UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________________________________ 
FORM 10-Q
_______________________________________ 
(Mark One)
ý☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 20172022
OR
¨☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from            to            
Commission File Number: 0-21044
_______________________________________ 
UNIVERSAL ELECTRONICS INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware33-0204817
(State or Other Jurisdiction of

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

Identification No.)
201 E. Sandpointe Avenue, 8th Floor
Santa Ana, California
92707
(Address of Principal Executive Offices)(Zip Code)
15147 N. Scottsdale Road, Suite H300, Scottsdale, Arizona 85254-2494
(Address of principal executive offices and zip code)
(480) 530-3000
(Registrant's telephone number, including area code: (714) 918-9500code)
__________________________________ _____________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, par value $0.01 per shareUEICThe NASDAQ Stock Market LLC
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ý☒    No  ¨☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, anyevery Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ý☒    No  ¨☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer☐Accelerated filer☒
Non-accelerated filer☐Smaller reporting company☐
Large accelerated filer¨Accelerated filerý
Non-accelerated filer
¨  (Do not check if a smaller reporting company)
Smaller reporting company¨
Emerging growth company¨☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes  ¨    No  ý
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).Yes ☐ No ☒
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: 14,305,74912,681,758 shares of Common Stock, par value $0.01 per share, of the registrant were outstanding on November 6, 2017.1, 2022.



UNIVERSAL ELECTRONICS INC.
INDEX
 
Page
Number
3
3
Consolidated Balance Sheets
3
Consolidated Income Statements of Operations
4
Consolidated Comprehensive Income (Loss) Statements
5
Consolidated Statements of Stockholders' Equity
6
Consolidated Statements of Cash Flows
68
Notes to Consolidated Financial Statements
79
26
3432
3533
3634
3634
3634
3634
3735
3836
Exhibit Index
39






Table of Contents
PART I. FINANCIAL INFORMATION
ITEM 1. Consolidated Financial Statements (Unaudited)
UNIVERSAL ELECTRONICS INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share-related data)
(Unaudited)
September 30, 2022December 31, 2021
ASSETS
Current assets:
Cash and cash equivalents$61,681 $60,813 
Term deposit185 — 
Accounts receivable, net135,495 129,215 
Contract assets6,264 5,012 
Inventories135,867 134,469 
Prepaid expenses and other current assets6,297 7,289 
Income tax receivable3,832 348 
Total current assets349,621 337,146 
Property, plant and equipment, net65,335 74,647 
Goodwill48,935 48,463 
Intangible assets, net23,747 20,169 
Operating lease right-of-use assets18,893 19,847 
Deferred income taxes5,364 7,729 
Other assets1,822 2,347 
Total assets$513,717 $510,348 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable$80,211 $92,707 
Line of credit88,000 56,000 
Accrued compensation21,726 24,217 
Accrued sales discounts, rebates and royalties5,688 9,286 
Accrued income taxes7,560 3,737 
Other accrued liabilities25,563 30,840 
Total current liabilities228,748 216,787 
Long-term liabilities:
Operating lease obligations12,696 14,266 
Deferred income taxes2,836 2,394 
Income tax payable939 939 
Other long-term liabilities838 13 
Total liabilities246,057 234,399 
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; 24,893,271 and 24,678,942 shares issued on September 30, 2022 and December 31, 2021, respectively249 247 
Paid-in capital322,619 314,094 
Treasury stock, at cost, 12,219,233 and 11,861,198 shares on September 30, 2022 and December 31, 2021, respectively(366,456)(355,159)
Accumulated other comprehensive income (loss)(26,355)(13,524)
Retained earnings337,603 330,291 
Total stockholders' equity267,660 275,949 
Total liabilities and stockholders' equity$513,717 $510,348 
 September 30, 2017 December 31, 2016
ASSETS   
Current assets:   
Cash and cash equivalents$48,560
 $50,611
Restricted cash4,799
 4,623
Accounts receivable, net153,355
 124,592
Inventories, net154,520
 129,879
Prepaid expenses and other current assets9,988
 7,439
Assets held for sale12,403
 —
Income tax receivable3,262
 1,054
Deferred income taxes—
 5,960
Total current assets386,887
 324,158
Property, plant, and equipment, net109,149
 105,351
Goodwill48,624
 43,052
Intangible assets, net30,159
 28,549
Deferred income taxes18,349
 10,430
Long-term restricted cash—

4,600
Other assets4,040
 4,896
Total assets$597,208
 $521,036
LIABILITIES AND STOCKHOLDERS' EQUITY   
Current liabilities:   
Accounts payable$106,872
 $97,157
Line of credit114,000
 49,987
Accrued compensation33,328
 35,580
Accrued sales discounts, rebates and royalties7,790
 8,358
Accrued income taxes994
 375
Other accrued expenses25,840
 24,410
Total current liabilities288,824
 215,867
Long-term liabilities:   
Long-term contingent consideration14,000
 10,500
Deferred income taxes6,376
 7,060
Income tax payable791
 791
Other long-term liabilities1,598
 6,308
Total liabilities311,589
 240,526
Commitments and contingencies
 
Stockholders' equity:   
Preferred stock, $0.01 par value, 5,000,000 shares authorized; none issued or outstanding—
 —
Common stock, $0.01 par value, 50,000,000 shares authorized; 23,687,651 and 23,575,340 shares issued on September 30, 2017 and December 31, 2016, respectively237
 236
Paid-in capital262,776
 250,481
Treasury stock, at cost, 9,352,551 and 9,022,587 shares on September 30, 2017 and December 31, 2016, respectively(243,197) (222,980)
Accumulated other comprehensive income (loss)(17,831) (22,821)
Retained earnings283,634
 275,594
Total stockholders' equity285,619
 280,510
Total liabilities and stockholders' equity$597,208

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

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

127,855

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

11,150

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

9,476

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

6,531

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

$7,807

$6,531

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

$0.45

$1.19
Diluted$0.12
 $0.53

$0.44

$1.16
Shares used in computing earnings per share:       
Basic14,381
 14,510
 14,412
 14,441
Diluted14,666
 14,848
 14,689
 14,740
See Note 4 for further information concerning our purchases from related party vendors.
Three Months Ended September 30,Nine Months Ended September 30,
 2022202120222021
Net sales$148,482 $155,625 $419,993 $456,658 
Cost of sales104,040 109,805 299,912 319,777 
Gross profit44,442 45,820 120,081 136,881 
Research and development expenses8,017 7,411 24,460 23,029 
Selling, general and administrative expenses24,928 29,505 79,188 87,316 
Operating income11,497 8,904 16,433 26,536 
Interest income (expense), net(668)(212)(1,147)(447)
Loss on sale of Argentina subsidiary— (6,050)— (6,050)
Other income (expense), net(54)(157)(388)(151)
Income before provision for income taxes10,775 2,485 14,898 19,888 
Provision for income taxes3,541 3,440 7,586 8,257 
Net income (loss)$7,234 $(955)$7,312 $11,631 
Earnings (loss) per share:
Basic$0.57 $(0.07)$0.58 $0.85 
Diluted$0.57 $(0.07)$0.57 $0.84 
Shares used in computing earnings (loss) per share:
Basic12,65613,39212,70913,622 
Diluted12,69613,39212,79713,920
The accompanying notes are an integral part of these consolidated financial statements.



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

7,267

11,521

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

$7,267

$11,521

$15,260
See Note 4 for further information concerning our purchases from related party vendors.
Three Months Ended September 30,Nine Months Ended September 30,
 2022202120222021
Net income (loss)$7,234 $(955)$7,312 $11,631 
Other comprehensive income (loss):
Change in foreign currency translation adjustment(7,367)(1,959)(12,831)(784)
Change in foreign currency translation due to sale of Argentina subsidiary— 5,425 — 5,425 
Comprehensive income (loss)$(133)$2,511 $(5,519)$16,272 
The accompanying notes are an integral part of these consolidated financial statements.

5

Table of Contents
UNIVERSAL ELECTRONICS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWSSTOCKHOLDERS' EQUITY
(In thousands)
(Unaudited)
 Nine Months Ended September 30,
 2017 2016
Cash provided by (used for) operating activities:   
Net income$6,531
 $17,148
Adjustments to reconcile net income to net cash provided by (used for) operating activities:   
Depreciation and amortization23,202
 18,994
Provision for doubtful accounts167
 123
Provision for inventory write-downs2,189
 2,398
Deferred income taxes(953) 1,413
Tax benefit from exercise of stock options and vested restricted stock—
 2,230
Excess tax benefit from stock-based compensation—
 (2,292)
Shares issued for employee benefit plan591
 763
Employee and director stock-based compensation9,476
 7,638
Performance-based common stock warrants1,122
 3,219
Changes in operating assets and liabilities:   
Restricted cash4,623
 —
Accounts receivable(24,440) (11,359)
Inventories(21,217) (4,470)
Prepaid expenses and other assets(2,422) (86)
Accounts payable and accrued expenses1,488
 7,699
Accrued income taxes(1,517) (4,737)
Net cash provided by (used for) operating activities(1,160) 38,681
Cash used for investing activities:   
Acquisition of property, plant, and equipment(29,922) (28,914)
Acquisition of net assets of Residential Control Systems, Inc.(8,894) —
Acquisition of intangible assets(1,275) (1,373)
Increase in restricted cash—
 (4,797)
Deposit received toward sale of Guangzhou factory—
 4,797
Deconsolidation of Encore Controls LLC—
 48
Net cash used for investing activities(40,091)
(30,239)
Cash provided by (used for) financing activities:   
Borrowings under line of credit115,000
 92,987
Repayments on line of credit(50,987) (107,987)
Proceeds from stock options exercised1,107
 4,813
Treasury stock purchased(20,217) (2,188)
Excess tax benefit from stock-based compensation—
 2,292
Net cash provided by (used for) financing activities44,903
 (10,083)
Effect of exchange rate changes on cash(5,703) (3,184)
Net increase (decrease) in cash and cash equivalents(2,051) (4,825)
Cash and cash equivalents at beginning of year50,611
 52,966
Cash and cash equivalents at end of period$48,560
 $48,141
    
Supplemental cash flow information:   
Income taxes paid$5,770
 $6,034
Interest paid$1,697
 $926
See Note 4The following summarizes the changes in total equity for further information concerning our purchases from related party vendors.the three and nine months ended September 30, 2022:
 Common Stock
Issued		Common Stock
in Treasury		Paid-in
Capital		Accumulated
Other
Comprehensive
Income (Loss)		Retained
Earnings		Totals
 SharesAmountSharesAmount
Balance at December 31, 202124,679 $247 (11,861)$(355,159)$314,094 $(13,524)$330,291 $275,949 
Net loss(2,910)(2,910)
Currency translation adjustment1,849 1,849 
Shares issued for employee benefit plan and compensation145 1 323 324 
Purchase of treasury shares(225)(7,354)(7,354)
Shares issued to directors7 — — — 
Employee and director stock-based compensation2,499 2,499 
Balance at March 31, 202224,831 248 (12,086)(362,513)316,916 (11,675)327,381 270,357 
Net income2,988 2,988 
Currency translation adjustment(7,313)(7,313)
Shares issued for employee benefit plan and compensation23 1 301 302 
Purchase of treasury shares(130)(3,857)(3,857)
Shares issued to directors8 — — — 
Employee and director stock-based compensation2,637 2,637 
Balance at June 30, 202224,862 $249 (12,216)$(366,370)$319,854 $(18,988)$330,369 $265,114 
Net income7,234 7,234 
Currency translation adjustment(7,367)(7,367)
Shares issued for employee benefit plan and compensation24 — 326 326 
Purchase of treasury shares(3)(86)(86)
Shares issued to directors7 — — — 
Employee and director stock-based compensation2,439 2,439 
Balance at September 30, 202224,893 $249 (12,219)$(366,456)$322,619 $(26,355)$337,603 $267,660 
The accompanying notes are an integral part of these consolidated financial statements.








6
Table of Contents
UNIVERSAL ELECTRONICS INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands)
(Unaudited)
The following summarizes the changes in total equity for the three and nine months ended September 30, 2021:
Common Stock
Issued		Common Stock
in Treasury		Paid-in
Capital		Accumulated
Other
Comprehensive
Income (Loss)		Retained
Earnings		Totals
SharesAmountSharesAmount
Balance at December 31, 202024,392 $244 (10,618)$(295,495)$302,084 $(18,522)$324,990 $313,301 
Net income6,993 6,993 
Currency translation adjustment(2,868)(2,868)
Shares issued for employee benefit plan and compensation160 2 408 410 
Purchase of treasury shares(191)(10,951)(10,951)
Stock options exercised22 — 991 991 
Shares issued to directors7 — — — 
Employee and director stock-based compensation2,600 2,600 
Performance-based common stock warrants143 143 
Balance at March 31, 202124,581 246 (10,809)(306,446)306,226 (21,390)331,983 310,619 
Net income5,593 5,593 
Currency translation adjustment4,043 4,043 
Shares issued for employee benefit plan and compensation15 — 271 271 
Purchase of treasury shares(320)(15,733)(15,733)
Shares issued to directors8 — — — 
Employee and director stock-based compensation2,444 2,444 
Performance-based common stock warrants131 131 
Balance at June 30, 202124,604 $246 (11,129)$(322,179)$309,072 $(17,347)$337,576 $307,368 
Net loss(955)(955)
Currency translation adjustment(1,959)(1,959)
Change in foreign currency translation due to sale of Argentina subsidiary5,425 5,425 
Shares issued for employee benefit plan and compensation16 — 296 296 
Purchase of treasury shares(348)(17,533)(17,533)
Shares issued to directors8 — — — 
Employee and director stock-based compensation2,472 2,472 
Performance-based common stock warrants124 124 
Balance at September 30, 202124,628 $246 (11,477)$(339,712)$311,964 $(13,881)$336,621 $295,238 
The accompanying notes are an integral part of these consolidated financial statements.

