13 ANNUAL
REPORT
R E D E F I N I N G
CONTROL
REDEFINING CONTROL
Now more than ever, consumers are looking for home entertainment control that enables them to
do more than simply turn on and off their various home entertainment components. With average
households spending nearly fi ve hours a day watching television, entertainment control is a “must
have” feature in any household. With the proliferation of streaming media, on demand content, and
recorded video, common control commands are everywhere, but, as most consumers would agree,
they are far from being simple and intuitive. UEI is at the forefront of redefi ning how we think about
home entertainment control with innovative and intuitive solutions that automate device setup, simplify
media control, and enhance content discovery for a truly simple television viewing experience.
As the global leader in wireless entertainment control, UEI provides a wide range of control technologies
and solutions for some of the world’s leading mobile device, subscription broadcast, smart television,
game console, and home entertainment brands. Our vision is to bring order and simplicity to home
entertainment control.
R E D E F I N I N G
CONTROL
REDEFINING CONTROL
THROUGH INNOVATION
UEI’s focus on innovation has never wavered. We continue to build on
our core competency in entertainment device control to provide control
solutions that stretch the boundaries of what a traditional remote
control does and what a remote control is. This includes developing
products and solutions that turn everyday smartphones into universal
touchscreen remote controls and taking traditional remotes and
turning them into voice-enabled controllers or touchpad remotes that
navigate an on-screen user interface to make it easier for consumers
to fi nd the entertainment content they are looking for.
With the support of our customers, UEI is designing and developing
new products that redefi ne how everyday consumers experience
entertainment control in their home. We strive to make watching
television as simple and relaxing as it was intended.
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Our advanced control products give consumers the
ability to talk to their television, to search for new
shows and movies, or to browse the web using a
touchpad designed right into their remote control.
UEI’s engineering and design teams work to create products, based
on the best user experience, blended with the latest technology
innovations. We call it “designovation” - creating control concepts
that redefi ne traditional control and bring value to our customers
and satisfaction to the end user.
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REDEFINING
SECOND-SCREEN
CONTROL
With the rise of smartphones and tablets, watching television has
become a multi-screen experience.(cid:2)According to consumer research,
second screen use while watching television is now at a staggering
68 percent of smart device households. With many of the devices
consumers use to watch television requiring infrared control, mobile
handset manufacturers are busy integrating infrared as a common
feature in today’s smart devices.(cid:2)
With several design wins on leading mobile handsets and tablet
devices, UEI has demonstrated successful penetration of embedded
control in the second-screen device market. We are poised for
continued success in this space with a comprehensive solution that
includes the world’s leading global device control database coupled
with cloud-based control code download services and a complete line
of small footprint infrared micro-controllers for integration into any
smart device. (cid:2)
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Control of home entertainment devices and other remote controlled electronics is just a logical
next step for smartphone and tablet manufacturers. At UEI, we consider second screen control as a
complimentary content navigation and control experience to the traditional remote. Our 27 years of
experience in integrating control software and hardware for service providers and OEMs makes UEI
uniquely positioned to provide the absolute best and most comprehensive solution.
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REDEFINING SETUP AND CONTROL
Every year, millions of new products and devices are developed that claim to bring intuitive simplicity to
the consumers’ home entertainment experience. While many fulfi ll this promise in their own unique way,
comprehensive control for many of these systems remains elusive.
UEI understands and anticipates the consumer challenge of making all the user’s devices work in concert,
using a single remote that does not require manual setup and works intuitively straight out of the box.
Building on our years of experience in understanding how devices work and how to control them, we are
developing new and exciting ways to completely automate device setup and bring intuitive one-touch (activity)
control to the common remote.
Following on the heels of UEI QuickSet, Control Plus delivers a host of new features that brings us ever
closer to our vision of plug-n-play entertainment control that is completely automated, simple, intuitive, and
available on every consumer electronic device.
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With well over 99 percent of installed TVs in the market supported, users
across the globe have benefi ted from UEI QuickSet’s ability to deliver the right
control code for their specifi c digital entertainment device, so setting up a
cable or satellite remote to control the volume on the television is automatic.
With the launch of the Microsoft Xbox One, video game consoles are fast becoming key
platforms for delivering home entertainment, with features such as digital media playback,
over-the-top content, and social media connections, making them an essential part of the
home theater experience. UEI QuickSet delivers the universal control engine that is essential
to enable a seamless media consumption experience for Microsoft.
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REDEFINING
SERVICES FOR
OUR CUSTOMERS
Building on our decade-long relationships with
customers across the globe, we understand our
customer’s needs, pain points, and growth drivers.
In an effort to leverage those relationships, we are
launching new products and services designed
to enhance the home entertainment viewing and
listening experience, while at the same time, bringing
value and revenue growth to our customers’ business.
With an expansive accessories product line; ranging
from wall mounts for televisions; to cables and kits
for self-installation; to easy-to-install sound bars; UEI
is providing value-added products that enhance the
consumer home theater experience and complement
our core device control portfolio.
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UEI continues to be at the forefront of the home
entertainment space thanks to the growing portfolio of
advanced and intuitive control technologies, installation
accessories, and enhanced audio solutions that refl ect
the consumers desire to make their home entertainment
environment easier to set up, control, and experience.
With a full line of consumer electronics accessory products, our One For All® consumer
retail brand continues to gain market share in product categories ranging from remote
controls, antennae, television mounts, headphones, cables, and more.
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NORTH AMERICA
REDEFINING
CONTROL
THROUGH OUR
PARTNERS
With our passion for innovation, our global
presence, and our focus on the consumer
experience, UEI leads the industry in bringing
new
innovative products and services to
market. This position enables us to expand
our market share and cement our position
as a trusted partner to our customers in the
industry. Our talented staff of designers,
engineers, and innovators focus on solving
industry and consumer challenges associated
with developing and delivering the best
wireless control products to market.
SAN MATEO,CALIFORNIA, USA
ADVANCED ENGINEERING CENTER
SANTA ANA,CALIFORNIA, USA
CORPORATE HEADQUARTERS
INNOVATION & DESIGN CENTER
TWINSBURG, OHIO, USA
NORTH AMERICAN CALL CENTER
LATIN AMERICA
MANAUS, BRAZIL
MANUFACTURING AND OPERATIONS
SAO PAULO, BRAZIL
REGIONAL SALES OFFICE
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Disclaimer: All company and manufaturer identities listed above are mentioned for the sole use of this annual report document. Use of them does not imply an endorsement by them.
EUURRRROOOOOPE
ENSCHEDE, THE NETHERLANDS
EUROPEAN AND RETAIL HEADQUARTERS
BANGALORE, INDIA
SOFTWARE DEVELOPMENT CENTER
AFRICA
AFRICA
SEOUL, KOREA
REGIONAL SALES OFFICE
TOKYO, JAPAN
REGIONAL SALES OFFICE
YANGZHOU, CHINA
MANUFACTURING
QINZHOU, CHINA
MANUFACTURING
PANYU, CHINA
MANUFACTURING
AND ENGINEERING
ASIA PACIFIC
HONG KONG, CHINA
ASIAN HEADQUARTERS
GLOBAL LOGISTICS HUB
AUSTRALIA
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REDEFINING SUCCESS
UEI’s 2013 fi nancial results continue a long-term
record of solid performance, refl ected by a greater
than 15% compound annual growth rate in sales and
earnings* over the last decade. UEI is better positioned
than ever for future success by providing innovative
control products and solutions that provide an easier,
more intuitive control interface for the consumer, on
any form factor – across any market.
.
.
.
.
COMPOUND ANNUAL GROWTH RATE
Revenue In Millions
Earnings Per Share *
*Adjusted pro forma metrics (non GAAP)
for 2010, 2011, 2012, and 2013.
The bar graphic displayed below
for
illustration purposes. The actual bar heights
may not be an exact representation of their
numeric values.
is
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DEAR STOCKHOLDERS:
In 2013, we continued to build on our track record of company-wide growth marking our 16th straight year of profi tability.
We are the leader in the global remote control market as we supply more than one-third of the remote control devices in
the world today, and our core business continues to drive growth for the company. Our proven portfolio of device control
technologies continues to redefi ne the consumers’ home entertainment experience and enable consumers to go beyond the
traditional confi nes of media control.
In 2013, UEI introduced several new advanced remote control products for its key partners in the original equipment
manufacturing (OEM) space including industry leaders like Sony and Panasonic. Bundled with smart TVs, these advanced
remote control devices offer such key features as touchpad and voice control, motion and downstream audio, and content
mirroring using near fi eld communication (NFC) and radio frequency (RF) technologies. Our position within this industry
continues to be strong, and we are confi dent that UEI is at the forefront of providing control solutions that address consumer
desires to make their home entertainment environment easier to access and control.
Subscription broadcasting remains a strong performer, spurred by growth both domestically and internationally. Our
subscription broadcasting customers include the world’s premier pay TV providers, and we continue to deepen these
relationships in addition to adding new customers both domestically and internationally.
With our core business providing the company’s foundation, we are able to leverage our strengths in technology and product
innovations to enter new markets. For years, we have been developing and patenting advanced wireless control technologies
designed for the emerging connected home. As interest accelerates and connected devices become ubiquitous around the
world, UEI has continued to leverage its existing technology portfolio to gain access to these new channels and product
categories. We have established partnerships with many of the world’s leading mobile, smart TV, tablet, and game console
manufacturers to integrate UEI’s advanced technologies within their devices.
In 2013, our continued success in the connected home market was the result of our continued focus on building and
leveraging our core technology to expand our market share. In doing so, it has enabled UEI to proactively respond to new
opportunities in the marketplace. With millions of new devices being incorporated into the home entertainment environment,
the need for simplicity and streamlining of the entertainment control experience has become a priority for device
manufacturers, content providers, and mobile platforms. As such, UEI fi nds itself strongly positioned to capitalize on growth
within these emerging markets.
QuickSet is currently deployed in over 70 million devices around the world including set-top boxes, smartphones, smart TVs,
and game consoles and is available on a variety of platforms and operating systems. This embedded software technology
delivers the simplest and most intuitive universal remote setup and control experience available on the market today with
minimal or no user input.
Equally impressive is the growing list of industry-leading companies such as DIRECTV®, Echostar, and Sony that have adopted
UEI technologies to control their next generation of home entertainment products. For 2013, this includes the integration of
QuickSet into LG’s leading smartphones, and most recently, its integration into the Microsoft Xbox One game console that
began shipping in late 2013. For UEI, this impressive and growing list of technology partners continues to be the ultimate
litmus test of our progress as a company.
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Another technology breakthrough for 2013 comes in the form of our Control Plus
platform—a technology that not only builds on UEI’s groundbreaking QuickSet to
automatically discover and setup connected devices, but also enables automatic
confi guration of activities for one-touch control. This technology is uniquely positioned
to address the most common frustration for average consumers—mode confusion and
input switching. The encouraging feedback we have received from customers within
this market only stands to reaffi rm our commitment to this technology solution going
forward into 2014.
Products like UEI QuickSet exemplify how UEI’s forward-thinking, innovative
technology is transforming the market by allowing consumers to quickly and easily
access their content and switch to, and control, a variety of over-the-top services. We
expect our next generation of control solutions, like Control Plus, as well as future
solutions, to follow a similar path of transforming the home control environment as
demonstrated by QuickSet.(cid:2)
Looking forward to 2014, we are better positioned than ever for future success. Our
reputation for excellence in innovation and our proven track record of execution has
positioned us as the global leader in wireless control technology. We remain focused
on our strategy of providing innovative products and technologies that offer a more
streamlined and intuitive control interface for the consumer.
Across the world, the list of industry-leading companies that utilize next generation UEI
control technologies is impressive and growing. We continue to win new customers,
expand relationships with existing customers, and deepen our penetration into new
markets and geographies around the world. We are confi dent in this strategy, and
believe that we are well positioned to continue our success in the years ahead.
Sincerely,
SiSincererelely,y,
Paul Arling
Paul Arling
Chairman and CEO
Chairman and CEO
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Business
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
Supplementary Data
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CONSOLIDATED BALANCE SHEETS
CONSOLIDATED INCOME STATEMENTS
CONSOLIDATED COMPREHENSIVE
INCOME STATEMENTS
CONSOLIDATED STATEMENTS OF
STOCKHOLDERS’ EQUITY
69
CONSOLIDATED STATEMENTS OF CASH FLOWS
70
Notes to Consolidated
Financial Statements
107
Controls and Procedures
109
Performance Chart
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Forward-Looking Statements
This Annual Report contains statements that may constitute forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. All statements 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 projections of revenue,
margins, expenses, tax provisions, earnings, cash flows, benefit obligations, share repurchases or other financial items; plans,
strategies and objectives of management for future operations; expected developments 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 differ materially from those contained in any forward-looking statements. Therefore, forward-looking
statements should not be relied upon as a prediction of actual future results.
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 our
2013 Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission (“SEC”) as well as those
described in our SEC filings subsequent to this report.
20 20
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BUSINESS
Business of Universal Electronics Inc.
Universal Electronics Inc. ("UEI") was incorporated under the laws of Delaware in 1986 and began operations in 1987. The
principal executive offices are located at 201 E. Sandpointe Avenue, 8th Floor, Santa Ana, California 92707. As used herein,
the terms "we", "us" and "our" refer to UEI and its subsidiaries unless the context indicates to the contrary.
Additional information regarding UEI may be obtained at www.uei.com. We make our periodic and current reports, together
with amendments to these reports, available on our website, free of charge, as soon as reasonably practicable after such
material is electronically filed with, or furnished to, the SEC. The SEC maintains a website at www.sec.gov that contains the
reports, proxy and other information that we file electronically with the SEC.
Business Segment
Overview
Universal Electronics Inc. develops control technology solutions and manufactures a broad line of pre-programmed universal
remote control products, embedded hardware and software, and audio-video ("AV") accessories that enhance and simplify the
home entertainment experience. Our offerings include the following:
•
•
•
easy-to-use, pre-programmed universal infrared ("IR") and radio frequency ("RF") remote controls that are sold
primarily to subscription broadcasting providers (cable, satellite and IPTV), original equipment manufacturers
("OEMs"), retailers, and private label customers;
integrated circuits, on which our software and universal device control database is embedded, sold primarily to
OEMs, subscription broadcasting providers, and private label customers;
software, firmware and technology solutions that can enable devices such as TVs, set-top boxes, stereos, smart
phones, tablets, gaming controllers and other consumer electronic devices to wirelessly connect and interact with
home networks and interactive services to control and deliver digital entertainment and information;
•
intellectual property which we license primarily to OEMs, software development companies, private label
customers, and subscription broadcasting providers; and
• AV accessories sold, directly and indirectly, to consumers.
Our business is comprised of one reportable segment.
Principal Products and Markets
Our principal markets are the subscription broadcast and consumer electronics markets where our customers include
subscription broadcasters, OEMs, international retailers, private labels and companies in the computing industry.
We provide subscription broadcasting providers, both domestically and internationally, with our universal remote control
devices and integrated circuits, on which our software and device code database library is embedded. We also sell our universal
remote control devices and integrated circuits, on which our software and device code database library is embedded, to OEMs
that manufacture AV devices including digital set-top boxes, computers and gaming consoles.
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We continue to place significant emphasis on expanding our sales and marketing efforts to subscription broadcasters and OEMs
in Asia, Latin America and Europe. Owning and operating our own factories in the PRC has enhanced our ability to compete in
the OEM and subscription broadcasting markets, particularly in Asia. In addition, in 2010 we opened a new subsidiary in
Brazil, which has allowed us to increase our reach and better compete in the Latin American subscription broadcast market. We
plan to continue to add new sales and administrative personnel to support anticipated sales growth in these markets over the
next few years.
We continue to pursue further penetration of the more traditional OEM consumer electronics markets as well as newer product
categories in the mobile electronics markets such as smart phones, tablets and other mobile smart devices. Customers in these
markets integrate our products and technology into their products to simplify and expand the universal control capabilities of
home entertainment ecosystems. Growth in these markets has been driven by the increasing complexity of home entertainment,
emerging digital technology, multimedia and interactive internet applications, and the increasing proliferation of connected
smart devices offered by OEMs.
For the years ended December 31, 2013, 2012, and 2011, our sales to DIRECTV and its sub-contractors collectively accounted
for 15.6%, 16.9%, and 12.2% of our net sales, respectively. For the year ended December 31, 2011, our sales to Sony and its
sub-contractors collectively accounted for 10.3% of our net sales.
Our One For All® brand name remote controls and accessories sold within the international retail markets accounted for 9.4%,
10.3%, and 9.3% of our total net sales for the years ended December 31, 2013, 2012, and 2011, respectively. Throughout 2013,
we continued our international retail sales and marketing efforts. Financial information relating to our international operations
for
in "FINANCIAL STATEMENTS AND
included
SUPPLEMENTARY DATA-Notes to Consolidated Financial Statements-Note 15".
the years ended December 31, 2013, 2012, and 2011
is
Intellectual Property and Technology
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. At the end of 2013 we had 269 issued and pending United States
patents as well as hundreds of foreign counterpart patents and applications in various territories around the world.
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.
A key factor in creating products and software for control of entertainment devices is the device control code database. Since
our beginning in 1986, we have compiled an extensive device control code database library that covers over 787,600 individual
device functions and approximately 6,400 individual consumer electronic equipment brand names. Our library is regularly
updated with device control codes used in newly introduced AV devices. These control codes are captured directly from the
remote control devices or the manufacturer's written specifications to ensure the accuracy and integrity of the database. Our
universal remote control database is capable of controlling virtually all IR controlled set-top boxes, televisions, audio
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components, DVD players, Blu-Ray players, and CD players, as well as most other remote controlled home entertainment
devices and home automation control modules worldwide. In 2012, we extended our device control code database to include
wired (CEC) and wireless (IP) control protocols commonly found on many of the latest HDMI and internet connected devices.
Our proprietary software and know-how permit us to offer a device control code database that is more robust and efficient than
similarly priced products of our competitors.
Our goal is to provide universal entertainment control solutions that require minimal or no user set-up and deliver consistent
and intuitive one-touch control of all connected content sources. UEI QuickSet is a software application that is currently
embedded in millions of devices globally. UEI QuickSet may be embedded in an AV device, set-top box, or other host device
for a universal remote control. 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 device. The two-way connection
allows device control code data and configuration settings to be sent to the remote control from the device and greatly
simplifies the universal remote control set-up process and can enable other time saving features. The latest version of UEI
QuickSet utilizes data transmitted over HDMI to automatically detect a connected device and then determine and download the
correct codes into the remote control without the need for the user to enter any additional information. The user does not need
to know the brand or model number to set up the device in the remote. Any compatible new device that is connected is
recognized. Consumers can easily and quickly set up their remotes to control multiple devices effortlessly. Licensees of UEI
QuickSet currently include leading cable and satellite service providers such as DIRECTV and Echostar Technologies, as well
as leading brands in the video game industry, such as Nintendo on their WiiU platform, and more recently, Micosoft on their
Xbox One gaming system.
