Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
RESULTS OF OPERATIONS:
FIRST QUARTER 2019 VERSUS FIRST QUARTER 2018
Net Sales.
Net sales for the first quarter of 2019 increased by $3.2 million or 1% when compared with the first quarter of 2018.
Automotive net sales for the first quarter of 2019 increased 0.2% to $455.8 million, compared with automotive net sales of $455.0 million in the first quarter of 2018, driven primarily by a 1% quarter over quarter increase in automotive mirror unit shipments. The 1% increase in automotive mirror unit shipments in the first quarter of 2019 to 10.7 million units compared with the first quarter of 2018, was primarily due to an increase of 50% for North American mirror unit shipments of the Company's exterior auto-dimming mirrors on a quarter over quarter basis, as opposed to international mirror unit shipments, which were down 3% on a quarter over quarter basis.
The below table represents the Company's auto-dimming mirror unit shipments for the three months ended March 31, 2019, and 2018
(in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
% Change
|
North American Interior Mirrors
|
|
|
|
|
|
|
2,227
|
|
2,326
|
|
(4)
|
%
|
North American Exterior Mirrors
|
|
|
|
|
|
|
1,229
|
|
818
|
|
50
|
%
|
Total North American Mirror Units
|
|
|
|
|
|
|
3,455
|
|
3,143
|
|
10
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
International Interior Mirrors
|
|
|
|
|
|
|
5,256
|
|
5,319
|
|
(1)
|
%
|
International Exterior Mirrors
|
|
|
|
|
|
|
1,971
|
|
2,114
|
|
(7)
|
%
|
Total International Mirror Units
|
|
|
|
|
|
|
7,227
|
|
7,433
|
|
(3)
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Interior Mirrors
|
|
|
|
|
|
|
7,483
|
|
7,644
|
|
(2)
|
%
|
Total Exterior Mirrors
|
|
|
|
|
|
|
3,199
|
|
2,932
|
|
9
|
%
|
Total Auto-Dimming Mirror Units
|
|
|
|
|
|
|
10,682
|
|
10,576
|
|
1
|
%
|
Note: Percent change and amounts may not total due to rounding.
Other net sales were $12.8 million in the first quarter of 2019, an increase of
22%, compared to $10.5 million in the first quarter of 2018. This increase is in large part attributable to a 34% quarter over quarter improvement in variable dimmable aircraft windows sales, which increased from $5.2 million in the first quarter of 2018 to $6.9 million in the first quarter of 2019. Fire protection sales increased by 11% in the
first quarter of 2019 to $5.9 million, compared to $5.2 million in the first quarter of 2018.
Cost of Goods Sold.
As a percentage of net sales, cost of goods sold increased to 63.8% in the first quarter of 2019 versus 62.9% in the first quarter of 2018. The quarter over quarter net decrease in the gross profit margin was primarily the result of annual customer price reductions, tariffs enacted in the second half of calendar year 2018, and the inability to leverage fixed overhead costs. This decrease was partially offset by improvements in product mix related to certain advance feature products as well as purchasing cost reductions. On a quarter over quarter basis, annual customer price reductions had a negative impact of approximately 100 - 150 basis points and the inability to leverage fixed overhead and the above-referenced enacted tariffs each had a negative impact of approximately 50 - 100 basis points. Purchasing cost reductions and product mix improvements independently had a positive impact of approximately 50 -100 basis points on a quarter over quarter basis.
Operating Expenses
.
Engineering, research and development expenses ("E, R & D") for the first quarter of 2019 increased by 8% or $2.0 million when compared with the first quarter of 2018, primarily due to increased staffing levels and benefits, which continue to support growth and the development of new business and technology advances.
Selling, general and administrative ("S, G & A") expenses increased by 10% or $1.9 million for the first quarter of 2019 compared to the first quarter of 2018. S, G & A expenses, notwithstanding the quarter over quarter increase, were at approximately 4% of net sales in the first quarter of 2019 and in the first quarter of 2018. S, G, & A expenses increased on a dollar basis primarily due to increased staffing levels and benefits.
