What changed in this filing

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Item 7. Management’s Discussion and Analysis

2022-03-04 compared with 2021-03-05 · 106 added, 90 removed, 169 unchanged (54% of the section changed)

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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;

• easy-to-use, voice-enabled, automatically-programmed universal remote controls with two-way radio frequency ("RF") as well as infrared ("IR") remote controls, 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;

• software, firmware and technology solutions that can enable devices such as TVs, set-top boxes, audio systems, smart speakers, game consoles 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;

• intellectual property that we license primarily to OEMs and video service providers;

• proprietary and standards-based RF sensors designed for residential security, safety and home automation applications;

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We operate as one business segment.

We have two domestic subsidiaries and 26 international subsidiaries located in Argentina, Brazil, British Virgin Islands, Cayman Islands, France, Germany, Hong Kong (3), India, Italy, Japan, Korea, Mexico (2), the Netherlands, the People's Republic of China (7), Singapore, Spain and the United Kingdom.

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, the People's Republic of China (7), Singapore, Spain and the United Kingdom.

To recap our results for 2021:

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• Operating expenses, as a percent of sales, increased to 24.9% in 2021 from 22.6% in 2020.

• Operating income increased to $37.3 million in 2020 from $15.3 million in 2019, and our operating margin percentage increased to 6.1% in 2020, compared to 2.0% in 2019.

• Our effective tax rate decreased to 12.1% in 2020 from 65.1% in 2019.

• Operating income decreased to $23.3 million in 2021 from $37.3 million in 2020, and our operating margin percentage decreased to 3.9% in 2021, compared to 6.1% in 2020.

• Our effective tax rate increased to 67.0% in 2021 from 12.1% in 2020.

Our strategic business objectives for 2022 include the following:

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• continue to expand our software and service offerings to deliver a complete managed service platform;

• continue to invest in creating technology differentiation across our global product portfolio;

• further penetration of international subscription broadcasting markets;

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• continue to seek acquisitions or strategic partners that complement and strengthen our existing business;

• continue our long-term factory planning strategy of reducing our concentration risk in the People's Republic of China.

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 work facilities, schools, public buildings and businesses, cancellation of events, including sporting events, conferences and meetings, and quarantines and lock-downs.

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.

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, particularly in light of new variants, and the availability of effective treatments or vaccines);

and 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 has spread to other jurisdictions and has been declared a global pandemic, 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.

In response, we have created a COVID-19 task force, which includes a cross-functional group of senior-level executives, to manage and respond to the ever changing health and safety requirements across the globe and communicate our response to the pandemic to our global factory and office leaders.

Local government mandates required us, in the first quarter of 2020, to keep our China factories closed for a period of approximately two weeks beyond the end of the Chinese Lunar New Year.

Our Mexico factory was closed for more than one week due to local health ordinance requirements during the second quarter of 2020.

As a part of our response to this pandemic, our COVID-19 task force has developed and we have implemented additional safety measures for all factory employees across the globe, including temperature scans upon entry, hand sanitizer stations located throughout the facilities, mandatory mask wearing, social distancing measures in gathering places and restricting all visitor access.

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.

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.

We have also taken measures to safeguard the health and well-being of our employees in our office locations throughout the world, including implementing work from home arrangements and a moratorium on all travel, except where essential and approved in advance.

We have implemented enhanced safety measures upon the reopening of our office locations, including more frequent office sanitation, temperature scans upon arrival, mandatory mask wearing, additional hand sanitizer locations, social distancing measures throughout locations and restricted visitor access.

The reopening of our offices continues to follow suggested guidelines by the Centers for Disease Control and Prevention, the World Health Organization, and local governmental orders and recommendations.

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.

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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 some disruptions in our supply chain that, if continued, may cause us difficulty in fulfilling customer orders.

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 the situation and may take further actions altering our business operations as necessary or as required by federal, state, or local authorities.

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 and have resulted in increased logistics costs.

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 2022.

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 through at least mid to late 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.

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."

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 did not identify 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, one customer has put further business with us on hold.

Should additional customers 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.

We take all allegations regarding working conditions seriously, and took a cooperative approach to responding to the Committee's letter, cooperated fully with the Committee's inquiry and provided the Committee with timely and complete responses to all of its questions.

Critical Accounting Estimates

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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.

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.

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Significant judgments include the evaluation of legal terms and rights within each jurisdiction that we operate, specifically as it relates to our entitlement to gross margin at termination, and the evaluation of whether it is possible, contractually or economically, to repurpose or redirect products.

