of November 4,
2008 (4)
Amended and Restated Change in Control Agreement between the registrant and Janice K. Mahon, dated as of November
4, 2008 (4)
Non-Competition and Non-Solicitation Agreement between the registrant and Sherwin I. Seligsohn, dated as of February
23, 2007 (5)
Non-Competition and Non-Solicitation Agreement between the registrant and Steven V. Abramson, dated as of January 26,
2007 (5)
Non-Competition and Non-Solicitation Agreement between the registrant and Sidney D. Rosenblatt, dated as of February
7, 2007 (5)
Non-Competition and Non-Solicitation Agreement between the registrant and Julia J. Brown, dated as of February 5, 2007
(5)
Non-Competition and Non-Solicitation Agreement between the registrant and Janice K. Mahon, dated as of February 23,
2007 (4)
Amended and Restated Change in Control Agreement between the registrant and Mauro Premutico, dated April 16, 2012
(6)
10.12#
Supplemental Executive Retirement Plan, dated as of April 1, 2010 (7)
40
10.13#
Amended and Restated Equity Compensation Plan, effective as of March 7, 2013 (8)
10.14
10.15
10.16
10.17
10.18+
10.19+
1997 Amended License Agreement among the registrant, The Trustees of Princeton University and the University of
Southern California, dated as of October 9, 1997 (9)
Amendment #1 to the Amended License Agreement among the registrant, the Trustees of Princeton University and the
University of Southern California, dated as of August 7, 2003 (10)
Amendment #2 to the Amended License Agreement among the registrant, the Trustees of Princeton University, the
University of Southern California and the Regents of the University of Michigan, dated as of January 1, 2006 (11)
Termination, Amendment and License Agreement by and among the registrant, PD-LD, Inc., Dr. Vladimir S. Ban, and The
Trustees of Princeton University, dated as of July 19, 2000 (12)
Amended and Restated OLED Materials Supply and Service Agreement between the registrant and PPG Industries, Inc.,
dated as of October 1, 2011 (13)
Amendment, dated February 23, 2021, to Amended and Restated OLED Materials Supply and Service Agreement, dated as
of October 1, 2011, between the Registrant and PPG Industries, Inc. (14)
10.20+
OLED Patent License Agreement between the registrant and Samsung Display Co., Ltd., dated as of February 13, 2018 (15)
10.21+
Supplemental OLED Material Purchase Agreement between the registrant and Samsung Display Co., Ltd., dated as of
February 13, 2018 (15)
10.22+
Patent Sale Agreement, dated as of July 23, 2012 by and between FUJIFILM Corporation and the Company (16)
10.23#
Universal Display Corporation Annual Incentive Plan (17)
10.24#
Form Agreement - Restricted Stock Unit Grant Letter (18)
10.25#
Form Agreement - Performance Unit Grant Letter (18)
10.26#
Universal Display Corporation Equity Compensation Plan (19)
10.27#
Amendment 2015-1, dated March 3, 2015, to Universal Display Corporation Supplemental Executive Retirement Plan (20)
10.28#
Equity Retention Agreement between the Registrant and Steven V. Abramson, dated April 7, 2015 (21)
10.29#
Equity Retention Agreement between the Registrant and Sidney D. Rosenblatt, dated April 7, 2015 (21)
10.30#
Equity Retention Agreement between the Registrant and Julia J. Brown, dated September 10, 2015 (22)
10.31#
Equity Retention Agreement between the Registrant and Mauro Premutico, dated September 10, 2015 (22)
10.32+
10.33#
10.34#
10.35#
10.36#
10.37#
21*
23.1*
31.1*
31.2*
32.1**
IP Transfer Agreement, dated June 28, 2016 by and between UDC Ireland Limited and BASF SE (23)
Equity Grant Agreement between the registrant and Steven V. Abramson, dated as of December 12, 2019 (3)
Equity Grant Agreement between the registrant and Sidney D. Rosenblatt, dated as of December 12, 2019 (3)
Equity Grant Agreement between the registrant and Julia J. Brown, dated as of December 12, 2019 (3)
Equity Grant Agreement between the registrant and Mauro Premutico, dated as of December 12, 2019 (3)
Equity Grant Agreement between the registrant and Janice K. Mahon, dated as of December 12, 2019 (3)
Subsidiaries of the registrant
Consent of KPMG LLP
Certifications of Steven V. Abramson, Chief Executive Officer, as required by Rule 13a-14(a) or Rule 15d-14(a)
Certifications of Sidney D. Rosenblatt, Chief Financial Officer, as required by Rule 13a-14(a) or Rule 15d-14(a)
Certifications of Steven V. Abramson, Chief Executive Officer, as required by Rule 13a-14(b) or Rule 15d-14(b), and by
18 U.S.C. Section 1350. (This exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange
Act of 1934, as amended, or otherwise subject to the liability of that section. Further, this exhibit shall not be deemed to be
incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of
1934, as amended.)
41
32.2**
Certifications of Sidney D. Rosenblatt, Chief Financial Officer, as required by Rule 13a-14(b) or Rule 15d-14(b), and by
18 U.S.C. Section 1350. (This exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange
Act of 1934, as amended, or otherwise subject to the liability of that section. Further, this exhibit shall not be deemed to be
incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of
1934, as amended.)
101.INS*
Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL
tags are embedded within the Inline XBRL document
101.SCH* Inline XBRL Taxonomy Extension Schema Document
101.CAL* Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF* Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB* Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE* Inline XBRL Taxonomy Extension Presentation Linkbase Document
104
The cover page of this Annual Report on Form 10-K for the year ended December 31, 2021, formatted in Inline XBRL
(included in Item 101.INS)
Explanation of footnotes to listing of exhibits:
* Filed herewith.
** Furnished herewith.
# Management contract or compensatory plan or arrangement.
+ Either (1) confidential treatment has been accorded to certain portions of this exhibit pursuant to Rule 406 under the Securities Act of
1933, as amended, or Rule 24b-2 under the Securities Exchange Act of 1934, as amended, or (2) portions of this exhibit have been
omitted pursuant to Item 601(b)(10)(iv) of Regulation S-K promulgated by the SEC.
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
Filed as an Exhibit to the Quarterly Report on Form 10-Q for the quarter ended June 30, 2018, filed with the SEC on August 9,
2018.
Filed as an Exhibit to the Annual Report on Form 10-K for the year ended December 31, 2003, filed with the SEC on March 1,
2004.
Filed as an Exhibit to the Annual Report on Form 10-K for the year ended December 31, 2019, filed with the SEC on February
20, 2020.
Filed as an Exhibit to the Annual Report on Form 10-K for the year ended December 31, 2008, filed with the SEC on March 12,
2009.
Filed as an Exhibit to the Annual Report on Form 10-K for the year ended December 31, 2006, filed with the SEC on March 15,
2007.
Filed as an Exhibit to the Quarterly Report on Form 10-Q for the quarter ended June 30, 2012, filed with the SEC on August 8,
2012.
Filed as an Exhibit to the Quarterly Report on Form 10-Q for the quarter ended March 31, 2010, filed with the SEC on May 10,
2010.
Filed as an Exhibit to the Quarterly Report on Form 10-Q for the quarter ended March 31, 2013, filed with the SEC on May 9,
2013.
Filed as an Exhibit to the Annual Report on Form 10K-SB for the year ended December 31, 1997, filed with the SEC on March
31, 1998.
(10) Filed as an Exhibit to the Quarterly Report on Form 10-Q for the quarter ended September 30, 2003, filed with the SEC on
November 10, 2003.
(11) Filed as an Exhibit to the Quarterly Report on Form 10-Q for the quarter ended June 30, 2006, filed with the SEC on August 9,
2006.
(12) Filed as an Exhibit to the amended Quarterly Report on Form 10-Q for the quarter ended September 30, 2000, filed with the SEC
on November 20, 2001.
42
(13) Filed as an Exhibit to the Quarterly Report on Form 10-Q for the quarter ended September 30, 2011, filed with the SEC on
November 8, 2011.
(14) Filed as an Exhibit to the Quarterly Report on Form 10-Q for the quarter ended March 31, 2021, filed with the SEC on May 6,
2021.
(15) Filed as an Exhibit to the Quarterly Report on Form 10-Q for the quarter ended March 31, 2018, filed with the SEC on May 3,
2018.
(16) Filed as an Exhibit to a Current Report on Form 8-K, filed with the SEC on July 27, 2012.
(17) Filed as an Exhibit to a Current Report on Form 8-K, filed with the SEC on June 24, 2013.
(18) Filed as an Exhibit to the Annual Report on Form 10-K for the year ended December 31, 2013, filed with the SEC on February
28, 2014.
(19) Filed as Exhibit A to the Company's Definitive Proxy Statement for the 2014 Annual Meeting filed with the SEC on April 25,
2014.
(20) Filed as an exhibit to the Current Report on Form 8-K filed with the SEC on March 9, 2015.
(21) Filed as an Exhibit to the Quarterly Report on Form 10-Q for the quarter ended June 30, 2015, filed with the SEC on August 6,
2015.
(22) Filed as an Exhibit to the Quarterly Report on Form 10-Q for the quarter ended September 30, 2015, filed with the SEC on
November 5, 2015.
(23) Filed as an Exhibit to the Quarterly Report on Form 10-Q for the quarter ended June 30, 2016, filed with the SEC on August 4,
2016.
Note: Any of the exhibits listed in the foregoing index not included with this report may be obtained, without charge, by writing
to Mr. Sidney D. Rosenblatt, Corporate Secretary, Universal Display Corporation, 250 Phillips Boulevard, Ewing, New Jersey 08618.
(b) The exhibits required to be filed by us with this report are listed above.
(c) The Consolidated Financial Statement schedules required to be filed by us with this report are listed above.
ITEM 16. FORM 10-K SUMMARY
None.
43
Pursuant to the requirements 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.
SIGNATURES
UNIVERSAL DISPLAY CORPORATION
By: /s/ Sidney D. Rosenblatt
Sidney D. Rosenblatt
Executive Vice President, Chief Financial Officer,
Treasurer and Secretary
Date: February 23, 2022
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the dates indicated.
Name
Title
/s/ Sherwin I. Seligsohn Founder and Chairman of the Board of Directors
Sherwin I. Seligsohn
Date
February 23, 2022
/s/ Steven V. Abramson
Steven V. Abramson
/s/ Sidney D. Rosenblatt
Sidney D. Rosenblatt
President, Chief Executive Officer and Director (principal executive officer)
February 23, 2022
Executive Vice President, Chief Financial Officer, Treasurer, Secretary and
February 23, 2022
Director (principal financial and accounting officer)
/s/ Cynthia J. Comparin
Cynthia J. Comparin
Director
/s/ Richard C. Elias
Richard C. Elias
Director
/s/ Elizabeth H. Gemmill Director
Elizabeth H. Gemmill
/s/ C. Keith Hartley
C. Keith Hartley
/s/ Celia M. Joseph
Celia M. Joseph
Director
Director
/s/ Lawrence Lacerte
Lawrence Lacerte
Director
February 23, 2022
February 23, 2022
February 23, 2022
February 23, 2022
February 23, 2022
February 23, 2022
44
UNIVERSAL DISPLAY CORPORATION AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Financial Statements:
Management’s Report on Internal Control Over Financial Reporting.................................................................................
Reports of Independent Registered Public Accounting Firm ..............................................................................................
Consolidated Balance Sheets ...............................................................................................................................................
Consolidated Statements of Income.....................................................................................................................................
Consolidated Statements of Comprehensive Income...........................................................................................................
Consolidated Statements of Shareholders’ Equity ...............................................................................................................
Consolidated Statements of Cash Flows ..............................................................................................................................
Notes to Consolidated Financial Statements........................................................................................................................
F-2
F-3
F-6
F-7
F-8
F-9
F-10
F-11
F-1
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Our management is responsible for establishing and maintaining adequate internal control over financial reporting for Universal
Display Corporation and its subsidiaries (the Company). Internal control over financial reporting is a process designed to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of Consolidated Financial Statements for external
purposes in accordance with generally accepted accounting principles. Our system of internal control over financial reporting includes
those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary
to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and
(iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the
Company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management performed an assessment of the effectiveness of our internal control over financial reporting as of December 31,
2021 based upon criteria in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of
the Treadway Commission (COSO). Based on this assessment, management determined that the Company’s internal control over
financial reporting was effective as of December 31, 2021, based on the criteria in Internal Control-Integrated Framework (2013) issued
by COSO.
The effectiveness of our internal control over financial reporting as of December 31, 2021, has been attested to by KPMG LLP,
an independent registered public accounting firm, as stated in its report which appears on the following page.
