UNIVERSAL ELECTRONICS INC 10-K

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page Report of Independent Registered Public Accounting Firm 41 Consolidated Balance Sheets at December 31, 20 20 and 2 019 43 Consolidated Statements of Operations for the Years Ended December 31, 20 20 , 201 9 , and 2 018 44 Consolidated Comprehensive Income (Loss) Statements for the Years Ended December 31, 20 20 , 201 9 , and 2 018 45 Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 2 0 20 , 201 9 , and 2 018 46 Consolidated Statements of Cash Flows for the Years Ended December 31, 20 20 , 201 9 , and 2 018 47 Notes to Consolidated Financial Statements 48 All schedules are omitted because they are not applicable or the required information is shown in the consolidated financial statements or notes thereto. 39 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Board of Directors and Stockholders Universal Electronics Inc. Opinion on the financial statements We have audited the accompanying consolidated balance sheets of Universal Electronics Inc. (a Delaware corporation) and subsidiaries (the "Company") as of December 31, 2020 and 2019, the related consolidated statements of operations, comprehensive income (loss), changes in stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2020, and the related notes and financial statement schedules included under Item 15 (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial positi on of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) ("PCAOB"), the Company's internal control over financial reporting as of December 31, 2020, based on criteria established in the 2013 Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated March 5, 2021 expressed an unqualified opinion. Basis for opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical audit matter The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Revenue recognition – Identifying and evaluating terms and conditions in contracts for the timing of revenue recognition As described further in Note 2 to the consolidated financial statements, product revenue is generated through manufacturing and delivering universal control, sensing and automation products, and AV accessories. The Company recognizes revenue over time for custom products with no alternative use when the Company has an enforceable right to payment for performance completed to date, including a reasonable margin, through a contractual commitment from the customer. Revenue is recognized at a point in time if the criteria for recognizing revenue over time are not met. For each new contract and/or product, management performs an analysis to determine whether the asset created is a custom asset with no alternative use and whether the terms and conditions of the contract indicate the Company has an enforceable right to payment for performance completed prior to the transfer of title of the underlying asset. We identified the determination of over time verses point in time revenue recognition as a critical audit matter. 40 Table of Contents The principal considerations for our determination that over time verses point in time revenue recognition is a critical audit matter is the significant judgment exercised by management in identifying and evaluating whether new contracts and/or products meet the criteria for over time or point in time revenue recognition. Significant judgments include the evaluation of legal terms and rights within each jurisdiction that the Company operates and evaluation of whether it is possible, contractually or economically, to repurpose or redirect products. Our audit procedures related to the over time verses point in time revenue recognition included the following, among others: • We tested the design and operating effectiveness of key controls over the Company’s new contract review process, specifically those related to the identification and evaluation of terms and conditions associated with an enforceable right to payment. • We tested design and operating effectiveness of key controls associated with the Company’s classification of new products, specifically those associated with determination and classification of a product as having no alternative use. • Performed tests of details, on a sample basis from the Company’s active products listing, to determine whether products marked as custom with no alternative use are restricted contractually or economically to be repurposed or redirected. This includes evaluating management assumptions regarding the economic feasibility of repurposing a finished product and evidence to support that the final product has no alternative use, such as brand names and custom designs within the plastic molding process. • For a sample of contracts, obtained the contract and management’s analysis over the enforceable right to payment and validated that the payment terms within the contract were properly evaluated and the contract was properly included or excluded from the over time revenue recognition. • For a sample of revenue transactions, we traced the products sold into the Company’s listing of active products and determined whether that product was appropriately classified as custom or non-custom by applying the same testing approach noted above. For transactions selected with custom products, we also obtained and read the contract and contract amendments to determine whether the payment terms within the contract specifically identified an enforceable right to payment upon cancellation. The two parts to this test serve to determine whether the transaction was appropriately recorded over time or at a point in time. /s/ GRANT THORNTON LLP We have served as the Company's auditor since 2005. Newport Beach, California March 5, 2021 41 Table of Contents UNIVERSAL ELECTRONICS INC. CONSOLIDATED BALANCE SHEETS (In thousands, except share-related data) December 31, 2020 December 31, 2019 ASSETS Current assets: Cash and cash equivalents $ 57,153 $ 74,302 Accounts receivable, net 129,433 139,198 Contract assets 9,685 12,579 Inventories 120,430 145,135 Prepaid expenses and other current assets 6,828 6,733 Income tax receivable 3,314 805 Total current assets 326,843 378,752 Property, plant and equipment, net 87,285 90,732 Goodwill 48,614 48,447 Intangible assets, net 19,710 19,830 Operating lease right-of-use assets 19,522 19,826 Deferred income taxes 5,564 4,409 Other assets 2,752 2,163 Total assets $ 510,290 $ 564,159 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 83,229 $ 102,588 Line of credit 20,000 68,000 Accrued compensation 28,931 43,668 Accrued sales discounts, rebates and royalties 10,758 9,766 Accrued income taxes 3,535 6,989 Other accrued liabilities 33,057 35,445 Total current liabilities 179,510 266,456 Long-term liabilities: Operating lease obligations 13,681 15,639 Contingent consideration 292 4,349 Deferred income taxes 1,913 1,703 Income tax payable 1,054 1,600 Other long-term liabilities 539 13 Total liabilities 196,989 289,760 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; 24,391,595 and 24,118,088 shares issued on December 31, 2020 and 2019, respectively 244 241 Paid-in capital 302,084 288,338 Treasury stock, at cost, 10,618,002 and 10,174,199 shares on December 31, 2020 and 2019, respectively ( 295,495 ) ( 277,817 ) Accumulated other comprehensive income (loss) ( 18,522 ) ( 22,781 ) Retained earnings 324,990 286,418 Total stockholders' equity 313,301 274,399 Total liabilities and stockholders' equity $ 510,290 $ 564,159 See Note 5 for further information concerning our purchases from related party vendors. The accompanying notes are an integral part of these consolidated financial statements. 42 Table of Contents UNIVERSAL ELECTRONICS INC. CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share amounts) Year Ended December 31, 2020 2019 2018 Net sales $ 614,680 $ 753,477 $ 680,241 Cost of sales 438,424 583,274 538,437 Gross profit 176,256 170,203 141,804 Research and development expenses 31,450 29,412 23,815 Selling, general and administrative expenses 107,539 125,476 119,654 Operating income (loss) 37,267 15,315 ( 1,665 ) Interest income (expense), net ( 1,422 ) ( 3,918 ) ( 4,690 ) Accrued social insurance adjustment 9,464 — — Gain on sale of Guangzhou factory — — 36,978 Other income (expense), net ( 1,404 ) ( 995 ) ( 4,457 ) Income before provision for income taxes 43,905 10,402 26,166 Provision for income taxes 5,333 6,772 14,242 Net income $ 38,572 $ 3,630 $ 11,924 Earnings per share: Basic $ 2.78 $ 0.26 $ 0.85 Diluted $ 2.72 $ 0.26 $ 0.85 Shares used in computing earnings per share: Basic 13,893 13,879 13,948 Diluted 14,166 14,109 14,060 See Note 5 for further information concerning our purchases from related party vendors. The accompanying notes are an integral part of these consolidated financial statements. 43 Table of Contents UNIVERSAL ELECTRONICS INC. CONSOLIDATED COMPREHENSIVE INCOME (LOSS) STATEMENTS (In thousands) Year Ended December 31, 2020 2019 2018 Net income $ 38,572 $ 3,630 $ 11,924 Other comprehensive income (loss): Change in foreign currency translation adjustment 4,259 ( 2,500 ) ( 3,682 ) Comprehensive income $ 42,831 $ 1,130 $ 8,242 See Note 5 for further information concerning our purchases from related party vendors. The accompanying notes are an integral part of these consolidated financial statements. 44 Table of Contents UNIVERSAL ELECTRONICS INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (In thousands) Common Stock Issued Common Stock in Treasury Paid-in Capital Accumulated Other Comprehensive Income (Loss) Retained Earnings Totals Shares Amount Shares Amount Balance at January 1, 2018 23,760 $ 238 ( 9,703 ) $ ( 262,065 ) $ 265,195 $ ( 16,599 ) $ 270,864 $ 257,633 Net income 11,924 11,924 Currency translation adjustment ( 3,682 ) ( 3,682 ) Shares issued for employee benefit plan and compensation 108 1 1,061 1,062 Purchase of treasury shares ( 413 ) ( 13,824 ) ( 13,824 ) Stock options exercised 35 — 864 864 Shares issued to directors 30 — — — Employee and director stock-based compensation 8,820 8,820 Performance-based common stock warrants 163 163 Balance at December 31, 2018 23,933 239 ( 10,116 ) ( 275,889 ) 276,103 ( 20,281 ) 282,788 262,960 Net income 3,630 3,630 Currency translation adjustment ( 2,500 ) ( 2,500 ) Shares issued for employee benefit plan and compensation 133 2 945 947 Purchase of treasury shares ( 58 ) ( 1,928 ) ( 1,928 ) Stock options exercised 22 — 448 448 Shares issued to directors 30 — — — Employee and director stock-based compensation 8,845 8,845 Performance-based common stock warrants 1,997 1,997 Balance at December 31, 2019 24,118 241 ( 10,174 ) ( 277,817 ) 288,338 ( 22,781 ) 286,418 274,399 Net income 38,572 38,572 Currency translation adjustment 4,259 4,259 Shares issued for employee benefit plan and compensation 169 1 1,135 1,136 Purchase of treasury shares ( 444 ) ( 17,678 ) ( 17,678 ) Stock options exercised 80 1 2,804 2,805 Shares issued to directors 25 1 ( 1 ) — Employee and director stock-based compensation 9,122 9,122 Performance-based common stock warrants 686 686 Balance at December 31, 2020 24,392 $ 244 ( 10,618 ) $ ( 295,495 ) $ 302,084 $ ( 18,522 ) $ 324,990 $ 313,301 See Note 5 for further information concerning our purchases from related party vendors. The accompanying notes are an integral part of these consolidated financial statements. 45 Table of Contents UNIVERSAL ELECTRONICS INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) Year Ended December 31, 2020 2019 2018 Cash provided by operating activities: Net income $ 38,572 $ 3,630 $ 11,924 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 29,735 31,926 33,602 Provision for credit losses 332 441 305 Gain on sale of Guangzhou factory — — ( 36,978 ) Deferred income taxes ( 478 ) ( 1,779 ) 3,967 Shares issued for employee benefit plan 1,136 947 1,062 Employee and director stock-based compensation 9,122 8,845 8,820 Performance-based common stock warrants 686 1,997 163 Impairment of long-term assets 134 1,506 4,907 Accrued social insurance adjustment ( 9,464 ) — — Loss on sale of Ohio call center 712 — — Changes in operating assets and liabilities: Accounts receivable and contract assets 14,884 17,203 5,455 Inventories 28,295 ( 1,914 ) ( 11,215 ) Prepaid expenses and other assets ( 245 ) 4,648 ( 587 ) Accounts payable and accrued liabilities ( 33,543 ) 14,233 ( 7,386 ) Accrued income taxes ( 6,486 ) 3,574 ( 1,184 ) Net cash provided by operating activities 73,392 85,257 12,855 Cash provided by (used for) investing activities: Proceeds from sale of Guangzhou factory — — 51,291 Acquisitions of property, plant and equipment ( 16,862 ) ( 21,313 ) ( 20,142 ) Refund of deposit received toward sale of Guangzhou factory — — ( 5,053 ) Acquisitions of intangible assets ( 6,372 ) ( 2,655 ) ( 2,521 ) Payment on sale of Ohio call center ( 500 ) — — Net cash provided by (used for) investing activities ( 23,734 ) ( 23,968 ) 23,575 Cash provided by (used for) financing activities: Borrowings under line of credit 75,000 72,500 68,000 Repayments on line of credit ( 123,000 ) ( 106,000 ) ( 104,500 ) Proceeds from stock options exercised 2,805 448 864 Treasury stock purchased ( 17,678 ) ( 1,928 ) ( 13,824 ) Contingent consideration payments in connection with business combinations ( 3,091 ) ( 4,251 ) ( 3,858 ) Net cash provided by (used for) financing activities ( 65,964 ) ( 39,231 ) ( 53,318 ) Effect of exchange rate changes on cash and cash equivalents ( 843 ) ( 963 ) 2,756 Net increase (decrease) in cash and cash equivalents ( 17,149 ) 21,095 ( 14,132 ) Cash and cash equivalents at beginning of year 74,302 53,207 67,339 Cash and cash equivalents at end of period $ 57,153 $ 74,302 $ 53,207 Supplemental cash flow information: Income taxes paid $ 12,712 $ 7,275 $ 7,658 Interest paid $ 1,610 $ 4,403 $ 4,981 See Note 5 for further information concerning our purchases from related party vendors. The accompanying notes are an integral part of these consolidated financial statements. 