UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________________________________
FORM 10-Q
_______________________________________
(Mark One)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the quarterly period ended June 30, 2021
OR
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the transition period from to
Commission File Number: 0-21044
_______________________________________
(Exact Name of Registrant as Specified in its Charter)
| (State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) | |||||||||||||
(Address of principal executive offices and zip code)
(480 ) 530-3000
(Registrant's telephone number, including area code)
_____________________
| Securities registered pursuant to Section 12(b) of the Act: | ||||||||
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | ☒ | ||||||||||||||||||||||||
| Non-accelerated filer | ☐ | Smaller reporting company | ||||||||||||||||||||||||
| Emerging growth company | ||||||||||||||||||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨ | ||||||||||||||||||||||||||
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).Yes ☐ No ☒
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: 13,483,554 shares of Common Stock, par value $0.01 per share, of the registrant were outstanding on August 3, 2021.
UNIVERSAL ELECTRONICS INC.
INDEX
Page Number | |||||
PART I. FINANCIAL INFORMATION
ITEM 1. Consolidated Financial Statements (Unaudited)
UNIVERSAL ELECTRONICS INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share-related data)
(Unaudited)
| June 30, 2021 | December 31, 2020 | ||||||||||
| ASSETS | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Accounts receivable, net | |||||||||||
| Contract assets | |||||||||||
| Inventories | |||||||||||
| Prepaid expenses and other current assets | |||||||||||
| Income tax receivable | |||||||||||
| Total current assets | |||||||||||
| Property, plant and equipment, net | |||||||||||
| Goodwill | |||||||||||
| Intangible assets, net | |||||||||||
| Operating lease right-of-use assets | |||||||||||
| Deferred income taxes | |||||||||||
| Other assets | |||||||||||
| Total assets | $ | $ | |||||||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable | $ | $ | |||||||||
| Line of credit | |||||||||||
| Accrued compensation | |||||||||||
| Accrued sales discounts, rebates and royalties | |||||||||||
| Accrued income taxes | |||||||||||
| Other accrued liabilities | |||||||||||
| Total current liabilities | |||||||||||
| Long-term liabilities: | |||||||||||
| Operating lease obligations | |||||||||||
| Contingent consideration | |||||||||||
| Deferred income taxes | |||||||||||
| Income tax payable | |||||||||||
| Other long-term liabilities | |||||||||||
| Total liabilities | |||||||||||
| Commitments and contingencies | |||||||||||
| Stockholders' equity: | |||||||||||
Preferred stock, $ | |||||||||||
Common stock, $ | |||||||||||
| Paid-in capital | |||||||||||
Treasury stock, at cost, | ( | ( | |||||||||
| Accumulated other comprehensive income (loss) | ( | ( | |||||||||
| Retained earnings | |||||||||||
| Total stockholders' equity | |||||||||||
| Total liabilities and stockholders' equity | $ | $ | |||||||||
The accompanying notes are an integral part of these consolidated financial statements.
3
UNIVERSAL ELECTRONICS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
| Net sales | $ | $ | $ | $ | |||||||||||||||||||
| Cost of sales | |||||||||||||||||||||||
| Gross profit | |||||||||||||||||||||||
| Research and development expenses | |||||||||||||||||||||||
| Selling, general and administrative expenses | |||||||||||||||||||||||
| Operating income | |||||||||||||||||||||||
| Interest income (expense), net | ( | ( | ( | ( | |||||||||||||||||||
| Accrued social insurance adjustment | |||||||||||||||||||||||
| Other income (expense), net | ( | ||||||||||||||||||||||
| Income before provision for income taxes | |||||||||||||||||||||||
| Provision for income taxes | |||||||||||||||||||||||
| Net income | $ | $ | $ | $ | |||||||||||||||||||
| Earnings per share: | |||||||||||||||||||||||
| Basic | $ | $ | $ | $ | |||||||||||||||||||
| Diluted | $ | $ | $ | $ | |||||||||||||||||||
| Shares used in computing earnings per share: | |||||||||||||||||||||||
| Basic | |||||||||||||||||||||||
| Diluted | |||||||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
4
UNIVERSAL ELECTRONICS INC.