Steven V. Abramson
President and Chief Executive Officer
Sidney D. Rosenblatt
Executive Vice President and Chief Financial Officer
February 23, 2022
F-2
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors
Universal Display Corporation:
Opinion on Internal Control Over Financial Reporting
We have audited Universal Display Corporation and subsidiaries' (the Company) internal control over financial reporting as of
December 31, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective
internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control – Integrated
Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the consolidated balance sheets of the Company as of December 31, 2021 and 2020, the related consolidated statements of
income, comprehensive income, shareholders’ equity, and cash flows for each of the years in the three-year period ended December
31, 2021, and the related notes (collectively, the consolidated financial statements), and our report dated February 23, 2022 expressed
an unqualified opinion on those consolidated financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of
the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Control
over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based
on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the
Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting,
assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control
based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances.
We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in
accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect
on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections
of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ KPMG LLP
Philadelphia, Pennsylvania
February 23, 2022
F-3
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors
Universal Display Corporation:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Universal Display Corporation and subsidiaries (the Company) as
of December 31, 2021 and 2020, the related consolidated statements of income, comprehensive income, shareholders’ equity, and cash
flows for each of the years in the three-year period ended December 31, 2021, and the related notes (collectively, the consolidated
financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position
of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the years in the
three-year period ended December 31, 2021, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the Company’s internal control over financial reporting as of December 31, 2021, based on criteria established in Internal
Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our
report dated February 23, 2022 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial
reporting.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB
and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to
error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial
statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining,
on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included
evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall
presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements
that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are
material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The
communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a
whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or
on the accounts or disclosures to which it relates.
Estimated per unit fee for long-term OLED contracts
As discussed in Notes 2 and 21 to the consolidated financial statements, the Company recognizes revenue for organic light
emitting diode (OLED) sales to customers with long-term contracts (i.e., over 1 year in length) using certain estimates. Revenue
is determined by estimating total contract consideration expected to be received over the term of the contract and recognized
based on material units sold during the period at their estimated per unit fee. The estimated per unit fee includes fixed amounts
designated in contracts with customers as license fees, as well as estimates of material units to be sold and royalties to be earned.
The Company uses internal and external data to estimate material units to be sold and royalty consideration to be received over
the contract terms.
We identified the assessment of the estimated per unit fee for long-term OLED contracts as a critical audit matter. The estimated
per unit fee was dependent upon the estimates of total material units to be sold and royalties to be earned. Significant auditor
judgment was required in evaluating the forecasted material unit sales and royalties, as changes in the estimates could
significantly affect the estimated per unit fee.
F-4
The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested
the operating effectiveness of certain internal controls related to the critical audit matter. This included controls related to the
Company’s revenue recognition process, including the Company’s review and approval of forecasted quantities of material unit
sales of OLED products and review of forecasted royalties. We assessed the Company’s forecasting policies and procedures and
the inputs used in making the estimates by considering other reasonably likely outcomes when evaluating potential management
bias. Additionally, we inspected the forecast calculations for a selection of OLED contracts and compared the per-material unit
prices and royalty rates used against the respective contract terms. We compared the OLED material unit sales forecast to
internal operating and production budgets, and we compared the forecasted OLED material unit sales and royalties to the results
of inquiries of Company personnel, publicly available market data, and analyst reports. We assessed the Company’s ability to
accurately forecast OLED material unit sales and royalties by comparing recent historical forecasts to actual results and
evaluating the Company’s conclusions regarding the reasons for changes in the current year’s estimates as compared to prior
estimates.
/s/ KPMG LLP
We have served as the Company’s auditor since 2002.
Philadelphia, Pennsylvania
February 23, 2022
F-5
UNIVERSAL DISPLAY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
ASSETS
December 31, 2021
December 31, 2020
CURRENT ASSETS:
Cash and cash equivalents
Short-term investments
Accounts receivable
Inventory
Other current assets
Total current assets
PROPERTY AND EQUIPMENT, net of accumulated depreciation of $92,461 and $72,493
ACQUIRED TECHNOLOGY, net of accumulated amortization of $173,635 and $153,050
OTHER INTANGIBLE ASSETS, net of accumulated amortization of $7,565 and $6,155
GOODWILL
INVESTMENTS
DEFERRED INCOME TAXES
OTHER ASSETS
TOTAL ASSETS
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable
Accrued expenses
Deferred revenue
Other current liabilities
Total current liabilities
DEFERRED REVENUE
RETIREMENT PLAN BENEFIT LIABILITY
OTHER LIABILITIES
Total liabilities
COMMITMENTS AND CONTINGENCIES (Note 18)
SHAREHOLDERS’ EQUITY:
Preferred Stock, par value $0.01 per share, 5,000,000 shares authorized, 200,000
shares of Series A Nonconvertible Preferred Stock issued and outstanding
(liquidation value of $7.50 per share or $1,500)
Common Stock, par value $0.01 per share, 200,000,000 shares authorized, 49,065,924
and 49,013,476 shares issued, and 47,700,276 and 47,647,828 shares outstanding at
December 31, 2021 and December 31, 2020, respectively
Additional paid-in capital
Retained earnings
Accumulated other comprehensive loss
Treasury stock, at cost (1,365,648 shares at December 31, 2021 and December 31, 2020)
Total shareholders’ equity
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
$
$
$
$
$
$
$
311,993
351,194
107,639
134,160
20,948
925,934
128,832
49,668
9,711
15,535
168,076
33,453
135,710
1,466,919
14,955
45,474
120,864
6,645
187,938
36,217
66,773
76,077
367,005
630,012
99,996
82,261
91,591
20,746
924,606
102,113
70,253
10,685
15,535
5,000
37,695
103,341
1,269,228
13,801
41,404
105,215
4,540
164,960
57,086
78,527
55,941
356,514
2
2
491
658,728
500,212
(18,235)
(41,284)
1,099,914
1,466,919
$
490
635,595
353,930
(36,019)
(41,284)
912,714
1,269,228
The accompanying notes are an integral part of these Consolidated Financial Statements.
F-6
UNIVERSAL DISPLAY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except share and per share data)
REVENUE:
Material sales
Royalty and license fees
Contract research services
Total revenue
COST OF SALES
Gross margin
OPERATING EXPENSES:
Research and development
Selling, general and administrative
Amortization of acquired technology and other intangible assets
Patent costs
Royalty and license expense
Total operating expenses
OPERATING INCOME
Interest income, net
Other income, net
Interest and other income, net
INCOME BEFORE INCOME TAXES
INCOME TAX EXPENSE
NET INCOME
NET INCOME PER COMMON SHARE:
BASIC
DILUTED
WEIGHTED AVERAGE SHARES USED IN COMPUTING NET
INCOME PER COMMON SHARE:
BASIC
DILUTED
CASH DIVIDEND DECLARED PER COMMON SHARE
2021
Year Ended December 31,
2020
2019
$
$
$
$
$
318,623
219,032
15,870
553,525
114,991
438,534
99,673
80,372
21,994
8,160
691
210,890
227,644
505
98
603
228,247
(44,034)
184,213
3.87
3.87
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47,365,435
0.80
$
$
$
$
$
229,749
185,054
14,064
428,867
85,478
343,389
83,894
61,346
21,969
7,529
11,125
185,863
157,526
5,139
864
6,003
163,529
(30,157)
133,372
2.80
2.80
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47,236,994
0.60
$
$
$
$
$
243,413
150,022
11,742
405,177
75,374
329,803
71,276
59,613
21,962
6,833
11,776
171,460
158,343
10,795
767
11,562
169,905
(31,601)
138,304
2.92
2.92
46,959,775
46,995,462
0.40
The accompanying notes are an integral part of these Consolidated Financial Statements.
F-7
UNIVERSAL DISPLAY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
NET INCOME
OTHER COMPREHENSIVE (LOSS) INCOME, NET OF TAX:
Unrealized (loss) gain on available-for-sale securities, net of tax
of $65, $28 and $51, respectively
Employee benefit plan:
Actuarial gain (loss) on retirement plan, net of tax of $1,336, $3,569
and $988, respectively
Plan amendment cost, net of tax of $79, none and none, respectively
Amortization of prior service cost and actuarial loss for
retirement plan included in net periodic pension costs,
net of tax of $1,316, $723 and $713, respectively
Net change in employee benefit plan
Change in cumulative foreign currency translation adjustment
TOTAL OTHER COMPREHENSIVE INCOME (LOSS)
COMPREHENSIVE INCOME
2021
Year Ended December 31,
2020
2019
$
184,213
$
133,372
$
138,304
(233)
(100)
181
13,620
(283)
(21,464)
—
(3,492)
—
4,719
18,056
(39)
17,784
201,997
$
2,556
(18,908)
(14)
(19,022)
114,350
$
2,523
(969)
25
(763)
137,541
$
The accompanying notes are an integral part of these Consolidated Financial Statements.
F-8
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T
UNIVERSAL DISPLAY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of deferred revenue and recognition of unbilled receivables, net
Depreciation
Amortization of intangibles
Change in excess inventory reserve
Amortization of premium and discount on investments, net
Stock-based compensation to employees
Stock-based compensation to Board of Directors and Scientific Advisory Board
Deferred income tax expense (benefit)
Retirement plan expense
Decrease (increase) in assets:
Accounts receivable
Inventory
Other current assets
Other assets
Increase (decrease) in liabilities:
Accounts payable and accrued expenses
Other current liabilities
Deferred revenue
Other liabilities
Net cash provided by operating activities
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment
Purchase of intangibles
Purchases of investments
Proceeds from sale and maturity of investments
Net cash (used in) provided by investing activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock
Repurchase of common stock
Payment of withholding taxes related to stock-based compensation to employees
Cash dividends paid
Net cash used in financing activities
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR
CASH AND CASH EQUIVALENTS, END OF YEAR
The following non-cash activities occurred:
Unrealized (loss) gain on available-for-sale securities
Common stock issued to Board of Directors and Scientific Advisory Board
that was earned and accrued for in a previous period
Net change in accounts payable and accrued expenses related to purchases
of property and equipment
Cash paid for income tax
$
$
2021
Year Ended December 31,
2020
2019
$
184,213
$
133,372
$
138,304
(225,549)
19,968
21,994
3,554
(373)
34,871
1,404
1,748
8,875
(25,378)
(46,123)
22,413
(36,139)
1,902
2,105
201,484
20,136
191,105
(43,161)
(394)
(642,180)
227,984
(457,751)
1,507
—
(14,949)
(37,931)
(51,373)
(318,019)
630,012
311,993
(183,997)
15,217
21,969
1,114
(4,960)
26,631
1,647
(4,446)
5,656
(21,809)
(28,752)
6,497
(13,481)
(8,305)
2,683
192,369
7,387
148,792
(27,991)
(60)
(604,153)
1,023,460
391,256
1,176
—
(14,394)
(28,445)
(41,663)
498,385
131,627
630,012
$
$
(295) $
(118) $
300
(3,526)
52,650
300
(1,468)
36,269
(135,368)
12,456
21,962
5,938
(6,643)
16,148
1,548
(5,776)
5,818
(17,323)
109
(15,238)
(13,291)
15,516
(5,183)
157,321
17,614
193,912
(30,059)
(401)
(931,854)
723,600
(238,714)
889
(649)
(15,980)
(18,853)
(34,593)
(79,395)
211,022
131,627
241
300
(530)
46,602
The accompanying notes are an integral part of these Consolidated Financial Statements.
F-10
UNIVERSAL DISPLAY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1.
BUSINESS:
Universal Display Corporation and its subsidiaries (the Company) is a leader in the research, development and commercialization
of organic light emitting diode (OLED) technologies and materials for use in display and solid-state lighting applications. OLEDs are
thin, lightweight and power-efficient solid-state devices that emit light that can be manufactured on both flexible and rigid substrates,
making them highly suitable for use in full-color displays and as lighting products. OLED displays are capturing a growing share of the
display market, especially in the mobile phone, television, wearable, tablet, notebook and personal computer, augmented reality (AR),
virtual reality (VR) and automotive markets. The Company believes this is because OLEDs offer potential advantages over competing
display technologies with respect to power efficiency, contrast ratio, viewing angle, video response time, form factor and manufacturing
cost. The Company also believes that OLED lighting products have the potential to replace many existing light sources in the future
because of their high-power efficiency, excellent color rendering index, low operating temperature and novel form factor. The
Company’s technology leadership, intellectual property position, and the Company’s more than 20 years of experience working closely
with leading OLED display manufacturers are some of the competitive advantages that should enable the Company to continue to share
in the revenues from OLED displays and lighting products as they gain wider acceptance.
The Company’s primary business strategy is to (1) develop new OLED materials and sell existing and new materials to product
manufacturers of products for display applications, such as mobile phones, televisions, wearables, tablets, portable media devices,
notebook computers, personal computers and automotive applications, and specialty and general lighting products; and (2) further
develop and either license or otherwise commercialize the Company’s proprietary OLED material, device design and manufacturing
technologies to those manufacturers. The Company has established a significant portfolio of proprietary OLED technologies and
materials, primarily through internal research and development efforts and acquisitions of patents and patent applications, as well as
maintaining long-standing, and establishing new relationships with world-class universities, research institutions and strategic
manufacturing partnerships. The Company currently owns, exclusively licenses or has the sole right to sublicense more than 5,500
patents issued and pending worldwide.
