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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
for the fiscal year ended December 31, 2019 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 No.: 000-10235
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 Street,
 
49464
Zeeland,
Michigan
 
 
(Address of principal executive offices)
 
(Zip Code)
Registrant’s telephone number, including area code: 616-772-1800

Securities registered pursuant to Section 12(b) of the Act:
Title of each Class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, par value $.06 per share
GNTX
NASDAQ Global Select Market
Securities registered pursuant to Section 12(g) of the Act:
None
(Title of Class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.         
Yes:  þ    No:  o 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    
Yes:  o     No  þ

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 an 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 accounting standards provided pursuant to Section 13(a) of the Exchange Act. o 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes:       No:   þ
As of June 30, 2019 (the last business day of the registrant’s most recently completed second fiscal quarter), 254,779,119 shares of the registrant’s common stock, par value $.06 per share, were outstanding. The aggregate market value of the common stock held by non-affiliates of the registrant (i.e., excluding shares held by executive officers, directors, and control persons as defined in Rule 405 (17 CFR 203.405) on that date was $6,258,471,128 computed at the closing price on that date.
As of February 1, 2020, 251,274,340 shares of the registrant’s common stock, par value $.06 per share, were outstanding,
Portions of the Company’s Proxy Statement for its 2019 Annual Meeting of Shareholders are incorporated by reference into Part III.





GENTEX CORPORATION AND SUBSIDIARIES
For the Year Ended December 31, 2019
FORM 10-K
Index

Part I
Page
 
 
 
Part II
 
 
 
 
Part III
 
 
 
 
 
Part IV
 
 
 
 






Part I
 
Item 1.        Business.
 
(a)
General Development of Business

Gentex Corporation (the "Company") was incorporated as a Michigan corporation in 1974. The Company designs, develops, manufactures, markets, and supplies digital vision, connected car, dimmable glass, and fire protection products, including: automatic-dimming rearview and non-dimming mirrors and electronics for the automotive industry; dimmable aircraft windows for the aviation industry; and commercial smoke alarms and signaling devices for the fire protection industry. The Company’s largest business segment involves designing, developing, manufacturing and marketing interior and exterior automatic-dimming automotive rearview mirrors that utilize proprietary electrochromic technology to dim in proportion to the amount of headlight glare from trailing vehicle headlamps. Within this business segment, the Company also designs, develops and manufactures various electronics that are value added features to the interior and exterior automotive rearview mirrors as well as electronics for interior visors, overhead consoles, and other locations in the vehicle. The Company ships its products to all of the major automotive producing regions worldwide, which it supports with numerous sales, engineering and distribution locations worldwide.

In 2015, the Company began making shipments of the Full Display Mirror® ("FDM"®), which is an on-demand, mirror-borne LCD display that streams live, panoramic video of the vehicle's rearward view in order to improve driver rear vision. Also in 2015, the Company signed an exclusive agreement in the ordinary course of business with TransCore LLP to integrate TransCore's toll module technology into the vehicle in a first-to-market application referred to as Integrated Toll Module® or "ITM"®. The interior mirror is an optimal location for a vehicle-integrated toll transponder and it eliminates the need to affix multiple toll tags to the windshield.

In 2017, the Company announced an agreement entered into during the ordinary course of business with VOXX International Corporation to become the exclusive aftermarket distributor of the Gentex Aftermarket Full Display Mirror® in North America. 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 many of its other electronic features, including, HomeLink® and HomeLink Connect® or the Integrated Toll Module®. The biometric system allows for added security and convenience for multiple drivers by adding an additional factor of authentication for increased security, when a driver (or passenger) enters a vehicle. The Company announced in January 2018 that it entered into 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 announced that an agreement had been signed, in the ordinary course of business, to participate in a round of financing with Yonomi, Inc., the Company's partner in home automation technology. The Company continues to work with Yonomi as a home automation aggregation partner and the Company has developed an app and cloud infrastructure called HomeLink Connect®. HomeLink Connect® is a 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® compatible vehicles will be able to download and configure the app to control many available home automation devices and create entire home automation settings. In addition to the foregoing, the Company has addressed improvements to the HomeLink® training process by adding functionality within the HomeLink Connect® app to allow consumers to pair their garage door openers with their HomeLink® buttons.
In January 2019, the Company announced that it would be offering, as optional content, its latest generation of variable dimmable windows on the Boeing 777X aircraft. During the third quarter of 2019, the first production shipments of variably dimmable windows were made to Boeing for the 777X program. In January 2020, the Company announced that Airbus will also be offering the Company's dimmable aircraft windows on its aircraft with production starting in late 2020.






In January 2020 the Company unveiled an innovative lighting technology for medical applications that was co-developed with Mayo Clinic. This new lighting concept represents the collaboration of a global, high-technology electronics company with a world leader in health care. The Company's new intelligent lighting system combines ambient room lighting with camera-controlled, adaptive task lighting to optimize illumination for surgical and patient-care environments. The system was developed over an 18 month period of collaboration between Company engineers and Mayo Clinic surgeons, scientists, and operating room staff. The teams researched, designed, and rapidly iterated multiple prototypes in order to develop unique features that address major gaps in current surgical lighting solutions.

In 2020, the Company will be continuing to work on the intelligent medical lighting system in preparation for clinical trials in order to assess system performance and work toward obtaining any necessary approvals. The Company estimates that it could take 18 to 24 months to complete these trials, before a system could be available for commercial applications.

Automotive revenues represent approximately 97% of the Company's total revenue in 2019, mostly consisting of interior and exterior electrochromic automatic-dimming rearview mirrors and automotive electronics.

 
(b)
[Reserved]
 
(c)
Narrative Description of Business

The Company designs, develops, manufactures, markets, and supplies digital vision, connected car, dimmable glass, and fire protection products, including: automatic-dimming and non-automatic-dimming rearview mirrors and electronics for the automotive industry; dimmable aircraft windows for the aviation industry; and commercial smoke alarms and signaling devices for the fire protection industry.

Automotive Products

Automotive Rearview Mirrors and Electronics. Automotive applications are the largest business segment for the Company, mostly consisting of interior and exterior electrochromic automatic-dimming rearview mirrors and automotive 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 and without 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 can 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 available in its automatic-dimming applications.

The Company manufactures other automotive electronics products through HomeLink® applications in the vehicle including the rearview mirror, interior visor, overhead console, or center console. Certain of the Company's newer features can be located either in the rearview mirror or other locations in the vehicle. Additionally, as the Company expands its Full Display Mirror® product and the Integrated Toll Module® system, rearward facing video cameras and integrated toll transponders are being produced and sold.

The Company produces rearview mirrors and electronics globally for automotive passenger cars, light trucks, pickup trucks, sport utility vehicles, and vans for OEMs, automotive suppliers, and various aftermarket and accessory customers. Automotive rearview mirrors and electronics accounted for 97% of the Company’s consolidated net sales in 2019.

The Company is the leading manufacturer of electrochromic automatic-dimming rearview mirrors in the world, and is the dominant supplier to the automotive industry. Competitors for automotive rearview mirrors include Magna International, Panasonic, YH America, Inc., BYD Auto Company, Murakami Kaimeido Company, Tokai Rika Company, Peak Power Automotive, SMR Automotive, ADAYO, Alpine Electronics, Inc., MEKRA Group, Ningbo Feng Mei, Chogqing Yimei, Guangdong, Yuanfeng, Xiamen Intretech, TT Electronics, and the China automotive aftermarket. The Company also supplies electrochromic automatic-dimming rearview

4



mirrors to certain of these rearview mirror competitors.
Automotive Rearview Mirrors and Electronics Product Development. The Company continually seeks to develop new products and is currently working to introduce additional advanced-feature automatic-dimming mirrors. Advanced-feature automatic-dimming mirrors currently being offered by the Company include one or more of the following features: SmartBeam®, HomeLink®, HomeLink Connect® , frameless mirror designs, LED map lamps, compass and temperature displays, telematics, ITM® systems, hands free communication, Rear Camera Display ("RCD") interior mirrors, FDM® interior mirrors, exterior turn signals, side blind zone indicators and various other exterior mirror features that improve safety and field of view. Advanced features currently in development include: biometric authentication systems, hybrid and fully digital camera monitoring systems ("CMS"), digital video recording solutions, driver and cabin monitoring systems, cabin sensing systems, touch screen displays for mirrors, and digital enhancements to displays to improve driver safety, among other things. Other automotive products currently in development include large area dimmable devices which include, such as sunroof and moonroof applications, driver and passenger windows and other window surfaces in vehicles, among others.
Automotive Rearview Mirrors and Electronics Markets and Marketing. In North America, Europe and Asia, the Company markets its products primarily through a direct sales force utilizing its sales and engineering offices located in Germany, UK, Sweden, France, Japan, South Korea and China, as well as its headquarters in Michigan. The Company generally supplies automatic-dimming mirrors and mirrors with advanced electronic features to its customers worldwide under annual blanket purchase orders with customers, as well as under long-term agreements with certain customers, entered into in the ordinary course of the Company's business.

The Company is currently supplying mirrors and electronic modules for Aston Martin, BMW Group, Daimler Group, FCA Group, Ford Motor Co., Geely/Volvo, General Motors, Honda Motor Co., Hyundai/Kia, Jaguar/Land Rover, Karma Automotive, Mazda, Mahindra & Mahindra, McLaren, PSA/Opel Group, Renault/Nissan/Mitsubishi Group, Subaru, Suzuki, Tesla, Toyota Motor Company, Volkswagen Group, as well as, shipments to domestic China manufacturers (Borgward, BYD, Chery, Dongfeng, Great Wall, Jianghuai, NextEV, and SAIC).
Revenues by major geographic area are disclosed in Note 7 to the Consolidated Financial Statements.
Historically, new safety and comfort and convenience options have entered the original equipment automotive market on “top of the line” or luxury model automobiles. As the selection rates for the options on the luxury models increase, they generally become available on more models throughout the product line. The ongoing trend of domestic and foreign automakers is to offer several options as a package. The Company believes that its automatic-dimming mirrors with and without advanced features will continue to be offered in more option packages, and continue to be available on more small and mid-size vehicle models as consumer awareness of these safety and comfort and convenience features continue to grow, and as the Company continues its efforts to make automakers aware of the Company's technology available on competitive vehicle platforms. With design trends currently reducing visibility in today's passenger vehicles, the Company's Full Display Mirror® has gained popularity for its ability to leverage a custom camera and mirror-integrated video display to optimize a vehicle’s rearward view. The ability to optimize rearward visibility increases the use case of FDM® for many different vehicles, from volume based nameplates to luxury models. Increasing demand for the FDM® system appears to be based on the ability to capture video from a rearward-facing camera and streams it to a unique mirror-integrated LCD, which provides the driver with an unobstructed, panoramic view behind the vehicle, while at the same time offering the functionality of a standard rearview mirror with the flip of a switch.

