UNIVERSAL ELECTRONICS INC - FORM 8-K/A - EX-99.2

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8-K/A - FORM 8-K/A - UNIVERSAL ELECTRONICS INC	a58228e8vkza.htm
EX-23.1 - EX-23.1 - UNIVERSAL ELECTRONICS INC	a58228exv23w1.htm
EX-99.1 - EX-99.1 - UNIVERSAL ELECTRONICS INC	a58228exv99w1.htm

UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS

On November 3, 2010, the Company’s subsidiary, UEI Hong Kong Private Limited, entered into an agreement to acquire all of the issued shares in the capital of Enson Assets Limited (“Enson”), a limited liability company organized under the Laws of the British Virgin Islands, for total consideration of approximately $125.8 million, in cash and Universal Electronics, Inc. (“UEI”) common stock (the “Acquisition”). The Acquisition was consummated pursuant to a Stock Purchase Agreement, dated as of November 3, 2010, among Universal Electronics Inc., UEI Hong Kong Private Limited and CG International Holdings Limited, a closely-held exempted company incorporated in the Cayman Islands.

The following unaudited pro forma combined condensed balance sheet as of September 30, 2010 and the unaudited pro forma combined condensed income statement for the year ended December 31, 2009 and the nine months ended September 30, 2010 are based on the historical financial statements of UEI and Enson, after adjusting for the effects of the Acquisition, as well as the assumptions and adjustments described in the accompanying notes to the unaudited pro forma combined condensed financial statements. Certain reclassifications were made to the Enson consolidated financial statements to conform them to UEI’s presentation. In addition, Enson’s consolidated financial statements, from which these pro forma financial statements are derived, were prepared in accordance with International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board, which did not significantly differ from U.S. GAAP.

The unaudited pro forma combined condensed balance sheet combines UEI’s historical unaudited consolidated balance sheet as of September 30, 2010 with Enson’s historical unaudited consolidated balance sheet as of September 30, 2010. UEI and Enson had different fiscal year ends. Accordingly, the unaudited pro forma combined condensed income statement for the year ended December 31, 2009 combines UEI’s historical audited consolidated income statement for the year ended December 31, 2009 with Enson’s historical audited consolidated income statement for the year ended March 31, 2010. The unaudited pro forma combined condensed income statement for the nine months ended September 30, 2010 combines UEI’s historical unaudited consolidated income statement for the nine months ended September 30, 2010 with Enson’s historical unaudited consolidated income statement based on a consecutive nine month period ended September 30, 2010.

The unaudited combined condensed pro forma balance sheet as of September 30, 2010 is presented as if the Acquisition and the related financing occurred on September 30, 2010. The unaudited pro forma combined condensed income statement for the year ended December 31, 2009 and the unaudited pro forma combined condensed income statement for the nine months ended September 30, 2010 are presented as if the Acquisition and the financing had taken place on January 1, 2009 and January 1, 2010, respectively.

The Acquisition has been accounted for under the acquisition method of accounting. Under the acquisition method of accounting, we are required to measure the identifiable assets acquired and liabilities assumed at their acquisition date fair values, with limited exceptions. Goodwill is recognized as of the acquisition date, and is the excess of the consideration transferred and the net of the acquisition date amounts of identifiable assets acquired and liabilities assumed.

The unaudited pro forma combined condensed financial statements have been prepared for illustrative purposes only and are not necessarily indicative of the consolidated financial position or income statement in future periods or the results that actually would have been realized had UEI and Enson been a combined company during the respective periods presented. The unaudited pro forma combined condensed financial statements, including the notes thereto, should be read in conjunction with UEI’s historical consolidated financial statements included in its 2009 annual report on Form 10-K filed on March 15, 2010, Current Report on Form 8-K filed on November 4, 2010 and in its Form 10-Q for the nine months ended September 30, 2010 filed on November 9, 2010, as well as Enson’s historical consolidated financial statements included as Exhibit 99.1 in this Current Report on Form 8-K/A.