7
Table of Contents
UNIVERSAL ELECTRONICS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 Nine Months Ended September 30,
 20222021
Cash flows from operating activities:
Net income$7,312 $11,631 
Adjustments to reconcile net income to net cash provided by (used for) operating activities:
Depreciation and amortization18,079 19,719 
Provision for credit losses(204)1 
Deferred income taxes2,063 (483)
Shares issued for employee benefit plan952 977 
Employee and director stock-based compensation7,575 7,516 
Performance-based common stock warrants— 398 
Loss on sale of Argentina subsidiary, net of cash transferred— 5,960 
Changes in operating assets and liabilities:
Accounts receivable and contract assets(11,901)(12,129)
Inventories(8,477)(4,466)
Prepaid expenses and other assets1,734 2,872 
Accounts payable and accrued liabilities(17,201)(7,416)
Accrued income taxes171 (1,664)
Net cash provided by (used for) operating activities103 22,916 
Cash flows from investing activities:
Purchase of term deposit(7,487)— 
Redemption of term deposit7,609 — 
Acquisition of net assets of Qterics, Inc.(939)— 
Acquisitions of property, plant and equipment(10,117)(8,782)
Acquisitions of intangible assets(4,719)(3,626)
Net cash provided by (used for) investing activities(15,653)(12,408)
Cash flows from financing activities:
Borrowings under line of credit83,000 71,000 
Repayments on line of credit(51,000)(38,000)
Proceeds from stock options exercised— 991 
Treasury stock purchased(11,297)(44,217)
Net cash provided by (used for) financing activities20,703 (10,226)
Effect of foreign currency exchange rates on cash and cash equivalents(4,285)1,390 
Net increase (decrease) in cash and cash equivalents868 1,672 
Cash and cash equivalents at beginning of period60,813 57,153 
Cash and cash equivalents at end of period$61,681 $58,825 
Supplemental cash flow information:
Income taxes paid$5,034 $8,235 
Interest paid$1,204 $375 
The accompanying notes are an integral part of these consolidated financial statements.
8
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UNIVERSAL ELECTRONICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 20172022
(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 months ended September 30, 20172022 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, 2016.2021.

Estimates Judgments and Assumptions

The preparation of financial statements in conformity with U.S. GAAP requires us to make estimates judgments and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an on-going basis, we evaluate our estimates and assumptions, including those related to revenue recognition, allowancesrecognition; allowance for sales returns and doubtful accounts,credit losses; inventory valuation, our review forvaluation; 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. Actual

The coronavirus ("COVID-19") pandemic and the current macroeconomic environment have made estimates more difficult and subjective. Accordingly, actual results maycould differ from thesethose estimates, and assumptions, and they maysuch differences could be adjusted as more information becomes available. Any adjustment may be material.material to the financial statements.
See
Summary of Significant Accounting Policies

With the exception of the following policies, 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 for2021.

Revenue Recognition

Revenue is recognized when control of a summary of our significant accounting policies.
Recent Accounting Pronouncements
In May 2014, 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 entitygood or service is transferred to recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which an entity expectsa customer. Control is considered to be entitled in exchange for those goods or services. In addition, ASU 2014-09 contains expanded disclosure requirements relatingtransferred when the customer has the ability 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 permitsdirect the use of eitherand obtain substantially all of the full retrospectiveremaining benefits of that good or modified retrospective transition method. In August 2015,service. Revenues are primarily generated from manufacturing, shipping and supporting control and sensor technology solutions and a broad line of pre-programmed and universal control products, AV accessories, and intelligent wireless security and smart home products that are used in the FASB postponedvideo services, consumer electronics, security, home automation, climate control, and home appliance market, which are sold through multiple channels, and licensing intellectual property that is embedded in these products or licensed to others for use in their products. We also generate revenues from a cloud-based software solution enabling software updates, digital rights management provisioning and remote technical support to consumer electronics customers.

We recognize service revenues related to our cloud-based software solution on an over-time basis, as our customers simultaneously receive and consume the effective datebenefits provided by our performance. Revenues are recognized over the period during which the performance obligations are satisfied, and control of this new revenue standard bythe service is transferred to the customers.

Cash, Cash Equivalents, and Term Deposit

Cash and cash equivalents include cash accounts and all investments purchased with initial maturities of three months or less. Our term deposit has an initial maturity of one year. Domestically, we generally maintain balances in excess of federally insured limits. We have largely completedattempt to mitigate our review of customer contract termsexposure to liquidity, credit and other relevant risks by placing 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.
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.cash, cash
9
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UNIVERSAL ELECTRONICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SeptemberSEPTEMBER 30, 20172022
(Unaudited)


equivalents and term deposit with financial institutions we believe are high quality. These financial institutions are located in many different geographic regions. As part of our cash and risk management processes, we perform periodic evaluations of the relative credit standing of our financial institutions. We have not sustained credit losses from instruments held at financial institutions.

Recently Adopted Accounting Pronouncements

In November 2015,October 2021, the FASB issued ASU 2015-17, "Balance Sheet Classification of Deferred Taxes."2021-08, "Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers". This new guidance requires all deferred taxan entity to recognize and measure contract assets and contract liabilities alongacquired in a business combination in accordance with any related valuation allowance, be classifiedTopic 606, "Revenue from Contracts with Customers". At the acquisition date, the acquirer applies the revenue recognition model as non-currentif it had originated the acquired contracts. Our adoption of this guidance on the balance sheet. ASU 2015-17 is effective for fiscal periods beginning after December 15, 2016 and may be adopted either prospectively or retrospectively. We prospectively adopted ASU 2015-17 effective January 1, 2017, and thus prior period balance sheets2022 did not have not been adjusted. The adoption of ASU 2015-17 had noa 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 changes2020-04, "Facilitation of the accounting for leasesEffects 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,"Improvements2021-01, "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 benefitsprovide temporary optional expedients and tax deficienciesexceptions to be recorded as a discrete adjustmentGAAP 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 changeexpected market transition from the London Interbank Offered Rate ("LIBOR") and other interbank offered rates to alternative reference rates. The amendments in accounting policy to accountthese 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 all31, 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 effectimpact on our consolidated statement of financial statements.position, results of operations and cash flows.

In January 2017,November 2021, the FASB issued ASU 2017-04, "Simplifying the Test for Goodwill Impairment.2021-10, "Government Assistance (Topic 832)". This guidance simplifies howrequires an entity is required to test goodwillmake certain disclosures when it receives government assistance, including the types of assistance, the accounting for impairment by eliminating Step 2 from the goodwill impairment test. Instead, ifassistance, and the carrying amounteffect 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 toassistance on the reporting unit.financial statements. ASU 2017-042021-10 is effective for fiscalannual periods beginning after December 31, 2019. Early15, 2021, with early adoption is permitted. We do not expect the adoption of ASU 2017-042021-10 to have a material impact on our consolidated statement of financial statements.
Tableposition, results of Contentsoperations and cash flows.
UNIVERSAL ELECTRONICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2017
(Unaudited)


Note 2 — Cash, and Cash Equivalents and Restricted CashTerm Deposit
Cash and Cash Equivalents
Cash and cash equivalents were held in the following geographic regions:
(In thousands)September 30, 2017 December 31, 2016(In thousands)September 30, 2022December 31, 2021
United States$4,795
 $3,277
North AmericaNorth America$5,912 $6,430 
People's Republic of China ("PRC")22,120
 22,142
People's Republic of China ("PRC")14,55416,000
Asia (excluding the PRC)846
 5,260
Asia (excluding the PRC)20,06511,798
Europe13,317
 19,630
Europe9,98217,604
South America7,482
 302
South America11,1688,981
Total cash and cash equivalents$48,560
 $50,611
Total cash and cash equivalents$61,681 $60,813 
Restricted Cash
In connection with a court order issued in a now settled litigation matter,On January 25, 2022, we previously placed $4.6 million of cashentered into a collateralized surety bond. This bond had certain restrictions for liquidation andone-year term deposit cash account with Banco Santander (Brasil) S.A., denominated in Brazilian Real. The term deposit earns interest at a variable annual rate based upon the Brazilian CDI overnight interbank rate. During the three months ended September 30, 2022, substantially all of this term deposit was therefore classified as restricted cash. On February 10, 2017,redeemed. At September 30, 2022, the $4.6 million surety bond was returned to us upon final settlementbalance of the related litigation matter.
In connection with the pending sale of our Guangzhou factory in the PRC (Note 10), the buyer made a cashterm 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, thiswas $0.2 million. The term deposit is presented as restricted cash within our consolidated balance sheet.accounted for at fair value on a recurring basis, using level one inputs.
Note 3 — Accounts Receivable, Net and Revenue Concentrations
Accounts receivable, net were as follows:
10
(In thousands)September 30, 2017 December 31, 2016
Trade receivables, gross$147,194
 $120,965
Allowance for doubtful accounts(1,052) (904)
Allowance for sales returns(459) (539)
Net trade receivables145,683
 119,522
Other7,672
 5,070
Accounts receivable, net$153,355
 $124,592
Allowance for Doubtful Accounts
Changes in the allowance for doubtful accounts were as follows:
(In thousands)Nine Months Ended September 30,
2017 2016
Balance at beginning of period$904
 $822
Additions (reductions) to costs and expenses167
 123
(Write-offs)/Foreign exchange effects(19) 15
Balance at end of period$1,052
 $960
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UNIVERSAL ELECTRONICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SeptemberSEPTEMBER 30, 20172022
(Unaudited)


Note 3 — Revenue and Accounts Receivable, Net
Sales Returns
Revenue Details    

The allowancepattern of revenue recognition was as follows:
Three Months Ended September 30,Nine Months Ended September 30,
(In thousands)2022202120222021
Goods and services transferred at a point in time$127,672 $129,530 $355,113 $371,921 
Goods and services transferred over time20,81026,09564,88084,737 
Net sales$148,482 $155,625 $419,993 $456,658 

Our net sales to external customers by geographic area were as follows:
Three Months Ended September 30,Nine Months Ended September 30,
(In thousands)2022202120222021
United States$46,732 $49,637 $130,196 $151,251 
Asia (excluding PRC)32,61434,422 100,000100,247 
Europe27,35832,18776,38291,353
People's Republic of China26,69623,41368,60471,242
Latin America7,6026,91720,99618,429
Other7,4809,04923,81524,136
Total net sales$148,482 $155,625 $419,993 $456,658 

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 priorattributing revenues from external customers to period-end that were not completely processed, and therefore had not yet been removed from the allowance for sales returns balance. If these returns had been fully processed, the allowance for sales returns balance would have been approximately $0.3 million and $0.4 million on September 30, 2017 and December 31, 2016, respectively. The value of these returned goods was included in our inventory balance at September 30, 2017 and December 31, 2016.geographic areas.
Significant Customers
Net sales to the following customers totaled more than 10% of our net sales:
 Three Months Ended September 30,
20222021
 $ (thousands)% of Net Sales$ (thousands)% of Net Sales
Comcast Corporation$26,479 17.8 %$22,578 14.5 %
Daikin Industries Ltd.$21,381 14.4 %$20,610 13.2 %

 Nine Months Ended September 30,
20222021
 $ (thousands)% of Net Sales$ (thousands)% of Net Sales
Comcast Corporation$65,087 15.5 %$74,478 16.3 %
Daikin Industries Ltd.$59,397 14.1 %$54,495 11.9 %

11
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UNIVERSAL ELECTRONICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
(Unaudited)
 Three Months Ended September 30,
 2017 2016
 $ (thousands) % of Net Sales $ (thousands) % of Net Sales
Comcast Corporation$36,811
 21.0% $35,554
 21.0%
AT&T20,117
 11.5
 21,139
 12.5
Accounts Receivable, Net


Accounts receivable, net were as follows:
 Nine Months Ended September 30,
 2017 2016
 $ (thousands) % of Net Sales $ (thousands) % of Net Sales
Comcast Corporation$122,009
 23.7% $111,529
 22.7%
AT&T61,057
 11.9
 60,709
 12.4
(In thousands)September 30, 2022December 31, 2021
Trade receivables, gross$131,734 $122,508 
Allowance for credit losses(946)(1,285)
Allowance for sales returns(544)(592)
Trade receivables, net130,244 120,631 
Other (1)
5,251 8,584 
Accounts receivable, net$135,495 $129,215 

(1)Other accounts receivable is primarily comprised of value added tax and supplier rebate receivables.

Allowance for Credit Losses

Changes in the allowance for credit losses were as follows:
(In thousands)Nine Months Ended September 30,
20222021
Balance at beginning of period$1,285 $1,412 
Additions (reductions) to costs and expenses(204)1 
Write-offs/Foreign exchange effects(135)(69)
Balance at end of period$946 $1,344 

Trade receivables associated with thesethis significant customerscustomer that totaled more than 10% of our accounts receivable, net werewas as follows:
September 30, 2022December 31, 2021
$ (thousands)% of Accounts Receivable, Net$ (thousands)% of Accounts Receivable, Net
Comcast Corporation$23,890 17.6 %$— (1)— %(1)
 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 for the indicated period.

(1)
Trade receivables associated with this customer did not total more than 10% of our accounts receivable, net at September 30, 2017.
Note 4 — Inventories Net and Significant SupplierSuppliers

Inventories net were as follows:
(In thousands)September 30, 2022December 31, 2021
Raw materials$53,780 $52,617 
Components27,597 25,289 
Work in process4,498 7,102 
Finished goods49,992 49,461 
Inventories$135,867 $134,469 
(In thousands)September 30, 2017 December 31, 2016
Raw materials$36,803
 $33,059
Components18,556
 15,046
Work in process6,596
 5,860
Finished goods95,690
 80,119
Reserve for excess and obsolete inventory(3,125) (4,205)
Inventories, net$154,520
 $129,879

12
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UNIVERSAL ELECTRONICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SeptemberSEPTEMBER 30, 20172022
(Unaudited)


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

(1)
The additions charged to costs and expenses do not include inventory directly written-off that was scrapped during production totaling $0.2 million and $0.3 million for the nine months ended September 30, 2017 and 2016, respectively. These amounts are production waste and are not included in management's reserve for excess and obsolete inventory.
(2)
These amounts represent the reduction in reserves associated with inventory items that were sold during the period.
Significant SupplierSuppliers
We purchase integrated circuits, components and finished goods from multiple sources.
Purchases from the following supplier totaled more than 10% of our total inventory purchases:
Three Months Ended September 30,
20222021
$ (thousands)% of Total Inventory Purchases$ (thousands)% of Total Inventory Purchases
Qorvo International Pte Ltd.$— (1)— %(1)$12,064 14.5 %
(1) Purchases associated with this supplier did not total more than 10% of our total inventory purchases for the indicated period.
Nine Months Ended September 30,
20222021
$ (thousands)% of Total Inventory Purchases$ (thousands)% of Total Inventory Purchases
Qorvo International Pte Ltd.$23,185 10.3 %$31,677 13.1 %
Purchases from the following supplier totaled more than 10% of our total accounts payable:
September 30, 2022December 31, 2021
$ (thousands)% of Total Accounts Payable$ (thousands)% of Total Accounts Payable
Zhejiang Zhen You Electronics Co. Ltd.$— (1)— %(1)$9,862 10.6 %
(1) Accounts payable associated with this supplier did not total more than 10% of our accounts payable for the indicated period.

Note 5 — Long-lived Tangible Assets

Long-lived tangible assets by geographic area, which include property, plant, and equipment, net and operating lease right-of-use assets, were as follows:
(In thousands)September 30, 2022December 31, 2021
United States$16,514 $16,804 
People's Republic of China43,769 52,851 
Mexico17,869 20,509 
All other countries6,076 4,330 
Total long-lived tangible assets$84,228 $94,494 

Property, plant, and equipment are shown net of accumulated depreciation of $165.8 million and $165.9 million at September 30, 2022 and December 31, 2021, respectively.

