UNIVERSAL ELECTRONIC

UEIC
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UNIVERSAL ELECTRONICS INC MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-Q)

11/05/2021 | 05:07am

The following discussion should be read in conjunction with the Consolidated
Financial Statements and the related notes that appear elsewhere in this report.



Overview




We design, develop, manufacture, ship and support control and sensor technology
solutions and a broad line of universal control systems, audio-video ("AV")
accessories, and intelligent wireless security and smart home products that are
used by the world's leading brands in the video services, consumer electronics,
security, home automation, climate control, and home appliance markets. Our
product and technology offerings include:

•easy-to-use, voice-enabled, automatically-programmed universal remote controls
with two-way radio frequency ("RF") as well as infrared ("IR") remote controls,
that are sold primarily to video service providers (cable, satellite, Internet
Protocol television ("IPTV") and Over the Top ("OTT") services), original
equipment manufacturers ("OEMs"), retailers, and private label customers;
•integrated circuits ("ICs"), on which our software and universal device control
database is embedded, sold primarily to OEMs, video service providers, and
private label customers;
•software, firmware and technology solutions that can enable devices such as
TVs, set-top boxes, audio systems, smart speakers, game controllers and other
consumer electronic and smart home devices to wirelessly connect and interact
with home networks and interactive services to control and deliver home
entertainment, smart home services and device or system information;
•cloud-services that support our embedded software and hardware solutions
(directly or indirectly) enabling real-time device identification and system
control with billions of transactions per year in device and data management;
•intellectual property that we license primarily to OEMs, software development
companies, private label customers, and video service providers;
•proprietary and standards-based RF sensors designed for residential security,
safety and home automation applications;
•wall-mount and handheld thermostat controllers and connected accessories for
intelligent energy management systems, primarily to OEM customers, as well as
hotels and hospitality system integrators; and
•AV accessories sold, directly and indirectly, to consumers including universal
remote controls, television wall mounts and stands and digital television
antennas.

A key factor in creating products and software for control of entertainment
devices is our proprietary device knowledge graph. Since our beginning in 1986,
we have compiled an extensive device control knowledge library that includes
over 12,800 brands comprising over 960,000 device models across AV and smart
home platforms, supported by many common smart home protocols, including IR,
HDMI-CEC, Zigbee (Rf4CE) Z-Wave, and IP as well as Home Network and Cloud
Control.


This device knowledge graph is backed by our unique device fingerprinting
technology, which includes nearly 19.4 million unique device fingerprints across
both AV and Smart Home devices.




Our technology also includes other remote controlled home entertainment devices
and home automation control modules, as well as wired Consumer Electronics
Control ("CEC") and wireless IP control protocols commonly found on many of the
latest HDMI and internet connected devices. Our proprietary software
automatically detects, identifies and enables the appropriate control commands
for many home entertainment and automation devices in the home. Our libraries
are continuously updated with device control codes used in newly introduced AV
and Internet of Things devices. These control codes are captured directly from
original control devices or from the manufacturers' written specifications to
ensure the accuracy and integrity of the library. Our proprietary software and
know-how permit us to offer a device control code database that is more robust
and efficient than similarly priced products of our competitors.

We hold a number of patents in the United States and abroad related to our
products and technology, and have filed domestic and foreign applications for
other patents that are pending. At September 30, 2021, we had 615 issued and
pending U.S. patents related to remote control, home security, safety and
automation as well as hundreds of foreign counterpart patents and applications
in various territories around the world.

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We operate as one business segment. We have two domestic subsidiaries and 25
international subsidiaries located in Brazil, British Virgin Islands, Cayman
Islands
, France, Germany, Hong Kong (3), India, Italy, Japan, Korea, Mexico (2),
the Netherlands, People's Republic of China (the "PRC") (7), Singapore, Spain
and the United Kingdom.