UNIVERSAL ELECTRONICS INC.
PRO FORMA COMBINED CONDENSED BALANCE SHEET AS OF SEPTEMBER 30, 2010
(In thousands)
(Unaudited)


	Enson						UEI			Proforma				Pro Forma
	(U.S. GAAP)						(U.S. GAAP)			Adjustments			Note 2	Combined
	(HK$) *			(US$)			(US$)			(US$)				(US$)
ASSETS
Current assets:
Cash and cash equivalents	$	185,573		$	23,939		$	23,447		$	536		(a)	$	47,922
Term deposit		—			—			49,536			(49,536	)	(a)		—
Accounts receivable, net		320,944			41,402			57,990			(9,104	)	(b)		90,288
Inventories, net		181,275			23,384			44,615			(528	)	(b) (c)		67,471
Prepaid expenses and other current assets		4,163			537			1,594			60		(c)		2,191
Income tax receivable		—			—			480			—				480
Deferred income taxes		—			—			2,938			—				2,938

Total current assets		691,955			89,262			180,600			(58,572	)			211,290
Property, plant and equipment, net		348,573			44,966			10,913			20,484		(c)		76,363
Goodwill		—			—			13,609			16,466		(d)		30,075
Intangible assets, net		—			—			11,323			25,700		(e)		37,023
Other assets		4,796			619			757			2,662		(c)		4,038
Deferred income taxes		21,847			2,818			7,853			—				10,671

Total assets	$	1,067,171		$	137,665		$	225,055		$	6,740			$	369,460


LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	176,352		$	22,750		$	30,969		$	(9,104	)	(b)	$	44,615
Accrued sales discounts, rebates and royalties		—			—			6,692			—				6,692
Accrued income taxes		44,499			5,740			—			—				5,740
Accrued compensation		161,134			20,786			5,650			—				26,436
Other accrued expenses		53,146			6,856			6,088			5,874		(f)		18,818
Notes payable		33,845			4,366			—			41,000		(g)		45,366

Total current liabilities		468,976			60,498			49,399			37,770				147,667
Long-term liabilities:
Deferred income taxes		14,687			1,894			159			9,965		(c)		12,018
Income tax payable		—			—			1,348			—				1,348
Notes payable		—			—			—			—				—
Other long-term liabilities		—			—			78			—				78

Total liabilities		483,663			62,392			50,984			47,735				161,111


Commitments and contingencies

Stockholders’ equity:
Preferred stock		—			—			—			—				—
Common stock		—			—			193			15		(h)		208
Paid-in capital		82,217			10,606			133,078			20,142		(i)		163,826
Accumulated other comprehensive (loss) income		(528	)		(68	)		(168	)		68		(j)		(168	)
Retained earnings		501,819			64,735			130,304			(61,220	)	(c) (j)		133,819

		583,508			75,273			263,407			(40,995	)			297,685

Less cost of common stock in treasury		—			—			(89,336	)		—				(89,336	)

Total stockholders’ equity		583,508			75,273			174,071			(40,995	)			208,349

Total liabilities and stockholders’ equity	$	1,067,171		$	137,665		$	225,055		$	6,740			$	369,460


*		The Enson amounts included in the pro forma combined condensed balance sheet were translated into U.S. dollars using an exchange rate of 0.129 U.S. dollars per Hong Kong dollar, which was the representative exchange rate on September 30, 2010.

See Notes to Unaudited Pro Forma Combined Condensed Financial Statements.

