SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

_______________________________________



ý☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



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

15147 N. Scottsdale Road, Suite H300, Scottsdale, Arizona 85254-2494

(Address of principal executive offices and zip code)

(Registrant's telephone number, including area ~~code: (714) 918-9500~~code)

~~__________________________________~~ _____________________

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (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, any~~every 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 filer~~

~~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: ~~14,305,749~~13,483,554 shares of Common Stock, par value $0.01 per share, of the registrant were outstanding on ~~November 6, 2017.~~August 3, 2021.

PART I. FINANCIAL INFORMATION

ITEM 1. Consolidated Financial Statements (Unaudited)

September 30, 2017 December 31, 2016
ASSETS
Current assets:
Cash and cash equivalents $ 48,560
$ 50,611
Restricted cash 4,799
4,623
Accounts receivable, net 153,355
124,592
Inventories, net 154,520
129,879
Prepaid expenses and other current assets 9,988
7,439
Assets held for sale 12,403
—
Income tax receivable 3,262
1,054
Deferred income taxes —
5,960
Total current assets 386,887
324,158
Property, plant, and equipment, net 109,149
105,351
Goodwill 48,624
43,052
Intangible assets, net 30,159
28,549
Deferred income taxes 18,349
10,430
Long-term restricted cash —

4,600
Other assets 4,040
4,896
Total assets $ 597,208
$ 521,036
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 106,872
$ 97,157
Line of credit 114,000
49,987
Accrued compensation 33,328
35,580
Accrued sales discounts, rebates and royalties 7,790
8,358
Accrued income taxes 994
375
Other accrued expenses 25,840
24,410
Total current liabilities 288,824
215,867
Long-term liabilities:
Long-term contingent consideration 14,000
10,500
Deferred income taxes 6,376
7,060
Income tax payable 791
791
Other long-term liabilities 1,598
6,308
Total liabilities 311,589
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, respectively 237
236
Paid-in capital 262,776
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 earnings 283,634
275,594
Total stockholders' equity 285,619
280,510
Total liabilities and stockholders' equity $ 597,208

$ 521,036

The accompanying notes are an integral part of these consolidated financial statements.

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 sales 132,582
127,400
386,783
367,941
Gross profit 43,070
41,785

127,855

122,888
Research and development expenses 5,415
4,955
15,859
15,292
Factory transition restructuring charges 446
81
6,145
1,598
Selling, general and administrative expenses 32,997
28,628
94,701
86,867
Operating income 4,212
8,121

11,150

19,131
Interest income (expense), net (721 ) (228 ) (1,676 ) (753 )
Other income (expense), net 61
335
2
1,726
Income before provision for income taxes 3,552
8,228

9,476

20,104
Provision for income taxes 1,824
421
2,945
2,956
Net income 1,728
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:
Basic 14,381
14,510
14,412
14,441
Diluted 14,666
14,848
14,689
14,740

~~See Note 4 for further information concerning our purchases from related party vendors.~~


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Net sales	$	150,491	$	153,133	$	301,033	$	304,911
Cost of sales	105,829		115,058		209,972		223,895
Gross profit	44,662		38,075		91,061		81,016
Research and development expenses	7,676		7,385		15,618		15,283
Selling, general and administrative expenses	27,965		24,230		57,811		51,227
Operating income	9,021		6,460		17,632		14,506
Interest income (expense), net	(127)		(372)		(235)		(1,004)
Accrued social insurance adjustment	0		9,464		0		9,464
Other income (expense), net	(17)		731		6		383
Income before provision for income taxes	8,877		16,283		17,403		23,349
Provision for income taxes	3,284		1,883		4,817		3,103
Net income	$	5,593	$	14,400	$	12,586	$	20,246

Earnings per share:
Basic	$	0.41	$	1.03	$	0.92	$	1.45
Diluted	$	0.40	$	1.02	$	0.89	$	1.43
Shares used in computing earnings per share:
Basic	13,672		13,915		13,737		13,938
Diluted	13,926		14,151		14,062		14,181

The accompanying notes are an integral part of these consolidated financial statements.

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 adjustment 2,999
(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 June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Net income	$	5,593	$	14,400	$	12,586	$	20,246
Other comprehensive income (loss):
Change in foreign currency translation adjustment	4,043		(770)		1,175		(7,779)
Comprehensive income	$	9,636	$	13,630	$	13,761	$	12,467

The accompanying notes are an integral part of these consolidated financial statements.

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 amortization 23,202
18,994
Provision for doubtful accounts 167
123
Provision for inventory write-downs 2,189
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 plan 591
763
Employee and director stock-based compensation 9,476
7,638
Performance-based common stock warrants 1,122
3,219
Changes in operating assets and liabilities:
Restricted cash 4,623
—
Accounts receivable (24,440 ) (11,359 )
Inventories (21,217 ) (4,470 )
Prepaid expenses and other assets (2,422 ) (86 )
Accounts payable and accrued expenses 1,488
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 credit 115,000
92,987
Repayments on line of credit (50,987 ) (107,987 )
Proceeds from stock options exercised 1,107
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 activities 44,903
(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 year 50,611
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


	Common Stock Issued			Common Stock in Treasury			Paid-in Capital		Accumulated Other Comprehensive Income (Loss)		Retained Earnings		Totals
	Shares	Amount		Shares	Amount
Balance at December 31, 2020	24,392	$	244	(10,618)	$	(295,495)	$	302,084	$	(18,522)	$	324,990	$	313,301
Net income											6,993		6,993
Currency translation adjustment									(2,868)				(2,868)
Shares issued for employee benefit plan and compensation	160	2					408						410
Purchase of treasury shares				(191)	(10,951)								(10,951)
Stock options exercised	22	—					991						991
Shares issued to directors	7	—					—						0
Employee and director stock-based compensation							2,600						2,600
Performance-based common stock warrants							143						143
Balance at March 31, 2021	24,581	$	246	(10,809)	$	(306,446)	$	306,226	$	(21,390)	$	331,983	$	310,619
Net income											5,593		5,593
Currency translation adjustment									4,043				4,043
Shares issued for employee benefit plan and compensation	15	—					271						271
Purchase of treasury shares				(320)	(15,733)								(15,733)
Shares issued to directors	8	—					—						0
Employee and director stock-based compensation							2,444						2,444
Performance-based common stock warrants							131						131
Balance at June 30, 2021	24,604	$	246	(11,129)	$	(322,179)	$	309,072	$	(17,347)	$	337,576	$	307,368

The accompanying notes are an integral part of these consolidated financial statements.

UNIVERSAL ELECTRONICS INC.

The following summarizes the changes in total equity for the three and six months ended June 30, 2020:


	Common Stock Issued			Common Stock in Treasury			Paid-in Capital		Accumulated Other Comprehensive Income (Loss)		Retained Earnings		Totals
	Shares	Amount		Shares	Amount
Balance at December 31, 2019	24,118	$	241	(10,174)	$	(277,817)	$	288,338	$	(22,781)	$	286,418	$	274,399
Net income											5,846		5,846
Currency translation adjustment									(7,009)				(7,009)
Shares issued for employee benefit plan and compensation	129	1					526						527
Purchase of treasury shares				(169)	(6,291)								(6,291)
Shares issued to directors	9	1					(1)						0
Employee and director stock-based compensation							2,303						2,303
Performance-based common stock warrants							184						184
Balance at March 31, 2020	24,256	$	243	(10,343)	$	(284,108)	$	291,350	$	(29,790)	$	292,264	$	269,959
Net income											14,400		14,400
Currency translation adjustment									(770)				(770)
Shares issued for employee benefit plan and compensation	13	—					212						212
Purchase of treasury shares				(3)	(114)								(114)
Employee and director stock-based compensation							2,291						2,291
Performance-based common stock warrants							154						154
Balance at June 30, 2020	24,269	$	243	(10,346)	$	(284,222)	$	294,007	$	(30,560)	$	306,664	$	286,132

The accompanying notes are an integral part of these consolidated financial statements.


