Universal Electronics Inc. Annual Report 2010

← All annual reports

FY2010 Annual Report · Universal Electronics Inc.

Loading PDF…

Universal Electronics Inc. 2010 Annual Report

FF
FF

Fast moving and Forward thinking, UEi is always looking ahEad. wE havE grown by FocUsing

on thE FUtUrE and staying ahEad oF thE cUrvE. wE rEmain groUndEd and cEntErEd on

practical innovation. wE bring togEthEr idEas and ExEcUtE. wE dElivEr simplicity in an

incrEasingly complEx connEctEd world. it’s what broUght Us so Far, so Fast—and madE

Us thE global lEadEr in oUr indUstry.

cElEbrating

oUr 25th yEar

oF indUstry

Firsts

$ 325

in millions

M
M
8
.
1
3
3
$

For nEarly 25 yEars, UEi has

bEEn thE global lEadEr in

wirElEss control tEchnology

For thE connEctEd homE. wE

movE at onE spEEd—Fast—and

in onE dirEction—Forward.

oUr solUtions oFFEr complEtE,

End-to-End control prodUcts

and sErvicEs, From dEsign to

M
M
3
.
1
8
1
$

M
M
4
8
5
1
$

M
M
5
0
2
1
$

M
M
9
3
0
1
$

M
M
6
7
1
3
$

M
M

1
.
7
8
2
$

M
M
7
2
7
2
$

M
M
8
5
3
2
$

dElivEry to cUstomEr sUpport.

300

275

250

225

200

175

150

125

100

Macro Keys

Key Magic

1989Allows a single
button press to operate
multiple devices in a
traditional Audio Video
system.

1990Gives users the
unparalleled flexibility
to add new functions
to any key on a remote
control.

Power Toggle and
channel siMulaTion

1993Delivers an intuitive
consumer-friendly feature
for powering devices on and
off using channel commands
to exit stand-by mode on AV
devices designed for energy-
conscious European markets.

TelePhone download

1996Leverages traditional
data communication medium
to download a device code to
a remote control through the
telephone-a precursor for next
generation online web down-
load services.

cElEbrating oUr 25th yEar
oF indUstry Firsts

single chiP
learning

1997Guarantees
AV device compat-
ibility using a value
added feature in
a cost effective,
single chip elec-
tronic design.

sio PrograMMing

Barcode
seT-uP

nevo (TaBleT/sMarT-
Phone) MoBile aPP

code search/
Finder

uei QuicKseT

uei siMPleseT

uei sMarTconTrol

1998Provides maxi-
mum design and de-
velopment flexibility by
creating a remote that
can be programmed on
the production line or
in the field.

1999Incorporates
non-traditional
barcode scanning
feature in remote
controls to sim-
plify device code
set up.

2003Transforms smart
devices into universal
controllers for home
entertainment using
embedded IR and intuitive,
consumer-friendly univer-
sal remote control app.

2004Empowers
consumers with a
friendly online service
to find and program
AV device codes using
brand and model
number search.

2009Simplifies set-up and
programming of universal remote
controls for AV and set-top de-
vices using an embedded solution
that includes a simple on-screen
wizard and wireless bi-directional
communication to the remote.

2010Offers an
easy, 3-step set-up
process for program-
ming universal device
codes using device
brand only and no
user manual.

2010Delivers a simple
3-step set-up feature for
enabling one or more
activity-based control
configurations on a
remote control.

moRE wEb-EnablEd dEvicEs

moRE Pay-Tv conTEnT

moRE dvR shiPmEnTs

moRE hd PRoGRamminG

moRE connEcTEd Tvs

moRE 3-d Tvs

The installed base
of web-enabled
consumer elec-
tronic video devices
will surge from 70
million in 2009 to
237 million in 2014.

InSTAT, AUGUST 2010

Approximately
276 million homes
worldwide will watch
high definition (hD)
programming in 2014,
more than triple the
number in 2009.

InfORMA TELECOMS AnD
MEDIA, APRIL 2010

Subscriber growth in
China, Latin America,
and Eastern Europe
will help double the
number of IPTV sub-
scribers worldwide to
70 million by 2015.

IMS RESEARCh, IPTV: A
GLObAL MARkET AnALySIS,
MARCh 2011

An estimated 21%
of all TVs shipped in
2010 had Internet
connectivity, with the
category expected
to grow to over 122
million in 2014.

DISPLAySEARCh, QUARTERLy
TV DESIGn AnD fEATURES
REPORT, DECEMbER 2010

Global set-top box
shipments are
expected to rise
from 205 million in
2010 to 226 million
in 2015.

AbI RESEARCh,
nOVEMbER 2011

DisplaySearch
forecasts that about
18 million 3-D TV
sets will ship in 2011,
and by 2013, there
will be more than
91 million.

DISPLAySEARCh,
JAnUARy 2011

a connEcTEd woRld thE world

is bEcoming FUlly connEctEd.

bEyond thE traditional pc, thE

typical connEctEd homE now

inclUdEs thE tv, sEt-top box,

gamE consolE, blU-ray playEr,

av rEcEivEr, and tablEt or

phonE. in this rapidly Expanding

EcosystEm, UEi plays a cEntral

rolE by making it EasiEr to

connEct, control, and intEract

More ChoiCes Consum-
ers have a dizzying array of
channels and devices to choose
from. At UEI, we help them
navigate a growing world of
content. The result? More
satisfied customers, greater
mindshare, and new revenue
streams for the consumer elec-
tronic OEMs and subscription
broadcasters we serve.

Uei siMplifies Everything
we do is centered on simplify-
ing the user experience. We
see a whole new world where
devices interact seamlessly and
the universal remote control
sets itself up. As the connected
devices bring new interface
and control complexity, we
challenge ourselves to come
up with better ways to make
controlling them even easier.

with contEnt, tEchnology,

and dEvicEs.

ouR PaRTnERs yoU may not havE hEard oF UEi, bUt yoU know oUr cUstomErs. thEy arE thE

biggEst namEs in thE bUsinEss—From oEms to sUbscription broadcastErs to rEtailErs. with

oUr onE For all® brand, wE bring simplE solUtions and mEaningFUl innovation straight to

consUmErs. wE play a kEy rolE in a prodUct catEgory that is pivotal in pEoplE’s daily livEs.

worldwidE, ovEr 500 million pEoplE UsE UEi tEchnology EvEry wEEk.

uEi builds oR dElivERs ThE TEchnoloGy insidE 1 in 3 REmoTEs sold woRldwidE.

ouR TEchnoloGiEs aRE EvERywhERE as thE homE EntErtainmEnt landscapE changEs, wE

pUt consUmErs in control—whEthEr oUr tEchnology is insidE thE tv; in thE sEt-top box; or

EmbEddEd in an accEssory, a tablEt, or othEr smart dEvicE. oUr innovations arE powErEd by

oUr global dEvicE codE databasE and thE indUstry’s largEst patEnt portFolio. connEcting it

all: oUr ExpErtisE in all things wirElEss For homE EntErtainmEnt.

UEI focuses on simplifying the
complex, by taking advanced
technologies and developing
control solutions that consum-
ers want.

Uei QUiCkset  Since Sep-
tember 2009, UEI QuickSet—
our two-way, automated uni-
versal remote control program-
ming application — has shipped
in nearly 7 million set-top and
AV receivers.

UApi  The Universal remote
control Application Program-
ming Interface (UAPI) is a soft-
ware communication standard
on a remote control that is
integrated into a target device
(set-top box, TV, AVR) via a flex-
ible software development kit
(SDk) that provides the ability
to rapidly customize advanced
control features and reduce
time-to-market.

energy-sAving reMotes 
UEI’s Low Energy IR Engine
(LowEIR) is the optimal energy
management solution for bat-
tery-powered remote controls.
Environmentally friendly and
financially sound, the technol-
ogy saves battery life without
sacrificing performance.

EnschEdE
International headquarters

Retail headquarters

san maTEo
Advanced Engineering

cyPREss
Corporate headquarters

Design and Development

TwinsbuRG
north American Call Center

banGaloRE
Software Development Center

ToKyo
Regional Sales Office

yanGzhou
Manufacturing

Panyu
Manufacturing

shEnzhEn
Engineering Lab

honG KonG
Asian headquarters
Operations and Manufacturing hub

manaus
Operations and Manufacturing Site

sinGaPoRE
Asia Pacific Regional Office

ouR End-To-End caPabiliTiEs wE arE a trUE tEchnology partnEr, oFFEring oUr cUstomErs

complEtE control solUtions. wE start with oUr award-winning dEsign, and propriEtary dEvicE

codE databasE, and Follow Up with soFtwarE, hardwarE, manUFactUring, logistics, and UnmatchEd

cUstomEr sErvicE—adding valUE EvEry stEp oF thE way. oUr rEpUtation For crEating innovativE,

rEliablE, and aFFordablE solUtions shoUld sErvE Us wEll as wE Expand oUr global Footprint.

Global PlayER with EstablishEd markEts on six

continEnts and nEarly 2,000 EmployEEs aroUnd thE

world, wE havE thE global scalE and local insight to

dominatE oUr indUstry. From manUFactUring in china

to assEmbly in brazil, wE havE bUilt oUr bUsinEss in

all thE right placEs. today wE arE a global company

with a strong cUstomEr basE and global growth

opportUnitiEs in EmErging markEts.

strAtegiC ACQUisition  In novem-
ber 2010, UEI acquired China-based
Enson Assets Limited, otherwise known
as C.G., a leading designer, marketer,
and manufacturer of remote controls
for OEMs. With this acquisition, we in-
creased our presence in rapidly growing
global markets—particularly Asia—and
broadened our customer list.

As a result, UEI is the only truly end-
to-end global player in the industry. We
strengthened our leadership position in
wireless control technology, expanded
our market share among OEMs, and po-
sitioned ourselves to capture promising
international growth opportunities ahead.

veloCity The advanced user
interface of UEI Velocity enables
consumers to navigate hundreds of
movie titles with the swipe of a finger.
An integrated QWERTy keyboard lets
them chat with a friend online using a
text widget or perform advanced content
searches. It’s the remote designed for
next-generation connected televisions.

uEi dEfinEs “REmoTE conTRol” wE obsErvE thE tidE oF

trEnds and tEchnologiEs, and thE habits oF rEal pEoplE,

and thEn bUild rEmotEs to Fit—comFortably, UsEFUlly,

simply. oUr prodUcts rangE From provEn command-

and-control solUtions to innovations that pUt two-

way intEractivE control in thE palm oF yoUr hand. wE

dElivEr an intUitivE UsEr ExpEriEncE with Easy accEss to

prEmiUm contEnt—which in tUrn incrEasEs loyalty and

rEvEnUEs For oUr cUstomErs.

MAnAging the world of Content 
Think of UEI as the architect of the connected
home. We have the technologies, products,
tools, and talent to make UEI the interface
experts for home entertainment.

Our customers are increasingly focused on
the user experience, a trend that works to
our advantage. The remote is an integral part
of making it easier to connect with informa-
tion and entertainment. UEI has an impres-
sive record for simplifying user experience
and control, while keeping atop the surge of
devices and content.

SEARCH Exit tHRougH tHE gift SHop

infinity  A winner of the IP&TV
Awards 2011, the Infinity intuitively
controls interactive TV applications. It
features a full QWERTy keyboard, capaci-
tive touch interface, personalized viewer
profiles, and an accelerometer to enable
gaming and gesture control. for opera-
tors, the rich user experience means
higher revenues and viewer satisfaction.

whERE wE’RE hEadEd as contEnt and choicEs

proliFEratE, UEi is working to makE thE UsEr ExpEriEncE

EvEn simplEr. oUr UltimatE goal? crEating rEmotE

solUtions that EnablE dEvicEs and controllErs to

talk to Each othEr, withoUt consUmErs liFting a FingEr.

wE call it practical innovation: inspirEd EnginEEring

that will complEtEly aUtomatE rEmotE control sEt

Up and EasE oF UsE across a host oF dEvicEs. likE oUr

solUtions, oUr aspirations arE simply advancEd.

two-wAy rf When it comes to wireless
control solutions, we do them all—from
two-way infrared to advanced DLnA-
enabled media server access and control.
In growing demand are two-way radio
frequency (Rf) solutions that support non-
line of sight control, including those based
on Rf4CE™, Z-wave®, Zigbee®, bluetooth®,
and standards yet to come.

sMArt deviCes  With the exploding
popularity of tablets and smartphones,
consumers are starting to embrace the
idea of a second screen in the living
room. To build on this momentum, UEI is
developing solutions that give consumers
a seamless universal control experience
direct from their smart devices.

dEaR sTocKholdERs For UEi, 2010 was a transFormational yEar. wE madE trEmEndoUs

progrEss in pEnEtrating nEw markEts by ExtEnding oUr global rEach. wE also dEEpEnEd

rElationships with Existing cUstomErs whilE adding nEw onEs. most importantly, wE continUEd

to dElivEr practical innovation in advancEd control tEchnologiEs that oFFEr simplicity in

an incrEasingly complEx connEctEd world.

UEI continues to be the industry
leader in controlling the home
entertainment experience.
To strengthen our position, in
november 2010 we acquired
China-based Enson Assets
Limited, otherwise known as C.G.,
a respected designer, marketer,
and manufacturer of remote
controls for original equipment
manufacturers, or OEMs.

We have worked with C.G. over
the past six years and in that time
they have consistently proven
to be one of our industry’s top
suppliers in terms of speed, flex-
ibility, quality, and delivery. The
acquisition raises our profile in
the strategically important global
TV market, particularly outside
the United States, and signifi-
cantly expands our relationships
with major consumer electronics
manufacturers. by joining forces
with C.G., we have solidified our
technology and market leadership,

gained greater geographic diver-
sity, and broadened our product
portfolio to service a complete set
of customer needs.

We estimate that we now
design or build approximately
one third of all remotes sold on
the planet. As a result, we have
continued our position as the no.1
global player in our market.

r eC o r d r e v e n U e s  UEI again
delivered sales and earnings
growth in 2010. Despite a continu-
ing difficult environment over
the past two years, UEI achieved
record annual revenues of $331.8
million in 2010, up from $317.6
million in 2009. Our operating
margins remained strong and
earnings were up substantially,
with adjusted Pro forma net
income of $17.9 million, or $1.27
per diluted share, compared to net
income of $14.7 million, or $1.05
per diluted share, in 2009. We
marked our eighth straight year

of continuous revenue growth and
our 13th straight year of profitabil-
ity — once again demonstrating our
ability to perform in good times
and bad.

g lo b A l g r ow t h  We contin-
ued to deliver growth and demon-
strate strength in our core mar-
kets — north America and Western
Europe — even as TV sales slowed.
At the same time, we worked to
capture promising prospects in
high-growth regions of the world.
Total TV shipments in 2010 were
estimated to reach more than 247
million units, a 17% increase from
2009 according to DisplaySearch,
with emerging regions like China
and Latin America leading the
way for growth. The dynamics of
our industry are shifting dramati-
cally, as our global entertainment
culture takes hold and emerging
markets embrace new technolo-
gies. UEI continues to adapt to the
changing world.

We have made a series of
moves that expand our global
footprint. In 2009, we gained a
strong presence in India with our
purchase of assets from Zilog Inc.,
including the company’s universal
remote control software technol-
ogy, intellectual property, a full
library database of codes, soft-
ware tools, and engineering talent.
Last year we formed Universal
Electronics do brazil, a state-of-
the-art assembly facility in a key
South American growth market.
finally, our C.G. acquisition gives
us unparalleled China-based man-
ufacturing, deeper relationships
with leading consumer electronics
OEMs, and distribution strength
in the growing Asian subscription
broadcast market.

In short, we are now truly
universal. We offer end-to-end
capabilities; from design to deliv-
ery and concept to completion.
Throughout our history we have

3
3
.
1
$

*
7
2
.
1
$

9
0

.
1
$

5
0

.
1
$

8
.
1
3
3
$

6
7
1
3
$

1
.
7
8
2
$

7
2
7
2
$

eArnings per shAre
* Adjusted Pro forma
Metrics (non GAAP)

revenUes in $millions

built our business by understand-
ing, applying, and delivering tech-
nology solutions that anticipate
the control needs of customers
and consumers. We began in the
United States, expanded to Europe,
and are now gaining ground in Asia
and Latin America. In each region,
we have grown by having local
people, local product knowledge,
and local expertise. Wherever
we do business, our approach
remains the same: we listen to our
customers’ unique requirements
and tailor solutions accordingly.

p r AC t i C A l i n n ovAt i o n  for
UEI, the industry’s global growth
plays to our strengths. Our
diverse product portfolio enables
us to offer economic solutions
that are elegant and functional,
along with highly-customized
solutions that are simple and easy
to use. It all comes back to our
mantra of practical innovation.
for nearly 25 years, UEI

has focused on simplifying the
complex, by creating advanced
technologies that solve everyday
problems for consumers and put
them in control of their home
entertainment environment.

A key example of this is our
UEI QuickSet technology, which
has been deployed by DIRECTV®
and other CE manufacturers. This
embedded application for audio/
video and set-top box entertain-
ment devices simplifies the set
up and programming of univer-
sal remote controls through a
two-way communication link with
the remote. UEI QuickSet 1.5,
our latest release, uses hDMI-
transmitted data sensing to
completely automate the process
of programming the universal
remote control. With our intuitive
software, there is no need to hunt
through manuals and enter codes.
Instead, the devices communicate
with each other to complete the
set-up process.

UEI’s ultimate goal is to design

remote controls that require no
set up at all. With our expertise in
all things wireless for home enter-
tainment, coupled with our global
database of device codes, making
this vision a reality is not as far off
as it might seem. Already we are
developing UEI QuickSet 2.0, which
leverages new intelligent features
being added to set-top boxes, such
as IP connectivity, to extend the
control experience to other smart
devices in the home, including
smartphones and tablets.

Down the road, equipment
using UEI QuickSet embedded
solutions will allow consumers
to simply download an app and
go — with no additional hardware
or set up required. That’s practi-
cal innovation. It’s taking us one
step closer to the day when users
can pick up their devices and have
them work on the spot — seam-
lessly, perfectly, and intuitively.

pA s s i o n fo r p e r fo r M A n C e 
for nearly 25 years, our pas-
sion for performance has made
UEI the best in the world at what
it does. We are innovators who
execute, as evidenced by our
growing market share, our roster
of industry-leading customers,
an enviable intellectual property
portfolio of more than 200 patents
issued or pending, and world-
class operations that achieved
an exceptional 98.7% on-time
delivery rate in 2010.

The team at UEI takes pride
in solving problems and turning
technology into solutions. Our
employees are passionate about
our products, our customers, and
working together to accomplish
our common goals. With offices
and employees around the world,
we may have a diversity of ideas
and perspectives but one single
focus: making it easier than ever
for people to connect, control,

and interact within the home
entertainment environment.

I would like to recognize our
team for delivering another year
of impressive results, and I want
to thank you, our stockholders,
for your continued support of UEI.
We have built a strong platform
for growth, and I am extremely
excited about our future. Today we
are better positioned than ever to
capitalize on the significant market
opportunities available to us. Our
objective is simple: we will con-
tinue to provide intelligent, simple,
and affordable solutions that meet
the needs of our customers and
consumers.

Sincerely,

Paul aRlinG chaiRman and cEo

bUsiness

2 3

risk fACtors

seleCted ConsolidAted finAnCiAl dAtA

MAnAgeMent’s disCUssion And AnAlysis of finAnCiAl Condition And resUlts of operAtions

QUAntitAtive And QUAlitAtive disClosUres AboUt MArket risk

finAnCiAl stAteMents And sUppleMentAl dAtA

ConsolidAted bAlAnCe sheets

ConsolidAted inCoMe stAteMents

ConsolidAted stAteMents of stoCkholders’ eQUity

ConsolidAted stAteMents of CAsh flows

notes to ConsolidAted finAnCiAl stAteMents

Controls And proCedUres

perforMAnCe ChArt

f o r wA r d - lo o k i n g s tAt e M e n t s :This Annual Report on form 10-k, including “ITEM 7. MAnAGEMEnT’S DISCUSSIOn AnD AnALySIS Of fInAnCIAL COnDITIOn AnD
RESULTS Of OPERATIOnS”, contains statements that may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All state-
ments other than statements of historical fact are statements that may be deemed forward-looking statements. forward-looking statements include but are not limited to any projec-
tions of revenue, margins, expenses, tax provisions, earnings, cash flows, benefit obligations, share repurchases or other financial items; plans, strategies and objectives of manage-
ment for future operations; expected development or relating to products or services; labor issues, particularly in Asia; future economic conditions or performance; pending claims or
disputes; expectation or belief; and assumptions underlying any of the foregoing.

These forward-looking statements are based upon management’s assumptions. While we believe the forward-looking statements made in this report are based upon reasonable
assumptions, any assumption is subject to a number of risks and uncertainties. If these risks and uncertainties ever materialize and management’s assumptions prove incorrect, our
results may differ materially from those expressed or implied by these forward-looking statements and assumptions. further, any forward-looking statement speaks only as of the date
the statement is made. We are not obligated to update forward-looking statements to reflect unanticipated events or circumstances occurring after the date the statement was made.
new factors emerge from time to time. It is not possible for management to predict or assess the impact of all factors on the business, or the extent they may cause actual results to dif-
fer materially from those contained in any forward-looking statements. Therefore, forward-looking statements should not be relied upon as a prediction of actual future results.

Management assumptions that are subject to risks and uncertainties include those that are made about macroeconomic and geopolitical trends and events; foreign currency exchange

rates; the execution and performance of contracts by customers, suppliers and partners; the challenges of managing asset levels, including inventory; the difficulty of aligning expense
levels with revenue changes; the outcome of pending legislation and accounting pronouncements; and other risks described in this report, including those discussed in “ITEM 1A. RISk
fACTORS”, and described in our Securities and Exchange Commission filings subsequent to this report.Management assumptions that are subject to risks and uncertainties include
those that are made about macroeconomic and geopolitical trends and events; foreign currency exchange rates; the execution and performance of contracts by customers, suppliers and
partners; the challenges of managing asset levels, including inventory; the difficulty of aligning expense levels with revenue changes; the outcome of pending legislation and accounting
pronouncements; and other risks described in this report, including those discussed in “Risk factors”, and described in our Securities and Exchange Commission filings subsequent to
this report.

BUSINESS

Business of universal electronics inc.

Universal Electronics Inc. was incorporated under the laws of Delaware in 1986 and
began operations in 1987. The principal executive offices are located at 6101 Gateway
Drive, Cypress, California 90630. As used herein, the terms “we”, “us” and “our” refer to
Universal Electronics Inc. and its subsidiaries unless the context indicates to the contrary.

 easy-to-use, pre-programmed universal infrared (“IR”) and radio frequency (“RF”)

remote controls that are sold primarily to subscription broadcasting providers (cable
and satellite), original equipment manufacturers (“OEMs”), consumers, internet proto-
col television (“IPTV”) providers, and private label customers;

 audio-video (“AV”) accessories sold to consumers;

 integrated circuits, on which our software and universal IR remote control database is

embedded, sold primarily to OEMs, IPTV providers and private label customers;

 intellectual property which we license primarily to OEMs, software development com-

Additional information regarding UEI may be obtained at www.uei.com.

panies, private label customers, and subscription broadcasting providers; and

Ac q u i s i t i o n o f E n s o n A s s E t s L i m i t E d  On November 3, 2010, our subsidiary,
UEI Hong Kong Private Limited, entered into a stock purchase agreement with CG
International Holdings Limited to acquire all of the issued shares in the capital of Enson
Assets Limited (“Enson”) for total consideration of approximately $125.8 million. The
consideration consisted of $95.0 million in cash and 1,460,000 of newly issued shares of
UEI common stock.

Enson is a leading manufacturer of remote controls. Prior to the acquisition, Enson
was also one of our significant suppliers. During the years ended December 31, 2010, 2009
and 2008 Enson supplied 20.5%, 24.1% and 20.6% of our inventory purchases.

The Enson corporate office, located in Hong Kong, is approximately 6,000 square feet

and employs 50 people. Enson controls two factories located in the Peoples Republic of
China (“PRC”).

The southern factory is located in Guang Dong Province, PRC within the city of Guang
Zhou. The Guang Zhou factory is approximately 710,203 square feet and employs 787 peo-
ple, with an additional 4,393 factory workers contracted through an agency agreement.

The northern factory is located in Jiang Su Province, PRC within the city of Yang Zhou. The
Yang Zhou factory is approximately 1,204,697 square feet and employs 418 people, with an
additional 4,502 factory workers contracted through an agency agreement.

Business segment

ov E rv i E w  Universal Electronics Inc. develops and manufactures a broad line of
products, software, and technologies that are marketed to enhance home entertainment
systems. Our offerings include the following:

 software, firmware and technology solutions that can enable devices such as TVs,
set-top boxes, stereos, automotive audio systems, cell phones and other consumer
electronic devices to wirelessly connect and interact with home networks and interac-
tive services to deliver digital entertainment and information.

Our business is comprised of one reportable segment.

P r i n c i PA L P r o d u c t s A n d m A r k E t s  Our principal markets include the subscrip-
tion broadcasting, OEM, retail, and private label companies that operate in the consumer
electronics market.

We provide subscription broadcasters and IPTV providers both domestically and

internationally, with our universal remote control devices and integrated circuits, on which
our software and IR code database is embedded, to support the demand associated with
the deployment of digital set-top boxes that contain the latest technology and features. We
also sell our universal remote control devices and integrated circuits, on which our soft-
ware and IR code database is embedded, to OEMs that manufacture wirelessly controlled
devices or digital set-top boxes.

For the years ended December 31, 2010, 2009, and 2008, our sales to DIRECTV and
its sub-contractors collectively accounted for 13.7%, 21.1% and 19.3% of our net sales,
respectively. Our sales to Comcast Communications, Inc. and its sub-contractors collec-
tively accounted for 12.9%, 11.1% and 13.4% of our net sales for the years ended December
31, 2010, 2009 and 2008, respectively. No other single customer accounted for 10% or
more of our net sales in 2010, 2009, or 2008.

We continue to pursue further penetration of the more traditional OEM consumer
electronics markets. Customers in these markets generally package our wireless control
devices for resale with their AV home entertainment products.

Growth in this market has been driven by the proliferation and increasing complexity
of home entertainment equipment, emerging digital technology, multimedia and interac-
tive internet applications, and the increasing number of OEMs. On November 4, 2010, we
acquired Enson Assets Limited (“Enson”) for total consideration of approximately $125.8
million. This acquisition expanded the breadth and depth of our customer base in the OEM
market, particularly in Asia.

We continue to place significant emphasis on expanding our sales and marketing
efforts to subscription broadcasters and OEMs in Asia, Latin America and Europe. Our
acquisition of Enson will enhance our ability to compete in the OEM and subscription
broadcasting markets, particularly in Asia. In addition, during 2010 we opened a new
subsidiary in Brazil, which will allow us to increase our reach and better compete in the
Latin American subscription broadcast and IPTV markets. We will continue to add new
sales and administrative people to support anticipated sales growth in these markets over
the next few years.

In the international retail markets, our One For All® brand name remote control and

accessories accounted for 12.4%, 12.6%, and 15.6% of our total net sales for the years
ended December 31, 2010, 2009, and 2008, respectively. Throughout 2010, we continued
our international retail sales and marketing efforts. Financial information relating to
our international operations for the years ended December 31, 2010, 2009, and 2008 is
included in “ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA-Notes to
Consolidated Financial Statements-Note 15”.

During the second quarter of 2008, we signed an agreement with Audiovox Accessories

Corporation to be the exclusive supplier of embedded microcontrollers and infrared
database software for Audiovox’s complete line of RCA universal remote controls sold in
the North American retail market. We also agreed to develop remote controls in the future
for existing brands in the Audiovox lineup and granted Audiovox an exclusive license to sell
and distribute our One For All® brand remote controls and accessories in North America.

I n t e l l ec t ua l P r o P e rt y a n d t ec h n o lo gy  We hold a number of patents in the
United States and abroad related to our products and technology, and have filed domestic
and foreign applications for other patents that are pending. We had a total of 206 and 187
issued and pending United States patents at the end of 2010 and 2009, respectively. The
increase in the number of issued and pending patents in the United States resulted from 32
new patent filings, offset by our abandonment of 4 patents and the expiration of 9 patents.

Our patents have remaining lives ranging from approximately one to eighteen years.
We have also obtained copyright registration and claim copyright protection for certain
proprietary software and libraries of IR codes. Additionally, the names of many of our
products are registered, or are being registered, as trademarks in the United States Patent
and Trademark Office and in most of the other countries in which such products are sold.
These registrations are valid for terms ranging up to 20 years and may be renewed as long
as the trademarks continue to be used and are deemed by management to be important to
our operations. While we follow the practice of obtaining patent, copyright and trademark
registrations on new developments whenever advisable, in certain cases, we have elected
common law trade secret protection in lieu of obtaining such other protection.

Since our beginning in 1986, we have compiled an extensive IR code library that covers

over 508,000 individual device functions and over 4,200 individual consumer electronic
equipment brand names. Our library is regularly updated with IR codes used in newly
introduced AV devices. These IR codes are captured directly from the remote control
devices or the manufacturer’s written specifications to ensure the accuracy and integrity
of the database. We believe that our universal remote control database is capable of con-
trolling virtually all IR controlled TVs, VCRs, DVD players, cable converters, CD players,
audio components and satellite receivers, as well as most other infrared remote con-
trolled home entertainment devices and home automation control modules worldwide.

Our proprietary software and know-how permit us to compress IR codes before we

load them into our products. This provides significant cost and space efficiencies that
enable us to include more codes and features in the memory space of our wireless control
devices than are included in the similarly priced products of our competitors.

With today’s rapidly changing technology, upgradeability ensures the compatibility of
our remote controls with future home entertainment devices. We have developed patented
technology that provides users the capability to easily upgrade the memory of our remote
controls with IR codes that were not originally included using their entertainment device,
personal computer or telephone. These options utilize one or two-way communication to
upgrade the remote controls’ IR codes or firmware depending on the requirements.

Each of our wireless control devices is designed to simplify the use of home enter-

tainment and other equipment. To appeal to the mass market, the number of buttons is
minimized to include only the most popular functions. Another ease of use feature we offer
in several of our products is our user programmable macro key. This feature allows the

user to program a sequence of commands onto a single key, to be played back each time
that key is subsequently pressed.

Our remote controls are also designed for easy set-up. For most of our products, the

consumer simply inputs a four-digit code for each device to be controlled. During 2007,
building on our strategy to develop new products and technologies to further simplify
remote control set-up, we created the web-based EZ-RC™ Remote Control Setup Wizard
application. Once our wireless device is connected to a personal computer, our customers
may utilize the EZ-RC™ Remote Control Setup Wizard web-based application’s graphical
interface to fully program the remote control. Each remote control user may create their
own personal profile on the device with their favorite channels, custom functions, and
more. We launched products utilizing the EZ-RC™ Remote Control Setup Wizard web-
based application into the international retail market during the fourth quarter of 2008 and
the North American retail market during the third quarter of 2009. During 2010, we con-
tinued to enhance our EZ-RC™ Remote Control Setup Wizard application, and to release
additional products capable of connecting to it.

UEI QuickSet is a firmware application that may be embedded on an AV device, such

as a set-top box. UEI QuickSet enables universal remote control set-up using guided
on-screen instructions and a wireless two-way communication link between the remote
and the UEI QuickSet embedded AV equipment. UEI’s XMP-2 technology, an extensible
multimedia protocol, enables the two-way wireless communication between the univer-
sal remote control and the AV device, allowing IR code data and configuration settings
to be sent to the remote control from the AV equipment. The user identifies the type and
brand of the device to be controlled and then the UEI QuickSet application performs a
test to confirm that the remote is controlling the equipment correctly. UEI QuickSet also
saves the user-defined remote setting, enabling consumers to quickly transfer the setup
configuration to a replacement remote. When the AV device has network connectivity, the
IR code database and application may be continually updated to include the latest devices
and functions.

During 2010, we released an upgrade to our UEI QuickSet application. The latest ver-

sion of UEI QuickSet, version 1.5, utilizes data transmitted over HDMI to automatically
detect a connected device and then determine and download the correct code into the
remote control without the need for the user to enter in any additional information. The
user does not need to know the model number or brand to setup the device in the remote.
Any new device that is connected is recognized. Consumers can easily and quickly set-up
their remotes to control multiple devices.

Also during 2010, we developed our Low Energy IR Engine (“LowEIR”). LowEIR uses
a combination of silicon, hardware, and software to substantially reduce energy usage in
IR remotes without sacrificing performance. With LowEIR, battery life may be extended
by years on traditional two battery infrared remote control designs. LowEIR is compat-
ible with all IR protocols and is especially efficient with our XMP® and XMP-2 protocols.
Implementation does not require any modifications to the target device and is scalable
to support a wide range of performance requirements. Because LowEIR requires less
energy, and potentially fewer batteries, this may reduce waste and tariffs, making it both
an environmentally friendly option for consumers and a financially sound solution for
device manufacturers and system operators.

