What changed in this filing

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Item 7. Management’s Discussion and Analysis

2022-02-23 compared with 2021-02-22 · 57 added, 70 removed, 117 unchanged (52% of the section changed)

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Cost of Goods Sold 64.2 64.1 63.0 2.7 (7.5)

Gross Profit 35.9 37.0 37.6 (12.0) (0.3)

Gross Margin 35.8 35.9 37.0 2.4 (12.0)

Operating Expenses:

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Results of Operations:

In 2021, the Company's net sales increased by $43.0 million, or 3% compared to the prior year.

Net sales for 2021 were negatively impacted by lower than forecasted global vehicle production rates for calendar year 2021, which declined 3% on a year over year basis.

The increase in the Company's sales was primarily driven by a 9% year over year increase in automatic-dimming mirror shipments, from 38.2 million units in 2020 to 41.8 million units in 2021, despite the electronics components shortages impacting the Company's ability to meet customer demand for Full Display Mirror ® (FDM), Integrated Toll Module (ITM), and other advanced feature shipments.

Other net sales for calendar year 2021 were $34.0 million, compared to Other net sales of $40.0 million in calendar year 2020.

Fire protection sales increased by 10% year over year, while dimmable aircraft windows were down 48% in 2021 compared to calendar year 2020.

The Company expects that dimmable aircraft window sales will continue to be impacted until there is a more meaningful recovery of the aerospace industry and the Boeing 787 production levels improve.

Cost of Goods Sold.

As a percentage of net sales, cost of goods sold increased from 64.1% in 2020 to 64.2% in 2021.

The year over year decrease in the gross margin was primarily the result of annual customer price reductions and freight related cost increases, which were mostly offset by purchasing cost reductions and product mix improvement over 2020.

On a year over year basis, annual customer price reductions and freight related cost increases each had a negative impact of approximately 100 - 150 basis points on gross margin.

Purchasing cost reductions and product mix improvements in 2021 versus 2020 each independently had a positive impact on gross margin on a year over year basis of approximately 50 - 100 basis points.

Operating Expenses.

Engineering, research and development expenses ("E, R & D") increased by $1.8 million or 2% from 2020 to 2021, but remained at 7% of net sales.

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

Selling, general and administrative ("S, G & A") expenses increased by $2.2 million or 2% from 2020 to 2021, but remained at 5% of net sales.

The primary reason for the increase in S, G & A from 2020 to 2021 was due to wages and benefits, other resources associated with mitigation of the impacts of the global COVID-19 pandemic, and increased legal and professional fees.

Total Other Income/(Expense).

Investment income decreased $3.4 million to $3.6 million for 2021 compared to $7.0 million for 2020 primarily due to decreases in interest income from fixed income investments.

Other income – net decreased $2.3 million in 2021 versus 2020, primarily due to decreases in gains on sales of debt investments on a year over year basis, as well as gains recognized in 2020 on initial investments that were fully acquired during 2020.

The effective tax rate was 13.3% for year ended December 31, 2021 compared to 15.6% for the prior year.

The effective tax rates in 2021 and 2020 differed from the statutory federal income tax rate, primarily due to the Foreign Derived Intangible Income Deduction, research and development tax credits and discrete benefits from stock based compensation.

Net income increased by $13.2 million, or 4% year over year, primarily due to the 3% increase in revenue on a year over year basis, as well as the decrease in the effective tax rate.

Results of Operations:

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

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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.

The year over year decrease in the gross 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 margin.

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

Operating Expenses.

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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.

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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 year over year basis;

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

Despite these negative impacts, automotive net sales increased as a result of a 3% increase in automatic-dimming mirror shipments, from 41.6 million units in 2018 to 42.9 million units in 2019, due more so to growth within the Company's domestic market than its international markets.

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 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 is 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.

These negative impacts were partially offset by the impact of purchasing cost reductions and product mix impacts that independently impacted cost of goods sold as a percentage of net sales by approximately 75 - 150 basis points.

Operating Expenses.

Engineering, research and development expenses increased by $7.6 million or 7% from 2018 to 2019, 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 $9.9 million or 13% from 2018 to 2019, representing 5% of net sales in 2019 versus 4% of net sales in 2018.

The primary reason for the increase from 2018 to 2019 was due to increased staffing levels, travel expenses, and professional fees.

Total Other Income/(Expense).

Investment income remained at $11.2 million for 2019 compared to 2018.

Other income – net decreased $2.0 million in 2019 versus 2018, primarily due to a decrease in gains on sales of debt investments on a year over year basis.

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

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.

Liquidity and Capital Resources

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 financial condition throughout the periods presented has remained very strong, notwithstanding a 3% decline in light vehicle production in the Company's primary markets from 2020 to 2021 and a 16% decline from 2019 to 2020.

The Company's cash and cash equivalents were $262.3 million, $423.4 million and $296.3 million as of December 31, 2021, 2020 and 2019, respectively.

The Company's cash and cash equivalents include amounts held by foreign subsidiaries of $10.7 million, $7.4 million and $8.5 million as of December 31, 2021, 2020 and 2019, 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 was 4.8 as of December 31, 2021 and was 5.5 as of December 31, 2020 and 2019.

Cash flow from operating activities was $362.2 million, $464.5 million and $506.0 million for the years ended December 31, 2021, 2020 and 2019, respectively.

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.

Cash flow from operating activities decreased $102.3 million for the year ended December 31, 2021 compared to the prior year, primarily due to changes in working capital and deferred taxes, which were partially offset by the increase in net income.

Cash flow from operating activities decreased $41.5 million for the year ended December 31, 2020 compared to the same period in 2019, primarily due to decreased net income driven from the impacts of COVID-19 pandemic and related shutdowns.