46 Table of Contents UNIVERSAL ELECTRONICS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2020 Note 1 — Description of Business Universal Electronics Inc. ("UEI"), based in Scottsdale, Arizona, designs, develops, manufactures, ships and supports control and sensor technology solutions and a broad line of universal control systems, audio-video ("AV") accessories, and intelligent wireless security and smart home products that are used by the world's leading brands in the video services, consumer electronics, security, home automation, climate control, and home appliance markets. In addition, over the past 35 years, we have developed a broad portfolio of patented technologies and a cloud-based connectivity and control software solution that we license to our customers, including many leading Fortune 500 companies. Distribution methods for our control solutions vary depending on the sales channel. We license our connectivity and control solution technologies across a variety of channels, primarily to original equipment manufacturers ("OEMs"). We distribute remote control devices, integrated circuits, sensors, connected thermostats and AV accessories directly to video and security service providers and OEMs, both domestically and internationally. We also distribute home security sensors and connected thermostats to pro-security installers and hospitality system integrators in the United States and Europe through a network of national and regional distributors and dealers. Additionally, we sell our wireless control devices and AV accessories under the One For All® and private label brand names to retailers through our international subsidiaries and direct to retailers in key markets, such as in the United States, United Kingdom, Germany, France, Spain, and Italy. We utilize third-party distributors for the retail channel in countries where we do not have subsidiaries. As used herein, the terms "we", "us" and "our" refer to Universal Electronics Inc. and its subsidiaries unless the context indicates to the contrary. Note 2 — Summary of Significant Accounting Policies Principles of Consolidation The consolidated financial statements include our accounts and those of our wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in the consolidated financial statements. Reclassifications Certain prior period amounts in the accompanying consolidated financial statements have been reclassified to conform to the current year presentation. These reclassifications did not have a material effect on our previously reported consolidated balance sheets, net income or stockholders' equity. 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. Estimates and Assumptions The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP") requires us to make estimates 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, allowance for credit losses, inventory valuation, impairment of long-lived assets, intangible assets and goodwill, business combinations, income taxes, stock-based compensation expense and performance- 47 Table of Contents UNIVERSAL ELECTRONICS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2020 based common stock warrants. Actual results may differ from these assumptions and estimates, and they may be adjusted as more information becomes available. Any adjustment may be material. Revenue Recognition Revenue is recognized when control of a good or service is transferred to a customer. Control is considered to be transferred when the customer has the ability to direct the use of and obtain substantially all of the remaining benefits of that good or service. Revenues are 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 video 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. Revenue - Product revenue is generated through 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 video services, consumer electronics, security, home automation, climate control, and home appliance market, which are sold through multiple channels. Our performance obligations are satisfied over time or at a point in time, depending on the nature of the product. Our contracts have an anticipated duration of less than a year and consideration may be variable based on indeterminate volumes. Revenue is recognized over time when our performance creates an asset with no alternative use to us (custom products) and we have an enforceable right to payment for performance completed to date, including a reasonable margin, through a contractual commitment from the customer. Custom products are those products for which we are unable to redirect the asset to another customer in the foreseeable future without significant rework. The method for measuring progress towards satisfying a performance obligation for a custom product is based on the costs incurred to date (cost-to-cost method). We believe that the costs associated with production are most closely aligned with the revenue associated with those products. We recognize revenue at a point in time if the criteria for recognizing revenue over time are not met, the title of the goods has transferred and we have a present right to payment. A provision is recorded for estimated sales returns and allowances and is deducted from gross sales to arrive at net sales in the period the related revenue is recorded. These estimates are based on historical sales returns and allowances, analysis of credit memo data and other known factors. Actual returns and claims in any future period are inherently uncertain and thus may differ from our estimates. If actual or expected future returns and claims are significantly greater or lower than the reserves that we have established, we will record a reduction or increase to net sales in the period in which we make such a determination. We license our intellectual property including our patented technologies and database o f control codes. We record license revenue for per-unit based licenses when our customers manufacture or ship a product incorporating our intellectual property and we have a present right to payment. We record revenue over the license period for minimum guarantees. We record revenue upon delivery of intellectual property for fixed up-front fee licenses. Tiered royalties are recorded on a straight-line basis according to the forecasted per-unit fees taking into account the pricing tiers. Contract assets - Contract assets represent the value of revenue recognized over time for which we have not yet invoiced the customer. Generally, we invoice the customer within 90 days of revenue recognition. Contract liabilities - A contract liability is recorded when consideration is received from a customer prior to fully satisfying a performance obligation in a contract. Our contract liabilities primarily consist of cash received in advance for non-recurring engineering and tooling services. These contract liabilities will be recognized as revenues when control of the related product or service is transferred to the customer. See Note 12 for further information concerning contract liabilities. Other performance obligations - Payment terms are typically on open credit terms consistent with industry practice and do not have significant financing components. We accrue for discounts and rebates based on historical experience and our expectations regarding future sales to our customers. Accruals for discounts and rebates are recorded as a reduction to sales in the same period as the related revenue. Such discounts were $ 15.9 million at December 31, 2020 and 2019. Changes in such accruals may be required if future rebates and incentives differ from our estimates. 48 Table of Contents UNIVERSAL ELECTRONICS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2020 Trade receivables are recorded at the invoiced amount and do not bear interest. Sales allowances are recognized as reductions of trade receivables to arrive at trade receivables, net if the sales allowances are distributed in customer account credits. See Note 4 for further information concerning our sales allowances. We present all non-income government-assessed taxes (sales, use and value added taxes) collected from our customers and remitted to governmental agencies on a net basis (excluded from revenue) in our financial statements. The government-assessed taxes are recorded in our consolidated balance sheets until they are remitted to the government agency. Income Taxes We provide for income taxes utilizing the asset and liability approach of accounting for income taxes. Under this approach, deferred taxes represent the future tax consequences expected to occur when the reported amounts of assets and liabilities are recovered or paid. Deferred taxes are presented net as non-current. The provision for income taxes generally represents income taxes paid or payable for the current year plus the change in deferred taxes during the year. Deferred taxes result from the differences between the financial and tax bases of our assets and liabilities and are adjusted for changes in tax rates and tax laws when changes are enacted. Valuation allowances are recorded to reduce deferred tax assets when a judgment is made that is considered more likely than not that a tax benefit will not be realized. A decision to record a valuation allowance results in an increase in income tax expense or a decrease in income tax benefit. If the valuation allowance is released in a future period, income tax expense will be reduced accordingly. The calculation of tax liabilities involves dealing with uncertainties in the application of complex global tax regulations. The impact of an uncertain income tax position is recognized at the largest amount that is "more likely than not" to be sustained upon audit by the relevant taxing authority. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. If the estimate of tax liabilities proves to be less than the ultimate assessment, a further charge to expense would result. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will 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 continue to assess the need for a valuation allowance on the deferred tax asset by evaluating both positive and negative evidence that may exist. Any adjustment to the net deferred tax asset valuation allowance would be recorded in the income statement for the period that the adjustment is determined to be required. The Tax Cuts and Jobs Act (the "Tax Act") subjects a U.S. shareholder to tax on Global Intangible Low-Taxed Income ("GILTI") earned by certain foreign subsidiaries. We have elected to account for GILTI in the year the tax is incurred as a period expense. See Note 10 for further information concerning income taxes. Research and Development Research and development costs are expensed as incurred and consist primarily of salaries, employee benefits, supplies and materials. Advertising Advertising costs are expensed as incurred. Advertising expense totaled $ 0.9 million, $ 0.9 million, and $ 1.3 million for the years ended December 31, 2020, 2019 and 2018, respectively. Shipping and Handling Fees and Costs We include shipping and handling fees billed to customers in net sales. Shipping and handling costs associated with in-bound freight are recorded in cost of sales. Other shipping and handling costs are included in selling, general and administrative expenses. Shipping and handling fees and costs totaled $ 9.9 million, $ 13.2 million and $ 12.2 million for the years ended December 31, 2020, 2019 and 2018, respectively. 