Our Universal Remote Application Programming Interface (“UAPI”) is integrated into a

remote and its target device, such as set-top box or television, allowing device manufac-
turers to extend existing remote control standards to deliver an enhanced consumer con-
trol experience. UAPI greatly reduces the time required to design and develop advanced,
custom features that require synchronization between the remote and target device. UAPI
enables support for a variety of new interface technologies, such as capacitive touch or
optical finger navigation. In addition, UAPI has native support for the UEI QuickSet applica-
tion which delivers simplified device setup experience. UAPI focuses on consumer-centric
applications around the home theater experience and delivers a risk-free path for OEMs to
develop solutions that extend the interface into the hands of the user.

M e t h o d s o f d I s t r I b u t I o n  Our distribution methods for our remote control devices
are dependent on the sales channel. We distribute remote control devices directly to
subscription broadcasters and OEMs, both domestically and internationally. In the North
American retail channel, we license our One For All® brand name to Audiovox, who in turn
sells products directly to certain domestic retailers and third party distributors. Outside
of North America, we sell our wireless control devices and AV accessories under the One
For All® and private label brand names to retailers through our international subsidiaries.
We utilize third party distributors for the retail channel in countries where we do not have
subsidiaries.

We have developed a broad portfolio of patented technologies and the industry’s
leading database of IR codes. We ship integrated circuits, on which our software and IR
code database is embedded, directly to manufacturers for inclusion in their products. In
addition, we license our software and technology to manufacturers. Licenses are deliv-

ered upon the transfer of a product master or on a per unit basis when the software or
technology is used in a customer device.

We provide domestic and international consumer support to our various universal
remote control marketers, including manufacturers, cable and satellite providers, retail
distributors, and audio and video original equipment manufacturers through our auto-
mated “InterVoice” system. Live agent help is available through certain programs. We
also make available a free web-based support resource, www.urcsupport.com, designed
specifically for subscription broadcasters. This solution offers interactive online demos
and tutorials to help users easily setup their remote and commands, and as a result
reduces call volume at customer support centers. Additionally, ActiveSupport®, a call
center, provides customer interaction management services from service and support to
retention. Pre-repair calls, post-install surveys, and inbound calls to customers provide
greater bottom-line efficiencies. We continue to review our programs to determine their
value in improving the sales of our products.

Our twenty-four international subsidiaries are the following:

 Universal Electronics B.V., established in the Netherlands;

 One For All GmbH, established in Germany;

 One for All Iberia S.L., established in Spain;

 One For All UK Ltd., established in the United Kingdom;

 One For All Argentina S.R.L., established in Argentina;

 One For All France S.A.S., established in France;

 Universal Electronics Italia S.R.L. established in Italy;

 UE Singapore Pte. Ltd., established in Singapore;

 UEI Hong Kong Pte. Ltd., established in Hong Kong

 UEI Electronics Pte. Ltd., established in India;

 UEI Cayman Inc., established in the Cayman Islands;

 Ultra Control Consumer Electronics GmbH, established in Germany;

 UEI Hong Kong Holdings Co. Pte. Ltd., established in Hong Kong;

 Universal Electronics (Shenzhen) LLC., established in the PRC;

 UEI Brasil Controles Remotos Ltda., established in Brazil;

 Enson Assets Ltd., established in the British Virgin Islands;

 C.G. Group Ltd., established in the British Virgin Islands;

 C.G. Development Ltd., established in Hong Kong;

 Gemstar Technology (China) Co. Ltd., established in the PRC;

 Gemstar Technology (Yang Zhou) Co. Ltd., established in the PRC;

 C.G. Technology Ltd., established in Hong Kong;

 Gemstar Polyfirst Ltd., established in Hong Kong;

 C.G. Timepiece Ltd., established in Hong Kong;

 C.G. Asia Ltd., established in the British Virgin Islands.

Raw MateRials and dependence on supplieRs

We utilize our own manufacturing plants and third-party manufacturers and suppli-
ers primarily located within the PRC to produce our wireless control products. In 2010,
Computime and Samsung each provided more than 10% of our total inventory purchases.
They collectively provided 34.2% of our total inventory purchases for 2010. In 2009 and
2008, Computime, C.G. Development, Samsung and Samjin each provided more than 10%
of our total inventory purchases. They collectively provided 77.4% and 73.1% of our total
inventory purchases for 2009 and 2008, respectively.

Even though we own and operate two factories in the PRC, we continue to evalu-
ate additional contract manufacturers and sources of supply. During 2010, we utilized
multiple contract manufacturers and maintained duplicate tooling for certain of our
products. Where possible we utilize standard parts and components, which are available
from multiple sources. We continually seek additional sources to reduce our dependence
on our integrated circuit suppliers. To further manage our integrated circuit supplier
dependence, we include flash microcontroller technology in most of our products. Flash
microcontrollers can have shorter lead times than standard microcontrollers and may
be reprogrammed, if necessary. This allows us flexibility during any unforeseen shipping
delays and has the added benefit of potentially reducing excess and obsolete inventory
exposure. This diversification lessens our dependence on any one supplier and allows us
to negotiate more favorable terms.

seasonality

Historically, our business has been influenced by the retail sales cycle, with increased
sales in the last half of the year. We expect this pattern to be repeated during 2011.

See “ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA — Notes to

the Consolidated Financial Statements — Note 22” for further details regarding our
quarterly results.

coMpetition

Our principal competitors in the subscription broadcasting market are Philips Consumer
Electronics, Universal Remote Control and Contec. In the international retail and private
label markets for wireless controls we compete with Philips Consumer Electronics,
Logitech, Ruwido and Sony, as well as various manufacturers of wireless controls in Asia.
Our primary competitors in the OEM market are the original equipment manufacturers
themselves and wireless control manufacturers in Asia. We compete against Universal
Remote Control, Logitech, and Ruwido in the IR database market. Our North American
retail products compete against Universal Remote Control, Philips Consumer Electronics,
Logitech, Sony and many others. We compete in our markets on the basis of product qual-
ity, features, price, intellectual property and customer support. We believe that we will
need to continue to introduce new and innovative products to remain competitive and to
recruit and retain competent personnel to successfully accomplish our future objectives.

engineeRing, ReseaRch and developMent

During 2010, our engineering efforts focused on the following:

 broadening our product portfolio;

 modifying existing products and technologies to improve features and lower costs;

 formulating measures to protect our proprietary technology and general know-how;

 improving our software so that we may pre-program more codes into our memory chips;

 simplifying the set-up and upgrade process for our wireless control products; and

 updating our library of IR codes to include IR codes for new features and devices intro-

duced worldwide.

Our engineering efforts included the development of new remote controls that com-
bine consumer friendly interfaces and intuitive setup with advance functions. These new
products included our One For All® SmartControl and Dolphin™ remotes released during
2010. The One For All® SmartControl enables the user to control multiple devices without
the need to switch between devices on the remote control. The One For All® SmartControl
also leverages UEI SimpleSet technology and may be setup by simply identifying the target
device type and brand. The Dolphin™ point-and-click, universal remote control addresses

the connected and 3-D television markets. Equipped with advanced motion-detection
technology, the ergonomic Dolphin controller enables fast, intuitive navigation through
multiple menus, channels, or content selections by translating the user’s natural hand
movements into on-screen cursor movements.

During 2010, our engineering efforts also focused on developing solutions for our
customers. These new products included our Universal Remote Application Programming
Interface (“UAPI”) and Low Energy IR Engine (“LowEIR”). UAPI is integrated into a remote
and its target device, allowing device manufacturers to significantly reduce the time
required to design and develop advanced, custom features that require synchronization
between the remote and target device. UAPI enables support for a variety of new interface
technologies, such as capacitive touch or optical finger navigation and has native sup-
port for the UEI QuickSet application which delivers simplified device setup experience.
Our LowEIR uses a combination of silicon, hardware, and software to significantly reduce
energy usage in IR remotes without sacrificing performance. Because LowEIR requires
less energy, and potentially fewer batteries, this may reduce waste and tariffs, making it
both an environmentally friendly option for consumers and a financially sound solution for
device manufacturers and system operators.

We continued to improve our existing products during 2010. We released several soft-
ware updates to our web based EZ-RC™ Remote Control Setup Wizard application. We also
released an upgrade to our UEI QuickSet application during 2010. The latest version of UEI
QuickSet, version 1.5, utilizes data transmitted over HDMI to automatically detect a con-
nected device and then determine and download the correct code into the remote control
without the need for the user to enter in any additional information.

On February 18, 2009, we acquired certain patents, intellectual property and other
assets related to the universal remote control business from Zilog Inc. (NASDAQ: ZILG)
for approximately $9.5 million in cash. The purchase included Zilog’s full library and data-
base of infrared codes and software tools. We also hired 116 of Zilog’s sales and engineering
personnel, including all 107 of Zilog’s personnel located in India. The engineering person-
nel acquired from Zilog are focused on the capture of IR codes and the development of
firmware leading to more complete solutions to customer needs, the conceptual formu-
lation and design of possible alternatives, as well as the testing of process and product
cost improvements. These efforts will enable us to provide customers with reductions
in design cycle times, lower costs, and improvements in integrated circuit design, product
quality and overall functional performance. These efforts will also enable us to further pen-
etrate existing markets, pursue new markets more effectively and expand our business.

Our personnel are involved with various industry organizations and bodies, which are

in the process of setting standards for infrared, radio frequency, power line, telephone
and cable communications and networking in the home. There can be no assurance that
any of our research and development projects will be successfully completed.

Our expenditures on engineering, research and development were:

( i n m i l l i o n s ) :

Research and development (1)

Engineering (2)

Total engineering, research and development

2 0 10

2 0 0 9

2 0 0 8

10.7

9.5

20.2

8.7

9.4

8.2

7.3

18.1

15.5

(1) Research and development expense for the years ended December 31, 2010, 2009, and 2008 includes $0.5 million,

$0.4 million, and $0.4 million of stock-based compensation expense, respectively.

(2) Engineering costs are included in SG&A.

enviRonMental MatteRs

Many of our products are subject to various federal, state, local and international laws
governing chemical substances in products, including laws regulating the manufacture
and distribution of chemical substances and laws restricting the presence of certain sub-
stances in electronics products. We may incur substantial costs, including cleanup costs,
fines and civil or criminal sanctions, third-party damages or personal injury claims, if we
were to violate or become liable under environmental laws or if our products become non-
compliant with environmental laws. We also face increasing complexity in our product
design and procurement operations as we adjust to new and future requirements relating
to the materials composition of our products.

We may also face significant costs and liabilities in connection with product take-back

legislation. The European Union enacted the Waste Electrical and Electronic Equipment
Directive (“WEEE”), which makes producers of electrical goods, including computers and
printers, financially responsible for specified collection, recycling, treatment and disposal
of past and future covered products. During 2007, the majority of our European subsidiar-
ies became WEEE compliant. Our Italian subsidiary became compliant in February 2008.
Similar legislation has been or may be enacted in other jurisdictions, including in the
United States, Canada, Mexico, PRC and Japan.

We believe that we have materially complied with all currently existing international
and domestic federal, state and local statutes and regulations regarding environmental
standards and occupational safety and health matters to which we are subject. During the

years ended December 31, 2010, 2009 and 2008, the amounts incurred in complying with
federal, state and local statutes and regulations pertaining to environmental standards and
occupational safety and health laws and regulations did not materially affect our earnings or
financial condition. However, future events, such as changes in existing laws and regulations
or enforcement policies, may give rise to additional compliance costs that may have a mate-
rial adverse effect upon our capital expenditures, earnings or financial condition.

eMployees

At December 31, 2010, we employed 1,843 employees, of which 430 worked in engineering and
research and development, 85 in sales and marketing, 118 in consumer service and support,
986 in operations and warehousing and 224 in executive and administrative functions.

On November 4, 2010, we acquired Enson Assets Limited. As a result of this transac-
tion, we acquired 1,255 of our 1,843 employees, of which 157 worked in engineering and
research and development, 17 in sales and marketing, 933 in operations and warehousing
and 148 in executive and administrative functions. In addition, Enson has an additional
8,895 factory workers contracted through agency agreements.

None of our employees are subject to a collective bargaining agreement or repre-

sented by a union. We consider our employee relations to be good.

inteRnational opeRations

Financial information relating to our international operations for the years ended
December 31, 2010, 2009 and 2008 is incorporated by reference to “ITEM 8. FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA — Notes to Consolidated Financial
Statements — Note 15”.

available infoRMation

We make available free of charge through the website our annual report on Form 10-K,
our quarterly reports on Form 10-Q, our current reports on Form 8-K and any amend-
ments to these reports as soon as reasonably practical after we electronically file such
reports with the Securities and Exchange Commission. These reports may be found
on our website at www.uei.com under the caption “SEC Filings” on the Investor page.
Investors may also obtain copies of our SEC filings from the SEC website at www.sec.gov.

RISK FACTORS

Forward Looking Statements We caution that the following important factors,
among others (including, but not limited to, factors discussed below in “ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS,” as well as those factors discussed elsewhere in this Annual Report
on Form 10-K, or in our other reports filed from time to time with the Securities and
Exchange Commission), may affect our actual results and may contribute to or cause
our actual consolidated results to differ materially from those expressed in any of our
forward-looking statements. The factors included here are not exhaustive. Further, any
forward-looking statement speaks only as of the date on which such statement is made,
and we undertake no obligation to update any forward-looking statement to reflect
events or circumstances after the date on which such statement is made or to reflect the
occurrence of unanticipated events. New factors emerge from time to time, and it is not
possible for management to predict all such factors, nor can we assess the impact of each
such factor on the business or the extent to which any factor, or combination of factors,
may cause actual results to differ materially from those contained in any forward-looking
statements. Therefore, forward-looking statements should not be relied upon as a predic-
tion of actual future results.

While we believe that the forward-looking statements made in this report are based on

reasonable assumptions, the actual outcome of such statements is subject to a number
of risks and uncertainties, including the failure of our markets to continue growing and
expanding in the manner we anticipated; the failure of our customers to grow and expand
as we anticipated; the effects of natural or other events beyond our control, including
the effects of political unrest, war or terrorist activities may have on us or the economy;
the economic environment’s effect on us or our customers; the growth of, acceptance of
and the demand for our products and technologies in various markets and geographical
regions, including cable, satellite, consumer electronics, retail, digital media/technology,
CEDIA, interactive TV, automotive, and cellular industries not materializing or growing as
we believed; our inability to add profitable complementary products which are accepted
by the marketplace; our inability to attract and retain quality workforce at adequate levels
in all regions of the world, and particularly Asia; our inability to continue to maintain our
operating costs at acceptable levels through our cost containment efforts; our inability
to realize tax benefits from various tax projects initiated from time to time; our inabil-
ity to continue selling our products or licensing our technologies at higher or profitable

margins; our inability to obtain orders or maintain our order volume with new and existing
customers; the possible dilutive effect our stock incentive programs may have on our
earnings per share and stock price; our inability to continue to obtain adequate quantities
of component parts or secure adequate factory production capacity on a timely basis; and
other factors listed from time to time in our press releases and filings with the Securities
and Exchange Commission.

r I s ks r e l at e d to d o I n g b u s I n e s s I n t h e P r c  Changes in the policies of the PRC
government may have a significant impact upon the business we may be able to conduct in
the PRC and the profitability of such business. Our business operations may be adversely
affected by the current and future political environment in the PRC. The PRC has operated
as a socialist state since the mid-1900s and is controlled by the PRC’s Communist Party.
The Chinese government exerts substantial influence and control over the manner in
which we must conduct our business activities. The PRC has only permitted provincial and
local economic autonomy and private economic activities since 1988. The government of the
PRC has exercised and continues to exercise substantial control over virtually every sector
of the Chinese economy, through regulation and state ownership. Our ability to operate in
the PRC may be adversely affected by changes in Chinese laws and regulations, including
those relating to taxation, labor and social insurance, import and export tariffs, raw materi-
als, environmental regulations, land use rights, property and other matters. Under current
leadership, the government of the PRC has been pursuing economic reform policies that
encourage private economic activity and greater economic decentralization. There is no
assurance, however, that the government of the PRC will continue to pursue these policies,
or that it will not significantly alter these policies from time to time without notice.

The PRC’s economy is in a transition from a planned economy to a market oriented

economy subject to five-year and annual plans adopted by the government that set
national economic development goals. Policies of the PRC government may have signifi-
cant effects on the economic conditions of the PRC. The PRC government has confirmed
that economic development will follow the model of a market economy. Under this direc-
tion, we believe that the PRC will continue to strengthen its economic and trading rela-
tionships with foreign countries and business development in the PRC will follow market
forces. While we believe that this trend will continue, there can be no assurance that this
will be the case.

A change in policies by the PRC government may adversely affect our interests by,
among other factors: changes in laws, regulations or the interpretation thereof, confisca-
tory taxation, restrictions on currency conversion, imports or sources of supplies, or the

expropriation or nationalization of private enterprises. Although the PRC government has
been pursuing economic reform policies for more than two decades, there is no assur-
ance that the government will continue to pursue such policies or that such policies may
not be significantly altered, especially in the event of a change in leadership, social or
political disruption, or other circumstances affecting the PRC’s political, economic and
social life.

The PRC laws and regulations governing our current business operations are some-
times vague and uncertain. Any changes in such PRC laws and regulations may harm our
business. The PRC laws and regulations governing our current business operations
are sometimes vague and uncertain. The PRC’s legal system is a civil law system based
on written statutes, in which decided legal cases have little value as precedents unlike
the common law system prevalent in the United States. There are substantial uncertain-
ties regarding the interpretation and application of PRC laws and regulations, including
but not limited to the laws and regulations governing our business, or the enforcement
and performance of our arrangements with customers in the event of the imposition of
statutory liens, death, bankruptcy and criminal proceedings. The Chinese government has
been developing a comprehensive system of commercial laws, and considerable progress
has been made in introducing laws and regulations dealing with economic matters such
as foreign investment, corporate organization and governance, labor and social insur-
ance, commerce, taxation and trade. However, because these laws and regulations are
relatively new, and because of the limited volume of published cases and judicial interpre-
tation and their lack of force as precedents, interpretation and enforcement of these laws
and regulations involve significant uncertainties. New laws and regulations that affect
existing and proposed future businesses may also be applied retroactively. We are con-
sidered a foreign person or foreign funded enterprise under PRC laws, and as a result, we
are required to comply with PRC laws and regulations. We cannot predict what effect the
interpretation of existing or new PRC laws or regulations may have on our businesses. If
the relevant authorities find that we are in violation of PRC laws or regulations, they would
have broad discretion in dealing with such a violation, including, without limitation:

 levying fines;

 revoking our business and other licenses;

 requiring that we restructure our ownership or operations; and

 requiring that we discontinue any portion or all of our business.

The fluctuation of the Chinese Yuan Renminbi may harm your investment. On July
21, 2005, the PRC government changed its decade-old policy of pegging the value of
the Chinese Yuan Renminbi to the U.S. dollar. Under the new policy, the Chinese Yuan
Renminbi is permitted to fluctuate within a narrow and managed band against a basket of
certain foreign currencies. This change in policy has resulted in an approximately 23.1%
appreciation of the Chinese Yuan Renminbi against the U.S. dollar as of December 31,
2010. While the international reaction to the Chinese Yuan Renminbi revaluation has gen-
erally been positive, there remains significant international pressure on the PRC govern-
ment to adopt an even more flexible currency policy, which could result in a further and
more significant appreciation of the Chinese Yuan Renminbi against the U.S. dollar.

The PRC’s legal and judicial system may not adequately protect our business and opera-

tions and the rights of foreign investors. The PRC legal and judicial system may nega-
tively impact foreign investors. In 1982, the National People’s Congress amended the
Constitution of the PRC to authorize foreign investment and guarantee the “lawful rights
and interests” of foreign investors in the PRC. However, the PRC’s system of laws is not
yet comprehensive. The legal and judicial systems in the PRC are still rudimentary, and
enforcement of existing laws is inconsistent. The PRC judiciary is relatively inexperienced
in enforcing the laws that do exist, resulting in judicial decision-making that is more
uncertain than would be expected in a more developed country. It may be impossible to
obtain swift and equitable enforcement of laws that do exist, or to obtain enforcement
of the judgment of one court by a court of another jurisdiction. The PRC’s legal system
is based on the civil law regime, that is, it is based on written statutes; a decision by one
judge does not set a legal precedent that is required to be followed by judges in other
cases. In addition, the interpretation of Chinese laws may be varied to reflect domestic
political changes.

The promulgation of new laws, changes to existing laws and the pre-emption of local

regulations by national laws may adversely affect foreign investors. However, the trend
of legislation over the last 20 years has significantly enhanced the protection of foreign
investment and allowed for more control by foreign parties of their investments in Chinese
enterprises. There can be no assurance that a change in leadership, social or political
disruption, or unforeseen circumstances affecting the PRC’s political, economic or social
life, will not affect the PRC government’s ability to continue to support and pursue these
reforms. Such a shift may have a material adverse effect on our business and prospects.

The practical effect of the PRC legal system on our business operations in the PRC
may be viewed from two separate but intertwined considerations. First, as a matter of
substantive law, the Foreign Invested Enterprise laws provide significant protection from
government interference. In addition, these laws guarantee the full enjoyment of the
benefits of corporate Articles and contracts to Foreign Invested Enterprise participants.
These laws, however, do impose standards concerning corporate formation and gover-
nance, which are qualitatively different from the general corporation laws of the United
States. Similarly, the PRC accounting laws mandate accounting practices, which are not
consistent with U.S. generally accepted accounting principles. PRC’s accounting laws
require that an annual “statutory audit” be performed in accordance with PRC accounting
standards and that the books of account of Foreign Invested Enterprises are maintained
in accordance with Chinese accounting laws. Article 14 of the People’s Republic of China
Wholly Foreign-Owned Enterprise Law requires a wholly foreign-owned enterprise to
submit certain periodic fiscal reports and statements to designated financial and tax
authorities, at the risk of business license revocation. While the enforcement of substan-
tive rights may appear less clear than United States procedures, the Foreign Invested
Enterprises and Wholly Foreign-Owned Enterprises are Chinese registered companies,
which enjoy the same status as other Chinese registered companies in business-to-
business dispute resolution. Any award rendered by an arbitration tribunal is enforceable
in accordance with the United Nations Convention on the Recognition and Enforcement of
Foreign Arbitral Awards (1958). Therefore, as a practical matter, although no assurances
can be given, the Chinese legal infrastructure, while different in operation from its United
States counterpart, should not present any significant impediment to the operation of
Foreign Invested Enterprises.

Availability of adequate workforce levels Presently, the vast majority of workers at
our newly acquired PRC factories are obtained from third-party employment agencies.
As the labor laws, social insurance and wage levels continue to mature and grow and the
workers become more sophisticated, our costs to employ these and other workers in the
PRC may grow beyond that anticipated by management. In addition, as the PRC market
continues to open up and grow, with the advent of more companies opening plants and
businesses in the PRC, we could experience an increase in competing for the same work-
ers, resulting in either an inability to attract and retain an adequate number of qualified
workers or an increase in our employment costs to obtain these workers.

Expansion in the PRC As our global business grows, we may decide to expand in
China to meet demand. This would be dependent on our ability to locate suitable facili-
ties to support this expansion, to obtain the necessary permits and funding, to attract and
retain adequate levels of qualified workers, and to enter into a long term land lease that is
common in the PRC.

Any recurrence of severe acute respiratory syndrome, or SARS, or another widespread

public health problem, could harm our operations. A renewed outbreak of SARS or
another widespread public health problem (such as bird flu) in the PRC, could significantly
harm our operations. Our operations may be impacted by a number of health-related fac-
tors, including quarantines or closures of some of our offices that would adversely disrupt
our operations. Any of the foregoing events or other unforeseen consequences of public
health problems could significantly harm our operations.

r I s ks r e l at e d to t h e r ec e n t fI n a n c I a l c r I s I s a n d s e v e r e t I g h t e n I n g I n t h e
g lo b a l c r e d I t M a r k e t s  General economic conditions, both domestic and interna-
tional, have an impact on our business and financial results. The ongoing global financial
crisis affecting the banking system and financial markets has resulted in a severe tighten-
ing in the credit markets, a low level of liquidity in many financial markets, and extreme
volatility in credit and equity markets. This financial crisis may impact our business in a
number of ways, including:

Potential deferment of purchases and orders by customers Uncertainty about current

and future global economic conditions may cause consumers, businesses and govern-
ments to defer purchases in response to tighter credit, decreased cash availability and
declining consumer confidence. Accordingly, future demand for our products may differ
materially from our current expectations.

Customers’ inability to obtain financing to make purchases from us and/or maintain their

business Some of our customers require substantial financing in order to fund their
operations and make purchases from us. The inability of these customers to obtain suf-
ficient credit to finance purchases of our products may adversely impact our financial
results. In addition, if the financial crisis results in insolvencies for our customers, it may
adversely impact our financial results.

Potential impact on trade receivables Credit market conditions may slow our collec-
tion efforts as customers experience increased difficulty in obtaining requisite financing,

leading to higher than normal accounts receivable balances and longer DSOs. This may
result in greater expense associated with collection efforts and increased bad debt expense.

Negative impact from increased financial pressures on third-party dealers, distributors

and retailers We make sales in certain regions of the world through third-party dealers,
distributors and retailers. Although many of these third parties have significant operations
and maintain access to available credit, others are smaller and more likely to be impacted
by the significant decrease in available credit that has resulted from the current financial
crisis. If credit pressures or other financial difficulties result in insolvency for these third
parties and we are unable to successfully transition our end customers to purchase products
from other third parties or from us directly, it may adversely impact our financial results.

Negative impact from increased financial pressures on key suppliers Our ability to
meet customers’ demands depends, in part, on our ability to obtain timely and adequate
delivery of quality materials, parts and components from our suppliers. Certain of our
components are available only from a single source or limited sources. If certain key sup-
pliers were to become capacity constrained or insolvent as a result of the financial crisis,
it may result in a reduction or interruption in supplies or a significant increase in the price
of supplies and adversely impact our financial results. In addition, credit constraints at
key suppliers may result in accelerated payment of accounts payable by us, impacting our
cash flow.

d e P e n d e n c e u P o n k e y s u P P l I e r s  During 2010, Computime and Samsung each
provided over 10% of our total inventory purchases. Purchases from these suppliers
collectively amounted to $67.0 million, or 34.2%, of our total inventory purchases in
2010. During 2009 and 2008, Computime, C.G. Development, Samsung, and Samjin each
provided over 10% of our total inventory purchases. Purchases from these suppliers col-
lectively amounted to $147.8 million, or 77.4%, of our total inventory purchases in 2009.
Purchases from these suppliers collectively amounted to $135.5 million, or 73.1%, of total
inventory purchases during 2008.

Most of the components used in our products are available from multiple sources.
However, we have elected to purchase integrated circuits, used principally in our wire-
less control products, from primarily three sources. To reduce our dependence on our
integrated circuits suppliers we continually seek additional sources. We generally main-
tain inventories of our integrated circuits, which may be used in part to mitigate, but not
eliminate, delays resulting from supply interruptions.

We have identified alternative sources of supply for our integrated circuit, component

parts, and finished goods needs; however, there can be no assurance that we will be able
to continue to obtain these inventory purchases on a timely basis. Any extended interrup-
tion, shortage or termination in the supply of any of the components used in our products,
or a reduction in their quality or reliability, or a significant increase in prices of components,
would have an adverse effect on our operating results, financial position and cash flows.

d e P e n d e n c e o n fo r e I g n M a n u fac t u r I n g  Even after our acquisition of the fac-
tories in the PRC, third-party manufacturers located in the PRC will continue to manu-
facture a majority of our products. Our arrangements with these foreign manufacturers
are subject to the risks of doing business abroad, such as tariffs, environmental and trade
restrictions, intellectual property protection and enforcement, export license require-
ments, work stoppages, political and social instability, economic and labor conditions,
foreign currency exchange rate fluctuations, and other factors, which may have a material
adverse effect on our business, results of operations and cash flows. We believe that
the loss of any one or more of our manufacturers would not have a long-term material
adverse effect on our business, results of operations and cash flows, because numerous
other manufacturers are available to fulfill our requirements; however, the loss of any of
our major manufacturers may adversely affect our business, operating results, financial
condition and cash flows until alternative manufacturing arrangements are secured.

P ot e n t I a l flu c t uat I o n s I n Q ua rt e r ly r e s u lt s  We may from time to time
increase our operating expenses to fund greater levels of research and development, sales
and marketing activities, development of new distribution channels, improvements in our
operational and financial systems and development of our customer support capabilities,
and to support our efforts to comply with various government regulations. To the extent
such expenses precede or are not subsequently followed by increased revenues, our busi-
ness, operating results, financial condition and cash flows will be adversely affected.

In addition, we may experience significant fluctuations in future quarterly operating
results that may be caused by many other factors, including demand for our products,
introduction or enhancement of products by us and our competitors, the loss or acquisi-
tion of any significant customers, market acceptance of new products, price reductions by
us or our competitors, mix of distribution channels through which our products are sold,
product or supply constraints, level of product returns, mix of customers and products
sold, component pricing, mix of international and domestic revenues, foreign currency
exchange rate fluctuations and general economic conditions. In addition, as a strategic

response to changes in the competitive environment, we may from time to time make
certain pricing or marketing decisions or acquisitions that may have a material adverse
effect on our business, results of operations or financial condition. As a result, we believe
period-to-period comparisons of our results of operations are not necessarily meaningful
and should not be relied upon as an indication of future performance.

Due to all of the foregoing factors, it is possible that in some future quarters our oper-
ating results will be below the expectations of public market analysts and investors. If this
happens the price of our common stock may be materially adversely affected.

products or enhancing our existing products, or that these new or enhanced products will
achieve consumer acceptance and, if achieved, will sustain that acceptance. In addition,
there can be no assurance that products developed by others will not render our products
non-competitive or obsolete or that we will be able to obtain or maintain the rights to use
proprietary technologies developed by others which are incorporated in our products. Any
failure to anticipate or respond adequately to technological developments and customer
requirements, or any significant delays in product development or introduction, may have
a material adverse effect on our operating results, financial condition and cash flows.

d e P e n d e n c e o n c o n s u M e r P r e fe r e n c e  We are susceptible to fluctuations in our
business based upon consumer demand for our products. In addition, we cannot guaran-
tee that increases in demand for our products associated with increases in the deploy-
ment of new technology will continue. We believe that our success depends on our ability
to anticipate, gauge and respond to fluctuations in consumer preferences. However, it is
impossible to predict with complete accuracy the occurrence and effect of fluctuations
in consumer demand over a product’s life cycle. Moreover, we caution that any growth in
revenues that we achieve may be transitory and should not be relied upon as an indication
of future performance.

d e M a n d fo r c o n s u M e r s e rv I c e a n d s u P P o rt  We have continually provided
domestic and international consumer service and support to our customers to add overall
value and to help differentiate us from our competitors. We continually review our service
and support group and are marketing our expertise in this area to other potential custom-
ers. There can be no assurance that we will be able to attract new customers in the future.

In addition, certain of our products have more features and are more complex than
others and therefore require more end-user technical support. In some instances, we rely
on distributors or dealers to provide the initial level of technical support to the end-users.
We provide the second level of technical support for bug fixes and other issues at no
additional charge. Therefore, as the mix of our products includes more of these complex
product lines, support costs may increase, which may have an adverse effect on our busi-
ness, operating results, financial condition and cash flows.

d e P e n d e n c e u P o n n e w P r o d u c t I n t r o d u c t I o n  Our ability to remain competi-
tive in the wireless control and AV accessory products market will depend considerably
upon our ability to successfully identify new product opportunities, as well as develop
and introduce these products and enhancements on a timely and cost effective basis.
There can be no assurance that we will be successful at developing and marketing new

In addition, the introduction of new products may require significant expenditures for
research and development, tooling, manufacturing processes, inventory and marketing.
In order to achieve high volume production of any new product, we may have to make sub-
stantial investments in inventory and expand our production capabilities.

d e P e n d e n c e o n M a j o r c u s to M e r s  The economic strength and weakness of our
worldwide customers affect our performance. We sell our wireless control products, AV
accessory products, and proprietary technologies to subscription broadcasters, original
equipment manufacturers, and private label customers. We also supply our products to
our wholly owned, non-U.S. subsidiaries and to independent foreign distributors, who in
turn distribute our products worldwide, with Europe and Asia currently representing our
principal foreign markets.

