e10vq
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
     
þ   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2011
     
o   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     .
Commission File Number: 0-21044
UNIVERSAL ELECTRONICS INC.
(Exact Name of Registrant as Specified in Its Charter)
     
Delaware   33-0204817
(State or Other Jurisdiction   (I.R.S. Employer
of Incorporation or Organization)   Identification No.)
     
6101 Gateway Drive    
Cypress, California   90630
(Address of Principal Executive Offices)   (Zip Code)
Registrant’s Telephone Number, Including Area Code: (714) 820-1000
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer oAccelerated filer þ 
Non-accelerated filer o
(Do not check if a smaller reporting company)
Smaller reporting company  o
Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act). Yes o No þ
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 14,957,310 shares of Common Stock, par value $0.01 per share, of the registrant were outstanding on August 4, 2011.
 
 

 


 

UNIVERSAL ELECTRONICS INC.
INDEX
         
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 EX-31.1
 EX-31.2
 EX-32.1
 EX-101 INSTANCE DOCUMENT
 EX-101 SCHEMA DOCUMENT
 EX-101 CALCULATION LINKBASE DOCUMENT
 EX-101 LABELS LINKBASE DOCUMENT
 EX-101 PRESENTATION LINKBASE DOCUMENT

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PART I. FINANCIAL INFORMATION
ITEM 1. Consolidated Financial Statements (Unaudited)
UNIVERSAL ELECTRONICS INC.
CONSOLIDATED BALANCE SHEETS

(In thousands, except share-related data)
(Unaudited)
                 
    June 30,     December 31,  
    2011     2010  
ASSETS
               
Current assets:
               
Cash and cash equivalents
  $ 37,900     $ 54,249  
Accounts receivable, net
    87,733       86,304  
Inventories, net
    76,497       65,402  
Prepaid expenses and other current assets
    2,855       2,582  
Deferred income taxes
    6,195       5,896  
 
           
Total current assets
    211,180       214,433  
Property, plant, and equipment, net
    78,395       78,097  
Goodwill
    31,033       30,877  
Intangible assets, net
    34,358       35,994  
Other assets
    5,365       5,464  
Deferred income taxes
    7,479       7,806  
 
           
Total assets
  $ 367,810     $ 372,671  
 
           
 
               
LIABILITIES AND STOCKHOLDERS’ EQUITY
               
Current liabilities:
               
Accounts payable
  $ 59,705     $ 56,086  
Notes payable
    20,600       35,000  
Accrued sales discounts, rebates and royalties
    6,135       7,942  
Accrued income taxes
    2,283       5,873  
Accrued compensation
    29,681       30,634  
Deferred income taxes
    49        
Other accrued expenses
    12,682       13,295  
 
           
Total current liabilities
    131,135       148,830  
Long-term liabilities:
               
Deferred income taxes
    11,547       11,369  
Income tax payable
    1,212       1,212  
Other long-term liabilities
    5       56  
 
           
Total liabilities
    143,899       161,467  
 
           
 
               
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; 21,029,169 and 20,877,248 shares issued on June 30, 2011 and December 31, 2010, respectively
    210       209  
Paid-in capital
    170,788       166,940  
Accumulated other comprehensive income (loss)
    3,704       (489 )
Retained earnings
    142,018       134,070  
 
           
 
    316,720       300,730  
 
               
Less cost of common stock in treasury, 6,048,261 and 5,926,071 shares on June 30, 2011 and December 31, 2010, respectively
    (92,809 )     (89,526 )
 
           
Total stockholders’ equity
    223,911       211,204  
 
           
Total liabilities and stockholders’ equity
  $ 367,810     $ 372,671  
 
           
The accompanying notes are an integral part of these financial statements.

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UNIVERSAL ELECTRONICS INC.
CONSOLIDATED INCOME STATEMENTS
(In thousands, except per share amounts)
(Unaudited)
                                 
    Three Months Ended     Six Months Ended  
    June 30,     June 30,  
    2011     2010     2011     2010  
Net sales
  $ 121,746     $ 78,892     $ 227,458     $ 150,268  
Cost of sales
    86,802       51,467       164,935       100,779  
 
                       
Gross profit
    34,944       27,425       62,523       49,489  
 
                               
Research and development expenses
    3,157       2,488       6,414       5,257  
Selling, general and administrative expenses
    23,477       17,621       45,264       34,229  
 
                       
 
                               
Operating income
    8,310       7,316       10,845       10,003  
Interest (expense) income, net
    (69 )     17       (154 )     100  
Other (expense) income, net
    (384 )     (21 )     (418 )     22  
 
                       
 
                               
Income before provision for income taxes
    7,857       7,312       10,273       10,125  
Provision for income taxes
    (1,736 )     (2,535 )     (2,325 )     (3,512 )
 
                       
Net income
  $ 6,121     $ 4,777     $ 7,948     $ 6,613  
 
                       
 
                               
Earnings per share:
                               
Basic
  $ 0.41     $ 0.35     $ 0.53     $ 0.48  
 
                       
Diluted
  $ 0.40     $ 0.34     $ 0.52     $ 0.47  
 
                       
 
                               
Shares used in computing earnings per share:
                               
Basic
    15,025       13,601       15,000       13,650  
 
                       
Diluted
    15,407       13,929       15,395       14,011  
 
                       
The accompanying notes are an integral part of these financial statements.

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UNIVERSAL ELECTRONICS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
                 
    Six months Ended  
    June 30,  
    2011     2010  
Cash provided by operating activities:
               
Net income
  $ 7,948     $ 6,613  
Adjustments to reconcile net income to net cash provided by operating activities:
               
Depreciation and amortization
    8,588       3,079  
Provision for doubtful accounts
    237       747  
Provision for inventory write-downs
    2,099       1,450  
Deferred income taxes
    645       33  
Tax benefit from exercise of stock options and vested restricted stock
    374       109  
Excess tax benefit from stock-based compensation
    (344 )     (103 )
Shares issued for employee benefit plan
    396       375  
Stock-based compensation
    2,085       2,532  
 
               
Changes in operating assets and liabilities:
               
Accounts receivable
    262       3,872  
Inventories
    (11,409 )     (6,368 )
Prepaid expenses and other assets
    (78 )     307  
Accounts payable and accrued expenses
    (2,514 )     2,992  
Accrued income taxes
    (3,696 )     (1,909 )
 
           
Net cash provided by operating activities
    4,593       13,729  
 
           
 
               
Cash (used for) provided by investing activities:
               
Term deposit
          49,246  
Acquisition of property, plant, and equipment
    (5,554 )     (3,041 )
Acquisition of intangible assets
    (513 )     (749 )
 
           
Net cash (used for) provided by investing activities
    (6,067 )     45,456  
 
           
 
               
Cash used for financing activities:
               
Payment of debt
    (14,400 )      
Proceeds from stock options exercised
    1,212       257  
Treasury stock purchased
    (3,500 )     (7,308 )
Excess tax benefit from stock-based compensation
    344       103  
 
           
Net cash used for financing activities
    (16,344 )     (6,948 )
 
           
 
               
Effect of exchange rate changes on cash
    1,469       (2,415 )
 
           
 
               
Net (decrease) increase in cash and cash equivalents
    (16,349 )     49,822  
 
               
Cash and cash equivalents at beginning of period
    54,249       29,016  
 
           
 
               
Cash and cash equivalents at end of period
  $ 37,900     $ 78,838  
 
           
Supplemental Cash Flow Information — We had net income tax payments of $6.4 million and $5.6 million during the six months ended June 30, 2011 and 2010, respectively. We had interest payments of $0.2 million and $0 during the six months ended June 30, 2011 and 2010, respectively.
The accompanying notes are an integral part of these financial statements.

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UNIVERSAL ELECTRONICS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1: Basis of Presentation and Significant Accounting Policies
In the opinion of management, the accompanying consolidated financial statements of Universal Electronics Inc. and its wholly-owned subsidiaries contain all the adjustments necessary for a fair presentation of financial position, results of operations and cash flows for the periods presented. All such adjustments are of a normal recurring nature and certain reclassifications have been made to prior year amounts in order to conform to the current year presentation. Information and footnote disclosures normally included in financial statements, which are prepared in accordance with accounting principles generally accepted in the United States of America, have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission. As used herein, the terms “Company,” “we,” “us” and “our” refer to Universal Electronics Inc. and its subsidiaries, unless the context indicates to the contrary.
Our results of operations for the three and six months ended June 30, 2011 are not necessarily indicative of the results to be expected for the full year. These financial statements should be read in conjunction with the “Risk Factors,” “Management Discussion and Analysis of Financial Conditions and Results of Operations,” “Quantitative and Qualitative Disclosures About Market Risk,” and the “Financial Statements and Supplementary Data” and notes thereto included in Items 1A, 7, 7A, and 8, respectively, of our Annual Report on Form 10-K for the fiscal year ended December 31, 2010.
Estimates, Judgments 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, judgments 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, judgments and assumptions, including those related to revenue recognition, allowance for sales returns and doubtful accounts, warranties, inventory valuation, business combination purchase price allocations, impairment of long-lived assets, intangible assets and goodwill, income taxes, accrued compensation and stock-based compensation expense. Actual results may differ from our expectations. Based on our evaluation, our estimates, judgments and assumptions may be adjusted as more information becomes available. Any adjustment may be material.
See Note 2 to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2010 for a summary of our significant accounting policies.
New Accounting Pronouncements
In June 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2011-05, “Presentation of Comprehensive Income.” ASU 2011-05 eliminates the option to report other comprehensive income and its components in the statement of changes in stockholders’ equity and requires an entity to present the total of comprehensive income, the components of net income and the components of other comprehensive income either in a single continuous statement or in two separate but consecutive statements. This pronouncement is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. The adoption of ASU 2011-05 concerns presentation and disclosure only and will not have an impact on our consolidated results of operations and financial condition.
In May 2011, the FASB issued ASU No. 2011-04, “Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and International Financial Reporting Standards (“IFRS”).” This pronouncement was issued to provide a consistent definition of fair value and ensure that the fair value measurement and disclosure requirements are similar between U.S. GAAP and IFRS. ASU 2011-04 changes certain fair value measurement principles and enhances the disclosure requirements particularly for level 3 fair value measurements.

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This pronouncement is effective for reporting periods beginning on or after December 15, 2011. The adoption of ASU 2011-04 is not expected to have a significant impact to our consolidated financial position or results of operations.
Recently Adopted Accounting Pronouncements
During January 2010, the FASB issued ASU No. 2010-6 to improve the disclosure and transparency of fair value measurements. These amendments clarify the level of disaggregation required, and the necessary disclosures about the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements. The amendments in the update are effective prospectively for interim and annual periods beginning on or after December 15, 2009, except for the separate disclosures about purchases, sales, issuances, and settlements relating to Level 3 measurements, which are effective for fiscal years beginning on or after December 15, 2010, and for interim periods within those fiscal years. We adopted the portion of this ASU that was effective beginning on or after December 15, 2010, beginning January 1, 2011. The adoption of this ASU did not have a material effect on our consolidated results of operations and financial condition.
During December 2010, the FASB issued ASU No. 2010-29 to address diversity in practice regarding the interpretation of the pro forma revenue and earnings disclosure requirements for business combinations. ASC 805- 10-50-2(h) requires a public entity to disclose pro forma information for business combinations that occurred during the current annual reporting period. The disclosures include combined pro forma revenue and earnings as though the acquisition date for all business combinations during the year had been as of the beginning of the annual reporting period. If comparative financial statements are presented, the pro forma revenue and earnings of the combined entity should be reported as though the acquisition date for all business combinations that occurred during the current year had been as of the beginning of the comparable prior annual reporting period. In practice, some preparers have presented the pro forma information in their comparative financial statements as if the business combination that occurred in the current reporting period had occurred as of the beginning of each of the current and prior annual reporting periods. Other preparers have disclosed the pro forma information as if the business combination occurred at the beginning of the prior annual reporting period only, and carried forward the related adjustments, if applicable, through the current reporting period. The amendments in this update specify that if a public entity presents comparative financial statements, the entity should disclose revenue and earnings of the combined entity as though the business combination(s) that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only. The amendments in this update also expand the supplemental pro forma disclosures under Topic 805 to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings. The amendments in this update are effective prospectively for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010. We adopted this ASU beginning January 1, 2011. The adoption of this ASU did not have a material effect on our consolidated results of operations and financial condition.
In October 2009, the FASB issued ASU No. 2009-14 to address accounting for arrangements that contain tangible products and software. The amendments in this update clarify what guidance should be utilized in allocating and measuring revenue for products that contain software that is “more than incidental” to the product as a whole. Currently, products that contain software that is “more than incidental” to the product as a whole are within the scope of software accounting guidance. Software accounting guidance requires a vendor to use vendor-specific objective evidence (“VSOE”) of selling price to separate the software from the product and account for the two elements as a multiple-element arrangement. A vendor must sell, or intend to sell, a particular element separately to assert VSOE for that element. Third-party evidence for selling price is not allowed under the software accounting model. If a vendor does not have VSOE for the undelivered elements in the arrangement, the revenue associated with both the delivered and undelivered elements is combined into one unit of accounting. Any revenue attributable to the delivered elements is then deferred and recognized at a later date, which in many cases is as the undelivered elements are delivered by the vendor. This ASU addresses concerns that the current accounting model may not appropriately reflect the economics of the underlying transactions because no revenue is recognized for some products for which the vendor has already completed the related performance. In addition, this ASU addresses the concern that more software enabled products fall within the scope of the current software accounting model than was originally intended because of ongoing technical advancements. The amendments in the update are effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June

