What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2022-03-04 compared with 2021-03-05 · 194 added, 247 removed, 1095 unchanged (29% of the section changed)

1 unchanged sentence

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm

Report of Independent Registered Public Accounting Firm (PCAOB ID Number 248 )

Consolidated Balance Sheets at December 31, 2021 and 2020

10 unchanged sentences

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.

(a Delaware corporation) and subsidiaries (the "Company") as of December 31, 2021 and 2020, the related consolidated statements of operations, comprehensive income (loss), stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2021, 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 position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, 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, 2021, 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 4, 2022 expressed an unqualified opinion.

13 unchanged sentences

(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

3 unchanged sentences

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.

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.

We identified the determination of over time versus point in time revenue recognition as a critical audit matter.

The principal considerations for our determination that over time versus 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:

Our audit procedures related to the over time versus 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.

58 unchanged sentences

Total liabilities and stockholders' equity $ 510,348 $ 510,290

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.

9 unchanged sentences

Selling, general and administrative expenses 118,846 107,539 125,476

Operating income (loss) 37,267 15,315 ( 1,665 )

Operating income 23,253 37,267 15,315

Interest income (expense), net ( 566 ) ( 1,422 ) ( 3,918 )

Loss on sale of Argentina subsidiary ( 6,050 ) — —

Accrued social insurance adjustment — 9,464 —

Gain on sale of Guangzhou factory — — 36,978

Other income (expense), net ( 557 ) ( 1,404 ) ( 995 )

8 unchanged sentences

Diluted 13,742 14,166 14,109

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.

7 unchanged sentences

Change in foreign currency translation adjustment ( 427 ) 4,259 ( 2,500 )

Change in foreign currency translation due to sale of Argentina subsidiary 5,425 — —

Comprehensive income $ 10,299 $ 42,831 $ 1,130

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.

30 unchanged sentences

Currency translation adjustment ( 427 ) ( 427 )

Change in foreign currency translation due to sale of Argentina subsidiary 5,425 5,425

Shares issued for employee benefit plan and compensation 203 2 1,090 1,092

5 unchanged sentences

Balance at December 31, 2021 24,679 $ 247 ( 11,861 ) $ ( 355,159 ) $ 314,094 $ ( 13,524 ) $ 330,291 $ 275,949

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.

4 unchanged sentences

2021 2020 2019

Cash provided by operating activities:

Cash flows from operating activities:

Net income $ 5,301 $ 38,572 $ 3,630

2 unchanged sentences

Provision for credit losses — 332 441

Gain on sale of Guangzhou factory — — ( 36,978 )

Deferred income taxes ( 1,560 ) ( 478 ) ( 1,779 )

3 unchanged sentences

Impairment of long-term assets 3,338 134 1,506

Loss on sale of Argentina subsidiary, net of cash transferred 5,960 — —

Accrued social insurance adjustment — ( 9,464 ) —

7 unchanged sentences

Net cash provided by operating activities 40,283 73,392 85,257

Cash provided by (used for) investing activities:

Proceeds from sale of Guangzhou factory — — 51,291

Cash flows from investing activities:

Acquisitions of property, plant and equipment ( 12,586 ) ( 16,862 ) ( 21,313 )

Refund of deposit received toward sale of Guangzhou factory — — ( 5,053 )

Acquisitions of intangible assets ( 4,455 ) ( 6,372 ) ( 2,655 )

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:

Net cash used for investing activities ( 17,041 ) ( 23,734 ) ( 23,968 )

Cash flows from financing activities:

Borrowings under line of credit 112,000 75,000 72,500

3 unchanged sentences

Contingent consideration payments in connection with business combinations — ( 3,091 ) ( 4,251 )

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 cash used for financing activities ( 22,026 ) ( 65,964 ) ( 39,231 )

Effect of foreign currency exchange rate changes on cash and cash equivalents 2,444 ( 843 ) ( 963 )

Net increase (decrease) in cash and cash equivalents 3,660 ( 17,149 ) 21,095

Cash and cash equivalents at beginning of year 74,302 53,207 67,339

Cash and cash equivalents at beginning of period 57,153 74,302 53,207

Cash and cash equivalents at end of period $ 60,813 $ 57,153 $ 74,302

2 unchanged sentences

Interest paid $ 620 $ 1,610 $ 4,403

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.