To recap our results for the three months ended September 30, 2021:




•Net sales increased 1.4% to $155.6 million for the three months ended
September 30, 2021 from $153.5 million for the three months ended September 30,
2020
.
•Our gross margin percentage increased to 29.4% for the three months ended
September 30, 2021 from 28.8% for the three months ended September 30, 2020.
•Operating expenses, as a percentage of net sales, increased to 23.7% for the
three months ended September 30, 2021 from 22.1% for the three months ended
September 30, 2020.
•Our operating income decreased to $8.9 million for the three months ended
September 30, 2021 from $10.2 million for the three months ended September 30,
2020
. Our operating income percentage decreased to 5.7% for the three months
ended September 30, 2021 from 6.7% for the three months ended September 30,
2020
.
•Income tax expense increased to $3.4 million for the three months ended
September 30, 2021 from $2.2 million for the three months ended September 30,
2020
.


Our strategic business objectives for 2021 include the following:




•continue to develop and market advanced remote control products and
technologies our customer base is adopting;
•continue to broaden our home control and home automation product offerings;
•continue to expand our software and service offerings to deliver a complete
managed service platform;
•further penetration of international subscription broadcasting markets;
•acquire new customers in historically strong regions;
•increase our share with existing customers; and
•continue to seek acquisitions or strategic partners that complement and
strengthen our existing business.

We intend for the following discussion of our financial condition and results of
operations to provide information that will assist in understanding our
consolidated financial statements, the changes in certain key items in those
financial statements from period to period, and the primary factors that
accounted for those changes, as well as how certain accounting principles,
policies and estimates affect our consolidated financial statements.


COVID-19 Pandemic Impact




The global spread of COVID-19 has been and continues to be a complex and
rapidly-evolving situation, with governments, public institutions and other
organizations imposing or recommending, and businesses and individuals
implementing, at various times and to varying degrees, restrictions on various
activities or other actions to combat its spread, such as restrictions and bans
on travel or transportation, limitations on the size of gatherings, closures of
or occupancy or other operating limitations on ports, work facilities, schools,
public buildings and businesses, cancellation of events, including sporting
events, conferences and meetings, and quarantines and lock-downs. The COVID-19
pandemic and its consequences have and will continue to impact our business,
operations, and financial results. The extent to which the COVID-19 pandemic
impacts our business, operations, and financial results, including the duration
and magnitude of such effects, will depend on numerous evolving factors that we
may not be able to accurately predict or assess, including the duration and
scope of the COVID-19 pandemic (including the location and extent of resurgences
of the virus and the availability of effective treatments or vaccines); the
negative impact the COVID-19 pandemic has on global and regional economies and
economic activity, including the duration and magnitude of its impact on
unemployment rates and consumer discretionary spending. Because the severity,
magnitude and duration of the COVID-19 pandemic are uncertain, rapidly changing,
and difficult to predict, the pandemic's impact on our operations and financial
performance, as well as its impact on our ability to successfully execute our
business strategy and initiatives, remains uncertain. As the COVID-19 pandemic
continues, the full extent of this outbreak and the related governmental,
business and travel restrictions in order to contain the COVID-19 pandemic are
continuing to evolve globally. Our COVID-19 task force, which includes a
cross-functional group of senior-level executives, continues to manage and
respond to the ever-changing health and safety requirements across the globe and
communicate our responses and recommended course of action to our global factory
and office leaders.

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In addition, we continue to maintain safety measures for all our employees
across the globe as pandemic conditions require, including implementing
work-from-home arrangements, restricting travel except where essential and
approved in advance, frequent office and factory sanitation, temperature scans
upon entry, hand sanitizer stations located throughout our facilities and
offices, mask wearing, social distancing measures in gathering places and
restricting visitor access. All factories are up to or near labor capacity as of
the issuance of this report.

Further, we continue to monitor and follow suggested guidelines by the Centers
for Disease Control and Prevention
, the World Health Organization, and local
governmental orders and recommendations. The continued safety and welfare of our
employees will remain at the forefront of all decision-making.

