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Item 1. Business

2021-03-05 compared with 2020-03-16 · 168 added, 159 removed, 145 unchanged (69% of the section changed)

Business of Universal Electronics Inc.

Universal Electronics Inc.

8 unchanged sentences

The SEC maintains a website at www.sec.gov that contains the reports, proxy and other information that we file electronically with the SEC.

Business Segment

UEI designs, develops, manufactures and ships control and sensor technology solutions and a broad line of pre-programmed and universal control products, audio-video ("AV") accessories, and intelligent wireless security and smart home products that are used by the world's leading brands in the consumer electronics, subscription broadcasting, home entertainment, automation, security, hospitality and climate control markets.

Our offerings include:

easy-to-use, pre-programmed universal infrared ("IR") and radio frequency ("RF") remote controls that are sold primarily to subscription broadcasting providers (cable, satellite and Internet Protocol television ("IPTV") and Over the Top ("OTT") services), original equipment manufacturers ("OEMs"), retailers, and private label customers;

integrated circuits, on which our software and universal device control database is embedded, sold primarily to OEMs, subscription broadcasting providers, and private label customers;

software, firmware and technology solutions that can enable devices such as TVs, set-top boxes, audio systems, smartphones, tablets, game controllers and other consumer electronic devices to wirelessly connect and interact with home networks and interactive services to control and deliver digital entertainment and information;

intellectual property which we license primarily to OEMs, software development companies, private label customers, and subscription broadcasting providers;

proprietary and standards-based RF sensors designed for residential security, safety and automation applications;

wall-mount and handheld thermostat controllers and connected accessories for intelligent energy management systems, primarily to OEM customers as well as hospitality system integrators;

AV accessories sold, directly and indirectly, to consumers.

Our business is comprised of one reportable segment.

Principal Products and Markets

Our principal markets are the subscription broadcast, consumer and mobile electronics, residential security, and hospitality markets where our customers include service providers, OEMs, international retailers, private label brands, pro-security dealers and companies in the computing industry.

We provide subscription broadcasting providers, both domestically and internationally, with our universal remote control devices and integrated circuits, on which our software and device code libraries are embedded.

We also sell integrated circuits, on which our software and device control code libraries are embedded, and license our device control solutions to OEMs that manufacture televisions, digital audio and video players, streamer boxes, cable converters, satellite receivers, set-top boxes, room and central heating, ventilation and air conditioning ("HVAC") equipment, game consoles, and wireless mobile phones and tablets.

We continue to place significant emphasis on expanding our sales and marketing efforts to subscription broadcasters and OEMs in Asia, Latin America and Europe.

We currently own and operate vertically integrated manufacturing and assembly factories in the People's Republic of China ("PRC"), Mexico and Brazil, which allow us the ability to produce in the regional markets and to scale our production to meet growing customer demand.

We also use third-party manufacturing partners in other regions, such as The Philippines and Vietnam.

Leveraging our scale and expertise in low-power RF microcontrollers, we continue to pursue further penetration of the more traditional OEM consumer electronics markets as well as newer product categories in the smart home and Internet of Things ("IoT") markets such as lighting, window coverings, and bathroom controllers.

Customers in these markets integrate our solutions and technology into their products to enhance their consumer lifestyle ecosystems.

Growth in these markets has been driven by the increasing demand for more energy efficient homes, consumer convenience and the increasing proliferation of connected smart devices.

In 2015, we acquired Ecolink Intelligent Technology, Inc.

("Ecolink"), a leading developer of safety and security products.

Ecolink provides a wide range of intelligent wireless security and automation components dedicated to redefining the home security experience.

Ecolink has over 20 years of wireless engineering expertise in the home security and automation market and currently holds more than 50 related pending and issued patents.

UEI’s current subscription broadcasting customers and customers in the hospitality channel are adding home security and automation to their list of service offerings.

Our acquisition of Ecolink, a premise equipment supplier to this market, enables us to broaden our design expertise and product portfolio to add home security and automation sensors to our capabilities.

In 2017, we acquired Residential Control Systems, Inc.

("RCS"), a U.S.-based designer and manufacturer of energy management and control products for the residential, small commercial and hospitality markets.

The acquisition of RCS allows us to expand our product offering to include smart thermostat, sensing and monitoring products and enables us to broaden our technology and design expertise in these product categories.

Smart and connected thermostats are critical components of the smart home that help deliver energy-efficiency and an enhanced consumer lifestyle.

For the years ended December 31, 2019 , 2018 , and 2017 , our sales to Comcast Corporation ("Comcast") accounted for 15.9% , 17.6% , and 23.0% of our net sales, respectively.

For the year ended December 31, 2017 our sales to AT&T Inc.

("AT&T", formerly DIRECTV) and its sub-contractors collectively accounted for 11.2% of our net sales.

Our One For All ® brand name of remote controls and AV accessories sold within the international retail markets accounted for 6.2% , 7.4% , and 7.1% of our total net sales for the years ended December 31, 2019 , 2018 , and 2017 , respectively.

Intellectual Property and Technology

We hold a number of patents in the United States and abroad related to our products and technology, and have filed domestic and foreign applications for other patents that are pending.

