SENSE
AND
C O N T R O L
2015REPORT
A N N U A L
SENSE
AND
C O N T R O L
SENSE
AND
C O N T R O L
The complexity and breadth of home electronics continues to grow
at an astonishing pace. Leveraging over 350 pending and patented
technologies, including the world’s most complete device control
database to connect and control thousands of devices, Universal
Electronics takes the chaos out of managing home entertainment
and automation through powerful behind-the-scenes software
and technology; and innovative, user-friendly products.
INNOVATIVE SOLUTIONS,
SOLVING COMPLEX PROBLEMS
Whether sensing and discovering connected devices or monitoring
home intrusion and safety, Universal Electronics develops innovative
solutions to solve complex problems.
Sensing a voice, a motion, or knowing when and what type of new
electronics device has been added to an entertainment center are
everyday challenges in today’s connected home environment that
UEI technology makes easier and simpler to handle.
With the latest release of QuickSet®, combined with powerful search
tools like voice, the universal remote control has become a simple,
and easy to use tool in managing the connected home.
4
5
2015ANNUALREPORT2015ANNUALREPORT EMPOWERING DEVICES
For nearly 30 years, Universal Electronics has led
the way in universal control of home entertainment
devices. Universal Electronics understands and
strives to remove the complexity of controlling
entertainment devices with a single universal
control. Whether the controller is a traditional
infrared remote control, mobile device, or advanced
radio frequency (RF) smart remote with voice and
motion control, Universal Electronics has the
experience; breadth of capabilities; and global
presence to deliver the right product.
6
7
2015ANNUALREPORT2015ANNUALREPORT QUICKSET, AN UNMATCHED
USER EXPERIENCE
Many Fortune 500 brands have discovered the smart intelligence
behind Universal Electronics’ QuickSet® software. Deployed in
over 260 million devices around the world, including set-top boxes,
televisions, game consoles, smartphones and tablets, QuickSet
enables effortless configuration and control of nearly any connected
home entertainment and automation device.
8
9
2015ANNUALREPORT2015ANNUALREPORT SENSE AND CONTROL
THAT SPANS THE GLOBE
A global presence allows Universal Electronics to
efficiently address customers’ needs and service
markets on nearly every continent.
SAN MATEO, CALIFORNIA, USA
Advanced Engineering
SANTA ANA, CALIFORNIA, USA
Corporate Headquarters
Innovation & Design Center
ENSCHEDE, THE NETHERLANDS
European and Retail Headquarters
EUROPE
NORTH
AMERICA
MANAUS, BRAZIL
Manufacturing and Operations
LATIN
AMERICA
AFRICA
TWINSBURG, OHIO, USA
North American Call Center
MONTERREY, MEXICO
Manufacturing
CARLSBAD, CALIFORNIA, USA
Ecolink
SAO PAULO, BRAZIL
Regional Sales Office
PANYU, CHINA
Manufacturing and Engineering
HONG KONG, CHINA
Asian Headquarters
Global Logistics Hub
YANGZHOU, CHINA
Manufacturing
QINZHOU, CHINA
Manufacturing
BANGALORE, INDIA
Software Development
ASIA
PACIFIC
AUSTRALIA
TOKYO, JAPAN
Regional Sales Office
Microsoft
Best Buy
Pace
Shaw Communications
DIRECT V
Nintendo
Argos
Yamaha
Bresnan Communications
Bose
Rogers
Sky Mexico
Digiturk
Charter
UPC
Vestel
Audiovox
Philips
Carrefour
Echostar Technologies
Sky Brasil
Auchan
Dixons
Intel
Mediacom
McIntosh Lab
Comet
Embratel
TV Cabo
Sky Italia
Motorola
Multichoice
Thomson
Sagem
Telenet
10
Sky Deutschland
Arris
Tesco
Pioneer
Virgin Media
Ziggo
Cox Communications
Netgem
Vizio
Foxtel
Humax
Onkyo
Panasonic
Sony
Comcast
LG
Canal+
Denon
Reliance
Cablevision
Samsung
BSkyB
Telefonica
Time Warner Communications
TalkTalk
Roku
Cisco
Media Market
Sonifi
Toshiba
Airtel
Disclaimer: All company and manufacturer identities listed above are mentioned for the sole use
of this annual report document. Use of them does not imply an endorsement by them.
11
2015ANNUALREPORT2015ANNUALREPORT 15%
C.A.G.R.
COMPOUND
ANNUAL
GROWTH RATE
IN EARNINGS* OVER THE LAST DECADE
ASCENDING FINANCIAL
PERFORMANCE ONCE AGAIN
UEI’s 2015 financial results once again continue to show solid
performance year after year reflecting a 13% compound annual
growth rate in sales and a 15% compound annual growth rate in
earnings* over the last 10+ years. These facts, reinforced by the
introduction of higher-end platforms for many of UEI’s existing
customers, and the extension of our product portfolio into sensing
technology, confirms we are poised for long-term success.
REVENUE IN MILLIONS
EARNINGS PER SHARE
* Adjusted pro forma
metrics (non-GAAP).
Non-GAAP earnings per
share is a supplemental
measure of the
company’s performance
that is not required
by nor presented in
accordance with GAAP
and excludes stock-
based compensation
expense; acquisition
related expenses;
cost of goods sold and
depreciation expense
related to the increase
in inventories and fixed
assets from cost to fair
market value resulting
from acquisitions;
amortization of
intangibles acquired in
business combinations;
changes in contingent
consideration related
to acquisitions;
costs incurred for
years preceding the
acquisition of Enson
Assets Limited;
employee related
restructuring costs;
costs associated with
moving our corporate
headquarters; a court
ordered award to a
defendant in a lawsuit
for a portion of its legal
fees; the related tax
impacts of all preceding
pro forma adjustments;
and the impact of
adjustments to certain
deferred tax assets and
liabilities resulting from
tax law changes. More
details regarding such
non-GAAP metrics
and reconciliations of
non-GAAP financial
results to GAAP results
can be found in our
periodic 8-K filings
with the Securities and
Exchange Commission
containing furnished
results of operations.
The bar graphic
displayed to the right
is for illustration
purposes. The actual
bar heights may not be
an exact representation
of their numeric values.
12
13
2015ANNUALREPORT2015ANNUALREPORT DEAR STOCKHOLDERS:
Universal Electronics is at the forefront of an
exciting evolution in the home. In 2015, our
focus on developing innovative concepts and
solutions that make the home control experience
simpler, more accessible and more enjoyable for
consumers continued to deliver strong results.
At the close of 2015, we posted yet another
record year reaching net sales of $602.8 million.
This is especially impressive given that 2014
previously represented the most successful year
in the company’s history. It also marked our 18th
straight year of profitability.
In our core markets, subscription broadcasting
customers continue to transition to more advanced
remote control products and
technologies.
COMCAST Xfinity continues to receive accolades
as the first widely deployed voice remote and the
consumer reaction to this new type of control has
been fantastic. The industry is also reacting very
positively, with several large customer designs
currently in development. We expect this trend of
more advanced features and devices to continue
in 2016 and beyond as customers roll out new
advanced video platforms.
QuickSet® technology continues to be adopted
in new devices and platforms as consumers,
and ultimately our customers, are looking to
improve, and simplify the home entertainment
experience. The breadth of customers who rely
on our technology and the millions of consumers
who use it every day are confirmation we are on
the right track. There are now over 260 million
devices in the world that are QuickSet-enabled
and many more are on track to launch in 2016.
At CES in January 2016, we unveiled our latest
innovations around QuickSet: QuickSet 3.7 and
QuickSet Cloud. With the release of QuickSet 3.7,
we have taken what was already, by far the most
advanced AV configuration and use software in
the world and elevated it to a new level. It gives
consumers the ability to access our library
of control protocols in real time and further
advances the ease of set up and everyday use.
QuickSet Cloud delivers all the features of the
flagship QuickSet solution as a cloud-service,
which effectively makes all of the QuickSet
features and benefits available to all connected
devices in the home, including AV, mobile and
resource-constrained IoT devices.
Universal Electronics has a successful and long
track record, nearly 30 years, of developing
control solutions that anticipate the future trends
in sensing and control within the home. Industry
giants such as COMCAST, DIRECTV, Samsung,
LG, Sony, Panasonic, Echostar, SKY, UPC, Virgin
Media, Microsoft and many, many others continue
to turn to us for innovative and dependable
solutions that are changing what a remote control
is and what a remote control does.
As the merger of home entertainment and smart
home technology continues, we are looking to
embrace simple control and interaction with the
smart home as the ultimate goal. The acquisition
of Ecolink Intelligent Technology in August 2015
helped us immediately deploy and expand on
innovative solutions
in the emerging smart
home market. It also opened up potential new
customers and expanded our product offerings
with our existing customers. We expect to
introduce a variety of wireless security, sensing
and home automation products and services with
our industry partners throughout 2016.
Our products and technologies are changing the
way that consumers interact with their home
entertainment sources, and we are making set
up and everyday use easier than they have ever
been before. Our team has done a brilliant job
of establishing us as the leader in control and
sensing technologies within the smart home, and
I’d like to take this opportunity to thank them for
that. I’d also like to thank you, our stockholders,
for your continued support of UEI. The future
looks bright and we continue to raise the bar on
helping our customers deliver the best home
entertainment and automation experience.
Sincerely,
Paul Arling
Chairman and CEO
14
Disclaimer: All trademarks appearing herein are the property of their respective owners.
15
2015ANNUALREPORT2015ANNUALREPORT 16
2015ANNUALREPORT 18
24
39
40
53
56
61
98
100
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 SUPPLEMENTAL DATA
56 CONSOLIDATED BALANCE SHEETS
57 CONSOLIDATED INCOME STATEMENTS
58 CONSOLIDATED COMPREHENSIVE INCOME STATEMENTS
59 CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
60 CONSOLIDATED STATEMENTS OF CASH FLOWS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONTROLS AND PROCEDURES
PERFORMANCE CHART
17 2015
A N N U A L
REPORT
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 U.S. Securities and Exchange Commission
("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 and sensor technology solutions and manufactures a broad line of pre-
programmed and universal remote control products, audio-video ("AV") accessories, and intelligent wireless security
and automation components dedicated to redefining the home entertainment and security 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;
proprietary and standards-based RF sensors designed for residential security, safety and automation
applications; 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, consumer electronics and residential security markets where
our customers include subscription broadcasters, OEMs, international retailers, private label brands, pro-security
dealers 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 integrated circuits, on which our software and IR device control code database is embedded, and license our IR
device control database to OEMs that manufacture televisions, digital audio and video players, streamer boxes, cable
converters, satellite receivers, set-top boxes, room air conditioning equipment, game consoles, and wireless mobile
phones and tablets.
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 People's Republic of
China ("PRC") has enhanced our ability to compete in the OEM and subscription broadcasting markets. In addition,
we have opened subsidiaries in Brazil and Mexico, which have allowed us to increase our reach and better compete
in the Central and Latin American subscription broadcast market. We plan to continue to add new sales and
administrative personnel to support anticipated sales growth in international 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.
In 2015, we acquired Ecolink Intelligent Technology, Inc. ("Ecolink"), a leading developer of smart home technology.
Ecolink provides a wide range of intelligent wireless security and automation components dedicated to redefining
the home security experience. Ecolink has over 20 years of wireless engineering expertise in the home security and
automation market and holds more than 25 related pending and issued patents. UEI’s current subscription
broadcasting customers are adding home security and automation to their list of service offerings. Our acquisition of
Ecolink, one of the largest premise equipment suppliers to this market, enables us to broaden our design expertise
and product portfolio to add home security and automation sensors to our capabilities.
For the year ended December 31, 2015, our sales to Comcast Corporation accounted for 21.5% of our net sales. For
the years ended December 31, 2015, 2014, and 2013, our sales to DIRECTV and its sub-contractors collectively
accounted for 12.4%, 10.4%, and 15.6% of our net sales, respectively.
Our One For All® brand name remote controls and accessories sold within the international retail markets accounted
for 8.1%, 9.2%, and 9.4% of our total net sales for the years ended December 31, 2015, 2014, and 2013, respectively.
Financial information relating to our international operations for the years ended December 31, 2015, 2014, and 2013
is included in "FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - Notes to Consolidated Financial
Statements - Note 15".
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 2015, we had 364 issued and
pending United States patents related to remote control, home security, safety and automation as well as hundreds of
foreign counterpart patents and applications in various territories around the world.
Our patents have remaining lives ranging from 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 922,000 individual device functions and approximately 7,300 individual consumer electronic equipment
brand names, including virtually all IR controlled set-top boxes, televisions, audio components, DVD players, Blu-
Ray players, CD players, other remote controlled home entertainment devices and home automation control modules,
2015
A N N U A L
REPORT
18
1
2
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 U.S. Securities and Exchange Commission
("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 and sensor technology solutions and manufactures a broad line of pre-
programmed and universal remote control products, audio-video ("AV") accessories, and intelligent wireless security
and automation components dedicated to redefining the home entertainment and security 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;
•
proprietary and standards-based RF sensors designed for residential security, safety and automation
applications; 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, consumer electronics and residential security markets where
our customers include subscription broadcasters, OEMs, international retailers, private label brands, pro-security
dealers 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 integrated circuits, on which our software and IR device control code database is embedded, and license our IR
device control database to OEMs that manufacture televisions, digital audio and video players, streamer boxes, cable
converters, satellite receivers, set-top boxes, room air conditioning equipment, game consoles, and wireless mobile
phones and tablets.
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 People's Republic of
China ("PRC") has enhanced our ability to compete in the OEM and subscription broadcasting markets. In addition,
we have opened subsidiaries in Brazil and Mexico, which have allowed us to increase our reach and better compete
in the Central and Latin American subscription broadcast market. We plan to continue to add new sales and
administrative personnel to support anticipated sales growth in international 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.
In 2015, we acquired Ecolink Intelligent Technology, Inc. ("Ecolink"), a leading developer of smart home technology.
Ecolink provides a wide range of intelligent wireless security and automation components dedicated to redefining
the home security experience. Ecolink has over 20 years of wireless engineering expertise in the home security and
automation market and holds more than 25 related pending and issued patents. UEI’s current subscription
broadcasting customers are adding home security and automation to their list of service offerings. Our acquisition of
Ecolink, one of the largest premise equipment suppliers to this market, enables us to broaden our design expertise
and product portfolio to add home security and automation sensors to our capabilities.
For the year ended December 31, 2015, our sales to Comcast Corporation accounted for 21.5% of our net sales. For
the years ended December 31, 2015, 2014, and 2013, our sales to DIRECTV and its sub-contractors collectively
accounted for 12.4%, 10.4%, and 15.6% of our net sales, respectively.
Our One For All® brand name remote controls and accessories sold within the international retail markets accounted
for 8.1%, 9.2%, and 9.4% of our total net sales for the years ended December 31, 2015, 2014, and 2013, respectively.
Financial information relating to our international operations for the years ended December 31, 2015, 2014, and 2013
is included in "FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - Notes to Consolidated Financial
Statements - Note 15".
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 2015, we had 364 issued and
pending United States patents related to remote control, home security, safety and automation as well as hundreds of
foreign counterpart patents and applications in various territories around the world.
Our patents have remaining lives ranging from 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 922,000 individual device functions and approximately 7,300 individual consumer electronic equipment
brand names, including virtually all IR controlled set-top boxes, televisions, audio components, DVD players, Blu-
Ray players, CD players, other remote controlled home entertainment devices and home automation control modules,
1
2
19 2015
A N N U A L
REPORT
and wired (CEC) and wireless (IP) control protocols commonly found on many of the latest HDMI and internet
connected devices. Our proprietary software automatically detects, identifies and enables the appropriate control
commands for any given home entertainment, automation and air conditioning device in the home. Our library is
continuously 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 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 control solutions that require minimal or no user set-up and deliver consistent and
intuitive one-touch control of all connected content sources and devices. QuickSet® is a software application that is
currently embedded in millions of devices globally. QuickSet may be embedded in an AV device, set-top box, or
other host device, or delivered as a Cloud-based service to enable universal remote setup and control. QuickSet
enables universal remote control set-up using automated and guided on-screen instructions and a wireless two-way
communication link between the remote and the QuickSet enabled 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. QuickSet utilizes data
transmitted over HDMI or IP networks to automatically detect various attributes of the connected device and
downloads the appropriate control codes and functions 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 quickly and easily set up their
remotes to control multiple devices. Recently added features in QuickSet address common consumer challenges in
universal device control, such as mode confusion and input switching. With QuickSet consumers switch easily
between activities and reliably view their chosen content source with a single touch. QuickSet handles the device-
specific control requirements. Licensees of QuickSet include service providers such as DIRECTV and Echostar
Technologies; smart TV manufacturers such as Sony and Samsung; leading game console manufacturer Microsoft
on their Xbox One game system; and mobile and tablet device manufacturers Samsung, LG, OPPO, Huawei and
LeTV on some of their platforms.
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 IR microcontroller to the device control
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, sensors and AV accessories directly to subscription broadcasters and OEMs, both domestically and
internationally. We currently also distribute home security sensors to pro-security installers in the U.S. through a
network of dealers. 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.
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-two international subsidiaries are the following:
• C.G. Development Ltd., established in Hong Kong;
• CG Mexico Remote Controls, S. de R.L. de C.V., established in Mexico;
• Enson Assets Ltd., established in the British Virgin Islands;
• Gemstar Polyfirst Ltd., established in Hong Kong;
• Gemstar Technology (China) Co. Ltd., established in the PRC;
• Gemstar Technology (Qinzhou) Co. Ltd., established in the PRC;
• Gemstar Technology (Yangzhou) Co. Ltd., established in the PRC;
• One For All Argentina S.R.L., established in Argentina;
• One For All France S.A.S., established in France;
• 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;
• UE Japan Ltd., established in Japan;
• UE Singapore Pte. Ltd., established in Singapore;
• UEI Brasil Controles Remotos Ltda., established in Brazil;
• UEI Cayman Inc., established in the Cayman Islands;
• UEI Electronics Pte. Ltd., established in India;
• UEI Hong Kong Pte. Ltd., established in Hong Kong;
• Universal Electronics B.V., established in the Netherlands;
• Universal Electronics Italia S.R.L., established in Italy;
• Universal Electronics Trading Co., Ltd., established in the PRC;
• Universal Electronics Yangzhou Co. Ltd., established in the PRC;
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 and sensor products. In 2014, Maxim Integrated Products International Limited
provided 10.7% of our total inventory purchases. In 2015 and 2013, no single supplier provided more than 10% of
our total inventory purchases.
Even though we operate three factories in the PRC and assembly plants in Brazil and Mexico, we continue to evaluate
additional contract manufacturers and sources of supply. During 2015, 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
2015
A N N U A L
REPORT
20
3
4
and wired (CEC) and wireless (IP) control protocols commonly found on many of the latest HDMI and internet
connected devices. Our proprietary software automatically detects, identifies and enables the appropriate control
commands for any given home entertainment, automation and air conditioning device in the home. Our library is
continuously 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 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 control solutions that require minimal or no user set-up and deliver consistent and
currently embedded in millions of devices globally. QuickSet may be embedded in an AV device, set-top box, or
other host device, or delivered as a Cloud-based service to enable universal remote setup and control. QuickSet
enables universal remote control set-up using automated and guided on-screen instructions and a wireless two-way
communication link between the remote and the QuickSet enabled 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. QuickSet utilizes data
transmitted over HDMI or IP networks to automatically detect various attributes of the connected device and
downloads the appropriate control codes and functions 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 quickly and easily set up their
remotes to control multiple devices. Recently added features in QuickSet address common consumer challenges in
universal device control, such as mode confusion and input switching. With QuickSet consumers switch easily
between activities and reliably view their chosen content source with a single touch. QuickSet handles the device-
specific control requirements. Licensees of QuickSet include service providers such as DIRECTV and Echostar
Technologies; smart TV manufacturers such as Sony and Samsung; leading game console manufacturer Microsoft
LeTV on some of their platforms.
Smart devices are becoming a more prevalent part of the home entertainment experience, and UEI offers several
solutions, UEI offers all of the elements needed for device control from the IR microcontroller to the device control
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, sensors and AV accessories directly to subscription broadcasters and OEMs, both domestically and
network of dealers. 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.
intuitive one-touch control of all connected content sources and devices. QuickSet® is a software application that is
Our twenty-two international subsidiaries are the following:
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.
• C.G. Development Ltd., established in Hong Kong;
• CG Mexico Remote Controls, S. de R.L. de C.V., established in Mexico;
• Enson Assets Ltd., established in the British Virgin Islands;
• Gemstar Polyfirst Ltd., established in Hong Kong;
• Gemstar Technology (China) Co. Ltd., established in the PRC;
• Gemstar Technology (Qinzhou) Co. Ltd., established in the PRC;
• Gemstar Technology (Yangzhou) Co. Ltd., established in the PRC;
• One For All Argentina S.R.L., established in Argentina;
• One For All France S.A.S., established in France;
• 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;
on their Xbox One game system; and mobile and tablet device manufacturers Samsung, LG, OPPO, Huawei and
• UE Japan Ltd., established in Japan;
solutions to enable entertainment device control with a smart phone, tablet or smart TV. In its smart device control
• UEI Cayman Inc., established in the Cayman Islands;
• UE Singapore Pte. Ltd., established in Singapore;
• UEI Brasil Controles Remotos Ltda., established in Brazil;
• UEI Electronics Pte. Ltd., established in India;
• UEI Hong Kong Pte. Ltd., established in Hong Kong;
• Universal Electronics B.V., established in the Netherlands;
• Universal Electronics Italia S.R.L., established in Italy;
• Universal Electronics Trading Co., Ltd., established in the PRC;
• Universal Electronics Yangzhou Co. Ltd., established in the PRC;
internationally. We currently also distribute home security sensors to pro-security installers in the U.S. through a
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 and sensor products. In 2014, Maxim Integrated Products International Limited
provided 10.7% of our total inventory purchases. In 2015 and 2013, no single supplier provided more than 10% of
our total inventory purchases.
Even though we operate three factories in the PRC and assembly plants in Brazil and Mexico, we continue to evaluate
additional contract manufacturers and sources of supply. During 2015, 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
3
4
21 2015
A N N U A L
REPORT
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.
Our expenditures on engineering, research and development were:
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 2016.
See "FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA — Notes to Consolidated Financial Statements
— Note 22" for further details regarding our quarterly results.
Competition
Our principal competitors in the subscription broadcasting market are Remote Solutions, Home Control Singapore
PTE, Ltd. (formerly Philips Consumer Electronics), SMK, and Universal Remote Control. In the international retail
and private label markets for wireless controls we compete with Logitech, Home Control Singapore PTE, Ltd.,
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. In home
security, safety and automation, we offer universal sub-gigahertz products that are compatible with the top security
panel manufacturers, such as Honeywell, GE, Tyco/DSC and 2GIG. 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.
Engineering, Research and Development
During 2015, our engineering efforts focused on the following:
•
•
broadening our product portfolio;
launching new embedded software solutions designed to simplify set-up and control features;
• modifying existing products and technologies to improve features and lower costs;
•
•
•
•
formulating measures to protect our proprietary technology and general know-how;
improving our control solutions software;
updating our library of device codes to include codes for new features and devices introduced
worldwide; and
creating innovative products that address consumer challenges in home entertainment control and
security sensing.
During 2015, our advanced engineering efforts focused on further developing our existing products, services and
technologies. We released software updates to our embedded QuickSet application, and continued development
initiatives around emerging RF technologies, such as RF4CE, Bluetooth, and Bluetooth Smart. Additionally, we
released several new advanced remote control products that incorporate voice search capabilities in our subscription
broadcast and OEM channels. During 2015, we also released our QuickSet Cloud Service that is currently used in a
consumer smart phone app enabling automatic setup of a remote control.
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.
(In millions):
Research and development
Engineering (1)
Total engineering, research and development
(1) Engineering costs are included in SG&A.
Environmental Matters
2015
2014
2013
$
$
18.1 $
9.5
27.6 $
17.0 $
9.8
26.8 $
16.4
8.7
25.1
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.
We may also face significant costs and liabilities in connection with product take-back legislation. The European
Union's Waste Electrical and Electronic Equipment Directive ("WEEE") 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, the 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, 2015, 2014 and 2013, 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, 2015, we employed 2,309 employees, of which 474 worked in engineering and research and
development, 90 in sales and marketing, 75 in consumer service and support, 1,422 in operations and warehousing
and 248 in executive and administrative functions. In addition, our factories in the PRC and our Asian operations
employed an additional 7,934 staff contracted through agency agreements.
Labor unions represent approximately 19.0% of our 2,309 employees. Some unionized workers, employed within
Manaus, Brazil, are represented under contract with the Sindicato dos Trabalhadores nas Industrias Metalugicas,
Mecanicas e de Materiais Eletricos de Manaus. Other unionized workers, employed within Monterrey, Mexico, are
represented under contract with the Sindicato Industrial de Trabajadores de Nuevo León adherido a la Federación
Nacional de Sindicatos Independientes. 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
Statements — Note 15".
Financial information relating to our international operations for the years ended December 31, 2015, 2014 and 2013
can be found in "FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA — Notes to Consolidated Financial
2015
A N N U A L
REPORT
22
5
6
unforeseen shipping delays and has the added benefit of potentially reducing excess and obsolete inventory exposure.
Our expenditures on engineering, research and development were:
This diversification lessens our dependence on any one supplier and allows us to negotiate more favorable terms.
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 2016.
See "FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA — Notes to Consolidated Financial Statements
— Note 22" for further details regarding our quarterly results.
Seasonality
Competition
Our principal competitors in the subscription broadcasting market are Remote Solutions, Home Control Singapore
PTE, Ltd. (formerly Philips Consumer Electronics), SMK, and Universal Remote Control. In the international retail
and private label markets for wireless controls we compete with Logitech, Home Control Singapore PTE, Ltd.,
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. In home
security, safety and automation, we offer universal sub-gigahertz products that are compatible with the top security
panel manufacturers, such as Honeywell, GE, Tyco/DSC and 2GIG. 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.
Engineering, Research and Development
During 2015, our engineering efforts focused on the following:
broadening our product portfolio;
•
•
•
•
•
launching new embedded software solutions designed to simplify set-up and control features;
• modifying existing products and technologies to improve features and lower costs;
formulating measures to protect our proprietary technology and general know-how;
improving our control solutions software;
updating our library of device codes to include codes for new features and devices introduced
•
creating innovative products that address consumer challenges in home entertainment control and
worldwide; and
security sensing.
During 2015, our advanced engineering efforts focused on further developing our existing products, services and
technologies. We released software updates to our embedded QuickSet application, and continued development
initiatives around emerging RF technologies, such as RF4CE, Bluetooth, and Bluetooth Smart. Additionally, we
released several new advanced remote control products that incorporate voice search capabilities in our subscription
broadcast and OEM channels. During 2015, we also released our QuickSet Cloud Service that is currently used in a
consumer smart phone app enabling automatic setup of a remote control.
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.
(In millions):
Research and development
Engineering (1)
Total engineering, research and development
(1) Engineering costs are included in SG&A.
Environmental Matters
2015
2014
2013
$
$
18.1 $
9.5
27.6 $
17.0 $
9.8
26.8 $
16.4
8.7
25.1
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.
We may also face significant costs and liabilities in connection with product take-back legislation. The European
Union's Waste Electrical and Electronic Equipment Directive ("WEEE") 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, the 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, 2015, 2014 and 2013, 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, 2015, we employed 2,309 employees, of which 474 worked in engineering and research and
development, 90 in sales and marketing, 75 in consumer service and support, 1,422 in operations and warehousing
and 248 in executive and administrative functions. In addition, our factories in the PRC and our Asian operations
employed an additional 7,934 staff contracted through agency agreements.
Labor unions represent approximately 19.0% of our 2,309 employees. Some unionized workers, employed within
Manaus, Brazil, are represented under contract with the Sindicato dos Trabalhadores nas Industrias Metalugicas,
Mecanicas e de Materiais Eletricos de Manaus. Other unionized workers, employed within Monterrey, Mexico, are
represented under contract with the Sindicato Industrial de Trabajadores de Nuevo León adherido a la Federación
Nacional de Sindicatos Independientes. 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, 2015, 2014 and 2013
can be found in "FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA — Notes to Consolidated Financial
Statements — Note 15".
5
6
23 2015
A N N U A L
REPORT
RISK FACTORS
Forward-Looking Statements
We make forward-looking statements in Management's Discussion and Analysis of Financial Condition and Results
of Operations and elsewhere in this report based on the beliefs and assumptions of our management and on
information currently available to us. Forward-looking statements include information about our possible or assumed
future results of operations, which follow under the headings "Business", "Liquidity and Capital Resources", and
other statements throughout this report preceded by, followed by or that include the words "believes", "expects",
"anticipates", "intends", "plans", "estimates" or similar expressions.