In each of the years ended December 31, 2010, 2009 and 2008, we had sales to

DIRECTV and its sub-contractors and to Comcast Communications Inc. and its sub-con-
tractors, that when combined, each exceeded 10% of our net sales. The loss of either of
these customers or of any other key customer, either in the United States or abroad or our
inability to maintain order volume with these customers, may have an adverse effect on
our operating results, financial condition and cash flows.

c h a n g e I n wa r r a n t y c l a I M c o s t s  We rely on third-party companies to service
a large portion of our customer warranty claims. If the cost to service these warranty
claims increases unexpectedly, or these outside services cease to be available, we may
be required to increase our estimate of future claim costs, which may have a material
adverse effect on our operating results, financial condition and cash flows.

o u t s o u r c e d l a b o r  We employ a small number of personnel to develop and market
additional products that are part of the Nevo® platform as well as products that are based
on the Zigbee®, Z-Wave® and other radio frequency technology. Even after these hires, we
continue to use outside resources to assist us in the development of these products. While

we believe that such outside services will continue to be available to us, if they cease to be
available, the development of these products may be substantially delayed, which may have
a material adverse effect on our operating results, financial condition and cash flows.

c o M P e t I t I o n  The wireless control industry is characterized by intense competition
based primarily on product availability, price, speed of delivery, ability to tailor specific
solutions to customer needs, quality, and depth of product lines. Our competition is frag-
mented across our products, and, accordingly, we do not compete with any one company
across all product lines. We compete with a variety of entities, some of which have greater
financial resources. Our ability to remain competitive in this industry depends in part on
our ability to successfully identify new product opportunities, develop and introduce new
products and enhancements on a timely and cost effective basis, as well as our ability to
successfully identify and enter into strategic alliances with entities doing business within
the industries we serve. There can be no assurance that our product offerings will be,
and/or remain, competitive or that strategic alliances, if any, will achieve the type, extent,
and amount of success or business that we expect them to achieve. The sales of our prod-
ucts and technology may not occur or grow in the manner we expect, and thus we may not
recoup costs incurred in the research and development of these products as quickly as we
expect, if at all.

aspects of such products, we believe that, based upon past experience and industry
practice, such licenses generally may be obtained on commercially reasonable terms;
however, there can be no guarantee that such licenses may be obtained on such terms or
at all. Because of technological changes in the wireless and home control industry, cur-
rent extensive patent coverage, and the rapid rate of issuance of new patents, it is possible
certain components of our products and business methods may unknowingly infringe
upon the patents of others.

P ot e n t I a l fo r l I t I g at I o n  As is typical in our industry and for the nature and kind
of business in which we are engaged, from time to time various claims, charges and litiga-
tion are asserted or commenced by third parties against us or by us against third parties,
arising from or related to product liability, infringement of patent or other intellectual
property rights, breach of warranty, contractual relations or employee relations. The
amounts claimed may be substantial, but they may not bear any reasonable relationship to
the merits of the claims or the extent of any real risk of court awards assessed against us
or in our favor.

r I s ks o f c o n d u c t I n g b u s I n e s s I n t e r n at I o n a l ly  Risks of doing business
internationally may adversely affect our sales, operations, earnings and cash flows due to
a variety of factors, including, but not limited to:

Pat e n t s , t r a d e M a r ks , a n d c o Py r I g h t s  The procedures by which we identify,
document and file for patent, trademark, and copyright protection are based solely on
engineering and management judgment, with no assurance that a specific filing will be
issued, or if issued, will deliver any lasting value to us. Because of the rapid innovation of
products and technologies that is characteristic of our industry, there can be no assur-
ance that rights granted under any patent will provide competitive advantages to us or
will be adequate to safeguard and maintain our proprietary rights. Moreover, the laws of
certain countries in which our products are or may be manufactured or sold may not offer
protection on such products and associated intellectual property to the same extent that
the United States legal system may offer.

In our opinion, our intellectual property holdings as well as our engineering, produc-
tion, and marketing skills and the experience of our personnel are of equal importance to
our market position. We further believe that none of our businesses are materially depen-
dent upon any single patent, copyright, trademark, or trade secret.

Some of our products include or use technology and/or components of third par-
ties. While it may be necessary in the future to seek or renew licenses relating to various

 changes in a country or region’s economic or political conditions, including inflation,
recession, interest rate fluctuations, forced political actions or elections, coops, and
actual or anticipated military conflicts;

 currency fluctuations affecting sales, particularly in the Euro, British Pound, and the
Chinese Yuan Renminbi which contribute to variations in sales of products and ser-
vices in impacted jurisdictions and also affect our reported results expressed in U.S.
dollars;

 currency fluctuations affecting costs, particularly the Euro, British Pound and the

Chinese Yuan Renminbi , which contribute to variances in costs in impacted jurisdic-
tions and also affect our reported results expressed in U.S. dollars;

 longer accounts receivable cycles and financial instability among customers;

 trade regulations and procedures and actions affecting production, pricing and mar-

keting of products;

 local labor conditions, customs, and regulations;

 changes in the regulatory or legal environment;

 differing technology standards or customer requirements;

 import, export or other business licensing requirements or requirements related to

making foreign direct investments, which may affect our ability to obtain favorable
terms for components or lead to penalties or restrictions;

 difficulties associated with repatriating cash generated or held abroad in a tax-effi-

cient manner and changes in tax laws; and

 fluctuations in freight costs and disruptions at important geographic points of exit and entry.

e ffec t I v e n e s s o f o u r I n t e r n a l c o n t r o l ov e r fI n a n c I a l r e P o rt I n g 
Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, we are required to include in
our Annual Report on Form 10-K our assessment of the effectiveness of our internal con-
trol over financial reporting. Furthermore, our independent registered public accounting
firm is required to audit our internal control over financial reporting and separately report
on whether it believes we maintain, in all material respects, effective internal control
over financial reporting. Although we believe that we currently have adequate internal
control procedures in place, we cannot be certain that future material changes to our
internal control over financial reporting will be effective. If we cannot adequately maintain
the effectiveness of our internal control over financial reporting, we may be subject to
sanctions or investigation by regulatory authorities, such as the Securities and Exchange
Commission. Any such action may adversely affect our financial results and the market
price of our common stock.

c h a n g e s I n g e n e r a l ly ac c e Pt e d ac c o u n t I n g P r I n c I P l e s  Our financial state-
ments are prepared in accordance with U.S. generally accepted accounting principles.
These principles are subject to revision and interpretation by various governing bod-
ies, including the FASB and the SEC. A change in current accounting standards or their
interpretation may have a significant adverse effect on our operating results, financial
condition and cash flows.

u n a n t I c I Pat e d c h a n g e s I n ta x P r ov I s I o n s o r I n c o M e ta x l I a b I l I t I e s 
We are subject to income taxes in the United States and numerous foreign jurisdictions.
Our tax liabilities are affected by the amounts we charge for inventory and other items
in intercompany transactions. From time to time, we are subject to tax audits in various
jurisdictions. Tax authorities may disagree with our intercompany charges or other mat-
ters and assess additional taxes. We assess the likely outcomes of these audits in order to
determine the appropriateness of the tax provision. However, there can be no assurance
that we will accurately predict the outcomes of these audits, and the actual outcomes of

these audits may have a material impact on our financial condition, results of operations
and cash flows. In addition, our effective tax rate in the future may be adversely affected
by changes in the mix of earnings in countries with differing statutory tax rates, changes
in the valuation of deferred tax assets and liabilities, changes in tax laws and the discovery
of new information in the course of our tax return preparation process. Furthermore, our
tax provisions may be adversely affected as a result of any new interpretative accounting
guidance related to accounting for uncertain tax positions.

I n a b I l I t y to u s e d e fe r r e d ta x a s s e t s  We have deferred tax assets that we may
not be able to use under certain circumstances. If we are unable to generate sufficient
future taxable income in certain jurisdictions, or if there is a significant change in the
actual effective tax rates or a significant change in the time period within which the under-
lying temporary differences become taxable or deductible, we may be required to increase
our valuation allowances against our deferred tax assets resulting in an increase in our
effective tax rate.

e n v I r o n M e n ta l M at t e r s  Many of our products are subject to various federal, state,
local and international laws governing chemical substances in products, including laws
regulating the manufacture and distribution of chemical substances and laws restrict-
ing the presence of certain substances in electronics products. With the passage of the
European Union’s Restriction of Hazardous Substances Directive, which makes producers
of electrical goods responsible for collection, recycling, treatment and disposal of recov-
ered products, similar restrictions in the PRC effective March 2007 and the European
Union’s Waste Electrical and Electronic Equipment Directive, we may face significant
costs and liabilities in complying with these laws and any future laws and regulations or
enforcement policies that may have a material adverse effect upon our operating results,
financial condition, and cash flows.

l e a s e d P r o P e rt y  We lease all of the properties used in our business. We can give
no assurance that we will enter into new or renewal leases, or that, if entered into, the
new lease terms will be similar to the existing terms or that the terms of any such new
or renewal leases will not have a significant and material adverse effect on our operating
results, financial condition and cash flows.

t ec h n o lo gy c h a n g e s I n w I r e l e s s c o n t r o l  We currently derive substantial
revenue from the sale of wireless remote controls based on IR technology. Other control
technologies exist or may be developed that may compete with IR. In addition, we develop
and maintain our own database of IR and RF codes. There are competing IR and RF

libraries offered by companies that we compete with in the marketplace. The advantage
that we may have compared to our competitors is difficult to measure. If other wireless con-
trol technology gains acceptance and starts to be integrated into home electronics devices
currently controlled through our IR remote controllers, demand for our products may
decrease, resulting in decreased operating results, financial condition, and cash flows.

our finished products, the cost of delivery and freight, which would be passed on by the
carriers that we use in the form of higher rates, political unrest in oil producing countries
that could cause a cessation of production and/or delivery of oil resulting in higher costs.
We record freight-in as a cost of sales and freight-out in operating expenses. Rising oil
prices may have an adverse effect on cost of sales and operating expenses.

fa I lu r e to r ec r u I t, h I r e , a n d r e ta I n k e y P e r s o n n e l  Our ability to achieve
growth in the future will depend, in part, on our success at recruiting, hiring, and retaining
highly skilled engineering, managerial, operational, sales and marketing personnel. Our
corporate office, including our advanced technology engineering group, is based in Southern
California. The high cost of living in Southern California makes it difficult to attract talent
from outside the region and may also put pressure on overall employment related expense.
Additionally, our competitors seek to recruit and hire the same key personnel. Therefore, if
we fail to stay competitive in salary and benefits within the industry it may negatively impact
our ability to hire and retain key personnel. The inability to recruit, hire, and retain qualified
personnel in a timely manner, or the loss of any key personnel, may make it difficult to meet
key objectives, such as timely and effective product introductions.

c h a n g e I n c o M P e t I t I o n a n d P r I c I n g  Even after our recent acquisition of the PRC
factories, we will continue to rely on third-party manufacturers to build our universal
wireless control products. Price is always an issue in winning and retaining business. If
customers become increasingly price sensitive, new competition may arise from manu-
facturers who decide to go into direct competition with us or from current competitors
who perform their own manufacturing. If such a trend develops, we may experience
downward pressure on our pricing or lose sales, which may have a material adverse effect
on our operating results, financial condition and cash flows.

t r a n s P o rtat I o n c o s t s ; I M Pac t o f o I l P r I c e s  We ship products from our foreign
manufacturers via ocean and air transport. It is sometimes difficult to forecast swings in
demand or delays in production and, as a result, products may be shipped via air which is
more costly than ocean shipments. We typically cannot recover the increased cost of air
freight from our customers. Additionally, tariffs and other export fees may be incurred to
ship products from foreign manufacturers to the customer. The inability to predict swings
in demand or delays in production may increase the cost of freight which may have a
material adverse effect on our product margins.

In addition, we have an exposure to oil prices due to the use of oil-based materials in
our products, which are primarily the plastics and other components that we include in

P r o P r I e ta ry t ec h n o lo g I e s  We produce highly complex products that incorporate
leading-edge technology, including hardware, firmware, and software. Firmware and
software may contain bugs that may unexpectedly interfere with product operation. There
can be no assurance that our testing programs will detect all defects in individual prod-
ucts or defects that may affect numerous shipments. The presence of defects may harm
customer satisfaction, reduce sales opportunities, or increase returns. An inability to cure
or repair such a defect may result in the failure of a product line, temporary or perma-
nent withdrawal from a product or market, damage to our reputation, increased inventory
costs, or product reengineering expenses, any of which may have a material impact on our
operating results, financial condition and cash flows.

s t r at eg I c b u s I n e s s t r a n s ac t I o n s  We may, from time to time, pursue strate-
gic alliances, joint ventures, business acquisitions, products or technologies (“strategic
business transactions”) that complement or expand our existing operations, including
those that may be material in size and scope. Strategic business transactions involve
many risks, including the diversion of management’s attention away from day-to-day
operations. There is also the risk that we will not be able to successfully integrate the
strategic business transaction with our operations, personnel, customer base, products
or technologies. Such strategic business transactions may also have adverse short-term
effects on our operating results, and may result in dilutive issuances of equity securities,
the incurrence of debt, and the loss of key employees. In addition, these strategic business
transactions are generally subject to specific accounting guidelines that may adversely
affect our financial condition, results of operations and cash flow. For instance, business
acquisitions must be accounted for as purchases and, because most technology-related
acquisitions involve the purchase of significant intangible assets, these acquisitions typi-
cally result in substantial amortization charges, which may have a material adverse effect
on our results of operations. There can be no assurance that any such strategic busi-
ness transactions will occur or, if such transactions do occur, that the integration will be
successful or that the customer bases, products or technologies will generate sufficient
revenue to offset the associated costs or effects.

g r ow t h P r o j ec t I o n s  Management has made the projections required for the
preparation of financial statements in conformity with accounting principles generally
accepted in the United States of America regarding future events and the financial perfor-
mance of the company, including those involving:

 the benefits the company expects as a result of the development and success of prod-

ucts and technologies, including new products and technologies;

 the benefits expected by entering into emerging markets such as Asia and Brazil, with-
out which, we may not be able to recover the costs we incur to enter into such markets;

 the recently announced new contracts with new and existing customers and new mar-

ket penetrations;

 the growth expected as a result of the digital from analog conversion;

 the expected continued growth in digital TVs, PVRs and overall growth in the com-

pany’s industry; and

 the effects we may experience due to the continued softness in worldwide markets

driven by the current economic environment.

Actual events or results may be unfavorable to management’s projections, which may
have a material adverse effect on our projected operating results, financial condition and
cash flows.

SELECTED CONSOLIDATED FINANCIAL DATA

The information below is not necessarily indicative of the results of future operations and should be read in conjunction with “ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS,” and the Consolidated Financial Statements and notes thereto included in “ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA,” of this Form 10-K, which are incorporated herein by reference, in order to understand further the factors that may affect the comparability of the financial data presented below.

( i n t h o u s a n d s , e x c e p t p e r s h a r e d ata )

Net sales

Operating income

Net income

Earnings per share:

Basic

Diluted

Shares used in calculating earnings per share:

Basic

Diluted

Cash dividend declared per common share

Gross margin

Selling, general, administrative, research and development expenses as a % of net sales

Operating margin

Net income as a % of net sales

Return on average assets

Working capital

Ratio of current assets to current liabilities

Total assets

Cash and cash equivalents

Long-term debt

Stockholders’ equity

Book value per share (a)

Ratio of liabilities to liabilities and stockholders’ equity

(a) Book value per share is defined as stockholders’ equity divided by common shares issued less treasury stock.

Y e a r e n d e d d e c e m b e r 3 1 ,

2 0 10

2 0 0 9

2 0 0 8

2 0 0 7

2 0 0 6

$ 331,780

$ 317,550

$ 287,100

$ 272,680

$ 235,846

$ 21,301

$ 21,947

$ 20,761

$ 26,451

$ 18,517

$ 15,081

$ 14,675

$ 15,806

$ 20,230

$ 13,520

1.10

1.07

1.05

1.13

1.09

1.40

1.33

0.98

0.94

13,764

14,106

—

13,667

13,971

—

14,015

14,456

—

14,410

15,177

—

31.3%

32.0%

33.5%

36.4%

24.9%

25.1%

26.3%

26.7%

6.4%

4.6%

5.0%

6.9%

4.6%

6.5%

7.2%

5.5%

7.3%

9.7%

7.4%

10.2%

13,818

14,432

—

36.4%

28.5%

7.9%

5.7%

8.3%

$ 66,101

$ 127,086

$ 122,303

$ 140,330

$ 106,179

1.4

3.1

3.0

4.0

3.4

$ 372,533

$ 233,307

$ 217,555

$ 217,285

$ 178,608

$ 54,249

$ 29,016

$ 75,238

$ 86,610

$ 66,075

—

$ 211,204

$ 169,730

$ 153,353

$ 168,242

$ 134,217

14.13

12.40

11.24

11.55

9.58

43.3%

27.3%

29.5%

22.6%

24.9%

The comparability of information between 2010 and prior years is affected by the acquisition of Enson Assets Limited during the fourth quarter of 2010. See “ITEM 7.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS” and “ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA —
Notes to Consolidated Financial Statements — Note 21” for further information.

MANAGEMENT’S DISCUSSION
AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF
OPERATIONS

The following discussion should be read in conjunction with the Consolidated Financial
Statements and the related notes that appear elsewhere in this document.

oveRview

We develop and manufacture a broad line of pre-programmed universal wireless control
products, audio-video accessories, and software that are marketed to enhance home
entertainment systems. Our customers operate in the consumer electronics market and
include OEMs, subscription broadcasters, international retailers, custom installers, North
American retailers, private labels, and companies in the computing industry. We also sell
integrated circuits, on which our software and IR code database is embedded, to OEMs
that manufacture wireless control devices, cable converters or satellite receivers for
resale in their products. We believe that our universal remote control database contains
device codes that are capable of controlling virtually all IR controlled TVs, DVD players,
cable converters, CD players, audio components and satellite receivers, as well as most
other infrared remote controlled devices worldwide.

To recap our results for 2010:

 Our net sales grew 4.5% from $317.6 million in 2009 to $331.8 million in 2010, due to

the acquisition of Enson Assets Limited in November 2010, which added $25.0 million
in revenue in 2010.

 Excluding the Enson Assets Limited transaction, our revenue decreased 3.4% from
$317.6 million for 2009 to $306.8 million for 2010. This decrease is primarily due to
the loss of sales from a significant customer who returned to a more traditional dual
sourcing arrangement beginning during the first quarter of 2010. This significant
customer purchased the majority of its remote controls from us during 2009. We were
able to partially offset this loss by acquiring new domestic and international custom-
ers in our business category throughout 2010.

 Our 2010 operating income decreased 2.9% to $21.3 million from $21.9 million in 2009.
Our operating margin percentage decreased from 6.9% in 2009 to 6.4% in 2010 due
primarily to the decrease in our gross margin percentage from 32.0% in 2009 to 31.3%
in 2010. The decrease in our gross margin rate was due primarily to sales mix, as a
higher percentage of our total sales was comprised of our lower-margin Business
category. In addition, the weakening of both the Euro and the British Pound versus the
U.S. dollar also contributed to the decline in our gross margin percentage. Partially
offsetting the decrease in our gross margin percentage was a 20 basis point improve-
ment in operating expenses as a percentage of net sales in 2010 compared to 2009.

Our strategic business objectives for 2011 include the following:

 continue to integrate Enson Assets Limited;

 decrease third party supplier purchases and increase Enson’s utilization of its existing

Beginning in 1986 and continuing today, we have compiled an extensive IR code library

factories;

that covers over 508,000 individual device functions and over 4,200 individual consumer
electronic equipment brand names. Our library is regularly updated with new IR codes
used in newly introduced video and audio devices. All such IR codes are captured from the
original manufacturer’s remote control devices or manufacturer’s specifications to ensure
the accuracy and integrity of the database. We have also developed patented technologies
that provide the capability to easily upgrade the memory of the wireless control device by
adding IR codes from the library that were not originally included.

We operate as one business segment. We have twenty-four subsidiaries located

in Argentina, Cayman Islands, France, Germany (2), Hong Kong (6), India, Italy, the
Netherlands, Singapore, Spain, Brazil, British Virgin Islands (3), People’s Republic of
China (3) and the United Kingdom.

 place more operations, logistics, quality, program management, engineering, sales,

and marketing personnel in the Asia region;

 further penetrate the growing Asian and Latin American subscription broadcasting

markets;

 increase our share with existing customers;

 acquire new customers in historically strong regions;

 continue our expansion into new regions, Latin America and Asia in particular; and

 continue to develop industry-leading technologies and products.

We intend for the following discussion of our financial condition and results of opera-

tions to provide information that will assist in understanding our consolidated financial
statements, the changes in certain key items in those financial statements from period to
period, and the primary factors that accounted for those changes, as well as how certain
accounting principles, policies and estimates affect our consolidated financial statements.

cRitical accounting policies and estiMates

The preparation of financial statements in conformity with accounting principles generally
accepted in the United States of America requires us to make estimates and judgments
that affect the reported amounts of assets and liabilities, disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts of rev-
enues and expenses during the reporting period. On an on-going basis, we evaluate our
estimates and judgments, including those related to revenue recognition, allowance for
sales returns and doubtful accounts, warranties, inventory valuation, business combina-
tion purchase price allocations, our review for impairment of long-lived assets, intangible
assets and goodwill, income taxes and compensation expense. Actual results may differ
from these judgments and estimates, and they may be adjusted as more information
becomes available. Any adjustment may be significant.

An accounting policy is deemed to be critical if it requires an accounting estimate to
be made based on assumptions about matters that are highly uncertain at the time the
estimate is made, if different estimates reasonably may have been used, or if changes in
the estimate that are reasonably likely to occur may materially impact the financial state-
ments. Management believes the following critical accounting policies affect our more
significant judgments and estimates used in the preparation of our consolidated financial
statements.

r e v e n u e r ec o g n I t I o n  We recognize revenue on the sale of products when title of
the goods has transferred, there is persuasive evidence of an arrangement (such as when
a purchase order is received from the customer), the sales price is fixed or determinable
and collectability is reasonably assured.

or expected future returns and claims are significantly greater or lower than the reserves
that we have established, we will record a reduction or increase to net revenues in the
period in which we make such a determination. The allowance for sales returns balance at
December 31, 2010 and 2009 was $1.4 million and $2.0 million, respectively.

We accrue for discounts and rebates on product sales in the same period as the
related revenues are recorded based on our current expectations, after considering
historical experience. Changes in such accruals may be required if future rebates and
incentives differ from our estimates. Rebates and incentives are recognized as a reduc-
tion of sales if distributed in cash or customer account credits. Rebates and incentives are
recognized as cost of sales if we provide products or services for payment.

We maintain an allowance for doubtful accounts for estimated losses resulting from
the inability of our customers to make payments for products sold or services rendered.
The allowance for doubtful accounts is estimated based on a variety of factors, includ-
ing credit reviews, historical experience, length of time receivables are past due, current
economic trends and changes in customer payment behavior. Our historical reserves have
been sufficient to cover losses from uncollectible accounts. However, because we cannot
predict future changes in the financial stability of our customers, actual future losses
from uncollectible accounts may differ from our estimates and may have a material effect
on our consolidated financial position, results of operations and cash flows. If the financial
condition of our customers deteriorate resulting in their inability to make payments, a
larger allowance may be required resulting in a charge to selling, general, and admin-
istrative expense in the period in which we make this determination. We incurred $0.9
million of bad debt expense in 2010 to reflect certain customer accounts where collection
was highly uncertain in the current economic environment.

We have not made any material changes in our methodology for recognizing revenue
during the past three fiscal years. We do not believe there is a reasonable likelihood that
there will be a material change in the estimates or assumptions we use to recognize rev-
enue. However, if actual results are not consistent with our estimates or assumptions, we
may be exposed to losses or gains that may be material.

We record a provision for estimated retail sales returns. The provision recorded for
estimated sales returns and allowances is deducted from gross sales to arrive at net sales
in the period the related revenue is recorded. These estimates are based on historical sales
returns, analysis of credit memo data and other known factors. Actual returns and claims in
any future period are inherently uncertain and thus may differ from our estimates. If actual

wa r r a n t y  We warrant our products against defects in materials and workmanship
arising during normal use. We service warranty claims directly through our customer ser-
vice department or contracted third-party warranty repair facilities. Our warranty periods
range up to three years. We estimate and recognize product warranty costs, which are
included in cost of sales, as we sell the related products. Warranty costs are forecasted

based on the best available information, primarily historical claims experience and the
expected cost per claim. The costs we have incurred to service warranty claims have been
minimal. Historically, product defects have been less than 0.5% of the net units sold. As a
result the balance of our reserve for estimated warranty costs is not significant.

We have not made any material changes in our warranty reserve methodology during

the past three fiscal years. We do not believe there is a reasonable likelihood that there
will be a material change in the estimates or assumptions we use to calculate the war-
ranty reserve. However, actual claim costs may differ from the amounts estimated. If a
significant product defect were to be discovered on a high volume product, our financial
statements may be materially impacted.

I n v e n to r I e s  Our inventories consist primarily of wireless control devices, component
parts, and raw materials, and are valued at the lower of cost or market value. The approxi-
mate cost is determined using the first-in, first-out basis. We write-down our inventory
for the estimated difference between the inventory’s approximate cost and its estimated
market value based upon our best estimates of market conditions.

We carry inventory in amounts necessary to satisfy our customers’ inventory require-
ments on a timely basis. We continually monitor our inventory status to control inventory
levels and write-down any excess or obsolete inventories on hand. Our total excess and
obsolete inventory reserve on December 31, 2010 and 2009 was $2.1 million and $1.8
million, respectively, or 3.2% and 4.1% of total inventory. The increase in our excess and
obsolete reserve during 2010 was the result of $2.9 million of additional write-downs off-
set by $1.0 million of sell-through, $1.5 million of scrapping and foreign currency transla-
tion effects. This compared to additional write-downs of $3.3 million offset by $0.9 million
of sell-through and $2.3 million of scrapping and foreign currency translation effects
during 2009.

We have not made any material changes in the accounting methodology used to
establish our excess and obsolete inventory reserve during the past three fiscal years.
We do not believe there is a reasonable likelihood that there will be a material change
in the future estimates or assumptions we use to calculate our excess and obsolete
inventory reserve. If actual market conditions are less favorable than those projected by
management, additional inventory write-downs may be required which may have a mate-
rial impact on our financial statements. Such circumstances may include, but are not
limited to, the development of new competing technology that impedes the marketability
of our products or the occurrence of significant price decreases in our raw material or

component parts, such as integrated circuits. Each percentage point change in the ratio of
excess and obsolete inventory reserve to inventory would impact cost of sales by approxi-
mately $0.7 million.

b u s I n e s s c o M b I n at I o n s  We are required to allocate the purchase price of acquired
companies to the tangible and intangible assets and the liabilities assumed, as well as in-
process research and development (“IPR&D”), based upon their estimated fair values. We
engage independent third-party appraisal firms to assist us in determining the fair values
of assets acquired and liabilities assumed. Such valuations require management to make
significant fair value estimates and assumptions, especially with respect to intangible
assets. Management estimates the fair value of certain intangible assets by utilizing the
following (but not limited to):

 future free cash flow from customer contracts, customer lists, distribution agree-
ments, acquired developed technologies, trademarks, trade names and patents;

 expected costs to develop IPR&D into commercially viable products and cash flows

from the products once they are completed;

 brand awareness and market position, as well as assumptions regarding the period of

time the brand will continue to be used in our product portfolio; and

 discount rates utilized in discounted cash flow models.

Our estimates are based upon assumptions believed to be reasonable; however, unantici-
pated events or circumstances may occur which may affect the accuracy of our fair value esti-
mates, including assumptions regarding industry economic factors and business strategies.

va luat I o n o f lo n g - l I v e d a s s e t s a n d I n ta n g I b l e a s s e t s  We assess long-
lived and intangible assets for impairment whenever events or changes in circumstances
indicate that their carrying value may not be recoverable. Factors considered important
which may trigger an impairment review, if significant, include the following:

 underperformance relative to historical or projected future operating results;

 changes in the manner of use of the assets;

 changes in the strategy of our overall business;

 negative industry or economic trends;

 a decline in our stock price for a sustained period; and

 a variance between our market capitalization relative to net book value.

If the carrying value of the asset is larger than its undiscounted cash flows, the asset

is impaired. We measure an impairment based on the projected discounted cash flow
method using a discount rate determined by our management to be commensurate with
the risk inherent in our current business model. In assessing the recoverability, we must
make assumptions regarding estimated future cash flows and other factors to determine
the fair value of the respective assets.

We have not made any material changes in our impairment loss assessment method-

ology during the past three fiscal years. We do not believe there is a reasonable likelihood
that there will be a material change in the estimates or assumptions we use to calculate
the impairment of long-lived assets and intangible assets. However, if actual results are
not consistent with our estimates and assumptions we may be exposed to material impair-
ment charges.

c a P I ta l Ize d s o f t wa r e d e v e lo P M e n t c o s t s  At each balance sheet date, we
compare the unamortized capitalized software development costs to the net realizable
value of the related product. The amount by which the unamortized capitalized software
development costs exceed the net realizable value of the related product is written off.
The net realizable value is the estimated future gross revenues attributable to each prod-
uct reduced by its estimated future completion and disposal costs. Any remaining amount
of capitalized software development costs that have been written down are considered to
be the cost for subsequent accounting purposes, and the amount of the write-down is not
subsequently restored.

We do not believe there is a reasonable likelihood that there will be a material change

in the future estimates of net realizable value we use to test for impairment losses on
capitalized software development costs. However, if actual results are not consistent with
our estimates and assumptions we may be exposed to impairment charges.

g o o dw I l l  We evaluate the carrying value of goodwill on December 31 of each year
and between annual evaluations if events occur or circumstances change that would more
likely than not reduce the fair value of the reporting unit below its carrying amount. Such
circumstances may include, but are not limited to: (1) a significant adverse change in legal
factors or in business climate, (2) unanticipated competition or (3) an adverse action or
assessment by a regulator.

When performing the impairment review, we determine the carrying amount of each
reporting unit by assigning assets and liabilities, including the existing goodwill, to those
reporting units. A reporting unit is defined as an operating segment or one level below an

operating segment (referred to as a component). A component of an operating segment is
deemed a reporting unit if the component constitutes a business for which discrete finan-
cial information is available, and segment management regularly reviews the operating
results of that component. We have a single reporting unit. On December 31, 2010, we had
goodwill of $30.4 million.

To evaluate whether goodwill is impaired, we compare the estimated fair value of the
reporting unit to which the goodwill is assigned to the reporting unit’s carrying amount,
including goodwill. We estimate the fair value of our reporting unit based on income and
market approaches. Under the income approach, we calculate the fair value of a report-
ing unit based on the present value of estimated future cash flows. Under the market
approach, we estimate the fair value based on market multiples of Enterprise Value to
EBITDA for comparable companies. If the carrying amount of a reporting unit exceeds its
fair value, the amount of the impairment loss must be measured.

The impairment loss would be calculated by comparing the implied fair value of
goodwill to its carrying amount. In calculating the implied fair value of the reporting
unit’s goodwill, the fair value of the reporting unit is allocated to all of the other assets
and liabilities of that unit based on their fair values. The excess of the reporting unit’s fair
value over the amount assigned to its other assets and liabilities is the implied fair value of
goodwill. An impairment loss would be recognized when the carrying amount of goodwill
exceeds its implied fair value.

Determining the fair value of a reporting unit or an indefinite-lived purchased intan-

gible asset is judgmental in nature and involves the use of significant estimates and
assumptions. These estimates and assumptions include revenue growth rates and oper-
ating margins used to calculate projected future cash flows, risk-adjusted discount rates,
future economic and market conditions and the determination of appropriate market
comparables. In addition, we make certain judgments and assumptions in determining our
reporting units. We base our fair value estimates on assumptions we believe to be reason-
able but that are unpredictable and inherently uncertain. Actual future results may differ
from those estimates.

We have not made any material changes in our impairment loss assessment meth-
odology during the past three fiscal years. We continue to estimate the fair value of our
reporting unit to be in excess of its carrying value, and therefore have not recorded any
impairment. The amount by which the fair value of our reporting unit exceeded its book
value utilizing the income and market approaches ranged from 46 percent to 66 percent

and therefore we concluded our goodwill was not impaired at December 31, 2010. We
do not believe there is a reasonable likelihood that there will be a material change in
the future estimates or assumptions we use to test for impairment losses on goodwill.
However, if actual results are not consistent with our estimates and assumptions we may
be exposed to material impairment charges.

I n c o M e ta x e s  We calculate our current and deferred tax provisions based on esti-
mates and assumptions that may differ from the actual results reflected in our income tax
returns filed during the subsequent year. We record adjustments based on filed returns
when we have identified and finalized them, which is generally in the third and fourth
quarters of the subsequent year for U.S. federal and state provisions, respectively.

We recognize deferred tax assets and liabilities for the expected tax consequences of

temporary differences between the tax basis of assets and liabilities and their reported
amounts using enacted tax rates in effect for the year in which we expect the differ-
ences to reverse. We record a valuation allowance to reduce the deferred tax assets to
the amount that we are more likely than not to realize. We have considered future market
growth, forecasted earnings, future taxable income, the mix of earnings in the jurisdic-
tions in which we operate and prudent tax planning strategies in determining the need
for a valuation allowance. In the event we were to determine that we would not be able
to realize all or part of our net deferred tax assets in the future, we would increase the
valuation allowance and make a corresponding charge to earnings in the period in which
we make such determination. Likewise, if we later determine that we are more likely than
not to realize the net deferred tax assets, we would reverse the applicable portion of the
previously provided valuation allowance. In order for us to realize our deferred tax assets
we must be able to generate sufficient taxable income in the tax jurisdictions in which the
deferred tax assets are located.

Our effective tax rate includes the impact of certain undistributed foreign earnings

for which we have not provided U.S. taxes because we plan to reinvest such earnings
indefinitely outside the United States. The decision to reinvest our foreign earnings indefi-
nitely outside the United States is based on our projected cash flow needs as well as the
working capital and long-term investment requirements of our foreign subsidiaries and
our domestic operations. Material changes in our estimates of cash, working capital and
long-term investment requirements in the various jurisdictions in which we do business
may impact our effective tax rate.