At the end of 2019 , we had over 500 issued and pending United States patents related to remote control, home security, safety and automation as well as hundreds of foreign counterpart patents and applications in various territories around the world.

Our patents have remaining lives ranging from one to 18 years.

We have also obtained copyright registration and claim copyright protection for certain proprietary software and libraries of our device control codes.

Additionally, the names of many of our products are registered, or are being registered, as trademarks in the United States Patent and Trademark Office and in most of the other countries in which such products are sold.

These registrations are valid for terms ranging up to 20 years and may be renewed as long as the trademarks continue to be used and are deemed by management to be important to our operations.

While we follow the practice of obtaining patent, copyright and trademark registrations on new developments whenever advisable, in certain cases we have elected common law trade secret protection in lieu of obtaining such other protection.

A key factor in creating products and software for control of entertainment devices is our proprietary device knowledge graph.

Since our beginning in 1986, we have compiled an extensive device control knowledge library that includes nearly 9,000 brands comprising over 800,000 device models across AV and smart home platforms, supported by many common smart home protocols, including IR, HDMI-CEC, Zigbee, and Home Network or Cloud Control.

This device knowledge graph is backed by our unique device fingerprinting technology which includes over 700,000 unique device fingerprints across both AV and Smart Home devices.

Our technology also includes other remote controlled home entertainment devices and home automation control modules, as well as wired Consumer Electronics Control ("CEC") and wireless Internet Protocol ("IP") control protocols commonly found on many of the latest HDMI and internet connected devices.

Our proprietary software automatically detects, identifies and enables the appropriate control commands for any given home entertainment, automation and air conditioning device in the home.

Our libraries are continuously updated with device control codes used in newly introduced AV and IoT devices.

These control codes are captured directly from original remote control devices or from the manufacturer's written specifications to ensure the accuracy and integrity of the library.

Our proprietary software and know-how permit us to offer a device control code database that is more robust and efficient than similarly priced products of our competitors.

We design, develop, manufacture, ship and support control and sensor technology solutions and a broad line of universal control systems, audio-video ("AV") accessories, and intelligent wireless security and smart home products that are used by the world's leading brands in the video services, consumer electronics, security, home automation, climate control, and home appliance markets.

Our product and technology offerings include:

• easy-to-use, voice-enabled, automatically-programmed universal remote controls with two-way radio frequency ("RF") as well as infrared ("IR") remote controls, that are sold primarily to video service providers (cable, satellite, Internet Protocol television ("IPTV") and Over the Top ("OTT") services), original equipment manufacturers ("OEMs"), retailers, and private label customers;

• integrated circuits ("ICs"), on which our software and universal device control database is embedded, sold primarily to OEMs, video service providers, and private label customers;

• software, firmware and technology solutions that can enable devices such as TVs, set-top boxes, audio systems, smart speakers, game controllers and other consumer electronic and smart home devices to wirelessly connect and interact with home networks and interactive services to control and deliver home entertainment, smart home services and device or system information;

• cloud-services that support our embedded software and hardware solutions (directly or indirectly) enabling real-time device identification and system control with billions of transactions per year in device and data management;

• intellectual property that we license primarily to OEMs, software development companies, private label customers, and video service providers;

• proprietary and standards-based RF sensors designed for residential security, safety and home automation applications;

• wall-mount and handheld thermostat controllers and connected accessories for intelligent energy management systems, primarily to OEM customers, as well as hotels and hospitality system integrators;

• AV accessories sold, directly and indirectly, to consumers including universal remote controls, television wall mounts and stands and digital television antennas.

Distribution methods for our control solutions vary depending on the sales channel.

We distribute remote control devices, ICs, home security sensors, connected thermostats and AV accessories directly to video and security service providers and OEMs, both domestically and internationally.

We also distribute home security sensors and connected thermostats to pro-security installers and hospitality system integrators in the United States and Europe through a network of national and regional distributors and dealers.

Additionally, we sell our wireless control devices and AV accessories under the One For All® and private label brand names to retailers through our international subsidiaries and direct to retailers in key markets, such as in the United States, United Kingdom, Germany, France, Spain, and Italy.

We utilize third-party distributors for the retail channel in countries where we do not have subsidiaries.

Our goal is to provide universal control solutions that require minimal or no user set-up and deliver consistent and intuitive one-touch control of all connected content sources and devices.

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The two-way connection allows device control code data and configuration settings to be sent to the remote control from the device and greatly simplifies the universal control set-up process and can enable other time-saving features.

QuickSet utilizes data transmitted over HDMI or IP networks to automatically detect various attributes of the connected device and downloads the appropriate control codes and functions into the remote control without the need for the user to enter any additional information.

The user does not need to know the brand or model number to set up the device in the remote.

Any compatible new device that is connected is recognized.

Consumers can quickly and easily set up their control interface to control multiple devices.

Recently added QuickSet features address common consumer challenges in universal device control, such as mode confusion and input switching.

QuickSet utilizes data transmitted over HDMI or Internet Protocol ("IP") networks to automatically detect various attributes of the connected device and downloads the appropriate control codes and functions into the remote control without the need for the user to enter any additional information.