49 Table of Contents UNIVERSAL ELECTRONICS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2020 Stock-Based Compensation We recognize the grant date fair value of stock-based compensation awards as expense in proportion to vesting during the requisite service period, which ranges from one to four years . Forfeitures of stock-based awards are accounted for as they occur. Upon the exercise of stock options or the vesting of restricted stock awards, newly issued shares of our common stock are issued. We determine the fair value of restricted stock awards utilizing the average of the high and low trading prices of our common shares on the date they were granted. The fair value of stock options granted to employees and directors is determined utilizing the Black-Scholes option pricing model. The assumptions utilized in the Black-Scholes model include the risk-free interest rate, expected volatility, expected life in years and dividend yield. The risk-free interest rate over the expected term is equal to the prevailing U.S. Treasury note rate over the same period. Expected volatility is determined utilizing historical volatility over a period of time equal to the expected life of the stock option. Expected life is computed utilizing historical exercise patterns and post-vesting behavior. The dividend yield is assumed to be zero since we have not historically declared dividends and do not have any plans to declare dividends in the future. See Note 15 for further information regarding stock-based compensation. Performance-Based Common Stock Warrants The measurement date for performance-based common stock warrants is the date on which the warrants vest. We recognize the fair value of performance-based common stock warrants as a reduction to net sales ratably as the warrants vest based on the projected number of warrants that will vest, the proportion of the performance criteria achieved by the customer within the period relative to the total performance required (aggregate purchase levels) for the warrants to vest and the fair value of the related unvested warrants. If we do not have a reliable forecast of future purchases to be made by the customer by which to estimate the number of warrants that will vest, then the maximum number of potential warrants is assumed until such time that a reliable forecast of future purchases is available. To the extent that our projections change in the future as to the number of warrants that will vest, a cumulative catch-up adjustment will be recorded in the period in which our estimates change. The FASB issued guidance in November 2019 that clarifies the accounting for share-based payments issued as sales incentives to customers. The guidance requires that stock-based compensation expense be recorded as a reduction in the transaction price on the basis of the grant-date fair value. The transition provisions require that equity-classified awards be measured at the adoption date fair value if the measurement date has not been established prior to the adoption date. The measurement periods for the first two successive two-year periods of our outstanding performance-based common stock warrants were completed prior to adoption and were not impacted by this updated guidance. The measurement period for the final two-year period began on January 1, 2020, and, accordingly, we measured the fair value of the award as of our adoption date on January 1, 2020 using the Black-Scholes option pricing model. The assumptions utilized in the Black-Scholes model include the price of our common stock, the risk-free interest rate, expected volatility, expected life in years and dividend yield. The price of our common stock is equal to the average of the high and low trade prices of our common stock on the grant date. The risk-free interest rate over the expected life is equal to the prevailing U.S. Treasury note rate over the same period. Expected volatility is determined utilizing historical volatility over a period of time equal to the expected life of the warrant. Expected life is equal to the remaining contractual term of the warrant. The dividend yield is assumed to be zero since we have not historically declared dividends and do not have any plans to declare dividends in the future. See Note 16 for further information regarding performance-based common stock warrants. Foreign Currency Translation and Foreign Currency Transactions We use the U.S. Dollar as our functional currency for financial reporting purposes. The functional currency for most of our foreign subsidiaries is their local currency. The translation of foreign currencies into U.S. Dollars is performed for balance sheet accounts using exchange rates in effect at the balance sheet dates and for revenue and expense accounts using the average exchange rate during each period. The gains and losses resulting from the translation are included in the foreign currency translation adjustment account, a component of accumulated other comprehensive income in stockholders' equity, and are excluded from net income. The portions of intercompany accounts receivable and accounts payable that are intended for settlement are translated at exchange rates in effect at the balance sheet date. Our intercompany foreign investments and long-term debt that are not intended for settlement are translated using historical exchange rates. 50 Table of Contents UNIVERSAL ELECTRONICS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2020 Transaction gains and losses generated by the effect of changes in foreign currency exchange rates on recorded assets and liabilities denominated in a currency different than the functional currency of the applicable entity are recorded in other income (expense), net. See Note 17 for further information concerning transaction gains and losses. Earnings Per Share Basic earnings per share is computed by dividing net income available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed by dividing net income by the weighted average number of common shares and dilutive potential common shares, including the dilutive effect of stock options, restricted stock and common stock warrants, outstanding during the period. Dilutive potential common shares for all periods presented are computed utilizing the treasury stock method; however, dilutive potential common shares are excluded where their inclusion would be anti-dilutive. Financial Instruments Our financial instruments consist primarily of cash and cash equivalents, accounts receivable, accounts payable, accrued liabilities, debt and derivatives. The carrying value of our financial instruments, excluding derivatives, approximates fair value as a result of their short maturities. Our derivatives are carried at fair value. See Notes 3, 4, 9, 11, 12 and 19 for further information concerning our financial instruments. Cash and Cash Equivalents Cash and cash equivalents include cash accounts and all investments purchased with initial maturities of three months or less. Domestically, we generally maintain balances in excess of federally insured limits. 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. 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. See Note 3 for further information concerning cash and cash equivalents. Allowance for Credit Losses We maintain an allowance for credit losses for estimated losses on our trade receivables, resulting from the inability of our customers to make payments for products sold or services rendered. The allowance for credit losses is based on a variety of factors, including credit reviews, historical experience, length of time receivables are past due, current economic trends and changes in customer payment behavior. We also record specific provisions for individual accounts when we become aware of a customer's inability to meet its financial obligations to us, such as in the case of bankruptcy filings or deterioration in the customer's operating results or financial position. If circumstances related to a customer change, our estimates of the recoverability of the receivables would be further adjusted. See Note 4 for further information concerning our allowance for credit losses. Inventories Inventories consist of remote controls, wireless sensors and AV accessories, as well as the related component parts and raw materials. Inventoriable costs include materials, labor, freight-in and manufacturing overhead related to the purchase and production of inventories. We value our inventories at the lower of cost or net realizable value. Cost is determined using the first-in, first-out method. We attempt to carry inventories in amounts necessary to satisfy our customer requirements on a timely basis. See Note 5 for further information concerning our inventories and suppliers. Product innovations and technological advances may shorten a given product's life cycle. We continually monitor our inventories to identify any excess or obsolete items on hand. We write down our inventories for estimated excess and obsolescence in an amount equal to the difference between the cost of the inventories and estimated net realizable value. These estimates are based upon management's judgment about future demand and market conditions. 51 Table of Contents UNIVERSAL ELECTRONICS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2020 Property, Plant, and Equipment Property, plant, and equipment are recorded at cost. The cost of property, plant, and equipment includes the purchase price of the asset and all expenditures necessary to prepare the asset for its intended use. We capitalize additions and improvements and expense maintenance and repairs as incurred. We capitalize certain internal and external costs incurred to acquire or create internal use software, principally related to software coding, designing system interfaces and installation and testing of the software. For financial reporting purposes, depreciation is calculated using the straight-line method over the estimated useful lives of the respective assets. When assets are retired or otherwise disposed of, the cost and accumulated depreciation are removed from the appropriate accounts and any gain or loss is included as a component of depreciation expense. Estimated useful lives are as follows: Buildings 25 - 33 years Tooling and equipment 2 - 7 Years Computer equipment 3 - 5 Years Software 3 - 7 Years Furniture and fixtures 5 - 8 Years Leasehold and building improvements Lesser of lease term or useful life (approximately 2 to 10 years) See Note 6 for further information concerning our property, plant, and equipment. Leases We determine if an arrangement is a lease at inception and determine the classification of the lease, as either operating or finance, at commencement. Operating leases are included in operating lease right-of-use ("ROU") assets, other accrued liabilities and long-term operating lease obligations on our consolidated balance sheets. We presently do not have any finance leases. ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at the commencement date of the lease based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at the commencement date, including the lease term, in determining the present value of lease payments. Operating lease ROU assets also factor in any lease payments made, initial direct costs and lease incentives received. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Some of our leases include options to extend with a range of one to five years with up to two extensions at the then current market rate. Lease expense for lease payments is recognized on a straight-line basis over the lease term. Leases with an initial term of twelve months or less, or on a month-to-month basis, are not recorded on the balance sheet and are recognized on a straight-line basis over the lease term. If applicable, we combine lease and non-lease components, which primarily relate to ancillary expenses associated with real estate leases such as common area maintenance charges and management fees. See Note 8 for further information concerning our leases. Goodwill We record the excess purchase price of net tangible and intangible assets acquired over their estimated fair value as goodwill. We evaluate the carrying value of goodwill on December 31 of each year and between annual evaluations if events occur or circumstances change that may reduce the fair value of the reporting unit below its carrying amount. Such circumstances may include, but are not limited to: (1) a significant adverse change in legal factors or in business climate, (2) unanticipated competition, or (3) an adverse action or assessment by a regulator. 