18 unchanged sentences

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

6 unchanged sentences

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-

Actual results may differ from these assumptions and estimates, and they may be adjusted as more information becomes available.

Any adjustment may be material.

UNIVERSAL ELECTRONICS INC.

1 unchanged sentence

DECEMBER 31, 2021

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

14 unchanged sentences

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 license our symbolic intellectual property which includes our patented technologies and database of control codes.

Royalty revenue is recognized for these licensing arrangements on an over time basis.

We record license revenue for per-unit based licenses when our customers manufacture or ship a 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.

We record per-unit-based licenses with minimum guarantees ratably over the license period to which the minimum guarantee relates and any per-unit sales in excess of the minimum guarantee in the period in which the sale occurs.

We record licenses with fixed consideration ratably over the license period.

Tiered royalties are recorded on a straight-line basis according to the forecasted per-unit fees taking into account the pricing tiers.

8 unchanged sentences

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.

Such discounts were $ 14.4 million and $ 15.9 million at December 31, 2021 and 2020, respectively.

Changes in such accruals may be required if future rebates and incentives differ from our estimates.

9 unchanged sentences

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.

Deferred taxes are presented net as non-current by jurisdiction.

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.

7 unchanged sentences

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.

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not, on a jurisdiction-by-jurisdiction basis, 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.

11 unchanged sentences

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.

Shipping and handling costs associated with in-bound freight or amounts billed to customers are recorded in cost of sales.

Other shipping and handling costs are included in selling, general and administrative expenses.

4 unchanged sentences

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 .

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 three years .

Forfeitures of stock-based awards are accounted for as they occur.

102 unchanged sentences

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.

Some of our leases include options to extend with a range of three years to five years with one extension at the then current market rate.

Lease expense for lease payments is recognized on a straight-line basis over the lease term.

14 unchanged sentences

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.

Intangible assets consist of capitalized software development costs, customer relationships, developed and core technologies, distribution rights, patents and trademarks and trade names.

Capitalized amounts related to patents represent external legal costs for the application, maintenance and extension of the useful life of patents.

34 unchanged sentences

See Note 12 for further information concerning contingent consideration.

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.

Our foreign currency exposures are primarily concentrated in the 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.

17 unchanged sentences

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.

In December 2019, the FASB issued ASU 2019-12, "Simplifying the Accounting for Income Taxes", which, among other provisions, eliminates certain exceptions to existing guidance related to the approach for intra-period tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences.

This guidance also requires an entity to reflect the effect of an enacted change in tax laws or rates in its effective income tax rate in the first interim period that includes the enactment date of the new legislation, aligning the timing of recognition of the effects from enacted tax law changes on the effective income tax rate with the effects on deferred income tax assets and liabilities.

Under previous guidance, an entity recognized the effects of the enacted tax law change on the effective income tax rate in the period that included the effective date of the tax law.

Our adoption of this guidance on January 1, 2021 did not have a material impact on our consolidated statement of financial position, results of operations and cash flows.

UNIVERSAL ELECTRONICS INC.

1 unchanged sentence

DECEMBER 31, 2021

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.

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.

In March 2020, the FASB issued ASU 2020-04, "Facilitation of the Effects of Reference Rate Reform on Financial Reporting", and in January 2021, the FASB issued ASU 2021-01, "Reference Rate Reform".

This guidance is intended to provide temporary optional expedients and exceptions to GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burden related to the expected market transition from the London Interbank Offered Rate ("LIBOR") and other interbank offered rates to alternative reference rates.

The amendments in these ASUs are elective and are effective upon issuance for all entities through December 31, 2022.