The Company manufactures and sells its proprietary OLED materials to customers for evaluation and use in commercial OLED
products. The Company also enters into agreements with manufacturers of OLED display and lighting products under which it grants
them licenses to practice under the Company’s patents and to use the Company's proprietary know-how. At the same time, the Company
works with these and other companies that are evaluating the Company's OLED material, device design and manufacturing technologies
for possible use in commercial OLED display and lighting products.
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation
The Consolidated Financial Statements include the accounts of Universal Display Corporation and its wholly owned subsidiaries,
UDC, Inc., UDC Ireland Limited (UDC Ireland), Universal Display Corporation Hong Kong, Limited, Universal Display Corporation
Korea, Y.H., Universal Display Corporation Japan GK, Universal Display Corporation China, Ltd., Adesis, Inc. (Adesis), UDC Ventures
LLC, OVJP Corporation (OVJP Corp) and OLED Material Manufacturing Limited (OMM). All intercompany transactions and accounts
have been eliminated.
In November 2020, a wholly-owned subsidiary of UDC Ireland, OMM, was formed as an Ireland limited company. Based out of
Shannon, Ireland, OMM was formed to lease a manufacturing facility to increase the Company’s production capacity to meet market
demand and diversify the Company’s manufacturing base due to evolving industry requirements. Facility improvements and regulatory
approvals are expected to be completed and operations are scheduled to commence by mid-year 2022.
Management’s Use of Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles (GAAP) requires
management to make estimates and assumptions that affect the reported amounts of assets and liabilities and 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. The estimates made are principally in the areas of revenue recognition including estimates of material unit sales and royalties,
the useful life of acquired intangibles, lease liabilities, right-of-use assets, the use and recoverability of inventories, intangibles,
investments and income taxes including realization of deferred tax assets, stock-based compensation and retirement benefit plan
liabilities. Actual results could differ from those estimates.
Cash and Cash Equivalents
F-11
The Company considers all highly liquid debt instruments purchased with an original maturity (maturity at the purchase date) of
three months or less to be cash equivalents. The Company classifies its remaining investments as available-for-sale. These securities are
carried at fair market value, with unrealized gains and losses reported in shareholders’ equity. Gains or losses on securities sold are
based on the specific identification method.
Trade Accounts Receivable
Trade accounts receivable are stated at the amount the Company expects to collect and do not bear interest. The Company
considers the following factors when determining the collectability of specific customer accounts: customer credit-worthiness, past
transaction history with the customer, current economic industry trends, and changes in customer payment terms. The Company’s
accounts receivable balance is a result of chemical sales, royalties and license fees. These receivables have historically been paid timely.
Due to the nature of the accounts receivable balance, the Company believes there is no significant risk of collection. If the financial
condition of the Company’s customers were to deteriorate, adversely affecting their ability to make payments, allowances for credit
losses would be required. The allowance for credit losses was $279,000, $139,000 and $84,000 at December 31, 2021, 2020 and 2019,
respectively.
Inventories
Inventories consist of raw materials, work-in-process and finished goods, including inventory consigned to customers, and are
stated at the lower of cost, determined on a first-in, first-out basis, or net realizable value. Inventory valuation and firm committed
purchase order assessments are performed on a quarterly basis and those items that are identified to be obsolete or in excess of forecasted
usage are written down to their estimated realizable value. Estimates of realizable value are based upon management’s analyses and
assumptions, including, but not limited to, forecasted sales levels by product, expected product lifecycle, product development plans
and future demand requirements. A 12-month rolling forecast based on factors, including, but not limited to, production cycles,
anticipated product orders, marketing forecasts, backlog, and shipment activities is used in the inventory analysis. If market conditions
are less favorable than forecasts or actual demand from customers is lower than estimates, additional inventory write-downs may be
required. If demand is higher than expected, inventories that had previously been written down may be sold.
Property and Equipment
Property and equipment are stated at cost and depreciated on a straight-line basis over the estimated useful life of 30 years for
buildings, 15 years for building improvements, and three to seven years for office and lab equipment and furniture and fixtures. Repair
and maintenance costs are charged to expense as incurred. Additions and betterments are capitalized.
Major renewals and improvements are capitalized and minor replacements, maintenance, and repairs are charged to current
operations as incurred. Upon retirement or disposal of assets, the cost and related accumulated depreciation are removed from the
Consolidated Balance Sheets and any gain or loss is reflected in other operating expenses.
Certain costs of computer software obtained for internal use are capitalized and amortized on a straight-line basis over three years.
Costs for maintenance and training, as well as the cost of software that does not add functionality to an existing system, are expensed as
incurred.
Impairment of Long-Lived Assets
Company management continually evaluates whether events or changes in circumstances might indicate that the remaining
estimated useful life of long-lived assets may warrant revision, or that the remaining balance may not be recoverable. When factors
indicate that long-lived assets should be evaluated for possible impairment, the Company uses an estimate of the related undiscounted
cash flows in measuring whether the long-lived asset should be written down to fair value. Measurement of the amount of impairment
would be based on generally accepted valuation methodologies, as deemed appropriate. As of December 31, 2021, Company
management believed that no revision to the remaining useful lives or write-down of the Company’s long-lived assets was required, and
similarly, no such revisions were required for the years ended December 31, 2020 or 2019.
Goodwill and Purchased Intangible Assets
Goodwill is tested for impairment in the fourth fiscal quarter and, when specific circumstances dictate, between annual tests.
Company management first assesses qualitative factors to determine whether it is more likely than not that the fair value of a reporting
unit is less than its carrying amount as a basis for determining whether a quantitative goodwill impairment test is necessary. If it is
concluded it is more likely than not that the fair value of a reporting unit exceeds its carrying amount, then a quantitative impairment
assessment is not necessary. If it is determined that goodwill has been impaired, then its carrying value is written down to fair value.
F-12
The goodwill impairment test involves a two-step process. The first step, identifying a potential impairment, compares the fair value of
a reporting unit with its carrying amount, including goodwill. If the carrying value of the reporting unit exceeds its fair value, the second
step would need to be conducted; otherwise, no further steps are necessary as no potential impairment exists. If necessary, the second
step to measure the impairment loss would be to compare the implied fair value of the reporting unit goodwill with the carrying amount
of that goodwill. Any excess of the reporting unit goodwill carrying value over the respective implied fair value is recognized as an
impairment loss. The Company performed its annual impairment assessment as of December 31, 2021 utilizing a qualitative evaluation
and concluded that it was more likely than not that the fair value of Adesis is greater than its carrying value. Company management
believes it has made reasonable estimates and assumptions to calculate the fair value of the reporting unit. Future impairment tests will
continue to be performed annually in the fiscal fourth quarter, or sooner if a triggering event occurs. As of December 31, 2021, no
indications of impairment existed.
Purchased intangible assets with finite lives are carried at cost, less accumulated amortization. Amortization is computed over the
estimated useful lives of the respective assets.
Fair Value of Financial Instruments
The carrying values of accounts receivable, other current assets, accounts payable and other current liabilities approximate fair
value in the accompanying Consolidated Financial Statements due to the short-term nature of those instruments. The Company’s other
financial instruments, which include cash equivalents, investments, retirement plan benefit liability and other liabilities are carried at
fair value.
Fair Value Measurements
Fair value is defined as an exit price, representing the price that would be received to sell an asset or paid to transfer a liability in
an orderly transaction between market participants based on the highest and best use of the asset or liability. The Company uses valuation
techniques to measure fair value that maximize the use of observable inputs and minimize the use of unobservable inputs. Observable
inputs are inputs that market participants would use in pricing the asset or liability and are based on market data obtained from sources
independent of the Company. Unobservable inputs reflect assumptions market participants would use in pricing the asset or liability
based on the best information available in the circumstances
Minority Equity Investments
The Company accounts for minority equity investments in companies that are not accounted for under the equity method as equity
securities without readily determinable fair values. The fair value of these securities is based on original cost less impairments, if any,
plus or minus changes resulting from observable price changes in orderly transactions for the identical or similar investment of the same
issuer. Under this method, the share of income or loss of such companies is not included in the Consolidated Statements of Income. The
carrying value of these investments is included in investments on the Consolidated Balance Sheets.
The Company’s policy is to recognize an impairment in the value of its minority equity investments when clear evidence of an
impairment exists. Factors considered in the assessment include a significant adverse change in the regulatory, economic, or
technological environment, the completion of new equity financing that may indicate a decrease in value, the failure to complete new
equity financing arrangements after seeking to raise additional funds, or the commencement of proceedings under which the assets of
the business may be placed in receivership or liquidated to satisfy the claims of debt and equity stakeholders.
Leases
The Company is a lessee in operating leases primarily incurred to facilitate the expansion of manufacturing, research and
development, and selling, general and administrative activities. At contract inception, the Company determines if an arrangement is or
contains a lease, and if so recognizes a right-of-use asset and lease liability at the lease commencement date. For operating leases, the
lease liability is measured at the present value of the unpaid lease payments at the lease commencement date, whereas for finance leases,
the lease liability is initially measured at the present value of the unpaid lease payments and subsequently measured at amortized cost
using the interest method. Operating lease right-of-use assets are included in other assets on the Consolidated Balance Sheets. The short-
term portion of operating lease liabilities is included in other current liabilities on the Consolidated Balance Sheets and the long-term
portion is included in other liabilities on the Consolidated Balance Sheets. As of December 31, 2021, the Company had no leases that
qualified as financing arrangements.
Key estimates and judgments include how the Company determines the discount rate used to discount the unpaid lease payments
to present value and the lease term. The Company monitors for events or changes in circumstances that could potentially require
recognizing an impairment loss.
F-13
Revenue Recognition and Deferred Revenue
Material sales relate to the Company’s sale of its OLED materials for incorporation into its customers’ commercial OLED products
or for their OLED development and evaluation activities. Revenue associated with material sales is generally recognized at the time title
passes, which is typically at the time of shipment or at the time of delivery, depending upon the contractual agreement between the
parties. Revenue may be recognized after control of the material passes in the event the transaction price includes variable consideration.
For example, a customer may be provided an extended opportunity to stock materials prior to use in mass production and given a general
right of return not conditioned on breaches of warranties associated with the specific product. In such circumstances, revenue will be
recognized at the earlier of the expiration of the customer’s general right of return or once it becomes unlikely that the customer will
exercise its right of return.
The rights and benefits to the Company’s OLED technologies are conveyed to the customer through technology license
agreements and material supply agreements. The Company believes that the licenses and materials sold under these combined
agreements are not distinct from each other for financial reporting purposes and as such, are accounted for as a single performance
obligation. Accordingly, total contract consideration is estimated and recognized over the contract term based on material units sold at
the estimated per unit fee over the life of the contract. Total contract consideration is allocated to material sales and royalty and licensing
fees on the Consolidated Statements of Income based on contract pricing.
Various estimates are relied upon to recognize revenue. The Company estimates total material units to be purchased by its
customers over the contract term based on historical trends, industry estimates and its forecast process. Management uses the expected
value method to estimate the material per unit fee. Additionally, management estimates the total sales-based royalties based on the
estimated net sales revenue of its customers over the contract term.
Contract research services revenue is revenue earned by Adesis by providing chemical materials synthesis research, development
and commercialization for non-OLED applications on a contractual basis. These services range from intermediates for structure-activity
relationship studies, reference agents and building blocks for combinatorial synthesis, re-synthesis of key intermediates, specialty
organic chemistry needs, and selective toll manufacturing. These services are provided to third-party pharmaceutical and life sciences
firms and other technology firms at fixed costs or on an annual contract basis. Revenue is recognized as services are performed with
billing schedules and payment terms negotiated on a contract-by-contract basis. Payments received in excess of revenue recognized are
recorded as deferred revenue. In other cases, services may be provided and revenue is recognized before the customer is invoiced. In
these cases, revenue recognized will exceed amounts billed and the difference, representing amounts which are currently unbillable to
the customer pursuant to contractual terms, is recorded as an unbilled receivable.
Technology development and support revenue is revenue earned from development and technology evaluation agreements and
commercialization assistance fees, along with, to a minimal extent, government contracts. Relating to the Company’s government
contracts, the Company may receive reimbursements by government entities for all or a portion of the research and development costs
the Company incurs. Revenues are recognized as services are performed, proportionally as research and development costs are incurred,
or as defined milestones are achieved. Technology development and support revenue is included in contract research services on the
Consolidated Statements of Income.
In 2018, the Company entered into a commercial patent license agreement with Samsung Display Co., Ltd. (SDC). This agreement,
which covers the manufacture and sale of specified OLED display materials, was effective as of January 1, 2018 and lasts through the
end of 2022 with an additional two-year extension option. Under this agreement, the Company is being paid a license fee, payable in
quarterly installments over the agreement term of five years. The agreement conveys to SDC the non-exclusive right to use certain of
the Company's intellectual property assets for a limited period of time that is less than the estimated life of the assets.