52 Table of Contents UNIVERSAL ELECTRONICS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2020 We perform our annual impairment test using a qualitative assessment weighing the relative impact of factors that are specific to our single reporting unit as well as industry and macroeconomic factors. Based on the qualitative assessment performed, considering the aggregation of the relevant factors, we concluded that it is not more likely than not that the fair value of our single reporting unit is less than the carrying value. Therefore, performing a quantitative impairment test was unnecessary. See Note 7 for further information concerning goodwill. Long-Lived and Intangible Assets Impairment Intangible assets consist of distribution rights, patents, trademarks and trade names, developed and core technologies, capitalized software development costs and customer relationships. Capitalized amounts related to patents represent external legal costs for the application, maintenance and extension of the useful life of patents. Intangible assets are amortized using the straight-line method over their estimated period of benefit, ranging from two to 15 years. We assess the impairment of long-lived assets and intangible assets whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors considered important which may trigger an impairment review include the following: (1) significant underperformance relative to historical or projected future operating results; (2) significant changes in the manner or use of the assets or strategy for the overall business; (3) significant negative industry or economic trends; and (4) a significant decline in our stock price for a sustained period. We conduct an impairment review when we determine that the carrying value of a long-lived or intangible asset may not be recoverable based upon the existence of one or more of the above indicators of impairment. The asset is impaired if its carrying value exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. In assessing recoverability, we make assumptions regarding estimated future cash flows and other factors. An impairment loss is the amount by which the carrying value of an asset exceeds its fair value. We estimate fair value utilizing the projected discounted cash flow method and a discount rate determined by our management to be commensurate with the risk inherent in our current business model. When calculating fair value, we make assumptions regarding estimated future cash flows, discount rates and other factors. See Note 6 for further information concerning long-lived assets. See Note 7 for further information concerning intangible assets. Business Combinations We allocate the purchase price of acquired businesses to the tangible and intangible assets and the liabilities assumed based on their estimated fair values on the acquisition date. The excess of the purchase price over the fair value of net assets acquired is recorded as goodwill. We engage independent third-party appraisal firms to assist us in determining the fair values of assets acquired and liabilities assumed. Such valuations require management to make significant fair value estimates and assumptions, especially with respect to intangible assets and contingent consideration. Management estimates the fair value of certain intangible assets and contingent consideration by utilizing the following (but not limited to): • future cash flow from customer contracts, customer lists, distribution agreements, acquired developed technologies, trademarks, trade names and patents; • expected costs to complete development of in-process technology into commercially viable products and cash flows from the products once they are completed; • brand awareness and market position, as well as assumptions regarding the period of time the brand will continue to be used in our product portfolio; and • discount rates utilized in discounted cash flow models. Results of operations and cash flows of acquired businesses are included in our operating results from the date of acquisition. In those circumstances where an acquisition involves a contingent consideration arrangement, we recognize a liability equal to the fair value of the contingent payments we expect to make as of the acquisition date. We re-measure this liability at each reporting period and record changes in the fair value within operating expenses. Increases or decreases in the fair value of the contingent consideration liability can result from changes in discount periods and rates, as well as changes in the timing and 53 Table of Contents UNIVERSAL ELECTRONICS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2020 amount of earnings estimates or in the timing or likelihood of achieving earnings-based milestones. Contingent consideration is recorded in other accrued liabilities and long-term contingent consideration in our consolidated balance sheets. See Note 12 for further information concerning contingent consideration. Derivatives Our foreign currency exposures are primarily concentrated in the Argentinian Peso, Brazilian Real, British Pound, Chinese Yuan Renminbi, Euro, Indian Rupee, Japanese Yen, and Mexican Peso. We periodically enter into foreign currency exchange contracts with terms normally lasting less than nine months , to protect against the adverse effects that exchange-rate fluctuations may have on our foreign currency-denominated receivables, payables, cash flows and reported income. We do not enter into financial instruments for speculation or trading purposes. The derivatives we enter into have not qualified for hedge accounting. The gains and losses on both the derivatives and the foreign currency-denominated balances are recorded as foreign exchange transaction gains or losses and are classified in other income (expense), net. Derivatives are recorded on the balance sheet at fair value. The estimated fair value of derivative financial instruments represents the amount required to enter into similar offsetting contracts with similar remaining maturities based on quoted market prices. See Note 19 for further information concerning derivatives. Fair-Value Measurements We measure fair value using the framework established by the FASB in ASC Topic 820, for fair value measurements and disclosures. This framework requires fair value to be determined based on the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants. The valuation techniques are based upon observable and unobservable inputs. Observable or market inputs reflect market data obtained from independent sources. Unobservable inputs require management to make certain assumptions and judgments based on the best information available. Observable inputs are the preferred data source. These two types of inputs result in the following fair value hierarchy: Level 1: Quoted prices (unadjusted) for identical instruments in active markets. Level 2: Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 3: Prices or valuations that require management inputs that are both significant to the fair value measurement and unobservable. Recently Adopted Accounting Pronouncements In June 2016, the FASB issued ASU 2016-13, "Measurement of Credit Losses on Financial Instruments", which updates existing guidance for measuring and recording credit losses on financial assets measured at amortized cost by replacing the incurred loss impairment model with an expected loss impairment model. Accordingly, financial assets are presented at amortized costs net of an allowance for expected credit losses over the lifetime of the assets. We adopted this new guidance on January 1, 2020 using the modified retrospective method. Our adoption did not result in a cumulative adjustment in our consolidated statement of financial position nor materially impact our consolidated statement of financial position, results of operations and cash flows. See Note 3 for further discussion on our allowance for credit losses. In January 2017, the FASB issued ASU 2017-04, "Simplifying the Test for Goodwill Impairment", which simplifies how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Instead, if the carrying amount of a reporting unit exceeds its fair value, an impairment loss will be recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to the reporting unit. Our adoption on January 1, 2020 did not have a material impact on our consolidated statement of financial position, results of operations and cash flows. 54 Table of Contents UNIVERSAL ELECTRONICS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2020 In November 2019, the FASB issued ASU 2019-08, "Improvements - Share-based Consideration Payable to a Customer", which clarifies the accounting for share-based payments issued as sales incentives to customers. The guidance requires that stock-based compensation expense is recorded as a reduction in the transaction price on the basis of the grant-date fair value. The grant-date fair value is calculated using the provisions defined under Accounting Standards Codification "Stock Compensation". The transition provisions require that equity-classified awards be measured at the adoption date fair value if the measurement date has not been established prior to the adoption date. This guidance impacts the measurement date of our performance-based common stock warrants. The measurement periods for the first two successive two-year periods of our outstanding performance-based common stock warrants were completed prior to adoption and were not impacted by this updated guidance. The measurement period for the final two-year period began on January 1, 2020, and accordingly, we measured the fair value of the award as of our adoption date on January 1, 2020. We adopted this guidance using the modified retrospective method. Our adoption did not result in a cumulative adjustment in our consolidated statement of financial position. See Note 16 for further discussion on the performance-based common stock warrants. Other Accounting Pronouncements Accounting Updates Not Yet Effective In December 2019, the FASB issued ASU 2019-12, "Simplifying the Accounting for Income Taxes." This guidance, among other provisions, eliminates certain exceptions to existing guidance related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. This guidance also requires an entity to reflect the effect of an enacted change in tax laws or rates in its effective income tax rate in the first interim period that includes the enactment date of the new legislation, aligning the timing of recognition of the effects from enacted tax law changes on the effective income tax rate with the effects on deferred income tax assets and liabilities. Under existing guidance, an entity recognizes the effects of the enacted tax law change on the effective income tax rate in the period that includes the effective date of the tax law. ASU 2019-12 is effective for interim and annual periods beginning after December 15, 2020, with early adoption permitted. We do not expect adoption of ASU 2019-12 to have a material impact on our consolidated statement of financial position, results of operations and cash flows. Note 3 — Cash and Cash Equivalents Cash and cash equivalents were held in the following geographic regions: December 31, (In thousands) 2020 2019 North America $ 9,812 $ 16,751 People's Republic of China ("PRC") 14,244 13,700 Asia (excluding the PRC) 13,518 21,691 Europe 10,926 9,081 South America 8,653 13,079 Total cash and cash equivalents $ 57,153 $ 74,302 Note 4 — Revenue and Accounts Receivable, Net Revenue Details The pattern of revenue recognition was as follows: Year Ended December 31, (In thousands) 2020 2019 2018 Goods and services transferred at a point in time $ 495,033 $ 558,361 $ 577,085 Goods and services transferred over time 119,647 195,116 103,156 Net sales $ 614,680 $ 753,477 $ 680,241 55 Table of Contents UNIVERSAL ELECTRONICS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2020 Our net sales to external customers by geographic area were as follows: Year Ended December 31, (In thousands) 2020 2019 2018 United States $ 255,651 $ 407,291 $ 315,214 Asia (excluding the PRC) 117,142 104,324 124,657 Europe 108,185 94,491 85,228 People's Republic of China 88,246 83,677 91,446 Latin America 17,481 30,006 30,954 Other 27,975 33,688 32,742 Total net sales $ 614,680 $ 753,477 $ 680,241 Specific identification of the customer billing location was the basis used for attributing revenues from external customers to geographic areas. Net sales to the following customer totaled more than 10% of our net sales: Year Ended December 31, 2020 2019 2018 $ (thousands) % of Net Sales $ (thousands) % of Net Sales $ (thousands) % of Net Sales Comcast Corporation $ 123,574 20.1 % $ 119,561 15.9 % $ 119,809 17.6 % Accounts Receivable, Net Accounts receivable, net were as follows: December 31, (In thousands) 2020 2019 Trade receivables, gross $ 122,828 $ 130,888 Allowance for credit losses ( 1,412 ) ( 1,492 ) Allowance for sales returns ( 761 ) ( 623 ) Trade receivables. net 120,655 128,773 Other 8,778 10,425 Accounts receivable, net $ 129,433 $ 139,198 Allowance for Credit Losses Changes in the allowance for credit losses were as follows: (In thousands) Year Ended December 31, 2020 2019 2018 Balance at beginning of period $ 1,492 $ 1,121 $ 1,064 Additions to costs and expenses 332 441 305 Cash receipts ( 157 ) — — Write-offs/Foreign exchange effects ( 255 ) ( 70 ) ( 248 ) Balance at end of period $ 1,412 $ 1,492 $ 1,121 56 Table of Contents UNIVERSAL ELECTRONICS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2020 Trade receivables associated with these significant customers that totaled more than 10% of our accounts receivable, net were as follows: December 31, 2020 2019 $ (thousands) % of Accounts Receivable, Net $ (thousands) % of Accounts Receivable, Net Comcast Corporation $ 19,782 15.3 % $ — (1) — % (1) Dish Network Corporation $ — (1) — % (1) $ 14,677 10.5 % (1) Trade receivables associated with this customer did not total more than 10% of our accounts receivable, net for the indicated period. Note 5 — Inventories and Significant Suppliers Inventories were as follows: December 31, (In thousands) 2020 2019 Raw materials $ 44,273 $ 56,352 Components 16,954 24,599 Work in process 6,211 1,526 Finished goods 52,992 62,658 Inventories $ 120,430 $ 145,135 Significant Suppliers We purchase integrated circuits, components and finished goods from multiple sources. Purchases from our supplier, Qorvo International Pte Ltd., totaled $ 43.5 million or 14.2 % of our total inventory purchases for the year ended December 31, 2020. No supplier totaled 10% or more of our total inventory purchases for the years ended December 31, 2019 and 2018. No supplier totaled 10% or more of our accounts payable balance at December 31, 2020. Accounts payable from our supplier, Zhejiang Zhen You Electronics Co. Ltd., totaled $ 11.4 million or 11.1 % of our accounts payable balance at December 31, 2019. Related Party Supplier During the year ended December 31, 2018, we purchased certain printed circuit board assemblies from a related party supplier. The supplier was considered a related party for financial reporting purposes because our Senior Vice President of Strategic Operations owned 40 % of this supplier. In the second quarter of 2018, our Senior Vice President sold his interest in this supplier, and thus this supplier is no longer considered a related party. Total inventory purchases made from this supplier while it was a related party were $ 1.1 million during the twelve months ended December 31, 2018. 