Total operating expenses were $48.0 million in the first quarter of 2019, which increased by 9% or $3.9 million, from $44.1 million in the first quarter of 2018.
Total Other Income.
Total other income for the first quarter of 2019 increased by $0.1 million when compared with the first quarter of 2018, primarily due to decreased interest expense on a quarter over quarter basis.
Provision for Income Taxes.
The effective tax rate was 16.5% in the first quarter of 2019 compared to 15.6% for same quarter of 2018. Generally, effective tax rates for these periods differ from statutory federal income tax rates, due to provisions for state and local income taxes, permanent tax differences, and the foreign-derived intangible income tax deduction. The increase in the effective tax rate for the first quarter of 2019 compared to the same period of 2018 was primarily due to a decrease in discrete tax benefits related to equity compensation in the current year.
Net Income.
Net income for the first quarter of 2019 decreased by $7.0 million or 6% when compared with the first quarter of 2018, primarily due to the increased operating expenses and the increased tax rate on a quarter over quarter basis.
FINANCIAL CONDITION:
The Company's cash and cash equivalents as of March 31, 2019 were $221.7 million, which increased approximately $4.7 million compared to $217.0 million as of December 31, 2018. The increase was primarily due to positive cash flows from operations, which was partially offset by share repurchases, dividend payments and capital expenditures during the three months ended March 31, 2019.
Short-term investments as of March 31, 2019 were $180.3 million, up from $169.4 million as of December 31, 2018. Long-term investments were $126.5 million as of March 31, 2019, compared to $138.0 million as of December 31, 2018, as a result of changes in investment portfolio mix.
Accounts receivable as of March 31, 2019 increased approximately $30.7 million compared to December 31, 2018, primarily due to the higher sales level, as well as timing of sales within the quarters.
Inventories as of March 31, 2019 remained level at $225.3 million when compared to December 31, 2018.
Accounts payable as of March 31, 2019 decreased approximately $2.7 million when compared to December 31, 2018.
Accrued liabilities as of March 31, 2019 increased approximately $18.0 million compared to December 31, 2018, primarily due to an increase in accrued salaries and wages and tax liabilities due to timing of certain wage and tax payments.
Cash flow from operating activities for the three months ended March 31, 2019 decreased $13.6 million to $133.8 million, compared with $147.4 million during the same three month period last year, primarily due to the decrease in net income and changes in working capital.
Capital expenditures for the three months ended March 31, 2019 were approximately $16.8 million, compared with approximately $26.2 million for the same three month period last year.
The Company believes its existing and planned facilities are currently suitable, adequate, and have the capacity required for current and near-term planned business. Nevertheless, the Company continues to evaluate longer term facilities needs.
The Company estimates that it currently has building capacity to manufacture approximately 33 - 36 million interior mirror units annually and approximately 14 - 17 million exterior mirror units annually, based on current product mix. The Company evaluates equipment capacity on an ongoing basis and adds equipment as needed.
Management considers the current working capital and long-term investments, in addition to internally generated cash flow, its Credit Agreement, and credit worthiness, 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2019
|
|
December 31, 2018
|
Working Capital
|
$
|
701,902,139
|
|
$
|
681,769,335
|
Long Term Investments
|
126,528,508
|
|
137,979,082
|
Total
|
$
|
828,430,647
|
|
$
|
819,748,417
|
The Company has a previously announced share repurchase plan under which the Board of Directors has authorized the repurchase of shares of the Company's common stock, which remains a part of the broader publicly disclosed capital allocation strategy. The Company intends to continue to repurchase additional shares of common stock in the future in support of the capital allocation strategy, but share repurchases may vary from time to time and will take into account macroeconomic events, market trends, and other factors the Company deems appropriate (including the market price of the stock, anti-dilutive effect of repurchases, and available cash). During the three months ended March 31, 2019, the Company repurchased 4,724,938
shares. The Company has 29,116,319 shares remaining under the plan as of March 31, 2019, as is further detailed in
Part II, Item 2
of this Form 10-Q.