Smart devices are becoming a more prevalent part of the home entertainment experience, and UEI offers several solutions to
enable entertainment device control with a smart phone, tablet or smart TV. In its smart device control solutions, UEI offers all
of the elements needed for device control from the micro IR blaster chip to the IR database to the user interface for the
touchscreen. Nevo is a UEI-designed and developed universal control application designed for Android and iOS tablets and
smart phones that UEI has released and that is currently available for download at Google Play and the Apple App Store.
Methods of Distribution
Our distribution methods for our remote control devices are dependent on the sales channel. We distribute remote control
devices and AV accessories directly to subscription broadcasters and OEMs, both domestically and internationally. 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 device control codes. We
ship integrated circuits, on which our software and control code database are embedded, directly to manufacturers for inclusion
in their products. In addition, we license our software and technology to manufacturers. Licenses are delivered upon the transfer
of a product master or on a per unit basis when the software or technology is used in a customer device.
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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 OEMs through our live and automated call
centers. We also make available a web-based support resource, www.urcsupport.com, designed specifically for subscription
broadcasters. This solution offers videos and online tools to help users easily set up their universal remote, and as a result
reduce call volume at customer support centers. Additionally, the UEI Technical Support Services call center provides customer
interaction management services from service and support to retention. Services include pre-repair calls, post-install surveys,
and inbound calls for cable customers to provide greater bottom-line efficiencies.
Our twenty-three 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;
• UEI Hong Kong Holdings Co. Pte. Ltd., established in Hong Kong;
• 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 (Yangzhou) Co. Ltd., established in the PRC;
• Gemstar Technology (Qinzhou) 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.
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Raw Materials and Dependence on Suppliers
We utilize our own manufacturing plants and third-party manufacturers and suppliers primarily located within the PRC to
produce our remote control products. In 2013 and 2012, no single supplier provided more than 10% of our total inventory
purchases. In 2011, Samsung provided 10.2% of our total inventory purchases.
Even though we own and operate three factories in the PRC and one assembly plant in Brazil, we continue to evaluate
additional contract manufacturers and sources of supply. During 2013, 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 second half of the year. We
expect this pattern to be repeated during 2014.
See "FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA — Notes to Consolidated Financial Statements — Note
21" for further details regarding our quarterly results.
Competition
Our principal competitors in the subscription broadcasting market are Remote Solutions, Philips Consumer Electronics, and
Universal Remote Control. In the international retail and private label markets for wireless controls we compete with Logitech,
Philips Consumer Electronics, 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 Logitech, Philips Consumer Electronics, Ruwido, SMK, Universal Remote Control, Remote
Solutions and various manufacturers in Asia in the IR database market. We compete in our markets on the basis of product
quality, features, price, intellectual property and customer support. We believe that we will need to continue to introduce new
and innovative products and software solutions to remain competitive and to recruit and retain competent personnel to
successfully accomplish our future objectives.
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Engineering, Research and Development
During 2013, 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;
•
•
• updating our library of device codes to include codes for new features and devices introduced worldwide.
launching new embedded software solutions designed to simplify set-up and control features; and
improving our software control solutions;
During 2013, our advanced engineering efforts focused on further developing our existing products, services and technologies.
We released software updates to our embedded UEI QuickSet application, and we continued development projects for
emerging RF technologies, such as RF4CE, Bluetooth, Bluetooth Smart and Wi-Fi Direct. Additionally, we released several
new products in our subscription broadcast, OEM and consumer retail channels during 2013.
Our personnel are involved with various industry organizations and bodies, which are in the process of setting standards for IR,
RF, power line, telephone and cable communications and networking in the home. Because of the nature of research and
development activities, there can be no assurance that any of our research and development projects will be successfully
completed or ultimately achieve commercial success.
Our expenditures on engineering, research and development were:
(In millions):
Research and development
Engineering (1)
Total engineering, research and development
(1) Engineering costs are included in SG&A.
Environmental Matters
2013
2012
2011
$
$
16.4 $
8.7
25.1 $
14.2 $
8.6
22.8 $
12.3
9.8
22.1
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 substances 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.
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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
financially responsible for specified collection, recycling, treatment and disposal of past and future covered products. Our
European subsidiaries are WEEE compliant. 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, 2013, 2012 and 2011, 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 material adverse effect upon our capital
expenditures, earnings or financial condition.
Employees
At December 31, 2013, we employed 1,831 employees, of which 470 worked in engineering and research and development, 75
in sales and marketing, 82 in consumer service and support, 973 in operations and warehousing and 231 in executive and
administrative functions. In addition, our factories in the PRC and our Asian operations employed an additional 6,674 staff
contracted through agency agreements.
Labor unions represent approximately 7.0% of our 1,831 employees. These unionized workers, employed within Manaus,
Brazil, are represented under contract with the Sindicato dos Trabalhadores das Industrias de Aparelhos Eléctricos, Eletrônicos
e Similares de Manaus. Our business units are subject to various laws and regulations relating to their relationships with their
employees. These laws and regulations are specific to the location of each business unit. We believe that our relationships with
employees and their representative organizations are good.
International Operations
Financial information relating to our international operations for the years ended December 31, 2013, 2012 and 2011 is
contained in "FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA — Notes to Consolidated Financial Statements
— Note 15".
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Executive Officers of the Registrant(1)
The following table sets forth certain information concerning our executive officers on March 12, 2014:
Name
Paul D. Arling
Paul J.M. Bennett
Mark S. Kopaskie
David Chong
Bryan M. Hackworth
Richard A. Firehammer, Jr.
Age
51
58
56
52
44
56
Position
Chairman of the Board and Chief Executive Officer
Executive Vice President, Managing Director, Europe
Executive Vice President, General Manager U.S. Operations
Executive Vice President, Asia
Senior Vice President and Chief Financial Officer
Senior Vice President, General Counsel and Secretary
(1) Included pursuant to Instruction 3 to Item 401(b) of Regulation S-K.
Paul D. Arling is our Chairman and Chief Executive Officer. He joined us in May 1996 as Chief Financial Officer and was
named to our Board of Directors in August 1996. He was appointed President and COO in September 1998, was promoted to
Chief Executive Officer in October 2000 and appointed as Chairman in July 2001. At the 2013 Annual Meeting of
Stockholders, Mr. Arling was re-elected as our Chairman to serve until the 2014 Annual Meeting of Stockholders. From 1993
through May 1996, he served in various capacities at LESCO, Inc. (a manufacturer and distributor of professional turf care
products). Prior to LESCO, he worked for Imperial Wall coverings (a manufacturer and distributor of wall covering products)
as Director of Planning, and The Michael Allen Company (a strategic management consulting company) where he was
employed as a management consultant.
Paul J.M. Bennett is our Executive Vice President and Managing Director, Europe. He was our Managing Director and Senior
Vice President, Managing Director, Europe from July 1996 to December 2006. He was promoted to his current position in
December 2006. Prior to joining us, he held various positions at Philips Consumer Electronics over a seven year period, first as
Product Marketing Manager for the Accessories Product Group, initially set up to support Philips' Audio division, and then as
head of that division.
Mark S. Kopaskie is our Executive Vice President and General Manager, U.S. Operations. He rejoined us in September 2006 as
our Senior Vice President and General Manager, U.S. Operations and was promoted to his current position in December 2006.
He was our Executive Vice President and Chief Operating Officer from 1995 to 1997. From 2003 until November 2005,
Mr. Kopaskie was President and Chief Executive Officer of Packaging Advantage Corporation (PAC), a personal care and
household products manufacturer, which was acquired by Marietta Corporation in November 2005. Following the acquisition,
he served as Senior Vice President, Business Development for Marietta Corporation. From 1997 to 2003, he held senior
management positions at Birdair Inc., a world leader in the engineering, manufacturing, and construction of tensioned
membrane structures, and OK International, a manufacturer and marketer of fluid dispensing equipment, solder and de-solder
systems, and wire wrap products. Prior to joining us in 1995, Mr. Kopaskie was Senior Vice President of Operations at
Mr. Coffee Inc.
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David Chong is our Executive Vice President, Asia. He is responsible for general management of our Asia region and Global
Operations. Mr. Chong joined us in January 2009 as Senior Vice President of Global OEM. Prior to joining us, Mr. Chong
served as Senior Vice President at Philips Consumer Electronics Division, as the Chief Marketing Officer of the business group
Philips Display (Philips TV and Computer Monitor business). At Philips Display, he led the re-engineering of the Product
Creation, Marketing and Sales Organization to compete successfully in the LCD TV space. Prior to this, he also served as Vice
President and General Manager of the Audio Video Business in Asia, Vice President and Global Business Line Manager for
Audio and various senior management positions at Philips' CE Division. Mr. Chong started at Philips Research Lab in 1984 as a
research scientist working in the area of VLSI design methodologies. He also served as Managing Director for Asia at InVue
Security Product before joining us at the present position. Mr. Chong had his senior education in The United Kingdom, holding
a B.S. in Electrical and Electronics Engineering with High Honors from University of Nottingham.
Bryan M. Hackworth is our Senior Vice President and Chief Financial Officer. He was promoted to Chief Financial Officer in
August 2006. Mr. Hackworth joined us in June 2004 as Corporate Controller and subsequently assumed the role of Chief
Accounting Officer in May 2006. Before joining us in 2004, he spent five years at Mars, Inc., a privately held international
manufacturer and distributor of consumer products and served in several financial and strategic roles (Controller — Ice Cream
Division; Strategic Planning Manager for the WHISKAS ® Brand) and various other financial management positions. Prior to
joining Mars Inc., Mr. Hackworth spent six years at Deloitte & Touche LLP as an auditor, specializing in the manufacturing
and retail industries.
Richard A. Firehammer, Jr., Esq. has been our Senior Vice President since February 1999. He has been our General Counsel
since October 1993 and Secretary since February 1994. He was our Vice President from May 1997 until August 1998. He was
outside counsel to us from September 1998 until being rehired in February 1999. From November 1992 to September 1993, he
was associated with the Chicago, Illinois law firm, Shefsky & Froelich, Ltd. From 1987 to 1992, he was with the law firm,
Vedder, Price, Kaufman & Kammholz in Chicago, Illinois.
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RISK FACTORS
We face a variety of risks that may affect our business, financial condition, operating results, the trading price of our common
stock, or any combination thereof. The following information and the other information in our 2013 Annual Report on Form
10-K and in our other filings with the SEC, including subsequent reports on Forms 10-Q and 8-K, should be carefully
considered in evaluating our business and prospects and before making an investment decision with respect to our common
stock. If any of these risks were to occur, our business, financial condition, results of operations or prospects may be materially
and adversely affected. In such an event, the market price of our common stock may decline and you may lose all or part of
your investment. The risks and uncertainties we describe below are not the only ones facing us. Additional risks not presently
known to us or that we currently deem immaterial may also affect our business.
Risks Related to Doing Business in the PRC
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 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 materials,
environmental regulations, land use rights, property and other matters.
The PRC laws and regulations governing our current business operations are sometimes vague and uncertain. Any changes in
such PRC laws and regulations may harm our business.
There are substantial uncertainties 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. We cannot predict what
effect the interpretation of existing or new PRC laws or regulations may have on our business. 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:
•
•
•
•
requiring that we discontinue any portion or all of our business.
requiring that we restructure our ownership or operations; and
revoking our business and other licenses;
levying fines;
The fluctuation of the Chinese Yuan Renminbi may harm your investment.
Under Chinese monetary policy, the Chinese Yuan Renminbi is permitted to fluctuate within a narrow and managed band
against a basket of certain foreign currencies. This policy, which was initiated during 2005, has resulted in a 34.1%
appreciation of the Chinese Yuan Renminbi against the U.S. Dollar as of December 31, 2013. While the international reaction
to the Chinese Yuan Renminbi revaluation has been positive, there remains significant international pressure on the PRC
government to adopt an even more flexible currency policy, which may result in a further and more significant appreciation of
the Chinese Yuan Renminbi against the U.S. Dollar.
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The PRC's legal and judicial system may not adequately protect our business and operations and the rights of foreign
investors.
The PRC legal and judicial system may negatively impact foreign investors and are still rudimentary, with enforcement of
existing laws inconsistent. In addition, the promulgation of new laws, changes to existing laws and the pre-emption of local
regulations by national laws may adversely affect foreign investors.
Availability of adequate workforce levels
Presently, the vast majority of workers at our 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 may
experience an increase in competition for the same workers, resulting in either an inability to attract and retain an adequate
number of qualified workers or an increase in our employment costs to obtain and retain 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 facilities 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.
Risks Related to Adverse Changes in General Business and Economic Conditions in the United States and Worldwide and
Continued Recession and Tightening in the United States and Worldwide Credit Markets
Adverse changes in general business and economic conditions in the United States and worldwide may reduce the demand for
some of our products and adversely affect our results of operations, cash flow, liquidity or financial condition. Higher inflation
rates, interest rates, tax rates and unemployment rates, higher labor and health care costs, recessions, changing governmental
policies, laws and regulations, and other economic factors may adversely affect our results of operations, cash flow, liquidity or
financial condition.
In addition, the global financial crisis affecting the banking system and financial markets resulted in a severe tightening 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 and cyclical nature of portions of our business
Uncertainty about current and future global economic conditions may cause consumers, businesses and governments 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.
In addition, portions of our business involve the sale of products to sectors of the economy that are cyclical in nature,
particularly the retail sector. Our sales to these sectors are affected by the levels of discretionary consumer and business
spending. During economic downturns, the levels of consumer and business discretionary spending in these sectors may
decrease, and the recovery of these sectors may lag behind the recovery of the overall economy. This decrease in spending will
likely reduce the demand for some of our products and may adversely affect our sales, earnings, cash flow or financial
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condition. Although many of our end markets have started to show signs of stabilization and modest improvement, the
recovery has been erratic and challenging market conditions are expected to continue for the foreseeable future and may
worsen. A worsening in these sectors may cause a reduction in the demand for some of our products and may adversely impact
sales, earnings, cash flow and financial condition.
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 sufficient 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 collection efforts as customers experience increased difficulty in obtaining requisite
financing, leading to higher than normal accounts receivable balances and longer DSOs. Continuation of these conditions may
limit our ability to collect our accounts receivable, which 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 suppliers 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.
Dependence upon Key Suppliers
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 wireless control products, from primarily two sources. To reduce our dependence on
our integrated circuits suppliers we continually seek additional sources. We maintain 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 interruption, shortage or termination in the supply of any of the components used in our products, or a reduction in
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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.
Disruption of Our Supply Chain May Have an Adverse Effect on Our Business, Financial Condition and Results of Operations
Our ability, including manufacturing or distribution capabilities, and that of our suppliers, business partners and contract
manufacturers, to make, move and sell products is critical to our success. Damage or disruption to our or their manufacturing or
distribution capabilities due to weather, natural disaster, fire or explosion, terrorism, pandemics, strikes, or other reasons, may
impair our ability to manufacture or sell our products. Failure to take adequate steps to mitigate the likelihood or potential
impact of such events, or to effectively manage such events if they occur, may adversely affect our business, financial condition
and results of operations, as well as require additional resources to restore our supply chain.
Dependence on Foreign Manufacturing
Although we own and operate factories in the PRC, third-party manufacturers located in the PRC continue to manufacture a
portion 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
requirements, work stoppages, political and social instability, economic and labor conditions, foreign currency exchange rate
fluctuations, changes in laws and policies (including fiscal policies), 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.
Potential Fluctuations in Quarterly Results
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 business, 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
acquisition 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 operating 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.
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Fluctuations in Foreign Currency Exchange Rates May Adversely Affect Our Results of Operations, Cash Flow, Liquidity or
Financial Condition.
Because of our international operations, we are exposed to risk associated with interest rates and value changes in foreign
currencies, which may adversely affect our business. Historically, our reported net sales, earnings, cash flow and financial
condition have been subjected to fluctuations in foreign exchange rates. Our primary exchange rate exposure is in the
Argentinian Peso, Brazilian Real, British Pound, Chinese Yuan Renminbi, Euro, Hong Kong Dollar, Indian Rupee, and
Singapore Dollar. While we actively manage the exposure of our foreign currency risk as part of our overall financial risk
management policy, we believe we may experience losses from foreign currency exchange rate fluctuations, and such losses
may adversely affect our sales, earnings, cash flow, liquidity or financial condition.
Our Ability to Generate Cash Depends on Many Factors Beyond Our Control. We Also Depend on the Business of Our
Subsidiaries to Satisfy Our Cash Needs.
Our historical financial results have been, and we anticipate that our future financial results will be, subject to fluctuations. Our
ability to generate cash is subject to general economic, financial, competitive, legislative, regulatory and other factors that are
beyond our control. We cannot assure you that our business will generate sufficient cash flow from our operations or that future
borrowings will be available to us in an amount sufficient to enable us to make payments of our debt, fund our other liquidity
needs and make planned capital expenditures.
A significant portion of our operations are conducted through our subsidiaries. As a result, our ability to generate sufficient cash
flow for our needs is dependent to some extent on the earnings of our subsidiaries and the payment of those earnings to us in
the form of dividends, loans or advances and through repayment of loans or advances from us. Our subsidiaries are separate
and distinct legal entities. Our subsidiaries have no obligation to pay any amounts due on our debt or to provide us with funds
to meet our cash flow needs, whether in the form of dividends, distributions, loans or other payments. In addition, any payment
of dividends, loans or advances by our subsidiaries may be subject to statutory or contractual restrictions. Payments to us by
our subsidiaries will also be contingent upon our subsidiaries' earnings and business considerations. Our right to receive any
assets of any of our subsidiaries upon their liquidation or reorganization will be effectively subordinated to the claims of that
subsidiary's creditors, including trade creditors. In addition, even if we are a creditor of any of our subsidiaries, our rights as a
creditor would be subordinate to any security interest in the assets of our subsidiaries and any indebtedness of our subsidiaries
senior to that held by us. Further, changes in the laws of foreign jurisdictions in which we operate may adversely affect the
ability of some of our foreign subsidiaries to repatriate funds to us.