Automotive Rearview Mirrors and Electronics Competition. The Company continues to be the leading producer of automatic-dimming rearview mirrors in the world and currently is the dominant supplier to the automotive industry with an approximate 94% market share worldwide in 2019 and an approximate 92% market share in 2018. While the Company believes it will retain a dominant position in automatic-dimming rearview mirrors for some time, another U.S. manufacturer, Magna Mirrors, a division of Magna International Inc. ("Magna"), continues to compete for sales to domestic and foreign vehicle manufacturers and is supplying a number of domestic and foreign vehicle models with its versions of auto-dimming mirrors and may have considerably more resources available to it. As such, Magna may present a formidable competitive threat. The Company also continues to sell automatic-dimming exterior mirror sub-assemblies to Magna Mirrors. In addition, a Japanese manufacturer (Tokai Rika) is currently supplying a few vehicle models in Japan with solid-state electrochromic mirrors. There are also a small number of Chinese domestic mirror suppliers that are marketing and selling automatic-dimming rearview mirrors, in low volume, within the domestic China automotive market. Additionally, other companies have demonstrated products that are competitive to the Company's Full Display Mirror® system, and the Company acknowledges that dimming device (e.g., electrochromic) technology is the subject of research and development effor

5



ts by numerous third parties.
Through the Company's HomeLink® function, the Company is the leading supplier of integrated wireless in-vehicle communication devices to the automotive industry for communication with garages, gates, parking barriers, and certain home automation products. HomeLink® business continues to be awarded to the Company either through its automatic-dimming rearview mirrors, or through HomeLink® electronic modules which are integrated into other areas of the automobile (i.e. visors, overhead consoles, and center consoles). In 2014, the Company announced HomeLink® applications for alternative automobiles and vehicle types which include but are not limited to motorcycles, mopeds, snowmobiles, tractors, combines, lawn mowers, loaders, backhoes and golf carts. These product developments will utilize the market leading HomeLink® V system of communication to the home, door locks, garage doors, gates, lights, security systems, and an increasing array of home automation products. The Company believes it is being awarded virtually all business in this area and that while the Company believes it continues to maintain a competitive advantage in this area, the increased focus on vehicle and home connectivity through other devices represents a competitive threat to this business. The Company announced in January 2018 the launch of HomeLink Connect®, an extension of the Company's HomeLink® feature and an all-new home automation app that pairs with the vehicle and allows drivers to operate home automation devices from the vehicle’s center console display and/or rearview mirror controls. Drivers of HomeLink Connect® compatible vehicles will be able to download and configure the app to control a myriad of individual home automation devices, or create entire home automation settings. In August 2019, the Company announced its shipping of the latest version of its HomeLink Connect® car-to-home automation system to VOXX Electronics Corporation for sale in the automotive aftermarket. The system consists of a Bluetooth-enabled automatic-dimming mirror with integrated buttons that can be programmed to operate a myriad of radio frequency and cloud-based home automation devices.
The Company believes its electrochromic automatic-dimming mirrors and mirrors with advanced electronic features offer significant performance advantages over competing products and the Company makes significant research and development investments to continue to increase and improve the performance advantages of its products.
There are numerous other companies in the world conducting research on various technologies, including electrochromics, for controlling light transmission and reflection. The Company currently believes that the electrochromic materials and manufacturing process it uses for automotive mirrors remains the most efficient and cost-effective way to produce such products. While automatic-dimming mirrors using other technologies may eliminate glare, the Company currently believes that each of these other technologies have inherent cost or performance limitations as compared to the Company's technologies.
As the Company continues to expand its automatic-dimming mirror products with additional advanced electronic features and expands the capabilities of its CMOS imager technology for additional features (i.e. SmartBeam®, FDM®, rear video camera, etc.), as well as continuing to expand the capabilities of the Company's hybrid and fully digital CMS technology, the Company recognizes that it is competing with considerably larger and more geographically diverse electronics companies that could present a formidable competitive threat in the future as new products/features and technologies are brought to market.
Dimmable Aircraft Windows
The Company continues to manufacture and sell variable dimmable windows for the passenger compartment on the Boeing 787 Dreamliner series of aircraft. In January 2019, the Company announced that it would be offering, as optional content, its latest generation of variable dimmable windows on the Boeing 777X aircraft. During the third quarter of 2019, the first production shipments of variably dimmable windows were made to Boeing for the 777X program. In January 2020, the Company announced that Airbus will also be offering, as optional content, the Company's dimmable aircraft windows on its aircraft with production starting in late 2020.
Markets and Marketing. The Company markets its variable dimmable windows to aircraft manufacturers and airline operators globally.
Competition. The Company’s variable dimmable aircraft windows are the first commercialized product of its kind for original equipment installation in the aircraft industry. Other manufacturers are working to develop and sell competing products utilizing other technology in the aircraft industry for aftermarket or original equipment installation.
The Company’s success with electrochromic technology provides potential opportunities and use cases for other commercial applications, which the Company continues to explore.
Fire Protection Products

6




The Company manufactures photoelectric smoke detectors and alarms, visual signaling alarms, photoelectric smoke alarms and electrochemical carbon monoxide alarms, electrochemical carbon monoxide alarms and detectors, audible and visual signaling appliances, and bells and speakers for use in fire detection systems in office buildings, hotels, and other commercial and residential establishments.
Markets and Marketing. The Company’s fire protection products are sold directly to fire protection and security product distributors under the Company’s brand name, to electrical wholesale houses, and to original equipment manufacturers of fire protection systems under both the Company’s brand name and private labels. The Company markets its fire protection products primarily in North America, but also globally through regional sales managers and manufacturer representative organizations.
Competition. The fire protection products industry is highly competitive in terms of both the smoke detectors and signaling appliance markets. The Company estimates that it competes principally with eight manufacturers of smoke detection products for commercial use and approximately four manufacturers within the residential market, three of which produce photoelectric smoke detectors. In the signaling appliance markets, the Company estimates it competes with approximately seven manufacturers. While the Company faces significant competition in the sale of smoke detectors and signaling appliances, it believes that the introduction of new products, improvements to its existing products, its diversified product line, and the availability of special features will permit the Company to maintain its competitive position.
Trademarks and Patents
The Company owns 38 U.S. Registered Trademarks and 660 U.S. Patents, of which 31 Registered Trademarks and 583 patents relate to electrochromic technology, automotive rearview mirrors, microphones, displays, cameras, sensor technology, and/or HomeLink® products. These Patents expire at various times between 2020 and 2038. The Company believes that these patents provide the Company a competitive advantage in its markets, although no single patent is necessarily required for the success of the Company's products.
The Company also owns 336 foreign Registered Trademarks and 877 foreign patents, of which 320 Registered Trademarks and 855 patents relate to electrochromic technology, automotive rearview mirrors, microphones, displays, cameras, sensor technology, and/or HomeLink® products. These patents expire at various times between 2020 and 2044. The Company believes that the competitive advantage derived in the relevant foreign markets for these patents is comparable to that applicable in the U.S. market.

The Company owns 64 U.S. Patents and 11 foreign patents that relate specifically to the Company’s variable dimmable windows. The U.S. Patents expire at various times between 2020 and 2038, while the foreign patents expire at various times between 2021 and 2034.
The Company owns 7 U.S. Registered Trademarks, 13 U.S. Patents, 16 foreign Registered Trademarks, and 11 foreign patents that relate to the Company’s fire protection products. The U.S. Patents expire at various times between 2021 and 2035, while the foreign patents expire at various times between 2020 and 2030. The Company believes that the competitive advantage provided by these patents is relatively small.
The Company also has in process 256 U.S. Patent applications, 503 foreign patent applications, and 31 Registered Trademark applications. The Company continuously seeks to improve its core technologies and apply those technologies to new and existing products. As those efforts produce patentable inventions, the Company expects to file appropriate patent applications.
In addition, the Company periodically obtains intellectual property rights, in the ordinary course of the Company's business, to strengthen its intellectual property portfolio and minimize potential risks of infringement.
Miscellaneous
The Company considers itself to be engaged in the design, development, manufacturing, marketing, and supply of digital vision, connected car, dimmable glass, and fire protection products, including: automatic-dimming rearview mirrors, non-automatic-dimming rearview mirrors and electronics for the automotive industry; variable dimmable windows for the aviation industry; and commercial smoke alarms and signaling devices for the fire protection industry. The Company has several important customers within the automotive industry, three of which each account for 10% or more of the Company's net sales in 2019 (including direct sales to OEM customers and sales through their Tier 1 suppliers): Volkswagen Group, Toyota Motor Company, and General Motors. The loss of any of these customers (or certain other significant customers) cou

7



ld have a material adverse effect on the Company's business, financial condition, and/or results of operations.
As of February 1, 2020, the Company had 5,874 full-time employees. None of the Company’s employees are represented by a labor union or other collective bargaining representative. The Company believes that its relations with its employees are in good standing. See "Executive Officers of the Registrant" in Part III, Item 10.
 
(d)
[Reserved]

(e)
Available Information
The Company’s Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports, will be made available, free of charge, through the Investor Information section of the Company’s Internet website (http://ir.gentex.com) as soon as practicable after such materials are electronically filed with or furnished to the Securities and Exchange Commission ("SEC"). The SEC maintains an Internet website (http://www.sec.gov) that contains reports, proxy and information statements, and other information regarding issues that a company files electronically with the SEC.