At the same time the Company entered into the current commercial license agreement with SDC, the Company also entered into
a new supplemental material purchase agreement with SDC. Under the supplemental material purchase agreement, SDC agrees to
purchase from the Company a minimum amount of phosphorescent emitter materials for use in the manufacture of licensed products.
This minimum commitment is subject to SDC’s requirements for phosphorescent emitter materials and the Company’s ability to meet
these requirements over the term of the supplemental agreement.
In 2015, the Company entered into an OLED patent license agreement and an OLED commercial supply agreement with LG
Display Co., Ltd. (LG Display) which were effective as of January 1, 2015 and superseded the existing 2007 commercial supply
agreement between the parties. The terms of the agreements were set to expire by the end of 2022. The patent license agreement provides
LG Display a non-exclusive, royalty bearing portfolio license to make and sell OLED displays under the Company's patent portfolio.
The patent license calls for license fees, prepaid royalties and running royalties on licensed products. The agreements include customary
provisions relating to warranties, indemnities, confidentiality, assignability and business terms. The agreements provide for certain other
minimum obligations relating to the volume of material sales anticipated over the life of the agreements as well as minimum royalty
F-14
revenue to be generated under the patent license agreement. The Company generates revenue under these agreements that are
predominantly tied to LG Display’s sales of OLED licensed products. The OLED commercial supply agreement provides for the sale
of materials for use by LG Display, which may include phosphorescent emitters and host materials.
In 2021, the Company entered into amendments of the 2015 OLED patent license agreement and the 2015 OLED commercial
supply agreement with LG Display, which amendments were effective as of January 1, 2021. The amended agreements included a term
extension and are set to expire by the end of 2025.
In 2016, the Company entered into long-term, multi-year OLED patent license and material purchase agreements with Tianma
Micro-electronics Co., Ltd. (Tianma). Under the license agreement, the Company has granted Tianma non-exclusive license rights under
various patents owned or controlled by the Company to manufacture and sell OLED display products. The license agreement calls for
license fees and running royalties on licensed products. Additionally, the Company supplies phosphorescent OLED materials to Tianma
for use in its licensed products. In 2021, the parties extended the terms of both the patent license and material purchase agreements for
an additional multi-year-term.
In 2017, the Company entered into long-term, multi-year agreements with BOE Technology Group Co., Ltd. (BOE). Under these
agreements, the Company has granted BOE non-exclusive license rights under various patents owned or controlled by the Company to
manufacture and sell OLED display products. The Company supplies phosphorescent OLED materials to BOE for use in its licensed
products.
In 2018, the Company entered into long-term, multi-year OLED patent license and material purchase agreements with Visionox
Technology, Inc. (Visionox). Under the license agreement, the Company granted certain of Visionox’s affiliates a non-exclusive license
rights under various patents owned or controlled by the Company to manufacture and sell OLED display products. The license agreement
calls for license fees and running royalties on licensed products. Additionally, the Company supplies phosphorescent OLED materials
to Visionox for use in its licensed products. On April 22, 2021, the Company announced that it had extended the Visionox agreement
by entering into new five-year OLED material supply and license agreements with a new affiliate of Visionox, Visionox Hefei
Technology Co. Ltd.
In 2019, the Company entered into an evaluation and commercial supply relationship with Wuhan China Star Optoelectronics
Semiconductor Display Technology Co., Ltd. (CSOT). In 2020, the Company entered into long-term, multi-year agreements with CSOT.
Under these agreements, the Company has granted CSOT non-exclusive license rights under various patents owned or controlled by the
Company to manufacture and sell OLED display products. The Company also supplies phosphorescent OLED materials to CSOT for
use in its licensed products.
All material sales transactions that are not variable consideration transactions are billed and due within 90 days and substantially
all are transacted in U.S. dollars.
Cost of Sales
Cost of sales consists of labor and material costs associated with the production of materials processed at the Company's
manufacturing partners and at the Company's internal manufacturing processing facility. The Company’s portion of cost of sales also
includes depreciation of manufacturing equipment, as well as manufacturing overhead costs and inventory adjustments for excess and
obsolete inventory.
Research and Development
Expenditures for research and development are charged to operations as incurred.
Patent Costs
Costs associated with patent applications, patent prosecution, patent defense and the maintenance of patents are charged to expense
as incurred. Costs to successfully defend a challenge to a patent are capitalized to the extent of an evident increase in the value of the
patent. Costs that relate to an unsuccessful outcome are charged to expense.
Amortization of Acquired Technology
Amortization costs primarily relate to technology acquired from BASF and Fujifilm. These acquisitions were completed in the
years ended December 31, 2016 and 2012, respectively. Acquisition costs are being amortized over a period of 10 years for both the
BASF and Fujifilm patents.
F-15
Amortization of Other Intangible Assets
Other intangible assets from the Adesis acquisition are being amortized over a period of 10 to 15 years. See Note 7 for further
discussion.
Translation of Foreign Currency Financial Statements and Foreign Currency Transactions
The Company’s reporting currency is the U.S. dollar. The functional currency for the UDC Ireland subsidiary is also the U.S.
dollar and the functional currency for the OMM subsidiary and each of the Company's Asia-Pacific foreign subsidiaries is its local
currency. The Company translates the amounts included in the Consolidated Statements of Income from OMM and its Asia-Pacific
foreign subsidiaries into U.S. dollars at weighted-average exchange rates, which the Company believes are representative of the actual
exchange rates on the dates of the transactions. The Company's foreign subsidiaries' assets and liabilities are translated into U.S. dollars
from the local currency at the actual exchange rates as of the end of each reporting date, and the Company records the resulting foreign
exchange translation adjustments in the Consolidated Balance Sheets as a component of accumulated other comprehensive loss. The
overall effect of the translation of foreign currency and foreign currency transactions to date has been insignificant.
Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their
respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
The Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained.
Recognized income tax positions are measured at the largest amount of which the likelihood of realization is greater than 50%. Changes
in recognition or measurement are reflected in the period in which the change in judgment occurs. The Company records interest and
penalties, if any, related to unrecognized tax benefits as a component of tax expense.
Share-Based Payment Awards
The Company recognizes in the Consolidated Statements of Income the grant-date fair value of equity-based awards such as shares
issued under employee stock purchase plans, restricted stock awards, restricted stock units and performance unit awards issued to
employees and directors.
The grant-date fair value of stock awards is based on the closing price of the stock on the date of grant. The fair value of share-
based awards is recognized as compensation expense on a straight-line basis over the requisite service period, net of forfeitures. The
Company issues new shares upon the respective grant, exercise or vesting of the share-based payment awards, as applicable.
Performance unit awards are subject to either a performance-based or market-based vesting requirement. For performance-based
vesting, the grant-date fair value of the award, based on fair value of the Company's common stock, is recognized over the service period
based on an assessment of the likelihood that the applicable performance goals will be achieved and compensation expense is
periodically adjusted based on actual and expected performance. Compensation expense for performance unit awards with market-based
vesting is calculated based on the estimated fair value as of the grant date utilizing a Monte Carlo simulation model and is recognized
over the service period on a straight-line basis.
Recent Accounting Pronouncements
Adoption of New Accounting Standards
In December 2019, the Financial Accounting Standards Board issued Accounting Standards Update (ASU) No. 2019-12, Income
Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which simplifies the accounting for income taxes by removing certain
exceptions and improving consistent application in certain areas of Topic 740. The standards update is effective prospectively for annual
and interim periods in fiscal years beginning after December 15, 2020. The adoption of ASU 2019-12, beginning on January 1, 2021,
did not have a significant impact on the Consolidated Financial Statements and related disclosures.
Accounting Standards Issued But Not Yet Adopted
The Company considers the applicability and impact of all ASUs. ASUs were assessed and determined to be either not applicable
or are expected to have minimal impact on our consolidated financial statements.
F-16
3.
CASH, CASH EQUIVALENTS AND INVESTMENTS:
The Company’s portfolio of fixed income securities consists of term bank certificates of deposit, U.S. Government bonds and
corporate bonds. The Company considers all highly liquid debt instruments purchased with an original maturity (maturity at the purchase
date) of three months or less to be cash equivalents. The Company classifies its remaining debt security investments as available-for-
sale. These debt securities are carried at fair market value, with unrealized gains and losses reported in shareholders’ equity. Gains or
losses on securities sold are based on the specific identification method.
Cash and Cash Equivalents
The following table provides details regarding the Company’s portfolio of cash and cash equivalents (in thousands):
Cash and Cash Equivalents Classification
December 31, 2021
Cash accounts in banking institutions
Money market accounts
December 31, 2020
Cash accounts in banking institutions
Money market accounts
U.S. Government bonds
Short-term Investments
Amortized
Cost
Unrealized
Gains
(Losses)
Aggregate Fair
Market Value
$
$
$
$
256,878 $
55,115
311,993 $
163,779 $
17,261
448,970
630,010 $
— $
—
— $
— $
—
6
6 $
— $
—
— $
— $
—
(4)
(4) $
256,878
55,115
311,993
163,779
17,261
448,972
630,012
The following table provides details regarding the Company’s portfolio of short-term investments (in thousands):
Short-term Investments Classification
Amortized
Cost
Unrealized
Gains
(Losses)
Aggregate Fair
Market Value
December 31, 2021
Certificates of deposit
Corporate bonds
U.S. Government bonds
December 31, 2020
U.S. Government bonds
$
$
$
240 $
226,448
124,611
351,299 $
99,929
99,929 $
— $
3
—
3 $
67
67 $
— $
(97)
(11)
(108) $
—
— $
240
226,354
124,600
351,194
99,996
99,996
Long-term U.S. Government Bonds Investments
The following table provides details regarding the Company’s portfolio of long-term investments (in thousands):
Long-term Investments Classification
December 31, 2021
U.S. Government bonds
Amortized
Cost
Unrealized
Gains
(Losses)
Aggregate Fair
Market Value
$
$
159,692 $
159,692 $
10 $
10 $
(134) $
(134) $
159,568
159,568
The Company did not have any long-term investments classified as U.S. Government bonds as of December 31, 2020.
Long-term Minority Investments
The Company’s portfolio of minority investments consists of investments in privately held early-stage companies primarily
motivated to gain early access to new technology and are passive in nature in that the Company does not obtain representation on the
boards of directors of the companies in which it invests. Minority investments are included in investments on the Consolidated
Balance Sheets. As of December 31, 2021, the Company had two minority investments with a total carrying value of $8.5 million
accounted for as equity securities without readily determinable fair values.
F-17
4.
FAIR VALUE MEASUREMENTS:
The following table provides the assets and liabilities carried at fair value measured on a recurring basis as of December 31, 2021
(in thousands):
Total Carrying Value
as of December 31,
2021
Quoted Prices in
Active Markets
(Level 1)
Significant Other
Observable Inputs
(Level 2)
Significant Unobservable
Inputs
(Level 3)
Fair Value Measurements, Using
Cash equivalents
Short-term investments
Long-term U.S government bonds investments
$
$
55,115
351,194
159,568
55,115 $
351,194
159,568
— $
—
—
—
—
—
The following table provides the assets and liabilities carried at fair value measured on a recurring basis as of December 31, 2020
(in thousands):
Cash equivalents
Short-term investments
Fair Value Measurements, Using
Total Carrying Value
as of December 31,
2020
Quoted Prices in
Active Markets
(Level 1)
Significant Other
Observable Inputs
(Level 2)
Significant Unobservable
Inputs
(Level 3)
$
466,233
99,996
$
466,233 $
99,996
— $
—
—
—
Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs are quoted prices
for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly
through market corroboration, for substantially the full term of the financial instrument. Level 3 inputs are unobservable inputs based
on management’s own assumptions used to measure assets and liabilities at fair value. A financial asset’s or liability’s classification is
determined based on the lowest level input that is significant to the fair value measurement.
Changes in fair value of the debt investments are recorded as unrealized gains and losses in accumulated other comprehensive
loss on the Consolidated Balance Sheets and any credit losses on debt investments are recorded as an allowance for credit losses with
an offset recognized in other income, net on the Consolidated Statements of Income. There were no credit losses on debt investments as
of December 31, 2021 or December 31, 2020.
5.
INVENTORY:
Inventory consisted of the following (in thousands):
Raw materials
Work-in-process
Finished goods
Inventory
December 31,
2021
2020
$
$
75,227
16,065
42,868
134,160
$
$
46,843
9,904
34,844
91,591
The Company recorded an increase in inventory reserve of $3.6 million, $1.1 million and $5.9 million for the years ended
December 31, 2021, 2020 and 2019, respectively, due to excess inventory levels in certain products.
F-18
6.
PROPERTY AND EQUIPMENT:
Property and equipment consist of the following (in thousands):
Land
Building and improvements
Office and lab equipment
Furniture, fixtures and computer related assets
Construction-in-progress
Less: Accumulated depreciation
Property and equipment, net
December 31,
2021
2020
$
$
2,642
76,600
107,168
16,221
18,662
221,293
(92,461)
128,832
$
$
2,642
53,568
85,881
8,921
23,594
174,606
(72,493)
102,113
Depreciation expense was $20.0 million, $15.2 million and $12.5 million for the years ended December 31, 2021, 2020 and 2019,
respectively.