	Six Months Ended June 30,
	2021		2020
Cash flows from operating activities:
Net income	$	12,586	$	20,246
Adjustments to reconcile net income to net cash used for operating activities:
Depreciation and amortization	13,128		15,663
Provision for credit losses	1		240
Deferred income taxes	1,637		1,275
Shares issued for employee benefit plan	681		739
Employee and director stock-based compensation	5,044		4,594
Performance-based common stock warrants	274		338
Impairment of long-term assets	0		50
Accrued social insurance adjustment	0		(9,464)
Loss on sale of Ohio call center	0		712
Changes in operating assets and liabilities:
Accounts receivable and contract assets	(6,241)		(848)
Inventories	(1,076)		9,571
Prepaid expenses and other assets	625		1,947
Accounts payable and accrued liabilities	(7,338)		(40,869)
Accrued income taxes	(2,837)		293
Net cash provided by operating activities	16,484		4,487
Cash flows from investing activities:
Acquisitions of property, plant and equipment	(6,206)		(6,210)
Acquisitions of intangible assets	(1,907)		(3,077)
Payment on sale of Ohio call center	0		(500)
Net cash used for investing activities	(8,113)		(9,787)
Cash flows from financing activities:
Borrowings under line of credit	41,000		50,000
Repayments on line of credit	(15,000)		(45,000)
Proceeds from stock options exercised	991		0
Treasury stock purchased	(26,684)		(6,405)
Contingent consideration payments in connection with business combinations	0		(3,091)
Net cash provided by (used for) financing activities	307		(4,496)
Effect of foreign currency exchange rates on cash and cash equivalents	1,859		(5,674)
Net increase (decrease) in cash and cash equivalents	10,537		(15,470)
Cash and cash equivalents at beginning of period	57,153		74,302
Cash and cash equivalents at end of period	$	67,690	$	58,832

Supplemental cash flow information:
Income taxes paid	$	5,663	$	2,215
Interest paid	$	202	$	1,069

The accompanying notes are an integral part of these consolidated financial statements.

Table of Contents

UNIVERSAL ELECTRONICS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~SEPTEMBER~~JUNE 30, ~~2017~~2021

(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. 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~~six months ended ~~September~~June 30, ~~2017~~2021 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~~.2020.

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, allowances~~recognition; allowance for ~~sales returns and doubtful accounts,~~credit losses; inventory ~~valuation, our review for~~valuation; impairment of long-lived assets, intangible assets and ~~goodwill,~~goodwill; business ~~combinations,~~combinations; income taxes and related valuation allowances; stock-based compensation expense and performance-based common stock warrants.

The 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 ~~these~~those estimates, and ~~assumptions, and they~~such differences may be ~~adjusted as more information becomes available. Any adjustment may be material.~~material to the financial statements.

Summary of Significant Accounting Policies

With the exception of the following policy, our significant accounting policies are unchanged from those disclosed in Note 2 to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, ~~2016~~2020.

We license our symbolic intellectual property which includes our patented technologies and database of control codes. Revenue is recognized for these licensing arrangements on an over-time basis. We record license revenue for per-unit based licenses when our customers manufacture or ship a ~~summary of~~product incorporating our ~~significant accounting policies.~~

~~Recent Accounting Pronouncements~~

~~In May 2014,~~intellectual property and we have a present right to payment. We record per-unit-based licenses with minimum guarantees ratably over the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2014-09, "Revenue from Contracts with Customers," which will supersede most existing U.S. GAAP revenue recognition guidance. This new standard requires an entity to recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the considerationlicense period to which ~~an entity expects to be entitled~~the minimum guarantee relates and any per-unit sales in ~~exchange for those goods or services. In addition, ASU 2014-09 contains expanded disclosure requirements relating~~excess of the minimum guarantee in the period in which the sale occurs. We record licenses with fixed consideration ratably over the license period. Tiered royalties are recorded on a straight-line basis according 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 permitsforecasted per-unit fees taking into account 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 assessment 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 of 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, using the modified retrospective transition method. Thus prior periods will not be restated. The 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 results of operations.pricing tiers.

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~~JUNE 30, ~~2017~~2021

(Unaudited)

Recently Adopted Accounting Pronouncements

In ~~November 2015,~~December 2019, the FASB issued ASU ~~2015-17, "Balance Sheet Classification~~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 Taxes."~~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 ~~guidance requires all~~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, along with any related valuation allowance, be classified as non-current~~liabilities. Under previous guidance, an entity recognized the effects of the enacted tax law change 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~~income tax rate in the period that included the effective date of the tax law. Our adoption on January 1, ~~2017, and thus prior period balance sheets~~2021 did not have ~~not been adjusted. The adoption of ASU 2015-17 had no~~a material impact on our consolidated statement of financial position, results of operations orand cash flows.

Recent Accounting Updates Not Yet Effective

In ~~February 2016,~~March 2020, the FASB issued ASU ~~2016-02, "Leases," which changes~~2020-04, "Facilitation of the ~~accounting for leases~~Effects of Reference Rate Reform on Financial Reporting" 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 have on our consolidated financial statements.

~~In March 2016,~~in January 2021, the FASB issued ASU ~~2016-09,"Improvements~~2021-01, "Reference Rate Reform". This guidance is intended to ~~Employee Share-Based Payment Accounting," which amends Accounting Standards Codification ("ASC") 718, "Compensation - Stock Compensation." ASU 2016-09 requires excess tax benefits~~provide temporary optional expedients and ~~tax deficiencies~~exceptions to ~~be recorded as a discrete adjustment~~GAAP guidance on contract modifications and hedge accounting 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, inease 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 account 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 impactfinancial reporting burden related to the ~~change~~expected market transition from the London Interbank Offered Rate ("LIBOR") and other interbank offered rates to alternative reference rates. The amendments in ~~accounting policy to account~~these ASUs are elective and are effective upon issuance 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 afterall entities through December ~~15, 2017 and must be adopted retrospectively. Early adoption is permitted as long as all~~31, 2022. These 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.~~

In January 2017, the FASB issued ASU 2017-04, "Simplifying the Test for Goodwill Impairment." This guidance 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. Early adoption is permitted. We do not expect the adoption of ASU 2017-04 to have a material impact on our consolidated statement of financial ~~statements.~~

~~Table~~position, results of ~~Contents~~operations and cash flows.

~~UNIVERSAL ELECTRONICS INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~September 30, 2017~~

~~(Unaudited)~~

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 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 ~~Concentrations~~Details

~~Accounts receivable, net were~~

The 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 receivables 145,683
119,522
Other 7,672
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 June 30,				Six Months Ended June 30,
(In thousands)	2021		2020		2021		2020
Goods and services transferred at a point in time	$	119,503	$	121,187	$	242,391	$	238,245
Goods and services transferred over time	30,988		31,946		58,642		66,666
Net sales	$	150,491	$	153,133	$	301,033	$	304,911

(In thousands) Nine Months Ended September 30,
2017 2016
Balance at beginning of period $ 904
$ 822
Additions (reductions) to costs and expenses 167
123
(Write-offs)/Foreign exchange effects (19 ) 15
Balance at end of period $ 1,052
$ 960

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UNIVERSAL ELECTRONICS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~September~~JUNE 30, ~~2017~~2021

(Unaudited)

~~Sales Returns~~Our net sales to external customers by geographic area were as follows:

~~The allowance~~


	Three Months Ended June 30,				Six Months Ended June 30,
(In thousands)	2021		2020		2021		2020
United States	$	51,322	$	65,233	$	101,614	$	139,614
Asia (excluding PRC)	31,608		30,295		65,824		58,120
Europe	31,640		26,004		59,167		46,506
People's Republic of China	23,489		20,511		47,829		38,028
Latin America	5,368		3,466		11,512		8,106
Other	7,064		7,624		15,087		14,537
Total net sales	$	150,491	$	153,133	$	301,033	$	304,911

Specific 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 prior~~attributing 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~~.geographic areas.

~~Significant Customers~~

Net sales to the following customers totaled more than 10% of our net sales:


	Three Months Ended June 30,
	2021				2020
	$ (thousands)		% of Net Sales		$ (thousands)		% of Net Sales
Comcast Corporation	$	24,699	16.4	%	$	29,546	19.3	%
Daikin Industries Ltd.	$	16,448	10.9	%	$	16,457	10.7	%


	Six Months Ended June 30,
	2021				2020
	$ (thousands)		% of Net Sales		$ (thousands)			% of Net Sales
Comcast Corporation	$	51,900	17.2	%	$	62,481		20.5	%
Daikin Industries Ltd.	$	33,885	11.3	%	$	0	(1)	0	%	(1)

(1)Sales associated with this customer did not total more than 10% of our net sales for the indicated period.