In addition, we generally fund a portion of our seasonal working capital needs and obtain funding for other general corporate
purposes through short-term borrowings backed by our revolving credit facility and other financing facilities. If any of the
banks in these credit and financing facilities are unable to perform on their commitments, which may adversely affect our
ability to fund seasonal working capital needs and obtain funding for other general corporate purposes, our cash flow, liquidity
or financial condition may be adversely impacted. Although we currently have available credit facilities to fund our current
operating needs, we cannot be certain that we will be able to replace our existing credit facilities or refinance our existing or
future debt when necessary. Our cost of borrowing and ability to access the capital markets are affected not only by market
conditions, but also by our debt and credit ratings assigned by the major credit rating agencies. Downgrades in these ratings
will increase our cost of borrowing and may have an adverse effect on our access to the capital markets, including our access to
the commercial paper market. An inability to access the capital markets may have a material adverse effect on our results of
operations, cash flow, liquidity or financial condition.
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The Price of Our Common Stock is Volatile and May Decline Regardless of Our Operating Performance.
Historically, we have had large fluctuations in the price of our common stock, and such fluctuations may continue. From
January 1, 2011 to March 10, 2014, the trading price of our common stock has ranged from a low of $11.40 per share to a high
of $45.24 per share. The market price for our common stock is volatile and may fluctuate significantly in response to a number
of factors, most of which we cannot control, including:
•
•
•
•
•
•
•
the public's response to press releases or other public announcements by us or third parties, including our filings
with the SEC and announcements relating to product and technology development, relationships with new and
existing customers, litigation and other legal proceedings in which we are involved and intellectual property
impacting us or our business;
announcements concerning strategic transactions, such as spin-offs, joint ventures and acquisitions or divestitures;
the financial projections we may provide to the public, any changes in these projections or our failure to meet
these projections;
changes in financial estimates or ratings by any securities analysts who follow our common stock, our failure to
meet these estimates or failure of those analysts to initiate or maintain coverage of our common stock;
investor perceptions as to the likelihood of achievement of near-term goals;
changes in market share of significant customers;
changes in operating performance and stock market valuations of other technology or content providing
companies generally; and
• market conditions or trends in our industry or the economy as a whole.
In the past, stockholders have instituted securities class action litigation following periods of market volatility. If we were
involved in securities litigation, we may incur substantial costs and our resources and the attention of management may be
diverted from our business.
In addition, our executive officers periodically sell shares of our common stock which they own, often pursuant to trading plans
established under Rule 10b5-1 of the Securities Exchange Act of 1934, as amended, or the Exchange Act. Sales of shares by
our executive officers may not be indicative of their respective opinions of the company’s performance at the time of sale or of
our potential future performance. Nonetheless, the market price of our stock may be affected by such sales of shares by our
executive officers.
If Securities or Industry Analysts Fail to Continue Publishing Research About Our Business, Our Stock Price and Trading
Volume May Decline.
The trading market for our common stock is influenced by the research and reports that industry or securities analysts publish
about us or our business. If one or more of these analysts cease coverage of our company or fail to publish reports on us
regularly, we may lose visibility in the financial markets, which in turn may cause our stock price or trading volume to decline.
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Future Sales of Our Equity May Depress the Market Price of Our Common Stock.
We have several institutional stockholders that own significant blocks of our common stock. If one or more of these
stockholders were to sell large portions of their holdings in a relatively short time, for liquidity or other reasons, the prevailing
market price of our common stock may be negatively affected.
Approved Stock Repurchase Programs May Not Result in a Positive Return of Capital to Stockholders.
Our board-approved stock repurchase program may not return value to stockholders because the market price of the stock may
decline significantly below the levels at which we repurchased shares of stock. Stock repurchase programs are intended to
deliver stockholder value over the long term, but stock price fluctuations can reduce the effectiveness of such programs.
Dependence on Consumer Preference
We are susceptible to fluctuations in our business based upon consumer demand for our products. In addition, we cannot
guarantee that increases in demand for our products associated with increases in the deployment 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.
Demand for Consumer Service and Support
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 customers. 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 business, operating results, financial condition and cash flows.
Dependence upon New Product Introduction
Our ability to remain competitive 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
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.
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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 substantial investments in inventory and expand our production capabilities.
Dependence on Major Customers
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,
retailers 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, Asia and Latin America currently
representing our principal foreign markets.
During the years ended December 31, 2013 and 2012, we had sales to DIRECTV and its sub-contractors, that when combined,
totaled 10% or more of our net sales. During the year ended December 31, 2011, we had sales to Sony and its sub-contractors
and to DIRECTV and its sub-contractors, that when combined, each totaled 10% or more of our net sales. The loss of any 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.
Outsourced Labor
We continue to use outside resources to assist us in the development of some of our products and technologies. 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 and technologies may be substantially delayed, which may have a material adverse effect on our operating results,
financial condition and cash flows.
Competition
Competition within the wireless control industry is 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 fragmented 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. Other competitors are smaller and may be able to offer more
specialized products. 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. Competition in any of these areas may reduce our sales and adversely affect our earnings or cash flow by resulting in
decreased sales volumes, reduced prices and increased costs of manufacturing, distributing and selling our products. There can
be no assurance that our product offerings will be, and/or will 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 products 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.
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Patents, Trademarks, and Copyrights
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 assurance 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, production, and marketing skills and the
experience of our personnel are of equal importance to our market position. We further believe that our business is not
materially dependent upon any single patent, copyright, trademark, or trade secret.
Some of our products include or use technology and/or components of third parties. While it may be necessary in the future to
seek or renew licenses relating to various aspects of such products, we believe that, based upon past experience and industry
practice, such licenses 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,
current 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.
Potential for Litigation
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 litigation are asserted or commenced by third parties against us or by us against third parties, arising from or
related to product liability, infringement of patent or other intellectual property rights, breach of warranty, contractual relations
or employee relations. The amounts claimed may be substantial, but 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.
Risks of Conducting Business Internationally
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:
•
•
•
•
•
•
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;
so called "Acts of God", such as hurricanes, earthquakes, tsunamis, and other natural disasters, man-made
disasters, and the spread of contagious diseases, such as H1N1 Flu, Avian Flu, and SARS, in locations where we
own, manage or operate our business;
currency fluctuations affecting gross margins, particularly in the Chinese Yuan Renminbi, Euro, British Pound,
Argentinian Peso, Brazilian Real, Indian Rupee, and Singapore Dollar;
longer accounts receivable cycles and financial instability among customers;
trade regulations and procedures and actions affecting production, pricing and marketing of products;
local labor conditions, customs, and regulations;
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• production stoppages or pressures to increase wages and employee benefits brought about by the union
representing our labor force in Manaus, Brazil;
ability to protect and enforce our intellectual property rights;
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-efficient manner and changes in tax
laws; and
•
fluctuations in freight costs and disruptions at important geographic points of exit and entry.
Risks and Uncertainties Associated with Our Expansion Into and Our Operations in Asia, Europe, Mexico, South America and
Other Foreign Markets May Adversely Affect Our Results of Operations, Cash Flow, Liquidity or Financial Condition
Net external sales of our consolidated foreign subsidiaries totaled approximately 53.0%, 54.5% and 57.3% of our total
consolidated net sales in 2013, 2012 and 2011, respectively. Sales outside of the United States make up a significant part of our
current business and future strategic plans. Our results of operations, cash flow, liquidity or financial condition may be
adversely affected by a variety of international factors, including general economic conditions, inflation rates, recessions,
foreign currency exchange rates, foreign currency exchange controls, interest rates, foreign investment and repatriation
restrictions, legal and regulatory constraints, civil unrest, difficulties in staffing and managing foreign operations and other
external economic and political factors. Our inability to successfully manage the risks and uncertainties relating to these factors
may adversely affect our results of operations, cash flow, liquidity or financial condition.
In many foreign countries, it is acceptable to engage in certain business practices that we are prohibited from engaging in
because of regulations that are applicable to us, such as the Foreign Corrupt Practices Act and the UK Bribery Act. Although
we have internal control policies and procedures designed to ensure compliance with these regulations, there can be no
assurance that our policies and procedures will prevent a violation of these regulations. Any violation may cause an adverse
effect on our results of operations, cash flow or financial condition.
Our Brand Quality and Reputation
Our business depends on the quality and reputation of our brands, and any deterioration in the quality or reputation of these
brands may have an adverse impact on our market share, reputation, business, financial condition or results of operations.
Events that may be beyond our control may affect the reputation of one or more of our products or more generally impact the
reputation of our brands. If the reputation or perceived quality of our brands declines, our market share, reputation, business,
financial condition or results of operations may be affected.
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Failure to Maintain the Integrity of Internal or Customer Data May Result in Faulty Business Decisions, Operational
Inefficiencies, Damage of Reputation and/or Subject Us to Costs, Fines, or Lawsuits
Our business requires collection and retention of large volumes of internal and customer data, including personally identifiable
information of our customers in various information systems that we maintain and in those maintained by third parties with
whom we contract to provide services, including in areas such as banking, human resources outsourcing, website hosting, and
email marketing. We also maintain personally identifiable information about our employees. The integrity and protection of
that customer, employee, and company data is critical to us. If that data is inaccurate or incomplete, we may make faulty
decisions. Our customers and employees also have a high expectation that we and our service providers will adequately protect
their personal information. The regulatory environment as well as the requirements imposed on us regarding such information,
security and privacy is also increasingly demanding, in both the United States and other jurisdictions in which we operate. Our
systems may be unable to satisfy changing regulatory requirements and employee and customer expectations, or may require
significant additional investments or time in order to do so. Our information systems and records, including those we maintain
with our service providers, may be subject to security breaches, system failures, viruses, operator error or inadvertent releases
of data. A significant theft, loss, or fraudulent use of customer, employee, or company data maintained by us or by a service
provider may adversely impact our reputation and may result in remedial and other expenses, fines, or litigation. A breach in
the security of our information systems or those of our service providers may lead to an interruption in the operation of our
systems, resulting in operational inefficiencies and a loss of profits.
Effectiveness of Our Internal Control Over Financial Reporting
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 control 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 SEC. Any such action may
adversely affect our financial results and the market price of our common stock.
Unanticipated Changes in Tax and Other Laws and Regulations
Our business is subject to regulation under a wide variety of laws, regulations and policies in jurisdictions around the world. In
response to the recent economic crisis and the recent recession, we anticipate that many of the jurisdictions in which we do
business will continue to review tax and other revenue raising laws, regulations and policies, and any resulting changes may
impose new restrictions, costs or prohibitions on our current practices and reduce our profits. In particular, governments may
revise tax laws, regulations or official interpretations in ways that may have a significant impact on us, including modifications
that may reduce the profits that we can effectively realize from our non-U.S. operations, or that may require costly changes to
those operations, or the way in which they are structured. For example, most U.S. company effective tax rates reflect the fact
that income earned and reinvested outside the United States is generally taxed at local rates, which are often much lower than
U.S. tax rates. If changes in tax laws, regulations or interpretations significantly increase the tax rates on non-U.S. income, our
effective tax rate may increase and our profits may be reduced. If such increases resulted from our status as a U.S. company,
those changes may place us at a disadvantage to our non-U.S. competitors if those competitors remain subject to lower local tax
rates.
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In addition, from time to time, we are subject to tax audits in various jurisdictions. Tax authorities may disagree with our
intercompany charges or other matters 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.
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 restricting the presence of
certain substances in electronics products. In addition, many of these laws and regulations make producers of electrical goods
responsible for collection, recycling, treatment and disposal of recovered products. As a result, 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.
Leased Property
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.
Technology Changes in Wireless Control
We currently derive substantial revenue from the sale of wireless remote controls based on IR and RF and other technologies.
Other control technologies exist or may be developed that may compete with this technology. 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. In addition, if
other wireless control 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 Technology Development Activities may Experience Delays.
We may experience technical, financial, resource or other difficulties or delays related to the further development of our
technologies. Delays may have adverse financial effects and may allow competitors with comparable technology offerings to
gain an advantage over us in the marketplace or in the standards setting arena. There can be no assurance that we will continue
to have adequate staffing or that our development efforts will ultimately be successful. Moreover, certain of our technologies
have not been fully tested in commercial use, and it is possible that they may not perform as expected. In such cases, our
business, financial condition and operating results may be adversely affected, and our ability to secure new licensees and other
business opportunities may be diminished.
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Failure to Recruit, Hire, and Retain Key Personnel
Our ability to achieve growth in the future will depend, in part, on our success at recruiting, hiring, training, developing and
retaining highly skilled engineering, managerial, operational, sales and marketing personnel. If our salary and benefits fail to
stay competitive it may negatively impact our ability to hire and retain key personnel and we may experience low morale,
inefficiency or internal control failures. The inability to recruit, hire, train, develop and retain qualified personnel, or the loss of
any key personnel, may make it difficult to meet key objectives, such as timely and effective product introductions and also
limit our ability to grow and expand our business.
Change in Competition and Pricing
Even with having our own factories located in the PRC, we will continue to rely on third-party manufacturers to build a portion
of 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 manufacturers 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.
Transportation Costs and Impact of Oil Prices
We ship products from our factories and 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 in two forms. The first is in the prices of oil-based materials in our products,
which are primarily the plastics and other components that we include in our finished products. The second is in the cost of
delivery and freight, which would be passed on by the carriers that we use in the form of higher rates. 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.
Proprietary Technologies
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 products 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 permanent withdrawal from a product or market,
damage to our reputation, increased inventory costs, or product re-engineering expenses, any of which may have a material
impact on our operating results, financial condition and cash flows.
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Strategic Business Transactions
We may, from time to time, pursue strategic 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 subject to specific accounting guidelines that
may adversely affect our financial condition, results of operations and cash flow.
Growth Projections
Management has made 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 performance of the company,
including those involving:
•
•
•
•
•
•
the benefits the company expects as a result of the development and success of products and technologies, including
new products and technologies;
the benefits expected by conducting business in Asian and Brazilian markets, without 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 market penetrations;
the expected continued adoption of the company's technologies in gaming consoles and mobile devices;
the expected continued growth in digital TVs, DVRs, PVRs and overall growth in the company'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.
Additionally, we have goodwill and intangible assets recorded on our balance sheet. We periodically evaluate the recoverability
of the carrying value of our goodwill and intangible assets whenever events or changes in circumstances indicate that such
value may not be recoverable. Impairment assessment involves judgment as to assumptions regarding future sales and cash
flows and the impact of market conditions on those assumptions. Future events and changing market conditions may impact our
assumptions and may result in changes in our estimates of future sales and cash flows that may result in us incurring substantial
impairment charges, which would adversely affect our results of operations or financial condition.
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Market Projections and Data are Forward-looking in Nature.
Our strategy is based on our own projections and on analyst, industry observer and expert projections, which are forward-
looking in nature and are inherently subject to risks and uncertainties. The validity of their and our assumptions, the timing and
scope of the markets within which we compete, economic conditions, customer buying patterns, the timeliness of equipment
development, pricing of products, and availability of capital for infrastructure improvements may affect these predictions. In
addition, market data upon which we rely is based on third party reports that may be inaccurate. The inaccuracy of any of these
projections and/or market data may adversely affect our operating results and financial condition.
Delaware Law and Our Governing Corporate Documents Contain, and Our Board of Directors May Implement, Antitakeover
Provisions that May Deter Takeover Attempts
Under the Delaware business combination statute, a stockholder holding 15 percent or more of our outstanding voting stock
may not acquire us without Board of Director consent for at least three years after the date the stockholder first held 15 percent
or more of the voting stock. Our governing corporate documents also, among other things, require super-majority votes in
connection with mergers and similar transactions. In addition, our Board of Directors may, without stockholder approval,
implement other anti-takeover defenses, such as a stockholder's rights plan.
Regulations Related to the Use of Conflict-Free Minerals May Increase Our Costs and Expenses, and an Inability to Certify
that Our Products are Conflict-Free May Adversely Affect Customer Relationships
The Dodd-Frank Wall Street Reform and Consumer Protection Act contains provisions to improve the transparency and
accountability of the use by public companies in their products of minerals mined in certain countries and to prevent the
sourcing of such “conflict” minerals. As a result, the Securities and Exchange Commission enacted new annual disclosure and
reporting requirements for public companies that use these minerals in their products, which apply to us. Under the final rules,
we are required to conduct due diligence to determine the source of any conflict minerals used in our products and to make
annual disclosures beginning in May 2014. Because our supply chain is broad-based and complex, we may not be able to easily
verify the origins for all minerals used in our products. In addition, the new rules may reduce the number of suppliers who
provide components and products containing conflict-free minerals and thus may increase the cost of the components used in
manufacturing our products and the costs of our products to us. Any increased costs and expenses may have a material adverse
impact on our financial condition and results of operations. Further, if we are unable to certify that our products are conflict
free, we may face challenges with our customers, which may place us at a competitive disadvantage, and our reputation may be
harmed.
We are Subject to a Wide Variety of Complex Domestic and Foreign Laws and Regulations.
We are subject to a wide variety of complex domestic and foreign laws and regulations, and legal compliance risks, including
securities laws, tax laws, employment and pension-related laws, competition laws, U.S. and foreign export and trading laws,
and laws governing improper business practices. We are affected by new laws and regulations, and changes to existing laws
and regulations, including interpretations by courts and regulators. From time to time, our Company, our operations and the
industries in which we operate are being reviewed or investigated by regulators, which may lead to enforcement actions or the
assertion of private litigation claims and damages.
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Although we believe that we have adopted appropriate risk management and compliance programs to mitigate these risks, the
global and diverse nature of our operations means that compliance risks will continue to exist. Investigations, examinations and
other proceedings, the nature and outcome of which cannot be predicted, will likely arise from time to time. These
investigations, examinations and other proceedings may subject us to significant liability and require us to make significant
accruals or pay significant settlements, fines and penalties, which may have a material adverse effect on our results of
operations, cash flow or financial condition.
We are Required to Comply with Numerous Complex and Increasingly Stringent Domestic and Foreign Health, Safety and
Environmental Laws and Regulations, the Cost of Which is Likely to Increase.
Our operations are subject to various domestic and foreign health, safety and environmental laws and regulations. These laws
and regulations not only govern our current operations and products, but also impose potential liability on us for our past
operations. We expect health, safety and environmental laws and regulations to impose increasingly stringent requirements
upon our industry and us in the future. Our costs to comply with these laws and regulations may increase as these requirements
become more stringent in the future, and these increased costs may adversely affect our results of operations, cash flow or
financial condition.
Changes in Financial Accounting Standards or Policies may affect our Reported Financial Condition or Results of Operations.
