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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q 
(Mark one)
üQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
For the quarterly period ended March 31, 2018 or 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
For the transition period from ______ to ______  
Commission File Number: 0-10235 
        
GENTEX CORPORATION
(Exact name of registrant as specified in its charter)
Michigan 38-2030505 
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
600 N. Centennial, Zeeland, Michigan 49464 
(Address of principal executive offices) (Zip Code) 
(616) 772-1800
(Registrant’s telephone number, including area code)

________________________________________________________

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   
Yes:  þ No:  o    
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). 
Yes:  þ No:  o    
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer üAccelerated filer 
Non-accelerated filer   (Do not check if a smaller reporting company) Smaller reporting company 

Indicate by a check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     
Yes:  o  No:   þ
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.
Yes:  o No:  o
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Class Shares Outstanding, April 20, 2018 
Common Stock, $.06 Par Value 273,854,076 



GENTEX CORPORATION AND SUBSIDIARIES
For the Three Months Ended March 31, 2018 
FORM 10-Q
Index

Part I - Financial Information Page 
Item 1. 
Item 2. 
Item 3. 
Item 4. 
Part II - Other Information 
Item 1A. 
Item 2. 
Item 6. 


2

Table of Contents
PART I —FINANCIAL INFORMATION
Item 1. Unaudited Consolidated Financial Statements.
GENTEX CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
As of  March 31, 2018 and December 31, 2017
March 31, 2018 December 31, 2017 
(Note) 
ASSETS 
CURRENT ASSETS 
Cash and cash equivalents $524,323,560 $569,734,496 
Short-term investments 152,179,408 152,538,054 
Accounts receivable, net 246,427,239 231,121,788 
Inventories 207,232,952 216,765,583 
Prepaid expenses and other 11,531,029 14,403,902 
Total current assets 1,141,694,188 1,184,563,823 
PLANT AND EQUIPMENT—NET 496,274,467 492,479,330 
OTHER ASSETS 
Goodwill 307,365,845 307,365,845 
Long-term investments 3,240,000 57,782,418 
Intangible Assets, net 284,150,000 288,975,000 
Patents and other assets, net 21,627,968 20,887,496 
Total other assets 616,383,813 675,010,759 
Total assets $2,254,352,468 $2,352,053,912 
LIABILITIES AND SHAREHOLDERS’ INVESTMENT 
CURRENT LIABILITIES 
Accounts payable $77,307,897 $89,898,467 
Current portion of long-term debt 50,000,000 78,000,000 
Accrued liabilities 100,861,709 75,748,540 
Total current liabilities 228,169,606 243,647,007 
DEFERRED INCOME TAXES 56,205,366 58,888,644 
TOTAL LIABILITIES 284,374,972 302,535,651 
SHAREHOLDERS’ INVESTMENT 
Common stock 16,431,263 16,816,879 
Additional paid-in capital 742,491,728 723,510,672 
Retained earnings 1,208,841,516 1,301,997,327 
Accumulated other comprehensive income 2,212,989 7,193,383 
Total shareholders’ investment 1,969,977,496 2,049,518,261 
Total liabilities and shareholders’ investment $2,254,352,468 $2,352,053,912 

Note: The condensed consolidated balance sheet at December 31, 2017 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements.
See accompanying notes to condensed consolidated financial statements.
3

Table of Contents
GENTEX CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
For the Three months ended March 31, 2018 and 2017
 
Three Months Ended March 31, 
20182017
NET SALES $465,420,105 $453,535,250 
COST OF GOODS SOLD 292,791,704 277,734,465 
Gross profit 172,628,401 175,800,785 
OPERATING EXPENSES: 
Engineering, research and development 26,049,258 25,152,257 
Selling, general & administrative 18,063,810 16,221,408 
Total operating expenses 44,113,068 41,373,665 
Income from operations 128,515,333 134,427,120 
OTHER INCOME (LOSS) 
Investment income 2,037,605 1,472,527 
Other Income (Loss), net 1,206,993 (1,034,743)
Total Other Income 3,244,598 437,784 
Income before provision for income taxes 131,759,931 134,864,904 
PROVISION FOR INCOME TAXES 20,511,188 37,308,163 
NET INCOME $111,248,743 $97,556,741 
EARNINGS PER SHARE: 
Basic $0.40 $0.34 
Diluted $0.40 $0.33 
Cash Dividends Declared per Share $0.110 $0.090 
See accompanying notes to condensed consolidated financial statements.
4

Table of Contents
GENTEX CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the Three months ended March 31, 2018 and 2017
Three Months Ended March 31, 
20182017
Net Income $111,248,743 $97,556,741 
Other comprehensive income (loss) before tax: 
Foreign currency translation adjustments 1,626,178 188,590 
Unrealized gains on derivatives 67,047 641,975 
Unrealized gains (losses) on debt securities, net (21,280)2,170,254 
Other comprehensive income, before tax 1,671,945 3,000,819 
Expense for income taxes related to components of other comprehensive income 9,611 984,280 
Other comprehensive income, net of tax 1,662,334 2,016,539 
Comprehensive Income $112,911,077 $99,573,280 
See accompanying notes to condensed consolidated financial statements.
5

