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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, 2021
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from            to            
Commission File Number: 0-21044
_______________________________________ 
UNIVERSAL ELECTRONICS INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware33-0204817
(State or Other Jurisdiction of
Incorporation or Organization)
(I.R.S. Employer
Identification No.)
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 classTrading Symbol(s)Name of each exchange on which registered
Common Stock, par value $0.01 per shareUEICThe NASDAQ Stock Market LLC
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      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 filerAccelerated filer
Non-accelerated filerSmaller 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: 13,483,554 shares of Common Stock, par value $0.01 per share, of the registrant were outstanding on August 3, 2021.



UNIVERSAL ELECTRONICS INC.
INDEX
 
Page
Number




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, 2021December 31, 2020
ASSETS
Current assets:
Cash and cash equivalents$67,690 $57,153 
Accounts receivable, net134,994 129,433 
Contract assets9,585 9,685 
Inventories121,430 120,430 
Prepaid expenses and other current assets6,901 6,828 
Income tax receivable3,650 3,314 
Total current assets344,250 326,843 
Property, plant and equipment, net82,485 87,285 
Goodwill48,555 48,614 
Intangible assets, net19,923 19,710 
Operating lease right-of-use assets19,098 19,522 
Deferred income taxes4,571 5,564 
Other assets2,502 2,752 
Total assets$521,384 $510,290 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable$90,079 $83,229 
Line of credit46,000 20,000 
Accrued compensation24,207 28,931 
Accrued sales discounts, rebates and royalties6,597 10,758 
Accrued income taxes1,027 3,535 
Other accrued liabilities29,046 33,057 
Total current liabilities196,956 179,510 
Long-term liabilities:
Operating lease obligations13,197 13,681 
Contingent consideration 292 
Deferred income taxes2,477 1,913 
Income tax payable1,054 1,054 
Other long-term liabilities332 539 
Total liabilities214,016 196,989 
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; 24,603,638 and 24,391,595 shares issued on June 30, 2021 and December 31, 2020, respectively
246 244 
Paid-in capital309,072 302,084 
Treasury stock, at cost, 11,128,717 and 10,618,002 shares on June 30, 2021 and December 31, 2020, respectively
(322,179)(295,495)
Accumulated other comprehensive income (loss)(17,347)(18,522)
Retained earnings337,576 324,990 
Total stockholders' equity307,368 313,301 
Total liabilities and stockholders' equity$521,384 $510,290 

The accompanying notes are an integral part of these consolidated financial statements.
3

Table of Contents
UNIVERSAL ELECTRONICS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited) 
Three Months Ended June 30,Six Months Ended June 30,
 2021202020212020
Net sales$150,491 $153,133 $301,033 $304,911 
Cost of sales105,829 115,058 209,972 223,895 
Gross profit44,662 38,075 91,061 81,016 
Research and development expenses7,676 7,385 15,618 15,283 
Selling, general and administrative expenses27,965 24,230 57,811 51,227 
Operating income9,021 6,460 17,632 14,506 
Interest income (expense), net(127)(372)(235)(1,004)
Accrued social insurance adjustment 9,464  9,464 
Other income (expense), net(17)731 6 383 
Income before provision for income taxes8,877 16,283 17,403 23,349 
Provision for income taxes3,284 1,883 4,817 3,103 
Net income$5,593 $14,400 $12,586 $20,246 
Earnings per share:
Basic$0.41 $1.03 $0.92 $1.45 
Diluted$0.40 $1.02 $0.89 $1.43 
Shares used in computing earnings per share:
Basic13,67213,915 13,73713,938 
Diluted13,92614,15114,06214,181
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,
 2021202020212020
Net income$5,593 $14,400 $12,586 $20,246 
Other comprehensive income (loss):
Change in foreign currency translation adjustment4,043 (770)1,175 (7,779)
Comprehensive income$9,636 $13,630 $13,761 $12,467 
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, 2021:
 Common Stock
Issued
Common Stock
in Treasury
Paid-in
Capital
Accumulated
Other
Comprehensive
Income (Loss)
Retained
Earnings
Totals
 SharesAmountSharesAmount
Balance at December 31, 202024,392 $244 (10,618)$(295,495)$302,084 $(18,522)$324,990 $313,301 
Net income6,993 6,993 
Currency translation adjustment(2,868)(2,868)
Shares issued for employee benefit plan and compensation160 2 408 410 
Purchase of treasury shares(191)(10,951)(10,951)
Stock options exercised22 — 991 991 
Shares issued to directors7 — —  
Employee and director stock-based compensation2,600 2,600 
Performance-based common stock warrants143 143 
Balance at March 31, 202124,581 $246 (10,809)$(306,446)$306,226 $(21,390)$331,983 $310,619 
Net income5,593 5,593 
Currency translation adjustment4,043 4,043 
Shares issued for employee benefit plan and compensation15 — 271 271 
Purchase of treasury shares(320)(15,733)(15,733)
Shares issued to directors8 — —  
Employee and director stock-based compensation2,444 2,444 
Performance-based common stock warrants131 131 
Balance at June 30, 202124,604 $246 (11,129)$(322,179)$309,072 $(17,347)$337,576 $307,368 
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
SharesAmountSharesAmount
Balance at December 31, 201924,118 $241 (10,174)$(277,817)$288,338 $(22,781)$286,418 $274,399 
Net income5,846 5,846 
Currency translation adjustment(7,009)(7,009)
Shares issued for employee benefit plan and compensation129 1 526 527 
Purchase of treasury shares(169)(6,291)(6,291)
Shares issued to directors9 1 (1) 
Employee and director stock-based compensation2,303 2,303 
Performance-based common stock warrants184 184 
Balance at March 31, 202024,256 $243 (10,343)$(284,108)$291,350 $(29,790)$292,264 $269,959 
Net income14,400 14,400 
Currency translation adjustment(770)(770)
Shares issued for employee benefit plan and compensation13 — 212 212 
Purchase of treasury shares(3)(114)(114)
Employee and director stock-based compensation2,291 2,291 
Performance-based common stock warrants154 154 
Balance at June 30, 202024,269 $243 (10,346)$(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 CASH FLOWS
(In thousands)
(Unaudited)
 
