UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________________________________ 
FORM 10-Q
_______________________________________ 
(Mark One)
ý☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 20172020
OR
¨☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from            to            
Commission File Number: 0-21044
_______________________________________ 
UNIVERSAL ELECTRONICS INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware33-0204817
(State or Other Jurisdiction of

Incorporation or Organization)
(I.R.S. Employer

Identification No.)
201 E. Sandpointe Avenue, 8th Floor
Santa Ana, California
92707
(Address of Principal Executive Offices)(Zip Code)
15147 N. Scottsdale Road, Suite H300, Scottsdale, Arizona 85254-2494
(Address of principal executive offices and zip code)
(480) 530-3000
(Registrant's telephone number, including area code: (714) 918-9500code)
__________________________________ _____________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, par value $0.01 per shareUEICThe NASDAQ Stock Market LLC
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 (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ý☒    No  ¨☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, anyevery Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ý☒    No  ¨☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer☐Accelerated filer☒
Non-accelerated filer☐Smaller reporting company☐
Large accelerated filer¨Accelerated filerý
Non-accelerated filer
¨  (Do not check if a smaller reporting company)
Smaller reporting company¨
Emerging growth company¨☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes  ¨    No  ý
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).Yes ☐ No ☒
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: 14,305,74913,749,676 shares of Common Stock, par value $0.01 per share, of the registrant were outstanding on November 6, 2017.3, 2020.



UNIVERSAL ELECTRONICS INC.
INDEX
 
Page
Number
3
3
Consolidated Balance Sheets
3
Consolidated Income Statements of Operations
4
Consolidated Comprehensive Income (Loss) Statements
5
Consolidated Statements of Stockholders' Equity
6
Consolidated Statements of Cash Flows
68
Notes to Consolidated Financial Statements
79
26
3433
3534
3634
3634
3634
3635
3736
3837
Exhibit Index
39






Table of Contents
PART I. FINANCIAL INFORMATION
ITEM 1. Consolidated Financial Statements (Unaudited)
UNIVERSAL ELECTRONICS INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share-related data)
(Unaudited)
September 30, 2020December 31, 2019
ASSETS
Current assets:
Cash and cash equivalents$67,146 $74,302 
Accounts receivable, net128,094 139,198 
Contract assets11,530 12,579 
Inventories115,750 145,135 
Prepaid expenses and other current assets5,768 6,733 
Income tax receivable1,536 805 
Total current assets329,824 378,752 
Property, plant and equipment, net84,549 90,732 
Goodwill48,526 48,447 
Intangible assets, net19,617 19,830 
Operating lease right-of-use assets18,678 19,826 
Deferred income taxes4,581 4,409 
Other assets2,842 2,163 
Total assets$508,617 $564,159 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable$67,546 $102,588 
Line of credit50,000 68,000 
Accrued compensation22,890 43,668 
Accrued sales discounts, rebates and royalties10,183 9,766 
Accrued income taxes9,910 6,989 
Other accrued liabilities33,616 35,445 
Total current liabilities194,145 266,456 
Long-term liabilities:
Operating lease obligations13,284 15,639 
Contingent consideration250 4,349 
Deferred income taxes2,327 1,703 
Income tax payable1,368 1,600 
Other long-term liabilities688 13 
Total liabilities212,062 289,760 
Commitments and contingencies
Stockholders' equity:
Preferred stock, $0.01 par value, 5,000,000 shares authorized; NaN issued or outstanding0 0 
Common stock, $0.01 par value, 50,000,000 shares authorized; 24,292,657 and 24,118,088 shares issued on September 30, 2020 and December 31, 2019, respectively243 241 
Paid-in capital296,674 288,338 
Treasury stock, at cost, 10,437,363 and 10,174,199 shares on September 30, 2020 and December 31, 2019, respectively(287,639)(277,817)
Accumulated other comprehensive income (loss)(25,555)(22,781)
Retained earnings312,832 286,418 
Total stockholders' equity296,555 274,399 
Total liabilities and stockholders' equity$508,617 $564,159 
 September 30, 2017 December 31, 2016
ASSETS   
Current assets:   
Cash and cash equivalents$48,560
 $50,611
Restricted cash4,799
 4,623
Accounts receivable, net153,355
 124,592
Inventories, net154,520
 129,879
Prepaid expenses and other current assets9,988
 7,439
Assets held for sale12,403
 —
Income tax receivable3,262
 1,054
Deferred income taxes—
 5,960
Total current assets386,887
 324,158
Property, plant, and equipment, net109,149
 105,351
Goodwill48,624
 43,052
Intangible assets, net30,159
 28,549
Deferred income taxes18,349
 10,430
Long-term restricted cash—

4,600
Other assets4,040
 4,896
Total assets$597,208
 $521,036
LIABILITIES AND STOCKHOLDERS' EQUITY   
Current liabilities:   
Accounts payable$106,872
 $97,157
Line of credit114,000
 49,987
Accrued compensation33,328
 35,580
Accrued sales discounts, rebates and royalties7,790
 8,358
Accrued income taxes994
 375
Other accrued expenses25,840
 24,410
Total current liabilities288,824
 215,867
Long-term liabilities:   
Long-term contingent consideration14,000
 10,500
Deferred income taxes6,376
 7,060
Income tax payable791
 791
Other long-term liabilities1,598
 6,308
Total liabilities311,589
 240,526
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; 23,687,651 and 23,575,340 shares issued on September 30, 2017 and December 31, 2016, respectively237
 236
Paid-in capital262,776
 250,481
Treasury stock, at cost, 9,352,551 and 9,022,587 shares on September 30, 2017 and December 31, 2016, respectively(243,197) (222,980)
Accumulated other comprehensive income (loss)(17,831) (22,821)
Retained earnings283,634
 275,594
Total stockholders' equity285,619
 280,510
Total liabilities and stockholders' equity$597,208

$521,036
See Note 4 for further information concerning our purchases from related party vendors.
The accompanying notes are an integral part of these consolidated financial statements.

3
Table of Contents
UNIVERSAL ELECTRONICS INC.
CONSOLIDATED INCOME STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
 Three Months Ended September 30, Nine Months Ended September 30,
 2017 2016 2017 2016
Net sales$175,652
 $169,185
 $514,638
 $490,829
Cost of sales132,582
 127,400
 386,783
 367,941
Gross profit43,070
 41,785

127,855

122,888
Research and development expenses5,415
 4,955
 15,859
 15,292
Factory transition restructuring charges446
 81
 6,145
 1,598
Selling, general and administrative expenses32,997
 28,628
 94,701
 86,867
Operating income4,212
 8,121

11,150

19,131
Interest income (expense), net(721) (228) (1,676) (753)
Other income (expense), net61
 335
 2
 1,726
Income before provision for income taxes3,552
 8,228

9,476

20,104
Provision for income taxes1,824
 421
 2,945
 2,956
Net income1,728
 7,807

6,531

17,148
Net income attributable to noncontrolling interest—
 —
 —
 30
Net income attributable to Universal Electronics Inc.$1,728

$7,807

$6,531

$17,118
        
Earnings per share attributable to Universal Electronics Inc.:       
Basic$0.12
 $0.54

$0.45

$1.19
Diluted$0.12
 $0.53

$0.44

$1.16
Shares used in computing earnings per share:       
Basic14,381
 14,510
 14,412
 14,441
Diluted14,666
 14,848
 14,689
 14,740
See Note 4 for further information concerning our purchases from related party vendors.
Three Months Ended September 30,Nine Months Ended September 30,
 2020201920202019
Net sales$153,505 $200,724 $458,416 $578,783 
Cost of sales109,349 154,245 333,244 458,437 
Gross profit44,156 46,479 125,172 120,346 
Research and development expenses7,696 7,930 22,979 21,884 
Selling, general and administrative expenses26,214 32,422 77,441 94,598 
Operating income10,246 6,127 24,752 3,864 
Interest income (expense), net(268)(784)(1,272)(3,088)
Accrued social insurance adjustment0 0 9,464 0 
Other income (expense), net(1,646)(148)(1,263)(426)
Income before provision for income taxes8,332 5,195 31,681 350 
Provision for income taxes2,164 2,526 5,267 3,747 
Net income (loss)$6,168 $2,669 $26,414 $(3,397)
Earnings (loss) per share:
Basic$0.44 $0.19 $1.90 $(0.25)
Diluted$0.43 $0.19 $1.86 $(0.25)
Shares used in computing earnings (loss) per share:
Basic13,92813,894 13,93513,861 
Diluted14,20514,17014,18913,861
The accompanying notes are an integral part of these consolidated financial statements.



4
Table of Contents
UNIVERSAL ELECTRONICS INC.
CONSOLIDATED COMPREHENSIVE INCOME (LOSS) STATEMENTS
(In thousands)
(Unaudited)
 Three Months Ended September 30, Nine Months Ended September 30,
 2017 2016 2017 2016
Net income$1,728
 $7,807
 $6,531
 $17,148
Other comprehensive income (loss):       
Change in foreign currency translation adjustment2,999
 (540) 4,990
 (1,858)
Total comprehensive income (loss)4,727

7,267

11,521

15,290
Comprehensive income (loss) attributable to noncontrolling interest—
 —
 —
 30
Comprehensive income (loss) attributable to Universal Electronics Inc.$4,727

$7,267

$11,521

$15,260
See Note 4 for further information concerning our purchases from related party vendors.
Three Months Ended September 30,Nine Months Ended September 30,
 2020201920202019
Net income (loss)$6,168 $2,669 $26,414 $(3,397)
Other comprehensive income (loss):
Change in foreign currency translation adjustment5,005 (5,457)(2,774)(5,557)
Comprehensive income (loss)$11,173 $(2,788)$23,640 $(8,954)
The accompanying notes are an integral part of these consolidated financial statements.



5
Table of Contents
UNIVERSAL ELECTRONICS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWSSTOCKHOLDERS' EQUITY
(In thousands)
(Unaudited)
 Nine Months Ended September 30,
 2017 2016
Cash provided by (used for) operating activities:   
Net income$6,531
 $17,148
Adjustments to reconcile net income to net cash provided by (used for) operating activities:   
Depreciation and amortization23,202
 18,994
Provision for doubtful accounts167
 123
Provision for inventory write-downs2,189
 2,398
Deferred income taxes(953) 1,413
Tax benefit from exercise of stock options and vested restricted stock—
 2,230
Excess tax benefit from stock-based compensation—
 (2,292)
Shares issued for employee benefit plan591
 763
Employee and director stock-based compensation9,476
 7,638
Performance-based common stock warrants1,122
 3,219
Changes in operating assets and liabilities:   
Restricted cash4,623
 —
Accounts receivable(24,440) (11,359)
Inventories(21,217) (4,470)
Prepaid expenses and other assets(2,422) (86)
Accounts payable and accrued expenses1,488
 7,699
Accrued income taxes(1,517) (4,737)
Net cash provided by (used for) operating activities(1,160) 38,681
Cash used for investing activities:   
Acquisition of property, plant, and equipment(29,922) (28,914)
Acquisition of net assets of Residential Control Systems, Inc.(8,894) —
Acquisition of intangible assets(1,275) (1,373)
Increase in restricted cash—
 (4,797)
Deposit received toward sale of Guangzhou factory—
 4,797
Deconsolidation of Encore Controls LLC—
 48
Net cash used for investing activities(40,091)
(30,239)
Cash provided by (used for) financing activities:   
Borrowings under line of credit115,000
 92,987
Repayments on line of credit(50,987) (107,987)
Proceeds from stock options exercised1,107
 4,813
Treasury stock purchased(20,217) (2,188)
Excess tax benefit from stock-based compensation—
 2,292
Net cash provided by (used for) financing activities44,903
 (10,083)
Effect of exchange rate changes on cash(5,703) (3,184)
Net increase (decrease) in cash and cash equivalents(2,051) (4,825)
Cash and cash equivalents at beginning of year50,611
 52,966
Cash and cash equivalents at end of period$48,560
 $48,141
    
Supplemental cash flow information:   
Income taxes paid$5,770
 $6,034
Interest paid$1,697
 $926
See Note 4The following summarizes the changes in total equity for further information concerning our purchases from related party vendors.the three and nine months ended September 30, 2020:
 Common Stock
Issued		Common Stock
in Treasury		Paid-in
Capital		Accumulated
Other
Comprehensive
Income (Loss)		Retained
Earnings		Totals
 SharesAmountSharesAmount
Balance at December 31, 201924,118 $241 (10,174)$(277,817)$288,338 $(22,781)$286,418 $274,399 
Net income (loss)5,846 5,846 
Currency translation adjustment(7,009)(7,009)
Shares issued for employee benefit plan and compensation129 1 526 527 
Purchase of treasury shares(169)(6,291)(6,291)
Shares issued to directors9 1 (1)0 
Employee and director stock-based compensation2,303 2,303 
Performance-based common stock warrants184 184 
Balance at March 31, 202024,256 243 (10,343)(284,108)291,350 (29,790)292,264 269,959 
Net income (loss)14,400 14,400 
Currency translation adjustment(770)(770)
Shares issued for employee benefit plan and compensation13 0 212 212 
Purchase of treasury shares(3)(114)(114)
Employee and director stock-based compensation2,291 2,291 
Performance-based common stock warrants154 154 
Balance at June 30, 202024,269 243 (10,346)(284,222)294,007 (30,560)306,664 286,132 
Net income (loss)6,168 6,168 
Currency translation adjustment5,005 5,005 
Shares issued for employee benefit plan and compensation15 0 220 220 
Purchase of treasury shares(91)(3,417)(3,417)
Shares issued to directors9 0 0 0 
Employee and director stock-based compensation2,260 2,260 
Performance-based common stock warrants187 187 
Balance at September 30, 202024,293 $243 (10,437)$(287,639)$296,674 $(25,555)$312,832 $296,555 
The accompanying notes are an integral part of these consolidated financial statements.







6
Table of Contents
UNIVERSAL ELECTRONICS INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands)
(Unaudited)
The following summarizes the changes in total equity for the three and nine months ended September 30, 2019:
Common Stock
Issued		Common Stock
in Treasury		Paid-in
Capital		Accumulated
Other
Comprehensive
Income (Loss)		Retained
Earnings		Totals
SharesAmountSharesAmount
Balance at December 31, 201823,933 $239 (10,116)$(275,889)$276,103 $(20,281)$282,788 $262,960 
Net income (loss)(1,005)(1,005)
Currency translation adjustment1,733 1,733 
Shares issued for employee benefit plan and compensation78 1 346 347 
Purchase of treasury shares(43)(1,215)(1,215)
Shares issued to directors8 0 — 0 
Employee and director stock-based compensation1,918 1,918 
Performance-based common stock warrants434 434 
Balance at March 31, 201924,019 240 (10,159)(277,104)278,801 (18,548)281,783 265,172 
Net income (loss)(5,061)(5,061)
Currency translation adjustment(1,833)(1,833)
Shares issued for employee benefit plan and compensation17 — 273 273 
Purchase of treasury shares(5)(189)(189)
Shares issued to directors7 0 0 0 
Employee and director stock-based compensation2,273 2,273 
Performance-based common stock warrants236 236 
Balance at June 30, 201924,043 240 (10,164)(277,293)281,583 (20,381)276,722 260,871 
Net income (loss)2,669 2,669 
Currency translation adjustment(5,457)(5,457)
Shares issued for employee benefit plan and compensation29 1 255 256 
Purchase of treasury shares(7)(337)(337)
Stock options exercised20 411 411 
Shares issued to directors7 0 0 0 
Employee and director stock-based compensation2,527 2,527 
Performance-based common stock warrants711 711 
Balance at September 30, 201924,099 $241 (10,171)$(277,630)$285,487 $(25,838)$279,391 $261,651 
The accompanying notes are an integral part of these consolidated financial statements.