BUSINESS UPDATE
The Company's overall unit growth during the first quarter of 2019 out-paced word-wide light vehicle production growth by approximately eight percent (8%) in large part due to the many different product launches that have been executed in 2018 and year to date in 2019. The Company's unit and revenue growth continue to be driven by the Company's electrochromic technology, the success of the Full Display Mirror
®
, as well as other electronic features, such as the Integrated Toll Module and HomeLink
®
.
Interior and exterior auto-dimming mirrors and advanced electronic features were launched on a net new 11 vehicle models during the first quarter of 2019, which represents a 10% increase over the launch rate of the first quarter of 2018. During the first quarter of 2019, over 70% percent of the net nameplate launches contained advanced features. The launches were led by increased launch levels in HomeLink
®
and
Full Display Mirror
®
.
PRODUCT UPDATE
The Full Display Mirror
®
began production in the fourth quarter of 2015. Current automotive design trends are yielding vehicles with small rear windows that are often further obstructed by headrests, passengers, and roof support pillars which can significantly hinder the mirror’s rearward view. The Company's Full Display Mirror
®
is an intelligent rear vision system that uses a custom, internally or externally mounted video camera and mirror-integrated video display to optimize a vehicle driver’s rearward view. This rear vision system consists of a hybrid Full Display Mirror
®
that offers bi-modal functionality. In mirror mode, the product functions as an auto-dimming rearview mirror which means that during nighttime driving, digital light sensors talk to one another via a microprocessor to automatically darken the mirror when glare is detected. With the flip of a switch, the mirror enters display mode, and a clear, bright display appears through the mirror’s reflective surface, providing a wide, unobstructed rearward view. The bi-modality of the Full Display Mirror
®
is essential, because in the event of any failure of the camera or display, the product is able to function as a mirror, which meets long-standing safety requirements in the automotive industry. In addition,
the driver has the ability to switch between modes to accommodate usage preferences for various weather conditions, lighting conditions, and driving tasks.
As of the first quarter of 2019, the Company is shipping production Full Display Mirrors
®
to five OEMs, which are General Motors, Subaru, Toyota, Nissan, and Jaguar Land Rover. The launches for Jaguar Land Rover are the first launches with a European based OEM and include product shipments that will be used for global applications on these vehicles. In the first quarter of 2019, the Company secured its ninth OEM customer for Full Display Mirror
®
. The Company continues to see interest from other automotive OEMs and is negotiating with other OEMs on an on-going basis. The Company remains confident that on-going discussions with certain other OEMs, in the future, may cause such OEM's to consider adding the Full Display Mirror
®
into their product roadmap for future vehicles.
In 2017, the Company introduced a new three-camera rear vision system that streams rear video in multiple composite views to its Full Display Mirror
®
. The Company believes it is the industry’s first practical and comprehensive rear vision solution designed to meet automaker, driver, safety and regulatory requirements. The Company's rear vision system, known as a camera monitoring system ("CMS"), uses three cameras to provide a comprehensive view of the sides and rear of the vehicle. The side-view cameras are discretely housed in downsized, automatic-dimming exterior mirrors. Their video feeds are combined with that of a roof-mounted camera and stitched together into multiple composite views, which are streamed to the driver using the Full Display Mirror
®
. The system’s modular nature lets the automaker customize functionality while offering it as an affordable, optional feature thereby enhancing safety by allowing the system to fail safe. During any failures due to weather conditions or otherwise that disrupt the digital view, drivers can still safely use the interior and exterior mirrors. The system also supports user preference by permitting drivers to use standard mirror views, camera views, or both. Downsized exterior mirrors provide automakers with significant weight savings and fuel efficiency improvements. To further enhance safety, the Company's CMS solution can also work in conjunction with a vehicle’s side blind zone warning system. When a trailing vehicle enters a side blind zone, a warning indicator illuminates in both the interior and exterior mirrors while the corresponding side-view video feed appears in the display until the vehicle passes.