 Six Months Ended June 30,
 20212020
Cash flows from operating activities:
Net income$12,586 $20,246 
Adjustments to reconcile net income to net cash used for operating activities:
Depreciation and amortization13,128 15,663 
Provision for credit losses1 240 
Deferred income taxes1,637 1,275 
Shares issued for employee benefit plan681 739 
Employee and director stock-based compensation5,044 4,594 
Performance-based common stock warrants274 338 
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(6,241)(848)
Inventories(1,076)9,571 
Prepaid expenses and other assets625 1,947 
Accounts payable and accrued liabilities(7,338)(40,869)
Accrued income taxes(2,837)293 
Net cash provided by operating activities16,484 4,487 
Cash flows from investing activities:
Acquisitions of property, plant and equipment(6,206)(6,210)
Acquisitions of intangible assets(1,907)(3,077)
Payment on sale of Ohio call center (500)
Net cash used for investing activities(8,113)(9,787)
Cash flows from financing activities:
Borrowings under line of credit41,000 50,000 
Repayments on line of credit(15,000)(45,000)
Proceeds from stock options exercised991  
Treasury stock purchased(26,684)(6,405)
Contingent consideration payments in connection with business combinations (3,091)
Net cash provided by (used for) financing activities307 (4,496)
Effect of foreign currency exchange rates on cash and cash equivalents1,859 (5,674)
Net increase (decrease) in cash and cash equivalents10,537 (15,470)
Cash and cash equivalents at beginning of period57,153 74,302 
Cash and cash equivalents at end of period$67,690 $58,832 
Supplemental cash flow information:
Income taxes paid$5,663 $2,215 
Interest paid$202 $1,069 
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, 2021
(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. 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, 2021 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, 2020.

Estimates and Assumptions

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

The 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.

Summary of Significant Accounting Policies

With the exception of the following policy, our significant accounting policies are unchanged from those disclosed in Note 2 to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2020.

Revenue Recognition

We license our symbolic intellectual property which includes our patented technologies and database of control codes. Revenue is recognized for these licensing arrangements on an over-time basis. We record license revenue for per-unit based licenses when our customers manufacture or ship a product incorporating our intellectual property and we have a present right to payment. We record per-unit-based licenses with minimum guarantees ratably over the license period to which the minimum guarantee relates and any per-unit sales in excess of the minimum guarantee in the period in which the sale occurs. We record licenses with fixed consideration ratably over the license period. Tiered royalties are recorded on a straight-line basis according to the forecasted per-unit fees taking into account the pricing tiers.