CONSOLIDATED COMPREHENSIVE INCOME (LOSS) STATEMENTS
(In thousands)
(Unaudited)
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
| Net income | $ | $ | $ | $ | |||||||||||||||||||
| Other comprehensive income (loss): | |||||||||||||||||||||||
| Change in foreign currency translation adjustment | ( | ( | |||||||||||||||||||||
| Comprehensive income | $ | $ | $ | $ | |||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
5
UNIVERSAL ELECTRONICS INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands)
(Unaudited)
The following summarizes the changes in total equity for the three and six months ended June 30, 2021:
| Common Stock Issued | Common Stock in Treasury | Paid-in Capital | Accumulated Other Comprehensive Income (Loss) | Retained Earnings | Totals | ||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2020 | $ | ( | $ | ( | $ | $ | ( | $ | $ | ||||||||||||||||||||||||||||||||||||||
| Net income | |||||||||||||||||||||||||||||||||||||||||||||||
| Currency translation adjustment | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||
| Shares issued for employee benefit plan and compensation | |||||||||||||||||||||||||||||||||||||||||||||||
| Purchase of treasury shares | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||
| Stock options exercised | — | ||||||||||||||||||||||||||||||||||||||||||||||
| Shares issued to directors | — | — | |||||||||||||||||||||||||||||||||||||||||||||
| Employee and director stock-based compensation | |||||||||||||||||||||||||||||||||||||||||||||||
| Performance-based common stock warrants | |||||||||||||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2021 | $ | ( | $ | ( | $ | $ | ( | $ | $ | ||||||||||||||||||||||||||||||||||||||
| Net income | |||||||||||||||||||||||||||||||||||||||||||||||
| Currency translation adjustment | |||||||||||||||||||||||||||||||||||||||||||||||
| Shares issued for employee benefit plan and compensation | — | ||||||||||||||||||||||||||||||||||||||||||||||
| Purchase of treasury shares | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||
| Shares issued to directors | — | — | |||||||||||||||||||||||||||||||||||||||||||||
| Employee and director stock-based compensation | |||||||||||||||||||||||||||||||||||||||||||||||
| Performance-based common stock warrants | |||||||||||||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2021 | $ | ( | $ | ( | $ | $ | ( | $ | $ | ||||||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
6
UNIVERSAL ELECTRONICS INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands)
(Unaudited)
The following summarizes the changes in total equity for the three and six months ended June 30, 2020:
| Common Stock Issued | Common Stock in Treasury | Paid-in Capital | Accumulated Other Comprehensive Income (Loss) | Retained Earnings | Totals | ||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2019 | $ | ( | $ | ( | $ | $ | ( | $ | $ | ||||||||||||||||||||||||||||||||||||||
| Net income | |||||||||||||||||||||||||||||||||||||||||||||||
| Currency translation adjustment | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||
| Shares issued for employee benefit plan and compensation | |||||||||||||||||||||||||||||||||||||||||||||||
| Purchase of treasury shares | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||
| Shares issued to directors | ( | ||||||||||||||||||||||||||||||||||||||||||||||
| Employee and director stock-based compensation | |||||||||||||||||||||||||||||||||||||||||||||||
| Performance-based common stock warrants | |||||||||||||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2020 | $ | ( | $ | ( | $ | $ | ( | $ | $ | ||||||||||||||||||||||||||||||||||||||
| Net income | |||||||||||||||||||||||||||||||||||||||||||||||
| Currency translation adjustment | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||
| Shares issued for employee benefit plan and compensation | — | ||||||||||||||||||||||||||||||||||||||||||||||
| Purchase of treasury shares | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||
| Employee and director stock-based compensation | |||||||||||||||||||||||||||||||||||||||||||||||
| Performance-based common stock warrants | |||||||||||||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2020 | $ | ( | $ | ( | $ | $ | ( | $ | $ | ||||||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
7
UNIVERSAL ELECTRONICS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
| Six Months Ended June 30, | |||||||||||
| 2021 | 2020 | ||||||||||
| Cash flows from operating activities: | |||||||||||
| Net income | $ | $ | |||||||||
| Adjustments to reconcile net income to net cash used for operating activities: | |||||||||||
| Depreciation and amortization | |||||||||||
| Provision for credit losses | |||||||||||
| Deferred income taxes | |||||||||||
| Shares issued for employee benefit plan | |||||||||||
| Employee and director stock-based compensation | |||||||||||
| Performance-based common stock warrants | |||||||||||
| Impairment of long-term assets | |||||||||||
| Accrued social insurance adjustment | ( | ||||||||||
| Loss on sale of Ohio call center | |||||||||||
| Changes in operating assets and liabilities: | |||||||||||
| Accounts receivable and contract assets | ( | ( | |||||||||
| Inventories | ( | ||||||||||