From time to time the Financial Accounting Standards Board (the “FASB”) and the SEC change their guidance governing the
form and content of our external financial statements. In addition, accounting standard setters and those who interpret U.S.
generally accepted accounting principles (“GAAP”), such as the FASB and the SEC may change or even reverse their previous
interpretations or positions with regard to how these standards should be applied. A change in accounting principles or their
interpretation can have a significant effect on our reported results. In certain cases, the company may be required to apply new
or revised guidance retroactively or apply existing guidance differently. For example, in January 2012, the FASB and
International Accounting Standards Board released an updated exposure draft, Revenue from Contracts with Customers, which,
if it becomes final, may significantly impact the timing of revenue recognition for new and existing contracts with licensees.
This and other potential changes in reporting standards may substantially change our reporting practices in a number of areas,
including revenue recognition and recording of assets and liabilities, and affect our reported financial condition or results of
operations.
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SELECTED CONSOLIDATED FINANCIAL DATA
The information below is not necessarily indicative of the results of future operations and should be read in conjunction with "MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS", and the Consolidated Financial Statements and notes
thereto included in "FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA", in order to further understand the factors that may affect the
comparability of the financial data presented below.
(In thousands, except per share data)
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
Year Ended December 31,
2013
$ 529,354
32,154
$
22,963
$
2012
$ 463,090
26,202
$
16,553
$
2011
$ 468,630
26,576
$
19,946
$
2010
$ 331,780
21,301
$
15,081
$
2009
$ 317,550
21,947
$
14,675
$
$
$
1.51
1.47
$
$
1.11
1.10
$
$
1.34
1.31
$
$
1.10
1.07
$
$
1.07
1.05
15,248
15,601
—
28.6%
22.5%
6.1%
4.3%
5.7%
14,952
15,110
—
28.8%
23.2%
5.6%
3.6%
4.4%
14,912
15,213
—
27.8%
22.1%
5.7%
4.3%
5.4%
13,764
14,106
—
31.3%
24.9%
6.4%
4.6%
5.0%
13,667
13,971
—
32.0 %
25.1 %
6.9 %
4.6 %
6.5 %
(In thousands, except per share data)
Working capital
Ratio of current assets to current liabilities
Total assets
Cash and cash equivalents
Stockholders’ equity
Book value per share (1)
Ratio of liabilities to liabilities and stockholders’
equity
December 31,
2013
$ 158,548
2.3
$ 423,733
76,174
$
$ 291,270
18.55
$
2012
$ 113,488
2.0
$ 379,324
44,593
$
$ 250,650
16.74
$
$
2011
84,761
1.7
$ 369,488
29,372
$
$ 229,989
15.55
$
$
2010
66,101
1.4
$ 372,533
54,249
$
$ 211,204
14.13
$
2009
$ 127,086
3.1
$ 233,307
29,016
$
$ 169,730
12.40
$
31.3%
33.9%
37.8%
43.3%
27.3 %
(1) Book value per share is defined as stockholders’ equity divided by common shares issued less treasury stock.
The comparability of information for 2013, 2012 and 2011 compared to prior years is affected by the acquisition of Enson Assets Limited during the fourth
quarter of 2010.
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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 remote control products, AV accessories, and software
that are marketed to enhance home entertainment systems. Our customers operate in the consumer electronics market and
include subscription broadcasters, OEMs, international retailers, private labels, and companies in the computing industry. We
also sell integrated circuits, on which our software and IR code database, or library, is embedded, to OEMs that manufacture
wireless control devices, cable converters or satellite receivers for resale in their products.
Since our beginning in 1986, we have compiled an extensive IR code library that covers over 787,600 individual device
functions and approximately 6,400 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 library contains device codes that are capable of controlling virtually all IR controlled set-top boxes, televisions,
audio components, DVD players, Blu-Ray players, and CD players, as well as most other remote controlled home
entertainment devices and home automation control modules worldwide.
We operate as one business segment. We have twenty-three subsidiaries located in Argentina, Cayman Islands, France,
Germany, Hong Kong (6), India, Italy, the Netherlands, Singapore, Spain, Brazil, British Virgin Islands (3), People's Republic
of China (3) and the United Kingdom.
To recap our results for 2013:
• Net sales increased 14.3% to $529.4 million in 2013 from $463.1 million in 2012.
• Our gross margin percentage decreased moderately from 28.8% in 2012 to 28.6% in 2013.
• Operating expenses, as a percent of sales, decreased from 23.2% in 2012 to 22.5% in 2013.
• Operating income increased 22.7% to $32.2 million in 2013 from $26.2 million in 2012, and our operating margin
percentage increased to 6.1% in 2013, compared to 5.6% in 2012.
• Our effective tax rate decreased from 32.8% in 2012 to 20.9% in 2013.
Our strategic business objectives for 2014 include the following:
•
•
•
•
•
•
continue to develop industry-leading technologies and products with attractive gross margins in order to improve
profitability;
continue to increase our market share in newer product categories, such as smart devices and game consoles;
further penetrate the growing Asian and Latin American subscription broadcasting markets;
acquire new customers in historically strong regions;
increase our share with existing customers; and
continue to seek acquisitions or strategic partners that complement and strengthen our existing business.
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We intend for the following discussion of our financial condition and results of operations to provide information that will
assist in understanding our consolidated financial statements, the changes in certain key items in those financial statements
from period to period, and the primary factors that accounted for those changes, as well as how certain accounting principles,
policies and estimates affect our consolidated financial statements.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with accounting principles 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 revenues and expenses
during the reporting period. On an on-going basis, we evaluate our estimates and judgments, including those related to revenue
recognition, allowances for sales returns and doubtful accounts, warranties, inventory valuation, our review for impairment of
long-lived assets, intangible assets and goodwill, income taxes and stock-based 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 and may have a material impact on our consolidated financial position or results of operations.
An accounting policy is deemed to be critical if it requires an accounting estimate to be made based on assumptions about
matters that are highly uncertain at the time the estimate is made, if different estimates reasonably may have been used, or if
changes in the estimate that are reasonably likely to occur may materially impact the financial statements. Management
believes the following critical accounting policies affect our more significant judgments and estimates used in the preparation
of our consolidated financial statements. In addition to the accounting policies mentioned below, see "FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA — Notes to Consolidated Financial Statements — Note 2" for other
significant accounting policies.
Revenue recognition
We recognize revenue on the sale of products when title of the goods has transferred, there is persuasive evidence of an
arrangement (such as a purchase order from the customer), the sales price is fixed or determinable and collectability is
reasonably assured.
A provision is recorded for estimated sales returns and allowances and 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 and allowances, 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 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.
We accrue for discounts and rebates based on historical experience and our expectations regarding future sales to our
customers. These accruals are recorded as a reduction to sales in the same period as the related revenues. Changes in such
accruals may be required if future rebates and incentives differ from our estimates.
Revenue for the sale of tooling is recognized when the related tooling has been provided, customer acceptance documentation
has been obtained, the sales price is fixed or determinable and collectability is reasonably assured.
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 revenues are recognized when services are performed, persuasive evidence of
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an arrangement 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 license our intellectual property including our patented technologies, 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 incorporating our
intellectual property, persuasive evidence of an arrangement exists, the sales price is fixed or determinable, and collectability is
reasonably assured. When a fixed upfront license fee is received in exchange for the delivery of a particular database of
infrared codes that represents the culmination of the earnings process, we record revenues when delivery has occurred,
persuasive evidence of an arrangement exists, the sales price is fixed or determinable and collectability is reasonably assured.
Revenue for term license fees is recognized on a straight-line basis over the effective term of the license when we cannot
reliably predict in which periods, within the term of the license, the licensee will benefit from the use of our patented
inventions.
Allowance for Doubtful Accounts
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,
including credit reviews, historical experience, length of time receivables are past due, current economic trends and changes in
customer payment behavior. We also 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. 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.
Warranty
We warrant our products against defects in materials and workmanship arising during normal use. We service warranty claims
directly through our customer service 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. 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.
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Inventories
Our wireless remote control device, component part, and raw material inventories are valued at the lower of cost or market
value. Cost is determined using the first-in, first-out method. We write-down our inventory for the estimated difference
between cost and estimated market value based upon our best estimates of market conditions. We carry inventory in amounts
necessary to satisfy our customers' inventory requirements on a timely basis. We continually monitor our inventory status to
control inventory levels and write-down any excess or obsolete inventories on hand. If actual market conditions are less
favorable than those projected by management, additional inventory write-downs may be required which may have a material
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 approximately $1.0 million.
Valuation of Long-Lived Assets and Intangible Assets
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:
changes in the manner of use of the assets;
changes in the strategy of our overall business;
• underperformance relative to historical or projected future operating results;
•
•
• negative industry or economic trends;
•
•
a variance between our market capitalization relative to net book value.
a decline in our stock price for a sustained period; and
If the carrying value of the asset is larger than its undiscounted cash flows, the asset is impaired. The impairment is measured
as the difference between the net book value of the asset and the asset's estimated fair value. Fair value is estimated utilizing the
asset's projected discounted cash flows. In assessing fair value, we must make assumptions regarding estimated future cash
flows, the discount rate and other factors.
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 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 financial information is available, and segment management
regularly reviews the operating results of that component. We have a single reporting unit.
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To evaluate whether goodwill is impaired, we conduct a two-step quantitative goodwill impairment test. In the first step 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 reporting 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 perform the second step of the impairment test in order to determine the implied fair value of the reporting unit's goodwill.
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
equal to the amount by which the carrying value of goodwill exceeds its implied fair value.
Determining the fair value of a reporting unit is judgmental in nature and involves the use of significant estimates and
assumptions. These estimates and assumptions include revenue growth rates and operating 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 reasonable but that are unpredictable and inherently uncertain. Actual
future results may differ from those estimates.
Income Taxes
We calculate our current and deferred tax provisions based on estimates 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 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
differences 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 jurisdictions 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
indefinitely 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.
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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 challenge 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 challenges 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 maintain reserves for uncertain tax positions, including related interest and penalties. 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 examination,
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 material impact on our operating results, financial position and
cash flows.
Stock-Based Compensation
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 ranges from one to four years. Estimated forfeiture rates are
based upon historical forfeitures.
We determine the fair value of restricted stock awards utilizing the average of the high and low trade prices of our Company's
shares on the date they were granted.
The fair value of stock options granted to employees and directors is determined utilizing the Black-Scholes option pricing
model. The assumptions utilized in the Black-Scholes model include risk-free interest rate, expected volatility, and expected
life in years. The risk-free interest rate over the expected term is equal to the prevailing U.S. Treasury note rate over the same
period. Expected volatility is determined utilizing historical volatility over a period of time equal to the expected life of the
stock option. Expected life is computed utilizing historical exercise patterns and post-vesting behavior. The dividend yield is
assumed to be zero since we have not historically declared dividends and do not have any plans to declare dividends in the
future.
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Results of Operations
The following table sets forth our results of operations expressed as a percentage of net sales for the periods indicated.
(In thousands)
Net sales
Cost of sales
Gross profit
Research and development expenses
Selling, general and administrative expenses
Operating income
Interest income (expense), net
Other income (expense), net
Income before income taxes
Provision for income taxes
Net income
Year Ended December 31,
2013
2012
2011
100.0%
71.4
28.6
3.1
19.4
6.1
0.0
(0.6)
5.5
1.2
4.3%
100.0 %
71.2
28.8
3.1
20.1
5.6
(0.0 )
(0.3 )
5.3
1.7
3.6 %
100.0%
72.2
27.8
2.6
19.5
5.7
(0.1)
(0.2)
5.4
1.1
4.3%
Year Ended December 31, 2013 ("2013") Compared to Year Ended December 31, 2012 ("2012")
Net sales. Net sales for 2013 were $529.4 million, an increase of 14.3% compared to $463.1 million in 2012. Net sales by our
business and consumer lines were as follows:
Net sales:
Business
Consumer
Total net sales
2013
2012
$ (millions)
% of total
$ (millions)
% of total
$
$
475.7
53.7
529.4
89.9% $
10.1%
100.0% $
410.9
52.2
463.1
88.7%
11.3%
100.0%
Net sales in our Business lines (subscription broadcasting, OEM, and computing companies) were 89.9% of net sales in 2013
compared to 88.7% in 2012. Net sales in our Business lines in 2013 increased by 15.8% to $475.7 million from $410.9 million
in 2012. The increase was driven primarily by strong demand and increased market share in North American subscription
broadcasting and Latin American subscription broadcasting, particularly in Brazil, as well as growth in net sales to consumer
electronic companies in Asia.
Net sales in our Consumer lines (One For All® retail and private label) were 10.1% of net sales in 2013 compared to 11.3% in
2012. Net sales in our Consumer lines in 2013 increased by 2.9% to $53.7 million from $52.2 million in 2012. International
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retail sales increased 3.8% from $47.8 million in 2012 to $49.6 million in 2013 due primarily to increased sales in the U.K,
Australia and Latin America.
Gross profit. Gross profit in 2013 was $151.5 million compared to $133.4 million in 2012. Gross profit as a percent of sales
remained relatively consistent at 28.6% in 2013 compared to 28.8% in 2012. Factors that improved our gross margin
percentage throughout 2013 include increasing the number of units produced internally versus at third-party manufacturers as
well as increased license revenues, primarily in the fourth quarter, relating to the smart device channel. These improvements in
our gross margin percentage were offset primarily by the strengthening of the Chinese Yuan Renminbi versus the U.S. Dollar.
Research and development ("R&D") expenses. R&D expenses increased 16.2% to $16.4 million in 2013 from $14.2 million in
2012. This increase was in line with our strategic initiatives and was primarily driven by additional R&D efforts dedicated to
developing new product offerings for new and existing product categories.
Selling, general and administrative ("SG&A") expenses. SG&A expenses increased 10.5% to $102.9 million in 2013 from
$93.1 million in 2012. This increase was driven primarily by increased payroll costs associated with hiring key personnel in
global engineering and in our Asian operations as well as restructuring costs associated with personnel changes primarily in our
European operations, increased incentive compensation costs, and increased freight and delivery costs associated with higher
sales volumes in 2013. These increases were partially offset by a reduction in litigation costs associated with protecting our
intellectual property.
Interest income (expense), net. Net interest income was $0.1 million in 2013 compared to net interest expense of $0.2 million in
2012. This change was driven primarily by lower interest expense in the current period due to decreased credit needs.
Other income (expense), net. Net other expense was $3.2 million in 2013 compared to net other expense of $1.4 million in
2012. This increase was driven primarily by increased foreign currency losses associated with fluctuations in foreign currency
rates related to the Chinese Yuan Renminbi, Argentinian Peso and Brazilian Real.
Income tax expense. Income tax expense was $6.1 million in 2013 compared to $8.1 million in 2012 and our effective tax rate
was 20.9% in 2013 compared to 32.8% in 2012. The decrease in our effective tax rate was due primarily to the valuation
allowance we recorded in 2012 against our deferred tax assets related to California research and experimentation credits and a
shift of income from higher tax rate jurisdictions to lower tax rate jurisdictions in 2013 driven largely by a tax benefit on
certain income earned in Hong Kong. Partially offsetting these benefits was the recording of $0.4 million of additional tax
reserves in the second quarter of 2013 resulting from a tax audit in Hong Kong for years preceding our 2010 acquisition of
Enson Assets Limited and the reversal of $0.5 million of unrecognized tax benefits in 2012 which were originally recorded in
2007 through 2011.
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Year Ended December 31, 2012 Compared to Year Ended December 31, 2011 ("2011")
Net sales. Net sales for 2012 were $463.1 million, a decrease of 1.2% compared to $468.6 million in 2011. Net sales by our
business and consumer lines were as follows:
Net sales:
Business
Consumer
Total net sales
2012
2011
$ (millions)
% of total
$ (millions)
% of total
$
$
410.9
52.2
463.1
88.7% $
11.3%
100.0% $
421.4
47.2
468.6
89.9%
10.1%
100.0%
Net sales in our Business lines (subscription broadcasting, OEM, and computing companies) were 88.7% of net sales in 2012
compared to 89.9% in 2011. Net sales in our Business lines in 2012 decreased by 2.5% to $410.9 million from $421.4 million
in 2011. This decrease was largely due to lower sales to consumer electronics companies, which resulted from the adverse
effect on television sales of the prolonged sluggish global economy. Partially offsetting the decrease in sales to consumer
electronics companies was an increase in net sales within subscription broadcasting. Net sales in subscription broadcasting
remained strong in North America and grew significantly, on a percentage basis, in Latin America, specifically Brazil.
Net sales in our Consumer lines (One For All® retail and private label) were 11.3% of net sales in 2012 compared to 10.1% in
2011. Net sales in our Consumer lines in 2012 increased by 10.6% to $52.2 million from $47.2 million in 2011. International
retail sales increased 10.1% from $43.4 million in 2011 to $47.8 million in 2012 due primarily to increased sales in the U.K.
and Latin America. In addition, North American retail sales increased $1.2 million, from $3.1 million to $4.3 million.
Gross profit. Gross profit in 2012 was $133.4 million compared to $130.1 million in 2011. Gross profit as a percent of sales
increased to 28.8% in 2012 from 27.8% in 2011. This improvement was primarily due to an increase in units produced
internally versus units produced by third-party manufacturers. Gross profit in 2012 was also positively affected by us entering
into a licensing agreement with a customer in the gaming industry, as well as the signing of a long-term, confidential settlement
and license agreement with Logitech. Compared to 2011, this favorability was partially offset by pricing pressure from
customers.
Research and development expenses. R&D expenses increased 15.4% to $14.2 million in 2012 from $12.3 million in 2011. The
increase was due to additional labor dedicated to general R&D activities in an effort to continue to develop new products and
technologies.
Selling, general and administrative expenses. SG&A expenses increased 2.0% to $93.1 million in 2012 from $91.2 million in
2011. This increase was driven primarily by increased incentive compensation costs as well as increased legal expenses as a
result of litigation costs related to protecting our intellectual property. Partially offsetting these expense increases was a
favorable currency effect due primarily to the Euro weakening compared to the U.S. Dollar.
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Interest income (expense), net. Net interest expense was $0.2 million in 2012 compared to $0.3 million in 2011. The decrease in
interest expense was due to lower credit needs during 2012, primarily as a result of positive operating cash flows which
allowed for the paydown of debt associated with the 2010 acquisition of Enson Assets Limited.
Other income (expense), net. Net other expense was $1.4 million in 2012 compared to net other expense of $1.1 million in
2011. This increase was driven by a higher amount of foreign currency losses in 2012, driven by fluctuations in the foreign
currency rates relating to the Argentinian Peso, Brazilian Real, Chinese Yuan Renminbi and Euro.