7
Table of Contents
UNIVERSAL ELECTRONICS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 Nine Months Ended September 30,
 20202019
Cash provided by (used for) operating activities:
Net income (loss)$26,414 $(3,397)
Adjustments to reconcile net income (loss) to net cash provided by (used for) operating activities:
Depreciation and amortization22,857 23,734 
Provision for bad debts271 275 
Deferred income taxes503 2,273 
Shares issued for employee benefit plan959 876 
Employee and director stock-based compensation6,854 6,718 
Performance-based common stock warrants525 1,381 
Impairment of long-term assets57 0 
Accrued social insurance adjustment(9,464)0 
Loss on sale of Ohio call center712 0 
Changes in operating assets and liabilities:
Accounts receivable and contract assets11,556 (11,117)
Inventories30,466 4,403 
Prepaid expenses and other assets601 5,507 
Accounts payable and accrued liabilities(50,507)11,686 
Accrued income taxes2,023 (2,418)
Net cash provided by (used for) operating activities43,827 39,921 
Cash provided by (used for) investing activities:
Acquisitions of property, plant and equipment(10,864)(15,854)
Acquisitions of intangible assets(5,254)(1,505)
Payment on sale of Ohio call center(500)0 
Net cash provided by (used for) investing activities(16,618)(17,359)
Cash provided by (used for) financing activities:
Borrowings under line of credit70,000 57,500 
Repayments on line of credit(88,000)(71,000)
Proceeds from stock options exercised0 411 
Treasury stock purchased(9,822)(1,741)
Contingent consideration payments in connection with business combinations(3,091)(4,251)
Net cash provided by (used for) financing activities(30,913)(19,081)
Effect of exchange rate changes on cash and cash equivalents(3,452)(1,959)
Net increase (decrease) in cash and cash equivalents(7,156)1,522 
Cash and cash equivalents at beginning of period74,302 53,207 
Cash and cash equivalents at end of period$67,146 $54,729 
Supplemental cash flow information:
Income taxes paid$3,242 $5,608 
Interest paid$1,404 $3,479 
The accompanying notes are an integral part of these consolidated financial statements.
8
TableofContents
UNIVERSAL ELECTRONICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 20172020
(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 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.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 ("U.S. GAAP"), have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission.Commission ("SEC"). 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 nine months ended September 30, 20172020 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's Discussion and Analysis of Financial Condition and Results of Operations," "Quantitative and Qualitative Disclosures About Market Risk," and the "Financial Statements and Supplementary Data" included in Items 1A, 7, 7A, and 8, respectively, of our Annual Report on Form 10-K for the year ended December 31, 2016.2019.
Estimates, Judgments and Assumptions
The preparation of financial statements in conformity with U.S. GAAP 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 and assumptions, including those related to revenue recognition, allowancesrecognition; allowance for sales returns and doubtful accounts,bad debts; inventory valuation,valuation; our review for impairment of long-lived assets, intangible assets and goodwill,goodwill; leases; business combinations,combinations; income taxes,taxes; stock-based compensation expense and performance-based common stock warrants.
The recent coronavirus ("COVID-19") pandemic and the mitigation efforts by governments to attempt to control its spread have created uncertainties and disruptions in the economic and financial markets. While we are not currently aware of events or circumstances that would require an update to our estimates, judgments or adjustments to the carrying values of our assets or liabilities, these estimates may change as developments occur and we obtain additional information. These future developments are highly uncertain and the outcomes are unpredictable. Actual results may differ from thesethose estimates, and assumptions, and theysuch differences may be adjusted as more information becomes available. Any adjustment may be material.material to the financial statements.
See Note 2 to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 20162019 for a summary of our significant accounting policies.
RecentRecently Adopted Accounting Pronouncements
In May 2014,June 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2014-09, "Revenue from ContractsASU 2016-13, "Measurement of Credit Losses on Financial Instruments", which updates existing guidance for measuring and recording credit losses on financial assets measured at amortized cost by replacing the incurred loss impairment model with Customers," which will supersede most existing U.S. GAAP revenue recognition guidance. This new standard requires an entity to recognize revenue to depictexpected loss impairment model. Accordingly, financial assets are presented at amortized costs net of an allowance for expected credit losses over the transfer of goods or services to customers in an amount that reflects the consideration to which an entity expects to be entitled in exchange for those goods or services. In addition, ASU 2014-09 contains expanded disclosure requirements relating to the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. As initially proposed, ASU 2014-09 would have been effective for fiscal periods beginning after December 15, 2016 and permits the use of either the full retrospective or modified retrospective transition method. In August 2015, the FASB postponed the effective date of this new revenue standard by one year. We have largely completed our review of customer contract terms and our assessmentlifetime of the impact of adopting this standard on our revenue recognition policy, and are currently in the process of modifying certain revenue recognition processes and controls to comply with ASU 2014-09, including the new disclosure requirements. The impact ofassets. We adopted this new guidance is primarily expected to accelerate revenue recognition for those contractual arrangements under which we manufacture and sell customized products that have no alternative use, as defined under ASU 2014-09 and related guidance and interpretations. In particular, to the extent that we have the right to payment such as a firm order or other contractual commitment from the customer, revenue associated with customized products will be recognized as those products are manufactured rather than when title for those products transfers to the customer. We also expect revenue recognition to be accelerated for licensing arrangements that contain minimum guarantees. We expect to implement ASU 2014-09 on January 1, 2018,2020 using the modified retrospective transition method. Thus prior periods willThe adoption did not be restated. Therequire an implementation adjustment and did not materially impact of the transition to this new accounting method, which will include a cumulative-effect adjustment to retained earnings as of the adoption date, could have a material impact on our consolidated resultsstatement of operations.
In July 2015, the FASB issued ASU 2015-11, "Simplifying the Measurement of Inventory," which states that inventory should be measured at the lower of cost and net realizable value. Net realizable value is defined as estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. ASU 2015-11 is effective for fiscal periods beginning after December 15, 2016 and must be applied prospectively. The adoption of ASU 2015-11 did not have a material impact on our consolidated financial position, or results of operations.
Table of Contents
UNIVERSAL ELECTRONICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2017
(Unaudited)


In November 2015, the FASB issued ASU 2015-17, "Balance Sheet Classification of Deferred Taxes." This new guidance requires all deferred tax assets and liabilities, along with any related valuation allowance, be classified as non-current on the balance sheet. ASU 2015-17 is effective for fiscal periods beginning after December 15, 2016 and may be adopted either prospectively or retrospectively. We prospectively adopted ASU 2015-17 effective January 1, 2017, and thus prior period balance sheets have not been adjusted. The adoption of ASU 2015-17 had no impact on our consolidated results of operations orand cash flows.
In February 2016, the FASB issued ASU 2016-02, "Leases," which changes the accounting See Note 3 for leases and requires expanded disclosures about leasing activities. This new guidance will require lessees to recognize a right of use asset and a lease liability at the commencement date for all leases with terms greater than twelve months. Accounting by lessors is largely unchanged. ASU 2016-02 is effective for fiscal periods beginning after December 15, 2018 and must be adopted using a modified retrospective approach. Early adoption is permitted. We are currently evaluating the impact that ASU 2016-02 will havefurther discussion on our consolidated financial statements.
In March 2016, the FASB issued ASU 2016-09,"Improvements to Employee Share-Based Payment Accounting," which amends Accounting Standards Codification ("ASC") 718, "Compensation - Stock Compensation." ASU 2016-09 requires excess tax benefits and tax deficiencies to be recorded as a discrete adjustment to income tax expense when stock awards vest or are settled, rather than in paid-in capital when they impact income taxes payable. This new guidance also requires cash flows related to excess tax benefits from stock-based compensation to be presented with other income tax cash flows in operating activities, rather than separately as a financing activity, in the statement of cash flows. Additionally, ASU 2016-09 impacts the calculation of diluted weighted-average shares under the treasury stock method as the assumed proceeds from an employee vesting in or exercising a stock-based award are no longer increased or decreased by the amount of excess tax benefits or deficiencies taken to paid-in capital. We elected to adopt the provisions of ASU 2016-09 prospectively effective January 1, 2017. We also made the accounting policy election, as allowed by ASU 2016-09, to accountallowance for forfeitures of stock-based awards as they occur, rather than estimating forfeitures. The cumulative effect of adopting ASU 2016-09 was an increase of $1.5 million to deferred tax assets and an increase to retained earnings of $1.5 million, as of January 1, 2017, as a result of recognizing previously unrecognized excess tax benefits from stock-based compensation. There was no cumulative effect impact related to the change in accounting policy to account for forfeitures of stock-based awards when they occur as a result of our minimal historical forfeitures experience.
In August 2016, the FASB issued ASU 2016-15, "Classification of Certain Cash Receipts and Cash Payments," which amends ASC 230, "Statement of Cash Flows". This new guidance addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice in how certain transactions are classified in the statement of cash flows. ASU 2016-15 is effective for fiscal periods beginning after December 15, 2017 and must be adopted retrospectively. Early adoption is permitted as long as all amendments are adopted in the same period. We are currently evaluating the impact that ASU 2016-15 will have on our consolidated financial statements.
In October 2016, the FASB issued ASU 2016-16, "Intra-Entity Transfers of Assets Other Than Inventory," which changes the accounting for income tax consequences of intra-entity transfers of assets other than inventory. Current guidance prohibits the recognition of current and deferred income taxes for an intra-entity asset transfer until the asset has been sold to an outside party. Under this new guidance, the income tax consequences of an intra-entity transfer of an asset other than inventory will be recognized when the transfer occurs. ASU 2016-16 is effective for fiscal periods beginning after December 15, 2017. Early adoption is permitted. The impact of the adoption of ASU 2016-16 could be material depending on the size of any intra-entity transfers we may implement in future periods.
In November 2016, the FASB issued ASU 2016-18,"Restricted Cash," which amends ASC 230, "Statement of Cash Flows." This new guidance addresses the classifications and presentation of changes in restricted cash in the statement of cash flows. ASU 2016-18 is effective for fiscal periods beginning after December 15, 2017 and must be adopted retrospectively. Early adoption is permitted. The adoption of ASU 2016-18 will modify our current disclosures by reclassifying certain amounts within the consolidated statement of cash flows, but is not expected to have a material effect on our consolidated financial statements.bad debts.
In January 2017, the FASB issued ASU 2017-04, "Simplifying the Test for Goodwill Impairment." This guidanceImpairment", which simplifies how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Instead, if the carrying amount of a reporting unit exceeds its fair value, an impairment loss will be recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to the reporting unit. ASU 2017-04 is effective for fiscal periods beginning after December 31, 2019. EarlyOur adoption is permitted. We doon January 1, 2020 did not expect the adoption of ASU 2017-04 to have a material impact on our consolidated statement of financial statements.position, results of operations and cash flows.
In November 2019, the FASB issued ASU 2019-08, "Improvements - Share-based Consideration Payable to a Customer", which clarifies the accounting for share-based payments issued as sales incentives to customers. The guidance requires that stock-based compensation expense is recorded as a reduction in the transaction price on the basis of the grant-date fair value. The grant-date fair value is calculated using the provisions defined under Accounting Standards Codification "Stock Compensation". The transition provisions require that equity-classified awards be measured at the adoption date fair value if the
9
Table of Contents
UNIVERSAL ELECTRONICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SeptemberSEPTEMBER 30, 20172020
(Unaudited)



measurement date has not been established prior to the adoption date. This guidance impacts the measurement date of our performance-based common stock warrants. The measurement periods for the first two successive two-year periods of our outstanding performance-based common stock warrants were completed prior to adoption and were not impacted by this updated guidance. The measurement period for the final two-year period began on January 1, 2020, and accordingly, we measured the fair value of the award as of our adoption date on January 1, 2020. We adopted this guidance using the modified retrospective method. Our adoption did not result in a cumulative adjustment in our consolidated statement of financial position. See Note 15 for further discussion on the performance-based common stock warrants.
Recent Accounting Updates Not Yet Effective
In December 2019, the FASB issued ASU 2019-12, "Simplifying the Accounting for Income Taxes", which, among other provisions, eliminates certain exceptions to existing guidance related to the approach for intra-period tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. This guidance also requires an entity to reflect the effect of an enacted change in tax laws or rates in its effective income tax rate in the first interim period that includes the enactment date of the new legislation, aligning the timing of recognition of the effects from enacted tax law changes on the effective income tax rate with the effects on deferred income tax assets and liabilities. Under existing guidance, an entity recognizes the effects of the enacted tax law change on the effective income tax rate in the period that includes the effective date of the tax law. The guidance is effective for interim and annual periods beginning after December 15, 2020, with early adoption permitted. We are currently evaluating the impact of this guidance on our consolidated statement of financial position, results of operations and cash flows.
Note 2 — Cash and Cash Equivalents and Restricted Cash
Cash and Cash Equivalents
Cash and cash equivalents were held in the following geographic regions:
(In thousands)September 30, 2017 December 31, 2016(In thousands)September 30, 2020December 31, 2019
United States$4,795
 $3,277
North AmericaNorth America$14,693 $16,751 
People's Republic of China ("PRC")22,120
 22,142
People's Republic of China ("PRC")15,05413,700
Asia (excluding the PRC)846
 5,260
Asia (excluding the PRC)12,29121,691
Europe13,317
 19,630
Europe16,8029,081
South America7,482
 302
South America8,30613,079
Total cash and cash equivalents$48,560
 $50,611
Total cash and cash equivalents$67,146 $74,302 
Restricted Cash
In connection with a court order issued in a now settled litigation matter, we previously placed $4.6 million of cash into a collateralized surety bond. This bond had certain restrictions for liquidation and was therefore classified as restricted cash. On February 10, 2017, the $4.6 million surety bond was returned to us upon final settlement of the related litigation matter.
In connection with the pending sale of our Guangzhou factory in the PRC (Note 10), the buyer made a cash deposit of RMB 32 million ($4.8 million based on September 30, 2017 exchange rates) into an escrow account on September 29, 2016. Under the terms of the escrow account, these funds will not be paid to us until the close of the sale. Accordingly, this deposit is presented as restricted cash within our consolidated balance sheet.
Note 3 — Revenue and Accounts Receivable, Net and

Revenue ConcentrationsDetails
Accounts receivable, net wereThe pattern of revenue recognition was as follows:
(In thousands)September 30, 2017 December 31, 2016
Trade receivables, gross$147,194
 $120,965
Allowance for doubtful accounts(1,052) (904)
Allowance for sales returns(459) (539)
Net trade receivables145,683
 119,522
Other7,672
 5,070
Accounts receivable, net$153,355
 $124,592
Allowance for Doubtful Accounts
Changes in the allowance for doubtful accounts were as follows:
Three Months Ended September 30,Nine Months Ended September 30,
(In thousands)2020201920202019
Goods and services transferred at a point in time$127,657 $152,453 $365,902 $429,461 
Goods and services transferred over time25,84848,27192,514149,322 
Net sales$153,505 $200,724 $458,416 $578,783 
10
(In thousands)Nine Months Ended September 30,
2017 2016
Balance at beginning of period$904
 $822
Additions (reductions) to costs and expenses167
 123
(Write-offs)/Foreign exchange effects(19) 15
Balance at end of period$1,052
 $960
Table of Contents
UNIVERSAL ELECTRONICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SeptemberSEPTEMBER 30, 20172020
(Unaudited)



Our net sales to external customers by geographic area were as follows:
Sales Returns
Three Months Ended September 30,Nine Months Ended September 30,
(In thousands)2020201920202019
United States$64,367 $107,546 $203,981 $313,029 
Asia (excluding PRC)27,92329,613 86,04379,157 
Europe26,11923,38872,62569,510
People's Republic of China25,62523,70463,65366,465
Latin America4,5468,28112,65226,187 
Other4,9258,19219,46224,435 
Total net sales$153,505 $200,724 $458,416 $578,783 
The allowanceSpecific identification of the customer billing location was the basis used for sales returns at September 30, 2017 and December 31, 2016 included reserves for items returned priorattributing revenues from external customers to period-end that 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 $0.3 million and $0.4 million on September 30, 2017 and December 31, 2016, respectively. The value of these returned goods was included in our inventory balance at September 30, 2017 and December 31, 2016.
Significant Customersgeographic areas.
Net sales to the following customers totaled more than 10% of our net sales:
 Three Months Ended September 30,
20202019
 $ (thousands)% of Net Sales$ (thousands)% of Net Sales
Comcast Corporation$32,533 21.2 %$30,419 15.2 %
Sony Corporation$15,927 10.4 %0 (1)0 (1)
Ring L.L.C.0 (1)0 (1)$21,050 10.5 %
Nine Months Ended September 30,
20202019
$ (thousands)% of Net Sales$ (thousands)% of Net Sales
Comcast Corporation$95,014 20.7 %$91,058 15.7 %
(1)Net sales to this customer did not total more than 10% of our total net sales in the indicated period.
Accounts Receivable, Net
Accounts receivable, net were as follows:
(In thousands)September 30, 2020December 31, 2019
Trade receivables, gross$122,882 $130,888 
Allowance for bad debts(1,797)(1,492)
Allowance for sales returns(618)(623)
Net trade receivables120,467 128,773 
Other7,627 10,425 
Accounts receivable, net$128,094 $139,198 
11
Table of Contents
UNIVERSAL ELECTRONICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2020
(Unaudited)

 Three Months Ended September 30,
 2017 2016
 $ (thousands) % of Net Sales $ (thousands) % of Net Sales
Comcast Corporation$36,811
 21.0% $35,554
 21.0%
AT&T20,117
 11.5
 21,139
 12.5
Allowance for Bad Debts

Changes in the allowance for bad debts were as follows:
 Nine Months Ended September 30,
 2017 2016
 $ (thousands) % of Net Sales $ (thousands) % of Net Sales
Comcast Corporation$122,009
 23.7% $111,529
 22.7%
AT&T61,057
 11.9
 60,709
 12.4

(In thousands)Nine Months Ended September 30,
20202019
Balance at beginning of period$1,492 $1,121 
Additions to costs and expenses271 275 
Write-offs/Foreign exchange effects34 (104)
Balance at end of period$1,797 $1,292 
Trade receivables associated with these significant customers that totaled more than 10% of our accounts receivable, net were as follows:
September 30, 2020December 31, 2019
$ (thousands)% of Accounts Receivable, Net$ (thousands)% of Accounts Receivable, Net
Comcast Corporation$25,390 19.8 %0 (1)0 (1)
DISH Network Corporation0 (1)0 (1)$14,677 10.5 %
 September 30, 2017 December 31, 2016
 $ (thousands) % of Accounts Receivable, Net $ (thousands) % of Accounts Receivable, Net
Comcast Corporation$26,553
 17.3% $23,716
 19.0%
AT&T (1)
—
 —
 14,108
 11.3
(1)Trade receivables associated with this customer did not total more than 10% of our accounts receivable, net at the dates set forth.
(1)
Trade receivables associated with this customer did not total more than 10% of our accounts receivable, net at September 30, 2017.
Note 4 — Inventories Net and Significant SupplierSuppliers
Inventories net were as follows:
(In thousands)September 30, 2020December 31, 2019
Raw materials$36,784 $56,352 
Components17,215 24,599 
Work in process4,075 1,526 
Finished goods57,676 62,658 
Inventories$115,750 $145,135 
(In thousands)September 30, 2017 December 31, 2016
Raw materials$36,803
 $33,059
Components18,556
 15,046
Work in process6,596
 5,860
Finished goods95,690
 80,119
Reserve for excess and obsolete inventory(3,125) (4,205)
Inventories, net$154,520
 $129,879

Table of Contents
UNIVERSAL ELECTRONICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2017
(Unaudited)


Reserve for Excess and Obsolete Inventory
Changes in the reserve for excess and obsolete inventory were as follows:
(In thousands)Nine Months Ended September 30,
2017 2016
Balance at beginning of period$4,205
 $3,045
Additions charged to costs and expenses (1)
1,960
 2,120
Sell through (2)
(950) (781)
(Write-offs)/Foreign exchange effects(2,090) (726)
Balance at end of period$3,125
 $3,658

(1)
The additions charged to costs and expenses do not include inventory directly written-off that was scrapped during production totaling $0.2 million and $0.3 million for the nine months ended September 30, 2017 and 2016, respectively. These amounts are production waste and are not included in management's reserve for excess and obsolete inventory.
(2)
These amounts represent the reduction in reserves associated with inventory items that were sold during the period.
Significant SupplierSuppliers
We purchase integrated circuits, components and finished goods from multiple sources. Purchases from the following supplier totaled more than 10% of our total inventory purchases:
Three Months Ended September 30,
20202019
$ (thousands)% of Total Inventory Purchases$ (thousands)% of Total Inventory Purchases
Qorvo International Pte Ltd.$8,472 13.0 %0 (1)0 (1)
 Three Months Ended September 30,
 2017 2016
 $ (thousands) 
% of Total
Inventory Purchases
 $ (thousands) 
% of Total
Inventory Purchases
Texas Instruments$13,115
 12.4% $12,353
 13.0%
Nine Months Ended September 30,
20202019
$ (thousands)% of Total Inventory Purchases$ (thousands)% of Total Inventory Purchases
Qorvo International Pte Ltd.$29,679 13.4 %0 (1)0 (1)
(1)Purchases associated with this supplier did not total more than 10% of our total inventory purchases for the indicated period
12
 Nine Months Ended September 30,
 2017 2016
 $ (thousands) 
% of Total
Inventory Purchases
 $ (thousands) 
% of Total
Inventory Purchases
Texas Instruments$33,693
 11.3% $32,294
 11.9%

Table of Contents
UNIVERSAL ELECTRONICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SeptemberSEPTEMBER 30, 20172020
(Unaudited)



Related Party Supplier
We purchase certain printed circuit board assemblies from a related party supplier. The supplier is considered a related party for financial reporting purposes becausethat totaled more than 10% of our Senior Vice President of Strategic Operations owns 40% of this vendor. Inventory purchases from this supplier were as follows:
 Three Months Ended September 30,
 2017 2016
 $ (thousands) 
% of Total
Inventory Purchases
 $ (thousands) 
% of Total
Inventory Purchases
Related party supplier$1,378
 1.3% $1,382
 1.5%
 Nine Months Ended September 30,
 2017 2016
 $ (thousands) 
% of Total
Inventory Purchases
 $ (thousands) 
% of Total
Inventory Purchases
Related party supplier$3,962
 1.3% $4,971
 1.8%
Total accounts payable, to this supplier werewas as follows:
 September 30, 2017 December 31, 2016
 $ (thousands) % of Accounts Payable $ (thousands) % of Accounts Payable
Related party supplier$1,763
 1.6% $1,690
 1.7%
September 30, 2020December 31, 2019
$ (thousands)% of Accounts Payable$ (thousands)% of Accounts Payable
Zhejiang Zhen You Electronics Co. Ltd.0 (1)0 (1)$11,394 11.1 %
Our payment terms and pricing(1)Accounts payable associated with this supplier are consistent withdid not total more than 10% of our accounts payable at the terms offered by other suppliers in the ordinary course of business. The accounting policies that we apply to our transactions with our related party supplier are consistent with those applied in transactions with independent third parties. Corporate management routinely monitors purchases from our related party supplier to ensure these purchases remain consistent with our business objectives.dates set forth.