We anticipate that these actions and the global health crisis caused by the
COVID-19 pandemic will continue to negatively impact business activity across
the globe, including our business. We expect our sales demand to be negatively
impacted into, at least, the first half of 2022 given the global reach and
economic impact of the COVID-19 pandemic and the various quarantine and social
distancing measures put in place to contain the spread of the COVID-19 pandemic.
We have also seen disruptions in our supply chain, due to difficulty in
obtaining ICs and substantial delays in the transportation and the onloading and
offloading of our product due to significant congestion at ports throughout the
world. This, in turn, causes significant congestion in other downstream
transportation, such as via trucks and rail. As such, these congestions have
caused and continue to cause difficulty and delays in our ability to fulfill
customer orders. In addition, a closure of one of our factories for a sustained
period of time would, in the short run, impact our ability to meet customer
demand and would negatively impact our results.

We will continue to actively monitor these situations and may take further
actions altering our business operations as necessary or as required by federal,
state, or local authorities. The potential effects of any such alterations or
modifications may have a material adverse impact on our business during 2021.
Even after the COVID-19 pandemic subsides or effective treatments or vaccines
become available, our business, markets, growth prospects and business model
could be materially impacted or altered.


Global Integrated Circuit Shortage Impact




We continue experiencing difficulty in ordering ICs for future use and that
difficulty is expected to continue into 2022. The global shortage of ICs is
affecting a multitude of industries and we expect it to continue to affect our
business. While we are identifying other sources of ICs and taking other
production and inventory control steps in order to mitigate the effects caused
by this shortage, we cannot guarantee that we will find alternative sources to
meet our short- and longer-term IC needs and/or without experiencing increases
in the prices we pay for these components. If we are not able to find
alternative sources of ICs or are not able to purchase sufficient quantities of
ICs from our current and alternative suppliers, we may not be able to produce
sufficient quantities of products to meet our customers' demands. This, in turn,
may affect our ability to meet our quarterly revenue targets. Further, we may
incur additional freight costs to meet the delivery demands of our customers. In
addition, many of our products are paired with certain of our customers'
products, like set-top boxes or televisions. If those customers are not able to
obtain sufficient quantities of ICs for their products, their demand for our
products may decrease.

Qinzhou, China Facility

In October 2021, Reuters published an article indicating that individuals from
China's Uyghur minority, originally resident in the PRC region of Xinjiang, were
working in a facility in Qinzhou, Guangxi operated by our Chinese subsidiary,
Gemstar Technology (Qinzhou) Co. Ltd. ("Gemstar"). The article alleged that the
presence of these workers in Guangxi was indicative of "a transfer program
described by some rights groups as forced labor." Shortly after publication of
the Reuters article, three U.S. Senators wrote jointly to us seeking information
regarding these workers and the terms of their work at the Qinzhou facility.

We take all allegations regarding working conditions seriously, and have
committed to take a cooperative approach to responding to the Senators' letter.
We have reviewed and confirmed that Gemstar compensated these individuals for
their work at the same rates as workers of other ethnicities who had comparable
skills and roles, and at a level that was above the local minimum wage. Although
our review has not identified any instances in which individuals were obliged or
in any other way forced to work at the Qinzhou facility or were paid less than
their promised wage, Gemstar, which engaged these workers through a third-party
labor agency, terminated its relationship with that agency, ended its
arrangement with these workers, and paid all outstanding wages and severance
directly and individually to each of the workers in question. Nonetheless, the
perception that we or an entity affiliated with us might have had associations
with a program described by some as involving forced labor could result in
reputational damage as well as lost revenue. To date, as a result of this
perception, some customers have advised us that they have stopped doing business
with us or have put further business with us on hold. As of now, the amount of
revenue at issue from the aforementioned customer decisions is immaterial;
however, should additional customers
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cease doing business with us, the loss of revenue could become material, which
would have an adverse effect on our business, results of operations and
financial condition. Additionally, we intend to cooperate fully with the
Senators' inquiry and have provided the Senators with a timely response,
however, we are unable to predict the outcome or impact of this inquiry on our
business, results of operations and financial condition.