With QuickSet, consumers switch easily between activities and reliably view their chosen content source with a single touch.

QuickSet handles the device-specific control.

A QuickSet user experience can be delivered via a tactile remote, touchscreen interface, on-screen graphical user interface or voice-enabled system.

Licensees of QuickSet include service providers such as Comcast, AT&T and Dish Network Corporation;

smart TV manufacturers such as Sony Corporation ("Sony") and Samsung;

and leading game console manufacturers such as Microsoft Corporation on its Xbox One game system.

Licensees of QuickSet include service providers such as Comcast, Charter Communications, AT&T and Dish Network Corporation;

smart TV manufacturers such as Sony Corporation, LG and Samsung;

and leading game console manufacturers such as Microsoft Corporation on its Xbox One game system and Sony PlayStation on its PlayStation 5 remote control.

QuickSet Cloud is an end-to-end platform for discovery, control, and interaction with devices including rules and automation framework for a truly connected home experience.

Leveraging the largest knowledge graph of devices, services are offered through QuickSet Cloud and QuickSet SDK delivery methods with edge intelligence built in and cloud scalability capabilities.

Smart devices are becoming a more prevalent part of the home entertainment experience, and UEI offers several solutions to enable entertainment device control via a smart phone, tablet, smart TV or smart speaker or digital assistant.

In its smart device control solutions, UEI offers all of the elements needed for device control ranging from IR and RF controller chips to device control libraries to graphical and voice user interfaces, as well as artificial intelligence systems that deliver context aware device interactions.

Designed for Android, Nevo ® ("Nevo") Home is UEI's device and service discovery and control application, currently available for download at Google Play.

In 2018, UEI introduced nevo.ai, a digital assistant for the connected home with a natural language interface to allow interaction with devices within the home using QuickSet's underlying capabilities.

Features are expandable through Enterprise Integration and Ecosystem of Partner Services.

In 2019, we introduced Nevo Butler, a turnkey smart home hub with nevo.ai and QuickSet pre-integrated.

Offered as managed hardware with security built in from manufacturing through the life-cycle, it is capable of natively running Nevo Assistant, as well as other digital assistants.

UEI continues to evolve its hardware and software solutions by adding new features and capabilities to ensure added value.

Through its cloud service platforms, QuickSet Cloud and nevo.ai, UEI began offering Interoperability As a Service with the intent of developing a recurring monthly revenue stream associated with these new offerings to its customers.

Methods of Distribution

Distribution methods for our control solutions vary depending on the sales channel.

We distribute remote control devices, sensors, connected thermostats and AV accessories directly to subscription broadcasters and OEMs, both domestically and internationally.

We also distribute home security sensors and connected thermostats to pro-security installers and hospitality system integrators in the United States through a network of dealers.

Additionally, we sell our wireless control devices and AV accessories under the One For All ® and private label brand names to retailers through our international subsidiaries and direct to retailers in key markets, such as in the United Kingdom and Germany.

We utilize third-party distributors for the retail channel in countries where we do not have subsidiaries.

We have developed a broad portfolio of patented technologies and the industry's leading database of device setup and control software.

We ship integrated circuits, on which our software and control code libraries are embedded and that connect to our embedded software and cloud services, directly to manufacturers for inclusion in their products.

In addition, we license our software and technology to manufacturers.

Licenses are delivered upon the transfer of a product master or on a per unit basis when the software or technology is used in a customer device.

We provide international consumer support to our various retail distributors primarily for our One For All ® branded universal accessories through our live and automated call centers.

We also make available a web-based support resource,

www.urcsupport.com, designed specifically for subscription broadcasters.

This solution offers videos and online tools to help users easily set up their universal remote controls, and as a result reduces call volume at customer support centers.

UEI has developed one of the largest knowledge graphs of devices on the market, enabling a broad array of connected device information to be collected.

Through our QuickSet Cloud and QuickSet SDK delivery methods, we can offer the advantage of edge intelligence built in, as well as the benefits of a cloud-scalable solution.

Our technology pipeline has expanded to include an artificial intelligence platform, nevo.ai, that enables a digital assistant for the connected home with a natural language interface to allow interaction with devices within the home using QuickSet's underlying capabilities.

For example, our newest product platform, Nevo Butler, offers a turnkey smart home hub with nevo.ai and QuickSet pre-integrated.

Nevo Butler delivers a managed hardware with security built-in capable of supporting other digital assistants.

We are engaged with several customers, across different channels, that are currently using our underlying technologies, such as our proprietary microcontrollers, nevo.ai and QuickSet in their devices.

We continue to evolve our hardware and software solutions by adding new features and capabilities to ensure added value.

Through our cloud service platforms, QuickSet Cloud and nevo.ai, we also offer Interoperability as a Service, a managed Internet of Things ("IoT") service which ensures compatibility across the most common devices found in consumers' homes.

Features are further expandable through enterprise integration with an ecosystem of third party partner services.

In 2018, we won a Technical & Engineering Emmy® Award from The National Academy of Television Arts & Sciences for our work relating to voice navigation technologies for discovering and interacting with TV content.

We were selected for our excellence in engineering and creativity that has materially affected the television viewing experience.