Note 5 — Leases

We have entered into various operating lease agreements for automobiles, offices and manufacturing facilities throughout the world. At September 30, 2020, our operating leases had remaining lease terms of up to 40 years.
Lease balances within our consolidated balance sheet were as follows:
(In thousands)September 30, 2020December 31, 2019
Assets:
Operating lease right-of-use assets$18,678 $19,826 
Liabilities:
Other accrued liabilities$5,802 $4,903 
Long-term operating lease obligations13,284 15,639 
Total lease liabilities$19,086 $20,542 
Operating lease expense, including variable and short-term lease costs which were insignificant to the total, operating lease cash flows and supplemental cash flow information were as follows:
(In thousands)Three Months Ended September 30,Nine Months Ended September 30,
2020201920202019
Cost of sales$513 $574 $1,285 $1,627 
Selling, general and administrative expenses976 1,036 2,994 3,324 
Total operating lease expense$1,489 $1,610 $4,279 $4,951 
Operating cash outflows from operating leases$1,617 $1,537 $4,685 $5,197 
Operating lease right-of-use assets obtained in exchange for lease obligations$1,935 $1,131 $2,121 $2,655 

The weighted average remaining lease liability term and the weighted average discount rate were as follows:
September 30, 2020December 31, 2019
Weighted average lease liability term (in years)3.84.3
Weighted average discount rate4.18 %4.50 %
13
Table of Contents
UNIVERSAL ELECTRONICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2020
(Unaudited)


The following table reconciles the undiscounted cash flows for each of the first five years and thereafter to the operating lease liabilities recognized in our consolidated balance sheet at September 30, 2020. The reconciliation excludes short-term leases that are not recorded on the balance sheet.
(In thousands)September 30, 2020
2020 (remaining 3 months)$1,462 
20216,671 
20225,671 
20232,835 
20241,765 
Thereafter2,281 
Total lease payments20,685 
Less: imputed interest(1,599)
Total lease liabilities$19,086 
At September 30, 2020, we had 1 operating lease with a five-year term that had not yet commenced. The total initial lease liability, which is immaterial to the balance sheet, is not reflected within the above maturity schedule.
Note 6 — Goodwill and Intangible Assets, Net
Goodwill
Changes in the carrying amount of goodwill were as follows:
(In thousands) 
Balance at December 31, 2016$43,052
Goodwill acquired during the period (1)
5,494
Foreign exchange effects78
Balance at September 30, 2017$48,624
(In thousands)
Balance at December 31, 2019$48,447 
Foreign exchange effects79 
Balance at September 30, 2020$48,526 

(1) During the second quarter of 2017, we recorded $5.5 million of goodwill related to the Residential Control Systems, Inc. acquisition. Refer to Note 18 for further information about this acquisition.
Table of Contents
UNIVERSAL ELECTRONICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2017
(Unaudited)


Intangible Assets, Net
The components of intangible assets, net were as follows:
September 30, 2017 December 31, 2016 September 30, 2020December 31, 2019
(In thousands)
Gross (1)
 
Accumulated
Amortization (1)
 Net 
Gross (1)
 
Accumulated
Amortization (1)
 Net(In thousands)
Gross (1)
Accumulated
Amortization (1)
Net
Gross (1)
Accumulated
Amortization (1)
Net
Distribution rights$340
 $(155) $185
 $302
 $(119) $183
Distribution rights$336 $(241)$95 $322 $(210)$112 
Patents12,593
 (4,996) 7,597
 12,038
 (4,775) 7,263
Patents20,962 (7,294)13,668 16,587 (6,491)10,096 
Trademarks and trade names (2)
2,786
 (1,518) 1,268
 2,400
 (1,310) 1,090
Trademarks and trade namesTrademarks and trade names2,786 (2,435)351 2,785 (2,205)580 
Developed and core technology12,560
 (5,567) 6,993
 12,585
 (4,068) 8,517
Developed and core technology4,080 (2,971)1,109 12,480 (10,016)2,464 
Capitalized software development costs142
 (59) 83
 142
 (5) 137
Capitalized software development costs254 0 254 0 0 0 
Customer relationships (2)
32,534
 (18,613) 13,921
 27,703
 (16,344) 11,359
Order backlog (2)
150
 (38) 112
 —
 —
 —
Customer relationshipsCustomer relationships31,233 (27,093)4,140 32,534 (25,956)6,578 
Total intangible assets, net$61,105
 $(30,946) $30,159

$55,170
 $(26,621) $28,549
Total intangible assets, net$59,651 $(40,034)$19,617 $64,708 $(44,878)$19,830 
 
(1)
(1)This table excludes the gross value of fully amortized intangible assets totaling $17.6 million and $7.4 million at September 30, 2020 and December 31, 2019, respectively.
14
UNIVERSAL ELECTRONICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2020
(Unaudited)

This table excludes the gross value of fully amortized intangible assets totaling $6.0 million and $10.2 million at September 30, 2017 and December 31, 2016, respectively.
(2)
During the second quarter of 2017, we purchased a trade name valued at $0.4 million, which is being amortized ratably over eight years; customer relationships valued at $5.0 million, which are being amortized ratably over 10 years; and order backlog valued at $0.2 million, which is being amortized ratably over one year. Refer to Note 18 for further information regarding the purchase of these intangible assets.
Amortization expense, is recordedwhich was recognized in selling, general and administrative expenses, except amortization expense related to capitalized software development costswas $1.8 million and order backlog, which are recorded in cost of sales.$1.8 million during the three months ended September 30, 2020 and 2019, respectively. Amortization expense, by income statement captionwhich was as follows:
 Three Months Ended September 30, Nine Months Ended September 30,
(In thousands)2017 2016 2017 2016
Cost of sales$54
 $21
 $128
 $63
Selling, general and administrative expenses1,715
 1,551
 5,032
 4,618
Total amortization expense$1,769
 $1,572

$5,160

$4,681
recognized in selling, general and administrative expenses, was $5.5 million and $5.4 million during the nine months ended September 30, 2020 and 2019, respectively.
 
Estimated future annual amortization expense related to our intangible assets at September 30, 2017, is2020, was as follows:
(In thousands)
2020 (remaining 3 months)$1,037 
20213,391 
20223,263 
20232,999 
20242,418 
Thereafter6,509 
Total$19,617 
(In thousands) 
2017 (remaining 3 months)$1,776
20187,046
20196,901
20205,740
20212,289
Thereafter6,407
Total$30,159
Table of Contents
UNIVERSAL ELECTRONICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2017
(Unaudited)


Note 67 — Line of Credit


Our Amended and Restated Credit Agreement ("Amended Credit Agreement") with U.S. Bank National Association ("U.S. Bank") provided for a $125.0 million revolving line of credit ("Credit Line") that was to expire on November 1, 2019. On October 27, 2017, we entered into a Second Amended and Restated Credit Agreement ("Second Amended Credit Agreement") with U.S. Bank as administrative agent, sole lead arranger and sole book runner, and Wells Fargo Bank, National Association which replaces the Amended ("U.S. Bank") provides for a $125.0 million revolving line of credit ("Credit Agreement. Under the Second Amended Credit Agreement, the Credit Line was increased to $170.0 million and the expiration date remainedLine") that expires on November 1, 2019.2021. The Credit Line may be used for working capital and other general corporate purposes including acquisitions, share repurchases and capital expenditures. Amounts available for borrowing under the Credit Line are reduced by the balance of any outstanding letters of credit. Therecredit, of which there were no outstanding letters of credit$2.7 million at September 30, 2017.2020.
All obligations under the Credit Line are secured by substantially all of our U.S. personal property and tangible and intangible assets as well as 65% of our ownership interest in Enson Assets Limited, our wholly-owned subsidiary thatwhich controls our manufacturing factories in the PRC.
The interest rate applicable to outstanding Credit Line balances underUnder the Second Amended Credit Agreement, is the same as under the Amended Credit Agreement. Wewe may elect to pay interest on the Credit Line based on LIBOR plus an applicable margin (varying from 1.25% to 1.75%) or base rate (based on the prime rate of U.S. Bank or as otherwise specified in the Second Amended Credit Agreement) plus an applicable margin (varying from 0.00% to 0.50%). The applicable margins are calculated quarterly and vary based on our cash flow leverage ratio as set forth in the Amended Credit Agreement and Second Amended Credit Agreement. The interest rate in effect at September 30, 20172020 was 2.48%1.39%. There are no0 commitment fees or unused line fees under the Amended Credit Agreement or the Second Amended Credit Agreement.
The Amended Credit Agreement and Second Amended Credit Agreement includeincludes financial covenants requiring a minimum fixed charge coverage ratio and a maximum cash flow leverage ratio. In addition, the Amended Credit Agreement and Second Amended Credit Agreement also containcontains other customary affirmative and negative covenants and events of default. As ofAt September 30, 2017,2020, we were in compliance with the covenants and conditions of the Second Amended Credit Agreement.
At September 30, 2017,2020, we had $114.0$50.0 million outstanding under the Credit Line. Our total interest expense on borrowings was $0.8$0.3 million and $0.3$0.9 million during the three months ended September 30, 20172020 and 2016, respectively, and $1.82019, respectively. Our total interest expense on borrowings was $1.4 million and $0.9$3.4 million during the nine months ended September 30, 20172020 and 2016,2019, respectively.
Note 78 — 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 $1.8$2.2 million and $0.4$2.5 million for the three months ended September 30, 20172020 and 2016, respectively, and our effective tax rate was 51.4% and 5.1% during the three months ended September 30, 2017 and 2016,2019, respectively. We recorded income tax expense of $2.9$5.3 million and $3.0$3.7 million for the nine months ended September 30, 20172020 and 2016, respectively, and our effective2019, respectively. The income tax rate was 31.1% and 14.7% duringexpense for the nine months ended September 30, 2017 and 2016, respectively. The higher effective tax rate in both periods was2020 increased primarily due to an
15
Table of Contents
UNIVERSAL ELECTRONICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2020
(Unaudited)

increase in global pre-tax income and the nondeductibilitymix of certain transactions in the PRCpre-tax income among jurisdictions, including losses not benefited as a result of a valuation allowance.
At December 31, 2019, we assessed the pending salerealizability of our Guangzhou factory (Note 10). In addition,deferred tax assets by considering whether it is "more likely than not" some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the threeperiods in which those temporary differences become deductible. We considered taxable income in carryback years, the scheduled reversal of deferred tax liabilities, tax planning strategies and projected future taxable income in making this assessment. At December 31, 2019, we had a three-year cumulative operating loss for our U.S. operations and accordingly, have provided a full valuation allowance on our U.S. federal and state deferred tax assets. During the nine months ended September 30, 2016, we received tax refunds from the Chinese government totaling $1.8 million for various tax incentives relating2020, there was no change to fiscal year 2015.our valuation allowance position.
At September 30, 2017,2020, we had gross unrecognized tax benefits of $3.8$3.1 million, including interest and penalties, of which $3.5approximately $3.1 million of this amount, if not for the state Research and Experimentation income tax credit valuation allowance, 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 amountamounts of unrecognized tax benefits will significantly changeincrease 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 $0.1$0.2 million within the next twelve months.months based on federal, state, and foreign statute expirations in various jurisdictions. We have classified uncertain tax positions as non-current income tax liabilities unless they are expected to be paid within one year.
We have elected to classify interest and penalties as a component of tax expense. Accrued interest and penalties of $0.3 million and $0.3$0.2 million at September 30, 20172020 and $0.2 million at December 31, 2016, respectively,2019 are included in ourthe unrecognized tax benefits.
On March 18, 2020 and March 27, 2020, the Families First Coronavirus Response ("FFCR") Act and the Coronavirus Aid, Relief and Economic Security ("CARES") Act, respectively, were enacted in response to the COVID-19 pandemic. The FFCR Act and the CARES Act contain numerous income tax provisions, such as relaxing limitations on the deductibility of interest and the use of net operating losses arising in taxable years beginning after December 31, 2017. We are currently evaluating the impact of this legislation on our consolidated financial position, results of operations, and cash flows. Future regulatory guidance under the FFCR and CARES Acts (as well as under the Tax Cuts and Jobs Act) remains forthcoming and such guidance may ultimately increase or decrease their impact on our business and financial condition. It is also possible that Congress will enact additional legislation in connection with the COVID-19 pandemic, some of which may impact us.
In April 2020, recent interpretations of a German law relating to withholding taxes on intellectual property rights emerged. We are currently evaluating this law and any related impact to our financial position and results of operations.
16
Table of Contents
UNIVERSAL ELECTRONICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SeptemberSEPTEMBER 30, 20172020
(Unaudited)



Note 89 — Accrued Compensation
In June 2018, we sold our Guangzhou entity via a stock deal and the terms of the agreement included a two-year indemnification period. In June 2020, the indemnification period expired and we determined we were no longer legally liable for any liabilities associated with our Guangzhou entity. Accordingly, we reversed the accrued social insurance by the amount associated with the Guangzhou entity, which was approximately $9.5 million.
The components of accrued compensation were as follows:
(In thousands)September 30, 2017 December 31, 2016(In thousands)September 30, 2020December 31, 2019
Accrued social insurance (1)
$17,506
 $19,974
Accrued social insurance (1)
$7,150 $16,588 
Accrued salary/wages7,721
 7,903
Accrued salary/wages6,606 7,465 
Accrued vacation/holiday2,844
 2,411
Accrued vacation/holiday3,046 2,766 
Accrued bonus (2)
1,985
 2,421
Accrued bonusAccrued bonus3,750 13,965 
Accrued commission851
 933
Accrued commission954 1,283 
Accrued medical insurance claims284
 122
Other accrued compensation2,137
 1,816
Other accrued compensation1,384 1,601 
Total accrued compensation$33,328
 $35,580
Total accrued compensation$22,890 $43,668 
 
(1)
(1)PRC employers are required by law to remit the applicable social insurance payments to their local government. Social insurance is comprised of various components such as pension, medical insurance, job industry insurance, unemployment insurance, and a housing assistance fund, and is administered in a manner similar to social security in the United States. This amount represents our estimate of the amounts due to the PRC government for social insurance at September 30, 2020 and December 31, 2019.
Note 10 — Other Accrued Liabilities
The components of other accrued liabilities were as follows:
(In thousands)September 30, 2020December 31, 2019
Contract liabilities$2,207 $1,840 
Duties4,607 3,731 
Freight and handling fees2,503 3,769 
Operating lease obligations5,802 4,903 
Product warranty claims costs1,797 1,514 
Professional fees4,301 2,833 
Sales and value added taxes4,217 3,926 
Short-term contingent consideration1,780 5,428 
Other6,402 7,501 
Total other accrued liabilities$33,616 $35,445 

Effective January 1, 2008, the Chinese Labor Contract Law was enacted in the PRC. This law mandated that PRC employers remit the applicable social insurance payments to their local government. Social insurance is comprised of various components such as pension, medical insurance, job injury insurance, unemployment insurance, and a housing assistance fund, and is administered in a manner similar to social security in the United States. This amount represents our estimate of the amounts due to the PRC government for social insurance on September 30, 2017 and December 31, 2016.
(2)
Accrued bonus includes an accrual for an extra month of salary ("13th month salary") to be paid to employees in certain geographies where it is the customary business practice. This 13th month salary is paid to these employees if they remain employed with us through December 31st. The total accrued for the 13th month salary was $0.7 million and $0.7 million at September 30, 2017 and December 31, 2016, respectively.
17
Table of Contents
UNIVERSAL ELECTRONICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SeptemberSEPTEMBER 30, 20172020
(Unaudited)