| Prepaid expenses and other assets | |||||||||||
| Accounts payable and accrued liabilities | ( | ( | |||||||||
| Accrued income taxes | ( | ||||||||||
| Net cash provided by operating activities | |||||||||||
| Cash flows from investing activities: | |||||||||||
| Acquisitions of property, plant and equipment | ( | ( | |||||||||
| Acquisitions of intangible assets | ( | ( | |||||||||
| Payment on sale of Ohio call center | ( | ||||||||||
| Net cash used for investing activities | ( | ( | |||||||||
| Cash flows from financing activities: | |||||||||||
| Borrowings under line of credit | |||||||||||
| Repayments on line of credit | ( | ( | |||||||||
| Proceeds from stock options exercised | |||||||||||
| Treasury stock purchased | ( | ( | |||||||||
| Contingent consideration payments in connection with business combinations | ( | ||||||||||
| Net cash provided by (used for) financing activities | ( | ||||||||||
| Effect of foreign currency exchange rates on cash and cash equivalents | ( | ||||||||||
| Net increase (decrease) in cash and cash equivalents | ( | ||||||||||
| Cash and cash equivalents at beginning of period | |||||||||||
| Cash and cash equivalents at end of period | $ | $ | |||||||||
| Supplemental cash flow information: | |||||||||||
| Income taxes paid | $ | $ | |||||||||
| Interest paid | $ | $ | |||||||||
The accompanying notes are an integral part of these consolidated financial statements.
8
UNIVERSAL ELECTRONICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2021
(Unaudited)
Note 1 — Basis of Presentation
Our results of operations for the three and six months ended June 30, 2021 are not necessarily indicative of the results to be expected for the full year. These financial statements should be read in conjunction with the "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Quantitative and Qualitative Disclosures About Market Risk," and the "Financial Statements and Supplementary Data" included in Items 1A, 7, 7A, and 8, respectively, of our Annual Report on Form 10-K for the year ended December 31, 2020.
Estimates and Assumptions
The preparation of financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions 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 on-going basis, we evaluate our estimates and assumptions, including those related to revenue recognition; allowance for credit losses; inventory valuation; impairment of long-lived assets, intangible assets and goodwill; business combinations; income taxes and related valuation allowances; stock-based compensation expense and performance-based common stock warrants.
The coronavirus ("COVID-19") pandemic and the mitigation efforts by governments to attempt to control its spread have created uncertainties and disruptions in the economic and financial markets. While we are not currently aware of events or circumstances that would require an update to our estimates, judgments or adjustments to the carrying values of our assets or liabilities, these estimates may change as developments occur and we obtain additional information. These future developments are highly uncertain and the outcomes are unpredictable. Actual results may differ from those estimates, and such differences may be material to the financial statements.
Summary of Significant Accounting Policies
With the exception of the following policy, our significant accounting policies are unchanged from those disclosed in Note 2 to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2020.
Revenue Recognition
We license our symbolic intellectual property which includes our patented technologies and database of control codes. 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. We record per-unit-based licenses with minimum guarantees ratably over the license period to which the minimum guarantee relates and any per-unit sales in excess of the minimum guarantee in the period in which the sale occurs. We record licenses with fixed consideration ratably over the license period. Tiered royalties are recorded on a straight-line basis according to the forecasted per-unit fees taking into account the pricing tiers.
9
UNIVERSAL ELECTRONICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2021
(Unaudited)
Recently Adopted Accounting Pronouncements
In December 2019, the FASB issued ASU 2019-12, "Simplifying the Accounting for Income Taxes", which, among other provisions, eliminates certain exceptions to existing guidance related to the approach for intra-period tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. This guidance also requires an entity to reflect the effect of an enacted change in tax laws or rates in its effective income tax rate in the first interim period that includes the enactment date of the new legislation, aligning the timing of recognition of the effects from enacted tax law changes on the effective income tax rate with the effects on deferred income tax assets and liabilities. Under previous guidance, an entity recognized the effects of the enacted tax law change on the effective income tax rate in the period that included the effective date of the tax law. Our adoption on January 1, 2021 did not have a material impact on our consolidated statement of financial position, results of operations and cash flows.