57 Table of Contents UNIVERSAL ELECTRONICS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2020 Note 6 — Property, Plant, and Equipment, Net Property, plant, and equipment, net were as follows: December 31, (In thousands) 2020 2019 Buildings $ 19,984 $ 18,570 Computer equipment 10,213 9,935 Furniture and fixtures 3,972 3,905 Leasehold and building improvements 39,656 37,527 Machinery and equipment 101,117 94,274 Software 24,915 25,910 Tooling 34,379 32,267 234,236 222,388 Accumulated depreciation ( 154,216 ) ( 135,254 ) 80,020 87,134 Construction in progress 7,265 3,598 Total property, plant, and equipment, net $ 87,285 $ 90,732 Depreciation expense was $ 23.2 million, $ 24.7 million and $ 26.4 million for the years ended December 31, 2020, 2019, and 2018, respectively. During the year ended December 31, 2018, we incurred $ 2.9 million in impairment on tooling and equipment as a result of the transition of manufacturing operations between our PRC-based manufacturing facilities following the closure of our Guangzhou factory, which was sold in 2018. We incurred an additional $ 0.1 million and $ 2.0 million of impairment on factory equipment during the years ended December 31, 2019 and 2018, respectively, as a result of the transition of certain manufacturing operations out of the PRC in response to tariffs enacted in the U.S. in 2018 on certain products manufactured in the PRC and imported into the U.S. These impairment charges, aggregating to $ 0.1 million and $ 4.9 million, are recorded within cost of sales for the year ended December 31, 2019 and 2018, respectively. Impairment charges were immaterial for the year ended December 31, 2020. Construction in progress was as follows: December 31, (In thousands) 2020 2019 Leasehold and building improvements $ 2,487 $ 574 Machinery and equipment 3,075 1,428 Software 213 518 Tooling 1,397 759 Other 93 319 Total construction in progress $ 7,265 $ 3,598 We expect that most of the assets under construction will be placed into service during the first six months of 2021. We will begin to depreciate the cost of these assets under construction once they are placed into service. 58 Table of Contents UNIVERSAL ELECTRONICS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2020 Long-lived tangible assets by geographic area, which include property, plant, and equipment, net and operating lease right-of-use assets, were as follows: December 31, (In thousands) 2020 2019 United States $ 15,411 $ 19,938 People's Republic of China 64,197 67,625 Mexico 22,410 16,644 All other countries 4,789 6,351 Total long-lived tangible assets $ 106,807 $ 110,558 Note 7 — Goodwill and Intangible Assets, Net Goodwill Changes in the carrying amount of goodwill were as follows: (In thousands) Balance at December 31, 2018 $ 48,485 Foreign exchange effects ( 38 ) Balance at December 31, 2019 48,447 Foreign exchange effects 167 Balance at December 31, 2020 $ 48,614 We conducted annual goodwill impairment reviews on December 31, 2020, 2019, and 2018. Based on the analysis performed, we determined that our goodwill was not impaired. Intangible Assets, Net The components of intangible assets, net were as follows: December 31, 2020 2019 (In thousands) Gross (1) Accumulated Amortization (1) Net (1) Gross (1) Accumulated Amortization (1) Net (1) Capitalized software development costs ( 2 years) $ 477 $ — $ 477 $ — $ — $ — Customer relationships ( 10 - 15 years) 8,100 ( 4,329 ) 3,771 32,534 ( 25,956 ) 6,578 Developed and core technology ( 5 - 15 years) 4,080 ( 3,044 ) 1,036 12,480 ( 10,016 ) 2,464 Distribution rights ( 10 years) 352 ( 261 ) 91 322 ( 210 ) 112 Patents ( 10 years) 21,601 ( 7,574 ) 14,027 16,587 ( 6,491 ) 10,096 Trademarks and trade names ( 10 years) 800 ( 492 ) 308 2,785 ( 2,205 ) 580 Total intangible assets, net $ 35,410 $ ( 15,700 ) $ 19,710 $ 64,708 $ ( 44,878 ) $ 19,830 (1) This table excludes the gross value of fully amortized intangible assets totaling $ 42.7 million and $ 7.4 million on December 31, 2020 and 2019, respectively. 59 Table of Contents UNIVERSAL ELECTRONICS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2020 Amortization expense is recorded in selling, general and administrative expenses, except amortization expense related to capitalized software development costs, which is recorded in cost of sales. Amortization expense by statement of operations caption was as follows: Year Ended December 31, (In thousands) 2020 2019 2018 Cost of sales $ — $ — $ 103 Selling, general and administrative expenses 6,500 7,192 7,081 Total amortization expense $ 6,500 $ 7,192 $ 7,184 Estimated future annual amortization expense related to our intangible assets at December 31, 2020, is as follows: (In thousands) 2021 $ 3,259 2022 3,386 2023 3,240 2024 2,419 2025 2,150 Thereafter 5,256 Total $ 19,710 The remaining weighted average amortization period of our intangible assets is 6.6 years. Note 8 — Leases We have entered into various operating lease agreements for automobiles, offices and manufacturing facilities throughout the world. At December 31, 2020, our operating leases had remaining lease terms of up to 40 years, including any reasonably probable extensions. Rent expense under the Company's operating leases during the years ended December 31, 2018, prior to our adoption of the new lease guidance on January 1, 2019, was $ 4.9 million. Lease balances within our consolidated balance sheet were as follows: (In thousands) December 31, 2020 December 31, 2019 Assets: Operating lease right-of-use assets $ 19,522 $ 19,826 Liabilities: Other accrued liabilities $ 6,094 $ 4,903 Long-term operating lease obligations 13,681 15,639 Total lease liabilities $ 19,775 $ 20,542 We recorded an impairment of a ROU asset of $ 0.8 million during the fourth quarter of the year ended December 31, 2019. This impairment was associated with the sale of our call center in Euclid, Ohio, which was completed in February 2020. 60 Table of Contents UNIVERSAL ELECTRONICS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2020 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: Year Ended December 31, (In thousands) 2020 2019 Cost of sales $ 1,896 $ 1,945 Selling, general and administrative expenses 4,040 4,389 Total operating lease expense $ 5,936 $ 6,334 Operating cash outflows from operating leases $ 6,552 $ 6,617 Operating lease right-of-use assets obtained in exchange for lease obligations $ 3,743 $ 4,302 The weighted average remaining lease liability term and the weighted average discount rate were as follows: Year Ended December 31, 2020 2019 Weighted average lease liability term (in years) 3.70 4.30 Weighted average discount rate 3.84 % 4.50 % 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 December 31, 2020. The reconciliation excludes short-term leases that are not recorded on the balance sheet. (In thousands) 2021 $ 6,812 2022 6,128 2023 3,557 2024 2,172 2025 1,628 Thereafter 964 Total lease payments 21,261 Less: imputed interest ( 1,486 ) Total lease liabilities $ 19,775 At December 31, 2020, we had four operating leases that had not yet commenced with terms ranging from approximately two to four years . The total initial lease liability associated with these leases is $ 0.4 million, which is not reflected within the maturity schedule above. On January 29, 2021, we entered into an agreement with the landlord of our Euclid, Ohio lease and the buyer of our call center, thereby releasing us from all obligations under the lease. The associated December 31, 2020 lease liability of $ 0.7 million was reversed in January 2021. Rental Costs During Construction Rental costs associated with operating leases incurred during a construction period were expensed for the years ended December 31, 2020, 2019 and 2018. Prepaid Land Lease We operate one factory within the PRC on which the land is leased from the government as of December 31, 2020. This land lease was prepaid to the PRC government at the time our subsidiary occupied the land. We have obtained a land-use right certificate for the land pertaining to this factory. The factory is located in the city of Yangzhou in the Jiangsu province. The remaining net book value of this operating lease ROU was $ 2.4 million at December 31, 2020, and is being amortized on a straight-line basis over the remaining term of approximately 38 years. The buildings located on this land had a net book value of $ 16.9 million at December 31, 2020 and are being depreciated over a remaining weighted average period of 19 years. 61 Table of Contents UNIVERSAL ELECTRONICS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2020 Note 9 — Line of Credit On November 1, 2019, we extended the term of our Second Amended and Restated Credit Agreement ("Second Amended Credit Agreement") with U.S. Bank National Association ("U.S. Bank") to November 1, 2021. The Second Amended Credit Agreement provided for a $ 130.0 million revolving line of credit ("Credit Line") through June 30, 2019 and currently provides for a $ 125.0 million Credit Line through its expiration date. 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, of which there were $ 2.7 million at December 31, 2020. On January 7, 2021, we executed an amendment to extend the term of our Second Amended Credit Agreement to November 1, 2022. 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 which controls our manufacturing factories in the PRC. Under the Second 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 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 Second Amended Credit Agreement. The interest rates in effect at December 31, 2020 and 2019 were 1.39 % and 3.03 %, respectively. There are no commitment fees or unused line fees under the Second Amended Credit Agreement. The amendment executed on January 7, 2021 defines the Secured Overnight Financing Rate ("SOFR") as a replacement benchmark for LIBOR upon its phase out. 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 Second Amended Credit Agreement contains other customary affirmative and negative covenants and events of default. As of December 31, 2020, we were in compliance with the covenants and conditions of the Second Amended Credit Agreement. At December 31, 2020, we had $ 20.0 million outstanding under the Credit Line. Our total interest expense on borrowings was $ 1.6 million, $ 4.3 million and $ 5.0 million during the years ended December 31, 2020, 2019 and 2018, respectively. Note 10 — Income Taxes In 2020, 2019 and 2018, pre-tax income (loss) was attributed to the following jurisdictions: Year Ended December 31, (In thousands) 2020 2019 2018 Domestic operations $ ( 15,711 ) $ ( 28,929 ) $ ( 28,482 ) Foreign operations 59,616 39,331 54,648 Total $ 43,905 $ 10,402 $ 26,166 62 Table of Contents UNIVERSAL ELECTRONICS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2020 The provision for income taxes charged to operations was as follows: Year Ended December 31, (In thousands) 2020 2019 2018 Current tax expense: U.S. federal $ ( 193 ) $ ( 188 ) $ ( 1,074 ) State and local ( 54 ) 82 83 Foreign 6,525 8,217 10,829 Total current 6,278 8,111 9,838 Deferred tax (benefit) expense: U.S. federal — — 3,961 State and local — — 1,930 Foreign ( 945 ) ( 1,339 ) ( 1,487 ) Total deferred ( 945 ) ( 1,339 ) 4,404 Total provision for income taxes $ 5,333 $ 6,772 $ 14,242 Net deferred tax assets were comprised of the following: December 31, (In thousands) 2020 2019 Deferred tax assets: Accrued liabilities $ — $ 4,070 Amortization of intangible assets 1,904 2,169 Capitalized inventory costs 2,945 3,156 Depreciation 2,530 426 Income tax credits 15,558 11,800 Inventory reserves 3,383 2,887 Net operating losses 2,844 2,644 Operating lease obligations 4,639 7,878 Stock-based compensation 4,600 4,018 Other 409 71 Total deferred tax assets 38,812 39,119 Deferred tax liabilities: Accrued liabilities ( 1,939 ) — Allowance for credit losses ( 710 ) ( 270 ) Right of use assets ( 4,577 ) ( 7,480 ) Other ( 29 ) ( 3,866 ) Total deferred tax liabilities ( 7,255 ) ( 11,616 ) Net deferred tax assets before valuation allowance 31,557 27,503 Less: Valuation allowance ( 27,906 ) ( 24,797 ) Net deferred tax assets $ 3,651 $ 2,706 63 Table of Contents UNIVERSAL ELECTRONICS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2020 The provision for income taxes differs from the amount of income tax determined by applying the applicable U.S. statutory federal income tax rate to pre-tax income from operations as a result of the following: Year Ended December 31, (In thousands) 2020 2019 2018 Tax provision at statutory U.S. rate $ 9,220 $ 2,185 $ 5,495 Increase (decrease) in tax provision resulting from: Federal research and development credits ( 2,119 ) ( 884 ) ( 713 ) Foreign permanent benefit ( 2,842 ) ( 856 ) ( 7,077 ) Foreign tax rate differential ( 1,595 ) ( 1,810 ) ( 2,079 ) Foreign undistributed earnings, net of credits 3,319 1,181 5,329 Non-deductible items 1,637 1,236 1,197 Non-territorial income ( 2,493 ) ( 1,806 ) ( 1,079 ) Provision to return ( 343 ) 584 — State and local taxes, net ( 1,932 ) ( 1,903 ) ( 1,792 ) Stock-based compensation ( 266 ) 262 213 Tax rate change ( 1,527 ) ( 412 ) 466 Uncertain tax positions ( 1,565 ) ( 294 ) ( 159 ) Valuation allowance 3,109 7,524 8,057 Withholding tax 2,320 1,082 5,454 Other 410 683 930 Tax provision $ 5,333 $ 6,772 $ 14,242 At December 31, 2020, we had federal and state Research and Experimentation ("R&E") income tax credit carryforwards of $ 3.7 million and $ 11.3 million, respectively. The federal R&E income tax credits begin expiring in 2038. The state R&E income tax credits do not have an expiration date. At December 31, 2020, we had state and foreign net operating loss carryforwards of $ 37.3 million and $ 0.5 million, respectively. The state and foreign net operating loss carryforwards begin to expire in 2026 and 2023, respectively. At December 31, 2020, we assessed the realizability of our deferred tax assets by considering whether it is "more likely than not" some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the 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. Due to uncertainties surrounding the realization of some of our deferred tax assets, we established a valuation allowance against certain deferred tax assets. Our historic valuation allowance primarily relates to state R&E income tax credits generated during the prior years and current year. We had cumulative operating losses for the three years ended in 2020 for our U.S. federal and state operations and accordingly, have provided a full valuation allowance on our U.S. federal and state deferred tax assets of $ 13.3 million and $ 14.4 million, respectively, as we have determined that it is more likely than not that the tax benefits will not be realized in the future. Additionally, we recorded a valuation allowance of $ 0.3 million at December 31, 2020 related to certain deferred tax assets in our Argentina office due to sustained losses in that jurisdiction. If and when recognized, the tax benefits relating to any reversal of the valuation allowance will be recorded as a reduction of income tax expense. The valuation allowance increased by $ 3.1 million and $ 7.5 million during the years ended December 31, 2020 and 2019, respectively. Uncertain Tax Positions At December 31, 2020 and 2019, we had unrecognized tax benefits of approximately $ 3.1 million and $ 4.3 million, respectively, including interest and penalties. We have elected to classify interest and penalties as components of tax expense. Interest and penalties were immaterial for the year ended December 31, 2020. Interest and penalties were $ 0.2 million and $ 0.5 million for the years ended December 31, 2019 and 2018, respectively. Interest and penalties are included in the unrecognized tax benefits. 64 Table of Contents UNIVERSAL ELECTRONICS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2020 Changes to our gross unrecognized tax benefits were as follows: Year Ended December 31, (In thousands) 2020 2019 2018 Balance at beginning of period $ 4,094 $ 4,040 $ 5,081 Additions as a result of tax provisions taken during the current year 274 473 702 Foreign currency translation 20 ( 100 ) ( 51 ) Lapse in statute of limitations ( 51 ) ( 92 ) ( 80 ) Settlements — ( 227 ) ( 1,612 ) Other ( 1,317 ) — — Balance at end of period $ 3,020 $ 4,094 $ 4,040 Approximately $ 3.0 million, $ 4.3 million and $ 4.3 million of the total amount of unrecognized tax benefits at December 31, 2020, 2019 and 2018, respectively, if not for the state R&E income tax credit valuation allowance, would affect the annual effective tax rate, if recognized. We are unaware of any positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly increase within the next twelve months. We do not anticipate a decrease in unrecognized tax benefits within the next twelve months based on federal, state, and foreign statute expirations in various jurisdictions. We have classified uncertain tax positions as non-current income tax liabilities unless expected to be paid within one year. We file income tax returns in the U.S. federal jurisdiction and in various state and foreign jurisdictions. As of December 31, 2020, the open statutes of limitations for our significant tax jurisdictions are as follows: federal for 2017 through 2019, state for 2016 through 2019, and foreign for 2014 through 2019. U.S. Tax Cuts and Jobs Act The Tax Act was enacted in the U.S. on December 22, 2017. The Tax Act reduced the U.S. federal corporate income tax rate to 21% from 35%, required companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred and created new taxes on certain foreign-sourced earnings. For the year ended December 31, 2018, we completed our analysis and accounting for the Tax Act, recording tax expense for the one-time transition tax liability related to undistributed earnings of certain foreign subsidiaries that were not previously taxed, adjusting deferred tax assets and liabilities, and recognizing the effects of electing to account for GILTI as a period cost. Indefinite Reinvestment Assertion Beginning in 2018, the Tax Act generally provides a 100% federal deduction for dividends received from foreign subsidiaries. Nevertheless, companies must still apply the guidance of ASC Topic 740 to account for the tax consequences of outside basis differences and other tax impacts of their investments in foreign subsidiaries, including potential foreign withholding taxes on distributions. Historically, the undistributed earnings of our foreign subsidiaries were considered to be indefinitely reinvested and no provision for U.S. federal and state income taxes or foreign withholding taxes had been provided on U.S. earnings. This assertion was changed in 2018. For the years ended December 31, 2020, 2019 and 2018, we recorded a deferred tax liability of $ 2.1 million, $ 1.7 million and $ 1.2 million, respectively, relating to state tax and foreign tax withholding liabilities on future distributions. Coronavirus Aid, Relief and Economic Security Act On March 27, 2020, in response to the COVID-19 pandemic, the Coronavirus Aid, Relief and Economic Security ("CARES") Act was signed into law. The CARES Act provides economic stimulus and relief to address the impact of the COVID-19 pandemic. For the year ended December 31, 2020, our income tax expense was not significantly impacted by the CARES Act. We will continue to closely monitor the impact of the COVID-19 pandemic, as well as any effects from future legislation. 65 Table of Contents UNIVERSAL ELECTRONICS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2020 Note 11 — Accrued Compensation In June 2018, we sold our Guangzhou entity via a stock deal, and the terms of the agreement included a two-year indemnification period. In June 2020, the indemnification period expired and we determined we were no longer legally liable for any liabilities associated with our Guangzhou entity. Accordingly, we reversed the accrued social insurance by the amount associated with the Guangzhou entity, which was approximately $ 9.5 million. The components of accrued compensation were as follows: December 31, (In thousands) 2020 2019 Accrued bonus $ 7,602 $ 13,965 Accrued commission 1,779 1,283 Accrued salary/wages 7,107 7,465 Accrued social insurance (1) 7,375 16,588 Accrued vacation/holiday 3,307 2,766 Other accrued compensation 1,761 1,601 Total accrued compensation $ 28,931 $ 43,668 (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 December 31, 2020 and 2019. Note 12 — Other Accrued Liabilities The components of other accrued liabilities were as follows: December 31, (In thousands) 2020 2019 Duties $ 4,469 $ 3,731 Expense associated with fulfilled performance obligations 1,372 1,010 Freight and handling fees 2,218 3,769 Operating lease obligations 6,094 4,903 Product warranty claim costs 1,721 1,514 Professional fees 3,794 2,833 Sales taxes and value added taxes 5,118 3,926 Short-term contingent consideration 1,758 5,428 Other (1) 6,513 8,331 Total other accrued liabilities $ 33,057 $ 35,445 (1) Includes $ 0.3 million and $ 0.5 million of contract liabilities at December 31, 2020 and 2019, respectively. Note 13 — Commitments and Contingencies Indemnifications We indemnify our directors and officers to the maximum extent permitted under the laws of the state of Delaware and we have entered into indemnification agreements with each of our directors and executive officers. In addition, we insure our individual directors and officers against certain claims and attorney's fees and related expenses incurred in connection with the defense of such claims. The amounts and types of coverage may vary from period to period as dictated by market conditions. Management is not aware of any matters that require indemnification of its officers or directors. 66 Table of Contents UNIVERSAL ELECTRONICS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2020 Fair Price Provisions and Other Anti-Takeover Measures Our Restated Certificate of Incorporation, as amended, contains certain provisions restricting business combinations with interested stockholders under certain circumstances and imposing higher voting requirements for the approval of certain transactions ("fair price" provisions). Any of these provisions may delay or prevent a change in control. The "fair price" provisions require that holders of at least two-thirds of our outstanding shares of voting stock approve certain business combinations and significant transactions with interested stockholders. Product Warranties Changes in the liability for product warranty claim costs were as follows: Year Ended December 31, (In thousands) 2020 2019 2018 Balance at beginning of period $ 1,514 $ 276 $ 339 Accruals for warranties issued during the period 578 1,742 787 Settlements (in cash or in kind) during the period ( 463 ) ( 504 ) ( 849 ) Foreign currency translation gain (loss) 92 — ( 1 ) Balance at end of period $ 1,721 $ 1,514 $ 276 Sale of Guangzhou Factory On September 26, 2016, we entered into an agreement to sell our Guangzhou manufacturing facility for RMB 320 million. In accordance with the terms of the agreement, the buyer deposited 10 % of the purchase price into an escrow account upon the execution of the agreement. In April 2018, we and the buyer mutually agreed to terminate the sale. The mutually agreed termination took effect immediately with no incremental penalty or costs to either party. In connection with this termination, the deposit was returned to the buyer. On April 23, 2018, we entered into a new agreement to sell our Guangzhou manufacturing facility to a second buyer for RMB 339 million (approximately $ 51.4 million based on exchange rates in effect at the time of closing). On April 26, 2018, the second buyer paid to us a deposit of RMB 34 million (approximately $ 5.1 million based on exchange rates in effect at the time of closing), which under the terms of the agreement was nonrefundable. Upon receipt by the Governmental Agency of the second buyer’s application of approval of transfer, the second buyer was to pay to us RMB 237 million (approximately $ 35.8 million based on exchange rates in effect at the time of closing). Additionally, within two days after the second payment was made to us, the second buyer was to deposit the remaining consideration of RMB 68 million (approximately $ 10.3 million based on exchange rates in effect at the time of closing) into escrow, which was to be released to us upon the closing of the sale. Per the terms of the agreement, the sale was to be completed no later than June 30, 2018. On June 26, 2018, all conditions to closing were satisfied and the sale was completed, resulting in a pre-tax gain of $ 37.0 million ($ 32.1 million, net of income taxes). Other Restructuring Activities In the fourth quarter of 2018, we implemented a plan to relocate our corporate office from Santa Ana, California to Scottsdale, Arizona and to relocate our Asian engineering leadership, supply chain and customer support functions from Hong Kong to our other facilities in the PRC. In connection with these restructuring activities, we incurred severance costs o f $ 0.4 million and $ 0.9 million during the years ended December 31, 2019 and 2018, respectively, which are included within selling, general and administrative expenses. 