Note 9 — Other Accrued Expenses
The components of other accrued expenses were as follows:
(In thousands)September 30, 2017 December 31, 2016
Advertising and marketing$272
 $213
Deferred revenue79
 1,431
Deposit for sale of Guangzhou factory4,799
 —
Duties757
 1,127
Freight and handling fees2,176
 1,919
Product development485
 454
Product warranty claim costs218
 134
Professional fees1,691
 1,313
Property, plant, and equipment1,564
 1,017
Sales taxes and VAT2,587
 2,715
Short-term contingent consideration3,400
 —
Third-party commissions685
 853
Tooling (1)
1,769
 1,520
Unrealized loss on foreign currency exchange contracts86
 1,623
URC court order and settlement agreement (Note 2)—
 6,622
Utilities392
 331
Other4,880
 3,138
Total other accrued expenses$25,840
 $24,410
(1)
The tooling accrual balance relates to unearned revenue for tooling that will be sold to customers.
Note 1011 — Commitments and Contingencies
Product Warranties
Changes in the liability for product warranty claimclaims costs were as follows:
(In thousands)Nine Months Ended September 30,(In thousands)Nine Months Ended September 30,
2017 201620202019
Balance at beginning of period$134
 $35
Balance at beginning of period$1,514 $276 
Accruals for warranties issued during the period169
 100
Accruals for warranties issued during the period578 695 
Settlements (in cash or in kind) during the period(85) —
Settlements (in cash or in kind) during the period/Foreign exchange effectsSettlements (in cash or in kind) during the period/Foreign exchange effects(295)0 
Balance at end of period$218
 $135
Balance at end of period$1,797 $971 

Litigation
Restructuring ActivitiesRoku Matters
2018 Lawsuit
On September 5, 2018, we filed a lawsuit against Roku, Inc. ("Roku") in the United States District Court, Central District of California, alleging that Roku is willfully infringing 9 of our patents that are in 4 patent families related to remote control set-up and Saletouchscreen remotes. On December 5, 2018, we amended our complaint to add additional details supporting our infringement and willfulness allegations. We have alleged that this complaint relates to multiple Roku streaming players and components therefore and certain universal control devices, including but not limited to the Roku App, Roku TV, Roku Express, Roku Streaming Stick, Roku Ultra, Roku Premiere, Roku 4, Roku 3, Roku 2, Roku Enhanced Remote and any other Roku product that provides for the remote control of Guangzhou Factoryan external device such as a TV, audiovisual receiver, sound bar or Roku TV Wireless Speakers. In October 2019, the Court stayed this lawsuit pending action by the Patent Trial and Appeals Board (the "PTAB") with respect to Roku's Inter Partes Review requests (see discussion below).
International Trade Commission Investigation of Roku, TCL, Hisense and Funai
On April 16, 2020, we filed a complaint with the International Trade Commission (the "ITC") against Roku, TCL Electronics Holding Limited and related entities (collectively, "TCL"), Hisense Co., Ltd. and related entities (collectively, "Hisense"), and Funai Electric Company, Ltd. and related entities (collectively, "Funai") claiming that certain of their televisions, set-top boxes, remote control devices, human interface devices, streaming devices, and sound bars infringe certain of our patents. We asked the ITC to issue a permanent limited exclusion order prohibiting the importation of these infringing products into the United States and a cease and desist order to stop these parties from continuing their infringing activities. On May 18, 2020, the ITC announced that it instituted its investigation as requested by us. We are in the discovery phase of this investigation which is set to end in early November 2020.
Inter Partes Reviews
In September and October 2019, Roku filed Inter Partes Review ("IPR") requests with the first quarter of 2016, we implemented a plan to reducePTAB on the impact of rising labor rates in China by transitioning manufacturing activities from our southern-most China factory, located9 patents at issue in the city2018 Lawsuit (see discussion above). To date, the PTAB has denied Roku's request with respect to 3 of Guangzhouthe 9 patents and granted Roku's request with respect to 6 of the 9 patents. As for those IPRs for which the PTAB granted Roku's request for review, we will vigorously defend our patents. In May and June 2020, Roku filed 4 IPR requests against 3 patents asserted in the Guangdong province,ITC investigation. UEI has responded to our other China factories where labor ratesthese requests and we are rising at a slower rate. As a result, we incurred severance costsawaiting the PTAB decision in early to mid 2021.
Federal District Court Actions against each of $0.4 millionRoku, TCL, Hisense, and $0.1 million during the three months ended September 2017 and 2016, respectively, and $6.1 million and $1.6 million during the nine months ended September 30, 2017 and 2016, respectively, which are included within operating expenses. All operations in our Guangzhou factory ceased in July 2017. Accordingly, we do not expect to incur significant further severance or other restructuring costsFunai related to this factory transition. At September 30, 2017,the ITC Matter
On April 9, 2020, we had $0.2 millionfiled separate actions against each of unpaid severance costs included within accrued compensation.Roku, TCL, Hisense, and Funai in the United States District Court, Central District of California, alleging that Roku is willfully infringing 5 of our patents and TCL, Hisense, and Funai are willfully infringing 6 of our patents by incorporating our patented technology into certain of their televisions, set-top boxes, remote control devices, human interface devices, streaming devices, and sound bars. These matters have been stayed pending the results of the ITC investigation mentioned above.
18
Table of Contents
UNIVERSAL ELECTRONICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SeptemberSEPTEMBER 30, 20172020
(Unaudited)



Court of International Trade Action against the United States of America, et. al.
On September 26, 2016, we entered intoOctober 9, 2020, Universal Electronics Inc. ("UEI") and our subsidiaries, Ecolink Intelligent Technology, Inc. ("Ecolink") and RCS Technology, LLC ("RCS") filed an agreement to sell our Guangzhou manufacturing facility for RMB 320 million (approximately $48.0 million based on September 30, 2017 exchange rates). Underamended complaint (20-cv-00670) in the termsCourt of this agreement, we have up to 24 months to cease all operations withinInternational Trade (the "CIT") against the facility. The closingUnited States of America; the Office of the sale will be subjectUnited States Trade Representative; Robert E. Lighthizer, U.S. Trade Representative; U.S. Customs & Border Protection; and Mark A. Morgan, U.S. Customs & Border Protection Acting Commissioner, challenging both the substantive and procedural processes followed by the United States Trade Representative ("USTR") when instituting Section 301 Tariffs on imports from China under Lists 3 and 4A.
By this complaint, UEI, Ecolink and RCS are alleging that USTR's institution of Lists 3 and 4A tariffs violated the Trade Act of 1974 (the "Trade Act") on the grounds that the USTR failed to customary due diligencemake a determination or finding that there was an unfair trade practice that required a remedy and local regulatory approvalmoreover, that Lists 3 and per4A tariffs were instituted beyond the terms12-month time limit provided for in the governing statute. UEI, Ecolink and RCS also allege that the manner in which the Lists 3 and 4A tariff actions were implemented violated the Administrative Procedures Act (the "APA") by failing to provide adequate opportunity for comments, failed to consider relevant factors when making its decision and failed to connect the record facts to the choices it made by not explaining how the comments received by USTR came to shape the final implementation of Lists 3 and 4A.
UEI, Ecolink and RCS are asking the CIT to declare that Defendants' actions resulting in the tariffs on products covered by Lists 3 and 4A are unauthorized by and contrary to the Trade Act and was arbitrarily and unlawfully promulgated in violation of the agreement could take upAPA; to approximately 28 monthsvacate the Lists 3 and 4A tariffs; to order a refund (with interest) of any Lists 3 and 4A duties paid by UEI, Ecolink and RCS; to permanently enjoin the U.S. government from applying Lists 3 and 4A duties against UEI, Ecolink and RCS; and award UEI, Ecolink and RCS their costs and reasonable attorney fees.
The Government has requested an automatic stay of all pending cases challenging the executionList 3 and List 4A tariffs except for one or more "test cases." It proposed the first-filed case—the case filed by HMTX—as the test case. The government also asked the court to appoint a "steering committee" consisting of several lead counsel for the agreement. In accordance withplaintiffs to direct the termslitigation. The government proposed a bifurcated briefing schedule, under which the parties would first brief the government's upcoming motion to dismiss before briefing the merits of the agreement, the buyer deposited 10% of the purchase price into an escrow account at agreement inception, which we have presented as restricted cashplaintiffs' claims. We will agree to a stay in our consolidated balance sheet (also refer to Note 2). The remaining balance of the purchase price is to be placed into the escrow account priorcase. HMTX has filed a response agreeing to the closing ofstay and to being the sale and will be released to us upon closing. Since all operations at our Guangzhou manufacturing facility ceased as oftest case but opposed the end of July 2017, the related building and land lease assets of $12.4 million are classified as assets held for sale in our September 30, 2017 consolidated balance sheet.
Litigation
On or about June 10, 2015, FM Marketing GmbH ("FMH") and Ruwido Austria GmbH ("Ruwido"), filed a Summons in Summary Proceedings in Belgium court against one of our subsidiaries, Universal Electronics BV ("UEBV") and one of its customers, Telenet N.V. ("Telenet"), claiming that one of the products that UEBV previously supplied to Telenet violates two design patents and one utility patent owned by FMH and/or Ruwido. By this summons, FMH and Ruwido sought to enjoin Telenet and UEBV from continued distribution and use of the product at issue. After the September 29, 2015 hearing, the court issued its ruling in our and Telenet’s favor, rejecting FMH and Ruwido’s request entirely. On October 22, 2015, Ruwido filed its notice of appeal in this ruling. The parties have fully briefed and argued before the appellate court and we are awaiting the appellate court’s ruling. In addition, on or about February 9, 2016, Ruwido filed a writ of summons for proceeding on the merits with respect to asserted patents. UEBV and Telenet have replied, denying all of Ruwido's allegations and in June 2017, a hearing was held before the trial court. During this hearing, Ruwido sought to have a second product which we are currently selling to Telenet included in this case. In September 2017, the Court ruled in our favor that our current product cannot be made part of this case. The Court also refused to rule on whether the original product (which we are no longer selling) infringes the Ruwido patent, instead deciding to wait until the European Patent Office has ruled on our Opposition (see below)Government's proposed briefing schedule. Finally, the Court ruled that our original product (which we are no longer selling) infringes certain of Ruwido’s design rights, but stay any decision of compensation and/or damages until all aspects of the case have been decided. We are presently deciding whether to appeal this Court’s rulings and have until later this year to file notice of appeal. Finally, in September 2015, UEBV filed an Opposition with the European Patent Office seeking to invalidate the one utility patent asserted against UEBV and Telenet by Ruwido. The hearing on this opposition was held in July 2017. During this hearing the panel requested additional information. We are in the process of assembling this additional information and scheduling a date for rehearing. On September 5, 2017, Ruwido and FMH filed a patent infringement case on the merits against UEBV and Telenet alleging the same claims of infringement as in the Belgium Courts (see above). This matter is in its early stages and as such we have not yet answered. But, as in the Belgium case, UEBV and Telenet will deny all claims of infringement and vigorously defend against these claims.
On January 26, 2017, OpenTV, Inc., Nagra USA, Inc., Nagravision SA, and Kudelski SA (collectively, the “Kudelski Group”) filed a request with the U.S. International Trade Commission (“ITC”) to institute an investigation pursuant to Section 337 of the Tariff Act of 1930, as amended, concerning certain remote control devices we supply Comcast Corporation (“Comcast”), which request was accepted by the ITC. On July 21, 2017, the Kudelski Group filed a motion to terminate the investigation as to all parties, including us and this motion was accepted by the ITC on August 11, 2017.
On March 15, 2017, one of our employee’s filed a lawsuit against us and certain of our employees in the Superior Court of California, County of Orange, claiming hostile work environment based on sexual orientation, intentional infliction of emotional distress, failure to prevent hostile work environment, retaliation, and constructive termination. We have answered by denying all of the employee’s claims and have filed a countersuit against this employee claiming, among other things that he has breached his duty of loyalty to us, that he stole certain of our property, that he converted certain of our property to his own benefit. We are still in the early stages of this case as discovery has recently commenced.
There are no other material 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
Table of Contents
UNIVERSAL ELECTRONICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2017
(Unaudited)


judgments, if any, which might be rendered against us in potential or pending litigation would not have a material adverse effect on our consolidated financial condition, results of operations, or cash flows. 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.
Note 1112 — Treasury Stock
From time to time, our Board of Directors authorizes management to repurchase shares of our issued and outstanding common stock onstock. On September 15, 2020, our Board of Directors authorized a share repurchase program (the "September 2020 Program"), which replaced in its entirety the open market. Repurchasesprevious repurchase program. Pursuant to the September 2020 Program, we may be made whenever we deem a repurchase up to be a good use300,000 shares of our cash and the repurchase enhances shareholder value. As ofcommon stock. At September 30, 2017,2020, we had 114,271213,075 shares availableof common stock authorized for repurchase on the open marketremaining under the Board's authorizations.September 2020 Program. Subsequent to September 30, 2020, we repurchased an additional 113,075 shares under the September 2020 Program at a cost of $4.4 million. On October 23, 2017,28, 2020, our Board increased theseterminated the September 2020 Program and replaced it with a new share repurchase authorizations by 300,000program with an effective date of November 10, 2020 (the "November 2020 Program"). Pursuant to the November 2020 Program, we may, from time to time until February 18, 2021, repurchase up to 500,000 shares bringingof our common stock. We may repurchase shares of common stock in privately negotiated and/or open-market transactions, including pursuant to plans complying with Rule 10b5-1 promulgated under the total authorization asSecurities Exchange Act of the approval date to 386,434 shares. Shares may also be tendered by employees to satisfy tax withholding obligations in connection with the vesting1934.
19
Table of restricted stock.Contents
UNIVERSAL ELECTRONICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2020
(Unaudited)

Repurchased shares of our common stock were as follows:
Nine Months Ended September 30,Nine Months Ended September 30,
(In thousands)2017 2016(In thousands)20202019
Shares repurchased330
 40
Shares repurchased263 55 
Cost of shares repurchased$20,217
 $2,188
Cost of shares repurchased$9,822 $1,741 
Repurchased shares are recorded as shares held in treasury at cost. We hold these shares for future use as management and the Board of Directors deem appropriate, which has included compensating our outside directors.appropriate.
Note 1213 — 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. 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 only have a single operating and reportable segment.
Foreign Operations
Our net sales to external customers by geographic area were as follows:
 Three Months Ended September 30, Nine Months Ended September 30,
(In thousands)2017 2016 2017 2016
United States$85,762
 $88,243
 $253,259
 $263,053
Asia (excluding PRC)26,113
 22,099
 77,679
 64,290
People's Republic of China23,437
 19,899
 61,015
 59,978
Europe18,877
 19,389
 56,041
 53,716
Latin America13,567
 13,032
 44,593
 32,273
Other7,896
 6,523
 22,051
 17,519
Total net sales$175,652
 $169,185

$514,638

$490,829
Specific identification of the customer billing location was the basis used for attributing revenues from external customers to geographic areas.
Table of Contents
UNIVERSAL ELECTRONICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2017
(Unaudited)


Long-lived Tangible Assets
Long-lived tangible assets by geographic area, which include property, plant, and equipment, net and operating lease right-of-use assets, were as follows:
(In thousands)September 30, 2020December 31, 2019
United States$16,327 $19,938 
People's Republic of China61,320 67,625 
Mexico20,624 16,644 
All other countries4,956 6,351 
Total long-lived tangible assets$103,227 $110,558 
(In thousands)September 30, 2017 December 31, 2016
United States$14,233
 $11,948
People's Republic of China95,165
 94,113
All other countries3,791
 4,186
Total long-lived tangible assets$113,189
 $110,247
Note 1314 — Stock-Based Compensation
Stock-based compensation expense for each employee and director is presented in the same income statement of operations caption as their cash compensation. Stock-based compensation expense by income statement of operations caption and the related income tax benefit were as follows:
Three Months Ended September 30,Nine Months Ended September 30,
(In thousands)2020201920202019
Cost of sales$36 $37 $146 $102 
Research and development expenses287 315 811 809 
Selling, general and administrative expenses:
Employees1,555 1,866 4,695 5,005 
Outside directors382 309 1,202 802 
Total employee and director stock-based compensation expense$2,260 $2,527 $6,854 $6,718 
Income tax benefit$494 $509 $1,500 $1,385 
 Three Months Ended September 30, Nine Months Ended September 30,
(In thousands)2017 2016 2017 2016
Cost of sales$19
 $14
 $53
 $43
Research and development expenses149
 136
 412
 409
Selling, general and administrative expenses:       
Employees1,843
 1,748
 5,562
 5,324
Outside directors1,910
 770
 3,449
 1,862
Total employee and director stock-based compensation expense$3,921

$2,668

$9,476

$7,638
        
Income tax benefit$603
 $812
 2,307
 2,281

Stock Options

Stock option activity was as follows:
 
Number of Options
(in 000's)
 Weighted-Average Exercise Price 
Weighted-Average Remaining Contractual Term
(in years)
 
Aggregate Intrinsic Value
(in 000's)
Outstanding at December 31, 2016652
 $39.27
    
Granted92
 62.70
    
Exercised(45) 24.87
   $1,893
Forfeited/canceled/expired(168) 46.44
    
Outstanding at September 30, 2017 (1)
531
 $42.26
 4.49 $11,391
Vested and expected to vest at September 30, 2017 (1)
531
 $42.26
 4.49 $11,390
Exercisable at September 30, 2017 (1)
378
 $35.35
 3.94 $10,731
(1)
The aggregate intrinsic value represents the total pre-tax value (the difference between our closing stock price on the last trading day of the third quarter of 2017 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had they all exercised their options on September 30, 2017. This amount will change based on the fair market value of our stock.
On September 11, 2017, the independent members of our Board of Directors voluntarily surrendered 150,000 stock options originally granted to them in February 2016, resulting in the acceleration and recording of $1.2 million of stock-based compensation expense during the three and nine months ended September 30, 2017. This amount represented all remaining unamortized compensation expense associated with the surrendered stock options as of the surrender date.
20
Table of Contents
UNIVERSAL ELECTRONICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SeptemberSEPTEMBER 30, 20172020
(Unaudited)



