What changed in this filing

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Item 7. Management’s Discussion and Analysis

2021-02-22 compared with 2020-02-26 · 67 added, 58 removed, 120 unchanged (51% of the section changed)

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The following table sets forth for the periods indicated certain items from the Company’s Consolidated Statements of Income expressed as a percentage of net sales and the percentage change in the dollar amount of each such item from that in the indicated previous year.

Percentage of Net Sales

Percentage Change

Year Ended December 31,

Percentage of Net Sales Percentage Change

Year Ended December 31, Vs Vs

2020 2019 2018 2019 2018

Net Sales 100.0 % 100.0 % 100.0 % (9.2) % 1.4 %

Cost of Goods Sold 64.1 63.0 62.4 (7.5) 2.4

Gross Profit 35.9 37.0 37.6 (12.0) (0.3)

Operating Expenses:

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Total Operating Expenses:

12.2 10.7 9.9 3.1 9.6

Operating Income 23.7 26.3 27.7 (18.2) (3.9)

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Provision for Income Taxes 3.8 4.1 4.6 (15.2) (10.0)

Net Income 20.6 % 22.8 % 23.9 % (18.2) % (3.0) %

Results of Operations:

In 2020, Company net sales decreased by $170.7 million, or 9% compared to the prior year.

Net sales for 2020 were negatively impacted by lower than forecasted global vehicle production rates for calendar year 2020, which were down 16% on a year over year basis.

The reduction in global light vehicle production and the Company's sales was impacted primarily a result of the global shutdowns as a result of the COVID-19 pandemic, which primarily impacted the Company in the second quarter of 2020.

Automotive net sales decreased as a result of an 11% decrease in automatic-dimming mirror shipments, from 42.9 million units in 2019 to 38.2 million units in 2020.

Other net sales decreased 17% to $40.0 million compared to the prior year, as dimmable aircraft window sales decreased 30% year over year and fire protection saw a decrease in net sales of 4% year over year.

Dimmable aircraft window sales were impacted by production challenges the Company's customer faced.

Cost of Goods Sold.

As a percentage of net sales, cost of goods sold increased from 63.0% in 2019 to 64.1% in 2020.

The year over year decrease in the gross profit margin was primarily the result of the Company's inability to leverage fixed overhead during the second quarter of 2020 as a result of COVID-19 related shutdowns and decreases in demand, as well as annual customer price reductions, which were partially offset by improvements in product mix related to Full Display Mirror ® as well as purchasing cost reductions and structural cost reductions.

On a year over year basis, the inability to leverage fixed overhead and annual customer price reductions each had a negative impact of approximately 150 - 250 basis points on gross profit margin.

Purchasing cost reductions, product mix improvements, and structural cost reductions each independently had a positive impact on gross profit margin on a period over period basis of approximately 50 - 100 basis points.

Operating Expenses.

Engineering, research and development expenses increased by $1.2 million or 1% from 2019 to 2020, representing 7% of net sales in 2020 versus 6% of net sales in 2019.

E, R & D increased, primarily due to certain severance related costs incurred in the second quarter of 2020, which were partially offset by lower overall expense levels as a result of the COVID-19 pandemic.

Selling, general and administrative expenses increased by $4.9 million or 6% from 2019 to 2020, but remained at 5% of net sales.

The primary reason for the increase from 2019 to 2020 was due to severance related costs, wages and benefits, other resources associated with mitigation of the impacts of the global COVID-19 pandemic, and increased legal and professional fees associated with acquisitions of new technology described in Note 12 of the Consolidated Financial Statements.

Total Other Income/(Expense).

Investment income decreased $4.2 million to $7.0 million for 2020 compared to $11.2 million for 2019 primarily due to decreases in interest income from fixed income investments.

Other income – net increased $4.6 million in 2020 versus 2019, primarily due to an increase in gains on sales of debt investments on a year over year basis, as well as gains recognized on initial investments that were fully acquired during 2020, as further described in Note 12 of the Consolidated Financial Statements.

The effective tax rate was 15.6% for year ended December 31, 2020 compared to 15.1% the prior year.

The effective tax rates in 2020 and 2019 differed from the statutory federal income tax rate, primarily due to the Foreign Derived Intangible Income Deduction.

Net income decreased by $77.1 million, or 18% year over year, primarily driven by the lower sales levels coming from the COVID-19 related shutdowns.

Results of Operations:

In 2019, Company net sales increased by $24.8 million, or 1% compared to the prior year.

