What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2024-03-14 compared with 2023-03-08 · 292 added, 228 removed, 1072 unchanged (33% of the section changed)

36 unchanged sentences

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 the underlying asset.

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

The principal considerations for our determination that overtime 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.

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, with a reasonable margin, for performance completed prior to the transfer of control of the underlying asset.

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 contractual legal terms and rights within each jurisdiction in which the Company operates and evaluation of whether it is possible, contractually or economically, to repurpose or redirect products for an alternative use.

Our audit procedures related to the overtime versus 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 and amended 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, including those associated with determination and classification of a product as having no alternative use.

• For a selection of parts from the Company's active products listing, we performed testing 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.

• For a selection 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 overtime revenue recognition.

• For a selection 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.

• We tested the design and operating effectiveness of key controls associated with the Company’s classification of new products, including those associated with the determination and classification of a product as having no alternative use.

• For a selection of products from the Company's active products listing, we performed testing 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 judgment regarding the economic feasibility of repurposing a finished product and evidence to support that the final product has no alternative use.

• For a selection 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.

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, including a reasonable margin, upon cancellation.

38 unchanged sentences

Total liabilities 176,952 235,757

Commitments and contingencies

Commitments and contingencies (Note 13)

Stockholders' equity:

20 unchanged sentences

Research and development expenses 31,281 32,452 30,917

Factory restructuring charges 4,015 — —

Selling, general and administrative expenses 98,490 105,292 118,846

Operating income 14,548 23,253 37,267

Goodwill impairment 49,075 — —

Operating income (loss) ( 85,301 ) 14,548 23,253

Interest income (expense), net ( 4,332 ) ( 2,200 ) ( 566 )

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

Accrued social insurance adjustment — — 9,464

Other income (expense), net ( 2,621 ) ( 955 ) ( 557 )

Income before provision for income taxes 11,393 16,080 43,905

Income (loss) before provision for income taxes ( 92,254 ) 11,393 16,080

Provision for income taxes 5,984 10,986 10,779

Net income $ 407 $ 5,301 $ 38,572

Earnings per share:

Net income (loss) $ ( 98,238 ) $ 407 $ 5,301

Earnings (loss) per share:

Basic $ ( 7.64 ) $ 0.03 $ 0.39

Diluted $ ( 7.64 ) $ 0.03 $ 0.39

Shares used in computing earnings per share:

Shares used in computing earnings (loss) per share:

Basic 12,855 12,703 13,465

6 unchanged sentences

2023 2022 2021

Net income $ 407 $ 5,301 $ 38,572

Net income (loss) $ ( 98,238 ) $ 407 $ 5,301

Other comprehensive income (loss):

16 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

7 unchanged sentences

Currency translation adjustment ( 7,663 ) ( 7,663 )

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

Shares issued for employee benefit plan and compensation 212 2 1,197 1,199

3 unchanged sentences

Employee and director stock-based compensation 10,013 10,013

Performance-based common stock warrants ( 686 ) ( 686 )

Balance at December 31, 2022 25,000 250 ( 12,295 ) ( 368,194 ) 326,839 ( 21,187 ) 330,698 268,406

Net income 407 407

Net loss ( 98,238 ) ( 98,238 )

Currency translation adjustment 429 429

1 unchanged sentence

Purchase of treasury shares ( 165 ) ( 1,779 ) ( 1,779 )

Stock options exercised 80 1 1,535 1,536

Shares issued to directors 29 — — —

8 unchanged sentences

Cash flows from operating activities:

Net income $ 407 $ 5,301 $ 38,572

Adjustments to reconcile net income to net cash provided by (used for) operating activities:

Net income (loss) $ ( 98,238 ) $ 407 $ 5,301

Adjustments to reconcile net income (loss) to net cash provided by (used for) operating activities:

Depreciation and amortization 22,927 24,033 26,747

4 unchanged sentences

Performance-based common stock warrants — — ( 686 )

Impairment of long-term assets 2,888 3,338 134

Impairment of goodwill 49,075 — —

Impairment of long-lived assets 7,963 2,888 3,338

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

Accrued social insurance adjustment — — ( 9,464 )

Loss on sale of Ohio call center — — 712

Changes in operating assets and liabilities:

11 unchanged sentences

Acquisitions of intangible assets ( 5,761 ) ( 6,579 ) ( 4,455 )

Payment on sale of Ohio call center — — ( 500 )

Net cash provided by (used for) investing activities ( 13,877 ) ( 21,208 ) ( 17,041 )

4 unchanged sentences

Treasury stock purchased ( 1,779 ) ( 13,035 ) ( 59,664 )

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

Net cash provided by (used for) financing activities ( 34,779 ) 20,501 ( 22,026 )

16 unchanged sentences

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 distribute remote control devices, integrated circuits, home security 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.

Additionally, we sell our wireless control devices and AV accessories under the One For All®, Ecolink TM 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.

75 unchanged sentences

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.

We continue to assess the need for a valuation allowance on deferred tax assets 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.

16 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 three years .

We recognize the grant date fair value of stock-based compensation awards as expense in proportion to vesting during the derived service period, which ranges from one to three 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.

Our stock-based compensation awards are made at the discretion of the Compensation Committee and are not timed or coordinated with the release of material, non-public information.

We determine the fair value of restricted stock awards with a service condition 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.

26 unchanged sentences

DECEMBER 31, 2023

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.

Earnings (Loss) Per Share

Basic earnings (loss) per share is computed by dividing net income (loss) 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.