7.
GOODWILL AND INTANGIBLE ASSETS:
The Company monitors the recoverability of goodwill annually or whenever events or changes in circumstances indicate the
carrying value may not be recoverable. Purchased intangible assets subject to amortization consist of acquired technology and other
intangible assets that include trade names, customer relationships and developed intellectual property (IP) processes.
Acquired Technology
Acquired technology consists of acquired license rights for patents and know-how obtained from PD-LD, Inc., Motorola, BASF
SE (BASF) and Fujifilm. These intangible assets consist of the following (in thousands):
PD-LD, Inc.
Motorola
BASF
Fujifilm
Other
Less: Accumulated amortization
Acquired technology, net
December 31,
2021
2020
1,481
15,909
95,989
109,462
462
223,303
(173,635)
49,668
$
$
1,481
15,909
95,989
109,462
462
223,303
(153,050)
70,253
$
$
Amortization expense related to acquired technology was $20.6 million for each of the years ended December 31, 2021, 2020 and
2019. Amortization expense is included in amortization of acquired technology and other intangible assets expense line item on the
Consolidated Statements of Income and is expected to be $15.8 million in the year ending December 31, 2022, $9.7 million in the year
ending December 31, 2023, $9.6 million in each of the years ending December 31, 2024 and 2025, $4.8 million in the year ending
December 31, 2026 and $200,000 in total thereafter.
Fujifilm Patent Acquisition
On July 23, 2012, the Company entered into a Patent Sale Agreement with Fujifilm. Under the agreement, Fujifilm sold more
than 1,200 OLED-related patents and patent applications in exchange for a cash payment of $105.0 million, plus costs incurred in
connection with the purchase. The agreement contains customary representations and warranties and covenants, including respective
covenants not to sue by both parties thereto. The agreement permitted the Company to assign all of its rights and obligations under the
agreement to its affiliates, and the Company assigned, prior to the consummation of the transactions contemplated by the agreement, its
rights and obligations to UDC Ireland, a wholly-owned subsidiary of the Company formed under the laws of the Republic of Ireland.
The transactions contemplated by the agreement were consummated on July 26, 2012. The Company recorded the $105.0 million plus
$4.5 million of purchase costs as acquired technology, which is being amortized over a period of 10 years.
F-19
BASF Patent Acquisition
On June 28, 2016, UDC Ireland entered into and consummated an IP Transfer Agreement with BASF. Under the IP Transfer
Agreement, BASF sold to UDC Ireland all of its rights, title and interest to certain of its owned and co-owned intellectual property rights
relating to the composition of, development, manufacture and use of OLED materials, including OLED lighting and display stack
technology, as well as certain tangible assets. The intellectual property includes knowhow and more than 500 issued and pending patents
in the area of phosphorescent materials and technologies. These assets were acquired in exchange for a cash payment of €86.8 million
($95.8 million). In addition, UDC Ireland also took on certain rights and obligations under three joint research and development
agreements to which BASF was a party. The IP Transfer Agreement also contains customary representations, warranties and covenants
of the parties. UDC Ireland recorded the payment of €86.8 million ($95.8 million) and acquisition costs incurred of $217,000 as acquired
technology, which is being amortized over a period of 10 years.
Other Intangible Assets
As a result of the Adesis acquisition in June 2016, the Company recorded $16.8 million of other intangible assets, including $10.5
million assigned to customer relationships with a weighted average life of 11.5 years, $4.8 million of internally developed IP, processes
and recipes with a weighted average life of 15 years, and $1.5 million assigned to trade name and trademarks with a weighted average
life of 10 years.
At December 31, 2021, these other intangible assets consist of the following (in thousands):
Customer relationships
Developed IP, processes and recipes
Trade name/Trademarks
Other
Total identifiable other intangible assets
Gross Carrying
Amount
December 31, 2021
Accumulated
Amortization
Net Carrying
Amount
$
$
10,520 $
4,820
1,500
436
17,276 $
(4,973) $
(1,748)
(818)
(26)
(7,565) $
5,547
3,072
682
410
9,711
Amortization expense related to other intangible assets was $1.4 million for each of the years ended December 31, 2021, 2020,
and 2019. Amortization expense is included in amortization of acquired technology and other intangible assets expense line item on the
Consolidated Statements of Income and is expected to be $1.4 million for each of the next five fiscal years (2022 - 2026) and $2.7
million in total thereafter.
Goodwill
As a result of the Adesis acquisition, the Company recorded $15.5 million of goodwill. The Company performs its annual
assessment of goodwill during the fourth quarter of the fiscal year unless events suggest an impairment may have been incurred in an
interim period using Adesis’ standalone financial operating performance information. Application of the goodwill impairment test
requires the exercise of judgment, including the determination of the fair value of each reporting unit, as Adesis is considered to be the
reporting unit. The Company estimates the fair value of reporting units using an income approach based on the present value of estimated
future cash flows. As part of the annual assessment of goodwill completed during the fourth quarter ended December 31, 2021, there
were no significant indicators to conclude that an impairment of the goodwill associated with the acquisition of Adesis had occurred.
8.
OTHER ASSETS:
Other assets consist of the following (in thousands):
Long-term taxes receivable
Right-of-use assets
Other long-term assets
Other Assets
December 31,
2021
2020
$
$
103,260
30,614
1,836
135,710
$
$
90,208
8,750
4,383
103,341
See Notes 9 and 20 for further explanation on right-of-use assets and non-current taxes receivable, respectively.
9.
LEASES:
The Company has entered into operating leases to facilitate the expansion of its manufacturing, research and development, and
selling, general and administrative activities. For purposes of calculating operating lease liabilities, lease terms may be deemed to include
F-20
options to extend or terminate the lease when those events are reasonably certain to occur. The interest rate implicit in lease contracts is
typically not readily determinable and as such the Company uses the appropriate incremental borrowing rate based on information
available at the lease commencement date in determining the present value of the lease payments. Current lease agreements do not
contain any residual value guarantees or material restrictive covenants. As of December 31, 2021, the Company did not have any finance
leases and no additional operating leases that have not yet commenced.
The following table presents the Company’s operating lease cost and supplemental cash flow information related to the Company’s
operating leases (in thousands):
Operating lease cost
Non-cash activity:
Right-of-use assets obtained in exchange for lease obligations
2021
Year Ended December 31,
2020
2019
$
$
3,637 $
26,174 $
2,091 $
1,948 $
1,855
9,776
The increase in right-of-use assets obtained in exchange for lease obligations for the year ended December 31, 2021 was primarily
due to the commencement of the operating lease related to expansion of the Adesis research facilities in Wilmington, Delaware.
The following table presents the Company’s operating lease right-of-use assets and liabilities (in thousands):
Right-of-use assets
Short-term lease liabilities
Long-term lease liabilities
December 31,
2021
2020
$
30,614 $
3,351
27,263
8,750
1,871
6,879
The following table presents weighted average assumptions used to compute the Company’s right-of-use assets and lease
liabilities:
Weighted average remaining lease term (in years)
Weighted average discount rate
December 31, 2021
8.6
2.8%
As of December 31, 2021, current operating leases had remaining terms between eight months and ten years with options to extend
the lease terms.
Undiscounted future minimum lease payments as of December 31, 2021, by year and in the aggregate, having non-cancelable
lease terms in excess of one year were as follows (in thousands):
2022
2023
2024
2025
2026
Thereafter
Total lease payments
Less: imputed interest
Present value of lease payments
Maturities of
Operating Lease Liabilities
4,098
4,018
3,966
4,008
4,021
14,222
34,333
(3,719)
30,614
$
$
F-21
10. ACCRUED EXPENSES:
Accrued expenses consist of the following (in thousands):
Compensation
PPG agreements
Research and development agreements
Consulting
Professional fees
Royalties
Other
Accrued expenses
December 31,
2021
2020
27,686
8,853
1,469
1,314
1,000
691
4,461
45,474
$
$
22,147
4,402
627
771
908
11,125
1,424
41,404
$
$
11. RESEARCH AND LICENSE AGREEMENTS WITH ACADEMIC PARTNERS:
The Company has long-standing relationships with Princeton University (Princeton) and the University of Southern California
(USC) for the conduct of research relating to the Company’s OLED and other organic thin-film technologies and materials. This research
had been performed at Princeton under the direction of Professor Stephen R. Forrest and at USC under the direction of Professor Mark
E. Thompson.
Under an Amended License Agreement entered into in 1997 by the Company, Princeton and USC (as amended, the 1997 Amended
License Agreement), the universities granted the Company worldwide, exclusive license rights, with rights to sublicense, to make, have
made, use, lease and/or sell products and to practice processes based on patent applications and issued patents arising out of research
performed by the universities for the Company. Under the 1997 Amended License Agreement, the Company pays Princeton royalties
of 3% of the net sales price for licensed products it sells or 3% of the revenues the Company receives from its sublicensees for their sale
of licensed products. The Company recorded royalty expense in connection with this agreement of $691,000, $11.1 million and $11.8
million for the years ended December 31, 2021, 2020 and 2019, respectively. The decline in the royalty expense was primarily due to
the expiration of patents relating to the licensed products.
In 2006, Professor Forrest transferred to the University of Michigan (Michigan) and the Company amended the 1997 Amended
License Agreement to include Michigan as a party to that agreement. Also in connection with the transfer, the Company entered into a
sponsored research agreement with USC under which the Company continues to fund organic electronics research being conducted by
Professors Forrest and Thompson (the 2006 Research Agreement). Work by Professor Forrest is being funded through a subcontract
between USC and Michigan. The 2006 Research Agreement extends through April 2023 with an option to further extend for an
additional two years.
The Company makes payments under the 2006 Research Agreement to USC on a quarterly basis as actual expenses are incurred.
As of December 31, 2021, the Company was obligated to pay USC up to $4.3 million for work to be performed during the remaining
extended term. The Company recorded research and development expense in connection with work performed under the 2006 Research
Agreement of $1.3 million, $1.2 million and $997,000 for the years ended December 31, 2021, 2020 and 2019, respectively.
12. OTHER LIABILITIES:
Other liabilities consist of the following (in thousands):
Long-term taxes payable
Long-term lease liabilities
Other long-term liabilities
Other Liabilities
December 31,
2021
2020
47,791
27,263
1,023
76,077
$
$
48,870
6,879
192
55,941
$
$
See Notes 9 and 20 for further explanation on long-term lease liabilities and long-term taxes payable, respectively.
13. EQUITY AND CASH COMPENSATION UNDER THE PPG AGREEMENTS:
On September 22, 2011, the Company entered into an Amended and Restated OLED Materials Supply and Service Agreement
with PPG (the New OLED Materials Agreement), which replaced the original OLED Materials Agreement with PPG effective as of
October 1, 2011. The term of the New OLED Materials Agreement, by amendment in February 2021, runs through December 31, 2024,
F-22
and thereafter is automatically renewed for additional one-year terms, unless terminated by the Company by providing prior notice of
one year or terminated by PPG by providing prior notice of two years. The New OLED Materials Agreement contains provisions that
are substantially similar to those of the original OLED Materials Agreement. Under the New OLED Materials Agreement, PPG
continues to assist the Company in developing its proprietary OLED materials and supplying the Company with those materials for
evaluation purposes and for resale to its customers.
Under the New OLED Materials Agreement, the Company compensates PPG on a cost-plus basis for the services provided during
each calendar quarter. The Company is required to pay for some of these services in all cash. Up to 50% of the remaining services are
payable, at the Company’s sole discretion, in cash or shares of the Company’s common stock, with the balance payable in cash. The
actual number of shares of common stock issuable to PPG is determined based on the average closing price for the Company’s common
stock during a specified number of days prior to the end of each calendar half-year period ending on March 31 and September 30. If,
however, this average closing price is less than $20.00, the Company is required to compensate PPG in cash. No shares were issued for
services to PPG for the years ended December 31, 2021, 2020 and 2019.
The Company is also required to reimburse PPG for raw materials used for research and development. The Company records the
purchases of these raw materials as a current asset until such materials are used for research and development efforts.
As noted above, in February 2021, the Company entered into an amendment to the New OLED Materials Agreement extending
the term of the agreement and specifying operation and maintenance services that will be provided by PPG affiliate, PPG SCM Ireland
Limited, to UDC Ireland, at the Company’s new manufacturing site in Shannon, Ireland, currently being leased by UDC Ireland’s
wholly-owned subsidiary, OMM, for the production of OLED materials. Facility improvements and regulatory approvals are expected
to be completed and operations are scheduled to commence by mid-year 2022. As with the initial New OLED Materials Agreement, the
Company will compensate PPG on a cost-plus basis for the services provided at the Shannon manufacturing facility.