67 Table of Contents UNIVERSAL ELECTRONICS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2020 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 therefore and certain universal control devices, including but not limited to the Roku App, Roku TV, Roku Express, Roku Streaming Stick, Roku Ultra, Roku Premiere, Roku 4, Roku 3, Roku 2, Roku Enhanced Remote and any other Roku product that provides for the remote control of 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 "PTAB") with respect to Roku's Inter Partes Review requests (see discussion below). International Trade Commission Investigation of Roku, TCL, Hisense and Funai On April 16, 2020, we filed a complaint with the International Trade Commission (the "ITC") against Roku, TCL Electronics Holding Limited and related entities (collectively, "TCL"), Hisense Co., Ltd. and related entities (collectively, "Hisense"), and Funai Electric Company, Ltd. and related entities (collectively, "Funai") claiming that certain of their televisions, set-top boxes, remote control devices, human interface devices, streaming devices, and sound bars infringe certain of our patents. We asked the ITC to issue a permanent limited exclusion order prohibiting the importation of these infringing products into the United States and a cease and desist order to stop these parties from continuing their infringing activities. On May 18, 2020, the ITC announced that it instituted its investigation as requested by us. The discovery phase of this investigation has been completed and trial is set to commence on April 19, 2021. Inter Partes Reviews In September and October 2019, Roku filed Inter Partes Review ("IPR") requests with the PTAB on the nine patents at issue in the 2018 Lawsuit (see discussion above). To date, the PTAB has denied Roku's request with respect to three of the nine patents and granted Roku's request with respect to six of the nine patents. As for those IPRs for which the PTAB granted Roku's request for review, we will vigorously defend our patents. In May and June 2020, Roku filed four IPR requests against three patents asserted in the ITC investigation. We have responded to these requests and are awaiting the PTAB decision in early- to mid-2021. On February 11, 2021, Roku filed an additional IPR with respect to one of the patents asserted against it in the April 2020 District Court actions (see decision below for a description of the April 2020 District Court actions). Federal District Court Actions against each of Roku, TCL, Hisense, and Funai related to the ITC Matter On April 9, 2020, we filed separate actions against each of Roku, TCL, Hisense, and Funai in the 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 stayed pending the results of the ITC investigation mentioned above. Court of International Trade Action against the United States of America, et. al. On October 9, 2020, we and our subsidiaries, Ecolink Intelligent Technology, Inc. ("Ecolink") and RCS Technology, LLC ("RCS") filed an amended complaint (20-cv-00670) in the Court of International Trade (the "CIT") against the United States of America; the Office of the United 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. 68 Table of Contents UNIVERSAL ELECTRONICS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2020 By this complaint, we, Ecolink and RCS are alleging that USTR's institution of Lists 3 and 4A tariffs violated the Trade Act of 1974 (the "Trade Act") on the grounds that the USTR failed to make a determination or finding that there was an unfair trade practice that required a remedy and moreover, that Lists 3 and 4A tariffs were instituted beyond the 12-month time limit provided for in the governing statute. We, Ecolink and RCS also allege that the manner in which the Lists 3 and 4A tariff actions were implemented violated the Administrative Procedures Act (the "APA") by failing to provide adequate opportunity for comments, failed to consider relevant factors when making its decision and failed to connect the record facts to the choices it made by not explaining how the comments received by USTR came to shape the final implementation of Lists 3 and 4A. We, Ecolink and RCS are asking the CIT to declare that Defendants' actions resulting in the tariffs on products covered by Lists 3 and 4A are unauthorized by and contrary to the Trade Act and were arbitrarily and unlawfully promulgated in violation of the APA; to vacate the Lists 3 and 4A tariffs; to order a refund (with interest) of any Lists 3 and 4A duties paid by us, Ecolink and RCS; to permanently enjoin the U.S. government from applying Lists 3 and 4A duties against us, Ecolink and RCS; and award us, Ecolink and RCS our costs and reasonable attorney fees. The Government has requested an automatic stay of all pending cases challenging the Lists 3 and 4A tariffs except for one or more "test cases." It proposed the first-filed case—the case filed by HMTX—as the test case. The government also asked the court to appoint a "steering committee" consisting of several lead counsel for the plaintiffs to direct the litigation. The government proposed a bifurcated briefing schedule, under which the parties would first brief the government's upcoming motion to dismiss before briefing the merits of plaintiffs' claims. We will agree to a stay in our case. HMTX has filed a response agreeing to the stay and to being the test case but opposed the Government's proposed briefing schedule. On February 10, 2021, the CIT's three-judge panel issued an order establishing a master case for filings that relate to some or all of the Section 301 cases. It also establishes a deadline of March 12, 2021 for the government to file a "master answer" to all the complaints. We are still awaiting the CIT's decision on other case management procedures and processes. 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 judgments, if any, which might be rendered against us in potential or pending litigation would not have a material adverse effect on our consolidated financial condition, results of operations, or cash flows. Moreover, we believe that our products do not infringe any third parties' patents or other intellectual property rights. We maintain directors' and officers' liability insurance which insures our individual directors and officers against certain claims, as well as attorney's fees and related expenses incurred in connection with the defense of such claims. Defined Benefit Plan Our subsidiary in India maintains a defined benefit pension plan ("India Plan") for local employees, which is consistent with local statutes and practices. The pension plan was adequately funded on December 31, 2020 based on its latest actuarial report. The India Plan has an independent external manager that advises us of the appropriate funding contribution requirements to which we comply. At December 31, 2020, approximately 57 percent of our India subsidiary employees had qualified for eligibility. An individual must be employed by our India subsidiary for a minimum of five years before becoming eligible. Upon the termination, resignation or retirement of an eligible employee, we are liable to pay the employee an amount equal to 15 days salary for each full year of service completed. The total amount of liability outstanding at December 31, 2020 and 2019 for the India Plan was not material. During the years ended December 31, 2020, 2019, and 2018, the net periodic benefit costs were also not material. 69 Table of Contents UNIVERSAL ELECTRONICS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2020 Note 14 — Treasury Stock From time to time, our Board of Directors authorizes management to repurchase shares of our issued and outstanding common stock on the open market. On October 28, 2020, our Board of Directors approved a new repurchase plan with an effective date of November 10, 2020 (the "November 2020 Program"). Pursuant to the November 2020 Program, we may, from time to time until February 18, 2021, repurchase up to 500,000 shares. At December 31, 2020, we had 500,000 shares of common stock authorized for repurchase remaining under the November 2020 Program. O n February 11, 2021, our Board approved a new share repurchase program with an effective date of February 23, 2021 (the "February 2021 Program"). Pursuant to the February 2021 Program, we may, from time to time until May 6, 2021, repurchase up to 300,000 shares of our common stock. We may utilize various methods to effect the repurchases, which may include open market repurchases, negotiated block transactions, accelerated share repurchases or open market solicitations for shares, some of which may be effected through Rule 10b5-1 plans. The timing and amount of future repurchases, if any, will depend upon several factors, including market and business conditions, and such repurchases may be discontinued at any time. Repurchased shares of our common stock were as follows: Year Ended December 31, (In thousands) 2020 2019 2018 Shares repurchased 444 58 413 Cost of shares repurchased $ 17,678 $ 1,928 $ 13,824 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. Note 15 — Stock-Based Compensation Stock-based compensation expense for each employee and director is presented in the same statement of operations caption as their cash compensation. Stock-based compensation expense by statement of operations caption and the related income tax benefit were as follows: Year Ended December 31, (In thousands) 2020 2019 2018 Cost of sales $ 182 $ 139 $ 84 Research and development expenses 1,099 1,096 744 Selling, general and administrative expenses: Employees 6,257 6,431 6,491 Outside directors 1,584 1,179 1,501 Total employee and director stock-based compensation expense $ 9,122 $ 8,845 $ 8,820 Income tax benefit $ 1,594 $ 1,877 $ 1,870 Stock Options 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: Year Ended December 31, 2020 2019 2018 Weighted average fair value of grants $ 17.70 $ 11.51 $ 14.26 Risk-free interest rate 1.44 % 2.38 % 2.51 % Expected volatility 43.95 % 41.73 % 33.09 % Expected life in years 4.59 4.60 4.53 70 Table of Contents UNIVERSAL ELECTRONICS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2020 Stock option activity was as follows: 2020 2019 2018 Number of Options (in 000's) Weighted-Average Exercise Price Weighted-Average Remaining Contractual Term (in years) Aggregate Intrinsic Value (in 000's) Number of Options (in 000's) Weighted-Average Exercise Price Weighted-Average Remaining Contractual Term (in years) Aggregate Intrinsic Value (in 000's) 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 beginning of the year 745 $ 41.73 597 $ 44.27 520 $ 42.56 Granted 109 46.17 170 30.08 119 44.95 Exercised ( 80 ) 35.28 $ 1,334 ( 22 ) 20.34 $ 569 ( 35 ) 24.67 $ 744 Forfeited/canceled/expired — — — — ( 7 ) 27.74 Outstanding at end of the year (1) 774 $ 43.01 3.71 $ 9,228 745 $ 41.73 3.97 $ 9,798 597 $ 44.27 4.08 $ 758 Vested and expected to vest at the end of the year (1) 774 $ 43.01 3.71 $ 9,228 745 $ 41.73 3.97 $ 9,798 597 $ 44.27 4.08 $ 758 Exercisable at the end of the year (1) 582 $ 43.90 2.98 $ 6,887 517 $ 44.95 3.01 $ 5,636 430 $ 42.30 3.43 $ 758 (1) The aggregate intrinsic value represents the total pre-tax value (the difference between our closing stock price on the last trading day of 2020, 2019, and 2018 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 December 31, 2020, 2019, and 2018. This amount will change based on the fair market value of our stock. The value of shares withheld in lieu of receiving cash from option exercises in the year ended December 31, 2020 was $ 2.8 million. Cash received from option exercises for the years ended December 31, 2019 and 2018 was $ 0.4 million and $ 0.9 million, respectively. The actual tax benefit realized from option exercises was $ 0.3 million, $ 0.01 million and $ 0.2 million for the years ended December 31, 2020, 2019, and 2018, respectively. Significant option groups outstanding at December 31, 2020 and the related weighted average exercise price and life information were as follows: Options Outstanding Options Exercisable Range of Exercise Prices Number Outstanding (in 000's) Weighted-Average Remaining Contractual Term (in years) Weighted-Average Exercise Price Number Exercisable (in 000's) Weighted-Average Exercise Price $ 19.25 to $ 27.07 263 3.72 $ 23.83 200 $ 22.82 $ 35.28 to $ 46.17 229 5.44 45.47 113 44.84 $ 51.38 to $ 65.54 282 2.61 58.85 269 59.15 774 3.71 $ 43.01 582 $ 43.90 As of December 31, 2020, we expect to recognize $ 2.2 million of total unrecognized pre-tax stock-based compensation expense related to non-vested stock options over a remaining weighted-average life of 1.8 years. On February 11, 2021, certain executive employees were granted 80,315 stock options in connection with the 2020 annual review cycle. The options were granted as part of long-term incentive compensation to assist us in meeting our performance and retention objectives and are subject to a three-year vesting period ( 33.33 % on February 11, 2021 and 8.33 % each quarter thereafter). The total grant date fair value of these awards was $ 1.9 million. 