These amendments are not expected to have a material impact on our consolidated statement of financial position, results of operations and cash flows.

In October 2021, the FASB issued ASU 2021-08, "Business Combinations (Topic 805):

Accounting for Contract Assets and Contract Liabilities from Contracts with Customers".

This guidance requires an entity to recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606, "Revenue from Contracts with Customers".

At the acquisition date, the acquirer applies the revenue recognition model as if it had originated the acquired contracts.

The amendments in this ASU are effective for annual periods beginning after December 15, 2022, including interim periods within those fiscal years.

Adoption of the amendments should be applied prospectively.

Early adoption is also permitted, including adoption in an interim period.

If early adopted, the amendments are applied retrospectively to all business combinations for which the acquisition date occurred during the fiscal year of adoption.

The amendments are not expected to have a material impact on our consolidated statement of financial position, results of operations and cash flows.

Note 3 — Cash and Cash Equivalents

37 unchanged sentences

Comcast Corporation $ 98,361 16.3 % $ 123,574 20.1 % $ 119,561 15.9 %

Daikin Industries Ltd.

$ 70,793 11.8 % $ — (1)

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

Accounts Receivable, Net

4 unchanged sentences

Allowance for sales returns ( 592 ) ( 761 )

Trade receivables.

net 120,655 128,773

Other 8,778 10,425

Trade receivables, net 120,631 120,655

Accounts receivable, net $ 129,215 $ 129,433

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

UNIVERSAL ELECTRONICS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2021

Allowance for Credit Losses

7 unchanged sentences

Balance at end of period $ 1,285 $ 1,412 $ 1,492

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:

1 unchanged sentence

Comcast Corporation $ — (1)

Dish Network Corporation $ — (1)

$ 19,782 15.3 %

10 unchanged sentences

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.

Purchases from our supplier, Qorvo International Pte Ltd., totaled $ 38.7 million or 11.8 % of our total inventory purchases for the year ended December 31, 2021 and $ 43.5 million or 14.2 % for the year ended December 31, 2020.

No supplier totaled 10% or more of our total inventory purchases for the year ended December 31, 2019.

Zhejiang Zhen You Electronics Co.

Ltd., totaled $ 9.9 million or 10.6 % of our accounts payable balance at December 31, 2021.

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.

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

UNIVERSAL ELECTRONICS INC.

17 unchanged sentences

Depreciation expense was $ 22.8 million, $ 23.2 million and $ 24.7 million for the years ended December 31, 2021, 2020 and 2019, 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.

During the year ended December 31, 2021, we incurred $ 3.3 million in impairment charges, recorded in cost of sales, relating to the underutilization of property, plant and equipment in our PRC-based factories, as a result of our long-term factory planning strategy of reducing our concentration risk in that region.

Impairment charges were immaterial for the years ended December 31, 2020 and 2019.

Construction in progress was as follows:

8 unchanged sentences

We will begin to depreciate the cost of these assets under construction once they are placed into service.

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:

Long-lived tangible assets by geographic area, which include property, plant, and equipment, net and operating lease ROU assets, were as follows:

(In thousands) 2021 2020

4 unchanged sentences

Total long-lived tangible assets $ 94,494 $ 106,807

UNIVERSAL ELECTRONICS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2021

Note 7 — Goodwill and Intangible Assets, Net

29 unchanged sentences

(1) This table excludes the gross value of fully amortized intangible assets totaling $ 43.2 million and $ 42.7 million on December 31, 2021 and 2020, respectively.

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.

5 unchanged sentences

Total amortization expense $ 3,990 $ 6,500 $ 7,192

UNIVERSAL ELECTRONICS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2021

Estimated future annual amortization expense related to our intangible assets at December 31, 2021, is as follows:

6 unchanged sentences

At December 31, 2021, our operating leases had remaining lease terms of up to 39 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:

Lease balances within our consolidated balance sheets were as follows:

(In thousands) December 31, 2021 December 31, 2020

9 unchanged sentences

This impairment was associated with the sale of our call center in Euclid, Ohio, which was completed in February 2020.

