What changed in this filing

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Item 7. Management’s Discussion and Analysis

2023-02-22 compared with 2022-02-23 · 71 added, 63 removed, 111 unchanged (55% of the section changed)

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In 2022, the Company's net sales increased by $187.8 million, or 11% compared to the prior year.

Light vehicle production in 2022 increased by 3% when compared to 2021 in the Company's primary markets, but total revenue for the year outperformed the underlying market by 8% despite the many supply chain challenges and customer order volatility encountered during the year.

The increase in the Company's sales was primarily driven by a 6% year over year increase in automatic-dimming mirror shipments, from 41.8 million units in 2021 to 44.2 million units in 2022.

Other net sales for calendar year 2022 were $44.2 million, compared to Other net sales of $34.0 million in calendar year 2021.

Fire protection sales in 2022 increased by 53% year over year, while dimmable aircraft windows were down 33% in 2022 compared to calendar year 2021.

The Company expects that dimmable aircraft window sales will continue to be impacted until there is a 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 64.2% in 2021 to 68.2% in 2022.

The year over year decrease in the gross margin was primarily the result of increased raw material costs, increased manufacturing costs, higher freight and logistics costs, and certain previously agreed to annual customer price reductions.

On a year over year basis, increased raw material costs had a negative impact of approximately 250 - 300 basis points on gross margin.

Manufacturing cost increases, freight and logistics cost increases, and annual customer price reductions each independently had a negative impact of approximately 50 - 100 basis points on gross margin on a year over year basis.

Operating Expenses.

Engineering, research and development expenses ("E, R & D") increased by $15.5 million or 13% from 2021 to 2022, but remained at 7% of net sales.

E, R & D increased primarily due to additional staffing, professional fees, new product development, and the ongoing product re-designs necessary to mitigate electronics part shortages.

Selling, general and administrative ("S, G & A") expenses increased by $14.3 million or 16% from 2021 to 2022, which represents 6% of net sales in 2022 compared to 5% in 2021.

The primary reason for the increase in S, G & A from 2021 to 2022 was primarily due to staffing, increases in outbound freight expenses, and the return of in-person

customer meetings and trade show related expenses.

S, G & A expenses were also impacted on a year over year basis by the $4.0 million settlement with the SEC that was accrued for in the second and third quarters of 2022, and the related legal and professional fees.

See It em 3, Part I .

Total Other Income/(Expense).

Investment income increased $1.2 million to $4.8 million for 2022 compared to $3.6 million for 2021 primarily due to increases in interest income from fixed income investments.

Other income – net decreased $8.1 million in 2022 versus 2021, primarily due to additional losses on sales of debt investments on a year over year basis.

The effective tax rate was 13.8% for the year ended December 31, 2022 compared to 13.3% for the prior year.

The effective tax rates in 2022 and 2021 differed from the statutory federal income tax rate, primarily due to the Foreign Derived Intangible Income Deduction, as well as additional equity compensation deductions and various tax credits.

Net income decreased by $42.0 million in 2022, or 12% compared to 2021, primarily due to the year over year changes in gross margin and operating profits.

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.

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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 rate was 13.3% for the 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.

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 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.

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.

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.

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.

Liquidity and Capital Resources

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 financial condition throughout the periods presented has remained very strong, despite lower than forecasted global vehicle production rates and supply chain disruptions in 2022 and a 3% decline in light vehicle production in the Company's primary markets from 2020 to 2021.

The Company's cash and cash equivalents were $214.8 million, $262.3 million, and $423.4 million as of December 31, 2022, 2021 and 2020, respectively.

The Company's cash and cash equivalents include amounts held by foreign subsidiaries of $12.5 million, $10.7 million and $7.4 million as of December 31, 2022, 2021 and 2020, respectively.

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 $338.2 million, $362.2 million and $464.5 million for the years ended December 31, 2022, 2021 and 2020, respectively.

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.

