We generally discuss 2020 and 2019 items and year-to-year comparisons between 2020 and 2019 in the section that follows. Discussions of 2018 items and year-to-year comparisons between 2019 and 2018 that are not included in this Annual Report on Form 10-K may be found in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 of our Annual Report on Form 10-K for the year endedDecember 31, 2019 , filed with theSEC onMarch 16, 2020 .
The following discussion should be read in conjunction with the Consolidated
Financial Statements and the related notes that appear elsewhere in this
document.
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
nearly 13,000 brands comprising over 930,000 device models across AV and smart
home platforms, supported by many common smart home protocols, including IR,
HDMI-CEC, Zigbee (Rf4CE), Z-Wave, IP, as well as Home Network and Cloud Control.
This device knowledge graph is backed by our unique device fingerprinting
technology which includes over 8.3 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 IoT devices. These control codes are captured directly from original control
devices or from the manufacturer's 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.
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We operate as one business segment. We have two domestic subsidiaries and 26 international subsidiaries located inArgentina ,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 theUnited Kingdom .
To recap our results for 2020:
•Net sales decreased 18.4% to$614.7 million in 2020 from$753.5 million in 2019. •Our gross profit percentage increased to 28.7% in 2020 from 22.6% in 2019. •Operating expenses, as a percent of sales, increased to 22.6% in 2020 from 20.6% in 2019. •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.
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 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 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 ourChina factories closed for a period of approximately two weeks beyond the end of the ChineseLunar New Year . OurMexico 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. All factories are up to or near labor capacity as of the issuance of this report. 30
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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 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 2021 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. 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.
Critical Accounting Estimates
The preparation of financial statements in conformity with accounting principles generally accepted inthe United States ("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. Management believes the following critical accounting estimates affect our more significant judgments and estimates used in the preparation of our consolidated financial statements. In addition to the accounting policies mentioned below, see "ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - Notes to Consolidated Financial Statements - Note 2" for other significant accounting policies.
Revenue recognition
Revenue is recognized when control of a good or service is transferred to a
customer. Control is considered to be transferred when the customer has the
ability to direct the use of and obtain substantially all of the remaining
benefits of that good or service. Revenues are generated from manufacturing and
delivering universal control, sensing and automation products and AV
accessories, which are sold through multiple channels, and licensing
intellectual property that is embedded in these products or licensed to others
for use in their products.
Timing of Revenue Recognition - When determining the classification of over
time verses point in time revenue recognition, there is significant judgment
exercised by management in identifying and evaluating whether new contracts
and/or products meet the criteria for over time or point in time revenue
recognition. 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.
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Royalty Revenue - We license our intellectual property including our patented technologies and database of control codes. 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. 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. These estimates are based on historical sales returns and allowances, analysis of credit memo data and other known factors. Actual returns and claims in any future period are inherently uncertain and thus may differ from our estimates. If actual or expected future returns and claims are significantly greater or lower than the reserves that we have established, we will record a reduction or increase to net sales in the period in which we make such a determination. Sales Discounts and Rebates - A provision is recorded for estimated sales discounts and rebates and is deducted from gross sales to arrive at net sales in the period the related revenue is recorded. We accrue for discounts and rebates based on historical experience and our expectations regarding future sales to our customers. Changes in such accruals may be required if actual discounts and rebates differ from our estimates.
Inventories
Our finished good, component part, and raw material inventories are valued at the lower of cost or net realizable value. Cost is determined using the first-in, first-out method. We write down our inventory for the estimated difference between cost and estimated net realizable value based upon our best estimates of future demand and market conditions. We carry inventory in amounts necessary to satisfy our customers' inventory requirements on a timely basis. We continually monitor our inventory status to control inventory levels and write down any excess or obsolete inventories on hand. If actual market conditions become less favorable than those projected by management, additional inventory write-downs may be required, which may have a material impact on our financial statements. Such circumstances may include, but are not limited to, the development of new competing technology that impedes the marketability of our products or the occurrence of significant price decreases in our raw material or component parts, such as integrated circuits. Each percentage point change in the ratio of excess and obsolete inventory reserve to inventory would impact cost of sales by approximately$1.4 million .
Valuation of Long-Lived Assets and Intangible Assets
We assess long-lived and intangible assets for impairment whenever events or
changes in circumstances indicate that their carrying value may not be
recoverable. Factors considered important which may trigger an impairment
review, if significant, include the following:
•underperformance relative to historical or projected future operating results; •changes in the manner of use of the assets; •changes in the strategy of our overall business; •negative industry or economic trends; •a decline in our stock price for a sustained period; and •a variance between our market capitalization relative to net book value. If the carrying value of the asset is larger than its projected undiscounted future cash flows, the asset is impaired. The impairment is measured as the difference between the net book value of the asset and the asset's estimated fair value. Fair value is estimated utilizing the asset's projected discounted future cash flows. In assessing fair value, we must make assumptions regarding estimated future cash flows, the discount rate and other factors. If the actual performance of the assets becomes less favorable than those projected by management, adjustments to the carrying values of the these assets may have a material effect on the consolidated financial statements.
We evaluate the carrying value of goodwill onDecember 31 of each year and between annual evaluations if events occur or circumstances change that would more likely than not reduce the fair value of the reporting unit below its carrying amount. Such circumstances may include, but are not limited to: (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. 32
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Effective in the year endedDecember 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. 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. Therefore, performing a quantitative impairment test was unnecessary. Certain future events and circumstances, including adverse changes in general business and economic conditions inthe United States and worldwide and changes in consumer behavior could result in changes to our assumptions and judgments used in the goodwill impairment tests. A downward revision of these assumptions could cause the fair value of the reporting unit to fall below its respective carrying values and a noncash impairment charge would be required. Such a charge may have a material effect on the consolidated financial statements.
Income Taxes
We calculate our current and deferred tax provisions based on estimates and assumptions that may differ from the actual results reflected in our income tax returns filed during the subsequent year. We record adjustments based on filed returns when we have identified and finalized them, which is generally in the third and fourth quarters of the subsequent year. We recognize deferred tax assets and liabilities for the expected tax consequences of temporary differences between the tax basis of assets and liabilities and their reported amounts using enacted tax rates in effect for the year in which we expect the differences to reverse. We record a valuation allowance to reduce the deferred tax assets to the amount that we are more likely than not to realize. We have considered future market growth, forecasted earnings and tax rates, future taxable income, the mix of earnings in the jurisdictions in which we operate and prudent tax planning strategies in determining the need for a valuation allowance. In the event we were to determine that we would not be able to realize all or part of our net deferred tax assets in the future, we would increase the valuation allowance and make a corresponding charge to earnings in the period in which we make such determination. Likewise, if we later determine that we are more likely than not to realize the net deferred tax assets, we would reverse the applicable portion of the previously provided valuation allowance. In order for us to realize our deferred tax assets we must be able to generate sufficient taxable income in the tax jurisdictions in which the deferred tax assets are located. Any changes to the realizability of our deferred tax assets or liabilities may have a material impact on our financial statements. We are subject to income taxes inthe United States and foreign countries, and we are subject to routine corporate income tax audits in many of these jurisdictions. 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 byU.S. GAAP. Determining the income tax expense for these potential assessments and recording the related assets and liabilities requires management judgments and estimates. We maintain reserves for uncertain tax positions, including related interest and penalties. We review our reserves quarterly, and we may adjust such reserves due to proposed assessments by tax authorities, changes in facts and circumstances, issuance of new regulations or new case law, previously unavailable information obtained during the course of an examination, negotiations between tax authorities of different countries concerning our transfer prices, execution of advanced pricing agreements, resolution with respect to individual audit issues, the resolution of entire audits, or the expiration of statutes of limitations. The amounts ultimately paid upon resolution of audits may be materially different from the amounts previously included in our income tax expense and, therefore, may have a material impact on our financial statements. 33
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Results of Operations
The following table sets forth our results of operations expressed as a
percentage of net sales for the periods indicated.