Income tax expense. Income tax expense was $8.1 million in 2012 compared to $5.3 million in 2011 and our effective tax rate
was 32.8% in 2012 compared to 20.9% in 2011. The increase in our effective tax rate was due primarily to a $3.9 million ($2.6
million net of federal benefit) valuation allowance that we recorded in 2012 against our deferred tax assets related to California
research and experimentation credits. At December 31, 2012, we believed it was more likely than not that these deferred tax
assets would not be realized. In addition, as the result of a tax law change in China, approximately $0.6 million of deferred tax
assets were no longer valid resulting in their write-down.
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Liquidity and Capital Resources
Sources and Uses of Cash
(In thousands)
Cash provided by operating activities
Cash used for investing activities
Cash (used for) provided by financing
activities
Effect of exchange rate changes on cash
Year ended
December 31,
2013
Increase
(Decrease)
Year ended
December 31,
2012
Increase
(Decrease)
Year ended
December 31,
2011
$
30,694 $
(11,674)
(12,849) $
(71)
43,543 $
(11,603)
28,743 $
3,091
14,800
(14,694)
10,038
2,523
27,616
1,664
(17,578)
859
8,691
(427)
(26,269)
1,286
Cash and cash equivalents
Working capital
December 31, 2013
$
76,174 $
158,548
Increase
(Decrease)
December 31, 2012
44,593
113,488
31,581 $
45,060
Net cash provided by operating activities decreased $12.9 million in 2013 when compared to 2012, driven largely by increased
working capital needs associated with inventory as we increased inventory levels in 2013 to support a higher level of expected
sales. In addition, although sales increased by 14.3% in 2013 compared to 2012, accounts receivable increased by only 4.8% as
days sales outstanding improved from 69 days for the quarter ended December 31, 2012 to 63 days for the quarter ended
December 31, 2013.
Net cash provided by operating activities increased $28.7 million in 2012 when compared to 2011, driven largely by a $31.0
million improvement in cash flows associated with inventories. In 2011, there were two items that resulted in a permanent
increase to our inventory levels. First, as a result of labor issues we previously experienced resulting from the Chinese New
Year, as well as the fact that both of our factories located in China shut down for a week during the Chinese New Year holiday
period, we made a conscious effort to increase our inventory levels during the latter half of the year in order to prevent supply
issues. Second, in the second quarter of 2011, we altered our shipping terms with a significant customer that resulted in us
holding title to inventories until shipments are received by this particular customer. The aforementioned items had an adverse
effect on cash flows in 2011; however, for 2012, the higher inventory levels were already in the base year. Working capital
changes in 2012 also included a $12.5 million increase in cash flows related to accounts payable and accrued expenses that was
due primarily to payment timing related to fourth quarter inventory purchases and increased incentive compensation accruals,
offset by a $12.1 million decrease in cash flows associated with accounts receivable that was driven primarily by year-end
collection timing.
Net cash used for investing activities during 2013 was $11.7 million compared to $11.6 million and $14.7 million of net cash
used during 2012 and 2011, respectively. During 2013, 2012 and 2011, cash used for investing activities consisted of our
investments in property, plant, and equipment as well as internally developed patents.
Net cash provided by financing activities was $10.0 million during 2013 compared to net cash used for financing activities of
$17.6 million during 2012 and net cash used for financing activities of $26.3 million during 2011. During 2012, we made net
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debt payments of $16.4 million compared to $18.6 million in 2011. Proceeds from stock option exercises were $12.4 million
during 2013 compared to proceeds of $2.2 million and $1.7 million during 2012 and 2011, respectively. In addition, we
purchased 153,115 shares of our common stock at a cost of $3.6 million during 2013, compared to 200,847 and 456,964 shares
at a cost of $3.5 million and $9.8 million during 2012 and 2011, 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.
From time to time, our Board of Directors authorizes management to repurchase 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, 2013, we had 933,456 shares available for repurchase under the Board's authorizations.
Contractual Obligations
The following table summarizes our contractual obligations and the effect these obligations are expected to have on our
liquidity and cash flow in future periods.
(In thousands)
Contractual obligations:
Operating lease obligations
Capital lease obligations
Purchase obligations(1)
Total contractual obligations
Payments Due by Period
Total
Less than
1 year
1 - 3
years
4 - 5
years
After
5 years
$
$
12,705 $
73
323
13,101 $
2,699 $
20
323
3,042 $
3,920 $
40
—
3,960 $
2,663 $
13
—
2,676 $
3,423
—
—
3,423
(1) Purchase obligations consist of contractual payments to purchase tooling assets.
Liquidity
Historically, we have utilized cash provided from operations as our primary source of liquidity, as internally generated cash
flows have been sufficient to support our business operations, capital expenditures and discretionary share repurchases. 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. We believe our current cash balances and
anticipated cash flow to be generated from operations will be sufficient to cover cash outlays expected during 2014; however,
because our cash is located in various jurisdictions throughout the world, we may at times need to borrow from our revolving
line of credit until we are able to transfer cash among our various entities.
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Our liquidity is subject to various risks including the market risks identified in the section entitled "QUANTITATIVE AND
QUALITATIVE DISCLOSURES ABOUT MARKET RISK".
(In thousands)
Cash and cash equivalents
Total debt
Available borrowing resources
On December 31,
$
2013
2012
2011
76,174 $
—
54,987
44,593 $
—
55,000
29,372
16,400
18,000
Our cash balances are held in numerous locations throughout the world. The majority of our cash is held outside of the United
States and may be repatriated to the United States but, under current law, 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 statement purposes as this cash is considered
indefinitely reinvested outside of the United States. Our intent is to meet our domestic liquidity needs through ongoing cash
flows, external borrowings, or both. 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, 2013, we had $30.1 million, $34.6 million, $7.2 million and $4.3 million of cash and cash equivalents in the
United States, Asia, Europe, and South America, respectively. We attempt to mitigate our exposure to liquidity, credit and other
relevant risks by placing our cash and cash equivalents with financial institutions we believe are high quality.
On October 2, 2012, we entered into an Amended and Restated Credit Agreement ("Amended Credit Agreement") with U.S.
Bank National Association ("U.S. Bank"). Under the Amended Credit Agreement, the existing secured revolving credit line
("Credit Line") was increased from $20.0 million to $55.0 million and the expiration date was extended from November 1,
2012 to November 1, 2014. The Amended Credit Agreement required that the Credit Line be used to pay off the remaining
outstanding balance of the existing term loan with U.S. Bank. The Credit Line may be used for working capital and other
general corporate purposes including acquisitions, share repurchases and capital expenditures. Amounts available for
borrowing under the Credit Line are reduced by the balance of any outstanding letters of credit, of which there were $13
thousand at December 31, 2013.
All obligations under the Credit Line are secured by substantially all of our U.S. personal property and tangible and intangible
assets as well as 65% of our ownership interest in Enson Assets Limited, our wholly-owned subsidiary which controls our
manufacturing factories in the PRC.
Under the Amended Credit Agreement, we may elect to pay interest on the Credit Line based on LIBOR plus an applicable
margin (varying from 1.25% to 1.75%) or base rate (based on the prime rate of U.S. Bank or as otherwise specified in the
Amended Credit Agreement) plus an applicable margin (varying from -0.25% to +0.25%). The applicable margins are
calculated quarterly and vary based on our leverage ratio as set forth in the Amended Credit Agreement. There are no
commitment fees or unused line fees under the Amended Credit Agreement.
The Amended Credit Agreement includes financial covenants requiring a minimum fixed charge coverage ratio, a maximum
leverage ratio and minimum liquidity levels. In addition, the Amended Credit Agreement also contains other customary
affirmative and negative covenants and events of default. As of December 31, 2013, we were in compliance with the covenants
and conditions of the Amended Credit Agreement.
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Off Balance Sheet Arrangements
We do not participate in any off balance sheet arrangements.
Recent Accounting Pronouncements
See "FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA — Notes to Consolidated Financial Statements — Note
2" for a discussion of recent accounting pronouncements.
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QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to various market risks, including interest rate and foreign currency exchange rate fluctuations. We have
established policies, procedures and internal processes governing our management of these risks and the use of financial
instruments to mitigate our risk exposure.
Interest Rate Risk
We are exposed to interest rate risk related to our debt. Although at December 31, 2013, we had no outstanding borrowings
under our revolving line of credit, from time to time we need to borrow amounts for working capital and other liquidity needs.
Under the Amended Credit Agreement that became effective on October 2, 2012, we may elect to pay interest on outstanding
borrowings on our Credit Line based on LIBOR or a base rate (based on the prime rate of U.S. Bank) plus an applicable margin
as defined in the Amended Credit Agreement. A 100 basis point increase in interest rates would have had an insignificant effect
on reported net income for the year ended December 31, 2013.
We cannot make any assurances that we will not need to borrow additional amounts in the future or that funds will be extended
to us under comparable terms or at all. If funding is not available to us at a time when we need to borrow, we would have to use
our cash reserves, including potentially repatriating cash from foreign jurisdictions, which may have a material adverse effect
on our operating results, financial position and cash flows.
Foreign Currency Exchange Rate Risk
At December 31, 2013 we had wholly owned subsidiaries in Argentina, Brazil, Cayman Islands, France, Germany, Hong Kong,
India, Italy, the Netherlands, the PRC, Singapore, Spain, and the United Kingdom. We are exposed to foreign currency
exchange rate risk inherent in our sales commitments, anticipated sales, anticipated purchases, assets and liabilities
denominated in currencies other than the U.S. Dollar. The most significant foreign currencies to our operations during 2013
were the Chinese Yuan Renminbi, Euro, British Pound, Argentinian Peso, Brazilian Real, Indian Rupee, and Singapore Dollar.
Our most significant foreign currency exposure is to the Chinese Yuan Renminbi as this is the functional currency of our
China-based factories where the majority of our products are manufactured. If the Chinese Yuan Renminbi were to strengthen
against the U.S. Dollar, our manufacturing costs would increase. For most other 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 agreements 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
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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, 2013, we believe that movements in foreign currency
rates may have a material effect on our financial position. We estimate that if the exchange rates for the Chinese Yuan
Renminbi, Euro, British Pound, Argentinian Peso, Brazilian Real, Indian Rupee, and Singapore Dollar relative to the U.S.
Dollar fluctuate 10% from December 31, 2013, net income in the first quarter of 2014 would fluctuate by approximately $5.5
million.
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
Universal Electronics Inc.
We have audited the accompanying consolidated balance sheets of Universal Electronics Inc. (a Delaware corporation) (the
"Company") as of December 31, 2013 and 2012, and the related consolidated statements of income, comprehensive income,
stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2013. These financial
statements are the responsibility 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
statements 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, 2013 and 2012, and the results of its operations and its cash flows for
each of the three years in the period ended December 31, 2013, 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),
the Company’s internal control over financial reporting as of December 31, 2013, based on criteria established in the 1992
Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO) and our report dated March 12, 2014 expressed an unqualified opinion.
Irvine, California
March 12, 2014
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UNIVERSAL ELECTRONICS INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share-related data)
December 31, 2013 December 31, 2012
Current assets:
ASSETS
Cash and cash equivalents
Accounts receivable, net
Inventories, net
Prepaid expenses and other current assets
Income tax receivable
Deferred income taxes
Total current assets
Property, plant, and equipment, net
Goodwill
Intangible assets, net
Other assets
Deferred income taxes
Total assets
Current liabilities:
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable
Line of credit
Accrued compensation
Accrued sales discounts, rebates and royalties
Accrued income taxes
Deferred income taxes
Other accrued expenses
Total current liabilities
Long-term liabilities:
Deferred income taxes
Income tax payable
Other long-term liabilities
Total liabilities
Commitments and contingencies
Stockholders' equity:
$
$
$
76,174 $
95,408
96,309
4,395
13
6,167
278,466
75,570
31,000
26,963
5,279
6,455
423,733 $
58,498 $
—
38,317
8,539
3,032
303
11,229
119,918
9,887
606
2,052
132,463
44,593
91,048
84,381
3,661
270
5,210
229,163
77,706
30,890
29,835
5,361
6,369
379,324
59,831
—
33,398
8,093
3,668
41
10,644
115,675
10,687
525
1,787
128,674
Preferred stock, $0.01 par value, 5,000,000 shares authorized; none issued or outstanding
Common stock, $0.01 par value, 50,000,000 shares authorized; 22,344,121 and 21,491,398 shares
issued on December 31, 2013 and 2012, respectively
Paid-in capital
Accumulated other comprehensive income (loss)
Retained earnings
Less cost of common stock in treasury, 6,639,497 and 6,516,382 shares on December 31, 2013
and 2012, respectively
Total stockholders' equity
Total liabilities and stockholders' equity
—
—
223
199,513
2,982
193,532
396,250
(104,980 )
291,270
423,733 $
$
215
180,607
1,052
170,569
352,443
(101,793 )
250,650
379,324
See Note 5 for further information concerning our purchases from a related party vendor.
The accompanying notes are an integral part of these consolidated financial statements.
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UNIVERSAL ELECTRONICS INC.
CONSOLIDATED INCOME STATEMENTS
(In thousands, except per share amounts)
Net sales
Cost of sales
Gross profit
Research and development expenses
Selling, general and administrative expenses
Operating income
Interest income (expense), 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
$
$
$
$
Year Ended December 31,
2013
529,354 $
377,892
151,462
16,447
102,861
32,154
51
(3,169 )
29,036
6,073
22,963 $
2012
463,090 $
329,653
133,437
14,152
93,083
26,202
(151 )
(1,413 )
24,638
8,085
16,553 $
1.51 $
1.47 $
1.11 $
1.10 $
15,248
15,601
14,952
15,110
2011
468,630
338,569
130,061
12,267
91,218
26,576
(270 )
(1,075 )
25,231
5,285
19,946
1.34
1.31
14,912
15,213
See Note 5 for further information concerning our purchases from a related party vendor.
The accompanying notes are an integral part of these consolidated financial statements.
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UNIVERSAL ELECTRONICS INC.
CONSOLIDATED COMPREHENSIVE INCOME STATEMENTS
(In thousands)
Net income
Other comprehensive income (loss):
Change in foreign currency translation adjustment
Comprehensive income
Year Ended December 31,
2013
2012
2011
22,963 $
16,553 $
19,946
1,930
24,893 $
114
16,667 $
1,427
21,373
$
$
See Note 5 for further information concerning our purchases from a related party vendor.
The accompanying notes are an integral part of these consolidated financial statements.
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UNIVERSAL ELECTRONICS INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands)
Balance at December 31, 2010
Net income
Currency translation adjustment
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, 2011
Net income
Currency translation adjustment
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, 2012
Net income
Currency translation adjustment
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, 2013
Common Stock
Issued
Common Stock
in Treasury
Shares
Amount
Shares
Amount
Paid-in
Capital
Accumulated
Other
Comprehensive
Income (Loss)
Retained
Earnings
20,877 $
209
(5,926 ) $
(89,526) $
166,940 $
(489) $
134,070 $
19,946
1,427
164
102
1
1
(457 )
(9,785)
30
434
21,143
211
(6,353 )
(98,877)
159
189
2
2
(201 )
(3,451)
38
535
21,491
215
(6,516 )
(101,793)
174
679
1
7
(153 )
(3,607)
30
420
728
1,676
(434)
4,511
280
173,701
747
2,202
(535)
4,575
(83)
180,607
746
12,364
(420)
5,342
874
938
114
154,016
16,553
1,052
1,930
170,569
22,963
22,344 $
223
(6,639 ) $
(104,980) $ 199,513 $
2,982 $
193,532 $
Totals
211,204
19,946
1,427
729
(9,785 )
1,677
—
4,511
280
229,989
16,553
114
749
(3,451 )
2,204
—
4,575
(83 )
250,650
22,963
1,930
747
(3,607 )
12,371
—
5,342
874
291,270
See Note 5 for further information concerning our purchases from a related party vendor.
The accompanying notes are an integral part of these consolidated financial statements.
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UNIVERSAL ELECTRONICS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
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:
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 property, plant, and equipment
Acquisition of intangible assets
Net cash used for investing activities
Cash (used for) provided by financing activities:
Issuance of debt
Payment of debt
Debt issuance costs
Proceeds from stock options exercised
Treasury stock purchased
Excess tax benefit from stock-based compensation
Net cash (used for) provided by 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 period
Supplemental Cash Flow Information:
Income taxes paid
Interest payments
Year Ended December 31,
2012
2013
2011
$
22,963 $
16,553 $
19,946
18,363
190
3,680
(1,617)
874
(1,274)
747
5,342
(4,509)
(15,353)
(633)
2,285
(364)
30,694
(10,355)
(1,319)
(11,674)
19,500
(19,500)
—
12,371
(3,607)
1,274
10,038
2,523
31,581
44,593
76,174 $
17,613
73
2,994
2,536
(83 )
(111 )
749
4,575
(8,998 )
2,987
(588 )
8,186
(2,943 )
43,543
(10,463 )
(1,140 )
(11,603 )
30,800
(47,200 )
(42 )
2,204
(3,451 )
111
(17,578 )
859
15,221
29,372
44,593 $
17,335
277
5,625
(1,043)
280
(439)
729
4,511
3,142
(30,597)
(345)
(4,319)
(302)
14,800
(13,630)
(1,064)
(14,694)
4,200
(22,800)
—
1,677
(9,785)
439
(26,269)
1,286
(24,877)
54,249
29,372
6,068 $
44 $
10,445 $
304 $
8,097
438
$
$
$
See Note 5 for further information concerning our purchases from a related party vendor.
The accompanying notes are an integral part of these consolidated financial statements.
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UNIVERSAL ELECTRONICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2013
Note 1 — Description of Business
Universal Electronics Inc. ("UEI"), 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 environment. In addition, over the
past 25 years we have developed a broad portfolio of patented technologies and a database of home connectivity software that
we license to our customers, including many leading Fortune 500 companies.
Our primary markets include cable and satellite television service provider, original equipment manufacturer ("OEM"), retail,
private label, and personal computing companies. We sell directly to our customers, and for retail 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.
Note 2 — Summary of Significant Accounting Policies
Principles of Consolidation
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.
Reclassifications
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 stockholders' equity.
Estimates and Assumptions
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 liabilities, disclosure of
contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses
during the reporting period. On an on-going basis, we evaluate our estimates and assumptions, including those related to
revenue recognition, allowances for 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.
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Revenue Recognition
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 accrue for discounts and rebates based on historical experience and our expectations regarding future sales to our
customers. Accruals for discounts and rebates are recorded as a reduction to sales in the same period as the related revenues.
Changes in such accruals may be required if future rebates and incentives differ from our estimates.
Trade accounts receivable are recorded at the invoiced amount and do not bear interest. Sales allowances are recognized as
reductions of gross accounts receivable to arrive at accounts receivable, net if the sales allowances are distributed in customer
account credits. See Note 4 for further information concerning our sales allowances.