Net sales for 2019 were negatively impacted by:

lower than forecasted global vehicle production rates for calendar year 2019, which were down 6% on a a year over year basis;

lower than forecasted global vehicle production rates for calendar year 2019, which were down 6% on a year over year basis;

and by approximately 1% from the strike at General Motors which occurred in the fourth quarter of 2019.

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North American automotive mirror shipments increased 8% in 2019 when compared with the prior year, primarily due to increased penetration of exterior automatic-dimming mirrors.

Other net sales increased 13% to $48.4 million compared to the prior year, as dimmable aircraft window sales increased 19% year over year and fire protection saw an increase in net sales of 7% year over year.

Other net sales increase 13% to $48.4 million compared to the prior year, as dimmable aircraft window sales increased 19% year over year, and fire protection saw an increase in net sales of 7% year over year.

Cost of Goods Sold.

As a percentage of net sales, cost of goods sold increased from 62.4% in 2018 to 63.0% in 2019, primarily due to annual customer price reductions that were not fully offset with purchasing cost reductions, as well as an increase in costs related to tariffs.

Annual price reductions and tariffs independently impacted cost of goods sold as a percentage of net sales by approximately 75 - 200 basis points.

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The effective tax rate was 15.1% for year ended December 31, 2019 compared to 16.1% the prior year.

The effective tax rates in 2019 and 2018 differed from the statutory federal income tax rate, primarily due to the Foreign Derived Intangible Income Deduction.

In 2019, the effective tax rate differed from the statutory federal income tax rate also primarily due to the Foreign Derived Intangible Income Deduction.

The effective tax rate in 2019 and 2018 differed from the statutory federal income tax rate, primarily due to the Foreign Derived Intangible Income Deduction.

The decrease in the effective tax rate year over year primarily relates to increase in the benefits derived from the Foreign Derived Intangible Income Deduction, Research & Development Credit and Stock Compensation Expense.

Net income decreased by $13.2 million, or 3% year over year, primarily due to the decrease in gross margin and increases in operating expenses primarily related to increased staffing levels.

Results of Operations:

In 2018, Company net sales increased by $39.2 million, or 2% compared to the prior year.

Automotive net sales increased due to a 6% increase in automatic-dimming mirror shipments, from 39.3 million units in 2017 to 41.6 million units in 2018, primarily reflecting increased overall penetration of automatic-dimming mirrors, primarily within the Company's international markets.

International automotive mirror unit shipments increased 7% in 2018 when compared with the prior year, primarily due to increased penetration of both interior and exterior automatic dimming mirrors to certain European and Japanese automakers.

Other net sales increase 17% to $42.9 million compared to the prior year, as dimmable aircraft window sales increased 16% year over year, and fire protection saw an increase in net sales of 8% year over year.

Cost of Goods Sold.

As a percentage of net sales, cost of goods sold increased from 61.3% in 2017 to 62.4% in 2018, primarily due to annual customer price reductions that were not fully offset with purchasing cost reductions, as well as the Company's inability to leverage fixed overhead costs due to lower than expected sales levels.

Annual price reductions and fixed overhead costs independently impacted cost of goods sold as a percentage of net sales by approximately 75 - 150 basis points.

These negative impacts were partially offset by the impact of purchasing cost reductions of 50 - 75 basis points.

Operating Expenses.

Engineering, research and development expenses increased by $7.4 million or 7% from 2017 to 2018, but remained at 6% of net sales.

E, R & D increased, primarily due to increased staffing levels which continue to support growth and launch of new business as well as development of new products.

Selling, general and administrative expenses increased by $3.8 million or 5% from 2017 to 2018, but remained at 4% of net sales.

The primary reason for the increase from 2017 to 2018 was due to increased staffing levels and travel expenses.

Total Other Income/(Expense).

Investment income increased $1.8 million in 2018 versus 2017, primarily due to higher interest rates available for the Company's investable funds.

Other income – net increased $3.7 million in 2018 versus 2017, primarily due to decreased interest expense associated with the Company's debt financing, as discussed further in Note 2 of the Consolidated Financial Statements.

The effective tax rate was 16.1% for year ended December 31, 2018 compared to 23.5% the prior year.

The effective tax rate in 2017 and 2018 differed from the statutory federal income tax rate, primarily due to the domestic manufacturing deduction as well as the re-measurement of net deferred tax liabilities as a result of the Tax Cuts and Jobs Act of 2017 ("Act").