We are subject to income taxes in the United States and foreign countries, and we are
subject to routine corporate income tax audits in many of these jurisdictions. We believe
that our tax return positions are fully supported, but tax authorities are likely to chal-
lenge certain positions, which may not be fully sustained. However, our income tax expense
includes amounts intended to satisfy income tax assessments that result from these chal-
lenges in accordance with the accounting for uncertainty in income taxes prescribed by U.S.
GAAP. Determining the income tax expense for these potential assessments and recording
the related assets and liabilities requires management judgments and estimates.

We have recorded a liability for uncertain tax positions of $5.6 million at December 31,

2010. We believe that our reserve for uncertain tax positions, including related interest
and penalties, is adequate. Our reserve for uncertain tax positions is primarily attributable
to uncertainties concerning the tax treatment of our international operations, including
the allocation of income among different jurisdictions, and any related interest. We review
our reserves quarterly, and we may adjust such reserves due to proposed assessments by
tax authorities, changes in facts and circumstances, issuance of new regulations or new
case law, previously unavailable information obtained during the course of an examina-
tion, negotiations between tax authorities of different countries concerning our transfer
prices, execution of advanced pricing agreements, resolution with respect to individual
audit issues, the resolution of entire audits, or the expiration of statutes of limitations. The
amounts ultimately paid upon resolution of audits may be materially different from the
amounts previously included in our income tax expense and, therefore, may have a mate-
rial impact on our operating results, financial position and cash flows.

s to c k- b a s e d c o M P e n s at I o n e x P e n s e  Stock-based compensation expense for
each employee and director is presented in the same income statement caption as their
cash compensation. Stock-based compensation expense by income statement caption for
the years ended December 31, 2010, 2009 and 2008 is the following:

( i n t h o u s a n d s )

Cost of sales

Research and development

Selling, general and administrative

2 0 10

452

4,459

2 0 0 9

2 0 0 8

434

3,845

356

3,870

Total stock-based compensation expense

4,966

4,312

4,243

Selling, general and administrative expense includes pre-tax stock-based compensa-

tion related to restricted stock awards granted to outside directors of $0.6 million, $0.5

million and $0.6 million for the years ended December 31, 2010, 2009 and 2008, respec-
tively. We issue restricted stock awards to the outside directors for services performed.
Compensation expense for these restricted stock awards is recognized on a straight-line
basis over the requisite service period of one year.

Selling, general and administrative expense includes pre-tax stock-based compen-
sation related to stock option awards granted to outside directors of $0.3 million, $0.3
million and $0.2 million for the years ended December 31, 2010, 2009 and 2008, respec-
tively. We issue stock option awards to the outside directors for services performed.
Compensation expense for these stock option awards is recognized on a straight-line
basis over the requisite service period of three years.

s to c k o P t I o n g r a n t s  During the year ended December 31, 2010, the Compensation
Committee and Board of Directors granted 119,900 stock options to our employees with an
aggregate grant date fair value of $1.3 million under various stock incentive plans. The stock
options granted to employees during 2010 consisted of the following:

( i n t h o u s a n d s , e x c e p t s h a r e a m o u n t s )

Stock Option Grant Date

Number
of Shares
Underlying
Options

Grant Date Fair
Value

Vesting Period

January 25, 2010

99,900

1,134

4 -Year Vesting Period (0% each quarter during
year 1 and 8.33% each quarter during years 2-4)

July 14, 2010

20,000

164

4 -Year Vesting Period (25% each year)

119,900

1,298

During the year ended December 31, 2010, we recognized $0.3 million of pre-tax stock-

based compensation expense related to our 2010 stock option grants.

At December 31, 2010, there was $2.2 million of unrecognized pre-tax stock-based
compensation expense related to non-vested stock options which we expect to recognize
over a weighted-average period of 2.3 years.

r e s t r I c t e d s to c k g r a n t s  During the year ended December 31, 2010, the
Compensation Committee and Board of Directors granted 45,500 restricted stock awards
under the 2006 Stock Incentive Plan to our employees with an aggregate grant date fair
value of $1.1 million. The restricted stock awards granted to employees during 2010 con-
sisted of the following:

( i n t h o u s a n d s , e x c e p t s h a r e a m o u n t s )

Restricted Stock Grant Date

Number of
Shares Granted

Grant Date
Fair Value

Vesting Period

January 25, 2010

45,500

1,133

4 -Year Vesting Period (0% each quarter during
year 1 and 8.33% each quarter during years 2-4)

In addition to the grants to employees, 30,000 shares of restricted stock with a grant

date fair value of $0.5 million were granted to our outside directors on July 1, 2010 as a
part of their annual compensation package. These shares are subject to a one-year vest-
ing period (25% each quarter).

During the year ended December 31, 2010, we recognized $0.5 million of pre-tax stock-

based compensation expense related to our 2010 restricted stock grants.

At December 31, 2010, there was $2.9 million of unrecognized pre-tax stock-based
compensation expense related to non-vested restricted stock awards which we expect to
recognize over a weighted-average period of 1.7 years.

Determining the appropriate fair value model and calculating the fair value of share-
based payment awards requires the utilization of highly subjective assumptions, includ-
ing the expected life and forfeiture rate of the share-based payment awards and stock
price volatility. Management determined that historical volatility calculated based on our
actively traded common stock is a better indicator of expected volatility and future stock
price trends than implied volatility. The assumptions used in calculating the fair value of
share-based payment awards represent management’s best estimates, but these esti-
mates involve inherent uncertainties and the application of management’s judgment. As a
result, if factors change and we use different assumptions, our stock-based compensation
expense may be materially different in the future.

We do not believe it is reasonably likely that there will be a material change in the future
estimates or assumptions used to determine stock-based compensation expense. However,
if actual results are not consistent with our estimates and assumptions we may be exposed
to material stock-based compensation expense. Refer to “ITEM 8. FINANCIAL STATEMENTS
AND SUPPLEMENTARY DATA — Notes to Consolidated Financial Statements — Note 16” for
additional disclosure regarding stock-based compensation expense.

Results of opeRations

The following table sets forth our results of operations expressed as a percentage of net sales for the periods indicated.

( i n t h o u s a n d s )

Net sales

Cost of sales

Gross profit

Research and development expenses

Selling, general and administrative expenses

Operating income

Interest income, net

Other income (expense), net

Income before income taxes

Provision for income taxes

Net income

Y e a r e n d e d d e c e m b e r 3 1 ,

2 0 10

2 0 0 9

2 0 0 8

100.0% $ 317,550

100.0% $ 287,100

100.0%

68.7

31.3

3.2

21.7

6.4

0.0

0.2

6.6

2.0

215,938

101,612

8,691

70,974

21,947

471

(241)

22,177

7,502

68.0

32.0

2.7

22.4

6.9

0.1

(0.0)

7.0

2.4

190,910

96,190

8,160

67,269

20,761

3,017

311

24,089

8,283

66.5

33.5

2.8

23.5

7.2

1.1

0.1

8.4

2.9

$ 331,780

227,931

103,849

10,709

71,839

21,301

523

21,858

6,777

$ 15,081

4.6%

$ 14,675

4.6% $ 15,806

5.5%

The comparability of information between 2010 and prior years is affected by the acquisition of Enson Assets Limited during the fourth quarter of 2010. See “ITEM 7. MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS” and “ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA — Notes to
Consolidated Financial Statements — Note 21” for further information.

yeaR ended deceMbeR 31, 2010 coMpaRed to yeaR ended
deceMbeR 31, 2009

c o n s o l I dat e d  Net sales for the year ended December 31, 2010 were $331.8 million,
an increase of 4% compared to $317.6 million for the same period last year. Net income for
2010 was $15.1 million or $1.07 per diluted share compared to $14.7 million or $1.05 per
diluted share for 2009.

Net sales:

Business

Consumer

Total net sales

2 0 10

2 0 0 9

$ (millions)

% of total

$ (millions)

% of total

282.9

85.3% $

262.5

48.9

14.7%

55.1

331.8

100.0% $

317.6

82.7%

17.3%

100.0%

Net sales in our Business lines (subscription broadcasting, OEM, and computing

companies) were approximately 85% of net sales for 2010 compared to approximately 83%
for 2009. Net sales in our business lines for 2010 increased by approximately 8% to $282.9
million from $262.5 million in 2009. This increase in net sales resulted primarily from
the November 2010 acquisition of Enson Assets Limited, which added several significant
customers and contributed $25.0 million in sales in 2010. Excluding the net sales which
resulted from the acquisition of Enson, the business category decreased by $4.6 million.
This was the result of a significant customer returning to a more traditional dual source
arrangement during the first quarter of 2010 after purchasing the majority of its remotes
from us during 2009. We were able to partially offset this loss by acquiring new customers
both domestically and internationally.

Net sales in our Consumer lines (One For All® retail, private label, custom install-

ers, and direct import) were approximately 15% of net sales for 2010 compared to

approximately 17% for 2009. Net sales in our Consumer lines for 2010 decreased by 11%
to $48.9 million from $55.1 million in 2009. Net sales in North American retail decreased
by $4.0 million, or 46%, from $8.8 million in 2009 to $4.8 million in 2010. In addition, our
custom installer sales decreased by $3.3 million, from $6.2 million in 2009 to $2.9 million
in 2010. Partially offsetting these decreases was a $1.1 million increase in international
retail sales, from $40.1 million in 2009 to $41.2 million in 2010. The 2010 net sales in our
Consumer lines were negatively impacted by the weakening of the Euro and the British
Pound compared to the U.S. dollar, which resulted in a decrease in net sales of approxi-
mately $1.4 million. Net of the unfavorable currency effect, international retail sales
increased by $2.5 million due primarily to the analog to digital transition that took place in
some European countries.

Gross profit for 2010 was $103.8 million compared to $101.6 million for 2009. Gross
profit as a percent of sales decreased to 31.3% in 2010 from 32.0% in 2009, due primarily
to the following:

 A fair value adjustment made to inventory and fixed assets acquired in the Enson

Assets Limited acquisition resulted in a decrease of 0.5% in the gross margin rate;

 An increase in freight expense caused a decrease of 0.4% in the gross margin rate;

 Sales mix, as a higher percentage of our total sales was comprised of our lower mar-

gin Business category, resulted in a decrease of 0.3% in the gross margin rate;

 Foreign currency fluctuations caused a decrease of 0.2% in the gross margin rate,

driven by the weakening of the Euro and British Pound as compared to the U.S. dollar;

 A decrease in inventory scrap expense, resulting from a lower return rate, improved

the gross margin rate by 0.4%; and

 A decrease in sub-contract labor, resulting primarily from less rework, caused an

increase of 0.3% in the gross margin.

Research and development expenses increased 23% from $8.7 million in 2009 to $10.7

million in 2010. The increase is primarily due to additional labor dedicated to general
research & development activities in an effort to continue to develop new technologies and
products.

Selling, general and administrative expenses increased 1% from $71.0 million in 2009

to $71.8 million in 2010. The weakening of the Euro compared to the U.S. dollar resulted
in a decrease of $1.3 million; net of the currency effect, selling, general and administra-
tive expenses increased by $2.1 million. This increase was driven primarily by an increase
in employee bonus expense of $1.5 million. Additionally, travel expense increased $0.5

million; advertising expense increased by $0.4 million; and bad debt expense increased
$0.4 million. Partially offsetting these increases was a decline in commission expense of
$0.8 million, resulting from certain sales personnel not meeting or exceeding their sales
targets during 2010.

In 2010, we recorded $34 thousand of net interest income compared to $0.5 million for

2009. The decrease in interest income is due to significantly lower interest rates.

We recorded income tax expense of $6.8 million in 2010 compared to $7.5 million in
2009. Our effective tax rate was 31.0% in 2010 compared to 33.8% in 2009. The decrease
in our effective tax rate was due primarily to a higher percentage of income earned in
lower tax rate jurisdictions, the statute of limitations expiring during 2010 on certain tax
positions recorded in the United States, and lower interest expense resulting from fewer
uncertain tax positions.

yeaR ended deceMbeR 31, 2009 coMpaRed to yeaR ended
deceMbeR 31, 2008

c o n s o l I dat e d  Net sales for the year ended December 31, 2009 were $317.6 million,
an increase of 11% compared to $287.1 million for the same period last year. Net income
for 2009 was $14.7 million or $1.05 per diluted share compared to $15.8 million or $1.09
per diluted share for 2008.

Net sales:

Business

Consumer

Total net sales

2 0 0 9

2 0 0 8

$ (millions)

% of total

$ (millions)

% of total

262.5

82.7% $

231.5

55.1

17.3%

55.6

317.6

100.0% $

287.1

80.6%

19.4%

100.0%

Net sales in our Business lines (subscription broadcasting, OEM, and computing com-
panies) were approximately 83% of net sales for 2009 compared to approximately 81% for
2008. Net sales in our business lines for 2009 increased by approximately 13% to $262.5
million from $231.5 million in 2008. This increase in net sales resulted primarily from an
increase in the volume of remote control sales, which was partially offset by lower prices.
The increase in remote control sales volume was attributable to the continued deployment
of advanced function set-top boxes by the service operators, market share gains with a
few key subscription broadcasting customers and new customer wins. These advanced
functions include digital video recording (“DVR”), video-on-demand (“VOD”), and high

definition television (“HDTV”). We expect that the deployment of the advanced function set-
top boxes by the service operators will continue into the foreseeable future as penetration
for each of the functions cited continues to increase.

Net sales in our Consumer lines (One For All® retail, private label, custom installers,

and direct import) were approximately 17% of net sales for 2009 compared to approxi-
mately 19% for 2008. Net sales in our consumer lines for 2009 decreased by 1% to $55.1
million from $55.6 million in 2008. The 2009 net sales were negatively impacted by the
weakening of the Euro and the British Pound compared to the U.S. dollar, which resulted
in a decrease in net sales of approximately $3.6 million. Net of the currency effect, net
retail sales outside of the United States were down by an additional $0.9 million. Net
private label sales in the United States decreased by $1.4 million, or 70%, to $0.6 million
in 2009 from $2.0 million in 2008. In addition, net sales in the CEDIA market decreased by
$0.8 million, or 11%, from $7.0 million in 2008 to $6.2 million in 2009. Partially offsetting
these decreases was North American retail, which increased net sales by $6.2 million,
from $2.0 million in 2008 to $8.2 million in 2009. The increase in North American retail
was the result of our distribution agreement with Audiovox, which was signed during the
second quarter of 2008.

Gross profit for 2009 was $101.6 million compared to $96.2 million for 2008. Gross
profit as a percent of sales decreased to 32.0% in 2009 from 33.5% in 2008, due primarily
to the following:

 Sales mix, as a higher percentage of our total sales was comprised of our lower mar-
gin Business category. In addition, sales mix within our sales categories also contrib-
uted to the decrease in our gross margin rate as consumers trended towards value-
oriented products. Collectively, the aforementioned resulted in a decrease of 0.7% in
the gross margin rate;

 Foreign currency fluctuations caused a decrease of 0.7% in the gross margin rate

driven by the weakening of the Euro and British Pound as compared to the U.S. dollar;

 An increase in inventory scrap expense caused a decrease of 0.2% in the gross

margin rate.

Included within the sales mix calculation was the positive benefit of our relationship
with Maxim Integrated Products which resulted in an increase in our gross margin per-
centage of approximately 1.0%. During 2009 we agreed to be Maxim’s sales agent in return
for a sales agency fee. The sales agency fee during 2009 was $4.4 million. During 2010,
as the transition from the Zilog chip platform to the Maxim chip platform progresses, we
will begin to take over full sales and distribution rights, procuring and selling the chips
directly to Zilog’s former customers. We anticipate this relationship will lead to growth in
revenue and earnings going forward.

Research and development expenses increased 7% from $8.2 million in 2008 to $8.7

million in 2009. The increase is primarily due to additional labor dedicated to general
research & development activities.

Selling, general and administrative expenses increased 6% from $67.3 million in 2008
to $71.0 million in 2009. The weakening of the Euro compared to the U.S. dollar resulted in
a decrease of $1.6 million; net of the currency effect, selling, general and administrative
expenses increased by $5.3 million. Legal, accounting, and advisory professional service
expense increased by $1.1 million, due to the acquisition of assets from Zilog, which was
completed during the first quarter of 2009. The newly-acquired Zilog operations increased
operating expenses by an additional $3.8 million. In addition, severance costs of approxi-
mately $0.9 million were incurred in 2009. During the fourth quarter of 2009, we also
settled a copyright infringement lawsuit which increased operating expenses by approxi-
mately $0.6 million. Partially offsetting these increases was a decline in advertising and
tradeshow expense which decreased by $1.1 million.

In 2009, we recorded $0.5 million of net interest income compared to $3.0 million for

2008. The decrease in interest income is due to significantly lower interest rates.

We recorded income tax expense of $7.5 million in 2009 compared to $8.3 million in

2008. Our effective tax rate was 33.8% in 2009 compared to 34.4% in 2008. The decrease
in our effective tax rate was due primarily to the completion of our Dutch tax audit for 2002
through 2006 which resulted in approximately $0.4 million of tax reserves being reversed
and credited into income in the fourth quarter of 2009, offset partially by a higher percent-
age of income earned in higher tax rate jurisdictions in 2009 compared to 2008.

liquidity and capital ResouRces

s o u r c e s a n d u s e s o f c a s h

( i n t h o u s a n d s )

Cash provided by operating activities

Cash used for investing activities

Cash provided by (used for) financing activities

Effect of exchange rate changes on cash

Cash and cash equivalents

Working capital

Year Ended
December 31,
2010

Increase
(Decrease)

Year Ended
December 31,
2009

Increase
(Decrease)

Year Ended
December 31,
2008

$ 37,649

$ 13,662

$ 23,987

(6,165)

$ 30,152

(34,705)

23,275

(986)

31,386

27,497

(1,090)

(66,091)

(4,222)

104

(58,671)

20,965

9,021

(7,420)

(25,187)

(8,917)

December 31,
2010

Increase
(Decrease)

December 31,
2009

$ 54,249

$ 25,233

$ 29,016

66,101

(60,985)

127,086

Net cash provided by operating activities in 2010 was $37.6 million compared to $24.0

million during 2009. The improvement in cash flow from operations from 2009 to 2010 is
due primarily to the strong collection of receivables that were acquired in the acquisition
of Enson Assets Limited. We acquired approximately $37.6 million of receivables from
Enson Assets Limited on November 4, 2010; however, Enson’s receivable balance as of
December 31, 2010 was approximately $26.0 million, reflecting cash inflows of approxi-
mately $11.6 million for the aforementioned two month period. Inventories increased from
December 31, 2009 to December 31, 2010 as a result of anticipated increased demand
in 2011. In addition, our fourth quarter 2010 net sales were towards the lower end of our
expectations resulting in higher than expected inventories on December 31, 2010.

Net cash provided by operating activities in 2009 was $24.0 million compared to $30.2

million during 2008. The decrease in cash flows from operating activities in 2009 com-
pared to 2008 was primarily due to our deliberate effort to improve our vendor manage-
ment which commenced during 2008 and resulted in a $15.6 million cash inflow by the
end of 2008. As a result of the improved vendor terms being negotiated and implemented
in 2008, there was minimal opportunity for improvement relating to accounts payable in
2009. Days in payables actually decreased from 81 days at December 31, 2008 to 67 days
at December 31, 2009 resulting in a cash outflow of approximately $2.1 million in 2009.
In addition, during 2009 we had cash outflows related to accounts receivable of $4.2

million compared to cash outflows of $1.5 million during 2008 due primarily to higher
net sales over the prior two years. Partially offsetting the aforementioned activity was an
improvement in inventory turns from 4.4 turns in 2008 to 5.3 turns in 2009. Despite having
higher sales, our inventory levels decreased from $43.7 million at December 31, 2008 to
$40.9 million at December 31, 2009 compared to an inventory build of $8.8 million from
December 31, 2007 to December 31, 2008.

Net cash used for investing activities during 2010 was $34.7 million as compared to
$66.1 million and $7.4 million of net cash used during 2009 and 2008, respectively. The
decrease in cash used for investing activities during 2010 compared to 2009 was primarily
due to our $49.2 million time deposit investment maturing during 2010 which was initially
entered into during 2009. The cash proceeds from the time deposit were used to purchase
Enson Assets Limited during 2010, which amounted to a $74.1 million cash outflow net of
cash acquired. In addition, we acquired intangible assets and goodwill of $9.5 million from
Zilog Inc. during 2009. There were no acquisitions during 2008, only typical annual invest-
ments in property, plant, and equipment as well as internally developed patents. Please
refer to “ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA — Notes to
Consolidated Financial Statements — Notes 7 and 21” for additional disclosure regarding
our acquisition of Enson Assets Limited and purchase of goodwill and intangible assets
from Zilog Inc.

Net cash provided by financing activities was $23.3 million during 2010 compared to
cash used for financing activities of $4.2 million and $25.2 million during 2009 and 2008,
respectively. During 2010 we had proceeds from debt issuance of $41.0 million to fund our
acquisition of Enson Assets Limited. During 2010 we made debt payments totaling $9.8
million. Proceeds from stock option exercises were $2.0 million during 2010 compared
to proceeds of $3.3 million and $1.2 million during 2009 and 2008, respectively. In addi-
tion, we purchased 505,692 shares of our common stock at a cost of $10.1 million during
2010, compared to 404,643 and 1,118,318 shares at a cost of $7.7 million and $26.7 million
during 2009 and 2008, respectively. We hold these shares as treasury stock and they are
available for reissue. Presently, except for using a minimal number of these treasury
shares to compensate our outside board members, we have no plans to distribute these
shares, although we may change these plans if necessary to fulfill our on-going business
objectives.

On February 11, 2010, our Board of Directors authorized management to continue
repurchasing up to an additional 1,000,000 shares of our issued and outstanding common
stock. Repurchases may be made to manage dilution created by shares issued under our
stock incentive plans or whenever we deem a repurchase is a good use of our cash and
the price to be paid is at or below a threshold approved by our Board. As of December 31,
2010, we have repurchased 473,126 shares of our common stock under this authorization,
leaving 526,874 shares available for repurchase.

c o n t r ac t ua l o b l I g at I o n s  The following table summarizes our contractual obli-
gations and the effect these obligations are expected to have on our liquidity and cash flow
in future periods.

( i n t h o u s a n d s )

Contractual obligations:

p aY m e n t s d u e b Y p e r i o d

Total

Less than
1 year

1 - 3 Years

4 - 5 years

After 5 years

Operating lease obligations

3,509

1,883

1,566

Purchase obligations(1)

762

—

Total contractual obligations

4,271

2,645

1,566

—

(1)Purchase obligations primarily include contractual payments to purchase tooling assets.

l I Q u I d I t y  Historically, we have utilized cash provided from operations as our primary
source of liquidity, as internally generated cash flows have been sufficient to support
our business operations, capital expenditures and discretionary share repurchases. We

believe our current cash balances and anticipated cash flow generated from operations
are sufficient to cover cash outlays expected during 2011.

We are able to supplement this near-term liquidity, if necessary, with credit line facili-

ties made available by various foreign and domestic financial institutions. Our liquidity
is subject to various risks including the market risks identified in the section entitled
“Qualitative and Quantitative Disclosures about Market Risk” in Item 7A.

o n d e c e m b e r 3 1 ,

2 0 10

2 0 0 9

2 0 0 8

Cash and cash equivalents

$ 54,249

$ 29,016

$ 75,238

Term deposit

Total debt

Available borrowing resources

—

35,000

33,766

49,246

—

15,000

On December 31, 2010, we had an outstanding balance of $35.0 million related to
our U.S. Bank 1-year term loan facility. Our term loan, along with our line of credit and
available cash, was utilized to finance the acquisition of Enson Assets Limited and to pay
related transaction costs, fees, and expenses. Amounts paid or prepaid on the term loan
may not be re-borrowed. The minimum principal payments for the term loan are $2.2 mil-
lion each quarter. The first principal and interest payment was made on January 5, 2011.
The remaining principal and interest payments are due on April 5, July 5, and October 5
of 2011. In addition, a final payment equal to the unpaid principal balance plus accrued
interest is due on the term loan maturity date. The term loan maturity date is November
1, 2011. During 2011, we anticipate paying the principal balance down to zero prior to the
term loan maturity date.

Our debt covenants require that the percentage of our funded debt to EBITDA remain

below 100%. On December 31, 2010, we were in breach of this covenant. This breach
resulted from the timing of the Enson Assets Limited acquisition. On December 31, 2010,
we carried a note payable of $35.0 million utilized to partially fund the acquisition; how-
ever our results of operations for the twelve months ended December 31, 2010, included
less than two months of Enson Assets Limited EBITDA resulting in the breach. The
acceleration of our $35.0 million obligation has been waived by U.S. Bank for the calcula-
tion performed on December 31, 2010. We do not anticipate that we will remain in breach
of this covenant since going forward we will be able to include the full period of Enson
Asset Limited’s EBITDA within the calculation. We were not in breach of any other debt
covenants on December 31, 2010.

Our working capital needs have typically been greatest during the third and fourth
quarters when accounts receivable and inventories increase in connection with the fourth
quarter holiday selling season. At December 31, 2010, we had $66.1 million of working
capital compared to $127.1 million at December 31, 2009. The decrease in working capital
was driven primarily by the Enson Asset Limited acquisition which resulted in cash con-
sideration of $95.0 million, offset partially by net working capital acquired.

Our cash balances are held in numerous locations throughout the world, including
substantial amounts held outside of the United States. The majority of our cash is held
outside of the United States and may be repatriated to the United States but, under current
law, would be subject to United States federal income taxes, less applicable foreign tax
credits. Repatriation of some foreign balances is restricted by local laws. We have not
provided for the United States federal tax liability on these amounts for financial state-
ment purposes as this cash is considered indefinitely reinvested outside of the United
States. Our intent is to meet our domestic liquidity needs through ongoing cash flows,
external borrowings, or both. We utilize a variety of tax planning strategies in an effort to
ensure that our worldwide cash is available in the locations in which it is needed.

On December 31, 2010, we had approximately $6.5 million, $15.0 million, $27.8 million,

$4.0 million, and $0.9 million of cash and cash equivalents in the United States, Europe,
Asia, Cayman Islands and Brazil, respectively. We attempt to mitigate our exposure to
liquidity, credit and other relevant risks by placing our cash, cash equivalents, and term
deposit with financial institutions we believe are high quality.

For further information regarding our credit facilities, see “ITEM 7A. QUANTITATIVE

AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.”

It is our policy to carefully monitor the state of our business, cash requirements and
capital structure. We believe that the cash generated from our operations and funds from
our credit facilities will be sufficient to support our current business operations as well as
anticipated growth at least through the end of 2011; however, there can be no assurance
that such funds will be adequate for that purpose.

off balance sheet aRRangeMents

We do not participate in any off balance sheet arrangements.

new accounting pRonounceMents

See “ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA — Notes to Consolidated
Financial Statements — Note 2” for a discussion of new accounting pronouncements.

QUANTITATIVE AND
QUALITATIVE DISCLOSURES
ABOUT MARKET RISK

We are exposed to various market risks, including interest rate and foreign currency
exchange rate fluctuations. We have established policies, procedures and internal pro-
cesses governing our management of these risks and the use of financial instruments to
mitigate our risk exposure.

I n t e r e s t r at e r I s k  We are exposed to interest rate risk related to our debt. We may
withdraw either U.S. dollars or foreign currencies from our credit facilities. Our market
risk exposures in connection with the debt are primarily U.S. dollar LIBOR-based floating
interest. On December 31, 2010, we had an outstanding balance of $35.0 million related to
our U.S. Bank 1-year term loan facility. The term loan maturity date is November 1, 2011.
Under the U.S. Bank secured revolving credit line, we may elect to pay interest based on
the bank’s prime rate or LIBOR plus a fixed margin of 1.8%. The applicable LIBOR (1, 3, 6,
or 12-month LIBOR) corresponds with the loan period we select. At December 31, 2010,
the 12-month LIBOR plus the fixed margin was 2.6% and the bank’s prime rate was 3.25%.
If a LIBOR rate loan is prepaid prior to the completion of the loan period, we must pay the
bank the difference between the interest the bank would have earned had prepayment not
occurred and the interest the bank actually earned. We may prepay prime rate loans in
whole or in part at any time without a premium or penalty.

We cannot make any assurances that we will not need to borrow additional amounts in
the future or that funds will be extended to us under comparable terms or at all. If funding
is not available to us at a time when we need to borrow, we would have to use our cash
reserves, including potentially repatriating cash from foreign jurisdictions, which may
have a material adverse effect on our operating results, financial position and cash flows.

fo r e I g n c u r r e n c y e xc h a n g e r at e r I s k  At December 31, 2010 we had wholly
owned subsidiaries in the People’s Republic of China, Argentina, Brazil, Cayman Islands,
France, Germany, Hong Kong, India, Italy, the Netherlands, Singapore, Spain, and the
United Kingdom. We are exposed to foreign currency exchange rate risk inherent in
our sales commitments, anticipated sales, anticipated purchases, assets and liabili-
ties denominated in currencies other than the U.S. dollar. The most significant foreign

currencies to our operations for fiscal 2010 were the Euro, British Pound and Chinese
Yuan Renminbi. For most currencies, we are a net receiver of the foreign currency and
therefore benefit from a weaker U.S. dollar and are adversely affected by a stronger U.S.
dollar relative to the foreign currency. Even where we are a net receiver, a weaker U.S.
dollar may adversely affect certain expense figures taken alone.

From time to time, we enter into foreign currency exchange agreements to manage the

foreign currency exchange rate risks inherent in our forecasted income and cash flows
denominated in foreign currencies. The terms of these foreign currency exchange agree-
ments normally last less than nine months. We recognize the gains and losses on these
foreign currency contracts in the same period as the remeasurement losses and gains of
the related foreign currency-denominated exposures.

It is difficult to estimate the impact of fluctuations on reported income, as it depends
on the opening and closing rates, the average net balance sheet positions held in a foreign
currency and the amount of income generated in local currency. We routinely forecast
what these balance sheet positions and income generated in local currency may be and
we take steps to minimize exposure as we deem appropriate. Alternatively, we may choose
not to hedge the foreign currency risk associated with our foreign currency exposures,
primarily if such exposure acts as a natural foreign currency hedge for other offsetting
amounts denominated in the same currency or the currency is difficult or too expensive to
hedge. We do not enter into any derivative transactions for speculative purposes.

The sensitivity of earnings and cash flows to the variability in exchange rates is
assessed by applying an approximate range of potential rate fluctuations to our assets,
obligations and projected results of operations denominated in foreign currency with all
other variables held constant. The analysis covers all of our foreign currency contracts
offset by the underlying exposures. Based on our overall foreign currency rate exposure
at December 31, 2010, we believe that movements in foreign currency rates may have a
material affect on our financial position. We estimate that if the exchange rates for the
Euro, British Pound, Chinese Yuan Renminbi, Indian Rupee, and Singapore dollar relative
to the U.S. dollar fluctuate 10% from December 31, 2010, net income and total cash flows
in the first quarter of 2011 would fluctuate by approximately $2.4 million and $5.0 million,
respectively.

RepoRt of independent RegisteRed public accounting fiRM

Board of Directors and Shareholders

Universal Electronics Inc.

We have audited the accompanying consolidated balance sheets of Universal Electronics
Inc. (a Delaware corporation) as of December 31, 2010 and 2009, and the related consoli-
dated statements of income, stockholders’ equity, and cash flows for each of the three
years in the period ended December 31, 2010. These financial statements are the respon-
sibility of the Company’s management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial state-
ments are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in
all material respects, the financial position of Universal Electronics Inc. as of December
31, 2010 and 2009, and the results of its operations and its cash flows for each of the three
years in the period ended December 31, 2010, in conformity with accounting principles
generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), Universal Electronics Inc.’s internal control over financial
reporting as of December 31, 2010, based on criteria established in Internal Control-
Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO) and our report dated March 16, 2011 expressed an unquali-
fied opinion.

/s/ Grant Thornton LLP

Irvine, California

March 16, 2011

U n i v e r s a l e l e c t r o n i c s i n c .