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15, 2010. We adopted this ASU beginning January 1, 2011. The adoption of this ASU did not have a material effect on our consolidated results of operations and financial condition.
In October 2009, the FASB issued ASU No. 2009-13 to address the accounting for multiple-deliverable arrangements to enable vendors to account for products or services (deliverables) separately rather than as a combined accounting unit. Current accounting guidance requires a vendor to use VSOE or third-party evidence (“TPE”) of selling price to separate deliverables in a multiple-deliverable arrangement. VSOE of selling price is the price charged for a deliverable when it is sold separately or, for a deliverable not yet being sold separately, the price established by management with the appropriate authority. If a vendor does not have VSOE for the undelivered elements in the arrangement, the revenue associated with both the delivered and undelivered elements is combined into one unit of accounting. Any revenue attributable to the delivered products is then deferred and recognized at a later date, which in many cases is as the undelivered elements are delivered by the vendor. An exception to this guidance exists if the vendor has VSOE or TPE of selling price for the undelivered elements in the arrangement but not for the delivered elements. In those situations, the vendor uses the residual value method to allocate revenue to the delivered element, which results in the allocation of the entire discount in the arrangement, if any, to the delivered element. This ASU addresses concerns that the current accounting model may not appropriately reflect the economics of the underlying transactions because sometimes no revenue is recognized for products for which the vendor has already completed the related performance. As a result of this amendment, multiple element arrangements will be separated into multiple units of accounting in more circumstances than under the existing accounting model. This amendment establishes a selling price hierarchy for determining the selling price of a deliverable. The selling price utilized for each deliverable will be based on VSOE if available, TPE if VSOE is not available, or estimated selling price if neither VSOE or TPE evidence is available. The residual method is eliminated. The amendments in the update are effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. We adopted this ASU beginning January 1, 2011. The adoption of this ASU did not have a material effect on our consolidated results of operations and financial condition.
Note 2: Cash and Cash Equivalents
Our cash and cash equivalents that were accounted for at fair value on a recurring basis on June 30, 2011 were the following:
                                                                 
    June 30, 2011   December 31, 2010
(In thousands)   Fair Value Measurement Using   Total   Fair Value Measurement Using   Total
Description   (Level 1)   (Level 2)   (Level 3)   Balance   (Level 1)   (Level 2)   (Level 3)   Balance
Cash and cash equivalents
  $ 37,900             37,900     54,249             54,249  
On June 30, 2011, we had approximately $5.8 million, $7.8 million, $23.0 million, $0.4 million and $0.9 million of cash and cash equivalents in the United States, Europe, Asia, Cayman Islands, and South America, respectively. On December 31, 2010, we had approximately $6.5 million, $15.0 million, $27.8 million, $4.0 million, and $0.9 million of cash and cash equivalents in the United States, Europe, Asia, Cayman Islands and South America, respectively.
See Note 2 under the caption Cash, Cash Equivalents, and Term Deposit in our Annual Report on Form 10-K for further information regarding our accounting principles.
Note 3: Accounts Receivable, net and Revenue Concentrations
Accounts receivable, net consisted of the following on June 30, 2011 and December 31, 2010:
                 
    June 30,     December 31,  
(In thousands)   2011     2010  
Trade receivables, gross
  $ 89,224     $ 88,485  
Allowance for doubtful accounts
    (1,105 )     (878 )
Allowance for sales returns
    (726 )     (1,366 )
 
           
Trade receivables, net
    87,393       86,241  
Other receivables
    340       63  
 
           
Accounts receivable, net
  $ 87,773     $ 86,304  
 
           

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Allowance for Doubtful Accounts
Changes in the allowance for doubtful accounts during the three and six months ended June 30, 2011 and 2010 were the following:
                                 
    Balance at   Additions           Balance at
(In thousands)   Beginning of   to Costs and   (Write-offs)/   End of
Description   Period   Expenses   FX Effects   Period
Valuation account for trade receivables
                               
Three months ended June 30, 2011
  $ 868     $ 231     $ 6     $ 1,105  
Three months ended June 30, 2010
  $ 2,387     $ 585     $ (237 )   $ 2,735  
Changes in the allowance for doubtful accounts during the six months ended June 30, 2011 and 2010 were the following:
                                 
    Balance at   Additions           Balance at
(In thousands)   Beginning of   to Costs and   (Write-offs)/   End of
Description   Period   Expenses   FX Effects   Period
Valuation account for trade receivables
                               
Six months ended June 30, 2011
  $ 878     $ 238     $ (11 )   $ 1,105  
Six months ended June 30, 2010
  $ 2,423     $ 715     $ (403 )   $ 2,735  
Sales Returns
The allowance for sales returns balance at June 30, 2011 and December 31, 2010 contained reserves for items returned prior to year-end, but 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 $0.7 million and $0.9 million on June 30, 2011 and December 31, 2010, respectively. The value of these returned goods was included in our inventory balance at June 30, 2011 and December 31, 2010.
Significant Customers
During the six months ended June 30, 2011, we had net sales to one significant customer which totaled to more than 10% of our net sales. During the three and six months ended June 30, 2010, we had net sales to two significant customers, that when combined with their subcontractors, each totaled to more than 10% of our net sales as follows:
                                 
    Three Months Ended June 30,
    2011   2010
    $ (thousands)   % of Net Sales   $ (thousands)   % of Net Sales
Customer A
              $ 8,674       11.0 %
Customer B
              $ 11,910       15.1 %
                                 
    Six Months Ended June 30,
    2011   2010
    $ (thousands)   % of Net Sales   $ (thousands)   % of Net Sales
Customer A
              $ 19,170       12.8 %
Customer B
              $ 19,916       13.3 %
Customer C
  $ 26,906       11.8 %            

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Trade receivables with these customers were the following on June 30, 2011 and December 31, 2010:
                                 
    June 30, 2011   December 31, 2010
            % of Accounts           % of Accounts
    $ (thousands)   Receivable, Net   $ (thousands)   Receivable, Net
Customer A
  $ 8,732       10.0 %   $ 9,481       11.0 %
Customer B
              $ 4,786       5.5 %
Customer C
  $ 9,104       10.4 %            
We had a third customer that accounted for greater than 10% of accounts receivable, net on December 31, 2010, but did not account for greater than 10% of net sales for the year then ended. Trade receivables with this customer amounted to $10.5 million, or 12.1%, of our accounts receivable, net on December 31, 2010.
The loss of these customers or any other customer, either in the United States or abroad, due to their financial weakness or bankruptcy, or our inability to obtain orders or maintain our order volume with them, may have a material effect on our financial condition, results of operations and cash flows.
See Note 2 under the captions Revenue Recognition and Sales Allowances and Financial Instruments in our Annual Report on Form 10-K for further information regarding our accounting principles.
Note 4: Inventories, net and Significant Suppliers
Inventories, net consisted of the following on June 30, 2011 and December 31, 2010:
                 
    June 30,     December 31,  
(In thousands)   2011     2010  
Raw materials
  $ 19,262     $ 15,864  
Components
    16,397       10,358  
Work in process
    2,833       2,885  
Finished goods
    40,530       38,430  
Reserve for excess and obsolete inventory
    (2,525 )     (2,135 )
 
           
Inventories, net
  $ 76,497     $ 65,402  
 
           

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Reserve for Excess and Obsolete Inventory
Changes in the reserve for excess and obsolete inventory during the three months ended June 30, 2011 and 2010 were composed of the following:
                                         
            Additions                    
    Balance at   Charged to                   Balance at
(In thousands)   Beginning of   Costs and   Sell   Write-offs/   End of
Description   Period   Expenses(1)   Through(2)   FX Effects   Period
Reserve for excess and obsolete inventory:
                                       
Three Months Ended June 30, 2011
  $ 2,272     $ 960     $ (296 )   $ (411 )   $ 2,525  
Three Months Ended June 30, 2010
  $ 1,928     $ 846     $ (310 )   $ (503 )   $ 1,961  
Changes in the reserve for excess and obsolete inventory during the six months ended June 30, 2011 and 2010 were composed of the following:
                                         
            Additions                    
    Balance at   Charged to                   Balance at
(In thousands)   Beginning of   Costs and   Sell   Write-offs/   End of
Description   Period   Expenses(1)   Through(2)   FX Effects   Period
Reserve for excess and obsolete inventory:
                                       
Six Months Ended June 30, 2011
  $ 2,135     $ 1,749     $ (607 )   $ (752 )   $ 2,525  
Six Months Ended June 30, 2010
  $ 1,750     $ 1,605     $ (423 )   $ (971 )   $ 1,961  
 
(1)   The additions charged to costs and expenses does not include inventory directly written-off that was scrapped during production totaling $0.3 million and $0.2 million for the three months ended June 30, 2011 and 2010, respectively, and $0.4 million and $0.3 million for the six months ended June 30, 2011 and 2010, respectively. These amounts are production waste and are not included in management’s reserve for excess and obsolete inventory.
 
(2)   This column represents the gross book value of inventory items sold during the period that had been previously written down to zero net book value. Sell through is the result of differences between our judgment concerning the salability of inventory items during the excess and obsolete inventory review process and our subsequent experience.
Inventory write-downs for excess and obsolescence are a normal part of our business and result primarily from product life cycle estimation variances.
See Note 2 under the caption Inventories in our Annual Report on Form 10-K for further information regarding our accounting principles.

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Significant Suppliers
We purchase integrated circuits, used principally in our wireless control products, from two main suppliers. The total purchased from one of these suppliers was greater than 10% of our total inventory purchases. Our purchases from three component and finished good suppliers each amounted to greater than 10% of our total inventory purchases for the three and six months ended June 30, 2010.
During the three months ended June 30, 2011 and 2010, the amounts purchased from these four suppliers were the following:
                                 
    Three Months Ended June 30,
    2011   2010
            % of Total           % of Total
            Inventory           Inventory
    $ (thousands)   Purchases   $ (thousands)   Purchases
Integrated circuit supplier
  $ 9,206       11.6 %   $ 7,053       14.6 %
Component and finished good supplier A
                10,761       22.2 %
Component and finished good supplier B (1)
                11,023       22.9 %
Component and finished good supplier C
                3,858       8.0 %
During the six months ended June 30, 2011 and 2010, the amounts purchased from these four suppliers were the following:
                                 
    Six Months Ended June 30,
    2011   2010
            % of Total           % of Total
            Inventory           Inventory
    $ (thousands)   Purchases   $ (thousands)   Purchases
Integrated circuit supplier
  $ 15,842       11.7 %   $ 15,122       16.2 %
Component and finished good supplier A
                20,154       21.5 %
Component and finished good supplier B (1)
                18,590       19.9 %
Component and finished good supplier C
                9,878       10.5 %
The total accounts payable to each of these suppliers on June 30, 2011 and December 31, 2010 were the following:
                                 
    June 30, 2011   December 31, 2010
            % of Accounts           % of Accounts
    $ (thousands)   Payable   $ (thousands)   Payable
Integrated circuit supplier
  $ 3,578       6.0 %   $ 3,731       6.7 %
Component and finished good supplier A
                9,172       16.4  
Component and finished good supplier B(1)
                       
Component and finished good supplier C
                       
 
(1)    Component and finished good supplier B is Enson Assets Limited and its subsidiaries. See Note 18 for further information regarding our acquisition of Enson Assets Limited.
We have identified alternative sources of supply for these integrated circuits, components, and finished goods; however, there can be no assurance that we will be able to continue to obtain these inventory purchases on a timely basis. We generally maintain inventories of our integrated circuits, which may be utilized to mitigate, but not eliminate, delays resulting from supply interruptions. An extended interruption, shortage or termination in the supply of any of the components used in our products, a reduction in their quality or reliability, or a significant increase in the prices of components, would have an adverse effect on our operating results, financial condition and cash flows.