In 2018, the effective tax rate differed from the new statutory federal income tax rate primarily due to the Foreign Derived Intangible Income Deduction.

The decrease in the effective tax rate in 2018 from the prior year was due to the change in statutory tax rate as passed in the Act to 21% from 35%.

Net income increased by $31.1 million, or 8% year over year, primarily due to the lower effective tax rate on a year over year basis.

Liquidity and Capital Resources

The Company’s financial condition throughout the periods presented has remained very strong, in spite of a 6% decline in global light vehicle production from 2018 to 2019.

The Company’s financial condition throughout the periods presented has remained very strong, in spite of a 16% decline in global light vehicle production from 2019 to 2020 and a 6% decline from 2018 to 2019.

The Company's cash and cash equivalents were $423.4 million, $296.3 million and $217.0 million as of December 31, 2020, 2019 and 2018, respectively.

The Company's cash and cash equivalents include amounts held by foreign subsidiaries of $7.4 million, $8.5 million and $8.3 million as of December 31, 2020, 2019 and 2018, respectively.

The Company's current ratio remained consistent at 5.5 as of December 31, 2019 and December 31, 2020.

The Company's current ratio increased from 5.0 as of December 31, 2018, to 5.5 as of December 31, 2019, reflecting the increase in working capital.

The Company's current ratio increased from 4.9 as of December 31, 2017, to 5.0 as of December 31, 2018, reflecting the repayment of $78 million of the Company's long term debt, that was offset by share repurchases discussed herein.

Cash flow from operating activities was $464.5 million, $506.0 million and $552.4 million for the years ended December 31, 2020, 2019 and 2018, respectively.

Cash flow from operating activities decreased $46.5 million for the year ended December 31, 2019 compared to the prior year, primarily due to decreased net income and changes in working capital.

Cash flow from operating activities increased $51.4 million for the year ended December 31, 2018 compared to the same period in 2017, primarily due to increased net income which was partially offset by changes in working capital.

Cash flow used for investing activities for the year ended December 31, 2019 decreased by $129.1 million to $56.7 million , compared with $185.8 million , for the year ended December 31, 2018, primarily due to decreased investment purchases, which was partially offset by a decrease in fixed income investment maturities during the year.

Cash flow used for investing activities for the year ended December 31, 2018 increased by $108.1 million to $185.8 million, compared to the year ended December 31, 2017, primarily due to increased investment purchases during the year.

Cash flow from operating activities decreased $41.5 million for the year ended December 31, 2020 compared to the prior year, primarily due to decreased net income driven from the impacts of the COVID-19 pandemic and related shutdowns.

The reduction in net income was partially offset by changes in working capital.

Cash flow from operating activities decreased $46.5 million for the year ended December 31, 2019 compared to the same period in 2018, primarily due to decreased net income and changes in working capital.

Cash flow provided by investing activities for the year ended December 31, 2020 increased by $83.1 million to $26.4 million, compared with cash flow used for investing activities of $56.7 million, for the year ended December 31, 2019, primarily due to decreased investment purchases and additional maturities of fixed income investments during the year.

Cash flow used for investing activities for the year ended December 31, 2019 decreased by $129.1 million to $56.7 million, compared to the year ended December 31, 2018, primarily due to decreased investment purchases, which was partially offset by a decrease in fixed income investment maturities during the year.

Capital expenditures were $51.7 million, $84.6 million, and $86.0 million for the years ended December 31, 2020, 2019, and 2018, respectively.

Capital expenditures for the year ended 2019 remained consistent with the year ended 2018, however, capital expenditures decreased by $18.0 million for the year ended December 31, 2018 compared to the prior year primarily due to decreases in production equipment purchases and building related costs.

Capital expenditures for the year ended 2020 decreased by $32.9 million compared with the year ended 2019 as a result of cost cutting initiatives and financial discipline in light of the COVID-19 pandemic.

Capital expenditures for the year ended 2019 remained consistent with the year ended 2018.

Cash flow used for financing activities for the year ended December 31, 2020, decreased $6.1 million to $363.9 million, compared to $370.0 million for the year ended December 31, 2019, primarily due to a reduction in the amount of shares of common stock repurchased which totaled $288.5 million during the calendar year 2020 as compared to $331.5 million during the calendar year 2019.

Cash flow used for financing activities for the year ended December 31, 2019, decreased $349.3 million to $370.0 million compared to the year ended December 31, 2018, primarily due to a reduction in the amount of shares of common stock repurchased which totaled $331.5 million during the calendar year 2019 as compared to $591.6 million during the calendar year 2018.

