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

FORM 10-Q 
(Mark one)
ü
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
  For the quarterly period ended September 30, 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 every Interactive Data File required to be submitted 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 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, a smaller reporting company, or emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
ü
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial or accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

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, October 19, 2018 
Common Stock, $.06 Par Value
262,116,951 

1


GENTEX CORPORATION AND SUBSIDIARIES
For the Three and Nine Months Ended September 30, 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


PART I —FINANCIAL INFORMATION
Item 1. Unaudited Consolidated Financial Statements.
GENTEX CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
As of September 30, 2018 and December 31, 2017 
September 30, 2018 
December 31, 2017
(Note)
ASSETS
CURRENT ASSETS 
Cash and cash equivalents $194,017,041 $569,734,496 
Short-term investments 143,623,541 152,538,054 
Accounts receivable, net 247,322,101 231,121,788 
Inventories 213,394,037 216,765,583 
Prepaid expenses and other 29,201,873 14,403,902 
Total current assets 827,558,593 1,184,563,823 
PLANT AND EQUIPMENT—NET 497,305,597 492,479,330 
OTHER ASSETS 
Goodwill 307,365,845 307,365,845 
Long-term investments 141,631,510 57,782,418 
Intangible assets, net 274,500,000 288,975,000 
Patents and other assets, net 21,027,381 20,887,496 
Total other assets 744,524,736 675,010,759 
Total assets $2,069,388,926 $2,352,053,912 
LIABILITIES AND SHAREHOLDERS’ INVESTMENT
CURRENT LIABILITIES 
Accounts payable $90,041,982 $89,898,467 
Current portion of long-term debt  78,000,000 
Accrued liabilities 82,844,508 75,748,540 
Total current liabilities 172,886,490 243,647,007 
DEFERRED INCOME TAXES 53,398,181 58,888,644 
TOTAL LIABILITIES 226,284,671 302,535,651 
SHAREHOLDERS’ INVESTMENT 
Common stock 15,727,030 16,816,879 
Additional paid-in capital 743,495,999 723,510,672 
Retained earnings 1,086,003,216 1,301,997,327 
Accumulated other comprehensive (loss) income (2,121,990)7,193,383 
Total shareholders’ investment 1,843,104,255 2,049,518,261 
Total liabilities and shareholders’ investment $2,069,388,926 $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.
3


GENTEX CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
For the Three and Nine Months Ended September 30, 2018 and 2017 
 
Three Months Ended September 30, Nine Months Ended September 30, 
2018201720182017
NET SALES
$460,253,433 $438,627,786 $1,380,654,978 $1,335,302,109 
COST OF GOODS SOLD
287,263,147 267,398,126 862,231,819 821,063,869 
Gross profit 172,990,286 171,229,660 518,423,159 514,238,240 
OPERATING EXPENSES:
Engineering, research and development 26,888,999 24,770,279 80,138,722 75,165,946 
Selling, general & administrative 18,673,376 17,386,729 55,658,189 49,708,008 
Total operating expenses 45,562,375 42,157,008 135,796,911 124,873,954 
Income from operations 127,427,911 129,072,652 382,626,248 389,364,286 
OTHER INCOME (LOSS) 
Investment income 3,180,683 2,139,387 8,062,421 5,348,052 
Other income (loss), net (73,979)(379,996)578,655 (1,071,628)
Total Other Income 3,106,704 1,759,391 8,641,076 4,276,424 
Income before provision for income taxes 130,534,615 130,832,043 391,267,324 393,640,710 
PROVISION FOR INCOME TAXES 19,198,798 40,601,708 59,658,782 117,317,687 
NET INCOME $111,335,817 $90,230,335 $331,608,542 $276,323,023 
EARNINGS PER SHARE: 
Basic $0.42 $0.32 $1.23 $0.97 
Diluted $0.42 $0.31 $1.22 $0.96 
Cash Dividends Declared per Share $0.11 $0.10 $0.33 $0.29 