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:

6 unchanged sentences

Operating lease right-of-use assets obtained in exchange for lease obligations $ 7,017 $ 3,743

Non-cash release of operating lease obligations (1)

(1) During the year ended December 31, 2021, we were released from our guarantee of the lease obligation related to our Ohio call center which was sold in February 2020.

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

UNIVERSAL ELECTRONICS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2021

Year Ended December 31,

8 unchanged sentences

Total lease liabilities $ 19,035

At December 31, 2020, we had four operating leases that had not yet commenced with terms ranging from approximately two to four years .

At December 31, 2021, we had two operating leases that had not yet commenced, with terms of three years .

The total initial lease liability associated with these leases is $ 0.6 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

7 unchanged sentences

The buildings located on this land had a net book value of $ 15.0 million at December 31, 2021 and are being depreciated over a remaining weighted average period of 17 years.

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.

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.

Bank") provides for a $ 125.0 million revolving line of credit ("Credit Line") that expires on November 1, 2023.

The Credit Line may be used for working capital and other general corporate purposes including acquisitions, share repurchases and capital expenditures.

Amounts available for borrowing under the Credit Line are reduced by the balance of any outstanding letters of credit, of which there were $ 2.7 million at December 31, 2021.

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.

personal property and tangible and intangible assets, as well as a guaranty of the Credit Line by our wholly-owned subsidiary, Universal Electronics BV.

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.

1 unchanged sentence

The applicable margins are calculated quarterly and vary based on our cash flow leverage ratio as set forth in the Second Amended Credit Agreement.

UNIVERSAL ELECTRONICS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2021

The interest rates in effect at December 31, 2021 and 2020 were 1.35 % and 1.39 %, 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.

On December 31, 2021, the process of cessation of LIBOR as a reference rate began.

Between December 31, 2021 and June 30, 2023, any borrowings under our existing Second Amended Credit Agreement may continue to use LIBOR as the basis for interest rates.

If the Second Amended Credit Agreement is amended or replaced during this period, any borrowings will no longer use LIBOR as a reference rate and instead will be subject to an interest rate based on either the Secured Overnight Financing Rate ("SOFR"), which is deemed a replacement benchmark for LIBOR under the Second Amended Credit Agreement, or an alternate index to be agreed upon.

After June 30, 2023, all borrowings will be based on SOFR or the alternate index.

The Second Amended Credit Agreement includes financial covenants requiring a minimum fixed charge coverage ratio and a maximum cash flow leverage ratio.

9 unchanged sentences

Foreign operations 54,104 59,616 39,331

Total $ 43,905 $ 10,402 $ 26,166

UNIVERSAL ELECTRONICS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2020

Total pre-tax income (loss) $ 16,080 $ 43,905 $ 10,402

The provision for income taxes charged to operations was as follows:

12 unchanged sentences

Total provision for income taxes $ 10,779 $ 5,333 $ 6,772

UNIVERSAL ELECTRONICS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2021

Net deferred tax assets were comprised of the following:

10 unchanged sentences

Stock-based compensation 4,569 4,600

Other 4,431 409

Total deferred tax assets 53,482 38,812

1 unchanged sentence

Accrued liabilities — ( 1,939 )

Allowance for credit losses ( 710 ) ( 270 )

Accounts receivable ( 10,919 ) ( 710 )

Right of use assets ( 4,690 ) ( 4,577 )

18 unchanged sentences

Foreign undistributed earnings, net of credits 6,902 3,319 1,181

Liquidation of Cayman subsidiary 745 — —

Non-deductible items 1,198 1,637 1,236

1 unchanged sentence

Provision to return ( 533 ) ( 343 ) 584

Sale of Argentina subsidiary 2,084 — —

State and local taxes, net ( 1,435 ) ( 1,932 ) ( 1,903 )

6 unchanged sentences

Tax provision $ 10,779 $ 5,333 $ 6,772

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.