Any number of risks and uncertainties could cause actual results to differ materially from those we express in our
forward-looking statements, including the risks and uncertainties we describe below and other factors we describe
from time to time in our periodic filings with the U.S. Securities and Exchange Commission (the "SEC"). We
therefore caution you not to rely unduly on any forward-looking statement. The forward-looking statements in this
report speak only as of the date of this report, and we undertake no obligation to update or revise any forward-looking
statement, whether as a result of new information, future developments, or otherwise.
Risks and Uncertainties
We are subject to various risks that could have a negative effect on us or on our financial condition. You should
understand that these risks could cause results to differ materially from those we express in forward-looking
statements contained in this report or in other Company communications. Because there is no way to determine in
advance whether, or to what extent, any present uncertainty will ultimately impact our business, you should give
equal weight to each of the following:
Risks Related to Doing Business in the PRC
We manufacture a majority of our products in our factories in the PRC. Additionally, many of our contract
manufacturers are located in the PRC. Doing business in the PRC carries a number of risks including the following:
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:
•
•
•
•
levying fines;
revoking our business and other licenses;
requiring that we restructure our ownership or operations; and
requiring that we discontinue any portion or all of our business.
The fluctuation of the Chinese Yuan Renminbi may harm your investment.
Under Chinese monetary policy, the Chinese Yuan Renminbi is permitted to fluctuate within a managed band against
a basket of certain foreign currencies and has resulted in a 24.9% appreciation of the Chinese Yuan Renminbi against
the U.S. Dollar through December 31, 2015. While the international reaction to the Chinese Yuan Renminbi
revaluation has been positive, there remains 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.
investors.
The PRC's legal and judicial system may not adequately protect our business and operations and the rights of foreign
The PRC legal and judicial system may negatively impact foreign investors, 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 and Uncertainties Associated with Our Expansion Into and Our Operations Outside of the United States May
Adversely Affect Our Results of Operations, Cash Flow, Liquidity or Financial Condition
Net external sales of our consolidated foreign subsidiaries totaled approximately 43.5%, 55.2% and 53.0% of our
total consolidated net sales in 2015, 2014 and 2013, respectively. We expect that the international share of our total
revenues will continue to make up a significant part of our current business and future strategic plans. As a result,
we are increasingly exposed to the challenges and risks of doing business outside the United States, which could
reduce our revenues or profits, increase our costs, result in significant liabilities or sanctions, or otherwise disrupt
our business. These challenges include: (1) compliance with complex and changing laws, regulations and policies of
governments that may impact our operations, such as foreign ownership restrictions, import and export controls, and
trade restrictions; (2) compliance with U.S. and foreign laws that affect the activities of companies abroad, such as
anti-corruption laws, competition laws, currency regulations, and laws affecting dealings with certain nations;
(3) limitations on our ability to repatriate non-U.S. earnings in a tax effective manner; (4) the difficulties involved in
managing an organization doing business in many different countries; (5) uncertainties as to the enforceability of
contract and intellectual property rights under local laws; (6) rapid changes in government policy, political or civil
unrest in the Middle East and elsewhere, acts of terrorism, or the threat of international boycotts or U.S. anti-boycott
legislation; and (7) currency exchange rate fluctuations.
2015
A N N U A L
REPORT
24
7
8
RISK FACTORS
Forward-Looking Statements
We make forward-looking statements in Management's Discussion and Analysis of Financial Condition and Results
of Operations and elsewhere in this report based on the beliefs and assumptions of our management and on
information currently available to us. Forward-looking statements include information about our possible or assumed
future results of operations, which follow under the headings "Business", "Liquidity and Capital Resources", and
other statements throughout this report preceded by, followed by or that include the words "believes", "expects",
"anticipates", "intends", "plans", "estimates" or similar expressions.
Any number of risks and uncertainties could cause actual results to differ materially from those we express in our
forward-looking statements, including the risks and uncertainties we describe below and other factors we describe
from time to time in our periodic filings with the U.S. Securities and Exchange Commission (the "SEC"). We
therefore caution you not to rely unduly on any forward-looking statement. The forward-looking statements in this
report speak only as of the date of this report, and we undertake no obligation to update or revise any forward-looking
statement, whether as a result of new information, future developments, or otherwise.
Risks and Uncertainties
We are subject to various risks that could have a negative effect on us or on our financial condition. You should
understand that these risks could cause results to differ materially from those we express in forward-looking
statements contained in this report or in other Company communications. Because there is no way to determine in
advance whether, or to what extent, any present uncertainty will ultimately impact our business, you should give
equal weight to each of the following:
Risks Related to Doing Business in the PRC
We manufacture a majority of our products in our factories in the PRC. Additionally, many of our contract
manufacturers are located in the PRC. Doing business in the PRC carries a number of risks including the following:
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:
•
•
•
•
levying fines;
revoking our business and other licenses;
requiring that we restructure our ownership or operations; and
requiring that we discontinue any portion or all of our business.
The fluctuation of the Chinese Yuan Renminbi may harm your investment.
Under Chinese monetary policy, the Chinese Yuan Renminbi is permitted to fluctuate within a managed band against
a basket of certain foreign currencies and has resulted in a 24.9% appreciation of the Chinese Yuan Renminbi against
the U.S. Dollar through December 31, 2015. While the international reaction to the Chinese Yuan Renminbi
revaluation has been positive, there remains 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.
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, 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 and Uncertainties Associated with Our Expansion Into and Our Operations Outside of the United States May
Adversely Affect Our Results of Operations, Cash Flow, Liquidity or Financial Condition
Net external sales of our consolidated foreign subsidiaries totaled approximately 43.5%, 55.2% and 53.0% of our
total consolidated net sales in 2015, 2014 and 2013, respectively. We expect that the international share of our total
revenues will continue to make up a significant part of our current business and future strategic plans. As a result,
we are increasingly exposed to the challenges and risks of doing business outside the United States, which could
reduce our revenues or profits, increase our costs, result in significant liabilities or sanctions, or otherwise disrupt
our business. These challenges include: (1) compliance with complex and changing laws, regulations and policies of
governments that may impact our operations, such as foreign ownership restrictions, import and export controls, and
trade restrictions; (2) compliance with U.S. and foreign laws that affect the activities of companies abroad, such as
anti-corruption laws, competition laws, currency regulations, and laws affecting dealings with certain nations;
(3) limitations on our ability to repatriate non-U.S. earnings in a tax effective manner; (4) the difficulties involved in
managing an organization doing business in many different countries; (5) uncertainties as to the enforceability of
contract and intellectual property rights under local laws; (6) rapid changes in government policy, political or civil
unrest in the Middle East and elsewhere, acts of terrorism, or the threat of international boycotts or U.S. anti-boycott
legislation; and (7) currency exchange rate fluctuations.
7
8
25 2015
A N N U A L
REPORT
Failure by Our International Operations to Comply With Anti-Corruption Laws or Trade Sanctions Could Increase
Our Costs, Reduce Our Profits, Limit Our Growth, Harm Our Reputation, or Subject us to Broader Liability
We are subject to restrictions imposed by the U.S. Foreign Corrupt Practices Act and anti-corruption laws and
regulations of other countries applicable to our operations, such as the UK Bribery Act. Anti-corruption laws and
regulations generally prohibit companies and their intermediaries from making improper payments to government
officials or other persons in order to receive or retain business. The compliance programs, internal controls and
policies we maintain and enforce to promote compliance with applicable anti-bribery and anti-corruption laws may
not prevent our associates, contractors or agents from acting in ways prohibited by these laws and regulations. We
are also subject to trade sanctions administered by the Office of Foreign Assets Control and the U.S. Department of
Commerce. Our compliance programs and internal controls also may not prevent conduct that is prohibited under
these rules. The United States may impose additional sanctions at any time against any country in which or with
whom we do business. Depending on the nature of the sanctions imposed, our operations in the relevant country
could be restricted or otherwise adversely affected. Any violations of anti-corruption laws and regulations or trade
sanctions could result in significant civil and criminal penalties, reduce our profits, disrupt our business or damage
our reputation. In addition, an imposition of further restrictions in these areas could increase our cost of operations,
reduce our profits or cause us to forgo development opportunities that would otherwise support growth.
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, Japanese Yen and Mexican Peso. 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.
Risks Relating to Natural or Man-made Disasters, Contagious Disease, Terrorist Activity, and War May Adversely
Affect 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. So called “Acts of God,” such as
hurricanes, earthquakes, tsunamis, and other natural disasters, such as Hurricane Sandy in the Northeastern United
States, the earthquake and tsunami in Japan, and man-made disasters in recent years as well as the potential spread
of contagious diseases such as MERS (Middle East Respiratory Syndrome), Zika virus, and Ebola in locations where
we or they own or operate significant operations could cause a disruption in our or our third party’s production and
distribution capabilities or a decline in demand for our products and services. In addition, actual or threatened war,
terrorist activity, political unrest, or civil strife, such as recent events in Ukraine and Russia, the Middle East, and
other geopolitical uncertainty could have a similar effect. Any one or more of these events may reduce our ability to
produce or sell our products which 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 Asia 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.
Dependence upon Key Suppliers
Most of the components used in our products are available from multiple sources. However, we purchase integrated
circuits, used principally in our wireless control products, from a small number of key suppliers. To reduce our
dependence on our integrated circuit 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 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.
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.
2015
A N N U A L
REPORT
26
9
10
Failure by Our International Operations to Comply With Anti-Corruption Laws or Trade Sanctions Could Increase
Our Costs, Reduce Our Profits, Limit Our Growth, Harm Our Reputation, or Subject us to Broader Liability
We are subject to restrictions imposed by the U.S. Foreign Corrupt Practices Act and anti-corruption laws and
regulations of other countries applicable to our operations, such as the UK Bribery Act. Anti-corruption laws and
regulations generally prohibit companies and their intermediaries from making improper payments to government
officials or other persons in order to receive or retain business. The compliance programs, internal controls and
policies we maintain and enforce to promote compliance with applicable anti-bribery and anti-corruption laws may
not prevent our associates, contractors or agents from acting in ways prohibited by these laws and regulations. We
are also subject to trade sanctions administered by the Office of Foreign Assets Control and the U.S. Department of
Commerce. Our compliance programs and internal controls also may not prevent conduct that is prohibited under
these rules. The United States may impose additional sanctions at any time against any country in which or with
whom we do business. Depending on the nature of the sanctions imposed, our operations in the relevant country
could be restricted or otherwise adversely affected. Any violations of anti-corruption laws and regulations or trade
sanctions could result in significant civil and criminal penalties, reduce our profits, disrupt our business or damage
our reputation. In addition, an imposition of further restrictions in these areas could increase our cost of operations,
reduce our profits or cause us to forgo development opportunities that would otherwise support growth.
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, Japanese Yen and Mexican Peso. 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.
Risks Relating to Natural or Man-made Disasters, Contagious Disease, Terrorist Activity, and War May Adversely
Affect 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. So called “Acts of God,” such as
hurricanes, earthquakes, tsunamis, and other natural disasters, such as Hurricane Sandy in the Northeastern United
States, the earthquake and tsunami in Japan, and man-made disasters in recent years as well as the potential spread
of contagious diseases such as MERS (Middle East Respiratory Syndrome), Zika virus, and Ebola in locations where
we or they own or operate significant operations could cause a disruption in our or our third party’s production and
distribution capabilities or a decline in demand for our products and services. In addition, actual or threatened war,
other geopolitical uncertainty could have a similar effect. Any one or more of these events may reduce our ability to
produce or sell our products which 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 Asia 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.
Dependence upon Key Suppliers
Most of the components used in our products are available from multiple sources. However, we purchase integrated
circuits, used principally in our wireless control products, from a small number of key suppliers. To reduce our
dependence on our integrated circuit 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 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.
Fluctuations in Foreign Currency Exchange Rates May Adversely Affect Our Results of Operations, Cash Flow,
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.
terrorist activity, political unrest, or civil strife, such as recent events in Ukraine and Russia, the Middle East, and
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.
9
10
27 2015
A N N U A L
REPORT
Technology Changes in Wireless Control
Customers' inability to obtain financing to make purchases from us and/or maintain their business
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 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.
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.
Risks Related to Adverse Changes in General Business and Economic Conditions
Potential Fluctuations in Quarterly Results
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. Any such changes 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 condition. Although many of our end markets have shown signs of stabilization and
modest improvement from the recent global economic downturn, the recovery has been erratic. 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.
2015
A N N U A L
REPORT
28
11
12
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, an economic downturn could result in insolvencies for our customers, which 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 a significant decrease in available credit. 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 an economic downturn, 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.
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.
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 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.
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.
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. Any such changes 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 condition. Although many of our end markets have shown signs of stabilization and
modest improvement from the recent global economic downturn, the recovery has been erratic. 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.
Technology Changes in Wireless Control
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, an economic downturn could result in insolvencies for our customers, which 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 a significant decrease in available credit. 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 an economic downturn, 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.
Risks Related to Adverse Changes in General Business and Economic Conditions
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.
11
12
29 2015
A N N U A L
REPORT
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 may 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.
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, 2012 to March 7, 2016, the trading price of our common stock has ranged from a low of $11.40 per
share to a high of $66.75 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
•
the financial projections we may provide to the public, any changes in these projections or our failure
divestitures;
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.
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 programs 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.
2015
A N N U A L
REPORT
30
13
14
Our Ability to Generate Cash Depends on Many Factors Beyond Our Control. We Also Depend on the Business of
The Price of Our Common Stock is Volatile and May Decline Regardless of Our Operating Performance.
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 may 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.
Historically, we have had large fluctuations in the price of our common stock, and such fluctuations may continue.
From January 1, 2012 to March 7, 2016, the trading price of our common stock has ranged from a low of $11.40 per
share to a high of $66.75 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.
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 programs 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.
13
14
31 2015
A N N U A L
REPORT
Dependence on Consumer Preference
Outsourced Labor
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, 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.
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 year ended December 31, 2015, we had sales to Comcast Corporation and DIRECTV and its sub-
contractors, that when combined, totaled 10% or more of our net sales. During the years ended December 31, 2014
and 2013, we had sales to DIRECTV and its sub-contractors, that when combined, 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.
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.
The home security and automation industry is highly fragmented and subject to significant competition and pricing
pressures. In particular, the monitored security industry providers have highly recognized brands which may drive
increased awareness of their security/automation offerings rather than ours, have access to greater capital and
resources than us, and may spend significantly more on advertising, marketing and promotional resources which
could have a material adverse effect on our ability to drive awareness and demand for our products and services. In
addition, cable and telecommunications companies have expanded into the monitored security industry and are
bundling their existing offerings with monitored security services. We also face competition from Do-It-Yourself
(DIY) companies that are increasingly provided products which enable customers to self-monitor and control their
environments without third-party involvement. Further, DIY providers may also offer professional monitoring with
the purchase of their systems and equipment or new IoT devices and services with automated features and capabilities
that may be appealing to customers. Continued pricing pressure, improvements in technology and shifts in customer
preferences towards self-monitoring or DIY could adversely impact our customer base and/or pricing structure and
have a material adverse effect on our business, financial condition, results of operations and cash flows.
We are Exposed to Greater Risks of Liability for Omissions or System Failures
If a customer or third party believes that he or she has suffered harm to person or property due to an actual or alleged
security system failure, he or she (or their insurers) may pursue legal action against us, and the cost of defending the
legal action and of any judgment against us could be substantial. In particular, because our products and services are
intended to help protect lives and real and personal property, we may have greater exposure to litigation risks than
businesses that provide other consumer and small business products and services. While our customer contracts
contain a series of risk-mitigation provisions that are aimed at limiting our liability and/or limiting a claimant’s ability
to pursue legal action against us, in the event of litigation with respect to such matters it is possible that these risk-
mitigation provisions may be deemed not applicable or unenforceable and, regardless of the ultimate outcome, we
may incur significant costs of defense that could materially and adversely affect our business, financial condition,
results of operations and cash flows.
2015
A N N U A L
REPORT
32
15
16
Dependence on Consumer Preference
Outsourced Labor
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, any growth in revenues that we
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.
achieve may be transitory and should not be relied upon as an indication of future performance.
Competition
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.
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 year ended December 31, 2015, we had sales to Comcast Corporation and DIRECTV and its sub-
contractors, that when combined, totaled 10% or more of our net sales. During the years ended December 31, 2014
and 2013, we had sales to DIRECTV and its sub-contractors, that when combined, 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.
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.
The home security and automation industry is highly fragmented and subject to significant competition and pricing
pressures. In particular, the monitored security industry providers have highly recognized brands which may drive
increased awareness of their security/automation offerings rather than ours, have access to greater capital and
resources than us, and may spend significantly more on advertising, marketing and promotional resources which
could have a material adverse effect on our ability to drive awareness and demand for our products and services. In
addition, cable and telecommunications companies have expanded into the monitored security industry and are
bundling their existing offerings with monitored security services. We also face competition from Do-It-Yourself
(DIY) companies that are increasingly provided products which enable customers to self-monitor and control their
environments without third-party involvement. Further, DIY providers may also offer professional monitoring with
the purchase of their systems and equipment or new IoT devices and services with automated features and capabilities
that may be appealing to customers. Continued pricing pressure, improvements in technology and shifts in customer
preferences towards self-monitoring or DIY could adversely impact our customer base and/or pricing structure and
have a material adverse effect on our business, financial condition, results of operations and cash flows.
We are Exposed to Greater Risks of Liability for Omissions or System Failures
If a customer or third party believes that he or she has suffered harm to person or property due to an actual or alleged
security system failure, he or she (or their insurers) may pursue legal action against us, and the cost of defending the
legal action and of any judgment against us could be substantial. In particular, because our products and services are
intended to help protect lives and real and personal property, we may have greater exposure to litigation risks than
businesses that provide other consumer and small business products and services. While our customer contracts
contain a series of risk-mitigation provisions that are aimed at limiting our liability and/or limiting a claimant’s ability
to pursue legal action against us, in the event of litigation with respect to such matters it is possible that these risk-
mitigation provisions may be deemed not applicable or unenforceable and, regardless of the ultimate outcome, we
may incur significant costs of defense that could materially and adversely affect our business, financial condition,
results of operations and cash flows.
15
16
33 2015
A N N U A L
REPORT
Our Brand Quality and Reputation
Failure to Recruit, Hire, and Retain Key Personnel
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.
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 continued economic challenges, 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.
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.
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.
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.
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.
2015
A N N U A L
REPORT
34
17
18
Our Brand Quality and Reputation
Failure to Recruit, Hire, and Retain Key Personnel
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.
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 continued economic challenges, 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.
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.
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.
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.
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.
17
18
35 2015
A N N U A L
REPORT
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;
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 current global and regional economic conditions.
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.
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.
Cybersecurity Issues: Failure to Maintain the Integrity of and Protect Internal or Customer Data May Result in
Faulty Business Decisions, Operational Inefficiencies, Damage to our 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 customer product servicing,
human resources outsourcing, website hosting, and various forms of electronic communications. We and third parties
who provide services to us 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 information, security and privacy requirements
imposed by governmental regulation is also increasingly demanding, in both the United States and other jurisdictions
where we operate. Our systems and those of our service providers may be unable to satisfy these changing
requirements and employee and customer expectations, or may require significant additional investments or time in
order to do so. Efforts to hack or breach security measures, failures of systems or software to operate as designed or
intended, viruses, operator error, or inadvertent releases of data may materially impact our and our service providers'
information systems and records. Our reliance on computer, Internet-based and mobile systems and communications
and the frequency and sophistication of efforts by hackers to gain unauthorized access to such systems have increased
significantly in recent years. A significant theft, loss, or fraudulent use of customer, employee, or company data
maintained by us or by a service provider could adversely impact our reputation, cause harm to our business generally,
and could result in remedial and other expenses, fines, or litigation. Breaches in the security of our information
systems or those of our service providers or other disruptions in data services could lead to an interruption in the
operation of our systems, resulting in a loss of data, 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.
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 SEC 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 in filings with the SEC. 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
2015
A N N U A L
REPORT
36
19
20
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;
new contracts with new and existing customers and new market penetrations;
•
•
devices;
industry; and
•
the expected continued growth in digital TVs, DVRs, PVRs and overall growth in the company's
•
the effects we may experience due to current global and regional economic conditions.
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.
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.
Cybersecurity Issues: Failure to Maintain the Integrity of and Protect Internal or Customer Data May Result in
Faulty Business Decisions, Operational Inefficiencies, Damage to our 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 customer product servicing,
human resources outsourcing, website hosting, and various forms of electronic communications. We and third parties
who provide services to us 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 information, security and privacy requirements
imposed by governmental regulation is also increasingly demanding, in both the United States and other jurisdictions
where we operate. Our systems and those of our service providers may be unable to satisfy these changing
requirements and employee and customer expectations, or may require significant additional investments or time in
the expected continued adoption of the company's technologies in gaming consoles and mobile
Effectiveness of Our Internal Control Over Financial Reporting
order to do so. Efforts to hack or breach security measures, failures of systems or software to operate as designed or
intended, viruses, operator error, or inadvertent releases of data may materially impact our and our service providers'
information systems and records. Our reliance on computer, Internet-based and mobile systems and communications
and the frequency and sophistication of efforts by hackers to gain unauthorized access to such systems have increased
significantly in recent years. A significant theft, loss, or fraudulent use of customer, employee, or company data
maintained by us or by a service provider could adversely impact our reputation, cause harm to our business generally,
and could result in remedial and other expenses, fines, or litigation. Breaches in the security of our information
systems or those of our service providers or other disruptions in data services could lead to an interruption in the
operation of our systems, resulting in a loss of data, operational inefficiencies and a loss of profits.
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.
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 SEC 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 in filings with the SEC. 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
19
20
37 2015
A N N U A L
REPORT
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.
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 May 2014, the FASB issued ASU 2014-09, "Revenue from Contracts with
Customers", which may 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.
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)
2015
2014
2013
2012
2011
Net sales
Operating income
$ 602,833
$ 562,329
$ 529,354
$ 463,090
$ 468,630
$ 35,919
$ 41,280
$ 32,154
$ 26,202
$ 26,576
Net income attributable to Universal Electronics
$ 29,174
$ 32,534
$ 22,963
$ 16,553
$ 19,946
Year Ended December 31,
Inc.
Earnings per share attributable to Universal
Electronics Inc.:
Shares used in computing earnings per share:
Basic
Diluted
Basic
Diluted
Cash dividends declared per common share
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
$
$
1.91
1.88
$
$
2.06
2.01
$
$
1.51
1.47
$
$
1.11
1.10
$
$
1.34
1.31
15,248
15,542
—
15,781
16,152
—
15,248
15,601
—
14,952
15,110
—
14,912
15,213
—
21.8 %
22.4 %
22.5 %
23.2 %
22.1 %
5.9 %
4.8 %
6.1 %
7.3 %
5.8 %
7.3 %
6.1 %
4.3 %
5.7 %
5.6 %
3.6 %
4.4 %
5.7 %
4.3 %
5.4 %
Gross margin
27.7 %
29.7 %
28.6 %
28.8 %
27.8 %
(In thousands, except per share data)
2015
2014
2013
2012
2011
Working capital
$ 100,200
$ 183,600
$ 158,548
$ 113,488
$ 84,761
Ratio of current assets to current liabilities
1.5
2.3
2.3
2.0
1.7
December 31,
Total assets
Cash and cash equivalents
Line of credit
Stockholders’ equity
Book value per share (1)
$ 495,220
$ 463,070
$ 423,733
$ 379,324
$ 369,488
$ 52,966
$ 112,521
$ 76,174
$ 44,593
$ 29,372
$ 50,000
$
—
$
—
$
—
$
—
$ 257,908
$ 315,621
$ 291,270
$ 250,650
$ 229,989
$
17.97
$
19.85
$
18.55
$
16.74
$
15.55
Ratio of liabilities to liabilities and stockholders’
equity
47.9 %
31.8 %
31.3 %
33.9 %
37.8 %
(1) Book value per share is defined as stockholders’ equity divided by common shares issued less treasury
stock.
The comparability of information for 2015 compared to previous years is affected by the acquisition of the net assets
of Ecolink Intelligent Technology, Inc. during the third quarter of 2015. See "FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA — Notes to Consolidated Financial Statements — Note 21" for further information.
2015
A N N U A L
REPORT
38
21
22
which may lead to enforcement actions or the assertion of private litigation claims and damages.
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 May 2014, the FASB issued ASU 2014-09, "Revenue from Contracts with
Customers", which may 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.
Company, our operations and the industries in which we operate are being reviewed or investigated by regulators,
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 attributable to Universal Electronics
Inc.
Earnings per share attributable to Universal
Electronics Inc.:
Basic
Diluted
Shares used in computing earnings per share:
Basic
Diluted
Cash dividends 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
2015
$ 602,833
$ 35,919
$ 29,174
Year Ended December 31,
2013
2014
2012
2011
$ 562,329
$ 41,280
$ 32,534
$ 529,354
$ 32,154
$ 22,963
$ 463,090
$ 26,202
$ 16,553
$ 468,630
$ 26,576
$ 19,946
$
$
1.91
1.88
$
$
2.06
2.01
$
$
1.51
1.47
$
$
1.11
1.10
$
$
1.34
1.31
15,248
15,542
—
27.7 %
15,781
16,152
—
29.7 %
15,248
15,601
—
28.6 %
14,952
15,110
—
28.8 %
14,912
15,213
—
27.8 %
21.8 %
22.4 %
22.5 %
23.2 %
22.1 %
5.9 %
4.8 %
6.1 %
7.3 %
5.8 %
7.3 %
6.1 %
4.3 %
5.7 %
5.6 %
3.6 %
4.4 %
5.7 %
4.3 %
5.4 %
(In thousands, except per share data)
Working capital
Ratio of current assets to current liabilities
Total assets
Cash and cash equivalents
Line of credit
Stockholders’ equity
Book value per share (1)
2015
$ 100,200
1.5
$ 495,220
$ 52,966
$ 50,000
$ 257,908
17.97
$
2014
$ 183,600
2.3
$ 463,070
$ 112,521
—
$
$ 315,621
19.85
$
December 31,
2013
2012
2011
$ 158,548
2.3
$ 423,733
$ 76,174
—
$
$ 291,270
18.55
$
$ 113,488
2.0
$ 379,324
$ 44,593
—
$
$ 250,650
16.74
$
$ 84,761
1.7
$ 369,488
$ 29,372
—
$
$ 229,989
15.55
$
Ratio of liabilities to liabilities and stockholders’
equity
47.9 %
31.8 %
31.3 %
33.9 %
37.8 %
(1) Book value per share is defined as stockholders’ equity divided by common shares issued less treasury
stock.
The comparability of information for 2015 compared to previous years is affected by the acquisition of the net assets
of Ecolink Intelligent Technology, Inc. during the third quarter of 2015. See "FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA — Notes to Consolidated Financial Statements — Note 21" for further information.
21
22
39 2015
A N N U A L
REPORT
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,
software and intelligent wireless automation components dedicated to redefining the home entertainment and
automation experience. Our customers operate primarily in the consumer electronics market and include subscription
broadcasters, OEMs, international retailers, private label brands, pro-security installers and companies in the
computing industry. We also sell integrated circuits, on which our software and device control database is embedded,
and license our device control database to OEMs that manufacture televisions, digital audio and video players,
streamer boxes, cable converters, satellite receivers, set-top boxes, room air conditioning equipment, game consoles,
and wireless mobile phones and tablets.
Since our beginning in 1986, we have compiled an extensive device control database that covers over
922,000 individual device functions and approximately 7,300 unique consumer electronic brands. QuickSet®, our
proprietary software, can automatically detect, identify and enable the appropriate control commands for home
entertainment, automation and appliances like air conditioners. Our library is regularly updated with new control
functions captured directly from devices, remote controls and manufacturer specifications to ensure the accuracy and
integrity of our database and control engine. Our universal remote control library contains device codes that are
capable of controlling virtually all set-top boxes, televisions, audio components, DVD players, Blu-Ray players, and
CD players, as well as most other remote controlled home entertainment devices and home automation control
modules worldwide.
With the wider adoption of more advanced control technologies, emerging RF technologies, such as RF4CE,
Bluetooth, and Bluetooth Smart have increasingly become a focus in our development efforts. Several new platforms
released in 2015 utilize RF to effectively implement popular features like voice search.