4


GENTEX CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the Three and Nine Months Ended September 30, 2018 and 2017 
Three Months Ended September 30, Nine Months Ended September 30, 
2018201720182017
Net Income
$111,335,817 $90,230,335 $331,608,542 $276,323,023 
Other comprehensive income (loss) before tax:
Foreign currency translation adjustments (1,174,213)1,182,152 (2,013,638)2,865,952 
Unrealized gains on derivatives 16,165 239,215 98,769 1,376,077 
Unrealized (losses) gains on debt securities, net (609,422)2,287,103 (932,953)5,409,722 
Other comprehensive (loss) income, before tax (1,767,470)3,708,470 (2,847,822)9,651,751 
(Benefit) Expense for income taxes related to components of other comprehensive income (loss) (124,584)884,211 (175,177)2,375,031 
Other comprehensive (loss) income, net of tax (1,642,886)2,824,259 (2,672,645)7,276,720 
Comprehensive Income
$109,692,931 $93,054,594 $328,935,897 $283,599,743 

5


GENTEX CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30, 2018 and 2017 
 
20182017
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $331,608,542 $276,323,023 
Adjustments to reconcile net income to net cash provided by operating activities: 
Depreciation and amortization 80,748,272 74,858,551 
Gain on disposal of assets (145,777)(163,984)
Loss on disposal of assets 26,839 288,323 
Gain on sale of investments (1,508,411)(1,028,505)
Loss on sale of investments 532,494 113,091 
Deferred income taxes (5,538,048)6,855,507 
Stock-based compensation expense related to employee stock options, employee stock purchases and restricted stock 13,558,557 13,090,804 
Change in operating assets and liabilities: 
Accounts receivable, net (16,200,315)(28,914,071)
Inventories 3,371,546 (17,346,380)
Prepaid expenses and other (14,797,969)14,540,408 
Accounts payable 143,514 (60,096)
Accrued liabilities, excluding dividends declared and short-term debt 6,408,044 13,999,423 
Net cash provided by operating activities 398,207,288 352,556,094 
CASH FLOWS USED FOR INVESTING ACTIVITIES: 
Activity in available-for-sale securities: 
Sales proceeds 54,078,232 2,888,493 
Maturities and calls 51,892,136 18,100,000 
Purchases (180,657,259)(18,062,164)
Plant and equipment additions (68,771,193)(86,111,836)
Proceeds from sale of plant and equipment 194,200 192,756 
Decrease (increase) in other assets (4,557,125)2,432,320 
Net cash used for investing activities (147,821,009)(80,560,431)
CASH FLOWS USED FOR FINANCING ACTIVITIES: 
Repayment of debt (78,000,000)(78,125,000)
Issuance of common stock from stock plan transactions 61,379,666 31,896,752 
Cash dividends paid (87,733,776)(80,417,057)
Repurchases of common stock (521,749,624)(129,827,666)
Net cash used for financing activities (626,103,734)(256,472,971)
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (375,717,455)15,522,692 
CASH AND CASH EQUIVALENTS, beginning of period 569,734,496 546,477,075 
CASH AND CASH EQUIVALENTS, end of period $194,017,041 $561,999,767 


6


GENTEX CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)



(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 September 30, 2018, and the results of operations and cash flows for the interim periods presented.

(2) Adoption of New Accounting Pronouncements

New Accounting Pronouncements Adopted in Fiscal Year 2018

Effective January 1, 2018, the Company adopted Accounting Standards Codification ("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, Accounting Standards Update ("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 adoption of this guidance.




7


GENTEX CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


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 income 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, including reviewing all of the available practical expedients for transition. Upon adoption, the Company does not anticipate a material impact on the Company's Consolidated Financial Statements.