CONSOLIDATED BALANCE SHEETS

( i n t h o u s a n d s , e x c e p t s h a r e - r e l at e d d ata )

a s s e t s

Current assets:

Cash and cash equivalents

Term deposit

Accounts receivable, net

Inventories, net

Prepaid expenses and other current assets

Deferred income taxes

Total current assets

Property, plant, and equipment, net

Goodwill

Intangible assets, net

Other assets

Deferred income taxes

Total assets

d e c e m b e r 3 1 ,

l I a b I l I t I e s a n d s to c k h o l d e r s ’ eQ u I t y

d e c e m b e r 3 1 ,

Current liabilities:

$ 54,249

$ 29,016

Accounts payable

$ 56,086

$ 39,514

—

86,304

65,402

2,582

6,256

49,246

64,392

40,947

2,423

3,016

Notes payable

Accrued sales discounts, rebates and royalties

Accrued income taxes

Accrued compensation

Other accrued expenses

35,000

7,942

5,873

30,634

13,157

—

6,028

3,254

4,619

8,539

214,793

189,040

Total current liabilities

148,692

61,954

78,097

30,379

35,994

5,464

7,806

9,990

13,724

11,572

1,144

7,837

Long-term liabilities:

Deferred income taxes

Income tax payable

Other long-term liabilities

Total liabilities

$ 372,533

$ 233,307

c o m m i t m e n t s a n d c o n t i n g e n c i e s

Stockholders’ equity:

Preferred stock, $.01 par value, 5,000,000 shares

authorized; none issued or outstanding

Common stock, $.01 par value, 50,000,000 shares authorized;

20,877,248 and 19,140,232 shares issued at
December 31, 2010 and 2009, respectively

Paid-in capital

Accumulated other comprehensive (loss) income

Retained earnings

Less cost of common stock in treasury, 5,926,071 and 5,449,962

shares at December 31, 2010 and 2009, respectively

Total stockholders’ equity

Total liabilities and stockholders’ equity

11,369

1,212

153

1,348

122

161,329

63,577

—

209

—

191

166,940

128,913

(489)

1,463

134,070

118,989

300,730

249,556

(89,526)

(79,826)

211,204

169,730

$ 372,533

$ 233,307

U n i v e r s a l e l e c t r o n i c s i n c .

CONSOLIDATED INCOME STATEMENTS

( i n t h o u s a n d s , e x c e p t p e r s h a r e a m o u n t s )

Net sales

Cost of sales

Gross profit

Research and development expenses

Selling, general and administrative expenses

Operating income

Interest income, net

Other income (expense), net

Income before provision for income taxes

Provision for income taxes

Net income

Earnings per share:

Basic

Diluted

Shares used in computing earnings per share:

Basic

Diluted

Y e a r e n d e d d e c e m b e r 3 1 ,

2 0 10

2 0 0 9

2 0 0 8

$ 331,780

$ 317,550

$ 287,100

227,931

215,938

190,910

103,849

101,612

96,190

10,709

71,839

21,301

523

21,858

6,777

8,691

70,974

21,947

471

(241)

22,177

7,502

8,160

67,269

20,761

3,017

311

24,089

8,283

$ 15,081

$ 14,675

$ 15,806

1.10

1.07

1.05

1.13

1.09

13,764

14,106

13,667

13,971

14,015

14,456

U n i v e r s a l e l e c t r o n i c s i n c .

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

( i n t h o u s a n d s )

Balance at December 31, 2007
Comprehensive income:

Net income
Currency translation adjustment
Total comprehensive income

Common Stock Issued

Common Stock in Treasury

Amount

Paid-in Capital

Accumulated
Other
Comprehensive
Income (Loss)

Retained
Earnings

Totals

Comprehensive
Income

18,547

185

(3,975)

(46,113)

$ 114,441

11,221

88,508

$ 168,242

15,806

(10,471)

15,806
(10,471)
5,335

114

(1,118)

(26,689)

353

18,716

187

(5,070)

(72,449)

Net income
Currency translation adjustment
Total comprehensive income

Shares issued for employee benefit plan and compensation
Purchase of treasury shares
Stock options exercised
Shares issued to Directors
Stock-based compensation expense
Tax benefit from exercise of non-qualified stock options and vested restricted stock
Balance at December 31, 2009
Comprehensive income:
Net income
Currency translation adjustment
Total comprehensive income
Shares issued for employee benefit plan and compensation
Shares issued for purchase of Enson Assets Limited
Purchase of treasury shares
Stock options exercised
Shares issued to Directors
Stock-based compensation expense
Tax benefit from exercise of non-qualified stock options and vested restricted stock
Balance at December 31, 2010

145

279

(405)

(7,747)

370

19,140

191

(5,450)

(79,826)

156
1,460

121

2
15

(506)

(10,145)

445

20,877

209

(5,926)

(89,526)

632

1,157
(353)
4,243
431
$ 120,551

740

3,272
(370)
4,312
408
$ 128,913

564
30,748

1,963
(445)
4,966
231
$ 166,940

633
(26,689)
1,158
—
4,243
431
$ 153,353

741
(7,747)
3,275
—
4,312
408
169,730

14,675
713
15,388

15,081
(1,952)
13,129

750

$ 104,314

14,675

713

1,463

$ 118,989

15,081

(1,952)

566
30,763
(10,145)
1,964
—
4,966
231
$ 211,204

(489)

$ 134,070

U n i v e r s a l e l e c t r o n i c s i n c .

CONSOLIDATED STATEMENTS OF CASH FLOWS

( i n t h o u s a n d s )

Cash provided by operating activities:

Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
Provision for doubtful accounts
Provision for inventory write-downs
Deferred income taxes
Tax benefit from exercise of stock options and vested restricted stock
Excess tax benefit from stock-based compensation
Shares issued for employee benefit plan
Stock-based compensation
Changes in operating assets and liabilities, net of acquired assets and assumed liabilities:

Accounts receivable
Inventories
Prepaid expenses and other assets
Accounts payable and accrued expenses
Accrued income and other taxes

Net cash provided by operating activities

Cash used for investing activities:

Acquisition of Enson Assets Limited, net of cash acquired
Term deposit
Acquisition of property, plant, and equipment
Acquisition of intangible assets
Acquisition of assets from Zilog, Inc.

Net cash used for investing activities

Cash provided by (used for) financing activities:

Issuance of debt
Payment of debt
Proceeds from stock options exercised
Treasury stock purchased
Excess tax benefit from stock-based compensation

Net cash provided by (used for) financing activities

Effect of exchange rate changes on cash
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year

Supplemental Cash Flow Information — Income taxes paid were $11.7 million, $8.1 million and $8.2 million in 2010, 2009, and 2008, respectively.

Y e a r e n d e d d e c e m b e r 3 1 ,

2 0 10

2 0 0 9

2 0 0 8

15,081

14,675

15,806

8,059
931
3,514
(911)
231
(290)
566
4,966

13,192
(5,102)
950
784
(4,322)
37,649

(74,133)
49,246
(8,440)
(1,378)
—
(34,705)

41,000
(9,834)
1,964
(10,145)
290
23,275
(986)
25,233
29,016
54,249

6,801
435
4,179
(1,036)
408
(250)
741
4,312

(4,278)
(1,053)
552
(2,201)
702
23,987

—
(49,246)
(6,171)
(1,172)
(9,502)
(66,091)

—
—
3,275
(7,747)
250
(4,222)
104
(46,222)
75,238
29,016

6,084
465
3,270
(559)
431
(344)
633
4,243

(1,502)
(12,817)
(1,888)
15,668
662
30,152

—
—
(5,945)
(1,475)
—
(7,420)

—
—
1,158
(26,689)
344
(25,187)
(8,917)
(11,372)
86,610
75,238

U n i v e r s a l e l e c t r o n i c s i n c . n ot e s t o c o n s o l i d at e d f i n a n c i a l s tat e m e n t s d e c e m b e r 3 1 , 2 0 1 0

n ot e 1  descRiption of business

Universal Electronics Inc., based in Southern California, develops and manufactures
a broad line of easy-to-use, pre-programmed universal wireless control products and
audio-video accessories as well as software designed to enable consumers to wirelessly
connect, control and interact with an increasingly complex home entertainment environ-
ment. In addition, over the past 23 years we have developed a broad portfolio of patented
technologies and a database of home connectivity software that we license to our custom-
ers, including many leading Fortune 500 companies.

Our primary markets include cable and satellite television service provider, original
equipment manufacturer (“OEMs”), retail, custom installer, private label, and personal
computing companies. We sell directly to our customers, and for retail and custom install-
ers we also sell through distributors in Europe, Australia, New Zealand, South Africa, the
Middle East, Mexico, and selected countries in Asia and Latin America under the One For
All® and Nevo® brand names.

As used herein, the terms “we”, “us” and “our” refer to Universal Electronics Inc. and

its subsidiaries unless the context indicates to the contrary.

n ot e 2  suMMaRy of significant accounting policies

P r I n c I P l e s o f c o n s o l I dat I o n  The consolidated financial statements include our
accounts and those of our wholly-owned subsidiaries. All the intercompany accounts and
transactions have been eliminated in the consolidated financial statements.

r ec l a s s I fI c at I o n  Certain prior period amounts in the accompanying consolidated
financial statements have been reclassified to conform to the current year presentation. These
reclassifications had no effect on previously reported net income or shareholders’ equity.

e s t I M at e s a n d a s s u M P t I o n s  The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of America requires us
to make estimates and assumptions that affect the reported amounts of assets and liabili-
ties, disclosure of contingent assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting period. On an
on-going basis, we evaluate our estimates and assumptions, including those related to rev-
enue recognition, allowance for sales returns and doubtful accounts, warranties, inventory
valuation, business combination purchase price allocations, our review for impairment of
long-lived assets, intangible assets and goodwill, income taxes and compensation expense.

Actual results may differ from these assumptions and estimates, and they may be adjusted
as more information becomes available. Any adjustment may be material.

r e v e n u e r ec o g n I t I o n a n d s a l e s a l lowa n c e s  We recognize revenue on the
sale of products when title of the goods has transferred, there is persuasive evidence of
an arrangement (such as when a purchase order is received from the customer), the sales
price is fixed or determinable and collectability is reasonably assured.

The provision recorded for estimated sales returns is deducted from gross sales to

arrive at net sales in the period the related revenue is recorded. These estimates are
based on historical sales returns, analysis of credit memo data and other known factors.
We have no obligations after delivery of our products other than the associated warranties
(see Note 13 for further information concerning our warranty obligations).

We offer discounts and rebates that are recorded based on historical experience and
our expectation regarding future sales by a customer. Changes in such accruals may be
required if future rebates and incentives differ from our estimates. Rebates and incentives
are recognized as a reduction of sales if distributed in cash or customer account credits.
Rebates and incentives are recognized as cost of sales if we provide products or services
for payment.

Trade accounts receivable are recorded at the invoiced amount and do not bear inter-

est. Sales allowances are recognized as reductions of gross accounts receivable to arrive
at accounts receivable, net if they are distributed in customer account credits (see below
and Note 4 for further information concerning our sales allowances).

We maintain an allowance for doubtful accounts for estimated losses resulting from

the inability of our customers to make payments for products sold or services rendered.
The allowance for doubtful accounts is based on a variety of factors, including historical
experience, length of time receivables are past due, current economic trends and changes
in customer payment behavior. Also, we record specific provisions for individual accounts
when we become aware of a customer’s inability to meet its financial obligations to us, such
as in the case of bankruptcy filings or deterioration in the customer’s operating results
or financial position. If circumstances related to a customer change, our estimates of the
recoverability of the receivables would be further adjusted, either upward or downward.

We generate service revenue, which is paid monthly, as a result of providing consumer

support programs to some of our customers through our call centers. These service rev-
enues are recognized when services are performed, persuasive evidence of an arrange-

ment exists (such as when a signed agreement is received from the customer), the sales
price is fixed or determinable, and collectability is reasonably assured.

We also license our intellectual property including our patented technologies, trade
secrets, trademarks, and database of infrared codes. When our license fees are paid on
a per unit basis we record license revenue when our customers ship a product incorpo-
rating our intellectual property, persuasive evidence of an arrangement exists, the sales
price is fixed or determinable, and collectability is reasonably assured. When license
fees are paid in an up-front, non-refundable, payment for a specified period of time we
recognize revenue on a straight-line basis over the effective term of the license because
we cannot reliably predict in which periods, within the term of the license, the licensee will
benefit from the use of our patented inventions.

We may from time to time initiate the sale of certain intellectual property, including
patented technologies, trademarks, or a particular database of infrared codes. When a
fixed upfront fee is received in exchange for the conveyance of a patent, trademark, or
database delivered that represents the culmination of the earnings process, we record
revenue when delivery has occurred, persuasive evidence of an arrangement exists, the
sales price is fixed or determinable and collectability is reasonably assured.

We present all non-income government-assessed taxes (sales, use and value added
taxes) collected from our customers and remitted to governmental agencies on a net basis
(excluded from revenue) in our financial statements. The government-assessed taxes are
recorded in other accrued expenses until they are remitted to the government agency.

I n c o M e ta x e s  Income tax expense includes U.S. and foreign income taxes. We
account for income taxes using the liability method. We record deferred tax assets and
deferred tax liabilities on our balance sheet for expected future tax consequences of
events recognized in our financial statements in a different period than our tax return
using enacted tax rates that will be in effect when these differences reverse. We record a
valuation allowance to reduce net deferred tax assets if we determine that it is more likely
than not that the deferred tax assets will not be realized. A current tax asset or liability is
recognized for the estimated taxes refundable or payable for the current year.

On January 1, 2007, we adopted an accounting standard which prescribes a recogni-
tion threshold and a measurement attribute for the financial statement recognition and
measurement of the positions taken or expected to be taken in a tax return. For those
benefits to be recognized, a tax position must be more likely than not to be sustained upon
examination by taxing authorities. A “more likely than not” tax position is measured as the

U n i v e r s a l e l e c t r o n i c s i n c . n ot e s t o c o n s o l i d at e d f i n a n c i a l s tat e m e n t s d e c e m b e r 3 1 , 2 0 1 0

largest amount of benefit that is greater than fifty percent likely of being realized upon
ultimate settlement, or else a full reserve is established against the tax asset or a liability
is recorded. See Note 9 for further information concerning income taxes.

r e s e a r c h a n d d e v e lo P M e n t  Research and development costs are expensed as
incurred and consist primarily of salaries, employee benefits, supplies and materials.

a dv e rt I s I n g  Advertising costs are expensed as incurred. Advertising expense totaled
$1.7 million, $1.3 million and $2.1 million for the years ended December 31, 2010, 2009 and
2008, respectively.

s h I P P I n g a n d h a n d l I n g fe e s a n d c o s t s  We include shipping and handling fees
billed to customers in net sales. Shipping and handling costs associated with in-bound
freight are recorded in cost of goods sold. Other shipping and handling costs are included
in selling, general and administrative expenses and totaled $7.5 million, $7.9 million and
$8.4 million for the years ended December 31, 2010, 2009 and 2008, respectively.

s to c k- b a s e d c o M P e n s at I o n  We recognize the grant date fair value of stock-based
compensation awards as expense, net of estimated forfeitures, in proportion to vesting
during the requisite service period, which is generally one to four years.

We determine the fair value of the restricted stock awards utilizing the average of the

high and low trade prices of our Company’s shares on the date they were granted.

We have evaluated the available option pricing models and the assumptions we may

utilize to estimate the grant date fair value of stock options granted to employees and
directors. We have elected to utilize the Black-Scholes option pricing model. The assump-
tions utilized in the Black-Scholes model include the following:

 weighted average fair value of grant;

 risk-free interest rate;

 expected volatility; and

 expected life in years.

Our risk-free interest rate over the expected term is equal to the prevailing U.S.
Treasury note rate over the same period. As part of our assessment of possible expected
volatility assumptions, management determined that historical volatility calculated based
on our actively traded common stock is a better indicator of expected volatility and future
stock price trends than implied volatility. Therefore, we calculate the expected volatil-
ity of our common stock utilizing its historical volatility over a period of time equal to
the expected term of the stock option. To determine our expected life assumption, we

U n i v e r s a l e l e c t r o n i c s i n c . n ot e s t o c o n s o l i d at e d f i n a n c i a l s tat e m e n t s d e c e m b e r 3 1 , 2 0 1 0

examined the historical pattern of stock option exercises in an effort to determine if there
were any discernible patterns based on employee classification. From this analysis,
we identified two classifications: (1) Executives and Board of Directors and (2) Non-
Executives. Our estimate of expected life is computed utilizing historical exercise patterns
and post-vesting behavior within each of the two identified classifications. See Notes 14
and 16 for further information regarding stock-based compensation.

fo r e I g n c u r r e n c y t r a n s l at I o n a n d fo r e I g n c u r r e n c y t r a n s ac t I o n s 
We use the U.S. dollar as our functional currency for financial reporting purposes. The
functional currency for most of our foreign subsidiaries is their local currency. The transla-
tion of foreign currencies into U.S. dollars is performed for balance sheet accounts using
exchange rates in effect at the balance sheet dates and for revenue and expense accounts
using the average exchange rate during each period. The gains and losses resulting from
the translation are included in the foreign currency translation adjustment account, a
component of accumulated other comprehensive income in stockholders’ equity, and are
excluded from net income. The portions of intercompany accounts receivable and accounts
payable that are intended for settlement are translated at exchange rates in effect at the
balance sheet date. Our intercompany foreign investments and long-term debt that are not
intended for settlement are translated using historical exchange rates.

We recorded a foreign currency translation loss of $2.0 million, a gain of $0.7 million
and a loss of $10.5 million for the years ended December 31, 2010, 2009 and 2008, respec-
tively. The foreign currency translation loss of $2.0 million for the year ended December
31, 2010 was driven by the strengthening of the U.S. dollar versus the Euro. The U.S. dol-
lar/Euro spot rate was 1.34 and 1.43 at December 31, 2010 and 2009, respectively.

The foreign currency translation gain of $0.7 million for the year ended December 31,
2009 was driven by the weakening of the U.S. dollar versus the Euro. The U.S. dollar/Euro
spot rate was 1.43 and 1.39 at December 31, 2009 and 2008, respectively.

The foreign currency translation loss of $10.5 million for the year ended December 31,

2008 was driven by the strengthening of the U.S. dollar versus the Euro. The U.S. dollar/
Euro spot rate was 1.39 and 1.46 at December 31, 2008 and 2007, respectively. The foreign
currency translation loss during 2008 was compounded by our transfer of €47.0 million
($60.2 million) into Hong Kong dollars (which are indexed to the U.S. dollar) in November
2008. The U.S. dollar/Euro spot rate at the time of transfer was 1.28. This composed
approximately $7.2 million of the foreign currency translation loss for 2008.

Transaction gains and losses generated by the effect of changes in foreign currency
exchange rates on recorded assets and liabilities denominated in a currency different than
the functional currency of the applicable entity are recorded in other income (expense),
net (see Note 17 for further information concerning transaction gains and losses).

fI n a n c I a l I n s t r u M e n t s  Our financial instruments consist primarily of investments
in cash and cash equivalents, term deposits, accounts receivable, accounts payable and
accrued liabilities. The carrying value of our financial instruments approximate fair value
as a result of their short maturities (see Notes 3, 4, 5, 8, 10, and 11 for further information
concerning our financial instruments).

c a s h , c a s h eQ u I va l e n t s , a n d t e r M d e P o s I t  Cash and cash equivalents include
cash accounts and all investments purchased with initial maturities of 3 months or less.
We attempt to mitigate our exposure to liquidity, credit and other relevant risks by placing
our cash, cash equivalents, and term deposits with financial institutions we believe are
high quality. These financial institutions are located in many different geographic regions.
As part of our cash and risk management processes, we perform periodic evaluations
of the relative credit standing of our financial institutions. We have not sustained credit
losses from instruments held at financial institutions (see Note 3 for further information
concerning cash, cash equivalents, and term deposit).

I n v e n to r I e s  Inventories consist of remote controls, audio-video accessories as well
as the related component parts and raw materials. Inventoriable costs include materials,
labor, freight-in and manufacturing overhead related to the purchase and production of
inventories. We value our inventories at the lower of cost or market. Cost is determined
using the first-in, first-out method. We attempt to carry inventories in amounts necessary
to satisfy our customer requirements on a timely basis (see Note 5 for further information
concerning our inventories and suppliers).

Product innovations and technological advances may shorten a given product’s life

cycle. We continually monitor our inventories to identify any excess or obsolete items on
hand. We write-down our inventories for estimated excess and obsolescence in an amount
equal to the difference between the cost of the inventories and its estimated net realizable
value. These estimates are based upon management’s judgment about future demand and
market conditions. Actual results may differ from management’s judgments and addi-
tional write-downs may be required. Our total excess and obsolete inventory reserve on
December 31, 2010 and 2009 was $2.1 million and $1.8 million, respectively, or 3.2% and
4.1% of our total inventory balance.

P r o P e rt y, P l a n t, a n d eQ u I P M e n t  Property, plant, and equipment are recorded at
cost less estimated residual value (if applicable). The cost of property, plant, and equip-
ment includes the purchase price of the asset and all expenditures necessary to prepare
the asset for its intended use. We capitalize additions and improvements and expense
maintenance and repairs as incurred. To qualify for capitalization an asset must have a
useful life greater than one year and a cost greater than $1,000 for individual assets or
$5,000 for assets purchased in bulk.

We capitalize certain internal and external costs incurred to acquire or create internal

use software, principally related to software coding, designing system interfaces and
installation and testing of the software.

For financial reporting purposes, depreciation is calculated using the straight-line
method over the estimated useful lives of the respective assets. When assets are retired
or otherwise disposed of, the cost and accumulated depreciation are removed from the
appropriate accounts and any gain or loss is included as a component of depreciation
expense in operating income.

Estimated useful lives consist of the following:

Buildings

Tooling and equipment

Computer equipment

Software

Furniture and fixtures

25 Years

2-7 Years

3-7 Years

3-5 Years

5-7 Years

Leasehold improvements

Lesser of lease term or useful life (approximately 2 to 6 years)

See Note 6 for further information concerning our property, plant, and equipment.

g o o dw I l l  We record the excess purchase price of net tangible and intangible assets
acquired over their estimated fair value as goodwill. We evaluate the carrying value of
goodwill on December 31 of each year and between annual evaluations if events occur
or circumstances change that may reduce the fair value of the reporting unit below its
carrying amount. Such circumstances may include, but are not limited to: (1) a significant
adverse change in legal factors or in business climate, (2) unanticipated competition, or (3)
an adverse action or assessment by a regulator.

When performing the impairment review, we determine the carrying amount of each
reporting unit by assigning assets and liabilities, including the existing goodwill, to those

U n i v e r s a l e l e c t r o n i c s i n c . n ot e s t o c o n s o l i d at e d f i n a n c i a l s tat e m e n t s d e c e m b e r 3 1 , 2 0 1 0

reporting units. A reporting unit is defined as an operating segment or one level below an
operating segment (referred to as a component). A component of an operating segment is
deemed a reporting unit if the component constitutes a business for which discrete finan-
cial information is available, and segment management regularly reviews the operating
results of that component. We have a single reporting unit.

To evaluate whether goodwill is impaired, we compare the estimated fair value of the
reporting unit to which the goodwill is assigned to the reporting unit’s carrying amount,
including goodwill. We estimate the fair value of our reporting unit based on income and
market approaches. Under the income approach, we calculate the fair value of a report-
ing unit based on the present value of estimated future cash flows. Under the market
approach, we estimate the fair value based on market multiples of Enterprise Value to
EBITDA for comparable companies. If the carrying value of the net assets assigned to the
reporting unit exceeds the fair value of the reporting unit, then we must perform the sec-
ond step of the impairment test in order to determine the implied fair value of the report-
ing unit’s goodwill. If the carrying value of a reporting unit’s goodwill exceeds its implied
fair value, then we record an impairment loss equal to the difference.

To calculate the implied fair value of the reporting unit’s goodwill, the fair value of the

reporting unit is first allocated to all of the other assets and liabilities of that unit based
on their fair values. The excess of the reporting unit’s fair value over the amount assigned
to its other assets and liabilities is the implied fair value of goodwill. An impairment loss
would be recognized when the carrying amount of goodwill exceeds its implied fair value.

We conducted annual goodwill impairment reviews on December 31, 2010, 2009
and 2008. Based on the analysis performed, we determined that the fair values of our
reporting unit exceeded its carrying amount, including goodwill, and therefore it was not
impaired. See Notes 7 and 21 for further information concerning goodwill.

lo n g - l I v e d a n d I n ta n g I b l e a s s e t s I M Pa I r M e n t  Intangible assets consist
principally of distribution rights, patents, trademarks, trade names, developed and core
technologies, capitalized software development costs (see also Note 2 under the cap-
tion Capitalized Software Development Costs) and customer relationships. Capitalized
amounts related to patents represent external legal costs for the application and main-
tenance of patents. Intangible assets are amortized using the straight-line method over
their estimated period of benefit, ranging from one to fifteen years.

We assess the impairment of long-lived assets and intangible assets whenever events

or changes in circumstances indicate that the carrying value may not be recoverable.

U n i v e r s a l e l e c t r o n i c s i n c . n ot e s t o c o n s o l i d at e d f i n a n c i a l s tat e m e n t s d e c e m b e r 3 1 , 2 0 1 0

Factors considered important which may trigger an impairment review include the follow-
ing: (1) significant underperformance relative to expected historical or projected future
operating results; (2) significant changes in the manner or use of the assets or strategy for
the overall business; (3) significant negative industry or economic trends and (4) a signifi-
cant decline in our stock price for a sustained period.

We conduct an impairment review when we determine that the carrying value of a
long-lived or intangible asset may not be recoverable based upon the existence of one
or more of the above indicators of impairment. The asset is impaired if its carrying value
exceeds the sum of the undiscounted cash flows expected to result from the use and
eventual disposition of the asset. In assessing recoverability, we must make assumptions
regarding estimated future cash flows and other factors.

The impairment loss is the amount by which the carrying value of the asset exceeds its

fair value. We estimate fair value utilizing the projected discounted cash flow method and
a discount rate determined by our management to be commensurate with the risk inher-
ent in our current business model. When calculating fair value, we must make assump-
tions regarding estimated future cash flows, discount rates and other factors.

See Notes 6 and 15 for further information concerning long-lived assets. See Notes 7

and 21 for further information concerning intangible assets.

c a P I ta l Ize d s o f t wa r e d e v e lo P M e n t c o s t s  Costs incurred to develop software
for resale are expensed when incurred as research and development until technological
feasibility has been established. We have determined that technological feasibility for our
products is established when a working model is complete. Once technological feasibility
is established, software development costs are capitalized until the product is available
for general release to customers.

Capitalized software development costs are amortized on a product-by-product basis.

Amortization is recorded in cost of sales and is the greater amount computed using:

the net book value at the beginning of the period multiplied by the ratio that cur-
rent gross revenues for a product bear to the total of current and anticipated
future gross revenues for that product; or

the straight-line method over the remaining estimated economic life of the prod-
uct including the period being reported on.

The amortization of capitalized software development costs begins when the related
product is available for general release to customers. The amortization periods normally
range from one to two years.

We compare the unamortized capitalized software development costs of a product

to its net realizable value at each balance sheet date. The amount by which the unamor-
tized capitalized software development costs exceed the product’s net realizable value is
written off. The net realizable value is the estimated future gross revenues of a product
reduced by its estimated completion and disposal costs. Any remaining amount of capital-
ized software development costs are considered to be the cost for subsequent accounting
purposes and the amount of the write-down is not subsequently restored. See Note 7 for
further information concerning capitalized software development costs.

d e r I vat I v e s  Our foreign currency exposures are primarily concentrated in the
Brazilian Real, British Pound, Chinese Yuan Renminbi, Euro, Hong Kong dollar, Indian
Rupee, and Singapore dollar. We periodically enter into foreign currency exchange con-
tracts with terms normally lasting less than nine months to protect against the adverse
effects that exchange-rate fluctuations may have on our foreign currency-denominated
receivables, payables, cash flows and reported income. We do not enter into financial
instruments for speculation or trading purposes.

The derivatives we enter into have not qualified for hedge accounting. The gains
and losses on both the derivatives and the foreign currency-denominated balances are
recorded as foreign exchange transaction gains or losses and are classified in other
income (expense), net. Derivatives are recorded on the balance sheet at fair value. The
estimated fair value of derivative financial instruments represents the amount required to
enter into similar offsetting contracts with similar remaining maturities based on quoted
market prices. See Note 19 for further information concerning derivatives.

fa I r -va lu e M e a s u r e M e n t s  We measure fair value using the framework estab-
lished by the FASB accounting guidance for fair value measurements and disclosures.
This framework requires fair value to be determined based on the exchange price that
would be received for an asset or paid to transfer a liability (an exit price) in the principal
or most advantageous market for the asset or liability in an orderly transaction between
market participants.

The valuation techniques are based upon observable and unobservable inputs. Observable
or market inputs reflect market data obtained from independent sources. Unobservable
inputs require management to make certain assumptions and judgments based on the
best information available. Observable inputs are the preferred source of values. These
two types of inputs create the following fair value hierarchy:

Level 1:

Level 2:

Quoted prices (unadjusted) for identical instruments in active markets.

Quoted prices for similar instruments in active markets, quoted
prices for identical or similar instruments in markets that are not
active, and model-based valuation techniques for which all significant
assumptions are observable in the market or can be corroborated by
observable market data for substantially the full term of the assets or
liabilities.

Level 3:

Prices or valuations that require management inputs that are both
significant to the fair value measurement and unobservable.

n e w ac c o u n t I n g P r o n o u n c e M e n t s  During January 2010, the FASB issued
Accounting Standards Update (“ASU”) No. 2010-6 to improve the disclosure and transpar-
ency of fair value measurements. These amendments clarify the level of disaggregation
required, and the necessary disclosures about the valuation techniques and inputs used
to measure fair value for both recurring and nonrecurring fair value measurements. The
amendments in the update are effective prospectively for interim and annual periods
beginning on or after December 15, 2009, except for the separate disclosures about pur-
chases, sales, issuances, and settlements relating to Level 3 measurements, which are
effective for fiscal years beginning on or after December 15, 2010, and for interim periods
within those fiscal years. Early adoption is permitted. We have not yet adopted the portion
of this ASU that is effective beginning on or after December 15, 2010, and we do not expect
its adoption will have a material effect on our consolidated results of operations and finan-
cial condition.

During October 2009, the FASB issued ASU No. 2009-14 to address accounting for

arrangements that contain tangible products and software. The amendments in this
update clarify what guidance should be utilized in allocating and measuring revenue for
products that contain software that is “more than incidental” to the product as a whole.
Currently, products that contain software that is “more than incidental” to the product
as a whole are within the scope of software accounting guidance. Software accounting
guidance requires a vendor to use vendor-specific objective evidence (“VSOE”) of sell-
ing price to separate the software from the product and account for the two elements
as a multiple-element arrangement. A vendor must sell, or intend to sell, a particular
element separately to assert VSOE for that element. Third-party evidence for selling
price is not allowed under the software accounting model. If a vendor does not have VSOE
for the undelivered elements in the arrangement, the revenue associated with both the

U n i v e r s a l e l e c t r o n i c s i n c . n ot e s t o c o n s o l i d at e d f i n a n c i a l s tat e m e n t s d e c e m b e r 3 1 , 2 0 1 0

delivered and undelivered elements is combined into one unit of accounting. Any rev-
enue attributable to the delivered elements is then deferred and recognized at a later
date, which in many cases is as the undelivered elements are delivered by the vendor.
This ASU addresses concerns that the current accounting model may not appropriately
reflect the economics of the underlying transactions because no revenue is recognized
for some products for which the vendor has already completed the related performance.
In addition, this ASU addresses the concern that more software enabled products fall
within the scope of the current software accounting model than was originally intended
because of ongoing technical advancements. The amendments in the update are effective
prospectively for revenue arrangements entered into or materially modified in fiscal years
beginning on or after June 15, 2010. Early adoption is permitted, however, if early adoption
is elected, we would be required to apply the amendments retrospectively from the begin-
ning of the fiscal year of adoption and make specific disclosures. We have not yet adopted
this ASU, and we do not expect its adoption will have a material effect on our consolidated
results of operations and financial condition.

During October 2009, the FASB issued ASU No. 2009-13 to address the accounting for
multiple-deliverable arrangements to enable vendors to account for products or services
(deliverables) separately rather than as a combined accounting unit. Current accounting
guidance requires a vendor to use VSOE or third-party evidence (“TPE”) of selling price to
separate deliverables in a multiple-deliverable arrangement. VSOE of selling price is the
price charged for a deliverable when it is sold separately or, for a deliverable not yet being
sold separately, the price established by management with the appropriate authority. If a
vendor does not have VSOE for the undelivered elements in the arrangement, the revenue
associated with both the delivered and undelivered elements is combined into one unit of
accounting. Any revenue attributable to the delivered products is then deferred and rec-
ognized at a later date, which in many cases is as the undelivered elements are delivered
by the vendor. An exception to this guidance exists if the vendor has VSOE or TPE of selling
price for the undelivered elements in the arrangement but not for the delivered elements.
In those situations, the vendor uses the residual value method to allocate revenue to the
delivered element, which results in the allocation of the entire discount in the arrange-
ment, if any, to the delivered element. This ASU addresses concerns that the current
accounting model may not appropriately reflect the economics of the underlying trans-
actions because sometimes no revenue is recognized for products for which the vendor
has already completed the related performance. As a result of this amendment, multiple
element arrangements will be separated in more circumstances than under the existing

U n i v e r s a l e l e c t r o n i c s i n c . n ot e s t o c o n s o l i d at e d f i n a n c i a l s tat e m e n t s d e c e m b e r 3 1 , 2 0 1 0

accounting model. This amendment establishes a selling price hierarchy for determin-
ing the selling price of a deliverable. The selling price utilized for each deliverable will
be based on VSOE if available, TPE if VSOE is not available, or estimated selling price if
neither VSOE or TPE evidence is available. The residual method is eliminated. The amend-
ments in the update are effective prospectively for revenue arrangements entered into or
materially modified in fiscal years beginning on or after June 15, 2010. Early adoption is
permitted, however, if early adoption is elected, we would be required to apply the amend-
ments retrospectively from the beginning of the fiscal year of adoption and make specific
disclosures. We have not yet adopted this ASU, and we do not expect its adoption will have
a material effect on our consolidated results of operations and financial condition.