Royalty Revenue - We license our intellectual property including our patented technologies and database of control codes.

Royalty Revenue – We license our symbolic intellectual property which includes our patented technologies and database of control codes.

Royalty 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.

The number of shipped units is estimated based on historical revenue royalty and other known factors.

If actual shipped units differs from our estimates we will record a reduction or increase to net sales in the period the actuals are reported by the licensee, typically in the following quarter.

The number of shipped units is estimated based on historical royalty revenue and other known factors.

If actual shipped units differ from our estimates we will record a reduction or increase to net sales in the period the actuals are reported by the licensee, typically in the following quarter.

Sales Returns and Allowances – A provision is recorded for estimated sales returns and allowances and is deducted from gross sales to arrive at net sales in the period the related revenue is recorded.

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(1) a significant adverse change in legal factors or in business climate, (2) unanticipated competition or (3) an adverse action or assessment by a regulator.

Effective in the year ended December 31, 2020, we perform our annual impairment test using a qualitative assessment weighing the relative impact of factors that are specific to our single reporting unit as well as industry and macroeconomic factors.

We perform our annual impairment test using a qualitative assessment weighing the relative impact of factors that are specific to our single reporting unit as well as industry and macroeconomic factors.

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

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We believe that our tax return positions are fully supported, but tax authorities are likely to challenge certain positions, which may not be fully sustained.

Our income tax expense includes amounts intended to satisfy income tax assessments that result from these challenges in accordance with the accounting for uncertainty in income taxes prescribed by U.S.

Our income tax expense includes amounts intended to satisfy

income tax assessments that result from these challenges in accordance with the accounting for uncertainty in income taxes prescribed by U.S.

Determining the income tax expense for these potential assessments and recording the related assets and liabilities requires management judgments and estimates.

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Interest income (expense), net (0.1) (0.2)

Loss on sale of Argentina subsidiary (1.0) —

Accrued social insurance adjustment — 1.5

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Net sales for 2021 were $601.6 million, a decrease of 2.1% compared to $614.7 million in 2020.

The decrease in net sales occurred primarily with our traditional home entertainment and security customers as we experienced demand, production and supply disruptions caused by the COVID-19 pandemic.

Certain customers reduced order quantities, our China-based manufacturing facilities were delayed in re-opening after the Lunar New Year holiday and certain key suppliers were ordered to close by local authorities.

Sales in our subscription broadcast channel, primarily in North America, were lower than in the prior year.

Partially offsetting this decrease is growth in our HVAC channel, particularly in the APAC region, as consumers are demanding 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 in 2021 was $173.0 million compared to $176.3 million in 2020.

Gross profit as a percent of sales increased to 28.7% in 2020 from 22.6% in 2019.

Gross profit as a percent of sales was favorably impacted by a reduction in U.S.

tariff expense, improved operational efficiencies in our Mexico-based manufacturing facility as it emerged from a start-up phase, an increase in royalty revenue as certain consumer electronics companies embed our technology in their devices, and the strengthening of the U.S.

Dollar versus the Mexican Peso.

Our manufacturing costs were negatively impacted by the COVID-19 pandemic as our China-based manufacturing facilities were delayed in re-opening after the Lunar New Year holiday and our Mexico-based manufacturing facility was closed for approximately 10 days.

Gross profit as a percent of sales remained relatively consistent at 28.8% in 2021 compared to 28.7% in 2020.

Gross profit as a percent of sales was favorably impacted by a mix shift towards 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 and by higher material and freight costs.

In addition, impairment expenses relating to the underutilization of property, plant and equipment in our PRC-based factories were incurred in 2021 as a result of our long-term factory planning strategy to reduce our concentration risk in that region.

Research and development ("R&D") expenses.

R&D expenses increased 6.9% to $31.5 million in 2020 from $29.4 million in 2019 primarily due to our continued investment in the development of products that enhance the user experience in home entertainment and home automation.

R&D expenses decreased 1.7% to $30.9 million in 2021 from $31.5 million in 2020 primarily due to a decrease in incentive compensation.

Selling, general and administrative ("SG&A") expenses.

SG&A expenses decreased 14.3% to $107.5 million in 2020 from $125.5 million in 2019, primarily due to a reduction in incentive compensation expense, a decrease in contingent consideration recorded in connection with our acquisition of the net assets of Ecolink Intelligent Technology, Inc.

("Ecolink"), a decrease in freight costs and a reduction in travel expenditures.

We also reduced certain discretionary expenses as a result of the COVID-19 pandemic.

