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

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

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)

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 o

Accelerated 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

		Page
PART I. FINANCIAL INFORMATION			3
Item 1. Consolidated Financial Statements (Unaudited)			3
Consolidated Balance Sheets			3
Consolidated Income Statements			4
Consolidated Statements of Cash Flows			5
Notes to the Consolidated Financial Statements			6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			28
Item 3. Quantitative and Qualitative Disclosures About Market Risk			36
Item 4. Controls and Procedures			37
PART II. OTHER INFORMATION			38
Item 1. Legal Proceedings			38
Item 1A. Risk Factors			38
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			38
Item 6. Exhibits			39
Signature			40
Exhibit Index			41
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

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.

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.

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.

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.

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

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

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	%			—				—

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

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

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.

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			—				—				—				—

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.

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

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.

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

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

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

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.

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.

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

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

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.

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

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

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.

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

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.

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

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.

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

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

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			$	—