Cash flow used for financing activities for the year ended December 31, 2018, increased $319.3 million to $719.3 million compared to the year ended December 31, 2017, primarily due to repurchases of common stock of $591.6 million during the calendar year 2018 compared to $231.4 million during the calendar year 2017.

Short-term investments as of December 31, 2020 were $27.2 million, down from $140.4 million as of December 31, 2019 and long-term investments were $162.0 million as of December 31, 2020, up from $139.9 million as of December 31, 2019, due to changes in the Company's overall investment portfolio.

Accounts receivable as of December 31, 2019 increased $21.9 million compared to December 31, 2018 , primarily due to the timing of sales within each of the comparable periods.

Inventories as of December 31, 2019 , increased $23.7 million compared to December 31, 2018 , primarily due to increased raw material inventory levels to support first quarter 2020 production and sales forecasts, as well as higher levels of component inventory with longer lead-times.

Intangible Assets, net as of December 31, 2019 decreased $19.3 million compared to December 31, 2018 , due to the amortization of definite lived intangible assets and patents, discussed further in in Note 10 to the Consolidated Financial Statements.

Accounts payable as of December 31, 2019 , increased $4.7 million compared to December 31, 2018 , primarily due the timing of inventory and capital expenditure payments.

f the Consolidated Financial Statements, in addition to internally generated cash flow, to be sufficient to cover anticipated cash needs for the foreseeable future considering its contractual obligations and commitments.

Accounts receivable as of December 31, 2020 increased $49.5 million compared to December 31, 2019, primarily due to the timing of sales within those years.

Inventories as of December 31, 2020, decreased $22.7 million compared to December 31, 2019, primarily due to decreased raw material inventory levels as a result of relatively high levels of production during the fourth quarter 2020.

Intangible Assets, net as of December 31, 2020 decreased $0.6 million compared to December 31, 2019, due to the amortization of definite lived intangible assets and patents, which was offset by acquisitions of additional intangible assets during the year, which is discussed further in Note 10 and Note 12 to the Consolidated Financial Statements.

Accounts payable as of December 31, 2020, decreased $12.8 million compared to December 31, 2019, primarily due the timing of inventory and capital expenditure payments.

Management considers the Company’s current working capital and long-term investments, as well as its existing credit financing arrangement (notwithstanding covenants prohibiting additional indebtedness), discussed further in Note 2 of the Consolidated Financial Statements, in addition to internally generated cash flow, to be sufficient to cover anticipated cash needs for the foreseeable future considering its contractual obligations and commitments.

The following is a summary of working capital and long-term investments:

2020 2019 2018

Working Capital $ 801,593,707 $ 778,530,092 $ 681,769,335

Long Term Investments 162,028,068 139,909,323 137,979,082

The increase in working capital as of December 31, 2019 is primarily due to cash flow from operations, which was partially offset by share repurchases, dividend payments and capital expenditures.

The decrease in working capital as of December 31, 2018 compared to December 31, 2017 is primarily due to increased share repurchases, dividend payments and capital expenditures, which in combination were more than provided by cash flow from operations.

Total $ 963,621,775 $ 918,439,415 $ 819,748,417

The increase in working capital as of December 31, 2020 compared to 2019, as well as the increase as of December 31, 2019 compared to 2018, is primarily due to cash flow from operations, which was partially offset by share repurchases, dividend payments and capital expenditures.

Please refer to Part II, Item 5 , with regard to the Company's previously announced share repurchase plan.

The Company utilizes the light vehicle production forecasting services of IHS Markit.

IHS Markit current forecasts for light vehicle production for calendar year 2020 are approximately 16.5 million units for North America, 20.7 million units for Europe, 12.9 million units for Japan and Korea, and 24.4 million units for China.

The Company currently estimates that top line revenue for calendar year 2020 will be between $1.91 and $2.0 billion.

All estimates are based on light vehicle production forecasts in the primary regions to which the Company ships product, as well as the estimated option rates for its mirrors on prospective vehicle models and anticipated product mix.

The Company continues to see order rates and booked business that allow for these estimates an expected vehicle production decrease in 2020 and only a modest increase in 2021 compared to 2020.

The IHS Markit mid-January 2021 forecast for light vehicle production for calendar year 2021 are approximately 16.3 million units for North America, 19.0 million units for Europe, 12.0 million units for Japan and Korea, and 25.1 million units for China.

