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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

_______________________________________ 

FORM 10-Q

_______________________________________ 

(Mark One)

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

For the quarterly period ended June 30, 2020

OR

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

For the transition period from            to            

Commission File Number: 0-21044

_______________________________________ 

UNIVERSAL ELECTRONICS INC.

(Exact Name of Registrant as Specified in its Charter)

Delaware							33-0204817
(State or Other Jurisdiction of Incorporation or Organization)							(I.R.S. Employer Identification No.)

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

(Address of principal executive offices and zip code)

(480) 530-3000

(Registrant's telephone number, including area code)

_______________________________________ 

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐						Accelerated filer	☒
Non-accelerated filer	☐						Smaller reporting company	☐
							Emerging growth company	☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).			Yes	☐	No	☒

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: 13,931,552 shares of Common Stock, par value $0.01 per share, of the registrant were outstanding on August 4, 2020.

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UNIVERSAL ELECTRONICS INC.

 

INDEX

 

	Page Number
PART I. FINANCIAL INFORMATION	3
Item 1. Consolidated Financial Statements (Unaudited)	3
Consolidated Balance Sheets	3
Consolidated Statements of Operations	4
Consolidated Comprehensive Income (Loss) Statements	5
Consolidated Statements of Stockholders' Equity	6
Consolidated Statements of Cash Flows	8
Notes to Consolidated Financial Statements	9
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	25
Item 3. Quantitative and Qualitative Disclosures About Market Risk	32
Item 4. Controls and Procedures	33
PART II. OTHER INFORMATION	33
Item 1. Legal Proceedings	33
Item 1A. Risk Factors	33
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	34
Item 6. Exhibits	35
Signatures	36

---

Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1. Consolidated Financial Statements (Unaudited)

UNIVERSAL ELECTRONICS INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share-related data)

(Unaudited)

	June 30, 2020				December 31, 2019
ASSETS
Current assets:
Cash and cash equivalents	$	58,832			$	74,302
Accounts receivable, net	143,893				139,198
Contract assets	6,493				12,579
Inventories	134,650				145,135
Prepaid expenses and other current assets	5,339				6,733
Income tax receivable	1,743				805
Total current assets	350,950				378,752
Property, plant and equipment, net	83,438				90,732
Goodwill	48,451				48,447
Intangible assets, net	19,187				19,830
Operating lease right-of-use assets	17,854				19,826
Deferred income taxes	4,082				4,409
Other assets	2,458				2,163
Total assets	$	526,420			$	564,159
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	80,701			$	102,588
Line of credit	73,000				68,000
Accrued compensation	19,640				43,668
Accrued sales discounts, rebates and royalties	9,366				9,766
Accrued income taxes	8,425				6,989
Other accrued liabilities	31,117				35,445
Total current liabilities	222,249				266,456
Long-term liabilities:
Operating lease obligations	13,121				15,639
Contingent consideration	234				4,349
Deferred income taxes	2,871				1,703
Income tax payable	1,368				1,600
Other long-term liabilities	445				13
Total liabilities	240,288				289,760
Commitments and contingencies
Stockholders' equity:
Preferred stock, $0.01 par value, 5,000,000 shares authorized; none issued or outstanding	—				—
Common stock, $0.01 par value, 50,000,000 shares authorized; 24,268,744 and 24,118,088 shares issued on June 30, 2020 and December 31, 2019, respectively	243				241
Paid-in capital	294,007				288,338
Treasury stock, at cost, 10,346,473 and 10,174,199 shares on June 30, 2020 and December 31, 2019, respectively	(284,222		)		(277,817		)
Accumulated other comprehensive income (loss)	(30,560		)		(22,781		)
Retained earnings	306,664				286,418
Total stockholders' equity	286,132				274,399
Total liabilities and stockholders' equity	$	526,420			$	564,159

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

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UNIVERSAL ELECTRONICS INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

(Unaudited) 