Table of Contents
GENTEX CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three months ended March 31, 2018 and 2017
 
20182017
CASH FLOWS FROM OPERATING ACTIVITIES: 
Net income $111,248,743 $97,556,741 
Adjustments to reconcile net income to net cash provided by operating activities: 
Depreciation and amortization 28,046,434 25,181,854 
Gain on disposal of assets (4,374)(146,261)
Loss on disposal of assets 8,677 359,959 
Gain on sale of investments (1,245,075)(274,844)
Loss on sale of investments 529,484 21,431 
Deferred income taxes (2,746,797)5,718,363 
Stock-based compensation expense related to employee stock options, employee stock purchases and restricted stock 3,977,471 4,422,996 
Change in operating assets and liabilities: 
Accounts receivable, net (15,305,451)(37,866,173)
Inventories 9,532,631 (7,776,814)
Prepaid expenses and other 2,872,873 18,857,501 
Accounts payable (12,590,570)(2,249,350)
Accrued liabilities, excluding dividends declared and short-term debt 23,125,002 27,385,768 
Net cash provided by operating activities 147,449,048 131,191,171 
CASH FLOWS USED FOR INVESTING ACTIVITIES: 
Activity in available-for-sale securities: 
Sales proceeds 53,822,052 1,316,280 
Maturities and calls 3,000,000 6,100,000 
Purchases (1,213,405)(16,225,018)
Plant and equipment additions (26,247,890)(27,119,993)
Proceeds from sale of plant and equipment 67,400 15,001 
Decrease (Increase) in other assets 45,322 (588,361)
Net cash provided by (used for) investing activities 29,473,479 (36,502,091)
CASH FLOWS USED FOR FINANCING ACTIVITIES: 
Repayment of debt (28,000,000)(41,875,000)
Issuance of common stock from stock plan transactions 36,267,047 17,237,232 
Cash dividends paid (28,028,132)(25,896,377)
Repurchases of common stock (202,572,378)(30,986,385)
Net cash used for financing activities (222,333,463)(81,520,530)
NET INCREASE IN CASH AND CASH EQUIVALENTS (45,410,936)13,168,550 
CASH AND CASH EQUIVALENTS, beginning of period 569,734,496 546,477,075 
CASH AND CASH EQUIVALENTS, end of period $524,323,560 $559,645,625 

See accompanying notes to condensed consolidated financial statements.
6

GENTEX CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Table of Contents

(1)  Basis of Presentation

The unaudited condensed consolidated financial statements included herein have been prepared by the Company, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. It is suggested that these unaudited condensed consolidated financial statements be read in conjunction with the financial statements and notes thereto included in the Company's 2017 annual report on Form 10-K. In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments, consisting of only a normal and recurring nature, necessary to present fairly the financial position of the Company as of March 31, 2018, and the results of operations and cash flows for the interim period presented.


(2)  Adoption of New Accounting Pronouncements

New Accounting Pronouncements Adopted in Fiscal Year 2018

Effective January 1, 2018, the Company adopted ASC Topic 606, Revenue from Contracts with Customers, using the modified retrospective method as applied to customer contracts that were not completed as January 1, 2018. As a result, financial information for reporting periods beginning after January 1, 2018 are presented under ASC 606, while comparative financial information has not been adjusted and continues to be reported in accordance with the Company’s historical accounting policy for revenue recognition prior to the adoption of ASC 606. This guidance supersedes nearly all existing revenue recognition guidance under US GAAP. The core principle of the guidance is that an entity should recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. In addition, ASU 2014-09 requires certain additional disclosures around the nature, amount, timing, and uncertainty of revenues and cash flows arising from contracts with customers. The Company has documented its accounting policy for the new standard based on a detailed review of its business and contracts. Based on the new guidance, the Company continues to recognize revenue at a particular point in time for the majority of its contracts with customers, which is generally when products are either shipped or delivered, as customer contracts did not meet the criteria in ASC 606 for over-time revenue recognition, specifically the over-time revenue recognition criteria of creating an asset with no alternative use and having an enforceable right to payment for progress towards completion. Therefore, the adoption of ASC 606 did not have a material impact on the consolidated financial statements. The Company has expanded its consolidated financial statement disclosures in order to comply with the disclosure requirements of the ASU. See Note 14 to the Unaudited Condensed Consolidated Financial Statements for additional disclosures regarding the Company’s revenue.