Year Ended December 31,
2020 2019
Net sales 100.0 % 100.0 %
Cost of sales 71.3 77.4
Gross profit 28.7 22.6
Research and development expenses 5.1
3.9
Selling, general and administrative expenses 17.5
16.7
Operating income 6.1
2.0
Interest income (expense), net (0.2)
(0.5)
Accrued social insurance adjustment 1.5
–
Other income (expense), net (0.2)
(0.1)
Income before provision for income taxes 7.2 1.4 Provision for income taxes 0.9 0.9 Net income 6.3 % 0.5 %
Year Ended
(“2019”)
Net sales. Net sales for 2020 were$614.7 million , a decrease of 18.4% compared to$753.5 million in 2019. 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, ourChina -based manufacturing facilities were delayed in re-opening after theLunar New Year holiday and certain key suppliers were ordered to close by local authorities. Gross profit. Gross profit in 2020 was$176.3 million compared to$170.2 million in 2019. 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 inU.S. tariff expense, improved operational efficiencies in ourMexico -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 theU.S. Dollar versus the Mexican Peso. Our manufacturing costs were negatively impacted by the COVID-19 pandemic as ourChina -based manufacturing facilities were delayed in re-opening after theLunar New Year holiday and ourMexico -based manufacturing facility was closed for approximately 10 days. 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. 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 ofEcolink 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. 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. Accrued social insurance adjustment. In 2020, we reversed approximately$9.5 million of accrued social insurance. InJune 2018 , we sold ourGuangzhou entity via a stock deal 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. Net other expense was
to
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Income tax expense. Income tax expense was$5.3 million in 2020 compared to$6.8 million in 2019. Our effective tax rate was 12.1% in 2020 compared to 65.1% in 2019. 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 theU.S. tax loss not being benefited due to the valuation allowance.
Liquidity and Capital Resources
Sources and Uses of Cash
Year Ended Year Ended
December 31, Increase December 31,
(In thousands) 2020 (Decrease) 2019
Cash provided by operating activities $ 73,392 $ (11,865) $ 85,257
Cash provided by (used for) investing activities (23,734) 234 (23,968)
Cash provided by (used for) financing activities (65,964) (26,733) (39,231)
Effect of exchange rate changes on cash and cash
equivalents (843) 120 (963)
Net increase (decrease) in cash and cash equivalents $ (17,149) $ (38,244) $ 21,095
Increase
December 31, 2020 (Decrease) December 31, 2019
Cash and cash equivalents $ 57,153 $ (17,149) $ 74,302
Working capital 147,333 35,037 112,296
Net cash provided by operating activities was $73.4 million during 2020 compared
to $85.3 million during 2019. Net income was $38.6 million in 2020 compared to
$3.6 million in 2019. 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.
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. Net cash used for investing activities during 2019 was
$24.0 million , of which $21.3 million and $2.7 million was used for capital
expenditures and development of patents, respectively.
Net cash used for financing activities was $66.0 million during 2020 compared to
$39.2 million during 2019. The primary financing activities in 2020 and 2019
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.
During 2020, we purchased 443,803 shares of our common stock at a cost of $17.7
million compared to 57,740 shares at a cost of $1.9 million during 2019. 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. See "ITEM
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - Notes to Consolidated Financial
Statements - Note 14" 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 $ 22,282 $ 7,381 $ 10,072 $ 3,865 $ 964
Purchase obligations(1) 2,784 2,784 - - -
Contingent consideration (2) 2,050 1,758 292 - -
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.
("RCS").
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 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 market risks identified
in “ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK”.
December 31,
2020 2019
Cash and cash equivalents
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 ofthe United States and may be repatriated tothe 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. 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. OnNovember 1, 2019 , we extended the term of our Second Amended Credit Agreement withU.S. Bank toNovember 1, 2021 . The Second Amended Credit Agreement provided for a$130.0 million Credit Line throughJune 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 atDecember 31, 2020 . OnJanuary 7, 2021 , we executed an amendment to extend the term of our Second Amended Credit Agreement toNovember 1, 2022 . 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 which controls our manufacturing factories in the PRC. 36
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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 rate in effect atDecember 31, 2020 was 1.39%. There are no commitment fees or unused line fees under the Second Amended Credit Agreement. The amendment executed onJanuary 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 ofDecember 31, 2020 , we were in compliance with the covenants and conditions of the Second Amended Credit Agreement.
At
Credit Line and
Off-Balance Sheet Arrangements
We do not participate in any off-balance sheet arrangements.
Recent Accounting Pronouncements
See “ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA – Notes to Consolidated
Financial Statements – Note 2” for a discussion of recent accounting
pronouncements.
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