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UNIVERSAL ELECTRONICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2021
(Unaudited)
Recently Adopted Accounting Pronouncements

In December 2019, the FASB issued ASU 2019-12, "Simplifying the Accounting for Income Taxes", which, among other provisions, eliminates certain exceptions to existing guidance related to the approach for intra-period tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. This guidance also requires an entity to reflect the effect of an enacted change in tax laws or rates in its effective income tax rate in the first interim period that includes the enactment date of the new legislation, aligning the timing of recognition of the effects from enacted tax law changes on the effective income tax rate with the effects on deferred income tax assets and liabilities. Under previous guidance, an entity recognized the effects of the enacted tax law change on the effective income tax rate in the period that included the effective date of the tax law. Our adoption on January 1, 2021 did not have a material impact on our consolidated statement of financial position, results of operations and cash flows.

Recent 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" and in January 2021, the FASB issued ASU 2021-01, "Reference Rate Reform". This guidance is intended to provide temporary optional expedients and exceptions to GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burden related to the expected market transition from the London Interbank Offered Rate ("LIBOR") and other interbank offered rates to alternative reference rates. The amendments in these ASUs are elective and are effective upon issuance for all entities through December 31, 2022. These amendments are not expected to have a material impact on our consolidated statement of financial position, results of operations and cash flows.

Note 2 — Cash and Cash Equivalents

Cash and cash equivalents were held in the following geographic regions:
(In thousands)June 30, 2021December 31, 2020
North America$6,473 $9,812 
People's Republic of China ("PRC")18,61414,244
Asia (excluding the PRC)10,38213,518
Europe22,02110,926
South America10,2008,653
Total cash and cash equivalents
$67,690 $57,153 

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)2021202020212020
Goods and services transferred at a point in time$119,503 $121,187 $242,391 $238,245 
Goods and services transferred over time30,98831,94658,64266,666 
Net sales$150,491 $153,133 $301,033 $304,911 
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UNIVERSAL ELECTRONICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2021
(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)2021202020212020
United States$51,322 $65,233 $101,614 $139,614 
Asia (excluding PRC)31,60830,295 65,82458,120 
Europe31,64026,00459,16746,506
People's Republic of China23,48920,51147,82938,028
Latin America5,3683,46611,5128,106
Other7,0647,62415,08714,537
Total net sales$150,491 $153,133 $301,033 $304,911 

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,
20212020
 $ (thousands)% of Net Sales$ (thousands)% of Net Sales
Comcast Corporation$24,699 16.4 %$29,546 19.3 %
Daikin Industries Ltd.$16,448 10.9 %$16,457 10.7 %
 Six Months Ended June 30,
20212020
 $ (thousands)% of Net Sales$ (thousands)% of Net Sales
Comcast Corporation$51,900 17.2 %$62,481 20.5 %
Daikin Industries Ltd.$33,885 11.3 %$ 
(1)
 %
(1)

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

Accounts Receivable, Net

Accounts receivable, net were as follows:
(In thousands)June 30, 2021December 31, 2020
Trade receivables, gross$126,997 $122,828 
Allowance for credit losses(1,372)(1,412)
Allowance for sales returns(465)(761)
Trade receivables, net125,160 120,655 
Other9,834 8,778 
Accounts receivable, net$134,994 $129,433 
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UNIVERSAL ELECTRONICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2021
(Unaudited)
Allowance for Credit Losses

Changes in the allowance for credit losses were as follows:
(In thousands)Six Months Ended June 30,
20212020
Balance at beginning of period$1,412 $1,492 
Additions to costs and expenses1 240 
Write-offs/Foreign exchange effects(41)(35)
Balance at end of period$1,372 $1,697 

Trade receivables associated with this significant customer that totaled more than 10% of our accounts receivable, net were as follows:
June 30, 2021December 31, 2020
$ (thousands)% of Accounts Receivable, Net$ (thousands)% of Accounts Receivable, Net
Comcast Corporation$22,908 17.0 %$19,782 

15.3 %

Note 4 — Inventories and Significant Supplier

Inventories were as follows:
(In thousands)June 30, 2021December 31, 2020
Raw materials$45,072 $44,273 
Components24,631 16,954 
Work in process5,753 6,211 
Finished goods45,974 52,992 
Inventories$121,430 $120,430 

Significant Supplier

Purchases from the following supplier totaled more than 10% of our total inventory purchases:
Three Months Ended June 30,
20212020
$ (thousands)% of Total Inventory Purchases$ (thousands)% of Total Inventory Purchases
Qorvo International Pte Ltd.$9,840 11.9 %$10,030 13.1 %
Six Months Ended June 30,
20212020
$ (thousands)% of Total Inventory Purchases$ (thousands)% of Total Inventory Purchases
Qorvo International Pte Ltd.$19,613 12.3 %$21,207 13.6 %
No supplier totaled 10% or more of our accounts payable balance at June 30, 2021 and December 31, 2020.