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Related Party Vendor
We purchase certain printed circuit board assemblies (“PCBAs”) from a related party vendor. The vendor is considered a related party for financial reporting purposes because the Senior Vice President of Manufacturing of Enson Assets Limited (acquired November 3, 2010) owns 40% of this vendor. Our purchases from this vendor for the three and six months ended June 30, 2011 totaled approximately $2.2 million and $3.9 million, or 2.8% and 2.9% of total inventory purchases, respectively. Payable amounts outstanding to this vendor were approximately $1.8 million on June 30, 2011 and $1.6 million on December 31, 2010. Our payable terms and pricing with this vendor are consistent with the terms offered by other vendors in the ordinary course of business. The accounting policies that we apply to our transactions with our related party are consistent with those applied in transactions with independent third parties. Corporate management routinely monitors purchases from our related party vendor to ensure these purchases remain consistent with our business objectives.
Note 5: Goodwill and Intangible Assets, Net
Goodwill
Under the accounting guidance, the unit of accounting for goodwill is at a level of reporting referred to as a “reporting unit.” A reporting unit is either (1) an operating segment or (2) one level below an operating segment — referred to as a component. During the fourth quarter 2010, as a result of us flattening our management structure, and the acquisition of Enson we merged our international component with our domestic component. We no longer have separate management of the international component, and the financial results of our international component are not separate. In addition, these components have similar economic characteristics. As a result of these changes, our domestic and international components have been merged into our single operating segment.
The goodwill on June 30, 2011 and changes in the carrying amount of goodwill during the six months ended June 30, 2011 were the following:
         
(in thousands)        
Balance at December 31, 2010
  $ 30,877  
Goodwill adjustments (1)
    156  
 
     
Balance at June 30, 2011
  $ 31,033  
 
     
 
(1)     The adjustment included in international goodwill was the result of fluctuations in the foreign currency exchange rates used to translate the balance into U.S. dollars.
Please see Note 2 under the captions Goodwill and Fair-Value Measurements in our Annual Report on Form 10-K for further information regarding our accounting principles and the valuation methodology utilized.

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Intangible Assets, net
The components of intangible assets, net on June 30, 2011 and December 31, 2010 were the following:
                                                 
    June 30, 2011     December 31, 2010  
            Accumulated                     Accumulated        
(In thousands)   Gross     Amortization     Net     Gross     Amortization     Net  
Carrying amount(1):
                                               
Distribution rights (10 years)
  $ 417     $ (56 )   $ 361     $ 384     $ (51 )   $ 333  
Patents (10 years)
    9,005       (4,926 )     4,079       8,612       (4,589 )     4,023  
Trademarks and trade names (10 years) (2)
    2,834       (700 )     2,134       2,836       (565 )     2,271  
Developed and core technology (5-15 years)
    3,500       (554 )     2,946       3,500       (438 )     3,062  
Capitalized software development costs (1-2 years)
    1,974       (1,422 )     552       1,896       (1,165 )     731  
Customer relationships (10-15 years)(3)
    26,325       (2,039 )     24,286       26,349       (775 )     25,574  
 
                                   
Total carrying amount
  $ 44,055     $ (9,697 )   $ 34,358     $ 43,577     $ (7,583 )   $ 35,994  
 
                                   
 
(1)     This table excludes fully amortized intangible assets of $7.6 million and $7.6 million on June 30, 2011 and December 31, 2010, respectively.
 
(2)     As part of our acquisition of Enson Assets Limited during the fourth quarter of 2010, we purchased trademark and trade names valued at $2.0 million, which are being amortized ratably over ten years. Refer to Note 18 for further information regarding this purchase of trademark and trade names.
 
(3)     During the fourth quarter of 2010 as part of the Enson Assets Limited acquisition we purchased customer relationships valued at $23.3 million, which are being amortized ratably over ten years. Refer to Note 18 for further information regarding this purchase of these customer relationships.
Amortization expense is recorded in selling, general and administrative expenses, except amortization expense related to capitalized software development costs which is recorded in cost of sales. Amortization expense by income statement caption for the three and six months ended June 30, 2011 and 2010 is the following:
                                 
    Three Months Ended     Six Months Ended  
    June 30,     June 30,  
(In thousands)   2011     2010     2011     2010  
Cost of sales
  $ 126     $ 109     $ 257     $ 225  
Selling, general and administrative
    954       312       1,895       623  
 
                       
Total amortization expense
  $ 1,080     $ 421     $ 2,152     $ 848  
 
                       
Estimated future amortization expense related to our intangible assets on June 30, 2011, is the following:
         
(In thousands)        
2011 (remaining 6 months)
  $ 2,141  
2012
    4,146  
2013
    3,852  
2014
    3,814  
2015
    3,751  
Thereafter
    16,654  
 
     
Total
  $ 34,358  
 
     
Intangibles Measured at Fair Value on a Nonrecurring Basis
We recorded impairment charges related to our intangible assets of $7 thousand and $8 thousand during the three and six months ended June 30, 2011. Impairment charges are recorded in selling, general and administrative expenses as a component of amortization expense, except impairment charges related to capitalized software

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development costs which are recorded in cost of sales. The fair value adjustments for intangible assets measured at fair value on a nonrecurring basis during the six months ended June 30, 2011 were comprised of the following:
                                         
            Fair Value Measurement Using    
            Quoted Prices in            
            Active Markets            
            for Identical   Significant Other   Significant    
(In thousands)   Six Months Ended   Assets   Observable Inputs   Unobservable Inputs   Total
Description   June 30, 2011   (Level 1)   (Level 2)   (Level 3)   Gains (Losses)
Patents, trademarks and trade names
  $ 6,213     $  —     $  —     $ 6,213     $ (8 )
We disposed of four patents and eleven trademarks with an aggregate carrying amount of $8 thousand resulting in impairment charges of $8 thousand during the six months ended June 30, 2011. We disposed of one patent and eight trademarks with an aggregate carrying amount of $7 thousand during the six months ended June 30, 2010. The intangible assets disposed of during the six months ended June 20, 2011 and 2010 no longer hold any probable future economic benefits and were written-off.
See Note 2 under the captions Long-Lived Assets and Intangible Assets Impairment, Capitalized Software Development Costs, and Fair-Value Measurements in our Annual Report on Form 10-K for further information regarding our accounting principles and valuation methodology utilized.
Note 6: Notes Payable
Notes payable on June 30, 2011 and December 31, 2010 were comprised of the following:
                 
    Amount Outstanding
(In thousands)   June 30, 2011   December 31, 2010
U.S. Bank Term Loan Facility(1)
  $ 20,600     $ 35,000  
 
(1)     Under the U.S. Bank term loan, we may elect to pay interest based on the bank’s prime rate or LIBOR plus a fixed margin of 1.5%. The applicable LIBOR (1, 3, 6, or 12-month LIBOR) corresponds with the loan period we select. On June 30, 2011, the 1-month LIBOR plus the fixed margin was approximately 1.69% and the bank’s prime rate was 3.25%. If a LIBOR rate loan is prepaid prior to the completion of the loan period, we must pay the bank the difference between the interest the bank would have earned had prepayment not occurred and the interest the bank actually earned.
Our total interest expense on borrowings was $0.2 million and $0 during the six months ended June 30, 2011 and 2010, respectively.
Note 7: Income Taxes
We utilize our estimated annual effective tax rate to determine our provision for income taxes for interim periods. The income tax provision is computed by taking the estimated annual effective tax rate and multiplying it by the year-to-date pre-tax book income. We recorded income tax expense of $1.7 million and $2.5 million for the three months ended June 30, 2011 and 2010, respectively. Our effective tax rate was 22.1% and 34.7% during the three months ended June 30, 2011 and 2010, respectively. We recorded income tax expense of $2.3 million and $3.5 million for the six months ended June 30, 2011 and 2010, respectively. Our effective tax rate was 22.6% and 34.7% during the six months ended June 30, 2011 and 2010, respectively.
On June 30, 2011, we had gross unrecognized tax benefits of approximately $6.0 million, including interest and penalties, of which approximately $5.4 million would affect the annual effective tax rate if these tax benefits are realized. Further, we are unaware of any positions for which it is reasonably possible that the total amount of unrecognized tax benefits will significantly increase within the next twelve months. However, based on federal, state and foreign statute expirations in various jurisdictions, we anticipate a decrease in unrecognized tax benefits of approximately $0.3 million within the next twelve months.

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We have elected to classify interest and penalties as a component of tax expense. Accrued interest and penalties of $0.2 million on June 30, 2011 and December 31, 2010 are included in our unrecognized tax benefits.
We file income tax returns in the U.S. federal jurisdiction, and in various state and foreign jurisdictions. On June 30, 2011, the open statutes of limitations in our significant tax jurisdictions are as follows: federal 2006 through 2010, state 2006 through 2010, and non-U.S. 2002 through 2010. On June 30, 2011, our gross unrecognized tax benefits of $6.0 million are classified as long term because we do not anticipate the payment of cash related to those unrecognized tax benefits within one year.
See Note 2 under the caption Income Taxes in our Annual Report on Form 10-K for further information regarding our accounting principles.

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Note 8: Accrued Compensation
The components of accrued compensation on June 30, 2011 and December 31, 2010 are listed below:
                 
(in thousands)   June 30, 2011     December 31, 2010  
Accrued social insurance(1)
  $ 19,604     $ 20,360  
Other accrued compensation
    10,077       10,274  
 
           
Total accrued compensation
  $ 29,681     $ 30,634  
 
           
 
(1)   Effective January 1, 2008, the Chinese Labor Contract Law was enacted in the People’s Republic of China (“PRC”). This law mandated that PRC employers remit the applicable social insurance payments to their local government. Social insurance is comprised of various components such as pension, medical insurance, job injury insurance, unemployment insurance, and a housing assistance fund, and is administered in a manner similar to Social Security in the United States. This amount represents our estimate of the amounts due to the PRC government for social insurance on June 30, 2011 and December 31, 2010.
Note 9: Other Accrued Expenses
The components of other accrued expenses on June 30, 2011 and December 31, 2010 are listed below:
                 
    June 30,     December 31,  
(In thousands)   2011     2010  
Accrued freight
  $ 2,110     $ 1,350  
Accrued professional fees
    839       1,158  
Accrued advertising and marketing
    477       467  
Deferred income taxes
          57  
Interest
    100       99  
Accrued third-party commissions
    365       252  
Accrued sales taxes and VAT
    389       678  
Tooling (1)
    622       1,567  
Utilities
    311       340  
Amount due to CG International Holdings Limited
    5,138       5,138  
Other
    2,331       2,189  
 
           
Total other accrued expenses
  $ 12,682     $ 13,295  
 
           
 
(1)   The tooling accrual balance relates to amounts capitalized within property, plant, and equipment, net on June 30, 2011 and December 31, 2010.
Note 10: 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.