Item 1A.    Risk Factors.
Safe Harbor for Forward-Looking Statements. This Annual Report on Form 10-K contains forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The statements contained in this communication that are not purely historical are forward-looking statements. Forward-looking statements give the Company’s current expectations or forecasts of future events. These forward-looking statements generally can be identified by the use of words such as “anticipate”, “believe”, “could”, “estimate”, “expect”, “forecast”, “goal”, “hope”, “may”, “plan”, "poised", “project”, “will”, and variations of such words and similar expressions. Such statements are subject to risks and uncertainties that are often difficult to predict and beyond the Company’s control, and could cause the Company’s results to differ materially from those described. These risks and uncertainties include, without limitation: changes in general industry or regional market conditions; changes in consumer and customer preferences for our products (such as cameras replacing mirrors and/or autonomous driving); our ability to be awarded new business; continued uncertainty in pricing negotiations with customers; loss of business from increased competition; changes in strategic relationships; customer bankruptcies or divestiture of customer brands; fluctuation in vehicle production schedules (including the impact of customer employee strikes); changes in product mix; raw material and electronic component shortages; higher raw material, fuel, energy and other costs; unfavorable fluctuations in currencies or interest rates in the regions in which we operate; costs or difficulties related to the integration and/or ability to maximize the value of any new or acquired technologies and businesses; changes in regulatory conditions; warranty and recall claims and other litigation and customer reactions thereto; possible adverse results of pending or future litigation or infringement claims; changes in tax laws and interpretations; import and export duty and tariff rates in or with the countries with which we conduct business; and negative impact of any governmental investigations and associated litigations including securities litigations relating to the conduct of our business. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date they are made. The Company undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise, except as required by law or the rules of the NASDAQ Global Select Market. Forward-looking statements include content supplied by IHS Markit Light Vehicle Production Forecast (January 16, 2020) (http://www.gentex.com/ forecast-disclaimer).
The following risk factors, together with all other information provided in this Annual Report on Form 10-K should be carefully considered.
Automotive Industry. Customers within the auto industry comprise approximately 97% of our net sales. The automotive industry has always been cyclical and highly impacted by levels of economic activity. The current economic environment, while perhaps relatively stable domestically, continues to be uncertain when considering the global automotive market, and continues to cause increased financial and production stresses evidenced by volatile automotive production levels (including continued decreases in light vehicle production in China), volatility with customer orders, supplier part and material shortages, automotive and Tier 1 supplier plant shutdowns, customer and supplier financial issues, commodity material cost increases and/or supply constraints, tariffs, consumer vehicle preference shifts (where we may have a lower penetration rate and lower content per vehicle), and supply chain stresses, all of which have been exacerbated by the coronavirus. If automotive customers (including their Tier 1 suppliers) and suppliers experience plant shutdowns, work stoppages, strikes (such as the employee strike at General Motors in the fourth quarter of 2019, which negatively impacted revenue, gross margin, etc. in the fourth quarter and year ended December 31, 2019), part shortages, etc., it could disrupt our shipments to these customers, which could adversely affect our business, financial condition, and/

8



or results of operations. Automakers continue to experience volatility and uncertainty in executing planned new programs on time, due in part to continued vehicle complexity increases, which can result in delays or cancellations of new vehicle platforms, package configurations, and inaccurate volume forecasts. This makes it challenging for us to forecast future sales and manage costs, inventory, capital, engineering, research and development, and human resource investments, in addition to the aforementioned factors.
Key Customers. We have a number of large customers, including three automotive customers which each account for 10% or more of our annual net sales in 2019 (including direct sales to OEM customers and sales through their Tier 1 suppliers): Volkswagen Group, Toyota Motor Company, and General Motors. The loss of all or a substantial portion of the sales to, or decreases in production by, any of these customers (or certain other significant customers) could have a material adverse effect on our business, financial condition, and/or results of operations.
Pricing Pressures. We continue to experience on-going pricing pressures from our automotive customers and competitors, which have affected, and which will continue to affect our profit margins to the extent that we are unable to offset the price reductions with engineering and purchasing cost reductions, productivity improvements, increases in unit shipments of mirrors and electronics with advanced features, and/or new or advanced technologies, each of which pose an ongoing challenge, which could adversely impact our business, financial condition, and/or results of operations.
Tariffs. The geo-political environment between the Unites States and other jurisdictions, including China and the European Union, continues to cause uncertainty on tariffs and trade. Starting in 2018, and throughout calendar year 2019, the United States enacted new tariffs on numerous raw materials that the Company imports from China, and likewise China also enacted retaliatory tariffs on the finished goods that the Company imports into China for distribution and sale in the China market. Such tariffs increase the Company's input costs, and potentially challenge the Company's competitive position in the China market. Even though in January 2020, the United States and China came to agreement on the first phase of a trade deal to halt tariff increases, uncertainty remains. The continuance of these tariffs and/or escalation of disputes in the geopolitical environment will continue to interfere with automotive supply chains and may have a continued negative impact on the Company’s business, financial condition, and/or results of operations.

Competition. We recognize that Magna Mirrors, our main competitor, may have considerably more resources available to it, and may present a formidable competitive threat. Additionally, other companies have demonstrated products that are competitive to our Full Display Mirror® system and other products. We acknowledge that dimming device (e.g., electrochromic) technology is the subject of research and development efforts by numerous third parties.
For example, our SmartBeam® product is a driver-assist feature for headlamp lighting control that competes with other multiple-function driver-assist features that include headlamp lighting control as one of the multiple functions. While we believe SmartBeam® is a low cost solution for a safety feature that makes nighttime driving safer by maximizing a vehicle's high-beam usage, competition from multiple-function driver-assist products has already and could continue to impact the success of SmartBeam®.
On March 31, 2014 the Alliance of Automobile Manufacturers petitioned the National Highway Traffic Safety Administration ("NHTSA") to allow automakers to use camera monitoring systems ("CMS") as an option to replace conventional rearview mirrors within North America, however, no final rule or legislation was 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. NHTSA published a report dated October 2018 related to camera monitoring systems for outside mirror replacements. On October 10, 2019, an Advanced Notice of Proposed Rulemaking (ANPRM) was published seeking public comment on permitting camera-based rear visibility systems, as an alternative to inside and outside rearview mirrors required under Federal motor vehicle safety standard (FMVSS) No. 111, “Rear Visibility,” which currently requires that vehicles be equipped with rearview mirrors to provide drivers with a view of objects that are to their side or to their side and rear. This ANPRM builds on NHTSA's prior efforts to obtain supporting technical information, data, and analysis on CMS so that the agency can determine whether these systems can provide the same level of safety as the rearview mirrors currently required under FMVSS No. 111. The ANPRM states that one reason NHTSA is seeking additional information is because research conducted by NHTSA and others between 2006 and 2017 has consistently shown that prototype and preproduction camera-based rear visibility systems can exhibit safety-relevant performance issues.

On October 18, 2019, a petition for temporary exemption from FMVSS No. 111 submitted by Audi of America was published requesting NHTSA to grant a two-year exemption to sell up to 2,500 vehicles for each twelve month period

9



(up to 5,000 vehicles) that are equipped with camera monitoring systems and do not include FMVSS No. 111 compliant outside mirrors.
In July 2016, a revision to UN-ECE Regulation 46 was published with an effective date of June 18, 2016, which allows for camera monitor systems to replace mirrors within Japan and European countries. Since January 2017, camera monitoring systems 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 angle 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 provides a more robust product by addressing all driving conditions in a single solution that can be controlled by the driver. The Company has been in production with the Company's Full Display Mirror® since 2015 and has been awarded programs with ten (10) OEM customers. The Company is currently shipping production Full Display Mirrors® to five automaker customers, which are General Motors, Subaru, Toyota, Nissan, and Jaguar Land Rover. The Company's CMS solution uses three cameras to provide a comprehensive view of the sides and rear of the vehicle while still providing the traditional safety of interior and exterior mirrors, that still function when cameras are obstructed, or not functioning. The Company recently announced the CMS development program with Aston Martin. The Company has also previously announced that the Company 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.

Product Mix. We sell products that have varying profit margins. Our financial performance can be impacted depending on the mix of products we sell and to which customers, during a given period. The automotive industry is subject to rapid technological change, vigorous competition, short product life cycles and cyclical, ever-changing consumer demand patterns. When our customers are adversely affected by these factors, we may be similarly affected to the extent that our customers reduce the volume of orders for our products. As a result of such changes and circumstances impacting our customers, sales mix can shift which may have either favorable or unfavorable impact on revenue and would include shifts in regional growth, in OEM sales demand, as well as in consumer demand related to vehicle segment purchases and content penetration. A decrease in consumer demand for specific types of vehicles where we have traditionally provided higher value content could have a significant effect on our business, financial condition, and/or results of operations. Our forward guidance and estimates assume a certain geographic sales mix as well as a product sales mix. If actual results vary from this projected geographic and product mix of sales, our business, financial condition, and/or results of operations could be negatively impacted.

Business Combinations. We anticipate that acquisitions of businesses and assets may play a role in our future growth. We cannot be certain that we will be able to identify attractive acquisition targets, have resources available for or obtain financing for acquisitions on satisfactory terms, successfully acquire identified targets or manage timing of acquisitions with capital obligations across our businesses. Additionally, we may not be successful in integrating acquired businesses into our existing operations, achieving projected synergies, and/or maximizing the value of acquired technologies and businesses. Competition for acquisition opportunities in the various industries in which we operate already exists and may increase, thereby potentially increasing our costs of making acquisitions or causing us to refrain from making further acquisitions. We are also subject to applicable antitrust laws and must avoid anticompetitive behavior. These and other acquisition-related factors may negatively and adversely impact our business, financial condition, and/or results of operations.
Intellectual Property. We believe that our patents and trade secrets provide us with a competitive advantage in automotive rearview mirrors, variable dimmable windows, certain electronics, and fire protection products, although no single patent is necessarily required for the success of our products. The loss of any significant combination of patents and trade secrets regarding our products could adversely affect our business, financial condition, and/or results of operations. Lack of intellectual property protection in a number of countries, including China, represents a current and on-going risk for the Company.
New Technology and Product Development. We continue to invest significantly in engineering, research and development projects. Should these efforts ultimately prove unsuccessful, our business, financial condition, and/or results of operations could be adversely affected.
Intellectual Property Litigation and Infringement Claims. A successful claim of patent or other intellectual property infringement and damages against us could affect business, financial condition, and/or results of operations. If a