Based on the foregoing, the Company estimates that top line revenue for calendar year 2021 will be between $1.94 and $2.02 billion.

All estimates are based on light vehicle production forecasts in the primary regions to which the Company ships product, as well as the estimated option rates for its mirrors and electronics on prospective vehicle models and anticipated product mix.

The Company continues to see order rates and booked business that allow for these estimates with an expected vehicle production increase in 2021 as well as a modest increase in 2022 compared to 2021.

Continuing uncertainties, including:

impacts of the COVID-19 pandemic on economic and industry conditions, including impacts on our customers and supply chain;

light vehicle production levels;

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sales rates in Europe, Asia and North America;

challenging macroeconomic and geopolitical environments, including tariffs;

challenging macroeconomic and geopolitical environments, including tariffs and potential tax law changes;

OEM strategies and cost pressures;

customer inventory management and the impact of potential automotive customer (including their Tier 1 suppliers) and supplier bankruptcies;

work stoppages, coronavirus, strikes, etc., which could disrupt shipments to these customers, make forecasting difficult.

work stoppages, strikes, etc., which could disrupt shipments to these customers, make forecasting difficult.

The Company is estimating that the gross profit margin will be between 39% and 40% for calendar year 2021.

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Given the current revenue forecast and projected product mix for 2021, the Company hopes it may be able to offset certain annual customer price reductions with purchasing cost reductions and operational efficiencies, but there is no certainty of being able to do so.

The Company also currently estimates that its operating expenses, which include engineering, research and development expenses and selling, general and administrative expenses, are expected to be between $205 and $215 million for calendar year 2020, due in part to increased staffing levels which continue to support growth and launch of new business as well as development of new products.

During calendar year 2020, the Company made structural cost reductions of approximately $35 million on an annualized basis.

Approximately 60% of these costs flow through cost of goods sold and have improved the Company's gross profit margin from recent historical levels.

The Company also currently estimates that its operating expenses, which include engineering, research and development expenses and selling, general and administrative expenses, are expected to be between $210 and $220 million for calendar year 2021, due in part to continued investments that support growth and launch of new business as well as development of new products, which are primarily staffing related.

The Company continues to invest heavily in technology directed at funding the development of its current product portfolio and create iterations of those products that help keep its products new and attractive to our customers.

In addition, the Company has been investing heavily in the next wave of innovation, many of which were shown for the first time in 2020, and included new products for automotive, aerospace and developments in intelligent medical lighting.

In addition, the Company has been investing heavily in the next wave of innovation, many of which were shown for the first time in 2020 and 2021, and included new products for automotive, aerospace and developments in intelligent medical lighting.

The Company is a technology leader in the automotive industry, with a focus on developing uniquely designed solutions that are highly proprietary.

The Company continues to make investments intended to maintain a competitive advantage in its current market as well as to use its core competencies to develop products that are applicable in other markets.

In light of on-going demand for our automatic-dimming mirrors and electronics, the Company currently anticipates that 2020 capital expenditures will be between $85 and $95 million, a majority of which will be production equipment purchases.

Based on current light vehicle production forecasts, and the resultant forecast our automatic-dimming mirrors and electronics, the Company currently anticipates that 2021 capital expenditures will be between $85 and $95 million, a majority of which will be production equipment purchases.

Capital expenditures for calendar year 2021 are currently anticipated to be financed from current cash and cash equivalents on hand and cash flows from operating activities.

The Company also estimates that depreciation and amortization expense for calendar year 2021 will be between $105 and $110 million.

The Company is further estimating that its tax rate will be between 15.0% and 17.0% for calendar year 2020.

The Company is further estimating that its tax rate will be between 16.0% and 18.0% for calendar year 2021 based on the current statutory rates.

In accordance with its previously announced share repurchase plan and capital allocation strategy, the Company intends to continue to repurchase additional shares of its common stock in 2021 and into the future depending on a number of factors, including:

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The Company had the following contractual obligations and other commitments (in millions) as of December 31, 2020.

Less than 1 Year

More than 5 Years

Total Less than 1 Year 1-3 Years 3-5 Years More than 5 Years

Operating leases 3.2 1.7 1.5 — —

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Dividends payable 29.2 29.2 — — —

Total 178.8 177.3 1.5

Purchase obligations are primarily for raw material inventory and capital equipment.

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

What changed 10-K

Item 7. Management’s Discussion and Analysis