PRO FORMA COMBINED CONDENSED INCOME STATEMENT
(In thousands, except per share amounts)
(Unaudited)


	Enson						UEI
	(U.S. GAAP)						(U.S. GAAP)
							For the Year
							Ended
	For the Fiscal Year Ended						December 31,			Proforma				Pro Forma
	March 31, 2010						2009			Adjustments			Note 2	Combined
	(HK$) *			(US$)			(US$)			(US$)				(US$)
Net sales	$	1,164,233		$	150,186		$	317,550		$	(45,311	)	(b)	$	422,425
Cost of sales		899,188			115,995			215,938			(42,067	)	(b) (k)		289,866

Gross profit		265,045			34,191			101,612			(3,244	)			132,559

Research and development expenses		16,363			2,111			8,691			—				10,802
Selling, general and administrative expenses		86,068			11,103			70,974			2,815		(l)		84,892


Operating income		162,614			20,977			21,947			(6,059	)			36,865
Interest income(expense), net		412			53			471			(559	)	(m)		(35	)
Other income (expense), net		26,705			3,445			(241	)		—				3,204


Income before provision for income taxes		189,731			24,475			22,177			(6,618	)			40,034
Provision for income taxes		(36,994	)		(4,772	)		(7,502	)		(328	)	(n)		(12,602	)

Net income	$	152,737		$	19,703		$	14,675		$	(6,946	)		$	27,432


Earnings per share:
Basic							$	1.07						$	1.81

Diluted							$	1.05						$	1.78


Shares used in computing earnings per share:
Basic								13,667							15,127

Diluted								13,971							15,431


*		The Enson amounts included in the pro forma combined condensed income statement were translated into U.S. dollars using an exchange rate of 0.129 U.S. dollars per Hong Kong dollar, which was the average of the representative exchange rates for twelve months ended March 31, 2010.

See Notes to Unaudited Pro Forma Combined Condensed Financial Statements.

PRO FORMA COMBINED CONDENSED INCOME STATEMENT
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2010
(In thousands, except per share amounts)
(Unaudited)


	Enson						UEI			Proforma				Pro Forma
	(U.S. GAAP)						(U.S. GAAP)			Adjustments			Notes	Combined
	(HK$) *			(US$)			(US$)			(US$)				(US$)
Net sales	$	1,082,669		$	139,664		$	229,275		$	(29,874	)	(b)	$	339,065
Cost of sales		824,471			106,357			154,068			(27,383	)	(b) (k)		233,042

Gross profit		258,198			33,307			75,207			(2,491	)			106,023

Research and development expenses		16,455			2,123			7,944			—				10,067
Selling, general and administrative expenses		67,471			8,704			50,694			2,120		(l)		61,518


Operating income		174,272			22,480			16,569			(4,611	)			34,438
Interest income (expense), net		892			115			99			(439	)	(m)		(225	)
Other income, net		7,852			1,013			62			—				1,075


Income before provision for income taxes		183,016			23,608			16,730			(5,050	)			35,288
Provision for income taxes		(34,144	)		(4,405	)		(5,415	)		(166	)	(n)		(9,986	)

Net income	$	148,872		$	19,203		$	11,315		$	(5,216	)		$	25,302


Earnings per share:
Basic							$	0.83						$	1.68

Diluted							$	0.81						$	1.65


Shares used in computing earnings per share:
Basic								13,572							15,032

Diluted								13,897							15,357


*		The Enson amounts included in the pro forma combined condensed income statement were translated into U.S. dollars using an exchange rate of 0.129 U.S. dollar per Hong Kong dollar, which was the average of the representative exchange rates for nine months ended September 30, 2010.

See Notes to Unaudited Pro Forma Combined Condensed Financial Statements.

Note 1: Preliminary Purchase Price Allocation

The unaudited pro forma combined condensed consolidated financial statements have been prepared to demonstrate the financial effect of the Acquisition of Enson, which was accounted for under the acquisition method of accounting. The aggregate amount of consideration paid by UEI to acquire Enson was $125.8 million in cash and stock. The consideration transferred consisted of $95.0 million in cash and 1,460,000 of newly issued shares of UEI common stock. A total of $5.0 million of the purchase price was held back at the closing to provide for any additional payments required by Enson’s former owners as a result of Enson’s failure to meet both a net asset target and an earnings target.