Cash flow from operating activities decreased $24.0 million for the year ended December 31, 2022 compared to the prior year, primarily due to decreases in net income and changes in working capital, which were partially offset by changes in deferred taxes.

Cash flow from operating activities decreased $102.3 million for the year ended December 31, 2021 compared to the same period in 2020, primarily due to changes in working capital and deferred taxes, which were partially offset by the increase in net income.

Cash flow used for investing activities for the year ended December 31, 2022 increased by $59.6 million to $172.7 million, compared with cash flow used for investing activities of $113.1 million for the year ended December 31, 2021, primarily due to increased investment purchases of equity method investments during the year.

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

Capital expenditures were $146.4 million, $68.8 million, and $51.7 million for the years ended December 31, 2022, 2021, and 2020, respectively.

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, 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.

Capital expenditures for the year ended December 31, 2022 increased by $77.6 million compared with the year ended December 31, 2021 primarily due to an increase in expenditures related to building and facility construction projects previously discussed.

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

Cash flow used for financing activities for the year ended December 31, 2022, decreased $201.1 million to $209.0 million, compared to $410.1 million for the year ended December 31, 2021, primarily due to a decrease in the amount of shares of common stock repurchased which totaled $112.5 million during the calendar year 2022 as compared to $324.6 million during the calendar year 2021.

Cash flow used for financing activities for the year ended December 31, 2021, increased $46.3 million to $410.1 million compared to the year ended December 31, 2020, primarily due to a reduction 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.

Short-term investments as of December 31, 2022 were $23.0 million, up from $5.4 million as of December 31, 2021 and long-term investments were $153.9 million as of December 31, 2022, down from $207.7 million as of December 31, 2021, due to changes in the Company's overall investment portfolio and increased investment in equity method investments.

Equity method investments increased to $48.4 million, primarily as a result of additional investment purchases during 2022, including the investment in GreenMarbles in the second quarter of 2022.

This investment in GreenMarbles was made with $20.0 million in cash and the issuance of $5.0 million of the Company's common stock.

Accounts receivable as of December 31, 2022 increased $26.7 million compared to December 31, 2021, primarily due to the timing of sales within those years.

Inventories as of December 31, 2022, increased $88.1 million compared to December 31, 2021, primarily due to increased raw material inventory levels to manage risk related to potential supply chain disruptions and volatility in customer orders.

Intangible Assets, net as of December 31, 2022 decreased $19.8 million compared to December 31, 2021, due to the amortization of definite lived intangible assets and patents, which is discussed further in Note 10 of the Consolidated Financial Statements.

Accounts payable as of December 31, 2022, increased $53.4 million compared to December 31, 2021, primarily due increases in, and 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 $ 852,005,629 $ 899,012,796 $ 963,621,775

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.

The increase in working capital as of December 31, 2022 compared to December 31, 2021 is primarily due to increases in inventory and accounts receivable, which was partially offset by decreases in cash and prepaid expenses and other.

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

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.

The IHS Markit mid-January 2022 forecast for light vehicle production for calendar year 2022 are approximately 15.2 million units for North America, 18.5 million units for Europe, 11.4 million units for Japan and Korea, and 24.3 million units for China.

Based on the foregoing, the Company estimates that top line revenue for calendar year 2022 will be between $1.87 and $2.02 billion.

The Company utilizes the light vehicle production forecasting services of S&P Global Mobility.

The S&P Global Mobility mid-January 2023 forecast for light vehicle production for calendar year 2023 are approximately 15.1 million units for North America, 16.5 million units for Europe, 11.7 million units for Japan and Korea, and 26.6 million units for China.

Based on the foregoing, the Company estimates that top line revenue for calendar year 2023 will be approximately $2.2 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 2023, as well as an increase in 2024 compared to 2023.