Accounts Receivable, Net

Accounts receivable, net were as follows:


(In thousands)	June 30, 2021		December 31, 2020
Trade receivables, gross	$	126,997	$	122,828
Allowance for credit losses	(1,372)		(1,412)
Allowance for sales returns	(465)		(761)
Trade receivables, net	125,160		120,655
Other	9,834		8,778
Accounts receivable, net	$	134,994	$	129,433

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UNIVERSAL ELECTRONICS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2021

(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&T 20,117
11.5
21,139
12.5
Allowance for Credit Losses

Changes in the allowance for credit losses 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&T 61,057
11.9
60,709
12.4


(In thousands)	Six Months Ended June 30,
	2021		2020
Balance at beginning of period	$	1,412	$	1,492
Additions to costs and expenses	1		240

Write-offs/Foreign exchange effects	(41)		(35)
Balance at end of period	$	1,372	$	1,697

Trade receivables associated with ~~these~~this significant ~~customers~~customer that totaled more than 10% of our accounts receivable, net were as follows:


	June 30, 2021				December 31, 2020
	$ (thousands)		% of Accounts Receivable, Net		$ (thousands)		% of Accounts Receivable, Net
Comcast Corporation	$	22,908	17.0	%	$	19,782	15.3	%

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 September 30, 2017.~~

Note 4 — Inventories ~~Net~~ and Significant Supplier

Inventories ~~net~~ were as follows:


(In thousands)	June 30, 2021		December 31, 2020
Raw materials	$	45,072	$	44,273
Components	24,631		16,954
Work in process	5,753		6,211
Finished goods	45,974		52,992
Inventories	$	121,430	$	120,430

(In thousands) September 30, 2017 December 31, 2016
Raw materials $ 36,803
$ 33,059
Components 18,556
15,046
Work in process 6,596
5,860
Finished goods 95,690
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 Supplier

~~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 June 30,
	2021				2020
	$ (thousands)		% of Total Inventory Purchases		$ (thousands)		% of Total Inventory Purchases
Qorvo International Pte Ltd.	$	9,840	11.9	%	$	10,030	13.1	%


	Six Months Ended June 30,
	2021				2020
	$ (thousands)		% of Total Inventory Purchases		$ (thousands)		% of Total Inventory Purchases
Qorvo International Pte Ltd.	$	19,613	12.3	%	$	21,207	13.6	%

No supplier totaled 10% or more of our accounts payable balance at June 30, 2021 and December 31, 2020.

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,
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

~~September~~JUNE 30, ~~2017~~2021

(Unaudited)

Note 5 — Long-lived Tangible Assets

~~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 because our Senior Vice President of Strategic Operations owns ~~40%~~ ~~of this vendor. Inventory purchases from this supplier~~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)	June 30, 2021		December 31, 2020
United States	$	15,691	$	15,411
People's Republic of China	60,815		64,197
Mexico	21,475		22,410
All other countries	3,602		4,789
Total long-lived tangible assets	$	101,583	$	106,807

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 %

Property, plant, and equipment are shown net of accumulated depreciation of $161.8 million and $154.2 million at June 30, 2021 and December 31, 2020, respectively.

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 were 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 %

Our payment terms and pricing with this supplier are consistent with 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.

Note 56 — 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 effects 78
Balance at September 30, 2017 $ 48,624


(In thousands)
Balance at December 31, 2020	$	48,614
Foreign exchange effects	(59)
Balance at June 30, 2021	$	48,555

⁽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:


	June 30, 2021						December 31, 2020
(In thousands)	Gross (1)		Accumulated Amortization (1)		Net		Gross (1)		Accumulated Amortization (1)		Net
Capitalized software development costs	$	871	$	(8)	$	863	$	477	$	0	$	477
Customer relationships	8,100		(4,682)		3,418		8,100		(4,329)		3,771
Developed and core technology	4,080		(3,189)		891		4,080		(3,044)		1,036
Distribution rights	342		(268)		74		352		(261)		91
Patents	22,692		(8,269)		14,423		21,601		(7,574)		14,027
Trademarks and trade names	800		(546)		254		800		(492)		308
Total intangible assets, net	$	36,885	$	(16,962)	$	19,923	$	35,410	$	(15,700)	$	19,710

(1)This table excludes the gross value of fully amortized intangible assets totaling $43.0 million and $42.7 million at June 30, 2021 and December 31, 2020, respectively.

September 30, 2017 December 31, 2016
(In thousands)
Gross ⁽¹⁾

Accumulated
Amortization ⁽¹⁾
Net
Gross ⁽¹⁾

Accumulated
Amortization ⁽¹⁾
Net
Distribution rights $ 340
$ (155 ) $ 185
$ 302
$ (119 ) $ 183
Patents 12,593
(4,996 ) 7,597
12,038
(4,775 ) 7,263
Trademarks and trade names ⁽²⁾
2,786
(1,518 ) 1,268
2,400
(1,310 ) 1,090
Developed and core technology 12,560
(5,567 ) 6,993
12,585
(4,068 ) 8,517
Capitalized software development costs 142
(59 ) 83
142
(5 ) 137
Customer relationships ⁽²⁾
32,534
(18,613 ) 13,921
27,703
(16,344 ) 11,359
Order backlog ⁽²⁾
150
(38 ) 112
—
—
—
Total intangible assets, net $ 61,105
$ (30,946 ) $ 30,159

$ 55,170
$ (26,621 ) $ 28,549

Table of Contents

UNIVERSAL ELECTRONICS INC.


⁽¹⁾ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2021 (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 recorded in selling, general and administrative expenses, except amortization expense related to capitalized software development costs, ~~and order backlog,~~ which ~~are~~is recorded in cost of sales. Amortization expense by ~~income~~ statement of operations caption was as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
(In thousands)									(In thousands)	Three Months Ended June 30,				Six Months Ended June 30,
	2017		2016		2017		2016			2021		2020		2021		2020
Cost of sales	$	54	$	21	$	128	$	63	Cost of sales	$	4	$	0	$	8	$	0
Selling, general and administrative expenses	1,715		1,551		5,032		4,618		Selling, general and administrative expenses	712		1,906		1,546		3,720
Total amortization expense	$	1,769	$	1,572	$	5,160	$	4,681	Total amortization expense	$	716	$	1,906	$	1,554	$	3,720

Estimated future annual amortization expense related to our intangible assets at ~~September~~June 30, ~~2017, is~~2021, was as follows:


(In thousands)
2021 (remaining 6 months)	$	1,701
2022	3,733
2023	3,571
2024	2,570
2025	2,301
Thereafter	6,047
Total	$	19,923

Note 7 — Leases

We have entered into various operating lease agreements for automobiles, offices and manufacturing facilities throughout the world. At June 30, 2021, our operating leases had remaining lease terms of up to 39 years, including any reasonably probable extensions.

Lease balances within our consolidated balance sheet were as follows:


(In thousands)	June 30, 2021		December 31, 2020
Assets:
Operating lease right-of-use assets	$	19,098	$	19,522
Liabilities:
Other accrued liabilities	$	5,067	$	6,094
Long-term operating lease obligations	13,197		13,681
Total lease liabilities	$	18,264	$	19,775

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 June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Cost of sales	$	628	$	382	$	1,298	$	772
Selling, general and administrative expenses	1,023		1,020		2,059		2,018
Total operating lease expense	$	1,651	$	1,402	$	3,357	$	2,790
Operating cash outflows from operating leases	$	1,585	$	1,543	$	3,383	$	3,068
Operating lease right-of-use assets obtained in exchange for lease obligations	$	2,711	$	0	$	3,009	$	186
Non-cash release of operating lease obligations (1)	$	0	$	0	$	654	$	0

(1)During the six months ended June 30, 2021, we were released from our guarantee of the lease obligation related to our Ohio call center which was sold in February 2020.

(In thousands)
2017 (remaining 3 months) $ 1,776
2018 7,046
2019 6,901
2020 5,740
2021 2,289
Thereafter 6,407
Total $ 30,159

Table of Contents

UNIVERSAL ELECTRONICS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~September~~JUNE 30, ~~2017~~2021

(Unaudited)

The weighted average remaining lease liability term and the weighted average discount rate were as follows:


	June 30, 2021		December 31, 2020
Weighted average lease liability term (in years)	4.1		3.7
Weighted average discount rate	3.37	%	3.84	%

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 June 30, 2021. The reconciliation excludes short-term leases that are not recorded on the balance sheet.