The Company recorded research and development expense of $3.6 million, $2.8 million and $1.4 million for the years ended
December 31, 2021, 2020 and 2019, respectively, in relation to the cash portion of the reimbursement of expenses and work performed
by PPG, excluding amounts paid for commercial chemicals.
14.
SHAREHOLDERS' EQUITY:
Preferred Stock
The Company’s Amended and Restated Articles of Incorporation authorize it to issue up to 5,000,000 shares of $0.01 par value
preferred stock with designations, rights and preferences determined from time-to-time by the Company’s Board of Directors.
Accordingly, the Company’s Board of Directors is empowered, without shareholder approval, to issue preferred stock with dividend,
liquidation, conversion, voting or other rights superior to those of shareholders of the Company’s common stock.
In 1995, the Company issued 200,000 shares of Series A Nonconvertible Preferred Stock (Series A) to American Biomimetics
Corporation (ABC) pursuant to a certain Technology Transfer Agreement between the Company and ABC. The Series A shares have a
liquidation value of $7.50 per share. Series A shareholders, as a single class, have the right to elect two members of the Company’s
Board of Directors. This right has never been exercised. Holders of the Series A shares are entitled to one vote per share on matters
which shareholders are generally entitled to vote. The Series A shareholders are not entitled to any dividends.
As of December 31, 2021, the Company had issued 200,000 shares of preferred stock, all of which were outstanding.
Common Stock
The Company’s Amended and Restated Articles of Incorporation authorize it to issue up 200,000,000 shares of $0.01 par value
common stock. Each share of the Company’s common stock entitles the holder to one vote on all matters to be voted upon by the
shareholders.
As of December 31, 2021, the Company had issued 49,065,924 shares of common stock, of which 47,700,276 were outstanding.
During the years ended December 31, 2021 and 2020, the Company repurchased no shares of common stock.
F-23
Scientific Advisory Board Awards
During the years ended December 31, 2021 and 2020, the Company granted a total of 1,400 and 1,926 shares, respectively, of
fully vested common stock to non-employee members of the Scientific Advisory Board for services performed in 2020 and 2019,
respectively. The fair value of the shares issued to members of the Scientific Advisory Board was $300,000 for both years ended
December 31, 2021 and 2020.
Dividends
During the year ended December 31, 2021, the Company declared and paid cash dividends of $0.80 per common share, or $37.9
million, on the Company’s outstanding common stock.
On February 22, 2022, the Company’s Board of Directors declared a first quarter dividend of $0.30 per share to be paid on March
31, 2022 to all shareholders of record of the Company's common stock as of the close of business on March 17, 2022. All future
dividends will be subject to the approval of the Company’s Board of Directors.
15. ACCUMULATED OTHER COMPREHENSIVE LOSS:
Amounts related to the changes in accumulated other comprehensive loss were as follows (in thousands):
Unrealized
Gain (Loss) on
Available-for-
Sale-Securities
Net Unrealized
Gain (Loss) on
Retirement Plan (2)
Change in Cumulative
Foreign Currency
Translation Adjustment
Affected Line items in the
Consolidated Statements of
Income
Total
Balance January 1, 2019, net of
tax
Other comprehensive gain (loss)
before reclassification
$
10
$
(16,198) $
(46) $ (16,234)
181
(3,492)
—
(3,311)
Reclassification to net income (1)
Change during period
Balance December 31, 2019, net
of tax
Other comprehensive loss
before reclassification
—
181
191
2,523
(969)
(17,167)
25
25
2,548
(763)
(21)
(16,997)
(100)
(21,464)
(14)
(21,578)
Reclassification to net income (1)
Change during period
Balance December 31, 2020, net
of tax
Other comprehensive (loss) gain
before reclassification
Plan amendment cost
Reclassification to net income (1)
Change during period
Balance December 31, 2021, net
of tax
$
—
(100)
91
(233)
—
—
(233)
2,556
(18,908)
(36,075)
13,620
(283)
4,719
18,056
—
(14)
2,556
(19,022)
(35)
(36,019)
(39)
—
13,348
(283)
—
(39)
4,719
17,784
(142) $
(18,019) $
(74) $ (18,235)
F-24
Selling, general
and administrative,
research and
development and
cost of sales
Selling, general
and administrative,
research and
development and
cost of sales
Selling, general
and administrative,
research and
development and
cost of sales
(1)
(2)
The Company reclassified amortization of prior service cost, actuarial loss and plan amendment cost for its retirement plan from accumulated
other comprehensive loss to net income of $4.7 million, $2.6 million and $2.5 million for the years ended December 31, 2021, 2020 and 2019,
respectively.
Refer to Note 17: Employee Retirement Plans
16.
STOCK-BASED COMPENSATION:
Equity Compensation Plan
The Equity Compensation Plan provides for the granting of incentive and nonqualified stock options, shares of common stock,
stock appreciation rights and performance units to employees, directors and consultants of the Company. Stock options are exercisable
over periods determined by the Company's Human Capital Committee, but for no longer than 10 years from the grant date. Through
December 31, 2021, the Company’s shareholders have approved increases in the number of shares reserved for issuance under the
Equity Compensation Plan to 10,500,000, and have extended the term of the plan through 2024. As of December 31, 2021, there were
1,781,003 shares that remained available to be granted under the Equity Compensation Plan.
Restricted Stock Award and Units
The Company has issued restricted stock awards and units to employees and non-employees with vesting terms of one to six years.
The fair value is equal to the market price of the Company’s common stock on the date of grant for awards granted to employees and
equal to the market price at the end of the reporting period for unvested non-employee awards or upon the date of vesting for vested
non-employee awards. Expense for restricted stock awards and units is amortized ratably over the vesting period for the awards issued
to employees and using a graded vesting method for the awards issued to non-employees.
The following table summarizes the activity related to restricted stock unit (RSU) share based payment awards:
Unvested, January 1, 2021
Granted
Vested
Forfeited
Unvested, December 31, 2021
Number of
Shares
192,624
116,024
(78,455)
(3,209)
226,984
$
$
Weighted-
Average
Grant-Date
Fair Value
160.99
208.67
159.05
177.41
184.93
The weighted average grant-date fair value of RSU awards granted was $208.67, $162.32 and $168.95 during the years ended
December 31, 2021, 2020 and 2019, respectively. The fair value as of the respective vesting dates of RSUs was $15.1 million for the
year ended December 31, 2021 and $7.7 million for both years ended December 31, 2020 and 2019.
The following table summarizes the activity related to restricted stock award (RSA) share based payment awards:
Unvested, January 1, 2021
Granted
Vested
Unvested, December 31, 2021
Number of
Shares
141,661
30,647
(96,981)
75,327
$
$
Weighted-
Average
Grant-Date
Fair Value
124.81
172.95
95.47
185.86
The weighted average grant-date fair value of RSA awards granted was $172.95, $155.85 and $194.19 during the years ended
December 31, 2021, 2020 and 2019, respectively. The fair value as of the respective vesting dates of RSAs was $20.0 million, $24.5
million and $28.4 million for 2021, 2020 and 2019, respectively.
For the years ended December 31, 2021, 2020 and 2019, the Company recorded, as compensation charges related to restricted
stock awards and units issued to employees and non-employees, selling, general and administrative expense of $15.4 million, $13.9
million and $10.0 million, respectively, cost of sales of $2.5 million, $1.9 million and $1.1 million, respectively, and research and
development expense of $5.2 million, $4.3 million and $2.5 million, respectively.
F-25
In connection with the vesting of restricted stock awards and units during the years ended December 31, 2021, 2020 and 2019,
69,798, 86,442 and 86,075 shares, respectively, with aggregate fair values of $14.1 million, $12.5 million and $14.0 million,
respectively, were withheld in satisfaction of tax withholding obligations and are reflected as a financing activity within the Consolidated
Statements of Cash Flows.
For the years ended December 31, 2021, 2020 and 2019, the Company recorded as compensation charges related to all restricted
stock units to non-employee members of the Scientific Advisory Board, whose unvested shares are marked to market each reporting
period, research and development expense of $220,000, $380,000 and $632,000, respectively.
The Company has granted restricted stock units to non-employee members of the Board of Directors with quarterly vesting over
a period of approximately one year. The fair value is equal to the market price of the Company’s common stock on the date of grant.
The restricted stock units are issued and expense is recognized ratably over the vesting period. For the years ended December 31, 2021,
2020 and 2019, the Company recorded compensation charges for services performed, related to all restricted stock units granted to non-
employee members of the Board of Directors, selling, general and administrative expense of $1.2 million, $1.3 million and $916,000,
respectively. In connection with the vesting of the restricted stock, the Company issued to non-employee members of the Board of
Directors 5,412, 6,456 and 9,332 shares during the years ended December 31, 2021, 2020 and 2019, respectively.
As of December 31, 2021, the total unrecognized expense related to all restricted stock awards and units was $35.5 million, which
the Company expects to recognize over a weighted average period of 2.26 years.
Performance Unit Awards
Each performance unit award is subject to both a performance-vesting requirement (either performance-based or market-based)
and a service-vesting requirement. The performance-based vesting requirement is tied to the Company's cumulative revenue growth
compared to the cumulative revenue growth of companies comprising the Nasdaq Electronics Components Index, as measured over a
specific performance period. The market-based vesting requirement is tied to the Company's total shareholder return relative to the total
shareholder return of companies comprising the Nasdaq Electronics Components Index, as measured over a specific performance period.
The maximum number of performance units that may vest based on performance is two times the shares granted. Further, if the
Company's total shareholder return is negative, the performance units will not vest at all.
The following table summarizes the activity related to performance unit awards (PSU) share based payment awards:
Unvested, January 1, 2021
Granted
Vested
Unvested, December 31, 2021
Number of
Shares
117,915
74,074
(9,035)
182,954
$
$
Weighted-
Average
Grant-Date
Fair Value
165.48
214.70
120.46
189.24
During the years ended December 31, 2021, 2020 and 2019, the Company granted 77,086, 95,772 and 10,096 performance units,
respectively, of which 42,291, 47,885 and 5,050 units, respectively, are subject to performance-based vesting requirements and 34,795,
47,887 and 5,046 units, respectively, are subject to market-based vesting requirements, and which will vest over the terms described
above. During the years ended December 31, 2021, 2020 and 2019, there were none, 15,638 and 15,650 incremental performance-based
shares, respectively, that vested resulting from an increased vesting factor based on Company performance. The weighted average grant
date fair value of the performance unit awards granted was $214.70, $167.74 and $198.72 during the years ended December 31, 2021,
2020 and 2019, respectively, as determined by the Company’s common stock on date of grant for the units with performance-based
vesting and a Monte-Carlo simulation for the units with market-based vesting.
For the years ended December 31, 2021, 2020 and 2019, the Company recorded, as compensation charges related to all
performance stock units, selling, general and administrative expense of $8.0 million, $4.3 million and $1.7 million, respectively, cost of
sales of $1.3 million, $670,000 and $208,000, respectively, and research and development expense of $2.1 million, $1.1 million and
$419,000, respectively.
In connection with the vesting of performance units during the years ended December 31, 2021, 2020 and 2019, 3,881, 12,877
and 16,668 shares, respectively, with aggregate fair values of $875,000, $1.9 million and $2.6 million, respectively, were withheld in
satisfaction of tax withholding obligations and are reflected as a financing activity within the Consolidated Statements of Cash Flows.
F-26
As of December 31, 2021, the total unrecognized compensation expense related to performance unit awards was $21.4 million,
which the Company expects to recognize over a weighted average period of 1.94 years.
Employee Stock Purchase Plan
On April 7, 2009, the Board of Directors of the Company adopted an Employee Stock Purchase Plan (ESPP). The ESPP was
approved by the Company’s shareholders and became effective on June 25, 2009. The Company has reserved 1,000,000 shares of
common stock for issuance under the ESPP. Unless terminated by the Board of Directors, the ESPP will expire when all reserved shares
have been issued.
Eligible employees may elect to contribute to the ESPP through payroll deductions during consecutive three-month purchase
periods, the first of which began on July 1, 2009. Each employee who elects to participate will be deemed to have been granted an option
to purchase shares of the Company’s common stock on the first day of the purchase period. Unless the employee opts out during the
purchase period, the option will automatically be exercised on the last day of the period, which is the purchase date, based on the
employee’s accumulated contributions to the ESPP. The purchase price will equal 85% of the lesser of the closing price per share of
common stock on the first day of the period or the last business day of the period.
Employees may allocate up to 10% of their base compensation to purchase shares of common stock under the ESPP; however,
each employee may purchase no more than 12,500 shares on a given purchase date, and no employee may purchase more than $25,000
of common stock under the ESPP during a given calendar year.
For the years ended December 31, 2021, 2020 and 2019, the Company issued 9,156, 9,668 and 7,492 shares, respectively, of its
common stock under the ESPP, resulting in proceeds of $1.5 million, $1.2 million and $889,000, respectively. For the years ended
December 31, 2021, 2020 and 2019, the Company recorded charges of $93,000, $96,000 and $79,000, respectively, to selling, general
and administrative expense, $119,000, $111,000, $73,000, respectively, to cost of sales and $188,000, $139,000 and $118,000,
respectively, to research and development expense, related to the ESPP equal to the amount of the discount and the value of the look-
back feature.