Revenue for the sale of tooling is recognized when the related services have been provided, customer acceptance
documentation has been obtained, the sales price is fixed or determinable, and collectability is reasonably assured.
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 revenues are recognized when services are performed, persuasive evidence of
an arrangement 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 license our intellectual property including our patented technologies, 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 incorporating our
intellectual property, persuasive evidence of an arrangement exists, the sales price is fixed or determinable, and collectability is
reasonably assured. When a fixed upfront license fee is received in exchange for the delivery of a particular database of infrared
codes that represents the culmination of the earnings process, we record revenues when delivery has occurred, persuasive
evidence of an arrangement exists, the sales price is fixed or determinable and collectability is reasonably assured. Revenue for
term license fees is recognized on a straight-line basis over the effective term of the license when 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 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.
Income Taxes
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
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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.
Accounting standards prescribe a recognition 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 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.
Research and Development
Research and development costs are expensed as incurred and consist primarily of salaries, employee benefits, supplies and
materials.
Advertising
Advertising costs are expensed as incurred. Advertising expense totaled $1.2 million, $1.3 million, and $1.2 million for the
years ended December 31, 2013, 2012 and 2011, respectively.
Shipping and Handling Fees and Costs
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 $11.3 million, $9.2 million and $9.7 million for the years ended December 31, 2013, 2012 and 2011,
respectively.
Stock-Based Compensation
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 ranges from one to four years. Estimated forfeiture rates are
based upon historical forfeitures.
We determine the fair value of restricted stock awards utilizing the average of the high and low trade prices of our Company's
shares on the date they were granted.
The fair value of stock options granted to employees and directors is determined utilizing the Black-Scholes option pricing
model. The assumptions utilized in the Black-Scholes model include risk-free interest rate, expected volatility, and expected life
in years. The risk-free interest rate over the expected term is equal to the prevailing U.S. Treasury note rate over the same
period. Expected volatility is determined utilizing historical volatility over a period of time equal to the expected life of the
stock option. Expected life is computed utilizing historical exercise patterns and post-vesting behavior. The dividend yield is
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assumed to be zero since we have not historically declared dividends and do not have any plans to declare dividends in the
future. See Note 16 for further information regarding stock-based compensation.
Foreign Currency Translation and Foreign Currency Transactions
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 translation 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.
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.
Earnings Per Share
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 option
and restricted stock awards, outstanding during the period. Dilutive potential common shares for all periods presented are
computed utilizing the treasury stock method.
In the computation of diluted earnings per common share we exclude stock options with exercise prices greater than the average
market price of the underlying common stock because their inclusion would be anti-dilutive. Furthermore, we exclude shares of
restricted stock whose combined unamortized fair value and excess tax benefits are greater than the average market price of the
underlying common stock during the period, as their effect would be anti-dilutive.
Financial Instruments
Our financial instruments consist primarily of cash and cash equivalents, accounts receivable, accounts payable, accrued
liabilities and debt. The carrying value of our financial instruments approximates 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.
Cash and Cash Equivalents
Cash and cash equivalents include cash accounts and all investments purchased with initial maturities of three months or less.
We attempt to mitigate our exposure to liquidity, credit and other relevant risks by placing our cash and cash equivalents with
financial institutions we believe are high quality. 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
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financial institutions. We have not sustained credit losses from instruments held at financial institutions. See Note 3 for further
information concerning cash and cash equivalents.
Allowance for Doubtful Accounts
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
credit reviews, historical experience, length of time receivables are past due, current economic trends and changes in customer
payment behavior.
We also 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.
Inventories
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 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 additional write-downs may be required.
Property, Plant, and Equipment
Property, plant, and equipment are recorded at cost. The cost of property, plant, and equipment 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.
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Estimated useful lives consist of the following:
Buildings
Tooling and equipment
Computer equipment
Software
Furniture and fixtures
Leasehold improvements
25 years
2-7 Years
3-7 Years
3-5 Years
5-7 Years
Lesser of lease term or useful life
(approximately 2 to 10 years)
See Note 6 for further information concerning our property, plant, and equipment.
Goodwill
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 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 financial 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 conduct a two-step quantitative goodwill impairment test. In the first step 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 reporting 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 perform the second step of the impairment test in order to determine the implied fair value of the reporting unit's goodwill.
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 equal to
the amount by which the carrying value of goodwill exceeds its implied fair value.
See Note 7 for further information concerning goodwill.
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Long-Lived and Intangible Assets Impairment
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 caption Capitalized Software Development Costs) and
customer relationships. Capitalized amounts related to patents represent external legal costs for the application and maintenance
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. Factors considered important which may trigger an impairment review include the
following: (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 significant 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 inherent in our current business model. When calculating fair value, we must make assumptions regarding
estimated future cash flows, discount rates and other factors.
See Notes 6 and 15 for further information concerning long-lived assets. See Note 7 for further information concerning
intangible assets.
Capitalized Software Development Costs
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 typically established when
a working prototype 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 of the amounts computed using:
a.
b.
the net book value at the beginning of the period multiplied by the ratio that current 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 product 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.
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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 unamortized 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 capitalized 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.
Derivatives
Our foreign currency exposures are primarily concentrated in the Argentinian Peso, Brazilian Real, British Pound, Chinese
Yuan Renminbi, Euro, Hong Kong Dollar, Indian Rupee, and Singapore Dollar. We periodically enter into foreign currency
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. 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.
Fair-Value Measurements
We measure fair value using the framework established by the Financial Accounting Standards Board ("FASB") 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 data source. These two types of inputs result in the
following fair value hierarchy:
Level 1: Quoted prices (unadjusted) for identical instruments in active markets.
Level 2: 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.
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Recent Accounting Pronouncements
In July 2013, the FASB issued ASU 2013-11, "Presentation of an Unrecognized Tax Benefit When a Net Operating Loss
Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists". This standard requires an entity to present an
unrecognized tax benefit, or a portion of an unrecognized tax benefit, in the financial statements as a reduction to a deferred tax
asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward. To the extent a net operating loss
carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date under the tax law of the
applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position or the tax
law of the applicable jurisdiction does not require the entity to use, and the entity does not intend to use, the deferred tax asset
for such purpose, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be
combined with deferred tax assets. This guidance is effective for fiscal years, and interim periods within those years, beginning
after December 15, 2013. Early adoption is permitted. The adoption of ASU 2013-11 is not expected to have a material impact
on our consolidated results of operations or financial position.
Note 3 — Cash and Cash Equivalents
Cash and cash equivalents were held in the following geographic regions:
(In thousands)
United States
Asia
Europe
South America
Total cash and cash equivalents
December 31,
2013
2012
$
$
30,082 $
34,627
7,161
4,304
76,174 $
2,742
27,317
9,361
5,173
44,593
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Note 4 — Accounts Receivable, Net and Revenue Concentrations
Accounts receivable, net were as follows:
(In thousands)
Trade receivables, gross
Allowance for doubtful accounts
Allowance for sales returns
Net trade receivables
Other
Accounts receivable, net
Allowance for Doubtful Accounts
Changes in the allowance for doubtful accounts were as follows:
(In thousands)
Balance at beginning of period
Additions to costs and expenses
(Write-offs)/FX effects
Balance at end of period
Sales Returns
December 31,
2013
2012
$
$
94,325 $
(478)
(865)
92,982
2,426
95,408 $
90,056
(322)
(996)
88,738
2,310
91,048
Year Ended December 31,
2013
2012
2011
$
$
322 $
190
(34 )
478 $
1,021 $
73
(772 )
322 $
878
277
(134 )
1,021
The allowance for sales returns at December 31, 2013 and 2012 included reserves for items returned prior to year-end 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 $0.5 million and $0.6 million
on December 31, 2013 and 2012, respectively. The value of these returned goods was included in our inventory balance at
December 31, 2013 and 2012.
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Significant Customers
Net sales to individual customers that totaled more than 10% of our net sales were as follows:
2013
2012
2011
Year Ended December 31,
DIRECTV
Sony
$ (thousands)
% of Net Sales
$ (thousands)
% of Net Sales
$ (thousands)
% of Net Sales
$
82,679
—
15.6% $
—
78,325
—
16.9% $
—
57,371
48,483
12.2%
10.3
Trade receivables associated with significant customer activity that totaled more than 10% of our accounts receivable, net were
as follows:
DIRECTV
December 31,
2013
2012
$ (thousands)
$
—
% of Accounts
receivable, net
$ (thousands)
% of Accounts
Receivable, net
—% $
9,277
10.2%
The loss of either 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.
Note 5 — Inventories, Net and Significant Suppliers
Inventories, net were as follows:
(In thousands)
Raw materials
Components
Work in process
Finished goods
Reserve for excess and obsolete inventory
Inventories, net
December 31,
2013
2012
$
$
18,990 $
18,623
2,017
59,393
(2,714)
96,309 $
17,438
20,978
1,050
46,939
(2,024)
84,381
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Reserve for Excess and Obsolete Inventory
Changes in the reserve for excess and obsolete inventory were as follows:
(In thousands)
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,
2013
2012
2011
$
$
2,024 $
3,387
(365)
(2,332)
2,714 $
3,447 $
2,511
(1,166 )
(2,768 )
2,024 $
2,135
4,568
(1,295 )
(1,961 )
3,447
(1) The additions charged to costs and expenses do not include inventory directly written-off that was scrapped during
production totaling $0.3 million, $0.5 million, and $1.0 million for the years ended December 31, 2013, 2012, and
2011, respectively. These amounts are production waste and are not included in management’s reserve for excess and
obsolete inventory.
(2) These amounts represent the reversal of reserves associated with inventory items that were sold during the period. Sell
through is the result of differences between our judgment concerning the saleability of inventory items during the
excess and obsolete inventory review process and our subsequent experience.
Significant Suppliers
We purchase integrated circuits, components and finished goods from multiple sources. In 2013 and 2012, no single supplier
provided more than 10% of our total inventory purchases. Samsung provided $29.1 million, or 10.2% of total inventory
purchases during the year ended December 31, 2011.
Related Party Vendor
We purchase certain printed circuit board assemblies from a related party vendor. The vendor is considered a related party for
financial reporting purposes because our Senior Vice President of Manufacturing owns 40% of this vendor. Inventory purchases
from this vendor were as follows:
Year Ended December 31,
2013
2012
2011
$ (thousands)
% of Total
Inventory
Purchases
$ (thousands)
% of Total
Inventory
Purchases
$ (thousands)
% of Total
Inventory
Purchases
Related party vendor
$
9,846
3.5% $
8,845
3.8% $
8,677
3.0%
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Total accounts payable to this vendor were as follows:
Related party vendor
December 31,
2013
2012
$ (thousands)
$
2,439
% of Accounts
Payable
$ (thousands)
% of Accounts
Payable
4.2% $
1,815
3.0%
Our payable terms and pricing with this vendor are consistent with the terms offered by other vendors in the ordinary course of
business. The accounting policies that we apply to our transactions with our related party vendor are consistent with those
applied in transactions with independent third parties. Corporate management routinely monitors purchases from our related
party vendor to ensure these purchases remain consistent with our business objectives.
Note 6 — Property, Plant, and Equipment, Net
Property, plant, and equipment, net were as follows:
(In thousands)
Buildings
Machinery and equipment
Tooling
Leasehold improvements
Software
Furniture and Fixtures
Computer Equipment
Accumulated depreciation
Construction in progress
Total property, plant, and equipment, net
December 31,
2013
2012
$
$
51,901 $
48,859
26,495
17,749
8,504
6,231
2,691
162,430
(87,703)
74,727
843
75,570 $
44,607
44,168
24,496
16,153
7,373
5,360
2,630
144,787
(74,766)
70,021
7,685
77,706
Depreciation expense, including tooling depreciation which is recorded in cost of goods sold, was $14.2 million, $13.4 million
and $13.1 million for the years ended December 31, 2013, 2012, and 2011, respectively.
The net book value of property, plant, and equipment located within the People's Republic of China ("PRC") was $68.2 million
and $69.2 million on December 31, 2013 and 2012, respectively.
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Construction in progress was as follows:
(In thousands)
Buildings
Machinery and equipment
Tooling
Leasehold improvements
Software
Other
Total construction in progress
December 31,
2013
2012
— $
158
134
104
372
75
843 $
5,639
594
395
285
742
30
7,685
$
$
We expect that the remaining construction in progress costs will be placed into service during the first quarter of 2014. We will
begin to depreciate these assets once the assets are placed into service.
Note 7 — Goodwill and Intangible Assets, Net
Goodwill
Goodwill and changes in the carrying amount of goodwill were as follows:
(In thousands)
Balance at December 31, 2011
Goodwill adjustments (1)
Balance at December 31, 2012
Goodwill adjustments (1)
Balance at December 31, 2013
$
$
$
30,820
70
30,890
110
31,000
(1) Adjustments were the result of fluctuations in the foreign currency exchange rate used to translate balances into U.S.
Dollars.
We conducted annual goodwill impairment reviews on December 31, 2013, 2012, and 2011 utilizing significant unobservable
inputs (level 3). Based on the analysis performed, we determined that our goodwill was not impaired.
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Intangible Assets, Net
The components of intangible assets, net were as follows:
(In thousands)
Carrying amount(1):
Distribution rights (10 years)
$
Patents (10 years)
Trademark and trade names
(10 years)
Developed and core technology (5-
15 years)
Capitalized software development
costs (1-2 years)
2013
Accumulated
Amortization
Gross
December 31,
2012
Net
Gross
Accumulated
Amortization
Net
395 $
8,879
(52) $
(4,251)
343 $
4,628
378 $
8,113
(50) $
(3,847)
328
4,266
2,841
3,506
311
(1,411)
(1,140)
(133)
1,430
2,366
178
2,841
3,507
1,276
(1,127)
1,714
(906)
(913)
2,601
363
Customer relationships
(10-15 years)
Total carrying amount
26,406
42,338 $
(8,388)
(15,375) $
18,018
26,963 $
26,415
42,530 $
(5,852)
(12,695) $
20,563
29,835
$
(1) This table excludes the gross value of fully amortized intangible assets totaling $6.6 million and $9.1 million on
December 31, 2013 and 2012, respectively.
Amortization expense is recorded in selling, general and administrative expenses, except amortization expense related to
capitalized software development costs which is recorded in cost of sales. Amortization expense by income statement caption
was as follows:
(In thousands)
Cost of sales
Selling, general and administrative
Total amortization expense
Year Ended December 31,
2013
2012
2011
$
$
213 $
3,914
4,127 $
312 $
3,862
4,174 $
451
3,795
4,246
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Estimated future amortization expense related to our intangible assets at December 31, 2013, is as follows:
(In thousands)
2014
2015
2016
2017
2018
Thereafter
$
$
4,088
3,924
3,886
3,857
3,847
7,361
26,963
The remaining weighted average amortization period of our intangible assets is 7.1 years.
We recorded immaterial impairment charges related to our intangible assets for the years ended December 31, 2013, 2012, and
2011. 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. Quoted prices
for identical or similar patents, trademarks and trade names are unavailable. The fair value of intangible assets is based upon
management's judgment. Management believes that the net book value represents the fair value of our patents, trademarks and
trade names.
Note 8 — Line of Credit
On October 2, 2012, we entered into an Amended and Restated Credit Agreement ("Amended Credit Agreement") with U.S.
Bank National Association ("U.S. Bank"). Under the Amended Credit Agreement, the existing secured revolving credit line
("Credit Line") was increased from $20.0 million to $55.0 million and the expiration date was extended from November 1,
2012 to November 1, 2014. The Amended Credit Agreement required that the Credit Line be used to pay off the remaining
outstanding balance of the existing term loan with U.S. Bank. The Credit Line may be used for working capital and other
general corporate purposes including acquisitions, share repurchases and capital expenditures. Amounts available for
borrowing under the Credit Line are reduced by the balance of any outstanding letters of credit, of which there were $13
thousand at December 31, 2013.
All obligations under the Credit Line are secured by substantially all of our U.S. personal property and tangible and intangible
assets as well as 65% of our ownership interest in Enson, our wholly-owned subsidiary which controls our manufacturing
factories in the PRC.
Under the Amended Credit Agreement, we may elect to pay interest on the Credit Line based on LIBOR plus an applicable
margin (varying from 1.25% to 1.75%) or base rate (based on the prime rate of U.S. Bank or as otherwise specified in the
Amended Credit Agreement) plus an applicable margin (varying from -0.25% to +0.25%). The applicable margins are
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calculated quarterly and vary based on our leverage ratio as set forth in the Amended Credit Agreement. There are no
commitment fees or unused line fees under the Amended Credit Agreement.
The Amended Credit Agreement includes financial covenants requiring a minimum fixed charge coverage ratio, a maximum
leverage ratio and minimum liquidity levels. In addition, the Amended Credit Agreement also contains other customary
affirmative and negative covenants and events of default. As of December 31, 2013, we were in compliance with the covenants
and conditions of the Amended Credit Agreement.
Our total interest expense on borrowings was $23 thousand, $0.2 million and $0.4 million during the years ended December 31,
2013, 2012 and 2011, respectively.
Note 9 — Income Taxes
Pre-tax income was attributed to the following jurisdictions:
(In thousands)
Domestic operations
Foreign operations
Total
The provision for income taxes charged to operations were as follows:
(In thousands)
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
Total provision for income taxes
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Year Ended December 31,
2013
2012
2011
2,425 $
26,611
29,036 $
(2,203 ) $
26,841
24,638 $
3,279
21,952
25,231
Year Ended December 31,
2013
2012
2011
971 $
254
6,426
7,651
(101 )
(67 )
(1,410 )
(1,578 )
6,073 $
(891 ) $
(75 )
6,464
5,498
(882 )
3,630
(161 )
2,587
8,085 $
1,319
12
5,122
6,453
153
(409 )
(912 )
(1,168 )
5,285
$
$
$
$
Net deferred tax assets were comprised of the following:
(In thousands)
Deferred tax assets:
Inventory reserves
Capitalized research costs
Capitalized inventory costs
Net operating losses
Acquired intangible assets
Accrued liabilities
Income tax credits
Stock-based compensation
Total deferred tax assets
Deferred tax liability:
Depreciation
Allowance for doubtful accounts
Amortization of intangible assets
Other
Total deferred tax liabilities
Net deferred tax assets before valuation allowance
Less: Valuation allowance
Net deferred tax assets
December 31,
2013
2012
$
$
1,582 $
97
920
1,101
49
4,215
5,982
2,260
16,206
(4,679)
(80)
(2,583)
(1,600)
(8,942)
7,264
(4,832)
2,432 $
1,017
106
760
1,339
10
3,785
4,321
3,525
14,863
(5,132)
(41)
(2,858)
(1,922)
(9,953)
4,910
(4,059)
851
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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:
(In thousands)
Tax provision at statutory U.S. rate
Increase (decrease) in tax provision resulting from:
State and local taxes, net
Foreign tax rate differential
Nondeductible items
Federal research and development credits
Change in deductibility of social insurance
Valuation allowance
Other
Tax provision
Year Ended December 31,
2013
2012
2011
$
9,872 $
8,377 $
8,578
(397 )
(3,804 )
989
(1,149 )
214
520
(172 )
6,073 $
(246 )
(3,488 )
388
(369 )
617
2,592
214
8,085 $
(262 )
(3,528 )
407
(503 )
—
—
593
5,285
$
At December 31, 2013, we had federal and state Research and Experimentation ("R&E") income tax credit carry forwards of
approximately $0.6 million and $6.2 million, respectively. The federal R&E credits begin to expire in 2032. The state R&E
income tax credits do not have an expiration date.
