UNIVERSAL ELECTRONICS INC MANAGEMENT REPORT AND ANALYSIS OF FINANCIAL POSITION AND RESULTS OF OPERATIONS (Form 10-K)

We generally discuss 2021 and 2020 items and year-to-year comparisons between
2021 and 2020 in the section that follows. Discussions of 2019 items and
year-to-year comparisons between 2020 and 2019 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 ended December 31, 2020, filed with the
SEC on March 5, 2021.

The following discussion should be read in conjunction with the consolidated financial statements and 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,
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 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 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 989,000 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 Awareness Graph is powered by our unique Device Fingerprint technology which includes over 24.4 million unique device fingerprints across 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.

We operate as one business segment. We have two domestic subsidiaries and 25
international subsidiaries located in Brazil, British Virgin Islands, Cayman
Islands, France, Germany, Hong Kong (3), India, Italy, Japan, Korea, Mexico (2),
the Netherlands, the People's Republic of China (7), Singapore, Spain and the
United Kingdom.
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To recap our results for 2021:

•Net sales decreased 2.1% to $601.6 million in 2021 from $614.7 million in 2020.
•Our gross profit percentage increased to 28.8% in 2021 from 28.7% in 2020.
•Operating expenses, as a percent of sales, increased to 24.9% in 2021 from
22.6% in 2020.
•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:

•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;
•continue to invest in creating technology differentiation across our global
product portfolio;
•further penetration of international subscription broadcasting markets;
•acquire new customers in historically strong regions;
•increase our share with existing customers;
•continue to seek acquisitions or strategic partners that complement and
strengthen our existing business; and
•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.

Impact of the COVID-19 pandemic

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, 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 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.

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 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.
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 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.

Impact of the global shortage of integrated circuits

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.

Factory in Qinzhou, China

In October 2021, Reuters published an article indicating that individuals from
China's Uyghur minority, originally resident in the PRC region of Xinjiang, were
working in a facility in Qinzhou, Guangxi operated by our Chinese subsidiary,
Gemstar Technology (Qinzhou) Co. Ltd. ("Gemstar"). The article alleged that the
presence of these workers in Guangxi was indicative of "a transfer program
described by some rights groups as forced labor."

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

The preparation of financial statements in conformity with accounting principles
generally accepted in the 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
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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.

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
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. 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 $1.5 million.

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Valuation of long-lived assets and intangible assets

We test intangible assets and intangible assets for impairment whenever events or changes in circumstances indicate that their carrying value may not be recoverable. Factors considered material and likely to trigger an impairment review, if material, 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.

Good will

We evaluate the carrying value of goodwill on December 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.

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

Operating results

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

                                                      Year Ended December 31,
                                                         2021                2020
Net sales                                                      100.0  %     100.0  %
Cost of sales                                                   71.2         71.3
Gross profit                                                    28.8         28.7
Research and development expenses                                5.1        

5.1

Selling, general and administrative expenses                    19.8        

17.5

Operating income                                                 3.9        

6.1

Interest income (expense), net                                  (0.1)       

(0.2)

Loss on sale of Argentina subsidiary                            (1.0)       

Accrued social insurance adjustment                                -        

1.5

Other income (expense), net                                     (0.1)       

(0.2)

Income before provision for income taxes                         2.7          7.2
Provision for income taxes                                       1.8          0.9
Net income                                                       0.9  %       6.3  %


Year ended December 31, 2021 (“2021”) compared to the year ended December 31, 2020
(“2020”)

Net sales. Net sales for 2021 were $601.6 million, a decrease of 2.1% compared
to $614.7 million in 2020. 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 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”) expenditures. R&D expenditure decreased by 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 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.

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Interest income (expense), net. 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. In 2020, we reversed approximately $9.5
million of accrued social insurance. In June 2018, we sold our Guangzhou entity
via a stock deal and the terms of the agreement included a two-year
indemnification period. In June 2020, the indemnification period expired and we
determined we were no longer legally liable for any liabilities associated with
our Guangzhou entity. Accordingly, we reversed the accrued social insurance
amount associated with the Guangzhou entity which was approximately $9.5
million.

Other income (expense), net. 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. Income tax expense was $10.8 million in 2021 compared to
$5.3 million in 2020. 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. tax loss not
being benefited due to the valuation allowance.

Cash and capital resources

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 INFORMATION ON MARKET RISKS”.

                                      December 31,
                                   2021          2020

Cash and cash equivalents $60,813 $57,153
Loan resources available 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.
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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.

See “ITEM 8. FINANCIAL STATEMENTS AND ADDITIONAL DATA – Notes to the consolidated financial statements – Note 9” for more information regarding our line of credit.

Uses of silver

Our cash flows were as follows:

                                                        Year Ended                                Year Ended
                                                       December 31,           Increase           December 31,
(In thousands)                                             2021              (Decrease)              2020
Cash provided by operating activities                 $     40,283          $  (33,109)         $     73,392
Cash provided by (used for) investing activities           (17,041)              6,693               (23,734)
Cash provided by (used for) financing activities           (22,026)             43,938               (65,964)

Effect of changes in exchange rates on cash and cash equivalents

                                    2,444               3,287                  (843)
Net increase (decrease) in cash and cash equivalents  $      3,660          $   20,809          $    (17,149)



                                                        Increase
                               December 31, 2021       (Decrease)       December 31, 2020
Cash and cash equivalents     $           60,813      $     3,660      $           57,153
Working capital                          120,359          (26,974)                147,333



Net cash provided by operating activities was $40.3 million during 2021 compared
to $73.4 million during 2020. Net income was $5.3 million in 2021 compared to
$38.6 million in 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 largely depend 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 plant in Vietnam which we expect to start 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 borrowings on our line of credit were $36.0 million in
2021 and net repayments were $48.0 million in 2020.
                                       37

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Contents

In 2021, we purchased 1,243,196 common shares at a price of
$59.7 million against 443,803 shares at a cost of $17.7 million during 2020.

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. See "ITEM 8. FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA - Notes to Consolidated Financial Statements - Note 14" for
further information regarding our share repurchase programs.

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
                                                          Less than       1 - 3         4 - 5        After
(In thousands)                               Total         1 year         years         years       5 years
Operating lease obligations                $ 27,217      $   6,826      $  9,701      $ 5,968      $ 4,722
Property, plant, and equipment purchases      2,638          2,638             -            -            -
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 expect to meet our significant cash commitments with our cash generated from operations and available borrowing resources, including our line of credit.

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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