17. EMPLOYEE RETIREMENT PLANS:
Defined Contribution Plan
The Company maintains the Universal Display Corporation 401(k) Plan (the Plan) in accordance with the provisions of Section
401(k) of the Internal Revenue Code (the Code). The Plan covers substantially all full-time employees of the Company. Participants
may contribute up to 90% of their total compensation to the Plan, not to exceed the limit as defined in the Code. Once an employee is
eligible to participate in the Plan, the Company will make a non-elective contribution equal to 3% of the employee’s total compensation.
For the years ended December 31, 2021, 2020 and 2019, the Company contributed $1.3 million, $1.1 million and $880,000, respectively,
to the Plan.
Defined Benefit Plan
On March 18, 2010, the Human Capital Committee and the Board of Directors of the Company approved and adopted the
Universal Display Corporation Supplemental Executive Retirement Plan (SERP), effective as of April 1, 2010. On March 3, 2015, the
Human Capital Committee and the Board of Directors amended the SERP to include salary and bonus as part of the plan. Prior to this
amendment, the SERP benefit did not take into account any bonuses. The purpose of the SERP, which is unfunded, is to provide certain
of the Company’s key employees with supplemental pension benefits following a cessation of their employment and to encourage their
continued employment with the Company. As of December 31, 2021 there were eight participants in the SERP.
The SERP benefit is based on a percentage of the participant’s annual base salary and in certain cases, the participant's average
annual bonus for the most recent three fiscal years ending prior to the participant's date of termination of employment with the Company
for the life of the participant. For this purpose, annual base salary means 12 times the average monthly base salary paid or payable to
the participant during the 24-month period immediately preceding the participant’s date of termination of employment, or, if required,
the date of a change in control of the Company.
Under the SERP, if a participant resigns or is terminated without cause at or after age 65 and with at least 20 years of service, he
or she will be eligible to receive a SERP benefit. The benefit is based on a percentage of the participant’s annual base salary and bonus
for the life of the participant. This percentage is 50%, 25% or 15%, depending on the participant’s benefit class.
F-27
If a participant resigns at or after age 65 and with at least 15 years of service, he or she will be eligible to receive a prorated SERP
benefit. If a participant is terminated without cause or on account of a disability after at least 15 years of service, he or she will be eligible
to receive a prorated SERP benefit regardless of age. The prorated benefit in either case would be based on the participant’s number of
years of service (up to 20), divided by 20. In the event a participant is terminated for cause, his or her SERP benefit and any future
benefit payments are subject to immediate forfeiture.
The SERP benefit is payable in installments over 10 years, beginning at the later of age 65 or the date of the participant’s separation
from service. Payments are based on a present value calculation of the benefit amount for the actuarial remaining life expectancy of the
participant. This calculation is made as of the date benefit payments are to begin (later of age 65 or separation from service). If the
participant dies after reaching age 65, any future or remaining benefit payments are made to the participant’s beneficiary or estate. If the
participant dies before reaching age 65, the benefit is forfeited.
In the event of a change in control of the Company, each participant will become immediately vested in his or her SERP benefit.
Unless the participant’s benefit has already fully vested, if the participant has less than 20 years of service at the time of the change in
control, he or she will receive a prorated benefit based on his or her number of years of service (up to 20), divided by 20. If the change
in control qualifies as a “change in control event” for purposes of Section 409A of the Internal Revenue Code, then each participant
(including former employees who are entitled to SERP benefits) will receive a lump sum cash payment equal to the present value of the
benefit immediately upon the change in control.
Certain of the Company’s executive officers are designated as special participants under the SERP. If these participants resign or
are terminated without cause after 20 years of service, or at or after age 65 and with at least 15 years of service, they will be eligible to
receive a SERP benefit. If they are terminated without cause or on account of a disability, they will be eligible to receive a prorated
SERP benefit regardless of age. The prorated benefit would be based on the participant’s number of years of service (up to 20), divided
by 20.
The SERP benefit for special participants is based on 50% of their annual base salary and bonus for their life and the life of their
surviving spouse, if any. Payments are based on a present value calculation of the benefit amount for the actuarial remaining life
expectancies of the participant and their surviving spouse, if any. If they die before reaching age 65, the benefit is not forfeited if the
surviving spouse, if any, lives until the participant would have reached age 65. If their spouse also dies before the participant would
have reached age 65, the benefit is forfeited.
The Company records amounts relating to the SERP based on calculations that incorporate various actuarial and other
assumptions, including discount rates, rate of compensation increases, retirement dates, and life expectancies. The net periodic costs are
recognized as employees render the services necessary to earn the SERP benefits.
In connection with the initiation and subsequent amendments of the SERP, the Company recorded cost related to prior service of
$22.8 million as accumulated other comprehensive loss as of December 31, 2021. The prior service cost is being amortized as a
component of net periodic pension cost over the average of the remaining service period of the employees expected to receive benefits
under the plan. The prior service cost expected to be amortized for the year ending December 31, 2022 is $2.6 million.
Information relating to the Company’s plan is as follows (in thousands):
Change in benefit obligation:
Benefit obligation, beginning of year
Service cost
Interest cost
Actuarial (gain) loss
Plan amendment
Benefit obligation, end of year
Fair value of plan assets
Unfunded status of the plan, end of year
Current liability
Non-current liability
Year Ended December 31,
2021
2020
$
$
$
78,527
1,675
1,165
(14,956)
362
66,773
—
66,773
—
66,773
$
$
$
51,117
1,092
1,285
25,033
—
78,527
—
78,527
—
78,527
The accumulated benefit obligation for the plan was $63.3 million and $74.2 million as of December 31, 2021 and 2020,
respectively. The actuarial gain of $15.0 million for the year ended December 31, 2021 was due to a reduction in the three-year average
F-28
cash bonus paid to participants. The actuarial loss of $25.0 million for the year ended December 31, 2020 was due to an increase in the
three year-average cash bonus paid to participants.
The components of net periodic pension cost were as follows (in thousands):
Service cost
Interest cost
Amortization of prior service cost
Amortization of loss
Total net periodic benefit cost
2021
Year Ended December 31,
2020
2019
$
$
1,675
1,165
1,099
4,936
8,875
$
$
1,092
1,285
1,098
2,181
5,656
$
$
969
1,613
1,595
1,641
5,818
The measurement date is the Company’s fiscal year end. The net periodic pension cost is based on assumptions determined at the
prior year end measurement date.
Assumptions used to determine the year end benefit obligation were as follows:
Discount rate
Rate of compensation increases
Assumptions used to determine the net periodic pension cost were as follows:
Discount rate
Rate of compensation increases
Year Ended December 31,
2021
2020
2.16%
3.50%
1.54%
3.50%
2021
Year Ended December 31,
2020
2019
1.54%
3.50%
2.64%
3.50%
3.82%
3.50%
Actuarial gains and losses are amortized from accumulated other comprehensive loss into net periodic pension cost over future
years based upon the average remaining service period of active plan participants, when the accumulation of such gains or losses exceeds
10% of the year end benefit obligation. The cost or benefit of plan changes that increase or decrease benefits for prior employee service
(prior service cost or credit) is included in the Company’s results of income on a straight-line basis over the average remaining service
period of active plan participants.
The estimated amounts to be amortized from accumulated other comprehensive loss into the net periodic pension cost in 2022 are
as follows (in thousands):
Amortization of prior service cost
Amortization of loss
Total
$
$
1,119
1,487
2,606
Benefit payments, which reflect estimated future service, are currently expected to be paid as follows (in thousands):
2022
2023
2024
2025
2026
2027-2031
Thereafter
Year
F-29
$
Projected
Benefits
—
5,462
5,462
5,462
6,709
37,528
22,217
18. COMMITMENTS AND CONTINGENCIES:
Commitments
Under the 2006 Research Agreement with USC, the Company is obligated to make certain payments to USC based on work
performed by USC under that agreement, and by Michigan under its subcontractor agreement with USC. See Note 11 for further
explanation.
Under the terms of the 1997 Amended License Agreement, the Company is required to make minimum royalty payments to
Princeton. See Note 11 for further explanation.
The Company has agreements with six executive officers and 12 senior level employees which provide for certain cash and other
benefits upon termination of employment of the officer or employee in connection with a change in control of the Company. If a covered
person’s employment is terminated in connection with the change in control, the person is entitled to a lump-sum cash payment equal
to two times (in the case of the executive officers) or either one or two times (in the case of the senior level employees) the sum of the
average annual base salary and bonus of the person and immediate vesting of all stock options and other equity awards that may be
outstanding at the date of the change in control, among other items.
In order to manage manufacturing lead times and help ensure adequate material supply, the Company entered into the New OLED
Materials Agreement (see Note 13) that allows PPG to procure and produce inventory based upon criteria as defined by the Company.
These purchase commitments consist of firm, noncancelable and unconditional commitments. In certain instances, this agreement allows
the Company the option to reschedule and adjust the Company’s requirements based on its business needs prior to firm orders being
placed. As of December 31, 2021, 2020 and 2019, the Company had purchase commitments for inventory of $25.7 million, $13.7 million
and $22.0 million, respectively.
Patent Related Challenges and Oppositions
Each major jurisdiction in the world that issues patents provides both third parties and applicants an opportunity to seek a further
review of an issued patent. The process for requesting and considering such reviews is specific to the jurisdiction that issued the patent
in question, and generally does not provide for claims of monetary damages or a review of specific claims of infringement. The
conclusions made by the reviewing administrative bodies tend to be appealable and generally are limited in scope and applicability to
the specific claims and jurisdiction in question.
The Company believes that opposition proceedings are frequently commenced in the ordinary course of business by third parties
who may believe that one or more claims in a patent do not comply with the technical or legal requirements of the specific jurisdiction
in which the patent was issued. The Company views these proceedings as reflective of its goal of obtaining the broadest legally
permissible patent coverage permitted in each jurisdiction. Once a proceeding is initiated, as a general matter, the issued patent continues
to be presumed valid until the jurisdiction’s applicable administrative body issues a final non-appealable decision. Depending on the
jurisdiction, the outcome of these proceedings could include affirmation, denial or modification of some or all of the originally issued
claims. The Company believes that as OLED technology becomes more established and its patent portfolio increases in size, so will the
number of these proceedings.
Below is a summary of an active proceeding that has been commenced against an issued patent that is exclusively licensed to the
Company. The Company does not believe that the confirmation, loss or modification of the Company’s rights in any individual claim
or set of claims that are the subject of the following legal proceeding would have a material impact on the Company’s material sales or
licensing business or on the Company’s Consolidated Financial Statements, including its Consolidated Statements of Income, as a whole.
In certain circumstances, when permitted, the Company may also utilize a proceeding to request modification of the claims to better
distinguish the patented invention from any newly identified prior art and/or improve the claim scope of the patent relative to
commercially important categories of the invention.
Opposition to European Patent No. 1390962
On November 16, 2011, Osram AG and BASF SE each filed a Notice of Opposition to European Patent No. 1390962 (the EP '962
patent), which relates to the Company’s white phosphorescent OLED technology. The EP '962 patent, which was issued on February
16, 2011, is a European counterpart patent to U.S. patents 7,009,338 and 7,285,907. They are exclusively licensed to the Company by
Princeton, and the Company is required to pay all legal costs and fees associated with this proceeding.
The European Patent Office (EPO) combined the oppositions into a single opposition proceeding, and a hearing on this matter
was held in December 2015, wherein the EPO Opposition Division revoked the patent claims for alleged insufficiencies under European
Patent Convention Article 83. The Company believes the EPO's decision is erroneous and appealed the decision. Subsequent to the
filing of the appeal, BASF withdrew its opposition to the patent. On appeal, the Appeals Division withdrew the lower Opposition
F-30
Division’s rejections with respect to a portion of the original subject matter and remanded the matter to the lower Opposition Division
for further consideration. The patent, as originally granted, is deemed valid during the pendency of the opposition process.
At this time, based on its current knowledge, the Company believes that the patent being challenged should be declared valid and
that a significant portion of the Company's claims should be upheld. However, the Company cannot make any assurances of this result.
In addition to the above proceeding and now concluded proceedings which have been referenced in prior filings, from time to
time, the Company may have other proceedings that are pending which relate to patents the Company acquired as part of the Fujifilm
or BASF OLED patent acquisitions or which relate to technologies that are not currently widely used in the marketplace.