	Three Months Ended June 30,								Six Months Ended June 30,
	2020				2019				2020				2019
Net sales	$	153,133			$	193,896			$	304,911			$	378,059
Cost of sales	115,058				159,903				223,895				304,192
Gross profit	38,075				33,993				81,016				73,867
Research and development expenses	7,385				7,163				15,283				13,954
Selling, general and administrative expenses	24,230				30,756				51,227				62,176
Operating income (loss)	6,460				(3,926		)		14,506				(2,263		)
Interest income (expense), net	(372		)		(1,098		)		(1,004		)		(2,304		)
Accrued social insurance adjustment	9,464				—				9,464				—
Other income (expense), net	731				188				383				(278		)
Income (loss) before provision for income taxes	16,283				(4,836		)		23,349				(4,845		)
Provision for income taxes	1,883				225				3,103				1,221
Net income (loss)	$	14,400			$	(5,061	)		$	20,246			$	(6,066	)
Earnings (loss) per share:
Basic	$	1.03			$	(0.37	)		$	1.45			$	(0.44	)
Diluted	$	1.02			$	(0.37	)		$	1.43			$	(0.44	)
Shares used in computing earnings (loss) per share:
Basic	13,915				13,863				13,938				13,845
Diluted	14,151				13,863				14,181				13,845

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

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UNIVERSAL ELECTRONICS INC.

CONSOLIDATED COMPREHENSIVE INCOME (LOSS) STATEMENTS

(In thousands)

(Unaudited) 

	Three Months Ended June 30,								Six Months Ended June 30,
	2020				2019				2020				2019
Net income (loss)	$	14,400			$	(5,061	)		$	20,246			$	(6,066	)
Other comprehensive income (loss):
Change in foreign currency translation adjustment	(770		)		(1,833		)		(7,779		)		(100		)
Comprehensive income (loss)	$	13,630			$	(6,894	)		$	12,467			$	(6,166	)

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

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UNIVERSAL ELECTRONICS INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands)

(Unaudited)

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

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

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

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UNIVERSAL ELECTRONICS INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands)

(Unaudited)

The following summarizes the changes in total equity for the three and six months ended June 30, 2019:

	Common Stock Issued							Common Stock in Treasury							Paid-in Capital				Accumulated Other Comprehensive Income (Loss)				Retained Earnings				Totals
	Shares			Amount				Shares			Amount
Balance at December 31, 2018	23,933			$	239			(10,116	)		$	(275,889	)		$	276,103			$	(20,281	)		$	282,788			$	262,960
Net income (loss)																							(1,005		)		(1,005		)
Currency translation adjustment																			1,733								1,733
Shares issued for employee benefit plan and compensation	78			1											346												347
Purchase of treasury shares								(43	)		(1,215		)														(1,215		)
Shares issued to directors	8			—											—												—
Employee and director stock-based compensation															1,918												1,918
Performance-based common stock warrants															434												434
Balance at March 31, 2019	24,019			240				(10,159	)		(277,104		)		278,801				(18,548		)		281,783				265,172
Net income (loss)																							(5,061		)		(5,061		)
Currency translation adjustment																			(1,833		)						(1,833		)
Shares issued for employee benefit plan and compensation	17			—											273												273
Purchase of treasury shares								(5	)		(189		)														(189		)
Shares issued to directors	7			—											—												—
Employee and director stock-based compensation															2,273												2,273
Performance-based common stock warrants															236												236
Balance at June 30, 2019	24,043			$	240			(10,164	)		$	(277,293	)		$	281,583			$	(20,381	)		$	276,722			$	260,871

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

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UNIVERSAL ELECTRONICS INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