Depreciation expense was $4.9 million and $5.6 million for the three months ended September 30, 2022 and 2021, respectively. Depreciation expense was $15.1 million and $17.1 million for the nine months ended September 30, 2022 and 2021, respectively.

13
 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%

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UNIVERSAL ELECTRONICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SeptemberSEPTEMBER 30, 20172022
(Unaudited)


Related Party Supplier
We purchase certain printed circuit board assemblies from a related party supplier. The supplier is considered a related party for financial reporting purposes because our Senior Vice President of Strategic Operations owns 40% of this vendor. Inventory purchases from this supplier were as follows:
 Three Months Ended September 30,
 2017 2016
 $ (thousands) 
% of Total
Inventory Purchases
 $ (thousands) 
% of Total
Inventory Purchases
Related party supplier$1,378
 1.3% $1,382
 1.5%
 Nine Months Ended September 30,
 2017 2016
 $ (thousands) 
% of Total
Inventory Purchases
 $ (thousands) 
% of Total
Inventory Purchases
Related party supplier$3,962
 1.3% $4,971
 1.8%
Total accounts payable to this supplier 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 effects78
Balance at September 30, 2017$48,624
(In thousands)
Balance at December 31, 2021$48,463 
Goodwill acquired during the period (1)
713 
Foreign exchange effects(241)
Balance at September 30, 2022$48,935 


(1)During the second quarter of 2017,nine months ended September 30, 2022, we recorded $5.5recognized $0.7 million of goodwill related to the Residential Control Systems,Qterics, Inc. ("Qterics") acquisition. Refer to Note 1819 for further information about this acquisition.
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UNIVERSAL ELECTRONICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2017
(Unaudited)



Intangible Assets, Net

The components of intangible assets, net were as follows:
 September 30, 2022December 31, 2021
(In thousands)
Gross (1)
Accumulated
Amortization (1)
Net
Gross (1)
Accumulated
Amortization (1)
Net
Capitalized software development costs$1,538 $(64)$1,474 $1,066 $(27)$1,039 
Customer relationships6,340 (2,899)3,441 5,000 (2,375)2,625 
Developed and core technology4,520 (3,602)918 4,080 (3,335)745 
Distribution rights280 (250)30 325 (269)56 
Patents27,993 (10,279)17,714 24,518 (9,015)15,503 
Trademarks and trade names850 (680)170 800 (599)201 
Total intangible assets, net$41,521 $(17,774)$23,747 $35,789 $(15,620)$20,169 
 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
Patents12,593
 (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 technology12,560
 (5,567) 6,993
 12,585
 (4,068) 8,517
Capitalized software development costs142
 (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

(1)This table excludes the gross value of fully amortized intangible assets totaling $43.8 million and $43.2 million at September 30, 2022 and December 31, 2021, respectively.
(1)

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 areis 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 September 30,Nine Months Ended September 30,
2017 2016 2017 20162022202120222021
Cost of sales$54
 $21
 $128
 $63
Cost of sales$13 $7 $37 $15 
Selling, general and administrative expenses1,715
 1,551
 5,032
 4,618
Selling, general and administrative expenses1,018 938 2,928 2,622 
Total amortization expense$1,769
 $1,572

$5,160

$4,681
Total amortization expense$1,031 $945 $2,965 $2,637 
 
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UNIVERSAL ELECTRONICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
(Unaudited)
Estimated future annual amortization expense related to our intangible assets at September 30, 2017, is2022, was as follows:
(In thousands)
2022 (remaining 3 months)$1,074 
20234,701 
20244,243 
20253,308 
20263,089 
Thereafter7,332 
Total$23,747 

Note 7 — Leases

We have entered into various operating lease agreements for automobiles, offices and manufacturing facilities throughout the world. At September 30, 2022, our operating leases had remaining lease terms of up to 38 years, including any reasonably probable extensions.

Lease balances within our consolidated balance sheet were as follows:
(In thousands)September 30, 2022December 31, 2021
Assets:
Operating lease right-of-use assets$18,893 $19,847 
Liabilities:
Other accrued liabilities$5,386 $4,769 
Long-term operating lease obligations12,696 14,266 
Total lease liabilities$18,082 $19,035 

Operating lease expense, including variable and short-term lease costs, which were insignificant to the total operating lease cash flows, and supplemental cash flow information were as follows:
(In thousands)Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
Cost of sales$741 $595 $2,138 $1,893 
Selling, general and administrative expenses1,128 1,032 3,315 3,090 
Total operating lease expense$1,869 $1,627 $5,453 $4,983 
Operating cash outflows from operating leases$1,858 $1,574 $5,318 $4,958 
Operating lease right-of-use assets obtained in exchange for lease obligations$1,604 $70 $4,535 $3,077 
Non-cash release of operating lease obligations (1)
$— $— $— $654 
(1)During the nine months ended September 30, 2021, we were released from our guarantee of the lease obligation related to our Ohio call center, which was sold in February 2020.

The weighted average remaining lease liability term and the weighted average discount rate were as follows:
September 30, 2022December 31, 2021
Weighted average lease liability term (in years)3.84.3
Weighted average discount rate3.20 %3.17 %
15
(In thousands) 
2017 (remaining 3 months)$1,776
20187,046
20196,901
20205,740
20212,289
Thereafter6,407
Total$30,159
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UNIVERSAL ELECTRONICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
(Unaudited)

The following table reconciles the undiscounted cash flows for each of the first five years and thereafter to the operating lease liabilities recognized in our consolidated balance sheet at September 30, 20172022. The reconciliation excludes short-term leases that are not recorded on the balance sheet.
(Unaudited)
(In thousands)September 30, 2022
2022 (remaining 3 months)$1,410 
20235,718 
20244,694 
20253,721 
20262,184 
Thereafter1,469 
Total lease payments19,196 
Less: imputed interest(1,114)
Total lease liabilities$18,082 



At September 30, 2022, we did not have any operating leases that had not yet commenced.

On April 7, 2022, we agreed upon terms to a lease agreement for 125,000 square feet of factory space in Vietnam, with a term commencing in the fourth quarter of 2022 and continuing through December 1, 2034. As of the date of the filing of this Form 10-Q, this lease has not yet been signed. The total initial lease liability associated with this lease is approximately $4.1 million, which is not reflected within the maturity schedule above.

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 remainedLine") that expires on November 1, 2019.2023. The Credit Line may be used for working capital and other general corporate purposes including acquisitions, share repurchases and capital expenditures. Amounts available for borrowing under the Credit Line are reduced by the balance of any outstanding letters of credit. Therecredit, of which there were no outstanding letters of credit$2.7 million at September 30, 2017.2022 and December 31, 2021.

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%a guaranty of our ownership interest in Enson Assets Limited,the Credit Line by our wholly-owned subsidiary, that controls our manufacturing factories in the PRC.Universal Electronics BV.
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. Wewe may elect to pay interest on the Credit Line based on LIBOR plus an applicable margin (varying from 1.25% to 1.75%) or base rate (based on the prime rate of U.S. Bank or as otherwise specified in the Second Amended Credit Agreement) plus an applicable margin (varying from 0.00% to 0.50%). The applicable margins are calculated quarterly and vary based on our cash flow leverage ratio as set forth in the Amended Credit Agreement and Second Amended Credit Agreement. The interest raterates in effect at September 30, 2017 was 2.48%.2022 and December 31, 2021 were 4.63% and 1.35%, respectively. There are no commitment fees or unused line fees under the Amended Credit Agreement or the Second Amended Credit Agreement.
The Amended Credit Agreement
On December 31, 2021, the process of cessation of LIBOR as a reference rate began. Between December 31, 2021 and June 30, 2023, any borrowings under our existing Second Amended Credit Agreement includemay continue to use LIBOR as the basis for interest rates. If the Second Amended Credit Agreement is amended or replaced during this period, any borrowings will no longer use LIBOR as a reference rate and instead 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, or an alternate index to be agreed upon. After June 30, 2023, all borrowings will be based on SOFR or the alternate index.

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 containcontains other customary affirmative and negative covenants and events of default. As ofAt September 30, 2017,2022, we were in compliance with the covenants and conditions of the Second Amended Credit Agreement.
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UNIVERSAL ELECTRONICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
(Unaudited)

At September 30, 2017,2022 and December 31, 2021, we had $114.0$88.0 million and $56.0 million outstanding under the Credit Line.Line, respectively. Our total interest expense on borrowings was $0.8$1.0 million and $0.3$0.2 million during the three months ended September 30, 20172022 and 2016, respectively, and $1.82021, respectively. Our total interest expense on borrowings was $1.9 million and $0.9$0.6 million during the nine months ended September 30, 20172022 and 2016,2021, 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$3.5 million and $0.4$3.4 million for the three months ended September 30, 20172022 and 2016, respectively, and our effective tax rate was 51.4% and 5.1% during the three months ended September 30, 2017 and 2016,2021, respectively. We recorded income tax expense of $2.9$7.6 million and $3.0$8.3 million for the nine months ended September 30, 20172022 and 2016, respectively,2021, respectively. The difference in income tax recorded for the nine months ended September 30, 2022 and our effective 2021 is primarily due to the mix of pre‐tax rate was 31.1% and 14.7%income among jurisdictions, including losses not benefited as a result of a valuation allowance. In addition, the tax incentive refund received in China during the nine months ended September 30, 2017 and 2016, respectively. The higher effective tax rate in both periods2022 was primarily due togreater than the nondeductibility of certain transactions in the PRC as a result of the pending sale of our Guangzhou factory (Note 10). In addition,refund received during the three and nine months ended September 30, 2016,2021.

The difference between the Company's effective tax rate and the 21.0% U.S. federal statutory rate for the nine months ended September 30, 2022 primarily related to the mix of pre-tax income and loss among jurisdictions and permanent tax items including a tax on global intangible low-taxed income. The permanent tax item related to global intangible low-taxed income also reflects recent legislative changes requiring the capitalization of research and experimentation costs, as well as limitations on the creditability of certain foreign income taxes.

At December 31, 2021, we receivedassessed the realizability of the Company's deferred tax refunds fromassets by considering whether it is more likely than not some portion or all of the Chinese government totaling $1.8 milliondeferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the 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 projected future taxable income in making this assessment. At December 31, 2021, we had a three-year cumulative operating loss for variousour U.S. operations and, accordingly, have provided a full valuation allowance on our U.S. federal and state deferred tax incentives relatingassets. During the nine months ended September 30, 2022, there was no change to fiscal year 2015.our valuation allowance position.

At September 30, 2017,2022, 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 valuation allowance recorded against the state Research and Experimentation income tax credit, valuation allowance, would affect the annual effective tax rate if these tax benefits are realized. Further, we are unaware of any positions for which it is reasonably possible that the total amountamounts of unrecognized tax benefits will significantly changeincrease within the next twelve months. However, basedBased 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 millionare immaterial at September 30, 20172022 and December 31, 2016, respectively,2021 and are included in ourthe unrecognized tax benefits.

Note 10 — Accrued Compensation

The components of accrued compensation were as follows:
(In thousands)September 30, 2022December 31, 2021
Accrued bonus$3,096 $3,460 
Accrued commission418 1,140 
Accrued salary/wages5,708 6,234 
Accrued social insurance (1)
6,793 7,562 
Accrued vacation/holiday3,207 3,343 
Other accrued compensation2,504 2,478 
Total accrued compensation$21,726 $24,217 
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UNIVERSAL ELECTRONICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
(Unaudited)
(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 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, 20172022 and December 31, 2021.
(Unaudited)


Note 811 — Other Accrued CompensationLiabilities

The components of other accrued compensationliabilities were as follows:
(In thousands)September 30, 2022December 31, 2021
Contract liabilities$1,648 $390 
Duties70 4,128 
Expense associated with fulfilled performance obligations1,009 991 
Freight and handling fees2,271 3,317 
Interest977 287 
Operating lease obligations5,386 4,769 
Product warranty claims costs789 1,095 
Professional fees3,141 4,685 
Sales and value added taxes3,513 5,463 
Other6,759 5,715 
Total other accrued liabilities$25,563 $30,840 

Note 12 — Commitments and Contingencies
(In thousands)September 30, 2017 December 31, 2016
Accrued social insurance (1)
$17,506
 $19,974
Accrued salary/wages7,721
 7,903
Accrued vacation/holiday2,844
 2,411
Accrued bonus (2)
1,985
 2,421
Accrued commission851
 933
Accrued medical insurance claims284
 122
Other accrued compensation2,137
 1,816
Total accrued compensation$33,328
 $35,580

Product Warranties
(1)

Changes in the liability for product warranty claims costs were as follows:
(In thousands)Nine Months Ended September 30,
20222021
Balance at beginning of period$1,095 $1,721 
Accruals for warranties issued during the period249 1,198 
Settlements (in cash or in kind) during the period(552)(772)
Foreign currency translation gain (loss)(3)(44)
Balance at end of period$789 $2,103 

Litigation

Roku Matters

2018 Lawsuit

On September 5, 2018, we filed a lawsuit against Roku, Inc. ("Roku") in the United States District Court, Central District of California, alleging that Roku is willfully infringing nine of our patents that are in four 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 the remote control of an external device such as a TV, audiovisual receiver, sound bar or Roku TV Wireless Speakers. In October 2019, the Court stayed this lawsuit pending action by the Patent Trial and Appeals Board (the
Effective January 1, 2008, the Chinese Labor Contract Law was enacted in the PRC. This law mandated that PRC employers remit the applicable social insurance payments to their local government. Social insurance is comprised of various components such as pension, medical insurance, job injury insurance, unemployment insurance, and a housing assistance fund, and is administered in a manner similar to social security in the United States. This amount represents our estimate of the amounts due to the PRC government for social insurance on September 30, 2017 and December 31, 2016.
(2)
Accrued bonus includes an accrual for an extra month of salary ("13th month salary") to be paid to employees in certain geographies where it is the customary business practice. This 13th month salary is paid to these employees if they remain employed with us through December 31st. The total accrued for the 13th month salary was $0.7 million and $0.7 million at September 30, 2017 and December 31, 2016, respectively.
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UNIVERSAL ELECTRONICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SeptemberSEPTEMBER 30, 20172022
(Unaudited)


"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.
Note
International Trade Commission Investigation of Roku, TCL, Hisense and Funai

On April 16, 2020, we filed a complaint with the International Trade Commission (the "ITC") against Roku, TCL Electronics Holding Limited and related entities (collectively, "TCL"), Hisense Co., Ltd. and related entities (collectively, "Hisense"), and Funai Electric Company, Ltd. and related entities (collectively, "Funai") claiming that certain of their televisions, set-top boxes, remote control devices, human interface devices, streaming devices, and sound bars infringe certain of our patents. We asked the ITC to issue a permanent limited exclusion order prohibiting the importation of these infringing products into the United States and a cease and desist order to stop these parties from continuing their infringing activities. On May 18, 2020, the ITC announced that it instituted its investigation as requested by us. Prior to the trial, which ended on April 23, 2021, we dismissed TCL, Hisense and Funai from this investigation as they either removed or limited the amount of our technology from their televisions as compared to our patent claims that we asserted at the time. On July 9, — Other Accrued Expenses2021, the Administrative Law Judge (the "ALJ") 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 (the "Tariff Act"). On July 23, 2021, Roku and we filed petitions to appeal certain portions of the ID. On November 10, 2021, the full ITC issued its final determination affirming the ID and issuing a Limited Exclusion Order (the "LEO") and Cease and Desist Order (the "CDO") against Roku, which became effective on January 9, 2022. Roku continues to be subject to the LEO and CDO. On October 25, 2022, we filed our brief opposing Roku's appeal of the LEO.
The components
2020 Lawsuit

As a companion case to our ITC complaint, on April 9, 2020, we filed separate actions against each of other accrued expenses were as follows:
(In thousands)September 30, 2017 December 31, 2016
Advertising and marketing$272
 $213
Deferred revenue79
 1,431
Deposit for sale of Guangzhou factory4,799
 —
Duties757
 1,127
Freight and handling fees2,176
 1,919
Product development485
 454
Product warranty claim costs218
 134
Professional fees1,691
 1,313
Property, plant, and equipment1,564
 1,017
Sales taxes and VAT2,587
 2,715
Short-term contingent consideration3,400
 —
Third-party commissions685
 853
Tooling (1)
1,769
 1,520
Unrealized loss on foreign currency exchange contracts86
 1,623
URC court order and settlement agreement (Note 2)—
 6,622
Utilities392
 331
Other4,880
 3,138
Total other accrued expenses$25,840
 $24,410
(1)
The tooling accrual balance relates to unearned revenue for tooling that will be sold to customers.
Note 10 — CommitmentsRoku, TCL, Hisense, and Contingencies
Product Warranties
ChangesFunai in the liability for product warranty claim costs were as follows:
United States District Court, Central District of California, alleging that Roku is willfully infringing five of our patents and TCL, Hisense, and Funai are willfully infringing six 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 open IPR matters mentioned below.
(In thousands)Nine Months Ended September 30,
2017 2016
Balance at beginning of period$134
 $35
Accruals for warranties issued during the period169
 100
Settlements (in cash or in kind) during the period(85) —
Balance at end of period$218
 $135


Inter Partes Reviews
Restructuring Activities
Throughout these litigation matters against Roku and Sale of Guangzhou Factory
In the first quarter of 2016, we implemented a plan to reduceothers identified above, Roku has filed multiple IPR requests with the impact of rising labor rates in China by transitioning manufacturing activities from our southern-most China factory, locatedPTAB on all patents at issue in the city2018 Lawsuit, the ITC Action, and the 2020 Lawsuit (see discussion above). To date, the PTAB has denied Roku's request fourteen times, and granted Roku's request twelve times. Roku has since filed two additional IPRs on two of Guangzhouour patents not yet asserted against it, and we are awaiting the PTAB's institution decision with respect to those new IPR requests. Of the twelve IPR requests granted by the PTAB, the results were mixed, with the PTAB upholding the validity of many of our patent claims and invalidating others. We have and will appeal any PTAB decision that resulted in an invalidation of our patent claims.

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

On April 8, 2021, Roku made a request to the ITC to initiate an investigation against us and certain of our customers claiming that certain of our and those customers' remote control devices and televisions infringe two of Roku's recently acquired patents, the '511 patent and the '875 patent. On May 10, 2021, the ITC announced its decision to initiate the requested investigation. Immediately prior to trial Roku stipulated to summary determination as to its complaint against us and two of our customers with respect to one of the two patents at issue. This stipulation resulted in the Guangdong province,complaint against us and two of our customers with respect to that patent not going to trial. The trial was thus shortened and ended on January 24, 2022. On June 24, 2022, the ALJ, pursuant to Roku's stipulation, found the '511 patent invalid as indefinite. Thereafter, on June 28, 2022, the ALJ issued her ID fully exonerating us and our other China factories where labor rates are rising at a slower rate.customers finding the '875 patent invalid and that Roku failed to prove it established the requisite domestic industry and thus no violation of the Tariff Act. In advance of the full Commission's review, Roku and we filed petitions to appeal certain portions of the ID. In addition, the PTAB granted our request for an IPR with respect to the '875 patent. On October 28, 2022, the full ITC issued its final determination affirming the ID, ruling there was no violation of the Tariff Act and terminated the investigation. Roku has 60 days after the issuance of the full ITC final determination to file an appeal. As a result, we incurred severance costscompanion to its ITC request, Roku also filed a lawsuit against us and certain 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 operationsour customers 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.Federal District
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UNIVERSAL ELECTRONICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SeptemberSEPTEMBER 30, 20172022
(Unaudited)


Court in the 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 likely continue to be stayed pending the conclusion of the '875 IPR investigation.

Court of International Trade Action against the United States of America, et. al.

On September 26, 2016,October 9, 2020, we entered into an agreement to selland 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 prior to the closing of the sale 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 GmbHsubsidiaries, Ecolink Intelligent Technology, Inc. ("FMH"Ecolink") and Ruwido Austria GmbHRCS Technology, LLC ("Ruwido"RCS"), filed a Summonsan amended complaint (20-cv-00670) in Summary Proceedings in Belgium courtthe Court of International Trade (the "CIT") against onethe United States of our subsidiaries, Universal Electronics BV ("UEBV") and one of its customers, Telenet N.V. ("Telenet"), claiming that oneAmerica; the Office of the products that UEBV previously suppliedUnited States Trade Representative; Robert E. Lighthizer, U.S. Trade Representative; U.S. Customs & Border Protection; and Mark A. Morgan, U.S. Customs & Border Protection Acting Commissioner, challenging both the substantive and procedural processes followed by the United States Trade Representative ("USTR") when instituting Section 301 Tariffs on imports from China under Lists 3 and 4A.

Pursuant to Telenet violates two design patents and one utility patent owned by FMH and/or Ruwido. By this summons, FMH and Ruwido sought to enjoin Telenet and UEBV from continued distribution and use of the product at issue. After the September 29, 2015 hearing, the court issued its ruling in our and Telenet’s favor, rejecting FMH and Ruwido’s request entirely. On October 22, 2015, Ruwido filed its notice of appeal in this ruling. The parties have fully briefed and argued before the appellate courtcomplaint, Ecolink, RCS and we are awaitingalleging that USTR's institution of Lists 3 and 4A tariffs violated the appellate court’s ruling. In addition, on or about February 9, 2016, Ruwido filed a writTrade Act of summons for proceeding1974 (the "Trade Act") on the merits with respectgrounds that the USTR failed to asserted patents. UEBVmake a determination or finding that there was an unfair trade practice that required a remedy and Telenet have replied, denying allmoreover, that Lists 3 and 4A tariffs were instituted beyond the 12-month time limit provided for in the governing statute. Ecolink, RCS and we 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 Ruwido's allegationsLists 3 and in June 2017, a hearing was held before the trial court. During this hearing, Ruwido sought to have a second product which4A.

Ecolink, RCS and we are currently sellingasking the CIT to Telenet includeddeclare 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 Ecolink, RCS and us; to permanently enjoin the U.S. government from applying Lists 3 and 4A duties against Ecolink, RCS and us; and award Ecolink, RCS and us 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 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. On February 5, 2022, the CIT heard oral arguments on dispositive motions filed on behalf of plaintiffs and defendants. On April 1, 2022, the CIT issued its opinion on these dispositive motions, ruling that the USTR had the legal authority to promulgate List 3 and List 4A under Section 307(a)(1)(B) of the Trade Act, but that the USTR violated the APA when it promulgated List 3 and List 4A concluding that the USTR failed to adequately explain its decision as required under the APA. The Court ordered that List 3 and List 4A be remanded to the USTR for reconsideration or further explanation regarding its rationale for imposing the tariffs. The Court declined to vacate List 3 and List 4A, which means that they are still in place while on remand. The Court's preliminary injunction regarding liquidation of entries also remains in effect. The Court initially set a deadline of June 30, 2022, for the USTR to complete this case. In September 2017,process, which was extended to August 1, 2022.

On August 1, 2022, the USTR provided the Court ruled in our favorwith that our current product cannot be made part of this case.further explanation and also purported to respond to the significant comments received during the original notice-and-comment process. On September 14, 2022, the lead plaintiff filed its comments to the USTR's August 1, 2022 filing, asserting that the USTR did not adequately respond to the Court's remand order and requested the Court to vacate the List 3 and List 4A tariffs and issue refunds immediately. The USTR's response to the lead plaintiff's comments is due on November 4, 2022, with the lead plaintiff's reply due on December 5, 2022. We expect 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. We are presently deciding whether to appeal this Court’s rulings and have until later this year to file notice of appeal. Finally,these filings 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.2023.
On January 26, 2017, OpenTV, Inc., Nagra USA, Inc., Nagravision SA, and Kudelski SA (collectively, the “Kudelski Group”) filed a request with the U.S. International Trade Commission (“ITC”) to institute an investigation pursuant to Section 337 of the Tariff Act of 1930, as amended, concerning certain remote control devices we supply Comcast Corporation (“Comcast”), which request was accepted by the ITC. On July 21, 2017, the Kudelski Group filed a motion to terminate the investigation as to all parties, including us and this motion was accepted by the ITC on August 11, 2017.
On March 15, 2017, one of our employee’s filed a lawsuit against us and certain of our employees in the Superior Court of California, County of Orange, claiming hostile work environment based on sexual orientation, intentional infliction of emotional distress, failure to prevent hostile work environment, retaliation, and constructive termination. We have answered by denying all of the employee’s claims and have filed a countersuit against this employee claiming, among other things that he has breached his duty of loyalty to us, that he stole certain of our property, that he converted certain of our property to his own benefit. We are still in the early stages of this case as discovery has recently commenced.
There are no other material pending legal proceedings to which we or any of our subsidiaries is a party or of which our respective property is the subject. However, as is typical in our industry and to the nature and kind of business in which we are engaged, from time to time, various claims, charges and litigation are asserted or commenced by third parties against us or by us against third parties arising from or related to product liability, infringement of patent or other intellectual property rights, breach of warranty, contractual relations, or employee relations. The amounts claimed may be substantial, but may not bear any reasonable relationship to the merits of the claims or the extent of any real risk of court awards assessed against us or in our favor. However, no assurances can be made as to the outcome of any of these matters, nor can we estimate the range of potential losses to us. In our opinion, final
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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
20
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UNIVERSAL ELECTRONICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
(Unaudited)
litigation would not have a material adverse effect on our consolidated financial condition, results of operations, or cash flows. Moreover, we believe that our products do not infringe any third parties' patents or other intellectual property rights.

We maintain directors' and officers' liability insurance which insures our individual directors and officers against certain claims, as well as attorney's fees and related expenses incurred in connection with the defense of such claims.

Note 1113 — Treasury Stock

From time to time, our Board of Directors authorizes management to repurchase shares of our issued and outstanding common stock onstock. On February 10, 2022, our Board approved a share repurchase program with an effective date of February 22, 2022 (the "February 2022 Program"). Pursuant to the open market. Repurchases may be made wheneverFebruary 2022 Program, we deem awere authorized to repurchase up to be a good use300,000 shares of our cash andcommon stock until the repurchase enhances shareholder value.Program's expiration on May 5, 2022. Per the terms of the February 2022 Program, we could utilize various methods to effect the repurchases, including open market repurchases, negotiated block transactions, accelerated share repurchases or open market solicitations for shares, some or all of which could be effected through Rule 10b5-1 plans. As of September 30, 2017,May 2, 2022, we had 114,271repurchased the full 300,000 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.February 2022 Program.
Repurchased shares of our common stock were as follows:
Nine Months Ended September 30,Nine Months Ended September 30,
(In thousands)2017 2016(In thousands)20222021
Shares repurchased330
 40
Shares repurchased358 859 
Cost of shares repurchased$20,217
 $2,188
Cost of shares repurchased$11,297 $44,217 

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:
 Three Months Ended September 30, Nine Months Ended September 30,
(In thousands)2017 2016 2017 2016
United States$85,762
 $88,243
 $253,259
 $263,053
Asia (excluding PRC)26,113
 22,099
 77,679
 64,290
People's Republic of China23,437
 19,899
 61,015
 59,978
Europe18,877
 19,389
 56,041
 53,716
Latin America13,567
 13,032
 44,593
 32,273
Other7,896
 6,523
 22,051
 17,519
Total net sales$175,652
 $169,185

$514,638

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


Long-lived tangible assets by geographic area were as follows:
(In thousands)September 30, 2017 December 31, 2016
United States$14,233
 $11,948
People's Republic of China95,165
 94,113
All other countries3,791
 4,186
Total long-lived tangible assets$113,189
 $110,247
Note 1314 — Stock-Based Compensation

Stock-based compensation expense for each employee and director is presented in the same income statement of operations caption as their cash compensation. Stock-based compensation expense by income statement of operations caption and the related income tax benefit were as follows:
Three Months Ended September 30,Nine Months Ended September 30,
(In thousands)2022202120222021
Cost of sales$38 $39 $117 $116 
Research and development expenses326 321 1,004 952 
Selling, general and administrative expenses:
Employees1,842 1,712 5,421 5,285 
Outside directors233 400 1,033 1,163 
Total employee and director stock-based compensation expense$2,439 $2,472 $7,575 $7,516 
Income tax benefit$397 $420 $1,265 $1,302 
 Three Months Ended September 30, Nine Months Ended September 30,
(In thousands)2017 2016 2017 2016
Cost of sales$19
 $14
 $53
 $43
Research and development expenses149
 136
 412
 409
Selling, general and administrative expenses:       
Employees1,843
 1,748
 5,562
 5,324
Outside directors1,910
 770
 3,449
 1,862
Total employee and director stock-based compensation expense$3,921

$2,668

$9,476

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

Stock Options

Stock option activity was as follows:
 
Number of Options
(in 000's)
 Weighted-Average Exercise Price 
Weighted-Average Remaining Contractual Term
(in years)
 
Aggregate Intrinsic Value
(in 000's)
Outstanding at December 31, 2016652
 $39.27
    
Granted92
 62.70
    
Exercised(45) 24.87
   $1,893
Forfeited/canceled/expired(168) 46.44
    
Outstanding at September 30, 2017 (1)
531
 $42.26
 4.49 $11,391
Vested and expected to vest at September 30, 2017 (1)
531
 $42.26
 4.49 $11,390
Exercisable at September 30, 2017 (1)
378
 $35.35
 3.94 $10,731
(1)
The aggregate intrinsic value represents the total pre-tax value (the difference between our closing stock price on the last trading day of the third quarter of 2017 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had they all exercised their options on September 30, 2017. This amount will change based on the fair market value of our stock.
On September 11, 2017, the independent members of our Board of Directors voluntarily surrendered 150,000 stock options originally granted to them in February 2016, resulting in the acceleration and recording of $1.2 million of stock-based compensation expense during the three and nine months ended September 30, 2017. This amount represented all remaining unamortized compensation expense associated with the surrendered stock options as of the surrender date.
21
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UNIVERSAL ELECTRONICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
(Unaudited)
Stock Options

Stock option activity was as follows:    
Number of Options
(in thousands)		Weighted-Average Exercise PriceWeighted-Average Remaining Contractual Term
(in years)		Aggregate Intrinsic Value
(in thousands)
Outstanding at December 31, 2021800 $45.55 
Granted140 33.42 
Exercised— — $— 
Forfeited/canceled/expired(74)65.54 
Outstanding at September 30, 2022 (1)
866 $41.89 3.38$34 
Vested and expected to vest at September 30, 2022 (1)
866 $41.89 3.38$34 
Exercisable at September 30, 2022 (1)
662 $42.39 2.46$34 
(1)The aggregate intrinsic value represents the total pre-tax value (the difference between our closing stock price on the last trading day of the third quarter of 2022 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had they all exercised their options on September 30, 20172022. This amount will change based on the fair market value of our stock.
(Unaudited)



The assumptions we utilized in the Black-Scholes option pricing model and the resulting weighted average fair value of stock option grants were the following:
 Three Months Ended September 30,Nine Months Ended September 30,
 2022202120222021
Weighted average fair value of grants$12.38 $— $14.51 $23.97 
Risk-free interest rate2.82 %— %1.93 %0.41 %
Expected volatility48.92 %— %49.35 %48.49 %
Expected life in years5.190.004.734.62
 Three Months Ended September 30, Nine Months Ended September 30,
 2017 2016 2017 2016
Weighted average fair value of grants$—
 $—
 $19.61
 $17.96
Risk-free interest rate—% —% 1.75% 1.36%
Expected volatility—% —% 34.25% 41.38%
Expected life in years0.00
 0.00
 4.52
 4.55

As of September 30, 2017,2022, we expect to recognize $2.4$2.8 million of total unrecognized pre-tax stock-based compensation expense related to non-vested stock options over a remaining weighted-average life of 1.81.9 years.

Restricted Stock

Non-vested restricted stock award activity was as follows:
Shares
(in thousands)		Weighted-Average Grant Date Fair Value
Non-vested at December 31, 2021$310 $44.41 
Granted262 31.05 
Vested(176)41.32 
Forfeited(5)43.22 
Non-vested at September 30, 2022$391 $36.88 
 
Shares
(in 000's)
 Weighted-Average Grant Date Fair Value
Non-vested at December 31, 2016153
 $57.43
Granted132
 64.14
Vested(59) 61.28
Forfeited(4) 60.71
Non-vested at September 30, 2017222
 $60.34

As of September 30, 2017,2022, we expect to recognize $9.8$10.7 million of total unrecognized pre-tax stock-based compensation expense related to non-vested restricted stock awards over a weighted-average life of 1.71.8 years.

22
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UNIVERSAL ELECTRONICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
(Unaudited)
Note 1415 — Performance-Based Common Stock Warrants

On March 9, 2016, we issued common stock purchase warrants to Comcast to purchase up to 725,000 shares of our common stockCorporation ("Comcast") at a price of $54.55 per share. The right to exercise the warrants is subject to vesting over three 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 number of warrants that will vest in each period based upon achieving these purchase levels.
 Incremental Warrants That Will Vest
Aggregate Level of Purchases by Comcast and AffiliatesJanuary 1, 2016 - December 31, 2017 January 1, 2018 - December 31, 2019 January 1, 2020 - December 31, 2021
$260 million100,000
 100,000
 75,000
$300 million75,000
 75,000
 75,000
$340 million75,000
 75,000
 75,000
Maximum Potential Warrants Earned by Comcast250,000
 250,000
 225,000
If total aggregate purchases by Comcast and its affiliates are below $260 million in any of the two-year periods above, no warrants will vest related to that two-year period. If total aggregate purchases of goods and services by Comcast and its affiliates exceed $340 million during either the first or second two-year period, the amount of any such excess will count toward aggregate purchases in the following two-year period. To fully vest in the rights to purchase all of the underlying shares, Comcast and its affiliates must purchase an aggregate of $1.02 billion in goods and services from us during the six-year vesting period.
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UNIVERSAL ELECTRONICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
At September 30, 2017
(Unaudited)


Any2022, 275,000 of these warrants were vested and alloutstanding. All vested 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.
Because 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 is the date on which the warrants vest. Through September 30, 2017, 100,000 of the warrants had vested.
The fair value of the warrants is determined using the Black-Scholes option pricing model. The assumptions we utilized and the resulting fair value of the warrants were the following:
 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 rate1.93% 1.32% 1.93% 1.32%
Expected volatility34.41% 40.54% 34.41% 40.54%
Expected life in years5.26
 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 September 30,Nine Months Ended September 30,
(In thousands)2022202120222021
Reduction to net sales$— $124 $— $398 
Income tax benefit$— $31 $— $99 
 Three Months Ended September 30, Nine Months Ended September 30,
(in thousands)2017 2016 2017 2016
Reduction/(increase) to net sales$(141) $1,160
 $1,122
 $3,219
Income tax (benefit)/expense53
 (426) (418) (1,182)

At September 30, 2017, we estimated 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 unrecognized estimated fair value of unvested warrants at September 30, 2017 was $14.2 million.
Note 1516 — Other Income (Expense), Net and Loss on Sale of Argentina Subsidiary

Other income (expense), net consisted of the following:
Three Months Ended September 30,Nine Months Ended September 30,
(In thousands)2022202120222021
Net gain (loss) on foreign currency exchange contracts (1)
$(550)$689 $518 $2,177 
Net gain (loss) on foreign currency exchange transactions476 (855)(534)(2,932)
Other income (expense)20 9 (372)604 
Other income (expense), net$(54)$(157)$(388)$(151)

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

On September 7, 2021, we completed the sale of our subsidiary, One For All Argentina S.R.L, to an unrelated party, recording a loss on sale of $6.1 million. Upon divestiture, the successor entity, OFA Express S.R.L., will serve as an authorized distributor of certain of our products in Argentina. OFA Express, S.R.L. is not a related party of the Company.

Note 17 — Earnings (Loss) Per Share

Earnings (loss) per share was calculated as follows:
Three Months Ended September 30,Nine Months Ended September 30,
(In thousands, except per-share amounts)2022202120222021
BASIC
Net income (loss)$7,234 $(955)$7,312 $11,631 
Weighted-average common shares outstanding12,656 13,392 12,709 13,622 
Basic earnings (loss) per share$0.57 $(0.07)$0.58 $0.85 
DILUTED
Net income (loss)$7,234 $(955)$7,312 $11,631 
Weighted-average common shares outstanding for basic12,656 13,392 12,709 13,622 
Dilutive effect of stock options, restricted stock and common stock warrants40 — 88 298 
Weighted-average common shares outstanding on a diluted basis12,696 13,392 12,797 13,920 
Diluted earnings (loss) per share$0.57 $(0.07)$0.57 $0.84 

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

$2

$1,726
(1)
This represents the gains (losses) incurred on foreign currency hedging derivatives (see Note 17 for further details).
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UNIVERSAL ELECTRONICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SeptemberSEPTEMBER 30, 20172022
(Unaudited)


Note 16 — Earnings Per Share
Earnings per share was calculated as follows:
 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 outstanding14,381
 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 basic14,381
 14,510
 14,412
 14,441
Dilutive effect of stock options, restricted stock and common stock warrants285
 338
 277

299
Weighted-average common shares outstanding on a diluted basis14,666
 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 September 30,Nine Months Ended September 30,
(In thousands)2022202120222021
Stock options780 833 653 359 
Restricted stock awards315 329 221 46 
Common stock warrants275 275 275 183 
 Three Months Ended September 30, Nine Months Ended September 30,
(In thousands)2017 2016 2017 2016
Stock options165
 —
 153
 111
Restricted stock awards30
 5
 30
 8

Note 1718 — Derivatives

The following table sets forth the total net fair value of derivatives:
 September 30, 2022December 31, 2021
Fair Value Measurement UsingTotal BalanceFair Value Measurement UsingTotal Balance
(In thousands)Level 1Level 2Level 3Level 1Level 2Level 3
Foreign currency exchange contracts$— $(228)$— $(228)$— $(92)$— $(92)
  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 loss of $1.5$0.6 million and $0.2pre-tax gain of $0.7 million for the three months ended September 30, 20172022 and 2016,2021, respectively. For the nine months ended September 30, 20172022 and 2016,2021, we had a net pre-tax lossgain of $2.9$0.5 million and $0.9$2.2 million, respectively (see Note 15).respectively.
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UNIVERSAL ELECTRONICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2017
(Unaudited)


Details of foreign currency exchange contracts held were as follows:
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
Date HeldCurrencyPosition HeldNotional Value
(in millions)		Forward Rate
Unrealized Gain/(Loss) Recorded at Balance Sheet
Date
(in thousands)(1)
Settlement Date
September 30, 2022USD/Chinese Yuan RenminbiCNY$37.0 7.1828 $235 October 28, 2022
September 30, 2022USD/EuroUSD$33.0 0.9687 $(463)October 28, 2022
December 31, 2021USD/Chinese Yuan RenminbiCNY$19.0 6.3777 $38 January 7, 2022
December 31, 2021USD/EuroUSD$31.0 1.1336 $(130)January 7, 2022
(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.

(1)
Unrealized gains on foreign currency exchange contracts are recorded in prepaid expenses and other current assets. Unrealized losses on foreign currency exchange contracts are recorded in other accrued expenses.
Note 1819 — Business Combination

On April 6, 2017,February 17, 2022, we acquired substantially all of the net assets of Residential Control Systems, Inc. ("RCS"),Qterics, a U.S.-based designerprovider of multimedia connectivity solutions and manufacturerservices for internet-enabled consumer products. Under the terms of energy management and control products for the residential, small commercial and hospitality markets. TheAsset Purchase Agreement ("APA"), we paid a cash 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.approximately $0.9 million. 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.customer base in the OEM market.

Our consolidated income statement for the three and nine months ended September 30, 20172022 includes net sales of $0.8$0.5 million and $2.2$1.4 million, respectively, and a net lossesloss of $0.3$0.1 million and $0.7 million,$25 thousand, respectively, attributable to RCSQterics for the period commencing on April 6, 2017.February 17, 2022.
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 inIn 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 measurementterms of the earnout contingent considerationAPA, the initial purchase price was based primarily on significant inputs not observable in an active marketsubject to adjustment for differences between the initial estimated working capital balances and thus represents a Level 3 measurement as definedthe final adjusted balances. This calculation was completed at March 31, 2022.

24
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UNIVERSAL ELECTRONICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SeptemberSEPTEMBER 30, 20172022
(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 as of September 30, 2022 was the following:

(in thousands)Estimated Lives Preliminary Fair Value
Accounts receivable  $429
Inventories  1,508
Prepaid expenses and other current assets  7
Property, plant and equipment1-4 years 14
Current liabilities  (408)
Net tangible assets acquired  1,550
Trade name8 years 400
Customer relationships10 years 5,000
Order backlog1 year 150
Goodwill  5,494
Total purchase price  12,594
Less: Contingent consideration  (3,700)
Cash paid  $8,894
(In thousands)Estimated LivesPreliminary Fair Value
Accounts receivable$787 
Property, plant and equipment5 years3 
Customer relationships6 years1,340 
Developed technology6 years440 
Trade names6 years50 
Goodwill713 
Operating lease ROU assets3 years149 
Other assets2 
Other accrued liabilities(6)
Short-term operating lease obligation(48)
Deferred revenue(1,539)
Long-term operating lease obligation(101)
Long-term deferred revenue(851)
     Cash paid$939 

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 RCSQterics developed technology and trade namenames intangible asset wasassets were 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 RCSQterics developed technology and trade name.names.

The fair value assigned to RCSQterics 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 developed technology, trade name,names and customer relationships and order backlog intangible assets are expected to be deductible for income tax purposes.

Pro Forma Results (Unaudited)(unaudited)

The following unaudited pro forma financial information presents theof combined results of our operations and the operations of RCSQterics as if thisthe transaction had occurred on January 1, 2016. This unaudited pro forma financial information2021, is not intended to represent or be indicative ofimmaterially different from 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.
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UNIVERSAL ELECTRONICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2017
(Unaudited)


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

For purposes of determining pro forma net income attributable to Universal Electronics Inc., adjustments were made to all periods presented in the table above. The pro formasales, net income and net income attributable to Universal Electronics Inc. assumes that amortizationper share amounts reported in the Consolidated Statements 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 millionOperations 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 net2022 and 2021.

25
Table of their related tax effects.Contents


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.

Cautionary Statement

All statements in this report are made as of the date this Form 10-Q is filed with the U.S. Securities and Exchange Commission (the "SEC"). We undertake no obligation to publicly update or revise these statements, whether as a result of new information, future events or otherwise. We make forward-looking statements in Management's Discussion and Analysis of Financial Condition and Results of Operations and elsewhere in this report based on the beliefs and assumptions of our management and on information available to us through the date this Form 10-Q is filed with the SEC. Forward-looking statements include information related to the future effects on our business of the coronavirus pandemic ("COVID-19"); supply chain issues; other future demand and recovery trends and expectations; the delay by or failure of our customers to order products from us; the effects of natural or other events beyond our control, including the effects of political unrest, war (including the conflict between Russia and Ukraine) or terrorist activities may have on us or the economy; the economic environment's including increases in interest rates and recessionary effects on us or our customers; the effects of doing business internationally; our expectations regarding our ability to meet our liquidity requirements; our capital expenditures and other investment spending expectations; the timing and amount of future share repurchases; and other statements that are preceded by, followed by, or include the words "believes," "expects," "anticipates," "intends," "plans," "estimates," "foresees," or similar expressions; and similar statements concerning anticipated future events and expectations that are not historical facts.

We caution you that these statements are not guarantees of future performance and are subject to numerous evolving risks and uncertainties that we may not be able to accurately predict or assess, including the risks and uncertainties we describe in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 ("2021 Form 10-K"), Part II, Item 1A of this report, and other factors we describe from time to time in our periodic filings with the SEC.

