What changed in this filing

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Item 7. Management’s Discussion and Analysis

2024-02-22 compared with 2023-02-22 · 66 added, 67 removed, 115 unchanged (54% of the section changed)

13 unchanged sentences

11.6 12.5 12.1 11.3 14.2

Operating Income 19.3 23.7 23.7 (9.7) 2.6

Other Income/(Expense) — 40.0 0.7 (104.3) (46.4)

Income From Operations

21.6 19.3 23.7 34.0 (9.7)

Other (Loss)/Income

0.4 — 0.4 3,368.0 (104.3)

Income Before Provision for Income Taxes 22.0 19.3 24.1 36.6 (11.2)

2 unchanged sentences

Results of Operations:

In 2023, the Company's net sales increased by $380.3 million, or 20% compared to the prior year, representing the highest annual sales in Company history.

Overall light vehicle production in 2023 increased by 12%, when compared to 2022 in the Company's primary markets, meaning net sales in 2023 outperformed the underlying market by 8%.

The outperformance versus the underlying market was driven by growth from the continued adoption of FDM, exterior auto-dimming mirrors, and continued penetration of the Company's base interior mirrors and electronic features.

The Company's sales growth was driven by a 15% year over year increase in automatic-dimming mirror shipments, from 44.2 million units in 2022 to 50.6 million units in 2023, together with product mix.

Other net sales for calendar year 2023 were $44.6 million, compared to Other net sales of $44.2 million in calendar year 2022.

Fire protection sales in 2023 decreased by 32% year over year, while dimmable aircraft windows increased by 211% in 2023 compared to calendar year 2022.

Cost of Goods Sold.

As a percentage of net sales, cost of goods sold decreased from 68.2% in 2022 to 66.8% in 2023.

The year over year increase in the gross margin was primarily the result of improved overhead leverage created by growth in revenue, lower freight costs, pricing increases and cost recoveries, and product mix.

These positive impacts were partially offset by increased raw materials costs and annual customer price reductions.

On a year over year basis, fixed overhead leverage and lower freights costs each had a positive impact of approximately 100 - 150 basis points on gross margin on a year over year basis.

Price increases and cost recoveries, and product mix, each had a positive impact of approximately 50 - 100 basis points on gross margin on a year over year basis.

Increased raw material costs and annual customer price reductions each 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 $21.1 million or 16% from 2022 to 2023, but remained at 7% of net sales.

E, R & D increased year over year primarily due to additional staffing and engineering related professional fees to assist with the execution of a high number of new product launches, product redesigns to optimize costs, and new product development.

Selling, general and administrative ("S, G & A") expenses increased by $6.0 million or 6% from 2022 to 2023, which represents 5% of net sales in 2023 compared to 6% of net sales in 2022.

The primary reason for the year over year increase in S, G & A from 2022 to 2023 was increased staffing expenses, which were partially offset by lower freight expenses.

Total Other (Loss)/Income.

Investment income increased $8.7 million to $13.5 million for 2023 compared to $4.8 million for 2022, primarily due to increases in interest income from fixed income investments and interest rates on other cash holdings.

Other income – net increased $0.8 million in 2023 versus 2022, primarily due to increases in interest income from fixed income investments.

The effective tax rate was 15.2% for the year ended December 31, 2023, compared to 13.8% for the prior year.

The effective tax rates in 2023 and 2022 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 increased by $109.6 million in 2023, or 34% compared to 2022, primarily due to the year over year changes in gross margin and operating profits.

Results of Operations:

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

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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.

E, R & D increased by $15.5 million or 13% from 2021 to 2022, but remained at 7% of net sales.

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

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).

Total Other (Loss)/Income.

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.

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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.

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 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.

Liquidity and Capital Resources

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 financial condition throughout the periods presented has remained very strong.

The Company's cash and cash equivalents were $226.4 million, $214.8 million, and $262.3 million as of December 31, 2023, 2022 and 2021, respectively.

1 unchanged sentence

Cash flow from operating activities was $537.2 million, $338.2 million and $362.2 million for the years ended December 31, 2023, 2022 and 2021, respectively.

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.

Cash flow from operating activities increased $199.0 million for the year ended December 31, 2023 compared to the prior year, primarily due to increases in net income and changes in working capital.

Cash flow from operating activities decreased $24.0 million for the year ended December 31, 2022 compared to the same period in 2021, primarily due to changes in working capital and a decrease in net income, which were partially offset by changes in deferred taxes.

Cash flow used for investing activities for the year ended December 31, 2023 increased by $126.7 million to $299.4 million, compared with cash flow used for investing activities of $172.7 million for the year ended December 31, 2022, primarily due to increased technology investment purchases during the year, as well as increased capital expenditures in 2023 compared to 2022.

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

Capital expenditures were $183.7 million, $146.4 million, and $68.8 million for the years ended December 31, 2023, 2022, and 2021, respectively.