At December 31, 2013, we had federal, state and foreign net operating losses of approximately $2.3 million, $4.1 million and
$0.2 million, respectively. All of the federal and state net operating loss carry forwards were acquired as part of the 2004
acquisition of SimpleDevices. The federal, state, and foreign net operating loss carry forwards begin to expire during 2024,
2018, and 2022, respectively.
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 periods. The annual federal limitation is approximately $0.6
million for 2013 and thereafter.
At December 31, 2013, we assessed the realizability of our deferred tax assets by considering whether it is “more likely than
not” some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in which those temporary differences become
deductible. We considered taxable income in carry-back years, the scheduled reversal of deferred tax liabilities, tax planning
strategies and projected future taxable income in making this assessment. Due to uncertainties surrounding the realization of
some of the Company’s deferred tax assets, primarily including state R&E income tax credits generated during the prior years
and current year, the Company established a valuation allowance against its deferred tax assets. When recognized, the tax
benefits relating to any reversal of this valuation allowance will be recorded as a reduction of income tax expense. Accordingly,
a valuation allowance of $4.7 million was recorded as of December 31, 2013 related to the state R&E deferred tax asset.
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During the year ended December 31, 2013, we recognized an increase to paid-in capital and a decrease to income taxes payable
of $0.9 million related to the tax benefit from the exercise of non-qualified stock options and vesting of restricted stock under
our stock-based incentive plans. During the year ended December 31, 2012 we recognized a decrease to paid-in capital and an
increase to income taxes payable of $0.1 million, related to the tax benefit from the exercise of non-qualified stock options and
vesting of restricted stock under our stock-based incentive plans. During the year ended December 31, 2011 we recognized an
increase to paid-in capital and a decrease to income taxes payable of $0.3 million, related to the tax benefit from the exercise of
non-qualified stock options and vesting of restricted stock under our stock-based incentive plans.
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 withholding 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.
During 2012, China's State Administration of Taxation issued Circular 15 which required us to reevaluate our foreign deferred
tax assets relating to our Chinese subsidiaries. These subsidiaries have recorded a deferred tax asset for social insurance and
housing funds with the intent of being able to deduct these expenses once such liabilities have been settled. Circular 15
stipulates that payments into the aforementioned funds must be made within five years of recording the initial accrual or the tax
deduction for these expenses will be forfeited. At December 31, 2013, we evaluated fund payments made prior to the preceding
five years and determined that $0.2 million of our foreign deferred tax assets would not provide a future tax benefit due to the
change in Chinese law. In adhering to the new law, we recorded increases to income tax expense of $0.2 million and $0.6
million for the years ended December 31, 2013 and 2012, respectively, relating to decreases in the deferred tax assets of our
Chinese subsidiaries.
Uncertain Tax Positions
At December 31, 2013 and 2012, we had unrecognized tax benefits of approximately $3.6 million and $5.1 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 $0.1 million, $0.1 million, and $0.2 million for the years ended
December 31, 2013, 2012 and 2011, respectively. Interest and penalties are included in the unrecognized tax benefits.
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Our gross unrecognized tax benefits at December 31, 2013, 2012 and 2011, and the changes during those years then ended,
were the following:
(In thousands)
Beginning balance
Additions as a result of tax provisions taken during 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
2013
2012
2011
$
$
5,006 $
357
(126 )
45
(63 )
(1,729 )
—
3,490 $
5,387 $
261
(346 )
—
(296 )
—
—
5,006 $
5,411
138
(67 )
133
(224 )
(15 )
11
5,387
Approximately $3.2 million and $4.7 million of the total amount of gross unrecognized tax benefits at December 31, 2013 and
2012, respectively, would affect the annual effective tax rate, if recognized. Current year reductions to the unrecognized tax
benefit relate to liabilities recorded by our Chinese subsidiaries. Furthermore, we are unaware of any positions for which it is
reasonably possible that the total amounts of unrecognized tax benefits will significantly change within the next twelve months.
We anticipate a decrease in gross unrecognized tax benefits of approximately $0.2 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 jurisdiction and in various state and foreign jurisdictions. At December 31, 2013
the open statutes of limitations for our significant tax jurisdictions are the following: federal are 2010 through 2012, state are
2009 through 2012 and non-U.S. are 2007 through 2012. At December 31, 2013, of our gross unrecognized tax benefits of $3.6
million, which included $0.1 million of interest, $1.5 million are classified as current and $2.1 million are classified as long
term.
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Note 10 — Accrued Compensation
The components of accrued compensation are listed below:
(In thousands)
Accrued social insurance(1)
Accrued salary/wages
Accrued vacation/holiday
Accrued bonus(2)
Accrued commission
Accrued medical insurance claims
Other accrued compensation
Total accrued compensation
December 31,
2013
2012
$
$
20,492 $
5,324
2,113
7,186
1,350
201
1,651
38,317 $
19,842
4,862
2,048
4,181
478
643
1,344
33,398
(1) Effective January 1, 2008, the Chinese Labor Contract Law was enacted in the 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, 2013 and 2012.
(2) Accrued bonus includes an accrual for an extra month of salary ("13th month salary") to be paid to employees in
certain geographies where it is the customary business practice. This 13th month salary is paid to these employees if
they remain employed with us through December 31st. The total accrued for the 13th month salary was $0.6 million
and $0.5 million at December 31, 2013 and 2012, respectively.
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Note 11 — Other Accrued Expenses
The components of other accrued expenses are listed below:
(In thousands)
Advertising and marketing
Duties
Freight
Product development
Product warranty claim costs
Professional fees
Sales taxes and VAT
Third-party commissions
Tooling (1)
Utilities
Other
Total other accrued expenses
December 31,
2013
2012
238 $
797
1,374
614
41
1,757
1,637
511
758
311
3,191
11,229 $
501
584
1,666
569
404
1,234
1,979
337
221
316
2,833
10,644
$
$
(1) The tooling accrual balance relates to unearned revenue for tooling that will be sold to customers.
Note 12 — Leases
We lease land, office and warehouse space, and certain office equipment under operating leases that expire at various dates
through November 30, 2060.
Rent expense for our operating leases was $3.5 million, $3.7 million and $3.2 million for the years ended December 31, 2013,
2012 and 2011, respectively.
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The following table summarizes future minimum non-cancelable operating lease payments at December 31, 2013:
(In thousands)
Year ending December 31:
2014
2015
2016
2017
2018
Thereafter
Total operating lease commitments
Amount
2,699
2,117
1,803
1,415
1,248
3,423
12,705
$
$
Non-level Rents and Lease Incentives
Some of our leases are subject to rent escalations. For these leases, we recognize rent expense for the total contractual
obligation utilizing the straight-line method over the lease term, ranging from 60 months to 125 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 $1.0 million and $0.5 million at December 31, 2013 and 2012,
respectively.
The lease agreement for our corporate headquarters contains an allowance for moving expenses and tenant improvements of
$1.5 million. These moving and tenant improvement allowances are recorded within other accrued expenses and other long
term liabilities, depending on the short term or long term nature, and are being amortized as a reduction of rent expense over
the 125-month term of the lease, which began on May 15, 2012.
Rental Costs During Construction
Rental costs associated with operating leases incurred during a construction period are expensed.
Prepaid Leases
We operate two factories within the PRC on which the land is leased from the government as of December 31, 2013. These
land leases were prepaid to the PRC government at the time our subsidiary occupied the land. We have obtained land-use right
certificates for the land pertaining to these factories.
The first factory is located in the city of Guangzhou in the Guangdong province. The remaining net book value of this prepaid
lease was $1.5 million on December 31, 2013, and will be amortized on a straight-line basis over approximately 21 years. The
buildings located on this land have a net book value of $13.7 million on December 31, 2013 and are being amortized over an
estimated remaining life of approximately 18 years.
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The second factory is located in the city of Yangzhou in the Jiangsu province. The remaining net book value of this prepaid
lease was $2.9 million on December 31, 2013, and will be amortized on a straight-line basis over the remaining term of
approximately 45 years. The buildings located on this land have a net book value of $24.8 million on December 31, 2013 and
are being amortized over an estimated remaining life of 24 years.
Note 13 — Commitments and Contingencies
Indemnifications
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 addition, 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 conditions. Management
is not aware of any matters that require indemnification of its officers or directors.
Fair Price Provisions and Other Anti-Takeover Measures
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" provisions). 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 our outstanding shares of voting stock approve certain
business combinations and significant transactions with interested stockholders.
Product Warranties
Changes in the liability for product warranty claim costs were as follows:
(In thousands)
Balance at beginning of period
Accruals for warranties issued during the period
Settlements (in cash or in kind) during the period
Balance at end of period
Year Ended December 31,
2013
2012
2011
$
$
404 $
416
(779 )
41 $
6 $
398
—
404 $
71
(27 )
(38 )
6
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Litigation
On July 15, 2011, we filed a lawsuit against Logitech, Inc., Logitech International S.A. and Logitech Europe S.A. in the United
States District Court, Central District of California (Universal Electronics Inc. v. Logitech, Inc., Logitech International S.A. and
Logitech Europe S.A., SACV 11-1056-JVS(ANx)) alleging that the Logitech companies were infringing seventeen of our
patents related to remote control technology. We alleged that this complaint related to multiple Logitech remote control
products and were seeking monetary relief for the infringement, including enhanced damages due to the willfulness of the
Logitech companies' actions, injunctive relief to enjoin the Logitech companies from further infringing, including contributory
infringement and/or inducing infringement, and attorney's fees. In its answer, filed on November 3, 2011, the Logitech
companies generally denied all of our allegations of infringement and counterclaimed that we were infringing five of their
patents. On November 24, 2011, we answered the Logitech companies' counterclaims, generally denying all of their allegations
of infringement. On September 26, 2012, the Logitech companies and the Company entered into a long-term, confidential
Settlement and License Agreement with an effective date of July 1, 2012 (the “Agreement”). During the term of the Agreement,
the Logitech companies and the Company dismissed all lawsuits and, among other things, the Logitech companies will pay
royalties to the Company to license the technologies covered by our patents in this suit. Additionally, the Logitech companies
agreed to pay the Company $2.0 million for past royalties for the period covering July 1, 2010 through June 30, 2012. Due to
the historical and ongoing relationship with the Logitech companies, this amount was included in net sales for the year ended
December 31, 2012.
On March 2, 2012, we filed a lawsuit against Universal Remote Control, Inc. ("URC") in the United States District Court,
Central District of California (Universal Electronics Inc. v. Universal Remote Control, Inc., SACV12-0039 AG (JPRx))
alleging that URC is infringing, directly and indirectly, four of our patents related to remote control technology. We have
alleged that this complaint relates to multiple URC remote control products, including the URC model numbers UR5U-9000L,
WR7 and other remote controls with different model names or numbers, but with substantially the same designs, features, and
functionalities. We are seeking monetary relief for the infringement, including enhanced damages due to the willfulness of
URC's actions, injunctive relief to enjoin URC from further infringing, including contributory infringement and/or inducing
infringement, and attorney's fees. URC has denied infringing our patents. On January 29, 2013, the Court held its "Markman"
hearing and on February 1, 2013, the Court issued its ruling that four of the 24 claims we have asserted against URC were
invalid, effectively removing one of the four patents alleged by us to be infringed by URC from this litigation. In our
estimation this ruling does not materially affect our position in this litigation. In all other respects, this litigation is continuing
as scheduled with expert discovery and pre-trial motions continuing and trial is scheduled for May 2014.
In addition, on June 28, 2013, we filed a second lawsuit against URC, also in the United States District Court, Central District
of California (Universal Electronics Inc. v. Universal Remote Control, Inc., SACV13-00987 JAK (SHx)). In this second
lawsuit, we are alleging that URC is infringing, directly and indirectly, nine additional patents that we own related to remote
control technology. As in the first lawsuit, in this second lawsuit we have alleged that this complaint relates to multiple URC
remote control products.
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We are seeking monetary relief for infringement, including enhanced damages due to the willfulness of URC's actions,
injunctive relief to enjoin URC from further infringing, including contributory infringement and/or inducing infringement, and
attorney's fees. In mid-July 2013, URC filed a Notice of Related Cases seeking to join this lawsuit with the lawsuit we filed
against URC on March 2, 2012 and we did not object to this Notice. Consequently, this lawsuit was transferred to the Judge
and Magistrate hearing our first lawsuit filed in March 2013. In mid-November 2013, UEI filed a motion to add affiliated URC
suppliers, Ohsung Electronics Co, Ltd (a South Korean entity) and Ohsung Electronics USA, Inc. (a California entity) to the
lawsuit. We are waiting for these additional parties to answer the motion, and will continue efforts to join both parties to the
lawsuit. In all other respects this litigation is continuing as scheduled with URC answering this compliant with a denial of
infringement, asserting affirmative defenses, and seeking a ruling that URC has not infringed our patents, that our patents are
invalid and unenforceable, that the patents have been licensed to URC, and an award of attorneys’ fees and costs. Discovery is
underway.
On September 23, 2013, we filed a lawsuit against Peel Technologies, Inc. (“Peel”) in the United States District Court, Central
District of California (Universal Electronics Inc. v. Peel Technologies, Inc., SACV13-01484 GAF (RNBx)) alleging that Peel is
infringing, directly and indirectly, five of our patents related to remote control technology. We have alleged that this complaint
relates to software and hardware used in connection with remote control devices, including Peel’s software products called “TV
App” (sometimes referred to as “Sense TV”), “WatchOn App” and “Peel Smart Remote App”, and a product called “Peel
Universal Remote” consisting of a Peel “Fruit” hardware device and a software component for use with the iOS operating
system. We are seeking monetary relief for the infringement, including enhanced damages due to the willfulness of Peel’s
actions, injunctive relief to enjoin Peel from further infringing, including contributory infringement and/or inducing
infringement, and attorney’s fees. On November 14, 2013, Peel answered our complaint with a general denial that it is
infringing our patents and has filed counter-claims, seeking declaratory judgments that our patents are not infringed and are
invalid. They are also seeking attorney’s fees. In our reply to Peel’s counterclaims, which we filed on December 5, 2013, we
have asked the Court to deny and dismiss with prejudice Peel’s counterclaims and sought after relief. Discovery has just
begun.
There are no other material pending legal proceedings to which we or any of our subsidiaries is a party or of which our
respective property is the subject. However, as is typical in our industry and to the nature and kind of business in which we are
engaged, from time to time, various claims, charges and litigation are asserted or commenced by third parties against us or by
us against third parties arising from or related to product liability, infringement of patent or other intellectual property rights,
breach of warranty, contractual relations, or employee relations. The amounts claimed may be substantial but may not bear any
reasonable relationship to the merits of the claims or the extent of any real risk of court awards assessed against us or in our
favor. However, no assurances can be made as to the outcome of any of these matters, nor can we estimate the range of
potential losses to us. In our opinion, final judgments, if any, which might be rendered against us in potential or pending
litigation would not have a material adverse effect on our financial condition, results of operations, or cash flows. Moreover,
we believe that our products do not infringe any third parties' patents or other intellectual property rights.
We maintain directors' and officers' liability insurance which insures our individual directors and officers against certain
claims, as well as attorney's fees and related expenses incurred in connection with the defense of such claims.
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Defined Benefit Plan
Our subsidiary in India maintains a defined benefit pension plan ("India Plan") for local employees, which is consistent with
local statutes and practices. The pension plan was adequately funded on December 31, 2013 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, 2013, approximately 35 percent of our India subsidiary employees had qualified for
eligibility. An individual must be employed by our India subsidiary for a minimum of 5 years before becoming eligible. Upon
the termination, resignation or retirement of an eligible employee, we are liable to pay the employee an amount equal to 15
days salary for each full year of service completed. The total amount of liability outstanding at December 31, 2013 and 2012
for the India Plan is not material. During the years ended December 31, 2013, 2012, and 2011, the net periodic benefit costs
were also not material.
Note 14 — Treasury Stock
Repurchased shares of our common stock were as follows:
(In thousands)
Shares repurchased
Cost of shares repurchased
Year Ended December 31,
2013
2012
2011
153
3,607 $
201
3,451 $
457
9,785
$
Repurchased shares are recorded as shares held in treasury at cost. We hold these shares for future use as management and the
Board of Directors deem appropriate, which has included compensating our outside directors. During the years ended
December 31, 2013, 2012, and 2011, we issued 30,000, 37,500, and 30,000 shares from treasury, respectively, to outside
directors for services performed (see Note 16).
From time to time, our Board of Directors authorizes management to repurchase 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, 2013, we had 933,456 shares available for repurchase under the Board's authorizations.
Note 15 — Business Segment and Foreign Operations
Reportable Segment
An operating segment, in part, is a component of an enterprise 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. Our chief operating decision maker, the Chief Executive
Officer, reviews financial information presented on a consolidated basis, accompanied by disaggregated information about
revenues for purposes of making operating decisions and assessing financial performance. Accordingly, we only have a single
operating and reportable segment.
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Foreign Operations
Our net sales to external customers by geographic area were as follows:
(In thousands)
Net sales:
United States
Asia (excluding PRC)
People’s Republic of China
Europe
Latin America
Other
Total net sales
Year Ended December 31,
2013
2012
2011
$
$
195,308 $
107,886
89,918
72,852
35,179
28,211
529,354 $
165,209 $
108,979
76,873
61,617
28,677
21,735
463,090 $
137,799
121,089
106,597
56,448
17,585
29,112
468,630
Specific identification of the customer billing location was the basis used for attributing revenues from external customers to
geographic areas.