To date, we have shipped over 100 million voice-enabled RF remote controls in the home entertainment channel since our first deployment in 2015.

For the years ended December 31, 2020, 2019 and 2018, our sales to Comcast accounted for 20.1%, 15.9% and 17.6% of our net sales, respectively.

Markets and Competition

We continue to place significant emphasis on expanding our sales and marketing efforts to video service providers and home entertainment OEMs in Asia, Latin America and Europe.

In the markets for video services we include cable, satellite, IPTV and OTT service providers.

In recent years, we have seen a significant change in our markets with the rise of the direct-to-consumer streaming video apps that are enabled on smart TVs and streaming devices as well as advanced set-top boxes.

This has resulted in a change in mix in our customer base, especially in the U.S., where our traditional customers in cable and satellite have been complimented with new customers in the digital media streaming domain.

For example, during the fourth quarter of 2020, we announced an MFi-certified, AppleTV remote control for the Multichannel Video Programming Distributor ("MVPD") market allowing subscribers access to subscription-based channels through an OTT streaming platform, such as AppleTV.

Additionally, some of our current customers have successfully introduced media streaming services and expanded their footprint to new end-users.

Tivo Stream, Comcast Flex and Dish Sling are examples of current customer offerings of these types of services.

At the same time, we have seen our markets in Home Entertainment OEM, and especially our smartTV OEMs, successfully upgrade to streaming service aggregators.

The advanced TV interfaces on Smart TVs and related streaming devices offer platforms for personalized advertising and smart home services which is expected to ensure demand for our wireless and wired control products, microcontrollers and software technology.

Our principal competitors in the home entertainment market are Remote Solutions, Omni Remotes, SMK, Ohsung, Tech4Home and Ruwido.

In the international retail and private label markets for wireless controls we compete primarily with the remote segment of Logitech and accessory trading and branding companies like Jasco and Hama, as well as various manufacturers of wireless controls in Asia.

Our primary competitors in the OEM market are the OEMs themselves and various wireless control manufacturers in Asia.

Leveraging our scale and expertise in low-power RF microcontrollers, we continue to pursue further penetration of the more traditional OEM consumer electronics markets as well as newer product categories in the smart home and IoT markets such as lighting, window coverings, and bathroom controllers.

Customers in these markets integrate our connectivity and cloud-based solutions, services and technology into their products to enhance their consumer lifestyle ecosystems.

Growth in these markets has been driven by the increasing demand for more energy efficient homes, consumer convenience and the increasing proliferation of connected devices.

In home security, safety and automation, we offer universal sub-gigahertz products that are compatible with the top security panel manufacturers, such as Honeywell, GE, Tyco/DSC and 2GIG.

In the Do-It-Yourself ("DIY") residential security channel, we offer sensor-based products using industry standard Z-Wave ® and ZigBee ® protocols.

In this market, we compete with offshore-based, original design and built-to-print hardware manufacturers, such as Leedarson.

In the connected smart home market, we compete with the OEMs themselves as well as wireless manufacturers in North America, such as Nortek, and other original design manufacturers in Asia.

In the HVAC controller and thermostat market, we compete with regional specialists and global companies such as Honeywell, Johnson Control, Emerson, Schneider Electric, as well as Far East based OEM manufacturers such as Computime.

We compete in our markets on the basis of product quality, enhanced features, intellectual property, local design and development expertise, local development support and end-user support.

We believe that we will need to continue to introduce new and innovative products and software solutions to remain competitive and to recruit and retain competent personnel to successfully accomplish our future objectives.

Our 28 domestic and international subsidiaries are the following:

Development Ltd., established in Hong Kong;

CG Mexico Remote Controls, S.R.L.

• CG Mexico Distribution Co., S.

de C.V., established in Mexico;

• CG Mexico Remote Controls, S.

de C.V., established in Mexico;

• Ecolink Intelligent Technology, Inc.;

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• Gemstar Technology (Qinzhou) Co.

Ltd., established in the PRC;

Ltd., established in the People's Republic of China ("PRC");

• Gemstar Technology (Yangzhou) Co.

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• One For All UK Ltd., established in the United Kingdom;

• Qinzhou Universal Trading Co.

Ltd., established in the PRC;

• RCS Technology, LLC;

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• UEI Cayman Inc., established in the Cayman Islands;

UEI do Brasil Controles Remotos Ltda., established in Brazil;

• UEI Electronics Pte.

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Ltd., established in the PRC;

• Universal Electronics do Brasil Ltda., established in Brazil;

• Yangzhou Universal Trading Co.

Ltd., established in the PRC.

Raw Materials and Dependence on Suppliers

We utilize our own manufacturing plants and third-party manufacturers and suppliers primarily located within the PRC, Mexico, Brazil and The Philippines to produce our control and sensor products.

In 2017 , Texas Instruments provided 10% of our total inventory purchases.

During 2020, our engineering efforts focused on the following:

• broadening our product portfolio;

• launching new embedded software solutions designed to simplify set-up and control features;

• modifying existing products and technologies to improve features and lower costs;

• maintaining existing products and relocating certain manufacturing to lower cost jurisdictions;

• formulating measures to protect our proprietary technology and general know-how;

• improving our control solutions software;

• updating our library of device codes to include codes for new features and devices introduced worldwide;

• creating innovative products that address consumer challenges in home entertainment control and security sensing;

• optimizing, scaling and improving our cloud platform to deliver additional features and managed services to a large installed base of customer and end users.

During 2020, our advanced engineering efforts focused on further developing our existing products, services and technologies.

We released software updates to our embedded QuickSet application, and continued development initiatives around emerging RF technologies, such as Rf4CE, Bluetooth, Bluetooth Smart and WiFi.

We also introduced a new service platform (UEI Virtual Agent) for easier device onboarding, identification and troubleshooting across our portfolio of control products.

Our personnel are involved with various industry organizations and bodies, which are in the process of setting standards for IR and RF communication and networking in the home.

Because of the nature of research and development ("R&D") activities, there can be no assurance that any of our R&D projects will be successfully completed or ultimately achieve commercial success.

Intellectual Property and Technology

A key factor in creating products and software for control of entertainment devices is our proprietary device knowledge graph.

Since our founding in 1986, we have compiled an extensive device control library that includes nearly 13,000 brands comprising over 930,000 device models across AV and smart home platforms, supported by many common smart home protocols, including IR, HDMI-CEC, Zigbee (Rf4CE), Z-Wave, IP, as well as Home Network and Cloud Control.

We have developed a broad portfolio of patented technologies and the industry's leading database of device setup and control software.

We ship integrated circuits, on which our software and control code libraries are embedded and that connect to our cloud services, directly to manufacturers for inclusion in their products.

In addition, we license our software and technology to manufacturers.

Our technology also includes other remote controlled home entertainment devices and home automation control modules, as well as wired Consumer Electronics Control ("CEC") and wireless IP control protocols commonly found on many of the latest HDMI and internet connected devices.

Our proprietary software automatically detects, identifies and enables the appropriate control commands for many home entertainment and automation devices in the home.

Our libraries are continuously updated with device control codes used in newly introduced AV and IoT devices.

These control codes are captured directly from original control devices or from the manufacturer's written specifications to ensure the accuracy and integrity of the library.

Our proprietary software and know-how permit us to offer a device control code database that is more robust and efficient than similarly priced products from our competitors.

This device knowledge graph is backed by our unique device fingerprinting technology which includes over 8.3 million unique device fingerprints across both AV and Smart Home devices.

Smart devices are becoming a more prevalent part of the home entertainment experience, and we offer several solutions to enable entertainment device control via a smart phone, tablet, smart TV or smart speaker or digital assistant.

In our smart device

control solutions, we offer the elements needed for device control ranging from IR and RF controller chips to device control libraries to graphical and voice user interfaces, as well as artificial intelligence systems that deliver context aware device interactions.

We hold a number of patents in the United States and abroad related to our products and technology, and have filed domestic and foreign applications for other patents that are pending.

At the end of 2020, we had nearly 600 issued and pending United States patents related to remote control, home security, safety and automation as well as hundreds of foreign counterpart patents and applications in various territories around the world.

Our patents have remaining lives ranging from one to 18 years.

We have also obtained copyright registration and claim copyright protection for certain proprietary software and libraries of our device control codes.

These registrations are valid for terms ranging up to 20 years and may be renewed as long as the trademarks continue to be used and are deemed by management to be important to our operations.

Manufacturing and Supply

We currently own and operate vertically integrated manufacturing and assembly factories in the PRC, Mexico and Brazil, which allow us to produce in the regional markets and to scale our production to meet growing demand.

In 2018, we began conversion of our Mexico refurbishment plant into a full manufacturing and assembly factory.

This conversion was substantially completed by the third quarter of 2019.

We also use third-party manufacturing partners in the Far East, such as Vietnam.

We utilize our own manufacturing plants and third-party manufacturers and suppliers primarily to produce our control and sensor products.

In 2020, Qorvo International Pte Ltd.

provided 14.2% of our total inventory purchases.

In 2019 and 2018, no single supplier provided more than 10% of our total inventory purchases.

Even though we operate two factories in the PRC and manufacturing and assembly plants in Brazil and Mexico, we continue to evaluate additional contract manufacturers and sources of supply.

Even though we operate two factories in the PRC and manufacturing and assembly plants in Mexico and Brazil, we continue to evaluate additional contract manufacturers and sources of supply.

During 2020, we utilized multiple contract manufacturers and maintained duplicate tooling for certain of our products.

Where possible we utilize standard parts and components, which are available from multiple sources.

In 2018, to avoid the U.S.

government-imposed tariffs on products made in the PRC and imported into the United States, we began to move production of many of our products destined for the United States to Mexico and a third-party manufacturing partner outside of the PRC.

As of December 31, 2019, this transition was substantially complete.

Our manufacturing process consists of assembly, software installation, functional testing, and quality control.

Our manufacturing process consists of plastic injection, keypad molding, coating or painting, surface mounting of printed circuit boards, assembly, software installation, functional testing, and quality control.

We conduct operations utilizing a formal, documented quality management system to ensure that our products and services satisfy customer needs and expectations.

Testing and quality control are also applied to components, parts, sub-assemblies, and systems obtained from third-party suppliers.

Our manufacturing facilities are certified to the ISO 9001:2015 International Standard for quality management.

Testing and quality control are applied to components, parts, sub-assemblies, and systems obtained from third-party suppliers.

Our factories in the PRC are certified to the ISO 14001 International Standard for environmental management systems.

In addition, the manufacturing facilities in Yangzhou, PRC have also achieved ISO 45001 International Standard for safety and health management systems.

In addition, our manufacturing facilities in Yangzhou, PRC have also achieved ISO 45001 International Standard for safety and health management systems with one of the facilities successfully completing the Validated Audit Process with the Responsible Business Alliance ("RBA").

We are focused on reducing the impact of our operations on the environment;

and our teams continue to examine practices and processes throughout our facilities to identify opportunities for greater efficiency.

In addition to requiring observance to strict quality standards by our suppliers, we maintain and require our suppliers to adhere to a robust Global Supplier Code of Conduct.

As part of the initial qualification and ongoing audit process, we examine a supplier’s social and environmental responsiveness in areas such as labor practice, occupational health and safety, and environmental protection.

Each of our manufacturing facilities has standing policies and/or guidelines for the monitoring and management of energy consumption, and continually strives for reduction in electricity and water usage.

In addition to requiring observance to strict quality standards by our suppliers, we maintain and require our suppliers to adhere to a robust Global Supplier Code of Conduct, which is available on our website.

As part of the initial qualification and ongoing audit process, our dedicated Global Supplier Quality Management Team examines a supplier's social and environmental responsiveness in areas such as labor practice, occupational health and safety, and environmental protection.

Additionally, we are committed to a conflict-free mineral supply chain.

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Flash memory-based microcontrollers have shorter lead times than microcontrollers using other memory technologies and may be reprogrammed, if necessary.

This allows us flexibility to use a given component on many different products, has the added benefit of potentially reducing excess and obsolete inventory exposure and allows us to update our product functionality in the field.

This allows us flexibility to use a given component on many different products, has the added benefit of potentially reducing excess and obsolete inventory

exposure and allows us to update our product functionality in the field.

This diversification lessens our dependence on any one supplier and allows us to negotiate more favorable terms.

UEI is also a large consumer of low-power, RF chips and modules that are used throughout our product portfolios, including many of our remotes, sensors and thermostats.

Historically, our business has been influenced by the retail sales cycle, with increased sales in the second half of the year.

We expect this pattern to be repeated during 2020 .

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA — Notes to Consolidated Financial Statements — Note 22" for further details regarding our quarterly results.

Our principal competitors in the subscription broadcasting market are Remote Solutions, Omni Remotes (formerly Philips Home Control Singapore PTE, Ltd.), SMK, and Ruwido.

In the international retail and private label markets for wireless controls we compete primarily with Logitech and Sony, as well as various manufacturers of wireless controls in Asia.

Our primary competitors in the OEM market are the OEMs themselves and various wireless control manufacturers in Asia.

In home security, safety and automation, we offer universal sub-gigahertz products that are compatible with the top security panel manufacturers, such as Honeywell, GE, Tyco/DSC and 2GIG.

In the Do-It-Yourself ("DIY") residential security channel, we compete with many Chinese ODMs, such as Leedarson, while in the connected smart home market we compete with the OEMs themselves as well as wireless manufacturers in North America, such as Nortek, and other original design manufacturers in Asia.

We compete in our markets on the basis of product quality, features, intellectual property, local design and development expertise and customer support.

Engineering, Research and Development

During 2019 , our engineering efforts focused on the following:

broadening our product portfolio;

launching new embedded software solutions designed to simplify set-up and control features;

modifying existing products and technologies to improve features and lower costs;

formulating measures to protect our proprietary technology and general know-how;

improving our control solutions software;

updating our library of device codes to include codes for new features and devices introduced worldwide;

creating innovative products that address consumer challenges in home entertainment control and security sensing;

optimizing our cloud platform to deliver additional features and managed services to a large installed base of customer and end-users.

In 2018, UEI was awarded a 2017 Technical & Engineering Emmy® Award from The National Academy of Television Arts & Sciences for its work relating to voice navigation technologies for discovering and interacting with TV content.

UEI was selected for its excellence in engineering and creativity that has materially affected the television viewing experience.

During 2019 , our advanced engineering efforts focused on further developing our existing products, services and technologies.

We released software updates to our embedded QuickSet application, and continued development initiatives around emerging RF technologies, such as RF4CE, Bluetooth, Bluetooth Smart and WiFi.

We introduced Nevo Butler, as well as, enhancements to

UEI’s turnkey, voice-enabled smart home hub with built-in white label digital assistant with the aim of bringing voice first experiences to a large install base of devices in the home, blending entertainment control and home automation experiences, enabling interoperability across fragmented ecosystems.

Additionally, we released many new advanced remote control products that incorporate voice search capabilities across a variety of our channels, as well as, several new connected thermostat platforms for OEM and security channel customers in Asia and North America.

Our personnel are involved with various industry organizations and bodies, which are in the process of setting standards for IR, RF, telephone and cable communications and networking in the home.