(In thousands)	June 30, 2021
2021 (remaining 6 months)	$	2,779
2022	5,584
2023	3,990
2024	2,690
2025	2,240
Thereafter	2,317
Total lease payments	19,600
Less: imputed interest	(1,336)
Total lease liabilities	$	18,264

At June 30, 2021, we had 4 operating leases with four-year terms 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 68 — 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 remained~~Line") that expires on November 1, ~~2019.~~2022. 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. There~~credit, of which there were ~~no outstanding letters of credit~~$2.7 million at ~~September~~June 30, ~~2017.~~2021 and December 31, 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 ~~that~~which controls our manufacturing factories in the PRC.

~~The interest rate applicable to outstanding Credit Line balances under~~

Under the Second Amended Credit Agreement, ~~is the same as under the Amended Credit Agreement. We~~we 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~~rates in effect at ~~September~~June 30, ~~2017 was 2.48%.~~2021 and December 31, 2020 were 1.35% and 1.39%, respectively. There are no0 commitment fees or unused line fees under the ~~Amended Credit Agreement or the~~ Second Amended Credit Agreement.

~~The Amended~~

On December 31, 2021, the process of cessation of LIBOR as a reference rate will begin. LIBOR may continue to be used for new and existing borrowings on the Credit ~~Agreement and~~Line through December 31, 2021. After that date, new borrowings will no longer use LIBOR as a reference rate. Instead, these borrowings will be subject to an interest rate based on either the Secured Overnight Financing Rate ("SOFR"), which is deemed a replacement benchmark for LIBOR under the Second Amended Credit Agreement, ~~include~~or an alternate index to be agreed upon. Between December 31, 2021 and June 30, 2023, any legacy borrowings may continue to use LIBOR as the basis for interest rates. After June 30, 2023, all borrowings will be based on SOFR or the alternate index.

Table of Contents

UNIVERSAL ELECTRONICS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2021

(Unaudited)

The Second Amended Credit Agreement includes 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 contain~~contains other customary affirmative and negative covenants and events of default. ~~As of September~~At June 30, ~~2017,~~2021, we were in compliance with the covenants and conditions of the Second Amended Credit Agreement.

At ~~September~~June 30, ~~2017,~~2021 and December 31, 2020, we had ~~$114.0~~$46.0 million and $20.0 million outstanding under the Credit ~~Line.~~Line, respectively. Our total interest expense on borrowings was ~~$0.8~~$0.2 million and ~~$0.3~~$0.4 million during the three months ended ~~September~~June 30, ~~2017~~2021 and ~~2016, respectively, and $1.8~~2020, respectively. Our total interest expense on borrowings was $0.3 million and ~~$0.9~~$1.1 million during the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2021 and ~~2016,~~2020, respectively.

Note 79 — 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~~$3.3 million and ~~$0.4~~$1.9 million for the three months ended ~~September~~June 30, ~~2017~~2021 and ~~2016, respectively, and our effective tax rate was 51.4% and 5.1% during the three months ended September 30, 2017 and 2016,~~2020, respectively. We recorded income tax expense of ~~$2.9~~$4.8 million and ~~$3.0~~$3.1 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2021 and ~~2016, respectively, and our effective~~2020, respectively. The income tax ~~rate was 31.1% and 14.7% during~~expense for the ~~nine~~six months ended ~~September~~June 30, ~~2017 and 2016, respectively. The higher effective tax rate in both periods was~~2021 increased primarily due to the ~~nondeductibility~~mix of ~~certain transactions in the PRC~~pre-tax income among jurisdictions, including losses not benefited as a result of a valuation allowance. In addition, the ~~pending~~tax incentive refund received in China during the six months ended June 30, 2021 was less than the refund received during the six months ended June 30, 2020. During the six months ended June 30, 2020, we recognized a reversal of uncertain tax positions related to our Guangzhou entity, which was sold in June 2018. The indemnification agreement related to the sale of our Guangzhou ~~factory (Note 10). In addition,~~entity expired in June 2020.

At December 31, 2020, we assessed the realizability of our 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 ~~three~~periods 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 ~~nine~~projected future taxable income in making this assessment. At December 31, 2020, 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 six months ended ~~September~~June 30, ~~2016, we received tax refunds from the Chinese government totaling $1.8 million for various tax incentives relating~~2021, there was no change to ~~fiscal year 2015.~~our valuation allowance position.

At ~~September~~June 30, ~~2017,~~2021, we had gross unrecognized tax benefits of ~~$3.8~~$3.2 million, including interest and penalties, of which, ~~$3.5 million,~~ 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 ~~amount~~amounts of unrecognized tax benefits will significantly ~~change~~increase within the next twelve months. ~~However, based~~Based on federal, state and foreign statute expirations in various jurisdictions, we do not anticipate a decrease in unrecognized tax benefits ~~of approximately $0.1 million~~ within the next twelve months. 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 million~~are immaterial at ~~September~~June 30, ~~2017~~2021 and December 31, ~~2016, respectively,~~2020 and are included in ~~our~~the unrecognized tax benefits.

Note 10 — 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.

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UNIVERSAL ELECTRONICS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~September~~JUNE 30, ~~2017~~2021

(Unaudited)

~~Note 8 — Accrued Compensation~~

The components of accrued compensation were as follows:


(In thousands)	September 30, 2017		December 31, 2016		(In thousands)	June 30, 2021		December 31, 2020
Accrued bonus					Accrued bonus	$	3,198	$	7,602
Accrued commission					Accrued commission	737		1,779
Accrued salary/wages					Accrued salary/wages	7,243		7,107
Accrued social insurance ⁽¹⁾	$	17,506	$	19,974	Accrued social insurance (1)	7,445		7,375
Accrued salary/wages	7,721		7,903
Accrued vacation/holiday	2,844		2,411		Accrued vacation/holiday	3,508		3,307
Accrued bonus ⁽²⁾	1,985		2,421
Accrued commission	851		933
Accrued medical insurance claims	284		122
Other accrued compensation	2,137		1,816		Other accrued compensation	2,076		1,761
Total accrued compensation	$	33,328	$	35,580	Total accrued compensation	$	24,207	$	28,931

⁽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 on June 30, 2021 and December 31, 2020.

Note 11 — Other Accrued Liabilities

The components of other accrued liabilities were as follows:


(In thousands)	June 30, 2021		December 31, 2020
Duties	$	4,215	$	4,469
Expense associated with fulfilled performance obligations	1,301		1,372
Freight and handling fees	3,008		2,218
Operating lease obligations	5,067		6,094
Product warranty claims costs	1,351		1,721
Professional fees	3,897		3,794
Sales and value added taxes	4,459		5,118
Short-term contingent consideration	87		1,758
Other (1)	5,661		6,513
Total other accrued liabilities	$	29,046	$	33,057

(1)Includes $0.4 million and $0.3 million of contract liabilities at June 30, 2021 and December 31, 2020, respectively.

Note 12 — Commitments and Contingencies

Product Warranties

Changes in the liability for product warranty claims costs were as follows:


(In thousands)	Six Months Ended June 30,
	2021		2020
Balance at beginning of period	$	1,721	$	1,514
Accruals for warranties issued during the period	46		578
Settlements (in cash or in kind) during the period	(386)		(312)
Foreign currency translation gain (loss)	(30)		2
Balance at end of period	$	1,351	$	1,782

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 ("13~~^th ~~month salary") to be paid to employees in certain geographies where it is the customary business practice. This 13~~^th ~~month salary is paid to these employees if they remain employed with us through December 31st. The total accrued for the 13~~^th ~~month salary was $0.7 million and $0.7 million at~~ ~~September 30, 2017~~ ~~and December 31,~~ ~~2016, respectively.~~

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UNIVERSAL ELECTRONICS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~September~~JUNE 30, ~~2017~~2021

(Unaudited)

Litigation

~~Note 9 — Other Accrued Expenses~~

~~The components of other accrued expenses were as follows:~~Roku Matters

(In thousands) September 30, 2017 December 31, 2016
Advertising and marketing $ 272
$ 213
Deferred revenue 79
1,431
Deposit for sale of Guangzhou factory 4,799
—
Duties 757
1,127
Freight and handling fees 2,176
1,919
Product development 485
454
Product warranty claim costs 218
134
Professional fees 1,691
1,313
Property, plant, and equipment 1,564
1,017
Sales taxes and VAT 2,587
2,715
Short-term contingent consideration 3,400
—
Third-party commissions 685
853
Tooling ⁽¹⁾
1,769
1,520
Unrealized loss on foreign currency exchange contracts 86
1,623
URC court order and settlement agreement (Note 2) —
6,622
Utilities 392
331
Other 4,880
3,138
Total other accrued expenses $ 25,840
$ 24,410
2018 Lawsuit


⁽¹⁾	~~The tooling accrual balance relates to unearned revenue for tooling that will be sold to customers.~~

~~Note 10 — Commitments and Contingencies~~

~~Product Warranties~~

~~Changes~~On September 5, 2018, we filed a lawsuit against Roku, Inc. ("Roku") in the ~~liability~~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 touchscreen 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 therefor 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 ~~product warranty claim costs were~~the remote control of an external device such as ~~follows:~~

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 ("IPR") requests (see discussion below). This lawsuit continues to be stayed until such time as the IPR requests and all appeals with respect to them have concluded.

(In thousands) Nine Months Ended September 30,
2017 2016
Balance at beginning of period $ 134
$ 35
Accruals for warranties issued during the period 169
100
Settlements (in cash or in kind) during the period (85 ) —
Balance at end of period $ 218
$ 135

International Trade Commission Investigation of Roku, TCL, Hisense and Funai

~~Restructuring Activities~~On April 16, 2020, we filed a complaint with the International Trade Commission (the "ITC") against Roku, TCL Electronics Holding Limited and ~~Sale~~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 ~~Guangzhou Factory~~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. Prior to the trial, which ended on April 23, 2021, we released TCL, Hisense and Funai from this investigation as they removed our technology from their televisions. On July 9, 2021, the Administrative Law Judge issued his Initial Determination (the "ID") finding that Roku is infringing our patents and as a result is in violation of §337 of the Tariff Act of 1930, as amended. On July 23, 2021, Roku and we filed petitions to appeal certain portions of the ID. This ID, including those matters for which we and Roku appealed, is to be reviewed by the full ITC by November 10, 2021.

~~In the first quarter~~

2020 Lawsuit

As a companion case to our ITC complaint, on April 9, 2020, we filed separate actions against each 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~~Roku, TCL, Hisense, and Funai in the ~~city~~United States District Court, Central District of ~~Guangzhou~~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 and continue to be stayed pending the final results of the ITC investigation mentioned above.

Inter Partes Reviews

Throughout these litigation matters against Roku and the others identified above, Roku has filed multiple IPR requests with the PTAB on all patents at issue in the ~~Guangdong province,~~2018 Lawsuit, the ITC Action, and the 2020 Lawsuit (see discussion above). To date, the PTAB has denied Roku's request 11 times, granted Roku's request 7 times and we are awaiting the PTAB's institution decision with respect to the remaining 2 IPR requests. Of the 7 IPR requests granted by the PTAB, the results were mixed, with the PTAB validating many of our ~~other China factories where labor rates are rising at a slower rate. As a result, we incurred severance costs~~patent claims and invalidating others. We have and will appeal any PTAB decision that resulted in an invalidation of $0.4 million 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 costs related to this factory transition. At September 30, 2017, we had $0.2 million of unpaid severance costs included within accrued compensation.patent claims.

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UNIVERSAL ELECTRONICS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~September~~JUNE 30, ~~2017~~2021

(Unaudited)

International Trade Commission Investigation Request Made by Roku against UEI and certain UEI Customers

On September 26, 2016, we entered into an agreement to sell our Guangzhou manufacturing facility for RMB 320 million (approximately $48.0 million based on September 30, 2017 exchange rates). Under the terms of this agreement, we have up to 24 months to cease all operations within the facility. The closing of the sale will be subject to customary due diligence and local regulatory approval and per the terms of the agreement could take up to approximately 28 months from the execution of the agreement. In accordance with the terms of the agreement, the buyer deposited 10% of the purchase price into an escrow account at agreement inception, which we have presented as restricted cash 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 priorApril 8, 2021, Roku made a request to the ~~closing of the sale~~ITC to initiate an investigation against us and will be released to us upon closing. Since all operations at our Guangzhou manufacturing facility ceased as of 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~~certain of our ~~subsidiaries, Universal Electronics BV ("UEBV") and one of its~~ customers ~~Telenet N.V. ("Telenet"),~~ claiming that ~~one~~certain 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~~those customers’ remote control devices and ~~Ruwido’s request entirely.~~televisions infringe 2 of Roku’s recently acquired patents. On ~~October 22, 2015, Ruwido filed~~May 10, 2021, the ITC announced its ~~notice of appeal in this ruling. The parties have fully briefed and argued before~~decision to initiate 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). 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.requested investigation. 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.~~

Onthe allegations made by Roku in this investigation and to this end, we have entered into a joint defense agreement with our customers wherein we will lead the defense of this investigation.Discovery recently commenced with discovery cutoff set for November 21, 2021, the trial set for January ~~26, 2017, OpenTV, Inc., Nagra USA, Inc., Nagravision SA,~~19, 2022, the ID set for June 28, 2022 and ~~Kudelski SA (collectively,~~ the ~~“Kudelski Group”) filed~~full commission review set for October 28, 2022. As a companion to its ITC 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~~Roku also filed a lawsuit against us and certain of our ~~employees~~customers in Federal District Court in the ~~Superior~~ Central District of California alleging that we are infringing the same patents they alleged being infringed in the ITC investigation explained above. This District Court case has been and will continue to be stayed pending the conclusion of the ITC investigation.

Court of ~~California, County~~International Trade Action against the United States of ~~Orange, claiming hostile work environment based on sexual orientation, intentional infliction~~America, et. al.

On October 9, 2020, we and our subsidiaries, Ecolink Intelligent Technology, Inc. ("Ecolink") and RCS Technology, LLC ("RCS"), filed an amended complaint (20-cv-00670) in the Court of ~~emotional distress, failure to prevent hostile work environment, retaliation, and constructive termination. We have answered by denying all~~International Trade (the "CIT") against the United States of America; the Office of the ~~employee’s claims~~United States Trade Representative; Robert E. Lighthizer, U.S. Trade Representative; U.S. Customs & Border Protection; and ~~have filed~~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.

Pursuant to this complaint, we, 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 make a ~~countersuit against this employee claiming, among other things~~determination or finding that ~~he has breached his duty of loyalty to us,~~there was an unfair trade practice that ~~he stole certain of our property,~~required a remedy and moreover, that ~~he converted certain of our property to his own benefit. We are still~~Lists 3 and 4A tariffs were instituted beyond the 12-month time limit provided for in the ~~early stages~~governing statute. We, 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 ~~this case as discovery~~Lists 3 and 4A.

We, Ecolink and RCS are asking the CIT to declare that the defendants' actions resulting in the tariffs on products covered by Lists 3 and 4A are unauthorized by and contrary to the Trade Act and were arbitrarily and unlawfully promulgated in violation of the APA; to vacate the Lists 3 and 4A tariffs; to order a refund (with interest) of any Lists 3 and 4A duties paid by us, Ecolink and RCS; to permanently enjoin the U.S. government from applying Lists 3 and 4A duties against us, Ecolink and RCS; and award us, Ecolink and RCS our costs and reasonable attorney's fees.

In July 2021, the CIT issued a preliminary injunction suspending liquidation of all unliquidated entries subject to Lists 3 and 4A duties and has ~~recently commenced.~~asked the parties to develop a process to keep track of the entries to efficiently and effectively deal with liquidation process and duties to be paid or refunded when finally adjudicated.

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

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~~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.

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UNIVERSAL ELECTRONICS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2021

(Unaudited)

Note 1113 — Treasury Stock

From time to time, our Board of Directors authorizes management to repurchase shares of our issued and outstanding common stock. On April 28, 2021, our Board approved a new share repurchase program with an effective date of May 11, 2021 (the "May 2021 Program"). Pursuant to the May 2021 Program, we were authorized to repurchase up to 300,000 shares of our common stock onat predetermined prices until the earlier of the repurchase of all 300,000 shares or August 5, 2021. The May 2021 Program was completed in June 2021 upon repurchase by us of all 300,000 shares as authorized. On July 28, 2021, our Board approved a new share repurchase program with an effective date of August 10, 2021 (the "August 2021 Program"). Pursuant to the August 2021 Program, we have been authorized to repurchase up to 400,000 shares of our common stock at predetermined prices until the earlier of the repurchase of all 400,000 shares or November 4, 2021. We may utilize various methods to effect the repurchases, which may include open ~~market. Repurchases~~market repurchases, negotiated block transactions, accelerated share repurchases or open market solicitations for shares, some of which may be ~~made whenever we deem a repurchase to~~effected through Rule 10b5-1 plans. The timing and amount of future repurchases, if any, will depend upon several factors, including market and business conditions, and such repurchases may 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. Shares may also be tendered by employees to satisfy tax withholding obligations in connection with the vesting of restricted stock.discontinued at any time.

Repurchased shares of our common stock were as follows:


	Nine Months Ended September 30,					Six Months Ended June 30,
(In thousands)	2017		2016		(In thousands)	2021		2020
Shares repurchased	330		40		Shares repurchased	511		172
Cost of shares repurchased	$	20,217	$	2,188	Cost of shares repurchased	$	26,684	$	6,405

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 ~~12 — 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:~~

~~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 by geographic area were as follows:~~

~~Note 13~~14 — 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 June 30,				Six Months Ended June 30,
(In thousands)	2021		2020		2021		2020
Cost of sales	$	40	$	36	$	77	$	110
Research and development expenses	318		288		631		524
Selling, general and administrative expenses:
Employees	1,705		1,557		3,573		3,140
Outside directors	381		410		763		820
Total employee and director stock-based compensation expense	$	2,444	$	2,291	$	5,044	$	4,594
Income tax benefit	$	416	$	500	$	882	$	1,006

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 expenses 149
136
412
409
Selling, general and administrative expenses:
Employees 1,843
1,748
5,562
5,324
Outside directors 1,910
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

Outstanding at September 30, 2017 ⁽¹⁾

Vested and expected to vest at September 30, 2017⁽¹⁾

Exercisable at September 30, 2017 ⁽¹⁾

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.

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UNIVERSAL ELECTRONICS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~September~~JUNE 30, ~~2017~~2021

(Unaudited)

Stock option activity was as follows:


	Number of Options (in thousands)	Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value (in thousands)
Outstanding at December 31, 2020	774	$	43.01
Granted	80	59.43
Exercised	(22)	44.39			$	253
Forfeited/canceled/expired	0	0
Outstanding at June 30, 2021 (1)	832	$	44.56	3.54	$	7,083
Vested and expected to vest at June 30, 2021 (1)	832	$	44.56	3.54	$	7,083
Exercisable at June 30, 2021 (1)	638	$	43.39	2.77	$	6,128

(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 second quarter of 2021 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 June 30, 2021. 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 June 30,						Six Months Ended June 30,
	2021			2020			2021			2020
Weighted average fair value of grants	$	0		$	0		$	23.97		$	17.70
Risk-free interest rate	0		%	0		%	0.41		%	1.44		%
Expected volatility	0		%	0		%	48.49		%	43.95		%
Expected life in years	0.00			0.00			4.62			4.59

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 years 0.00
0.00
4.52
4.55

As of ~~September~~June 30, ~~2017~~,2021, we expect to recognize ~~$2.4~~$3.2 million of total unrecognized pre-tax stock-based compensation expense related to non-vested stock options over a remaining weighted-average life of ~~1.8~~2.0 years.

Non-vested restricted stock award activity was as follows:


	Shares (in thousands)		Weighted-Average Grant Date Fair Value
Non-vested at December 31, 2020	$	374	$	34.53
Granted	123		59.43
Vested	(177)		35.41
Forfeited	(7)		38.08
Non-vested at June 30, 2021	$	313	$	43.74

Shares
(in 000's)
Weighted-Average Grant Date Fair Value
Non-vested at December 31, 2016 153
$ 57.43
Granted 132
64.14
Vested (59 ) 61.28
Forfeited (4 ) 60.71
Non-vested at September 30, 2017 222
$ 60.34

As of ~~September~~June 30, ~~2017~~,2021, we expect to recognize ~~$9.8~~$11.3 million of total unrecognized pre-tax stock-based compensation expense related to non-vested restricted stock awards over a weighted-average life of ~~1.7~~2.1 years.

Table of Contents

UNIVERSAL ELECTRONICS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2021

(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 ~~three~~3 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 will~~to vest in each period based upon achieving ~~these~~the purchase levels.

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 ~~will~~would 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 June 30, 2021, 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 all~~All 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.

As 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 successive two-year periods was the date on which the warrants ~~vest. Through September 30, 2017, 100,000~~vested.

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 determined~~award as of our adoption date on January 1, 2020 using the Black-Scholes option pricing model. Through June 30, 2021, 0ne of the warrants had vested for the two-year period beginning January 1, 2020.

Table of Contents

UNIVERSAL ELECTRONICS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2021

(Unaudited)

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 rate	1.62		%
Expected volatility	48.86		%
Expected life in years	3.00

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Fair value $ 24.17
$ 38.32
$ 24.17
$ 38.32
Price of Universal Electronics Inc. common stock $ 62.10
$ 74.99
$ 62.10
$ 74.99
Risk-free interest rate 1.93 % 1.32 % 1.93 % 1.32 %
Expected volatility 34.41 % 40.54 % 34.41 % 40.54 %
Expected life in years 5.26
6.25
5.26
6.25

The impact to net sales recorded in connection with the warrants and the related income tax benefit were as follows:


	Three Months Ended June 30,				Six Months Ended June 30,
(In thousands)	2021		2020		2021		2020
Reduction to net sales	$	131	$	154	$	274	$	338
Income tax benefit	$	32	$	38	$	68	$	84

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)/expense 53
(426 ) (418 ) (1,182 )

~~At September 30, 2017, we estimated~~We 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 June 30, 2021, the aggregate unrecognized estimated fair value of ~~unvested~~ warrants ~~at September 30, 2017~~we estimate will vest was ~~$14.2~~$0.3 million.

Note 1516 — Other Income (Expense), Net

Other income (expense), net consisted of the following:


	Three Months Ended June 30,				Six Months Ended June 30,
(In thousands)	2021		2020		2021		2020
Net gain (loss) on foreign currency exchange contracts (1)	$	327	$	(703)	$	1,488	$	(451)
Net gain (loss) on foreign currency exchange transactions	(807)		1,208		(2,077)		660
Other income (expense)	463		226		595		174
Other income (expense), net	$	(17)	$	731	$	6	$	383

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

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 transactions 1,176
439
2,512
2,455
Other income (expense) 373
114
342
165
Other income (expense), net $ 61
$ 335

$ 2

$ 1,726

Table of Contents

UNIVERSAL ELECTRONICS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~September~~JUNE 30, ~~2017~~2021

(Unaudited)

Note 1617 — Earnings Per Share

Earnings per share was calculated as follows:


	Three Months Ended June 30,				Six Months Ended June 30,
(In thousands, except per-share amounts)	2021		2020		2021		2020
BASIC
Net income	$	5,593	$	14,400	$	12,586	$	20,246
Weighted-average common shares outstanding	13,672		13,915		13,737		13,938
Basic earnings per share	$	0.41	$	1.03	$	0.92	$	1.45

DILUTED
Net income	$	5,593	$	14,400	$	12,586	$	20,246
Weighted-average common shares outstanding for basic	13,672		13,915		13,737		13,938
Dilutive effect of stock options, restricted stock and common stock warrants	254		236		325		243
Weighted-average common shares outstanding on a diluted basis	13,926		14,151		14,062		14,181
Diluted earnings per share	$	0.40	$	1.02	$	0.89	$	1.43

Three Months Ended September 30, Nine Months Ended September 30,
(In thousands, except per-share amounts) 2017 2016 2017 2016
BASIC
Net income attributable to Universal Electronics Inc. $ 1,728
$ 7,807
$ 6,531
$ 17,118
Weighted-average common shares outstanding 14,381
14,510
14,412
14,441
Basic earnings per share attributable to Universal Electronics Inc. $ 0.12
$ 0.54

$ 0.45

$ 1.19

DILUTED
Net income attributable to Universal Electronics Inc. $ 1,728
$ 7,807
$ 6,531
$ 17,118
Weighted-average common shares outstanding for basic 14,381
14,510
14,412
14,441
Dilutive effect of stock options, restricted stock and common stock warrants 285
338
277

299
Weighted-average common shares outstanding on a diluted basis 14,666
14,848
14,689
14,740
Diluted earnings per share attributable to Universal Electronics Inc. $ 0.12
$ 0.53