(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 September 30, 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 September 30, 2018:
 
Other Intangible Assets
Gross
Accumulated Amortization
Net
Assumed Useful Life
Gentex Patents
$36,152,904 $(20,336,961)$15,815,943 
various
Other Intangible Assets
HomeLink® Trade Names and Trademarks
$52,000,000 $— $52,000,000 
Indefinite
HomeLink® Technology
180,000,000 (75,000,000)105,000,000 12 years
Existing Customer Platforms 43,000,000 (21,500,000)21,500,000 10 years
Exclusive Licensing Agreement 96,000,000 — 96,000,000 
Indefinite
Total Other Intangible Assets
$371,000,000 $(96,500,000)$274,500,000 
Total Patents & Other Intangible Assets
$407,152,904 $(116,836,961)$290,315,943 








8


GENTEX CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


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 $5.6 million and $16.9 million during the three and nine month periods ended September 30, 2018, respectively, compared to approximately $5.6 million and $16.9 million for the same periods ended September 30, 2017, respectively.

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.

(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.
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 third- parties for ownership interests of less than 20%.  These investments do not have readily determinable fair values, and the Company has not identified any observable events that would cause adjustment of the valuation to date, and therefore these investments are held at cost at a total of $3.2 million as of September 30, 2018. These investments are classified within Long-Term Investments in the consolidated balance sheet. 
Assets or liabilities that have recurring fair value measurements are shown below as of September 30, 2018 and December 31, 2017:



9


GENTEX CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


As of September 30, 2018
Fair Value Measurements at Reporting Date Using
Total as of
Quoted Prices in
Active Markets for
Identical Assets
Significant 
Other
Observable
Significant
Unobservable
Inputs
Description
September 30, 2018 
(Level 1)
(Level 2)
(Level 3)
Cash & Cash Equivalents
$194,017,041 $194,017,041 $ $ 
Short-Term Investments:
Certificate of Deposit 130,000,000 130,000,000   
Corporate Bonds 4,994,018  4,994,018  
Government Securities 6,691,949  6,691,949  
Other 1,937,574 1,937,574   
Long-Term Investments: 
Corporate Bonds 62,393,073  62,393,073  
Government Securities 58,331,619  58,331,619  
Common Stocks 40,000 40,000   
Municipal Bonds $17,666,818 $17,666,818 $ $ 
Total $476,072,092 $343,661,433 $132,410,659 $ 

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 September 30, 2018, and December 31, 2017





10


GENTEX CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


As of September 30, 2018:
Unrealized
Cost
Gains
Losses
Market Value
Short-Term Investments:
Certificate of Deposit $130,000,000 $ $ $130,000,000 
Government Securities 6,699,555  (7,606)6,691,949 
Corporate Bonds 4,998,499  (4,481)4,994,018 
Other 1,937,574   1,937,574 
Long-Term Investments: 
Corporate Bonds 62,619,934 56 (226,917)62,393,073 
Government Securities 58,671,384  (339,765)58,331,619 
Common Stocks 40,000   40,000 
Municipal Bonds 17,841,486  (174,668)17,666,818 
Total $282,808,432 $56 $(753,437)$282,055,051 

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 September 30, 2018, are as follows:
Aggregate Unrealized Losses
Aggregate Fair Value
Less than one year
$753,437 $148,084,928 
Greater than one year
  
Total
$753,437 $148,084,928 

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
11


GENTEX CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


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 September 30, 2018 have contractual maturities as follows:
Due within one year
$141,685,968 
Due between one and five years
129,595,580 
Due over five years
8,795,930 
$280,077,478 

(5) Inventories
Inventories consisted of the following at the respective balance sheet dates:
September 30, 2018December 31, 2017
Raw materials
$134,039,095 $139,272,129 
Work-in-process
33,336,971 30,481,192 
Finished goods
46,017,971 47,012,262 
Total Inventory
$213,394,037 $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 September 30, Nine Months Ended September 30, 
2018201720182017
Numerators:
Numerator for both basic and diluted EPS, net income
$111,335,817 $90,230,335 $331,608,542 $276,323,023 
Denominators:
Denominator for basic EPS, weighted-average shares outstanding 265,607,128 284,661,920 270,366,996 285,915,565 
Potentially dilutive shares resulting from stock plans 1,988,014 2,359,030 2,366,506 3,145,936 
Denominator for diluted EPS 267,595,142 287,020,950 272,733,502 289,061,501 
Shares related to stock plans not included in diluted average common shares outstanding because their effect would be anti-dilutive
462,631 807,013 24,590 2,847,247 