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UNIVERSAL ELECTRONICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2021
(Unaudited)
Note 5 — Long-lived Tangible Assets

Long-lived tangible assets by geographic area, which include property, plant, and equipment, net and operating lease right-of-use assets, were as follows:
(In thousands)June 30, 2021December 31, 2020
United States$15,691 $15,411 
People's Republic of China60,815 64,197 
Mexico21,475 22,410 
All other countries3,602 4,789 
Total long-lived tangible assets$101,583 $106,807 

Property, plant, and equipment are shown net of accumulated depreciation of $161.8 million and $154.2 million at June 30, 2021 and December 31, 2020, respectively.

Note 6 — Goodwill and Intangible Assets, Net

Goodwill

Changes in the carrying amount of goodwill were as follows:
(In thousands) 
Balance at December 31, 2020
$48,614 
Foreign exchange effects(59)
Balance at June 30, 2021
$48,555 

Intangible Assets, Net

The components of intangible assets, net were as follows:
 June 30, 2021December 31, 2020
(In thousands)
Gross (1)
Accumulated
Amortization (1)
Net
Gross (1)
Accumulated
Amortization (1)
Net
Capitalized software development costs$871 $(8)$863 $477 $ $477 
Customer relationships8,100 (4,682)3,418 8,100 (4,329)3,771 
Developed and core technology4,080 (3,189)891 4,080 (3,044)1,036 
Distribution rights342 (268)74 352 (261)91 
Patents22,692 (8,269)14,423 21,601 (7,574)14,027 
Trademarks and trade names800 (546)254 800 (492)308 
Total intangible assets, net$36,885 $(16,962)$19,923 $35,410 $(15,700)$19,710 

(1)This table excludes the gross value of fully amortized intangible assets totaling $43.0 million and $42.7 million at June 30, 2021 and December 31, 2020, respectively.
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UNIVERSAL ELECTRONICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2021
(Unaudited)
Amortization expense is recorded in selling, general and administrative expenses, except amortization expense related to capitalized software development costs, which is recorded in cost of sales. Amortization expense by statement of operations caption was as follows:
(In thousands)Three Months Ended June 30,Six Months Ended June 30,
2021202020212020
Cost of sales$4 $ $8 $ 
Selling, general and administrative expenses712 1,906 1,546 3,720 
Total amortization expense$716 $1,906 $1,554 $3,720 
 
Estimated future annual amortization expense related to our intangible assets at June 30, 2021, was as follows:
(In thousands)
2021 (remaining 6 months)$1,701 
20223,733 
20233,571 
20242,570 
20252,301 
Thereafter6,047 
Total$19,923 

Note 7 — Leases

We have entered into various operating lease agreements for automobiles, offices and manufacturing facilities throughout the world. At June 30, 2021, our operating leases had remaining lease terms of up to 39 years, including any reasonably probable extensions.

Lease balances within our consolidated balance sheet were as follows:
(In thousands)June 30, 2021December 31, 2020
Assets:
Operating lease right-of-use assets$19,098 $19,522 
Liabilities:
Other accrued liabilities$5,067 $6,094 
Long-term operating lease obligations13,197 13,681 
Total lease liabilities$18,264 $19,775 

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,
2021202020212020
Cost of sales$628 $382 $1,298 $772 
Selling, general and administrative expenses1,023 1,020 2,059 2,018 
Total operating lease expense$1,651 $1,402 $3,357 $2,790 
Operating cash outflows from operating leases$1,585 $1,543 $3,383 $3,068 
Operating lease right-of-use assets obtained in exchange for lease obligations$2,711 $ $3,009 $186 
Non-cash release of operating lease obligations (1)
$ $ $654 $ 
(1)During the six months ended June 30, 2021, we were released from our guarantee of the lease obligation related to our Ohio call center which was sold in February 2020.
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UNIVERSAL ELECTRONICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2021
(Unaudited)

The weighted average remaining lease liability term and the weighted average discount rate were as follows:
June 30, 2021December 31, 2020
Weighted average lease liability term (in years)4.13.7
Weighted average discount rate3.37 %3.84 %

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, 2021. The reconciliation excludes short-term leases that are not recorded on the balance sheet.
(In thousands)June 30, 2021
2021 (remaining 6 months)$2,779 
20225,584 
20233,990 
20242,690 
20252,240 
Thereafter2,317 
Total lease payments19,600 
Less: imputed interest(1,336)
Total lease liabilities$18,264 

At June 30, 2021, we had four operating leases with four-year terms that had not yet commenced. The total initial lease liability, which is immaterial to the balance sheet, is not reflected within the above maturity schedule.