Recent Accounting Updates Not Yet Effective
In March 2020, the FASB issued ASU 2020-04, "Facilitation of the Effects of Reference Rate Reform on Financial Reporting" and in January 2021, the FASB issued ASU 2021-01, "Reference Rate Reform". This guidance is intended to provide temporary optional expedients and exceptions to GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burden related to the expected market transition from the London Interbank Offered Rate ("LIBOR") and other interbank offered rates to alternative reference rates. The amendments in these ASUs are elective and are effective upon issuance for all entities through December 31, 2022. These amendments are not expected to have a material impact on our consolidated statement of financial position, results of operations and cash flows.
Note 2 — Cash and Cash Equivalents
Cash and cash equivalents were held in the following geographic regions:
| (In thousands) | June 30, 2021 | December 31, 2020 | |||||||||
| North America | $ | $ | |||||||||
| People's Republic of China ("PRC") | |||||||||||
| Asia (excluding the PRC) | |||||||||||
| Europe | |||||||||||
| South America | |||||||||||
Total cash and cash equivalents | $ | $ | |||||||||
Note 3 — Revenue and Accounts Receivable, Net
Revenue Details
The pattern of revenue recognition was as follows:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| (In thousands) | 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||
| Goods and services transferred at a point in time | $ | $ | $ | $ | |||||||||||||||||||
| Goods and services transferred over time | |||||||||||||||||||||||
| Net sales | $ | $ | $ | $ | |||||||||||||||||||
10
UNIVERSAL ELECTRONICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2021
(Unaudited)
Our net sales to external customers by geographic area were as follows:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| (In thousands) | 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||
| United States | $ | $ | $ | $ | |||||||||||||||||||
| Asia (excluding PRC) | |||||||||||||||||||||||
| Europe | |||||||||||||||||||||||
| People's Republic of China | |||||||||||||||||||||||
| Latin America | |||||||||||||||||||||||
| Other | |||||||||||||||||||||||
| Total net sales | $ | $ | $ | $ | |||||||||||||||||||
Specific identification of the customer billing location was the basis used for attributing revenues from external customers to geographic areas.
Net sales to the following customers totaled more than 10% of our net sales:
| Three Months Ended June 30, | ||||||||||||||||||||||||||
| 2021 | 2020 | |||||||||||||||||||||||||
| $ (thousands) | % of Net Sales | $ (thousands) | % of Net Sales | |||||||||||||||||||||||
| Comcast Corporation | $ | % | $ | % | ||||||||||||||||||||||
| Daikin Industries Ltd. | $ | % | $ | % | ||||||||||||||||||||||
| Six Months Ended June 30, | ||||||||||||||||||||||||||
| 2021 | 2020 | |||||||||||||||||||||||||
| $ (thousands) | % of Net Sales | $ (thousands) | % of Net Sales | |||||||||||||||||||||||
| Comcast Corporation | $ | % | $ | % | ||||||||||||||||||||||
| Daikin Industries Ltd. | $ | % | $ | (1) | % | (1) | ||||||||||||||||||||
(1)Sales associated with this customer did not total more than 10% of our net sales for the indicated period.