Critical Accounting Policies and Estimates




The preparation of financial statements in conformity with U.S. GAAP requires us
to make estimates and judgments 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 ongoing basis, we evaluate our estimates and
judgments, including those related to revenue recognition, inventory valuation,
impairment of long-lived assets, intangible assets and goodwill and income
taxes. Actual results may differ from these judgments and estimates, and they
may be adjusted as more information becomes available. Any adjustment may be
significant and may have a material impact on our consolidated financial
statements.

An accounting estimate is deemed to be critical if it requires an accounting
estimate to be made based on assumptions about matters that are highly uncertain
at the time the estimate is made, if different estimates reasonably may have
been used, or if changes in the estimate that are reasonably likely to occur may
materially impact the financial statements. We do not believe that there have
been any significant changes during the nine months ended September 30, 2021 to
the items that we disclosed as our critical accounting policies and estimates in
Item 7, "Management's Discussion and Analysis of Financial Condition and Results
of Operations" contained in our Annual Report on Form 10-K for our fiscal year
ended December 31, 2020.


Recent Accounting Pronouncements



See Note 1 contained in the "Notes to Consolidated Financial Statements" for a
discussion of recent accounting pronouncements.



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Results of Operations


The following table sets forth our reported results of operations expressed as a
percentage of net sales for the periods indicated.



Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 2021 2020
Net sales 100.0 % 100.0 % 100.0 % 100.0 %
Cost of sales 70.6 71.2 70.0 72.7
Gross profit 29.4 28.8 30.0 27.3
Research and development expenses 4.8 5.0 5.0 5.0
Selling, general and administrative expenses 18.9 17.1 19.2 16.9
Operating income 5.7 6.7 5.8 5.4
Interest income (expense), net (0.1) (0.2) (0.1) (0.3)
Loss on sale of Argentina subsidiary (3.9) - (1.3) -
Accrued social insurance adjustment - - - 2.1
Other income (expense), net (0.1) (1.1) 0.0 (0.3)
Income before provision for income taxes 1.6 5.4 4.4 6.9
Provision for income taxes 2.2 1.4 1.9 1.1
Net income (loss) (0.6) % 4.0 % 2.5 % 5.8 %



Three Months Ended September 30, 2021 versus Three Months Ended September 30,
2020

Net sales. Net sales for the three months ended September 30, 2021 were $155.6
million
, a slight increase compared to $153.5 million for the three months ended
September 30, 2020. We continue to experience growth in our HVAC channel,
particularly in the APAC region, as consumers demand higher-end solutions. Our
customers in the HVAC channel began incorporating our technology in their
high-end products and are now including these advanced solutions in a variety of
models. In addition, royalty revenue has increased as a few of the largest TV
OEMs in the world are embedding our technology in their devices. Partially
offsetting these positive trends is a decrease in sales in our subscription
broadcast channel, primarily in North America.

Gross profit. Gross profit for the three months ended September 30, 2021 was
$45.8 million compared to $44.2 million for the three months ended September 30,
2020
. Gross profit as a percentage of sales increased to 29.4% for the three
months ended September 30, 2021 from 28.8% for the three months ended
September 30, 2020. Gross profit as a percentage of sales was favorably impacted
by a mix shift toward higher margin revenue streams such as royalties, as a few
of the largest consumer electronic companies in the world are embedding our
technology in their devices. In addition, we sold through inventories to a
certain customer that were partially reserved yielding margin on an incremental
basis that is higher than normal. The favorable mix shift was partially offset
by the weakening of the U.S. Dollar versus the Chinese Yuan Renminbi and Mexican
Peso as well as the onset of higher commodity and transportation costs.

Research and development ("R&D") expenses. R&D expenses declined to $7.4 million
for the three months ended September 30, 2021, from $7.7 million in the prior
year period.


Selling, general and administrative ("SG&A") expenses. SG&A expenses increased
to $29.5 million for the three months ended September 30, 2021 from $26.2
million
for the three months ended September 30, 2020, primarily due to an
increase in outside legal expenses related to specific legal matters.




Interest income (expense), net. Interest expense, net decreased to $0.2 million
for the three months ended September 30, 2021 from $0.3 million for the three
months ended September 30, 2020, as a result of a lower average loan balance and
a lower interest rate.


Loss on sale of Argentina subsidiary. During the three months ended
September 30, 2021, we completed the sale of our subsidiary, One For All
Argentina S.R.L, recording a loss on sale of $6.1 million. The loss was
primarily attributable to the weakening of the Argentinian Peso versus the U.S.
Dollar resulting in a loss in equity value in our Argentina subsidiary and
ultimately sales proceeds that were significantly less than the invested
capital.



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Other income (expense), net. Other expense, net was $0.2 million for the three
months ended September 30, 2021 and $1.6 million for the three months ended
September 30, 2020, as a result of net foreign currency losses.

Provision for income taxes. Income tax expense was $3.4 million for the three
months ended September 30, 2021, representing an effective tax rate of 138.4%
compared to an income tax expense of $2.2 million for the three months ended
September 30, 2020, representing an effective tax rate of 26.0%. Our effective
tax rate for the three months ended September 30, 2021 increased significantly
due to the recording of a loss without benefit from the sale of our Argentina
subsidiary. This increase was partially offset by the receipt of a $0.5 million
tax incentive in China in the three months ended September 30, 2021.

Nine Months Ended September 30, 2021 versus Nine Months Ended September 30, 2020
Net sales. Net sales for the nine months ended September 30, 2021 were $456.7
million
, a slight decrease compared to $458.4 million for the nine months ended
September 30, 2020. Sales in our subscription broadcast channel, primarily in
North America, are lower than in the prior year period. Offsetting this decrease
is growth in our HVAC channel, particularly in the APAC region, as consumers
demand higher-end solutions. Our customers in the HVAC channel began
incorporating our technology in their high-end products and are now including
these advanced solutions in a variety of models. In addition, royalty revenue
has increased as a few of the largest TV OEMs in the world are embedding our
technology in their devices.

Gross profit. Gross profit for the nine months ended September 30, 2021 was
$136.9 million compared to $125.2 million for the nine months ended
September 30, 2020. Gross profit as a percentage of sales increased to 30.0% for
the nine months ended September 30, 2021 from 27.3% for the nine months ended
September 30, 2020. Gross profit as a percentage of sales was favorably impacted
by a mix shift toward higher margin revenue streams such as royalties, as a few
of the largest consumer electronic companies in the world are embedding our
technology in their devices. The gross margin increase due to mix shift was
partially offset by the weakening of the U.S. Dollar versus the Chinese Yuan
Renminbi and Mexican Peso.


Research and development expenses. R&D expenses remained consistent at $23.0
million
for each of the nine months ended September 30, 2021 and 2020.




Selling, general and administrative expenses. SG&A expenses increased to $87.3
million
for the nine months ended September 30, 2021 from $77.4 million for the
nine months ended September 30, 2020, primarily due to an increase in outside
legal expenses related to specific legal matters.

Interest income (expense), net. Interest expense, net decreased to $0.4 million
for the nine months ended September 30, 2021 from $1.3 million for the nine
months ended September 30, 2020, as a result of a lower average loan balance and
a lower interest rate.