8 unchanged sentences

Cash and cash equivalents include cash accounts and all investments purchased with initial maturities of three months or less.

Our term deposit had an initial maturity of one year , but was redeemed prior to December 31, 2022.

Our term deposit, entered into on January 24, 2022, had an initial maturity of one year , but was redeemed prior to December 31, 2022.

Domestically, we generally maintain balances in excess of federally insured limits.

39 unchanged sentences

See Note 6 for further information concerning our property, plant, and equipment.

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) a decline in macroeconomic conditions, (3) a significant decline in our financial performance or (4) a significant decline in the price of our common stock for a sustained period of time.

We perform our annual impairment test, and any required interim tests, using the optional qualitative assessment, weighing the relative impact of factors that are specific to our single reporting unit including our market capitalization compared to the carrying value of our stockholders' equity, as well as industry and macroeconomic factors.

Based on the qualitative assessment performed, we consider the aggregation of the relevant factors, and conclude whether it is more likely than not that the fair value of our single reporting unit is less than the carrying value.

If we conclude that it is more likely than not that the fair value of our single reporting unit is less than the carrying value, or if we decide not to elect the optional qualitative assessment, we perform a quantitative impairment test, using cash flow projections, discounted by our weighted-average cost of capital.

In addition to any quantitative impairment analysis, we also consider the implied control premium compared to our market capitalization.

See Note 7 for further information concerning goodwill and goodwill impairment.

Intangible Assets

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.

Intangible assets are amortized using the straight-line method over their estimated period of benefit.

UNIVERSAL ELECTRONICS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2023

Estimated useful lives are as follows:

Capitalized software development 2 years

Customer relationships 10 - 15 years

Developed and core technology 5 - 15 years

Distribution rights 10 years

Patents 10 years

Trademarks and trade names 10 years

See Note 7 for further information concerning intangible assets.

Long-Lived and Intangible Assets Impairment

We assess the impairment of long-lived 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 may include the following, but are not limited to:

(1) significant underperformance relative to historical or projected future operating results;

(2) significant changes in the manner or use of the assets, their physical condition or strategy for the overall business;

(3) significant negative industry or economic trends;

(4) a current expectation that a long-lived asset will be sold or otherwise disposed of significantly before the end of its previously estimated useful life;

or (5) 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.

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.

See Note 6 for further information concerning long-lived assets.

See Note 7 for further information concerning intangible assets.

We determine if an arrangement is a lease at inception and determine the classification of the lease, as either operating or finance, at commencement.

14 unchanged sentences

DECEMBER 31, 2023

We record the excess purchase price of net tangible and intangible assets acquired over their estimated fair value as goodwill.

Such circumstances may include, but are not limited to:

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 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.

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.

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

7 unchanged sentences

• 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;

UNIVERSAL ELECTRONICS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2022

• discount rates utilized in discounted cash flow models.

5 unchanged sentences

See Note 21 for further information concerning business combinations.

Our foreign currency exposures are primarily concentrated in the Brazilian Real, British Pound, Chinese Yuan Renminbi, Euro, Hong Kong Dollar, Indian Rupee, Japanese Yen, Korean Won and Mexican Peso.

Our foreign currency exposures are primarily concentrated in the Brazilian Real, British Pound, Chinese Yuan Renminbi, Euro, Hong Kong Dollar, Indian Rupee, Japanese Yen, Korean Won, Mexican Peso and Vietnamese Dong.

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.

13 unchanged sentences

These two types of inputs result in the following fair value hierarchy:

UNIVERSAL ELECTRONICS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2023

Quoted prices (unadjusted) for identical instruments in active markets.

2 unchanged sentences

Recently Adopted Accounting Pronouncements

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.

Our adoption of this guidance on January 1, 2022 did not have a material impact on our consolidated statement of financial position, results of operations and cash flows.

UNIVERSAL ELECTRONICS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2022

Other Accounting Pronouncements

Accounting Updates Not Yet Effective

In March 2020, the FASB issued ASU 2020-04, "Facilitation of the Effects of Reference Rate Reform on Financial Reporting", in January 2021, the FASB issued ASU 2021-01, "Reference Rate Reform", and in December 2022, the FASB issued ASU 2022-06, "Deferral of the Sunset Date of Topic 848".

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, 2024.

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

In November 2023, the FASB issued ASU 2023-07, "Segment Reporting – Improvements to Reportable Segments Disclosures." The guidance enhances disclosures of significant segment expenses by requiring the disclosure of significant segment expenses regularly provided to the chief operating decision maker, extends certain annual disclosures to interim periods, and permits more than one measure of segment profit or loss to be reported under certain conditions.

All disclosure requirements are also required for companies with a single reportable segment.

The guidance is effective in fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024.

Early adoption of the guidance is permitted, including adoption in any interim periods for which financial statements have not been issued.

The Company is currently evaluating the guidance and its impact to the financial statements and related disclosures.

In December 2023, the FASB issued ASU 2023-09, "Income Taxes - Improvements to Tax Disclosures." The guidance expands disclosures in an entity’s income tax rate reconciliation table and regarding cash taxes paid both in the U.S.

and foreign jurisdictions.

The guidance will be effective for annual periods beginning after December 15, 2024.

The Company is currently evaluating the guidance and its impact to the financial statements and related disclosures.

We have assessed all other ASUs issued but not yet adopted and concluded that those not disclosed are not relevant to the Company or are not expected to have a material impact.