$ 0.44

$ 1.16

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 June 30,		Six Months Ended June 30,
(In thousands)	2021	2020	2021	2020
Stock options	375	511	302	486
Restricted stock awards	88	3	69	27
Common stock warrants	275	275	138	275

Three Months Ended September 30, Nine Months Ended September 30,
(In thousands) 2017 2016 2017 2016
Stock options 165
—
153
111
Restricted stock awards 30
5
30
8

Note 1718 — Derivatives

The following table sets forth the total net fair value of derivatives:


	June 30, 2021								December 31, 2020
	Fair Value Measurement Using						Total Balance		Fair Value Measurement Using						Total Balance
(In thousands)	Level 1		Level 2		Level 3				Level 1		Level 2		Level 3
Foreign currency exchange contracts	$	0	$	261	$	0	$	261	$	0	$	113	$	0	$	113

September 30, 2017 December 31, 2016
Fair Value Measurement Using Total Balance Fair Value Measurement Using Total Balance
(In thousands) Level 1 Level 2 Level 3 Level 1 Level 2 Level 3
Foreign currency exchange contracts $ —
$ (385 ) $ —
$ (385 ) $ —
$ (1,584 ) $ —
$ (1,584 )

We held foreign currency exchange contracts, which resulted in a net pre-tax gain of $0.3 million and a net pre-tax loss of ~~$1.5 million and $0.2~~$0.7 million for the three months ended ~~September~~June 30, ~~2017~~2021 and ~~2016,~~2020, respectively. For the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2021 and ~~2016,~~2020, we had a net pre-tax gain of $1.5 million and a net pre-tax loss of ~~$2.9~~$0.5 million, ~~and $0.9 million, respectively (see Note 15).~~respectively.

Table of Contents

UNIVERSAL ELECTRONICS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~September~~JUNE 30, ~~2017~~2021

(Unaudited)

Details of foreign currency exchange contracts held were as follows:


Date Held	Currency	Position Held	Notional Value (in millions)		Forward Rate	Unrealized Gain/(Loss) Recorded at Balance Sheet Date (in thousands)(1)		Settlement Date
June 30, 2021	USD/Chinese Yuan Renminbi	CNY	$	46.0	6.4899	$	77	July 30, 2021
June 30, 2021	USD/Euro	USD	$	23.5	1.1948	$	184	July 30, 2021
December 31, 2020	USD/Chinese Yuan Renminbi	CNY	$	55.0	6.5370	$	239	January 29, 2021
December 31, 2020	USD/Brazilian Real	USD	$	0.9	5.1714	$	4	January 29, 2021
December 31, 2020	USD/Euro	USD	$	28.0	1.2177	$	(106)	January 29, 2021
December 31, 2020	USD/Mexican Peso	USD	$	1.9	20.1915	$	(24)	January 29, 2021

(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.

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

~~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 equipment 1-4 years 14
Current liabilities (408 )
Net tangible assets acquired 1,550
Trade name 8 years 400
Customer relationships 10 years 5,000
Order backlog 1 year 150
Goodwill 5,494
Total purchase price 12,594
Less: Contingent consideration (3,700 )
Cash paid $ 8,894

Management's determination of the fair value of intangible assets acquired 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 income 1,751
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.

We design, develop, manufacture, ship and ~~manufacture~~support control and sensor technology solutions and a broad line of ~~pre-programmed~~ universal ~~remote~~ control ~~products, AV~~systems, audio-video ("AV") accessories, ~~software~~ and intelligent wireless security ~~sensing~~ and ~~automation components dedicated to redefining~~smart home products that are used by the ~~home entertainment and automation experience. Our customers operate primarily~~world's leading brands in the video services, consumer electronics, ~~market~~security, home automation, climate control, and ~~include subscription broadcasters, OEMs, international~~home appliance markets. Our product and technology offerings include:

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

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

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

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

•intellectual property that we license primarily to OEMs, software development companies, private label customers, and video ~~players, streamer boxes, cable converters, satellite receivers, set-top boxes, room air conditioning equipment, game consoles,~~service providers;

•proprietary and ~~wireless mobile phones~~standards-based RF sensors designed for residential security, safety and ~~tablets.~~home automation applications;

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

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

A key factor in creating products and software for control of entertainment devices is our proprietary device knowledge graph. Since our beginning in 1986, we have compiled an extensive device control ~~code database~~knowledge library that ~~covers approximately one million individual~~includes over 12,700 brands comprising over 950,000 device ~~functions~~models across AV and ~~approximately 8,000 unique consumer electronic brands. QuickSet®, our proprietary software, can automatically detect, identify~~smart home platforms, supported by many common smart home protocols, including IR, HDMI-CEC, Zigbee (Rf4CE) Z-Wave, and enable the appropriate control commands for home entertainment, automation and appliances like air conditioners. 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,IP as well as ~~most~~Home Network and Cloud Control.

This device knowledge graph is backed by our unique device fingerprinting technology, which includes nearly 13.4 million unique device fingerprints across both AV and Smart Home devices.

Our technology also includes other remote controlled home entertainment devices and home automation control modules, ~~worldwide.~~as well as wired Consumer Electronics Control ("CEC") and wireless IP control protocols commonly found on many of the latest HDMI and internet connected devices. Our proprietary software automatically detects, identifies and enables the appropriate control commands for many home entertainment and automation devices in the home. Our libraries are continuously updated with device control codes used in newly introduced AV and Internet of Things devices. These control codes are captured directly from original control devices or from the manufacturers' written specifications to ensure the accuracy and integrity of the library. Our proprietary software and know-how permit us to offer a device control code database that is more robust and efficient than similarly priced products of our competitors.

With the wider adoption of more advanced technologies, emerging radio frequency ("RF") technologies, such as RF4CE, Bluetooth, and Bluetooth Smart, have increasingly become a focus in our development efforts. Several new recently released platforms utilize RF to effectively implement popular features like voice search.

We hold a number of patents in the United States and abroad related to our products and technology, and have ~~developed a comprehensive patent portfolio of more than 400~~filed domestic and foreign applications for other patents that are pending. At June 30, 2021, we had over 600 issued and pending ~~and issued~~U.S. patents related to remote ~~controls~~control, 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 24two domestic subsidiaries and 26 international subsidiaries located in Argentina, Brazil, British Virgin Islands, Cayman Islands, France, Germany, Hong Kong (3), India, Italy, Japan, Korea, Mexico (2), 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~~June 30, ~~2017:~~2021:

•Net sales ~~increased 3.8%~~decreased 1.7% to ~~$175.7~~$150.5 million for the three months ended ~~September~~June 30, ~~2017~~2021 from ~~$169.2~~$153.1 million for the three months ended ~~September~~June 30, ~~2016.~~2020.

•Our gross margin percentage ~~decreased from 24.7%~~increased to 29.7% for the three months ended ~~September~~June 30, ~~2016 to 24.5%~~2021 from 24.9% for the three months ended ~~September~~June 30, ~~2017.~~2020.

•Operating expenses, as a ~~percent~~percentage of net sales, increased ~~from 19.9%~~to 23.7% for the three months ended ~~September~~June 30, ~~2016 to 22.1%~~2021 from 20.7% for the three months ended ~~September~~June 30, ~~2017.~~2020.

•Our operating income ~~decreased from $8.1~~increased to $9.0 million for the three months ended ~~September~~June 30, ~~2016 to $4.2~~2021 from $6.5 million for the three months ended ~~September~~June 30, ~~2017, and our~~2020. Our operating ~~margin~~income percentage ~~decreased from 4.8%~~increased to 6.0% for the three months ended ~~September~~June 30, ~~2016 to 2.4%~~2021 from 4.2% for the three months ended ~~September~~June 30, ~~2017.~~2020.

~~Our effective~~•Income tax ~~rate~~expense increased to ~~51.4%~~$3.3 million for the three months ended ~~September~~June 30, ~~2017, compared to 5.1%~~2021 from $1.9 million for the three months ended ~~September~~June 30, ~~2016.~~2020.