Accounts Receivable, Net
Accounts receivable, net were as follows:
| (In thousands) | June 30, 2021 | December 31, 2020 | |||||||||
| Trade receivables, gross | $ | $ | |||||||||
| Allowance for credit losses | ( | ( | |||||||||
| Allowance for sales returns | ( | ( | |||||||||
| Trade receivables, net | |||||||||||
| Other | |||||||||||
| Accounts receivable, net | $ | $ | |||||||||
11
UNIVERSAL ELECTRONICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2021
(Unaudited)
Allowance for Credit Losses
Changes in the allowance for credit losses were as follows:
| (In thousands) | Six Months Ended June 30, | ||||||||||
| 2021 | 2020 | ||||||||||
| Balance at beginning of period | $ | $ | |||||||||
| Additions to costs and expenses | |||||||||||
| Write-offs/Foreign exchange effects | ( | ( | |||||||||
| Balance at end of period | $ | $ | |||||||||
Trade receivables associated with this significant customer that totaled more than 10% of our accounts receivable, net were as follows:
| June 30, 2021 | December 31, 2020 | ||||||||||||||||||||||
| $ (thousands) | % of Accounts Receivable, Net | $ (thousands) | % of Accounts Receivable, Net | ||||||||||||||||||||
| Comcast Corporation | $ | % | $ | % | |||||||||||||||||||
Note 4 — Inventories and Significant Supplier
Inventories were as follows:
| (In thousands) | June 30, 2021 | December 31, 2020 | |||||||||
| Raw materials | $ | $ | |||||||||
| Components | |||||||||||
| Work in process | |||||||||||
| Finished goods | |||||||||||
| Inventories | $ | $ | |||||||||
Significant Supplier
Purchases from the following supplier totaled more than 10% of our total inventory purchases:
| Three Months Ended June 30, | ||||||||||||||||||||||||||
| 2021 | 2020 | |||||||||||||||||||||||||
| $ (thousands) | % of Total Inventory Purchases | $ (thousands) | % of Total Inventory Purchases | |||||||||||||||||||||||
| Qorvo International Pte Ltd. | $ | % | $ | % | ||||||||||||||||||||||
| Six Months Ended June 30, | ||||||||||||||||||||||||||
| 2021 | 2020 | |||||||||||||||||||||||||
| $ (thousands) | % of Total Inventory Purchases | $ (thousands) | % of Total Inventory Purchases | |||||||||||||||||||||||
| Qorvo International Pte Ltd. | $ | % | $ | % | ||||||||||||||||||||||
12
UNIVERSAL ELECTRONICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2021
(Unaudited)
Note 5 — Long-lived Tangible Assets
Long-lived tangible assets by geographic area, which include property, plant, and equipment, net and operating lease right-of-use assets, were as follows:
| (In thousands) | June 30, 2021 | December 31, 2020 | |||||||||
| United States | $ | $ | |||||||||
| People's Republic of China | |||||||||||
| Mexico | |||||||||||
| All other countries | |||||||||||
| Total long-lived tangible assets | $ | $ | |||||||||
Property, plant, and equipment are shown net of accumulated depreciation of $161.8 million and $154.2 million at June 30, 2021 and December 31, 2020, respectively.
Note 6 — Goodwill and Intangible Assets, Net
Goodwill
Changes in the carrying amount of goodwill were as follows:
| (In thousands) | |||||
Balance at December 31, 2020 | $ | ||||
| Foreign exchange effects | ( | ||||
Balance at June 30, 2021 | $ | ||||
Intangible Assets, Net
The components of intangible assets, net were as follows:
| June 30, 2021 | December 31, 2020 | ||||||||||||||||||||||||||||||||||
| (In thousands) | Gross (1) | Accumulated Amortization (1) | Net | Gross (1) | Accumulated Amortization (1) | Net | |||||||||||||||||||||||||||||
| Capitalized software development costs | $ | $ | ( | $ | $ | $ | $ | ||||||||||||||||||||||||||||
| Customer relationships | ( | ( | |||||||||||||||||||||||||||||||||
| Developed and core technology | ( | ( | |||||||||||||||||||||||||||||||||
| Distribution rights | ( | ( | |||||||||||||||||||||||||||||||||
| Patents | ( | ( | |||||||||||||||||||||||||||||||||
| Trademarks and trade names | ( | ( | |||||||||||||||||||||||||||||||||
| Total intangible assets, net | $ | $ | ( | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||
(1)This table excludes the gross value of fully amortized intangible assets totaling $43.0 million and $42.7 million at June 30, 2021 and December 31, 2020, respectively.
13
UNIVERSAL ELECTRONICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2021
(Unaudited)
Amortization expense is recorded in selling, general and administrative expenses, except amortization expense related to capitalized software development costs, which is recorded in cost of sales. Amortization expense by statement of operations caption was as follows:
| (In thousands) | Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
| Cost of sales | $ | $ | $ | $ | |||||||||||||||||||
| Selling, general and administrative expenses | |||||||||||||||||||||||
| Total amortization expense | $ | $ | $ | $ | |||||||||||||||||||
Estimated future annual amortization expense related to our intangible assets at June 30, 2021, was as follows:
| (In thousands) | |||||
| 2021 (remaining 6 months) | $ | ||||
| 2022 | |||||
| 2023 | |||||
| 2024 | |||||
| 2025 | |||||
| Thereafter | |||||
| Total | $ | ||||
Note 7 — Leases
We have entered into various operating lease agreements for automobiles, offices and manufacturing facilities throughout the world. At June 30, 2021, our operating leases had remaining lease terms of up to 39 years, including any reasonably probable extensions.