10



person or company claims that our products infringed their intellectual property rights, any resulting litigation could be costly, time consuming, and would divert the attention of management and key personnel from other business issues. The complexity of the technology involved in our business and the uncertainty of intellectual property litigation significantly increases these risks and makes such risk part of our on-going business. To that end, we periodically obtain intellectual property rights, in the orbdinary course of business, to strengthen our intellectual property portfolio and minimize potential risks of infringement. The increasing tendency of patents granted to others on combinations of known technology is a potential threat to our Company. Any of these adverse consequences could potentially have an effect on our business, financial condition and/or results of operations.
Credit Risk. Certain automakers and Tier 1 customers from time to time may consider the sale of certain business segments or bankruptcy as a result of financial stress. Should one or more of our larger customers (including sales through their Tier 1 suppliers) declare bankruptcy or sell their business, it could adversely affect the collection of receivables, our business, financial condition, and/or results of operations. The current economic environment continues to cause increased financial pressures and production stresses on our customers, which could impact the timeliness of customer payments and ultimately the collectability of receivables.
Our allowance for doubtful accounts primarily relates to financially distressed automotive mirror and electronics customers. We continue to work with these financially distressed customers in collecting past due balances. Refer to Note 1 of the Consolidated Financial Statements for additional details regarding our allowance for doubtful accounts.
Supply Chain Disruptions. Due to the just-in-time supply chains within our business and the automotive industry, a disruption in a supply chain caused by one or more of our suppliers and/or an unrelated Tier 1 supplier due to part shortages, natural disasters, coronavirus, work stoppages, strikes, bankruptcy, etc. could disrupt our shipments to one or more automakers or Tier 1 customers, which could adversely affect our business, financial condition, and/or results of operations.
Business Disruptions. Manufacturing of our proprietary products employing electro-optic technology is performed at our manufacturing facilities in Zeeland and Holland, Michigan. One of our manufacturing facilities is located in Holland, Michigan, which is approximately three miles from our other manufacturing facilities in Zeeland, Michigan. Should a catastrophic event occur, our ability to manufacture product, complete existing orders and provide other services could be severely impacted for an undetermined period of time. We have purchased business interruption insurance to address some of these risks. Our inability to conduct normal business operations for a period of time may have an adverse impact on our business, financial condition, and/or results of operations.

IT Infrastructure. A failure of our information technology ("IT") infrastructure could adversely impact our business, financial condition, and/or results of operations. We rely upon the capacity, reliability and security of our information technology infrastructure and our ability to expand and continually update this infrastructure in response to the changing needs of our business. For example, we have implemented enterprise resource planning and other IT systems in certain aspects of our businesses over a period of several years and continue to update and further implement new systems going forward. These systems may not perform as expected. We also face the challenge of supporting our older systems and implementing necessary upgrades. If we experience a problem with the functioning of an important IT system or a security breach of our IT systems, the resulting disruptions could have an adverse effect on our business, financial condition, and/or results of operations. We, and certain of our third-party vendors, receive and store personal information in connection with our human resources operations and other aspects of our business. Despite our implementation of security measures, our IT systems, like all IT systems, are vulnerable to damages from computer viruses, natural disasters, unauthorized access, cyber-attack and other similar disruptions. Any system failure, accident or security breach could result in disruptions to our operations. A material network breach in the security of our IT systems could include the theft of our intellectual property, trade secrets or customer information. To the extent that any disruptions or security breach results in a loss or damage to our data, or an inappropriate disclosure of confidential or customer information, it could cause significant damage to our reputation, affect our relationships with our customers, lead to claims against the Company and ultimately harm our business, financial condition, and/or results of operations. In addition, we may be required to incur significant costs to protect against damage caused by these disruptions or security breaches in the future.

Employees. Our business success depends on attracting and retaining qualified personnel. Throughout our Company, our ability to sustain and grow our business requires us to hire, retain and develop a highly skilled and diverse management team and workforce. Failure to ensure that we have the leadership capacity with the necessary skill sets and experience and a skilled workforce could impede our ability to deliver our growth objectives and execute our strategic plan. Organizational and reporting changes within management could result in, and low unemployment generally has caused, increased turnover. In addition, any unplanned turnover or inability to attract and retain key

11



employees, including managers, could have a negative effect on our business, financial condition and/or results of operations.

Government Regulations. The Dodd-Frank Wall Street Reform and Consumer Protection Act contains provisions to improve transparency and accountability concerning the supply of certain minerals, known as conflict minerals, originating from the Democratic Republic of Congo ("DRC") and adjoining countries. As a result, in August 2012 the SEC adopted annual disclosure and reporting requirements for those companies who use conflict minerals mined from the DRC and adjoining countries in their products. These new requirements required due diligence efforts in 2013, 2014, 2015, 2016, 2017, 2018, and 2019, and the Company has disclosed its findings annually to the SEC on Form SD around May 30 each year. As there may be only a limited number of suppliers offering "conflict free" minerals, the Company cannot be certain that we will be able to obtain necessary conflict minerals from such suppliers in sufficient quantities or at competitive prices. Also, the Company may face reputational challenges if we determine that certain of our products contain minerals not determined to be conflict free or if the Company is unable to sufficiently verify the origins for all conflict minerals used in the Company's products through the procedures the Company may implement.

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 has impacted and could continue to impact take rates for the Company's SmartBeam application on these vehicles.

On December 8, 2015, NHTSA proposed changes to the Administration’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 originally intended to implement the enhancements in NCAP in 2018 beginning with model year 2019 vehicles. The NCAP implementation has been delayed. Under these proposed changes, 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 16, 2019, NHTSA issued a press release comparing NCAP to other regions’ version of NCAP, identified new technologies that are not currently included in NCAP, and suggested Congress legislatively direct actions to improve NCAP.

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 head-lighting 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 head-lighting 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 No. 108 standards, if amended. The Company's SmartBeam® application has and will continue to be affected by increased competition 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.

As noted, on October 10, 2019, an ANPRM was published seeking public comment on permitting camera-based rear visibility systems, as an alternative to inside and outside rearview mirrors required under FMVSS No. 111, “Rear Visibility,” which currently requires that vehicles be equipped with rearview mirrors to provide drivers with a view of objects that are to their side or to their side and rear. This ANPRM builds on NHTSA's prior efforts to obtain supporting technical information, data, and analysis on CMS so that the agency can determine whether these systems can provide the same level of safety as the rearview mirrors currently required under FMVSS No. 111. The ANPRM states that one reason NHTSA is seeking additional information is because research conducted by NHTSA and others between 2006 and 2017 has consistently shown that prototype and preproduction camera-based rear visibility systems can exhibit safety-relevant performance issues.

International Operations. We currently conduct operations in various countries and jurisdictions, including purchasing raw materials and other supplies from many different countries around the world, which subjects us to the legal, political, regulatory and social requirements as well as various economic conditions in these jurisdictions. Some of these

12



countries are considered growth markets. International sales and operations, especially in growth markets, subject us to certain risks inherent in doing business abroad, 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;
Tariffs (as discussed herein), quotas, customs and other import or export restrictions and other trade barriers;
Natural disasters, political crises, and public health crises (such as the coronavirus in Wuhan, China), which have caused and will likely continue to cause downtime and closures at both supplier and customer facilities;
Brexit, and its impact;
Expropriation and nationalization;
Difficulty of enforcing agreements, collecting receivables and protecting assets through non-U.S. legal systems;
Reduced intellectual property protection;
Withholding and other taxes on remittances and other payments by subsidiaries;
Investment restrictions or requirements;
Export and import restrictions;
Violence and civil unrest in local countries;
Compliance with the requirements of an increasing body of applicable anti-bribery laws, including the U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act and similar laws of various other countries; and
Exposure related to buying, selling and financing in currencies other than the local currencies of the countries in which we operate.
Other. Other issues and uncertainties which could adversely impact our business, financial condition, and/or results of operations include:

Volatility in commodity prices may adversely affect our business, financial condition and/or results of operations. If commodity prices rise, and if we are unable to recover these cost increases from our customers, such increases could have an adverse effect on our business, financial condition and/or results of operations;
Increasing interest rates impact our financial performance due to an increase in realized losses on the sale of fixed income investments and/or recognized losses due to an Other-Than-Temporary Impairment adjustment on held-to-maturity securities;
General economic conditions continue to be of concern in many of the regions in which we do business, given that our primary industry is greatly impacted by overall general economic conditions. Any continued adverse worldwide economic conditions, currency exchange rates, trade war, war or significant terrorist acts, could each affect worldwide automotive sales and production levels;
Manufacturing yield issues may negatively impact our business, financial condition and/or results of operations; and
Obligations and costs associated with addressing quality issues or warranty claims may adversely affect our business, financial condition and/or results of operations.
Antitakeover Provisions. Our articles of incorporation, bylaws, and the laws of the state of Michigan include provisions that may provide our board of directors with adequate time to consider whether a hostile takeover offer is in our best interest and the best interests of our shareholders. These provisions, however, could discourage potential acquisition proposals and could delay or prevent a change in control.
Fluctuations in Market Price. The market price for our common stock has fluctuated, ranging from a low closing price of $19.55 to a high closing price of $29.74 during calendar year 2019. The overall market and the price of our common stock may continue to fluctuate. There may be a significant impact on the market price for our common stock relating to the issues discussed above or due to any of the following:

Variations in our anticipated or actual operating results or the results of our competitors;
Changes in investors’ or analysts’ perceptions of the risks and conditions of our business and in particular our primary industry;
Intellectual property litigation and infringement claims;
The size of the public float of our common stock;
Market conditions, including the industry in which we operate; and
General macroeconomic conditions.

13




Item 1B.    Unresolved Staff Comments.
None


Item 2.        Properties.
As of December 31, 2019 the Company operates primarily out of facilities in Zeeland and Holland, Michigan, which consist of manufacturing, warehouse, and office space. The Company also operates a chemistry lab facility to support production in Zeeland, Michigan. In addition, the Company operates overseas offices in Europe and Asia as further discussed below. The location, square footage and use of the most significant facilities at December 31, 2019 were as follows:
Owned Locations
Square Footage

Date of Acquisition/Build(1)
 
Use
Zeeland, MI
26,600

1970
 
Manufacturing, Office
Zeeland, MI
161,200

1972
 
Manufacturing, Office
Zeeland, MI
70,000

1989
 
Manufacturing
Zeeland, MI
70,000

1989
 
Office
Zeeland, MI
359,100

1996
 
Manufacturing
Zeeland, MI
168,900

2000
 
Manufacturing
Zeeland, MI
334,000

2006
 
Manufacturing, Office
Zeeland, MI
100,000

2010
 
Manufacturing, Warehouse
Zeeland, MI
31,800

2011
 
Office
Zeeland, MI
349,600

2016
 
Manufacturing, Warehouse
Zeeland, MI
258,400

2018
 
Warehouse
Holland, MI
242,300

2012
 
Manufacturing, Warehouse
Erlenbach, Germany
90,000

2003
 
Office
Shanghai, China
25,000

2006
 
Office, Warehouse
Shanghai, China
40,000

2017
 
Office, Warehouse
(1)Date of Acquistion/Build refers to first year of operations, and does not refer to subsequent additions or expansions.