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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 are presented below:
                                 
            Accruals        
            (Reductions) for   Settlements    
    Balance at   Warranties   (in Cash or in   Balance at
(In thousands)   Beginning of   Issued During   Kind) During   End of
Description   Period   the Period   the Period   Period
Six Months Ended June 30, 2011
  $ 71     $ (27 )   $ (38 )   $ 6  
Six Months Ended June 30, 2010
  $ 82     $ (63 )   $ (11 )   $ 8  
Litigation
On July 15, 2011, we filed a lawsuit against in the United States District Court, Central District of California (Universal Electronics Inc. v. Logitech, Inc., Logitech International S.A. and Logitech Europe S.A., SACV 11-1056-JVS(ANx)) alleging that the Logitech companies are infringing seventeen of our patent’s related to remote control technology. We have alleged that this complaint relates to multiple Logitech remote control products, including the Harmony H300, H650, H700, H900, One, H1100, Logitech Revue (for Google TV), Harmony remote apps for iOS and Android platforms, and other applications and/or programming for touch screen mobile devices. The Logitech companies have not yet answered our complaint.
There are no other 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 or results of operations. 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.
Long-Term Incentive Plan
Our Compensation Committee awarded a discretionary cash bonus of $1.0 million, to be paid out quarterly during 2009 and 2010. The Compensation Committee made this decision after reviewing the economic environment and our relative financial and operating performance. The Compensation Committee believed this bonus was in alignment with our stockholders’ interests as well as our performance, alignment and retention objectives. Each participant’s earned award vests in eight equal quarterly installments beginning June 30, 2009 and ending December 31, 2010. Approximately $0.3 million and 0.1 million was paid and expensed, respectively, during the six months ended June 30, 2010 to our executive management team. All amounts earned have been paid as of June 30, 2011 and December 31, 2010.
Non-Qualified Deferred Compensation Plan
We have adopted a non-qualified deferred compensation plan for the benefit of a select group of highly compensated employees. For each plan year a participant may elect to defer compensation in fixed dollar amounts or percentages subject to the minimums and maximums established under the plan. Generally, an election to defer compensation is irrevocable for the entire plan year. A participant is always fully vested in their elective deferrals and may direct these funds into various investment options available under the plan. These investment options are utilized for measurement purposes only, and may not represent the actual investment made by us. In this respect, the participant is an unsecured creditor of ours. On June 30, 2011 and December 31, 2010, the amounts deferred under the plan were immaterial to our financial statements.
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 India Plan was adequately funded as of June 30, 2011 based on its latest actuarial report. The India Plan has an independent external manager that advises us of the appropriate funding

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contribution requirements to which we comply. On June 30, 2011, approximately 30% of our 130 employees in India had qualified for eligibility. Generally, an employee must be employed by the company for a minimum of five years before becoming eligible. At the time of eligibility we are liable, on termination, resignation or retirement, to pay the employee an amount equal to 15 days salary for each year of service completed. The total amount of liability outstanding on June 30, 2011 and December 31, 2010 for the India Plan was not material. During the three and six months ended June 30, 2011 and 2010, the net periodic benefit costs were also not material.
Note 11: Treasury Stock
During the six months ended June 30, 2011 and 2010, we repurchased 137,190 and 355,254 shares of our common stock at a cost of $3.5 million and $7.3 million, respectively. Repurchased shares are recorded as shares held in treasury at cost. We generally hold these shares for future use as our management and Board of Directors deem appropriate, including compensating our outside directors. During the six months ended June 30, 2011 and 2010, we issued 15,000 and 14,583 shares, respectively, to outside directors for services performed (see Note 14).
On February 11, 2010, our Board of Directors authorized management to continue repurchasing up to an additional 1,000,000 shares of our issued and outstanding common stock. Repurchases may be made 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 June 30, 2011, we have repurchased 610,316 shares of our common stock under this authorization, leaving 389,684 shares available for repurchase.
Note 12: Comprehensive Income
The components of comprehensive income are listed below:
                                 
    Three Months Ended     Six Months Ended  
    June 30,     June 30,  
(In thousands)   2011     2010     2011     2010  
Net income
  $ 6,121     $ 4,777     $ 7,948     $ 6,613  
Other comprehensive income (loss)
                               
Foreign currency translations (1)
    1,494       (3,361 )     4,193       (5,481 )
 
                       
Comprehensive income
  $ 7,615     $ 1,416     $ 12,141     $ 1,132  
 
                       
 
(1)   The foreign currency translation gain of $4.2 million for the six months ended June 30, 2011 was due primarily to the weakening of the U.S. dollar against the Euro. The foreign currency translation loss of $5.5 million for the six months ended June 30, 2010 was due primarily to the strengthening of the U.S. dollar against the Euro. The U.S. dollar/Euro spot rate was 1.45 and 1.34 on June 30, 2011 and December 31, 2010, respectively, and 1.23 and 1.43 on June 30, 2010 and December 31, 2009, respectively.
See Note 2 under the caption Foreign Currency Translation and Foreign Currency Transactions in our Annual Report on Form 10-K for further information regarding our accounting principles.

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Note 13: 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. We operate in a single operating and reportable segment.
Our chief operating decision maker, the Chief Executive Officer, reviews financial information presented on a consolidated basis, accompanied by disaggregated information about revenues for purposes of making operating decisions and assessing financial performance. Accordingly, we consider ourselves to be a single reporting segment.
Foreign Operations
Our sales by geographic area were the following:
                                 
    Three Months Ended     Six Months Ended  
    June 30,     June 30,  
(In thousands)   2011     2010     2011     2010  
Net sales
                               
United States
  $ 30,912     $ 30,508     $ 61,422     $ 59,430  
International:
                               
People’s Republic of China
    29,220       6,019       52,786       9,460  
United Kingdom
    5,610       12,829       11,529       24,680  
Argentina
    1,521       1,316       2,264       2,777  
Australia
    332             556        
Brazil
    1,919       400       2,414       644  
Canada
    2,659       3,108       5,217       6,627  
France
    1,255       823       2,108       1,282  
Germany
    1,466       1,824       3,126       3,586  
Israel
    800       714       1,610       1,718  
Italy
    540       320       1,296       954  
Japan
    10,681       1,166       21,275       1,970  
South Korea
    1,435       935       4,864       1,955  
Malaysia
    4,484             9,498       8  
Netherlands
    368       546       590       546  
Portugal
    699       1,203       800       1,711  
Singapore
    7,448       4,118       12,028       8,607  
South Africa
    1,755       2,149       2,378       3,060  
Spain
    968       1,278       2,053       2,579  
Taiwan
    6,283       2,118       11,346       3,763  
Thailand
    4,995       1,748       7,471       3,910  
All other
    6,396       5,770       10,827       11,001  
 
                       
Total international
    90,834       48,384       166,036       90,838  
 
                       
Total net sales
  $ 121,746     $ 78,892     $ 227,458     $ 150,268  
 
                       
Specific identification of the customer location was the basis used for attributing revenues from external customers to individual countries.
Long-lived asset information is the following:
                 
    June 30,     December 31,  
(In thousands)   2011     2010  
Long-lived tangible assets:
               
United States
  $ 4,231     $ 4,654  
People’s Republic of China
    75,663       75,053  
All other countries
    3,866       3,854  
 
           
Total
  $ 83,760     $ 83,561  
 
           

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Note 14: Stock-Based Compensation
Stock-based compensation expense for each employee and director is presented in the same income statement caption as their cash compensation. Stock-based compensation expense by income statement caption for the three and six months ended June 30, 2011 and 2010 is the following:
                                 
    Three Months Ended     Six Months Ended  
    June 30,     June 30,  
(In thousands)   2011     2010     2011     2010  
Cost of sales
  $ 2     $ 14     $ 11     $ 28  
Research and development
    44       105       136       243  
Selling, general and administrative
    1,007       1,228       1,938       2,261  
 
                       
Stock-based compensation expense before income taxes
  $ 1,053     $ 1,347     $ 2,085     $ 2,532  
 
                       
Selling, general and administrative expense includes pre-tax stock-based compensation related to stock option awards granted to outside directors of $0 and $0.1 million for the three months ended June 30, 2011 and 2010, respectively. During the six months ended June 30, 2011 and 2010, pre-tax stock-based compensation related to options granted to directors was $0.1 million and $0.2 million, respectively.
Selling, general and administrative expense also includes stock-based compensation related to restricted stock awards granted to outside directors of $0.1 million and $0.2 million for the three months ended June 30, 2011 and 2010, respectively. During the six months ended June 30, 2011 and 2010, stock-based compensation related to restricted stock awards granted to outside directors was $0.2 million and $0.3 million, respectively.
The income tax benefit from the recognition of stock-based compensation for the three months ended June 30, 2011 and 2010 was $0.3 million and $0.5 million, respectively. The income tax benefit from the recognition of stock-based compensation for the six months ended June 30, 2011 and 2010 was $0.7 million and $0.9 million, respectively.
Stock Options
During the six months ended June 30, 2011 the Compensation Committee and Board of Directors granted 107,600 stock options, including 92,600 to our Named Executive Officers, with an aggregate grant date fair value of $1.5 million under various stock incentive plans. The stock options granted to employees during 2011 consisted of the following:
(In thousands, except share amounts)
                         
    Number of     Grant        
    Shares     Date        
Stock Option   Underlying     Fair        
Grant Date   Options     Value     Vesting Period
January 26, 2011
    15,000     $ 192     4-Year Vesting Period (25% each year)
April 6, 2011
    92,600     $ 1,286     3-Year Vesting Period (8.33% each quarter)
 
                   
 
    107,600     $ 1,478          
 
                   
During the six months ended June 30, 2011 we recognized $0.1 million of pre-tax stock-based compensation expense related to our 2011 stock option grants.

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The assumptions we utilized in the Black-Scholes option pricing model and the resulting weighted average fair values of stock option grants were the following:
                                 
    Three Months Ended   Six Months Ended
    June 30,   June 30,
    2011   2010   2011   2010
Weighted average fair value of grants(1)
  $ 13.89     $  —     $ 13.74     $ 11.35  
Risk-free interest rate
    2.33 %           2.29 %     2.37 %
Expected volatility
    52.28 %           52.25 %     50.01 %
Expected life in years
    5.03             5.03       4.95  
 
(1)    The weighted average fair value of grants was calculated utilizing the stock options granted during each respective period.
Stock option activity during the six months ended June 30, 2011 was the following:
                                 
                    Weighted-    
                    Average    
            Weighted-   Remaining    
    Number of   Average   Contractual   Aggregate
    Options   Exercise   Term   Intrinsic Value
    (thousands)   Price   (In years)   $ (thousands)
Outstanding on December 31, 2010
    1,525     $ 18.78                  
Granted
    108       28.97                  
Exercised
    (74 )     16.36             $ 758  
Forfeited/cancelled/ expired
    (10 )     20.46                  
 
                               
Outstanding on June 30, 2011
    1,549     $ 19.59       5.25     $ 9,989  
 
                               
Vested and expected to vest on June 30, 2011
    1,531     $ 19.55       5.21     $ 9,943  
Exercisable on June 30, 2011
    1,207     $ 18.62       4.29     $ 8,807  
The aggregate intrinsic value in the table above represents the total pre-tax value that option holders would have received had all option holders exercised their options on June 30, 2011. The aggregate intrinsic value is the difference between the closing price of Universal Electronics Inc.’s common stock on the last trading day of the second quarter of 2011 and the option exercise price, multiplied by the number of in-the-money options. This amount will change based on the fair market value of our stock. The total intrinsic value of options exercised for the three months ended June 30, 2011 and 2010, was $0.6 million and $0.04 million, respectively. The total intrinsic value of options exercised for the six months ended June 30, 2011 and 2010, was $0.8 million and $0.1 million, respectively.
On June 30, 2011, there was $2.9 million of unrecognized pre-tax stock-based compensation expense related to non-vested stock options which we expect to recognize over a weighted-average period of 2.4 years.
Restricted Stock
During the six months ended June 30, 2011 the Compensation Committee and Board of Directors granted 43,900 restricted stock awards to our Named Executive Officers with an aggregate grant date fair value of $1.3 million under the 2006 Stock Incentive Plan. The restricted stock awards consisted of the following:
(In thousands, except share amounts)
                         
    Number of     Grant        
    Shares     Date        
Restricted Stock   Underlying     Fair        
Grant Date   Options     Value     Vesting Period
April 6, 2011
    43,900     $ 1,284     3-Year Vesting Period (8.33% each quarter)
 
                   
 
    43,900     $ 1,284          
 
                   
During the six months ended June 30, 2011 we recognized $0.1 million of pre-tax stock-based compensation expense related to our 2011 restricted stock award grants.