Because of the nature of research and development ("R&D") activities, there can be no assurance that any of our R&D projects will be successfully completed or ultimately achieve commercial success.

Our expenditures on engineering, research and development were:

(In millions):

Research and development

Engineering (1)

Total engineering, research and development

Engineering costs are included in selling, general and administrative expenses.

Environmental Matters

We are also a large consumer of low-power, RF chips and modules that are used throughout our product portfolios, including many of our remotes, sensors and thermostats.

Government Regulation and Environmental Matters

Many of our products are subject to various federal, state, local and international laws governing chemical substances in products, including laws regulating the manufacturing and distribution of chemical substances and laws restricting the presence of certain substances in electronics products.

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Our European subsidiaries are WEEE compliant.

Similar legislation has been or may be enacted in other jurisdictions, including in the United States, Canada, Mexico, the PRC and Japan.

Similar legislation has been or may be enacted in other jurisdictions, including in the United States, Canada, Mexico, Brazil, the PRC, India and Japan.

We believe that we have materially complied with all currently existing international and domestic federal, state and local statutes and regulations regarding environmental standards and occupational safety and health matters to which we are subject.

During the years ended December 31, 2019 , 2018 and 2017 , the amounts incurred in complying with federal, state and local statutes and regulations pertaining to environmental standards and occupational safety and health laws and regulations did not materially affect our earnings or financial condition.

During the years ended December 31, 2020, 2019 and 2018, the costs incurred in complying with federal, state and local statutes and regulations pertaining to environmental standards and occupational safety and health laws and regulations did not materially affect our earnings, financial condition or competitive position.

In addition, during the same period, the costs incurred in complying with other applicable government regulations likewise did not materially affect our earnings, financial condition or competitive position.

However, future events, such as changes in existing laws and regulations or enforcement policies, may give rise to additional compliance costs that may have a material adverse effect upon our capital expenditures, earnings or financial condition.

We are committed to reducing and eliminating substances of concern from our products and manufacturing process.

Our products distributed in the European Unions are compliant with the RoHS (Restriction of Hazardous Substances Directive 2002/95/EC) and REACH (Registration, Evaluation, Authorisation and Restriction of Chemicals) directives.

Our products distributed in the European Union are compliant with the RoHS (Restriction of Hazardous Substances Directive 2002/95/EC) and REACH (Registration, Evaluation, Authorisation and Restriction of Chemicals) directives.

In other regions, we also need to comply with our customers' specific requirements relating to the non-use of certain hazardous substances in the products, which are typically equally or more stringent than the RoHS directive.

We have a dedicated "Green Team" based in the PRC and in-house testing capability to ensure product compliance.

At our manufacturing facilities, we are also committed to protecting our workers from exposure to hazardous substances under an established health and safety management system;

for example, we strive to have our facilities be free of lead and the substances banned by RoHS.

We also place great importance in strict compliance of local health and safety laws and regulations.

We strive to extend the useful life of our products and reduce our products' impact on the environment.

For example, we deploy low energy IR-engine in some of our products which can extend battery life regardless of the protocols utilized by the product.

We also offer a robust product refurbishment program to our customers where we will take back, refurbish and recycle used remote control units.

Under such program, substantially all of the materials in a used remote control unit are reused or recycled;

For example, we deploy a low energy IR-engine in some of our products which can extend battery life regardless of the protocols utilized by the product.

We also offer a robust product refurbishment program to our customers where we reclaim, refurbish and recycle pre-owned remote controls.

Under this program, substantially all of the materials in a pre-owned remote control unit are reused or recycled;

for example, used plastics and silicon are ground and reused in other products.

We have also employed new master carton packing methods to increase shipping efficiency and reduce cardboard usage.

At December 31, 2019 , we employed 4,347 employees, of which 1,035 worked in engineering and R&D, 111 in sales and marketing, 63 in consumer service and support, 2,844 in operations and warehousing and 294 in executive and administrative functions.

In addition, our factories in the PRC and our Asian operations engaged an additional 4,419 staff contracted through agency agreements.

Some of our manufacturing facilities are switching to the use of recycled solder.

We are also looking for ways to reduce the use of single-use plastics in our products and packaging.

Human Capital

At December 31, 2020, we employed 3,839 members of staff across our worldwide facilities.

Of this staff, 2,362 members are associated with our manufacturing and supply chain organizations in the PRC, Mexico and Brazil.

In the PRC we are working with external agencies to recruit staff to support our production activities where 3,866 staff members are contracted through agency agreements.

Beyond the manufacturing and supply chain organizations, 1,064 members of staff work in engineering and R&D, 109 work in sales and marketing, 33 work in consumer service and support and 271 work in executive and administrative functions.

We provide and maintain a work environment that is designed to attract, develop and retain top talent through offering our employees an engaging work experience that contributes to their career development.

We recognize that our success is based on the collective talents and dedication of those we employ.

Talent management is critical to our ability to execute our long-term growth strategy, and we utilize both internal human resource personnel and external recruiting firms to identify and attract talent.

Through our history of technological innovation, we appreciate the importance of retention, growth and development of our employees.