Under the acquisition method of accounting, the total estimated purchase price was allocated to the Enson net tangible and intangible assets acquired and liabilities assumed based on their estimated fair values as of November 4, 2010, the Acquisition date. Based on management’s preliminary valuation of the fair value of tangible and intangible assets acquired and liabilities assumed, which are based on estimates and assumptions that are subject to change, the preliminary estimated purchase price is allocated as follows (in thousands):


	Weighted
	Average	Preliminary
	Estimated Lives	Fair Value

Cash & cash equivalents		$	20,877
Inventories			23,600
Accounts receivable			36,071
Prepaid expenses and other current assets			2,016
Property, plant and equipment	23 years		68,700
Deferred income taxes			2,980
Other assets			1,426
Interest bearing liabilities			(2,780	)
Non-interest bearing liabilities			(69,294	)

Net tangible assets acquired			83,596
Customer relationships	10 years		23,300
Trademark and trade name	10 years		2,400
Goodwill			16,466

Total estimated purchase price		$	125,762

Prior to the end of the measurement period for finalizing the purchase price allocation, 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.

Intangible Assets Subject to Amortization

Of the total estimated purchase price, $83.6 million has been allocated to net tangible assets acquired, and $25.7 million has been allocated to intangible assets acquired. The intangible assets consist of $23.3 million assigned to customer relationships and $2.4 million assigned to trademark and trade name.

The value assigned to Enson’s customer relationships intangible asset was determined utilizing the income approach, discounting the estimated cash flows associated with the existing customers as of the Enson Acquisition date taking into consideration estimated attrition of this existing customer base. UEI expects to amortize the value of Enson’s customer relationships on a straight-line basis over an estimated life of ten years. Amortization of customer relationships is not deductible for tax purposes.

The value assigned to Enson’s trademark and trade name intangible asset was determined utilizing the income approach, discounting the future estimated cash flows associated with the trade mark and trade name. UEI expects to amortize the value of Enson’s trademark and trade name on a straight-line basis over an estimated life of ten years. Amortization of trademark and trade name is not deductible for tax purposes.

Goodwill

Goodwill represents the excess of the cost (purchase price) over the estimated fair value of identifiable tangible and intangible assets acquired. Goodwill from this transaction of $16.5 million will not be amortized, but will be analyzed for impairment at least on an annual basis in accordance with U.S. GAAP. We review our goodwill for impairment annually as of December 31 and whenever events or changes in circumstances indicate that an impairment loss may have occurred. Of the total goodwill recorded, none is expected to be deductible for tax purposes.

The goodwill recognized is attributable to the following value we received from the Acquisition:

•		Enson should increase the Company’s market position in the strategically important consumer electronics market with its historic strength with leading Japanese customers. The Company has not historically been well positioned in this market.

•		Enson currently produces approximately one-third of the Company’s volume, therefore, the Company may decrease third party supplier purchases. In addition, Enson has available manufacturing capacity, which may provide it the ability to increase utilization of its existing factories.

•		The Company may utilize Enson’s in-place management and personnel to assist in implementing its plan to place more operations, logistics, quality, program management, engineering, sales, and marketing personnel in the Asia region.

•		Enson’s full line of remotes, from dedicated to higher-end universal, should assist the Company to further penetrate the growing Asian and Latin American subscription broadcasting markets. The lower subscriber revenue in these markets can cause them to begin with lower-cost dedicated remotes and to later transition to universal remote controls.

•		Acquiring Enson should allow the Company to gain purchasing economies.

Acquisition Costs

We recognized $0.7 million of total acquisition costs related to the Enson transaction in selling, general and administrative expenses during the year ended December 31, 2010. The acquisition costs consisted primarily of legal and investment banking services. Such acquisition costs have not been included in the pro forma combined income statements.

Note 2: Pro Forma Adjustments

Pro forma adjustments are made primarily to reflect the estimated purchase price of the Acquisition, to adjust Enson’s tangible assets, intangible assets and liabilities to a preliminary estimate of the fair values of those assets and liabilities, and to reflect the amortization expense related to the intangible assets.