SG&A expenses increased 10.5% to $118.8 million in 2021 from $107.5 million in 2020, primarily due to an increase in outside legal expenses related to specific legal matters.

Interest income (expense), net.

Net interest expense was $1.4 million in 2020 compared to $3.9 million in 2019 as a result of a lower average loan balance and a lower interest rate.

Net interest expense decreased to $0.6 million in 2021 from $1.4 million in 2020 as a result of a lower average loan balance and a lower average interest rate.

Loss on sale of Argentina subsidiary.

During 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.

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Other income (expense), net.

Net other expense was $1.4 million in 2020 compared to $1.0 million in 2019, as a result of net foreign currency losses.

Other expense, net was $0.6 million in 2021, as a result of net foreign currency losses offset partially by miscellaneous non-operating gains, compared to other expense, net of $1.4 million in 2020, as a result of net foreign currency losses offset partially by miscellaneous non-operating gains.

Income tax expense.

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Our effective tax rate was 67.0% in 2021 compared to 12.1% in 2020.

Our effective tax rate was higher than normal in 2021 as a result of the mix of pre-tax income among jurisdictions, including losses not benefited as a result of a valuation allowance and the nondeductible losses on the sale and liquidation of our Argentina and Cayman subsidiaries, respectively.

Our effective tax rate was lower than normal in 2020 as a result of the application of preferential foreign tax rates as well as foreign income not subject to tax in its respective local jurisdictions, partially offset by the U.S.

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Liquidity and Capital Resources

Sources and Uses of Cash

Sources of Cash

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.

In addition, we have utilized our revolving line of credit to fund an increased level of share repurchases and past acquisitions.

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, expenses associated with our long-term factory planning strategy, future discretionary share repurchases and potential future acquisitions.

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 for at least the next twelve months and for the foreseeable future thereafter;

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 market risks identified in "ITEM 7A.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK".

Cash and cash equivalents $ 60,813 $ 57,153

Available borrowing resources 66,300 102,300

Cash and cash equivalents – On December 31, 2021, we had $6.4 million, $16.0 million, $11.8 million, $17.6 million and $9.0 million of cash and cash equivalents in North America, 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 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 taxes 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.

Available Borrowing Resources – Our Second Amended and Restated Credit Agreement ("Second Amended Credit Agreement") with U.S.

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

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 December 31, 2021.

At December 31, 2021, we had an outstanding balance of $56.0 million on our Credit Line and $66.3 million of availability.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - Notes to Consolidated Financial Statements - Note 9" for further information regarding our Credit Line.

Our cash flows were as follows:

(In thousands) Year Ended December 31, 2021 Increase

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Cash provided by (used for) financing activities (22,026) 43,938 (65,964)

Effect of exchange rate changes on cash and cash equivalents (843) 120 (963)

Effect of foreign currency exchange rate changes on cash and cash equivalents 2,444 3,287 (843)

Net increase (decrease) in cash and cash equivalents $ 3,660 $ 20,809 $ (17,149)

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Net income was $5.3 million in 2021 compared to $38.6 million in 2020.

Accounts payable and accrued liabilities resulted in net cash outflows of $43.0 million in 2020 compared to net cash inflows of $14.2 million in 2019, largely as a result of a significant decrease in inventories as well as payments related to accrued compensation and contingent consideration.

Inventories decreased by $28.3 million during the year ended December 31, 2020 compared to an increase of $1.9 million during the year ended December 31, 2019 as a result of lower sales volume in 2020.

Our inventory turns remained relatively consistent with 3.4 turns at December 31, 2020 compared to 3.2 turns at December 31, 2019.

Accrued income taxes decreased by $6.5 million during the year ended December 31, 2020 compared to an increase of $3.6 million during the year ended December 31, 2019, largely as a result of increased tax payments during 2020.

Accounts payable and accrued liabilities resulted in net cash inflows of $0.9 million in 2021 compared to net cash outflows of $33.5 million in 2020, largely as a result of a significant increase in inventories and a decrease in payments related to accrued compensation in 2021.

Inventories increased by $15.0 million during the year ended December 31, 2021 due to efforts to mitigate supply chain issues relating to component shortages and logistics delays compared to a decrease of $28.3 million during the year ended December 31, 2020 resulting from lower sales volume in 2020 compared to 2019.

Our inventory turns decreased to 2.9 turns at December 31, 2021 compared to 3.4 turns at December 31, 2020.

Accrued income taxes increased by $2.9 million during the year ended December 31, 2021 compared to a decrease of $6.5 million during the year ended December 31, 2020, largely as a result of decreased tax payments and increases in tax expenses during 2021.