Our strategic business objectives for ~~2017~~2021 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 home automation product offerings;


Securities registered pursuant to Section 12(b) of the Act:
Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.01 per share	UEIC	The NASDAQ Stock Market LLC



		Page Number
PART I. FINANCIAL INFORMATION		3
Item 1. Consolidated Financial Statements (Unaudited)		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
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations		26
Item 3. Quantitative and Qualitative Disclosures About Market Risk		34
Item 4. Controls and Procedures		35
PART II. OTHER INFORMATION		3635
Item 1. Legal Proceedings		3635
Item 1A. Risk Factors		36
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		36
Item 6. Exhibits		37
Signatures		38
~~Exhibit Index~~	39


(In thousands)	September 30, 2017		December 31, 2016		(In thousands)	June 30, 2021		December 31, 2020
United States	$	4,795	$	3,277
North America					North America	$	6,473	$	9,812
People's Republic of China ("PRC")	22,120		22,142		People's Republic of China ("PRC")	18,614		14,244
Asia (excluding the PRC)	846		5,260		Asia (excluding the PRC)	10,382		13,518
Europe	13,317		19,630		Europe	22,021		10,926
South America	7,482		302		South America	10,200		8,653
Total cash and cash equivalents	$	48,560	$	50,611	Total cash and cash equivalents	$	67,690	$	57,153


	June 30, 2021		December 31, 2020
ASSETS
Current assets:
Cash and cash equivalents	$	67,690	$	57,153
Accounts receivable, net	134,994		129,433
Contract assets	9,585		9,685
Inventories	121,430		120,430
Prepaid expenses and other current assets	6,901		6,828
Income tax receivable	3,650		3,314
Total current assets	344,250		326,843
Property, plant and equipment, net	82,485		87,285
Goodwill	48,555		48,614
Intangible assets, net	19,923		19,710
Operating lease right-of-use assets	19,098		19,522
Deferred income taxes	4,571		5,564
Other assets	2,502		2,752
Total assets	$	521,384	$	510,290
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	90,079	$	83,229
Line of credit	46,000		20,000
Accrued compensation	24,207		28,931
Accrued sales discounts, rebates and royalties	6,597		10,758
Accrued income taxes	1,027		3,535
Other accrued liabilities	29,046		33,057
Total current liabilities	196,956		179,510
Long-term liabilities:
Operating lease obligations	13,197		13,681
Contingent consideration	0		292
Deferred income taxes	2,477		1,913
Income tax payable	1,054		1,054
Other long-term liabilities	332		539
Total liabilities	214,016		196,989
Commitments and contingencies	0		0
Stockholders' equity:
Preferred stock, $0.01 par value, 5,000,000 shares authorized; NaN issued or outstanding	0		0
Common stock, $0.01 par value, 50,000,000 shares authorized; 24,603,638 and 24,391,595 shares issued on June 30, 2021 and December 31, 2020, respectively	246		244
Paid-in capital	309,072		302,084
Treasury stock, at cost, 11,128,717 and 10,618,002 shares on June 30, 2021 and December 31, 2020, respectively	(322,179)		(295,495)
Accumulated other comprehensive income (loss)	(17,347)		(18,522)
Retained earnings	337,576		324,990
Total stockholders' equity	307,368		313,301
Total liabilities and stockholders' equity	$	521,384	$	510,290



(In thousands)
Balance at December 31, 2016	$	43,052
Goodwill acquired during the period ⁽¹⁾	5,494
Foreign exchange effects	78
Balance at September 30, 2017	$	48,624



(In thousands)
2017 (remaining 3 months)	$	1,776
2018	7,046
2019	6,901
2020	5,740
2021	2,289
Thereafter	6,407
Total	$	30,159



	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, 2016	652		$	39.27
Granted	92		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



	Shares (in 000's)		Weighted-Average Grant Date Fair Value
Non-vested at December 31, 2016	153		$	57.43
Granted	132		64.14
Vested	(59	)	61.28
Forfeited	(4	)	60.71
Non-vested at September 30, 2017	222		$	60.34


	Incremental Warrants That Will Vest				Potential Warrants To Vest
Aggregate Level of Purchases by Comcast and Affiliates	January 1, 2016 - December 31, 2017	January 1, 2018 - December 31, 2019	January 1, 2020 - December 31, 2021	Aggregate Level of Purchases by Comcast and Affiliates	January 1, 2016 - December 31, 2017	January 1, 2018 - December 31, 2019	January 1, 2020 - December 31, 2021
$260 million	100,000	100,000	75,000	$260 million	100,000	100,000	75,000
$300 million	75,000	75,000	75,000	$300 million	75,000	75,000	75,000
$340 million	75,000	75,000	75,000	$340 million	75,000	75,000	75,000
Maximum Potential Warrants Earned by Comcast	250,000	250,000	225,000	Maximum Potential Warrants Earned by Comcast	250,000	250,000	225,000


⁽¹⁾	~~This represents the gains (losses) incurred on foreign currency hedging derivatives (see Note 17 for further details).~~



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.



(in thousands)	Estimated Lives	Preliminary Fair Value
Accounts receivable		$	429
Inventories		1,508
Prepaid expenses and other current assets		7
Property, plant and equipment	1-4 years	14
Current liabilities		(408		)
Net tangible assets acquired		1,550
Trade name	8 years	400
Customer relationships	10 years	5,000
Order backlog	1 year	150
Goodwill		5,494
Total purchase price		12,594
Less: Contingent consideration		(3,700		)
Cash paid		$	8,894



	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 income	1,751		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


(In thousands)	Nine Months Ended September 30, 2017			Increase (Decrease)			Nine Months Ended September 30, 2016			(In thousands)	Six Months Ended June 30, 2021		Increase (Decrease)		Six Months Ended June 30, 2020
Cash provided by (used for) operating activities	$	(1,160	)	$	(39,841	)	$	38,681
Cash provided by operating activities										Cash provided by operating activities	$	16,484	$	11,997	$	4,487
Cash used for investing activities	(40,091		)	(9,852		)	(30,239		)	Cash used for investing activities	(8,113)		1,674		(9,787)
Cash provided by (used for) financing activities	44,903			54,986			(10,083		)	Cash provided by (used for) financing activities	307		4,803		(4,496)
Effect of exchange rate changes on cash	(5,703		)	(2,519		)	(3,184		)
Effect of foreign currency exchange rates on cash and cash equivalents										Effect of foreign currency exchange rates on cash and cash equivalents	1,859		7,533		(5,674)
Net increase (decrease) in cash and cash equivalents	$	(2,051	)	$	2,774		$	(4,825	)	Net increase (decrease) in cash and cash equivalents	$	10,537	$	26,007	$	(15,470)


	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)	Total		Less 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	$	20,575	$	6,387	$	8,227	$	4,399	$	1,562
Purchase obligations⁽¹⁾	7,037		7,037		—		—		—		Purchase obligations (1)	29,594		26,127		211		630		2,626
Contingent consideration⁽²⁾	17,400		3,400		13,000		1,000		—		Contingent consideration (2)	87		87		—		—		—
Total contractual obligations	$	38,169	$	15,007	$	18,192	$	4,321	$	649	Total contractual obligations	$	50,256	$	32,601	$	8,438	$	5,029	$	4,188


⁽¹⁾ (1)Purchase obligations primarily consist of contractual payments to purchase inventory; property, plant and equipment; and payments for a fixed-fee software license. (2)Contingent consideration consists of contingent payments related to our purchases of the net assets of 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.~~


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 (2)	Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs (2)
April 1, 2021 - April 30, 2021	16,480	$	55.01	15,855	148,764
May 1, 2021 - May 31, 2021	155,575	48.29		151,863	148,137
June 1, 2021 - June 30, 2021	148,137	49.38		148,137	—
Total	320,192	$	49.14	315,855	—



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


⁽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.~~


4.1						First Amendment to Universal Electronics Inc. 2018 Equity and Incentive Compensation Plan (incorporated by reference to Exhibit 4.6 to the Company's Form S-8 Registration Statement filed on August 5, 2021 (File No. 333-258488))

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.INS						Inline XBRL Instance Document

101.SCH						Inline XBRL Taxonomy Extension Schema Document

101.CAL						Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF						Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB						Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE						Inline XBRL Taxonomy Extension Presentation Linkbase Document

104						Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)



~~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.INS~~	~~XBRL Instance Document~~

~~101.SCH~~	~~XBRL Taxonomy Extension Schema Document~~

~~101.CAL~~	~~XBRL Taxonomy Extension Calculation Linkbase Document~~

~~101.DEF~~	~~XBRL Taxonomy Extension Definition Linkbase Document~~

~~101.LAB~~	~~XBRL Taxonomy Extension Label Linkbase Document~~

~~101.PRE~~	~~XBRL Taxonomy Extension Presentation Linkbase Document~~