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Non-vested restricted stock award activity during the six months ended June 30, 2011 (including restricted stock issued to directors as described in Note 11) was the following:
                 
            Weighted-
    Shares   Average
    Granted   Grant Date
    (thousands)   Fair Value
Non-vested on December 31, 2010
    195     $ 17.30  
Granted
    44       29.25  
Vested
    (78 )     15.45  
Forfeited
    (2 )     16.22  
 
               
Non-vested on June 30, 2011
    159     $ 21.51  
 
               
At June 30, 2011, we expect to recognize $2.9 million of unrecognized pre-tax stock-based compensation expense related to non-vested restricted stock awards over a weighted-average period of 2.1 years.
On July 15, 2011, the Board of Directors granted certain executives, other than our Named Executive Officers, 100,000 restricted stock awards under the 2010 Stock Incentive Plan. The awards were granted as part of long-term incentive compensation to assist us with meeting our performance and retention objectives. The grant is subject to a three-year vesting period (8.33% each quarter). The total grant date fair value of these awards was $2.5 million. In addition, on July 1, 2011, we granted our Directors 30,000 restricted stock awards under the 2010 Stock Incentive Plan. The awards were granted as part of our Director’s annual compensation. The grant is subject to a one-year vesting period (25% each quarter). The total grant date fair value of the restricted stock awards to our Directors was $0.8 million.
See Note 2 under the caption Stock-Based Compensation in our Annual Report on Form 10-K for further information regarding our accounting principles.
Note 15: Other Income (Expense), net
The components of other income (expense), net for the three and six months ended June 30, 2011 and 2010 are the following:
                                 
    Three Months Ended     Six Months Ended  
    June 30,     June 30,  
(In thousands)   2011     2010     2011     2010  
Net gain (loss) on foreign currency exchange contracts(1)
  $ 108     $ (272 )   $ 447     $ (306 )
Net gain on foreign currency exchange transactions
          247       353       321  
Other (expense) income
    (492 )     4       (1,218 )     7  
 
                       
Other (expense) income, net
  $ (384 )   $ (21 )   $ (418 )   $ 22  
 
                       
 
(1)   This represents the losses and gain incurred on foreign currency hedging derivatives (see Note 17 for further details).
Note 16: 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, which includes the dilutive effect of stock options and restricted stock grants. Dilutive potential common shares for all periods presented are computed utilizing the treasury stock method.
In the computation of diluted earnings per common share for the three months ended June 30, 2011 and 2010, we have excluded 484,889 and 527,587 stock options, respectively, with exercise prices greater than the average market price of the underlying common stock, because their inclusion would have been anti-dilutive. Furthermore, for the three months ended June 30, 2011 and 2010, we have excluded 42,177 and 195,492 of unvested shares of restricted

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stock, respectively, whose combined unamortized fair value and excess tax benefits were greater in each of those periods than the average market price of the underlying common stock, as their effect would be anti-dilutive.
In the computation of diluted earnings per common share for the six months ended June 30, 2011 and 2010, we have excluded 431,561 and 473,299 stock options, respectively, with exercise prices greater than the average market price of the underlying common stock, because their inclusion would have been anti-dilutive. Furthermore, for the six months ended June 30, 2011 and 2010, we have excluded 21,827 and 198,001 of unvested shares of restricted stock, respectively, whose combined unamortized fair value and excess tax benefits were greater in each of those periods than the average market price of the underlying common stock, as their effect would be anti-dilutive.
Basic and diluted earnings per share for the three and six months ended June 30, 2011 and 2010, are calculated as follows:
                                 
    Three Months Ended     Six Months Ended  
    June 30,     June 30,  
(In thousands, except per-share amounts)   2011     2010     2011     2010  
BASIC
                               
Net income
  $ 6,121     $ 4,777     $ 7,948     $ 6,613  
 
                       
Weighted-average common shares outstanding
    15,025       13,601       15,000       13,650  
 
                       
Basic earnings per share
  $ 0.41     $ 0.35     $ 0.53     $ 0.48  
 
                       
DILUTED
                               
Net income
  $ 6,121     $ 4,777     $ 7,948     $ 6,613  
 
                       
Weighted-average common shares outstanding for basic
    15,025       13,601       15,000       13,650  
Dilutive effect of stock options and restricted stock
    382       328       395       361  
 
                       
Weighted-average common shares outstanding on a diluted basis
    15,407       13,929       15,395       14,011  
 
                       
Diluted earnings per share
  $ 0.40     $ 0.34     $ 0.52     $ 0.47  
 
                       
Note 17: Derivatives
Derivatives Measured at Fair Value on a Recurring Basis
We are exposed to market risks from foreign currency exchange rates, which may adversely affect our operating results and financial position. Our foreign currency exposures are primarily concentrated in the Brazilian Real, British Pound, Chinese Yuan Renminbi, Euro, Hong Kong dollar, Indian Rupee, and Singapore dollar. We periodically enter into foreign currency exchange contracts with terms normally lasting less than nine months to protect against the adverse effects that exchange rate fluctuations may have on our foreign currency denominated receivables, payables, cash flows and reported income. Derivative financial instruments are used to manage risk and are not used for trading or other speculative purposes. We do not use leveraged derivative financial instruments and these derivatives have not qualified for hedge accounting.
The gains and losses on both the derivatives and the foreign currency-denominated balances are recorded as foreign exchange transaction gains or losses and are classified in other (expense) income, net. Derivatives are recorded on the balance sheet at fair value. The estimated fair values of our derivative financial instruments represent the amount required to enter into offsetting contracts with similar remaining maturities based on quoted market prices.
We have determined that the fair value of our derivatives is derived from level 2 inputs in the fair value hierarchy. See Note 2 under the captions Derivatives and Fair-Value Measurements in our Annual Report on Form 10-K for further information concerning the accounting principles and valuation methodology utilized.
The following table sets forth our financial assets that were accounted for at fair value on a recurring basis on June 30, 2011:
                                 
            Fair Value Measurement Using  
            Quoted Prices in     Significant        
            Active Markets     Other     Significant  
            for Identical     Observable     Unobservable  
(In thousands)           Assets     Inputs     Inputs  
Description   June 30, 2011     (Level 1)     (Level 2)     (Level 3)  
Foreign currency exchange futures contracts
  $ 69     $     $ 69     $  
 
                       
 
  $ 69     $     $ 69     $  
 
                       

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We held foreign currency exchange contracts which resulted in a net pre-tax gain of approximately $0.1 million and a net pre-tax loss of $0.3 million for the three months ended June 30, 2011 and 2010, respectively. For the six months ended June 30, 2011 and 2010, we had a net pre-tax gain of $0.4 million and a net pre-tax loss of $0.3 million, respectively.
Futures Contracts
We held one USD/Euro futures contract with a notional value of $7.5 million and a forward rate of $1.4378 USD/Euro on June 30, 2011. We held the Euro position on this contract, which settled on July 29, 2011. The gain on this contract as of June 30, 2011 was $69 thousand and was included in prepaid expenses and other current assets. This contract was settled at a gain of $4 thousand resulting in a loss of $65 thousand during July 2011.
We held one USD/Euro futures contract with a notional value of $4.0 million and a forward rate of $1.3073 USD/Euro at December 31, 2010. We held the Euro position on this contract, which settled on January 28, 2011. The gain on this contract as of December 31, 2010 was $87 thousand and is included in prepaid expenses and other current assets. This contract was settled at a gain of $198 thousand resulting in a gain of $111 thousand in January 2011.
We held one USD/Indian Rupee futures contract with a notional value of INR133.5 million and a forward rate of INR45.47 INR/USD at December 31, 2010. We held the USD position on this contract, which settled on January 28, 2011. The loss on this contract as of December 31, 2010 was $43 thousand and is included in other accrued expenses. This contract was settled at a gain of $10 thousand resulting in a gain of $53 thousand in January 2011.
We held one USD/Chinese Yuan Renminbi futures contract with a notional value of $1.0 million and a forward rate of CNY6.6819 CNY/USD at December 31, 2010. We held the USD position on this contract, which settled on January 24, 2011. The loss on this contract as of December 31, 2010 was $11 thousand and is included in other accrued expenses. This contract was settled at a loss of $14 thousand resulting in a loss of $3 thousand in January 2011.
We held one USD/Chinese Yuan Renminbi futures contract with a notional value of $1.0 million and a forward rate of CNY6.6681 CNY/USD at December 31, 2010. We held the USD position on this contract, which was scheduled to settle on February 24, 2011. The contract was terminated on January 21, 2011. The loss on this contract as of December 31, 2010 was $13 thousand and is included in other accrued expenses. This contract was settled on the termination date at a loss of $16 thousand resulting in a loss of $3 thousand in January 2011.
We held one USD/Euro futures contract with a notional value of $1.5 million and a forward rate of $1.4386 USD/Euro at December 31, 2009. We held the Euro position on this contract, which settled on January 15, 2010. The loss on this contract as of December 31, 2009 was $5 thousand and is included in other accrued expenses. This contract was settled at a gain of $11 thousand resulting in a gain of $16 thousand in January 2010.
Note 18: Business Combination
Enson Assets Limited
On November 3, 2010, our subsidiary, UEI Hong Kong Private Limited, entered into a stock purchase agreement with CG International Holdings Limited (“CG”) to acquire all of the issued shares in the capital of Enson Assets Limited (“Enson”) for total consideration of approximately $125.9 million. This transaction closed on November 4, 2010. The consideration consisted of $95.1 million in cash and 1,460,000 of newly issued shares of UEI common stock. A total of $5.0 million of the purchase price was held back at the closing to provide for any additional payments required by CG as a result of Enson’s failure to meet both a net asset target and an earnings target (see “Contingent Consideration” below) and also to support indemnification claims that could be made by us within one year following the closing of this acquisition. We have included the $5.0 million that was held back in the purchase

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price allocation, since it is probable that we will owe the full amount to CG. The $5.0 million is included in our other accrued liabilities balance at June 30, 2011 and December 31, 2010.
Consideration
The sources of the consideration were the following:
                 
(In thousands)           Percentage of  
Source Description   Amount     Consideration  
Existing cash and cash equivalents
  $ 54,138       43.0 %
Funds from new U.S. Bank Secured Term Loan (see Note 6)
    35,000       27.8  
Funds from new U.S. Bank Secured Revolving Credit Line (see Note 6)
    6,000       4.8  
Newly issued shares of Universal Electronics Inc. common stock
    30,762       24.4  
 
           
 
  $ 125,900       100 %
 
           
Contingent Consideration
Net Asset Target on November 3, 2010
To the extent that Enson’s net assets were less than $68.5 million on November 3, 2010, CG would have had to pay us the difference, plus interest. To the extent that the Enson net assets were greater than $68.5 million we would pay CG the difference, plus interest. This calculation was finalized during the first quarter of 2011 when the auditor issued their report on Enson’s November 3, 2010 Statement of Net Assets. On November 3, 2010, Enson’s net assets, as defined by the stock purchase agreement, were $68.6 million. As such, the total consideration and the goodwill recognized to acquire Enson increased $0.1 million from December 31, 2010 to June 30, 2011. On May 5, 2011, we received a Dispute Notice from CG, pursuant to the Stock Purchase Agreement, outlining their disagreement with certain tax estimates included within Enson’s Statement of Net Assets on November 3, 2010. We disagree with CG; however, depending on the ultimate resolution of this dispute, the total purchase consideration may increase by up to $1.5 million.
Earnings Target for the Twelve Months Ending June 30, 2011
To the extent that Enson’s earnings for the twelve months ended June 30, 2011 are less than $16.2 million, CG will have to pay us an amount equal to the product of (a) the difference between Enson’s earnings and $16.2 million, multiplied by (b) one and one half, plus interest. CG is required to make this payment within five business days of the issuance of the auditor’s report on Enson’s accounts.
For the purposes of this calculation, Enson’s earnings are defined as Enson’s consolidated profit before tax for the twelve months ending June 30, 2011 excluding certain agreed upon adjustments, including without limitation, the following items: profit related to UEIC sales, investment income, other income, other expenses, other gains and losses, and interest expenses.
On the date of this filing, the auditors have not yet issued their report on Enson’s accounts; however, we do not anticipate that any amounts will be owed by CG.
Acquisition Costs
We recognized $0.7 million of total acquisition costs related to the Enson transaction in selling, general and administrative expenses during the quarter ended December 31, 2010. The acquisition costs consisted primarily of legal and investment banking services.
In addition to the costs incurred to acquire Enson, during January 2011 our Compensation Committee approved a discretionary bonus of $0.4 million to be awarded to certain employees directly involved in the acquisition process. This discretionary bonus was ratified by our Board of Directors during February 2011, and was paid during March 2011. The entire amount was included in accrued compensation at December 31, 2010.