At December 31, 2021, we had federal and state Research and Development ("R&D") income tax credit carryforwards of approximately $ 5.1 million and $ 12.2 million, respectively.

The federal R&D income tax credits begin expiring in 2038.

The state R&D income tax credits do not have an expiration date.

At December 31, 2021, we had state and local net operating loss carryforwards of approximately $ 49.0 million.

The state and local net operating loss carryforwards begin to expire in 2022.

At December 31, 2021, we assessed the realizability of the Company's 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.

Due to cumulative operating losses for the three years ended in 2021, we have recorded a full valuation allowance against our U.S.

federal and state deferred tax assets of $ 15.4 million and $ 17.2 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.

Additionally, as a result of the Argentina business sale we released the $ 0.3 million valuation allowance recorded as of December 31, 2020 against Argentina's net operating loss carryforward deferred tax assets.

The valuation allowance increased by $ 4.6 million and $ 3.1 million during the years ended December 31, 2021 and 2020, respectively.

We have an overall deferred tax liability for U.S.

federal and state jurisdictions due to having indefinite lived deferred tax liabilities that cannot be used as a source of income to offset the deferred tax asset.

Uncertain Tax Positions

At December 31, 2021 and 2020, we had unrecognized tax benefits of approximately $ 3.0 million and $ 3.1 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.

In accordance with accounting guidance, we have elected to classify interest and penalties as components of tax expense.

Interest and penalties were immaterial for the year ended December 31, 2021 and 2020.

Interest and penalties were $ 0.2 million for the year ended December 31, 2019.

Interest and penalties are included in the unrecognized tax benefits.

12 unchanged sentences

Balance at end of period $ 3,001 $ 3,020 $ 4,094

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.

Approximately $ 3.0 million, $ 3.0 million and $ 4.3 million of the total amount of unrecognized tax benefits at December 31, 2021, 2020 and 2019, respectively, if not for the federal and state 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.

2 unchanged sentences

We file income tax returns in the U.S.

federal jurisdiction and in various state and foreign jurisdictions.

jurisdiction and in various state and foreign jurisdictions.

As of December 31, 2021, 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.

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.

federal for 2018 through 2020, state and local for 2017 through 2020, and non-U.S.

for 2015 through 2020.

Indefinite Reinvestment Assertion

1 unchanged sentence

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.

This assertion was changed in 2018.

For the years ended December 31, 2021, 2020 and 2019, we recorded a deferred tax liability of $ 0.9 million, $ 2.1 million and $ 1.7 million, respectively, relating to state tax and foreign tax withholding liabilities on future distributions.

1 unchanged sentence

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.

The CARES Act provides economic stimulus and relief to address the impact of the COVID-19 pandemic and includes provisions addressing the carryback of net operating losses for specific periods, refunds of alternative minimum tax credits, temporary modifications to limitations placed on the tax deductibility of net interest expenses, and technical amendments for qualified improvement property.

Additionally, the CARES Act provides for refundable employee retention tax credits and the deferral of the employer-paid portion of Social Security taxes.

For the years ended December 31, 2021 and 2020, respectively, the Company's income tax provision was not significantly impacted by the CARES Act.

The Company will continue to closely monitor any effects from future legislation.

UNIVERSAL ELECTRONICS INC.

26 unchanged sentences

Professional fees 4,685 3,794

Sales taxes and value added taxes 5,118 3,926

Sales and value added taxes 5,463 5,118

Short-term contingent consideration — 1,758

23 unchanged sentences

Balance at end of period $ 1,095 $ 1,721 $ 1,514

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.

UNIVERSAL ELECTRONICS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2020

On September 5, 2018, we filed a lawsuit against Roku, Inc.

1 unchanged sentence

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).