Cash flow used for investing activities for the year ended December 31, 2021 increased by $139.5 million to $113.1 million, compared with cash flow provided by investing activities of $26.4 million, for the year ended December 31, 2020, primarily due to increased investment purchases of fixed income investments during the year.

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

Capital expenditures were $68.8 million, $51.7 million, and $84.6 million for the years ended December 31, 2021, 2020, and 2019, respectively.

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.

Capital expenditures for the year ended December 31, 2021 increased by $17.1 million compared with the year ended December 31, 2020 primarily due to an increase in production equipment purchases.

Capital expenditures for the year ended December 31, 2020 decreased by $32.9 million for the year ended December 31, 2019 as a result of cost cutting initiatives and financial discipline in light of the COVID-19 pandemic.

Cash flow used for financing activities for the year ended December 31, 2021, increased $46.3 million to $410.1 million, compared to $363.9 million for the year ended December 31, 2020, primarily due to an increase in the amount of shares of common stock repurchased which totaled $324.6 million during the calendar year 2021 as compared to $288.5 million during the calendar year 2020.

Cash flow used for financing activities for the year ended December 31, 2020, decreased $6.1 million to $363.9 million compared to 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.

Short-term investments as of December 31, 2021 were $5.4 million, down from $27.2 million as of December 31, 2020 and long-term investments were $207.7 million as of December 31, 2021, up from $162.0 million as of December 31, 2020, due to changes in the Company's overall investment portfolio.

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.

Accounts receivable as of December 31, 2021 decreased $35.1 million compared to December 31, 2020, primarily due to the timing of sales within those years.

Inventories as of December 31, 2021, increased $90.0 million compared to December 31, 2020, primarily due to increased raw material inventory levels.

Intangible Assets, net as of December 31, 2021 decreased $10.6 million compared to December 31, 2020, 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 No t e 1 2 to the Consolidated Financial Statements.

Accounts payable as of December 31, 2021, increased $13.6 million compared to December 31, 2020, 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.

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Total $ 899,012,796 $ 963,621,775 $ 918,439,415

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.

The decrease in working capital as of December 31, 2021 compared to December 31, 2020 is primarily due to decreases in cash flow from operations, as well as additional share repurchases.

The increase in working capital as of December 31, 2020 compared to 2019 is primarily due to increased 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.

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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.

The Company continues to see order rates and booked business that allow for these estimates with an expected vehicle production increase in 2022, as well as an increase in 2023 compared to 2022.

Continuing uncertainties, including:

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

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

light vehicle production levels;

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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.

The Company is estimating that the gross margin will be between 35% and 36% for calendar year 2022.

Historically, annual customer price reductions have placed significant pressure on gross margin on an annual basis.

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.

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.

Given the current revenue forecast and projected product mix for 2022, the Company hopes it may be able to offset certain raw material cost increases, as well as labor related cost increases with lower than historical annual customer price reductions and and improved operational efficiencies, but there is no certainty of being able to do so.

The Company also currently estimates that its operating expenses, which include E, R & D and S, G & A, are expected to be between $230 and $240 million for calendar year 2022, 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 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.

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.

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

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

Based on current light vehicle production forecasts, and the resultant forecast our automatic-dimming mirrors and electronics, the Company currently anticipates that 2022 capital expenditures will be between $150 and $175 million, a majority of which will be production equipment purchases but also includes an estimated $60 - 65 million

in construction costs related to the construction of a new 345,000 square foot manufacturing facility, which began in January 2022.

Capital expenditures for calendar year 2022 are currently anticipated to be financed from current cash and cash equivalents on hand and cash flows from operating activities.

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and other factors that the Company deems appropriate.

The Company is also providing top line revenue guidance for calendar year 2022.

The Company is also providing top line revenue guidance for calendar year 2023, taking into account anticipated increases in light vehicle production in 2023 compared to 2022.

IHS Markit current forecasts for light vehicle production for calendar year 2023 are approximately 17.2 million units for North America, 20.1 million units for Europe, 11.9 million units for Japan and Korea, and 27.4 million units for China.

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sales are invoiced and paid in U.S.

during calendar year 2020, approximately 7% of the Company’s net sales were invoiced and paid in foreign currencies (compared to 7% for calendar year 2019 and 8% for calendar year 2018).

During calendar year 2021, approximately 8% of the Company’s net sales were invoiced and paid in foreign currencies (compared to 7% for calendar years 2020 and 2019).

The Company currently expects that approximately 7-9% of the Company’s net sales in calendar year 2022 will be invoiced and paid in foreign currencies.

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The Company does not have any significant off-balance sheet arrangements or commitments that have not been recorded in its Consolidated Financial Statements.

See the Contractual Obligations and Other Commitments below.

Contractual Obligations and Other Commitments

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

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

Operating leases 3.2 1.7 1.5 — —

Purchase obligations 146.4 146.4 — — —

Dividends payable 29.2 29.2 — — —

Total 178.8 177.3 1.5

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

Significant Accounting Policies and Critical Accounting Estimates

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The Company generally receives purchase orders from customers on an annual basis.

Typically, such purchase order provide the annual terms, including pricing, related to a particular vehicle model.

Typically, such purchase orders provide the annual terms, including pricing, related to a particular vehicle model.

Purchase orders generally do not specify quantities.

The Company recognizes revenue based on the pricing terms included in our annual purchase orders.

The Company recognizes revenue based on the pricing terms included in such annual purchase orders.

As part of certain agreements, entered into in the ordinary course of business, the Company is asked to provide customers with annual price reductions.

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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