Continuing uncertainties, including:

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;

supplier part or material shortages;

Continuing uncertainties, such as:

volatilities in customer orders;

light vehicle production volumes;

supplier part or material shortages, including electronics supply chain constraints;

the Ukraine-Russia conflict;

labor shortages;

automotive plant shutdowns;

sales rates in Europe, Asia and North America;

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

challenging macroeconomic and geopolitical environments, including inflation, 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, strikes, etc., which could disrupt shipments to these customers, make forecasting difficult.

work stoppages, strikes, etc.;

could disrupt shipments to customers and make forecasting difficult.

The Company is estimating that the gross margin will be between 32% and 33% for calendar year 2023.

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 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.

Given the current revenue forecast and projected product mix for 2023, the Company hopes it may be able to offset certain raw material cost increases, as well as labor related cost increases with pricing adjustments 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 $260 and $270 million for calendar year 2023, 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.

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

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.

Based on current light vehicle production forecasts, and the resultant forecast our automatic-dimming mirrors and electronics, the Company currently anticipates that 2023 capital expenditures will be between $200 and $225 million, a majority of which will be related to production equipment purchases but also includes an estimated $70 - 90 million in construction costs related to the construction of a new 345,000 square foot manufacturing facility, which began in January 2022, as well as the other two expansion projects on currently existing facilities.

Capital expenditures for calendar year 2023 are currently anticipated to be financed from current cash and cash equivalents on hand and cash flows from operating activities.

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The Company is also providing top line revenue guidance for calendar year 2024, taking into account anticipated increases in light vehicle production in 2024 compared to 2023.

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.

Based on these forecasts, the Company is estimating that revenue for calendar year 2023 will increase approximately 15% to 20% over current estimates provided for 2022 revenue.

S&P Global Mobility current forecasts for light vehicle production for calendar year 2024 are approximately 15.8 million units for North America, 17.5 million units for Europe, 11.4 million units for Japan and Korea, and 28.1 million units for China.

Based on these forecasts, the Company is estimating that revenue for calendar year 2023 will increase approximately 10% over current estimates provided for 2023 revenue.

As noted above, continuing uncertainties make forecasting difficult.

1 unchanged sentence

The Company is subject to market risk exposures of varying correlations and volatilities, including foreign exchange rate risk, and interest rate risk.

Fluctuating interest rates and securities prices could negatively impact the Company's financial performance due to realized losses on the sale of fixed income investments.

The Company does not currently believe such risks are material.

Fluctuating interest rates and securities prices could negatively impact the Company's financial performance due to realized losses on the sale of fixed income investments and/or realized losses due to an impairment adjustment on investment securities.

The Company does not currently believe such risks are necessarily material.

The Company has some assets, liabilities and operations outside the United States, including multi-currency accounts, which currently are not significant overall to the Company as a whole.

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sales are invoiced and paid in U.S.

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).

During calendar year 2022, approximately 7% of the Company’s net sales were invoiced and paid in foreign currencies (compared to 8% for calendar year 2021 and 7% for calendar year 2020).

The Company currently expects that approximately 7-8% of the Company’s net sales in calendar year 2023 will be invoiced and paid in foreign currencies.

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The preparation of the Company's Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the United States, requires management to make estimates, assumptions and apply judgments that affect its financial position and results of operations.

On an ongoing basis, management evaluates these estimates and assumptions.

On an ongoing basis,

management evaluates these estimates and assumptions.

Management also continually reviews its accounting policies and financial information disclosures.

The Company’s significant accounting policies are described in Note 1 to the Consolidated Financial Statements.

The Company’s significant accounting policies are described in Note 1 of the Consolidated Financial Statements.

Certain of our accounting policies require management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the Consolidated Financial statements and the reported amounts of revenues and expenses during the reporting period.

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The Company does not generate sales from arrangements with multiple deliverables.

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

The Company generally receives purchase orders from customers on an annual basis in the ordinary course of business.

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

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Quantitative and Qualitative Disclosures About Market Risk.

See " Market Risk Disclosure " in Management’s Discussion and Analysis of Financial Condition and Results of Operations (Item 7).

See " Market Risk Disclosure " in Management’s Discussion and Analysis of Financial Condition and Results of Operations.

See Item 7, Part I I .

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