Long-lived tangible assets were as follows:
(In thousands)
Long-lived tangible assets:
United States
People's Republic of China
All other countries
Total
December 31,
2013
2012
$
$
4,662 $
72,957
3,230
80,849 $
5,541
73,804
3,722
83,067
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Note 16 — 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 and the related income tax benefit were as
follows:
(In thousands)
Cost of sales
Research and development
Selling, general and administrative:
Employees
Outside directors
Total stock-based compensation expense
Income tax benefit
Stock Options
Year Ended December 31,
2013
2012
2011
1 $
226
4,494
621
5,342 $
— $
223
3,733
619
4,575 $
1,575 $
1,488 $
15
267
3,499
730
4,511
1,505
$
$
$
The assumptions we utilized in the Black-Scholes option pricing model and the resulting weighted average fair value of stock
option grants were the following:
Weighted average fair value of grants (1)
Risk-free interest rate
Expected volatility
Expected life in years
Year Ended December 31,
2013
2012
2011
$
9.26 $
9.57 $
0.95%
53.39%
5.20
0.86%
55.22%
5.15
13.74
2.29%
52.25%
5.03
(1) The weighted average fair value of grants was calculated utilizing the stock options granted during each respective
period.
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99
Stock option activity was as follows:
2013
2012
2011
Weighted-
Average
Remaining
Contractual
Terms
(in years)
Weighted-
Average
Exercise
Price
Aggregate
Intrinsic
Value
(in 000's)
20.56
$
19.68
Number of
Options
(in 000's)
1,412
201
Number of
Options
(in 000's)
1,502
153
Weighted-
Average
Remaining
Contractual
Terms
(in years)
Weighted-
Average
Exercise
Price
Aggregate
Intrinsic
Value
(in 000's)
$ 19.53
19.92
Number of
Options
(in 000's)
1,525
108
(679)
18.22
$ 8,355
(189)
11.62
$ 1,155
(102 )
Outstanding at beginning of the year
Granted
Exercised
Forfeited/canceled/expired
Outstanding at end of the year (1)
Vested and expected to vest at the end
of the year (1)
Exercisable at the end of the year (1)
(10)
924
921
671
$
$
$
24.75
22.04
22.05
22.62
6.09
6.08
5.14
$ 14,854
$ 14,791
$ 10,388
(54)
1,412
1,409
1,181
21.48
$ 20.56
$ 20.56
$ 20.24
4.91
4.90
4.25
$ 2,452
$ 2,446
$ 2,347
(29 )
1,502
1,494
1,229
Weighted-
Average
Remaining
Contractual
Terms
(in years)
Aggregate
Intrinsic
Value
(in 000's)
$
820
$ 1,972
$ 1,971
$ 1,889
4.81
4.78
4.05
Weighted-
Average
Exercise
Price
$ 18.78
28.97
16.51
25.53
$ 19.53
$ 19.51
$ 18.71
(1) The aggregate intrinsic value represents the total pre-tax value (the difference between our closing stock price on the
last trading day of 2013, 2012, and 2011 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, 2013, 2012,
and 2011. This amount will change based on the fair market value of our stock.
During 2013, 2012, and 2011, there were no modifications made to outstanding stock options.
Cash received from option exercises for the years ended December 31, 2013, 2012, and 2011 was $12.4 million, $2.2 million,
and $1.7 million, respectively. The actual tax benefit realized from option exercises was $2.3 million, $0.2 million and $0.3
million for the years ended December 31, 2013, 2012, and 2011, respectively.
Significant option groups outstanding at December 31, 2013 and the related weighted average exercise price and life
information are listed below:
Options Outstanding
Options Exercisable
Range of Exercise Prices
$12.58 to $14.92
16.20 to 17.62
18.04 to 21.95
23.15 to 29.25
32.40 to 35.35
100
Number
Outstanding
(in 000’s)
Weighted-Average
Remaining Years of
Contractual Life
20
125
460
312
7
924
4.22
3.34
7.47
5.32
3.94
6.09
$
Weighted-
Average
Exercise Price
13.66
16.83
20.05
27.32
34.51
22.04
$
Number
Exercisable
(in 000’s)
16
125
249
274
7
671
$
Weighted-
Average
Exercise Price
13.36
16.83
20.43
27.51
34.51
22.62
$
As of December 31, 2013, we expect to recognize $2.1 million of total unrecognized pre-tax stock-based compensation
expense related to non-vested stock options over a remaining weighted-average life of 1.8 years.
On February 12, 2014, the Board of Directors granted certain executive employees 133,430 stock options in connection with
the 2013 annual review cycle. The options were granted as part of long-term incentive compensation to assist us in meeting our
performance and retention objectives and are subject to a three-year vesting period (33.33% on February 12, 2015 and 8.33%
each quarter thereafter). The total grant date fair value of these awards was $1.8 million.
Restricted Stock
Non-vested restricted stock award activity was as follows:
Non-vested at December 31, 2010
Granted
Vested
Forfeited
Non-vested at December 31, 2011
Granted
Vested
Forfeited
Non-vested at December 31, 2012
Granted
Vested
Forfeited
Non-vested at December 31, 2013
Shares
Granted
(in 000’s)
Weighted-
Average
Grant Date
Fair Value
195 $
176
(162 )
(4 )
205
205
(133 )
(7 )
270
196
(178 )
(3 )
285 $
17.30
25.76
17.53
16.24
24.43
15.22
21.91
23.11
18.72
28.86
20.44
15.49
24.64
As of December 31, 2013, we expect to recognize $6.3 million of total unrecognized pre-tax stock-based compensation
expense related to non-vested restricted stock awards over a weighted-average life of 2.2 years.
On February 12, 2014, the Board of Directors granted certain executive employees 51,595 restricted stock awards in connection
with the 2013 annual review cycle. The awards were granted as part of long-term incentive compensation to assist us in
meeting our performance and retention objectives and are subject to a three-year vesting period (33.33% on February 12, 2015
and 8.33% each quarter thereafter). The total grant date fair value of these awards was $1.8 million.
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Stock Incentive Plans
Our active stock-based incentive plans include those adopted in 1998, 1999A, 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 option 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 in various proportions over a three or four year time frame. 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 was as follows at December 31, 2013:
Name
1998 Stock Incentive Plan
1999A Stock Incentive Plan
2002 Stock Incentive Plan
2003 Stock Incentive Plan
2006 Stock Incentive Plan
2010 Stock Incentive Plan
Approval Date
5/27/1998
10/7/1999
2/5/2002
6/18/2003
6/13/2006
6/15/2010
Initial Shares
Available for Grant
Under the Plan
Remaining Shares
Available for Grant
Under the Plan
Outstanding Shares
Granted Under the
Plan
630,000
1,000,000
1,000,000
1,000,000
1,000,000
1,000,000
—
—
—
—
3,670
215,969
219,639
5,000
28,750
28,730
180,963
356,606
594,536
1,194,585
Note 17 — Other Income (Expense), Net
Other income (expense), net consisted of the following:
(In thousands)
Net gain (loss) on foreign currency exchange contracts(1)
Net gain (loss) on foreign currency exchange transactions
Other income
Other income (expense), net
Year Ended December 31,
2013
2012
2011
$
$
888 $
(4,155 )
98
(3,169 ) $
35 $
(1,721 )
273
(1,413 ) $
(271 )
(1,141 )
337
(1,075 )
(1) This represents the gains and (losses) incurred on foreign currency hedging derivatives (see Note 19 for further
details).
102
Note 18 — Earnings Per Share
Earnings per share was calculated as follows:
(In thousands, except per-share amounts)
BASIC
Net income
Weighted-average common shares outstanding
Basic earnings per share
DILUTED
Net income
Weighted-average common shares outstanding for basic
Dilutive effect of stock options and restricted stock
Weighted-average common shares outstanding on a diluted basis
Diluted earnings per share
Year Ended December 31,
2013
2012
2011
$
$
$
$
22,963 $
15,248
1.51 $
22,963 $
15,248
353
15,601
1.47 $
16,553 $
14,952
1.11 $
16,553 $
14,952
158
15,110
1.10 $
19,946
14,912
1.34
19,946
14,912
301
15,213
1.31
The number of stock options and shares of restricted stock excluded from the computation of diluted earnings per common
share were as follows:
(In thousands)
Stock options
Restricted stock shares
Year Ended December 31,
2013
2012
2011
366
18
1,038
166
593
120
103
Note 19 — Derivatives
Derivatives Measured at Fair Value on a Recurring Basis
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 Argentinian Peso, Brazilian Real, British
Pound, Chinese Yuan Renminbi, Euro, Hong Kong Dollar, Indian Rupee, and Singapore Dollar. We periodically enter into
foreign currency 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 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 the derivatives are recorded 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 are derived from level 2 inputs in the fair value hierarchy. The following table sets forth the fair value of
derivatives:
December 31, 2013
December 31, 2012
(In thousands)
Foreign currency exchange futures
contracts
Fair Value Measurement Using
(Level 2)
Total
(Level 3) Balance
(Level 1)
Fair Value Measurement Using
(Level 2)
Total
(Level 3) Balance
(Level 1)
$
—
$
509
$
—
$
509
$
—
$
(13) $
—
$
(13)
We held foreign currency exchange contracts which resulted in a net pre-tax gain of approximately $0.9 million, a net pre-tax
gain of approximately $35 thousand, and a net pre-tax loss of $0.3 million for the years ended December 31, 2013, 2012, and
2011, respectively.
104
Futures Contracts
Details of futures contracts held were as follows:
Date Held
Type
December 31, 2013 USD/Euro
December 31, 2013
December 31, 2013
December 31, 2013
USD/Chinese
Yuan Renminbi
USD/Brazilian
Real
USD/Brazilian
Real
Notional Value
(in millions) Forward Rate
Gain/(Loss)
Recorded at
Balance Sheet
Date
(in thousands)(1)
Settlement Date
$
$
$
11.0
1.3782
$
(2) January 31, 2014
15.0
6.2047
3.0
2.3442
$
$
358
January 15, 2014
34
January 17, 2014
Position Held
Euro
Chinese Yuan
Renminbi
USD
December 31, 2012 USD/Euro
January 17, 2014
119
(13) January 18, 2013
(1) Gains on futures contracts are recorded in prepaid expenses and other current assets. Losses on futures contracts are
2.2301
1.3228
USD
Euro
2.0
5.0
$
$
$
$
recorded in other accrued expenses.
Note 20 — 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 contributions to the plan. We recorded $0.7 million, $0.6 million and
$0.7 million of expense for company contributions for the years ended December 31, 2013, 2012, and 2011, respectively.
105
Note 21 — Quarterly Financial Data (Unaudited)
Summarized quarterly financial data is presented below:
(In thousands, except per share amounts)
Net sales
Gross profit
Operating income
Net income
Earnings per share (1):
Basic
Diluted
Shares used in computing earnings per share:
Basic
Diluted
(In thousands, except per share amounts)
Net sales
Gross profit
Operating income
Net income
Earnings per share (1):
Basic
Diluted
Shares used in computing earnings per share:
Basic
Diluted
$
$
$
$
$
$
2013
March 31,
June 30,
September 30,
December 31,
114,722 $
32,549
3,895
2,946
136,109 $
37,836
9,976
5,841
142,389 $
40,449
10,471
8,623
136,134
40,628
7,812
5,553
0.20 $
0.19 $
0.39 $
0.38 $
0.56 $
0.55 $
14,965
15,225
15,098
15,419
15,324
15,743
0.36
0.35
15,602
16,011
2012
March 31,
June 30,
September 30,
December 31,
103,732 $
28,327
2,312
1,632
116,704 $
32,970
6,466
5,153
124,871 $
36,438
9,534
6,850
117,783
35,702
7,890
2,918
0.11 $
0.11 $
0.35 $
0.34 $
0.46 $
0.45 $
14,871
15,108
14,933
15,048
14,984
15,099
0.19
0.19
15,016
15,180
(1) The earnings per common share calculations for each of the quarters were based upon the weighted average number 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.
106
105
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Exchange Act Rule 13a-15(d) defines "disclosure controls and procedures" to mean controls and procedures of a company that
are designed to ensure that information required to be disclosed by the company in the reports that it files or submits under the
Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the 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.
Management’s Annual Report on Internal Control Over Financial Reporting
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 1992 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, 2013.
The effectiveness of our internal control over financial reporting as of December 31, 2013 has been audited by Grant Thornton
LLP, an independent registered public accounting firm, as stated in its attestation report which is included herein.
Changes in Internal Control Over Financial Reporting
There have been no changes in internal controls or in other factors that may significantly affect our internal controls during
2013.
106
107
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
Universal Electronics Inc.
We have audited the internal control over financial reporting of Universal Electronics Inc. (a Delaware corporation) (the
“Company”) as of December 31, 2013, based on criteria established in the 1992 Internal Control-Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is
responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of
internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control Over
Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting
based on our audit.
We conducted our audit 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 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 considered
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 preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of
December 31, 2013, based on criteria established in the 1992 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 financial statements of the Company as of and for the year ended December 31, 2013, and our report dated
March 12, 2014 expressed an unqualified opinion on those financial statements.
Irvine, California
March 12, 2014
108
107
Performance Chart
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"), the NASDAQ Composite Index,
and the Peer Group Index for the five year period ended December 31, 2013. The comparison assumes that $100 is invested on
December 31, 2008 in each of our common stock, S&P Small Cap 600, the NASDAQ Composite Index, and the Peer Group
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.
Universal Electronics Inc.
S&P Small Cap 600
NASDAQ Composite Index
Peer Group Index (1)
$
$
$
$
100 $
100 $
100 $
100 $
143 $
124 $
144 $
154 $
175 $
155 $
168 $
219 $
104 $
154 $
165 $
106 $
12/31/2008
12/31/2009
12/31/2010
12/31/2011
12/31/2012
12/31/2013
235
248
265
159
119 $
177 $
191 $
106 $
(1) Companies in the Peer Group Index are as follows: Rovi Corporation, Logitech International, DTS Inc., Dolby
Laboratories, Inc., Harman International Industries, Inc., and VOXX International Corp.
The information presented above is as of December 31, 2008 through 2013. This information should not be deemed to be
"soliciting material" or to be "filed" with the SEC or subject to the liabilities of Section 18 of the Securities Exchange Act of
1934 (the "Exchange Act") nor should 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 incorporate it by reference into a filing.
108
109
110
CORPORATE INFORMATION
INVESTOR INFORMATION
DIRECTORS
Paul D. Arling*
Chairman and Chief Executive Offi cer
Universal Electronics Inc.
Santa Ana, California
Satjiv S. Chahil 2, 3
Innovations Advisor and Social Entrepreneur
Palo Alto, California
WilWillialiam Cm C. Mulligan 1, 3
Managing DirDi ector
Primus Capital Funds
Cleveland, Ohio
J.C. Sparkman 2, 3
Retired Executive
Vice President and Chief Operating Offi cer
Telecommunications, Inc. (TCI)
Denver, Colorado
Gregory P. Stapleton 2
Founder and Owner
Falcon One Enterprises
Camarillo, California
Carl E. Vogel 1
Senior Advisor, The Gores Group
Senior Advisor, Dish Network
Cherry Hills Village, Colorado
OFFICERS
Paul D. Arling*
Chairman and Chief Executive Offi cer
Bryan M. Hackworth*
Senior Vice President and Chief Financial Offi cer
Paul J.M. Bennett*
Executive Vice President and Managing Director - EMEA
David Chong*
Executive Vice President - Asia
Mark S. Kopaskie*
Executive Vice President and General Manager, U.S.
Richard A. Firehammer, Jr.*
Senior Vice President, General Counsel and Secretary
Ramzi S. Ammari
Senior Vice President, Corporate Planning and Strategy
Banley Chan
Senior Vice President, Manufacturing
Louis S. Hughes
Senior Vice President, Sales and Product Managment - Americas
Menno V. Koopmans
Senior Vice President, Subscription Broadcast - EMEA and India
Edward K. Zinser 1
Chief Financial Offi cer and Financial Executive
Los Angeles, California
Kenneth Liu
Senior Vice President, Supply Chain Management
1 Member, Audit Committee
2 Member, Compensation Committee
3 Member, Corporate Governance and
Nominating Committee
* Executive Offi cer as defi ned by the
Security Exchange Act of 1934.
Norman G. Sheridan
Senior Vice President, Engineering
Graham S. Williams
Senior Vice President, Technology Development
Worldwide Headquarters
Universal Electronics Inc.
201 E. Sandpointe Avenue
8th Floor
Santa Ana, CA 92707 USA
European Headquarters
Universal Electronics BV
Colosseum 2
7521 PT, Enschede
The Netherlands
Asian Headquarters
UEI Hong Kong Private Ltd.
902-908, 9th Floor
One Harbourfront
18 Tak Fung Street
Hung Hom, Kowloon
Hong Kong, China
ANNUAL MEETING OF STOCKHOLDERS
June 12, 2014
4:00 p.m. PT
Universal Electronics Inc.
201 E. Sandpointe Ave., 8th Floor
Santa Ana, CA 92707
Independent Registered Public Accounting Firm
Grant Thornton LLP
Irvine, California
Registrar & Transfer Agent
Computershare
211 Quality Circle, Suite 210
College Station, TX 77845
(800) 962-4284
CERTIFICATIONS
The Company fi led with the Securities and Exchange
Commission, as Exhibit 31 to the Company’s Annual
Report on Form 10-K for the 2013 fi scal year, cer-
tifi cations of its Chief Executive Offi cer and Chief
Financial Offi cer regarding the quality of the
Company’s public disclosures.
FORM 10-K
Any stockholder who desires a copy of the
Company’s 2013 Annual Report on Form 10-K fi led
with the Securities and Exchange Commission may
obtain a copy (excluding exhibits) without charge by
addressing a request to:
Investor Relations
Universal Electronics Inc.
201 E. Sandpointe Ave., 8th Floor
Santa Ana, CA 92707
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 available through its Internet
website its annual report on Form 10-K. Investors
may also obtain a copy of our 2013 Annual Report on
Form 10-K, including exhibits, from the “Investor”
section of our website at www.uei.com, clicking on
“SEC Filings.”
INTERNET USERS
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 fi lings, company history, and
information about the company’s governance and
Board of Directors.
Universal Electronics Inc. is an equal opportunity employer.
UEI.com
Worldwide Headquarters
Universal Electronics Inc.
European Headquarters
Universal Electronics BV
Asian Headquarters
UEI Hong Kong Private Ltd.
201 E. Sandpointe Avenue, 8th Floor
Colosseum 2
Santa Ana, CA 92707
USA
714-918-9500
7521 PT, Enschede
The Netherlands
31-53-488-8000
902-908, 9th Floor
One Harbourfront
18 Tak Fung Street
Hung Hom, Kowloon
Hong Kong, China
852-2634-1333