Due to the nature of our activities, we tend to heavily invest in engineering capital, employing highly skilled and specialized engineers and technicians in the areas of electronics, RF design, software, cloud, mechanical, industrial design, manufacturing and quality disciplines.

Our staff is located around the globe at different office and development locations.

Our R&D locations are as follows:

• advanced engineering, architecture and cloud teams are located in Santa Ana, California, and Scottsdale, Arizona;

• cloud architecture, software and service teams are located in Santa Ana and San Mateo, California;

• sensor engineering and R&D teams are located in Carlsbad, California;

• connected thermostat engineering and R&D teams are located in Poway, California;

• hardware engineering teams are located in Panyu and Suzhou in the PRC;

• software, firmware and device database teams are located in Bangalore, India.

Next to these specialized centers of excellence, we employ engineering, sales and marketing and support staff in many of our regional offices in the United States, The Netherlands, Hong Kong, Brazil, India, Japan, Korea and Mexico.

We continue to be committed to an inclusive culture that values equality, opportunity and respect.

We have an active policy and Code of Conduct covering diversity, inclusion, anti-discrimination and corporate social responsibility across all our facilities, and we encourage our suppliers to do the same.

During the COVID-19 pandemic, we established a proactive steering committee to monitor, support and ensure the safety and health of all of our staff around the globe.

Labor unions represent approximately 44.8% of our 3,839 employees at December 31, 2020.

Some unionized workers, employed in Manaus, Brazil, are represented under contract with the Sindicato dos Trabalhadores nas Industrias Metalugicas, Mecanicas e de Materiais Eletricos de Manaus.

Other unionized workers, employed in Monterrey, Mexico, are represented under contract with the Sindicato Industrial de Trabajadores de Nuevo León adherido a la Federación Nacional de Sindicatos Independientes.

Some unionized workers, employed in Monterrey, Mexico, are represented under contract with the Sindicato Industrial de Trabajadores de Nuevo León adherido a la Federación Nacional de Sindicatos Independientes.

Other unionized workers, employed in Manaus, Brazil, are represented under contract with the Sindicato dos Trabalhadores nas Industrias Metalugicas, Mecanicas e de Materiais Eletricos de Manaus.

Our business units are subject to various laws and regulations relating to their relationships with their employees.

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We believe that our relationships with employees and their representative organizations are good.

Historically, our business has been influenced by the retail sales cycle, with increased sales in the second half of the year.

We expect this pattern to be repeated during 2021.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA — Notes to Consolidated Financial Statements — Note 21" for further details regarding our quarterly results.

Information About Our Executive Officers

The following table sets forth certain information concerning our executive officers on March 5, 2021:

Chairman of the Board and Chief Executive Officer

Senior Vice President and Chief Financial Officer

Senior Vice President, Corporate Planning and Strategy

Executive Vice President, Asia

Name Age Position

Arling 58 Chairman of the Board and Chief Executive Officer

Hackworth 51 Senior Vice President and Chief Financial Officer

Ammari 55 Senior Vice President, Corporate Planning and Strategy

David Chong 59 Executive Vice President, Asia

Firehammer, Jr.

63 Senior Vice President, General Counsel and Secretary

Senior Vice President, Global Sales

Senior Vice President, Operations

Koopmans 45 Senior Vice President, Global Sales

Miketo 64 Senior Vice President, Operations

Arling is our Chairman and Chief Executive Officer.

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Hackworth joined us in June 2004 as Corporate Controller and subsequently assumed the role of Chief Accounting Officer in May 2005.

Before joining us in 2004, he spent five years at Mars, Inc., a privately held international manufacturer and distributor of consumer products and served in several financial and strategic roles (Controller — Ice Cream Division;

Strategic Planning Manager for the WHISKAS ® Brand) and various other financial management positions.

Before joining us in 2004, he spent five years at Mars, Inc., a privately held international manufacturer and distributor of consumer products and served in several financial and strategic roles.

Prior to joining Mars, Inc., Mr.

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Prior to joining us, Mr.

Chong served as Senior Vice President at Philips Consumer Electronics Division and

as the Chief Marketing Officer of the business group Philips Display (Philips TV and computer monitor business).

Chong served as Senior Vice President at Philips Consumer Electronics Division and as the Chief Marketing Officer of the business group Philips Display (Philips TV and computer monitor business).

At Philips Display, he led the re-engineering of the Product Creation, Marketing and Sales Organization to compete successfully in the LCD TV space.

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He received his Bachelor of Science in Accounting from Indiana University and a Juris Doctor degree from Whittier College School of Law.

Firehammer is also a certified public accountant (inactive) in the state of California.

Firehammer is also a certified public accountant (inactive).

Koopmans is our Senior Vice President, Global Sales.

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Koopmans worked at Mars, Sony Europe and Royal Philips Electronics in different product, marketing and sales management roles in both fast-moving consumer goods and durable consumer goods categories.

Koopmans received his Masters in Science of Business Administration from Erasmus University in Rotterdam, The Netherlands.

Koopmans received his Master in Science of Business Administration from Erasmus University in Rotterdam, The Netherlands.

Miketo is our Senior Vice President, Operations.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business