We operate as one business segment. We have twenty-two international subsidiaries located in Argentina, Brazil,
British Virgin Islands, Cayman Islands, France, Germany, Hong Kong (3), India, Italy, Japan, Mexico, the
Netherlands, People's Republic of China (5), Singapore, Spain and the United Kingdom.
To recap our results for 2015:
• Net sales increased 7.2% to $602.8 million in 2015 from $562.3 million in 2014.
• Our gross margin percentage decreased from 29.7% in 2014 to 27.7% in 2015.
• Operating expenses, as a percent of sales, decreased from 22.4% in 2014 to 21.8% in 2015
• Operating income decreased 13.0% to $35.9 million in 2015 from $41.3 million in 2014, and our
operating margin percentage decreased to 5.9% in 2015, compared to 7.3% in 2014.
• Our effective tax rate decreased to 18.9% in 2015 from 19.6% in 2014.
Our strategic business objectives for 2016 include the following:
•
•
•
•
•
•
continue to develop and market the advanced remote control products and technologies our customer
base is adopting;
continue to broaden our home control and automation product offerings;
further penetrate international subscription broadcasting markets;
acquire new customers in historically strong regions;
increase our share with existing customers; and
continue to seek acquisitions or strategic partners that complement and strengthen our existing
business.
2015
A N N U A L
REPORT
40
23
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,
inventory valuation, our review for impairment of long-lived assets, intangible assets and goodwill, business
combinations, 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 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
24
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
The following discussion should be read in conjunction with the Consolidated Financial Statements and the related
notes that appear elsewhere in this document.
OPERATIONS
Overview
We develop and manufacture a broad line of pre-programmed universal remote control products, AV accessories,
software and intelligent wireless automation components dedicated to redefining the home entertainment and
automation experience. Our customers operate primarily in the consumer electronics market and include subscription
broadcasters, OEMs, international retailers, private label brands, pro-security installers and companies in the
computing industry. We also sell integrated circuits, on which our software and device control database is embedded,
and license our device control database to OEMs that manufacture televisions, digital audio and video players,
streamer boxes, cable converters, satellite receivers, set-top boxes, room air conditioning equipment, game consoles,
and wireless mobile phones and tablets.
Since our beginning in 1986, we have compiled an extensive device control database that covers over
922,000 individual device functions and approximately 7,300 unique consumer electronic brands. QuickSet®, our
proprietary software, can automatically detect, identify and enable the appropriate control commands for home
entertainment, automation and appliances like air conditioners. Our library is regularly updated with new control
functions captured directly from devices, remote controls and manufacturer specifications to ensure the accuracy and
integrity of our database and control engine. Our universal remote control library contains device codes that are
capable of controlling virtually all set-top boxes, televisions, audio components, DVD players, Blu-Ray players, and
CD players, as well as most other remote controlled home entertainment devices and home automation control
modules worldwide.
With the wider adoption of more advanced control technologies, emerging RF technologies, such as RF4CE,
Bluetooth, and Bluetooth Smart have increasingly become a focus in our development efforts. Several new platforms
released in 2015 utilize RF to effectively implement popular features like voice search.
We operate as one business segment. We have twenty-two international subsidiaries located in Argentina, Brazil,
British Virgin Islands, Cayman Islands, France, Germany, Hong Kong (3), India, Italy, Japan, Mexico, the
Netherlands, People's Republic of China (5), Singapore, Spain and the United Kingdom.
To recap our results for 2015:
• Net sales increased 7.2% to $602.8 million in 2015 from $562.3 million in 2014.
• Our gross margin percentage decreased from 29.7% in 2014 to 27.7% in 2015.
• Operating expenses, as a percent of sales, decreased from 22.4% in 2014 to 21.8% in 2015
• Operating income decreased 13.0% to $35.9 million in 2015 from $41.3 million in 2014, and our
operating margin percentage decreased to 5.9% in 2015, compared to 7.3% in 2014.
• Our effective tax rate decreased to 18.9% in 2015 from 19.6% in 2014.
Our strategic business objectives for 2016 include the following:
•
continue to develop and market the advanced remote control products and technologies our customer
continue to broaden our home control and automation product offerings;
further penetrate international subscription broadcasting markets;
acquire new customers in historically strong regions;
increase our share with existing customers; and
base is adopting;
•
•
•
•
•
business.
continue to seek acquisitions or strategic partners that complement and strengthen our existing
23
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,
inventory valuation, our review for impairment of long-lived assets, intangible assets and goodwill, business
combinations, 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 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
24
41 2015
A N N U A L
REPORT
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.
Inventories
Our finished good, 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 future demand and 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 $1.3 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:
•
•
•
•
•
•
underperformance relative to historical or projected future operating results;
changes in the manner of use of the assets;
changes in the strategy of our overall business;
negative industry or economic trends;
a decline in our stock price for a sustained period; and
a variance between our market capitalization relative to net book value.
If the carrying value of the asset is larger than its projected undiscounted future 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 future 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.
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.
Business Combinations
We allocate the purchase price of acquired businesses to the tangible and intangible assets and the liabilities assumed
based on their estimated fair values on the acquisition date. The excess of the purchase price over the fair value of
net assets acquired is recorded as goodwill. We engage independent third-party appraisal firms to assist us in
determining the fair values of assets acquired and liabilities assumed. Such valuations require management to make
significant fair value estimates and assumptions, especially with respect to intangible assets and contingent
consideration. Management estimates the fair value of certain intangible assets and contingent consideration by
utilizing the following (but not limited to):
•
future cash flow from customer contracts, customer lists, distribution agreements, acquired developed
technologies, trademarks, trade names and patents;
•
expected costs to complete development of in-process technology into commercially viable products
and cash flows from the products once they are completed;
•
brand awareness and market position as well as assumptions regarding the period of time the brand
will continue to be used in our product portfolio; and
•
discount rates utilized in discounted cash flow models.
In those circumstances where an acquisition involves a contingent consideration arrangement, we recognize a liability
equal to the fair value of the contingent payments we expect to make as of the acquisition date. We re-measure this
2015
A N N U A L
REPORT
42
25
26
the delivery of a particular database of infrared codes that represents the culmination of the earnings process, we
Goodwill
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.
Inventories
Our finished good, 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 future demand and 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 $1.3 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:
underperformance relative to historical or projected future operating results;
•
•
•
•
•
•
changes in the manner of use of the assets;
changes in the strategy of our overall business;
negative industry or economic trends;
a decline in our stock price for a sustained period; and
a variance between our market capitalization relative to net book value.
If the carrying value of the asset is larger than its projected undiscounted future 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 future cash flows. In assessing fair value, we must
make assumptions regarding estimated future cash flows, the discount rate and other factors.
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.
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.
Business Combinations
We allocate the purchase price of acquired businesses to the tangible and intangible assets and the liabilities assumed
based on their estimated fair values on the acquisition date. The excess of the purchase price over the fair value of
net assets acquired is recorded as goodwill. We engage independent third-party appraisal firms to assist us in
determining the fair values of assets acquired and liabilities assumed. Such valuations require management to make
significant fair value estimates and assumptions, especially with respect to intangible assets and contingent
consideration. Management estimates the fair value of certain intangible assets and contingent consideration by
utilizing the following (but not limited to):
•
•
•
future cash flow from customer contracts, customer lists, distribution agreements, acquired developed
technologies, trademarks, trade names and patents;
expected costs to complete development of in-process technology into commercially viable products
and cash flows from the products once they are completed;
brand awareness and market position as well as assumptions regarding the period of time the brand
will continue to be used in our product portfolio; and
•
discount rates utilized in discounted cash flow models.
In those circumstances where an acquisition involves a contingent consideration arrangement, we recognize a liability
equal to the fair value of the contingent payments we expect to make as of the acquisition date. We re-measure this
25
26
43 2015
A N N U A L
REPORT
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 the 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.
liability at each reporting period and record changes in the fair value within operating expenses. Increases or
decreases in the fair value of the contingent consideration liability can result from changes in discount periods and
rates, as well as changes in the timing and amount of earnings estimates or in the timing or likelihood of achieving
earnings-based milestones.
Our estimates are based upon assumptions believed to be reasonable; however, unanticipated events or circumstances
may occur which may affect the accuracy of our fair value estimates, including assumptions regarding industry
economic factors and business strategies.
Results of operations and cash flows of acquired businesses are included in our operating results from the date of
acquisition.
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.
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.
2015
A N N U A L
REPORT
44
27
28
liability at each reporting period and record changes in the fair value within operating expenses. Increases or
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 the 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.
decreases in the fair value of the contingent consideration liability can result from changes in discount periods and
rates, as well as changes in the timing and amount of earnings estimates or in the timing or likelihood of achieving
earnings-based milestones.
Our estimates are based upon assumptions believed to be reasonable; however, unanticipated events or circumstances
may occur which may affect the accuracy of our fair value estimates, including assumptions regarding industry
economic factors and business strategies.
Results of operations and cash flows of acquired businesses are included in our operating results from the date of
acquisition.
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.
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.
27
28
45 2015
A N N U A L
REPORT
Results of Operations
The following table sets forth our results of operations expressed as a percentage of net sales for the periods indicated.
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
Net income (loss) attributable to noncontrolling interest
Net income attributable to Universal Electronics Inc.
Year Ended December 31,
2015
2014
2013
100.0 %
72.3
27.7
3.1
18.7
5.9
0.0
(0.0 )
5.9
1.1
4.8
(0.0 )
4.8 %
100.0 %
70.3
29.7
3.0
19.4
7.3
0.0
(0.1 )
7.2
1.4
5.8
—
5.8 %
100.0 %
71.4
28.6
3.1
19.4
6.1
0.0
(0.6 )
5.5
1.2
4.3
—
4.3 %
Year Ended December 31, 2015 ("2015") Compared to Year Ended December 31, 2014 ("2014")
Net sales. Net sales for 2015 were $602.8 million, an increase of 7.2% compared to $562.3 million in 2014. Net sales
by our business and consumer lines were as follows:
Business
Consumer
Total net sales
2015
2014
$ (millions)
% of total
$ (millions)
% of total
$
$
551.0
51.8
602.8
91.4 % $
8.6 %
100.0 % $
507.1
55.2
562.3
90.2 %
9.8 %
100.0 %
Net sales in our Business lines (subscription broadcasting, OEM, and computing companies) were 91.4% of net sales
in 2015 compared to 90.2% in 2014. Net sales in our Business lines in 2015 increased by 8.7% to $551.0 million
from $507.1 million in 2014 driven primarily by strong demand and increased market share with North American
subscription broadcasters as more customers transition from lower end platforms to higher end platforms. Partially
offsetting this improvement was a decrease in net sales to consumer electronics companies in Asia.
Net sales in our Consumer lines (One For All® retail and private label) were 8.6% of net sales in 2015 compared to
9.8% in 2014. Net sales in our Consumer lines in 2015 decreased by 6.2% to $51.8 million from $55.2 million in
2014. This decrease was driven primarily by the weakening of the Euro and the British Pound compared to the U.S.
Dollar, which negatively impacted sales in the current year period by $5.3 million. This unfavorable currency impact
was partially offset by increased sales in the European market.
Gross profit. Gross profit in 2015 was $166.7 million compared to $166.9 million in 2014. Gross profit as a percent
of sales decreased to 27.7% in 2015 from 29.7% in 2014. The gross margin percentage was unfavorably impacted
by an increase in sales to certain large customers that yield a lower gross margin rate than our company average,
labor inflation in China where our three manufacturing facilities are located, and a decrease in royalty revenue
associated with the TV and mobile device markets. The impact of these unfavorable items was partially offset by the
weakening of the Chinese Yuan Renminbi relative to the U.S. Dollar.
Research and development (“R&D”) expenses. R&D expenses increased 6.9% to $18.1 million in 2015 from $17.0
million in 2014 as we continue to develop new product offerings in existing categories as well as new categories
such as the home security channel.
Selling, general and administrative (“SG&A”) expenses. SG&A expenses increased 3.7% to $112.7 million in 2015
from $108.6 million in 2014. This increase was attributable primarily to an unfavorable court order in a patent
litigation lawsuit of $4.6 million in the third quarter of 2015 as well as increased payroll costs driven by additional
headcount to support product development efforts and annual merit increases. SG&A expenses also increased due to
increased delivery expenses as a result of the additional sales to North American subscription broadcasting customers
in the current year period and the rerouting of certain shipments in the first quarter of 2015 due to the temporary port
congestion in Los Angeles, California. These increases were partially offset by the weakening of the Euro and
Brazilian Real and a decrease in incentive compensation costs.
Interest income (expense), net. Net interest income was $63 thousand in 2015 compared to net interest income of $11
thousand in 2014.
Other income (expense), net. Net other expense was $7 thousand in 2015 compared to net other expense of $0.8
million in 2014. This change was driven primarily by a decrease in foreign currency losses associated with
fluctuations in foreign currency exchange rates related to the Euro, Chinese Yuan Renminbi and British Pound.
Income tax expense. Income tax expense was $6.8 million in 2015 compared to $7.9 million in 2014, and our effective
tax rate was 18.9% in 2015 compared to 19.6% in 2014. The decrease in our effective tax rate was due primarily to
the recording of $0.5 million in tax refunds in 2015 related to tax incentives in China for the years 2012 through
2014. Historically a significant portion of our foreign taxable income has been generated in the PRC, and we expect
this trend to continue.
Year Ended December 31, 2014 Compared to Year Ended December 31, 2013 ("2013")
Net sales. Net sales for 2014 were $562.3 million, an increase of 6.2% compared to $529.4 million in 2013. Net sales
by our business and consumer lines were as follows:
Business
Consumer
Total net sales
2014
2013
$ (millions)
% of total
$ (millions)
% of total
$
$
507.1
55.2
562.3
90.2 % $
9.8 %
100.0 % $
475.7
53.7
529.4
89.9 %
10.1 %
100.0 %
Net sales in our Business lines (subscription broadcasting, OEM, and computing companies) were 90.2% of net sales
in 2014 compared to 89.9% in 2013. Net sales in our Business lines in 2014 increased by 6.6% to $507.1 million
from $475.7 million in 2013. The increase was primarily due to an increase in remote control sales to consumer
electronics companies in Asia, an increase in licensing revenue, growth in sales of our embedded chip solutions to
smart device manufacturers, and increased market share in European subscription broadcasting.
Net sales in our Consumer lines (One For All® retail and private label) were 9.8% of net sales in 2014 compared to
10.1% in 2013. Net sales in our Consumer lines in 2014 increased by 2.8% to $55.2 million from $53.7 million in
2013. International retail sales increased 3.8% from $49.6 million in 2013 to $51.5 million in 2014 due primarily to
increased distribution in southern European countries and Latin America as well as increased demand resulting from
the 2014 FIFA World Cup™.
2015
A N N U A L
REPORT
46
29
30
Results of Operations
The following table sets forth our results of operations expressed as a percentage of net sales for the periods indicated.
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
Year Ended December 31,
2015
2014
2013
100.0 %
100.0 %
100.0 %
72.3
27.7
3.1
18.7
5.9
0.0
5.9
1.1
4.8
(0.0 )
4.8 %
70.3
29.7
3.0
19.4
7.3
0.0
7.2
1.4
5.8
—
(0.0 )
(0.1 )
71.4
28.6
3.1
19.4
6.1
0.0
(0.6 )
5.5
1.2
4.3
—
Net income (loss) attributable to noncontrolling interest
Net income attributable to Universal Electronics Inc.
5.8 %
4.3 %
Year Ended December 31, 2015 ("2015") Compared to Year Ended December 31, 2014 ("2014")
Net sales. Net sales for 2015 were $602.8 million, an increase of 7.2% compared to $562.3 million in 2014. Net sales
by our business and consumer lines were as follows:
Business
Consumer
Total net sales
2015
2014
$ (millions)
% of total
$ (millions)
% of total
$
$
551.0
51.8
602.8
91.4 % $
8.6 %
100.0 % $
507.1
55.2
562.3
90.2 %
9.8 %
100.0 %
Net sales in our Business lines (subscription broadcasting, OEM, and computing companies) were 91.4% of net sales
in 2015 compared to 90.2% in 2014. Net sales in our Business lines in 2015 increased by 8.7% to $551.0 million
from $507.1 million in 2014 driven primarily by strong demand and increased market share with North American
subscription broadcasters as more customers transition from lower end platforms to higher end platforms. Partially
offsetting this improvement was a decrease in net sales to consumer electronics companies in Asia.
Net sales in our Consumer lines (One For All® retail and private label) were 8.6% of net sales in 2015 compared to
9.8% in 2014. Net sales in our Consumer lines in 2015 decreased by 6.2% to $51.8 million from $55.2 million in
2014. This decrease was driven primarily by the weakening of the Euro and the British Pound compared to the U.S.
Dollar, which negatively impacted sales in the current year period by $5.3 million. This unfavorable currency impact
was partially offset by increased sales in the European market.
Gross profit. Gross profit in 2015 was $166.7 million compared to $166.9 million in 2014. Gross profit as a percent
of sales decreased to 27.7% in 2015 from 29.7% in 2014. The gross margin percentage was unfavorably impacted
by an increase in sales to certain large customers that yield a lower gross margin rate than our company average,
labor inflation in China where our three manufacturing facilities are located, and a decrease in royalty revenue
associated with the TV and mobile device markets. The impact of these unfavorable items was partially offset by the
weakening of the Chinese Yuan Renminbi relative to the U.S. Dollar.
Research and development (“R&D”) expenses. R&D expenses increased 6.9% to $18.1 million in 2015 from $17.0
million in 2014 as we continue to develop new product offerings in existing categories as well as new categories
such as the home security channel.
Selling, general and administrative (“SG&A”) expenses. SG&A expenses increased 3.7% to $112.7 million in 2015
from $108.6 million in 2014. This increase was attributable primarily to an unfavorable court order in a patent
litigation lawsuit of $4.6 million in the third quarter of 2015 as well as increased payroll costs driven by additional
headcount to support product development efforts and annual merit increases. SG&A expenses also increased due to
increased delivery expenses as a result of the additional sales to North American subscription broadcasting customers
in the current year period and the rerouting of certain shipments in the first quarter of 2015 due to the temporary port
congestion in Los Angeles, California. These increases were partially offset by the weakening of the Euro and
Brazilian Real and a decrease in incentive compensation costs.
Interest income (expense), net. Net interest income was $63 thousand in 2015 compared to net interest income of $11
thousand in 2014.
Other income (expense), net. Net other expense was $7 thousand in 2015 compared to net other expense of $0.8
million in 2014. This change was driven primarily by a decrease in foreign currency losses associated with
fluctuations in foreign currency exchange rates related to the Euro, Chinese Yuan Renminbi and British Pound.
Income tax expense. Income tax expense was $6.8 million in 2015 compared to $7.9 million in 2014, and our effective
tax rate was 18.9% in 2015 compared to 19.6% in 2014. The decrease in our effective tax rate was due primarily to
the recording of $0.5 million in tax refunds in 2015 related to tax incentives in China for the years 2012 through
2014. Historically a significant portion of our foreign taxable income has been generated in the PRC, and we expect
this trend to continue.
Year Ended December 31, 2014 Compared to Year Ended December 31, 2013 ("2013")
Net sales. Net sales for 2014 were $562.3 million, an increase of 6.2% compared to $529.4 million in 2013. Net sales
by our business and consumer lines were as follows:
Business
Consumer
Total net sales
2014
2013
$ (millions)
% of total
$ (millions)
% of total
$
$
507.1
55.2
562.3
90.2 % $
9.8 %
100.0 % $
475.7
53.7
529.4
89.9 %
10.1 %
100.0 %
Net sales in our Business lines (subscription broadcasting, OEM, and computing companies) were 90.2% of net sales
in 2014 compared to 89.9% in 2013. Net sales in our Business lines in 2014 increased by 6.6% to $507.1 million
from $475.7 million in 2013. The increase was primarily due to an increase in remote control sales to consumer
electronics companies in Asia, an increase in licensing revenue, growth in sales of our embedded chip solutions to
smart device manufacturers, and increased market share in European subscription broadcasting.
Net sales in our Consumer lines (One For All® retail and private label) were 9.8% of net sales in 2014 compared to
10.1% in 2013. Net sales in our Consumer lines in 2014 increased by 2.8% to $55.2 million from $53.7 million in
2013. International retail sales increased 3.8% from $49.6 million in 2013 to $51.5 million in 2014 due primarily to
increased distribution in southern European countries and Latin America as well as increased demand resulting from
the 2014 FIFA World Cup™.
29
30
47 2015
A N N U A L
REPORT
Gross profit. Gross profit in 2014 was $166.9 million compared to $151.5 million in 2013. Gross profit as a percent
of sales increased to 29.7% in 2014 from 28.6% in 2013. The gross margin percentage was favorably impacted by
an increase in licensing revenue associated with the smart device channel and, to a lesser extent, the strengthening
of the British Pound compared to the U.S. Dollar. Partially offsetting these favorable items was an increase in sales
to certain large customers that yield a lower gross margin than our company's average.
Research and development expenses. R&D expenses increased 3.2% to $17.0 million in 2014 from $16.4 million in
2013. 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 expenses. SG&A expenses increased 5.6% to $108.6 million in 2014 from $102.9
million in 2013. This increase was driven primarily by increased incentive compensation costs as a result of our
strong financial performance in the current year as well as an increase in external legal expenses related to patent
litigation cases. In addition, in an effort to further support the smart device channel, we increased headcount within
our global engineering team which resulted in higher payroll costs in 2014.
Interest income (expense), net. Net interest income was $11 thousand in 2014 compared net interest income of $51
thousand in 2013.
Other income (expense), net. Net other expense was $0.8 million in 2014 compared to net other expense of $3.2
million in 2013. This decrease was driven primarily by a decrease in 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 $7.9 million in 2014 compared to $6.1 million in 2013 and our effective
tax rate was 19.6% in 2014 compared to 20.9% in 2013. The decrease in our effective tax rate was due primarily to
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.
Liquidity and Capital Resources
Sources and Uses of Cash
(In thousands)
Year Ended
December 31,
2015
Increase
(Decrease)
Year Ended
December 31,
2014
Increase
(Decrease)
Year Ended
December 31,
2013
Cash provided by operating activities
$
26,094 $
(37,379 ) $
63,473 $
32,779 $
30,694
Cash used for investing activities
(47,649 )
(29,230 )
(18,419 )
(6,745 )
(11,674 )
Cash provided by (used for) financing
activities
(35,142 )
(27,096 )
(8,046 )
(18,084 )
Effect of exchange rate changes on cash
(2,858 )
(2,197 )
(661 )
(3,184 )
10,038
2,523
Cash and cash equivalents
Working capital
December 31,
2015
Increase
(Decrease)
December 31,
2014
$
52,966 $
(59,555 ) $
100,200
(83,400 )
112,521
183,600
Net cash provided by operating activities decreased $37.4 million in 2015 when compared to 2014, primarily due to
the net impact of changes in working capital needs associated with inventories, accounts receivable and accounts
payable. In 2015 we deliberately increased our inventory levels in order to meet the strong demand for our higher
end products in the subscription broadcast channel as well as prepare for the manufacturing transition of certain
products from our southern China factory to our northern China factory. With respect to accounts receivable, we
experienced a greater growth in outstanding accounts receivable in 2015 as a result of increased sales levels.
Additionally, days sales outstanding increased from 64 days at December 31, 2014 to 68 days at December 31, 2015
as a result of us extending longer payment terms to a couple of significant customers. Increased cash inflows from
accounts payable were largely attributable to the increase in inventories as well as an effort to extend payment terms
with certain vendors.
Net cash provided by operating activities increased $32.8 million in 2014 when compared to 2013, primarily due to
a $20.8 million increase in cash flows associated with operating assets and liabilities and a $9.6 million increase in
net income. With respect to operating assets and liabilities, improved vendor management helped drive a $17.7
million increase in cash flows associated with accounts payable and accrued expenses. Additionally, cash flows
associated with inventories improved by $7.2 million as our inventory turns increased to 4.1 turns for 2014, compared
to 3.9 turns for 2013, primarily as a result of more tightly managed inventory levels.
Net cash used for investing activities during 2015 was $47.6 million compared to $18.4 million and $11.7 million of
net cash used during 2014 and 2013, respectively. Part of the increase in cash used for investing activities in 2015
was driven by our acquisition of the net assets of Ecolink Intelligent Technology, Inc. ("Ecolink") for $12.3 million,
net of cash acquired. In addition to the Ecolink acquisition, our 2015, 2014 and 2013 cash used for investing activities
consisted of our investments in property, plant and equipment as well as internally developed patents. We have
increased our investment in machinery and equipment over the past two years as we have been increasing the amount
of automation in our factories in an effort to mitigate the rising cost of labor in China. Additionally, in 2015 we
further increased our purchases of machinery and equipment in our factories to support the increased demand for
more advanced remote controls. We expect to continue to invest in factory automation as well as machinery and
equipment necessary to manufacture more advanced remote control products. In addition, we are implementing a
new ERP system in 2016 in Asia and North America. As a result, we anticipate that property, plant and equipment
purchases in 2016 will total between $22 million to $26 million.
Net cash used for financing activities was $35.1 million during 2015 compared to net cash used for financing
activities of $8.0 million during 2014 and net cash provided by financing activities of $10.0 million during 2013.
2015
A N N U A L
REPORT
48
31
32
Gross profit. Gross profit in 2014 was $166.9 million compared to $151.5 million in 2013. Gross profit as a percent
of sales increased to 29.7% in 2014 from 28.6% in 2013. The gross margin percentage was favorably impacted by
an increase in licensing revenue associated with the smart device channel and, to a lesser extent, the strengthening
of the British Pound compared to the U.S. Dollar. Partially offsetting these favorable items was an increase in sales
to certain large customers that yield a lower gross margin than our company's average.
Research and development expenses. R&D expenses increased 3.2% to $17.0 million in 2014 from $16.4 million in
2013. 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 expenses. SG&A expenses increased 5.6% to $108.6 million in 2014 from $102.9
million in 2013. This increase was driven primarily by increased incentive compensation costs as a result of our
strong financial performance in the current year as well as an increase in external legal expenses related to patent
litigation cases. In addition, in an effort to further support the smart device channel, we increased headcount within
our global engineering team which resulted in higher payroll costs in 2014.
Interest income (expense), net. Net interest income was $11 thousand in 2014 compared net interest income of $51
thousand in 2013.
Other income (expense), net. Net other expense was $0.8 million in 2014 compared to net other expense of $3.2
million in 2013. This decrease was driven primarily by a decrease in 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 $7.9 million in 2014 compared to $6.1 million in 2013 and our effective
tax rate was 19.6% in 2014 compared to 20.9% in 2013. The decrease in our effective tax rate was due primarily to
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.
Liquidity and Capital Resources
Sources and Uses of Cash
(In thousands)
Cash provided by operating activities
Cash used for investing activities
Cash provided by (used for) financing
activities
Effect of exchange rate changes on cash
Year Ended
December 31,
2015
26,094 $
(47,649 )
$
Increase
(Decrease)
(37,379 ) $
(29,230 )
Year Ended
December 31,
2014
63,473 $
(18,419 )
Increase
(Decrease)
32,779 $
(6,745 )
Year Ended
December 31,
2013
30,694
(11,674 )
(35,142 )
(27,096 )
(8,046 )
(18,084 )
(2,858 )
(2,197 )
(661 )
(3,184 )
10,038
2,523
Cash and cash equivalents
Working capital
$
52,966 $
100,200
(59,555 ) $
(83,400 )
December 31,
2015
Increase
(Decrease)
December 31,
2014
112,521
183,600
Net cash provided by operating activities decreased $37.4 million in 2015 when compared to 2014, primarily due to
the net impact of changes in working capital needs associated with inventories, accounts receivable and accounts
payable. In 2015 we deliberately increased our inventory levels in order to meet the strong demand for our higher
end products in the subscription broadcast channel as well as prepare for the manufacturing transition of certain
products from our southern China factory to our northern China factory. With respect to accounts receivable, we
experienced a greater growth in outstanding accounts receivable in 2015 as a result of increased sales levels.
Additionally, days sales outstanding increased from 64 days at December 31, 2014 to 68 days at December 31, 2015
as a result of us extending longer payment terms to a couple of significant customers. Increased cash inflows from
accounts payable were largely attributable to the increase in inventories as well as an effort to extend payment terms
with certain vendors.
Net cash provided by operating activities increased $32.8 million in 2014 when compared to 2013, primarily due to
a $20.8 million increase in cash flows associated with operating assets and liabilities and a $9.6 million increase in
net income. With respect to operating assets and liabilities, improved vendor management helped drive a $17.7
million increase in cash flows associated with accounts payable and accrued expenses. Additionally, cash flows
associated with inventories improved by $7.2 million as our inventory turns increased to 4.1 turns for 2014, compared
to 3.9 turns for 2013, primarily as a result of more tightly managed inventory levels.