Note 3 — Cash and Cash Equivalents and Term Deposit

11 unchanged sentences

As of December 31, 2022, all of this term deposit was redeemed.

UNIVERSAL ELECTRONICS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2023

Note 4 — Revenue and Accounts Receivable, Net

16 unchanged sentences

Total net sales $ 420,457 $ 542,751 $ 601,602

UNIVERSAL ELECTRONICS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2022

Specific identification of the customer billing location was the basis used for attributing revenues from external customers to geographic areas.

6 unchanged sentences

Comcast Corporation (1)

$ 75,917 14.0 % $ 98,361 16.3 %

Daikin Industries Ltd.

10 unchanged sentences

(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, 2023

Allowance for Credit Losses

10 unchanged sentences

Comcast Corporation (1)

$ 15,367 13.7 %

(1) Trade receivables associated with this customer did not total more than 10% of our accounts receivable, net for the indicated period.

UNIVERSAL ELECTRONICS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2022

Note 5 — Inventories and Significant Suppliers

Contract Liabilities

We have current and non-current contract liability balances primarily relating to our firmware update provisioning and digital rights management validation services.

Changes in the carrying amount of contract liabilities were as follows:

(In thousands) Year Ended December 31,

Balance at beginning of period $ 1,931 $ 390

Contract liabilities acquired (1)

Payments received 6,080 4,964

Revenue recognized ( 4,529 ) ( 5,812 )

Foreign exchange effects 19 ( 1 )

Balance at end of period $ 3,501 $ 1,931

(1) During the year ended December 31, 2022, we recognized $ 2.4 million of contract liabilities related to the Qterics, Inc.

("Qterics") acquisition.

Refer to Note 21 for further information about this acquisition.

Note 5 — Inventories and Significant Supplier

Inventories were as follows:

5 unchanged sentences

Inventories $ 88,273 $ 140,181

Significant Suppliers

UNIVERSAL ELECTRONICS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2023

Significant Supplier

We purchase integrated circuits, components and finished goods from multiple sources.

5 unchanged sentences

$ 33,293 11.5 % $ 38,712 11.8 %

Purchases from the following supplier totaled more than 10% of our total accounts payable:

$ (thousands) % of Total Accounts Payable $ (thousands) % of Total Accounts Payable

Zhejiang Zhen You Electronics Co.

$ 9,862 10.6 %

(1) Accounts payable associated with this supplier did not total more than 10% of our accounts payable for the indicated period.

(1) Purchases associated with this supplier did not total more than 10% of our total inventory purchases for the indicated period.

There were no trade payable balances from suppliers that totaled more than 10% of our total accounts payable at December 31, 2023 and December 31, 2022.

Note 6 — Property, Plant, and Equipment, Net

13 unchanged sentences

Total property, plant, and equipment, net $ 44,619 $ 62,791

UNIVERSAL ELECTRONICS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2022

Depreciation expense was $ 18.0 million, $ 19.9 million and $ 22.8 million for the years ended December 31, 2023, 2022 and 2021, respectively.

During the three months ended September 30, 2023, as part of our manufacturing footprint optimization efforts, we made the decision to close our southwestern China factory and manufacturing operations were stopped in September 2023.

We are also planning to downsize and streamline the Mexico operations by moving to a smaller, more efficient facility.

As a result of these decisions, we recorded impairment charges of $ 7.7 million, of which $ 7.6 million and $ 0.1 million is recorded in cost of sales and selling, general and administrative expenses, respectively.

In addition, during the year ended December 31, 2023, we recorded an additional $ 0.2 million of impairment charges, recorded in cost of sales, relating to the underutilization of property, plant and equipment in our other PRC-based factories.

During the year ended December 31, 2022, we incurred $ 2.9 million in impairment charges, recorded in cost of sales, relating to the underutilization of certain property, plant and equipment in our Mexico factory.

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 year ended December 31, 2020.

UNIVERSAL ELECTRONICS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2023

Construction in progress was as follows:

18 unchanged sentences

Note 7 — Goodwill and Intangible Assets, Net

During the year ended December 31, 2023, a decline in our financial performance, overall negative trend in the video service provider channel and an uncertain economic environment contributed to a significant decline in our market capitalization.

We considered this to be an impairment trigger.

We, therefore, performed a quantitative valuation analysis under an income approach to estimate our reporting unit's fair value.

The income approach used projections of estimated operating results and cash flows that were discounted using a discount rate based on the weighted-average cost of capital.

The main assumptions supporting the cash flow projections include, but are not limited to, revenue growth, margins, discount rate, and terminal growth rate.

The financial projections reflect our best estimate of economic and market conditions over the projected period, including forecasted revenue growth, margins, capital expenditures, depreciation and amortization.

In addition to our valuation analysis under an income approach, we also considered the implied control premium compared to our market capitalization.

We determined that the implied control premium over our market capitalization to be substantial;

therefore, we recorded an impairment charge of $ 49.1 million during the year ended December 31, 2023.

UNIVERSAL ELECTRONICS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2023

Changes in the carrying amount of goodwill were as follows:

1 unchanged sentence

Balance at December 31, 2021 $ 48,463

Goodwill acquired during the period (1)

Foreign exchange effects ( 91 )

Balance at December 31, 2022 49,085

Goodwill acquired during the period (1)

Goodwill impairment ( 49,075 )

Foreign exchange effects ( 10 )

1 unchanged sentence

(1) During the year ended December 31, 2022, we recognized $ 0.7 million of goodwill related to the Qterics, Inc.