During December 2010, the FASB issued ASU No. 2010-29 to address diversity in
practice regarding the interpretation of the pro forma revenue and earnings disclosure
requirements for business combinations. ASC 805- 10-50-2(h) requires a public entity to
disclose pro forma information for business combinations that occurred during the cur-
rent annual reporting period. The disclosures include combined pro forma revenue and
earnings as though the acquisition date for all business combinations during the year had
been as of the beginning of the annual reporting period. If comparative financial state-
ments are presented, the pro forma revenue and earnings of the combined entity should
be reported as though the acquisition date for all business combinations that occurred
during the current year had been as of the beginning of the comparable prior annual
reporting period. In practice, some preparers have presented the pro forma information
in their comparative financial statements as if the business combination that occurred in
the current reporting period had occurred as of the beginning of each of the current and
prior annual reporting periods. Other preparers have disclosed the pro forma informa-
tion as if the business combination occurred at the beginning of the prior annual report-
ing period only, and carried forward the related adjustments, if applicable, through the
current reporting period. The amendments in this update specify that if a public entity

presents comparative financial statements, the entity should disclose revenue and earnings
of the combined entity as though the business combination(s) that occurred during the cur-
rent year had occurred as of the beginning of the comparable prior annual reporting period
only. The amendments in this Update also expand the supplemental pro forma disclosures
under Topic 805 to include a description of the nature and amount of material, nonrecur-
ring pro forma adjustments directly attributable to the business combination included in
the reported pro forma revenue and earnings. The amendments in this Update are effec-
tive prospectively for business combinations for which the acquisition date is on or after the
beginning of the first annual reporting period beginning on or after December 15, 2010. Early
adoption is permitted. We have not yet adopted this ASU, and we do not expect its adoption
will have a material effect on our consolidated results of operations and financial condition.

r ec e n t ly a d o Pt e d ac c o u n t I n g P r o n o u n c e M e n t s  During December 2007, the
FASB issued guidance that established principles and requirements for how an acquirer
recognizes and measures in its financial statements the identifiable assets acquired, the
liabilities assumed, any non-controlling interest in the acquiree and the goodwill acquired.
This guidance also establishes disclosure requirements to enable the evaluation of the
nature and financial effects of the business combination. The adoption of this guidance
will affect the classification of acquisition costs. These costs will now be expensed, versus
being added to the consideration transferred for an acquisition. The result is a reduc-
tion in the consideration amount allocated to specific assets and liabilities received in an
acquisition. This guidance was effective for us January 1, 2009. As a result of adopting this
guidance, we recognized $1.1 million of acquisition costs during the year ended December
31, 2009 related to our purchase of assets from Zilog. The acquisition costs recognized
during 2009 included $0.1 million of acquisition costs that were deferred at December 31,
2008. In addition, during 2010 we recognized $0.7 million of acquisition costs during the
year ended December 31, 2010 related to our purchase of Enson Assets Limited.

n ot e 3  cash, cash equivalents, and teRM deposit

The following table sets forth our cash, cash equivalents, and term deposit that were accounted for at fair value on a recurring basis on December 31, 2010 and 2009:

U n i v e r s a l e l e c t r o n i c s i n c . n ot e s t o c o n s o l i d at e d f i n a n c i a l s tat e m e n t s d e c e m b e r 3 1 , 2 0 1 0

( i n t h o u s a n d s )
Description

Cash and cash equivalents

Term deposit

d e c e m b e r 3 1 , 2 0 1 0

d e c e m b e r 3 1 , 2 0 0 9

Fair Value Measurement Using

(Level 1)

(Level 2)

(Level 3)

Total Balance

(Level 1)

(Level 2)

(Level 3)

Total Balance

$ 54,249

—

$ 54,249

—

$ 54,249

$ 29,016

—

49,246

$ 54,249

$ 78,262

—

$ 29,016

49,246

$ 78,262

On December 31, 2010, we had approximately $6.5 million, $15.0 million, $27.8 million, $4.0 million, and $0.9 million of cash and cash equivalents in the United States, Europe, Asia,

Cayman Islands and Brazil, respectively.

In addition, on December 31, 2009, we had a six-month term deposit cash account at Wells Fargo Bank denominated in Hong Kong dollars. The term began on July 21, 2009 and
ended on January 21, 2010. The term deposit earned interest at an annual rate of 0.57%. The deposit principal and interest receivable related to this account on December 31, 2009 was
$49.2 million and $0.1 million, respectively.

See Note 2 under the caption Cash, Cash Equivalents, and Term Deposit for further information regarding our accounting principles.

n ot e 4  accounts Receivable, net

and Revenue concentRations

Accounts receivable, net consisted of the following on December 31, 2010 and 2009:

( i n t h o u s a n d s )

Trade receivables, gross

Allowance for doubtful accounts

Allowance for sales returns

Net trade receivables

Other

Accounts receivable, net

2 0 10

2 0 0 9

$ 88,485

$ 68,458

(878)

(1,366)

86,241

(2,423)

(1,999)

64,036

356

$ 86,304

$ 64,392

a l lowa n c e fo r d o u bt f u l ac c o u n t s  The following changes occurred in the
allowance for doubtful accounts during the years ended December 31, 2010, 2009 and 2008:

( i n t h o u s a n d s )
Description

Balance at
Beginning of
Period

Additions to
Costs and
Expenses

(Write-offs)/FX
Effects

Balance at End
of Period

Year Ended December 31, 2010

Year Ended December 31, 2009

Year Ended December 31, 2008

2,423

2,439

2,330

931

435

465

(2,476)

(451)

(356)

878

2,423

2,439

s a l e s r e t u r n s  The allowance for sales returns balance at December 31, 2010
and 2009 contained reserves for items returned prior to year-end, but that were not
completely processed, and therefore had not yet been removed from the allowance
for sales returns balance. If these returns had been fully processed, the allowance for
sales returns balance would have been approximately $0.9 million and $1.4 million on
December 31, 2010 and 2009, respectively. The value of these returned goods was included
in our inventory balance at December 31, 2010 and 2009.

U n i v e r s a l e l e c t r o n i c s i n c . n ot e s t o c o n s o l i d at e d f i n a n c i a l s tat e m e n t s d e c e m b e r 3 1 , 2 0 1 0

s I g n I fI c a n t c u s to M e r s  During the years ended December 31, 2010, 2009 and 2008,
we had net sales to two significant customers, that when combined with their subcontrac-
tors, each totaled to more than 10% of our consolidated net sales as follows:

Y e a r e n d e d d e c e m b e r 3 1 ,

2 0 10

2 0 0 9

2 0 0 8

$ (thousands)

% of Net
Sales

$ (thousands)

% of Net
Sales

$ (thousands)

Customer A

$ 45,367

13.7% $ 66,849

21.1% $ 55,316

Customer B

$ 42,716

12.9% $ 35,382

11.1% $ 38,577

% of Net
Sales

19.3%

13.4%

n ot e 5  inventoRies, net and significant supplieRs

Inventories, net consisted of the following at December 31, 2010 and 2009:

( i n t h o u s a n d s )

Raw materials

Components

Work in process

Finished goods

Reserve for excess and obsolete inventory

2 0 10

2 0 0 9

$ 15,416

2,192

10,806

2,885

38,430

(2,135)

9,384

—

31,121

(1,750)

$ 65,402

$ 40,947

Trade receivables with these customers were the following on December 31, 2010 and 2009:

Inventories, net

Customer A

Customer B

d e c e m b e r 3 1 , 2 0 1 0

d e c e m b e r 3 1 , 2 0 0 9

$ (thousands)

9,481

4,786

% of Accounts
receivable, net

$ (thousands)

% of Accounts
Receivable, net

11.0% $

7,006

5.5% $

6,516

10.9%

10.1%

We had a third customer that accounted for greater than 10% of accounts receivable,

net on December 31, 2010, but did not account for greater than 10% of net sales for the
year then ended. Trade receivables with this customer amounted to $10,458 thousand, or
12.1%, of our accounts receivable, net on December 31, 2010. We had a fourth customer
that accounted for greater than 10% of accounts receivable, net on December 31, 2009, but
did not account for greater than 10% of net sales for the year then ended. Trade receiv-
ables with this customer amounted to $6,866 thousand, or 10.7%, of our accounts receiv-
able, net on December 31, 2009.

The loss of these customers or any other customer, either in the United States or
abroad, due to their financial weakness or bankruptcy, or our inability to obtain orders or
maintain our order volume with them, may have a material adverse effect on our financial
condition, results of operations and cash flows. Please see Note 2 under the captions
Revenue Recognition and Sales Allowances and Financial Instruments for further infor-
mation regarding our accounting principles.

r e s e rv e fo r e xc e s s a n d o b s o l e t e I n v e n to ry  Changes in the reserve for
excess and obsolete inventory during the years ended December 30, 2010, 2009 and 2008
were composed of the following:

( i n t h o u s a n d s )
Description

Reserve for excess and
obsolete inventory:

Balance at
Beginning of
Period

Additions
Charged to
Costs and
Expenses(1)

Sell
Through(2)

Write-offs/
FX Effects

Balance
at End of
Period

Year Ended December 31, 2010

$ 1,750

$ 2,887

$ (1,043)

$ (1,459)

$ 2,135

Year Ended December 31, 2009

$ 1,535

$ 3,340

Year Ended December 31, 2008

$ 1,826

$ 2,409

(865)

$ (2,260)

$ 1,750

(454)

$ (2,246)

$ 1,535

(1) The additions charged to costs and expenses does not include inventory directly written-off that was scrapped during
production totaling $0.6 million, $0.8 million, and $0.9 million for the years ended December 31, 2010, 2009 and 2008.
These amounts are production waste and are not included in management’s reserve for excess and obsolete inventory.
(2) This column represents the gross book value of inventory items sold during the period that had been previously
written down to zero net book value. Sell through is the result of differences between our judgment concerning the
salability of inventory items during the excess and obsolete inventory review process and our subsequent experience.
Please see Note 2 under the caption Inventories for further information regarding our

accounting principles.

U n i v e r s a l e l e c t r o n i c s i n c . n ot e s t o c o n s o l i d at e d f i n a n c i a l s tat e m e n t s d e c e m b e r 3 1 , 2 0 1 0

s I g n I fI c a n t s u P P l I e r s  We purchase integrated circuits, used principally in our
wireless control products, from two main suppliers. The total purchased from one of
these suppliers was greater than 10% of our total inventory purchases. In addition, our
purchases from one component and finished good supplier amounted to greater than 10%
of our total inventory purchases for the year ended December 31, 2010. Our purchases
from three component and finished good suppliers each amounted to greater than 10% of
our total inventory purchases for the years ended December 31, 2009 and 2008.

During the years ended December 31, 2010, 2009 and 2008, the amounts purchased from
these four suppliers were the following:

Y e a r e n d e d d e c e m b e r 3 1 ,

We have identified alternative sources of supply for these integrated circuits, com-
ponents, and finished goods; however, there can be no assurance that we will be able to
continue to obtain these inventory purchases on a timely basis. We generally maintain
inventories of our integrated circuits, which may be utilized to mitigate, but not eliminate,
delays resulting from supply interruptions. An extended interruption, shortage or termi-
nation in the supply of any of the components used in our products, a reduction in their
quality or reliability, or a significant increase in the prices of components, would have an
adverse effect on our operating results, financial condition and cash flows.

n ot e 6  pRopeRty, plant, and equipMent, net

2 0 10

2 0 0 9

2 0 0 8

Property, plant, and equipment, net consisted of the following at December 31, 2010 and 2009:

$
(thousands)

% of Total
Inventory
Purchases

$
(thousands)

% of Total
Inventory
Purchases

$
(thousands)

% of Total
Inventory
Purchases

$ 30,047

15.3% $ 28,290

14.8% $ 28,208

15.2%

Integrated circuit
supplier A

Component and finished

good supplier A

$ 36,966

18.9% $ 44,590

23.3% $ 50,566

27.3%

Component and finished
good supplier B (1)

Component and finished

good supplier C

—

— $ 46,004

24.1% $ 38,088

20.6%

—

— $ 28,879

15.1% $ 18,612

10.0%

The total accounts payable to each of these suppliers on December 31, 2010 and 2009
were the following:

( i n t h o u s a n d s )

Buildings

Tooling

Computer equipment

Software

Furniture and fixtures

Leasehold improvements

Machinery and equipment

Accumulated depreciation

d e c e m b e r 3 1 , 2 0 1 0

d e c e m b e r 3 1 , 2 0 0 9

Construction in progress

2 0 10

2 0 0 9

$ 41,679

—

21,287

3,681

6,489

3,486

14,654

35,348

126,624

(54,868)

71,756

6,341

12,816

2,701

3,066

1,651

2,932

1,482

24,648

(17,868)

6,780

3,210

$ (thousands)

% of Accounts
Payable

$ (thousands)

% of Accounts
Payable

Total property, plant, and equipment, net

$ 78,097

9,990

Integrated circuit
supplier A

Component and finished

good supplier A

Component and finished

good supplier B (1)

Component and finished

good supplier C

3,731

6.7% $

3,613

9.1%

9,172

16.4% $

8,290

21.0%

—

$ 11,887

6,760

30.1%

17.1%

(1) Component and finished good supplier B is Enson Assets Limited and its subsidiaries. See Note 21 for further infor-
mation regarding our acquisition of Enson Assets Limited.

Depreciation expense, including tooling depreciation which is recorded in cost of
goods sold, was $5.9 million, $5.0 million and $4.6 million for the years ended December
31, 2010, 2009 and 2008, respectively.

The net book value of property, plant, and equipment located within the People’s
Republic of China was $70.3 million and $3.6 million on December 31, 2010 and 2009,
respectively.

On December 31, 2010, construction in progress included $2.2 million of build-
ing improvements, $0.8 million of tooling, $1.7 million of internal use software costs
and $1.6 million of machinery and equipment. We expect that approximately 100% of

U n i v e r s a l e l e c t r o n i c s i n c . n ot e s t o c o n s o l i d at e d f i n a n c i a l s tat e m e n t s d e c e m b e r 3 1 , 2 0 1 0

the construction in progress costs will be placed in service during the first and second
quarters of 2011. We will begin to depreciate those assets at that time. On December 31,
2009, construction in progress included $0.6 million of tooling, $2.2 million of internal use
software costs, and $0.3 million of machinery and equipment.

We conducted annual goodwill impairment reviews on December 31, 2010, 2009 and
2008 utilizing significant unobservable inputs (level 3). Based on the analysis performed,
we determined that our goodwill was not impaired.

Please see Note 2 under the captions Goodwill and Fair-Value Measurements for further

Please see Note 2 under the captions Property, plant, and equipment and Long-Lived and

information regarding our accounting principles and the valuation methodology utilized.

Intangible Assets Impairment for further information regarding our accounting principles.

n ot e 7  goodwill and intangible assets, net

g o o dw I l l  Under the accounting guidance, the unit of accounting for goodwill is at a
level of reporting referred to as a “reporting unit.” A reporting unit is either (1) an operat-
ing segment or (2) one level below an operating segment — referred to as a component.
During the fourth quarter 2010, as a result of us flattening our management structure,
we merged our international component with our domestic component. We no longer
have segment management of the international component and the financial results of
our international component are not separate. In addition, these components have similar
economic characteristics. As a result of these changes, our domestic and international
components have been merged into our single operating segment.

The goodwill on December 31, 2010 and changes in the carrying amount of goodwill during
the two years ended December 31, 2010 were the following:

( i n t h o u s a n d s )

Balance at December 31, 2008

Goodwill acquired during the period (1)

Goodwill adjustments (2)

Balance at December 31, 2009

Goodwill acquired during the period (3)

Goodwill adjustments (2)

Balance at December 31, 2010

$ 10,757

2,902

$ 13,724

16,839

(184)

$ 30,379

(1) During the first quarter of 2009, we recognized $2.9 million of goodwill related to the Zilog acquisition. Please refer
to Note 21 for further information about this acquisition.
(2) The adjustment included in international goodwill was the result of fluctuations in the foreign currency exchange
rates used to translate the balance into U.S. dollars.
(3) During the fourth quarter of 2010, we recognized $16.8 million of goodwill related to the Enson Assets Limited
acquisition. Please refer to Note 21 for further information about this acquisition.

I n ta n g I b l e a s s e t s , n e t  The components of intangible assets, net at December 31,
2010 and December 31, 2009 are listed below:

( i n t h o u s a n d s )

Carrying amount(1):

2 0 10

2 0 0 9

Gross

Accumulated
Amortization

Net

Gross

Accumulated
Amortization

Net

Distribution rights (10 years)

$ 384 $

(51)

$ 333

411 $

(54)

$ 357

Patents (10 years)

8,612

(4,589)

4,023

7,810

(3,925)

3,885

Trademark and trade
names (10 years) (2)

Developed and core

2,836

(565)

2,271

840

(441)

399

technology (5 -15 years)(3)

3,500

(438)

3,062

3,500

(204)

3,296

Capitalized software devel-
opment costs (1-2 years)

Customer relationships

(10-15 years)(4)

1,896

(1,165)

731

1,420

(704)

716

26,349

(775)

25,574

3,100

(181)

2,919

Total carrying amount

$ 43,577 $ (7,583)

$ 35,994

$ 17,081 $ (5,509)

$ 11,572

(1) This table excludes the gross value of fully amortized intangible assets totaling $7.6 million and $7.6 million on
December 31, 2010 and 2009, respectively.
(2) As part of our acquisition of Enson Assets Limited during the fourth quarter of 2010, we purchased trademark and
trade names valued at $2.0 million, which are being amortized ratably over ten years. Refer to Note 21 for further
information regarding our purchase of trademark and trade names.
(3) During the first quarter of 2009, we purchased core technology from Zilog Inc. valued at $3.5 million, which is being
amortized ratably over fifteen years. Refer to Note 21 for further information about this acquisition.
(4) During the first quarter of 2009, we purchased customer relationships from Zilog valued at $3.1 million, which are
being amortized ratably over fifteen years. During the fourth quarter of 2010 as part of the Enson Assets Limited
acquisition we purchased customer relationships valued at $23.3 million, which are being amortized ratably over ten
years. Refer to Note 21 for further information regarding our purchase of these customer relationships.

Amortization expense is recorded in selling, general and administrative expenses,
except amortization expense related to capitalized software development costs which is
recorded in cost of sales. Amortization expense by income statement caption during the
years ended December 31, 2010, 2009 and 2008 is the following:

( i n t h o u s a n d s )

Cost of sales

Y e a r e n d e d d e c e m b e r 3 1 ,

2 0 10

2 0 0 9

2 0 0 8

492

450

329

Selling, general and administrative

1,686

1,397

1,192

Total amortization expense

2,178

1,847

1,521

Estimated future amortization expense related to our intangible assets at December 31,
2010, is the following:

( i n t h o u s a n d s )

2011

2012

2013

2014

2015

Thereafter

4,309

4,108

3,843

3,822

3,759

16,153

U n i v e r s a l e l e c t r o n i c s i n c . n ot e s t o c o n s o l i d at e d f i n a n c i a l s tat e m e n t s d e c e m b e r 3 1 , 2 0 1 0

( i n t h o u s a n d s )
Description

December
31, 2010

F a i r V a l u e m e a s u r e m e n t u s i n g

Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)

Significant
Other
Observable
Inputs (Level 2)

Significant
Unobservable
Inputs (Level 3)

Total Gains
(Losses)

Patents, trademarks
and trade names

6,294

—

6,294

(21)

Thirteen patents and eight trademarks with an aggregate carrying amount of $21
thousand were disposed of, resulting in impairment charges of $21 thousand during 2010.
We disposed of patents and trademarks with a carrying amount of $13 thousand in 2009.
We disposed of patents with a carrying amount of $27 thousand, capitalized software
development costs with a carrying value of $46 thousand, and other intangibles with
a carrying amount of $55 thousand in 2008. These assets no longer held any probable
future economic benefits and were written-off.

See Note 2 under the captions Long-Lived and Intangible Assets Impairment,

Capitalized Software Development Costs, and Fair-Value Measurements for further infor-
mation regarding our accounting principles and the valuation methodology utilized.

n ot e 8  notes payable

$ 35,994

Notes payable on December 31, 2010 and 2009 were comprised of the following:

The remaining weighted average amortization period of our intangible assets is 9.6 years.

I n ta n g I b l e s M e a s u r e d at fa I r va lu e o n a n o n r ec u r r I n g b a s I s  We recorded
impairment charges related to our intangible assets of $0.02 million, $0.01 million
and $0.1 million for the years ended December 31, 2010, 2009 and 2008, respectively.
Impairment charges are recorded in selling, general and administrative expenses as a
component of amortization expense, except impairment charges related to capitalized
software development costs which are recorded in cost of sales. The fair value adjust-
ments for intangible assets measured at fair value on a nonrecurring basis during the
year ended December 31, 2010 were the following:

( i n t h o u s a n d s )

U.S. Bank Term Loan Facility(1)

a m o u n t o u t s ta n d i n g

2 0 10

2 0 0 9

$ 35,000

—

(1) Under the U.S. Bank term loan, we may elect to pay interest based on the bank’s prime rate or LIBOR plus a fixed
margin of 1.5%. The applicable LIBOR (1, 3, 6, or 12-month LIBOR) corresponds with the loan period we select. On
December 31, 2010, the 1-month LIBOR plus the fixed margin was approximately 1.8% and the bank’s prime rate was
3.25%. If a LIBOR rate loan is prepaid prior to the completion of the loan period, the Company must pay the bank the
difference between the interest the bank would have earned had prepayment not occurred and the interest the bank
actually earned.

U n i v e r s a l e l e c t r o n i c s i n c . n ot e s t o c o n s o l i d at e d f i n a n c i a l s tat e m e n t s d e c e m b e r 3 1 , 2 0 1 0

Our total interest expense on borrowings was $0.1 million and $0 during the years ended December 31, 2010 and 2009, respectively.

Information about our credit facilities at December 31, 2010 is the following:

Creditor

U.S. Bank

Maturity

Currency

Type

Security

Interest Rate

November 1, 2011

USD

Secured
1-year Term Loan

Sixty-five percent of
Enson Assets Limited(3)

U.S. Bank

November 1, 2012

USD

Secured Revolving
Credit Line

Sixty-five percent of
Enson Assets Limited(3)

Standard Chartered Bank

NA(2)

HKD or
USD

Secured Revolving
Credit Line

Negative pledge on the
fixed assets of our Yang
Zhou factory

Standard Chartered Bank

NA(2)

HKD

Secured Overdraft
Credit Line

Negative pledge on the
fixed assets of our Yang
Zhou factory

BNP Paribas Bank

NA(2)

HKD or
USD

HKD

Unsecured
Revolving Credit
Line

Unsecured
Overdraft Credit
Line

Unsecured
Revolving Credit
Line

We may elect to pay interest based on the bank’s prime
rate or LIBOR plus a fixed margin of 1.5%. The applicable
LIBOR (1, 3, 6, or 12-month LIBOR) corresponds with
the loan period we select for each principle pay-
ment.

We may elect to pay interest based on the bank’s prime
rate or LIBOR plus a fixed margin of 1.8%. The applicable
LIBOR (1, 3, 6, or 12-month LIBOR) corresponds with the
loan period we select.

For Hong Kong dollars we pay interest based on HIBOR
plus a fixed margin of 2.25%, and for U.S. dollars we pay
interest based in LIBOR plus a fixed margin of 2.25%. The
applicable HIBOR or LIBOR (1, 3, 6, or 12-month) cor-
responds with the loan period we select.

Greater of the bank’s prime rate or HIBOR plus 1.0%.
If HIBOR plus 1.0% is greater than the bank’s prime
rate, interest is calculated based on the HIBOR plus
a fixed margin of 2.75%. The applicable HIBOR (1, 3,
6, or 12-month) corresponds with the loan period we
select.

Under this revolving credit line we pay interest based
on the bank’s cost of funds plus a fixed margin of
1.5%.

The rate at which we accrue interest is based on
the greater of the bank’s prime rate or cost of
funds.

We pay interest based on the bank’s COF plus a fixed
margin of 1.65%

Total Available
(USD)(1)

Amount
Outstanding

Funds
Available

35,000

—

20,000

—

20,000

6,433

—

6,433

901

—

901

3,602

—

3,602

257

—

257

2,573

—

2,573

(1) Amounts available for borrowing are reduced by the balance of any outstanding import letters of credit and are subject to certain quarterly financial covenants related to our cash flow, fixed charges, quick ratio, and net income.
(2) These credit facilities do not have a maturity date, but are reviewed by each respective bank on at least an annual basis. During these annual reviews, each bank may make changes to the amount available for borrowing as they deem
appropriate.
(3) The U.S. Bank 1-year term loan and revolving credit line are secured by $82.9 million of Enson Asset Limited’s net assets.

u . s . b a n k c r e d I t fac I l I t y  On November 1, 2010, we amended and restated our
existing credit agreement with U.S. Bank. The amendments added a new $35.0 million
secured term loan facility (“Term Loan”) for the purpose of financing a portion of our
acquisition of Enson Assets Limited. In addition, our existing $15.0 million unsecured
revolving credit line with U.S. Bank (“Credit Facility”) became a secured facility, the
amount available for borrowing was increased to $20.0 million, and the expiration date
was extended from October 31, 2011 to November 1, 2012.

s ec u r e d 1 -y e a r t e r M loa n  The Company’s new term loan may only be utilized to
finance the acquisition of Enson and to pay related transaction costs, fees, and expenses.
The minimum principal payments for the term loan are $2.2 million each quarter. The first
principal and interest payment was made on January 5, 2011. The remaining principal and
interest payments are due on April 5, July 5, and October 5 of 2011. In addition, a final pay-
ment equal to the unpaid principal balance plus accrued interest is due on the term loan
maturity date. The term loan maturity date is November 1, 2011. Amounts paid or prepaid
on the term loan may not be re-borrowed.

s ec u r e d r e vo lv I n g c r e d I t l I n e  Under the U.S. Bank secured revolving credit
line, we may elect to pay interest based on the bank’s prime rate or LIBOR plus a fixed
margin of 1.8%. The applicable LIBOR (1, 3, 6, or 12-month LIBOR) corresponds with the
loan period we select. At December 31, 2010, the 12-month LIBOR plus the fixed margin
was 2.6% and the bank’s prime rate was 3.25%. If a LIBOR rate loan is prepaid prior to the
completion of the loan period, we must pay the bank the difference between the inter-
est the bank would have earned had prepayment not occurred and the interest the bank
actually earned. We may prepay prime rate loans in whole or in part at any time without a
premium or penalty.

Our debt covenants require that the percentage of our funded debt to EBITDA remain

U n i v e r s a l e l e c t r o n i c s i n c . n ot e s t o c o n s o l i d at e d f i n a n c i a l s tat e m e n t s d e c e m b e r 3 1 , 2 0 1 0

Asset Limited’s EBITDA within the calculation. We were not in breach of any other debt
covenants on December 31, 2010.

ot h e r c r e d I t fac I l I t I e s  The credit facilities other than the U.S. Bank facilities were
obtained as a result of the Enson Assets Limited acquisition.

n ot e 9  incoMe taxes

During 2010, 2009 and 2008, pre-tax income was attributed to the following jurisdictions:

( i n t h o u s a n d s )

Domestic operations

Foreign operations

Total

Y e a r e n d e d d e c e m b e r 3 1 ,

2 0 10

2 0 0 9

2 0 0 8

$ 10,878

$ 17,060

$ 16,650

10,980

5,117

7,439

$ 21,858

$ 22,177

$ 24,089

The provision for income taxes charged to operations for the twelve months ended
December 31, 2008, 2009, and 2010 were the following:

( i n t h o u s a n d s )

Current tax expense:

U.S. federal

State and local

Foreign

Total current

Deferred tax (benefit) expense:

U.S. federal

State and local

Foreign

Total deferred

Y e a r e n d e d d e c e m b e r 3 1 ,

2 0 10

2 0 0 9

2 0 0 8

3,814

7,003

5,407

391

3,483

7,688

(40)

(294)

(577)

(911)

631

904

8,538

(918)

(376)

258

(1,036)

1,230

2,205

8,842

206

(627)

(138)

(559)

Total provision for income taxes

6,777

7,502

8,283

U n i v e r s a l e l e c t r o n i c s i n c . n ot e s t o c o n s o l i d at e d f i n a n c i a l s tat e m e n t s d e c e m b e r 3 1 , 2 0 1 0

Net deferred tax assets were comprised of the following on December 31, 2010 and 2009:

2 0 10

2 0 0 9

( i n t h o u s a n d s )

Y e a r e n d e d d e c e m b e r 3 1 ,

2 0 10

2 0 0 9

2 0 0 8

( i n t h o u s a n d s )

Deferred tax assets:

Inventory reserves

Allowance for doubtful accounts

Capitalized research costs

Capitalized inventory costs

Net operating losses

Amortization of intangibles

Accrued liabilities

Income tax credits

Depreciation

Stock-based compensation

Other

Total deferred tax assets

Deferred tax liability:

Depreciation

Amortization of intangible assets

Acquired intangible assets

Other

Total deferred tax liabilities

Net deferred tax assets before valuation allowance

Less: Valuation allowance

Net deferred tax assets

605

302

155

661

1,764

—

3,817

2,058

—

3,210

381

272

154

105

768

2,046

572

1,155

1,763

991

2,769

450

12,953

11,045

(5,273)

(3,565)

(121)

(1,219)

(10,178)

2,775

(139)

—

(154)

(495)

(649)

10,396

(179)

2,636

$ 10,217

At December 31, 2010 and 2009, $0.1 million and $0.5 million, respectively, of current

deferred tax liabilities were recorded within other accrued expenses (see Note 11). The
deferred tax valuation allowance was $0.1 million and $0.2 million on December 31, 2010
and 2009, respectively.

The provision for income taxes differs from the amount of income tax determined by

applying the applicable U.S. statutory federal income tax rate to pre-tax income from
operations as a result of the following:

Tax provision at statutory U.S. rate

7,650

7,764

8,431

Increase (decrease) in tax provision resulting from:

State and local taxes, net

Foreign tax rate differential

Nondeductible items

Federal research and development credits

Settlements

Other

Tax provision

(484)

231

(723)

(110)

150

166

(36)

682

(272)

(449)

(353)

392

(154)

251

(424)

—

(213)

6,777

7,502

8,283

At December 31, 2010, we had state Research and Experimentation (“R&E”) income tax

credit carry forwards of approximately $1.9 million. The state R&E income tax credits do
not have an expiration date.

At December 31, 2010, we had federal, state and foreign net operating losses of
approximately $4.1 million, $5.0 million and $0.2 million, respectively. All of the federal
and state net operating loss carry forwards were acquired as part of the acquisition of
SimpleDevices. The federal and state net operating loss carry forwards begin to expire
during 2020 and 2016, respectively. Approximately $0.2 million of the foreign net operating
losses will begin to expire in 2020.

Internal Revenue Code Section 382 places certain limitations on the annual amount of

net operating loss carry forwards that may be utilized if certain changes to a company’s
ownership occur. Our acquisition of SimpleDevices was a change in ownership pursuant
to Section 382 of the Internal Revenue Code, and the federal and state net operating loss
carry forwards of SimpleDevices are limited but considered realizable in future peri-
ods. The annual federal limitation is approximately $0.6 million for 2010 and thereafter.
California has suspended utilization of net operating losses for 2010 and 2011.

At December 31, 2010, we believed it was more likely than not that certain deferred tax

assets related to the impairment of our investment in a private company (a capital asset)
would not be realized due to uncertainties as to the timing and amounts of future capital
gains. Accordingly, a valuation allowance of approximately $0.1 million was recorded as of
December 31, 2010 and 2009. Additionally, we recorded $20 thousand and $0.1 million of
various state and foreign valuation allowances at December 31, 2010 and 2009.

During the years ended December 31, 2010, 2009 and 2008 we recognized a credit to
paid-in capital and a reduction to income taxes payable of $0.2 million, $0.4 million and
$0.4 million, respectively, related to the tax benefit from the exercises of non-qualified
stock options and vesting of restricted stock under our stock-based incentive plans.

During 2010, we settled an audit in France by the French Tax Authorities for fiscal
years 2005 and 2006 which resulted in the reversal of $0.1 million of previously recorded
uncertain tax positions being credited into income. During 2009, we settled an audit in the
Netherlands by the Dutch Tax Authorities for the fiscal years 2002 through 2006, which
resulted in the reversal of $0.4 million of previously recorded uncertain tax positions
being credited into income.

The undistributed earnings of our foreign subsidiaries are considered to be indefinitely

reinvested. Accordingly, no provision for U.S. federal and state income taxes or foreign
withholding taxes has been provided on such undistributed earnings. Determination of the
potential amount of unrecognized deferred U.S. income tax liability and foreign withhold-
ing taxes is not practicable because of the complexities associated with its hypothetical
calculation; however, unrecognized foreign tax credits would be available to reduce some
portion of the U.S. liability.

u n c e rta I n ta x P o s I t I o n s  At December 31, 2010 and 2009, we had unrecognized tax
benefits of approximately $5.6 million and $2.8 million, including interest and penalties,
respectively. In accordance with accounting guidance, we have elected to classify interest
and penalties as components of tax expense. Interest and penalties were $0.2 million,
$0.2 million and $1.2 million at December 31, 2010, 2009 and 2008, respectively. Interest
and penalties are included in the unrecognized tax benefits.