Net cash used for investing activities during 2015 was $47.6 million compared to $18.4 million and $11.7 million of
net cash used during 2014 and 2013, respectively. Part of the increase in cash used for investing activities in 2015
was driven by our acquisition of the net assets of Ecolink Intelligent Technology, Inc. ("Ecolink") for $12.3 million,
net of cash acquired. In addition to the Ecolink acquisition, our 2015, 2014 and 2013 cash used for investing activities
consisted of our investments in property, plant and equipment as well as internally developed patents. We have
increased our investment in machinery and equipment over the past two years as we have been increasing the amount
of automation in our factories in an effort to mitigate the rising cost of labor in China. Additionally, in 2015 we
further increased our purchases of machinery and equipment in our factories to support the increased demand for
more advanced remote controls. We expect to continue to invest in factory automation as well as machinery and
equipment necessary to manufacture more advanced remote control products. In addition, we are implementing a
new ERP system in 2016 in Asia and North America. As a result, we anticipate that property, plant and equipment
purchases in 2016 will total between $22 million to $26 million.
Net cash used for financing activities was $35.1 million during 2015 compared to net cash used for financing
activities of $8.0 million during 2014 and net cash provided by financing activities of $10.0 million during 2013.
31
32
49 2015
A N N U A L
REPORT
During 2015, we purchased 1,816,293 shares of our common stock at a cost of $89.4 million, compared to 383,978
and 153,115 shares at a cost of $16.2 million and $3.6 million during 2014 and 2013, respectively. Offsetting these
cash outflows were net borrowings on our line of credit of $50.0 million in 2015 as well as proceeds from stock
option exercises of $1.7 million, $8.1 million and $12.4 million in 2015, 2014 and 2013, respectively.
From time to time, our Board of Directors authorizes management to repurchase shares of our issued and outstanding
common stock on the open market. 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, 2015, we had 300,000 shares available for repurchase
on the open market under the Board's authorizations. On February 10, 2016, our Board increased these repurchase
authorizations by 100,000 shares bringing the total authorization as of the approval date to 400,000 shares. We hold
repurchased shares as treasury stock and they are available for reissue. Presently, we have no plans to distribute these
shares, although we may change these plans if necessary to fulfill our on-going business objectives.
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)
Contingent consideration (2)
Total contractual obligations
Payments Due by Period
Total
Less than
1 year
1 - 3
years
4 - 5
years
After
5 years
$
$
12,982 $
33
4,072
11,751
28,838 $
3,183 $
20
4,072
—
7,275 $
4,931 $
13
—
4,633
9,577 $
2,479 $
—
—
4,981
7,460 $
2,389
—
—
2,137
4,526
(1) Purchase obligations consist of contractual payments to purchase tooling and other fixed assets.
(2) Contingent consideration consists of contingent payments related to our purchase of the net assets of
Ecolink.
Liquidity
Historically, we have utilized cash provided from operations as our primary source of liquidity, as internally generated
cash flows have been sufficient to support our business operations, capital expenditures and discretionary share
repurchases. More recently we have utilized our revolving line of credit to fund an increased level of share
repurchases and our recent acquisition of the net assets of Ecolink. We anticipate that we will continue to utilize both
cash flows from operations and our revolving line of credit to support ongoing business operations, capital
expenditures and future discretionary share repurchases. 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 and when inventory levels increase in anticipation of factory closures in observance
of Chinese New Year. We believe our current cash balances, anticipated cash flow to be generated from operations
and available borrowing resources will be sufficient to cover expected cash outlays during the next twelve months;
however, because our cash is located in various jurisdictions throughout the world, we may at times need to increase
borrowing from our revolving line of credit or take on additional debt until we are able to transfer cash among our
various entities.
Our liquidity is subject to various risks including the market risks identified in "QUANTITATIVE AND
QUALITATIVE DISCLOSURES ABOUT MARKET RISK".
Cash and cash equivalents
Available borrowing resources
On December 31,
2015
2014
2013
$
52,966 $
112,521 $
34,987
54,987
76,174
54,987
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, 2015, we had $8.5 million, $28.7 million, $5.3 million, $8.1 million and $2.4 million of cash and
cash equivalents in the United States, the PRC, Asia (excluding the PRC), Europe, and South America, respectively.
We attempt to mitigate our exposure to liquidity, credit and other relevant risks by placing our cash and cash
equivalents with financial institutions we believe are high quality.
On October 9, 2014, we extended the term of our Amended and Restated Credit Agreement ("Amended Credit
Agreement") with U.S. Bank National Association ("U.S. Bank") to November 1, 2017. The Amended Credit
Agreement provided for a $55.0 million line of credit ("Credit Line") that may be used for working capital and other
general corporate purposes including acquisitions, share repurchases and capital expenditures. On September 3, 2015,
we entered into the Second Amendment to the Amended Credit Agreement in which the Credit Line was increased
to $65.0 million. On November 10, 2015, we entered into the Third Amendment to the Amended Credit Agreement
in which the Credit Line was increased to $85.0 million. On February 3, 2016, we entered into the Fourth Amendment
to the Amended Credit Agreement in which the Credit Line was temporarily increased to $105.0 million through
March 15, 2016, after which the Credit Line will revert back to $85.0 million. 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, 2015.
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 0.00% to 0.50% ). The
applicable margins are calculated quarterly and vary based on our cash flow 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 and
a maximum cash flow leverage ratio. In addition, the Amended Credit Agreement also contains other customary
affirmative and negative covenants and events of default. As of December 31, 2015, we were in compliance with the
covenants and conditions of the Amended Credit Agreement.
At December 31, 2015, we had an outstanding balance of $50.0 million our credit line.
2015
A N N U A L
REPORT
50
33
34
During 2015, we purchased 1,816,293 shares of our common stock at a cost of $89.4 million, compared to 383,978
and 153,115 shares at a cost of $16.2 million and $3.6 million during 2014 and 2013, respectively. Offsetting these
cash outflows were net borrowings on our line of credit of $50.0 million in 2015 as well as proceeds from stock
option exercises of $1.7 million, $8.1 million and $12.4 million in 2015, 2014 and 2013, respectively.
From time to time, our Board of Directors authorizes management to repurchase shares of our issued and outstanding
common stock on the open market. 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, 2015, we had 300,000 shares available for repurchase
on the open market under the Board's authorizations. On February 10, 2016, our Board increased these repurchase
authorizations by 100,000 shares bringing the total authorization as of the approval date to 400,000 shares. We hold
repurchased shares as treasury stock and they are available for reissue. Presently, we have no plans to distribute these
shares, although we may change these plans if necessary to fulfill our on-going business objectives.
Contractual Obligations
our liquidity and cash flow in future periods.
The following table summarizes our contractual obligations and the effect these obligations are expected to have on
Payments Due by Period
Total
Less than
1 year
1 - 3
years
4 - 5
years
After
5 years
$
12,982 $
3,183 $
4,931 $
2,479 $
2,389
33
4,072
11,751
20
4,072
—
13
—
—
—
4,633
4,981
—
—
2,137
4,526
Total contractual obligations
$
28,838 $
7,275 $
9,577 $
7,460 $
(1) Purchase obligations consist of contractual payments to purchase tooling and other fixed assets.
(2) Contingent consideration consists of contingent payments related to our purchase of the net assets of
(In thousands)
Contractual obligations:
Operating lease obligations
Capital lease obligations
Purchase obligations(1)
Contingent consideration (2)
Ecolink.
Liquidity
Historically, we have utilized cash provided from operations as our primary source of liquidity, as internally generated
cash flows have been sufficient to support our business operations, capital expenditures and discretionary share
repurchases. More recently we have utilized our revolving line of credit to fund an increased level of share
repurchases and our recent acquisition of the net assets of Ecolink. We anticipate that we will continue to utilize both
cash flows from operations and our revolving line of credit to support ongoing business operations, capital
expenditures and future discretionary share repurchases. 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 and when inventory levels increase in anticipation of factory closures in observance
of Chinese New Year. We believe our current cash balances, anticipated cash flow to be generated from operations
and available borrowing resources will be sufficient to cover expected cash outlays during the next twelve months;
however, because our cash is located in various jurisdictions throughout the world, we may at times need to increase
borrowing from our revolving line of credit or take on additional debt until we are able to transfer cash among our
various entities.
Our liquidity is subject to various risks including the market risks identified in "QUANTITATIVE AND
QUALITATIVE DISCLOSURES ABOUT MARKET RISK".
Cash and cash equivalents
Available borrowing resources
On December 31,
$
2015
52,966 $
34,987
2014
112,521 $
54,987
2013
76,174
54,987
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, 2015, we had $8.5 million, $28.7 million, $5.3 million, $8.1 million and $2.4 million of cash and
cash equivalents in the United States, the PRC, Asia (excluding the PRC), Europe, and South America, respectively.
We attempt to mitigate our exposure to liquidity, credit and other relevant risks by placing our cash and cash
equivalents with financial institutions we believe are high quality.
On October 9, 2014, we extended the term of our Amended and Restated Credit Agreement ("Amended Credit
Agreement") with U.S. Bank National Association ("U.S. Bank") to November 1, 2017. The Amended Credit
Agreement provided for a $55.0 million line of credit ("Credit Line") that may be used for working capital and other
general corporate purposes including acquisitions, share repurchases and capital expenditures. On September 3, 2015,
we entered into the Second Amendment to the Amended Credit Agreement in which the Credit Line was increased
to $65.0 million. On November 10, 2015, we entered into the Third Amendment to the Amended Credit Agreement
in which the Credit Line was increased to $85.0 million. On February 3, 2016, we entered into the Fourth Amendment
to the Amended Credit Agreement in which the Credit Line was temporarily increased to $105.0 million through
March 15, 2016, after which the Credit Line will revert back to $85.0 million. 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, 2015.
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 0.00% to 0.50% ). The
applicable margins are calculated quarterly and vary based on our cash flow 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 and
a maximum cash flow leverage ratio. In addition, the Amended Credit Agreement also contains other customary
affirmative and negative covenants and events of default. As of December 31, 2015, we were in compliance with the
covenants and conditions of the Amended Credit Agreement.
At December 31, 2015, we had an outstanding balance of $50.0 million our credit line.
33
34
51 2015
A N N U A L
REPORT
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.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to various market risks, including interest rate and foreign currency exchange rate fluctuations. We
have established policies, procedures and internal processes governing our management of these risks and the use of
financial instruments to mitigate our risk exposure.
Interest Rate Risk
We are exposed to interest rate risk related to our debt. From time to time we borrow amounts on our Credit Line for
working capital and other liquidity needs. Under 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.
Accordingly, changes in interest rates would impact our results of operations in future periods. A 100 basis point
increase in interest rates would have had an approximately $0.1 million impact on reported net income for the year
ended December 31, 2015.
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, 2015 we had wholly-owned subsidiaries in Argentina, Brazil, the British Virgin Islands, Cayman
Islands, France, Germany, Hong Kong, India, Italy, Japan, Mexico, the Netherlands, the PRC, Singapore, Spain and
the United Kingdom. We are exposed to foreign currency exchange rate risk inherent in our sales commitments,
anticipated sales, anticipated purchases, operating expenses, assets and liabilities denominated in currencies other
than the U.S. Dollar. The most significant foreign currencies to our operations are the Chinese Yuan Renminbi, Euro,
British Pound, Argentinian Peso, Mexican Peso, Brazilian Real, Indian Rupee and Japanese Yen. Our most significant
foreign currency exposure is to the Chinese Yuan Renminbi as this is the functional currency of our China-based
factories where the majority of our products are manufactured. If the Chinese Yuan Renminbi were to strengthen
against the U.S. Dollar, our manufacturing costs would increase. We are generally a net payor of the Euro, Mexican
Peso, Indian Rupee and Japanese Yen and therefore benefit from a stronger U.S. Dollar and are adversely affected
by a weaker U.S. Dollar relative to the foreign currency. For the British Pound, Argentinian Peso and Brazilian Real,
we are generally a net receiver of the foreign currency and therefore benefit from a weaker U.S. Dollar and are
adversely affected by a stronger U.S. Dollar relative to the foreign currency. Even where we are a net receiver, a
weaker U.S. Dollar may adversely affect certain expense figures taken alone.
From time to time, we enter into foreign currency exchange agreements to manage the foreign currency exchange
rate risks inherent in our forecasted income and cash flows denominated in foreign currencies. The terms of these
foreign currency exchange agreements normally last less than nine months. We recognize the gains and losses on
these foreign currency contracts in the same period as the remeasurement losses and gains of the related foreign
currency-denominated exposures.
It is difficult to estimate the impact of fluctuations on reported income, as it depends on the opening and closing
rates, the average net balance sheet positions held in a foreign currency and the amount of income generated in local
currency. We routinely forecast what these balance sheet positions and income generated in local currency may be
and we take steps to minimize exposure as we deem appropriate. Alternatively, we may choose not to hedge the
foreign currency risk associated with our foreign currency exposures, primarily if such exposure acts as a natural
foreign currency hedge for other offsetting amounts denominated in the same currency or the currency is difficult or
too expensive to hedge. We do not enter into any derivative transactions for speculative purposes.
2015
A N N U A L
REPORT
52
35
36
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.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to various market risks, including interest rate and foreign currency exchange rate fluctuations. We
have established policies, procedures and internal processes governing our management of these risks and the use of
financial instruments to mitigate our risk exposure.
Interest Rate Risk
We are exposed to interest rate risk related to our debt. From time to time we borrow amounts on our Credit Line for
working capital and other liquidity needs. Under 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.
Accordingly, changes in interest rates would impact our results of operations in future periods. A 100 basis point
increase in interest rates would have had an approximately $0.1 million impact on reported net income for the year
ended December 31, 2015.
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, 2015 we had wholly-owned subsidiaries in Argentina, Brazil, the British Virgin Islands, Cayman
Islands, France, Germany, Hong Kong, India, Italy, Japan, Mexico, the Netherlands, the PRC, Singapore, Spain and
the United Kingdom. We are exposed to foreign currency exchange rate risk inherent in our sales commitments,
anticipated sales, anticipated purchases, operating expenses, assets and liabilities denominated in currencies other
than the U.S. Dollar. The most significant foreign currencies to our operations are the Chinese Yuan Renminbi, Euro,
British Pound, Argentinian Peso, Mexican Peso, Brazilian Real, Indian Rupee and Japanese Yen. Our most significant
foreign currency exposure is to the Chinese Yuan Renminbi as this is the functional currency of our China-based
factories where the majority of our products are manufactured. If the Chinese Yuan Renminbi were to strengthen
against the U.S. Dollar, our manufacturing costs would increase. We are generally a net payor of the Euro, Mexican
Peso, Indian Rupee and Japanese Yen and therefore benefit from a stronger U.S. Dollar and are adversely affected
by a weaker U.S. Dollar relative to the foreign currency. For the British Pound, Argentinian Peso and Brazilian Real,
we are generally a net receiver of the foreign currency and therefore benefit from a weaker U.S. Dollar and are
adversely affected by a stronger U.S. Dollar relative to the foreign currency. Even where we are a net receiver, a
weaker U.S. Dollar may adversely affect certain expense figures taken alone.
From time to time, we enter into foreign currency exchange agreements to manage the foreign currency exchange
rate risks inherent in our forecasted income and cash flows denominated in foreign currencies. The terms of these
foreign currency exchange agreements normally last less than nine months. We recognize the gains and losses on
these foreign currency contracts in the same period as the remeasurement losses and gains of the related foreign
currency-denominated exposures.
It is difficult to estimate the impact of fluctuations on reported income, as it depends on the opening and closing
rates, the average net balance sheet positions held in a foreign currency and the amount of income generated in local
currency. We routinely forecast what these balance sheet positions and income generated in local currency may be
and we take steps to minimize exposure as we deem appropriate. Alternatively, we may choose not to hedge the
foreign currency risk associated with our foreign currency exposures, primarily if such exposure acts as a natural
foreign currency hedge for other offsetting amounts denominated in the same currency or the currency is difficult or
too expensive to hedge. We do not enter into any derivative transactions for speculative purposes.
35
36
53 2015
A N N U A L
REPORT
The sensitivity of earnings and cash flows to variability in exchange rates is assessed by applying an approximate
range of potential rate fluctuations to our assets, obligations and projected results of operations denominated in
foreign currency with all other variables held constant. The analysis covers all of our foreign currency contracts offset
by the underlying exposures. Based on our overall foreign currency rate exposure at December 31, 2015, we believe
that movements in foreign currency rates may have a material effect on our financial position and results of
operations. We estimate that if the exchange rates for the Chinese Yuan Renminbi, Euro, British Pound, Argentinian
Peso, Mexican Peso, Brazilian Real, Indian Rupee and Japanese Yen relative to the U.S. Dollar fluctuate 10% from
December 31, 2015, net income in the first quarter of 2016 would fluctuate by approximately $8.0 million.
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, 2015 and 2014, 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, 2015. 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, 2015 and 2014, and the results of its operations
and its cash flows for each of the three years in the period ended December 31, 2015, 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, 2015, based on criteria
established in the 2013 Internal Control-Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) and our report dated March 11, 2016 expressed an unqualified
opinion.
/s/ GRANT THORNTON, LLP
Los Angeles, California
March 11, 2016
2015
A N N U A L
REPORT
54
37
38
The sensitivity of earnings and cash flows to variability in exchange rates is assessed by applying an approximate
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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, 2015, we believe
that movements in foreign currency rates may have a material effect on our financial position and results of
operations. We estimate that if the exchange rates for the Chinese Yuan Renminbi, Euro, British Pound, Argentinian
Peso, Mexican Peso, Brazilian Real, Indian Rupee and Japanese Yen relative to the U.S. Dollar fluctuate 10% from
December 31, 2015, net income in the first quarter of 2016 would fluctuate by approximately $8.0 million.
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, 2015 and 2014, 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, 2015. 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, 2015 and 2014, and the results of its operations
and its cash flows for each of the three years in the period ended December 31, 2015, 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, 2015, based on criteria
established in the 2013 Internal Control-Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) and our report dated March 11, 2016 expressed an unqualified
opinion.
/s/ GRANT THORNTON, LLP
Los Angeles, California
March 11, 2016
37
38
55 2015
A N N U A L
REPORT
UNIVERSAL ELECTRONICS INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share-related data)
December 31, 2015
December 31, 2014
UNIVERSAL ELECTRONICS INC.
CONSOLIDATED INCOME STATEMENTS
(In thousands, except per share amounts)
ASSETS
Current assets:
Cash and cash equivalents
Restricted cash
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
Deferred income taxes
Other assets
Total assets
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable
Line of credit
Accrued compensation
Accrued sales discounts, rebates and royalties
Accrued income taxes
Other accrued expenses
Total current liabilities
Long-term liabilities:
Long-term contingent consideration
Deferred income taxes
Income tax payable
Other long-term liabilities
Total liabilities
Commitments and contingencies
Stockholders' equity:
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; 23,176,277 and
22,909,884 shares issued on December 31, 2015 and 2014, respectively
Paid-in capital
$
$
$
52,966 $
4,623
121,801
122,366
6,217
55
7,296
315,324
90,015
43,116
32,926
8,474
5,365
495,220 $
93,843 $
50,000
37,452
7,618
4,745
21,466
215,124
11,751
7,891
629
1,917
237,312
—
232
228,269
112,521
—
97,989
97,474
6,856
77
5,048
319,965
76,135
30,739
24,614
6,146
5,471
463,070
69,991
—
40,656
8,097
4,263
13,358
136,365
—
8,456
566
2,062
147,449
—
229
214,710
Treasury stock, at cost, 8,824,768 and 7,008,475 shares on December 31, 2015 and
2014, respectively
(210,333 )
(120,938 )
Accumulated other comprehensive income (loss)
Retained earnings
Universal Electronics Inc. stockholders' equity
Noncontrolling interest
Total stockholders' equity
Total liabilities and stockholders' equity
$
(15,799 )
255,240
257,609
299
257,908
495,220 $
(4,446 )
226,066
315,621
—
315,621
463,070
See Notes 5 and 11 for further information concerning our purchases from related party vendors.
The accompanying notes are an integral part of these consolidated financial statements.
2015
A N N U A L
REPORT
56
39
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
Year Ended December 31,
2015
2014
2013
$
602,833 $
562,329 $
436,084
166,749
18,141
112,689
35,919
63
(7 )
35,975
6,802
29,173
(1 )
395,429
166,900
16,975
108,645
41,280
11
(840 )
40,451
7,917
32,534
—
529,354
377,892
151,462
16,447
102,861
32,154
51
(3,169 )
29,036
6,073
22,963
—
1.51
1.47
15,248
15,601
Net income (loss) attributable to noncontrolling interest
Net income attributable to Universal Electronics Inc.
$
29,174 $
32,534 $
22,963
Earnings per share attributable to Universal Electronics Inc.:
Shares used in computing earnings per share:
Basic
Diluted
Basic
Diluted
$
$
1.91 $
1.88 $
2.06 $
2.01 $
15,248
15,542
15,781
16,152
See Notes 5 and 11 for further information concerning our purchases from related party vendors.
The accompanying notes are an integral part of these consolidated financial statements.
40
UNIVERSAL ELECTRONICS INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share-related data)
December 31, 2015
December 31, 2014
$
52,966 $
ASSETS
Current assets:
Cash and cash equivalents
Restricted cash
Accounts receivable, net
Inventories, net
Income tax receivable
Deferred income taxes
Total current assets
Property, plant, and equipment, net
Prepaid expenses and other current assets
Accrued sales discounts, rebates and royalties
Goodwill
Intangible assets, net
Deferred income taxes
Other assets
Total assets
Current liabilities:
Accounts payable
Line of credit
Accrued compensation
Accrued income taxes
Other accrued expenses
Total current liabilities
Long-term liabilities:
Long-term contingent consideration
Deferred income taxes
Income tax payable
Other long-term liabilities
Total liabilities
Commitments and contingencies
Stockholders' equity:
LIABILITIES AND STOCKHOLDERS' EQUITY
$
$
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; 23,176,277 and
22,909,884 shares issued on December 31, 2015 and 2014, respectively
Treasury stock, at cost, 8,824,768 and 7,008,475 shares on December 31, 2015 and
Paid-in capital
2014, respectively
Retained earnings
Accumulated other comprehensive income (loss)
Universal Electronics Inc. stockholders' equity
Noncontrolling interest
Total stockholders' equity
Total liabilities and stockholders' equity
$
See Notes 5 and 11 for further information concerning our purchases from related party vendors.
The accompanying notes are an integral part of these consolidated financial statements.
39
4,623
121,801
122,366
6,217
55
7,296
315,324
90,015
43,116
32,926
8,474
5,365
495,220 $
93,843 $
50,000
37,452
7,618
4,745
21,466
215,124
11,751
7,891
629
1,917
237,312
—
232
228,269
(210,333 )
(15,799 )
255,240
257,609
299
257,908
495,220 $
112,521
—
97,989
97,474
6,856
77
5,048
319,965
76,135
30,739
24,614
6,146
5,471
463,070
69,991
—
40,656
8,097
4,263
13,358
136,365
—
8,456
566
2,062
147,449
—
229
214,710
(120,938 )
(4,446 )
226,066
315,621
—
315,621
463,070
UNIVERSAL ELECTRONICS INC.
CONSOLIDATED INCOME STATEMENTS
(In thousands, except per share amounts)
Year Ended December 31,
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
Net income (loss) attributable to noncontrolling interest
$
2015
602,833 $
436,084
166,749
18,141
112,689
35,919
63
(7 )
35,975
6,802
29,173
(1 )
Net income attributable to Universal Electronics Inc.
$
29,174 $
2014
562,329 $
395,429
166,900
16,975
108,645
41,280
11
(840 )
40,451
7,917
32,534
—
32,534 $
Earnings per share attributable to Universal Electronics Inc.:
Basic
Diluted
Shares used in computing earnings per share:
Basic
Diluted
$
$
1.91 $
1.88 $
2.06 $
2.01 $
15,248
15,542
15,781
16,152
See Notes 5 and 11 for further information concerning our purchases from related party vendors.
The accompanying notes are an integral part of these consolidated financial statements.
2013
529,354
377,892
151,462
16,447
102,861
32,154
51
(3,169 )
29,036
6,073
22,963
—
22,963
1.51
1.47
15,248
15,601
40
57 2015
A N N U A L
REPORT
UNIVERSAL ELECTRONICS INC.
CONSOLIDATED COMPREHENSIVE INCOME STATEMENTS
(In thousands)
Net income
Other comprehensive income (loss):
Year Ended December 31,
2015
2014
2013
$
29,173 $
32,534 $
22,963
Change in foreign currency translation adjustment
Total comprehensive income (loss)
Comprehensive income (loss) attributable to noncontrolling interest
Comprehensive income (loss) attributable to Universal Electronics
Inc.
$
(11,353 )
17,820
(1 )
17,821 $
(7,428 )
25,106
—
25,106 $
1,930
24,893
—
24,893
See Notes 5 and 11 for further information concerning our purchases from related party vendors.
The accompanying notes are an integral part of these consolidated financial statements.
UNIVERSAL ELECTRONICS INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands)
Common Stock
Issued
Common Stock
in Treasury
Accumulated
Other
Shares Amount Shares Amount
Paid-in
Capital
Comprehensive
Income (Loss)
Retained
Earnings
Noncontrolling
Interest
Totals
21,491 $
215 (6,516 ) $ (101,793 ) $ 180,607 $
1,052 $ 170,569 $
22,963
1,930
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
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
Balance at December 31, 2014
Net income (loss)
Currency translation adjustment
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
Business combination
Distribution to noncontrolling interest
Balance at December 31, 2015
174
1
746
679
7
(153 )
(3,607 )
30
420
12,364
(420 )
5,342
874
22,344
223 (6,639 ) (104,980 ) 199,513
2,982 193,532
32,534
(7,428 )
160
2
(384 )
(16,168 )
391
15
4
—
15
210
22,910
229 (7,008 ) (120,938 ) 214,710
(4,446 ) 226,066
29,174
(11,353 )
845
8,118
(210 )
6,444
866
1,711
—
7,913
3,069
Shares issued for employee benefit plan
and compensation
165
2
(1,817 )
(89,395 )
71
30
1
—
—
—
$ 250,650
22,963
(3,607 )
12,371
1,930
747
—
5,342
874
—
—
291,270
32,534
(7,428 )
847
(16,168 )
8,122
—
6,444
—
315,621
(1 )
29,173
(11,353 )
868
(89,395 )
1,712
—
7,913
3,069
378
(78 )
378
(78 )
23,176 $
232 (8,825 ) $ (210,333 ) $ 228,269 $
(15,799 ) $ 255,240 $
299
$ 257,908
See Notes 5 and 11 for further information concerning our purchases from related party vendors.
The accompanying notes are an integral part of these consolidated financial statement.
2015
A N N U A L
REPORT
58
41
42
UNIVERSAL ELECTRONICS INC.
CONSOLIDATED COMPREHENSIVE INCOME STATEMENTS
(In thousands)
Year Ended December 31,
2015
2014
2013
$
29,173 $
32,534 $
22,963
Net income
Other comprehensive income (loss):
Change in foreign currency translation adjustment
Total comprehensive income (loss)
Comprehensive income (loss) attributable to noncontrolling interest
(11,353 )
17,820
(1 )
(7,428 )
25,106
—
1,930
24,893
—
Comprehensive income (loss) attributable to Universal Electronics
$
17,821 $
25,106 $
24,893
Inc.
See Notes 5 and 11 for further information concerning our purchases from related party vendors.
The accompanying notes are an integral part of these consolidated financial statements.