Stock Options

Stock option activity was as follows:
Number of Options
(in thousands)		Weighted-Average Exercise PriceWeighted-Average Remaining Contractual Term
(in years)		Aggregate Intrinsic Value
(in thousands)
Outstanding at December 31, 2019745 $41.73 
Granted109 46.17 
Exercised0 0 $0 
Forfeited/canceled/expired0 0 
Outstanding at September 30, 2020 (1)
854 $42.29 3.63$3,853 
Vested and expected to vest at September 30, 2020 (1)
854 $42.29 3.63$3,853 
Exercisable at September 30, 2020 (1)
634 $43.04 2.75$3,048 
(1)The aggregate intrinsic value represents the total pre-tax value (the difference between our closing stock price on the last trading day of the third quarter of 2020 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had they all exercised their options on September 30, 2020. This amount will change based on the fair market value of our stock.
The assumptions we utilized in the Black-Scholes option pricing model and the resulting weighted average fair value of stock option grants were the following:
 Three Months Ended September 30,Nine Months Ended September 30,
 2020201920202019
Weighted average fair value of grants$0 $0 $17.70 $10.28 
Risk-free interest rate0 %0 %1.44 %2.49 %
Expected volatility0 %0 %43.95 %41.64 %
Expected life in years0.000.004.594.54
 Three Months Ended September 30, Nine Months Ended September 30,
 2017 2016 2017 2016
Weighted average fair value of grants$—
 $—
 $19.61
 $17.96
Risk-free interest rate—% —% 1.75% 1.36%
Expected volatility—% —% 34.25% 41.38%
Expected life in years0.00
 0.00
 4.52
 4.55
As of September 30, 2017,2020, we expect to recognize $2.4$2.7 million of total unrecognized pre-tax stock-based compensation expense related to non-vested stock options over a remaining weighted-average life of 1.81.9 years.
Restricted Stock
Non-vested restricted stock award activity was as follows:
Shares
(in thousands)		Weighted-Average Grant Date Fair Value
Non-vested at December 31, 2019310 $34.99 
Granted235 36.83 
Vested(150)38.09 
Forfeited(6)44.31 
Non-vested at September 30, 2020389 $34.75 
 
Shares
(in 000's)
 Weighted-Average Grant Date Fair Value
Non-vested at December 31, 2016153
 $57.43
Granted132
 64.14
Vested(59) 61.28
Forfeited(4) 60.71
Non-vested at September 30, 2017222
 $60.34
As of September 30, 2017,2020, we expect to recognize $9.8$10.2 million of total unrecognized pre-tax stock-based compensation expense related to non-vested restricted stock awards over a weighted-average life of 1.71.9 years.
21
Table of Contents
UNIVERSAL ELECTRONICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2020
(Unaudited)

Note 1415 — Performance-Based Common Stock Warrants
On March 9, 2016, we issued common stock purchase warrants to Comcast Corporation ("Comcast") to purchase up to 725,000 shares of our common stock at a price of $54.55 per share. The right to exercise the warrants is subject to vesting over three3 successive two-year periods (with the first two-year period commencing on January 1, 2016) based on the level of purchases of goods and services from us by Comcast and its affiliates, as defined in the warrants. The table below presents the purchase levels and potential number of warrants that willto vest in each period based upon achieving thesethe purchase levels.
Incremental Warrants That Will Vest Potential Warrants To Vest
Aggregate Level of Purchases by Comcast and AffiliatesJanuary 1, 2016 - December 31, 2017 January 1, 2018 - December 31, 2019 January 1, 2020 - December 31, 2021Aggregate Level of Purchases by Comcast and AffiliatesJanuary 1, 2016 - December 31, 2017January 1, 2018 - December 31, 2019January 1, 2020 - December 31, 2021
$260 million100,000
 100,000
 75,000
$260 million100,000 100,000 75,000 
$300 million75,000
 75,000
 75,000
$300 million75,000 75,000 75,000 
$340 million75,000
 75,000
 75,000
$340 million75,000 75,000 75,000 
Maximum Potential Warrants Earned by Comcast250,000
 250,000
 225,000
Maximum Potential Warrants Earned by Comcast250,000 250,000 225,000 
If total aggregate purchases by Comcast and its affiliates are below $260 million in any of the two-year periods above, no warrants will vest related to that two-year period. If total aggregate purchases of goods and services by Comcast and its affiliates exceed $340 million during either the first or second two-year period, the amount of any such excess willwould count toward aggregate purchases in the following two-year period. This threshold was not met in either the first or second two-year period. For the two-year period ended December 31, 2017, Comcast earned and vested in 175,000 out of the maximum potential 250,000 warrants. For the two-year period ended December 31, 2019, Comcast earned and vested in 100,000 out of the maximum potential 250,000 warrants. At September 30, 2020, 275,000 vested warrants were outstanding. To fully vest in the rights to purchase all of the remaining unearned 225,000 underlying shares, Comcast and its affiliates must purchase an aggregate of $1.02 billion$340 million in goods and services from us during the six-year vesting period.period January 1, 2020 through December 31, 2021.
Table of Contents
UNIVERSAL ELECTRONICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2017
(Unaudited)


Any and allAll warrants that vest will expire on January 1, 2023. The warrants provide for certain adjustments that may be made to the exercise price and the number of shares issuable upon exercise due to customary anti-dilution provisions. Additionally, in connection with the common stock purchase warrants, we have also entered into a registration rights agreement with Comcast under which Comcast may from time to time request that we register the shares of common stock underlying vested warrants with the SEC.
BecauseAs the warrants contain performance criteria under which Comcast must achieve specified aggregate purchase levels for the warrants to vest, as detailed above, the measurement date for the warrants isfor the first two-year successive periods was the date on which the warrants vest. Through September 30, 2017, 100,000vested.
The FASB issued guidance in November 2019 that clarifies the accounting for share-based payments issued as sales incentives to customers. The guidance requires that stock-based compensation expense be recorded as a reduction in the transaction price on the basis of the grant-date fair value. The transition provisions require that equity-classified awards be measured at the adoption date fair value if the measurement date has not been established prior to the adoption date. The measurement periods for the first two successive two-year periods of our outstanding performance-based common stock warrants had vested.
were completed prior to adoption and were not impacted by this updated guidance. The measurement period for the final two-year period began on January 1, 2020, and, accordingly, we measured the fair value of the warrants is determinedaward as of our adoption date on January 1, 2020 using the Black-Scholes option pricing model. Through September 30, 2020, 0ne of the warrants had vested for the two-year period beginning January 1, 2020.
The assumptions we utilized in the Black-Scholes option pricing model and the resulting grant-date fair value of the warrants as of January 1, 2020 were the following:
Fair value$17.19 
Price of Universal Electronics Inc. common stock$52.21 
Risk-free interest rate1.62 %
Expected volatility48.86 %
Expected life in years3.00
22
Table of Contents
UNIVERSAL ELECTRONICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2020
(Unaudited)

Prior to the adoption of the new guidance on January 1, 2020, we adjusted the estimated weighted average fair value of the warrants each period. The assumptions we utilized in the Black-Scholes option pricing model and the resulting weighted average fair value of the warrants were the following:
Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016Three Months Ended September 30, 2019Nine Months Ended September 30, 2019
Fair value$24.17
 $38.32
 $24.17
 $38.32
Fair value$16.78 $16.78 
Price of Universal Electronics Inc. common stock$62.10
 $74.99
 $62.10
 $74.99
Price of Universal Electronics Inc. common stock$51.09 $51.09 
Risk-free interest rate1.93% 1.32% 1.93% 1.32%Risk-free interest rate1.56 %1.56 %
Expected volatility34.41% 40.54% 34.41% 40.54%Expected volatility47.82 %47.82 %
Expected life in years5.26
 6.25
 5.26
 6.25
Expected life in years3.253.25
The impact to net sales recorded in connection with the warrants and the related income tax benefit were as follows:
Three Months Ended September 30,Nine Months Ended September 30,
(In thousands)2020201920202019
Reduction to net sales$187 $711 $525 $1,381 
Income tax benefit$47 $177 $131 $345 
 Three Months Ended September 30, Nine Months Ended September 30,
(in thousands)2017 2016 2017 2016
Reduction/(increase) to net sales$(141) $1,160
 $1,122
 $3,219
Income tax (benefit)/expense53
 (426) (418) (1,182)
At September 30, 2017, we estimatedWe estimate the number of warrants that will vest based on the combination of purchases already made and projected future purchases that will be made by Comcast and its affiliates. These estimates may increase or decrease based on actual future purchases. The aggregate estimated fair value of the warrants is recognized as a reduction to revenue over the related two-year vesting period. At September 30, 2020, the aggregate unrecognized estimated fair value of unvested warrants at September 30, 2017we estimate will vest was $14.2$0.8 million.
Note 1516 — Other Income (Expense), Net
Other income (expense), net consisted of the following:
Three Months Ended September 30,Nine Months Ended September 30,
(In thousands)2020201920202019
Net gain (loss) on foreign currency exchange contracts (1)
$(72)$368 $(523)$(8)
Net gain (loss) on foreign currency exchange transactions(1,525)(689)(865)(662)
Other income(49)173 125 244 
Other (expense), net$(1,646)$(148)$(1,263)$(426)

(1)This represents the gains (losses) incurred on foreign currency hedging derivatives (see Note 18 for further details).

23
 Three Months Ended September 30, Nine Months Ended September 30,
(In thousands)2017 2016 2017 2016
Net gain (loss) on foreign currency exchange contracts (1)
$(1,488) $(218) $(2,852) $(894)
Net gain (loss) on foreign currency exchange transactions1,176
 439
 2,512
 2,455
Other income (expense)373
 114
 342
 165
Other income (expense), net$61
 $335

$2

$1,726
(1)
This represents the gains (losses) incurred on foreign currency hedging derivatives (see Note 17 for further details).
Table of Contents
UNIVERSAL ELECTRONICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SeptemberSEPTEMBER 30, 20172020
(Unaudited)



Note 1617 — Earnings (Loss) Per Share
Earnings (loss) per share was calculated as follows:
Three Months Ended September 30, Nine Months Ended September 30,Three Months Ended September 30,Nine Months Ended September 30,
(In thousands, except per-share amounts)2017 2016 2017 2016(In thousands, except per-share amounts)2020201920202019
BASIC       BASIC
Net income attributable to Universal Electronics Inc.$1,728
 $7,807
 $6,531
 $17,118
Net income (loss)Net income (loss)$6,168 $2,669 $26,414 $(3,397)
Weighted-average common shares outstanding14,381
 14,510
 14,412
 14,441
Weighted-average common shares outstanding13,928 13,894 13,935 13,861 
Basic earnings per share attributable to Universal Electronics Inc.$0.12
 $0.54

$0.45

$1.19
Basic earnings (loss) per shareBasic earnings (loss) per share$0.44 $0.19 $1.90 $(0.25)
       
DILUTED       DILUTED
Net income attributable to Universal Electronics Inc.$1,728
 $7,807
 $6,531
 $17,118
Net income (loss)Net income (loss)$6,168 $2,669 $26,414 $(3,397)
Weighted-average common shares outstanding for basic14,381
 14,510
 14,412
 14,441
Weighted-average common shares outstanding for basic13,928 13,894 13,935 13,861 
Dilutive effect of stock options, restricted stock and common stock warrants285
 338
 277

299
Dilutive effect of stock options, restricted stock and common stock warrants277 276 254 0 
Weighted-average common shares outstanding on a diluted basis14,666
 14,848
 14,689
 14,740
Weighted-average common shares outstanding on a diluted basis14,205 14,170 14,189 13,861 
Diluted earnings per share attributable to Universal Electronics Inc.$0.12
 $0.53

$0.44

$1.16
Diluted earnings (loss) per shareDiluted earnings (loss) per share$0.43 $0.19 $1.86 $(0.25)
The following number of stock options, and shares of restricted stock and common stock warrants were excluded from the computation of diluted earnings per common share were as follows:their inclusion would have been anti-dilutive:
Three Months Ended September 30,Nine Months Ended September 30,
(In thousands)2020201920202019
Stock options511 382 494 436 
Restricted stock awards0 9 18 89 
Performance-based warrants275 175 275 175 
 Three Months Ended September 30, Nine Months Ended September 30,
(In thousands)2017 2016 2017 2016
Stock options165
 —
 153
 111
Restricted stock awards30
 5
 30
 8

Note 1718 — Derivatives
The following table sets forth the total net fair value of derivatives:
 September 30, 2017 December 31, 2016 September 30, 2020December 31, 2019
 Fair Value Measurement Using Total Balance Fair Value Measurement Using Total BalanceFair Value Measurement UsingTotal BalanceFair Value Measurement UsingTotal Balance
(In thousands) Level 1 Level 2 Level 3 Level 1 Level 2 Level 3 (In thousands)Level 1Level 2Level 3Level 1Level 2Level 3
Foreign currency exchange contracts $—
 $(385) $—
 $(385) $—
 $(1,584) $—
 $(1,584)Foreign currency exchange contracts$0 $153 $0 $153 $0 $(172)$0 $(172)
We held foreign currency exchange contracts, which resulted in a net pre-tax loss of $1.5$0.1 million and $0.2a net pre-tax gain of $0.4 million for the three months ended September 30, 20172020 and 2016,2019, respectively. For the nine months ended September 30, 20172020 and 2016,2019, we had a net pre-tax loss of $2.9$0.5 million and $0.9 million,$8.0 thousand, respectively (see Note 15)16).
24
Table of Contents
UNIVERSAL ELECTRONICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SeptemberSEPTEMBER 30, 20172020
(Unaudited)



Details of foreign currency exchange contracts held were as follows:
Date HeldCurrencyPosition HeldNotional Value
(in millions)		Forward Rate
Unrealized Gain/(Loss) Recorded at Balance Sheet
Date
(in thousands)(1)
Settlement Date
September 30, 2020USD/Chinese Yuan RenminbiCNY$37.0 6.8297 $210 October 30, 2020
September 30, 2020USD/EuroUSD$26.0 1.1685 $(87)October 30, 2020
September 30, 2020USD/Brazilian RealUSD$1.5 5.5368 $24 October 30, 2020
September 30, 2020USD/Mexican PesoUSD$2.6 22.1285 $6 October 30, 2020
December 31, 2019USD/Chinese Yuan RenminbiUSD$35.0 6.9867 $100 January 23, 2020
December 31, 2019USD/Brazilian RealUSD$0.5 4.0560$(6)January 24, 2020
December 31, 2019USD/EuroUSD$28.0 1.1133$(253)January 24, 2020
December 31, 2019USD/Brazilian RealUSD$0.7 4.0870$(13)January 24, 2020
(1)Unrealized gains on foreign currency exchange contracts are recorded in prepaid expenses and other current assets. Unrealized losses on foreign currency exchange contracts are recorded in other accrued liabilities.

25
Date Held Type Position Held 
Notional Value
(in millions)
 Forward Rate 
Unrealized Gain/(Loss) Recorded at Balance Sheet
Date
(in thousands)(1)
 Settlement Date
September 30, 2017 USD/Euro USD $17.0
 1.2039
 $299
 October 27, 2017
September 30, 2017 USD/Chinese Yuan Renminbi USD $22.0
 6.6174
 $111
 October 20, 2017
September 30, 2017 USD/Brazilian Real USD $4.5
 3.2330
 $(86) October 20, 2017
September 30, 2017 USD/Brazilian Real BRL $1.0
 3.3660
 $61
 October 20, 2017
             
December 31, 2016 USD/Euro USD $18.0
 1.0513
 $(61) January 27, 2017
December 31, 2016 USD/Chinese Yuan Renminbi Chinese Yuan Renminbi $25.0
 6.7230
 $(974) January 13, 2017
December 31, 2016 USD/Chinese Yuan Renminbi Chinese Yuan Renminbi $10.0
 6.6757
 $(457) January 13, 2017
December 31, 2016 USD/Brazilian Real USD $2.0
 3.4775
 $(131) January 13, 2017
December 31, 2016 USD/Brazilian Real USD $4.0
 3.2316
 $39
 January 13, 2017
(1)
Unrealized gains on foreign currency exchange contracts are recorded in prepaid expenses and other current assets. Unrealized losses on foreign currency exchange contracts are recorded in other accrued expenses.
Note 18 — Business Combination
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 nine months ended September 30, 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 sold and marketed by RCS.
Our consolidated income statement for the three and nine months ended September 30, 2017 includes net sales of $0.8 million and $2.2 million, respectively, and net losses of $0.3 million and $0.7 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 ("APA"). Operating income will be calculated using certain revenues, costs and expenses directly attributable to RCS 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 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
Table of Contents
UNIVERSAL ELECTRONICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2017
(Unaudited)


under U.S. GAAP. The fair value of earnout consideration is presented as long-term contingent consideration in our consolidated balance sheet at September 30, 2017.
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 Preliminary Fair Value
Accounts receivable  $429
Inventories  1,508
Prepaid expenses and other current assets  7
Property, plant and equipment1-4 years 14
Current liabilities  (408)
Net tangible assets acquired  1,550
Trade name8 years 400
Customer relationships10 years 5,000
Order backlog1 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 are 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 the RCS 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 the RCS trade name.
The fair value assigned to RCS customer relationships and order backlog intangible assets were 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 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 this transaction 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.
Table of Contents
UNIVERSAL ELECTRONICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2017
(Unaudited)


 Three Months Ended September 30, 2017 Nine Months Ended September 30, 2017
(In thousands, except per-share amounts)2017 2016 2017 2016
Net sales$175,652
 $170,658
 $515,200
 $497,172
Net income1,751
 7,525
 6,292
 16,892
Net income attributable to Universal Electronics Inc.1,751
 7,525
 6,292
 16,892
Basic earnings per share attributable to Universal Electronics Inc.$0.12
 $0.52
 $0.44
 $1.17
Diluted earnings per share attributable to Universal Electronics Inc.$0.12
 $0.51
 $0.43
 $1.14

For purposes of determining pro forma net income attributable to Universal Electronics Inc., adjustments were made to all periods presented in the table above. The pro forma net income and net income attributable to Universal Electronics Inc. assumes 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 for the nine months ended September 30, 2017, and a net increase in amortization expense of $0.2 million and $0.5 million for the three and nine months ended September 30, 2016, respectively. Additionally, acquisition costs totaling $0.1 million are excluded from pro forma net income attributable to Universal Electronics Inc. All adjustments have been made net of their related tax effects.