	Six Months Ended June 30,
	2020				2019
Cash provided by (used for) operating activities:
Net income (loss)	$	20,246			$	(6,066	)
Adjustments to reconcile net income (loss) to net cash provided by (used for) operating activities:
Depreciation and amortization	15,663				15,871
Provision for bad debts	240				5
Deferred income taxes	1,275				3,203
Shares issued for employee benefit plan	739				620
Employee and director stock-based compensation	4,594				4,191
Performance-based common stock warrants	338				670
Impairment of long-term assets	50				—
Accrued social insurance adjustment	(9,464		)		—
Loss on sale of Ohio call center	712				—
Changes in operating assets and liabilities:
Accounts receivable and contract assets	(848		)		(8,108		)
Inventories	9,571				(4,387		)
Prepaid expenses and other assets	1,947				2,578
Accounts payable and accrued liabilities	(40,869		)		16,822
Accrued income taxes	293				(5,166		)
Net cash provided by (used for) operating activities	4,487				20,233
Cash provided by (used for) investing activities:
Acquisitions of property, plant and equipment	(6,210		)		(10,093		)
Acquisitions of intangible assets	(3,077		)		(1,260		)
Payment on sale of Ohio call center	(500		)		—
Net cash provided by (used for) investing activities	(9,787		)		(11,353		)
Cash provided by (used for) financing activities:
Borrowings under line of credit	50,000				40,000
Repayments on line of credit	(45,000		)		(46,500		)
Treasury stock purchased	(6,405		)		(1,404		)
Contingent consideration payments in connection with business combinations	(3,091		)		(4,251		)
Net cash provided by (used for) financing activities	(4,496		)		(12,155		)
Effect of exchange rate changes on cash and cash equivalents	(5,674		)		(367		)
Net increase (decrease) in cash and cash equivalents	(15,470		)		(3,642		)
Cash and cash equivalents at beginning of period	74,302				53,207
Cash and cash equivalents at end of period	$	58,832			$	49,565
Supplemental cash flow information:
Income taxes paid	$	2,215			$	3,973
Interest paid	$	1,069			$	2,342

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

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UNIVERSAL ELECTRONICS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2020

(Unaudited)

Note 1 — Basis of Presentation

In the opinion of management, the accompanying consolidated financial statements of Universal Electronics Inc. and its subsidiaries contain all the adjustments necessary for a fair presentation of financial position, results of operations and cash flows for the periods presented. All such adjustments are of a normal recurring nature and certain reclassifications have been made to prior year amounts in order to conform to the current year presentation. Information and footnote disclosures normally included in financial statements, which are prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP"), have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"). As used herein, the terms "Company," "we," "us," and "our" refer to Universal Electronics Inc. and its subsidiaries, unless the context indicates to the contrary.

Our results of operations for the three and six months ended June 30, 2020 are not necessarily indicative of the results to be expected for the full year. These financial statements should be read in conjunction with the "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Quantitative and Qualitative Disclosures About Market Risk," and the "Financial Statements and Supplementary Data" included in Items 1A, 7, 7A, and 8, respectively, of our Annual Report on Form 10-K for the year ended December 31, 2019.

Estimates, Judgments and Assumptions

The preparation of financial statements in conformity with U.S. GAAP requires us to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an on-going basis, we evaluate our estimates and assumptions, including those related to revenue recognition; allowance for bad debts; inventory valuation; our review for impairment of long-lived assets, intangible assets and goodwill; leases; business combinations; income taxes; stock-based compensation expense and performance-based common stock warrants.

The recent coronavirus ("COVID-19") pandemic and the mitigation efforts by governments to attempt to control its spread have created uncertainties and disruptions in the economic and financial markets. While we are not currently aware of events or circumstances that would require an update to our estimates, judgments or adjustments to the carrying values of our assets or liabilities, these estimates may change as developments occur and we obtain additional information. These future developments are highly uncertain and the outcomes are unpredictable. Actual results may differ from those estimates, and such differences may be material to the financial statements.

See Note 2 to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2019 for a summary of our significant accounting policies.

Recently Adopted Accounting Pronouncements

In June 2016, the Financial Accounting Standards Board ("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. The adoption did not require an implementation adjustment and did not materially impact our consolidated statement of financial position, results of operations and cash flows. See Note 3 for further discussion on our allowance for bad debts.

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 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

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UNIVERSAL ELECTRONICS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2020

(Unaudited)

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 15 for further discussion on the performance-based common stock warrants.

Recent Accounting Updates Not Yet Effective

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 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. The guidance is effective for interim and annual periods beginning after December 15, 2020, with early adoption permitted. We are currently evaluating the impact of this guidance on our consolidated statement of financial position, results of operations and cash flows.