Note 8 — Line of Credit

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, 2022. The Credit Line may be used for working capital and other general corporate purposes including acquisitions, share repurchases and capital expenditures. Amounts available for borrowing under the Credit Line are reduced by the balance of any outstanding letters of credit, of which there were $2.7 million at June 30, 2021 and December 31, 2020.

All obligations under the Credit Line are secured by substantially all of our U.S. personal property and tangible and intangible assets as well as 65% of our ownership interest in Enson Assets Limited, our wholly-owned subsidiary which controls our manufacturing factories in the PRC.

Under the Second Amended Credit Agreement, we may elect to pay interest on the Credit Line based on LIBOR plus an applicable margin (varying from 1.25% to 1.75%) or base rate (based on the prime rate of U.S. Bank or as otherwise specified in the Second Amended Credit Agreement) plus an applicable margin (varying from 0.00% to 0.50%). The applicable margins are calculated quarterly and vary based on our cash flow leverage ratio as set forth in the Second Amended Credit Agreement. The interest rates in effect at June 30, 2021 and December 31, 2020 were 1.35% and 1.39%, respectively. 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 will begin. LIBOR may continue to be used for new and existing borrowings on the Credit Line through December 31, 2021. After that date, new borrowings will no longer use LIBOR as a reference rate. Instead, these borrowings 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. Between December 31, 2021 and June 30, 2023, any legacy borrowings may continue to use LIBOR as the basis for interest rates. After June 30, 2023, all borrowings will be based on SOFR or the alternate index.

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UNIVERSAL ELECTRONICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2021
(Unaudited)
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. At June 30, 2021, we were in compliance with the covenants and conditions of the Second Amended Credit Agreement.

At June 30, 2021 and December 31, 2020, we had $46.0 million and $20.0 million outstanding under the Credit Line, respectively. Our total interest expense on borrowings was $0.2 million and $0.4 million during the three months ended June 30, 2021 and 2020, respectively. Our total interest expense on borrowings was $0.3 million and $1.1 million during the six months ended June 30, 2021 and 2020, respectively.

Note 9 — Income Taxes

We utilize our estimated annual effective tax rate to determine our provision for income taxes for interim periods. The income tax provision is computed by taking the estimated annual effective rate and multiplying it by the year-to-date pre-tax book income.

We recorded income tax expense of $3.3 million and $1.9 million for the three months ended June 30, 2021 and 2020, respectively. We recorded income tax expense of $4.8 million and $3.1 million for the six months ended June 30, 2021 and 2020, respectively. The income tax expense for the six months ended June 30, 2021 increased primarily due to the mix of pre-tax income among jurisdictions, including losses not benefited as a result of a valuation allowance. In addition, the tax incentive refund received in China during the six months ended June 30, 2021 was less than the refund received during the six months ended June 30, 2020. During the six months ended June 30, 2020, we recognized a reversal of uncertain tax positions related to our Guangzhou entity, which was sold in June 2018. The indemnification agreement related to the sale of our Guangzhou entity expired in June 2020.

At December 31, 2020, we assessed the realizability of our deferred tax assets by considering whether it is "more likely than not" some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. We considered taxable income in carryback years, the scheduled reversal of deferred tax liabilities, tax planning strategies and projected future taxable income in making this assessment. At December 31, 2020, we had a three-year cumulative operating loss for our U.S. operations and accordingly, have provided a full valuation allowance on our U.S. federal and state deferred tax assets. During the six months ended June 30, 2021, there was no change to our valuation allowance position.

At June 30, 2021, we had gross unrecognized tax benefits of $3.2 million, including interest and penalties, which, if not for the state Research and Experimentation income tax credit valuation allowance, would affect the annual effective tax rate if these tax benefits are realized. Further, we are unaware of any positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly increase within the next twelve months. Based on federal, state and foreign statute expirations in various jurisdictions, we do not anticipate a decrease in unrecognized tax benefits within the next twelve months. We have classified uncertain tax positions as non-current income tax liabilities unless they are expected to be paid within one year.

We have elected to classify interest and penalties as a component of tax expense. Accrued interest and penalties are immaterial at June 30, 2021 and December 31, 2020 and are included in the unrecognized tax benefits.

Note 10 — 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.
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UNIVERSAL ELECTRONICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2021
(Unaudited)

The components of accrued compensation were as follows:
(In thousands)June 30, 2021December 31, 2020
Accrued bonus$3,198 $7,602 
Accrued commission737 1,779 
Accrued salary/wages7,243 7,107 
Accrued social insurance (1)
7,445 7,375