UNIVERSAL ELECTRONICS INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands)
Common Stock
Issued
Common Stock
in Treasury
Shares Amount Shares Amount
21,491 $
215 (6,516 ) $ (101,793 ) $ 180,607 $
Accumulated
Other
Comprehensive
Income (Loss)
Paid-in
Capital
Retained
Earnings
Noncontrolling
Interest
1,052 $ 170,569 $
22,963
1,930
—
—
174
1
746
679
7
(153 )
(3,607 )
30
420
12,364
(420 )
5,342
22,344
874
223 (6,639 ) (104,980 ) 199,513
2,982 193,532
32,534
(7,428 )
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
Net income
Currency translation adjustment
Purchase of treasury shares
Stock options exercised
Shares issued to Directors
Stock-based compensation expense
Balance at December 31, 2014
Net income (loss)
Currency translation adjustment
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
Business combination
Distribution to noncontrolling interest
Balance at December 31, 2015
Shares issued for employee benefit plan
and compensation
160
2
(384 )
(16,168 )
391
15
4
—
15
210
22,910
229 (7,008 ) (120,938 ) 214,710
(4,446 ) 226,066
29,174
(11,353 )
Shares issued for employee benefit plan
and compensation
165
2
(1,817 )
(89,395 )
71
30
1
—
845
8,118
(210 )
6,444
866
1,711
—
7,913
3,069
23,176 $
232 (8,825 ) $ (210,333 ) $ 228,269 $
(15,799 ) $ 255,240 $
Totals
$ 250,650
22,963
1,930
747
(3,607 )
12,371
—
5,342
—
—
874
291,270
32,534
(7,428 )
847
(16,168 )
8,122
—
6,444
315,621
29,173
(11,353 )
—
(1 )
868
(89,395 )
1,712
—
7,913
3,069
378
(78 )
$ 257,908
378
(78 )
299
See Notes 5 and 11 for further information concerning our purchases from related party vendors.
statements.
The accompanying notes are an integral part of these consolidated financial statement.
41
42
59 2015
A N N U A L
REPORT
UNIVERSAL ELECTRONICS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Year Ended December 31,
2015
2014
2013
Cash provided by operating activities:
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
$
29,173 $
32,534 $
22,963
Note 1 — Description of Business
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:
Restricted cash
Accounts receivable
Inventories
Prepaid expenses and other assets
Accounts payable and accrued expenses
Accrued income taxes
Net cash provided by operating activities
Cash used for investing activities:
Acquisition of net assets of Ecolink Intelligent Technology, Inc., net of cash
acquired
Acquisition of property, plant, and equipment
Acquisition of intangible assets
Net cash used for investing activities
Cash provided by (used for) financing activities:
Borrowings under line of credit
Repayments on line of credit
Proceeds from stock options exercised
Treasury stock purchased
Distribution to noncontrolling interest
Excess tax benefit from stock-based compensation
Net cash provided by (used for) financing activities
Effect of exchange rate changes on cash
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of period
Supplemental cash flow information:
Income taxes paid
Interest paid
20,452
299
3,382
(5,348 )
3,069
(2,619 )
868
7,913
(4,623 )
(29,407 )
(31,877 )
774
33,309
729
26,094
(12,265 )
(32,989 )
(2,395 )
(47,649 )
84,500
(34,500 )
1,712
(89,395 )
(78 )
2,619
(35,142 )
(2,858 )
(59,555 )
112,521
52,966 $
18,244
249
3,473
(538 )
—
—
847
6,444
—
(7,966 )
(8,161 )
(2,803 )
19,964
1,186
63,473
—
(16,566 )
(1,853 )
(18,419 )
—
—
8,122
(16,168 )
—
—
(8,046 )
(661 )
36,347
76,174
112,521 $
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
7,793 $
255 $
7,178 $
— $
6,068
44
$
$
$
UNIVERSAL ELECTRONICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015
Universal Electronics Inc. ("UEI"), based in Southern California, develops and manufactures a broad line of easy-to-
use, pre-programmed universal wireless control products, audio-video accessories and intelligent wireless automation
components as well as software designed to enable consumers to wirelessly connect, control and interact with an
increasingly complex home entertainment and automation environment. In addition, over the past 28 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, pro-security installation 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 and jointly
owned entities in which we have a controlling interest. All intercompany accounts and transactions have been
eliminated in the consolidated financial statements.
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,
inventory valuation, our review for impairment of long-lived assets, intangible assets and goodwill, business
combinations, income taxes and stock-based 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.
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.
See Notes 5 and 11 for further information concerning our purchases from related party vendors.
The accompanying notes are an integral part of these consolidated financial statements.
2015
A N N U A L
REPORT
60
43
44
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
Acquisition of net assets of Ecolink Intelligent Technology, Inc., net of cash
Shares issued for employee benefit plan
Stock-based compensation
Changes in operating assets and liabilities:
Restricted cash
Accounts receivable
Inventories
Prepaid expenses and other assets
Accounts payable and accrued expenses
Accrued income taxes
Net cash provided by operating activities
Cash used for investing activities:
acquired
Acquisition of property, plant, and equipment
Acquisition of intangible assets
Net cash used for investing activities
Cash provided by (used for) financing activities:
Borrowings under line of credit
Repayments on line of credit
Proceeds from stock options exercised
Treasury stock purchased
Distribution to noncontrolling interest
Excess tax benefit from stock-based compensation
Net cash provided by (used for) financing activities
Effect of exchange rate changes on cash
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of period
Supplemental cash flow information:
Income taxes paid
Interest paid
20,452
299
3,382
(5,348 )
3,069
(2,619 )
868
7,913
(4,623 )
(29,407 )
(31,877 )
774
33,309
729
26,094
(12,265 )
(32,989 )
(2,395 )
(47,649 )
84,500
(34,500 )
1,712
(89,395 )
(78 )
2,619
(35,142 )
(2,858 )
(59,555 )
112,521
18,244
249
3,473
(538 )
—
—
847
6,444
—
(7,966 )
(8,161 )
(2,803 )
19,964
1,186
63,473
—
(16,566 )
(1,853 )
(18,419 )
8,122
(16,168 )
—
—
—
—
(8,046 )
(661 )
36,347
76,174
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
$
$
$
52,966 $
112,521 $
7,793 $
255 $
7,178 $
— $
6,068
44
See Notes 5 and 11 for further information concerning our purchases from related party vendors.
The accompanying notes are an integral part of these consolidated financial statements.
43
Year Ended December 31,
2015
2014
2013
UNIVERSAL ELECTRONICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015
$
29,173 $
32,534 $
22,963
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, audio-video accessories and intelligent wireless automation
components as well as software designed to enable consumers to wirelessly connect, control and interact with an
increasingly complex home entertainment and automation environment. In addition, over the past 28 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, pro-security installation 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 and jointly
owned entities in which we have a controlling interest. All intercompany accounts and transactions have been
eliminated in the consolidated financial statements.
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,
inventory valuation, our review for impairment of long-lived assets, intangible assets and goodwill, business
combinations, income taxes and stock-based 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.
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.
44
61 2015
A N N U A L
REPORT
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.
Advertising
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 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 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, or
else a full reserve is established against the tax asset or a liability is recorded. 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. 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 costs are expensed as incurred. Advertising expense totaled $1.1 million, $1.2 million, and $1.2 million
for the years ended December 31, 2015, 2014 and 2013, 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 $12.7 million, $11.3 million and $11.3 million for the years ended
December 31, 2015, 2014 and 2013, 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 the 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. 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
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We accrue for discounts and rebates based on historical experience and our expectations regarding future sales to our
Advertising
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 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 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, or
else a full reserve is established against the tax asset or a liability is recorded. 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. See Note 9 for further information concerning income taxes.
Research and Development
supplies and materials.
Research and development costs are expensed as incurred and consist primarily of salaries, employee benefits,
Advertising costs are expensed as incurred. Advertising expense totaled $1.1 million, $1.2 million, and $1.2 million
for the years ended December 31, 2015, 2014 and 2013, 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 $12.7 million, $11.3 million and $11.3 million for the years ended
December 31, 2015, 2014 and 2013, 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 the 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. 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
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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.
Property, Plant, and Equipment
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, restricted cash, 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. Domestically we generally maintain balances in excess of federally insured limits. 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 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.
See Note 4 for further information concerning our allowance for doubtful accounts.
Inventories
Inventories consist of remote controls, wireless sensors and 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 market value.
These estimates are based upon management's judgment about future demand and market conditions.
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, excluding
computer equipment, must have a useful life greater than one year and a cost equal to or greater than $5,000 for
individual assets or $5,000 for assets purchased in bulk. To qualify for capitalization, computer equipment, must have
a useful life of greater than one year and a cost equal to or 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.
Estimated useful lives are as follows:
Buildings
Tooling and equipment
Computer equipment
Software
Furniture and fixtures
25-33 Years
2-7 Years
3-5 Years
3-7 Years
5-8 Years
Leasehold and building improvements
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
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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.
Our financial instruments consist primarily of cash and cash equivalents, restricted cash, 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
Financial Instruments
instruments.
Cash and Cash Equivalents
Cash and cash equivalents include cash accounts and all investments purchased with initial maturities of three months
or less. Domestically we generally maintain balances in excess of federally insured limits. 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 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
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.
See Note 4 for further information concerning our allowance for doubtful accounts.
Inventories
Inventories consist of remote controls, wireless sensors and 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 market value.
These estimates are based upon management's judgment about future demand and market conditions.
dilutive effect of stock option and restricted stock awards, outstanding during the period. Dilutive potential common
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, excluding
computer equipment, must have a useful life greater than one year and a cost equal to or greater than $5,000 for
individual assets or $5,000 for assets purchased in bulk. To qualify for capitalization, computer equipment, must have
a useful life of greater than one year and a cost equal to or 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.
Estimated useful lives are as follows:
Buildings
Tooling and equipment
Computer equipment
Software
Furniture and fixtures
25-33 Years
2-7 Years
3-5 Years
3-7 Years
5-8 Years
Leasehold and building improvements
Lesser of lease term or useful life
(approximately 2 to 10 years)
See Note 6 for further information concerning our property, plant, and equipment.
trends and changes in customer payment behavior.
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
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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.
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, maintenance and extension of the useful life 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 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 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 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
See Note 21 for further information concerning business combinations.
Costs incurred to develop software for resale are expensed when incurred as research and development expense 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.
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The amortization of capitalized software development costs begins when the related product is available for general
release to customers. The amortization period is generally two years.
We compare the unamortized capitalized software development costs of a product to its net realizable value at each
balance sheet date. The amount by which the 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 periods and the amount of the write-down is not
subsequently restored. See Note 7 for further information concerning capitalized software development costs.
Business Combinations
We allocate the purchase price of acquired businesses to the tangible and intangible assets and the liabilities assumed
based on their estimated fair values on the acquisition date. The excess of the purchase price over the fair value of
net assets acquired is recorded as goodwill. We engage independent third-party appraisal firms to assist us in
determining the fair values of assets acquired and liabilities assumed. Such valuations require management to make
significant fair value estimates and assumptions, especially with respect to intangible assets and contingent
consideration. Management estimates the fair value of certain intangible assets and contingent consideration by
utilizing the following (but not limited to):
•
future cash flow from customer contracts, customer lists, distribution agreements, acquired developed
technologies, trademarks, trade names and patents;
•
expected costs to complete development of in-process technology into commercially viable products
and cash flows from the products once they are completed;
•
brand awareness and market position as well as assumptions regarding the period of time the brand
will continue to be used in our product portfolio; and
•
discount rates utilized in discounted cash flow models.
In those circumstances where an acquisition involves a contingent consideration arrangement, we recognize a liability
equal to the fair value of the contingent payments we expect to make as of the acquisition date. We re-measure this
liability at each reporting period and record changes in the fair value within operating expenses. Increases or decreases
in the fair value of the contingent consideration liability can result from changes in discount periods and rates, as well
as changes in the timing and amount of earnings estimates or in the timing or likelihood of achieving earnings-based
Results of operations and cash flows of acquired businesses are included in our operating results from the date of
Our foreign currency exposures are primarily concentrated in the Argentinian Peso, Brazilian Real, British Pound,
Chinese Yuan Renminbi, Euro, Hong Kong Dollar, Indian Rupee, Japanese Yen and Mexican Peso. 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
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
milestones.
acquisition.
Derivatives
purposes.
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.
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, maintenance and extension of the useful life 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 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 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 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 expense 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.
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
b.
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 period is generally two years.
We compare the unamortized capitalized software development costs of a product to its net realizable value at each
balance sheet date. The amount by which the 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 periods and the amount of the write-down is not
subsequently restored. See Note 7 for further information concerning capitalized software development costs.
Business Combinations
We allocate the purchase price of acquired businesses to the tangible and intangible assets and the liabilities assumed
based on their estimated fair values on the acquisition date. The excess of the purchase price over the fair value of
net assets acquired is recorded as goodwill. We engage independent third-party appraisal firms to assist us in
determining the fair values of assets acquired and liabilities assumed. Such valuations require management to make
significant fair value estimates and assumptions, especially with respect to intangible assets and contingent
consideration. Management estimates the fair value of certain intangible assets and contingent consideration by
utilizing the following (but not limited to):
•
•
•
future cash flow from customer contracts, customer lists, distribution agreements, acquired developed
technologies, trademarks, trade names and patents;
expected costs to complete development of in-process technology into commercially viable products
and cash flows from the products once they are completed;
brand awareness and market position as well as assumptions regarding the period of time the brand
will continue to be used in our product portfolio; and
•
discount rates utilized in discounted cash flow models.
In those circumstances where an acquisition involves a contingent consideration arrangement, we recognize a liability
equal to the fair value of the contingent payments we expect to make as of the acquisition date. We re-measure this
liability at each reporting period and record changes in the fair value within operating expenses. Increases or decreases
in the fair value of the contingent consideration liability can result from changes in discount periods and rates, as well
as changes in the timing and amount of earnings estimates or in the timing or likelihood of achieving earnings-based
milestones.
Results of operations and cash flows of acquired businesses are included in our operating results from the date of
acquisition.
See Note 21 for further information concerning business combinations.
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, Japanese Yen and Mexican Peso. 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
49
50
67 2015
A N N U A L
REPORT
In September 2015, the FASB issued ASU 2015-16, "Simplifying the Accounting for Measurement-period
Adjustments." This new guidance requires an acquirer in a business combination to recognize adjustments to the
provisional amounts that are identified during the measurement period to be reported in the period in which the
adjustment amounts are determined. In addition, the effect on earnings of changes in depreciation, amortization and
other items as a result of the change to the provisional amounts, calculated as if the accounting had been complete as
of the acquisition date, must be recorded in the reporting period in which the adjustment amounts are determined.
ASU 2015-16 is effective for fiscal periods beginning after December 15, 2015 and must be applied prospectively.
Early adoption is permitted. We have not yet adopted ASU 2015-16 and do not expect the adoption of this guidance
to have a material impact on our consolidated financial position or results of operations.
In November 2015, the FASB issued ASU 2015-17, "Balance Sheet Classification of Deferred Taxes." This new
guidance requires all deferred tax assets and liabilities, along with any related valuation allowance, be classified as
non-current on the balance sheet. ASU 2015-17 is effective for fiscal periods beginning after December 15, 2016 and
may be adopted either prospectively or retrospectively. Early adoption is permitted. We have not yet selected a
transition method and are currently evaluating the impact that ASU 2015-17 will have on our consolidated financial
statements.
In February 2016, the FASB issued ASU 2016-02, "Leases", which changes the accounting for leases and requires
expanded disclosures about leasing activities. This new guidance will require lessees to recognize a right of use asset
and a lease liability at the commencement date for all leases with terms greater than twelve months. Accounting by
lessors is largely unchanged. ASU 2016-02 is effective for fiscal periods beginning after December 15, 2018 and
must be adopted using a modified retrospective approach. Early adoption is permitted. We are currently evaluating
the impact that ASU 2016-02 will have on our consolidated financial statements.
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
ig
s
r
o
f
can be corroborated by observable market data
.
tio
p
um
t ass
f
e
th
tially
ab
v
er
s
b
e o
e
th
f
o
m
ican
if
n
tan
ubs
s
et or
ilities
ark
liab
ar
s
ter
ll
le in
ass
e m
or
th
ets
n
u
Level 3:
Prices or valuations that require management inputs that are both significant to the fair value
measurement and unobservable.
Recent Accounting Pronouncements
In May 2014, the FASB issued Accounting Standards Update ("ASU") 2014-09, "Revenue from Contracts with
Customers", which will supersede most existing U.S. GAAP revenue recognition guidance. This new standard
requires an entity to recognize revenue to depict the transfer of goods or services to customers in an amount that
reflects the consideration to which an entity expects to be entitled in exchange for those goods or services. In addition,
ASU 2014-09 contains expanded disclosure requirements relating to the nature, amount, timing, and uncertainty of
revenue and cash flows arising from contracts with customers. ASU 2014-09 is effective for fiscal periods beginning
after December 15, 2016 and permits the use of either the full retrospective or cumulative effect transition method.
On July 9, 2015, the FASB postponed the effective date of the new revenue standard by one year; however, early
adoption is permitted as of the original effective date. We do not expect to early adopt ASU 2014-09. We have not
yet selected a transition method and are currently evaluating the impact that ASU 2014-09 will have on our
consolidated financial statements.
In April 2015, the FASB issued ASU 2015-05, "Customer's Accounting for Fees Paid in a Cloud Computing
Arrangement," which amends Accounting Standards Codification ("ASC") 350, "Intangibles - Goodwill and Other".
The amendments provide guidance as to whether a cloud computing arrangement includes a software license, and
based on that determination, how to account for such arrangements. ASU 2015-05 is effective for fiscal periods
beginning after December 15, 2015 and permits the use of either the prospective or retrospective transition method.
Early adoption is not permitted. We are currently evaluating the impact that ASU 2015-05 will have on our
consolidated financial statements.
In July 2015, the FASB issued ASU 2015-11, "Simplifying the Measurement of Inventory", which states that
inventory should be measured at the lower of cost and net realizable value. Net realizable value is defined as estimated
selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal and
transportation. ASU 2015-11 is effective for fiscal periods beginning after December 15, 2016 and must be applied
prospectively. Early adoption is permitted. We are currently evaluating the impact that ASU 2015-11 will have on
our consolidated financial statements.
2015
A N N U A L
REPORT
68
51
52
In September 2015, the FASB issued ASU 2015-16, "Simplifying the Accounting for Measurement-period
Adjustments." This new guidance requires an acquirer in a business combination to recognize adjustments to the
provisional amounts that are identified during the measurement period to be reported in the period in which the
adjustment amounts are determined. In addition, the effect on earnings of changes in depreciation, amortization and
other items as a result of the change to the provisional amounts, calculated as if the accounting had been complete as
of the acquisition date, must be recorded in the reporting period in which the adjustment amounts are determined.
ASU 2015-16 is effective for fiscal periods beginning after December 15, 2015 and must be applied prospectively.
Early adoption is permitted. We have not yet adopted ASU 2015-16 and do not expect the adoption of this guidance
to have a material impact on our consolidated financial position or results of operations.
In November 2015, the FASB issued ASU 2015-17, "Balance Sheet Classification of Deferred Taxes." This new
guidance requires all deferred tax assets and liabilities, along with any related valuation allowance, be classified as
non-current on the balance sheet. ASU 2015-17 is effective for fiscal periods beginning after December 15, 2016 and
may be adopted either prospectively or retrospectively. Early adoption is permitted. We have not yet selected a
transition method and are currently evaluating the impact that ASU 2015-17 will have on our consolidated financial
statements.
In February 2016, the FASB issued ASU 2016-02, "Leases", which changes the accounting for leases and requires
expanded disclosures about leasing activities. This new guidance will require lessees to recognize a right of use asset
and a lease liability at the commencement date for all leases with terms greater than twelve months. Accounting by
lessors is largely unchanged. ASU 2016-02 is effective for fiscal periods beginning after December 15, 2018 and
must be adopted using a modified retrospective approach. Early adoption is permitted. We are currently evaluating
the impact that ASU 2016-02 will have on our consolidated financial statements.
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
Level 3:
Prices or valuations that require management inputs that are both significant to the fair value
for substantially the full term of the assets or liabilities.
measurement and unobservable.
Recent Accounting Pronouncements
In May 2014, the FASB issued Accounting Standards Update ("ASU") 2014-09, "Revenue from Contracts with
Customers", which will supersede most existing U.S. GAAP revenue recognition guidance. This new standard
requires an entity to recognize revenue to depict the transfer of goods or services to customers in an amount that
reflects the consideration to which an entity expects to be entitled in exchange for those goods or services. In addition,
ASU 2014-09 contains expanded disclosure requirements relating to the nature, amount, timing, and uncertainty of
revenue and cash flows arising from contracts with customers. ASU 2014-09 is effective for fiscal periods beginning
after December 15, 2016 and permits the use of either the full retrospective or cumulative effect transition method.
On July 9, 2015, the FASB postponed the effective date of the new revenue standard by one year; however, early
adoption is permitted as of the original effective date. We do not expect to early adopt ASU 2014-09. We have not
yet selected a transition method and are currently evaluating the impact that ASU 2014-09 will have on our
consolidated financial statements.
In April 2015, the FASB issued ASU 2015-05, "Customer's Accounting for Fees Paid in a Cloud Computing
Arrangement," which amends Accounting Standards Codification ("ASC") 350, "Intangibles - Goodwill and Other".
The amendments provide guidance as to whether a cloud computing arrangement includes a software license, and
based on that determination, how to account for such arrangements. ASU 2015-05 is effective for fiscal periods
beginning after December 15, 2015 and permits the use of either the prospective or retrospective transition method.
Early adoption is not permitted. We are currently evaluating the impact that ASU 2015-05 will have on our
consolidated financial statements.
In July 2015, the FASB issued ASU 2015-11, "Simplifying the Measurement of Inventory", which states that
inventory should be measured at the lower of cost and net realizable value. Net realizable value is defined as estimated
selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal and
transportation. ASU 2015-11 is effective for fiscal periods beginning after December 15, 2016 and must be applied
prospectively. Early adoption is permitted. We are currently evaluating the impact that ASU 2015-11 will have on
our consolidated financial statements.
51
52
69 2015
A N N U A L
REPORT
Note 3 — Cash and Cash Equivalents and Restricted Cash
Cash and Cash Equivalents
Cash and cash equivalents were held in the following geographic regions:
(In thousands)
United States
People's Republic of China ("PRC")
Asia (excluding the PRC)
Europe
South America
Total cash and cash equivalents
Restricted Cash
December 31,
2015
2014
8,458 $
28,681
5,346
8,093
2,388
52,966 $
43,546
45,283
5,516
12,912
5,264
112,521
$
$
In connection with the court order issued on September 4, 2015, we placed $4.6 million of cash into a collateralized
surety bond. This bond has certain restrictions for liquidation and has therefore been classified as restricted cash.
Refer to Note 13 for further information about this ongoing litigation.
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
December 31,
2015
2014
$
$
119,090 $
(822 )
(507 )
117,761
4,040
121,801 $
91,605
(616 )
(617 )
90,372
7,617
97,989
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
Year Ended December 31,
2015
2014
2013
$
$
616 $
299
(93 )
822 $
478 $
249
(111 )
616 $
322
190
(34 )
478
Sales Returns
The allowance for sales returns at December 31, 2015 and 2014 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 $0.3 million and $0.4 million on December 31, 2015 and 2014, respectively. The value of these
returned goods was included in our inventory balance at December 31, 2015 and 2014.
Significant Customers
Net sales to the following customers totaled more than 10% of our net sales:
2015
2014
2013
Year Ended December 31,
Comcast Corporation
DIRECTV
Amount
(thousands)
$ 129,475
74,857
% of Net
Sales
Amount
(thousands)
% of Net
Sales
Amount
(thousands)
% of Net
Sales
21.5 %
$
— (1)
— % (1) $
— (1)
— % (1)
12.4
58,622
10.4
82,679
15.6
(1) Net sales to this customer did not total more than 10% of our total net sales in the prior period.
Trade receivables associated with Comcast Corporation accounted for $29.4 million, or 24.1% of our accounts
receivable, net at December 31, 2015. We had no other customers with trade receivables greater than 10% of our
accounts receivable, net at December 31, 2015 or 2014.
Note 5 — Inventories, Net and Significant Supplier
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,
2015
2014
$
29,290 $
12,228
5,671
78,222
(3,045 )
$
122,366 $
24,763
16,170
2,622
56,458
(2,539 )
97,474
2015
A N N U A L
REPORT
70
53
54
Note 3 — Cash and Cash Equivalents and Restricted Cash
Cash and Cash Equivalents
Cash and cash equivalents were held in the following geographic regions:
Total cash and cash equivalents
$
52,966 $
112,521
In connection with the court order issued on September 4, 2015, we placed $4.6 million of cash into a collateralized
surety bond. This bond has certain restrictions for liquidation and has therefore been classified as restricted cash.
Refer to Note 13 for further information about this ongoing litigation.
Note 4 — Accounts Receivable, Net and Revenue Concentrations
Accounts receivable, net were as follows:
People's Republic of China ("PRC")
Asia (excluding the PRC)
(In thousands)
United States
Europe
South America
Restricted Cash
(In thousands)
Trade receivables, gross
Allowance for doubtful accounts
Allowance for sales returns
Net trade receivables
Other
Accounts receivable, net
(In thousands)
Balance at beginning of period
Additions to costs and expenses
(Write-offs)/FX effects
Balance at end of period
Allowance for Doubtful Accounts
Changes in the allowance for doubtful accounts were as follows:
$
December 31,
2015
2014
8,458 $
28,681
5,346
8,093
2,388
43,546
45,283
5,516
12,912
5,264
December 31,
2015
2014
$
119,090 $
91,605
(822 )
(507 )
117,761
4,040
$
121,801 $
(616 )
(617 )
90,372
7,617
97,989
Year Ended December 31,
2015
2014
2013
$
$
616 $
299
(93 )
822 $
478 $
249
(111 )
616 $
322
190
(34 )
478
Sales Returns
The allowance for sales returns at December 31, 2015 and 2014 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 $0.3 million and $0.4 million on December 31, 2015 and 2014, respectively. The value of these
returned goods was included in our inventory balance at December 31, 2015 and 2014.
Significant Customers
Net sales to the following customers totaled more than 10% of our net sales:
2015
2014
2013
Year Ended December 31,
Comcast Corporation
DIRECTV
Amount
(thousands)
$ 129,475
74,857
% of Net
Sales
Amount
(thousands)
% of Net
Sales
Amount
(thousands)
% of Net
Sales
21.5 %
12.4
$
— (1)
— % (1) $
— (1)
— % (1)
58,622
10.4
82,679
15.6
(1) Net sales to this customer did not total more than 10% of our total net sales in the prior period.
Trade receivables associated with Comcast Corporation accounted for $29.4 million, or 24.1% of our accounts
receivable, net at December 31, 2015. We had no other customers with trade receivables greater than 10% of our
accounts receivable, net at December 31, 2015 or 2014.
Note 5 — Inventories, Net and Significant Supplier
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,
2015
2014
$
$
29,290 $
12,228
5,671
78,222
(3,045 )
122,366 $
24,763
16,170
2,622
56,458
(2,539 )
97,474
53
54
71 2015
A N N U A L
REPORT
Reserve for Excess and Obsolete Inventory
Total accounts payable to this supplier were as follows:
Changes in the reserve for excess and obsolete inventory were as follows:
Year Ended December 31,
(In thousands)
2015
2014
2013
Balance at beginning of period
Additions charged to costs and expenses (1)
Sell through (2)
Write-offs/FX effects
Balance at end of period
$
$
2,539 $
3,070
(1,108 )
(1,456 )
3,045 $
2,714 $
3,181
(869 )
(2,487 )
2,539 $
2,024
3,387
(365 )
(2,332 )
2,714
(1) The additions charged to costs and expenses do not include inventory directly written-off that was scrapped
during production totaling $0.3 million, $0.3 million, and $0.3 million for the years ended December 31,
2015, 2014, and 2013, 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.
Significant Supplier
We purchase integrated circuits, components and finished goods from multiple sources. Maxim Integrated Products
International Limited provided $31.2 million or 10.7% of total inventory purchases during the year ended December
31, 2014. No single supplier provided more than 10% of our total inventory purchases during the years ended
December 31, 2015 and 2013.
Related Party Supplier
We purchase certain printed circuit board assemblies from a related party supplier. The supplier is considered a related
party for financial reporting purposes because our Senior Vice President of Manufacturing owns 40% of this supplier.
Inventory purchases from this supplier were as follows:
Year Ended December 31,
2015
2014
2013
Amount
(thousands)
% of Total
Inventory
Purchases
Amount
(thousands)
% of Total
Inventory
Purchases
Amount
(thousands)
% of Total
Inventory
Purchases
$
8,550
2.5 % $
9,188
3.2 % $
9,846
3.5 %
Related party
supplier
Related party supplier
December 31,
2015
2014
Amount
(thousands)
% of Accounts
Payable
Amount
(thousands)
% of Accounts
Payable
$
2,361
2.5 % $
2,378
3.4 %
Our payable terms and pricing with this supplier are consistent with the terms offered by other suppliers in the
ordinary course of business. The accounting policies that we apply to our transactions with our related party supplier
are consistent with those applied in transactions with independent third parties. Corporate management routinely
monitors purchases from our related party supplier 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:
Leasehold and building improvements
Machinery and equipment
(In thousands)
Buildings
Tooling
Software
Furniture and fixtures
Computer equipment
Accumulated depreciation
Construction in progress
December 31,
2015
2014
$
50,044 $
60,078
26,231
19,926
11,067
4,005
4,557
175,908
(96,365 )
79,543
10,472
51,046
52,449
22,558
18,344
10,957
3,899
4,421
163,674
(90,048 )
73,626
2,509
76,135
Total property, plant, and equipment, net
$
90,015 $
Depreciation expense, including tooling depreciation which is recorded in cost of goods sold, was $15.6 million,
$14.1 million and $14.2 million for the years ended December 31, 2015, 2014, and 2013, respectively.