In the fourth quarter of 2019, the Company began construction of a 36,000 square-foot addition to its main corporate office and manufacturing facility to expand its chemistry lab facilities. The total cost of this addition is estimated to be $10 million and will be funded from cash and cash equivalents on hand. The facility is expected to be operational by the fourth quarter of 2020.

The Company additionally has leased sales and engineering offices throughout Europe and Asia to support its sales and engineering efforts:
Country
Number of Leased Offices
Germany
3
Japan
3
United Kingdom
1
France
1
Sweden
1
Korea
1
The Company's Automotive Products segment operates in virtually all of the foregoing facilities. The Company's Other segment operates in certain Zeeland, Michigan facilities.
Capacity.

14



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 automatic-dimming mirror units annually, based on current product mix. The Company evaluates equipment capacity on an ongoing basis and adds equipment as needed. In 2019, the Company shipped 29.6 million interior automatic-dimming mirrors.
The Company’s automotive exterior mirror manufacturing facility has an estimated building capacity to manufacture approximately 14 - 17 million units annually, based on the current product mix. The Company evaluates equipment capacity on an ongoing basis and adds equipment as needed. In 2019, the Company shipped approximately 13.3 million exterior automatic-dimming mirrors.

Item 3.        Legal Proceedings.
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, there are any matters that constitute material pending legal proceedings that will have a material adverse effect on the financial position, future results of operations, or cash flows of the Company.


Item 4.        Mine Safety Disclosures.

Not applicable.



15



PART II
 

Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

(a) The Company’s common stock trades on The Nasdaq Global Select Market® under the symbol GNTX. As of February 1, 2020, there were 2,238 record-holders of the Company’s common stock and restricted stock.
See Item 12 of Part III with respect to "Equity Compensation Plan Information", which is incorporated herein by reference.
Stock Performance Graph: The following graph depicts the cumulative total return on the Company’s common stock compared to the cumulative total return on the Nasdaq Composite Index (all U.S. companies) and the Dow Jones U.S. Auto Parts Index (excluding tire and rubber makers). The graph assumes an investment of $100 on the last trading day of 2014 and reinvestment of dividends in all cases.
https://cdn.kscope.io/3eedb6154f80889ed0a971ba856a6430-chart-3bc8d12b87d55c268d0.jpg
In March 2019, the Company's Board of Directors approved a continuing resolution to pay a quarterly dividend at an increased rate of $0.115 per share until the board takes other action with respect to the payment of dividends. The Company intends to continue to pay a quarterly cash dividend and will consider future dividend rate adjustments based on the Company’s financial condition, profitability, cash flow, liquidity and other relevant business factors.
 
(b) Not applicable.

(c)
The Company has in place and has announced a share repurchase plan. As previously disclosed, the Company may purchase authorized shares of its common stock under the plan based 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. The plan does not have an expiration date, but the Board of Directors reviews such plan periodically.

16




The following is a summary of share repurchase activity during 2019:
Issuer Purchase of Equity Securities
Period
Total Number of Shares Purchased
Average Price Paid Per Share
Total Number of Shares Purchased As Part of a Publicly Announced Plan*
Maximum Number of Shares That May Yet Be Purchased Under the Plan*
January 2019
75,001

$
21.42

75,001

33,766,256

February 2019
2,499,850

20.24

2,499,850

31,266,406

March 2019
2,150,087

20.49

2,150,087

29,116,319

April 2019
240,037

23.07

240,037

28,876,282

May 2019
1,858,307

22.20

1,858,307

27,017,975

June 2019
976,365

23.64

976,365

26,041,610

July 2019
380,220

27.22

380,220

25,661,390

August 2019
1,828,442

26.69

1,828,442

23,832,948

September 2019
1,360,915

27.54

1,360,915

22,472,033

October 2019
520,345

27.98

520,345

21,951,688

November 2019
900,765

28.75

900,765

21,050,923

December 2019
985,604

28.66

985,604

20,065,319

Total
13,775,938

 
13,775,938

 

* See above paragraph with respect to the publicly announced share repurchase plan


Item 6.
Selected Financial Data.
 
(dollars in thousands, except per share data)
 
2019
 
2018
 
2017
 
2016
 
2015
Net Sales
$
1,858,897

 
$1,834,064
 
$1,794,873
 
$1,678,925
 
$1,543,618
Net Income
424,684

 
437,883

 
406,792

 
347,591

 
318,470

Earnings Per Share (Fully Diluted)
$
1.66

 
$
1.62

 
$
1.41

 
$
1.19

 
$
1.08

Gross Profit Margin
37.0
%
 
37.6
%
 
38.7
%
 
39.8
%
 
39.1
%
Cash Dividends per Common Share
$
0.460

 
$
0.440

 
$
0.390

 
$
0.355

 
$
0.335

Total Assets
$
2,168,803

 
$
2,085,434

 
$
2,352,054

 
$
2,309,620

 
$
2,148,673

Long-Term Debt Outstanding at Year End
$

 
$

 
$

 
$
178,125

 
$
225,625


17




Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Results of Operations
The following table sets forth for the periods indicated certain items from the Company’s Consolidated Statements of Income expressed as a percentage of net sales and the percentage change in the dollar amount of each such item from that in the indicated previous year.
 
 
Percentage of Net Sales
 
Percentage Change
 
 
 
 
 
 
 
2019
 
2018
 
Year Ended December 31,
 
Vs
 
Vs
 
2019
 
2018
 
2017
 
2018
 
2017
Net Sales
100.0
%
 
100.0
%
 
100.0
%
 
1.4
 %
 
2.2
 %
Cost of Goods Sold
63.0

 
62.4

 
61.3

 
2.4

 
3.9

Gross Profit
37.0

 
37.6

 
38.7

 
(0.3
)
 
(0.6
)
Operating Expenses:
 
 
 
 
 
 
 
 
 
Engineering, Research and Development
6.2

 
5.8

 
5.6

 
7.0

 
7.4

Selling, General and Administrative
4.6

 
4.1

 
4.0

 
13.1

 
5.3

Total Operating Expenses:
10.7

 
9.9

 
9.5

 
9.6

 
6.5

Operating Income
26.3

 
27.7

 
29.2

 
(3.9
)
 
(2.9
)
Other Income/(Expense)
0.6

 
0.8

 
0.5

 
(14.7
)
 
65.0

Income Before Provision for Income Taxes
26.9

 
28.5

 
29.6

 
(4.1
)
 
(1.8
)
Provision for Income Taxes
4.1

 
4.6

 
7.0

 
(10.0
)
 
(32.7
)
Net Income
22.8
%
 
23.9
%
 
22.7
%
 
(3.0
)%
 
7.6
 %
Results of Operations: 2019 to 2018
Net Sales. In 2019, Company net sales increased by $24.8 million, or 1% compared to the prior year. Net sales for 2019 were negatively impacted by: lower than forecasted global vehicle production rates for calendar year 2019, which were down 6% on a a year over year basis; and by approximately 1% from the strike at General Motors which occurred in the fourth quarter of 2019. Despite these negative impacts, automotive net sales increased as a result of a 3% increase in automatic-dimming mirror shipments, from 41.6 million units in 2018 to 42.9 million units in 2019, due more so to growth within the Company's domestic market than its international markets. North American automotive mirror shipments increased 8% in 2019 when compared with the prior year, primarily due to increased penetration of exterior automatic-dimming mirrors.
Other net sales increased 13% to $48.4 million compared to the prior year, as dimmable aircraft window sales increased 19% year over year and fire protection saw an increase in net sales of 7% year over year.
Cost of Goods Sold. As a percentage of net sales, cost of goods sold increased from 62.4% in 2018 to 63.0% in 2019, primarily due to annual customer price reductions that were not fully offset with purchasing cost reductions, as well as an increase in costs related to tariffs. Annual price reductions and tariffs independently impacted cost of goods sold as a percentage of net sales by approximately 75 - 200 basis points. These negative impacts were partially offset by the impact of purchasing cost reductions and product mix impacts that independently impacted cost of goods sold as a percentage of net sales by approximately 75 - 150 basis points.
Operating Expenses. Engineering, research and development expenses increased by $7.6 million or 7% from 2018 to 2019, but remained at 6% of net sales. E, R & D increased, primarily due to increased staffing levels which continue to support growth and launch of new business, as well as development of new products.
Selling, general and administrative expenses increased by $9.9 million or 13% from 2018 to 2019, representing 5% of net sales in 2019 versus 4% of net sales in 2018. The primary reason for the increase from 2018 to 2019 was due to increased staffing levels, travel expenses, and professional fees.

18



Total Other Income/(Expense). Investment income remained at $11.2 million for 2019 compared to 2018. Other income – net decreased $2.0 million in 2019 versus 2018, primarily due to a decrease in gains on sales of debt investments on a year over year basis.
Taxes. The effective tax rate was 15.1% for year ended December 31, 2019 compared to 16.1% the prior year. The effective tax rates in 2019 and 2018 differed from the statutory federal income tax rate, primarily due to the Foreign Derived Intangible Income Deduction. In 2019, the effective tax rate differed from the statutory federal income tax rate also primarily due to the Foreign Derived Intangible Income Deduction. The decrease in the effective tax rate year over year primarily relates to increase in the benefits derived from the Foreign Derived Intangible Income Deduction, Research & Development Credit and Stock Compensation Expense.
Net Income. Net income decreased by $13.2 million, or 3% year over year, primarily due to the decrease in gross margin and increases in operating expenses primarily related to increased staffing levels.