71 Table of Contents UNIVERSAL ELECTRONICS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2020 Restricted Stock Non-vested restricted stock award activity was as follows: 2020 2019 2018 Shares (in 000's) Weighted-Average Grant Date Fair Value Shares (in 000's) Weighted-Average Grant Date Fair Value Shares (in 000's) Weighted-Average Grant Date Fair Value Non-vested at beginning of the year 310 $ 34.99 204 $ 49.23 162 $ 61.19 Granted 238 36.85 268 30.67 167 42.65 Vested ( 166 ) 38.28 ( 141 ) 47.26 ( 109 ) 56.16 Forfeited ( 8 ) 43.44 ( 21 ) 35.78 ( 16 ) 54.16 Non-vested at end of the year 374 $ 34.53 310 $ 34.99 204 $ 49.23 As of December 31, 2020, we expect to recognize $ 8.4 million of total unrecognized pre-tax stock-based compensation expense related to non-vested restricted stock awards over a weighted-average life of 1.7 years. In February 2021, certain executives and employees were granted 111,775 restricted stock awards in connection with the 2020 annual review cycle. These awards were granted as part of long-term incentive compensation to assist us in meeting our performance and retention objectives and are subject to a three-year vesting period ( 32,395 of these awards will vest 33.33 % on February 11, 2022 and 8.33 % each quarter thereafter and 79,380 of these awards will vest at a rate of 33.33 % per year beginning on February 25, 2022). The total grant date fair value of these awards was $ 6.7 million. Stock Incentive Plans Our active stock-based incentive plans include those adopted in 2003, 2006, 2010, 2014 and 2018 ("Stock Incentive Plans"). Under the Stock Incentive Plans, we may grant stock options, stock appreciation rights, restricted stock units, performance stock units, or any combination thereof for a period of ten years from the approval date of each respective plan, unless the plan is terminated by resolution of our Board of Directors. No stock appreciation rights or performance stock units have been awarded under our Stock Incentive Plans. Only directors and employees meeting certain employment qualifications are eligible to receive stock-based awards. The grant price of stock option and restricted stock awards granted under our Stock Incentive Plans is the average of the high and low trades of our stock on the grant date. We prohibit the re-pricing or backdating of stock options. Our stock options become exercisable in various proportions over a three - or four-year time frame. Stock options have a maximum ten-year term. Restricted stock awards vest in various proportions over a one - to three-year time period. Detailed information regarding our active Stock Incentive Plans was as follows at December 31, 2020: Name Approval Date Initial Shares Available for Grant Under the Plan Remaining Shares Available for Grant Under the Plan Outstanding Shares Granted Under the Plan 2003 Stock Incentive Plan 6/18/2003 1,000,000 — 14,391 2006 Stock Incentive Plan 6/13/2006 1,000,000 — 25,275 2010 Stock Incentive Plan 6/15/2010 1,000,000 — 123,131 2014 Stock Incentive Plan 6/12/2014 1,100,000 — 357,860 2018 Equity and Incentive Compensation Plan 6/4/2018 1,000,000 223,199 627,545 223,199 1,148,202 72 Table of Contents UNIVERSAL ELECTRONICS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2020 Note 16 — Performance-Based Common Stock Warrants On March 9, 2016, we issued common stock purchase warrants to Comcast Corporation ("Comcast") to purchase up to 725,000 shares of our common stock at a price of $ 54.55 per share. The right to exercise the warrants is subject to vesting over three successive two-year periods (with the first two-year period commencing on January 1, 2016) based on the level of purchases of goods and services from us by Comcast and its affiliates, as defined in the warrants. The table below presents the purchase levels and potential number of warrants to vest in each period based upon achieving these purchase levels. Potential Warrants To Vest Aggregate Level of Purchases by Comcast and Affiliates January 1, 2016 - December 31, 2017 January 1, 2018 - December 31, 2019 January 1, 2020 - December 31, 2021 $ 260 million 100,000 100,000 75,000 $ 300 million 75,000 75,000 75,000 $ 340 million 75,000 75,000 75,000 Maximum Potential Warrants Earned by Comcast 250,000 250,000 225,000 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 had exceeded $ 340 million during either the first or second two-year period, the amount of any such excess would count towards aggregate purchases in the following two-year period. This threshold was not met in either the first or second two-year period. For the two-year period ended December 31, 2017, Comcast earned and vested in 175,000 out of the maximum potential 250,000 warrants. For the two-year period ended December 31, 2019, Comcast earned and vested in 100,000 out of the maximum potential 250,000 warrants. At December 31, 2020, 275,000 vested warrants were outstanding. To fully vest in the rights to purchase all of the remaining unearned 225,000 underlying shares, Comcast and its affiliates must purchase an aggregate of $ 340 million in goods and services from us during the period January 1, 2020 through December 31, 2021. All warrants that vest will expire on January 1, 2023. The warrants provide for certain adjustments that may be made to the exercise price and the number of shares issuable upon exercise due to customary anti-dilution provisions. Additionally, in connection with the common stock purchase warrants, we have also entered into a registration rights agreement with Comcast under which Comcast may from time to time request that we register the shares of common stock underlying vested warrants with the SEC. As the warrants contain performance criteria under which Comcast must achieve specified aggregate purchase levels for the warrants to vest, as detailed above, the measurement date for the warrants for the first two-year successive periods was the date on which the warrants vested. The FASB issued guidance in November 2019 that clarifies the accounting for share-based payments issued as sales incentives to customers. The guidance requires that stock-based compensation expense be recorded as a reduction in the transaction price on the basis of the grant-date fair value. The transition provisions require that equity-classified awards be measured at the adoption date fair value if the measurement date has not been established prior to the adoption date. The measurement periods for the first two successive two-year periods of our outstanding performance-based common stock warrants were completed prior to adoption and were not impacted by this updated guidance. The measurement period for the final two-year period began on January 1, 2020, and, accordingly, we measured the fair value of the award as of our adoption date on January 1, 2020 using the Black-Scholes option pricing model. Through December 31, 2020, none of the warrants had vested for the two-year period beginning January 1, 2020. 73 Table of Contents UNIVERSAL ELECTRONICS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2020 The assumptions we utilized in the Black-Scholes option pricing model and the resulting grant-date fair value of the warrants as of January 1, 2020 were the following: Fair value $ 17.19 Price of Universal Electronics Inc. common stock $ 52.21 Risk-free interest rate 1.62 % Expected volatility 48.86 % Expected life in years 3.00 Prior to the adoption of the new guidance on January 1, 2020, we adjusted the estimated weighted average fair value of the warrants each period. The assumptions we utilized in the Black-Scholes option pricing model and the resulting weighted average fair value of the warrants were the following: Year Ended December 31, 2019 2018 Fair value $ 21.60 $ 3.45 Price of Universal Electronics Inc. common stock $ 58.01 $ 24.81 Risk-free interest rate 1.65 % 2.49 % Expected volatility 48.90 % 43.16 % Expected life in years 3.13 4.00 The impact to net sales recorded in connection with the warrants and the related income tax benefit was as follows: Year Ended December 31, (in thousands) 2020 2019 2018 Reduction to net sales $ 686 $ 1,997 $ 163 Income tax benefit 171 498 41 We estimate the number of warrants that will vest based on 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 December 31, 2020 was $ 0.6 million. Note 17 — Other Income (Expense), Net Other income (expense), net consisted of the following: Year Ended December 31, (In thousands) 2020 2019 2018 Net gain (loss) on foreign currency exchange contracts (1) $ ( 310 ) $ ( 62 ) $ 545 Net gain (loss) on foreign currency exchange transactions ( 1,675 ) ( 870 ) ( 4,987 ) Other income (expense) 581 ( 63 ) ( 15 ) Other income (expense), net $ ( 1,404 ) $ ( 995 ) $ ( 4,457 ) (1) This represents the gains (losses) incurred on foreign currency hedging derivatives. See Note 19 for further information concerning our foreign currency exchange contracts. 74 Table of Contents UNIVERSAL ELECTRONICS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2020 Note 18 — Earnings Per Share Earnings per share was calculated as follows: Year Ended December 31, (In thousands, except per-share amounts) 2020 2019 2018 BASIC Net income $ 38,572 $ 3,630 $ 11,924 Weighted-average common shares outstanding 13,893 13,879 13,948 Basic earnings per share $ 2.78 $ 0.26 $ 0.85 DILUTED Net income $ 38,572 $ 3,630 $ 11,924 Weighted-average common shares outstanding for basic 13,893 13,879 13,948 Dilutive effect of stock options, restricted stock and common stock warrants 273 230 112 Weighted-average common shares outstanding on a diluted basis 14,166 14,109 14,060 Diluted earnings per share $ 2.72 $ 0.26 $ 0.85 The following number of stock options, shares of restricted stock and common stock warrants were excluded from the computation of diluted earnings per common share as their inclusion would have been anti-dilutive: Year Ended December 31, (In thousands) 2020 2019 2018 Stock options 468 371 390 Restricted stock awards 14 67 118 Performance-based warrants 275 188 175 Note 19 — Derivatives The following table sets forth the total net fair value of derivatives: December 31, 2020 December 31, 2019 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 $ — $ 113 $ — $ 113 $ — $ ( 172 ) $ — $ ( 172 ) We held foreign currency exchange contracts which resulted in a net pre-tax loss of $ 0.3 million, a net pre-tax loss of $ 0.1 million, and a net pre-tax gain of $ 0.5 million for the years ended December 31, 2020, 2019, and 2018, respectively. See Note 17 for further information concerning our foreign currency exchange contracts. 75 Table of Contents UNIVERSAL ELECTRONICS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2020 Details of foreign currency exchange contracts held were as follows: Date Held Currency Position Held Notional Value (in millions) Forward Rate Unrealized Gain/(Loss) Recorded at Balance Sheet Date (in thousands) (1) Settlement Date December 31, 2020 USD/Chinese Yuan Renminbi CNY $ 55.0 6.5370 $ 239 January 29, 2021 December 31, 2020 USD/Brazilian Real USD $ 0.9 5.1714 $ 4 January 29, 2021 December 31, 2020 USD/Euro USD $ 28.0 1.2177 $ ( 106 ) January 29, 2021 December 31, 2020 USD/Mexican Peso USD $ 1.9 20.1915 $ ( 24 ) January 29, 2021 December 31, 2019 USD/Chinese Yuan Renminbi CNY $ 35.0 6.9867 $ 100 January 23, 2020 December 31, 2019 USD/Brazilian Real USD $ 0.5 4.0560 $ ( 6 ) January 24, 2020 December 31, 2019 USD/Euro USD $ 28.0 1.1133 $ ( 253 ) January 24, 2020 December 31, 2019 USD/Brazilian Real USD $ 0.7 4.0870 $ ( 13 ) January 24, 2020 (1) Unrealized gains on foreign currency exchange contracts are recorded in prepaid expenses and other current assets. Unrealized losses on foreign currency exchange contracts are recorded in other accrued liabilities. Note 20 — Employee Benefit Plans We maintain a retirement and profit sharing plan under Section 401(k) of the Internal Revenue Code for all of our domestic employees that meet certain qualifications. Participants in the plan may elect to contribute up to the maximum allowed by law. We match 50 % of the participants' contributions up to 15 % of their gross salary in the form of newly issued shares of our common stock. We may also make other discretionary contributions to the plan. We recorded $ 1.2 million, $ 0.9 million and $ 1.1 million of expense for company contributions for the years ended December 31, 2020, 2019, and 2018, respectively. Note 21 — Quarterly Financial Data (Unaudited) Summarized quarterly financial data is as follows: 2020 (In thousands, except per share amounts) March 31, June 30, September 30, December 31, Net sales $ 151,778 $ 153,133 $ 153,505 $ 156,264 Gross profit 42,941 38,075 44,156 51,084 Operating income 8,046 6,460 10,246 12,515 Net income 5,846 14,400 6,168 12,158 Earnings per share (1) : Basic $ 0.42 $ 1.03 $ 0.44 $ 0.88 Diluted $ 0.41 $ 1.02 $ 0.43 $ 0.86 76 Table of Contents UNIVERSAL ELECTRONICS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2020 2019 (In thousands, except per share amounts) March 31, June 30, September 30, December 31, Net sales $ 184,163 $ 193,896 $ 200,724 $ 174,694 Gross profit 39,874 33,993 46,479 49,857 Operating income (loss) 1,663 ( 3,926 ) 6,127 11,451 Net income (loss) ( 1,005 ) ( 5,061 ) 2,669 7,027 Earnings (loss) per share (1) : Basic $ ( 0.07 ) $ ( 0.37 ) $ 0.19 $ 0.50 Diluted $ ( 0.07 ) $ ( 0.37 ) $ 0.19 $ 0.49 (1) The earnings per common share calculations for each of the quarters were based upon the weighted average number of shares and share equivalents outstanding during each period, and the sum of the quarters may not be equal to the full year earnings per share amounts. 77 Table of Contents ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.