Loss on sale of Argentina subsidiary. During the nine months ended September 30,
2021
, we completed the sale of our subsidiary, One For All Argentina S.R.L,
recording a loss on sale of $6.1 million. The loss was primarily attributable to
the weakening of the Argentinian Peso versus the U.S. Dollar resulting in a loss
in equity value in our Argentina subsidiary and ultimately sales proceeds that
were significantly less than the invested capital.

Accrued social insurance adjustment. During the nine months ended September 30,
2020
, we reversed approximately $9.5 million of accrued social insurance. In
June 2018, we sold all of the outstanding stock of our Guangzhou entity 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 amount associated with the Guangzhou
entity which was approximately $9.5 million.

Other income (expense), net. Other expense, net was $0.2 million for the nine
months ended September 30, 2021, as a result of net foreign currency losses
offset by miscellaneous non-operating gains, compared to other expense, net of
$1.3 million for the nine months ended September 30, 2020, as a result of net
foreign currency losses.

Provision for income taxes. Income tax expense was $8.3 million for the nine
months ended September 30, 2021, representing an effective tax rate of 41.5%
compared to $5.3 million for the nine months ended September 30, 2020,
representing an effective tax rate of 16.6%. The main drivers of the increase in
our effective tax rate were the recording of a loss without benefit resulting
from the sale of our Argentina subsidiary in 2021 and the prior year reversal of
a reserve approximating $1.3 million.

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Liquidity and Capital Resources


Sources and Uses of Cash



Nine Months Ended Increase Nine Months Ended
(In thousands) September 30, 2021 (Decrease) September 30, 2020
Cash provided by operating activities $ 22,916 $ (20,911) $ 43,827
Cash used for investing activities (12,408) 4,210 (16,618)
Cash used for financing activities (10,226) 20,687 (30,913)
Effect of foreign currency exchange rates on
cash and cash equivalents 1,390 4,842 (3,452)
Net increase (decrease) in cash and cash
equivalents $ 1,672 $ 8,828 $ (7,156)



Increase
(In thousands) September 30, 2021 (Decrease) December 31, 2020
Cash and cash equivalents $ 58,825 $ 1,672 $ 57,153
Working capital 136,133 (11,200) 147,333



Net cash provided by operating activities was $22.9 million during the nine
months ended September 30, 2021 compared to $43.8 million during the nine months
ended September 30, 2020. Net income was $11.6 million for the nine months ended
September 30, 2021 compared to net income of $26.4 million for the nine months
ended September 30, 2020. Accounts payable and accrued liabilities resulted in
net cash outflows of $7.4 million during the nine months ended September 30,
2021
compared to $50.5 million during the nine months ended September 30, 2020,
largely as a result of a significant decrease in inventories during the prior
year period as well as a decrease in accrued compensation and contingent
consideration payments. Changes in accounts receivable and contract assets
resulted in cash outflows of $12.1 million during the nine months ended
September 30, 2021 compared to cash inflows of $11.6 million during the nine
months ended September 30, 2020 largely as a result of the timing of sales
during the quarter. Days sales outstanding were 77 days at September 30, 2021
compared to 75 days at September 30, 2020. Inventories increased by $4.5 million
during the nine months ended September 30, 2021 as a result of our management of
the global shortage of integrated circuits compared to a decrease of $30.5
million
during the nine months ended September 30, 2020 as result of lower sales
volume in 2020 compared to 2019.

Net cash used for investing activities during the nine months ended September
30, 2021
was $12.4 million, of which $8.8 million and $3.6 million was used for
capital expenditures and the development of patents, respectively. Net cash used
for investing activities during the nine months ended September 30, 2020 was
$16.6 million of which $10.9 million and $5.3 million was used for capital
expenditures and the development of patents, respectively.

Net cash used for financing activities was $10.2 million during the nine months
ended September 30, 2021 compared to $30.9 million during the nine months ended
September 30, 2020. The decrease in cash used for financing activities was
driven primarily by borrowing and repayment activity on our line of credit.
During the nine months ended September 30, 2021, we had net borrowings of $33.0
million
compared to net repayments of $18.0 million during the nine months ended
September 30, 2020.