We have alleged that this complaint relates to multiple Roku streaming players and components therefor and certain universal control devices, including but not limited to the Roku App, Roku TV, Roku Express, Roku Streaming Stick, Roku Ultra, Roku Premiere, Roku 4, Roku 3, Roku 2, Roku Enhanced Remote and any other Roku product that provides for the remote control of an external device such as a TV, audiovisual receiver, sound bar or Roku TV Wireless Speakers.

In October 2019, the Court stayed this lawsuit pending action by the Patent Trial and Appeals Board (the "PTAB") with respect to Roku's Inter Partes Review ("IPR") requests (see discussion below).This lawsuit continues to be stayed until such time as the IPR requests and all appeals with respect to them have concluded.

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

4 unchanged sentences

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.

Prior to the trial, which ended on April 23, 2021, we released TCL, Hisense and Funai from this investigation as they removed our technology from their televisions.

On July 9, 2021, the Administrative Law Judge (the "ALJ") issued his Initial Determination (the "ID") finding that Roku is infringing our patents and as a result is in violation of §337 of the Tariff Act of 1930, as amended.

On July 23, 2021, Roku and we filed petitions to appeal certain portions of the ID.

On November 10, 2021, the full ITC issued its final determination affirming the ID and issuing a Limited Exclusion Order and Cease and Desist Order against Roku which became effective on January 9, 2022.

UNIVERSAL ELECTRONICS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2021

As a companion case to our ITC complaint, 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 and continue to be stayed pending the final results of the open IPR matters mentioned below.

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.

Throughout these litigation matters against Roku and the others identified above, Roku has filed multiple IPR requests with the PTAB on all patents at issue in the 2018 Lawsuit, the ITC Action, and the 2020 Lawsuit (see discussion above).

To date, the PTAB has denied Roku's request eleven times, granted Roku's request seven times and we are awaiting the PTAB's institution decision with respect to the remaining two IPR requests.

Of the seven IPR requests granted by the PTAB, the results were mixed, with the PTAB validating many of our patent claims and invalidating others.

We have and will appeal any PTAB decisi on that resulted i n an invalidation of our patent claims.

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

On April 8, 2021, Roku made a request to the ITC to initiate an investigation against us and certain of our customers claiming that certain of our and those customers' remote control devices and televisions infringe two of Roku's recently acquired patents.

On May 10, 2021, the ITC announced its decision to initiate the requested investigation.

Immediately prior to trial Roku withdrew its complaint against us and two of our customers with respect to one of the two patents at issue.

This released the complaint against us and two of our customers with respect to that patent.

The trial was thus shortened and ended on January 24, 2022.

We anticipate that the ALJ will issue her ID on or about June 28, 2022 and the full commission review is set for October 28, 2022.

As a companion to its ITC request, Roku also filed a lawsuit against us and certain of our customers in Federal District Court in the Central District of California alleging that we are infringing the same patents they alleged being infringed in the ITC investigation explained above.

This District Court case has been and will continue to be stayed pending the conclusion of the ITC investigation.

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

6 unchanged sentences

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.

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.

Pursuant to this complaint, we, Ecolink and RCS are alleging that USTR's institution of Lists 3 and 4A tariffs violated the Trade Act of 1974 (the "Trade Act") on the grounds that the USTR failed to make a 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;

We, Ecolink and RCS are asking the CIT to declare that the defendants' actions resulting in the tariffs on products covered by Lists 3 and 4A are unauthorized by and contrary to the Trade Act and were arbitrarily and unlawfully promulgated in violation of the APA;

to vacate the Lists 3 and 4A tariffs;

2 unchanged sentences

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.

and award us, Ecolink and RCS our costs and reasonable attorney's fees.

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

On February 5, 2022, the CIT heard oral

UNIVERSAL ELECTRONICS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2021

arguments on dispositive motions filed on behalf of plaintiffs and defendants and we expect a decision on these motions in the coming months.

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.

14 unchanged sentences

During the years ended December 31, 2021, 2020 and 2019, the net periodic benefit costs were also not material.