The net book value of property, plant, and equipment located within the PRC was $79.4 million and $66.0 million on
December 31, 2015 and 2014, respectively.
2015
A N N U A L
REPORT
72
55
56
Reserve for Excess and Obsolete Inventory
Total accounts payable to this supplier were as follows:
(In thousands)
2015
2014
2013
Related party supplier
December 31,
2015
2014
Amount
(thousands)
% of Accounts
Payable
Amount
(thousands)
% of Accounts
Payable
$
2,361
2.5 % $
2,378
3.4 %
Our payable terms and pricing with this supplier are consistent with the terms offered by other suppliers in the
ordinary course of business. The accounting policies that we apply to our transactions with our related party supplier
are consistent with those applied in transactions with independent third parties. Corporate management routinely
monitors purchases from our related party supplier 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 and building improvements
Software
Furniture and fixtures
Computer equipment
Accumulated depreciation
Construction in progress
Total property, plant, and equipment, net
December 31,
2015
2014
$
$
50,044 $
60,078
26,231
19,926
11,067
4,005
4,557
175,908
(96,365 )
79,543
10,472
90,015 $
51,046
52,449
22,558
18,344
10,957
3,899
4,421
163,674
(90,048 )
73,626
2,509
76,135
Depreciation expense, including tooling depreciation which is recorded in cost of goods sold, was $15.6 million,
$14.1 million and $14.2 million for the years ended December 31, 2015, 2014, and 2013, respectively.
The net book value of property, plant, and equipment located within the PRC was $79.4 million and $66.0 million on
December 31, 2015 and 2014, respectively.
Changes in the reserve for excess and obsolete inventory were as follows:
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,
$
$
2,539 $
3,070
(1,108 )
(1,456 )
3,045 $
2,714 $
3,181
(869 )
(2,487 )
2,539 $
2,024
3,387
(365 )
(2,332 )
2,714
(1) The additions charged to costs and expenses do not include inventory directly written-off that was scrapped
during production totaling $0.3 million, $0.3 million, and $0.3 million for the years ended December 31,
2015, 2014, and 2013, 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
We purchase integrated circuits, components and finished goods from multiple sources. Maxim Integrated Products
International Limited provided $31.2 million or 10.7% of total inventory purchases during the year ended December
31, 2014. No single supplier provided more than 10% of our total inventory purchases during the years ended
period.
Significant Supplier
December 31, 2015 and 2013.
Related Party Supplier
We purchase certain printed circuit board assemblies from a related party supplier. The supplier is considered a related
party for financial reporting purposes because our Senior Vice President of Manufacturing owns 40% of this supplier.
Inventory purchases from this supplier were as follows:
Year Ended December 31,
2015
2014
2013
Amount
(thousands)
% of Total
Inventory
Purchases
Amount
(thousands)
% of Total
Inventory
Purchases
Amount
(thousands)
% of Total
Inventory
Purchases
$
8,550
2.5 % $
9,188
3.2 % $
9,846
3.5 %
Related party
supplier
55
56
73 2015
A N N U A L
REPORT
Construction in progress was as follows:
(In thousands)
Buildings
Machinery and equipment
Tooling
Leasehold and building improvements
Software
Other
Total construction in progress
December 31,
2015
2014
$
$
105 $
6,620
1,265
244
1,888
350
10,472 $
146
1,045
284
370
335
329
2,509
We expect that most of the assets under construction will be placed into service during the first six months of 2016.
We will begin to depreciate the cost of these assets under construction once they 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, 2013
FX effects
Balance at December 31, 2014
Goodwill acquired during the period (1)
FX effects
Balance at December 31, 2015
$
$
31,000
(261 )
30,739
12,564
(187 )
43,116
(1) During 2015, we recognized $12.6 million of goodwill related to the Ecolink Intelligent Technology, Inc.
acquisition. Please refer to Note 21 for further information about this acquisition.
We conducted annual goodwill impairment reviews on December 31, 2015, 2014, and 2013 utilizing significant
unobservable inputs (level 3). Based on the analysis performed, we determined that our goodwill was not impaired.
Intangible Assets, Net
The components of intangible assets, net were as follows:
December 31,
2015
Accumulated
Amortization
2014
Accumulated
Amortization
Gross (1)
312 $
11,425
Net (1)
Gross (1)
(1)
(96 ) $
(4,737 )
216 $
347 $
6,688
10,107
(1)
(76 ) $
(4,736 )
Net (1)
271
5,371
2,401
(1,053 )
1,348
2,001
(834 )
1,167
12,587
(2,144 )
10,443
3,506
(1,373 )
2,133
167
(97 )
70
276
(85 )
191
(In thousands)
Distribution rights (10 years)
$
Patents (10 years)
Trademarks and trade names
(10 years) (2)
Developed and core technology
(5-15 years) (2)
Capitalized software
development costs (2 years)
Customer relationships
(10-15 years) (2)
Total intangible assets, net $
54,607 $
(21,681 ) $
32,926 $
42,643 $
(18,029 ) $
27,715
(13,554 )
14,161
26,406
(10,925 )
15,481
24,614
(1) This table excludes the gross value of fully amortized intangible assets totaling $9.0 million and $7.9 million
on December 31, 2015 and 2014, respectively.
(2) During the third quarter of 2015, we purchased a trade name valued at $0.4 million, which is being
amortized ratably over seven years; developed technology valued at $9.1 million, which is being amortized
over a weighted average period of approximately five years; and customer relationships valued at $1.3
million, which are being amortized ratably over five years. Refer to Note 21 for further information
regarding our purchase of these intangible assets.
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,
2015
2014
2013
$
$
123 $
4,719
4,842 $
153 $
4,009
4,162 $
213
3,914
4,127
2015
A N N U A L
REPORT
74
57
58
Construction in progress was as follows:
Machinery and equipment
Leasehold and building improvements
(In thousands)
Buildings
Tooling
Software
Other
December 31,
2015
2014
$
105 $
6,620
1,265
244
1,888
350
146
1,045
284
370
335
329
Total construction in progress
$
10,472 $
2,509
We expect that most of the assets under construction will be placed into service during the first six months of 2016.
We will begin to depreciate the cost of these assets under construction once they 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, 2013
FX effects
Balance at December 31, 2014
Goodwill acquired during the period (1)
FX effects
Balance at December 31, 2015
$
31,000
(261 )
30,739
12,564
(187 )
$
43,116
(1) During 2015, we recognized $12.6 million of goodwill related to the Ecolink Intelligent Technology, Inc.
acquisition. Please refer to Note 21 for further information about this acquisition.
We conducted annual goodwill impairment reviews on December 31, 2015, 2014, and 2013 utilizing significant
unobservable inputs (level 3). Based on the analysis performed, we determined that our goodwill was not impaired.
Intangible Assets, Net
The components of intangible assets, net were as follows:
December 31,
2015
2014
(In thousands)
Gross (1)
Net (1)
Gross (1)
Accumulated
Amortization
(1)
312 $
(96 ) $
216 $
347 $
(76 ) $
11,425
(4,737 )
6,688
10,107
(4,736 )
Accumulated
Amortization
(1)
Net (1)
271
5,371
Distribution rights (10 years)
Patents (10 years)
$
Trademarks and trade names
(10 years) (2)
Developed and core technology
(5-15 years) (2)
Capitalized software
development costs (2 years)
Customer relationships
(10-15 years) (2)
Total intangible assets, net $
2,401
(1,053 )
1,348
2,001
(834 )
1,167
12,587
(2,144 )
10,443
3,506
(1,373 )
2,133
167
(97 )
70
276
(85 )
191
27,715
54,607 $
(13,554 )
(21,681 ) $
14,161
32,926 $
26,406
42,643 $
(10,925 )
(18,029 ) $
15,481
24,614
(1) This table excludes the gross value of fully amortized intangible assets totaling $9.0 million and $7.9 million
on December 31, 2015 and 2014, respectively.
(2) During the third quarter of 2015, we purchased a trade name valued at $0.4 million, which is being
amortized ratably over seven years; developed technology valued at $9.1 million, which is being amortized
over a weighted average period of approximately five years; and customer relationships valued at $1.3
million, which are being amortized ratably over five years. Refer to Note 21 for further information
regarding our purchase of these intangible assets.
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,
2015
2014
2013
$
$
123 $
4,719
4,842 $
153 $
4,009
4,162 $
213
3,914
4,127
57
58
75 2015
A N N U A L
REPORT
(In thousands)
Domestic operations
Foreign operations
Total
(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
$
Year Ended December 31,
2015
2014
2013
$
$
(6,857 ) $
(2,793 ) $
42,832
43,244
35,975 $
40,451 $
2,425
26,611
29,036
Year Ended December 31,
2015
2014
2013
$
2,726 $
189
9,028
11,943
(4,588 )
(87 )
(466 )
(5,141 )
6,802 $
47 $
49
8,127
8,223
(687 )
74
307
(306 )
7,917 $
971
254
6,426
7,651
(101 )
(67 )
(1,410 )
(1,578 )
6,073
Estimated future amortization expense related to our intangible assets at December 31, 2015, is as follows:
Note 9 — Income Taxes
(In thousands)
2016
2017
2018
2019
2020
Thereafter
Total
$
$
6,276
6,204
6,176
6,170
5,394
2,706
32,926
Pre-tax income was attributed to the following jurisdictions:
The provision for income taxes charged to operations were as follows:
The remaining weighted average amortization period of our intangible assets is 5.5 years.
Note 8 — Line of Credit
On October 9, 2014, we extended the term of our Amended and Restated Credit Agreement ("Amended Credit
Agreement") with U.S. Bank National Association ("U.S. Bank") to November 1, 2017. The Amended Credit
Agreement provided for a $55.0 million line of credit ("Credit Line") that may be used for working capital and other
general corporate purposes including acquisitions, share repurchases and capital expenditures. On September 3, 2015,
we entered into the Second Amendment to the Amended Credit Agreement in which the Credit Line was increased
to $65.0 million. On November 10, 2015, we entered into the Third Amendment to the Amended Credit Agreement
in which the Credit Line was increased to $85.0 million. On February 3, 2016, we entered into the Fourth Amendment
to the Amended Credit Agreement in which the Credit Line was temporarily increased to $105.0 million through
March 15, 2016, after which the Credit Line will revert back to $85.0 million. 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, 2015.
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 0.00% to 0.50% ). The
applicable margins are calculated quarterly and vary based on our cash flow 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 and
a maximum cash flow leverage ratio. In addition, the Amended Credit Agreement also contains other customary
affirmative and negative covenants and events of default. As of December 31, 2015, we were in compliance with the
covenants and conditions of the Amended Credit Agreement.
At December 31, 2015, we had $50.0 million outstanding under the Credit Line. Our total interest expense on
borrowings was $0.3 million, $23 thousand and $0.2 million during the years ended December 31, 2015, 2014 and
2013, respectively.
2015
A N N U A L
REPORT
76
59
60
Estimated future amortization expense related to our intangible assets at December 31, 2015, is as follows:
Note 9 — Income Taxes
Pre-tax income was attributed to the following jurisdictions:
$
6,276
6,204
6,176
6,170
5,394
2,706
(In thousands)
Domestic operations
Foreign operations
Total
$
32,926
The provision for income taxes charged to operations were as follows:
(In thousands)
2016
2017
2018
2019
2020
Thereafter
Total
(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
$
The remaining weighted average amortization period of our intangible assets is 5.5 years.
Note 8 — Line of Credit
On October 9, 2014, we extended the term of our Amended and Restated Credit Agreement ("Amended Credit
Agreement") with U.S. Bank National Association ("U.S. Bank") to November 1, 2017. The Amended Credit
Agreement provided for a $55.0 million line of credit ("Credit Line") that may be used for working capital and other
general corporate purposes including acquisitions, share repurchases and capital expenditures. On September 3, 2015,
we entered into the Second Amendment to the Amended Credit Agreement in which the Credit Line was increased
to $65.0 million. On November 10, 2015, we entered into the Third Amendment to the Amended Credit Agreement
in which the Credit Line was increased to $85.0 million. On February 3, 2016, we entered into the Fourth Amendment
to the Amended Credit Agreement in which the Credit Line was temporarily increased to $105.0 million through
March 15, 2016, after which the Credit Line will revert back to $85.0 million. 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, 2015.
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 0.00% to 0.50% ). The
applicable margins are calculated quarterly and vary based on our cash flow 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 and
a maximum cash flow leverage ratio. In addition, the Amended Credit Agreement also contains other customary
affirmative and negative covenants and events of default. As of December 31, 2015, we were in compliance with the
covenants and conditions of the Amended Credit Agreement.
At December 31, 2015, we had $50.0 million outstanding under the Credit Line. Our total interest expense on
borrowings was $0.3 million, $23 thousand and $0.2 million during the years ended December 31, 2015, 2014 and
2013, respectively.
Year Ended December 31,
2015
2014
2013
(6,857 ) $
42,832
35,975 $
(2,793 ) $
43,244
40,451 $
2,425
26,611
29,036
Year Ended December 31,
2015
2014
2013
2,726 $
189
9,028
11,943
(4,588 )
(87 )
(466 )
(5,141 )
6,802 $
47 $
49
8,127
8,223
(687 )
74
307
(306 )
7,917 $
971
254
6,426
7,651
(101 )
(67 )
(1,410 )
(1,578 )
6,073
59
60
77 2015
A N N U A L
REPORT
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 liabilities:
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,
2015
2014
1,228 $
52
926
582
148
5,194
11,251
2,064
21,445
(2,639 )
(223 )
(1,274 )
(2,752 )
(6,888 )
14,557
(6,678 )
7,879 $
904
79
684
1,151
143
4,168
8,568
1,749
17,446
(4,402 )
(180 )
(2,154 )
(2,256 )
(8,992 )
8,454
(5,716 )
2,738
$
$
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
Foreign permanent benefit
Other
Tax provision
Year Ended December 31,
2015
2014
2013
$
12,232 $
13,753 $
9,872
(554 )
(580 )
(5,762 )
874
(678 )
649
621
(675 )
95
6,802 $
(7,150 )
1,093
(842 )
688
661
—
294
7,917 $
(397 )
(3,804 )
989
(1,149 )
214
520
—
(172 )
6,073
$
At December 31, 2015, we had foreign tax credit carryforwards of approximately $2.1 million, and federal and state
Research and Experimentation ("R&E") income tax credit carryforwards of approximately $2.3 million and $6.7
million, respectively. The foreign tax credits begin to expire in 2024. 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, 2015, we had federal, state and foreign net operating loss carryforwards of approximately $1.2
million, $2.9 million and $35 thousand, respectively. Included in the Company's U.S. net operating loss deferred tax
assets above is approximately $2.2 million of unrealized gross deferred tax assets attributable to excess tax benefits
associated with stock-based compensation that will impact stockholders' equity if and when such excess benefits are
ultimately realized. Of the federal and state net operating loss carryforwards above, $1.2 million and $2.9 million,
respectively, were acquired as part of our 2004 acquisition of SimpleDevices. The federal, state, and foreign net
operating loss carryforwards 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
carryforwards that may be utilized if certain changes to a company’s ownership occur. Our 2004 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 carryforwards of SimpleDevices are limited but considered realizable in future periods. The
annual federal limitation is approximately $0.6 million for 2015 and thereafter.
At December 31, 2015, 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 related to state R&E
income tax credits generated during prior years and the 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. The total valuation allowance increased by $1.0 million and
$0.9 million as of December 31, 2015 and 2014, respectively.
During the year ended December 31, 2015 we recognized an increase to paid-in capital and a decrease to income
taxes payable of $3.1 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, 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.
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, 2015, we
evaluated fund payments made prior to the preceding five years and determined that $0.6 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 $0.6 million, $0.7 million and $0.2 million for the years ended
December 31, 2015, 2014 and 2013, respectively, relating to decreases in the deferred tax assets of our Chinese
subsidiaries.
2015
A N N U A L
REPORT
78
61
62
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 liabilities:
Depreciation
Allowance for doubtful accounts
Amortization of intangible assets
Other
Total deferred tax liabilities
December 31,
2015
2014
$
1,228 $
52
926
582
148
5,194
11,251
2,064
21,445
(2,639 )
(223 )
(1,274 )
(2,752 )
(6,888 )
14,557
(6,678 )
904
79
684
1,151
143
4,168
8,568
1,749
17,446
(4,402 )
(180 )
(2,154 )
(2,256 )
(8,992 )
8,454
(5,716 )
2,738
(397 )
(3,804 )
989
(1,149 )
214
520
—
(172 )
6,073
Net deferred tax assets before valuation allowance
Less: Valuation allowance
Net deferred tax assets
$
7,879 $
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
Foreign permanent benefit
Other
Tax provision
Year Ended December 31,
2015
2014
2013
$
12,232 $
13,753 $
9,872
(554 )
(5,762 )
874
(678 )
649
621
(675 )
95
(580 )
(7,150 )
1,093
(842 )
688
661
—
294
$
6,802 $
7,917 $
At December 31, 2015, we had foreign tax credit carryforwards of approximately $2.1 million, and federal and state
Research and Experimentation ("R&E") income tax credit carryforwards of approximately $2.3 million and $6.7
million, respectively. The foreign tax credits begin to expire in 2024. 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, 2015, we had federal, state and foreign net operating loss carryforwards of approximately $1.2
million, $2.9 million and $35 thousand, respectively. Included in the Company's U.S. net operating loss deferred tax
assets above is approximately $2.2 million of unrealized gross deferred tax assets attributable to excess tax benefits
associated with stock-based compensation that will impact stockholders' equity if and when such excess benefits are
ultimately realized. Of the federal and state net operating loss carryforwards above, $1.2 million and $2.9 million,
respectively, were acquired as part of our 2004 acquisition of SimpleDevices. The federal, state, and foreign net
operating loss carryforwards 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
carryforwards that may be utilized if certain changes to a company’s ownership occur. Our 2004 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 carryforwards of SimpleDevices are limited but considered realizable in future periods. The
annual federal limitation is approximately $0.6 million for 2015 and thereafter.
At December 31, 2015, 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 related to state R&E
income tax credits generated during prior years and the 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. The total valuation allowance increased by $1.0 million and
$0.9 million as of December 31, 2015 and 2014, respectively.
During the year ended December 31, 2015 we recognized an increase to paid-in capital and a decrease to income
taxes payable of $3.1 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, 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.
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, 2015, we
evaluated fund payments made prior to the preceding five years and determined that $0.6 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 $0.6 million, $0.7 million and $0.2 million for the years ended
December 31, 2015, 2014 and 2013, respectively, relating to decreases in the deferred tax assets of our Chinese
subsidiaries.
61
62
79 2015
A N N U A L
REPORT
Uncertain Tax Positions
At December 31, 2015 and 2014, we had unrecognized tax benefits of approximately $3.7 million and $3.6 million,
including interest and penalties, respectively. We classify interest and penalties as components of tax expense. Interest
and penalties were $0.2 million, $0.2 million, and $0.1 million for the years ended December 31, 2015, 2014 and
2013, respectively. Interest and penalties are included in the unrecognized tax benefits.
Changes to our gross unrecognized tax benefits were as follows:
(In thousands)
Balance at beginning of period
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
Other
Balance at end of period
Year ended December 31,
2015
2014
2013
$
$
3,486 $
463
(161 )
(79 )
(241 )
—
1 $
3,469 $
3,490 $
213
(150 )
(8 )
(59 )
—
— $
3,486 $
5,006
357
(126 )
45
(63 )
(1,729 )
—
3,490
Approximately $3.3 million, $3.2 million and $3.2 million of the total amount of gross unrecognized tax benefits at
December 31, 2015, 2014 and 2013, respectively, if not for the state Research and Experimentation income tax credit
valuation allowance, would affect the annual effective tax rate, if recognized. 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 $0.1 million
within the next twelve months based on federal, state, and foreign statute expirations in various jurisdictions. We
have classified uncertain tax positions as non-current income tax liabilities unless expected to be paid within one
year.
We file income tax returns in the U.S. federal jurisdiction and in various state and foreign jurisdictions. At
December 31, 2015, the open statutes of limitations for our significant tax jurisdictions are the following: federal are
2012 through 2014, state are 2011 through 2014 and foreign are 2009 through 2014.
Note 10 — Accrued Compensation
The components of accrued compensation were as follows:
(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,
2015
2014
$
18,923 $
19,941
7,549
2,227
5,914
1,084
218
1,537
6,114
2,222
8,492
1,797
236
1,854
$
37,452 $
40,656
(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, 2015 and 2014.
(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 $0.7 million and $0.6 million at December 31, 2015 and 2014, respectively.
2015
A N N U A L
REPORT
80
63
64
Uncertain Tax Positions
Note 10 — Accrued Compensation
At December 31, 2015 and 2014, we had unrecognized tax benefits of approximately $3.7 million and $3.6 million,
The components of accrued compensation were as follows:
including interest and penalties, respectively. We classify interest and penalties as components of tax expense. Interest
and penalties were $0.2 million, $0.2 million, and $0.1 million for the years ended December 31, 2015, 2014 and
2013, respectively. Interest and penalties are included in the unrecognized tax benefits.
Changes to our gross unrecognized tax benefits were as follows:
(In thousands)
Balance at beginning of period
Additions as a result of tax provisions taken during the current
Subtractions as a result of tax provisions taken during the prior
year
year
Foreign currency translation
Lapse in statute of limitations
Settlements
Other
Balance at end of period
Year ended December 31,
2015
2014
2013
$
3,486 $
3,490 $
463
(161 )
(79 )
(241 )
—
213
(150 )
(8 )
(59 )
—
1 $
— $
$
3,469 $
3,486 $
5,006
357
(126 )
45
(63 )
(1,729 )
—
3,490
Approximately $3.3 million, $3.2 million and $3.2 million of the total amount of gross unrecognized tax benefits at
December 31, 2015, 2014 and 2013, respectively, if not for the state Research and Experimentation income tax credit
valuation allowance, would affect the annual effective tax rate, if recognized. 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 $0.1 million
within the next twelve months based on federal, state, and foreign statute expirations in various jurisdictions. We
have classified uncertain tax positions as non-current income tax liabilities unless expected to be paid within one
year.
We file income tax returns in the U.S. federal jurisdiction and in various state and foreign jurisdictions. At
December 31, 2015, the open statutes of limitations for our significant tax jurisdictions are the following: federal are
2012 through 2014, state are 2011 through 2014 and foreign are 2009 through 2014.
(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,
2015
2014
18,923 $
7,549
2,227
5,914
1,084
218
1,537
37,452 $
19,941
6,114
2,222
8,492
1,797
236
1,854
40,656
$
$
(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, 2015 and 2014.
(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 $0.7 million and $0.6 million at December 31, 2015 and 2014, respectively.
63
64
81 2015
A N N U A L
REPORT
Note 11 — Other Accrued Expenses
The components of other accrued expenses were as follows:
(In thousands)
Advertising and marketing
Deferred revenue
Duties
Freight and handling fees
Product development
Product warranty claim costs
Professional fees
Property, plant and equipment
Sales taxes and VAT
Third-party commissions
Tooling (1)
Unrealized loss on foreign currency exchange futures contracts
URC court order (Notes 3 and 13)
Utilities
Other
Total other accrued expenses
December 31,
2015
2014
$
$
191 $
1,434
1,318
1,942
630
35
1,714
551
3,170
585
1,173
1,164
4,629
278
2,652
21,466 $
174
648
947
1,522
751
353
1,493
141
2,057
553
1,089
113
—
275
3,242
13,358
(1) The tooling accrual balance relates to unearned revenue for tooling that will be sold to customers.
Rental costs associated with operating leases incurred during a construction period are expensed.
Related Party Vendor
Prepaid Land Leases
We have obtained certain engineering support services for our India subsidiary from JAP Techno Solutions ("JAP").
The owner of JAP is the spouse of the managing director of our India operations. Total fees paid to JAP for the years
ended December 31, 2015 and 2014 were $77 thousand and $39 thousand, respectively. No amounts were paid to
this vendor during the year ended December 31, 2013.
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 $3.6 million, $3.7 million and $3.5 million for the years ended
December 31, 2015, 2014 and 2013, respectively.
2015
A N N U A L
REPORT
82
65
66
Estimated future minimum non-cancelable operating lease payments at December 31, 2015 were as follows:
(In thousands)
2016
2017
2018
2019
2020
Thereafter
Total operating lease commitments
Non-level Rents and Lease Incentives
Amount
$
3,183
2,767
2,164
1,281
1,198
2,389
$
12,982
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 48 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 $1.1 million and $1.1 million at
December 31, 2015 and 2014, 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
We operate two factories within the PRC on which the land is leased from the government as of December 31, 2015.
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 $1.2 million on December 31, 2015, and will be amortized on a straight-line basis over
approximately 15 years. The buildings located on this land had a net book value of $12.4 million on December 31,
2015 and will be depreciated over a remaining weighted average period of 16 years.
The second factory is located in the city of Yangzhou in the Jiangsu province. The remaining net book value of this
prepaid lease was $2.7 million on December 31, 2015, and will be amortized on a straight-line basis over the
remaining term of approximately 43 years. The buildings located on this land had a net book value of $22.3 million
on December 31, 2015 and will be depreciated over a remaining weighted average period of 24 years.
The remaining net book value of prepaid land leases is included within prepaid expenses and other current assets and
other assets, depending on the short term or long term nature.
Note 11 — Other Accrued Expenses
The components of other accrued expenses were as follows:
(In thousands)
Advertising and marketing
Deferred revenue
Duties
Freight and handling fees
Product development
Product warranty claim costs
Professional fees
Property, plant and equipment
Sales taxes and VAT
Third-party commissions
Tooling (1)
Utilities
Other
Unrealized loss on foreign currency exchange futures contracts
URC court order (Notes 3 and 13)
December 31,
2015
2014
$
191 $
1,434
1,318
1,942
630
35
1,714
551
3,170
585
1,173
1,164
4,629
278
2,652
174
648
947
1,522
751
353
1,493
141
2,057
553
1,089
113
—
275
3,242
13,358
We have obtained certain engineering support services for our India subsidiary from JAP Techno Solutions ("JAP").
The owner of JAP is the spouse of the managing director of our India operations. Total fees paid to JAP for the years
ended December 31, 2015 and 2014 were $77 thousand and $39 thousand, respectively. No amounts were paid to
this vendor during the year ended December 31, 2013.
Note 12 — Leases
dates through November 30, 2060.
We lease land, office and warehouse space, and certain office equipment under operating leases that expire at various
Rent expense for our operating leases was $3.6 million, $3.7 million and $3.5 million for the years ended
December 31, 2015, 2014 and 2013, respectively.
Estimated future minimum non-cancelable operating lease payments at December 31, 2015 were as follows:
(In thousands)
2016
2017
2018
2019
2020
Thereafter
Total operating lease commitments
Non-level Rents and Lease Incentives
Amount
3,183
2,767
2,164
1,281
1,198
2,389
12,982
$
$
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 48 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 $1.1 million and $1.1 million at
December 31, 2015 and 2014, 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.
Total other accrued expenses
$
21,466 $
Rental Costs During Construction
(1) The tooling accrual balance relates to unearned revenue for tooling that will be sold to customers.
Rental costs associated with operating leases incurred during a construction period are expensed.
Related Party Vendor
Prepaid Land Leases
We operate two factories within the PRC on which the land is leased from the government as of December 31, 2015.
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 $1.2 million on December 31, 2015, and will be amortized on a straight-line basis over
approximately 15 years. The buildings located on this land had a net book value of $12.4 million on December 31,
2015 and will be depreciated over a remaining weighted average period of 16 years.
The second factory is located in the city of Yangzhou in the Jiangsu province. The remaining net book value of this
prepaid lease was $2.7 million on December 31, 2015, and will be amortized on a straight-line basis over the
remaining term of approximately 43 years. The buildings located on this land had a net book value of $22.3 million
on December 31, 2015 and will be depreciated over a remaining weighted average period of 24 years.
The remaining net book value of prepaid land leases is included within prepaid expenses and other current assets and
other assets, depending on the short term or long term nature.
65
66
83 2015
A N N U A L
REPORT
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
Court.
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
Litigation
Year Ended December 31,
2015
2014
2013
$
$
353 $
23
(341 )
35 $
41 $
1,178
(866 )
353 $
404
416
(779 )
41
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 was infringing, directly and indirectly, four of our patents related to remote control
technology. Following a jury verdict in favor of URC, on September 4, 2015 the District Court awarded URC $4.6
million in attorneys’ fees and costs, approximately 50% of the attorneys’ fees and costs URC claims it incurred. Both
parties filed Notices of Appeal. URC is appealing various portions of the judgment and the District Court’s decision
to award less than the full amount of attorneys’ fees. We have elected not to appeal the award of attorneys’ fees.
URC has filed its opening appellate brief and we filed our response on February 26, 2016. We expect oral arguments
in the summer of 2016, with a decision approximately six months later. As a result of the District Court's order, we
accrued $4.6 million within selling, general and administrative expenses for the year ended December 31, 2015.
Additionally, as described in Note 3, we placed $4.6 million into a surety bond as collateral for this court order.
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)) claiming
that URC has violated ten patents not implicated in our first lawsuit against it. Of the ten patents, four of them have
expired. In mid-November 2013, we filed a motion to add affiliated URC suppliers, Ohsung Electronics Co, Ltd., a
South Korean entity, and Ohsung Electronics USA, Inc., a California entity, (collectively "Ohsung"), to the lawsuit.
In late June and early July of 2014, URC and Ohsung requested inter partes review ("IPR") with the US Patent and
Trademark Office Appeal Board ("PTAB") for each of the ten patents pending in the second URC lawsuit. On July
9, 2014, the Court entered stipulated stay, pending the IPR outcome. In January 2016, the PTAB issued its decisions
in all of the IPR proceedings, sustaining most of the claims of the six unexpired patents and invalidating the majority
of the claims of the four expired patents. URC has filed a notice of appeal with respect to the PTAB’s ruling against
it. We have elected to not appeal the PTAB’s rulings. On March 21, 2016, a status conference is scheduled with the
On or about June 10, 2015, FM Marketing GmbH ("FMH") and Ruwido Austria GmbH ("Ruwido"), filed a Summons
in Summary Proceedings in Belgium court against one of our subsidiaries, Universal Electronics BV ("UEBV") and
one of its customers, Telenet N.V. ("Telenet"), claiming that one of the products UEBV supplies Telenet violates two
design patents and one utility patent owned by FMH and/or Ruwido. By this summons, FMH and Ruwido sought to
enjoin Telenet and UEBV from continued distribution and use of the products at issue. After the September 29, 2015
hearing, the Court issued its ruling in our and Telenet’s favor, rejecting FMH and Ruwido’s request entirely. On
October 22, 2015, Ruwido filed its notice of appeal in this ruling. The parties have fully briefed the appeal and on
February 15, 2016, the appellate court heard oral arguments. We expect the appellate court’s ruling on the motion in
the next three to six months. In addition, in September 2015, UEBV filed an Opposition with the European Patent
Office seeking to invalidate the one utility patent asserted against UEBV and Telenet by Ruwido. Finally, on or about
February 9, 2016, Ruwido filed a writ of summons for proceeding on the merits with respect to asserted patents.
UEBV and Telenet intend to vigorously defend against Ruwido's claims.
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.
2015
A N N U A L
REPORT
84
67
68
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
Litigation
Year Ended December 31,
2015
2014
2013
$
$
353 $
23
(341 )
35 $
41 $
1,178
(866 )
353 $
404
416
(779 )
41
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 was infringing, directly and indirectly, four of our patents related to remote control
technology. Following a jury verdict in favor of URC, on September 4, 2015 the District Court awarded URC $4.6
million in attorneys’ fees and costs, approximately 50% of the attorneys’ fees and costs URC claims it incurred. Both
parties filed Notices of Appeal. URC is appealing various portions of the judgment and the District Court’s decision
to award less than the full amount of attorneys’ fees. We have elected not to appeal the award of attorneys’ fees.
URC has filed its opening appellate brief and we filed our response on February 26, 2016. We expect oral arguments
in the summer of 2016, with a decision approximately six months later. As a result of the District Court's order, we
accrued $4.6 million within selling, general and administrative expenses for the year ended December 31, 2015.
Additionally, as described in Note 3, we placed $4.6 million into a surety bond as collateral for this court order.
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)) claiming
that URC has violated ten patents not implicated in our first lawsuit against it. Of the ten patents, four of them have
expired. In mid-November 2013, we filed a motion to add affiliated URC suppliers, Ohsung Electronics Co, Ltd., a
South Korean entity, and Ohsung Electronics USA, Inc., a California entity, (collectively "Ohsung"), to the lawsuit.
In late June and early July of 2014, URC and Ohsung requested inter partes review ("IPR") with the US Patent and
Trademark Office Appeal Board ("PTAB") for each of the ten patents pending in the second URC lawsuit. On July
9, 2014, the Court entered stipulated stay, pending the IPR outcome. In January 2016, the PTAB issued its decisions
in all of the IPR proceedings, sustaining most of the claims of the six unexpired patents and invalidating the majority
of the claims of the four expired patents. URC has filed a notice of appeal with respect to the PTAB’s ruling against
it. We have elected to not appeal the PTAB’s rulings. On March 21, 2016, a status conference is scheduled with the
Court.
On or about June 10, 2015, FM Marketing GmbH ("FMH") and Ruwido Austria GmbH ("Ruwido"), filed a Summons
in Summary Proceedings in Belgium court against one of our subsidiaries, Universal Electronics BV ("UEBV") and
one of its customers, Telenet N.V. ("Telenet"), claiming that one of the products UEBV supplies Telenet violates two
design patents and one utility patent owned by FMH and/or Ruwido. By this summons, FMH and Ruwido sought to
enjoin Telenet and UEBV from continued distribution and use of the products at issue. After the September 29, 2015
hearing, the Court issued its ruling in our and Telenet’s favor, rejecting FMH and Ruwido’s request entirely. On
October 22, 2015, Ruwido filed its notice of appeal in this ruling. The parties have fully briefed the appeal and on
February 15, 2016, the appellate court heard oral arguments. We expect the appellate court’s ruling on the motion in
the next three to six months. In addition, in September 2015, UEBV filed an Opposition with the European Patent
Office seeking to invalidate the one utility patent asserted against UEBV and Telenet by Ruwido. Finally, on or about
February 9, 2016, Ruwido filed a writ of summons for proceeding on the merits with respect to asserted patents.
UEBV and Telenet intend to vigorously defend against Ruwido's claims.
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.
67
68
85 2015
A N N U A L
REPORT
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, 2015 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, 2015, approximately 45 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, 2015 and 2014 for the India Plan was not material. During
the years ended December 31, 2015, 2014, and 2013, the net periodic benefit costs were also not material.
Note 14 — Treasury Stock
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, 2015, we had 300,000 shares available for repurchase under the Board's
authorizations. On February 10, 2016, our Board increased these share repurchase authorizations by 100,000 shares
bringing the total authorization as of the approval date to 400,000 shares.
Repurchased shares of our common stock were as follows:
(In thousands)
Shares repurchased
Cost of shares repurchased
Year Ended December 31,
2015
2014
2013
1,817
89,395 $
384
16,168 $
$
153
3,607
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, 2014, and 2013, we issued 15,000, and 30,000 shares from treasury, respectively, to outside
directors for services performed (see Note 16).
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.
Foreign Operations
Our net sales to external customers by geographic area were as follows:
(In thousands)
United States
Asia (excluding PRC)
People’s Republic of China
Europe
Latin America
Other
Total net sales
Year Ended December 31,
2015
2014
2013
$
287,678 $
109,960
201,579 $
129,614
74,475
65,579
38,985
26,156
98,057
70,663
38,912
23,504
195,308
107,886
89,918
72,852
35,179
28,211
$
602,833 $
562,329 $
529,354
Specific identification of the customer billing location was the basis used for attributing revenues from external
customers to geographic areas.
Long-lived tangible assets by geographic area were as follows:
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)
United States
People's Republic of China
All other countries
Total long-lived tangible assets
Note 16 — Stock-Based Compensation
(In thousands)
Cost of sales
Research and development
Selling, general and administrative:
Employees
Outside directors
Total stock-based compensation expense
December 31,
2015
2014
7,015 $
83,794
4,571
95,380 $
5,716
70,619
5,271
81,606
$
$
Year Ended December 31,
2015
2014
2013
39 $
428
16 $
323
5,946
1,500
4,927
1,178
7,913 $
6,444 $
1
226
4,494
621
5,342
$
$
$
Income tax benefit
2,366 $
1,897 $
1,575
2015
A N N U A L
REPORT
86
69
70
Defined Benefit Plan
Foreign Operations
Our subsidiary in India maintains a defined benefit pension plan ("India Plan") for local employees, which is
Our net sales to external customers by geographic area were as follows:
consistent with local statutes and practices. The pension plan was adequately funded on December 31, 2015 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, 2015, approximately 45 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, 2015 and 2014 for the India Plan was not material. During
the years ended December 31, 2015, 2014, and 2013, the net periodic benefit costs were also not material.
Note 14 — Treasury Stock
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, 2015, we had 300,000 shares available for repurchase under the Board's
authorizations. On February 10, 2016, our Board increased these share repurchase authorizations by 100,000 shares
bringing the total authorization as of the approval date to 400,000 shares.
Repurchased shares of our common stock were as follows:
(In thousands)
Shares repurchased
Cost of shares repurchased
Year Ended December 31,
2015
2014
2013
1,817
89,395 $
384
16,168 $
$
153
3,607
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, 2014, and 2013, we issued 15,000, and 30,000 shares from treasury, respectively, to outside
directors for services performed (see Note 16).
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.
(In thousands)
United States
Asia (excluding PRC)
People’s Republic of China
Europe
Latin America
Other
Total net sales
Year Ended December 31,
2015
2014
2013
287,678 $
109,960
74,475
65,579
38,985
26,156
602,833 $
201,579 $
129,614
98,057
70,663
38,912
23,504
562,329 $
195,308
107,886
89,918
72,852
35,179
28,211
529,354
$
$
Specific identification of the customer billing location was the basis used for attributing revenues from external
customers to geographic areas.
Long-lived tangible assets by geographic area were as follows:
(In thousands)
United States
People's Republic of China
All other countries
Total long-lived tangible assets
Note 16 — Stock-Based Compensation
December 31,
2015
2014
7,015 $
83,794
4,571
95,380 $
5,716
70,619
5,271
81,606
$
$
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
Year Ended December 31,
2015
2014
2013
39 $
428
16 $
323
5,946
1,500
7,913 $
4,927
1,178
6,444 $
1
226
4,494
621
5,342
2,366 $
1,897 $
1,575
$
$
$
69
70
87 2015
A N N U A L
REPORT
Stock Options
Significant option groups outstanding at December 31, 2015 and the related weighted average exercise price and life
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
Risk-free interest rate
Expected volatility
Expected life in years
Stock option activity was as follows:
Year Ended December 31,
$
2015
2014
2013
$
24.47
1.39 %
43.36 %
4.57
$
13.64
1.29 %
44.84 %
4.56
9.26
0.95 %
53.39 %
5.20
2015
2014
2013
Number
of
Options
(in 000's)
Weighted
Average
Exercise
Price
Weighted-
Average
Remaining
Contractual
Terms
(in years)
Aggregate
Intrinsic
Value
(in 000's)
Number
of
Options
(in 000's)
Weighted
Average
Exercise
Price
Weighted-
Average
Remaining
Contractual
Terms
(in years)
Aggregate
Intrinsic
Value
(in 000's)
Number
of
Options
(in 000's)
Weighted
Average
Exercise
Price
Weighted-
Average
Remaining
Contractual
Terms
(in years)
Aggregate
Intrinsic
Value
(in 000's)
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)
650
$
77
(71 )
(8 )
648 $
25.56
64.81
23.97
20.64
30.50
648
$
493 $
30.50
25.03
2,193
$
4.85
4.85
4.51
$ 14,556
$ 14,551
$ 12,979
924
$
133
(391 )
(16 )
650 $
22.04
35.28
20.76
20.77
25.56
649
$
421 $
25.57
23.84
5.59
5.58
4.87
1,412
$
201
(679 )
(10 )
924 $
20.56
19.68
18.22
24.75
22.04
$ 10,651
$ 25,653
$ 25,618
$ 17,345
921
$
671 $
22.05
22.62
8,355
14,854
14,791
10,388
$
$
$
$
6.09
6.08
5.14
(1) The aggregate intrinsic value represents the total pre-tax value (the difference between our closing stock
price on the last trading day of 2015, 2014, and 2013 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, 2015, 2014, and 2013. This amount will change based on the fair market value of
our stock.
During the years ended December 31, 2015, 2014, and 2013, there were no modifications made to outstanding stock
options.
Cash received from option exercises for the years ended December 31, 2015, 2014, and 2013 was $1.7 million, $8.1
million, and $12.4 million, respectively. The actual tax benefit realized from option exercises was $0.5 million, $3.1
million and $2.3 million for the years ended December 31, 2015, 2014, and 2013, respectively.
information were as follows:
Range of Exercise Prices
$17.60 to $21.95
24.91 to 29.25
35.28 to 35.35
51.38 to 65.54
Options Outstanding
Options Exercisable
Number
Outstanding
(in 000’s)
Weighted-
Average
Remaining
Years of
Contractual Life
Weighted-
Average
Exercise
Price
Number
Exercisable
(in 000’s)
Weighted-
Average
Exercise
Price
279
163
128
78
648
5.32 $
3.26
5.05
6.17
4.85 $
20.23
27.99
35.28
64.81
30.50
257 $
163
73
—
20.26
27.99
35.28
—
493 $
25.03
As of December 31, 2015, 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 January 1, 2016, certain executive employees were granted 93,135 stock options in connection with the 2015
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 January 1, 2017
and 8.33% each quarter thereafter). The total grant date fair value of these awards was $1.8 million.
On February 10, 2016, members of the board of directors were granted 150,000 stock options. The options are subject
to a three-year vesting period (33.33% per year beginning on February 10, 2017). The total grant date fair value of
these awards was $2.6 million.
Restricted Stock
Non-vested restricted stock award activity was as follows:
2015
2014
2013
Shares
Granted
(in 000’s)
Weighted-
Average
Grant Date
Fair Value
Shares
Weighted-
Average
Granted
(in 000’s)
Grant Date
Fair Value
266
138
(178 )
(1 )
225
39.28
53.64
35.09
63.19
51.31
285
155
(171 )
(3 )
266
24.64
51.29
25.78
37.78
39.28
Shares
Granted
(in 000’s)
270 $
196
(178 )
(3 )
285
Weighted-
Average
Grant Date
Fair Value
18.72
28.86
20.44
15.49
24.64
Non-vested at beginning of the year
Granted
Vested
Forfeited
Non-vested at end of the year
As of December 31, 2015, we expect to recognize $10.7 million of total unrecognized pre-tax stock-based
compensation expense related to non-vested restricted stock awards over a weighted-average life of 2.1 years.
On January 1, 2016, certain executive employees were granted 34,060 restricted stock awards in connection with the
2015 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 January 1,
2017 and 8.33% each quarter thereafter). The total grant date fair value of these awards was $1.8 million.
2015
A N N U A L
REPORT
88
71
72
Stock Options
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:
Significant option groups outstanding at December 31, 2015 and the related weighted average exercise price and life
information were as follows:
Year Ended December 31,
2015
2014
2013
$
24.47
$
13.64
$
1.39 %
43.36 %
4.57
1.29 %
44.84 %
4.56
9.26
0.95 %
53.39 %
5.20
Range of Exercise Prices
$17.60 to $21.95
24.91 to 29.25
35.28 to 35.35
51.38 to 65.54
Options Outstanding
Options Exercisable
Number
Outstanding
(in 000’s)
Weighted-
Average
Remaining
Years of
Contractual Life
Weighted-
Average
Exercise
Price
Number
Exercisable
(in 000’s)
Weighted-
Average
Exercise
Price
279
163
128
78
648
5.32 $
3.26
5.05
6.17
4.85 $
20.23
27.99
35.28
64.81
30.50
257 $
163
73
—
493 $
20.26
27.99
35.28
—
25.03
Weighted average fair value of grants
Risk-free interest rate
Expected volatility
Expected life in years
Stock option activity was as follows:
2015
2014
2013
Number
of
Options
(in 000's)
Weighted
Average
Exercise
Price
Weighted-
Average
Remaining
Contractual
Terms
(in years)
Aggregate
Intrinsic
Number
of
Value
(in 000's)
Options
(in 000's)
Weighted
Average
Exercise
Price
Weighted-
Average
Remaining
Contractual
Terms
(in years)
Aggregate
Intrinsic
Number
of
Value
(in 000's)
Options
(in 000's)
Weighted
Average
Exercise
Weighted-
Average
Remaining
Contractual
Terms
Aggregate
Intrinsic
Value
Price
(in years)
(in 000's)
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)
650
$
25.56
77
(71 )
(8 )
64.81
23.97
20.64
2,193
$
$ 10,651
8,355
$
924
$
22.04
1,412
$
20.56
133
(391 )
(16 )
35.28
20.76
20.77
201
(679 )
(10 )
19.68
18.22
24.75
648 $
30.50
4.85
$ 14,556
650 $
25.56
5.59
$ 25,653
924 $
22.04
6.09
$
14,854
648
$
30.50
4.85
$ 14,551
649
$
25.57
5.58
$ 25,618
921
$
22.05
6.08
$
14,791
493 $
25.03
4.51
$ 12,979
421 $
23.84
4.87
$ 17,345
671 $
22.62
5.14
$
10,388
(1) The aggregate intrinsic value represents the total pre-tax value (the difference between our closing stock
price on the last trading day of 2015, 2014, and 2013 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, 2015, 2014, and 2013. This amount will change based on the fair market value of
our stock.
options.
During the years ended December 31, 2015, 2014, and 2013, there were no modifications made to outstanding stock
Cash received from option exercises for the years ended December 31, 2015, 2014, and 2013 was $1.7 million, $8.1
million, and $12.4 million, respectively. The actual tax benefit realized from option exercises was $0.5 million, $3.1
million and $2.3 million for the years ended December 31, 2015, 2014, and 2013, respectively.
As of December 31, 2015, 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 January 1, 2016, certain executive employees were granted 93,135 stock options in connection with the 2015
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 January 1, 2017
and 8.33% each quarter thereafter). The total grant date fair value of these awards was $1.8 million.
On February 10, 2016, members of the board of directors were granted 150,000 stock options. The options are subject
to a three-year vesting period (33.33% per year beginning on February 10, 2017). The total grant date fair value of
these awards was $2.6 million.
Restricted Stock
Non-vested restricted stock award activity was as follows:
2015
2014
2013
Shares
Granted
(in 000’s)
266
138
(178 )
(1 )
225
Weighted-
Average
Grant Date
Fair Value
39.28
53.64
35.09
63.19
51.31
Shares
Granted
(in 000’s)
285
155
(171 )
(3 )
266
Weighted-
Average
Grant Date
Fair Value
24.64
51.29
25.78
37.78
39.28
Shares
Granted
(in 000’s)
270 $
196
(178 )
(3 )
285
Weighted-
Average
Grant Date
Fair Value
18.72
28.86
20.44
15.49
24.64
Non-vested at beginning of the year
Granted
Vested
Forfeited
Non-vested at end of the year
As of December 31, 2015, we expect to recognize $10.7 million of total unrecognized pre-tax stock-based
compensation expense related to non-vested restricted stock awards over a weighted-average life of 2.1 years.
On January 1, 2016, certain executive employees were granted 34,060 restricted stock awards in connection with the
2015 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 January 1,
2017 and 8.33% each quarter thereafter). The total grant date fair value of these awards was $1.8 million.
71
72
89 2015
A N N U A L
REPORT
Stock Incentive Plans
Our active stock-based incentive plans include those adopted in 1998, 1999, 2002, 2003, 2006, 2010 and 2014 ("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 one- to three-year time period.
Detailed information regarding our active Stock Incentive Plans was as follows at December 31, 2015:
Note 18 — Earnings Per Share
Earnings per share was calculated as follows:
(In thousands, except per-share amounts)
2015
2014
2013
Year Ended December 31,
BASIC
Net income attributable to Universal Electronics Inc.
Weighted-average common shares outstanding
Basic earnings per share attributable to Universal Electronics Inc.
DILUTED
Net income attributable to Universal Electronics Inc.
Weighted-average common shares outstanding for basic
Dilutive effect of stock options and restricted stock
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
2014 Stock Incentive Plan
Approval Date
5/27/1998
10/7/1999
2/5/2002
6/18/2003
6/13/2006
6/15/2010
6/12/2014
Note 17 — Other Income (Expense), Net
Other income (expense), net consisted of the following:
Initial Shares
Available for Grant
Under the Plan
Remaining Shares
Available for Grant
Under the Plan
Outstanding Shares
Granted
Under the Plan
Weighted-average common shares outstanding on a diluted basis
Diluted earnings per share attributable to Universal Electronics Inc. $
1.88 $
2.01 $
630,000
1,000,000
1,000,000
1,000,000
1,000,000
1,000,000
1,100,000
—
—
—
—
—
13,219
821,820
835,039
3,400
20,500
480
63,241
196,357
379,673
209,180
872,831
(In thousands)
Stock options
Restricted stock awards
Note 19 — Derivatives
The number of stock options and shares of restricted stock excluded from the computation of diluted earnings per
common share were as follows:
$
$
$
29,174 $
32,534 $
15,248
1.91 $
15,781
2.06 $
29,174 $
32,534 $
15,248
294
15,542
15,781
371
16,152
22,963
15,248
1.51
22,963
15,248
353
15,601
1.47
Year Ended December 31,
2015
2014
2013
66
28
52
10
366
18
(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,
2015
2014
2013
$
$
294 $
(522 )
221
(7 ) $
(491 ) $
(363 )
14
(840 ) $
888
(4,155 )
98
(3,169 )
(1) This represents the gains and (losses) incurred on foreign currency hedging derivatives (see Note 19 for
further details).
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 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, Japanese Yen and Mexican Peso. 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.
Gains and losses on 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, 2015
December 31, 2014
Fair Value Measurement Using
Total
Fair Value Measurement Using
Total
(In thousands)
(Level 1)
(Level 2)
(Level 3) Balance
(Level 1)
(Level 2)
(Level 3) Balance
Foreign currency exchange
futures contracts
$ —
$ (1,146 ) $ —
$ (1,146 ) $ —
$
810
$ —
$
810
2015
A N N U A L
REPORT
90
73
74
Stock Incentive Plans
Our active stock-based incentive plans include those adopted in 1998, 1999, 2002, 2003, 2006, 2010 and 2014 ("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 one- to three-year time period.
Detailed information regarding our active Stock Incentive Plans was as follows at December 31, 2015:
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
2014 Stock Incentive Plan
Approval Date
5/27/1998
10/7/1999
2/5/2002
6/18/2003
6/13/2006
6/15/2010
6/12/2014
630,000
1,000,000
1,000,000
1,000,000
1,000,000
1,000,000
1,100,000
—
—
—
—
—
13,219
821,820
835,039
3,400
20,500
480
63,241
196,357
379,673
209,180
872,831
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,
2015
2014
2013
$
$
294 $
(522 )
221
(491 ) $
(363 )
14
888
(4,155 )
98
(7 ) $
(840 ) $
(3,169 )
(1) This represents the gains and (losses) incurred on foreign currency hedging derivatives (see Note 19 for
further details).
Note 18 — Earnings Per Share
Earnings per share was calculated as follows:
(In thousands, except per-share amounts)
2015
2014
2013
Year Ended December 31,
BASIC
Net income attributable to Universal Electronics Inc.
Weighted-average common shares outstanding
Basic earnings per share attributable to Universal Electronics Inc.
DILUTED
Net income attributable to Universal Electronics Inc.
Weighted-average common shares outstanding for basic
Dilutive effect of stock options and restricted stock
$
$
$
Initial Shares
Remaining Shares
Outstanding Shares
Available for Grant
Available for Grant
Granted
Under the Plan
Under the Plan
Under the Plan
Weighted-average common shares outstanding on a diluted basis
Diluted earnings per share attributable to Universal Electronics Inc. $
29,174 $
15,248
1.91 $
29,174 $
15,248
294
15,542
1.88 $
32,534 $
15,781
2.06 $
32,534 $
15,781
371
16,152
2.01 $
22,963
15,248
1.51
22,963
15,248
353
15,601
1.47
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 awards
Note 19 — Derivatives
Year Ended December 31,
2015
2014
2013
66
28
52
10
366
18
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 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, Japanese Yen and Mexican Peso. 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.
Gains and losses on 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, 2015
December 31, 2014
Fair Value Measurement Using
Total
Fair Value Measurement Using
Total
(In thousands)
(Level 1)
(Level 2)
(Level 3) Balance
(Level 1)
(Level 2)
(Level 3) Balance
Foreign currency exchange
futures contracts
$ —
$ (1,146 ) $ —
$ (1,146 ) $ —
$
810
$ —
$
810
73
74
91 2015
A N N U A L
REPORT
We held foreign currency exchange contracts which resulted in a net pre-tax gain of $0.3 million, a net pre-tax loss
of $0.5 million, and a net pre-tax gain of $0.9 million for the years ended December 31, 2015, 2014, and 2013,
respectively.
Details of foreign currency exchange contracts held were as follows:
Date Held
Type
Position Held
Notional
Value
(in millions)
Forward
Rate
Unrealized
Gain/(Loss)
Recorded at
Balance Sheet
Date
(in thousands)(1)
Settlement Date
December 31, 2015
USD/Euro
USD
$
7.0
1.0864
$
(7 ) January 22, 2016
December 31, 2015
USD/Chinese
Yuan Renminbi
Chinese Yuan
Renminbi
$
22.5
6.2565
$
(1,100 ) January 15, 2016
Brazilian Real
$
1.0
3.7461
$
(57 ) January 15, 2016
December 31, 2015
December 31, 2015
USD/Brazilian
Real
USD/Brazilian
Real
December 31, 2014
USD/Euro
USD
USD
USD
$
$
$
$
3.0
3.9503
$
18
January 15, 2016
5.0
1.2450
$
140 January 23, 2015
20.0
6.2757
$
174
January 16, 2015
5.0
2.3401
$
609
January 16, 2015
credit.
Brazilian Real
$
2.5
2.5442
$
(113 ) January 16, 2015
December 31, 2014
USD/Chinese
Yuan Renminbi
Chinese Yuan
Renminbi
December 31, 2014
December 31, 2014
USD/Brazilian
Real
USD/Brazilian
Real
(1) Gains on futures contracts are recorded in prepaid expenses and other current assets. Losses on futures
contracts are recorded in other accrued expenses.
Contingent Consideration
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 $0.9 million, $0.8 million and $0.7 million of expense for company contributions for the years ended
December 31, 2015, 2014, and 2013, respectively.
2015
A N N U A L
REPORT
92
75
76
Note 21 — Business Combination
On August 4, 2015, we entered into an Asset Purchase Agreement (the "APA") to acquire substantially all of the net
assets of Ecolink Intelligent Technology, Inc. ("Ecolink"), a leading developer of smart home technology that designs,
develops and manufactures a wide range of intelligent wireless security and home automation products. This
transaction closed on August 31, 2015. The purchase price of $24.1 million was comprised of $12.9 million in cash
and $11.2 million of contingent consideration. Additionally, we incurred $0.2 million in acquisition costs, consisting
primarily of legal and accounting expenses, which are included within selling, general and administrative expenses
for the year ended December 31, 2015. The acquisition of these assets will allow us to extend our product offerings
to include home security and automation products previously marketed by Ecolink and to sell these products to our
existing customers.
security systems.
Included in the net assets acquired from Ecolink was a 50% ownership interest in Encore Controls LLC ("Encore"),
a developer of smart home technology that designs and sells intelligent wireless fire safety products for use in home
Management has determined that we are the primary beneficiary of Encore due to our ability to direct the activities
that most significantly impact the economic performance of Encore, and thus we have consolidated the financial
statements of Encore commencing on the acquisition date. The aggregate fair value of Encore’s net assets on the
acquisition date was $0.7 million, of which $0.4 million was attributable to the noncontrolling interest. The fair value
attributable to the noncontrolling interest was based on the noncontrolling interest's ownership percentage in the fair
values of the assets and liabilities of Encore. The carrying amount of Encore's assets and liabilities consolidated at
December 31, 2015 did not materially change from the opening balances at the acquisition date. The operations of
Encore are financed through cash flows from operations, and we do not intend to provide support to Encore beyond
our respective ownership obligation. Furthermore, the creditors of Encore do not have any recourse to our general
Our consolidated income statement for the the year ended December 31, 2015 includes net sales of $1.6 million and
a net loss of $1.0 million attributable to Ecolink for the period commencing on August 31, 2015.