Results of Operations: 2018 to 2017
Net Sales. In 2018, Company net sales increased by $39.2 million, or 2% compared to the prior year. Automotive net sales increased due to a 6% increase in automatic-dimming mirror shipments, from 39.3 million units in 2017 to 41.6 million units in 2018, primarily reflecting increased overall penetration of automatic-dimming mirrors, primarily within the Company's international markets. International automotive mirror unit shipments increased 7% in 2018 when compared with the prior year, primarily due to increased penetration of both interior and exterior automatic dimming mirrors to certain European and Japanese automakers.
Other net sales increase 17% to $42.9 million compared to the prior year, as dimmable aircraft window sales increased 16% year over year, and fire protection saw an increase in net sales of 8% year over year.
Cost of Goods Sold. As a percentage of net sales, cost of goods sold increased from 61.3% in 2017 to 62.4% in 2018, primarily due to annual customer price reductions that were not fully offset with purchasing cost reductions, as well as the Company's inability to leverage fixed overhead costs due to lower than expected sales levels. Annual price reductions and fixed overhead costs independently impacted cost of goods sold as a percentage of net sales by approximately 75 - 150 basis points. These negative impacts were partially offset by the impact of purchasing cost reductions of 50 - 75 basis points.
Operating Expenses. Engineering, research and development expenses increased by $7.4 million or 7% from 2017 to 2018, but remained at 6% of net sales. E, R & D increased, primarily due to increased staffing levels which continue to support growth and launch of new business as well as development of new products.
Selling, general and administrative expenses increased by $3.8 million or 5% from 2017 to 2018, but remained at 4% of net sales. The primary reason for the increase from 2017 to 2018 was due to increased staffing levels and travel expenses.
Total Other Income/(Expense). Investment income increased $1.8 million in 2018 versus 2017, primarily due to higher interest rates available for the Company's investable funds. Other income – net increased $3.7 million in 2018 versus 2017, primarily due to decreased interest expense associated with the Company's debt financing, as discussed further in Note 2 of the Consolidated Financial Statements.
Taxes. The effective tax rate was 16.1% for year ended December 31, 2018 compared to 23.5% the prior year. The effective tax rate in 2017 and 2018 differed from the statutory federal income tax rate, primarily due to the domestic manufacturing deduction as well as the re-measurement of net deferred tax liabilities as a result of the Tax Cuts and Jobs Act of 2017 ("Act"). In 2018, the effective tax rate differed from the new statutory federal income tax rate primarily due to the Foreign Derived Intangible Income Deduction. The decrease in the effective tax rate in 2018 from the prior year was due to the change in statutory tax rate as passed in the Act to 21% from 35%.
Net Income. Net income increased by $31.1 million, or 8% year over year, primarily due to the lower effective tax rate on a year over year basis.




19





Liquidity and Capital Resources
The Company’s financial condition throughout the periods presented has remained very strong, in spite of a 6% decline in global light vehicle production from 2018 to 2019.
The Company's cash and cash equivalents were $296.3 million, $217.0 million and $569.7 million as of December 31, 2019, 2018 and 2017, respectively. The Company's cash and cash equivalents include amounts held by foreign subsidiaries of $8.5 million, $8.3 million and $12.6 million as of December 31, 2019, 2018 and 2017, respectively.
The Company's current ratio increased from 5.0 as of December 31, 2018 to 5.5 as of December 31, 2019, reflecting the increase in working capital. The Company's current ratio increased from 4.9 as of December 31, 2017, to 5.0 as of December 31, 2018, reflecting the repayment of $78 million of the Company's long term debt, that was offset by share repurchases discussed herein.
Cash flow from operating activities was $506.0 million, $552.4 million and $501.0 million for the years ended December 31, 2019, 2018 and 2017, respectively. Cash flow from operating activities decreased $46.5 million for the year ended December 31, 2019 compared to the prior year, primarily due to decreased net income and changes in working capital. Cash flow from operating activities increased $51.4 million for the year ended December 31, 2018 compared to the same period in 2017, primarily due to increased net income which was partially offset by changes in working capital.
Cash flow used for investing activities for the year ended December 31, 2019 decreased by $129.1 million to $56.7 million, compared with $185.8 million, for the year ended December 31, 2018, primarily due to decreased investment purchases, which was partially offset by a decrease in fixed income investment maturities during the year. Cash flow used for investing activities for the year ended December 31, 2018 increased by $108.1 million to $185.8 million, compared to the year ended December 31, 2017, primarily due to increased investment purchases during the year.
Capital expenditures were $84.6 million, $86.0 million, and $104.0 million for the years ended December 31, 2019, 2018, and 2017, respectively. Capital expenditures for the year ended 2019 remained consistent with the year ended 2018, however, capital expenditures decreased by $18.0 million for the year ended December 31, 2018 compared to the prior year primarily due to decreases in production equipment purchases and building related costs.
Cash flow used for financing activities for the year ended December 31, 2019, decreased $349.3 million to $370.0 million, compared to the year ended December 31, 2018, primarily due to a reduction in the amount of shares of common stock repurchased which totaled $331.5 million during the calendar year 2019 as compared to $719.3 million during the calendar year 2018. Cash flow used for financing activities for the year ended December 31, 2018, increased $319.3 million to $719.3 million compared to the year ended December 31, 2017, primarily due to repurchases of common stock of $591.6 million during the calendar year 2018 compared to $231.4 million during the calendar year 2017.

Short-term investments as of December 31, 2019 were $140.4 million, down from $169.4 million as of December 31, 2018 and long-term investments were $139.9 million as of December 31, 2019, up from $138.0 million as of December 31, 2018, due to changes in the Company's overall investment portfolio.
Accounts receivable as of December 31, 2019 increased $21.9 million compared to December 31, 2018, primarily due to the timing of sales within each of the comparable periods.
Inventories as of December 31, 2019, increased $23.7 million compared to December 31, 2018, primarily due to increased raw material inventory levels to support first quarter 2020 production and sales forecasts, as well as higher levels of component inventory with longer lead-times.
Intangible Assets, net as of December 31, 2019 decreased $19.3 million compared to December 31, 2018, due to the amortization of definite lived intangible assets and patents, discussed further in in Note 10 to the Consolidated Financial Statements.
Accounts payable as of December 31, 2019, increased $4.7 million compared to December 31, 2018, primarily due the timing of inventory and capital expenditure payments.
Management considers the Company’s current working capital and long-term investments, as well as its existing credit financing arrangement (notwithstanding covenants prohibiting additional indebtedness), discussed further in Note 2 o

20



f the Consolidated Financial Statements, in addition to internally generated cash flow, to be sufficient to cover anticipated cash needs for the foreseeable future considering its contractual obligations and commitments. The following is a summary of working capital and long-term investments:
 
2019
2018
2017
Working Capital
$
778,530,092

$
681,769,335

$
940,916,816

Long Term Investments
139,909,323

137,979,082

57,782,418

Total
$
918,439,415

$
819,748,417

$
998,699,234


The increase in working capital as of December 31, 2019 is primarily due to cash flow from operations, which was partially offset by share repurchases, dividend payments and capital expenditures. The decrease in working capital as of December 31, 2018 compared to December 31, 2017 is primarily due to increased share repurchases, dividend payments and capital expenditures, which in combination were more than provided by cash flow from operations.

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

Outlook
The Company utilizes the light vehicle production forecasting services of IHS Markit. IHS Markit current forecasts for light vehicle production for calendar year 2020 are approximately 16.5 million units for North America, 20.7 million units for Europe, 12.9 million units for Japan and Korea, and 24.4 million units for China.
The Company currently estimates that top line revenue for calendar year 2020 will be between $1.91 and $2.0 billion. All estimates are based on light vehicle production forecasts in the primary regions to which the Company ships product, as well as the estimated option rates for its mirrors on prospective vehicle models and anticipated product mix. The Company continues to see order rates and booked business that allow for these estimates an expected vehicle production decrease in 2020 and only a modest increase in 2021 compared to 2020. Continuing uncertainties, including: light vehicle production levels; supplier part or material shortages; automotive plant shutdowns; sales rates in Europe, Asia and North America; challenging macroeconomic and geopolitical environments, including tariffs; 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, coronavirus, strikes, etc., which could disrupt shipments to these customers, make forecasting difficult.
The Company is estimating that the gross profit margin will be between 36% and 37% for calendar year 2020. Historically, annual customer price reductions have placed significant pressure on gross margin on an annual basis. Given the current revenue forecast and projected product mix for 2020, the Company hopes it may be able to offset certain annual customer price reductions with purchasing cost reductions and operational efficiencies, but there is no certainty of being able to do so.
The Company also currently estimates that its operating expenses, which include engineering, research and development expenses and selling, general and administrative expenses, are expected to be between $205 and $215 million for calendar year 2020, due in part to increased staffing levels which continue to support growth and launch of new business as well as development of new products. The Company continues to invest heavily in technology directed at funding the development of its current product portfolio and create iterations of those products that help keep its products new and attractive to our customers. In addition, the Company has been investing heavily in the next wave of innovation, many of which were shown for the first time in 2020, and included new products for automotive, aerospace and developments in intelligent medical lighting.
The Company is a technology leader in the automotive industry, with a focus on developing uniquely designed solutions that are highly proprietary. The Company continues to make investments intended to maintain a competitive advantage in its current market as well as to use its core competencies to develop products that are applicable in other markets.
In light of on-going demand for our automatic-dimming mirrors and electronics, the Company currently anticipates that 2020 capital expenditures will be between $85 and $95 million, a majority of which will be production equipment purchases. Capital expenditures for calendar year 2020 are currently anticipated to be financed from current cash and cash equivalents on hand and cash flows from operating activities.

21



The Company also estimates that depreciation and amortization expense for calendar year 2020 will be between $105 and $110 million.
The Company is further estimating that its tax rate will be between 15.0% and 17.0% for calendar year 2020.
In accordance with its previously announced share repurchase plan and capital allocation strategy, the Company intends to continue to repurchase additional shares of its common stock in 2020 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.

The Company is also providing top line revenue guidance for calendar year 2021. IHS Markit current forecasts for light vehicle production for calendar year 2021 are approximately 16.5 million units for North America, 21.2 million units for Europe,12.6 million units for Japan and Korea, and 25.3 million units for China. Based on these forecasts, the Company is estimating that revenue for calendar year 2021 will increase approximately 3% to 8% over current estimates provided for 2020 revenue. As noted above, continuing uncertainties make forecasting difficult.

Market Risk Disclosure
The Company is subject to market risk exposures of varying correlations and volatilities, including foreign exchange rate risk, and interest rate risk. Fluctuating interest rates and securities prices could negatively impact the Company's financial performance due to realized losses on the sale of fixed income investments. The Company does not currently believe such risks are material.
The Company has some assets, liabilities and operations outside the United States, including multi-currency accounts, which currently are not significant overall to the Company as a whole. Because the Company sells its automotive mirrors throughout the world and automobile manufacturing is highly dependent on general economic conditions, it could be significantly affected by weak economic conditions in foreign markets that could reduce demand for its products.
Most of the Company’s non-U.S. sales are invoiced and paid in U.S. dollars; during calendar year 2019, approximately 7% of the Company’s net sales were invoiced and paid in foreign currencies (compared to 8% for calendar year 2018 and 8% for calendar year 2017). The Company currently expects that approximately 7% of the Company’s net sales in calendar year 2020 will be invoiced and paid in foreign currencies. The Company does not currently engage in hedging activities of foreign currencies.
The Company does not have any significant off-balance sheet arrangements or commitments that have not been recorded in its Consolidated Financial Statements. See the Contractual Obligations and Other Commitments below.