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.

Capital expenditures for the year ended December 31, 2023 increased by $37.2 million compared with the year ended December 31, 2022, primarily due to increased in expenditures related to building and facility construction projects previously discussed.

Capital expenditures for the year ended December 31, 2022 increased by $77.6 million compared to the year ended December 31, 2020, also due to the same building and facility construction projects previously discussed.

Cash flow used for financing activities for the year ended December 31, 2023, increased $21.1 million to $230.2 million, compared to $209.0 million for the year ended December 31, 2022, primarily due to an increase in the amount of shares of common stock repurchased which totaled $147.4 million during the calendar year 2023 as compared to $112.5 million during the calendar year 2022.

Cash flow used for financing activities for the year ended December 31, 2022, decreased $201.1 million to $209.0 million compared to 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.

Short-term investments as of December 31, 2023 were $14.4 million, down from $23.0 million as of December 31, 2022 and long-term investments were $299.1 million as of December 31, 2023, up from $202.3 million as of December 31, 2022, due to changes in the Company's overall investment portfolio and increased investment in technology investments.

Accounts receivable as of December 31, 2023 increased $45.3 million compared to December 31, 2022, primarily due to an increase in sales year over year.

Inventories as of December 31, 2023, decreased $1.9 million compared to December 31, 2022, primarily due to decreases in raw materials, which were partially offset by increases in finished goods to meet customer order demand.

Intangible Assets, net as of December 31, 2023 decreased $5.4 million compared to December 31, 2022, 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.

Accounts payable as of December 31, 2023, increased $32.7 million compared to December 31, 2022, primarily due to increases in, and/or timing of 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:

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

2023 2022 2021

Working Capital $ 726,129,177 $ 698,099,624 $ 801,593,707

Long Term Investments 153,906,005 207,693,147 162,028,068

Fixed Income Long Term Investments

155,863,252 140,341,898 190,875,668

Total $ 881,992,429 $ 838,441,522 $ 992,469,375

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.

The increase in working capital as of December 31, 2023 compared to December 31, 2022 is primarily due to increases in cash and accounts receivable, which was partially offset by increases in accounts payable.

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

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

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The S&P Global Mobility mid-January 2024 forecast for light vehicle production for calendar year 2024 are approximately 15.8 million units for North America, 17.4 million units for Europe, 12.2 million units for Japan and Korea, and 28.9 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.

Based on the foregoing, the Company estimates that top line revenue for calendar year 2024 will be between $2.45 and $2.55 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, such as:

volatilities in customer orders;

light vehicle production volumes;

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

the Ukraine-Russia conflict;

the Ukraine-Russia war;

the Israel-Hamas war;

labor shortages;

7 unchanged sentences

The Company is estimating that the gross margin will be between 34% and 35% for calendar year 2024.

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 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.

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

Given the current revenue forecast and projected product mix for 2024, the Company hopes it may be able to offset certain annual customer price reductions with raw material cost decreases, improved operational efficiencies, and leverage on the Company's fixed costs, but there is no certainty of being able to do so.

The Company is also estimating that its operating expenses, which include E, R & D and S, G & A, are expected to be between $295 and $305 million for calendar year 2024, 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 creating iterations of those products that help keep its products new and attractive to our customers, as well as new products.

1 unchanged sentence

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 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.

Based on current light vehicle production forecasts, and the resultant forecast our automatic-dimming mirrors and electronics, the Company currently anticipates that 2024 capital expenditures will be between $225 and $250 million, a majority of which will be related to production equipment purchases.

Capital expenditures for calendar year 2024 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 2023 will be between $100 and $110 million.

The Company is also estimating that depreciation and amortization expense for calendar year 2024 will be between $95 and $105 million.

The Company is further estimating that its tax rate will be between 16% and 18% for calendar year 2024 based on the current statutory rates.

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The Company is also providing top line revenue guidance for calendar year 2025, taking into account anticipated increases in light vehicle production in 2025 compared to 2024.

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.

S&P Global Mobility forecast (as of mid-January 2024) for light vehicle production for calendar year 2025 are approximately 16.2 million units for North America, 17.5 million units for Europe, 11.8 million units for Japan and Korea, and 30.1 million units for China.

Based on these forecasts, as well as the Company's estimates for aerospace, medical, and fire protection sales for calendar year 2025, the Company is estimating that revenue for calendar year 2025 will be between $2.65 and $2.75 billion.

As noted above, continuing uncertainties make forecasting difficult.

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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.

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However, these estimates and assumptions are inherently subject to a degree of uncertainty.

As a result, actual results in these areas may differ significantly from our estimates, as is the case in any application of generally accepted accounting principles.

As a result, actual results in

these areas may differ significantly from our estimates, as is the case in any application of generally accepted accounting principles.

The Company considers an accounting estimate to be critical if:

20 unchanged sentences

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

See Item 7, Part I I .

See Item 7, Part II .

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