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Preliminary Purchase Price Allocation
Under the acquisition method of accounting, the acquisition date fair value of the consideration transferred is allocated to the net tangible and intangible assets acquired and liabilities assumed based on their estimated fair values on the acquisition date. Management’s preliminary purchase price allocation on November 4, 2010 (the Enson acquisition date) is the following:
                 
    Weighted        
    Average     Preliminary  
(in thousands)   Estimated Lives     Fair Value  
Cash & cash equivalents
          $ 20,866  
Inventories
            23,469  
Accounts receivable
            37,625  
Prepaid expenses and other current assets
            738  
Property, plant and equipment
  20 years     66,644  
Deferred income taxes
            2,619  
Other assets
            3,409  
Interest bearing liabilities
            (4,227 )
Non-interest bearing liabilities
            (67,879 )
 
             
Net tangible assets acquired
            83,264  
Customer relationships
  10 years     23,300  
Trademark and trade name
  10 years     2,000  
Goodwill
            17,336  
 
             
Total estimated purchase price
          $ 125,900  
 
             
Management’s preliminary determination of the fair value of the tangible and intangible assets acquired and liabilities assumed are based on estimates and assumptions that are subject to change. During the measurement period, if information becomes available which would indicate adjustments are required to the purchase price allocation, such adjustments will be included in the purchase price allocation retrospectively. The measurement period can extend as long as one year from the acquisition date. We have made two adjustments to the preliminary purchase price allocation since December 31, 2010. We increased the purchase consideration and goodwill by $0.1 million as a result of the issuance of the auditor’s report on Enson’s November 3, 2010 Statement of Net Assets (see “Net Asset Target on November 3, 2010” above), and we increased goodwill and decreased the deferred income taxes acquired by $0.4 million as a result of certain deferred tax assets not expected to be realized. We are currently evaluating the results of the earnings target as defined in the stock purchase agreement; however, we do not believe this will result in an adjustment to the preliminary purchase price accounting. In addition, on May 5, 2011, we received a Dispute Notice from CG, pursuant to the Stock Purchase Agreement, outlining their disagreement with certain tax estimates included within Enson’s Statement of Net Assets on November 3, 2010. We disagree with CG; however, depending on the ultimate resolution of this dispute, the total purchase consideration may increase by up to $1.5 million.
Intangible Assets Subject to Amortization
Of the total estimated purchase price, $83.3 million has been allocated to net tangible assets acquired, $17.3 million has been allocated to goodwill, and $25.3 million has been allocated to identifiable intangible assets acquired. The identified intangible assets consist of $23.3 million assigned to customer relationships and $2.0 million assigned to trademark and trade name. UEI expects to amortize the fair value of Enson’s customer relationships on a straight-line basis over an estimated life of 10 years. UEI expects to amortize the value of Enson’s trademark and trade name on a straight-line basis over an estimated life of ten years. The customer relationships and trademark and trade name amortization will not be deductible for tax purposes.
Goodwill
Goodwill represents the excess of the purchase consideration over the estimated fair value of identifiable tangible and intangible assets acquired. Goodwill from this transaction of $17.3 million will not be amortized, but will be analyzed for impairment on at least an annual basis in accordance with U.S. GAAP. We review our goodwill for

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impairment annually on December 31 and whenever events or changes in circumstances indicate that an impairment loss may have occurred. Of the total goodwill recorded, none is expected to be deductible for tax purposes.
Pro forma Results (Unaudited)
The following unaudited pro forma financial information presents the combined results of our operations and the operations of the Enson acquisition as if this transaction occurred at the beginning of the period indicated.
Pro forma results were as follows for the three and six months ended June 30, 2010:
                 
    Three Months Ended   Six Months Ended
(in thousands, except per share information)   June 30, 2010   June 30, 2010
Net sales
  $ 114,178     $ 216,261  
Net income
  $ 7,845     $ 12,913  
Basic and diluted net income per share:
               
Basic
  $ 0.52     $ 0.86  
Diluted
  $ 0.51     $ 0.84  
The 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 the date presented, and should not be taken as a projection of the future consolidated results of our operations.
Adjustments to reduce net income of $3.5 million and $5.1 million for the three and six months ended June 30, 2010 have been made to the combined results of operations for the three and six months ended June 30, 2010. These adjustments reflect primarily acquisition costs, interest on the term loan and line of credit, amortization of acquired intangible assets, amortization and depreciation of the fair value adjustments to prepaid land and property, plant, and equipment. All adjustments have been made net of their related tax effects.
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with the Consolidated Financial Statements and the related notes that appear elsewhere in this document.
Overview
We develop and manufacture a broad line of pre-programmed universal wireless control products, audio-video accessories, and software that are marketed to enhance home entertainment systems. Our customers operate in the consumer electronics market and include OEMs, subscription broadcasters, international retailers, custom installers, North American retailers, private labels, and companies in the computing industry. We also sell integrated circuits, on which our software and IR code database is embedded, to OEMs that manufacture wireless control devices, cable converters or satellite receivers for resale in their products. We believe that our universal remote control database contains device codes that are capable of controlling virtually all IR controlled TVs, DVD players, cable converters, CD players, audio components and satellite receivers, as well as most other infrared remote controlled devices worldwide.
Beginning in 1986 and continuing today, we have compiled an extensive IR code library that covers over 565,966 individual device functions and over 4,392 individual consumer electronic equipment brand names. Our library is regularly updated with new IR codes used in newly introduced video and audio devices. All such IR codes are captured from the original manufacturer’s remote control devices or manufacturer’s specifications to ensure the accuracy and integrity of the database. We have also developed patented technologies that provide the capability to easily upgrade the memory of the wireless control device by adding IR codes from the library that were not originally included.
We operate as one business segment. We have twenty-five subsidiaries located in Argentina, Cayman Islands, France, Germany (2), Hong Kong (6), India, Italy, the Netherlands, Singapore, Spain, Brazil, British Virgin Islands (3), People’s Republic of China (4) and the United Kingdom.

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To recap our results for the six months ended June 30, 2011:
    Our net sales grew 51.4% from $150.3 million during the six months ended June 30, 2010 to $227.5 million during the six months ended June 30, 2011, due primarily to the acquisition of Enson Assets Limited in November 2010, which added $78.5 million in revenue in the first half of 2011.
 
    Our operating income during the first six months of 2011 increased 8.4% to $10.8 million from $10.0 million during the first six months of 2010. Our operating margin percentage decreased from 6.7% for the first six months of 2010 to 4.8% for the first six months of 2011 due primarily to the decrease in our gross margin percentage from 32.9% for the first six months of 2010 to 27.5% for the first six months of 2011. The decrease in our gross margin rate was due primarily to sales mix, as a higher percentage of our total sales was comprised of our lower-margin Business category. This shift in sales composition was expected as a result of our recent acquisition of Enson Assets Limited, which sells exclusively within our Business category. Partially offsetting the decrease in our gross margin percentage was an improvement in operating expenses. Operating expenses as a percentage of revenue decreased from 26.3% for the six months ended June 30, 2010 to 22.7% of revenue for the six months ended June 30, 2011.
Our business objectives for 2011 include the following:
    continue to integrate Enson Assets Limited;
 
    increase the utilization of Enson’s factories by becoming less dependent on third party contract manufacturers;
 
    place more operations, logistics, quality, program management, engineering, sales, and marketing personnel in the Asia region;
 
    further penetrate the growing Asian and Latin American subscription broadcasting markets;
 
    increase our share with existing customers;
 
    acquire new customers in historically strong regions; and
 
    continue to develop industry-leading technologies and products with higher gross margins in order to improve profitability.
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, allowance for sales returns and doubtful accounts, warranties, inventory valuation, business combination purchase price allocations, our review for impairment of long-lived assets, intangible assets and goodwill, income taxes, accrued compensation 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.
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

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statements. We do not believe that there have been any significant changes during the three and six months ended June 30, 2011 to the items that we disclosed as our critical accounting policies and estimates in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in our Annual Report on Form 10-K for our fiscal year ended December 31, 2010.
Recent Accounting Pronouncements
See Note 1 contained in the “Notes to the Consolidated Financial Statements” for a discussion of new and recently adopted accounting pronouncements.
Results of Operations
Our results of operations as a percentage of net sales for the three and six months ended June 30, 2011 and 2010 were as follows:
                                 
    Three Months Ended June 30,   Six Months Ended June 30,
    2011   2010   2011   2010
Net sales
    100 %     100 %     100 %     100 %
Cost of sales
    71.3       65.2       72.5       67.1  
 
                               
Gross profit
    28.7       34.8       27.5       32.9  
Research and development expenses
    2.6       3.2       2.8       3.5  
Selling, general and administrative expenses
    19.3       22.3       19.9       22.8  
 
                               
Operating expenses
    21.9       25.5       22.7       26.3  
 
                               
Operating income
    6.8       9.3       4.8       6.6  
Interest (expense) income, net
    (0.0 )     0.0       (0.1 )     0.1  
Other (expense) income, net
    (0.3 )     (0.0 )     (0.2 )     0.0  
 
                               
Income before provision for income taxes
    6.5       9.3       4.5       6.7  
Provision for income taxes
    (1.4 )     (3.2 )     (1.0 )     (2.3 )
 
                               
Net income
    5.0 %     6.1 %     3.5 %     4.4 %
 
                               
Three Months Ended June 30, 2011 versus Three Months Ended June 30, 2010:
Net sales by our Business and Consumer lines for the three months ended June 30, 2011 and 2010 were the following:
                                 
    Three Months Ended June 30,  
    2011     2010  
    $ (millions)     % of total     $ (millions)     % of total  
Net sales:
                               
Business
  $ 111.0       91.2 %   $ 67.3       85.3 %
Consumer
    10.7       8.8 %     11.6       14.7 %
 
                       
Total net sales
  $ 121.7       100 %   $ 78.9       100 %
 
                       
Overview
Net sales for the second quarter of 2011 were $121.7 million, an increase of 54.3% compared to $78.9 million for the second quarter of 2010. Net income for the second quarter of 2011 was $6.1 million or $0.40 per diluted share compared to $4.8 million or $0.34 per diluted share for the second quarter of 2010.
Consolidated
Net sales in our Business lines (subscription broadcasting, OEM, and computing companies) were approximately 91% of net sales in the second quarter of 2011 compared to approximately 85% in the second quarter of 2010. Net sales in our business lines for the three months ended June 30, 2011 increased by approximately 65% to $111.0 million from $67.3 million in the three months ended June 30, 2010. This increase in net sales resulted primarily from our November 2010 acquisition of Enson Assets Limited, which contributed $41.4 million in sales during the three months ended June 30, 2011.

