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Business Combinations | 12 Months Ended
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Dec. 31, 2017
Business Combinations [Abstract] |
Business Combinations | Business Combinations Ecolink Intelligent Technology, Inc. Acquisition On August 4, 2015, we entered into an Asset Purchase Agreement (the "APA") to acquire substantially all of the net assets of Ecolink Intelligent Technology, Inc. ("Ecolink"), a leading developer of smart home technology that designs, develops and manufactures a wide range of intelligent wireless security and home automation products. This transaction closed on August 31, 2015. The purchase price of $24.1 million was comprised of $12.9 million in cash and $11.2 million of contingent consideration. Additionally, we incurred $0.2 million in acquisition costs, consisting primarily of legal and accounting expenses, which are included within selling, general and administrative expenses for the year ended December 31, 2015. The acquisition of these assets will allow us to extend our product offerings to include home security and automation products previously marketed by Ecolink and to sell these products to our existing customers. Included in the net assets acquired from Ecolink was a 50% ownership interest in Encore Controls LLC ("Encore"), a developer of smart home technology that designs and sells intelligent wireless fire safety products for use in home security systems. At the time of acquisition, management determined that we were the primary beneficiary of Encore due to our ability to direct the activities that most significantly impacted the economic performance of Encore, and thus we consolidated the financial statements of Encore commencing on the acquisition date. The aggregate fair value of Encore’s net assets on the acquisition date was $0.7 million, of which $0.4 million was attributable to the noncontrolling interest. The fair value attributable to the noncontrolling interest was based on the noncontrolling interest's ownership percentage in the fair values of the assets and liabilities of Encore. On April 21, 2016, we sold our ownership interest in Encore to Encore's noncontrolling interest holder in exchange for full rights and ownership of Encore's patents and developed technology as well as the noncontrolling interest's portion of certain of Encore's tangible net assets. Additionally, as a condition of the sale of our ownership interest in Encore, we agreed to grant a royalty-free license to Encore for the use of Encore's developed technology and patents in connection with selling specific products to specific customers. As a result of this transaction, we no longer have any involvement with Encore other than the granting of this limited license. Upon deconsolidation, we recorded a gain of $65 thousand, based on the difference between the fair value of the net assets received and our ownership interest in Encore. This gain is presented in our consolidated statement of operations within other income (expense), net for the year ended December 31, 2016. Our consolidated statements of operations for the years ended December 31, 2017, 2016 and 2015 include net sales of $33.0 million, $4.8 million and $1.3 million, respectively, and net losses of $0.7 million, $1.6 million and $1.0 million attributable to Ecolink. Contingent Consideration We are required to make annual earnout payments upon the achievement of certain operating income levels attributable to Ecolink over the five year period from 2016 through 2020. The amount of earnout contingent consideration has no upper limit and is calculated at the end of each calendar year based upon certain percentages of operating income target levels as defined in the APA. Ecolink's operating income will be calculated using certain revenues, costs and expenses directly attributable to Ecolink as specified in the APA. At the acquisition date, the value of earnout contingent consideration was estimated using a valuation methodology based on projections of future operating income calculated in accordance with the APA. Such projections were then discounted using an average discount rate of 15.5% to reflect the risk in achieving the projected operating income levels as well as the time value of money. The fair value measurement of the earnout contingent consideration was based primarily on significant inputs not observable in an active market and thus represents a Level 3 measurement as defined under U.S. GAAP. At December 31, 2015 the fair value of the earnout contingent consideration was $11.8 million. During the year ended December 31, 2016, the fair value of the earnout contingent consideration decreased $1.3 million to $10.5 million, and during the year ended December 31, 2017, the fair value of earnout contingent consideration increased $4.4 million to $14.9 million. Changes in the fair value of earnout contingent consideration