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Consolidated Financial Statements and the related notes that appear elsewhere in this document.report.
Overview
We design, develop, manufacture and manufactureship control and sensor technology solutions and a broad line of pre-programmed and universal remote control products, AVaudio-video ("AV") accessories, software and intelligent wireless security sensing and automation components dedicated to redefiningsmart home products that are used by the home entertainment and automation experience. Our customers operate primarilyworld's leading brands in the consumer electronics, marketsubscription broadcast, home entertainment, automation, security, hospitality and includeclimate 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 broadcasters, OEMs, internationalbroadcast providers (cable, satellite and Internet Protocol television ("IPTV") and Over the Top services), original equipment manufacturers ("OEMs"), retailers, and private label brands, pro-security dealers and companies in the computing industry. We also sell customers;
•integrated circuits, on which our software and universal device control database is embedded, and license our device control databasesold primarily to OEMs, subscription broadcast providers, and private label customers;
•software, firmware and technology solutions that manufacture televisions, digital audio and video players, streamer boxes, cable converters, satellite receivers,can enable devices such as TVs, set-top boxes, room air conditioning equipment,audio systems, smartphones, tablets, game consoles,controllers and wireless mobile phonesother consumer electronic devices to wirelessly connect and tablets.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 broadcast 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; and
•AV accessories sold, directly and indirectly, to consumers.
Since our beginning in 1986, we have compiled an extensive device control code databaseknowledge library that covers approximately oneincludes over 12,000 brands comprising over 920,000 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 nearly 6.9 million individualunique device functionsfingerprints across both AV and approximately 8,000 unique consumer electronic brands. QuickSet®, our proprietary software, can automatically detect, identify and enable the appropriate control commands forsmart home entertainment, automation and appliances like air conditioners. devices.
Our library is regularly updated with new control functions captured directly from devices, remote controls and manufacturer specifications to ensure the accuracy and integrity of our database and control engine. Our universal remote control library contains device codes that are capable of controlling virtually all set-top boxes, televisions, audio components, DVD players, Blu-Ray players, and CD players, as well as mosttechnology also includes other remote controlled home entertainment devices and home automation control modules, worldwide.
Withas well as wired Consumer Electronics Control ("CEC") and wireless Internet Protocol ("IP") control protocols commonly found on many of the wider adoptionlatest 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 Internet of Things ("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 advanced technologies, emerging radio frequency ("RF") technologies, such as RF4CE, Bluetooth,robust and Bluetooth Smart, have increasingly become a focus inefficient than similarly priced products of our development efforts. Several new recently released platforms utilize RF to effectively implement popular features like voice search.competitors.
We have developed a comprehensive patent portfolio of more than 400over 580 issued and pending and issuedU.S. patents related to remote controlscontrol, home security, safety and home automation.automation as well as hundreds of foreign counterpart patents and applications in various territories around the world.
We operate as one business segment. We have 242 domestic subsidiaries and 25 international subsidiaries located in Argentina, Brazil, British Virgin Islands, Cayman Islands, France, Germany, Hong Kong (3), India, Italy, Japan, Korea, Mexico, the Netherlands, People's Republic of China (6)(the "PRC") (7), Singapore, Spain and the United Kingdom.
To recap our results for the three months ended September 30, 2017:2020:
•Net sales increased 3.8%decreased 23.5% to $175.7$153.5 million for the three months ended September 30, 20172020 from $169.2$200.7 million for the three months ended September 30, 2016.2019.
•Our gross margin percentage decreased from 24.7%increased to 28.8% for the three months ended September 30, 2016 to 24.5%2020 from 23.2% for the three months ended September 30, 2017.2019.
•Operating expenses, as a percentpercentage of net sales, increased from 19.9% for the three months ended September 30, 2016 to 22.1% for the three months ended September 30, 2017.2020 from 20.2% for the three months ended September 30, 2019.
26
Table of Contents
•Our operating income decreased from $8.1increased to $10.2 million for the three months ended September 30, 2016 to $4.22020 from $6.1 million for the three months ended September 30, 2017, and our2019. Our operating marginincome percentage decreased from 4.8%increased to 6.7% for the three months ended September 30, 2016 to 2.4%2020 from 3.0% for the three months ended September 30, 2017.2019.
Our effective•Income tax rate increasedexpense decreased to 51.4%$2.2 million for the three months ended September 30, 2017, compared to 5.1%2020 from $2.5 million for the three months ended September 30, 2016.2019.
Our strategic business objectives for 20172020 include the following:
•continue to develop and market the advanced remote control products and technologies that our customer base is adopting;
•continue to broaden our home control and automation product offerings;
•further penetrate international subscription broadcastingbroadcast markets;
•acquire new customers in historically strong regions;
•increase our share with existing customers; and
•continue to seek acquisitions or strategic partners that complement and strengthen our existing business.
We intend for the following discussion of our financial condition and results of operations to provide information that will assist in understanding our consolidated financial statements, the changes in certain key items in those financial statements from period

to period, and the primary factors that accounted for those changes, as well as how certain accounting principles, policies and estimates affect our consolidated financial statements.
COVID-19 Impact
The COVID-19 pandemic has caused, and is expected to continue to cause, a global slowdown of economic activity (including the decrease in demand for goods and services), and significant volatility in and disruption to financial markets. Because the severity, magnitude and duration of the COVID-19 pandemic are uncertain, rapidly changing and difficult to predict, the pandemic's impact on our operations and financial performance, as well as its impact on our ability to successfully execute our business strategy and initiatives, remains uncertain. As COVID-19 has spread to other jurisdictions and has been declared a global pandemic, the full extent of this outbreak and the related governmental, business and travel restrictions in order to contain COVID-19 are continuing to evolve globally. In response, we have created a COVID-19 taskforce, which includes a cross-functional group of senior level executives, to manage and respond to the everchanging health and safety requirements across the globe and communicate our response to the pandemic to our global factory and office leaders.
Local government mandates required us, in the first quarter of 2020, to keep our China factories closed for a period of approximately two weeks beyond the end of the Chinese Lunar New Year. Our Mexico factory was closed for more than one week due to local health ordinance requirements during the second quarter of 2020. As a part of our response to this pandemic, our COVID-19 taskforce has developed and we have implemented additional safety measures for all factory employees across the globe including temperature scans upon entry, hand sanitizer stations located throughout the facilities, mandatory mask wearing, social distancing measures in gathering places and restricting all visitor access. All factories are up to or near labor capacity as of the issuance of this report.
We have also taken measures to safeguard the health and well-being of our employees in our office locations throughout the world including implementing work from home arrangements and a moratorium on all travel, except where essential and approved in advance. We have implemented enhanced safety measures upon the reopening of our office locations including more frequent office sanitation, temperature scans upon arrival, mandatory mask wearing, additional hand sanitizer locations, social distancing measures throughout locations and restricted visitor access. The reopening of our offices continues to follow suggested guidelines by the Centers for Disease Control and Prevention, the World Health Organization, and local governmental orders and recommendations. The continued safety and welfare of our employees will remain at the forefront of all decision-making.
We anticipate that these actions and the global health crisis caused by COVID-19 will continue to negatively impact business activity across the globe, including our business. We expect our sales demand to be negatively impacted for the remainder of 2020 given the global reach and economic impact of COVID-19 and the various quarantine and social distancing measures put in place to contain the spread of COVID-19. We have also seen some disruptions in our supply chain that, if continued, may cause us difficulty in fulfilling customer orders. A closure of one of our factories for a sustained period of time would, in the short run, impact our ability to meet customer demand and would negatively impact our results.
We will continue to actively monitor the situation and may take further actions altering our business operations as necessary or as required by federal, state, or local authorities. The potential effects of any such alterations or modifications may have a material adverse impact on our business for the remainder of 2020 or future periods.
27
Table of Contents
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make estimates and judgments that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an on-going basis, we evaluate our estimates and judgments, including those related to revenue recognition, allowancesrecognition; allowance for sales returns and doubtful accounts,bad debts; inventory valuation,valuation; our review for impairment of long-lived assets, intangible assets and goodwill,goodwill; leases; business combinations,combinations; income taxes,taxes; stock-based compensation expense and performance-based common stock warrants. Actual results may differ from these judgments and estimates, and they may be adjusted as more information becomes available. Any adjustment may be significant and may have a material impact on our consolidated financial position or results of operations.

An accounting policy is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, if different estimates reasonably may have been used, or if changes in the estimate that are reasonably likely to occur may materially impact the financial statements. We do not believe that there have been any significant changes during the nine months ended September 30, 20172020 to the items that we disclosed as our critical accounting policies and estimates in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" contained in our Annual Report on Form 10-K for our fiscal year ended December 31, 2016.2019.
Recent Accounting Pronouncements
See Note 1 contained in the "Notes to Consolidated Financial Statements" for a discussion of recent accounting pronouncements.
Results of Operations
The following table sets forth our reported results of operations expressed as a percentage of net sales for the periods indicated.
Three Months Ended September 30,Nine Months Ended September 30,
2020201920202019
Net sales100.0 %100.0 %100.0 %100.0 %
Cost of sales71.2 76.8 72.7 79.2 
Gross profit28.8 23.2 27.3 20.8 
Research and development expenses5.0 4.0 5.0 3.8 
Selling, general and administrative expenses17.1 16.2 16.9 16.3 
Operating income6.7 3.0 5.4 0.7 
Interest income (expense), net(0.2)(0.4)(0.3)(0.5)
Accrued social insurance adjustment— — 2.1 — 
Other income (expense), net(1.1)0.0 (0.3)(0.1)
Income (loss) before provision for income taxes5.4 2.6 6.9 0.1 
Provision for income taxes1.4 1.3 1.1 0.6 
Net income (loss)4.0 %1.3 %5.8 %(0.5)%
 Three Months Ended September 30, Nine Months Ended September 30,
 2017 2016 2017 2016
Net sales100.0 % 100.0 % 100.0 % 100.0 %
Cost of sales75.5
 75.3

75.2

75.0
Gross profit24.5
 24.7
 24.8
 25.0
Research and development expenses3.1
 2.9
 3.1
 3.1
Factory transition restructuring charges0.2
 0.1
 1.2
 0.3
Selling, general and administrative expenses18.8
 16.9
 18.4
 17.7
Operating income2.4
 4.8

2.1

3.9
Interest income (expense), net(0.4) (0.1) (0.3) (0.2)
Other income (expense), net0.0
 0.2
 0.0
 0.4
Income before provision for income taxes2.0
 4.9

1.8

4.1
Provision for income taxes1.0
 0.3
 0.6
 0.6
Net income1.0
 4.6

1.2

3.5
Net income attributable to noncontrolling interest—
 —
 —
 0.0
Net income attributable to Universal Electronics Inc.1.0 % 4.6 %
1.2 %
3.5 %

Three Months Ended September 30, 20172020 versus Three Months Ended September 30, 20162019
Net sales. Net sales for the three months ended September 30, 2017 were $175.7 million, an increase of 3.8% compared to $169.2 million for the three months ended September 30, 2016. Net sales by our Business and Consumer lines were as follows:
 Three Months Ended September 30,
 2017 2016
 $ (millions) % of total $ (millions) % of total
Business$163.1
 92.8% $157.2
 92.9%
Consumer12.6
 7.2
 12.0
 7.1
Total net sales$175.7
 100.0% $169.2
 100.0%
Net sales in our Business lines (subscription broadcasting, OEM, and computing companies) were 92.8% of net sales for the three months ended September 30, 20172020 were $153.5 million, a decrease of 23.5% compared to 92.9%$200.7 million for the three months ended September 30, 2016. Net2019. The decrease in net sales inoccurred primarily with our Business lines for the three months ended September 30, 2017 increased by 3.8% to $163.1 million from $157.2 million driven primarily by increased sales oftraditional home entertainment and security products, increased sales to consumer electronics companiescustomers. The COVID-19 pandemic had an adverse effect on demand, which ultimately resulted in Asia, and the rollout of higher end platforms in Europe. These increases were partially offset by a decrease in salesnet sales. We expect the COVID-19 pandemic to North American satellite broadcasting customers as certain customers arecontinue to negatively impact our net sales in the process of depleting their current stock of inventory in preparation for the launch of their new advanced platforms.fourth quarter.
Net sales in our Consumer lines (One For All® retail and private label) were 7.2% of net sales for the three months ended September 30, 2017 compared to 7.1% for the three months ended September 30, 2016. Net sales in our Consumer lines for the three months ended September 30, 2017 increased by 5.0% to $12.6 million from $12.0 million in the three months ended September 30, 2016 driven primarily by growth in international markets outside of Europe.
Gross profit. Gross profit for the three months ended September 30, 20172020 was $43.1$44.2 million compared to $41.8$46.5 million for the three months ended September 30, 2016.2019. Gross profit as a percentpercentage of sales decreasedincreased to 24.5%28.8% for the three months ended September 30, 2017 compared to 24.7%2020 from 23.2% for the three months ended September 30, 2016. The gross margin2019. Gross profit as a percentage of sales was unfavorablyfavorably impacted by price reductions granteda reduction in U.S. tariff expense, improved operational efficiencies in our Mexico-based manufacturing facility as it was no longer in a start-up phase, and an increase in royalty revenue as certain consumer electronic companies are embedding our technology in their devices. The potential impact of the COVID-19 pandemic on our gross profit as a percentage of net sales in future periods is unknown to certain large volume customers,us at this time; however, the temporary closure of any of our factories may result in
28
Table of Contents
excess manufacturing inefficiencies experienced duecosts, additional tariffs if we were to import goods from China into North America and additional expenses to meet the demand of our factory transition activities in China, and lower-margin projects undertaken in Latin America. These impacts were partially offset by raw material cost savings.customers.
Research and development ("R&D") expenses. R&D expenses increased 9.3% to $5.4remained relatively consistent at $7.7 million for the three months ended September 30, 2017 from $5.02020 compared to $7.9 million for the three months ended September 30, 2016 primarily driven by R&D efforts dedicated2019.
Selling, general and administrative ("SG&A") expenses. SG&A expenses decreased to developing new product offerings for new and existing product categories.
Factory transition restructuring charges. In the first quarter of 2016, we implemented a plan to reduce the impact of rising labor rates in China by transitioning manufacturing activities from our southern-most China factory, located in the city of Guangzhou in the Guangdong province, to our other China factories where labor rates are rising at a slower rate. As a result, we incurred severance costs of $0.4 million and $0.1$26.2 million for the three months ended September 30, 2017 and 2016, respectively. We ceased manufacturing operations in our Guangzhou factory during the third quarter of 2017 and as a result, we do not expect to incur a significant amount of additional severance costs associated with the transition of manufacturing activities2020 from this location.
Selling, general and administrative ("SG&A") expenses. SG&A expenses increased 15.3% to $33.0$32.4 million for the three months ended September 30, 2017 from $28.6 million for the three months ended September 30, 2016. The increase was2019, primarily due to incrementala reduction in incentive compensation expense recorded to reflect an increaseand a decrease in the value of contingent consideration to be paidrecorded in connection with our acquisition of the net assets of Ecolink Intelligent Technology, Inc. ("Ecolink"); increased stock-based compensation expense; and increased payroll and benefits attributable to annual merit increases and additional headcount to support product development efforts. Partially offsetting these increases was a decrease in legal expense. We also reduced certain discretionary expenses as a result of higher legal fees in the prior year period relatedCOVID-19 pandemic and expect this to patent litigation matters.continue through the remainder of the year.
Interest income (expense), net. Net interest expense was $0.7decreased to $0.3 million for the three months ended September 30, 2017 compared to net interest expense of $0.22020 from $0.8 million for the three months ended September 30, 20162019 as a result of an increased level of borrowings on our line of credit.a lower average quarterly loan balance and a lower interest rate.
Other income (expense), net. Net other incomeexpense was $1.6 million for the three months ended September 30, 2020 as a result of net foreign currency losses, compared to expense of $0.1 million for the three months ended September 30, 2017 compared to2019, as a result of net otherforeign currency losses.
Provision for income of $0.3taxes. Income tax expense was $2.2 million for the three months ended September 30, 2016. This change was driven primarily by foreign currency losses associated with fluctuations in the Chinese Yuan Renminbi and British Pound exchange rates versus the U.S. Dollar.