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Net sales in our Consumer lines (One For All® retail, private label, custom installers, and direct import) were approximately 9% of net sales for the second quarter of 2011 compared to approximately 15% in the second quarter of 2010. Net sales in our Consumer lines during the second quarter of 2011 decreased by $0.9 million or 8% to $10.7 million from $11.6 million during the same period in 2010. The net sales for the second quarter of 2011 in our Consumer lines were positively impacted by the strengthening of the British Pound and Euro compared to the U.S. dollar, which resulted in an increase in net sales of approximately $0.8 million. Net of the favorable currency effect, Consumer sales decreased by $1.7 million, due primarily to difficult market conditions in Europe which contributed to international retail sales decreasing by $0.9 million compared to the third quarter of 2010. Net sales in North American retail decreased by $0.3 million, or 25%, from $1.3 million in the second quarter of 2010 to $1.0 million during the second quarter of 2011. In addition, our custom installer sales decreased by $0.4 million, from $0.6 million during the second quarter of 2010 to $0.2 million during the second quarter of 2011.
Gross profit for the second quarter of 2011 was $34.9 million compared to $27.4 million during the second quarter of 2010. Gross profit as a percent of sales decreased to 28.7% during the second quarter of 2011 from 34.8% during the second quarter of 2010, due primarily to Business category sales comprising a higher percentage of total sales. Our Business category sales, on average, yield a lower gross margin compared to our Consumer category sales. This sales mix change resulted in a 4% decrease in our gross margin rate. In addition, royalty income decreased which adversely affected our gross margin rate by 1.8%.
Research and development expenses increased 28% from $2.5 million during the second quarter of 2010 to $3.2 million during the second quarter of 2011. The increase is primarily due to additional labor dedicated to general research & development activities in an effort to continue to develop new products and technologies.
Selling, general and administrative (SG&A) expenses increased 34% from $17.6 million during the second quarter of 2010 to $23.5 million during the second quarter of 2011. The strengthening of the Euro compared to the U.S. dollar resulted in an increase of $0.8 million. Net of this unfavorable currency effect, expenses increased by $5.1 million. SG&A expenses for the second quarter of 2011 include $4.5 million of operating expenses from the newly acquired Enson Assets Limited, including $0.6 million of intangibles’ amortization as a result of the aforementioned acquisition. Also contributing to the increase in SG&A expenses is increased payroll of $1.1 million as well as an increase in professional services of $0.4 million relating to our ERP upgrade, integration of Enson Assets Limited and our expansion into the Brazilian market. Partially offsetting these increases is a $0.3 million decrease in the amount of bad debt incurred in the second quarter of 2011 compared to the second quarter of 2010.
Net interest during the second quarter of 2011 was $69 thousand of expense compared to $17 thousand of income during the second quarter of 2010.
Net other during the second quarter of 2011 was $0.4 million of expense compared to expense of $21 thousand during the second quarter of 2010, which was driven by increased foreign exchange losses.
Income tax expense was $1.7 million during the second quarter of 2011 compared to $2.5 million during the second quarter of 2010. Our effective tax rate was 22.1% for the second quarter of 2011 compared to 34.7% for the second quarter of 2010. The decline in our effective tax rate is due primarily to earning a higher percentage of income in lower tax rate jurisdictions, largely as a result of our acquisition of Enson Assets Limited during November 2010.

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Six Months Ended June 30, 2011 versus Six Months Ended June 30, 2010:
Net sales by our Business and Consumer lines for the six months ended June 30, 2011 and 2010 were as follows:
                                 
    Six Months Ended June 30,  
    2011     2010  
    $ (millions)     % of total     $ (millions)     % of total  
Net sales:
                               
Business
  $ 206.4       90.7 %   $ 127.6       84.9 %
Consumer
    21.1       9.3 %     22.7       15.1 %
 
                       
Total net sales
  $ 227.5       100 %   $ 150.3       100 %
 
                       
Overview
Net sales during the six months ended June 30, 2011 were $227.5 million; an increase of 51.4% compared to $150.3 million during the six month ended June 30, 2010. Net income for the six months ended June 30, 2011 was $7.9 million or $0.52 per diluted share compared to $6.6 million or $0.47 per diluted share for the six months ended June 30, 2010.
Consolidated
Net sales in our Business lines (subscription broadcasting, OEM and computing companies) were approximately 91% of net sales during the six months ended June 30, 2011 compared to approximately 85% during the six months ended June 30, 2010. Net sales in our Business lines during the six months ended June 30, 2011 increased by 62% to $206.4 million from $127.6 million during the six months ended June 30, 2010. This increase in net sales resulted primarily from our November 2010 acquisition of Enson Assets Limited, which contributed $78.5 million in sales during the six months ended June 30, 2011.
Net sales in our Consumer lines (One For All® retail, private label and custom installers) were approximately 9% of net sales during the six months ended June 30, 2011 compared to approximately 15% during the six months ended June 30, 2010. Net sales in our Consumer lines decreased by 7% to $21.1 million during the six months ended June 30, 2011 from $22.7 million during the same period in the prior year. North American retail sales decreased by $1.1 million compared to the first six months of 2010. CEDIA sales decreased by $1.4 million from $1.8 million in the first six months of 2010 to $0.4 million in the same period in 2011. Partially offsetting these decreases was the strengthening of the Euro and the British Pound compared to the U.S. dollar which resulted in an increase in net sales of approximately $0.8 million.
Gross profit for the six months ended June 30, 2011 was $62.5 million compared to $49.5 million for the six months ended June 30, 2010. Gross profit as a percentage of sales for the six months ended June 30, 2011 decreased to 27.5% from 32.9% during the same period in the prior year, due primarily to Business category sales comprising a higher percentage of total sales. Our Business category sales, on average, yield a lower gross margin compared to our Consumer category sales. This sales mix change resulted in a 3.9% decrease in our gross margin rate. In addition, royalty income decreased which adversely affected our gross margin rate by 1.4%.
Research and development expenses increased 21% from $5.3 million during the six months ended June 30, 2010 to $6.4 million during the six months ended June 30, 2011 due to additional investments in product development.
Selling, general and administrative (SG&A) expenses increased 32.5% from $34.2 million during the six months ended June 30, 2010 to $45.3 million during the six months ended June 30, 2011. SG&A expenses for the six months ended June 30, 2011 include $8.8 million of operating expenses from the newly acquired Enson Assets Limited, including $1.3 million of intangibles’ amortization as a result of the aforementioned acquisition. The strengthening of the Euro compared to the US dollar resulted in an increase in SG&A expenses of $0.7 million. The remaining increase in SG&A expenses is due to wage increases in 2011 as well as an increase in professional services relating to the integration of Enson Assets Limited, our expansion into foreign markets such as Brazil and the implementation of our new ERP system.
Net interest during the six months ended June 30, 2011 and 2010, was $0.2 million of net interest expense and $0.1 million of net interest income, respectively.

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Net other during the six months ended June 30, 2011, was expense of $0.4 million as compared to income of $22 thousand during the same period in the prior year. This decrease was driven by foreign exchange losses.
Income tax expense was $2.3 million during the six months ended June 30, 2011 compared to $3.5 million during the six months ended June 30, 2010. Our effective tax rate was 22.6% for the six months ended June 30, 2011 compared to 34.7% for the same period in the prior year. The decline in our effective tax rate is due primarily to earning a higher percentage of income in lower tax rate jurisdictions, largely as a result of our acquisition of Enson Assets Limited during November 2010.
Liquidity and Capital Resources
Sources and Uses of Cash:
                         
    Six months ended   Increase/(Decrease)   Six months ended
(In thousands)   June 30, 2011   in cash   June 30, 2010
Net cash provided by operating activities
  $ 4,593     $ (9,136 )   $ 13,729  
Net cash (used for) provided by investing activities
    (6,067 )     (51,523 )     45,456  
Net cash used for financing activities
    (16,344 )     (9,396 )     (6,948 )
Effect of exchange rate changes on cash
    1,469       3,884       (2,415 )
                         
(In thousands)   June 30, 2011   Increase/(Decrease)   December 31, 2010
Cash and cash equivalents
  $ 37,900     $ (16,349 )   $ 54,249  
Working capital
    80,045       14,442       65,603  
Net cash provided by operating activities decreased by $9.1 million from $13.7 million during the first six months of 2010 to $4.6 million during the first six months of 2011. This decrease is due primarily to an increase in inventories through the second quarter of 2011 in anticipation of high volume sales for the second half of the year, especially considering the recent acquisition of Enson Assets Limited (“Enson”). Typically, the third quarter is Enson’s largest quarter in terms of sales. In addition, in the second quarter of 2011, we changed our shipping terms with a significant customer which results in us holding title to inventory longer than we previously did under the former arrangement. Also adversely affecting our cash flow from operations is a decrease in accounts payable and accrued income taxes offset partially by an increase in depreciation and amortization expense resulting from the Enson acquisition.
Net cash (used for) provided by investing activities decreased by $51.5 million from cash inflows of $45.5 million during the first six months of 2010 to cash outflows of $6.1 million during the first six months of 2011. The decrease in cash provided by investing activities was primarily driven by the maturity of a term deposit during the six months ended June 30, 2010, which resulted in cash inflows of $49.2 million compared to $0 during the six months ended June 30, 2011. In addition, cash outflows to purchase equipment, furniture and fixtures were $5.6 million for the six months ended June 30, 2011, compared to cash outflows of $3.0 million recorded during the six months ended June 30, 2010. The increase in cash used to purchase equipment, furniture and fixtures was primarily driven by our capacity expansion at the Yang Zhou factory and the construction of our new assembly plant in Brazil.

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Net cash used for financing activities increased by $9.4 million from cash outflows of $6.9 million during the first six months of 2010 to cash outflows of $16.3 million during the first six months of 2011. The increase in cash used for financing activities was driven primarily by our repayment of $14.4 million on our term loan with U.S. Bank, offset partially by a $3.8 million decrease in the cash used to repurchase shares of our common stock during the six months ended June 30, 2011, compared to the six months ended June 30, 2010.
During the first six months of 2011 we repurchased 137,190 shares of our common stock for $3.5 million compared to our repurchase of 355,254 shares of our common stock for $7.3 million during the first six months of 2010. We hold repurchased shares as treasury stock, and they are available for reissue. Presently, except for using a small number of these treasury shares to compensate our outside board members, we have no plans to distribute these shares. However, we may change these plans if necessary to fulfill our on-going business objectives.
On February 11, 2010, our Board of Directors authorized management to continue repurchasing up to an additional 1,000,000 shares of our issued and outstanding common stock. Repurchases may be made to manage dilution created by shares issued under our stock incentive plans or whenever we deem a repurchase is a good use of our cash and the price to be paid is at or below a threshold approved by our Board. At June 30, 2011, we have purchased 610,316 shares of our common stock, leaving 389,684 shares available for purchase under this authorization.
Contractual Obligations
On June 30, 2011, our contractual obligations were $10.5 million compared to $4.3 million reported in our Annual Report on Form 10-K as of December 31, 2010. The following table summarizes our contractual obligations on June 30, 2011 and the effect these obligations are expected to have on our liquidity and cash flow in future periods.
                                         
    Payments Due by Period  
            Less than     1-3     4-5     After  
(In thousands)   Total     1 year     Years     years     5 years  
Contractual obligations:
                                       
Operating lease obligations
  $ 8,170     $ 2,980     $ 3,208     $ 1,982     $  
Purchase obligations(1)
    2,287       2,287                    
 
                             
Total contractual obligations
  $ 10,547     $ 5,267     $ 3,208     $ 1,982     $  
 
                             
 
(1)   Purchase obligations include contractual payments to purchase tooling assets.
Liquidity
Historically, we have utilized cash provided from operations as our primary source of liquidity, as internally generated cash flows have been sufficient to support our business operations, capital expenditures and discretionary share repurchases. We believe our current cash balances and anticipated cash flow generated from operations are sufficient to cover cash outlays expected for at least the next twelve months.
We are able to supplement this near-term liquidity, if necessary, with credit line facility made available by U.S. Bank. Our liquidity is subject to various risks including the market risks identified in the section entitled “Qualitative and Quantitative Disclosures about Market Risk” in Item 3.
                 