22



Contractual Obligations and Other Commitments
The Company had the following contractual obligations and other commitments (in millions) as of December 31, 2019. 
 
Total
 
Less than 1 Year
 
1-3 Years
 
3-5 Years
 
More than 5 Years
Operating leases
1.1

 
0.7

 
0.4

 
 
 
 
Purchase obligations
138.1

 
138.1

 

 

 

Dividends payable
28.9

 
28.9

 

 

 

Total
168.1

 
167.7


0.4

 
 
 
 

Purchase obligations are primarily for raw material inventory and capital equipment.


Significant Accounting Policies and Critical Accounting Estimates
The preparation of the Company's consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States, requires management to make estimates, assumptions and apply judgments that affect its financial position and results of operations. On an ongoing basis, management evaluates these estimates and assumptions. Management also continually reviews its accounting policies and financial information disclosures.
The Company’s significant accounting policies are described in Note 1 to the Consolidated Financial Statements.
Certain of our accounting policies require management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. These estimates and assumptions are based on our historical experience, the terms of existing contracts, our evaluation of trends in the industry, information provided by our customers and suppliers and information available from other outside sources, as appropriate. However, these estimates and assumptions are inherently subject to a degree of uncertainty. As a result, actual results in these areas may differ significantly from our estimates, as is the case in any application of generally accepted accounting principles.

The Company considers an accounting estimate to be critical if:
• It requires management to make assumptions about matters that were uncertain at the time of the estimate, and
• Changes in the estimate or different estimates that could have been selected would have had a material impact on our financial condition or results of operations.
Revenue Recognition. The Company recognizes revenue in accordance with Accounting Standards Codification (ASC) 606, Revenue from Contracts with Customers. Accordingly, revenue is recognized in an amount that reflects the consideration to which the Company expects to be entitled in exchange for promised goods or services when it transfers those goods or services to customers. Sales are shown net of returns, which have not historically been significant. The Company does not generate sales from arrangements with multiple deliverables. The Company generally receives purchase orders from customers on an annual basis. Typically, such purchase order provide the annual terms, including pricing, related to a particular vehicle model. Purchase orders generally do not specify quantities. The Company recognizes revenue based on the pricing terms included in our annual purchase orders.
As part of certain agreements, entered into in the ordinary course of business, the Company is asked to provide customers with annual price reductions. Such amounts are estimated and accrued as a reduction of revenue as products are shipped to those customers. 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 best estimate requires significant judgment based on historical results and expected outcomes of ongoing negotiations with customers. 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. In addition, the Company has ongoing adjustments to our pricing arrangements with customers based on the related content, the cost of our products and other commercial factors. Such pricing accruals are adjusted as they are settled with our customers.

See also Item 13 of Part III with respect to "Certain Transactions", which is incorporated herein.

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

 

23




Item 8.        Financial Statements and Supplementary Data.
The following financial statements and reports of independent registered public accounting firm are filed with this report following the signature page:

Index to Consolidated Financial Statements

Selected quarterly financial data for the past two years appears in the following table:
 
Quarterly Results of Operations
(in thousands, except per share data)
 
First
 
Second
 
Third
 
Fourth
 
2019
 
2018
 
2019
 
2018
 
2019
 
2018
 
2019
 
2018
Net Sales
$
468,589


$
465,420


$
468,711


$
454,981


$
477,761


$
460,253

 
$
443,836

 
$
453,409

Gross Profit
169,645


172,628


176,538


172,804


180,321


172,990

 
161,805

 
172,044

Operating Income
121,596


128,515


127,905


126,683


128,136


127,428

 
110,901

 
125,499

Net Income
104,280


111,249


108,959


109,024


111,898


111,336

 
99,547

 
106,275

Basic Earnings per share(1)
$
0.40


$
0.40


$
0.42


$
0.40


$
0.44


$
0.42

 
$
0.39

 
$
0.41

Diluted Earnings per share(1)
$
0.40


$
0.40


$
0.42


$
0.40


$
0.44


$
0.42

 
$
0.39

 
$
0.41

(1)Basic and diluted earnings per share are computed independently for each quarter presented.  Therefore the sum of quarterly basic and diluted per share information may not equal annual basis and diluted earnings per share.
 


Item 9.        Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
As defined in Item 304 of Regulation S-K, there have been no changes in, or disagreements with, accountants during the 24-month period ended December 31, 2019.
 

Item 9A. Controls and Procedures.
Disclosure Controls and Procedures
Under the supervision of and with the participation of the Company’s management, the Company's principal executive officer and principal financial officer have evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures ([as defined in Exchange Act Rules 13a – 15(e) and 15d – 15(e)]) as of December 31, 2019, and have concluded that the Company’s disclosure controls and procedures are adequate and effective.


24




Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a – 15(f) and 15d – 15(f). Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework)(the COSO criteria). Based on this assessment, management asserts that the Company has maintained effective internal control over financial reporting as of December 31, 2019.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
The effectiveness of the Company’s internal control over financial reporting as of December 31, 2019, has been audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in their report which is included in Part IV of this Form 10K.
During the period covered by this annual report, there have been no changes in the Company’s internal controls over financial reporting that have materially affected or are reasonably likely to materially affect the Company’s internal controls over financial reporting. In addition, there have been no significant changes in the Company’s internal controls or in other factors that could significantly affect internal controls subsequent to December 31, 2019.

Item 9B.    Other Information.
None.

25




PART III
 
Item 10.    Directors, Executive Officers and Corporate Governance.
Information about Our Executive Officers
The following table lists the names, ages, and positions of all of the Company’s executive officers at the time of this report. Officers are generally elected at the meeting of the Board of Directors following the annual meeting of shareholders.
NAME
 
AGE
 
POSITION
 
CURRENT POSITION HELD SINCE
Steve Downing
 
42
 
President and Chief Executive Officer
 
January 2018
Neil Boehm
 
48
 
Chief Technology Officer and Vice President, Engineering
 
February 2018
Kevin Nash
 
45
 
Vice President, Finance, Chief Financial Officer and Treasurer
 
February 2018
Matthew Chiodo
 
55
 
Vice President, Sales
 
February 2018
Scott Ryan
 
39
 
Vice President, General Counsel and Corporate Secretary
 
August 2018
There are no family relationships among the officers listed in the preceding table.
Steve Downing was elected Chief Executive Officer effective as of January 1, 2018. Mr. Downing has been employed by the Company since 2002. Prior to being elected Chief Executive Officer, he served as President and Chief Operating Officer from August 2017 to December 2017, as Senior Vice President and Chief Financial Officer from June 2015 to August 2017, and as Vice President of Finance and Chief Financial Officer from May 2013 to June 2015. He served in a variety of roles before that time. Certain terms of Mr. Downing's employment arrangement are contained herein in Part III, Item 11 to this Form 10‑K.
Neil Boehm was appointed as the Company's Vice President, Engineering and Chief Technology Officer as of February 15, 2018 and was also appointed an executive officer. Mr. Boehm has been employed by the Company since 2001. Prior to his current position, he served as the Company's Vice President of Engineering, beginning in 2015 and before that served as Senior Director of Engineering. Certain terms of Mr. Boehm's employment arrangement are contained herein in Part III, Item 11 to this Form 10-K.
Kevin Nash was appointed as the Company's Vice President, Finance, Chief Financial Officer, and Treasurer, effective as of February 15, 2018. He is also the Company's Chief Accounting Officer. Mr. Nash has been employed by the Company since 1999. Prior to his current position, he served as the Company's Vice President of Accounting and Chief Accounting Officer, beginning in 2014 and before that served as Director of Accounting and Chief Accounting Officer. Certain terms of Mr. Nash's employment arrangement are contained herein in Part III, Item 11 to this Form 10-K.
Matthew Chiodo, the Company's Vice President of Sales, was appointed an executive officer effective February 15, 2018. Mr. Chiodo has been employed by the Company since 2001. Mr. Chiodo has been in his current role since January 2017 and previously served as Director of Sales for several years. Certain terms of Mr. Chiodo's employment arrangement are contained herein in Part III, Item 11 to this Form 10-K.
Scott Ryan was appointed as the Company's Vice President, General Counsel and Corporate Secretary on August 16, 2018. Mr. Ryan has been employed by the Company since 2010. Prior to his current position, he served as Assistant General Counsel and Corporate Secretary from June 2015 to August 2018. Prior to that he served as Patent Counsel from November 2013 to June 2015. Certain terms of Mr. Ryan's employment arrangement are contained herein in Part III, Item 11 to this Form 10-K.
Information relating to directors appearing under the caption “Election of Directors” in the definitive Proxy Statement for 2019 Annual Meeting of Shareholders and filed with the Commission within 120 days after the Company’s fiscal year end, December 31, 2019 (the “Proxy Statement”), is hereby incorporated herein by reference. No changes were made to the procedures by which shareholders may recommend nominees for the Board of Directors. Any information concerning compliance with Section 16(a) of the Securities and Exchange Act of 1934 that may appear under the caption “Delinquent Section 16 Reports” in the definitive Proxy Statement is hereby incorporated herein by reference. Information relating to the Company’s Audit Committee and concerning whether at least one member of the Audit Committee is an “audit committee financial expert” as that term is defined under Item 407(d)(5) of Regulation S-K appearing under the caption “Corporate Governance – Audit Committee” in the definitive Proxy Statement is hereby incorporated herein by reference.

26



The Company has adopted a Code of Ethics for Certain Senior Officers that applies to its principal executive officer, principal financial officer, and principal accounting officer. A copy of the Code of Ethics for Certain Senior Officers is available without charge, upon written request, from the Corporate Secretary of the Company, 600 N. Centennial Street, Zeeland, Michigan 49464 and on the Company's website. The Company intends to satisfy the disclosure requirement under Item 5.05 of Form 8-K regarding an amendment to, or waiver from, a provision of this Code of Ethics by posting such information on its website. Information contained in the Company’s website, whether currently posted or posted in the future, is not part of this document or the documents incorporated by reference in this document.