Note 2 — Cash and Cash Equivalents

Cash and cash equivalents were held in the following geographic regions:

(In thousands)	June 30, 2020				December 31, 2019
United States	$	8,608			$	16,751
People's Republic of China ("PRC")	14,799				13,700
Asia (excluding the PRC)	9,808				21,691
Europe	15,185				9,081
South America	10,432				13,079
Total cash and cash equivalents	$	58,832			$	74,302

Note 3 — Revenue and Accounts Receivable, Net

Revenue Details

The pattern of revenue recognition was as follows:

	Three Months Ended June 30,								Six Months Ended June 30,
(In thousands)	2020				2019				2020				2019
Goods and services transferred at a point in time	$	121,187			$	140,670			$	238,245			$	277,008
Goods and services transferred over time	31,946				53,226				66,666				101,051
Net sales	$	153,133			$	193,896			$	304,911			$	378,059

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UNIVERSAL ELECTRONICS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2020

(Unaudited)

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

	Three Months Ended June 30,								Six Months Ended June 30,
(In thousands)	2020				2019				2020				2019
United States	$	65,233			$	106,547			$	139,614			$	205,483
Asia (excluding PRC)	30,295				25,468				58,120				49,544
Europe	26,004				22,823				46,506				46,122
People's Republic of China	20,511				20,453				38,028				42,761
Latin America	3,466				10,119				8,106				17,906
Other	7,624				8,486				14,537				16,243
Total net sales	$	153,133			$	193,896			$	304,911			$	378,059

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

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

	Three Months Ended June 30,
	2020							2019
	$ (thousands)				% of Net Sales			$ (thousands)			% of Net Sales
Comcast Corporation	$	29,546			19.3	%		31,393			16.2
Daikin Industries Ltd.	$	16,457			10.7	%		—		(1)	—		(1)

	Six Months Ended June 30,
	2020							2019
	$ (thousands)				% of Net Sales			$ (thousands)				% of Net Sales
Comcast Corporation	$	62,481			20.5	%		$	60,639			16.0	%
DISH Network Corporation	—			(1)	—		(1)	$	38,851			10.3	%

(1)	Net sales to this customer did not total more than 10% of our total net sales in the indicated period.

Accounts Receivable, Net

Accounts receivable, net were as follows:

(In thousands)	June 30, 2020				December 31, 2019
Trade receivables, gross	$	138,177			$	130,888
Allowance for bad debts	(1,697		)		(1,492		)
Allowance for sales returns	(547		)		(623		)
Net trade receivables	135,933				128,773
Other	7,960				10,425
Accounts receivable, net	$	143,893			$	139,198

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UNIVERSAL ELECTRONICS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2020

(Unaudited)

Allowance for Bad Debts

Changes in the allowance for bad debts were as follows:

(In thousands)	Six Months Ended June 30,
	2020				2019
Balance at beginning of period	$	1,492			$	1,121
Additions to costs and expenses	240				5
(Write-offs)/Foreign exchange effects	(35		)		(4		)
Balance at end of period	$	1,697			$	1,122

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

	June 30, 2020							December 31, 2019
	$ (thousands)				% of Accounts Receivable, Net			$ (thousands)				% of Accounts Receivable, Net
Comcast Corporation	$	25,782			17.9	%		—			(1)	—		(1)
DISH Network Corporation	—			(1)	—		(1)	$	14,677			10.5	%

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

Note 4 — Inventories and Significant Suppliers

Inventories were as follows:

(In thousands)	June 30, 2020				December 31, 2019
Raw materials	$	48,523			$	56,352
Components	21,799				24,599
Work in process	3,570				1,526
Finished goods	60,758				62,658
Inventories	$	134,650			$	145,135

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UNIVERSAL ELECTRONICS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2020

(Unaudited)

Significant Suppliers

We purchase integrated circuits, components and finished goods from multiple sources. Purchases from the following supplier totaled more than 10% of our total inventory purchases:

	Three Months Ended June 30,
	2020							2019
	$ (thousands)				% of Total Inventory Purchases			$ (thousands)			% of Total Inventory Purchases
Qorvo International Pte Ltd.	$	10,030			13.1	%		—		(1)	—	(1)

	Six Months Ended June 30,
	2020							2019
	$ (thousands)				% of Total Inventory Purchases			$ (thousands)			% of Total Inventory Purchases
Qorvo International Pte Ltd.	$	21,207			13.6	%		—		(1)	—	(1)

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

The supplier that totaled more than 10% of our accounts payable, was as follows:

	June 30, 2020							December 31, 2019
	$ (thousands)				% of Accounts Payable			$ (thousands)				% of Accounts Payable
Zhejiang Zhen You Electronics Co. Ltd.	$	8,176			10.1	%		$	11,394			11.1	%

Note 5 — Leases

We have entered into various operating lease agreements for automobiles, offices and manufacturing facilities throughout the world. At June 30, 2020, our operating leases had remaining lease terms of up to 40 years.