    June 30,   December 31,
(In thousands)   2011   2010
Cash and cash equivalents
  $ 37,900     $ 54,249  
Total debt
    20,600       35,000  
Available borrowing resources
    20,000       33,766  
On June 30, 2011, we had an outstanding balance of $20.6 million related to our U.S. Bank 1-year term loan facility. Our term loan, along with our line of credit and available cash, was utilized to finance the acquisition of Enson Assets Limited and to pay related transaction costs, fees, and expenses. Amounts paid or prepaid on the term loan may not be re-borrowed. The minimum principal payments for the term loan are $2.2 million each quarter. The remaining principal and interest payments are due on July 5 and October 5 of 2011. In addition, a final payment

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equal to the unpaid principal balance plus accrued interest is due on the term loan maturity date. The term loan maturity date is November 1, 2011.
Our cash balances are held in numerous locations throughout the world, including substantial amounts held outside of the United States. The majority of our cash is held outside of the United States and may be repatriated to the United States but, under current law, would be subject to United States federal income taxes, less applicable foreign tax credits. Repatriation of some foreign balances is restricted by local laws. We have not provided for the United States federal tax liability on these amounts for financial 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 June 30, 2011, we had approximately $5.8 million, $7.8 million, $23.0 million, $0.4 million and $0.9 million of cash and cash equivalents in the United States, Europe, Asia, Cayman Islands, and South America, respectively. On December 31, 2010, we had approximately $6.5 million, $15.0 million, $27.8 million, $4.0 million, and $0.9 million of cash and cash equivalents in the United States, Europe, Asia, Cayman Islands and South America, respectively.
For further information regarding our credit facilities, see “ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.”
Off Balance Sheet Arrangements
Other than the contractual obligations disclosed above, we do not participate in any off balance sheet arrangements.
Factors That May Affect Financial Condition and Future Results
Forward Looking Statements
We caution that the following important factors, among others (including but not limited to factors discussed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” as well as those discussed in our 2010 Annual Report on Form 10-K, or in our other reports filed from time to time with the Securities and Exchange Commission), may affect our actual results and may contribute to or cause our actual consolidated results to differ materially from those expressed in any of our forward-looking statements. The factors included here are not exhaustive. Further, any forward-looking statement speaks only as of the date on which such statement is made, and we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of unanticipated events. New factors emerge from time to time, and it is not possible for management to predict all such factors, nor can we assess the impact of each such factor on the business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Therefore, forward-looking statements should not be relied upon as a prediction of actual future results.
While we believe that the forward-looking statements made in this report are based on reasonable assumptions, the actual outcome of such statements is subject to a number of risks and uncertainties, including the following:
    the failure of our markets or customers to continue growing and expanding in the manner we anticipated;
 
    our inability to attract and retain quality workforce at adequate levels in all regions of the world, particularly Asia;
 
    the effects that product mix ordered and required by our customers have on our margins;
 
    the effects that product ordering patterns by our customers have on our manufacturing capacities;
 
    the effects of natural or other events beyond our control, including the effects of earthquakes, Tsunamis, wars or terrorist activities may have on us, the economy or our customers, including most particularly the effects

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      of the recent earthquake and subsequent Tsunami on Japan, its economy, and our vendors and customers doing business and/or residing in Japan;
    the growth of, acceptance of and the demand for our products and technologies in various markets and geographical regions, including cable, satellite, consumer electronics, retail, digital media/technology, CEDIA, interactive TV, and cellular industries not materializing or growing as we believed;
 
    the failure to successfully integrate the operations of Enson Assets Limited and its subsidiaries (“Enson”), into our pre-existing operations;
 
    the failure of Enson to perform in accordance with our expectations;
 
    our inability to obtain orders or maintain our order volume with new and existing customers;
 
    our inability to add profitable complementary products which are accepted by the marketplace;
 
    our inability to continue selling our products or licensing our technologies at higher or profitable margins;
 
    our inability to continue to maintain our operating costs at acceptable levels through our cost containment efforts;
 
    the possible dilutive effect our stock incentive programs may have on our earnings per share and stock price;
 
    our inability to continue to obtain adequate quantities of component parts or secure adequate factory production capacity on a timely basis;
 
    our inability to successfully integrate any strategic business transaction; and
 
    other factors listed from time to time in our press releases and filings with the Securities and Exchange Commission.
ITEM 3. 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 term loan and revolving credit line with U.S. Bank. We may withdraw either U.S. dollars or foreign currencies from our credit facilities. Our market risk exposures in connection with the debt are primarily U.S. dollar LIBOR-based floating interest.
On June 30, 2011, we had an outstanding balance of $20.6 million related to our U.S. Bank 1-year term loan facility. The term loan maturity date is November 1, 2011. Under the U.S. Bank term loan, we may elect to pay interest based on the bank’s prime rate or LIBOR plus a fixed margin of 1.5%. The applicable LIBOR (1, 3, 6, or 12-month LIBOR) corresponds with the loan period we select. On June 30, 2011, the 1-month LIBOR plus the fixed margin was approximately 1.69% and the bank’s prime rate was 3.25%. If a LIBOR rate loan is prepaid prior to the completion of the loan period, we must pay the bank the difference between the interest the bank would have earned had prepayment not occurred and the interest the bank actually earned.
Under the U.S. Bank secured revolving credit line, we may elect to pay interest based on the bank’s prime rate or LIBOR plus a fixed margin of 1.8%. The applicable LIBOR (1, 3, 6, or 12-month LIBOR) corresponds with the loan period we select. At June 30, 2011, the 12-month LIBOR plus the fixed margin was 2.53% and the bank’s prime rate was 3.25%. If a LIBOR rate loan is prepaid prior to the completion of the loan period, we must pay the bank the

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difference between the interest the bank would have earned had prepayment not occurred and the interest the bank actually earned. We may prepay prime rate loans in whole or in part at any time without a premium or penalty.
We cannot make any assurances that we will not need to borrow additional amounts in the future or that funds will be extended to us under comparable terms or at all. If funding is not available to us at a time when we need to borrow, we would have to use our cash reserves, including potentially repatriating cash from foreign jurisdictions, which may have a material adverse effect on our operating results, financial position and cash flows.
Foreign Currency Exchange Rate Risk
At June 30, 2011, we had wholly owned subsidiaries in the People’s Republic of China, Argentina, Brazil, Cayman Islands, France, Germany, Hong Kong, India, Italy, the Netherlands, Singapore, Spain, and the United Kingdom. We are exposed to foreign currency exchange rate risk inherent in our sales commitments, anticipated sales, anticipated purchases, assets and liabilities denominated in currencies other than the U.S. dollar. The most significant foreign currencies to our operations for the three and six months ended June 30, 2011 were the Euro, British Pound and Chinese Yuan Renminbi. For most currencies, we are a net receiver of the foreign currency and therefore benefit from a weaker U.S. dollar and are adversely affected by a stronger U.S. dollar relative to the foreign currency. Even where we are a net receiver, a weaker U.S. dollar may adversely affect certain expense figures taken alone.
From time to time, we enter into foreign currency exchange agreements to manage the foreign currency exchange rate risks inherent in our forecasted income and cash flows denominated in foreign currencies. The terms of these foreign currency exchange 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.
The sensitivity of earnings and cash flows to the variability in exchange rates is assessed by applying an approximate range of potential rate fluctuations to our assets, obligations and projected results of operations denominated in foreign currency with all other variables held constant. The analysis covers all of our foreign currency contracts offset by the underlying exposures. Based on our overall foreign currency rate exposure at June 30, 2011, we believe that movements in foreign currency rates may have a material affect on our financial position. We estimate that if the exchange rates for the Euro, British Pound, Chinese Yuan Renminbi, Indian Rupee, and Singapore dollar relative to the U.S. dollar fluctuate 10% from June 30, 2011, net income and total cash flows in the third quarter of 2011 will fluctuate by approximately $2.7 million and $3.5 million, respectively.
ITEM 4. CONTROLS AND PROCEDURES
Exchange Act Rule 13a-15(d) defines “disclosure controls and procedures” to mean controls and procedures of a company that are designed to ensure that information required to be disclosed by the company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms. The definition further states that disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that the information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
An evaluation was performed under the supervision and with the participation of our management, including our principal executive and principal financial officers, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, our principal

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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. There were no changes in our internal control over financial reporting that occurred during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Our management has excluded Enson Assets Limited from its assessment of internal control over financial reporting as of June 30, 2011 because they were acquired during the fourth quarter of 2010. Enson Assets Limited is a subsidiary whose total assets and total net sales represent 56% and 34%, respectively, of the related consolidated financial statement amounts as of and for the six months ended June 30, 2011.
Prior to the acquisition, Enson was a private company and was not subject to Securities and Exchange Commission’s Rules on Management’s Report on Internal Control Over Financial Reporting and Certification of Disclosure in Exchange Act Periodic Reports. As a result, it was not possible to conduct an assessment of Enson’s internal control over financial reporting in the period between the acquisition date and the date of management’s assessment. In accordance with SEC guidance, we have excluded Enson from the scope of management’s report on internal control over financial reporting. The period in which management may omit an assessment of an acquired business’s internal control over financial reporting from its assessment of the internal control may not extend beyond one year from the date of acquisition, nor may such assessment be omitted from more than one annual management report on internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The information set forth above under Note 10 — Commitments and Contingencies — Litigation contained in the “Notes to the Consolidated Financial Statements” is incorporated herein by reference.
ITEM 1A. RISK FACTORS
The reader should carefully consider, in connection with the other information in this report, the factors discussed in Part I, “Item 1A: Risk Factors” on pages 12 through 22 of the Company’s 2010 Annual Report on Form 10-K incorporated herein by reference. These factors may cause our actual results to differ materially from those stated in forward-looking statements contained in this document and elsewhere.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
During the quarter ended June 30, 2011, we did not sell any equity securities that were not registered under the Securities Act of 1933.
On February 11, 2010, our Board of Directors authorized management to continue repurchasing up to an additional 1,000,000 shares of our issued and outstanding common stock. Repurchases may be made to manage dilution created by shares issued under our stock incentive plans or whenever we deem a repurchase is a good use of our cash and the price to be paid is at or below a threshold approved by our Board. At June 30, 2011, we have purchased 610,316 shares of our common stock, leaving 389,684 shares available for purchase under this authorization. Repurchase information for the second quarter of 2011 is set forth by month in the following table:
                                 
                    Total Number of        
                    Shares     Maximum Number of  
                    Purchased as Part of     Shares that May Yet  
    Total Number     Average     Publicly Announced     Be Purchased  
    of Shares     Price Paid     Plans or     Under the Plans or  
Period   Purchased     per Share     Programs     Programs  
April 1, 2011 — April 30, 2011
    7,989     $ 28.70       N/A       N/A  
May 1, 2011 — May 31, 2011
    21,577       25.75       N/A       N/A  
June 1, 2011 — June 30, 2011
    94,402       24.83       N/A       N/A  
 
                         
Total Second Quarter 2011
    123,968     $ 25.24       N/A       N/A  
 
                         

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ITEM 6. EXHIBITS
     
31.1
  Rule 13a-14(a) Certifications of Paul D. Arling, Chief Executive Officer (principal executive officer) of Universal Electronics Inc.
 
   
31.2
  Rule 13a-14(a) Certifications of Bryan M. Hackworth, Chief Financial Officer (principal financial officer and principal accounting officer) of Universal Electronics Inc.
 
   
32
  Section 1350 Certifications of Paul D. Arling, Chief Executive Officer (principal executive officer) of Universal Electronics Inc., and Bryan M. Hackworth, Chief Financial Officer (principal financial officer and principal accounting officer) of Universal Electronics Inc. pursuant to 18 U.S.C. Section 1350
 
   
101.INS**
  XBRL Instance Document
 
   
101.SCH**
  XBRL Taxonomy Extension Schema Document
 
   
101.CAL**
  XBRL Taxonomy Extension Calculation Linkbase Document
 
   
101.LAB**
  XBRL Taxonomy Extension Label Linkbase Document
 
   
101.PRE**
  XBRL Taxonomy Extension Presentation Linkbase Document
 
**   XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, and otherwise is not subject to liability under these sections.

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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
         
Date: August 9, 2011  Universal Electronics Inc.
 
 
  /s/ Bryan M. Hackworth    
  Bryan M. Hackworth   
  Chief Financial Officer
(principal financial officer and principal accounting officer) 
 

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EXHIBIT INDEX
     
Exhibit No   Description
31.1
  Rule 13a-14(a) Certifications of Paul D. Arling, Chief Executive Officer (principal executive officer) of Universal Electronics Inc.
 
   
31.2
  Rule 13a-14(a) Certifications of Bryan M. Hackworth, Chief Financial Officer (principal financial officer and principal accounting officer) of Universal Electronics Inc.
 
   
32
  Section 1350 Certifications of Paul D. Arling, Chief Executive Officer (principal executive officer) of Universal Electronics Inc., and Bryan M. Hackworth, Chief Financial Officer (principal financial officer and principal accounting officer) of Universal Electronics Inc. pursuant to 18 U.S.C. Section 1350
 
   
101.INS**
  XBRL Instance Document
 
   
101.SCH**
  XBRL Taxonomy Extension Schema Document
 
   
101.CAL**
  XBRL Taxonomy Extension Calculation Linkbase Document
 
   
101.LAB**
  XBRL Taxonomy Extension Label Linkbase Document
 
   
101.PRE**
  XBRL Taxonomy Extension Presentation Linkbase Document
 
**   XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, and otherwise is not subject to liability under these sections.

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