19. CONCENTRATION OF RISK:
Revenues and accounts receivable from the Company's largest customers for the years ended December 31, 2021, 2020 and 2019
were as follows (in thousands):
Customer
A
B
C
2021
$
% of Total
Revenue
44%
26%
14%
Accounts
Receivable
10,850
45,867
18,557
2020
$
% of Total
Revenue
41%
30%
13%
Accounts
Receivable
20,476
26,776
2,757
2019
$
% of Total
Revenue
44%
27%
15%
Accounts
Receivable
13,830
19,346
10,592
Revenues from outside of North America represented approximately 97% of consolidated revenue for each of the years ended
December 31, 2021, 2020 and 2019. Revenues by geographic area are as follows (in thousands):
Country
South Korea
China
Japan
Other non-U.S. locations
Total non-U.S. locations
United States
Total revenue
2021
Year Ended December 31,
2020
2019
$
$
334,835
192,079
7,358
3,137
537,409
16,116
553,525
$
$
263,079
142,076
7,405
1,728
414,288
14,579
428,867
$
$
250,562
135,259
5,276
2,270
393,367
11,810
405,177
The Company attributes revenue to different geographic areas on the basis of the location of the customer.
Long-lived assets (net), by geographic area are as follows (in thousands):
United States
Other
Total long-lived assets
2021
2020
$
$
115,004
13,828
128,832
$
$
93,230
8,883
102,113
Substantially all chemical materials were purchased from one supplier. See Note 13.
20.
INCOME TAXES:
The components of income before income taxes are as follows (in thousands):
United States
Foreign
Income before income taxes
2021
Year ended December 31,
2020
$
$
60,066
168,181
228,247
$
$
38,839
124,690
163,529
$
$
2019
53,629
116,276
169,905
F-31
The components of the income tax expense are as follows (in thousands):
Current income tax (expense) benefit:
Federal
State
Foreign
Deferred income tax (expense) benefit:
Federal
State
Foreign
Income tax expense
2021
Year ended December 31,
2020
2019
$
$
(16,433) $
(641)
(25,212)
(42,286)
(844)
(734)
(170)
(1,748)
(44,034) $
(14,773) $
(568)
(19,262)
(34,603)
4,883
(34)
(403)
4,446
(30,157) $
(20,108)
(755)
(16,514)
(37,377)
5,208
1,054
(486)
5,776
(31,601)
Reconciliation of the statutory U.S. federal tax rate to the Company's effective tax rate is as follows:
Statutory U.S. federal income tax rate
State income taxes, net of federal benefit
Effect of foreign operations
Accruals and reserves
Nondeductible employee compensation
Research tax credits
Stock based compensation
U.S. International Tax (Sub F, GILTI, FDII)
Other
Effective tax rate
2021
Year ended December 31,
2020
2019
21.0%
0.2
(5.0)
(0.8)
3.0
(1.4)
(0.3)
2.1
0.5
19.3%
21.0%
0.2
(5.2)
(1.0)
2.6
(1.8)
(0.9)
3.5
—
18.4%
21.0%
0.1
(5.4)
(1.1)
2.5
(1.4)
(1.7)
3.8
0.8
18.6%
The following table summarizes Company tax credit carry forwards for tax return purposes as of December 31, 2021 (in
thousands):
Tax credit carry forwards:
State research tax credits
Total credit carry forwards
Tax Benefit
Expiration Date
$
$
6,156
6,156
2029 to 2036
F-32
Significant components of the Company's net deferred tax assets and liabilities are as follows (in thousands):
Deferred tax asset:
Capitalized technology license and patents
Capitalized research expenditures
Accruals and reserves
Retirement plan
Deferred revenue
Tax credit carry forwards
Stock-based compensation
Other
Valuation allowance
Deferred tax assets
Deferred tax liability:
Accruals and reserves
Deferred tax liabilities
Net deferred tax assets
December 31,
2021
2020
$
$
561
3,150
4,733
14,560
11,361
6,156
1,110
5,819
47,450
(5,911)
41,539
(8,086)
(8,086)
33,453
$
$
580
4,291
4,178
15,444
16,834
4,589
1,059
1,914
48,889
(4,560)
44,329
(6,634)
(6,634)
37,695
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or
all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent on the Company's ability
to generate future taxable income to obtain benefit from the reversal of temporary differences, net operating loss carryforwards and tax
credits. As part of its assessment, management considers the scheduled reversal of deferred tax liabilities, projected future taxable
income, and tax planning strategies. At this time there is no evidence to release the valuation allowance that has historically been
recorded for the New Jersey research and development credit.
On December 27, 2018 the Korean Supreme Court, citing prior cases, held that only royalties paid with respect to Korean
registered patents are Korean source income and subject to Korean withholding tax under the applicable law and interpretation of the
Korea-U.S. Tax Treaty. The Company has incurred Korean withholding tax of $14.9 million each year since the year ended December
31, 2018. Based on the Korean Supreme Court decision, in October 2021, a tax refund request on behalf of the Company was filed with
the Korean National Tax Service (KNTS) for over-withheld taxes from 2018 to the second quarter of 2021. The Company has been
advised by a leading Korean law firm that there is a more-likely-than-not chance of success. As a result, as of December 31, 2021 and
December 31, 2020, the Company has recorded a long-term asset of $53.2 million and $40.1 million, respectively, representing the
allocation of withholding to non-Korean patents. Also, the Company has recorded a long-term liability of $31.6 million and $32.7
million, respectively, for estimated amounts due to the U.S. Federal government based on the amendment of U.S. tax returns for lower
withholding amounts.
With respect to the Korean withholding for the years 2011 through 2017, the Company has decided to continue the U.S.-Korean
Mutual Agreement Procedure (MAP) which was accepted by the KNTS on September 15, 2017. The Company believes that it is more-
likely-than-not that a favorable settlement will be reached resulting in a reduction of the Korean withholding taxes previously withheld
since 2011. The Internal Revenue Service and KNTS are currently exchanging information with respect to the MAP. A long-term asset
of $36.9 million for estimated refunds due from the Korean government, a long-term payable of $16.2 million for estimated amounts
due to the U.S. Federal government based on amendment of prior year U.S. tax returns for the lower withholding amounts, and a
reduction of deferred tax assets for foreign tax credits and research and development credits of $20.7 million has been recorded on the
December 31, 2021 and December 31, 2020 Consolidated Balance Sheets for this matter.
On October 30, 2018, the KNTS concluded a tax audit with LG Display that included the licensing and royalty payments made to
UDC Ireland during the years 2015 through 2017. The KNTS questioned whether UDC Ireland was the beneficial owner of these
payments and assessed UDC Ireland a charge of $13.2 million for withholding and interest for the three-year period. UDC Ireland has
engaged a leading Korean law firm which believes it is more-likely-than-not that UDC Ireland has beneficial ownership of the underlying
intellectual property. Based on this authority, UDC Ireland has paid the assessment which is recorded as a long-term asset as of December
31, 2021 and December 31, 2020. In September 2020, the Korean District Court ruled entirely in the favor of UDC Ireland on the
beneficial ownership issue and the ruling was affirmed by the Korean High Court in August 2021. The KNTS appealed the ruling to the
Korean Supreme Court. On January 13, 2022, the Korean Supreme Court dismissed the appeal from the KNTS. UDC Ireland is expected
to recover the charge of $13.2 million for withholding plus interest for the three-year period within a year after January 13, 2022.
F-33
The Company’s federal income tax returns for the years 2018 to 2021 are open and subject to examination. The State of New
Jersey has closed the 2014 to 2017 tax return audit of UDC, Inc. with no change to tax expense or tax credit carry forwards. The state
and foreign tax returns are open for a period of generally three to four years.
21. REVENUE RECOGNITION:
The Company recognizes revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers (Topic 606). The
standard establishes the principles that an entity shall apply to report useful information to users of financial statements about the nature,
amount, timing, and uncertainty of revenue and cash flows from a contract with a customer.
For each of the years ended December 31, 2021, 2020 and 2019, the Company recorded 97% of its revenue from OLED related
sales and 3% from the providing of services through Adesis.
Contract Balances
The following table provides information about assets and liabilities associated with our contracts from customers (in thousands):
Accounts receivable
Short-term unbilled receivables
Long-term unbilled receivables
Short-term deferred revenue
Long-term deferred revenue
$
As of December 31, 2021
107,639
8,127
—
120,864
36,217
Short-term and long-term unbilled receivables are classified as other current assets and other assets, respectively, on the
Consolidated Balance Sheets. The deferred revenue balance at December 31, 2021 will be recognized as materials are shipped to
customers over the remaining contract periods. As of December 31, 2021, the Company had $29.1 million of backlog associated with
committed purchase orders from its customers for phosphorescent emitter material. These orders are anticipated to be fulfilled within
the next 90 days.
Significant changes in the unbilled receivables and deferred liabilities balances for the years ended December 31, 2021 and 2020,
are as follows (in thousands):
Balance at December 31, 2020
Revenue recognized that was previously included in deferred revenue, net
Increases due to cash received
Cumulative catch-up adjustment arising from changes in estimates of
transaction price, net
Unbilled receivables recorded, net
Transferred to receivables from unbilled receivables
Net change
Balance at December 31, 2021
Balance at December 31, 2019
Revenue recognized that was previously included in deferred revenue, net
Increases due to cash received
Cumulative catch-up adjustment arising from changes in estimates of
transaction price, net
Unbilled receivables recorded, net
Net change
Balance at December 31, 2020
Year Ended December 31, 2021
Unbilled Receivables
Deferred Revenue
10,429
—
—
—
32,720
(35,022)
(2,302)
8,127
$
$
(162,301)
192,778
(201,484)
13,926
—
—
5,220
(157,081)
Year Ended December 31, 2020
Unbilled Receivables
Deferred Revenue
1,362
—
—
—
9,067
9,067
10,429
$
$
(144,862)
157,704
(192,369)
17,226
—
(17,439)
(162,301)
$
$
$
$
The cumulative catch-up adjustment arising from changes in estimates of transaction price, net for the year ended December 31,
2021 decreased by $3.3 million as compared to the year ended December 31, 2020.
F-34
22. NET INCOME PER COMMON SHARE:
The Company computes earnings per share in accordance with ASC Topic 260, Earnings per Share, which requires earnings per
share (EPS) for each class of stock to be calculated using the two-class method. The two-class method is an allocation of income between
the holders of common stock and the Company's participating security holders. Under the two-class method, income for the reporting
period is allocated between common shareholders and other security holders based on their respective participation rights in
undistributed income. Unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents are
participating securities and, therefore, are included in computing earnings per share pursuant to the two-class method.
Basic net income per common share is computed by dividing net income allocated to common shareholders by the weighted-
average number of shares of common stock outstanding for the period excluding unvested restricted stock units and performance units.
Net income allocated to the holders of the Company's unvested restricted stock awards is calculated based on the shareholders
proportionate share of weighted average shares of common stock outstanding on an if-converted basis.
For purposes of determining diluted net income per common share, basic net income per share is further adjusted to include the
effect of potential dilutive common shares outstanding, including stock options, restricted stock units and performance units, and the
impact of shares to be issued under the Employee Stock Purchase Plan.
The following table is a reconciliation of net income and the shares used in calculating basic and diluted net income per common
share for the years ended December 31, 2021, 2020 and 2019 (in thousands, except share and per share data):
Numerator:
Net income
Adjustment for Basic EPS:
Earnings allocated to unvested shareholders
Adjusted net income
Denominator:
Weighted average common shares outstanding – Basic
Effect of dilutive shares:
Common stock equivalents arising from stock options and ESPP
Restricted stock awards and units and performance units
Weighted average common shares outstanding – Diluted
Net income per common share:
Basic
Diluted
2021
Year Ended December 31,
2020
2019
184,213
$
133,372
$
138,304
(1,137)
183,076
$
(1,001)
132,371
$
(1,106)
137,198
47,296,447
47,198,982
46,959,775
1,010
67,978
47,365,435
1,566
36,446
47,236,994
1,334
34,353
46,995,462
3.87
3.87
$
$
2.80
2.80
$
$
2.92
2.92
$
$
$
$
For the years ended December 31, 2021, 2020, and 2019, there were no unvested restricted stock awards, restricted stock units,
performance unit awards and stock options excluded from the calculation of diluted EPS as their impact would have been antidilutive.
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CORPORATE HEADQUARTERS
Princeton Crossroads Corporate Center
250 Phillips Boulevard
Ewing, NJ 08618
phone: 609.671.0980
fax: 609.671.0995
www.oled.com
CORPORATE COUNSEL
Morgan, Lewis & Bockius LLP
1701 Market Street
Philadelphia, PA 19103
INDEPENDENT REGISTERED PUBLIC ACCOUNTANT
KPMG LLP
1601 Market Street
Philadelphia, PA 19103
TRANSFER AGENT & REGISTRAR
AST
6201 15th Avenue
Brooklyn, NY 11219
INQUIRIES
Inquiries concerning stock transfers, change of address and any
other account questions should be directed to:
AST
6201 15th Avenue
Brooklyn, NY 11219
phone: 800.937.5449 (toll-free), 718.921.8300 (local)
email: info@astfinancial.com
All other investor inquiries should be directed to:
Universal Display Corporation
Investor Relations Department
250 Phillips Boulevard
Ewing, NJ 08618
phone: 609.964.5123
email: investor@oled.com