UNIVERSAL ELECTRONICS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2020

Note 14 — Treasury Stock

1 unchanged sentence

On October 20, 2021, our Board of Directors approved a new repurchase plan with an effective date of November 9, 2021 (the "November 2021 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 November 2021 Program, we were authorized to repurchase up to 300,000 shares of our common stock at predetermined prices until the earlier of the repurchase of all 300,000 shares or February 17, 2022.

The November 2021 Program was completed in December 2021, upon repurchase by us of all 300,000 shares as authorized.

On February 10, 2022, our Board approved a new share repurchase program with an effective date of February 22, 2022 (the "February 2022 Program").

Pursuant to the February 2022 Program, we may, from time to time until May 5, 2022, repurchase up to 300,000 shares of our common stock.

8 unchanged sentences

We hold these shares for future use as management and the Board of Directors deem appropriate.

UNIVERSAL ELECTRONICS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2021

Note 15 — Stock-Based Compensation

19 unchanged sentences

Expected life in years 4.62 4.59 4.60

UNIVERSAL ELECTRONICS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2020

Stock option activity was as follows:

21 unchanged sentences

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.

The value of shares withheld in lieu of receiving cash from option exercises in the years ended December 31, 2021 and 2020 was $ 0.6 million and $ 2.8 million, respectively.

Cash received from option exercises for the years ended December 31, 2021 and 2019 was $ 1.0 million and $ 0.4 million, respectively.

There was no cash received from option exercises for the year ended December 31, 2020.

The actual tax benefit realized from option exercises was $ 0.2 million, $ 0.3 million and $ 0.01 million for the years ended December 31, 2021, 2020 and 2019, respectively.

UNIVERSAL ELECTRONICS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2021

Significant option groups outstanding at December 31, 2021 and the related weighted average exercise price and life information were as follows:

14 unchanged sentences

As of December 31, 2021, 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 1.7 years.

On February 11, 2021, certain executive employees were granted 80,315 stock options in connection with the 2020 annual review cycle.

On February 10, 2022, certain executive employees were granted 119,365 stock options, in the aggregate, in connection with the 2021 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 10, 2023 and 8.33 % each quarter thereafter).

The total grant date fair value of these awards was $ 1.8 million.

UNIVERSAL ELECTRONICS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2020

Restricted Stock

12 unchanged sentences

As of December 31, 2021, we expect to recognize $ 8.9 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.

In February 2022, certain executives and employees were granted 223,001 restricted stock awards, in the aggregate, in connection with the 2021 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 ( 51,365 of these awards will vest 33.33 % on February 10, 2023 and 8.33 % each quarter thereafter and 171,636 of these awards will vest at a rate of 33.33 % per year beginning on February 22, 2023).

7 unchanged sentences

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.

Our stock options

UNIVERSAL ELECTRONICS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2021

become exercisable in various proportions over a three - or four-year time frame.

Stock options have a maximum ten-year term.

1 unchanged sentence

Detailed information regarding our active Stock Incentive Plans was as follows at December 31, 2021:

Name Approval Date Initial Shares

Name Approval Date Total Shares

Available for Grant

9 unchanged sentences

6/4/2018 2,118,664 1,095,728 669,738

UNIVERSAL ELECTRONICS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2020

1,095,728 1,110,328

(1) The 2018 Equity and Incentive Compensation Plan was amended in June 2021 to add an additional 1,100,000 shares, as approved by our stockholders.

Note 16 — Performance-Based Common Stock Warrants

13 unchanged sentences

For the two-year period ended December 31, 2019, Comcast earned and vested in 100,000 out of the maximum potential 250,000 warrants.

For the two-year period ended December 31, 2021, Comcast did no t earn or vest in any of the maximum potential 225,000 warrants.

At December 31, 2021, 275,000 vested warrants were outstanding.

To fully vest in the rights to purchase all of the remaining unearned 225,000 underlying shares, Comcast and its affiliates must purchase an aggregate of $ 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.

All warrants that vested 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.

3 unchanged sentences

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 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.

The transition provisions require that equity-classified awards be measured at the

UNIVERSAL ELECTRONICS INC.

1 unchanged sentence

DECEMBER 31, 2021

adoption date fair value if the measurement date has not been established prior to the adoption date.

Through December 31, 2021, none of the warrants had vested for the two-year period beginning January 1, 2020.

The assumptions we utilized in the Black-Scholes option pricing model and the resulting grant-date fair value of the warrants as of January 1, 2020 were the following:

17 unchanged sentences

(in thousands) 2021 2020 2019

Reduction to net sales $ 686 $ 1,997 $ 163

Reduction (addition) to net sales (1)

$ ( 686 ) $ 686 $ 1,997

Income tax benefit ( 171 ) 171 498

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

(1) At December 31, 2021, Comcast did not meet the minimum performance obligations to vest in any portion of the warrants associated with the two-year vesting period ended December 31, 2021.

As such, all previously recorded expenses associated with this vesting period were reversed.

Note 17 — Other Income (Expense), Net and Loss on Sale of Argentina Subsidiary

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

8 unchanged sentences

See Note 19 for further information concerning our foreign currency exchange contracts.

On September 7, 2021, we completed the sale of our subsidiary, One For All Argentina S.R.L, to an unrelated party, recording a loss on sale of $ 6.1 million.

Upon divestiture, the successor entity, OFA Express S.R.L., will serve as an authorized distributor of certain of our products in Argentina.

OFA Express, S.R.L.

is not a related party of the Company.

UNIVERSAL ELECTRONICS INC.

25 unchanged sentences

Foreign currency exchange contracts $ — $ ( 92 ) $ — $ ( 92 ) $ — $ 113 $ — $ 113

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.

We held foreign currency exchange contracts which resulted in a net pre-tax gain of $ 2.9 million, a net pre-tax loss of $ 0.3 million, and a net pre-tax loss of $ 0.1 million for the years ended December 31, 2021, 2020 and 2019, respectively.

See Note 17 for further information concerning our foreign currency exchange contracts.

8 unchanged sentences

December 31, 2021 USD/Chinese Yuan Renminbi CNY $ 19.0 6.3777 $ 38 January 7, 2022

December 31, 2020 USD/Brazilian Real USD $ 0.9 5.1714 $ 4 January 29, 2021

December 31, 2021 USD/Euro USD $ 31.0 1.1336 $ ( 130 ) January 7, 2022

December 31, 2020 USD/Mexican Peso USD $ 1.9 20.1915 $ ( 24 ) January 29, 2021

December 31, 2020 USD/Chinese Yuan Renminbi CNY $ 55.0 6.5370 $ 239 January 29, 2021

1 unchanged sentence

December 31, 2020 USD/Euro USD $ 28.0 1.2177 $ ( 106 ) January 29, 2021

December 31, 2019 USD/Brazilian Real USD $ 0.7 4.0870 $ ( 13 ) January 24, 2020

December 31, 2020 USD/Mexican Peso USD $ 1.9 20.1915 $ ( 24 ) January 29, 2021

(1) Unrealized gains on foreign currency exchange contracts are recorded in prepaid expenses and other current assets.

6 unchanged sentences

We recorded $ 1.1 million, $ 1.2 million and $ 0.9 million of expense for company contributions for the years ended December 31, 2021, 2020 and 2019, respectively.

Note 21 — Quarterly Financial Data (Unaudited)

Summarized quarterly financial data is as follows:

(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

UNIVERSAL ELECTRONICS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2020

(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.

Note 21 — Subsequent Event

On February 17, 2022, we acquired substantially all of the net assets of Qterics, Inc., a U.S.-based provider of multimedia connectivity solutions and services for internet-enabled consumer products.

Under the terms of the Asset Purchase Agreement, we paid a cash purchase price of approximately $ 1.2 million, subject to a customary post-closing working capital adjustment.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data