U n i v e r s a l e l e c t r o n i c s i n c . n ot e s t o c o n s o l i d at e d f i n a n c i a l s tat e m e n t s d e c e m b e r 3 1 , 2 0 1 0

Our gross unrecognized tax benefits at December 31, 2010, 2009 and 2008, and the

changes during those years then ended, are the following:

( i n t h o u s a n d s )

Beginning balance

2 0 10

2 0 0 9

2 0 0 8

2,580

7,504

7,817

Additions as a result of tax provisions taken dur-

ing the current year

Subtractions as a result of tax provisions taken

during the prior year

Foreign currency translation

Lapse in statute of limitations

Settlements

Acquisition

Ending balance

159

(123)

174

(317)

(99)

3,037

324

(82)

146

(80)

(5,232)

—

404

—

(410)

(307)

—

5,411

2,580

7,504

Approximately $5.1 million and $2.3 million of the total amount of gross unrecognized

tax benefits at December 31, 2010 and 2009, respectively, would affect the annual effec-
tive tax rate, if recognized. The increase of $2.8 million in unrecognized tax benefits at
December 31, 2010 is due to liabilities recorded by Enson Assets Limited. Furthermore,
we are unaware of any positions for which it is reasonably possible that the total amounts
of unrecognized tax benefits will significantly increase within the next twelve months. We
anticipate a decrease in gross unrecognized tax benefits of approximately $0.3 million
within the next twelve months based on federal, state, and foreign statute expirations in
various jurisdictions.

We file income tax returns in the U.S. federal jurisdictions and in various state and for-
eign jurisdictions. At December 31, 2010 the open statutes of limitations for our significant
tax jurisdictions are the following: federal and state are 2006 through 2010 and non-U.S.
are 2002 through 2010. At December 31, 2010, our gross unrecognized tax benefits of $5.6
million are classified as long term because we do not anticipate payment of cash related
to those unrecognized tax benefits within one year.

Please see Note 2 under the caption Income Taxes for further information regarding

our accounting principles.

U n i v e r s a l e l e c t r o n i c s i n c . n ot e s t o c o n s o l i d at e d f i n a n c i a l s tat e m e n t s d e c e m b e r 3 1 , 2 0 1 0

n ot e 1 0  accRued coMpensation

n ot e 1 2  leases

The components of accrued compensation on December 31, 2010 and 2009 are listed
below:

We lease land, office and warehouse space, and certain office equipment under operating
leases that expire at various dates through November 30, 2060.

( i n t h o u s a n d s )

Accrued social insurance(1)

Other accrued compensation

Total accrued compensation

2 0 10

2 0 0 9

Rent expense for our operating leases was $2.5 million, $2.5 million and $2.6 million

$ 20,360

—

for the years ended December 31, 2010, 2009 and 2008, respectively.

10,274

4,619

$ 30,634

4,619

The following table summarizes future minimum non-cancelable operating lease pay-

ments with initial terms greater than one year at December 31, 2010:

(1) Effective January 1, 2008, the Chinese Labor Contract Law was enacted in the People’s Republic of China (“PRC”).
This law mandated that PRC employers remit the applicable social insurance payments to their local government.
Social insurance is comprised of various components such as pension, medical insurance, job injury insurance,
unemployment insurance, and a housing assistance fund, and is administered in a manner similar to social security
in the United States. This amount represents our estimate of the amounts due to the PRC government for social
insurance on December 31, 2010.

n ot e 1 1  otheR accRued expenses

( i n t h o u s a n d s )

Y e a r e n d i n g d e c e m b e r 3 1

2011

2012

2013

2014

Thereafter

The components of other accrued expenses on December 31, 2010 and 2009 are listed
below:

Total operating lease commitments

a m o u n t

1,883

1,038

528

—

3,509

( i n t h o u s a n d s )

Accrued freight

Accrued professional fees

Accrued advertising and marketing

Deferred income taxes

Interest

Accrued third-party commissions

Accrued sales taxes and VAT

Tooling

Utilities

Amount due to Enson Asset Limited shareholders

Sales tax refundable to customers

Legal settlement

Other

2 0 10

2 0 0 9

1,350

1,525

1,158

467

252

678

1,567

340

5,000

—

2,189

1,512

589

483

—

301

845

—

454

575

2,204

Total other accrued expenses

$ 13,157

8,539

n o n - l e v e l r e n t s a n d l e a s e I n c e n t I v e s  Some of our leases are subject to rent
escalations. For these leases, we recognize rent expense for the total contractual obliga-
tion utilizing the straight-line method over the lease term, ranging from 12 to 73 months.
The related short term liability is recorded in other accrued expenses (see Note 11) and
the related long term liability is recorded in other long term liabilities. The total liability
related to rent escalations was $0.03 million at both December 31, 2010 and 2009.

The lease agreement for our corporate headquarters contains an allowance for tenant

improvements of $0.4 million, which was paid to us upon completion of the renovation
in 2008. This tenant improvement allowance is being amortized as a credit against rent
expense over the 73 month term of the lease, which began on January 1, 2006.

The lease agreement for our customer call center contains an allowance for tenant
improvements of $0.2 million, which was paid to us upon completion of the renovation
in 2007. This tenant improvement allowance is being amortized as a credit against rent
expense over the 48 month term of the lease, which began on June 1, 2007.

r e n ta l c o s t s d u r I n g c o n s t r u c t I o n  Rental costs associated with building and
ground operating leases incurred during a construction period are expensed.

P r e Pa I d l e a s e s  Private ownership of land in the People’s Republic of China (“PRC”)
is not allowed. All land in the PRC is owned by the government and cannot be sold to any
individual or entity. Land use rights are allocated for free, granted or transferred for
consideration by the PRC State Land Administration Bureau or its authorized branches.
Our subsidiary Enson Assets Limited, which we acquired on November 4, 2010, operates
two factories within the PRC on which the land is leased from the government. These land
leases were prepaid to the PRC government at the time Enson occupied the land. We have
obtained land-use right certificates for the land pertaining to the two factories. In addi-
tion, Enson has obtained government approval to develop a parcel of land, for which we
are in the process of obtaining a land-use right certificate. We have also prepaid the lease
for this parcel of land.

The first factory is located in the Guang Dong Province, PRC within the city of Guang
Zhou. The unamortized value of this prepaid lease is $1.7 million on December 31, 2010,
and will be amortized on a straight-line basis over the remaining term of approximately
34 years. The buildings located on this land have a net book value of $16.6 million on
December 31, 2010 and are being amortized over an estimated remaining life of approxi-
mately 21 years.

The second factory is located in Jiang Su Province, PRC within the city of Yang Zhou.
The remaining net book value of this prepaid lease is $3.0 million on December 31, 2010,
and will be amortized on a straight-line basis over the remaining term of approximately
47 years. The buildings located on this land have a net book value of $18.5 million on
December 31, 2010 and are being amortized over an estimated remaining life of 21 years.
In addition, the facility under construction located on this land has a net book value of $2.2
million on December 31, 2010 and will be amortized over an estimated remaining life of
25 years upon completion. We estimate this construction-in-process will be placed into
service during the first quarter of 2011.

n ot e 1 3  coMMitMents and contingencies

I n d e M n I fI c at I o n s  We indemnify our directors and officers to the maximum
extent permitted under the laws of the State of Delaware and we have entered into
Indemnification Agreements with each of our directors and executive officers. In addi-
tion, we insure our individual directors and officers against certain claims and attorney’s
fees and related expenses incurred in connection with the defense of such claims. The
amounts and types of coverage may vary from period to period as dictated by market

U n i v e r s a l e l e c t r o n i c s i n c . n ot e s t o c o n s o l i d at e d f i n a n c i a l s tat e m e n t s d e c e m b e r 3 1 , 2 0 1 0

conditions. Management is not aware of any matters that require indemnification of its
officers or directors.

fa I r P r I c e P r ov I s I o n s a n d ot h e r a n t I -ta k eov e r M e a s u r e s  Our Restated
Certificate of Incorporation, as amended, contains certain provisions restricting business
combinations with interested stockholders under certain circumstances and imposing
higher voting requirements for the approval of certain transactions (“fair price” provi-
sions). Any of these provisions may delay or prevent a change in control. The “fair price”
provisions require that holders of at least two-thirds of the outstanding shares of voting
stock approve certain business combinations and significant transactions with interested
stockholders.

P r o d u c t wa r r a n t I e s  Changes in the liability for product warranty claim costs are
presented below:

( i n t h o u s a n d s )
Description

Year Ended December 31, 2010

Year Ended December 31, 2009

Year Ended December 31, 2008

Balance at
Beginning of
Period

178

Accruals for
Warranties
Issued During
the Period(1)

Settlements (in
Cash or in Kind)
During the
Period

Balance at End
of Period

(4)

(31)

(15)

(4)

(57)

l I t I g at I o n  On December 22, 2010, Patent Group LLC as “Relator” filed in the U.S.
District Court for the Eastern District of Texas a Qui Tam complaint against us and others
under Section 292, Title 35 of the United Stated Code, seeking recovery for penalties payable
to the United States claiming that we intentionally falsely marked certain of our remote
control products with expired or non-applicable patents. We have not yet answered this
complaint, however we intend to do so denying all of Patent Group’s material allegations. In
addition, the parties are engaged in preliminary settlement discussions.

There are no other material pending legal proceedings, other than immaterial mat-

ters that are incidental to the ordinary course of our business, to which we or any of our
subsidiaries is a party or of which our respective property is the subject. We do not believe
that any of the claims made against us in any of the pending matters have merit and we
intend to vigorously defend ourselves against them.

lo n g -t e r M I n c e n t I v e P l a n  During the second quarter of 2007, we adopted an
Executive Long-Term Incentive Plan (“ELTIP”). The ELTIP provided a bonus pool for our
executive management team contingent on achieving certain performance goals during a

U n i v e r s a l e l e c t r o n i c s i n c . n ot e s t o c o n s o l i d at e d f i n a n c i a l s tat e m e n t s d e c e m b e r 3 1 , 2 0 1 0

two-year performance period commencing on January 1, 2007 and ending on December
31, 2008. The performance goals were based on the compound annual growth rate of net
sales and earnings per diluted share during the performance period. The ELTIP had a
maximum pay out of $12 million if the highest performance goals were met. Management
did not earn a bonus under the ELTIP based on our results through December 31, 2008.
As a result, we lowered our ELTIP accrual from $1.0 million at December 31, 2007 to $0 at
December 31, 2008. This adjustment resulted in a $1.0 million benefit to pre-tax income
for the twelve months ended December 31, 2008.

In light of the ELTIP results, during the first quarter of 2009 our Compensation
Committee awarded a discretionary cash bonus of $1.0 million, to be paid out quarterly
during 2009 and 2010. The Compensation Committee made this decision after review-
ing the economic environment and our relative financial and operating performance.
The Compensation Committee believes this bonus is in alignment with our stockholders’
interests as well as our performance, alignment and retention objectives. Each partici-
pant’s earned award vested in eight equal quarterly installments beginning March 31,
2009 and ending December 31, 2010. Approximately $0.5 million and $0.3 million was paid
and expensed, respectively, during each of the years ended December 31, 2010 and 2009.
At December 31, 2010 and 2009, $0 and $0.3 million, respectively, have been included in
accrued compensation for this discretionary bonus.

n o n - Q ua l I fI e d d e fe r r e d c o M P e n s at I o n P l a n  We have adopted a non-qualified
deferred compensation plan for the benefit of a select group of highly compensated
employees. For each plan year a participant may elect to defer compensation in fixed
dollar amounts or percentages subject to the minimums and maximums established
under the plan. Generally, an election to defer compensation is irrevocable for the entire
plan year. A participant is always fully vested in their elective deferrals and may direct
these funds into various investment options available under the plan. These investment
options are utilized for measurement purposes only, and may not represent the actual
investment made by us. In this respect, the participant is an unsecured creditor of ours. At
December 31, 2010, the amounts deferred under the plan were immaterial to our financial
statements.

d e fI n e d b e n e fI t P l a n  Our subsidiary in India maintains a defined benefit pension
plan (“India Plan”) for local employees, which is consistent with local statutes and prac-
tices. The pension plan was adequately funded on December 31, 2010 based on its latest
actuarial report. The India Plan has an independent external manager that advises us of
the appropriate funding contribution requirements to which we comply. At December 31,

2010, approximately 20 percent of our India subsidiary employees had qualified for eligibil-
ity. Generally, an employee must be employed by our India subsidiary for a minimum of
five years before becoming eligible. At the time of eligibility we are liable, on termination,
resignation or retirement, to pay the employee an amount equal to fifteen days salary for
each full year of service completed. The total amount of liability outstanding at December
31, 2010 and 2009 for the India Plan is not material. During the years ended December 31,
2010 and 2009, the net periodic benefit costs were also not material.

n ot e 1 4  tReasuRy stock

During the years ended December 31, 2010, 2009 and 2008, we repurchased 505,692,
404,643 and 1,118,318 shares of our common stock at a cost of $10.1 million, $7.7 mil-
lion and $26.7 million, respectively. Repurchased shares are recorded as shares held in
treasury at cost. We generally hold these shares for future use as management and the
Board of Directors deem appropriate, which has included compensating our outside direc-
tors. During the years ended December 31, 2010, 2009 and 2008, we issued 29,583, 25,000
and 23,438 shares from treasury, respectively, to outside directors for services performed
(see Note 16).

On February 11, 2010, our Board of Directors authorized management to continue
repurchasing up to an additional 1,000,000 shares of our issued and outstanding com-
mon stock. Repurchases may be made whenever we deem a repurchase is a good use of
our cash and the price to be paid is at or below a threshold approved by our Board. As of
December 31, 2010, we have repurchased 473,126 shares of our common stock under this
authorization, leaving 526,874 shares available for repurchase.

s to c k awa r d s to o u t s I d e d I r ec to r s  We issue restricted stock awards to our
outside directors as compensation for services performed. We grant each of our outside
directors 5,000 shares of our common stock annually each July 1st. When an additional
outside director is appointed to our Board of Directors, they receive a prorated num-
ber of shares based on the number of months they will serve during the initial year.
Compensation expense related to restricted stock awards is based on the grant date fair
value the shares awarded. The fair value of these shares is amortized on a straight-line
basis over the requisite service period of one year (see Note 2 under the caption Stock-
Based Compensation and Note 16). The shares are issued from treasury stock using a
first-in-first-out cost basis, which amounted to $0.4 million and $0.4 million in 2010 and
2009, respectively.

n ot e 1 5  business segMent and foReign opeRations

r e P o rta b l e s eg M e n t  An operating segment, in part, is a component of an enter-
prise whose operating results are regularly reviewed by the chief operating decision
maker to make decisions about resources to be allocated to the segment and assess its
performance. Operating segments may be aggregated only to a limited extent. We operate
in a single operating and reportable segment.

Our chief operating decision maker, the Chief Executive Officer, reviews financial
information presented on a consolidated basis, accompanied by disaggregated informa-
tion about revenues for purposes of making operating decisions and assessing financial
performance. Accordingly, we consider ourselves to be a single reporting segment.

U n i v e r s a l e l e c t r o n i c s i n c . n ot e s t o c o n s o l i d at e d f i n a n c i a l s tat e m e n t s d e c e m b e r 3 1 , 2 0 1 0

fo r e I g n o P e r at I o n s  Our net sales to external customers by geographic area for
the years ended December 31, 2010, 2009 and 2008 were the following:

( i n t h o u s a n d s )

Net sales:

United States

International:

Peoples Republic of China

United Kingdom

Argentina

Australia

Brazil

Canada

France

Germany

Israel

Italy

Japan

Korea

Malaysia

Netherlands

Portugal

Singapore

Spain

South Africa

Taiwan

Thailand

All other

2 0 10

2 0 0 9

2 0 0 8

$ 119,284

$ 142,876

$ 114,429

34,222

41,575

4,791

1,451

1,791

13,419

3,768

7,996

3,161

2,474

10,724

6,325

1,806

2,094

4,641

16,419

4,480

5,900

12,426

10,582

22,451

27,791

21,756

1,544

1,558

1,904

11,586

3,603

6,752

1,941

3,471

3,162

6,771

1,439

755

4,167

8,505

3,929

6,495

18,315

7,939

31,291

34,482

21,239

3,299

4,190

1,497

11,064

5,359

7,771

2,633

2,608

3,252

3,824

2,713

975

1,780

9,433

7,523

5,827

19,346

4,235

19,621

Total international

Total net sales

212,496

174,674

172,671

$ 331,780

$ 317,550

$ 287,100

Specific identification of the customer location was the basis used for attributing rev-

enues from external customers to individual countries.

U n i v e r s a l e l e c t r o n i c s i n c . n ot e s t o c o n s o l i d at e d f i n a n c i a l s tat e m e n t s d e c e m b e r 3 1 , 2 0 1 0

Long-lived asset information on December 31, 2010, 2009 and 2008 were the following:

Long-lived tangible assets:

United States

Peoples Republic of China

All other countries

Total

2 0 10

2 0 0 9

2 0 0 8

4,654

4,899

4,251

75,053

3,854

3,677

2,558

3,150

1,894

$ 83,561

$ 11,134

9,295

n ot e 1 6  stock-based coMpensation

Stock-based compensation expense for each employee and director is presented in the
same income statement caption as their cash compensation. Stock-based compensation
expense by income statement caption for the years ended December 31, 2010, 2009 and
2008 is the following:

( i n t h o u s a n d s )

Cost of sales

Research and development

Selling, general and administrative

2 0 10

452

4,459

2 0 0 9

2 0 0 8

434

3,845

356

3,870

Total stock-based compensation expense

4,966

4,312

4,243

Selling, general and administrative expense includes pre-tax stock-based compensa-

tion related to stock option awards granted to outside directors of $0.3 million, $0.3 mil-
lion, and $0.2 million for the years ended December 31, 2010, 2009, and 2008, respectively.
Selling, general and administrative expense includes stock-based compensation related
to restricted stock awards granted to outside directors of $0.6 million, $0.5 million, $0.6
million for the years ended December 31, 2010, 2009, and 2008, respectively.

The income tax benefit from the recognition of stock-based compensation was $1.7
million, $1.5 million, and $1.5 million for the years ended December 31, 2010, 2009, and
2008, respectively.

s to c k o P t I o n s  During the year ended December 31, 2010 the Compensation
Committee and Board of Directors granted 119,900 stock options to our employees with
an aggregate grant date fair value of $1.3 million under various stock incentive plans. The
stock options granted to employees during 2010 consisted of the following:
( i n t h o u s a n d s , e x c e p t s h a r e a m o u n t s )

Stock Option Grant Date

January 25, 2010

July 14, 2010

Number
of Shares
Underlying
Options

99,900

20,000

Grant Date Fair
Value

Vesting Period

1,134

4 -Year Vesting Period (0% each quarter during
year 1 and 8.33% each quarter during years 2-4)

164

4 -Year Vesting Period (25% each quarter)

119,900

1,298

During the year ended December 31, 2010 we recognized $0.3 million of pre-tax stock-

based compensation expense related to our 2010 stock option grants.

The assumptions we utilized in the Black-Scholes option pricing model and the result-

ing weighted average fair value of stock option grants were the following:

d e c e m b e r 3 1 , ( 1 )

2 0 10

2 0 0 9

2 0 0 8

Weighted average fair value of grants

10.83

7.20

9.08

Risk-free interest rate

Expected volatility

Expected life in years

2.27%

50.07%

4.95

1.95%

49.54%

4.85

2.75%

40.85%

4.74

(1) The weighted average fair value of grants was calculated utilizing the stock options granted during each

respective period.

We recognize the compensation expense related to stock option awards net of esti-
mated forfeitures over the service period of the award, which is generally the option vest-
ing term of three to four years. On December 31, 2010, 2009, and 2008, we estimated the
annual forfeiture rate for our executives and board of directors will be 2.53%, 2.65%, and
2.66%, respectively, based upon our historical forfeitures. On December 31, 2010, 2009,
and 2008, we estimated the annual forfeiture rate for our non-executive employees to be
6.59%, 6.51%, and 6.31%, respectively, based on our historical forfeitures.

U n i v e r s a l e l e c t r o n i c s i n c . n ot e s t o c o n s o l i d at e d f i n a n c i a l s tat e m e n t s d e c e m b e r 3 1 , 2 0 1 0

Stock option activity during the years ended December 31, 2010, 2009 and 2008 were the following:

2 0 10

2 0 0 9

2 0 0 8

Number of
Options (in
000’s)

Weighted-
Average
Exercise Price

Weighted-
Average
Remaining
Contractual
Term (in
years)

Aggregate
Intrinsic Value
(in 000’s)

Number of
Options (in
000’s)

Weighted-
Average
Exercise Price

Weighted-
Average
Remaining
Contractual
Term (in
years)

Aggregate
Intrinsic Value
(in 000’s)

Number of
Options (in
000’s)

Weighted-
Average
Exercise Price

Weighted-
Average
Remaining
Contractual
Term (in
years)

Aggregate
Intrinsic Value
(in 000’s)

Outstanding at beginning of the year

1,693

Granted

Exercised

Forfeited/cancelled/ expired

Outstanding at end of year

Vested and expected to vest at end

of year

Exercisable at end of year

120

(121)

(167)

1,525

1,503

1,140

$ 18.37

23.80

16.20

20.16

$ 18.78

$ 18.72

$ 17.89

$ 1,238

1,729

253

(278)

(11)

5.37

$ 14,669

1,693

5.32

4.46

$ 14,547

$ 11,983

1,655

1,239

$ 17.64

16.26

11.75

22.43

$ 18.37

$
18.30

$ 17.33

$ 2,320

$ 9,677

$
9,532

$ 8,034

5.40

5.33

4.30

1,739

140

(114)

(36)

1,729

1,688

1,267

$ 16.83

23.46

10.19

24.70

$ 17.64

$ 17.42

$ 15.34

$ 1,562

5.06

$ 3,045

4.98

3.97

$ 3,045

$ 3,044

The aggregate intrinsic value in the table above represents the total pre-tax value (the
difference between our closing stock price on the last trading day of 2010, 2009 and 2008
and the exercise price, multiplied by the number of in-the-money options) that would have
been received by the option holders had they all exercised their options on December 31,
2010, 2009 and 2008. This amount will change based on the fair market value of our stock.
The actual intrinsic value of stock options exercised in 2010, 2009 and 2008 was $1.2 mil-
lion, $2.3 million and $1.6 million, respectively.

r e s t r I c t e d s to c k  During the year ended December 31, 2010, the Compensation
Committee and Board of Directors granted 45,500 restricted stock awards to our employees
with an aggregate grant date fair value of $1.1 million under the 2006 Stock Incentive Plan.
The restricted stock awards granted to employees during 2010 consisted of the following:

( i n t h o u s a n d s , e x c e p t s h a r e a m o u n t s )

Restricted Stock Grant Date

Number of
Shares Granted

Grant Date Fair
Value

Vesting Period

During 2010, 2009 and 2008, there were no modifications made to outstanding stock

January 25, 2010

45,500

1,133

4 -Year Vesting Period (0% each quarter during
year 1 and 8.33% each quarter during years 2-4)

options.

Cash received from option exercises for the years ended December 31, 2010, 2009 and

In addition to the grants to employees, 30,000 shares of restricted stock with a grant

2008 was $2.0 million, $3.3 million and $1.2 million, respectively. The actual tax benefit
realized from option exercises of the share-based payment awards was $0.2 million,
$0.4 million and $0.4 million for the years ended December 31, 2010, 2009 and 2008,
respectively.

As of December 31, 2010, we expect to recognize $2.2 million of total unrecognized
pre-tax stock-based compensation expense related to non-vested stock options over a
remaining weighted-average life of 2.3 years.

During the year ended December 31, 2010, we recognized $0.5 million of pre-tax stock-

based compensation expense related to our 2010 restricted stock grants.

U n i v e r s a l e l e c t r o n i c s i n c . n ot e s t o c o n s o l i d at e d f i n a n c i a l s tat e m e n t s d e c e m b e r 3 1 , 2 0 1 0

Non-vested restricted stock award activity during the years ended December 31, 2010,

2009 and 2008 (including restricted stock issued to directors as described in Note 14)
were the following:

Non-vested at December 31, 2007

Granted

Vested

Forfeited

Non-vested at December 31, 2008

Granted

Vested

Forfeited

Non-vested at December 31, 2009

Granted

Vested

Forfeited

Non-vested at December 31, 2010

Shares Granted
(in 000’s)

142

(62)

—

326

(136)

—

280

(160)

(1)

195

Weighted-
Average Grant
Date Fair Value

36.25

23.15

25.15

—

23.23

15.58

18.66

—

16.54

21.58

18.00

16.61

s to c k I n c e n t I v e P l a n s  Our active stock-based incentive plans include those
adopted in 1993, 1996, 1998, 1999, 2002, 2003, 2006 and 2010 (“stock incentive plans”).
Under the stock incentive plans, we may grant stock options, stock appreciation rights,
restricted stock units, performance stock units, or any combination thereof for a period of
ten years from the approval date of each respective plan, unless the plan is terminated by
resolution of our Board of Directors. No stock appreciation rights or performance stock
units have been awarded under our stock incentive plans. Only directors and employees
meeting certain employment qualifications are eligible to receive stock-based awards.

The grant price of stock options and restricted stock awards granted under our stock

incentive plans is the average of the high and low trades of our stock on the grant date.
We prohibit the re-pricing or backdating of stock options. Our stock options become
exercisable ratably, on an annual or quarterly basis, over four years. Stock options have a
maximum ten-year term. Restricted stock awards vest in various proportions over a three
or four year time period.

Detailed information regarding our active stock incentive plans is as follows:

Name

Approval Date

Initial Shares
Available for
Grant Under the
Plan

Remaining Shares
Available for Grant
Under the Plan

Outstanding
Shares Granted
Under the Plan

1993 Stock Incentive Plan

1/19/1993

400,000

17.30

1996 Stock Incentive Plan

12/1/1996

800,000

As of December 31, 2010, we expect to recognize $2.9 million of total unrecognized
pre-tax stock-based compensation expense related to non-vested restricted stock awards
over a weighted-average life of 1.7 years. See Note 2 under the caption Stock-Based
Compensation for further information regarding our accounting principles.

1998 Stock Incentive Plan

5/27/1998

630,000

1999 Stock Incentive Plan

1/27/1999

630,000

1999A Stock Incentive Plan

10/7/1999

1,000,000

2002 Stock Incentive Plan

2/5/2002

1,000,000

2003 Stock Incentive Plan

6/18/2003

1,000,000

—

481

5,563

17,400

20,834

55,281

6,510

80,997

316,720

569,470

650,491

—

1,090,075

1,717,703

2006 Stock Incentive Plan

6/13/2006

1,000,000

84,031

2010 Stock Incentive Plan

6/15/2010

1,000,000

Significant option groups outstanding at December 31, 2010 and the related weighted

In the computation of diluted earnings per common share for the years ended

U n i v e r s a l e l e c t r o n i c s i n c . n ot e s t o c o n s o l i d at e d f i n a n c i a l s tat e m e n t s d e c e m b e r 3 1 , 2 0 1 0

average exercise price and life information are listed below:

o p t i o n s o u t s ta n d i n g

o p t i o n s e x e r c i s a b l e

Number
Outstanding At
12/31/2010 (in
000’s)

Weighted-
Average
Remaining
Years of
Contractual Life

Weighted-
Average
Exercise Price

8.62

12.62

16.17

17.58

20.38

26.92

34.51

Number
Exercisable At
12/31/2010 (in
000’s)

116

191

258

237

103

229

Weighted-
Average
Exercise Price

8.62

12.60

16.15

17.58

20.36

27.70

34.32

1.89

3.75

5.48

4.05

7.12

7.10

6.94

5.37

Range of Exercise Prices

$ 8.45 to $ 9.83

12.58 to 13.27

14.85 to 16.78

17.11 to 17.62

18.03 to 21.95

23.66 to 28.08

32.40 to 35.35

116

208

381

237

163

413

( i n t h o u s a n d s )

Net gain (loss) on foreign currency

exchange transactions

Other income (expense)

Other income (expense), net

n ot e 1 7  otheR incoMe (expense), net

Other income (expense), net consisted of the following:

2 0 10

2 0 0 9

2 0 0 8

December 31, 2010, 2009 and 2008, we have excluded 517,827, 785,186 and 534,418 stock
options, respectively, with exercise prices greater than the average market price of
the underlying common stock, because their inclusion would have been anti-dilutive.
Furthermore, for the years ended December 31, 2010, 2009 and 2008, we have excluded
159,889, 235,887 and 105,944 of shares of restricted stock, respectively, whose combined
unamortized fair value and excess tax benefits were greater in each of those periods
than the average market price of the underlying common stock, as their effect would be
anti-dilutive.

Earnings per share for the years ended December 31, 2010, 2009 and 2008 were calcu-

lated as follows:

( i n t h o u s a n d s , e x c e p t p e r - s h a r e a m o u n t s )

2 0 10

2 0 0 9

2 0 0 8

b a s i c

Net income

$ 15,081

$ 14,675

$ 15,806

Weighted-average common shares outstanding

13,764

13,667

14,015

d i l u t e d

Net income

Weighted-average common shares

outstanding for basic

$ 15,081

$ 14,675

$ 15,806

13,764

13,667

14,015

Dilutive effect of stock options and restricted stock

342

304

441

$ 8.45 to $ 35.35

1,525

18.78

1,140

17.89

Basic earnings per share

1.10

1.07

1.13

239

284

523

(246)

(241)

315

(4)

311

Weighted-average common shares
outstanding on a diluted basis

Diluted earnings per share

14,106

13,971

14,456

1.07

1.05

1.09

n ot e 1 8  eaRnings peR shaRe

n ot e 1 9  deRivatives

Basic earnings per share is computed by dividing net income available to common
stockholders by the weighted average number of common shares outstanding during the
period. Diluted earnings per share is computed by dividing net income by the weighted
average number of common shares and dilutive potential common shares, including the
dilutive effect of stock options and restricted stock grants, outstanding during the period.
Dilutive potential common shares for all periods presented are computed utilizing the
treasury stock method.

d e r I vat I v e s M e a s u r e d at fa I r va lu e o n a r ec u r r I n g b a s I s  We are exposed
to market risks from foreign currency exchange rates, which may adversely affect our
operating results and financial position. Our foreign currency exposures are primarily
concentrated in the Brazilian Real, British Pound, Chinese Yuan Renminbi, Euro, Hong
Kong dollar, Indian Rupee, and Singapore dollar. We periodically enter into foreign cur-
rency exchange contracts with terms normally lasting less than nine months to protect
against the adverse effects that exchange-rate fluctuations may have on our foreign
currency-denominated receivables, payables, cash flows and reported income. Derivative

U n i v e r s a l e l e c t r o n i c s i n c . n ot e s t o c o n s o l i d at e d f i n a n c i a l s tat e m e n t s d e c e m b e r 3 1 , 2 0 1 0

financial instruments are used to manage risk and are not used for trading or other
speculative purposes. We do not use leveraged derivative financial instruments and these
derivatives have not qualified for hedge accounting.

The gains and losses on both the derivatives and the foreign currency-denominated
balances are recorded as foreign exchange transaction gains or losses and are classified
in other income (expense), net. Derivatives are recorded on the balance sheet at fair value.
The estimated fair values of our derivative financial instruments represent the amount
required to enter into offsetting contracts with similar remaining maturities based on
quoted market prices.

We have determined that the fair value of our derivatives is derived from level 2 inputs

in the fair value hierarchy (see Note 2 under the captions Derivatives and Fair-Value
Measurements for further information concerning the accounting principles and valua-
tion methodology utilized). The following table sets forth our financial assets that were
accounted for at fair value on a recurring basis on December 31, 2010:

( i n t h o u s a n d s )
Description

December 31,
2010

F a i r V a l u e m e a s u r e m e n t u s i n g

Quoted Prices
in Active
Markets for
Identical
Assets( Level 1)

Significant
Other
Observable
Inputs (Level 2)

Significant
Unobservable
Inputs (Level 3)

Foreign currency exchange

futures contracts

—

We held foreign currency exchange contracts which resulted in a net pre-tax loss of

approximately $0.3 million for the year ended December 31, 2010, a net pre-tax loss of
approximately $0.7 million for the year ended December 31, 2009 and a net pre-tax loss of
$0.5 million for the year ended December 31, 2008.

f u t u r e s c o n t r ac t s  We held one USD/Euro futures contract with a notional value
of $4.0 million and a forward rate of $1.3073 USD/Euro at December 31, 2010. We held the
Euro position on this contract, which settled on January 28, 2011. The gain on this contract
as of December 31, 2010 was $87 thousand and is included in prepaid expenses and other
current assets. This contract was settled at a gain of $198 thousand resulting in a gain of
$111 thousand in January 2011.