Provision for2020, representing an effective tax rate of 26.0% compared to an income taxes. Income tax expense was $1.8of $2.5 million for the three months ended September 30, 2017 compared to $0.4 million for the three months ended September 30, 2016. Our2019, representing an effective tax rate was 51.4% forof 48.6%. The decrease in the three months ended September 30, 2017 compared to 5.1% for the three months ended September 30, 2016. The increase in our effective tax rate wasis due primarily due to the nondeductibility of certain transactionsU.S. incurring a larger pre-tax loss in China as a result2019 which was not benefited because of the pending salerecording of our Guangzhou factory. In addition, during the three months ended September 30, 2016, we received tax refunds from the Chinese government totaling $1.8 million for various tax incentives relating to fiscal year 2015.a full valuation allowance.
Nine Months Ended September 30, 20172020 versus Nine Months Ended September 30, 20162019
Net sales. Net sales for the nine months ended September 30, 20172020 were $514.6$458.4 million, an increasea decrease of 4.8%20.8% compared to $490.8$578.8 million for the nine months ended September 30, 2016. Net2019. The decrease in net sales occurred primarily with our traditional home entertainment and security customers as we experienced supply, production and demand disruptions caused by the COVID-19 pandemic. Our China-based manufacturing facilities were delayed in re-opening after the Lunar New Year holiday, certain of our Businesskey suppliers were ordered to close by local authorities, and Consumer lines were as follows:
 Nine Months Ended September 30,
 2017 2016
 $ (millions) % of total $ (millions) % of total
Business$477.9
 92.9% $456.3
 93.0%
Consumer36.7
 7.1
 34.5
 7.0%
Total net sales$514.6
 100.0% $490.8
 100.0%
Netcertain customers reduced order quantities. We expect the COVID-19 pandemic to negatively impact our net sales in our Business lines (subscription broadcasting, OEM, and computing companies) were 92.9% of net sales for the nine months ended September 30, 2017 compared to 93.0% for the nine months ended September 30, 2016. Net sales in our Business lines for the nine months ended September 30, 2017 increased by 4.7% to $477.9 million from $456.3 million driven primarily by increased sales of home security products, increased market share in Latin America, the rollout of higher end platforms in Europe and increased sales to consumer electronics companies in Asia. These increases were partially offset by a decrease in sales to North American satellite broadcasting customers as certain customers are in the process of depleting their current stock of inventory in preparation for the launch of their new advanced platforms.fourth quarter.
Net sales in our Consumer lines (One For All® retail and private label) were 7.1% of net sales for the nine months ended September 30, 2017 compared to 7.0% for the nine months ended September 30, 2016. Net sales in our Consumer lines for the nine months ended September 30, 2017 increased by 7.1% to $36.7 million from $34.5 million in the nine months ended September 30, 2016 driven primarily by growth in international markets outside of Europe and in the U.S. market.
Gross profit. Gross profit for the nine months ended September 30, 20172020 was $127.9$125.2 million compared to $122.9$120.3 million for the nine months ended September 30, 2016.2019. Gross profit as a percent of sales decreased slightlyincreased to 24.8%27.3% for the nine months ended September 30, 2017 compared to 25.0%2020 from 20.8% for the nine months ended September 30, 2016. The gross margin percentage2019. Gross profit as a percent of sales was unfavorablyfavorably impacted by price reductions granted toa reduction in U.S. tariff expense, improved operational efficiencies in our Mexico-based manufacturing facility as it was no longer in a start-up phase, an increase in royalty revenue as certain large volume customers, manufacturing inefficiencies experienced due to factory transition activitiesconsumer electronic companies are embedding our technology in China,their devices, and lower-margin projects undertaken in Latin America. These impacts were partially offset by the weakeningstrengthening of the U.S. Dollar versus the Chinese Yuan Renminbi relativeand the Mexican Peso. Partially offsetting these favorable items are costs associated with the COVID-19 pandemic. Our China-based manufacturing facilities were delayed in re-opening after the Lunar New Year holiday and our Mexico-based manufacturing facility experienced a more than one-week closure during the second quarter of 2020. The potential impact of the COVID-19 pandemic on our gross profit as a percentage of net sales in future periods is unknown to us at this time; however, the U.S. Dollar.temporary closure of any of our factories may result in excess manufacturing costs, additional tariffs if we were to import goods from China into North America and additional expenses to meet the demand of our customers.
Research and development expenses. R&D expenses increased 3.7%5.0% to $15.9$23.0 million for the nine months ended September 30, 20172020 from $15.3$21.9 million for the nine months ended September 30, 2016.
Factory transition restructuring charges. In the first quarter of 2016, we implemented a plan2019 primarily due to reduce the impact of rising labor costs in China by transitioning manufacturing activities from our southern-most China factory, locatedcontinued investment in the citydevelopment of Guangzhounew products that enhance the user experience in the Guangdong province,home entertainment and home automation.
Selling, general and administrative expenses. SG&A expenses decreased to our other China factories where labor rates are rising at a slower rate. As a result, we incurred severance costs of $6.1 million and $1.6$77.4 million for the nine months ended September 30, 2017 and 2016, respectively. We ceased manufacturing operations in our Guangzhou factory during the third quarter of 2017 and as a result, we do not expect to incur a significant amount of additional severance costs associated with the transition of manufacturing activities2020 from this location.
Selling, general and administrative expenses. SG&A expenses increased 9.0% to $94.7$94.6 million for the nine months ended September 30, 2017 from $86.9 million for the nine months ended September 30, 2016. The increase was2019, primarily due to incrementala reduction in incentive compensation expense, recorded to reflect an increasea decrease in the value of contingent consideration to be paidrecorded in connection with our acquisition of the net assets of Ecolink; increased stock-based compensation expense; increased headcountEcolink and other direct costs associated with product development efforts as a result of an increasedecrease in the number of higher end customer products; additional expense to support our implementation of a new ERP system; and additional expensefreight costs. We also reduced certain discretionary expenses as a result of the acquisitionCOVID-19 pandemic and expect this to continue for the remainder of the net assets of Residential Control Systems, Inc. ("RCS") in April 2017. Partially offsetting these increases was a decrease in legal expense as a result of higher legal fees, including the recording of a $2.0 million legal settlement, in the prior year period related to patent litigation matters.year.

Interest income (expense), net. Net interest expense was $1.7decreased to $1.3 million for the nine months ended September 30, 2017 compared to net interest expense of $0.82020 from $3.1 million for the nine months ended September 30, 20162019 as a result of an increased levela lower average loan balance and a lower interest rate.
29
Table of borrowings on our line of credit.Contents
Other income (expense), net. Net other income was $2.0 thousand forAccrued social insurance adjustment. During the nine months ended September 30, 2017 compared to net2019, we reversed approximately $9.5 million of accrued social insurance. In June 2018, we sold our Guangzhou entity via a stock deal and the terms of the agreement included a two-year indemnification period. In June 2020, the indemnification period expired and we determined we were no longer legally liable for any liabilities associated with our Guangzhou entity. Accordingly, we reversed the accrued social insurance amount associated with the Guangzhou entity, which was approximately $9.5 million.
Other income (expense), net. Net other income of $1.7expense was $1.3 million for the nine months ended September 30, 2016. This change was driven primarily by2020, as a decrease inresult of net foreign currency gains associated with fluctuations in the Chinese Yuan Renminbi exchange rate versus the U.S. Dollar.
Provision for income taxes. Income taxlosses, compared to expense was $2.9of $0.4 million for the nine months ended September 30, 2017 compared to $3.02019, as a result of net foreign currency losses.
Provision for income taxes. Income tax expense was $5.3 million for the nine months ended September 30, 2016. Our2020, representing an effective tax rate of 16.6%. During this period, we received two incentive tax refunds in China totaling approximately $1.1 million. In addition, we reversed a tax reserve of approximately $1.3 million that was 31.1%no longer required. Income tax expense was $3.7 million for the nine months ended September 30, 2017 compared to 14.7% for2019 on pre-tax income of $0.4 million. This period includes significant losses not benefited in the nine months ended September 30, 2016. The increase in our effective tax rate was primarily due to the nondeductibility of certain transactions in ChinaU.S. as a result of a full valuation allowance and the pending salenet effect (expense) of a remeasurement of deferred taxes at our Guangzhou factory. In addition, duringYangzhou entity in China resulting from a lower tax rate that was achieved via the nine months ended September 30, 2016, we received tax refunds from the Chinese government totaling $1.8 million for various tax incentives relating to fiscal year 2015.High Technology Exemption ("HTE") approval.
Liquidity and Capital Resources
Sources and Uses of Cash
(In thousands)Nine Months Ended September 30, 2017 
Increase
(Decrease)
 Nine Months Ended September 30, 2016(In thousands)Nine Months Ended September 30, 2020Increase
(Decrease)		Nine Months Ended September 30, 2019
Cash provided by (used for) operating activities$(1,160) $(39,841) $38,681
Cash provided by (used for) operating activities$43,827 $3,906 $39,921 
Cash used for investing activities(40,091) (9,852) (30,239)
Cash provided by (used for) investing activitiesCash provided by (used for) investing activities(16,618)741 (17,359)
Cash provided by (used for) financing activities44,903
 54,986
 (10,083)Cash provided by (used for) financing activities(30,913)(11,832)(19,081)
Effect of exchange rate changes on cash(5,703) (2,519) (3,184)
Effect of exchange rate changes on cash and cash equivalentsEffect of exchange rate changes on cash and cash equivalents(3,452)(1,493)(1,959)
Net increase (decrease) in cash and cash equivalents$(2,051)
$2,774

$(4,825)Net increase (decrease) in cash and cash equivalents$(7,156)$(8,678)$1,522 
 
(In thousands)September 30, 2020Increase
(Decrease)		December 31, 2019
Cash and cash equivalents$67,146 $(7,156)$74,302 
Working capital135,679 23,383 112,296 
 September 30, 2017 
Increase
(Decrease)
 December 31, 2016
Cash and cash equivalents$48,560
 $(2,051) $50,611
Working capital98,063
 (10,228) 108,291
Net cash used forprovided by operating activities was $1.2$43.8 million during the nine months ended September 30, 20172020 compared to $38.7$39.9 million during the nine months ended September 30, 2019. Net income was $26.4 million for the nine months ended September 30, 2020 compared to a net loss of $3.4 million for the nine months ended September 30, 2019. Accounts payable and accrued liabilities resulted in net cash outflows of $50.5 million during the nine months ended September 30, 2020 compared to cash inflows of $11.7 million during the nine months ended September 30, 2019, largely as a result of a significant decrease in inventories as well as payments relating to accrued compensation and contingent consideration. Inventories decreased by $30.5 million during the nine months ended September 30, 2020 compared to a decrease of $4.4 million during the nine months ended September 30, 2019 as a result of lower sales volume in 2020. Inventory turns were 3.4 turns at September 30, 2020 compared to 3.5 turns at September 30, 2019. Accounts receivable and contract assets decreased by $11.6 million during the nine months ended September 30, 2020 compared to an increase of $11.1 million during the nine months ended September 30, 2019 largely as a result of a decrease in net sales. Days sales outstanding were 75 days at September 30, 2020 compared to 67 days at September 30, 2019.
Net cash used for investing activities during the nine months ended September 30, 2020 was $16.6 million, of netwhich $10.9 million and $5.3 million was used for capital expenditures and the development of patents, respectively. Net cash provided by operatingused for investing activities during the nine months ended September 30, 2016. The decrease in net cash provided by operating activities2019 was primarily due to working$17.4 million of which $15.9 million and $1.5 million was used for capital needs associated with accounts receivableexpenditures and inventories. Cash outflows associated with accounts receivable have increased primarily as a resultthe development of collection timing. Days sales outstanding have increased from 72 days at September 30, 2016 to 79 days at September 30, 2017. With respect to inventories, cash outflows increased during the nine months ended September 30, 2017 largely as a result of carrying increased inventory levels while we transition manufacturing operations between our factories in China. In addition, we had some buildup of inventory related to the anticipated rollout of higher end platforms to certain customers as well as further anticipated growth in home security product sales. Our inventory turns decreased from 4.2 turns at September 30, 2016 to 3.6 turns at September 30, 2017.patents, respectively.
Net cash used for investingfinancing activities during the nine months ended September 30, 2017 was $40.1 million compared to $30.2$30.9 million during the nine months ended September 30, 2016. The increase in cash used for investing activities was driven primarily by our acquisition of the net assets of RCS for $8.9 million in April 2017.
Net cash provided by financing activities was $44.92020 compared to $19.1 million during the nine months ended September 30, 2017 compared to $10.1 million of net2019. The increase in cash used for financing activities duringwas driven primarily by borrowing and repayment activity on our line of credit. During the nine months ended September 30, 2016. The increase in cash provided by financing activities was driven primarily by2020 we had net borrowings on our linerepayments of credit$18.0 million compared to net repayments of $64.0$13.5 million during the nine months ended September 30, 2017, compared to net payments2019.
30
Table of $15.0 million on our line of credit during the nine months ended September 30, 2016. This was partially offset by an increase of $18.0 million in treasury stock purchases and a $3.7 million decrease in proceeds from the exercise of stock options.Contents
During the nine months ended September 30, 2017,2020, we repurchased 329,964263,164 shares of our common stock at a cost of $20.2$9.8 million compared to our repurchase of 39,53154,503 shares at a cost of $2.2$1.7 million during the nine months ended September 30, 2016.2019. We hold these shares as treasury stock and they are available for reissue. Presently, we have no plans to distribute these shares, although we may change these plans if necessary to fulfill our on-going business objectives.

From time See Note 12 contained in "Notes to time,Consolidated Financial Statements" for further information regarding our Board of Directors authorizes management toshare repurchase shares of our issued and outstanding common stock on the open market. Repurchases may be made whenever we deem a repurchase to be a good use of our cash and the repurchase enhances shareholder value. As of September 30, 2017, we had 114,271 shares available for repurchase on the open market under the Board's authorizations. On October 23, 2017, our Board increased these repurchase authorizations by 300,000 shares bringing the total authorization as of the approval date to 386,434 shares.programs.
Contractual Obligations
The following table summarizes our contractual obligations and the effect these obligations are expected to have on our liquidity and cash flow in future periods.
Payments Due by Period Payments Due by Period
(In thousands)Total 
Less than
1 year
 
1 - 3
years
 
4 - 5
years
 
After
5  years
(In thousands)TotalLess than
1 year		1 - 3
years		4 - 5
years		After
5 years
Operating lease obligations$13,732
 $4,570
 $5,192
 $3,321
 $649
Operating lease obligations$21,371 $6,933 $9,813 $3,458 $1,167 
Purchase obligations(1)
7,037
 7,037
 —
 —
 —
Purchase obligations (1)
2,767 2,767 — — — 
Contingent consideration (2)
17,400
 3,400
 13,000
 1,000
 —
Contingent consideration (2)
2,032 1,782 250 — — 
Total contractual obligations$38,169
 $15,007
 $18,192
 $4,321
 $649
Total contractual obligations$26,170 $11,482 $10,063 $3,458 $1,167 
 
(1)
(1)Purchase obligations primarily consist of contractual payments to purchase property, plant and equipment.
(2)Contingent consideration consists of contingent payments related to our purchases of the net assets of Ecolink and RCS Control Systems, Inc. ("RCS").
Purchase obligations primarily consist of contractual payments to purchase property, plant and equipment.
(2)
Contingent consideration consists of contingent payments related to our purchases of the net assets of Ecolink and RCS.
Liquidity
Historically, we have utilized cash provided from operations as our primary source of liquidity, as internally generated cash flows have been sufficient to support our business operations, capital expenditures and discretionary share repurchases. More recently, we have utilized our revolving line of credit to fund an increased level of share repurchases and our acquisitions of the net assets of Ecolink and RCS. We anticipate that we will continue to utilize both cash flows from operations and our revolving line of credit to support ongoing business operations, capital expenditures and future discretionary share repurchases. Our working capital needs have typically been greatest during the third and fourth quarters when accounts receivable and inventories increase in connection with the fourth quarter holiday selling season and when inventory levels increase in anticipation of factory closures in observance of Chinese New Year. We believe our current cash balances, anticipated cash flow to be generated from operations and available borrowing resources will be sufficient to cover expected cash outlays during the next twelve months; however, because our cash is located in various jurisdictions throughout the world, we may at times need to increase borrowing from our revolving line of credit or take on additional debt until we are able to transfer cash among our various entities.
Our liquidity is subject to various risks including the risks discussed under "Item 3. Quantitative and Qualitative Disclosures about Market Risk."
(In thousands)September 30, 2017 December 31, 2016(In thousands)September 30, 2020December 31, 2019
Cash and cash equivalents$48,560
 $50,611
Cash and cash equivalents$67,146 $74,302 
Available borrowing resources11,000
 35,000
Available borrowing resources72,300 54,300 
Our cash balances are held in numerous locations throughout the world. The majority of our cash is held outside of the United States and may be repatriated to the United States but, under current law, wouldmay be subject to United States federalstate income taxes, less applicableand foreign tax credits. Repatriationwithholding taxes. Additionally, repatriation of some foreign balances is restricted by local laws. We have not provided for the United States federalstate income tax liabilityand the foreign withholding tax liabilities on these amounts for financial statement purposes as this cash is considered indefinitely reinvested outside of the United States. Our intent is to meet our domestic liquidity needs through ongoing cash flows, external borrowings, or both. We utilize a variety of tax planning strategies in an effort to ensure that our worldwide cash is available in the locations in which it is needed.purposes.
On September 30, 2017,2020, we had $4.8$14.7 million, $22.1$15.0 million, $0.8$12.3 million, $13.3$16.8 million and $7.5$8.3 million of cash and cash equivalents in North America, the United States, the People's Republic of China ("PRC"),PRC, Asia (excluding the PRC), Europe, and South America, respectively. On December 31, 2016,2019,we had $3.3$16.8 million, $22.1$13.7 million, $5.3$21.7 million, $19.6$9.1 million, and $0.3$13.0 million of cash and cash equivalents in the United States,North America, the PRC, Asia (excluding the PRC), Europe and South America, respectively. We attempt to mitigate our exposure to liquidity, credit and other relevant risks by placing our cash and cash equivalents with financial institutions we believe are high quality.

Our Amended and Restated Credit Agreement ("Amended Credit Agreement") with U.S. Bank National Association ("U.S. Bank") provided for a $125.0 million revolving line of credit ("Credit Line") that was to expire on November 1, 2019. On October 27, 2017, we entered into a Second Amended and Restated Credit Agreement ("Second Amended Credit Agreement") with U.S. Bank as administrative agent, sole lead arranger and sole book runner, and Wells Fargo, National Association which replaces the Amended ("U.S. Bank") provides for a $125.0 million revolving line of credit ("Credit Agreement. Under the Second Amended Credit Agreement, the Credit Line was increased to $170.0 million and the expiration date remainedLine") that expires on November 1, 2019.2021. The Credit Line may be used for working capital and other general corporate purposes including acquisitions, share repurchases and capital expenditures. Amounts available for borrowing under the Credit Line are reduced by the balance of any outstanding letters of credit. Therecredit, of which there were no outstanding letters of credit$2.7 million at September 30, 2017.2020.
31
Table of Contents
All obligations under the Credit Line are secured by substantially all of our U.S. personal property and tangible and intangible assets as well as 65% of our ownership interest in Enson Assets Limited, our wholly-owned subsidiary that controls our manufacturing factories in the PRC.
The interest rate applicable to outstanding Credit Line balances underUnder the Second Amended Credit Agreement, is the same as under the Amended Credit Agreement. Wewe may elect to pay interest on the Credit Line based on LIBOR plus an applicable margin (varying from 1.25% to 1.75%) or base rate (based on the prime rate of U.S. Bank or as otherwise specified in the Second Amended Credit Agreement) plus an applicable margin (varying from 0.00% to 0.50%). The applicable margins are calculated quarterly and vary based on our cash flow leverage ratio as set forth in the Amended Credit Agreement and Second Amended Credit Agreement. The interest rate in effect at September 30, 20172020 was 2.48%1.39%. There are no commitment fees or unused line fees under the Amended Credit Agreement or the Second Amended Credit Agreement.
The Amended Credit Agreement and Second Amended Credit Agreement includeincludes financial covenants requiring a minimum fixed charge coverage ratio and a maximum cash flow leverage ratio. In addition, the Amended Credit Agreement and Second Amended Credit Agreement also containcontains other customary affirmative and negative covenants and events of default. As of September 30, 2017,2020, we were in compliance with the covenants and conditions of the Second Amended Credit Agreement.
At September 30, 2017,2020, we had an outstanding balance of $114.0$50.0 million on our Credit Line and $11.0$72.3 million of availability.
Off-Balance Sheet Arrangements
We do not participate in any material off-balance sheet arrangements.