On March 31, 2014, the Alliance of Automobile Manufacturers petitioned the National Highway Traffic Safety Administration ("NHTSA") to allow automakers to use cameras as an option to replace conventional rearview mirrors within the United States, however, no final rule or legislation has been made in response to this petition. At the annual SAE Government-Industry Meeting in January 2017, NHTSA requested that SAE develop Recommended Procedures for test protocols and performance criteria for CMS that would replace mirror systems on light vehicles in the U.S. market. SAE assigned the task to the Driver Vision Committee, and the SAE Driver Vision Committee created a CMS Task Force to draft the Recommended Procedures. In the second half of 2018, the Office of Management and Budget published its regulatory and deregulatory agenda, which included a reference to a prerule stage for NHTSA related to amending the rear visibility standard to allow the option for camera-monitor systems to replace mirrors. Also, NHTSA published a report dated October 2018 related to camera monitoring systems for outside mirror replacements.
In July 2016, a revision to UN-ECE Regulation 46 was published with an effective date of June 18, 2016, which allows for CMS to replace mirrors in Japan and European countries. As of January 2017, CMS are also permitted as an alternative to replace mirrors in the Korean market. Notwithstanding the foregoing, the Company continues to believe rearview mirrors provide a robust, simple and cost effective means to view the surrounding areas of a vehicle and remain the primary safety function for rear vision today. Cameras when used as the primary rear vision delivery mechanism have some inherent limitations such as: electrical failure; cameras being blocked or obstructed; depth perception challenges; and viewing angles of the camera. Nonetheless, the Company continues designing and manufacturing not only rearview mirrors, but CMOS imagers and video displays as well. The Company believes that combining video displays with mirrors may well provide a more robust product by addressing all driving conditions in a single solution that can be controlled by the driver. As noted, the Company is currently in production with a rear vision camera system that streams rear video to a rearview-mirror-integrated display using the Company's Full Display Mirror
®
. The Company's CMS solution uses three cameras to provide a comprehensive view of the sides and rear of the vehicle. The Company also continues to develop in the areas of imager performance, camera dynamic range, lens design, image processing from the camera to the display, and camera lens cleaning. The Company acknowledges that as such technology evolves over time, such as cameras replacing mirrors and/or autonomous driving, there could be increased competition.
The Company's HomeLink
®
products are the auto industry's most widely used and trusted car-to-home communication system, with an estimated 50 million units on the road. The system consists of two or three in-vehicle buttons that can be programmed to operate garage doors, security gates, home lighting, and other radio-frequency-controlled devices. During the first quarter of 2017, the Company demonstrated the next generation of HomeLink
®
, commonly referred to as HomeLink Connect
TM
which uses both RF and wireless cloud-based connectivity to deliver complete vehicle-to-home automation. With the HomeLink Connect
TM
, a HomeLink
®
button press communicates with the HomeLink Connect
TM
app on the user’s smartphone via Bluetooth Low Energy. The app contains predefined, user-programmed actions, from single device operations to entire home automation scenes. The app, in turn, communicates to the home’s smart hub over the cloud server network and activates the appropriate devices, including security systems, door locks, thermostats, lighting, and other home automation devices, providing comprehensive vehicle-to-home automation. The ability to prepare the home for arrival or departure can occur with one button press. For the automaker, it allows them to offer a customizable, yet proven solution without the engineering effort or security concerns associated with integrating the software into the vehicle’s computer network. The Company also continues to work on providing HomeLink
®
applications for alternative automobile and vehicle types which include but are not limited to motorcycles, mopeds, snowmobiles, tractors, combines, lawn mowers, loaders, bulldozers, road-graders, backhoes and golf carts. The Company further continues to work with compatibility partners for HomeLink
®
applications in new markets like China. The unique attributes of the China market allow for potential new use cases of these products and offer what the Company believes to be a real opportunity for growth of the HomeLink
®
brand and products. In 2017, the Company began its first volume production shipments of HomeLink
®
units on vehicles for the China market.