During the nine months ended September 30, 2021, we repurchased 858,670 shares
of our common stock at a cost of $44.2 million compared to our repurchase of
263,164 shares at a cost of $9.8 million during the nine months ended September
30, 2020
. We hold these shares as treasury stock and they are available for
reissue. Presently, we have no plans to utilize these shares, although we may
change these plans if necessary to fulfill our on-going business objectives. See
Note 13 contained in "Notes to Consolidated Financial Statements" for further
information regarding our share repurchase programs.
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Contractual Obligations

The following table summarizes our contractual obligations and the effect these
obligations are expected to have on our liquidity and cash flow in future
periods.
Payments Due by Period
Less than 1 - 3 4 - 5 After
(In thousands) Total 1 year years years 5 years
Operating lease obligations $ 18,945 $ 6,133 $ 7,527 $ 4,105 $ 1,180
Purchase obligations (1) 16,664 13,197 263 683 2,521
Total contractual obligations $ 35,609 $ 19,330 $ 7,790 $ 4,788 $ 3,701



(1)Purchase obligations primarily consist of contractual payments to purchase
inventory; property, plant and equipment; and payments for a fixed-fee software
license.

Liquidity

Historically, we have utilized cash provided from operations as our primary
source of liquidity, as internally generated cash flows have been sufficient to
support our business operations, capital expenditures and discretionary share
repurchases. More recently, we have utilized our revolving line of credit to
fund an increased level of share repurchases and our acquisitions of the net
assets of Ecolink Intelligent Technology, Inc. and RCS. We anticipate that we
will continue to utilize both cash flows from operations and our revolving line
of credit to support ongoing business operations, capital expenditures and
future discretionary share repurchases. We believe our current cash balances,
anticipated cash flow to be generated from operations and available borrowing
resources will be sufficient to cover expected cash outlays during the next
twelve months; however, because our cash is located in various jurisdictions
throughout the world, we may at times need to increase borrowing from our
revolving line of credit or take on additional debt until we are able to
transfer cash among our various entities.


Our liquidity is subject to various risks including the risks discussed under
"Item 3. Quantitative and Qualitative Disclosures about Market Risk."




(In thousands) September 30, 2021 December 31, 2020
Cash and cash equivalents $ 58,825 $ 57,153
Available borrowing resources 69,300 102,300



Our cash balances are held in numerous locations throughout the world. The
majority of our cash is held outside of the United States and may be repatriated
to the United States but, under current law, may be subject to state income and
foreign withholding taxes. Additionally, repatriation of some foreign balances
is restricted by local laws. We have provided for the state income tax and the
foreign withholding tax liabilities on these amounts for financial statement
purposes.

On September 30, 2021, we had $7.6 million, $14.6 million, $11.9 million,
$15.2 million and $9.5 million of cash and cash equivalents in the United
States
, the PRC, Asia (excluding the PRC), Europe, and South America,
respectively. On December 31, 2020, we had $9.8 million, $14.3 million,
$13.5 million, $10.9 million, and $8.7 million of cash and cash equivalents in
the United States, the PRC, Asia (excluding the PRC), Europe and South America,
respectively. We attempt to mitigate our exposure to liquidity, credit and other
relevant risks by placing our cash and cash equivalents with financial
institutions we believe are high quality.

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 September 30, 2021. On October 25, 2021, we executed an
amendment to extend the term of our Second Amended Credit Agreement to November
1, 2023
.

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 that
controls our manufacturing factories in the PRC. In conjunction with the
amendment to our Second Amended Credit Agreement executed on October 25, 2021,
the pledge of 65% ownership interest in Enson Assets Limited was terminated and
was replaced with a guaranty of the Credit Line by our wholly-owned subsidiary,
Universal Electronics BV.
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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 September 30, 2021 and
December 31, 2020 were 1.33% 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.