(7) Stock-Based Compensation Plans
As of September 30, 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 $4,829,463 and $13,196,413 for the three and nine months ended September 30, 2018, respectively, and $3,067,076 and
12


GENTEX CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


$9,957,687 for the three and nine months ended September 30, 2017, respectively. Compensation cost for share based payment awards capitalized as part of inventory as of September 30, 2018 and December 31, 2017 was $224,025 and $279,102, 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 by allowing them to purchase shares of common stock of the Corporation and thereby having 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:
Three Months Ended September 30, Nine Months Ended September 30, 
2018201720182017
Dividend Yield (1)
1.99 %2.10 %2.09 %2.15 %
Expected volatility (2)
23.32 %23.09 %26.65 %27.68 %
Risk-free interest rate (3)
2.94 %1.92 %2.78 %2.00 %
Expected term of options (years) (4)
4.194.254.214.17
Weighted-avg. grant date fair value
$4.05 $3.35 $4.70 $4.05 
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 September 30, 2018, there was $9,600,422 of unrecognized compensation cost related to share-based payments which is expected to be recognized over the remaining 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 September 30, 2018, there was $87,458 of unrecognized compensation cost under the non-employee director plan related to share-based payments. The Company has granted options on 480,430 shares under the non-employee director plan through September 30, 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 September 30, 2018, the Company has granted 924,878 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
13


GENTEX CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


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 September 30, 2018, the Company had unearned stock-based compensation of $33,559,239 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 and nine months ended September 30, 2018 was $2,480,911 and $6,314,544, respectively, and for the three and nine months ended September 30, 2017 was $1,788,162 and $4,014,820, 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 debt investments, foreign currency translation adjustments, and derivatives.

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 September 30, Nine Months Ended September 30, 
2018201720182017
Foreign currency translation adjustments:
Balance at beginning of period $(194,395)$(1,179,199)$645,030 $(2,862,999)
Other Comprehensive (loss) income before reclassifications
(1,174,213)1,182,152 (2,013,638)2,865,952 
Net current-period change (1,174,213)1,182,152 (2,013,638)2,865,952 
Balance at end of period
(1,368,608)2,953 (1,368,608)2,953 
Unrealized gains (losses) on available-for-sale debt securities: 
Balance at beginning of period
(271,939)4,818,677 (16,349)2,788,975 
Other Comprehensive (loss) income before reclassifications
(276,010)1,371,712 33,941 4,111,338 
Amounts reclassified from accumulated other comprehensive income
(205,433)114,905 (770,974)(595,019)
Net current-period change
(481,443)1,486,617 (737,033)3,516,319 
Balance at end of period
(753,382)6,305,294 (753,382)6,305,294 
Unrealized gains (losses) on derivatives: 
Balance at beginning of period (12,770)(458,322)(78,026)(1,197,281)
Other comprehensive income (loss) before reclassifications 114,889 424 175,308 124,124 
Amounts reclassified from accumulated other comprehensive income (102,119)155,066 (97,282)770,325 
Net current-period change 12,770 155,490 78,026 894,449 
Balance at end of period  (302,832) (302,832)
Accumulated other comprehensive (loss) income, end of period
$(2,121,990)$6,005,415 $(2,121,990)$6,005,415 
 
14


GENTEX CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


 
The following table presents details of reclassifications out of accumulated other comprehensive income for the nine months ended September 30, 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 September 30, 
Nine Months Ended
September 30,
2018201720182017
Unrealized gains (losses) on available-for-sale debt securities
Realized gain on sale of securities $260,042 $(176,777)$975,917 $915,414 
Other income (loss), net
Provision for income taxes (54,609)61,872 (204,943)(320,395)
Provision for income taxes
$205,433 $(114,905)$770,974 $595,019 
Net of tax
Unrealized gains (losses) on derivatives
Realized gain (loss) on interest rate swap $129,265