Overview

We design, develop, manufacture, ship and manufacturesupport control and sensor technology solutions and a broad line of pre-programmed universal remote control products, AVsystems, audio-video ("AV") accessories, software and intelligent wireless security sensing and automation components dedicated to redefiningsmart home products that are used by the home entertainment and automation experience. Our customers operate primarilyworld's leading brands in the video services, consumer electronics, marketsecurity, home automation, climate control, and include subscription broadcasters, OEMs, internationalhome 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 databasesold primarily to OEMs, video service providers, and private label customers;
•software, firmware and technology solutions that manufacture televisions, digitalcan 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 software update and device provisioning services, as well as 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 and video players, streamer boxes, cable converters, satellite receivers, set-top boxes, room air conditioning equipment, game consoles,service providers;
•proprietary and wireless mobile phonesstandards-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
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•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 databaseknowledge library that covers approximately one million individualincludes over 13,200 brands comprising over 1,018,000 device functionsmodels across AV and approximately 8,000 unique consumer electronic brands. QuickSet®, our proprietary software, can automatically detect, identifysmart 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 mostHome Network and Cloud Control.

This device knowledge graph is backed by our unique device fingerprinting technology, which includes nearly 34.8 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 400filed domestic and foreign applications for other patents that are pending. At September 30, 2022, we had 681 issued and pending and issuedU.S. patents related to remote controlscontrol, home security, safety and home automation.automation, as well as hundreds of foreign counterpart patents and applications in various territories around the world.

We operate as one business segment. We have 24two domestic subsidiaries and 25 international subsidiaries located in Argentina, Brazil, British Virgin Islands, Cayman Islands, France, Germany, Hong Kong (3), India, Italy, Japan, Korea, Mexico (2), the Netherlands, People's Republic of China (6)(the "PRC") (7), Singapore, Spain, United Kingdom and the United Kingdom.Vietnam.

To recap our results for the three months ended September 30, 2017:2022:

•Net sales increased 3.8%decreased 4.6% to $175.7$148.5 million for the three months ended September 30, 20172022 from $169.2$155.6 million for the three months ended September 30, 2016.2021.
•Our gross margin percentage decreased from 24.7%increased to 29.9% for the three months ended September 30, 2016 to 24.5%2022 from 29.4% for the three months ended September 30, 2017.2021.
•Operating expenses, as a percentpercentage of net sales, increased from 19.9%decreased to 22.2% for the three months ended September 30, 2016 to 22.1%2022 from 23.7% for the three months ended September 30, 2017.2021.
•Our operating income decreased from $8.1increased to $11.5 million for the three months ended September 30, 2016 to $4.22022 from $8.9 million for the three months ended September 30, 2017, and our2021. Our operating marginincome percentage decreased from 4.8%increased to 7.7% for the three months ended September 30, 2016 to 2.4%2022 from 5.7% for the three months ended September 30, 2017.2021.
Our effective•Income tax rateexpense increased to 51.4%$3.5 million for the three months ended September 30, 2017, compared to 5.1%2022 from $3.4 million for the three months ended September 30, 2016.2021.

Our strategic business objectives for 20172022 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;
•continue to expand our software and service offerings to deliver a complete managed service platform;
•continue to invest in creating technology differentiation across our global product portfolio;
•further penetratepenetration of international subscription broadcasting markets;
•acquire new customers in historically strong regions;
•increase our share with existing customers; and
•continue to seek acquisitions or strategic partners that complement and strengthen our existing business.business; and
•continue our long-term factory planning strategy of reducing our concentration risk in the People's Republic of China.

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We intend for the following discussion of our financial condition and results of operations to provide information that will assist in understanding our consolidated financial statements, the changes in certain key items in those financial statements from period

to period, and the primary factors that accounted for those changes, as well as how certain accounting principles, policies and estimates affect our consolidated financial statements.

COVID-19 Pandemic and Supply Chain Impact

The COVID-19 pandemic continues to be a complex and evolving situation and continues to have a material impact on our business. Local lockdowns near our southern China factory during the last two weeks of the first quarter of 2022 temporarily caused labor shortages that negatively affected our ability to manufacture at full capacity and to meet customer demand. As of the date of the filing of this Form 10-Q, our southern China factory and our other factories are operating at or near labor capacity. The global health crisis caused by the COVID-19 pandemic may continue to negatively impact our business.

We have also been negatively impacted by supply chain difficulties including obtaining ICs and other long-lead time components and we expect this to continue into 2023. While we are taking production and inventory control steps to mitigate the effects caused by these shortages including advanced purchasing of long-lead time components, we cannot guarantee that these steps will allow us to meet our short-term IC and other component parts needs. As such, these supply constraints continue to cause difficulty and delays in our ability to fulfill customer orders and have at times resulted in increased logistics costs. In addition, many of our products are paired with certain of our customers' products, like set-top boxes or televisions. If those customers are not able to obtain sufficient quantities of ICs for their products, their demand for our products may decrease.

The overall operational and financial impact of the above is highly dependent on the risk factors disclosed under the headings "Risks Relating to COVID-19" and "Risks Relating to Operations" in Part I, Item 1A, "Risk Factors," of our 2021 Form 10-K and could be affected by other factors we are not currently able to predict.

Macroeconomic Conditions

We have been negatively impacted and we expect to continue to be negatively impacted by adverse macroeconomic conditions. Inflation has increased our component and logistics costs. While we have been able to increase sales prices on certain products, we may not be able to fully offset the impact of increased material costs which would negatively impact our gross profit. Our cost of labor, materials and borrowing may continue to increase which would negatively impact our business and financial results. In addition, we expect recessionary fears in the global economy will ultimately negatively impact our sales demand.

Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with accounting principles accepted in the United States of AmericaU.S. GAAP requires us to make estimates and judgments that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an on-goingongoing basis, we evaluate our estimates and judgments, including those related to revenue recognition, allowances for sales returns and doubtful accounts, inventory valuation, our review for impairment of long-lived assets, intangible assets and goodwill business combinations,and income taxes, stock-based compensation expense and performance-based common stock warrants.taxes. Actual results may differ from these judgments and estimates, and they may be adjusted as more information becomes available. Any adjustment may be significant and may have a material impact on our consolidated financial position or results of operations.statements.

An accounting policyestimate is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, if different estimates reasonably may have been used, or if changes in the estimate that are reasonably likely to occur may materially impact the financial statements. We do not believe that there have been any significant changes during the nine months ended September 30, 20172022 to the items that we disclosed as our critical accounting policies and estimates in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" contained in our Annual Report on2021 Form 10-K for our fiscal year ended December 31, 2016.10-K.

Recent Accounting Pronouncements

See Note 1 contained in the "Notes to Consolidated Financial Statements" for a discussion of recent accounting pronouncements.

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Results of Operations

The following table sets forth our reported results of operations expressed as a percentage of net sales for the periods indicated.
Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
Net sales100.0 %100.0 %100.0 %100.0 %
Cost of sales70.1 70.6 71.4 70.0 
Gross profit29.9 29.4 28.6 30.0 
Research and development expenses5.4 4.8 5.8 5.0 
Selling, general and administrative expenses16.8 18.9 18.9 19.2 
Operating income7.7 5.7 3.9 5.8 
Interest income (expense), net(0.4)(0.1)(0.3)(0.1)
Loss on sale of Argentina subsidiary— (3.9)— (1.3)
Other income (expense), net0.0 (0.1)(0.1)(0.0)
Income before provision for income taxes7.3 1.6 3.5 4.4 
Provision for income taxes2.4 2.2 1.8 1.9 
Net income (loss)4.9 %(0.6)%1.7 %2.5 %
 Three Months Ended September 30, Nine Months Ended September 30,
 2017 2016 2017 2016
Net sales100.0 % 100.0 % 100.0 % 100.0 %
Cost of sales75.5
 75.3

75.2

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

2.1

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

1.8

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

1.2

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


Three Months Ended September 30, 20172022 versus Three Months Ended September 30, 20162021
Net sales. Net sales for the three months ended September 30, 2017 were $175.7 million, an increase of 3.8% compared to $169.2 million for the three months ended September 30, 2016. Net sales by our Business and Consumer lines were as follows:
 Three Months Ended September 30,
 2017 2016
 $ (millions) % of total $ (millions) % of total
Business$163.1
 92.8% $157.2
 92.9%
Consumer12.6
 7.2
 12.0
 7.1
Total net sales$175.7
 100.0% $169.2
 100.0%
Net sales in our Business lines (subscription broadcasting, OEM, and computing companies) were 92.8% of net sales for the three months ended September 30, 20172022 were $148.5 million compared to 92.9%$155.6 million for the three months ended September 30, 2016. Net sales in our Business lines for2021. Our retail channel experienced the three months ended September 30, 2017 increased by 3.8% to $163.1 million from $157.2 million driven primarily by increased sales of home security products, increased sales to consumer electronics companies in Asia, and the rollout of higher end platforms in Europe. These increases were partially offset by alargest decrease in sales to North American satellite broadcasting customers as certain customers are in the process of depleting their current stock of inventory in preparation for the launch of their new advanced platforms.
Net sales in our Consumer lines (One For All® retail and private label) were 7.2% of net sales for the three months ended September 30, 2017when compared to 7.1% for the three months ended September 30, 2016. Net salesprior year period as a result of macroeconomic headwinds and the loss of a customer in our Consumer lines for the three months ended September 30, 2017 increased by 5.0% to $12.6 million from $12.0 million in the three months ended September 30, 2016 driven primarily by growth in international markets outside of Europe.North America.

Gross profit. Gross profit for the three months ended September 30, 20172022 was $43.1$44.4 million compared to $41.8$45.8 million for the three months ended September 30, 2016.2021. Gross profit as a percentpercentage of sales decreasedincreased to 24.5%29.9% for the three months ended September 30, 2017 compared to 24.7%2022 from 29.4% for the three months ended September 30, 2016. The gross margin2021. Gross profit as a percentage of sales was unfavorablyfavorably impacted by price reductions granted to certain large volume customers, manufacturing inefficiencies experienced due to our factory transition activities in China, and lower-margin projects undertaken in Latin America. These impacts were partially offset by raw material cost savings.a mix shift toward higher margin products as well as the strengthening of the U.S. Dollar.

Research and development ("R&D") expenses.R&D expenses increased 9.3% to $5.4$8.0 million for the three months ended September 30, 20172022 from $5.0$7.4 million in the prior year period. The increase in R&D expenses is due to an increase in product development activities as we continue to expand our portfolio of products in HVAC, home security and home automation.

Selling, general and administrative ("SG&A") expenses. SG&A expenses decreased to $24.9 million for the three months ended September 30, 20162022 from $29.5 million for the three months ended September 30, 2021, primarily driven by R&D efforts dedicateddue to developing new product offeringsa decrease in outside legal expenses related to a specific legal matter.

Interest income (expense), net. Interest expense, net increased to $0.7 million for new and existing product categories.
Factory transition restructuring charges. In the first quarter of 2016, we implemented a plan to reducethree months ended September 30, 2022 from $0.2 million for the impact of rising labor rates in China by transitioning manufacturing activities from our southern-most China factory, located in the city of Guangzhou in the Guangdong province, to our other China factories where labor rates are rising at a slower rate. Asthree months ended September 30, 2021, as a result of a higher average loan balance and a higher interest rate.

Loss on sale of Argentina subsidiary. During the three months ended September 30, 2021, we incurred severance costscompleted the sale of $0.4 millionour subsidiary, One For All Argentina S.R.L, recording a loss on sale of $6.1 million. The loss was primarily attributable to the weakening of the Argentinian Peso versus the U.S. Dollar resulting in a loss in equity value in our Argentina subsidiary and ultimately sales proceeds that were significantly less than the invested capital.

Other income (expense), net. Other expense, net decreased to $0.1 million for the three months ended September 30, 2017 and 2016, respectively. We ceased manufacturing operations in our Guangzhou factory during the third quarter of 2017 and as a result, we do not expect to incur a significant amount of additional severance costs associated with the transition of manufacturing activities2022 from this location.
Selling, general and administrative ("SG&A") expenses. SG&A expenses increased 15.3% to $33.0 million for the three months ended September 30, 2017 from $28.6 million for the three months ended September 30, 2016. The increase was primarily due to incremental expense recorded to reflect an increase in the value of contingent consideration to be paid in connection with our acquisition of the net assets of Ecolink Intelligent Technology, Inc. ("Ecolink"); increased stock-based compensation expense; and increased payroll and benefits attributable to annual merit increases and additional headcount to support product development efforts. Partially offsetting these increases was a decrease in legal expense as a result of higher legal fees in the prior year period related to patent litigation matters.
Interest income (expense), net. Net interest expense was $0.7 million for the three months ended September 30, 2017 compared to net interest expense of $0.2 million for the three months ended September 30, 20162021, as a result of an increased level of borrowings on our line of credit.a decrease in foreign currency losses.
Other
Provision for income (expense), net. Net other incometaxes. Income tax expense was $0.1$3.5 million for the three months ended September 30, 20172022, representing an effective tax rate of 32.9% compared to net other income tax expense of $0.3$3.4 million for the three months ended September 30, 2016. This change was driven primarily by foreign currency losses associated with fluctuations in the Chinese Yuan Renminbi and British Pound exchange rates versus the U.S. Dollar.

Provision for income taxes. Income tax expense was $1.8 million for the three months ended September 30, 2017 compared to $0.4 million for the three months ended September 30, 2016. Our2021, representing an effective tax rate was 51.4%of 138.4%. Consistent with 2021, we expect the U.S. to be in a pre-tax loss position without benefit for the three months ended September 30, 2017 comparedfull year 2022, resulting in an elevated tax rate. In addition, recent legislative changes for research and experimentation costs and creditability of certain foreign income taxes have resulted in a modest increase to 5.1% for the three months ended September 30, 2016. The increase in our effective tax rate was primarily due to the nondeductibilityrate.
29
Table of certain transactions in China as a result of the pending sale of our Guangzhou factory. In addition, during the three months ended September 30, 2016, we received tax refunds from the Chinese government totaling $1.8 million for various tax incentives relating to fiscal year 2015.Contents

Nine Months Ended September 30, 20172022 versus Nine Months Ended September 30, 20162021

Net sales. Net sales for the nine months ended September 30, 20172022 were $514.6$420.0 million, an increase of 4.8%a decrease compared to $490.8$456.7 million for the nine months ended September 30, 2016. Net sales by our Business and Consumer lines were as follows:
 Nine Months Ended September 30,
 2017 2016
 $ (millions) % of total $ (millions) % of total
Business$477.9
 92.9% $456.3
 93.0%
Consumer36.7
 7.1
 34.5
 7.0%
Total net sales$514.6
 100.0% $490.8
 100.0%
Net sales2021. Sales in our Business lines (subscription broadcasting, OEM,subscription broadcast channel were lower than the prior year period due primarily to component shortages and computing companies) were 92.9% of net sales for the nine months ended September 30, 2017 compared to 93.0% for the nine months ended September 30, 2016. Net saleslower customer demand. Sales in our Business lines forretail channel were also lower than the nine months ended September 30, 2017 increased by 4.7%prior year period due to $477.9 million from $456.3 million driven primarily by increased salesmacroeconomic headwinds and the loss of home security products, increased market sharea customer in Latin America, the rollout of higher end platforms in Europe and increased sales to consumer electronics companies in Asia. These increases were partially offset by a decrease in sales to North American satellite broadcasting customers as certain customers are in the process of depleting their current stock of inventory in preparation for the launch of their new advanced platforms.America.
Net sales in our Consumer lines (One For All® retail and private label) were 7.1% of net sales for the nine months ended September 30, 2017 compared to 7.0% for the nine months ended September 30, 2016. Net sales in our Consumer lines for the nine months ended September 30, 2017 increased by 7.1% to $36.7 million from $34.5 million in the nine months ended September 30, 2016 driven primarily by growth in international markets outside of Europe and in the U.S. market.
Gross profit. Gross profit for the nine months ended September 30, 20172022 was $127.9$120.1 million compared to $122.9$136.9 million for the nine months ended September 30, 2016.2021. Gross profit as a percentpercentage of sales decreased slightly to 24.8%28.6% for the nine months ended September 30, 2017 compared to 25.0%2022 from 30.0% for the nine months ended September 30, 2016. The gross margin2021. Gross profit as a percentage of sales was unfavorably impacted by price reductions granted to certain large volume customers, manufacturing inefficiencies experienced due to factory transition activities in China,inflationary pressures associated with raw materials and lower-margin projects undertaken in Latin America. Thesecomponents, freight costs and wages. Partially offsetting these unfavorable impacts were partially offset bysales price increases on certain products, which were implemented throughout the weakeningfirst two quarters of the Chinese Yuan Renminbi relative to the U.S. Dollar.2022.

Research and development expenses. R&D expenses increased 3.7% to $15.9$24.5 million for the nine months ended September 30, 20172022 from $15.3$23.0 million in the prior year period. The increase in R&D expenses is due to an increase in product development activities as we continue to expand our portfolio of products in HVAC, home security and home automation.

Selling, general and administrative expenses. SG&A expenses decreased to $79.2 million for the nine months ended September 30, 2016.
Factory transition restructuring charges. In the first quarter of 2016, we implemented a plan to reduce the impact of rising labor costs in China by transitioning manufacturing activities2022 from our southern-most China factory, located in the city of Guangzhou in the Guangdong province, to our other China factories where labor rates are rising at a slower rate. As a result, we incurred severance costs of $6.1 million and $1.6$87.3 million for the nine months ended September 30, 2017 and 2016, respectively. We ceased manufacturing operations2021, primarily due to a decrease in our Guangzhou factory during the third quarter of 2017 and asoutside legal expenses related to a result, we do not expectspecific legal matter.

Interest income (expense), net. Interest expense, net increased to incur a significant amount of additional severance costs associated with the transition of manufacturing activities from this location.
Selling, general and administrative expenses. SG&A expenses increased 9.0% to $94.7$1.1 million for the nine months ended September 30, 20172022 from $86.9$0.4 million for the nine months ended September 30, 2016. The increase was primarily due to incremental expense recorded to reflect an increase in the value of contingent consideration to be paid in connection with our acquisition of the net assets of Ecolink; increased stock-based compensation expense; increased headcount and other direct costs associated with product development efforts2021, as a result of an increase ina higher average loan balance and a higher interest rate.

Loss on sale of Argentina subsidiary. During the numbernine months ended September 30, 2021, we completed the sale of higher end customer products; additional expenseour subsidiary, One For All Argentina S.R.L, recording a loss on sale of $6.1 million. The loss was primarily attributable to support our implementation of a new ERP system; and additional expense as a resultthe weakening of the acquisition ofArgentinian Peso versus the net assets of Residential Control Systems, Inc. ("RCS")U.S. Dollar resulting in April 2017. Partially offsetting these increases was a decreaseloss in legal expense as a result of higher legal fees, includingequity value in our Argentina subsidiary and ultimately sales proceeds that were significantly less than the recording of a $2.0 million legal settlement, in the prior year period related to patent litigation matters.invested capital.


InterestOther income (expense), net. Net interestOther expense, net was $1.7$0.4 million for the nine months ended September 30, 20172022, as a result of a one-time expense for which we have filed an insurance claim, compared to net interest expense of $0.8$0.2 million for the nine months ended September 30, 20162021, as a result of an increased level of borrowings on our line of credit.net foreign currency losses offset partially by miscellaneous non-operating gains.
Other
Provision for income (expense), net. Net other incometaxes. Income tax expense was $2.0 thousand for the nine months ended September 30, 2017 compared to net other income of $1.7$7.6 million for the nine months ended September 30, 2016. This change was driven primarily by a decrease in foreign currency gains associated with fluctuations in the Chinese Yuan Renminbi exchange2022, representing an effective tax rate versus the U.S. Dollar.
Provision forof 50.9% compared to income taxes. Income tax expense was $2.9of $8.3 million for the nine months ended September 30, 2017 compared to $3.0 million for the nine months ended September 30, 2016. Our2021, representing an effective tax rate was 31.1%of 41.5%. Consistent with 2021, we expect the U.S. to be in a pre-tax loss position without benefit for the nine months ended September 30, 2017 comparedfull year 2022, resulting in an elevated effective tax rate. In addition, recent legislative changes for research and experimentation costs and creditability of certain foreign income taxes have resulted in a modest increase to 14.7% for the nine months ended September 30, 2016. The increase in our effective tax rate was primarily due to the nondeductibility of certain transactions in China as a result of the pending sale of our Guangzhou factory. In addition, during the nine months ended September 30, 2016, we received tax refunds from the Chinese government totaling $1.8 million for various tax incentives relating to fiscal year 2015.rate.

Liquidity and Capital Resources

Sources and Uses of Cash
(In thousands)Nine Months Ended September 30, 2017 
Increase
(Decrease)
 Nine Months Ended September 30, 2016
Cash provided by (used for) operating activities$(1,160) $(39,841) $38,681
Cash used for investing activities(40,091) (9,852) (30,239)
Cash provided by (used for) financing activities44,903
 54,986
 (10,083)
Effect of exchange rate changes on cash(5,703) (2,519) (3,184)
Net increase (decrease) in cash and cash equivalents$(2,051)
$2,774

$(4,825)
 September 30, 2017 
Increase
(Decrease)
 December 31, 2016
Cash and cash equivalents$48,560
 $(2,051) $50,611
Working capital98,063
 (10,228) 108,291
Net cash used for operating activities was $1.2 million during the nine months ended September 30, 2017 compared to $38.7 million of net cash provided by operating activities during the nine months ended September 30, 2016. The decrease in net cash provided by operating activities was primarily due to working capital needs associated with accounts receivable and inventories. Cash outflows associated with accounts receivable have increased primarily as a result of collection timing. Days sales outstanding have increased from 72 days at September 30, 2016 to 79 days at September 30, 2017. With respect to inventories, cash outflows increased during the nine months ended September 30, 2017 largely as a result of carrying increased inventory levels while we transition manufacturing operations between our factories in China. In addition, we had some buildup of inventory related to the anticipated rollout of higher end platforms to certain customers as well as further anticipated growth in home security product sales. Our inventory turns decreased from 4.2 turns at September 30, 2016 to 3.6 turns at September 30, 2017.
Net cash used for investing activities during the nine months ended September 30, 2017 was $40.1 million compared to $30.2 million during the nine months ended September 30, 2016. The increase in cash used for investing activities was driven primarily by our acquisition of the net assets of RCS for $8.9 million in April 2017.
Net cash provided by financing activities was $44.9 million during the nine months ended September 30, 2017 compared to $10.1 million of net cash used for financing activities during the nine months ended September 30, 2016. The increase in cash provided by financing activities was driven primarily by net borrowings on our line of credit of $64.0 million during the nine months ended September 30, 2017, compared to net payments of $15.0 million on our line of credit during the nine months ended September 30, 2016. This was partially offset by an increase of $18.0 million in treasury stock purchases and a $3.7 million decrease in proceeds from the exercise of stock options.
During the nine months ended September 30, 2017, we repurchased 329,964 shares of our common stock at a cost of $20.2 million compared to our repurchase of 39,531 shares at a cost of $2.2 million during the nine months ended September 30, 2016. We hold these shares as treasury stock and they are available for reissue. Presently, we have no plans to distribute these shares, although we may change these plans if necessary to fulfill our on-going business objectives.

From time to time, our Board of Directors authorizes management to repurchase shares of our issued and outstanding common stock on the open market. Repurchases may be made whenever we deem a repurchase to be a good use of our cash and the repurchase enhances shareholder value. As of September 30, 2017, we had 114,271 shares available for repurchase on the open market under the Board's authorizations. On October 23, 2017, our Board increased these repurchase authorizations by 300,000 shares bringing the total authorization as of the approval date to 386,434 shares.
Contractual Obligations
The following table summarizes our contractual obligations and the effect these obligations are expected to have on our liquidity and cash flow in future periods.
 Payments Due by Period
(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
Purchase obligations(1)
7,037
 7,037
 —
 —
 —
Contingent consideration (2)
17,400
 3,400
 13,000
 1,000
 —
Total contractual obligations$38,169
 $15,007
 $18,192
 $4,321
 $649
(1)
Purchase obligations primarily consist of contractual payments to purchase property, plant and equipment.
(2)
Contingent consideration consists of contingent payments related to our purchases of the net assets of Ecolink and RCS.
Liquidity
Historically, we have utilized cash provided from operations as our primary source of liquidity, as internally generated cash flows have been sufficient to support our business operations, capital expenditures and discretionary share repurchases. More recently,In addition, we have utilized our revolving line of credit to fund an increased level of share repurchases and our acquisitions of the net assets of Ecolink and RCS.acquisitions. We anticipate that we will continue to utilize both cash flows from operations and our revolving line of credit to support ongoing business operations, capital expenditures, andexpenses associated with our long-term factory planning strategy, future discretionary share repurchases. Our working capital needs have typically been greatest during the thirdrepurchases and fourth quarters when accounts receivable and inventories increase in connection with the fourth quarter holiday selling season and when inventory levels increase in anticipation of factory closures in observance of Chinese New Year.potential future acquisitions. We believe our current cash balances, anticipated cash flow to be generated from operations and available borrowing resources will be sufficient to cover expected cash outlays duringfor at least the next twelve months;months and for the foreseeable future thereafter; however, because our cash is located in various jurisdictions throughout the world, we may at times need to increase borrowing from our revolving line of credit or take on additional debt until we are able to transfer cash among our various entities.

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Our liquidity is subject to various risks including the risks discussed under "Item 3. Quantitative and Qualitative Disclosures about Market Risk."

(In thousands)September 30, 2017 December 31, 2016(In thousands)September 30, 2022December 31, 2021
Cash and cash equivalents$48,560
 $50,611
Cash and cash equivalents$61,681 $60,813 
Available borrowing resources11,000
 35,000
Available borrowing resources$34,300 $66,300 

Cash, cash equivalents and term deposit – On September 30, 2022, we had $5.9 million, $14.5 million, $20.1 million, $10.0 million and $11.2 million of cash and cash equivalents in North America, the PRC, Asia (excluding the PRC), Europe, and South America, respectively. In addition, at September 30, 2022, we had a one-year term deposit of $0.2 million, which will mature on January 25, 2023. We attempt to mitigate our exposure to liquidity, credit and other relevant risks by placing our cash, cash equivalents, and term deposits with financial institutions we believe are high quality.

Our cash balances are held in numerous locations throughout the world. The majority of our cash is held outside of the United States and may be repatriated to the United States but, under current law, wouldmay be subject to United States federalstate income taxes, less applicableand foreign tax credits. Repatriationwithholding taxes. Additionally, repatriation of some foreign balances is restricted by local laws. We have not provided for the United States federalstate income tax liabilityand the foreign withholding tax liabilities on these amounts for financial statement purposes as this cash is considered indefinitely reinvested outside of the United States.purposes.

Available Borrowing Resources – Our intent is to meet our domestic liquidity needs through ongoing cash flows, external borrowings, or both. We utilize a variety of tax planning strategies in an effort to ensure that our worldwide cash is available in the locations in which it is needed.
On September 30, 2017, we had $4.8 million, $22.1 million, $0.8 million, $13.3 million and $7.5 million of cash and cash equivalents in the United States, the People's Republic of China ("PRC"), Asia (excluding the PRC), Europe, and South America, respectively. On December 31, 2016,we had $3.3 million, $22.1 million, $5.3 million, $19.6 million, and $0.3 million of cash and cash equivalents in the United States, the PRC, Asia (excluding the PRC), Europe and South America, respectively. We attempt to mitigate our exposure to liquidity, credit and other relevant risks by placing our cash and cash equivalents with financial institutions we believe are high quality.

Our Amended and Restated Credit Agreement ("Amended Credit Agreement") with U.S. Bank National Association ("U.S. Bank") provided for a $125.0 million revolving line of credit ("Credit Line") that was to expire on November 1, 2019. On October 27, 2017, we entered into a Second Amended and Restated Credit Agreement ("Second Amended Credit Agreement") with U.S. Bank as administrative agent, sole lead arranger and sole book runner, and Wells Fargo, National Association which replaces the Amended ("U.S. Bank") provides for a $125.0 million revolving line of credit ("Credit Agreement. Under the Second Amended Credit Agreement, the Credit Line was increased to $170.0 million and the expiration date remainedLine") that expires on November 1, 2019.2023. The Credit Line may be used for working capital and other general corporate purposes including acquisitions, share repurchases and capital expenditures. Amounts available for borrowing under the Credit Line are reduced by the balance of any outstanding letters of credit. Therecredit, of which there were no outstanding letters of credit$2.7 million at September 30, 2017.
All obligations under the Credit Line are secured by substantially all of our U.S. personal property and tangible and intangible assets as well as 65% of our ownership interest in Enson Assets Limited, our wholly-owned subsidiary that controls our manufacturing factories in the PRC.
The interest rate applicable to outstanding Credit Line balances under the Second Amended Credit Agreement is the same as under the Amended Credit Agreement. 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 Amended Credit Agreement) plus an applicable margin (varying from 0.00% to 0.50%). The applicable margins are calculated quarterly and vary based on our cash flow leverage ratio as set forth in the Amended Credit Agreement and Second Amended Credit Agreement. The interest rate in effect at September 30, 2017 was 2.48%. There are no commitment fees or unused line fees under the Amended Credit Agreement or the Second Amended Credit Agreement.
The Amended Credit Agreement and Second Amended Credit Agreement include 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 other customary affirmative and negative covenants and events of default. As of September 30, 2017, we were in compliance with the covenants and conditions of the Amended Credit Agreement.
2022. At September 30, 2017,2022, we had an outstanding balance of $114.0$88.0 million on our Credit Line and $11.0$34.3 million of availability.
Off-Balance Sheet Arrangements
See Note 8 contained in the "Notes to Consolidated Financial Statements" for further information regarding our Credit Line.