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 September 30,
2021
, we were in compliance with the covenants and conditions of the Second
Amended Credit Agreement.


At September 30, 2021, we had an outstanding balance of $53.0 million on our
Credit Line and $69.3 million of availability.



Off-Balance Sheet Arrangements



We do not participate in any material off-balance sheet arrangements.



Factors That May Affect Financial Condition and Future Results



Forward-Looking Statements




We caution that the following important factors, among others (including but not
limited to factors discussed in "Management's Discussion and Analysis of
Financial Condition and Results of Operations," as well as those discussed in
our 2020 Annual Report on Form 10-K, or in our other reports filed from time to
time with the Securities and Exchange Commission ("SEC")), may affect our actual
results and may contribute to or cause our actual consolidated results to differ
materially from those expressed in any of our forward-looking statements. The
factors included here are not exhaustive. Further, any forward-looking statement
speaks only as of the date on which such statement is made, and we undertake no
obligation to update any forward-looking statement to reflect events or
circumstances after the date on which such statement is made or to reflect the
occurrence of unanticipated events. New factors emerge from time to time, and it
is not possible for management to predict all such factors, nor can we assess
the impact of each such factor on the business or the extent to which any
factor, or combination of factors, may cause actual results to differ materially
from those contained in any forward-looking statement. Therefore,
forward-looking statements should not be relied upon as a prediction of actual
future results.

While we believe that the forward-looking statements made in this report are
based on reasonable assumptions, the actual outcome of such statements is
subject to a number of risks and uncertainties, including the impact of the
COVID-19 pandemic on our business, results of operations, financial position and
liquidity; the impact to our quarterly revenue, margins and operating profits
due to our inability to continue to obtain adequate quantities of component
parts, including ICs; potential inability to timely deliver products to our
customers due to the substantial delays in the transportation and the onloading
and offloading of our product resulting from the significant congestion at ports
throughout the world and other downstream transportation, such as via trucks and
rail; the significant percentage of our revenue attributable to a limited number
of customers; the failure of our markets to continue growing and expanding in
the manner we anticipated; the loss of market share due to competition; the
delay by or failure of our customers to order products from us due to delays by
them of their new product rollouts, their decision to purchase their products
from an alternative or second source supplier, their efforts to refocus their
operations to broadband and OTT versus traditional linear video, their failure
to grow as we anticipated, their internal inventory control measures, or their
loss of market share; the effects of natural or other events beyond our control,
including the effects political unrest, war or terrorist activities may have on
us or the economy; the economic environment's effect on us or our customers; the
effects of doing business internationally, including the effects that changes in
laws, regulations and policies may have on our business including the impact of
new or additional tariffs and surcharges; the growth of, acceptance of and the
demand for our products and technologies in various markets and geographical
regions, including cable, satellite, consumer
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electronics, retail, and digital media and interactive technology; our inability
to add profitable complementary products which are accepted by the marketplace;
our inability to attract and retain a quality workforce at adequate levels in
all regions of the world, and particularly those jurisdictions where we are
moving our operations; our inability to continue to maintain our operating costs
at acceptable levels through our cost containment efforts including moving our
operations and manufacturing facilities to lower cost jurisdictions; an
unfavorable ruling in any or all of the litigation matters to which we are
party; our inability to continue selling our products or licensing our
technologies at higher or profitable margins; our inability to obtain orders or
maintain our order volume with new and existing customers; our inability to
develop new and innovative technologies and products that are accepted by our
customers; the possible dilutive effect our stock incentive programs may have on
our earnings per share and stock price; the continued ability to identify and
execute on opportunities that maximize stockholder value, including the effects
repurchasing the Company's shares have on the Company's stock value; and other
factors listed from time to time in our press releases and filings with the
Securities and Exchange Commission.

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