The specific pro forma adjustments included in the unaudited pro forma financial statements are as follows:

a)		Prior to the acquisition we had a $49.5 million term deposit at Wells Fargo Bank. We elected to liquidate this term deposit account to assist us with the funding of the acquisition. This adjustment is to reflect the liquidation of the term deposit and the payment of $49.0 million in cash towards the purchase consideration.

b)		To eliminate intercompany transactions and balances between Enson and UEI.

c)		To reflect the fair value of assets acquired and liabilities assumed as if the acquisition date was September 30, 2010. The adjustment is equal to the difference between the fair value identified in the valuation (see Note 1) and the net book value at September 30, 2010.

d)		To recognize goodwill of $16.5 million related to the Acquisition.

e)		To reflect the fair value of the customer relationships estimated as $23.3 million and the fair value of the trademark and trade name estimated as $2.4 million.

f)		This adjustment reflects the $5.0 million of the purchase price which was held back at the closing, the accrual of transaction costs and costs associated with the Acquisition of $0.6 million, and the current portion of the deferred tax liability established as a result of the purchase price accounting.

g)		This adjustment adds the $6.0 million withdrawn from our Credit Facility and the $35 million Term Loan balances incurred to fund a portion of the purchase consideration. Related to this acquisition, UEI amended and restated its existing credit agreement with U.S. Bank. The amendments added a new $35 million secured Term Loan for the purpose of financing a portion of the Acquisition. In addition, UEI’s existing $15 million unsecured Credit Facility was increased to $20 million and the expiration date was extended from October 31, 2011 to November 1, 2012. Under the Term Loan, UEI may elect to pay interest based on the bank’s prime rate or LIBOR plus a fixed margin of 1.5%. The Term Loan maturity is November 1, 2011.

h)		To adjust the common stock balance for the 1,460,000 shares of UEI common stock issued in connection with the Acquisition. Such shares were valued based on the average of the high and low trades of UEI common stock on November 4, 2010.

i)		To eliminate Enson’s paid-in capital of $10.6 million and to reflect the issuance of 1,460,000 shares of common stock valued at $30.7 million in connection with the Acquisition.

j)		To eliminate Enson’s other comprehensive income and retained earnings.

k)		To reflect the depreciation effects caused by the purchase accounting fair value adjustments to property, plant and equipment, net, which amounted to $0.9 million and $0.7 million for the twelve months ended December 31, 2009 and nine months ended September 30, 2010, respectively. In addition, to reflect the cost of goods sold effect of the write-up of inventories, net to fair value of $1.6 million as a result of the purchase accounting for the twelve months ended December 31, 2009 and the nine months ended September 30, 2010.

l)		To reflect the amortization of intangible assets acquired of $1.9 million and $2.6 million for the nine months ended September 30, 2010 and the twelve months ended December 31, 2009, respectively. To reflect the depreciation effects caused by the purchase accounting fair value adjustments to property, plant and equipment, net.

m)		To record the interest expense related to the US Bank Term Loan and secured Credit Facility which was obtained for the purpose of funding the Acquisition. This interest expense adjustment for the Term Loan was calculated assuming the minimum required principle payments were made in accordance with the agreement and utilizing the interest rate in effect at the Acquisition date (1.8%). The balance on the secured Credit Facility was outstanding for 37 days, as the balance was paid in full on December 10, 2010. The interest expense adjustment for the secured Credit Facility was the actual interest expense incurred.

n)		To reflect the effect of the pro forma income statement adjustments on the provision for income taxes. The recognized intangible assets are not expected to be deductible for tax purposes; however we have included some tax effects with this adjustment for the amortization of the deferred tax liability associated with the acquisition.

The unaudited pro forma combined condensed consolidated financial statements do not include adjustments for liabilities related to business integration activities related to the Acquisition, as management is in the process of assessing what, if any, future actions are necessary. However, liabilities ultimately may be recorded for costs associated with business integration activities related to the Acquisition in our consolidated financial statements.

UEI has not identified any material pre-Acquisition contingencies where the related asset, liability or impairment is probable and the amount of the asset, liability or impairment can be reasonably estimated.

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