In January 2016, the Company announced a partnership with TransCore to provide automobile manufacturers with a vehicle-integrated tolling solution that enables motorists to drive on all U.S. toll roads without a traditional toll tag on the windshield. Currently more than 75 percent of new car registrations are in states with toll roads with over 50 million drivers accessing these roads each year. The Company signed an exclusive agreement, in the ordinary course of business, to integrate TransCore's toll module technology into the Company's rearview mirrors. In January 2017, the Company signed an extension of its agreement in the ordinary course of business, which enables the Company to offer the Integrated Toll Module system in Canada and Mexico. The interior mirror is the optimal location for a vehicle-integrated toll transponder and it eliminates the need to affix multiple toll tags to the windshield and helps automakers seamlessly integrate toll collection into the car. Since the Integrated Toll Module
®
or ITM
®
enables travel across almost all United States toll roads, and others in North America, motorists would no longer need multiple toll tags for different regions of the country or to manage multiple toll accounts. The Company's vehicle-integrated solution simplifies and expedites local, regional, and national travel. ITM
®
provides transportation agencies with an interoperability solution without costly infrastructure changes to the thousands of miles of toll lanes throughout the country. The Company believes that this product could potentially represent another growth opportunity over the next several years. The Company has its first OEM award of ITM
®
with Audi. Initial production deliveries to that customer started during the fourth quarter of calendar year 2018. In 2018, the Company officially signed agreements, in the ordinary course of business, with two additional OEMs to launch the ITM
®
product. Both of these OEM launches are targeted to begin production shipments in the 2020 or 2021 time periods.
In 2017, the Company announced an agreement entered into during the ordinary course of business with VOXX to become the exclusive aftermarket distributor of the Gentex Aftermarket Full Display Mirror
®
("FDM"
®
) in North America. As noted, the Company has also displayed a new three-camera rear vision system that streams rear video – in multiple composite views – to a rearview-mirror-integrated display. Further, the Company has announced an embedded biometric solution for vehicles that leverages iris scanning technology to create a secure environment in the vehicle. There are many use cases for authentication, which range from vehicle security to start functionality to personalization of mirrors, music, seat location and temperature, to the ability to control transactions not only for the ITM
®
system, but also the ride sharing car of the future. The Company believes iris recognition is among the most secure forms of biometric identification, with a false acceptance rate as low as one in 10 million, far superior to facial, voice, and other biometric systems. The Company's future plans include integrating biometric authentication with HomeLink
®
and HomeLink Connect
TM
. The biometric system will allow HomeLink
®
to provide added security and convenience for multiple drivers by activating the unique home automation presets of different authorized users. The Company announced in January 2018 that it completed an exclusive licensing
agreement, in the ordinary course of business, with Fingerprint Cards AB to deploy its ActiveIRIS
®
iris-scanning biometric technology in automotive applications.
In January 2018, the Company also announced that an agreement had been signed, in the ordinary course of business, to participate in a round of financing with Yonomi, the Company's partner in home automation technology. The Company is working with Yonomi as a home automation aggregation partner and the Company has developed an app and cloud infrastructure known as HomeLink Connect
TM
. As discussed above, HomeLink Connect
TM
is the home automation app that pairs with the vehicle and allows drivers to operate home automation devices from the vehicle's center console display. Drivers of HomeLink Connect
TM
compatible vehicles will be able to download and configure the app to control many available home automation devices and create entire home automation settings.
SmartBeam
®
is the Company's proprietary high beam control system integrated into its auto-dimming mirror.
SmartBeam
®
Generation 4, which was developed using the fourth generation of the Company's custom designed CMOS imager, has an advanced feature set made possible by the high dynamic range of the imager including: high beam assist; dynamic forward lighting with high beams constantly on; LED matrix beam; and a variety of specific detection applications including tunnel, fog and road type as well as certain lane tracking features to assist with lighting control. The Company has the ability to package the control electronics inside of its interior rearview mirrors with a self-calibrating camera attached to the mirror mount with optimal mechanical packaging which also provides for ease of service. In addition, the Company has long been integrating its camera products to optimize performance by fusing with other systems on the vehicle, including radar, navigation, steering and related modules provided by other suppliers. This enables the Company to provide its customers with a highly customizable solution that meets their unique needs and specifications.