primarily reflect adjustments to the timing and amount of earnout payments as well as the related accretion driven by the time value of money. These adjustments are recorded within selling, general and administrative expenses. At December 31, 2017, $3.8 million of the earnout contingent consideration liability attributable to Ecolink is presented within other accrued liabilities, and the remaining $11.1 million is presented within long-term contingent consideration in our consolidated balance sheet. Purchase Price Allocation Using the acquisition method of accounting, the acquisition date fair value of the consideration transferred was allocated to the net tangible and intangible assets acquired and liabilities assumed based on their estimated fair values on the acquisition date. The excess of the purchase price over the estimated fair value of net assets acquired was recorded as goodwill. The goodwill is expected to be deductible for income tax purposes. Management's purchase price allocation was the following:
(in thousands) | Estimated Lives |  | Fair Value
Cash and cash equivalents |  |  | $ | 685 |
Accounts receivable |  |  | 374 |
Inventories |  |  | 1,412 |
Prepaid expenses and other current assets |  |  | 253 |
Property, plant and equipment | 1-4 years |  | 16 |
Non-interest bearing liabilities |  |  | (1,557 | )
Net tangible assets acquired |  |  | 1,183 |
Trade name | 7 years |  | 400 |
Developed technology | 4-14 years |  | 9,080 |
Customer relationships | 5 years |  | 1,300 |
Goodwill |  |  | 12,564 |
Total purchase price |  |  | 24,527 |
Noncontrolling interest in Encore |  |  | (378 | )
Net purchase price |  |  | 24,149 |
Less: Contingent consideration |  |  | (11,200 | )
Cash paid |  |  | $ | 12,949 |
Management's determination of the fair value of intangible assets acquired was based primarily on significant inputs not observable in an active market and thus represent Level 3 fair value measurements as defined under U.S. GAAP. The fair value assigned to Ecolink’s trade name intangible asset was determined utilizing a relief from royalty method. Under the relief from royalty method, the fair value of the intangible asset is estimated to be the present value of the royalties saved because the company owns the intangible asset. Revenue projections and estimated useful life were significant inputs into estimating the value of Ecolink’s trade name. The fair value assigned to Ecolink's developed technology was determined utilizing a multi-period excess earnings approach. Under the multi-period excess earnings approach, the fair value of the intangible asset is estimated to be the present value of future earnings attributable to the asset and utilizes revenue and cost projections, including an assumed contributory asset charge. The fair value assigned to Ecolink's customer relationships intangible asset was determined utilizing the with and without method. Under the with and without method, the fair value of the intangible asset is estimated based on the difference in projected earnings utilizing the existing Ecolink customer base versus projected earnings based on starting with no customers and reacquiring the customer base. Revenue and earnings projections were significant inputs into estimating the value of Ecolink’s customer relationships. The trade name, developed technology and customer relationships intangible assets are expected to be deductible for income tax purposes. Residential Control Systems, Inc. Acquisition On April 6, 2017, we acquired substantially all of the net assets of 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 purchase price of $12.6 million was comprised of $8.9 million in cash and $3.7 million of contingent consideration. Additionally, we incurred $0.1 million in acquisition costs, consisting primarily of accounting related expenses, which are included within selling, general and administrative expenses for the year ended December 31, 2017. The acquisition of these assets will allow us to expand our product offering of home sensing, monitoring and control solutions to include smart thermostat, sensing and monitoring products previously sold and marketed by RCS. Our consolidated statement of operations for the year ended December 31, 2017 includes net sales and a net loss of $3.5 million and $0.4 million, respectively, attributable to RCS for the period commencing on April 6, 2017. Contingent Consideration We are required to make additional earnout payments of up to $10.0 million upon the achievement of certain operating income levels attributable to RCS over the period commencing on the acquisition date through June 30, 2022. The amount of contingent consideration is calculated at the end of each calendar year and is based on the agreed upon percentage of operating income as defined in the RCS Asset Purchase Agreement (the "RCS APA"). Operating income will be calculated using certain revenues, costs and expenses