Effective January 1, 2018, the Company adopted ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities. The standard amends various aspects of the recognition, measurement, presentation, and disclosure of financial instruments. The most significant impact to the Company's consolidated financial statements relates to the recognition and measurement of equity investments at fair value with changes recognized in net income. The amendment also updates certain presentation and disclosure requirements. The Company had a cumulative-effect adjustment in the first quarter of 2018 of approximately $6.6 million related to the reclassification of the net unrealized gain on available-for-sale securities as of January 1, 2018 from other comprehensive income to retained earnings due to the implementation of this guidance.

New Accounting Pronouncements Not Yet Adopted

In February 2016, the FASB issued ASU 2016-02, Leases, which provides guidance for lease accounting. The new guidance contained in the ASU stipulates that lessees will need to recognize a right-of-use asset and a lease liability for substantially all leases (other than leases that meet the definition of a short-term lease). The liability will be equal to the present value of lease payments. Treatment in the consolidated statements of earnings will be similar to the current treatment of operating and capital leases. The new guidance is effective on a modified retrospective basis for the Company in the first quarter of its fiscal year ending December 31, 2019. The Company is currently in the process of evaluating the impact of adoption of this standard on its consolidated financial statements. Upon adoption, the Company does not anticipate a material impact on the Company's Consolidated Financial Statements.

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(3)  Goodwill and Other Intangible Assets

Goodwill represents the cost of an acquisition in excess of the fair values assigned to identifiable net assets acquired. The Company recorded Goodwill of $307.4 million as part of the HomeLink® acquisition. The carrying value of Goodwill as of December 31, 2017 and March 31, 2018 was $307.4 million.

In addition to annual impairment testing, which is performed as of the first day of the fourth quarter, the Company continuously monitors for events and circumstances that could negatively impact the key assumptions in determining fair value thus resulting in the need for interim impairment testing, including long-term revenue growth projections, profitability, discount rates, recent market valuations from transactions by comparable companies, volatility in the Company's market capitalization, and general industry, market and macroeconomic conditions. No such events or circumstances in the most recently completed quarter indicated the need for interim impairment testing.

The patents and intangible assets and related change in carrying values are set forth in the tables below: 

As of March 31, 2018:

Other Intangible Assets Gross Accumulated Amortization Net Assumed Useful Life 
Gentex Patents $36,352,536 $(19,760,899)$16,591,637 various 
Other Intangible Assets 
HomeLink® Trade Names and Trademarks
$52,000,000 $— $52,000,000 Indefinite 
HomeLink® Technology
180,000,000 (67,500,000)112,500,000 12 years
Existing Customer Platforms 43,000,000 (19,350,000)23,650,000 10 years
Exclusive Licensing Agreement 96,000,000 — 96,000,000 Indefinite 
Total Other Intangible Assets $371,000,000 $(86,850,000)$284,150,000 
Total Patents & Other Intangible Assets $407,352,536 $(106,610,899)$300,741,637 

        As of December 31, 2017:

Other Intangible Assets Gross Accumulated Amortization Net Assumed Useful Life 
Gentex Patents $34,847,029 $(18,943,554)$15,903,475 various 
HomeLink® Trade Names and Trademarks
$52,000,000 $— $52,000,000 Indefinite 
HomeLink® Technology
180,000,000 (63,750,000)$116,250,000 12 years
Existing Customer Platforms 43,000,000 (18,275,000)$24,725,000 10 years
Exclusive Licensing Agreement 96,000,000 — $96,000,000 Indefinite 
Total other identifiable intangible assets $371,000,000 $(82,025,000)$288,975,000 
Total Patents & Other Intangible Assets $405,847,029 $(100,968,554)$304,878,475 

Amortization expense on patents and intangible assets was approximately $5.7 million during the three month period ended March 31, 2018, compared to approximately $5.6 million for the same period ended March 31, 2017.

Excluding the impact of any future acquisitions, the Company continues to estimate amortization expense for each of the years ended December 31, 2018, 2019, 2020, 2021, and 2022 to be approximately $22 million annually.
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(4) Investments
The Company follows the provisions of ASC 820, “Fair Value Measurements and Disclosures” for its financial assets and liabilities, and for its non-financial assets and liabilities subject to fair value measurements. ASC 820 provides a framework for measuring the fair value of assets and liabilities. This framework is intended to provide increased consistency in how fair value determinations are made under various existing accounting standards that permit, or in some cases, require estimates of fair-market value. This standard also expanded financial statement disclosure requirements about a company’s use of fair-value measurements, including the effect of such measurement on earnings. The cost of securities sold is based on the specific identification method.