Future cash flows from operations are expected to be affected by the impacts of the COVID-19 pandemic, specifically relating to logistical issues.

For the first half of 2022, we expect component shortages will continue to have an adverse effect on cash flows with some relief beginning to occur in the second half of the year.

In addition, we expect to commence manufacturing operations in a new factory in Vietnam in the third quarter of 2022 which, in the short run, may result in manufacturing inefficiencies.

Net cash used for investing activities during 2021 was $17.0 million, of which $12.6 million and $4.4 million was used for capital expenditures and development of patents, respectively.

Net cash used for investing activities during 2020 was $23.7 million, of which $16.9 million and $6.4 million was used for capital expenditures and development of patents, respectively.

Future cash flows used for investing activities are largely dependent on the timing and amount of capital expenditures.

We estimate that we will incur between $15.0 million and $18.0 million in 2022 which includes amounts associated with our factory in Vietnam which we anticipate to commence operations in the third quarter of 2022.

Net cash used for financing activities was $22.0 million during 2021 compared to $66.0 million during 2020.

The primary financing activities in 2021 and 2020 were borrowings and repayments on our line of credit and repurchases of shares of our common stock.

Net repayments on our line of credit were $48.0 million and $33.5 million in 2020 and 2019, respectively.

Net borrowings on our line of credit were $36.0 million in 2021 and net repayments were $48.0 million in 2020.

During 2021, we purchased 1,243,196 shares of our common stock at a cost of $59.7 million compared to 443,803 shares at a cost of $17.7 million during 2020.

We hold repurchased shares as treasury stock and they are available for reissue.

Presently, we have no plans to distribute these shares, although we may change these plans if necessary to fulfill our ongoing business objectives.

Future cash flows used for financing activities are affected by our financing needs which are largely dependent on the level of cash provided by or used in operations and the level of cash used in investing activities.

Additionally, potential future repurchases of shares of our common stock will impact our cash flows used for financing activities.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - Notes to Consolidated Financial Statements - Note 14" for further information regarding our share repurchase programs.

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.

Material Cash Commitments – The following table summarizes our material cash commitments and the effect these commitments are expected to have on our cash flows in future periods:

Payments Due by Period

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Operating lease obligations $ 27,217 $ 6,826 $ 9,701 $ 5,968 $ 4,722

Purchase obligations (1)

2,784 2,784 — — —

Contingent consideration (2)

Property, plant, and equipment purchases

2,638 2,638 — — —

Total contractual obligations $ 27,116 $ 11,923 $ 10,364 $ 3,865 $ 964

(1) Purchase obligations primarily consist of contractual payments to purchase property, plant and equipment.

(2) Contingent consideration consists of contingent payments relate to our purchases of the net assets of Ecolink and Residential Control Systems, Inc.

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 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.

Our liquidity is subject to various risks including the market risks identified in "ITEM 7A.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK".

Cash and cash equivalents $ 57,153 $ 74,302

Available borrowing resources 102,300 54,300

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 taxes 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 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.

On November 1, 2019, we extended the term of our Second Amended Credit Agreement with U.S.

Bank to November 1, 2021.

The Second Amended Credit Agreement provided for a $130.0 million Credit Line through June 30, 2019 and a $125.0 million Credit Line thereafter and through its expiration date.

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 December 31, 2020.

On January 7, 2021, we executed an amendment to extend the term of our Second Amended Credit Agreement to November 1, 2022.

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 rate in effect at December 31, 2020 was 1.39%.

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

The amendment executed on January 7, 2021 defines the Secured Overnight Financing Rate ("SOFR") as a replacement benchmark for LIBOR upon its phase out.

The Second Amended Credit Agreement includes financial covenants requiring a minimum fixed charge coverage ratio and a maximum cash flow leverage ratio.

In addition, the Second Amended Credit Agreement contains other customary affirmative and negative covenants and events of default.

As of December 31, 2020, we were in compliance with the covenants and conditions of the Second Amended Credit Agreement.

At December 31, 2020, we had an outstanding balance of $20.0 million on our Credit Line and $102.3 million of availability.

Off-Balance Sheet Arrangements

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

Inventory purchases 18,530 18,530 — — —

Software license 3,519 53 315 735 2,416

Total material cash commitments $ 51,904 $ 28,047 $ 10,016 $ 6,703 $ 7,138

We anticipate meeting our material cash commitments with our cash generated from operations and available borrowing resources, including our Credit Line.

Recent Accounting Pronouncements

1 unchanged sentence

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis