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 inthe United States and abroad related to our products and technology, and have filed domestic and foreign applications for other patents that are pending. AtSeptember 30, 2021 , we had 615 issued and pendingU.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. 26 -------------------------------------------------------------------------------- Table of Contents We operate as one business segment. We have two domestic subsidiaries and 25 international subsidiaries located inBrazil ,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 theUnited Kingdom .
To recap our results for the three months ended
•Net sales increased 1.4% to$155.6 million for the three months endedSeptember 30, 2021 from$153.5 million for the three months endedSeptember 30, 2020 . •Our gross margin percentage increased to 29.4% for the three months endedSeptember 30, 2021 from 28.8% for the three months endedSeptember 30, 2020 . •Operating expenses, as a percentage of net sales, increased to 23.7% for the three months endedSeptember 30, 2021 from 22.1% for the three months endedSeptember 30, 2020 . •Our operating income decreased to$8.9 million for the three months endedSeptember 30, 2021 from$10.2 million for the three months endedSeptember 30, 2020 . Our operating income percentage decreased to 5.7% for the three months endedSeptember 30, 2021 from 6.7% for the three months endedSeptember 30, 2020 . •Income tax expense increased to$3.4 million for the three months endedSeptember 30, 2021 from$2.2 million for the three months endedSeptember 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. 27 -------------------------------------------------------------------------------- Table of Contents 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 theCenters for Disease Control and Prevention , theWorld 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 InOctober 2021 , Reuters published an article indicating that individuals fromChina's Uyghur minority, originally resident in the PRC region ofXinjiang , 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 inGuangxi was indicative of "a transfer program described by some rights groups as forced labor." Shortly after publication of the Reuters article, threeU.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 ethnicitieswho 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 28 -------------------------------------------------------------------------------- Table of Contents 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 withU.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 endedSeptember 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 endedDecember 31, 2020 .
Recent Accounting Pronouncements
See Note 1 contained in the "Notes to Consolidated Financial Statements" for a discussion of recent accounting pronouncements.
29 -------------------------------------------------------------------------------- Table of Contents 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 EndedSeptember 30, 2021 versus Three Months EndedSeptember 30, 2020 Net sales. Net sales for the three months endedSeptember 30, 2021 were$155.6 million , a slight increase compared to$153.5 million for the three months endedSeptember 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 inNorth America . Gross profit. Gross profit for the three months endedSeptember 30, 2021 was$45.8 million compared to$44.2 million for the three months endedSeptember 30, 2020 . Gross profit as a percentage of sales increased to 29.4% for the three months endedSeptember 30, 2021 from 28.8% for the three months endedSeptember 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 theU.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 endedSeptember 30, 2021 , from$7.7 million in the prior year period.
Selling, general and administrative ("SG&A") expenses. SG&A expenses increased
to
Interest income (expense), net. Interest expense, net decreased to$0.2 million for the three months endedSeptember 30, 2021 from$0.3 million for the three months endedSeptember 30, 2020 , as a result of a lower average loan balance and a lower interest rate.
Loss on sale of
30 -------------------------------------------------------------------------------- Table of Contents Other income (expense), net. Other expense, net was$0.2 million for the three months endedSeptember 30, 2021 and$1.6 million for the three months endedSeptember 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 endedSeptember 30, 2021 , representing an effective tax rate of 138.4% compared to an income tax expense of$2.2 million for the three months endedSeptember 30, 2020 , representing an effective tax rate of 26.0%. Our effective tax rate for the three months endedSeptember 30, 2021 increased significantly due to the recording of a loss without benefit from the sale of ourArgentina subsidiary. This increase was partially offset by the receipt of a$0.5 million tax incentive inChina in the three months endedSeptember 30, 2021 . Nine Months EndedSeptember 30, 2021 versus Nine Months EndedSeptember 30, 2020 Net sales. Net sales for the nine months endedSeptember 30, 2021 were$456.7 million , a slight decrease compared to$458.4 million for the nine months endedSeptember 30, 2020 . Sales in our subscription broadcast channel, primarily inNorth 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 endedSeptember 30, 2021 was$136.9 million compared to$125.2 million for the nine months endedSeptember 30, 2020 . Gross profit as a percentage of sales increased to 30.0% for the nine months endedSeptember 30, 2021 from 27.3% for the nine months endedSeptember 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 theU.S. Dollar versus the Chinese Yuan Renminbi and Mexican Peso.
Research and development expenses. R&D expenses remained consistent at
Selling, general and administrative expenses. SG&A expenses increased to$87.3 million for the nine months endedSeptember 30, 2021 from$77.4 million for the nine months endedSeptember 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 endedSeptember 30, 2021 from$1.3 million for the nine months endedSeptember 30, 2020 , as a result of a lower average loan balance and a lower interest rate. Loss on sale ofArgentina subsidiary. During the nine months endedSeptember 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 theU.S. Dollar resulting in a loss in equity value in ourArgentina subsidiary and ultimately sales proceeds that were significantly less than the invested capital. Accrued social insurance adjustment. During the nine months endedSeptember 30, 2020 , we reversed approximately$9.5 million of accrued social insurance. InJune 2018 , we sold all of the outstanding stock of ourGuangzhou entity and the terms of the agreement included a two-year indemnification period. InJune 2020 , the indemnification period expired and we determined we were no longer legally liable for any liabilities associated with ourGuangzhou entity. Accordingly, we reversed the accrued social insurance amount associated with theGuangzhou entity which was approximately$9.5 million . Other income (expense), net. Other expense, net was$0.2 million for the nine months endedSeptember 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 endedSeptember 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 endedSeptember 30, 2021 , representing an effective tax rate of 41.5% compared to$5.3 million for the nine months endedSeptember 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 ourArgentina subsidiary in 2021 and the prior year reversal of a reserve approximating$1.3 million . 31 -------------------------------------------------------------------------------- Table of Contents Liquidity and Capital Resources
Sources and Uses of Cash
Nine Months Ended Increase Nine Months Ended (In thousands) September 30, 2021 (Decrease) September 30, 2020 Cash provided by operating activities$ 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 endedSeptember 30, 2021 compared to$43.8 million during the nine months endedSeptember 30, 2020 . Net income was$11.6 million for the nine months endedSeptember 30, 2021 compared to net income of$26.4 million for the nine months endedSeptember 30, 2020 . Accounts payable and accrued liabilities resulted in net cash outflows of$7.4 million during the nine months endedSeptember 30, 2021 compared to$50.5 million during the nine months endedSeptember 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 endedSeptember 30, 2021 compared to cash inflows of$11.6 million during the nine months endedSeptember 30, 2020 largely as a result of the timing of sales during the quarter. Days sales outstanding were 77 days atSeptember 30, 2021 compared to 75 days atSeptember 30, 2020 . Inventories increased by$4.5 million during the nine months endedSeptember 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 endedSeptember 30, 2020 as result of lower sales volume in 2020 compared to 2019. Net cash used for investing activities during the nine months endedSeptember 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 endedSeptember 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 endedSeptember 30, 2021 compared to$30.9 million during the nine months endedSeptember 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 endedSeptember 30, 2021 , we had net borrowings of$33.0 million compared to net repayments of$18.0 million during the nine months endedSeptember 30, 2020 . During the nine months endedSeptember 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$9.8 million during the nine months endedSeptember 30, 2020 . We hold these shares as treasury stock and they are available for reissue. Presently, we have no plans to utilize these shares, although we may change these plans if necessary to fulfill our on-going business objectives. See Note 13 contained in "Notes to Consolidated Financial Statements" for further information regarding our share repurchase programs. 32 -------------------------------------------------------------------------------- Table of Contents Contractual Obligations The following table summarizes our contractual obligations and the effect these obligations are expected to have on our liquidity and cash flow in future periods. Payments Due by Period Less than 1 - 3 4 - 5 After (In thousands) Total 1 year years years 5 years Operating lease obligations$ 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 ofEcolink 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 ofthe United States and may be repatriated tothe 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. OnSeptember 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 inthe United States , the PRC,Asia (excluding the PRC),Europe , andSouth America , respectively. OnDecember 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 inthe United States , the PRC,Asia (excluding the PRC),Europe andSouth 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") withU.S. Bank National Association ("U.S. Bank ") provides for a$125.0 million revolving line of credit ("Credit Line") that expires onNovember 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 atSeptember 30, 2021 . OnOctober 25, 2021 , we executed an amendment to extend the term of our Second Amended Credit Agreement toNovember 1, 2023 . All obligations under the Credit Line are secured by substantially all of ourU.S. personal property and tangible and intangible assets as well as 65% of our ownership interest inEnson 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 onOctober 25, 2021 , the pledge of 65% ownership interest inEnson Assets Limited was terminated and was replaced with a guaranty of the Credit Line by our wholly-owned subsidiary,Universal Electronics BV . 33
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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 ofU.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 atSeptember 30, 2021 andDecember 31, 2020 were 1.33% and 1.39%, respectively. There are no commitment fees or unused line fees under the Second Amended Credit Agreement. OnDecember 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 throughDecember 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. BetweenDecember 31, 2021 andJune 30, 2023 , any legacy borrowings may continue to use LIBOR as the basis for interest rates. AfterJune 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 ofSeptember 30, 2021 , we were in compliance with the covenants and conditions of the Second Amended Credit Agreement.
At
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 theSecurities 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 34
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Table of Contents 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 theSecurities and Exchange Commission .
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