We held one USD/Indian Rupee futures contract with a notional value of INR133.5
million and a forward rate of INR45.47 INR/USD at December 31, 2010. We held the USD

position on this contract, which settled on January 28, 2011. The loss on this contract
as of December 31, 2010 was $43 thousand and is included in other accrued expenses.
This contract was settled at a gain of $10 thousand resulting in a gain of $53 thousand in
January 2011.

We held one USD/Chinese Yuan Renminbi futures contract with a notional value of
$1.0 million and a forward rate of CNY6.6819 CNY/USD at December 31, 2010. We held the
USD position on this contract, which settled on January 24, 2011. The loss on this contract
as of December 31, 2010 was $11 thousand and is included in other accrued expenses.
This contract was settled at a loss of $14 thousand resulting in a loss of $3 thousand in
January 2011.

We held one USD/Chinese Yuan Renminbi futures contract with a notional value of
$1.0 million and a forward rate of CNY6.6681 CNY/USD at December 31, 2010. We held the
USD position on this contract, which was scheduled to settle on February 24, 2011. The
contract was terminated on January 21, 2011. The loss on this contract as of December
31, 2010 was $13 thousand and is included in other accrued expenses. This contract was
settled on the termination date at a loss of $16 thousand resulting in a loss of $3 thousand
in January 2011.

We held one USD/Euro futures contract with a notional value of $1.5 million and a
forward rate of $1.4386 USD/Euro at December 31, 2009. We held the Euro position on
this contract, which settled on January 15, 2010. The loss on this contract as of December
31, 2009 was $5 thousand and is included in other accrued expenses. This contract was
settled at a gain of $11 thousand resulting in a gain of $16 thousand in January 2010.

P u t o P t I o n  We entered into a USD/GBP put option with a notional value of $4.3
million in July 2009. The strike price of the put is $1.64 USD/GBP. The contract expired
on December 31, 2009 and settled on January 5, 2010. The loss recorded related to this
contract was $138 thousand during the year ended December 31, 2009. The fair value of
this put option was approximately $2 thousand at December 31, 2009 and is included in
accounts receivable, net (see Note 4).

n ot e 2 0  eMployee benefit plans

We maintain a retirement and profit sharing plan under Section 401(k) of the Internal
Revenue Code for all of our domestic employees that meet certain qualifications.
Participants in the plan may elect to contribute up to the maximum allowed by law. We
match 50% of the participants’ contributions up to 15% of their gross salary in the form of

newly issued shares of our common stock. We may also make other discretionary contri-
butions to the plan. We recorded $0.6 million, $0.8 million, and $0.7 million of expense for
company contributions for the years ended December 31, 2010, 2009 and 2008, respectively.

n ot e 2 1  business coMbinations

e n s o n a s s e t s l I M I t e d  On November 3, 2010, our subsidiary, UEI Hong Kong
Private Limited, entered into a stock purchase agreement with CG International Holdings
Limited (“CG”) to acquire all of the issued shares in the capital of Enson Assets Limited
(“Enson”) for total consideration of approximately $125.8 million. This transaction closed
on November 4, 2010. The consideration consisted of $95.0 million in cash and 1,460,000
of newly issued shares of UEI common stock. A total of $5.0 million of the purchase price
was held back at the closing to provide for any additional payments required by CG as
a result of Enson’s failure to meet both a net asset target and an earnings target (see
“Contingent Consideration” below). We have included the $5.0 million that was held back
in the purchase price allocation, since it is probable that we will owe the full amount to CG.
The $5.0 million is included in our other accrued liabilities balance at December 31, 2010.

Our consolidated income statement for the twelve months ended December 31, 2010
includes net sales of $25.0 million and net income of $1.3 million attributable to Enson for
the period commencing on November 4, 2010.

e n s o n d e s c r I Pt I o n  Enson is a leading manufacturer of remote controls. Prior to the
acquisition Enson was also one of our significant suppliers (see Note 5). During the years
ended December 31, 2010, 2009 and 2008 Enson supplied 20.5%, 24.1% and 20.6% of our
inventory purchases. The Enson corporate office, located in Hong Kong, is approximately
6,000 square feet and employs 50 people. Enson controls two factories located in the
Peoples Republic of China (“PRC”).

The northern factory is located in Jiang Su Province, PRC within the city of Yang Zhou.

The Yang Zhou factory is approximately 1,204,697 square feet and employs 418 people,
with an additional 4,502 factory workers contracted through an agency agreement.

U n i v e r s a l e l e c t r o n i c s i n c . n ot e s t o c o n s o l i d at e d f i n a n c i a l s tat e m e n t s d e c e m b e r 3 1 , 2 0 1 0

c o n s I d e r at I o n  The sources of the consideration were the following:

( i n t h o u s a n d s )
Source Description

Existing cash and cash equivalents

Funds from new U.S. Bank Secured Term Loan (see Note 8)

Funds from new U.S. Bank Secured Revolving

Credit Line (see Note 8)

Newly issued shares of Universal Electronics Inc.

common stock

Amount

$ 54,000

35,000

Percentage of
Consideration

42.9%

27.8

6,000

4.8

30,762

$ 125,762

24.5

100%

c o n t I n g e n t c o n s I d e r at I o n

n e t a s s e t ta r g e t o n n ov e M b e r 3 , 2 0 1 0  To the extent that the Enson net assets
were less than $68.5 million at November 3, 2010, CG would have paid us the difference,
plus interest. To the extent that the Enson net assets were greater than $68.5 million we
would have had to pay CG the difference, plus interest. We are currently in the process
of determining if certain adjustments recorded in accordance with generally accepted
accounting principles will be included in determining Enson’s net asset position on
November 3, 2010 as defined by the stock purchase agreement. We expect this calculation
to be completed in the first quarter of 2011.

e a r n I n g s ta r g e t fo r t h e t w e lv e M o n t h s e n d I n g M a r c h 3 1 , 2 0 1 1  To the
extent that Enson’s earnings for the year ended March 31, 2011 are less than $16.2 mil-
lion, CG will pay us an amount equal to the product of (a) the difference between Enson’s
earnings and $16.2 million, multiplied by (b) one and one half, plus interest. Interest will
be calculated on the date the auditors’ report is issued on Enson’s accounts using the
prime rate as reported in The Wall Street Journal on the date of this determination. CG is
required to make this payment within five business days of the issuance of the auditor’s
report on Enson’s accounts.

For the purposes of this calculation, Enson’s earnings are defined as Enson’s con-
solidated profit before tax for the twelve months ending March 31, 2011 excluding certain
agreed upon adjustments, including without limitation, the following items: profit related
to UEIC sales, investment income, other income, other expenses, other gains and losses
and interest expenses.

On the date of this filing, we do not anticipate that any amounts will be owed by CG on

March 31, 2011.

U n i v e r s a l e l e c t r o n i c s i n c . n ot e s t o c o n s o l i d at e d f i n a n c i a l s tat e m e n t s d e c e m b e r 3 1 , 2 0 1 0

ac Q u I s I t I o n c o s t s  We recognized $0.7 million of total acquisition costs related to
the Enson transaction in selling, general and administrative expenses during the year
ended December 31, 2010. The acquisition costs consisted primarily of legal and invest-
ment banking services.

In addition to the costs incurred to acquire Enson, during January 2011 our

Compensation Committee approved a discretionary bonus of $0.4 million to be awarded
to certain employees directly involved in the acquisition process. This discretionary bonus
was ratified by our Board of Directors during February 2011, and was paid during March
2011. The entire amount was included in accrued compensation at December 31, 2010.

P r e l I M I n a ry P u r c h a s e P r I c e a l lo c at I o n  Under the acquisition method of
accounting, the acquisition date fair value of the consideration transferred is allocated
to the net tangible and intangible assets acquired and liabilities assumed based on their
estimated fair values on the acquisition date. Management’s preliminary purchase price
allocation on November 4, 2010 (the Enson acquisition date) is the following:

Weighted
Average
Estimated Lives

Preliminary
Fair Value

$ 20,866

( i n t h o u s a n d s )

Cash & cash equivalents

Inventories

Accounts receivable

Prepaid expenses and other current assets

Property, plant and equipment

20 years

Deferred income taxes

Other assets

Interest bearing liabilities

Non-interest bearing liabilities

Net tangible assets acquired

Customer relationships

Trademark and trade name

Goodwill

10 years

23,469

37,624

738

66,644

2,979

3,409

(4,227)

(67,879)

83,623

23,300

2,000

16,839

Total estimated purchase price

$ 125,762

Management’s preliminary determination of the fair value of the tangible and intan-
gible assets acquired and liabilities assumed are based on estimates and assumptions
that are subject to change. During the measurement period, if information becomes

available which would indicate adjustments are required to the purchase price allocation,
such adjustments will be included in the purchase price allocation retrospectively. The
measurement period can extend as long as one year from the acquisition date. We are
currently evaluating certain tax matters that once completed may result in an adjustment
to goodwill. In addition, as noted above, we are also evaluating the results of the net asset
target as defined in the stock purchase agreement.

I n ta n g I b l e a s s e t s s u b j ec t to a M o rt Iz at I o n  Of the total estimated purchase
price, $83.6 million has been allocated to net tangible assets acquired, $16.8 million has
been allocated to goodwill, and $25.3 million has been allocated to identifiable intangible
assets acquired. The identified intangible assets consist of $23.3 million assigned to cus-
tomer relationships and $2.0 million assigned to trademark and trade name.

The fair value of Enson’s customer relationships intangible asset was estimated
utilizing the income approach. We estimated the future after tax cash flows attributable
to Enson’s customer base, after taking into consideration projected attrition based on
our analysis of UEI and Enson customer data. These cash flows were discounted back
to the acquisition date to arrive at the estimated fair value of the customer relationships
intangible. UEI expects to amortize the fair value of Enson’s customer relationships on a
straight-line basis over an estimated life of ten years. The customer relationships amorti-
zation will not be deductible for tax purposes.

The fair value assigned to Enson’s trademark and trade name intangible asset was
determined utilizing the income approach. The estimated future after tax cash flows from
Enson’s trademark and trade name were discounted back to the acquisition date to arrive at
the estimated fair value of the trademark and trade name. UEI expects to amortize the value
of Enson’s trademark and trade name on a straight-line basis over an estimated life of ten
years. The trademark and trade name amortization will not be deductible for tax purposes.

g o o dw I l l  Goodwill represents the excess of the purchase consideration over the
estimated fair value of identifiable tangible and intangible assets acquired. Goodwill from
this transaction of $16.8 million will not be amortized, but will be analyzed for impair-
ment on at least an annual basis in accordance with U.S. GAAP. We review our goodwill for
impairment annually on December 31 and whenever events or changes in circumstances
indicate that an impairment loss may have occurred. Of the total goodwill recorded, none
is expected to be deductible for tax purposes.

The goodwill recognized is attributable to the following value we received from the

Enson acquisition:

 Enson should increase our market position in the strategically important consumer
electronics market given Enson’s historic strength with leading Japanese consumer
electronics companies. We have not been well positioned in this market historically.

 Enson currently produces approximately one-third of our finished good inventory pur-
chases, therefore, we may decrease purchases from third parties. In addition, Enson
has available manufacturing capacity. We may provide Enson the ability to increase the
utilization of their existing factories.

( i n t h o u s a n d s )

Intangible assets:

Database

 We may utilize Enson’s in-place management and personnel to assist us in imple-

Customer relationships

menting our plan to place more operations, logistics, quality, program management,
engineering, sales, and marketing personnel in the Asia region.

Goodwill

Property, plant, and equipment

 Enson’s full line of remotes, from dedicated to higher-end universal, should assist us

Purchase price

U n i v e r s a l e l e c t r o n i c s i n c . n ot e s t o c o n s o l i d at e d f i n a n c i a l s tat e m e n t s d e c e m b e r 3 1 , 2 0 1 0

and selling the chips directly to Zilog’s former customers. We anticipate this transition
will lead to growth in revenue and earnings going forward. Our consolidated financial
statements include the operating results of the acquired assets, employees hired, and the
related agreement with Maxim from February 18, 2009.

The total purchase price of approximately $9.5 million has been allocated to the net

assets acquired based on their estimated fair values as follow:

3,500

3,100

2,902

9,546

with further penetrating the growing Asian and Latin American subscription broadcast-
ing markets. The lower subscriber revenue in these markets can cause them to begin
with lower-cost dedicated remotes and to later transition to universal remote controls.

Management has determined that the goodwill recognized as a result of the Enson

acquisition will be assigned to our sole reporting unit.

Z i lo g , i n c  On February 18, 2009, we acquired certain patents, intellectual prop-
erty and other assets related to the universal remote control business from Zilog, Inc.
(NASDAQ: ZILG) for approximately $9.5 million in cash. The purchase included Zilog’s full
library and database of infrared codes, software tools and certain fixed assets. We also
hired 116 of Zilog’s sales and engineering personnel, including all 107 of Zilog’s person-
nel located in India. In a related transaction, Maxim Integrated Products (NASDAQ: MXIM)
acquired two of Zilog’s product lines, namely, the hardware portion of Zilog’s remote
control business and Zilog’s secured transaction product line.

We have cross-licensed the remote control technology and intellectual property with

Maxim Integrated Products for the purpose of conducting our respective businesses.
The arrangement involves an agreement to source silicon chips from Maxim. In addition,
during 2009 we agreed to be Maxim’s exclusive sales agent, selling the Zilog designs to
Zilog’s former customers, in return for a sales agency fee. The sales agency fee during the
years ended December 31, 2010 and 2009 was $4.1 million and $4.4 million, respectively.
During 2011, as we continue to slowly transition from the Zilog chip platform to the Maxim
chip platform, we will progressively take over full sales and distribution rights, procuring

I n ta n g I b l e a s s e t s s u b j ec t to a M o rt Iz at I o n  Of the total purchase price,
approximately $6.6 million was allocated to identifiable intangible assets subject to amor-
tization including the database and customer relationships.

The database intangible is composed of the estimated fair value of patents, intellec-
tual property and other assets related to Zilog’s database of infrared codes, and software
tools. When determining the fair value of the database, we utilized the cost approach. In
our valuation, we estimated the total costs to recreate the database, including the associ-
ated opportunity costs (or revenue lost while recreating). We discounted the after-tax cash
flows to present value to arrive at our estimate of the fair value of the database. We are
amortizing the database on a straight-line basis over an estimated useful life of approxi-
mately fifteen years.

The customer relationship intangible is composed of the fair value of customer rela-
tionships acquired as a result of the Zilog purchase. We utilized the income approach to
estimate the fair value of the customer relationships intangible. We developed after-tax
cash flows based on forecasted revenue from these customers assuming a customer
attrition rate based on our analysis of customer data for UEI and Zilog. We discounted the
after-tax cash flows to present value to arrive at our estimate of the fair value of the cus-
tomer relationships intangible. We are amortizing the customer relationships intangible
on a straight-line basis over an estimated useful life of approximately fifteen years.

U n i v e r s a l e l e c t r o n i c s i n c . n ot e s t o c o n s o l i d at e d f i n a n c i a l s tat e m e n t s d e c e m b e r 3 1 , 2 0 1 0

g o o dw I l l  Goodwill represents the excess of the cost (purchase price) over the
estimated fair value of identifiable tangible and intangible assets acquired. Goodwill from
this transaction of $2.9 million will not be amortized, but will be analyzed for impairment
at least on an annual basis in accordance with U.S. GAAP. We review our goodwill for
impairment annually on December 31 and whenever events or changes in circumstances
indicate that an impairment loss may have occurred. We have not recorded any impair-
ment related to the goodwill recognized as a result of the Zilog acquisition. Of the total
goodwill recorded, none is expected to be deductible for tax purposes.

The goodwill recognized is attributable to the following value we received from this

acquisition:

 This acquisition will expand the breadth and depth of our customer base in both sub-
scription broadcasting and original equipment manufacturing, particularly in Asia.

p r o F o r m a r e s u lt s ( u n au d i t e d)  The following unaudited pro forma financial
information presents the combined results of our operations and the operations of the
Enson acquisition and the acquisition from Zilog as if these transactions occurred at the
beginning of the periods presented.

Pro forma results were as follows for the years ended December 31, 2010, 2009 and 2008:

Revenue:

Net income:

Basic and diluted net income per share:

Basic

Diluted

2 0 10

2 0 0 9

2 0 0 8

$ 458,492

$ 409,475

$ 391,553

$ 31,351

$ 21,832

$ 16,079

2.28

2.22

1.44

1.42

1.04

1.01

 We believe integrating Zilog’s technologies with and into our own technology will

The unaudited pro forma financial information is not intended to represent or be

reduce design cycle times, lower costs, and lead to improvements in our integrated
circuit design, product quality and overall functional performance.

 The acquisition of former Zilog employees will allow us to leverage their experience to

indicative of the consolidated results of operations that would have been achieved had the
acquisition actually been completed as of the dates presented, and should not be taken as
a projection of the future consolidated results of our operations.

our advantage in the wireless control industry.

ac Q u I s I t I o n c o s t s  We recognized $1.1 million of total acquisition costs related
to the Zilog transaction in selling, general and administrative expenses during the year
ended December 31, 2009. The acquisition costs consisted primarily of legal and invest-
ment banking services. Of the $1.1 million of acquisition costs recognized during the year
ended December 31, 2009, $0.1 million was deferred at December 31, 2008.

e n s o n a d j u s t M e n t s  Enson adjustments to reduce net income of $2.9 million, $5.5
million and $5.9 million for the years ended December 31, 2010, 2009 and 2008, respectively,
have been made to the combined results of operations. These adjustments reflect primar-
ily interest on the term loan and line of credit, amortization of acquired intangible assets,
amortization and depreciation of the fair value adjustments to prepaid land and property,
plant, and equipment. All adjustments have been made net of their related tax effects.

zI lo g a d j u s t M e n t s  Zilog related adjustments netting $0.04 million for the year
ended December 31, 2009 have been made to the combined results of operations, primar-
ily reflecting net sales, salary costs and the amortization of purchased intangible assets
that would have occurred had the acquisition date been January 1, 2009. Net adjustments
of $0.4 million have been subtracted from the combined results of operations for the year
ended December 31, 2008, reflecting primarily net sales, salary costs, amortization of
purchased intangible assets and the acquisition costs that would have occurred had the
acquisition date been January 1, 2008. All adjustments have been made net of their related
tax effects.

n ot e 2 2  quaRteRly financial data (unaudited)

Summarized quarterly financial data for the years ended December 31, 2010 and 2009 are
presented below:

( i n t h o u s a n d s , e x c e p t

p e r s h a r e a m o u n t s )

Net sales

Gross profit

Operating income

Net income

Earnings per share (1):

Basic

Diluted

Shares used in computing
earnings per share:

Basic

Diluted

Net sales

Gross profit

Operating income

Net income

Earnings per share (1):

Basic

Diluted

2 0 10

March 31,

June 30,

September 30,

December 31,

$ 71,376

$ 78,892

$ 79,007

$ 102,505

22,064

2,687

1,836

27,425

7,316

4,777

25,718

6,566

4,702

28,642

4,732

3,766

0.13

0.35

0.34

0.35

0.34

0.26

None.

13,700

14,093

13,601

13,929

13,417

13,671

14,344

14,737

2 0 0 9

March 31,

June 30,

September 30,

December 31,

$ 71,126

$ 78,303

$ 83,182

$ 84,939

21,437

1,536

796

25,495

5,687

3,816

26,070

6,644

4,223

28,610

8,080

5,840

0.06

0.28

0.27

0.31

0.30

0.43

0.42

Shares used in computing earnings

per share:

Basic

Diluted

13,658

13,831

13,621

13,981

13,687

14,008

13,700

14,063

(1) The earnings per common share calculations for each of the quarters were based upon the weighted average num-
ber of shares and share equivalents outstanding during each period, and the sum of the quarters may not be equal
to the full year earnings per share amounts.

CHANGES IN AND
DISAGREEMENTS WITH
ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL
DISCLOSURE

CONTROLS AND PROCEDURES

d I s c lo s u r e c o n t r o l s a n d P r o c e d u r e s  Exchange Act Rule 13a-15(d) defines
“disclosure controls and procedures” to mean controls and procedures of a company that
are designed to ensure that information required to be disclosed by the company in the
reports that it files or submits under the Exchange Act is recorded, processed, summa-
rized and reported, within the time periods specified in the Commission’s rules and forms.
The definition further states that disclosure controls and procedures include, without
limitation, controls and procedures designed to ensure that the information required to
be disclosed by a company in the reports that it files or submits under the Exchange Act
is accumulated and communicated to the company’s management, including its principal
executive and principal financial officers, or persons performing similar functions, as
appropriate to allow timely decisions regarding required disclosure.

An evaluation was performed under the supervision and with the participation of our

management, including our principal executive and principal financial officers, of the
effectiveness of the design and operation of our disclosure controls and procedures as
of the end of the period covered by this report. Based on that evaluation, our principal
executive and principal financial officers have concluded that our disclosure controls and
procedures were effective, as of the end of the period covered by this report, to provide
reasonable assurance that information required to be disclosed by us in reports that we
file or submit under the Exchange Act is recorded, processed, summarized and reported

within the time periods specified in Securities and Exchange Commission rules and forms
and is accumulated and communicated to our management to allow timely decisions
regarding required disclosures.

M a n ag e M e n t ’ s a n n ua l r e P o rt o n I n t e r n a l c o n t r o l ov e r fI n a n c I a l
r e P o rt I n g  Management is responsible for establishing and maintaining adequate
internal control over financial reporting, as such term is defined in Exchange Act Rule
13a-15(f). Our internal control over financial reporting is a process designed to provide
reasonable assurance regarding the reliability of financial reporting and preparation
of financial statements for external purposes in accordance with accounting principles
generally accepted in the United States of America. Because of 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.

Under the supervision and with the participation of our management, including our

principal executive and principal financial officers, we evaluated the effectiveness of
our internal control over financial reporting based on the Internal Control-Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (“COSO”) in Internal Control Integrated Framework. Based on our evaluation
under this framework, our management concluded that our internal control over financial
reporting was effective as of December 31, 2010.

Our management has excluded Enson Assets Limited from its assessment of inter-
nal control over financial reporting as of December 31, 2010 because they were acquired
during the fourth quarter of 2010. Enson Assets Limited is a subsidiary whose total assets
and total net sales represent 51% and 8%, respectively, of the related consolidated finan-
cial statement amounts as of and for the year ended December 31, 2010.

The effectiveness of our internal control over financial reporting as of December 31,
2010 has been audited by Grant Thornton LLP, an independent registered public account-
ing firm, as stated in its attestation report which is included herein.

c h a n g e s I n I n t e r n a l c o n t r o l ov e r fI n a n c I a l r e P o rt I n g  There have been
no changes in internal controls or in other factors that may significantly affect our internal
controls during 2010.

RepoRt of independent RegisteRed public accounting fiRM

Board of Directors and Shareholders

Universal Electronics Inc.

We have audited Universal Electronics Inc.’s (a Delaware Corporation) internal control
over financial reporting as of December 31, 2010, based on criteria established in Internal
Control-Integrated Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission (COSO). Universal Electronics Inc.’s management is respon-
sible for maintaining effective internal control over financial reporting and for its assertion
of the effectiveness of internal control over financial reporting, included in the accom-
panying Management’s Annual Report on Internal Control Over Financial Reporting. Our
responsibility is to express an opinion on Universal Electronics Inc.’s internal control over
financial reporting based on our audit. Our audit of, and opinion on, Universal Electronics
Inc.’s internal control over financial reporting does not include internal control over finan-
cial reporting of Enson Assets Limited, a wholly owned subsidiary, whose financial state-
ments reflect total assets and revenues constituting 51 percent and 8 percent, respec-
tively, of the related consolidated financial statement amounts as of and for the year
ended December 31, 2010. As indicated in Management’s Report, Enson Assets Limited
was acquired during 2010 and therefore, management’s assertion on the effectiveness
of Universal Electronics Inc.’s internal control over financial reporting excluded internal
control over financial reporting of Enson Assets Limited.

We conducted our audit in accordance with the standards of the Public Company

Accounting Oversight Board (United States). Those standards require that we plan and per-
form the audit to obtain reasonable assurance about whether effective internal control over
financial reporting was maintained in all material respects. Our audit included obtaining an
understanding of internal control over financial reporting, assessing the risk that a material
weakness exists, testing and evaluating the design and operating effectiveness of internal
control based on the assessed risk, and performing such other procedures as we consid-
ered necessary in the circumstances. We believe that our audit provides a reasonable basis
for our opinion.

A company’s internal control over financial reporting is a process designed to provide

reasonable assurance regarding the reliability of financial reporting and the prepara-
tion 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 neces-
sary 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.

In our opinion, Universal Electronics Inc. maintained, in all material respects, effective

internal control over financial reporting as of December 31, 2010, based on criteria estab-
lished in Internal Control-Integrated Framework issued by COSO.

We also have audited, in accordance with the standards of the Public Company

Accounting Oversight Board (United States), the consolidated balance sheets of Universal
Electronics Inc. as of December 31, 2010 and 2009, and the related consolidated state-
ments of income, stockholders’ equity, and cash flows for each of the three years in the
period ended December 31, 2010, and our report dated March 16, 2011 expressed an
unqualified opinion.

/s/ Grant Thornton LLP

Irvine, California

March 16, 2011

peRfoRMance chaRt

investoR infoRMation

The following graph and table compares the cumulative total stockholder return with
respect to our common stock versus the cumulative total return of the Standard & Poor’s
Small Cap 600 (the “S&P Small Cap 600”) and the NASDAQ Composite Index for the five
year period ended December 31, 2010. The comparison assumes that $100 is invested on
December 31, 2005 in each of our common stock, S&P Small Cap 600 and the NASDAQ
Composite Index and that all dividends are reinvested. We have not paid any dividends
and, therefore, our cumulative total return calculation is based solely upon stock price
appreciation and not upon reinvestment of dividends. The graph and table depicts year-
end values based on actual market value increases and decreases relative to the initial
investment of $100, based on information provided for each calendar year by the NASDAQ
Stock Market and the New York Stock Exchange.

The comparisons in the graph and table below are based on historical data and are

not intended to forecast the possible future performance of our common stock.

c o M Pa r I s o n o f s to c k h o l d e r r e t u r n s o f u n I v e r s a l e l ec t r o n I c s I n c . ,

t h e s & P s M a l l c a P 6 0 0 a n d t h e n a s daQ c o M P o s I t e I n d e x

$ 200

$ 150

$ 100

$ 50

1 2 / 3 1 / 2 0 0 5

1 2 / 3 1 / 2 0 0 6

1 2 / 3 1 / 2 0 0 7

1 2 / 3 1 / 2 0 0 8

1 2 / 3 1 / 2 0 0 9

1 2 / 3 1 / 2 0 1 0

12/31/2005

12/31/2006

12/31/2007

12/31/2008

12/31/2009

12/31/2010

Universal Electronics Inc. $

S&P Small Cap 600

NASDAQ Composite Index $

100

122

114

110

194

113

120

135

103

165

119

120

Information presented is as of the end of each calendar year for the period December

31, 2005 through 2010. This information shall not be deemed to be “solicited material”
or to be “filed” with the Securities and Exchange Commission or subject to the liabili-
ties of Section 18 of the Securities Exchange Act of 1934 (the “Exchange Act”) nor shall
this information be incorporated by reference into any prior or future filings under the
Securities Act of 1933 or the Exchange Act, except to the extent that we specifically incor-
porate it by reference into a filing.

Annual Meeting of Stockholders
June 9, 2011
4:00 p.m. PT

Universal Electronics Inc.
6101 Gateway Drive
Cypress, CA 90630

Independent Registered
Public Accounting Firm
Grant Thornton LLP
Irvine, California

Registrar & Transfer Agent
Computershare
Trust Company, N.A.
250 Royall Street
Canton, MA 02021
(800) 962-4284

c e rt I fI c at I o n s

The Company filed with the
Securities and Exchange commis-
sion, as Exhibit 31 to the Company’s
Annual Report on Form 10-K for
the 2010 fiscal year, certifications
of its Chief Executive Officer and
Chief Financial Officer regarding
the quality of the Company’s public
disclosures.

fo r M 1 0 - k

Any stockholder who desires
a copy of the Company’s 2010
Annual Report on Form 10-K filed
with the Securities and Exchange
Commission may obtain a copy
(excluding exhibits) without charge
by addressing a request to:

Investor Relations
Universal Electronics Inc.
6101 Gateway Drive
Cypress, California 90630

A charge equal to the reproduction
cost will be made if the exhibits are
requested. Universal Electronics’
Internet address is www.uei.com.
Universal Electronics makes avail-
able through its Internet website
its annual report on Form 10-K.
Investors may also obtain a copy of
our 2010 Annual Report on Form
10-K, including exhibits, from the
“Investor” section of our website at
www.uei.com, clicking on
“SEC Filings.”

I n t e r n e t u s e r s

We invite you to learn more
about UEI’s business and growth
opportunities by visiting the
“Investor” section of our website at
www.uei.com. This section includes
investor presentations, earnings
conference calls, press releases,
SEC filings, company history, and
information about the company’s
governance and Board of Directors.

Universal Electronics Inc. is an equal
opportunity employer.

M
o
c

e
v

t
a
e
r
c
n
a
M
e
d
n
a
v

e
v

t
a
e
r
c

n
a
M
e
d

n
a
v

y
b

d
e
c
u
d
o
r
P

d
n
a

d
e
n
g

s
e
d

Michael J. Koch
Vice President
Finance and Treasurer

Menno V. Koopmans
Vice President
Retail Sales
EMEA/International

Hrag G. Ohannessian
Vice President
Subscription Broadcast
OEM Americas

Johnny Shin
Vice President
Engineering, China

Kenneth G. Sweeney
Vice President
Global OEM Sales

Bennie Wassink
Vice President
Global Demand Planning and
EMEA Operations

wo r l dw I d e
h e a d Q ua rt e r s

Universal Electronics Inc.
6101 Gateway Drive
Cypress, CA 90630

e u r o P e a n
h e a d Q ua rt e r s

The Netherlands
Universal Electronics BV
Institutenweg 21 7521 PH
Enschede, Netherlands

a s I a n h e a d Q ua rt e r s

UEI Hong Kong Private Ltd.
2105-7, Level 21, Tower 2
Grand Central Plaza
138 Shatin Rural Committee Road
Shatin, Nt Hong Kong
China

corporate information

d I r ec to r s

o ffI c e r s

Paul D. Arling*
Chairman and
Chief Executive Officer
Universal Electronics Inc.
Cypress, California

Satjiv S. Chahil 2, 3
Executive Advisor
Hewlett-Packard Company
Palo Alto, California

William C. Mulligan 1, 3
Managing Director
Primus Capital Funds
Cleveland, Ohio

J.C. Sparkman 2, 3
Retired Executive
Vice President and
Chief Operating Officer
Telecommunications, Inc. (TCI)
Denver, Colorado

Paul D. Arling*
Chairman and
Chief Executive Officer

Bryan M. Hackworth*
Senior Vice President and
Chief Financial Officer

Paul J.M. Bennett*
Executive Vice President and
Managing Director, Europe

Mark S. Kopaskie*
Executive Vice President and
General Manager, U.S.

Norman G. Sheridan
Senior Vice President,
Engineering

Graham S. Williams
Senior Vice President,
Technology Development

Bruce G. Annis
Vice President, Retail Sales,
North America

Jeremy K. Black
Vice President and
Associate General Counsel

Richard A. Firehammer, Jr.*
Senior Vice President, General
Counsel and Secretary

Douglas J. Durrant
Vice President
Global Information Technology

Ramzi S. Ammari
Senior Vice President, Global
Product Planning and Strategy

Stephen L. Gutman
Vice President
Cable Sales Americas

Gregory P. Stapleton 2
Founder and Owner
Falcon One Enterprises
Camarillo, California

Carl E. Vogel 1
Partner
SCP Worldwide
New York City, New York

Edward K. Zinser 1
Chief Financial Officer
Boingo Wireless Inc.
Los Angeles, California

1 Member, Audit Committee

2 Member, Compensation Committee

3 Member, Corporate Governance and

Nominating Committee

* Executive Officer as defined by the
Security Exchange Act of 1934.

Banley Chan
Senior Vice President,
Manufacturing

David C.H. Chong
Senior Vice President,
OEM Global

Joseph E. Miketo
Senior Vice President,
Global Operations

Olav B.M. Pouw
Senior Vice President,
Subscription Broadcast
EMEA & Asia

Pamela L. Price
Senior Vice President,
Subscription Broadcast
Americas

J. Lee Haughawout
Vice President
Program Management and
Core Technology

Patrick H. Hayes
Vice President
Intellectual Property

Queenie Ho
Vice President
OEM Japan

Louis S. Hughes
Vice President
Corporate Development

Emmelyn A. Klaver
Vice President
Business Development

UEi . com

w o r l d w i d e h e A d Q U A r t e r s

e U r o p e A n h e A d Q U A r t e r s

A s i A n h e A d Q U A r t e r s

Universal Electronics Inc.

Universal Electronics bV

UEI hong kong Private Ltd.

6101 Gateway Drive

Cypress, CA 90630

USA

Institutenweg 21

7521 Ph Enschede

The netherlands

+1-714-820-1000

+31-53-488-8000

2105-7 Level 21, Tower 2

Grand Central Plaza

138 Shatin Rural Committee Road

Shatin, nT hong kong, China

+852-2634-1333