Factors That May Affect Financial Condition and Future Results


Forward-Looking Statements
We caution that the following important factors, among others (including but not limited to factors discussed in "Management's Discussion and Analysis of Financial Condition and Results of Operations," as well as those discussed in our 20162019 Annual Report on Form 10-K, or in our other reports filed from time to time with the Securities and Exchange Commission), may affect our actual results and may contribute to or cause our actual consolidated results to differ materially from those expressed in any of our forward-looking statements. The factors included here are not exhaustive. Further, any forward-looking statement speaks only as of the date on which such statement is made, and we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of unanticipated events. New factors emerge from time to time, and it is not possible for management to predict all such factors, nor can we assess the impact of each such factor on the business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statement. Therefore, forward-looking statements should not be relied upon as a prediction of actual future results.
While we believe that the forward-looking statements made in this report are based on reasonable assumptions, the actual outcome of such statements is subject to a number of risks and uncertainties, including the ultimate impact of the COVID-19 pandemic on our business, results of operations, financial position and liquidity; the significant percentage of our revenue attributable to a limited number of customers; the failure of our markets to continue growing and expanding in the manner we anticipated; the loss of market share due to competition; the delay by or failure of our customers to groworder products from us due to delays by them of their new product rollouts, their decision to purchase their products from an alternative or second source supplier, their efforts to refocus their operations to broadband and expandover-the-top ("OTT") versus traditional linear video, their failure to grow as we anticipated;anticipated, their internal inventory control measures, including to mitigate effects due to increases in tariffs, or their loss of market share; the effects of natural or other events beyond our control, including the effects political unrest, war or terrorist activities may have on us or the economy; the economic environment's effect on us or our customers; the effects of doing business internationally, including the effects that changes in laws, regulations and policies may have on our business including the impact of new or additional tariffs and surcharges; the growth of, acceptance of and the demand for our products and technologies in various markets and geographical regions, including cable, satellite, consumer electronics, retail, and digital media and interactive technology; our successful integration of the Ecolink and RCS assets and business lines; our inability to add profitable complementary products which are accepted by the marketplace; our inability to attract and retain a quality workforce at adequate levels in all regions of the world, and particularly Asia;those jurisdictions where we are moving our operations; our inability to continue to maintain our operating costs at acceptable levels through our cost containment efforts;efforts including moving our operations and manufacturing facilities to lower cost jurisdictions; an unfavorable ruling in any or all of the litigation matters to which we are party; our inability to continue selling our products or licensing our technologies at higher or profitable margins; our inability to obtain orders or maintain our order volume with new and existing customers; our inability to develop new and innovative technologies and products that are accepted by our

customers; the sale of our Guangzhou facility not occurring as or within the time frame anticipated by management; our inability to successfully, timely and profitably restructure and/or relocate our manufacturing facilities and activities; the possible dilutive effect our stock incentive programs may have on our earnings per share and stock price; the continued ability to identify and execute on opportunities that maximize stockholder value, including the effects repurchasing the company'sCompany's shares have on the company'sCompany's stock value; our inability to continue to obtain adequate quantities
32
Table of Contents
of component parts or secure adequate factory production capacity on a timely basis; and other factors listed from time to time in our press releases and filings with the Securities and Exchange Commission.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to various market risks, including interest rate and foreign currency exchange rate fluctuations. We have established policies, procedures and internal processes governing our management of these risks and the use of financial instruments to mitigate our risk exposure.
Interest Rate Risk
We are exposed to interest rate risk related to our debt. From time to time we borrow amounts on our Credit Line for working capital and other liquidity needs. Under our Amended Credit Agreement and Second Amended Credit Agreement, we may elect to pay interest on outstanding borrowings on our Credit Line based on LIBOR or a base rate (based on the prime rate of U.S. Bank) plus an applicable margin as defined in the Amended Credit Agreement and Second Amended Credit Agreement. Accordingly, changes in interest rates would impact our results of operations in future periods. A 100 basis point increase in interest rates would have an approximately $0.7$0.4 million annual impact on net income based on our outstanding line of creditCredit Line balance at September 30, 2017.2020.
We cannot make any assurances that we will not need to borrow additional amounts in the future or that funds will be extended to us under comparable terms or at all. If funding is not available to us at a time when we need to borrow, we would have to use our cash reserves, including potentially repatriating cash from foreign jurisdictions, which may have a material adverse effect on our operating results, financial position and cash flows.
Foreign Currency Exchange Rate Risk
At September 30, 2017,2020, we had wholly-owned subsidiaries in Argentina, Brazil, the British Virgin Islands, Cayman Islands, France, Germany, Hong Kong, India, Italy, Japan, Korea, Mexico, the Netherlands, the PRC, Singapore, Spain and the United Kingdom. We are exposed to foreign currency exchange rate risk inherent in our sales commitments, anticipated sales, anticipated purchases, operating expenses, assets and liabilities denominated in currencies other than the U.S. Dollar. The most significant foreign currencies to our operations are the Chinese Yuan Renminbi, Euro,Mexican Peso, British Pound, Euro, Argentinian Peso, Mexican Peso, Brazilian Real, Indian Rupee, Japanese Yen and Japanese Yen.Philippine Peso. Our most significant foreign currency exposure is to the Chinese Yuan Renminbi as this is the functional currency of our China-based factories where the majority of our products are manufactured. If the Chinese Yuan Renminbi were to strengthen against the U.S. Dollar, our manufacturing costs would increase. We are generally a net payor of the Euro, Mexican Peso, Euro, Indian Rupee, and Japanese Yen and Philippine Peso and therefore benefit from a stronger U.S. Dollar and are adversely affected by a weaker U.S. Dollar relative to the foreign currency. For the British Pound, Argentinian Peso and Brazilian Real, we are generally a net receiver of the foreign currency and therefore benefit from a weaker U.S. Dollar and are adversely affected by a stronger U.S. Dollar relative to the foreign currency. Even where we are a net receiver, a weaker U.S. Dollar may adversely affect certain expense figures taken alone.
From time to time, we enter into foreign currency exchange agreements to manage the foreign currency exchange rate risks inherent in our forecasted income and cash flows denominated in foreign currencies. The terms of these foreign currency exchange agreements normally last less than nine months. We recognize the gains and losses on these foreign currency contracts in the same period as the remeasurementre-measurement losses and gains of the related foreign currency-denominated exposures.
It is difficult to estimate the impact of fluctuations on reported income, as it depends on the opening and closing rates, the average net balance sheet positions held in a foreign currency and the amount of income generated in local currency. We routinely forecast what these balance sheet positions and income generated in local currency may be and we take steps to minimize exposure as we deem appropriate. Alternatively, we may choose not to hedge the foreign currency risk associated with our foreign currency exposures, primarily if such exposure acts as a natural foreign currency hedge for other offsetting amounts denominated in the same currency or the currency is difficult or too expensive to hedge. We do not enter into any derivative transactions for speculative purposes.
The sensitivity of earnings and cash flows to variability in exchange rates is assessed by applying an approximate range of potential rate fluctuations to our assets, obligations and projected results of operations denominated in foreign currency with all other variables held constant. The analysis includes all of our foreign currency contracts offset by the underlying exposures. Based on our overall foreign currency rate exposure at September 30, 2017,2020, we believe that movements in foreign currency rates may have a material effect on our financial position and results of operations. We estimate that if the exchange rates for the Chinese Yuan Renminbi, Euro,Mexican Peso, British Pound, Euro, Argentinian Peso, Mexican Peso, Brazilian Real, Indian Rupee, and Japanese Yen and Philippine Peso relative to the U.S. Dollar fluctuate 10% from September 30, 2017,2020, net income in the thirdfourth quarter of 20172020 would fluctuate by approximately $11.5$6.6 million.

33
Table of Contents
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Rule 13a-15(d) promulgated under the Exchange Act Rule 13a-15(d)of 1934 (the "Exchange Act") defines "disclosure controls and procedures" to mean controls and procedures of a company that are designed to ensure that information required to be disclosed by the company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Commission'sSEC's rules and forms. The definition further states that disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that the information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company's management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
An evaluation was performed under the supervision and with the participation of our management, including our principal executive and principal financial officers, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, our principal executive and principal financial officers have concluded that our disclosure controls and procedures were effective, as of the end of the period covered by this report, to provide reasonable assurance that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange CommissionSEC rules and forms and is accumulated and communicated to our management to allow timely decisions regarding required disclosures.
Changes in Internal Control Over Financial Reporting

There have been no changes in internal controls or in other factors that may significantly affect our internal controlscontrol over financial reporting during the fiscal quarter covered by this Quarterly Report on Form 10-Q.10-Q that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.


PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are subject to lawsuits arising out of the conduct of our business. The discussion of our litigation matters contained in "Notes to Consolidated Financial Statements - Note 10"11" is incorporated herein by reference.
ITEM 1A. RISK FACTORS
The reader should carefully consider, in connection with the other information in this report, the risk factors discussed in "Part I, Item
1A: Risk Factors" of the Company's 20162019 Annual Report on Form 10-K incorporated herein by reference.reference, as well as the risk factors set forth below. These factors may cause our actual results to differ materially from those stated in forward-looking statements contained in this document and elsewhere.
The COVID-19 pandemic has adversely affected and is expected to continue to pose risks to our business, results of operations, financial condition and cash flows, and other epidemics or outbreaks of infectious diseases may have a similar impact.
As previously disclosed, we face risks related to outbreaks of infectious diseases, including the ongoing COVID-19 pandemic. COVID-19 has spread across the globe during 2020 and is impacting economic activity worldwide. COVID-19 has caused disruption and volatility in the global capital markets and has authored an economic slowdown. The COVID-19 pandemic and its associated economic uncertainty negatively impacted our sales volumes in the first nine months of 2020 in most geographic locations and across a variety of customers. In response to COVID-19, national and local governments around the world have instituted certain measures, including travel bans, prohibitions on group events and gatherings, shutdowns of certain businesses, curfews, shelter-in-place orders and recommendations to practice social distancing. The measures we have taken to follow the COVID-19 guidelines from the Centers for Disease Control and Prevention ("CDC") and the various local governments where our facilities and operations are located concerning the health and safety of our personnel, have resulted in attenuating activity and, in some cases, required temporary closures of certain of our facilities, among other impacts. The duration of these measures is unknown, may be extended and additional measures may be imposed.
We further expect that the ultimate significance of the impact of the COVID-19 pandemic on our business will vary, but will generally depend on the extent of measures taken affecting day-to-day life and the length of time that such measures remain in place to respond to the COVID-19 pandemic. At this point, it is impossible to predict such extent and duration and the degree to which supply and demand for our products and services will be affected. This uncertainty makes it challenging for management to estimate with precision the future performance of our business.
34
Table of Contents
The potential effects of the COVID-19 pandemic and other similar outbreaks include, but are not limited to, the following:
•Reduced consumer and investor confidence, instability in the credit and financial markets, volatile corporate profits, and reduced business and consumer spending, which may adversely affect our results of operations by reducing our sales, margins and/or net income as a result of a slowdown in customer orders or order cancellations. In addition, volatility in the financial markets may increase the cost of capital and/or limit its availability.
•Economic uncertainty as a result of the COVID-19 pandemic is expected to make it difficult for us and our customers and suppliers to accurately forecast and plan future business activities.
•The potential to weaken the financial position of some of our customers. If circumstances surrounding our customers' financial capabilities were to deteriorate, write-downs or write-offs may negatively affect our operating results and, if large, may have a material adverse effect on our business, financial condition, results of operations and cash flows.
•As a result of governmental orders, we may experience disruptions in our manufacturing operations and in our supply chain in connection with the sourcing of materials from geographic areas that continue to be impacted by the COVID-19 pandemic and by efforts to contain its spread.
To the extent the COVID-19 pandemic adversely affects our business, results of operations, financial condition and cash flows, it may also heighten many of the other risks described in this section and in the "Risk Factors" section of our Annual Report on Form 10-K for the fiscal year ended December 31, 2019. The ultimate impact of COVID-19 on our business, results of operations, financial condition and cash flows is dependent on future developments, including the duration of the pandemic and the related length of its impact on the global economy, which are uncertain and cannot be predicted at this time.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
During the three months ended September 30, 2017, we repurchased 90,494 shares of our issued and outstanding common stock for $5.3 million. We make stock repurchases under ongoing and systematic programs approved by our Board of Directors when we deem a repurchase to be a good use of our cash and the repurchase enhances shareholder value. On September 30, 2017, we had 114,271 shares available for repurchase on the open market under the Board's authorizations. On October 23, 2017, our Board increased these repurchase authorizations by 300,000 shares bringing the total authorizations as of the approval date to 386,434 shares. Shares may also be tendered by employees to satisfy tax withholding obligations in connection with the vesting of restricted stock.
The following table sets forth, for the three months ended September 30, 2017,2020, our total stock repurchases, average price paid per share and the maximum number of shares that may yet be purchased on the open market under our plans or programs:
Period
Total Number of Shares Purchased (1)
Weighted 
Average
Price Paid
per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs
Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs (2)
July 1, 2020 - July 31, 2020625 $46.29 — 175,127 
August 1, 2020 - August 31, 20203,317 45.30 — 175,127 
September 1, 2020 - September 30, 202086,948 37.23 86,925 213,075 
Total90,890 $37.59 86,925 213,075 

(1)Of the repurchases in July, August, and September, 625, 3,317 and 23 shares, respectively, represent common shares of the Company that were owned and tendered by employees to satisfy tax withholding obligations in connection with the vesting of restricted shares.
(2)On September 17, 2020, we announced that our Board of Directors authorized a share repurchase program (the "September 2020 Program"), which replaced in its entirety the previous repurchase program in place prior to September 15, 2020. Pursuant to the September 2020 Program, we may repurchase up to 300,000 shares of our common stock. At September 30, 2020, we had 213,075 shares of common stock authorized for repurchase remaining under the September 2020 Program. Subsequent to September 30, 2020, we repurchased an additional 113,075 shares under the September 2020 Program at a cost of $4.4 million. On October 28, 2020, our Board terminated the September 2020 Program and replaced it with a new share repurchase program with an effective date of November 10, 2020 (the "November 2020 Program"). Pursuant to the November 2020 Program, we may, from time to time until February 18, 2021, repurchase up to 500,000 shares of our common stock. We may repurchase shares of common stock in privately negotiated and/or open-market transactions, including pursuant to plans complying with Rule 10b5-1 promulgated under the Exchange Act.
35
Period 
Total Number of Shares Purchased (1)
 
Weighted Average
Price Paid
per Share (2)
 Total Number  of Shares Purchased as Part of Publicly Announced Plans or Programs 
Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs (3)
July 1, 2017 - July 31, 2017 1,354
 $67.21
 —
 200,000
August 1, 2017 - August 31, 2017 38,462
 57.33
 35,729
 164,271
September 1, 2017 - September 30, 2017 50,678
 59.91
 50,000
 114,271
Total 90,494
 $58.92
 85,729
 114,271

Table of Contents
(1)
Of the repurchases in July, August and September, 1,354, 2,733 and 678 shares, respectively, represent common shares of the company that were owned and tendered by employees to satisfy tax withholding obligations in connection with the vesting of restricted shares.
(2)
For shares tendered in connection with the vesting of restricted shares, the average price paid per share is an average calculated using the daily high and low of the Company's common stock at the time of vesting.
(3)
The Company may purchase shares from time to time in open market purchases. The Company may make all or part of the purchases pursuant to accelerated share repurchases or Rule 10b5-1 plans.

ITEM 6. EXHIBITS

EXHIBIT INDEX

31.1
Rule 13a-14(a) Certifications of Paul D. Arling, Chief Executive Officer (principal executive officer) of Universal Electronics Inc.
31.2
Rule 13a-14(a) Certifications of Bryan M. Hackworth, Chief Financial Officer (principal financial officer and principal accounting officer) of Universal Electronics Inc.
32
Section 1350 Certifications of Paul D. Arling, Chief Executive Officer (principal executive officer) of Universal Electronics Inc., and Bryan M. Hackworth, Chief Financial Officer (principal financial officer and principal accounting officer) of Universal Electronics Inc., pursuant to 18 U.S.C. Section 1350
101.INSInline XBRL Instance Document
101.SCHInline XBRL Taxonomy Extension Schema Document
101.CALInline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEFInline XBRL Taxonomy Extension Definition Linkbase Document
101.LABInline XBRL Taxonomy Extension Label Linkbase Document
101.PREInline XBRL Taxonomy Extension Presentation Linkbase Document
104Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)







36

Table of Contents
SIGNATURES
Pursuant to the requirement of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 






Dated:November 5, 2020
Dated:November 8, 2017UNIVERSAL ELECTRONICS INC.
By:
/s/ Bryan M. Hackworth
Bryan M. Hackworth
Chief Financial Officer (principal financial officer
and principal accounting officer)



EXHIBIT INDEX
Exhibit No.Description
31.1
Rule 13a-14(a) Certifications of Paul D. Arling, Chief Executive Officer (principal executive officer) of Universal Electronics Inc.
31.2
Rule 13a-14(a) Certifications of Bryan M. Hackworth, Chief Financial Officer (principal financial officer and principal accounting officer) of Universal Electronics Inc.
32
Section 1350 Certifications of Paul D. Arling, Chief Executive Officer (principal executive officer) of Universal Electronics Inc., and Bryan M. Hackworth, Chief Financial Officer (principal financial officer and principal accounting officer) of Universal Electronics Inc. pursuant to 18 U.S.C. Section 1350
101.INSXBRL Instance Document
101.SCHXBRL Taxonomy Extension Schema Document
101.CALXBRL Taxonomy Extension Calculation Linkbase Document
101.DEFXBRL Taxonomy Extension Definition Linkbase Document
101.LABXBRL Taxonomy Extension Label Linkbase Document
101.PREXBRL Taxonomy Extension Presentation Linkbase Document



























39
37