Lease balances within our consolidated balance sheet were as follows:

(In thousands)	June 30, 2020				December 31, 2019
Assets:
Operating lease right-of-use assets	$	17,854			$	19,826
Liabilities:
Other accrued liabilities	$	5,288			$	4,903
Long-term operating lease obligations	13,121				15,639
Total lease liabilities	$	18,409			$	20,542

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UNIVERSAL ELECTRONICS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2020

(Unaudited)

Operating lease expense, including variable and short-term lease costs which were insignificant to the total, operating lease cash flows and supplemental cash flow information were as follows:

(In thousands)	Three Months Ended June 30,								Six Months Ended June 30,
	2020				2019				2020				2019
Cost of sales	$	382			$	612			$	772			$	1,204
Selling, general and administrative expenses	1,020				1,156				2,018				2,288
Total operating lease expense	$	1,402			$	1,768			$	2,790			$	3,492
Operating cash outflows from operating leases	$	1,543			$	1,579			$	3,068			$	3,094
Operating lease right-of-use assets obtained in exchange for lease obligations	$	—			$	—			$	186			$	1,524

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

	June 30, 2020			December 31, 2019
Weighted average lease liability term (in years)	3.9			4.3
Weighted average discount rate	4.42	%		4.50	%

The following table reconciles the undiscounted cash flows for each of the first five years and thereafter to the operating lease liabilities recognized in our consolidated balance sheet at June 30, 2020. The reconciliation excludes short-term leases that are not recorded on the balance sheet.

(In thousands)	June 30, 2020
2020 (remaining 6 months)	$	2,852
2021	6,242
2022	5,240
2023	2,405
2024	1,344
Thereafter	2,042
Total lease payments	20,125
Less: imputed interest	(1,716		)
Total lease liabilities	$	18,409

At June 30, 2020, we had one operating lease with a five-year term that had not yet commenced. The total initial lease liability of approximately $1.6 million is not reflected within the above maturity schedule.

Note 6 — Goodwill and Intangible Assets, Net

Goodwill

Changes in the carrying amount of goodwill were as follows:

(In thousands)
Balance at December 31, 2019	$	48,447
Foreign exchange effects	4
Balance at June 30, 2020	$	48,451

 

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UNIVERSAL ELECTRONICS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2020

(Unaudited)

Intangible Assets, Net

The components of intangible assets, net were as follows:

	June 30, 2020												December 31, 2019
(In thousands)	Gross (1)				Accumulated Amortization (1)				Net				Gross (1)				Accumulated Amortization (1)				Net
Distribution rights	$	322			$	(224	)		$	98			$	322			$	(210	)		$	112
Patents	19,250				(7,026		)		12,224				16,587				(6,491		)		10,096
Trademarks and trade names	2,785				(2,358		)		427				2,785				(2,205		)		580
Developed and core technology	12,480				(11,014		)		1,466				12,480				(10,016		)		2,464
Capitalized software development costs	33				—				33				—				—				—
Customer relationships	32,534				(27,595		)		4,939				32,534				(25,956		)		6,578
Total intangible assets, net	$	67,404			$	(48,217	)		$	19,187			$	64,708			$	(44,878	)		$	19,830

 

(1)	This table excludes the gross value of fully amortized intangible assets totaling $7.6 million and $7.4 million at June 30, 2020 and December 31, 2019, respectively.

Amortization expense, which was recognized in selling, general and administrative expenses, was $1.9 million and $1.8 million during the three months ended June 30, 2020 and 2019, respectively. Amortization expense, which was recognized in selling, general and administrative expenses, was $3.7 million and $3.6 million during the six months ended June 30, 2020 and 2019, respectively.

 

Estimated future annual amortization expense related to our intangible assets at June 30, 2020, was as follows:

(In thousands)
2020 (remaining 6 months)	$	2,913
2021	3,445
2022	3,334
2023	3,172
2024	2,592
Thereafter	3,731
Total	$	19,187

Note 7 —