We are required to make additional earnout payments upon the achievement of certain operating income levels
attributable to Ecolink over each of the next 5 years. The amount of contingent consideration has no upper limit and
is calculated at the end of each calendar year based upon certain percentages of operating income target levels as
defined in the APA. Ecolink's operating income will be calculated using certain revenues, costs and expenses directly
attributable to Ecolink as specified in the APA. At the acquisition date, the value of earnout contingent consideration
was estimated using a valuation methodology based on projections of future operating income calculated in
accordance with the APA. Such projections were then discounted using an average discount rate of 15.5% to reflect
the risk in achieving the projected operating income levels as well as the time value of money. The fair value
measurement of the earnout contingent consideration was based primarily on significant inputs not observable in an
active market and thus represents a Level 3 measurement as defined under U.S. GAAP. During the period subsequent
to the acquisition date, the fair value of the earnout contingent consideration was increased by $0.6 million to $11.8
million, primarily to reflect accretion driven by the time value of money, and this adjustment was recorded within
selling, general and administrative expenses for the year ended December 31, 2015. The fair value of the earnout
consideration liability is presented as long-term contingent consideration in our consolidated balance sheet at
December 31, 2015.
We held foreign currency exchange contracts which resulted in a net pre-tax gain of $0.3 million, a net pre-tax loss
Note 21 — Business Combination
of $0.5 million, and a net pre-tax gain of $0.9 million for the years ended December 31, 2015, 2014, and 2013,
respectively.
Details of foreign currency exchange contracts held were as follows:
Notional
Value
(in millions)
Forward
Rate
Unrealized
Gain/(Loss)
Recorded at
Balance Sheet
Date
Date Held
Type
Position Held
(in thousands)(1)
Settlement Date
December 31, 2015
USD/Euro
USD
$
7.0
1.0864
$
(7 ) January 22, 2016
December 31, 2015
Yuan Renminbi
Renminbi
$
22.5
6.2565
$
(1,100 ) January 15, 2016
USD/Chinese
Chinese Yuan
December 31, 2015
Real
Brazilian Real
$
1.0
3.7461
$
(57 ) January 15, 2016
December 31, 2015
Real
3.0
3.9503
$
18
January 15, 2016
December 31, 2014
USD/Euro
5.0
1.2450
$
140 January 23, 2015
December 31, 2014
Yuan Renminbi
Renminbi
20.0
6.2757
$
174
January 16, 2015
USD/Chinese
Chinese Yuan
December 31, 2014
Real
USD
5.0
2.3401
$
609
January 16, 2015
December 31, 2014
Real
Brazilian Real
$
2.5
2.5442
$
(113 ) January 16, 2015
(1) Gains on futures contracts are recorded in prepaid expenses and other current assets. Losses on futures
contracts are recorded in other accrued expenses.
USD/Brazilian
USD/Brazilian
USD/Brazilian
USD/Brazilian
USD
USD
$
$
$
$
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 $0.9 million, $0.8 million and $0.7 million of expense for company contributions for the years ended
December 31, 2015, 2014, and 2013, respectively.
On August 4, 2015, we entered into an Asset Purchase Agreement (the "APA") to acquire substantially all of the net
assets of Ecolink Intelligent Technology, Inc. ("Ecolink"), a leading developer of smart home technology that designs,
develops and manufactures a wide range of intelligent wireless security and home automation products. This
transaction closed on August 31, 2015. The purchase price of $24.1 million was comprised of $12.9 million in cash
and $11.2 million of contingent consideration. Additionally, we incurred $0.2 million in acquisition costs, consisting
primarily of legal and accounting expenses, which are included within selling, general and administrative expenses
for the year ended December 31, 2015. The acquisition of these assets will allow us to extend our product offerings
to include home security and automation products previously marketed by Ecolink and to sell these products to our
existing customers.
Included in the net assets acquired from Ecolink was a 50% ownership interest in Encore Controls LLC ("Encore"),
a developer of smart home technology that designs and sells intelligent wireless fire safety products for use in home
security systems.
Management has determined that we are the primary beneficiary of Encore due to our ability to direct the activities
that most significantly impact the economic performance of Encore, and thus we have consolidated the financial
statements of Encore commencing on the acquisition date. The aggregate fair value of Encore’s net assets on the
acquisition date was $0.7 million, of which $0.4 million was attributable to the noncontrolling interest. The fair value
attributable to the noncontrolling interest was based on the noncontrolling interest's ownership percentage in the fair
values of the assets and liabilities of Encore. The carrying amount of Encore's assets and liabilities consolidated at
December 31, 2015 did not materially change from the opening balances at the acquisition date. The operations of
Encore are financed through cash flows from operations, and we do not intend to provide support to Encore beyond
our respective ownership obligation. Furthermore, the creditors of Encore do not have any recourse to our general
credit.
Our consolidated income statement for the the year ended December 31, 2015 includes net sales of $1.6 million and
a net loss of $1.0 million attributable to Ecolink for the period commencing on August 31, 2015.
Contingent Consideration
We are required to make additional earnout payments upon the achievement of certain operating income levels
attributable to Ecolink over each of the next 5 years. The amount of contingent consideration has no upper limit and
is calculated at the end of each calendar year based upon certain percentages of operating income target levels as
defined in the APA. Ecolink's operating income will be calculated using certain revenues, costs and expenses directly
attributable to Ecolink as specified in the APA. At the acquisition date, the value of earnout contingent consideration
was estimated using a valuation methodology based on projections of future operating income calculated in
accordance with the APA. Such projections were then discounted using an average discount rate of 15.5% to reflect
the risk in achieving the projected operating income levels as well as the time value of money. The fair value
measurement of the earnout contingent consideration was based primarily on significant inputs not observable in an
active market and thus represents a Level 3 measurement as defined under U.S. GAAP. During the period subsequent
to the acquisition date, the fair value of the earnout contingent consideration was increased by $0.6 million to $11.8
million, primarily to reflect accretion driven by the time value of money, and this adjustment was recorded within
selling, general and administrative expenses for the year ended December 31, 2015. The fair value of the earnout
consideration liability is presented as long-term contingent consideration in our consolidated balance sheet at
December 31, 2015.
75
76
93 2015
A N N U A L
REPORT
Purchase Price Allocation
Pro Forma Results (Unaudited)
Using the acquisition method of accounting, the acquisition date fair value of the consideration transferred was
allocated to the net tangible and intangible assets acquired and liabilities assumed based on their estimated fair values
on the acquisition date. The excess of the purchase price over the estimated fair value of net assets acquired is recorded
as goodwill. The goodwill is expected to be deductible for income tax purposes. Management's purchase price
allocation was the following:
The following unaudited pro forma financial information presents the combined results of our operations and the
operations of Ecolink as if this transaction had occurred on January 1, 2014. This unaudited pro forma financial
information is not intended to represent or be indicative of the consolidated results of operations that would have
been achieved had the acquisition actually been completed as of January 1, 2014, and should not be taken as a
projection of the future consolidated results of our operations.
(In thousands, except per-share amounts)
Net sales
Net income
Net income attributable to Universal Electronics Inc.
Basic earnings per share attributable to Universal Electronics Inc.
Diluted earnings per share attributable to Universal Electronics Inc.
Year Ended December 31,
2015
2014
$
606,872 $
28,947
28,886
1.89
1.86
569,804
31,861
31,456
1.99
1.95
For purposes of determining pro forma net income attributable to Universal Electronics Inc., adjustments were made
to each period presented in the table above. The pro forma net income and net income attributable to Universal
Electronics Inc. assumes that amortization of acquired intangible assets and of fair value adjustments related to
inventories began at January 1, 2014 rather than on September 1, 2015. The result is a net increase in amortization
expense of $1.3 million and $2.3 million for the years ended December 31, 2015 and 2014, respectively. Additionally,
acquisition costs totaling $0.2 million are excluded from pro forma net income attributable to Universal Electronics
Inc. All adjustments have been made net of their related tax effects.
(in thousands)
Cash and cash equivalents
Accounts receivable
Inventories
Prepaid expenses and other current assets
Property, plant and equipment
Non-interest bearing liabilities
Net tangible assets acquired
Trade name
Developed technology
Customer relationships
Goodwill
Total purchase price
Noncontrolling interest
Net purchase price
Less: Contingent consideration
Cash paid
Estimated Lives
Fair Value
1-4 years
7 years
4-14 years
5 years
$
$
685
374
1,412
253
16
(1,557 )
1,183
400
9,080
1,300
12,564
24,527
(378 )
24,149
(11,200 )
12,949
Management's determination of the fair value of intangible assets acquired are based primarily on significant inputs
not observable in an active market and thus represent Level 3 fair value measurements as defined under U.S. GAAP.
The fair value assigned to Ecolink’s trade name intangible asset was determined utilizing a relief from royalty method.
Under the relief from royalty method, the fair value of the intangible asset is estimated to be the present value of the
royalties saved because the company owns the intangible asset. Revenue projections and estimated useful life were
significant inputs into estimating the value of Ecolink’s trade name.
The fair value assigned to Ecolink's developed technology was determined utilizing a multi-period excess earnings
approach. Under the multi-period excess earnings approach, the fair value of the intangible asset is estimated to be
the present value of future earnings attributable to the asset and utilizes revenue and cost projections, including an
assumed contributory asset charge.
The fair value assigned to Ecolink's customer relationships intangible asset was determined utilizing the with and
without method. Under the with and without method, the fair value of the intangible asset is estimated based on the
difference in projected earnings utilizing the existing Ecolink customer base versus projected earnings based on
starting with no customers and reacquiring the customer base. Revenue and earnings projections were significant
inputs into estimating the value of Ecolink’s customer relationships.
The trade name, developed technology and customer relationships intangible assets are expected to be deductible for
income tax purposes.
2015
A N N U A L
REPORT
94
77
78
Purchase Price Allocation
Pro Forma Results (Unaudited)
The following unaudited pro forma financial information presents the combined results of our operations and the
operations of Ecolink as if this transaction had occurred on January 1, 2014. This unaudited pro forma financial
information is not intended to represent or be indicative of the consolidated results of operations that would have
been achieved had the acquisition actually been completed as of January 1, 2014, and should not be taken as a
projection of the future consolidated results of our operations.
(In thousands, except per-share amounts)
Net sales
Net income
Net income attributable to Universal Electronics Inc.
Basic earnings per share attributable to Universal Electronics Inc.
Diluted earnings per share attributable to Universal Electronics Inc.
Year Ended December 31,
2015
2014
$
606,872 $
28,947
28,886
1.89
1.86
569,804
31,861
31,456
1.99
1.95
For purposes of determining pro forma net income attributable to Universal Electronics Inc., adjustments were made
to each period presented in the table above. The pro forma net income and net income attributable to Universal
Electronics Inc. assumes that amortization of acquired intangible assets and of fair value adjustments related to
inventories began at January 1, 2014 rather than on September 1, 2015. The result is a net increase in amortization
expense of $1.3 million and $2.3 million for the years ended December 31, 2015 and 2014, respectively. Additionally,
acquisition costs totaling $0.2 million are excluded from pro forma net income attributable to Universal Electronics
Inc. All adjustments have been made net of their related tax effects.
Using the acquisition method of accounting, the acquisition date fair value of the consideration transferred was
allocated to the net tangible and intangible assets acquired and liabilities assumed based on their estimated fair values
on the acquisition date. The excess of the purchase price over the estimated fair value of net assets acquired is recorded
as goodwill. The goodwill is expected to be deductible for income tax purposes. Management's purchase price
allocation was the following:
(in thousands)
Cash and cash equivalents
Accounts receivable
Inventories
Prepaid expenses and other current assets
Property, plant and equipment
Non-interest bearing liabilities
Net tangible assets acquired
Trade name
Developed technology
Customer relationships
Goodwill
Total purchase price
Noncontrolling interest
Net purchase price
Less: Contingent consideration
Cash paid
Estimated Lives
Fair Value
$
685
374
1,412
253
16
1,183
400
9,080
1,300
(1,557 )
12,564
24,527
(378 )
24,149
(11,200 )
12,949
1-4 years
7 years
4-14 years
5 years
$
Management's determination of the fair value of intangible assets acquired are based primarily on significant inputs
not observable in an active market and thus represent Level 3 fair value measurements as defined under U.S. GAAP.
The fair value assigned to Ecolink’s trade name intangible asset was determined utilizing a relief from royalty method.
Under the relief from royalty method, the fair value of the intangible asset is estimated to be the present value of the
royalties saved because the company owns the intangible asset. Revenue projections and estimated useful life were
significant inputs into estimating the value of Ecolink’s trade name.
The fair value assigned to Ecolink's developed technology was determined utilizing a multi-period excess earnings
approach. Under the multi-period excess earnings approach, the fair value of the intangible asset is estimated to be
the present value of future earnings attributable to the asset and utilizes revenue and cost projections, including an
assumed contributory asset charge.
The fair value assigned to Ecolink's customer relationships intangible asset was determined utilizing the with and
without method. Under the with and without method, the fair value of the intangible asset is estimated based on the
difference in projected earnings utilizing the existing Ecolink customer base versus projected earnings based on
starting with no customers and reacquiring the customer base. Revenue and earnings projections were significant
inputs into estimating the value of Ecolink’s customer relationships.
The trade name, developed technology and customer relationships intangible assets are expected to be deductible for
income tax purposes.
77
78
95 2015
A N N U A L
REPORT
Note 22 — Quarterly Financial Data (Unaudited)
Summarized quarterly financial data is as follows:
2015
(In thousands, except per share amounts)
March 31,
June 30,
132,705 $
37,409
6,103
5,189
5,189
September 30, December 31,
162,110
46,251
10,383
9,335
9,339
160,467 $
42,809
9,033
6,274
6,271
147,551 $
40,280
10,400
8,375
8,375
Net sales
Gross profit
Operating income
Net income
Net income attributable to Universal Electronics Inc.
Earnings per share attributable to Universal
Electronics Inc. (1):
Basic
Diluted
(In thousands, except per share amounts)
Net sales
Gross profit
Operating income
Net income
Net income attributable to Universal Electronics Inc.
Earnings per share attributable to Universal
Electronics Inc.(1):
Basic
Diluted
$
$
$
$
$
$
0.33 $
0.32 $
0.53 $
0.52 $
0.42 $
0.41 $
0.65
0.64
Maximum Potential Warrants Earned by Comcast
2014
March 31,
June 30,
129,845 $
36,546
5,990
4,273
4,273
146,315 $
43,558
11,674
8,488
8,488
September 30, December 31,
138,389
41,681
9,831
8,902
8,902
147,780 $
45,115
13,785
10,871
10,871
0.27 $
0.26 $
0.54 $
0.53 $
0.69 $
0.68 $
0.56
0.55
Note 23 — Subsequent Event
On March 9, 2016, we issued common stock purchase warrants to Comcast Corporation ("Comcast") to purchase up
to 725,000 shares of our common stock at a price of $54.55 per share. The right to exercise the warrants under this
agreement is subject to vesting over three successive two-year periods (with the first two-year period commencing
on January 1, 2016) based on the level of purchases of goods and services from us by Comcast and its affiliates, as
defined in the warrant agreement. The table below presents the purchase levels and number of warrants that will vest
in each period based upon achieving these purchase levels.
Aggregate Level of Purchases by Comcast and Affiliates
$260 million
$300 million
$340 million
Incremental Warrants That Will Vest
January 1, 2016 -
December 31, 2017
January 1, 2018 -
December 31, 2019
January 1, 2020 -
December 31, 2021
100,000
75,000
75,000
250,000
100,000
75,000
75,000
250,000
75,000
75,000
75,000
225,000
If total aggregate purchases by Comcast and its affiliates are below $260 million in any of the two-year periods
above, no warrants will vest related to that two-year period. If total aggregate purchases of goods and services by
Comcast and its affiliates exceed $340 million during either the first or second two-year period, the amount of any
such excess will count toward aggregate purchases in the following two-year period. To fully vest in the rights to
purchase all of the underlying shares, Comcast and its affiliates must purchase an aggregate of $1.02 billion in goods
and services from us during the six-year vesting period.
The warrants provide for certain adjustments that may be made to the exercise price and the number of shares issuable
upon exercise due to customary anti-dilution provisions. Additionally, in connection with the common stock purchase
warrants, we have also entered into a registration rights agreement with Comcast under which Comcast may from
time to time request that we register the shares of common stock underlying vested warrants with the SEC.
(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.
2015
A N N U A L
REPORT
96
79
80
Note 23 — Subsequent Event
On March 9, 2016, we issued common stock purchase warrants to Comcast Corporation ("Comcast") to purchase up
to 725,000 shares of our common stock at a price of $54.55 per share. The right to exercise the warrants under this
agreement is subject to vesting over three successive two-year periods (with the first two-year period commencing
on January 1, 2016) based on the level of purchases of goods and services from us by Comcast and its affiliates, as
defined in the warrant agreement. The table below presents the purchase levels and number of warrants that will vest
in each period based upon achieving these purchase levels.
Earnings per share attributable to Universal
Electronics Inc. (1):
Basic
Diluted
$
$
0.33 $
0.32 $
0.53 $
0.52 $
0.42 $
0.41 $
0.65
0.64
Maximum Potential Warrants Earned by Comcast
Aggregate Level of Purchases by Comcast and Affiliates
$260 million
$300 million
$340 million
Incremental Warrants That Will Vest
January 1, 2016 -
December 31, 2017
100,000
75,000
75,000
250,000
January 1, 2018 -
December 31, 2019
100,000
75,000
75,000
250,000
January 1, 2020 -
December 31, 2021
75,000
75,000
75,000
225,000
If total aggregate purchases by Comcast and its affiliates are below $260 million in any of the two-year periods
above, no warrants will vest related to that two-year period. If total aggregate purchases of goods and services by
Comcast and its affiliates exceed $340 million during either the first or second two-year period, the amount of any
such excess will count toward aggregate purchases in the following two-year period. To fully vest in the rights to
purchase all of the underlying shares, Comcast and its affiliates must purchase an aggregate of $1.02 billion in goods
and services from us during the six-year vesting period.
The warrants provide for certain adjustments that may be made to the exercise price and the number of shares issuable
upon exercise due to customary anti-dilution provisions. Additionally, in connection with the common stock purchase
warrants, we have also entered into a registration rights agreement with Comcast under which Comcast may from
time to time request that we register the shares of common stock underlying vested warrants with the SEC.
Note 22 — Quarterly Financial Data (Unaudited)
Summarized quarterly financial data is as follows:
(In thousands, except per share amounts)
Net sales
Gross profit
Operating income
Net income
Net income attributable to Universal Electronics Inc.
March 31,
June 30,
September 30, December 31,
$
132,705 $
147,551 $
160,467 $
162,110
37,409
6,103
5,189
5,189
40,280
10,400
8,375
8,375
42,809
9,033
6,274
6,271
46,251
10,383
9,335
9,339
2015
2014
(In thousands, except per share amounts)
March 31,
June 30,
September 30, December 31,
$
129,845 $
146,315 $
147,780 $
36,546
5,990
4,273
4,273
43,558
11,674
8,488
8,488
45,115
13,785
10,871
10,871
138,389
41,681
9,831
8,902
8,902
Net sales
Gross profit
Operating income
Net income
Net income attributable to Universal Electronics Inc.
Earnings per share attributable to Universal
Electronics Inc.(1):
Basic
Diluted
$
$
0.27 $
0.26 $
0.54 $
0.53 $
0.69 $
0.68 $
0.56
0.55
(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.
79
80
97 2015
A N N U A L
REPORT
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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 2013
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, 2015.
The effectiveness of our internal control over financial reporting as of December 31, 2015 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 2015.
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, 2015, based on criteria established in the 2013 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, 2015, based on criteria established in the 2013 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, 2015, and our report dated
March 11, 2016 expressed an unqualified opinion on those financial statements.
/s/ GRANT THORNTON LLP
Los Angeles, California
March 11, 2016
2015
A N N U A L
REPORT
98
81
82
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 2013
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, 2015.
The effectiveness of our internal control over financial reporting as of December 31, 2015 has been audited by
Grant Thornton LLP, an independent registered public accounting firm, as stated in its attestation report which is
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
included herein.
during 2015.
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, 2015, based on criteria established in the 2013 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, 2015, based on criteria established in the 2013 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, 2015, and our report dated
March 11, 2016 expressed an unqualified opinion on those financial statements.
/s/ GRANT THORNTON LLP
Los Angeles, California
March 11, 2016
81
82
99 2015
A N N U A L
REPORT
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, 2015. The comparison assumes that $100 is
invested on December 31, 2010 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.
MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
Our common stock trades on the NASDAQ Global Select Market under the symbol UEIC. The closing price of
our common stock as reported by NASDAQ on March 7, 2016 was $56.62. Our stockholders of record on
March 7, 2016 numbered 95. We have never paid cash dividends on our common stock, nor do we currently
intend to pay any cash dividends on our common stock in the foreseeable future. We intend to retain our earnings,
if any, for the future operation and expansion of our business.
The following table sets forth, for the periods indicated, the high and low sale prices for our common stock, as
reported by NASDAQ:
12/31/2010
12/31/2011
12/31/2012
12/31/2013
12/31/2014
Universal Electronics Inc.
S&P Small Cap 600
NASDAQ Composite Index
Peer Group Index (1)
$
$
$
$
100 $
100 $
100 $
100 $
59 $
100 $
98 $
48 $
68 $
115 $
114 $
45 $
134 $
160 $
157 $
67 $
12/31/2015
181
162
189
67
229 $
167 $
179 $
80 $
(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, 2010 through 2015. 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.
2015
A N N U A L
REPORT
100
83
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, 2015. The comparison assumes that $100 is
invested on December 31, 2010 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.
MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
Our common stock trades on the NASDAQ Global Select Market under the symbol UEIC. The closing price of
our common stock as reported by NASDAQ on March 7, 2016 was $56.62. Our stockholders of record on
March 7, 2016 numbered 95. We have never paid cash dividends on our common stock, nor do we currently
intend to pay any cash dividends on our common stock in the foreseeable future. We intend to retain our earnings,
if any, for the future operation and expansion of our business.
The following table sets forth, for the periods indicated, the high and low sale prices for our common stock, as
reported by NASDAQ:
2015
2015
2014
2014
High
Low
High
High
Low
Low
High
Low
First Quarter
First Quarter
Second Quarter
Second Quarter
Third Quarter
Third Quarter
Fourth Quarter
Fourth Quarter
Universal Electronics Inc.
S&P Small Cap 600
NASDAQ Composite Index
Peer Group Index (1)
12/31/2010
12/31/2011
12/31/2012
12/31/2013
12/31/2014
12/31/2015
$
$
$
$
100 $
100 $
100 $
100 $
59 $
100 $
98 $
48 $
68 $
115 $
114 $
45 $
134 $
160 $
157 $
67 $
229 $
167 $
179 $
80 $
181
162
189
67
(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, 2010 through 2015. 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.
83
33.53
32.86
46.57
47.20
$
66.75
$
$
54.03
66.75
$
$
45.24
54.03
$
$
33.53
45.24
$
58.98
52.55
53.67
48.81
58.98
49.20
48.81
32.86
49.20
41.61
52.55
56.16
41.61
46.57
56.16
40.28
53.67
65.38
40.28
47.20
65.38
101
2015
A N N U A L
REPORT
CORPORATE INFORMATION
ANNUAL MEETING OF STOCKHOLDERS
June 7, 2016 4:00 p.m. PT
Universal Electronics Inc.
201 E. Sandpointe Avenue, 8th Floor
Santa Ana, CA 92707
CERTIFICATIONS
Independent Registered Public Accounting Firm
Grant Thornton LLP
Los Angeles, California
Registrar & Transfer Agent
Computershare
211 Quality Circle, Suite 210
College Station, TX 77845
(800) 368-5948
The Company filed with the Securities and Exchange Commission, as Exhibit 31 to the Company’s Annual Report on Form 10-K for the 2015 fiscal
year, certifications of its Chief Executive Officer and Chief Financial Officer regarding the quality of the Company’s public disclosures.
FORM 10-K
Any stockholder who desires a copy of the Company’s 2015 Annual Report on Form 10-K filed with the Securities and Exchange Commission may
obtain a copy (excluding exhibits) without charge by addressing a request to:
Investor Relations
Universal Electronics Inc.
201 E. Sandpointe Avenue, 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 2015
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 filings, company history, and information about the
company’s governance and Board of Directors.
WORLDW IDE HE A DQUA RTER S
EUROPE A N HE A DQUA RTER S
A SI A N HE A DQUA RTER S
UNIVERSAL ELECTRONICS INC.
201 E. SANDPOINTE AVENUE, 8TH FLOOR
SANTA ANA, CA 92707
USA
714-918-9500
UNIVERSAL ELECTRONICS BV
COLOSSEUM 2
7521 PT, ENSCHEDE
THE NETHERLANDS
31-53-488-8000
UEI HONG KONG PRIVATE LTD.
902-908, 9TH FLOOR
ONE HARBOURFRONT
18 TAK FUNG STREET
HUNG HOM, KOWLOON
HONG KONG, CHINA
852-2634-1333
Universal Electronics Inc. is an equal opportunity employer.
DIRECTORSOFFICERSPaul D. Arling*Chairman and Chief Executive OfficerUniversal Electronics Inc.Santa Ana, CaliforniaSatjiv S. Chahil 2, 3Innovations Advisor and Social Entrepreneur Palo Alto, CaliforniaWilliam C. Mulligan 1, 3Managing DirectorPrimus Capital Funds Private Equity FirmCleveland, OhioJ.C. Sparkman 2, 3Retired Executive Vice President and Chief Operating Officer Telecommunications, Inc. (TCI)Denver, ColoradoGregory P. Stapleton 2Founder and OwnerFalcon One Enterprises Private Equity FirmWestlake Village, CaliforniaCarl E. Vogel 1Industry Advisor, KKR & Co., LP Private Equity FirmSenior Advisor, Dish Network A Leader in Multi-channel VideoCherry Hills Village, ColoradoEdward K. Zinser 1Executive Vice President and Chief Financial OfficerUnited Online, Inc. Provider of Consumer Products and ServicesWoodland Hills, CaliforniaPaul D. Arling*Chairman and Chief Executive OfficerBryan M. Hackworth*Senior Vice President andChief Financial OfficerPaul J.M. Bennett*Executive Vice President andManaging Director - EMEADavid Chong*Executive Vice President - AsiaLouis S. Hughes*Executive Vice President – AmericasRichard A. Firehammer, Jr.*Senior Vice President, General Counseland SecretaryRamzi S. AmmariSenior Vice President,Corporate Planning and StrategyBanley ChanSenior Vice President,Strategic OperationsGilbert Fung, Ph.D.Senior Vice President, Sales – AsiaStephen GutmanSenior Vice President,Subscription Broadcast Unit – AmericasJoseph L. HaughawoutSenior Vice President,Product DevelopmentMenno V. KoopmansSenior Vice President,Subscription Broadcast – EMEA and IndiaMichael LambPresident,Ecolink Intellingent Technogy, Inc.Alexander LiewSenior Vice President, Supply Chain – AsiaHrag G. OhannessianSenior Vice President,OEM/Satellite Business Unit – AmericasJim PoonSenior Vice President, Asia OperationsNorman G. Sheridan, Ph.D.Senior Vice President, EngineeringINVESTOR INFORMATION1 Member, Audit Committee2 Member, Compensation Committee3 Member, Corporate Governance and Nominating Committee* Executive Officer as defined by the Security Exchange Act of 1934. UEI.com
WORLDW IDE HE A DQUA RTER S
UNIVERSAL ELECTRONICS INC.
201 E. SANDPOINTE AVENUE, 8TH FLOOR
SANTA ANA, CA 92707
USA
714-918-9500
EUROPE A N HE A DQUA RTER S
UNIVERSAL ELECTRONICS BV
COLOSSEUM 2
7521 PT, ENSCHEDE
THE NETHERLANDS
31-53-488-8000
A SI A N HE A DQUA RTER S
UEI HONG KONG PRIVATE LTD.
902-908, 9TH FLOOR
ONE HARBOURFRONT
18 TAK FUNG STREET
HUNG HOM, KOWLOON
HONG KONG, CHINA
852-2634-1333