The European New Car Assessment Program ("Euro NCAP") provides an incentive for automobiles sold in Europe to apply safety technologies that include driver assist features such as lane detection, vehicle detection, and pedestrian detection as standard equipment. Euro NCAP compliant driver assist systems are also capable of including high beam assist as a function. The increased application of Euro NCAP on European vehicles could potentially replace the Company's SmartBeam
®
application on these vehicles.
On December 8, 2015 NHTSA proposed changes to the NHTSA's 5-Star Safety Ratings for new vehicles (also known as the New Car Assessment Program or NCAP) and initiated a comment period. The proposed changes will, for the first time, encompass assessment of crash-avoidance technologies, which includes lower beam headlamp performance, semi-automatic headlamp switching, and blind spot detection. NHTSA initially intended to implement the enhancements in NCAP in 2018 beginning with model year 2019 vehicles. The NCAP implementation has been delayed, and on August 5, 2018, NHTSA published a notice seeking public comment on NCAP with a deadline of October 1, 2018 for the submission of written comments. The Company believes that its SmartBeam
®
technology will qualify with the semi-automatic headlamp NCAP rating system, and that its SmartBeam
®
technology and exterior mirrors with blind spot alert lighting can be included in a system that qualifies with the lower beam headlamp performance and blind spot detection NCAP rating system, respectively.
On October 12, 2018, NHTSA published a Notice of Proposed Rulemaking ("NPRM") for amendments to Federal Motor Vehicle Safety Standard ("FMVSS") No. 108:
Lamps, reflective devices, and associated equipment
, and initiated a comment period. The NPRM proposes amendments that would permit the certification of adaptive driving beam headlighting systems, if the manufacturer chooses to equip vehicles with these systems. NHTSA proposes to establish appropriate performance requirements to ensure the safe introduction of adaptive driving beam headlighting systems if equipped on newly manufactured vehicles. The Company believes that its dynamic SmartBeam
®
lighting control system (dynamic forward lighting or DFL), which has been sold in markets outside of North America for several years, will meet the requirements of the new FMVSS 108 standards, if amended. The Company's SmartBeam
®
application has and will continue to be affected by increased competition by suppliers of multi-function driver assist camera products, which are able to achieve some of the same functionality as SmartBeam
®
but at a lower cost, due to other suppliers leveraging similar hardware costs, but offering products with multiple software features.
The Company previously announced that it is providing variably dimmable windows for the Boeing 787 Dreamliner series of aircraft. The Company continues to work with aircraft manufacturers that have an interest in this technology regarding potential additional programs. In January 2019, the Company
announced that its latest generation of dimmable aircraft windows will be offered as optional content on the new Boeing 777X.
OTHER
Automotive revenues represent approximately 98% of the Company's total revenue, consisting of interior and exterior electrochromic automatic-dimming rearview mirrors and automotive electronics.
The Company does continue to experience pricing pressure from its automotive customers and competitors, which will continue to cause downward pressure on its sales and profit margins. The Company works continuously to offset these price reductions with engineering and purchasing cost reductions, productivity improvements, and increases in unit sales volume, but there is no assurance the Company will be able to do so in the future.
Because the Company sells its products throughout the world, and automotive manufacturing is highly dependent on economic conditions, the Company can be affected by uncertain economic conditions that can reduce demand for its products.
The Company believes that its patents and trade secrets provide it with a competitive advantage in dimmable devices and other electronic features that it offers in vehicles and the aerospace industry. Claims of patent infringement can be costly and time-consuming to address. To that end, the Company obtains intellectual property rights in the ordinary course of business to strengthen its intellectual property portfolio and to minimize the risk of infringement.
The Company does not have any significant off-balance sheet arrangements or commitments that have not been recorded in its consolidated financial statements.