directly attributable to RCS as specified in the RCS APA. At the acquisition date, the value of earnout contingent consideration was estimated using a valuation methodology based on projections of future operating income calculated in accordance with the RCS APA. Such projections were then discounted using an average discount rate of 24.8% to reflect the risk in achieving the projected operating income levels as well as the time value of money. The fair value measurement of the earnout contingent consideration was based primarily on significant inputs not observable in an active market and thus represents a Level 3 measurement as defined under U.S. GAAP. At December 31, 2017, the fair value of earnout contingent consideration attributable to RCS was $2.3 million, which is presented within long-term contingent consideration in our consolidated balance sheet. Purchase Price Allocation Using the acquisition method of accounting, the acquisition date fair value of the consideration transferred was allocated to the net tangible and intangible assets acquired and liabilities assumed based on their estimated fair values on the acquisition date. The excess of the purchase price over the estimated fair value of net assets acquired is recorded as goodwill. The goodwill is expected to be deductible for income tax purposes. Management's purchase price allocation was the following:
(in thousands) | Estimated Lives |  | Fair Value
Accounts receivable |  |  | $ | 429 |
Inventories |  |  | 1,508 |
Prepaid expenses and other current assets |  |  | 7 |
Property, plant and equipment | 1-4 years |  | 14 |
Current liabilities |  |  | (408 | )
Net tangible assets acquired |  |  | 1,550 |
Trade name | 8 years |  | 400 |
Customer relationships | 10 years |  | 5,000 |
Order backlog | 1 year |  | 150 |
Goodwill |  |  | 5,494 |
Total purchase price |  |  | 12,594 |
Less: Contingent consideration |  |  | (3,700 | )
Cash paid |  |  | $ | 8,894 |
Management's determination of the fair value of intangible assets acquired was based primarily on significant inputs not observable in an active market and thus represent Level 3 fair value measurements. The fair value assigned to the RCS trade name intangible asset was determined utilizing a relief from royalty method. The fair value assigned to RCS customer relationships and order backlog intangible assets were determined utilizing a multi-period excess earnings approach. The relief from royalty and multi-period excess earnings methodologies are further described above. The trade name, customer relationships and order backlog intangible assets are expected to be deductible for income tax purposes. Pro Forma Results (Unaudited) The following unaudited pro forma financial information presents the combined results of our operations and the operations of RCS as if the RCS acquisition had occurred on January 1, 2016. This unaudited pro forma financial information is not intended to represent or be indicative of the consolidated results of operations that would have been achieved had the acquisition actually been completed as of January 1, 2016, and should not be taken as a projection of the future consolidated results of our operations.
|  | Year Ended December 31,
(In thousands, except per-share amounts) |  | 2017 |  | 2016
Net sales |  | $ | 696,352 |  |  | $ | 659,272 |
Net income (loss) |  | (10,538 | ) |  | 19,997 |
Net income (loss) attributable to Universal Electronics Inc. |  | (10,538 | ) |  | 19,967 |
Basic earnings (loss) per share attributable to Universal Electronics Inc. |  | (0.73 | ) |  | 1.38 |
Diluted earnings (loss) per share attributable to Universal Electronics Inc. |  | (0.73 | ) |  | 1.35 |
For purposes of determining pro forma net income (loss) attributable to Universal Electronics Inc., adjustments were made to all periods presented in the table above. The pro forma net income (loss) and net income (loss) attributable to Universal Electronics Inc. assume that amortization of acquired intangible assets began at January 1, 2016 rather than on April 6, 2017. The result is a net increase in amortization expense of $0.1 million and $0.7 million for the years ended December 31, 2017 and 2016, respectively. Additionally, acquisition costs totaling $0.2 million are excluded from pro forma net income (loss) and net income (loss) attributable to Universal Electronics Inc. All adjustments have been made net of their related tax effects.

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- Definition The entire disclosure for a business combination (or series of individually immaterial business combinations) completed during the period, including background, timing, and recognized assets and liabilities. The disclosure may include leverage buyout transactions (as applicable). + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -URI http://asc.fasb.org/topic&trid=2303972 + Details
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