Lease balances within our consolidated balance sheet were as follows:
| (In thousands) | June 30, 2021 | December 31, 2020 | |||||||||
| Assets: | |||||||||||
| Operating lease right-of-use assets | $ | $ | |||||||||
| Liabilities: | |||||||||||
| $ | $ | ||||||||||
| Long-term operating lease obligations | |||||||||||
| Total lease liabilities | $ | $ | |||||||||
Operating lease expense, including variable and short-term lease costs, which were insignificant to the total operating lease cash flows and supplemental cash flow information were as follows:
| (In thousands) | Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
| Cost of sales | $ | $ | $ | $ | |||||||||||||||||||
| Selling, general and administrative expenses | |||||||||||||||||||||||
| Total operating lease expense | $ | $ | $ | $ | |||||||||||||||||||
| Operating cash outflows from operating leases | $ | $ | $ | $ | |||||||||||||||||||
| Operating lease right-of-use assets obtained in exchange for lease obligations | $ | $ | $ | $ | |||||||||||||||||||
Non-cash release of operating lease obligations (1) | $ | $ | $ | $ | |||||||||||||||||||
(1)During the six months ended June 30, 2021, we were released from our guarantee of the lease obligation related to our Ohio call center which was sold in February 2020.
14
UNIVERSAL ELECTRONICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2021
(Unaudited)
The weighted average remaining lease liability term and the weighted average discount rate were as follows:
| June 30, 2021 | December 31, 2020 | ||||||||||
| Weighted average lease liability term (in years) | |||||||||||
| Weighted average discount rate | % | % | |||||||||
The following table reconciles the undiscounted cash flows for each of the first five years and thereafter to the operating lease liabilities recognized in our consolidated balance sheet at June 30, 2021. The reconciliation excludes short-term leases that are not recorded on the balance sheet.
| (In thousands) | June 30, 2021 | ||||
| 2021 (remaining 6 months) | $ | ||||
| 2022 | |||||
| 2023 | |||||
| 2024 | |||||
| 2025 | |||||
| Thereafter | |||||
| Total lease payments | |||||
| Less: imputed interest | ( | ||||
| Total lease liabilities | $ | ||||
At June 30, 2021, we had four operating leases with four-year terms that had not yet commenced. The total initial lease liability, which is immaterial to the balance sheet, is not reflected within the above maturity schedule.
Note 8 — Line of Credit
Our Second Amended and Restated Credit Agreement ("Second Amended Credit Agreement") with U.S. Bank National Association ("U.S. Bank") provides for a $125.0 million revolving line of credit ("Credit Line") that expires on November 1, 2022. The Credit Line may be used for working capital and other general corporate purposes including acquisitions, share repurchases and capital expenditures. Amounts available for borrowing under the Credit Line are reduced by the balance of any outstanding letters of credit, of which there were $2.7
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 rates in effect at June 30, 2021 and December 31, 2020 were 1.35 % and 1.39 %, respectively. There are no commitment fees or unused line fees under the Second Amended Credit Agreement.
On December 31, 2021, the process of cessation of LIBOR as a reference rate will begin. LIBOR may continue to be used for new and existing borrowings on the Credit Line through December 31, 2021. After that date, new borrowings will no longer use LIBOR as a reference rate. Instead, these borrowings will be subject to an interest rate based on either the Secured Overnight Financing Rate ("SOFR"), which is deemed a replacement benchmark for LIBOR under the Second Amended Credit Agreement, or an alternate index to be agreed upon. Between December 31, 2021 and June 30, 2023, any legacy borrowings may continue to use LIBOR as the basis for interest rates. After June 30, 2023, all borrowings will be based on SOFR or the alternate index.
15
UNIVERSAL ELECTRONICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2021
(Unaudited)
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. At June 30, 2021, we were in compliance with the covenants and conditions of the Second Amended Credit Agreement.
At June 30, 2021 and December 31, 2020, we had $46.0 million and $20.0 million outstanding under the Credit Line, respectively. Our total interest expense on borrowings was $