("Qterics") acquisition.

Refer to Note 21 for further information about this acquisition.

UNIVERSAL ELECTRONICS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2022

We conducted annual goodwill impairment reviews on December 31, 2022 and 2021.

5 unchanged sentences

Amortization (1)

Capitalized software development costs ( 2 years)

$ 1,647 $ ( 44 ) $ 1,603 $ 1,066 $ ( 27 ) $ 1,039

Capitalized software development costs $ 2,161 $ ( 421 ) $ 1,740 $ 1,647 $ ( 44 ) $ 1,603

Customer relationships 6,340 ( 3,803 ) 2,537 6,340 ( 3,080 ) 3,260

( 10 - 15 years)

6,340 ( 3,080 ) 3,260 5,000 ( 2,375 ) 2,625

Developed and core technology 4,220 ( 3,754 ) 466 4,520 ( 3,693 ) 827

( 5 - 15 years)

4,520 ( 3,693 ) 827 4,080 ( 3,335 ) 745

Distribution rights ( 10 years)

308 ( 281 ) 27 325 ( 269 ) 56

Patents ( 10 years)

29,388 ( 10,790 ) 18,598 24,518 ( 9,015 ) 15,503

Distribution rights — — — 308 ( 281 ) 27

Patents 33,195 ( 12,686 ) 20,509 29,388 ( 10,790 ) 18,598

Trademarks and trade names 450 ( 353 ) 97 450 ( 295 ) 155

450 ( 295 ) 155 800 ( 599 ) 201

Total intangible assets, net $ 46,366 $ ( 21,017 ) $ 25,349 $ 42,653 $ ( 18,183 ) $ 24,470

7 unchanged sentences

Total amortization expense $ 4,883 $ 4,018 $ 3,990

UNIVERSAL ELECTRONICS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2023

Estimated future annual amortization expense related to our intangible assets at December 31, 2023 is as follows:

6 unchanged sentences

At December 31, 2023, our operating leases had remaining lease terms of up to 37 years, including any reasonably probable extensions.

UNIVERSAL ELECTRONICS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2022

Lease balances within our consolidated balance sheets were as follows:

17 unchanged sentences

Non-cash release of operating lease obligations (1)

$ — $ — $ 654

(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.

We entered into lease amendments for our southwestern China and Mexico factories during the year ended December 31, 2023 as a part of our manufacturing footprint optimization efforts.

As a result of these modifications, our operating lease right-of-use assets decreased by $ 1.2 million and our total lease liabilities decreased by $ 1.3 million.

UNIVERSAL ELECTRONICS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2023

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

10 unchanged sentences

At December 31, 2023, we did not have any operating leases that had not yet commenced.

UNIVERSAL ELECTRONICS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2022

Prepaid Land Lease

6 unchanged sentences

Note 9 — Line of Credit

Our Second Amended and Restated Credit Agreement ("Second Amended Credit Agreement") with U.S.

On May 3, 2023, we executed an amendment to our Second Amended and Restated Credit Agreement ("Second Amended Credit Agreement") with U.S.

Bank National Association ("U.S.

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

We expect to renew our credit agreement with U.S.

Bank, for an additional two years , prior to its expiration.

Bank"), which provides for a $ 125.0 million revolving line of credit ("Credit Line").

Among other things, the amendment to the Second Amended Credit Agreement extended the maturity of the revolving line of credit to April 30, 2024.

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

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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.

Under the Second Amended Credit Agreement, we may elect to pay interest on the Credit Line based on the Secured Overnight Financing Rate ("SOFR") plus an applicable margin (varying from 2.00 % to 2.75 %), 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 0.75 %).

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There are no commitment fees or unused line fees under the Second Amended Credit Agreement.

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

Between December 31, 2021 and June 30, 2023, any borrowings under our existing Second Amended Credit Agreement 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.

UNIVERSAL ELECTRONICS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2023

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, 2022, we were in compliance with the covenants and conditions of the Second Amended Credit Agreement.

From May 3, 2023 to March 31, 2024 (unless we elect to terminate earlier), our fixed charge coverage ratio and cash flow leverage ratio-based covenants are temporarily replaced with EBITDA-based covenants.

Additionally, from May 3, 2023 to March 31, 2024 (unless we elect to terminate the temporary covenant provision earlier), the applicable margins are fixed at 2.75 % and 0.75 % for SOFR and base rate borrowing, respectively.

At December 31, 2023, we were in compliance with the covenants and conditions of the Second Amended Credit Agreement.

At December 31, 2023, we had $ 55.0 million outstanding under the Credit Line.

Our total interest expense on borrowings was $ 6.0 million, $ 3.3 million and $ 0.9 million during the years ended December 31, 2023, 2022 and 2021, respectively.

On March 13, 2024, we executed an amendment to our Second Amended Credit Agreement, which adjusts the Credit Line to a two-tiered limit of $ 85.0 million up to $ 100.0 million (subject to meeting certain financial conditions) and extends the term to April 30, 2025.

Under the amended agreement, we pay interest on the Credit Line based on the SOFR plus a 3.00 % margin.

The amendment also introduces a facility fee of 0.25 %.

From January 1, 2024, to September 30, 2024, our covenants are based upon EBITDA and a minimum accounts receivable coverage ratio.

From October 1, 2024, to December 31, 2024, our covenants are based upon a minimum fixed charge coverage ratio and a minimum accounts receivable coverage ratio.

Subsequent to December 31, 2024, our covenants are based upon a minimum fixed charge coverage ratio and a maximum cash flow leverage ratio.

Note 10 — Income Taxes

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Total pre-tax income (loss) $ ( 92,254 ) $ 11,393 $ 16,080

UNIVERSAL ELECTRONICS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2022

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

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Total provision for income taxes $ 5,984 $ 10,986 $ 10,779

UNIVERSAL ELECTRONICS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2023

Net deferred tax assets were comprised of the following:

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Stock-based compensation 4,453 4,288

Other — 4,431

Total deferred tax assets 71,806 58,155

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Foreign undistributed earnings, net of credits 7,198 6,486 6,902

Foreign participation exemption ( 12,571 ) — —

Goodwill impairment 5,383 — —

Liquidation of Cayman subsidiary — — 745

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Tax rate change 1,648 ( 640 ) —

Uncertain tax positions — — ( 1,565 )

Valuation allowance 15,090 12,058 4,632

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Tax provision $ 5,984 $ 10,986 $ 10,779

At December 31, 2022, we had federal and state Research and Development ("R&D") income tax credit carryforwards of approximately $ 4.2 million and $ 12.8 million, respectively.

At December 31, 2023, we had U.S.

federal and state Research and Development ("R&D") income tax credit carryforwards of approximately $ 5.2 million and $ 13.5 million, respectively.

The federal R&D income tax credits begin expiring in 2039.

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

At December 31, 2022, we had state and local and foreign net operating loss carryforwards of approximately $ 50.6 million and $ 0.7 million, respectively.

The state and local and foreign net operating loss carryforwards begin to expire in 2023 and 2027, respectively.

At December 31, 2023, we had U.S.

federal, state and local, and foreign net operating loss carryforwards of approximately $ 19.8 million, $ 76.7 million and $ 10.3 million, respectively.

federal net operating loss carryforwards do not expire while the state and local and foreign net operating loss carryforwards begin to expire in 2024 and 2027, respectively.

At December 31, 2023, 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.

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We considered the scheduled reversal of deferred tax liabilities, tax planning strategies and projected future taxable income in making this assessment.

Due to cumulative operating losses for the three years ended in 2022, we have recorded a full valuation allowance against our U.S.

Due to cumulative operating losses for the three years ended December 31, 2023, we have recorded a full valuation allowance against our U.S.

federal and state deferred tax assets of $ 34.7 million and $ 22.8 million, respectively, as we have determined that it is more likely than not that the tax benefits will not be realized in the future.

The valuation allowance increased by $ 15.1 million and $ 12.1 million during the years ended December 31, 2023 and 2022, 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 assets.

The Company had an overall deferred tax liability as of December 31, 2022 for U.S.

federal and state jurisdictions due to having indefinite lived deferred tax liabilities that could not be used as a source of income to offset deferred tax assets.

Due to the goodwill impairment recorded during the year ended December 31, 2023 the deferred tax liability reversed.

UNIVERSAL ELECTRONICS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2023

Uncertain Tax Positions

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Interest and penalties are included in the unrecognized tax benefits.

UNIVERSAL ELECTRONICS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2022

Changes to our gross unrecognized tax benefits were as follows:

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Balance at beginning of period $ 3,150 $ 3,001 $ 3,020

Additions as a result of tax provisions taken during the current year 149 226 274

Additions as a result of tax positions taken during the current year 165 149 226

Foreign currency translation — — ( 13 )

Lapse in statute of limitations — — ( 51 )

Settlements — — ( 232 )

Other — — ( 1,317 )

Balance at end of period $ 3,315 $ 3,150 $ 3,001

Approximately $ 3.2 million, $ 3.0 million and $ 3.0 million of the total amount of unrecognized tax benefits at December 31, 2022, 2021 and 2020, respectively, if not for the federal and state valuation allowance, would affect the annual effective tax rate, if recognized.

Approximately $ 3.3 million, $ 3.2 million and $ 3.0 million of the total amount of unrecognized tax benefits at December 31, 2023, 2022 and 2021, respectively, if not for the U.S.

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.

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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.

jurisdiction and in various state and foreign jurisdictions.

The Company files U.S.

federal, state and foreign income tax returns.

As of December 31, 2023, the open statutes of limitations for our significant tax jurisdictions are as follows:

federal for 2019 through 2021, state and local for 2018 through 2021, and non-U.S.

for 2016 through 2021.

federal for 2020 through 2022, state and local for 2019 through 2022, and foreign for 2017 through 2022.

Indefinite Reinvestment Assertion

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For the years ended December 31, 2023, 2022 and 2021, we recorded a deferred tax liability of $ 0.4 million, $ 0.5 million and $ 0.9 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 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, 2022, 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.

CHIPS and Science Act of 2022

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The CHIPS Act will provide financial incentives to the semiconductor industry which are primarily directed at manufacturing activities within the United States for the qualifying property placed in service after December 31, 2022.

As we currently outsource our manufacturing, the CHIPS Act is not expected to have a material impact to our consolidated tax provision for the year ending December 31, 2023.

As we currently outsource our manufacturing, the CHIPS Act did not have a material impact to our consolidated tax provision for the year ending December 31, 2023.

Inflation Reduction Act of 2022

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The bill was meant to address the high inflation rate in the United States through various climate, energy, healthcare and other incentives.

These incentives are meant to be paid for by the tax provisions included in the IRA, such as a new 15 percent corporate minimum tax, a 1 percent new

These incentives are meant to be paid for by the tax provisions included in the IRA, such as a new 15 percent corporate minimum tax, a 1 percent new excise tax on stock buybacks, additional IRS funding to improve taxpayer compliance and others.

The IRA provisions are effective for tax years beginning after December 31, 2022.

At this time, none of the IRA tax provisions had a material impact to our consolidated tax provision for the year ending December 31, 2023.

UNIVERSAL ELECTRONICS INC.

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DECEMBER 31, 2023

excise tax on stock buybacks, additional IRS funding to improve taxpayer compliance and others.

The IRA provisions are effective for tax years beginning after December 31, 2023.

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:

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Total accrued compensation $ 20,305 $ 20,904

(1) For the year ended December 31, 2023, accrued severance expenses of $ 0.1 million related to the manufacturing footprint optimization efforts are included in this amount.

See Note 13 for further information related to our restructuring activities.

(2) PRC employers are required by law to remit the applicable social insurance payments to their local government.

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Sales and value added taxes 4,194 3,750

Other 5,426 5,715

Total other accrued liabilities $ 21,181 $ 24,134

UNIVERSAL ELECTRONICS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2022

(1) Includes $ 0.2 million and $ 0.6 million at December 31, 2023 and 2022, respectively, associated with the purchase of property, plant and equipment.

Note 13 — Commitments and Contingencies

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Management is not aware of any matters that require indemnification of its officers or directors.

UNIVERSAL ELECTRONICS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2023

Fair Price Provisions and Other Anti-Takeover Measures

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Balance at end of period $ 522 $ 522 $ 1,095

Restructuring Activities

In September 2023, we began implementing our plan to restructure and optimize our manufacturing footprint while reducing our concentration risk in the PRC.

In conjunction with this plan, as of September 30, 2023, we have stopped all production activities and commenced the shutdown of our southwestern China factory.

As a result, we incurred severance and equipment moving costs of $ 3.4 million and $ 0.6 million, respectively, during the year ended December 31, 2023, which are included within factory restructuring charges on our consolidated statements of operations.

We expect the completion date of this factory restructuring to be in the first quarter of 2024 with total estimated restructuring charges of $ 4.1 million.

The restructuring liabilities are included in accrued compensation, accounts payable and other accrued liabilities on our consolidated balance sheets.

Restructuring activities for the year ended December 31, 2023 are as follows:

Restructuring Costs

(In thousands) Total Severance

Expense Other Exit

Balance at December 31, 2022 $ — $ — $ —

Restructuring charges 4,015 3,425 590

Cash payments ( 3,553 ) ( 3,278 ) ( 275 )

Balance at December 31, 2023 $ 462 $ 147 $ 315

Total costs incurred inception to date $ 4,015 $ 3,425 $ 590

Total estimated expense to be incurred after December 31, 2023 $ 62 $ 62 $ —

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

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On December 5, 2018, we amended our complaint to add additional details supporting our infringement and willfulness allegations.

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

We have alleged that this complaint relates to multiple Roku streaming players and

UNIVERSAL ELECTRONICS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2023

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 requests for Inter Partes Review ("IPR") (see discussion below).

This lawsuit continues to be stayed until such time as the IPR's and all appeals with respect to them have concluded.

Now that the most of the PTAB matters have been concluded, we will ask the District Court to lift this stay.

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

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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

UNIVERSAL ELECTRONICS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2022

States and a cease and desist order to stop these parties from continuing their infringing activities.

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.

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

Roku continues to be subject to the LEO and CDO.

On October 25, 2022, we filed our brief opposing Roku's appeal of the LEO.

In January 2022, Roku filed its appeal of the ITC ruling with the U.S.

Court of Appeals for the Federal Circuit (the "USCAFC").

Oral argument for this appeal was held on September 5, 2023 and in January 2024 the USCAFC issued its decision affirming the ITC ruling in full.

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 ITC case and any appeals.

Now that the most of the PTAB matters have been concluded, we will ask the District Court to lift this stay.

Inter Partes Reviews

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

We have appealed all but one PTAB decisi on that resulted i n an invalidation of our patent claims and we will continue to do so.

Most of these PTAB actions have been completed, so we will petition the District Court to lift the stay on the 2018 and 2020 cases.

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

On April 8, 2021, Roku made a request to the ITC to initiate an investigation against us and certain of our customers claiming that certain of our and those customers' remote control devices and televisions infringe two of Roku's recently acquired patents, the '511 patent and the '875 patent.

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

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

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

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In advance of the full Commission's review, Roku and we filed petitions to appeal certain portions of the ID.

In addition, the PTAB granted our request for an IPR with respect to the '875 patent.

In addition, the PTAB granted our request for an IPR with respect to the '875

UNIVERSAL ELECTRONICS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2023

On October 28, 2022, the full ITC issued its final determination affirming the ID, ruling there was no violation of the Tariff Act and terminated the investigation.

In December 2022, Roku filed an appeal, which remains pending.

In addition, Roku, along with the ITC, filed a joint motion to dismiss the '511 patent as moot as it recently expired.

We are opposing this motion.

Further, on October 23, 2023, the PTBA issued its Final Written Decision invalidating all of the claims Roku alleges we infringe.

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

This District Court case has been stayed pending the ITC case, and will likely continue to be stayed pending the conclusion of the '875 IPR investigation, even after Roku's appeal of the ITC case has concluded.

This District Court case has been stayed pending the ITC case, and will likely continue to be stayed pending the conclusion of Roku's appeal of the ITC case.

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

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Customs & Border Protection;

Customs & Border Protection Acting Commissioner, challenging both the

UNIVERSAL ELECTRONICS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2022

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.

Customs & Border Protection Acting Commissioner, challenging both the substantive and procedural processes followed by the United States Trade Representative ("USTR") when instituting Section 301 Tariffs on imports from China under Lists 3 and 4A.

Pursuant to this complaint, Ecolink, RCS and we 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.

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On September 14, 2022, the lead plaintiff filed its comments to the USTR's August 1, 2022 filing, asserting that the USTR did not adequately respond to the Court's remand order and requested the Court to vacate the List 3 and List 4A tariffs and issue refunds immediately.

On February 7, 2023, the Court heard arguments on these issues and we expect the Court to rule on these filings in mid 2023.

On March 17, 2023, the CIT sustained the List 3 and List 4 tariffs, concluding that USTR’s rationale in support of the tariffs was not impermissibly post hoc.

The court also concluded that USTR adequately explained its reliance on presidential direction and adequately responded to significant comments regarding the harm to the U.S.

economy, efficacy of the tariffs, and alternatives to the tariffs.

Lead plaintiffs have appealed this decision.

The parties have fully briefed their positions on this appeal and oral argument is expected to be set for later in 2024 and a decision sometime in 2025.

UNIVERSAL ELECTRONICS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2023

Tongshun Matters

On January 23, 2024, Tongshun Company ("TS") filed suit against one of our subsidiary factories, Gemstar Technology (Yangzhou) Co.

("GTY"), claiming among other things, breach of an employment agency, and as is standard in Chinese litigation matters such as these, TS has also requested the Court to order a hold on GTY's bank account for the total claimed amount of RMB 35 million.

This asset protection order is a standard request and routinely granted.

On February 5, 2024, we learned that the Court accepted the lawsuit filed by TS.

The hearing on this matter has been scheduled for early March of this year.

We will vigorously defend against these claims.

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.

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An individual must be employed by our India subsidiary for a minimum of five years before becoming eligible.

UNIVERSAL ELECTRONICS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2022

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.

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From time to time, our Board of Directors authorizes management to repurchase shares of our issued and outstanding common stock.

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

Pursuant to the February 2022 Program, we were authorized to repurchase up to 300,000 shares of our common stock until the Program's expiration on May 5, 2022.

Per the terms of the February 2022 Program, we could utilize various methods to effect the repurchases, including open market repurchases, negotiated block transactions, accelerated share repurchases or open market solicitations for shares, some or all of which could be effected through Rule 10b5-1 plans.

As of May 2, 2022, we repurchased the full 300,000 shares under the February 2022 Program.

On October 26, 2023, our Board approved a new share repurchase program with an effective date of November 7, 2023 (the "October 2023 Program").

Pursuant to the October 2023 Program, we are authorized to repurchase up to 1,000,000 shares of our common stock.

At December 31, 2023, we had 900,000 shares available for repurchase under the October 2023 Program.

We may utilize various methods to effect the repurchases under the October 2023 Program, including open market repurchases, negotiated block transactions, accelerated share repurchases or open market solicitations for shares, some or all of which could be effected through Rule 10b5-1 plans.

We also repurchase shares of our issued and outstanding common stock to satisfy the cost of stock option exercises and/or income tax withholding obligations relating to the stock-based compensation of our employees and directors.

UNIVERSAL ELECTRONICS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2023

Repurchased shares of our common stock were as follows:

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Income tax benefit $ 1,369 $ 1,660 $ 1,718

UNIVERSAL ELECTRONICS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2022

Stock Options

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Expected life in years 4.70 4.73 4.62

UNIVERSAL ELECTRONICS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2023

Stock option activity was as follows:

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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 years ended December 31, 2022, 2021 and 2020 was $ 1.5 million, $ 0.6 million and $ 2.8 million, respectively.

There were no option exercises in the year ended December 31, 2023.

The value of shares withheld in lieu of receiving cash from option exercises in the years ended December 31, 2022 and 2021 was $ 1.5 million and $ 0.6 million, respectively.

Cash received from option exercises for the year ended December 31, 2021 was $ 1.0 million.

There was no cash received from option exercises for the years ended December 31, 2022 and 2020.

The actual tax benefit realized from option exercises was $ 0.1 million, $ 0.2 million and $ 0.3 million for the years ended December 31, 2022, 2021 and 2020, respectively.

There was no cash received from option exercises for the year ended December 31, 2022.

The actual tax benefit realized from option exercises was $ 0.1 million and $ 0.2 million for the years ended December 31, 2022 and 2021, respectively.

Significant option groups outstanding at December 31, 2023 and the related weighted average exercise price and life information were as follows:

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As of December 31, 2023, we expect to recognize $ 2.4 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.

UNIVERSAL ELECTRONICS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2022

On February 9, 2023, certain executive employees were granted stock options to acquire, in the aggregate, up to 235,455 shares of our common stock, in connection with the 2022 annual review cycle.

The options were granted as part of the executive compensation program and are subject to a three-year vesting period ( 33.33 % on February 9, 2024 and 8.33 % each quarter thereafter).

The total grant date fair value of these awards was $ 2.6 million.

Restricted Stock

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Non-vested at end of the year 486 $ 21.66 376 $ 36.82 310 $ 44.41

UNIVERSAL ELECTRONICS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2023

As of December 31, 2023, we expect to recognize $ 6.4 million of total unrecognized pre-tax stock-based compensation expense related to non-vested restricted stock awards over a weighted-average life of 1.6 years.

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The total grant date fair value of these awards was $ 1.0 million.

In February 2024, certain executives were granted 116,001 performance stock awards, in the aggregate, in connection with the 2023 annual review cycle.

These awards vest only upon the satisfaction of a three-year service condition and market conditions based upon the price per share of our common stock.

We are currently determining the fair market value of these awards using a Monte Carlo simulation model as of the grant date.

Stock Incentive Plans

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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.

No stock appreciation rights or performance stock units have been awarded under our Stock Incentive Plans as of December 31, 2023.

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.

The grant price of stock option, restricted stock, and performance 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.

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Restricted stock awards vest in various proportions over a one - to three-year time period.

Performance stock awards granted in February 2024 vest in various proportions over a three-year time frame, subject to share price-based market conditions.

Detailed information regarding our active Stock Incentive Plans was as follows at December 31, 2023:

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2014 Stock Incentive Plan 6/12/2014 1,100,000 — 189,975

2014 Stock Incentive Plan 6/12/2014 1,100,000 — 269,891

2018 Equity and Incentive Compensation Plan (1)

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(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.

UNIVERSAL ELECTRONICS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2022

Note 16 — Performance-Based Common Stock Warrants

On March 9, 2016, we issued common stock purchase warrants to Comcast Corporation ("Comcast") at a price of $ 54.55 per share.

At December 31, 2022, 275,000 of these warrants were vested and outstanding.

All of the warrants expired on January 1, 2023.

On January 1, 2023, all 275,000 of the vested and outstanding warrants expired unexercised.

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

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

UNIVERSAL ELECTRONICS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2023

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

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is not a related party of the Company.

Note 18 — Earnings Per Share

Earnings per share was calculated as follows:

Note 18 — Earnings (Loss) Per Share

Earnings (loss) per share was calculated as follows:

Year Ended December 31,

(In thousands, except per-share amounts) 2023 2022 2021

Net income $ 407 $ 5,301 $ 38,572

Net income (loss) $ ( 98,238 ) $ 407 $ 5,301

Weighted-average common shares outstanding 12,855 12,703 13,465

Basic earnings per share $ 0.03 $ 0.39 $ 2.78

Net income $ 407 $ 5,301 $ 38,572

Basic earnings (loss) per share $ ( 7.64 ) $ 0.03 $ 0.39

Net income (loss) $ ( 98,238 ) $ 407 $ 5,301

Weighted-average common shares outstanding for basic 12,855 12,703 13,465

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Weighted-average common shares outstanding on a diluted basis 12,855 12,779 13,742

Diluted earnings per share $ 0.03 $ 0.39 $ 2.72

UNIVERSAL ELECTRONICS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2022

Diluted earnings (loss) per share $ ( 7.64 ) $ 0.03 $ 0.39

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:

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Performance-based warrants — 275 206

UNIVERSAL ELECTRONICS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2023

Note 19 — Derivatives

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Foreign currency exchange contracts $ — $ ( 83 ) $ — $ ( 83 ) $ — $ 100 $ — $ 100

We held foreign currency exchange contracts which resulted in a net pre-tax loss of $ 1.3 million, a net pre-tax gain of $ 2.9 million, and a net pre-tax loss of $ 0.3 million for the years ended December 31, 2022, 2021 and 2020, respectively.

We held foreign currency exchange contracts which resulted in a net pre-tax loss of $ 3.2 million, a net pre-tax loss of $ 1.3 million, and a net pre-tax gain of $ 2.9 million for the years ended December 31, 2023, 2022 and 2021, respectively.

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

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Settlement Date

December 31, 2022 USD/Euro USD $ 26.0 1.0529 $ ( 428 ) January 6, 2023

December 31, 2023 USD/Chinese Yuan Renminbi CNY $ 20.0 7.1181 $ ( 18 ) January 5, 2024

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

December 31, 2023 USD/Euro USD $ 22.0 1.1009 $ ( 65 ) January 5, 2024

December 31, 2022 USD/Euro USD $ 26.0 1.0529 $ ( 428 ) January 6, 2023

December 31, 2022 USD/Chinese Yuan Renminbi CNY $ 31.0 7.0358 $ 528 January 6, 2023

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

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The acquisition of these assets will allow us to expand our customer base in the OEM market.

Our consolidated income statement for the year ended December 31, 2023 includes net sales of $ 2.1 million and net income of $ 16 thousand attributable to Qterics.

Our consolidated income statement for the year ended December 31, 2022 includes net sales of $ 2.1 million and net income of $ 145 thousand attributable to Qterics for the period commencing on February 17, 2022.

UNIVERSAL ELECTRONICS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2022

In accordance with the terms of the APA, the initial purchase price was subject to adjustment for differences between the initial estimated working capital balances and the final adjusted balances.

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The goodwill is expected to be deductible for income tax purposes.

UNIVERSAL ELECTRONICS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2023

Management's purchase price allocation as of December 31, 2023 was the following:

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Cash paid $ 939

(1) Our consolidated goodwill balance was impaired during the year ended December 31, 2023.

Please see Note 7 for further information.

Management's determination of the fair value of intangible assets acquired are based primarily on significant inputs not observable in an active market and thus represent Level 3 fair value measurements as defined under U.S.

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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