Sources and Uses of Cash

Our cash flows were as follows:
(In thousands)Nine Months Ended September 30, 2022Increase
(Decrease)		Nine Months Ended September 30, 2021
Cash provided by (used for) operating activities$103 $(22,813)$22,916 
Cash provided by (used for) investing activities(15,653)(3,245)(12,408)
Cash provided by (used for) financing activities20,703 30,929 (10,226)
Effect of foreign currency exchange rates on cash and cash equivalents(4,285)(5,675)1,390 
Net increase (decrease) in cash and cash equivalents$868 $(804)$1,672 
September 30, 2022Increase
(Decrease)		December 31, 2021
Cash and cash equivalents$61,681 $868 $60,813 
Working capital$120,873 $514 $120,359 

Net cash provided by operating activities was $0.1 million during the nine months ended September 30, 2022 compared to $22.9 million during the nine months ended September 30, 2021. Net income was $7.3 million for the nine months ended September 30, 2022 compared to net income of $11.6 million for the nine months ended September 30, 2021. Inventories increased by $8.5 million during the nine months ended September 30, 2022 compared to an increase of $4.5 million during the nine months ended September 30, 2021. We do not participateare currently in any material off-balance sheet arrangements.a unique environment where certain components, most prominently ICs, are in short supply. The lead times associated with these components have increased significantly; consequently, when an opportunity arises to procure more than what is needed at a given period of time, we are proceeding with the purchase. This has currently led to us carrying more inventory than is optimal. Our inventory turns decreased to 2.5 turns at September 30, 2022 compared to 3.4 turns at September 30, 2021. Changes in accounts payable and accrued liabilities resulted in cash outflows of $17.2 million during the nine months ended September 30, 2022 compared to cash outflows of $7.4 million during the nine months ended September 30, 2021 largely as a result of the timing of inventory purchases and related payments.

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Factors That May Affect Financial Condition
For the fourth quarter of 2022, we expect component shortages will continue to have an adverse effect on cash flows with some relief beginning to occur in the first half of 2023. In addition, we expect to commence manufacturing operations in a new factory in Vietnam in the first half of 2023, which, in the short term, may result in manufacturing inefficiencies that could turn to higher costs.

Net cash used for investing activities during the nine months ended September 30, 2022 was $15.7 million, of which $7.5 million, $0.9 million, $10.1 million and $4.7 million was used for the purchase of our term deposit investment, acquisition of Qterics Inc., capital expenditures, and the development of patents, respectively. Offsetting these amounts was $7.6 million received upon the redemption of our term deposit investment. Net cash used for investing activities during the nine months ended September 30, 2021 was $12.4 million, of which $8.8 million and $3.6 million was used for capital expenditures and the development of patents, respectively.

Future Resultscash flows used for investing activities are largely dependent on the timing and amount of capital expenditures. We estimate that we will incur expenditures of between $3.0 million and $5.0 million during the remainder of 2022, which includes amounts associated with our factory in Vietnam, which we anticipate commencing operations in the first half of 2023.


Forward-Looking Statements
We caution thatNet cash provided by financing activities was $20.7 million during the following important factors, among others (including but not limitednine months ended September 30, 2022 compared to factors discussednet cash used for financing activities of $10.2 million during the nine months ended September 30, 2021. The increase in "Management's Discussion and Analysis of Financial Condition and Results of Operations," as well as those discussedcash provided by financing activities was primarily driven by a decrease in our 2016 Annual Report on Form 10-K, or in our other reports filed from time to time withcommon stock repurchases. During the Securities and Exchange Commission), may affect our actual results and may contribute to or cause our actual consolidated results to differ materially from those expressed in anynine months ended September 30, 2022, we repurchased 358,035 shares of our forward-looking statements. The factors included herecommon stock at a cost of $11.3 million compared to our repurchase of 858,670 shares at a cost of $44.2 million during the nine months ended September 30, 2021.

Future cash flows used for financing activities are not exhaustive. Further, any forward-looking statement speaks only as of the date onaffected by our financing needs which such statement is made, and we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of unanticipated events. New factors emerge from time to time, and it is not possible for management to predict all such factors, nor can we assess the impact of each such factorare largely dependent on the businesslevel of cash provided by or used in operations and the extent to which any factor, or combinationlevel of factors,cash used in investing activities. Additionally, potential future repurchases of shares of our common stock will impact our cash flows used for financing activities. Given the recent decrease in the price of our common stock, we may cause actual results to differ materially from thoseopportunistically purchase additional shares of our common stock. See Note 13 contained in any forward-looking statement. Therefore, forward-looking statements should not be relied upon as a prediction of actual future results."Notes to Consolidated Financial Statements" for further information regarding our share repurchase programs.
While we believe that the forward-looking statements made in this report are based on reasonable assumptions, the actual outcome of such statements is subject to a number of risks and uncertainties, including the significant percentage of
Material Cash Commitments – The following table summarizes our revenue attributable to a limited number of customers; the failure of our markets to continue growing and expanding in the manner we anticipated; the failure of our customers to grow and expand as we anticipated; the effects of natural or other events beyond our control, including the effects political unrest, war or terrorist activities may have on us or the economy; the economic environment's effect on us or our customers; the growth of, acceptance ofmaterial cash commitments and the demand for our products and technologies in various markets and geographical regions, including cable, satellite, consumer electronics, retail, and digital media and interactive technology; our successful integration of the Ecolink and RCS assets and business lines; our inabilityeffect these commitments are expected to add profitable complementary products which are accepted by the marketplace; our inability to attract and retain a quality workforce at adequate levels in all regions of the world, and particularly Asia; our inability to continue to maintain our operating costs at acceptable levels through our cost containment efforts; an unfavorable ruling in any or all of the litigation matters to which we are party; our inability to continue selling our products or licensing our technologies at higher or profitable margins; our inability to obtain orders or maintain our order volume with new and existing customers; our inability to develop new and innovative technologies and products that are accepted by our

customers; the sale of our Guangzhou facility not occurring as or within the time frame anticipated by management; our inability to successfully and profitably restructure our manufacturing facilities and activities; possible dilutive effect our stock incentive programs may have on our earnings per sharecash flows in future periods:

 Payments Due by Period
(In thousands)TotalLess than
1 year		1 - 3
years		4 - 5
years		After
5 years
Operating lease obligations$25,134 $6,697 $10,095 $4,880 $3,462 
Property, plant, and equipment purchases2,2802,280 — — — 
Inventory purchases19,98919,989 — — — 
Software license3,466105 446 893 2,022 
Total material cash commitments$50,869 $29,071 $10,541 $5,773 $5,484 
We anticipate meeting our material cash commitments with our cash generated from operations and stock price; the continued ability to identify and execute on opportunities that maximize stockholder value,available borrowing resources, including the effects repurchasing the company's shares have on the company's stock value; our inability to continue to obtain adequate quantities of component parts or secure adequate factory production capacity on a timely basis; and other factors listed from time to time in our press releases and filings with the Securities and Exchange Commission.Credit Line.


ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to various market risks, including interest rate and foreign currency exchange rate fluctuations. We have established policies, procedures and internal processes governing our management of these risks and the use of financial instruments to mitigate our risk exposure.

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Interest Rate Risk

We are exposed to interest rate risk related to our debt. From time to time we borrow amounts on our Credit Line for working capital and other liquidity needs. Under our Amended Credit Agreement and Second Amended Credit Agreement, we may elect to pay interest on outstanding borrowings on our Credit Line based on LIBOR or a base rate (based on the prime rate of U.S. Bank) plus an applicable margin as defined in the Amended Credit Agreement and Second Amended Credit Agreement. Accordingly, changes in interest rates would impact our results of operations in future periods. A 100 basis point increase in interest rates would have an approximately $0.7 million annual impact on net income based on our outstanding line of creditCredit Line balance at September 30, 2017.2022.

We cannot make any assurances that we will not need to borrow additional amounts in the future or that funds will be extended to us under comparable terms or at all. If funding is not available to us at a time when we need to borrow, we would have to use our cash reserves, including potentially repatriating cash from foreign jurisdictions, which may have a material adverse effect on our operating results, financial position and cash flows.

Foreign Currency Exchange Rate Risk

At September 30, 2017,2022, we had wholly-owned subsidiaries in Argentina, Brazil, Caymanthe British Virgin Islands, France, Germany, Hong Kong, India, Italy, Japan, Korea, Mexico, the Netherlands, the PRC, Singapore, Spain, United Kingdom and the United Kingdom.Vietnam. We are exposed to foreign currency exchange rate risk inherent in our sales commitments, anticipated sales, anticipated purchases, operating expenses, assets and liabilities denominated in currencies other than the U.S. Dollar. The most significant foreign currencies to our operations are the Chinese Yuan Renminbi, Euro, British Pound, Argentinian Peso, Mexican Peso, Indian Rupee, Hong Kong Dollar, Brazilian Real, Indian RupeeJapanese Yen and Japanese Yen.Korean Won. Our most significant foreign currency exposure is to the Chinese Yuan Renminbi as this is the functional currency of our China-based factories where the majority of our products are manufactured. If the Chinese Yuan Renminbi were to strengthen against the U.S. Dollar, our manufacturing costs would increase. We are generally a net payor of the Euro, Mexican Peso, Indian Rupee, andHong Kong Dollar, Japanese Yen and Korean Won and therefore benefit from a stronger U.S. Dollar and are adversely affected by a weaker U.S. Dollar relative to thethese foreign currency.currencies. For the Euro, British Pound Argentinian Peso and Brazilian Real, we are generally a net receiver of the foreign currency and therefore benefit from a weaker U.S. Dollar and are adversely affected by a stronger U.S. Dollar relative to thethese foreign currency.currencies. Even where we are a net receiver, a weaker U.S. Dollar may adversely affect certain expense figures taken alone.

From time to time, we enter into foreign currency exchange agreements to manage the foreign currency exchange rate risks inherent in our forecasted income and cash flows denominated in foreign currencies. The terms of these foreign currency exchange agreements normally last less than nine months. We recognize the gains and losses on these foreign currency contracts in the same period as the remeasurement losses and gains of the related foreign currency-denominated exposures.

It is difficult to estimate the impact of fluctuations on reported income, as it depends on the opening and closing rates, the average net balance sheet positions held in a foreign currency and the amount of income generated in local currency. We routinely forecast what these balance sheet positions and income generated in local currency may be and we take steps to minimize exposure as we deem appropriate. Alternatively, we may choose not to hedge the foreign currency risk associated with our foreign currency exposures, primarily if such exposure acts as a natural foreign currency hedge for other offsetting amounts denominated in the same currency or the currency is difficult or too expensive to hedge. We do not enter into any derivative transactions for speculative purposes.

The sensitivity of earnings and cash flows to variability in exchange rates is assessed by applying an approximate range of potential rate fluctuations to our assets, obligations and projected results of operations denominated in foreign currency with all other variables held constant. The analysis includes all of our foreign currency contracts offset by the underlying exposures. Based on our overall foreign currency rate exposure at September 30, 2017,2022, we believe that movements in foreign currency rates may have a material effect on our financial position and results of operations. We estimate that if the exchange rates for the Chinese Yuan Renminbi, Euro, British Pound, Argentinian Peso, Mexican Peso, Indian Rupee, Brazilian Real, Indian Rupee and Japanese Yen relative to the U.S. Dollar fluctuate 10% from September 30, 2017,2022, net income in the thirdfourth quarter of 20172022 would fluctuate by approximately $11.5$7.5 million.


ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Rule 13a-15(d) promulgated under the Securities Exchange Act Rule 13a-15(d)of 1934 (the "Exchange Act") defines "disclosure controls and procedures" to mean controls and procedures of a company that are designed to ensure that information required to be disclosed by the company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported,
33
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within the time periods specified in the Commission'sSEC's rules and forms. The definition further states that disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that the information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company's management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

An evaluation was performed under the supervision and with the participation of our management, including our principal executive and principal financial officers, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, our principal executive and principal financial officers have concluded that our disclosure controls and procedures were effective, as of the end of the period covered by this report,Quarterly Report on Form 10-Q, to provide reasonable assurance that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange CommissionSEC rules and forms and is accumulated and communicated to our management to allow timely decisions regarding required disclosures.

Changes in Internal Control Over Financial Reporting

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


PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

We are subject to lawsuits arising out of the conduct of our business. The discussion of our litigation matters contained in "Notes to Consolidated Financial Statements - Note 10"12" is incorporated herein by reference.

ITEM 1A. RISK FACTORS

The reader should carefully consider, in connection with the other information in this report, the risk factors discussed in "Part I, Item
1A: Risk Factors" of the Company's 2016 Annual Report on2021 Form 10-K incorporated herein by reference.and in the periodic reports we have filed since then. These factors may cause our actual results to differ materially from those stated in forward-looking statements contained in this document and elsewhere.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
During the three months ended September 30, 2017, we repurchased 90,494 shares of our issued and outstanding common stock for $5.3 million. We make stock repurchases under ongoing and systematic programs approved by our Board of Directors when we deem a repurchase to be a good use of our cash and the repurchase enhances shareholder value. On September 30, 2017, we had 114,271 shares available for repurchase on the open market under the Board's authorizations. On October 23, 2017, our Board increased these repurchase authorizations by 300,000 shares bringing the total authorizations as of the approval date to 386,434 shares. Shares may also be tendered by employees to satisfy tax withholding obligations in connection with the vesting of restricted stock.
The following table sets forth, for the three months ended September 30, 2017,2022, our total stock repurchases, average price paid per share and the maximum number of shares that may yet be purchased on the open market under our plans or programs:
Period
Total Number of Shares Purchased (1)
Weighted 
Average
Price Paid
per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or ProgramsMaximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
July 1, 2022 - July 31, 2022625 $25.73 — — 
August 1, 2022 - August 31, 20222,852 24.53 — — 
September 1, 2022 - September 30, 2022— — — — 
Total3,477 $24.75 — — 

(1)Of the repurchases in July and August, 625 and 2,852 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.

34
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

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

ITEM 6. EXHIBITS

EXHIBIT INDEX

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







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






Dated:November 8, 20174, 2022UNIVERSAL ELECTRONICS INC.
By:
/s/ Bryan M. Hackworth
Bryan M. Hackworth
Chief Financial Officer (principal financial officer
and principal accounting officer)



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



























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