Effective January 1, 2018, the Company adopted ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities. The standard amends various aspects of the recognition, measurement, presentation, and disclosure of financial instruments. The most significant impact on the Company's consolidated financial statements relates to the recognition and measurement of equity investments at fair value with changes recognized in net income, though there are also updates to certain presentation and disclosures.  The Company had a cumulative-effect adjustment in the first quarter of 2018 of approximately $6.6 million related to the reclassification of the net unrealized gain on available-for-sale securities as of January 1, 2018 from other comprehensive income to retained earnings as a result of the implementation of this guidance.
The Company’s investments in common stock are stated at fair value based on quoted market prices, and as such are classified as Level 1 assets. The Company determines the fair value of its government securities and corporate bonds by utilizing monthly valuation statements that are provided by its broker. The broker determines the investment valuation by utilizing the bid price in the market and also refers to third party sources to validate valuations, and as such are classified as Level 2 assets.  
The Company's certificates of deposit have remaining maturities of less than one year and are considered as Level 1 assets. These investments are carried at cost, which approximates fair value.
During the year ended December 31, 2017, the Company made technology investments in certain non-consolidated affiliates for ownership interests of less than 20%.  These investments do not have readily determinable fair values, and the Company has not to date identified any observable events that would cause adjustment, and therefore these investments are held at cost at a total of $3.2 million as of March 31, 2018. These investments are classified within Long-Term Investments in the consolidated balance sheet. 
Long-term investments decreased from December 31, 2017 to March 31, 2018 as a result of the sale of the majority of the Company's available-for-sale equity investments as part of its previously announced capital allocation strategy.
Assets or liabilities that have recurring fair value measurements are shown below as of March 31, 2018 and December 31, 2017:
As of March 31, 2018:
Fair Value Measurements at Reporting Date Using 
Total as of 
Quoted Prices in
Active Markets for
Identical Assets
Significant Other
Observable
Inputs
Significant
Unobservable
Inputs
Description March 31, 2018(Level 1) (Level 2) (Level 3) 
Cash & Cash Equivalents $524,323,560 $524,323,560 $ $ 
Short-Term Investments: 
Certificate of Deposit 130,000,000 130,000,000   
Corporate Bonds 15,891,817  15,891,817  
Government Securities 6,003,510  6,003,510  
Other 284,081 284,081   
Long-Term Investments: 
Common Stocks 40,000 40,000   
Total $676,542,968 $654,647,641 $21,895,327 $ 



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As of December 31, 2017:

Fair Value Measurements at Reporting Date Using 
Total as of Quoted Prices in Active Markets for Identical Assets Significant Other Observable Inputs Significant Unobservable Inputs 
Description December 31, 2017(Level 1) (Level 2) (Level 3) 
Cash & Cash Equivalents $569,734,496 $569,734,496 $ $ 
Short-Term Investments: 
Certificate of Deposit 130,000,000 130,000,000   
Government Securities 9,011,130  9,011,130  
Mutual Funds 393,581  393,581  
Corporate Bonds 12,944,999  12,944,999  
Other 188,344 188,344   
Long-Term Investments: 
Corporate Bonds 3,018,720  3,018,720  
Common Stocks 15,703,371 15,703,371   
Mutual Funds 34,681,337 34,681,337   
Preferred Stock 1,178,991 1,178,991   
Total $776,854,969 $751,486,539 $25,368,430 $ 

The amortized cost, unrealized gains and losses, and market value of investment securities are shown as of  March 31, 2018, and December 31, 2017:

As of March 31, 2018:
Unrealized 
Cost Gains Losses Market Value 
Short-Term Investments: 
Certificate of Deposit $130,000,000 $ $ $130,000,000 
Government Securities 6,009,310  (5,800)6,003,510 
Corporate Bonds 15,919,177  (27,360)15,891,817 
Other 284,081   284,081 
Long-Term Investments: 
Common Stocks 40,000   40,000 
Total $152,252,568 $ $(33,160)$152,219,408 
















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As of December 31, 2017:
Unrealized 
Cost Gains Losses Market Value 
Short-Term Investments: 
Certificate of Deposit $130,000,000 $ $ $130,000,000 
Government Securities 9,024,777  (13,647)9,011,130 
Mutual Funds 392,482 1,575 (476)393,581 
Corporate Bonds 12,952,229  (7,230)12,944,999 
Other 188,344   188,344 
Long-Term Investments: 
Corporate Bonds 3,022,994  (4,274)3,018,720 
Common Stocks 10,897,219 5,079,815 (273,663)15,703,371 
Mutual Funds 29,306,540 5,440,344 (65,547)34,681,337 
Preferred Stock 1,141,458 40,533 (3,000)1,178,991 
Total $196,926,043 $10,562,267 $(367,837)$207,120,473 
        
        
Unrealized losses on investments as of March 31, 2018, are as follows:
Aggregate Unrealized Losses Aggregate Fair Value 
Less than one year $33,160 $21,895,327 
Greater than one year   
Total $33,160 $21,895,327 
Unrealized losses on investments as of December 31, 2017, are as follows: 
Aggregate Unrealized Losses Aggregate Fair Value 
Less than one year $263,655 $31,223,557 
Greater than one year 104,182 285,077 
Total $367,837 $31,508,634 

ASC 320, “Accounting for Certain Investments in Debt and Equity Securities”, as amended, provides guidance on determining when an investment is other than temporarily impaired. No investment losses were considered to be other than temporary during the periods presented. The Company has the intention and current ability to hold its debt investments until the amortized cost basis has been recovered.

Fixed income securities as of March 31, 2018 have contractual maturities as follows:
Due within one year $151,895,327 
Due between one and five years  
Due over five years  
$151,895,327 
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(5) Inventories
Inventories consisted of the following at the respective balance sheet dates:
March 31, 2018December 31, 2017
Raw materials $132,138,376 $139,272,129 
Work-in-process 31,124,313 30,481,192 
Finished goods 43,970,263 47,012,262 
Total Inventory $207,232,952 $216,765,583 


(6) Earnings Per Share

The following table reconciles the numerators and denominators used in the calculation of basic and diluted earnings per share (EPS):

Three Months Ended March 31, 
20182017
Numerators: 
Numerator for both basic and diluted EPS, net income $111,248,743 $97,556,741 
Denominators: 
Denominator for basic EPS, weighted-average shares outstanding 274,759,516 287,408,900 
Potentially dilutive shares resulting from stock plans 2,749,912 4,070,938 
Denominator for diluted EPS 277,509,428 291,479,838 
Shares related to stock plans not included in diluted average common shares outstanding because their effect would be anti-dilutive 156,467 2,311 

(7) Stock-Based Compensation Plans
As of March 31, 2018, the Company had four equity incentive plans which include two stock option plans, a restricted stock plan and an employee stock purchase plan. All plans and any prior material amendments thereto have previously been approved by shareholders. Readers should refer to Note 5 of our consolidated financial statements in our Annual Report on Form 10-K for the calendar year ended December 31, 2017, for additional information related to these stock-based compensation plans.
The Company recognized compensation expense for share-based payments of $3,901,316 for the three months ended March 31, 2018, and $3,484,240 for the three months ended March 31, 2017. Compensation cost for share based payment awards capitalized as part of inventory as of  March 31, 2018 and March 31, 2017 was $258,651 and $226,119, respectively.
Employee Stock Option Plan
The Company has an employee stock option plan covering 24,000,000 shares of common stock. The purpose of the plan is to provide an opportunity to use stock options as a means of recruiting new managerial and technical personnel and as a means for retaining certain employees of the Company and allow them to purchase shares of common stock of the Corporation and thereby have an additional incentive to contribute to the prosperity of the Company.  
The fair value of each option grant in the employee stock option plan was estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions for the indicated periods:
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(7)  Stock-Based Compensation Plans (continued)
Three Months Ended March 31, 
20182017
Dividend Yield(1)
2.02 %2.18 %
Expected volatility(2)
23.26 %29.81 %
Risk-free interest rate(3)
2.56 %2.10 %
Expected term of options (years)(4)
4.194.09
Weighted-avg. grant date fair value $4.18 $4.51 
  1. Represents the Company’s estimated cash dividend yield over the expected term of option grant.
  2. Amount is determined based on analysis of historical price volatility of the Company’s common stock. The expected volatility is based on the daily percentage change in the price of the stock over a period equal to the expected term of the option grant.
  3. Represents the U.S. Treasury yield over the expected term of the option grant.
  4. Represents the period of time that options granted are expected to be outstanding. Based on analysis of historical option exercise activity, the Company has determined that all employee groups exhibit similar exercise and post-vesting termination behavior.

Under the employee stock option plan, the option exercise price equals the stock’s market price on date of grant. The options vest after one to five years, and expire after five to ten years. As of March 31, 2018, there was $10,686,587 of unrecognized compensation cost related to share-based payments which is expected to be recognized over the vesting periods.

Non-employee Director Stock Option Plan

The Company has a non-employee director stock option plan covering 1,000,000 shares of common stock. As of March 31, 2018, there was no unrecognized compensation cost under the non-employee director plan related to share-based payments. The Company has granted options on 427,000 shares under the non-employee director plan through March 31, 2018. Under the non-employee director plan, the option exercise price equals the stock’s market price on the date of grant. The options vest after six months, and expire after ten years.

Employee Stock Purchase Plan

The Company has an employee stock purchase plan covering 2,000,000 shares of common stock. Under the plan, the Company sells shares at 85% of the stock’s market price at date of purchase. Under ASC 718, the 15% discounted value is recognized as compensation expense. As of  March 31, 2018, the Company has granted 824,647 shares under this plan.

Restricted Stock Plan

The Company has a restricted stock plan covering 9,000,000 shares of common stock. The purpose of the restricted stock plan is to permit grants of shares, subject to restrictions, to employees of the Company as a means of retaining and rewarding them for performance and to increase their ownership in the Company. Shares awarded under the restricted stock plan entitle the shareholder to all rights of common stock ownership except that the shares may not be sold, transferred, pledged, exchanged or otherwise disposed of during the restriction period. The restriction period is determined by the Compensation Committee, appointed by the Board of Directors, but may not exceed ten years under the terms of the plan. As of March 31, 2018, the Company had unearned stock-based compensation of $27,760,004 associated with these restricted stock grants. The unearned stock-based compensation related to these grants is being amortized to compensation expense over the applicable restriction periods. Amortization expense from restricted stock grants in the three months ended March 31, 2018 and 2017 was $1,643,060 and $940,811, respectively.

(8) Comprehensive Income

Comprehensive income reflects the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources. For the Company, comprehensive income represents net income adjusted for unrealized gains and losses on certain investments, foreign currency translation adjustments, and derivatives. 






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(8)  Comprehensive Income (continued)


The following table presents the net changes in the Company's accumulated other comprehensive income (loss) by component: (All amounts shown are net of tax).
Three Months Ended March 31, 
2018 2017 
Foreign currency translation adjustments: 
Balance at beginning of period $645,030 $(2,862,999)
Other Comprehensive income before reclassifications
1,626,178 188,590 
Net current-period change 1,626,178 188,590 
Balance at end of period 2,271,208 (2,674,409)
Unrealized gains (losses) on available-for-sale debt securities: 
Balance at beginning of period (16,349)2,788,975 
Other Comprehensive income before reclassifications
548,506 1,575,383 
Amounts reclassified from accumulated other comprehensive income (565,317)(164,718)
Net current-period change (16,811)1,410,665 
Balance at end of period (33,160)4,199,640 
Unrealized gains (losses) on derivatives: 
Balance at beginning of period (78,026)(1,197,281)
Other comprehensive income before reclassifications 43,173 147,318 
Amounts reclassified from accumulated other comprehensive income 9,794 269,966 
Net current-period change 52,967 417,284 
Balance at end of period (25,059)(779,997)
Accumulated other comprehensive income, end of period
$2,212,989 $745,234 
 
The following table presents details of reclassifications out of accumulated other comprehensive income for the three months ended March 31, 2018 and 2017.

Details about Accumulated Other Comprehensive Income Components Amounts Reclassified from Other Comprehensive Income Affected Line item in the Statement of Consolidated Income 
Three Months Ended March 31, 
2018 2017 
Unrealized gains (losses) on available-for-sale securities 
Realized gain on sale of securities $715,591 $253,413 Other income (loss), net 
Provision for income taxes (150,274)(88,695)Provision for income taxes 
$565,317 $164,718 Net of tax 
Unrealized gains (losses) on derivatives 
Realized loss on interest rate swap $(12,398)$(415,333)Other income (loss), net 
Provision for income taxes 2,604 145,367 Provision for income taxes 
$(9,794)$(269,966)Net of tax 
Total net reclassifications for the period $555,523 $(105,248)Net of tax 

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(9) Debt and Financing Arrangements

On September 27, 2013, the Company entered into a Credit Agreement (“Credit Agreement”) with certain banks and agents.

Pursuant to the Credit Agreement, the Company is the borrower under a $150 million senior revolving credit facility (“Revolver”) and a $150 million term loan facility (“Term Loan”). Under the terms of the Credit Agreement, the Company is entitled, to further request an additional aggregate principal amount of up to $75 million, subject to the satisfaction of certain conditions. In addition, the Company is entitled to the benefit of swing loans from amounts otherwise available under the Revolver in the aggregate principal amount of up to $20 million and to request Letters of Credit from amounts otherwise available under the Revolver in the aggregate principle amount up to $20 million, both subject to certain conditions. The obligations of the Company under the Credit Agreement are not secured, but are subject to certain covenants. The Revolver expires and the Term Loan matures on September 27, 2018. 

During the three months ended March 31, 2018, the Company made principal repayments of $28.0 million, plus accrued interest, on the Term Loan and Revolver. The aforementioned payments include a payment made by the Company of $26.1 million on the Term Loan during the first quarter of 2018, which was in addition to scheduled amounts due. The Company used cash and cash equivalents to fund the payments. As of March 31, 2018, there was no outstanding balance on the Revolver. Under current terms of the Term Loan, the Company is required to make principal repayments of  $7.5 million annually. As of March 31, 2018, $50.0 million was outstanding under the Term Loan.

As of March 31, 2018, the borrowing rate on both its Term Loan and Revolver are derived from the one month LIBOR, and based on the Company's leverage ratio as of March 31, 2018 the interest rate on its borrowings is equal to 2.88%. Interest expense is netted within the "Other, net" section of the Condensed Consolidated Statements of Income, and interest expense associated with the Term Loan and Revolver was $0.5 million during the three months ended March 31, 2018, and $0.9 million during the three months ended March 31, 2017, respectively.

The Credit Agreement contains customary representations and warranties and certain covenants that place certain limitations on the Company.

As of  March 31, 2018, the Company was in compliance with its covenants under the Credit Agreement.


(10) Equity

The decrease in common stock during the three months ended March 31, 2018, was primarily due to the repurchases of 9.3 million shares, of which 3.8 million shares were acquired pursuant to the Company's previously announced share repurchase plan. In addition, 5.5 million shares were repurchased from the former CEO and subsequently retired, pursuant to his previously disclosed retirement agreement, at a price of $20.98 per share. As previously announced, these share repurchases were separately approved by the Company's Board of Directors and were not repurchased as part of the Company’s existing share repurchase plan.  The share repurchases in the first quarter of 2018 were partially offset by the issuance of 2.9 million shares of the Company’s common stock under the Company’s stock-based compensation plans. The total net decrease was 6.4 million shares. 

The Company announced a $0.01 per share increase in its quarterly cash dividend rate during the second quarter of 2017, and a further $0.01 per share increase during the first quarter of 2018. As such, the Company recorded a cash dividend of $0.11 during the first quarter of 2018 as compared to a cash dividend of $0.09 per share during the first quarter of 2017. The first quarter 2018 dividend of $30.1 million, was declared on March 9, 2018, and was paid on April 18, 2018.

(11) Contingencies
The Company is periodically involved in legal proceedings, legal actions and claims arising in the normal course of business, including proceedings relating to product liability, intellectual property, safety and health, employment and other matters. Such matters are subject to many uncertainties and outcomes are not predictable. The Company does not believe, however, that at the current time any of these matters constitute material pending legal proceedings that will have a material adverse effect on the financial position or future results of operations or cash flows of the Company.

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(12) Segment Reporting

The Company's automotive segment develops and manufactures electro-optic products and electronics, including: automatic-dimming rearview mirrors with and without electronic features; non-auto dimming rearview mirrors with and without electronic features; and other electronics. The Company also develops and manufactures variably dimming windows for the aerospace industry and fire protection products for the commercial construction industry, which are combined into the "Other" segment shown below.

Three Months Ended March 31, 
20182017
Revenue: 
Automotive Products $454,965,374 $445,652,575 
Other 10,454,731 7,882,675 
Total $465,420,105 $453,535,250 
Income from operations: 
Automotive Products $124,962,159 $132,504,957 
Other 3,553,174 1,922,163 
Total $128,515,333 $134,427,120 

(13) Income Taxes

The effective tax rate was 15.6% in the three months ended March 31, 2018 compared to 27.7% for the same period in 2017. 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 during the three month period ended March 31, 2018. The decrease in the effective tax rate for the three months ended March 31, 2018 compared to the same period of 2017 was due to the reduction of the federal income tax rate from 35% to 21% as a result of the Tax Cuts and Jobs Act ("Act"), as well as R&D tax credits, discrete tax benefits related to equity compensation, and the foreign-derived intangible income tax deduction.

Pursuant to the guidance within SEC Staff Accounting Bulletin No. 118 (“SAB 118”), as the Company has continued to analyze certain aspects of the Act and refine its application to the Company. The Company has continued to recognize provisional effects of the Act for which measurement could be reasonably estimated. The ultimate impact of the Act may differ from these estimates due to its continued analysis or further regulatory guidance that may be issued pursuant to the Act. Under SAB 118, adjustments to the provisional amounts recorded by the Company as of March 31, 2018, that are identified within a subsequent measurement period of up to one year from the enactment date will be included as an adjustment to tax expense from continuing operations in the period the amounts are determined.


(14) Revenue

The Company adopted ASC 606 using the modified retrospective method as applied to customer contracts that were not completed as of January 1, 2018. As a result, financial information for reporting periods beginning after January 1, 2018 are presented under ASC 606, while comparative financial information has not been adjusted and continues to be reported in accordance with the Company’s historical accounting policy and then applicable guidance for revenue recognition prior to the adoption of ASC 606.

The following table shows the Company’s Automotive and Other Products revenue disaggregated by geographical location for Automotive Products for the period ended March 31, 2018:

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Revenue Three Months Ended March 31, 2018 
Automotive Products 
U.S. 140,312,987 
Germany 91,793,541 
Japan 49,832,997 
Other 173,025,849 
Total Automotive Products 454,965,374 
Other Products (U.S.) 10,454,731 
Total Revenue 465,420,105 
Revenue by geographic area may fluctuate based on many factors, including exposure to local economic, political and labor conditions; unexpected changes in laws, regulations, trade or monetary or fiscal policy, including interest rates, foreign currency exchange rates and changes in the rate of inflation in the U.S. and other foreign countries; and tariffs, quotas, customs and other import or export restrictions and other trade barriers.

The following table disaggregates the Company’s Automotive and Other revenue by major source for the period ended March 31, 2018:

Revenue Three Months Ended March 31, 2018 
Automotive Segment 
Automotive Mirrors & Electronics 404,241,628 
HomeLink Modules* 50,723,746 
Total Automotive Products 454,965,374 
Other Segment 
Fire Protection Products 5,279,658 
Windows Products 5,175,073 
Total Other 10,454,731 
*Excludes HomeLink revenue related to HomeLink modules integrated into automotive mirrors 

Revenue is recognized when obligations under the terms of a contract with the customer are satisfied. Such recognition generally occurs with the transfer of control of the products at a point in time. OEM contracts generally include Long Term Supply Agreements ("LTSA") and Purchase Orders ("PO") whereby the LTSA sometimes stipulates the pricing and delivery terms and is evaluated together with a PO, which identifies the quantity, timing, and the type of product to be transferred. Certain customer contracts do not always have an LTSA, in which case, the contracts are governed by the PO from the customer in conjunction with other mutually agreed upon terms and conditions.

The Company does not generate revenue from arrangements with multiple deliverables. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring goods and excludes from revenue amounts which are transferred to third parties, such as sales, value add, and other taxes the Company collects concurrently with revenue-producing activities. The Company does not incur any incremental cost to obtain contracts. Costs are incurred to fulfill contracts with the OEM. However, such costs are accounted for under ASC 340-10, and are not treated as fulfillment costs under ASC 340-40.




17

GENTEX CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Table of Contents



Automotive Products Segment

Automotive Rearview Mirrors and Electronics

The Company manufactures interior electrochromic automatic-dimming rearview mirrors that darken to reduce glare and improve visibility for the driver. These electronic interior mirrors can also include additional electronic features such as compass, microphones, HomeLink®, lighting assist and driver assist forward safety camera systems, various lighting systems, various telematics systems, ITM® systems, and a wide variety of displays. The Company also ships interior non-automatic-dimming rearview mirrors with features. The Company’s interior electrochromic automatic-dimming rearview mirrors also power the application of the Company’s exterior electrochromic automatic-dimming rearview mirrors that darken to reduce glare and improve visibility for the driver. These electronic exterior mirrors typically range in size and shape per automaker specification, but also include additional features such as turn signal indicators, side blind zone indicators, and courtesy lighting. The Company also ships exterior non-automatic-dimming rearview mirrors with similar electronic features as what is available in its automatic-dimming applications. The Company manufactures other automotive electronics products both inside and outside of the rearview mirror through HomeLink® applications in the vehicle including the rearview mirror, interior visor, overhead console, or center console.

For the majority of automotive products, transfer of control and revenue recognition occurs when the Company ships the product from the manufacturing facility to the customer. The Company receives cash equal to the invoice price for most automotive product sales at time of invoice. For any shipments of product that may be subject to retroactive price adjustments that are then being negotiated, the Company records revenue based on the Company’s best estimate of the amount of consideration to which the entity will be entitled in exchange for transferring the promised goods to the customer. The Company's approach is to consider these adjustments to the contract price as variable consideration which is estimated based on the then most likely price amount. Payment terms on automotive part sales to customers range from 15 days to 90 days. Estimated revenue is adjusted at the earlier of when the most likely amount of consideration expected to be received changes or when the consideration becomes fixed.

HomeLink® Modules

The Company manufactures and sells HomeLink® Modules individually, as well as in combination with the automotive mirrors and other advanced features, as described above. For the majority of automotive products, transfer of control and revenue recognition occurs when the Company ships the product from the manufacturing facility to the customer.

Other Segment

Dimmable Aircraft Windows

The Company supplies variable dimmable windows for the passenger compartment on the Boeing 787 Dreamliner Series of Aircraft. For dimmable aircraft windows, transfer of control and revenue recognition occurs when the Company ships the product from the manufacturing facility to the customer. Payment terms on dimmable aircraft window sales to customers range from 30 days to 45 days.

Fire Protection Products

The Company manufactures photoelectric smoke detectors and alarms, visual signaling alarms, electrochemical carbon monoxide detectors and alarms, audible and visual signaling alarms, and bells and speakers for use in fire detection systems in office buildings, hotels, and other commercial and residential buildings. For fire protection parts, transfer of control and revenue recognition occurs when the Company ships the product from the manufacturing facility to the customer. Payment terms on fire protection part sales to customers range from 30 days to 75 days. 

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Table of Contents
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.


RESULTS OF OPERATIONS:

FIRST QUARTER 2018 VERSUS FIRST QUARTER 2017
Net Sales. Net sales for the first quarter of 2018 increased by $11.9 million or 3% when compared with the first quarter of 2017.  
Automotive net sales for the first quarter of 2018 increased 2% to $455.0 million, compared with automotive net sales of $445.6 million in the first quarter of 2017, driven primarily by a 7% quarter over quarter increase in automotive mirror unit shipments. This increase in automotive mirror unit shipments in the first quarter of 2018 of 7% to 10.6 million units compared with the first quarter of 2017, was due to increased international shipments of the Company's interior and exterior auto-dimming mirrors, which were partially offset by lower quarter over quarter North American mirror unit shipments.
The below table represents the Company's auto-dimming mirror unit shipments for the three months ended March 31, 2018, and 2017 (in thousands).

Three Months Ended March 31, 
2018 2017 
Change
North American Interior Mirrors 2,326