OUTLOOK
The Company’s forecasts for light vehicle production for the second quarter and full year of 2019 are based on IHS Markit's mid-April 2019 forecasts for light vehicle production in North America, Europe, China, and Japan and Korea. Using the mid-April 2019 light vehicle production forecasts indicated in the table below, the Company has provided certain guidance for calendar year 2019.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Light Vehicle Production (per IHS Markit Automotive mid-April light vehicle production forecast)
|
|
|
|
|
|
|
|
|
|
|
|
(in Millions)
|
|
|
|
|
|
|
|
|
|
|
|
Region
|
|
|
|
|
2Q 2019
|
2Q 2018
|
% Change
|
|
Calendar Year 2019
|
Calendar Year 2018
|
% Change
|
North America
|
|
|
|
|
4.31
|
4.36
|
(1)
|
%
|
|
16.68
|
17.06
|
(2)
|
%
|
Europe
|
|
|
|
|
5.59
|
6.01
|
(7)
|
%
|
|
21.49
|
22.22
|
(3)
|
%
|
Japan and Korea
|
|
|
|
|
3.17
|
3.23
|
(2)
|
%
|
|
13.11
|
13.26
|
(1)
|
%
|
China
|
|
|
|
|
6.52
|
6.74
|
(3)
|
%
|
|
26.88
|
26.85
|
—
|
%
|
Total Light Vehicle Production
|
|
|
|
|
19.59
|
20.34
|
(4)
|
%
|
|
78.16
|
79.39
|
(2)
|
%
|
Based on the aforementioned light vehicle product forecasts, as well as the estimated option rates for its products on prospective vehicle models and anticipated product mix, the Company continues to estimate that top line revenue for calendar year 2019 will be between $1.83 and $1.93 billion.
The Company continues to see order rates and booked business that allow for these estimates despite period-over-period year declines in light vehicle production in its primary markets. Nevertheless, ongoing uncertainties remain including: light vehicle production levels; impacts of already in place and potential additional future tariffs; impacts of regulation changes; automotive plant shutdowns; supplier part shortages; sales rates in Europe, Asia and North America; 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., all of which could disrupt shipments to these customers and make forecasting difficult.
Based on actual results for the first three months of 2019, currently forecasted revenues for the remainder of 2019, anticipated product mix and anticipated tariff costs, the Company continues to estimate that the gross profit margin will be between 36% and 37% for calendar year 2019.
The Company also continues to estimate that its operating expenses, which include E, R & D expenses and S, G & A expenses, are expected to be approximately $195 - $200 million for calendar year 2019, primarily due to staffing costs, professional fees and travel expenses, which continue to support growth and the development of new business and technology advances.
In light of on-going demand for the Company's auto-dimming mirrors and electronics, and based on actual spending levels through the first three months of 2019, the Company continues to anticipate that 2019 capital expenditures will be approximately $90 - $100 million, the majority of which will be equipment purchases. Capital expenditures in the calendar year 2019 are currently anticipated to be financed from current cash and cash equivalents on hand and cash flows from operating activities.
The actual results for the first three months of 2019, and expected projects in the second quarter, have not changed the Company's estimates that depreciation and amortization expense for calendar year 2019 will be approximately $105 - $115 million.
The Company also continues to estimate its effective annual tax rate for calendar year 2019 to be in the range of 16.0% to 18.0%.
In accordance with the previously announced share repurchase plan, the Company intends to continue to repurchase additional shares of its common stock in 2019 and into the future depending on a number of factors, including: market, economic, and industry conditions; the market price of the Company's common
stock; anti-dilutive effect on earnings; available cash; and other factors that the Company deems appropriate, commensurate with its previously announced capital allocation strategy.
Finally, based on available light vehicle production forecasts and current forecasted product mix, the Company is making no changes to its previously announced revenue estimates for calendar year 2020, which continues to be estimated to be over and above the foregoing 2019 revenue estimates in the range of 3% to 8%.
CRITICAL ACCOUNTING POLICIES:
The preparation of the Company’s consolidated condensed financial statements contained in this report, which have been prepared in accordance with accounting principles generally accepted in the United States, requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. On an ongoing basis, management evaluates these estimates. Estimates are based on historical experience and/or on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that may not be readily apparent from other sources. Historically, actual results have not been materially different from the Company’s estimates. However, actual results may differ from these estimates under different assumptions or conditions.
The Company has identified critical accounting policies used in determining estimates and assumptions in the amounts reported in its Management’s Discussion and Analysis of Financial Condition and Results of Operations in its Annual Report on Form 10-K for the fiscal year ended December 31, 2018.