27



Item 11.    Executive Compensation.
The information contained under the caption “Compensation Committee Report,” “Compensation Discussion and Analysis,” “Executive Compensation,” “Director Compensation,” and “Compensation Committee Interlocks and Insider Participation” contained in the definitive Proxy Statement is hereby incorporated herein by reference. The “Compensation Committee Report” shall not be deemed to be soliciting material or to be filed with the commission.
As previously disclosed, the Compensation Committee intended to move base salaries for officers, including named executive officers, toward the market median of the Company's established peer group over a three-year period. At the request of the CEO and named executive officers, the Compensation Committee and the Board of Directors have decided not to increase named executive officer base salaries at this time. In lieu thereof, the Board of Directors, based on a recommendation of the Compensation Committee, has provided the named executive officers additional upside under the Long-Term Plan as discussed below. As such, 2020 Base Salary as approved by the Board of Directors is set forth below:
Executive Officer
Position
2019 Base Salary
2020 Base Salary
Steve Downing
President and CEO
$
750,000

$
750,000

Neil Boehm
VP, Engineering and CTO
$
407,000

$
407,000

Kevin Nash
VP, Finance, CFO and Treasurer
$
400,000

$
400,000

Matt Chiodo
VP, Sales
$
380,000

$
380,000

Scott Ryan
VP, General Counsel and Corporate Secretary
$
350,000

$
350,000


Amended and Restated Annual Incentive Performance-Based Bonus Plan

The Board of Directors previously approved the Amended and Restated Annual Incentive Performance-Based Bonus Plan (the "Annual Plan") to further emphasize performance-based compensation. In lieu of participating in the profit-sharing bonus paid to all employees, the Annual Plan provides potential cash-based bonuses for officers based on the achievement of three key performance metrics: Revenue (33.33% weighting); Operating Income (33.33% weighting); and Earnings per Diluted Share (33.33% weighting). The Annual Plan covers all officers, including named executive officers.

At the beginning of each year, the Compensation Committee reviews and approves a cash bonus target for each officer, as a percentage of base salary for the year. The CEO may earn from 0% - 200% of base salary. The non-CEO named executive officers may earn from 0% to 150% of their base salaries. All performance-related targets are set by, and achievement of targets are approved by, the Compensation Committee and/or the Board of Directors.

For our executive officers, the 2019 Annual Plan payout opportunities as a percentage of base salary applicable to each performance metric are shown in the table below:
Executive Officer
Annual Plan Threshold
Annual Plan Target
Annual Plan Maximum
Steve Downing
50
%
100
%
200
%
Neil Boehm
37.5
%
75
%
150
%
Kevin Nash
37.5
%
75
%
150
%
Matt Chiodo
37.5
%
75
%
150
%
Scott Ryan
37.5
%
75
%
150
%

No changes were made to the Annual Plan target opportunities for executive officers in 2020, as the target and maximum opportunity levels were appropriate based on the competitive pay range for each position. The foregoing payout opportunities are multiplied by the weighting factor of a particular performance metric to determine the amounts of cash bonuses payable to officers to the extent the threshold, target, or maximum for a performance metric is met or exceeded. To the extent performance exceeds the established threshold or target, as applicable, for any performance metric, but does not meet or exceed the established target or maximum, as applicable, linear interpolation is used to determine the pro rata portion of the performance bonus. The Compensation Committee also has discretion to increase

28



(or decrease) such performance-based bonuses using its judgment, provided that bonuses are not in any event to exceed 250% of the applicable base salary.

In 2019 and 2020, the Annual Plan uses the same three key performance metrics and weighting: Revenue (weighted 33.33%), Operating Income (weighted 33.33%) and Earnings per Diluted Share (33.33%), since such metrics are not only appropriate measures of performance, but also align with the Company's overall business strategy.

In determining whether annual cash bonuses are paid under the Annual Plan, actual performance for the year is measured against specified target levels for each performance metric. The target for the three performance metrics reflects a level of performance, which at the time set was anticipated to be challenging but achievable. The threshold level is set to be reflective of performance at which the Compensation Committee believed a portion of the award opportunity should be earned. The maximum level was set well above the target, requiring significant achievements and reflecting performance at which the Compensation Committee believed an additional 100% of the target award was warranted.
 
For 2019, pre-established target performance (along with pre-established thresholds and maximums) and actual results for the performance metrics are as follows:
Performance Metric
Weight
Threshold*
Target*
Maximum*
Actual Performance*
Revenue
33.33
%
$1,504,000
$1,880,000
$2,256,000
$1,858,897
Operating Income
33.33
%
$411,300
$514,126
$616,951
$505,447
Earnings per Diluted Share
33.33
%
$1.384
$1.730
$2.076
$1.733
* amounts in thousands (000) except for per share amounts. Amounts may be modified in the discretion of the Compensation Committee as appropriate to ensure the performance metrics are not unsuitable. Threshold, Target, and Maximum for Operating Income and Earnings per Diluted Share were adjusted to address the estimated impact of tariffs and the Actual Performance was similarly adjusted with respect to the actual impact of tariffs.

Based on actual Revenue, Operating Income, and Earnings per Diluted Share results compared to the pre-established targets (adjusted for the impact of tariffs) and performance of the named executive officers, the payments for 2019 under the Annual Plan are shown in the table below:
Executive Officer
2019 Annual Plan Performance Bonus
2019 Annual Plan Discretionary Bonus
Steve Downing
$735,272
$0
Neil Boehm
$299,256
$0
Kevin Nash
$294,109
$0
Matt Chiodo
$279,403
$0
Scott Ryan
$257,345
$0

For 2020, the Compensation Committee has established thresholds, targets, and maximums for Revenue, Operating Income, and Earnings per Diluted Share (adjusted for the impact of tariffs) as the Annual Plan performance metrics.

2019 Omnibus Incentive Plan and Long-Term Incentive Program

The Company's 2019 Omnibus Incentive Plan ("OIP") has been approved by shareholders. Pursuant to the OIP, the Company implemented the Long-Term Incentive Plan (the"Long-Term Plan"). The Long-Term Plan provides officers, including our named executive officers, with incentive awards that serve an important role by balancing other applicable short-term goals with longer term shareholder value creation, while minimizing risk-taking behaviors that could negatively affect long-term results.

The Long-Term Plan uses three-year performance periods and selected performance objectives to determine equity incentive awards so as to balance short-term goals under the Annual Plan, with performance objectives associated with longer-term shareholder value creation under the Long-Term Plan. Under the Long-Term Plan, the Board of Directors and/or the Compensation Committee determines the amount of the long-term incentive awards. Each officer's award opportunity is based on a target dollar value (determined toward the very beginning of the performance period) as a percentage of base salary assigned to his or her position based on market comparisons for similar positions,

29



using both a peer group and general industry market data. The following target opportunities apply for the 2020-2022 performance period under the Long-Term Incentive Plan:
Executive Officer
Long-Term Plan Target Opportunity Percentage of Base Salary for 2020-2022
Steve Downing
240
%
Neil Boehm
150
%
Kevin Nash
140
%
Matt Chiodo
130
%
Scott Ryan
125
%

These Long-Term Plan Target Opportunity Percentage of Base Salary for 2020 - 2022 have increased from those applicable for 2019 - 2021 (which were 200% for Mr. Downing and 100% for other named executive officers) in lieu of base salary increases as discussed above.
 
Achievement at threshold performance yields 50% of the target award and achievement of the maximum performance yields another 100% of the target award. To the extent performance exceeds the established threshold or target, as applicable, for an applicable performance objective, but does not meet or exceed the established target or maximum, as applicable, linear interpolation is used to determine the pro rata portion of such award.

Seventy percent (70%) of the total value of the target long-term incentive opportunity is delivered through performance share awards ("PSAs") and the other thirty percent (30%) through restricted stock ("RS"). Both PSAs and RS are forms of performance-based incentive compensation because PSAs involve performance objectives that provide direct alignment with shareholder interests and the value of RS fluctuates based on stock price performance.

In addition to requiring achievement of performance objectives in respect of PSAs, PSAs and RS require the executive officers to remain employed with the Company for three years from the grant date (unless the executive officer attains retirement age, departs for good reason, dies, or becomes disabled or a change in control occurs whereby an award may be paid or partially paid).

Performance Shares

The Long-Term Plan is designed to provide PSAs for officers, including our named executive officers. PSAs are tied to the achievement of two performance objectives, each weighted equally: earnings before interest, taxes, depreciation and amortization (EBITDA) and return on invested capital (ROIC), in each case adjusted as determined by the Compensation Committee. Each performance objective is based on a three-year performance period (2020-2022) with a performance range that can result in PSAs of 0% for failure to achieve threshold, 50% of target for achieving threshold, to 200% of the target opportunity for achieving maximum.
 
EBITDA drives the ability to commit resources to continued growth, but is also a measure of ability to provide shareholder return. It also drives profitable sales growth and optimizes the Company's cost structure. ROIC ensures management uses the Company's capital in an effective manner that drives shareholder value. Since the value of PSAs is tied to the Company's actual performance in financial objectives, it aligns the officers' interests with those of shareholders. The target opportunities of PSAs for the named executive officers are shown in the table below:
Executive Officer
Number of PSAs Awarded in 2020 (Target) for 2020-2022
Steve Downing
41,516

Neil Boehm
14,081

Kevin Nash
12,916

Matt Chiodo
11,394

Scott Ryan
10,091

Restricted Stock Awards

30




The other 30% of the total value of the long-term incentive opportunity consists of RS awards. RS incentivizes and rewards executives for improving long-term stock value and serves as a retention tool. Under the Long-Term Plan, RS will generally be granted in February to officers, including our named executive officers, and cliff vest on the third anniversary of the grant. The RS awarded in 2020, based on the target opportunities, for the executive officers are shown in the table below:
Executive Officer
Number of RS Awarded in 2020 for 2020-2022
Steve Downing
17,792

Neil Boehm
6,035

Kevin Nash
5,535

Matt Chiodo
4,883

Scott Ryan
4,325




Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The information contained under the captions “Common Stock Ownership of Management,” “Common Stock Ownership of Certain Beneficial Owners,” and “Equity Compensation Plan Information” contained in the definitive Proxy Statement is hereby incorporated herein by reference. There are no arrangements known to the registrant, the operation of which may at a subsequent date result in a change in control.
 

Item 13.    Certain Relationships and Related Transactions, and Director Independence.
The information contained under the caption “Certain Transactions” contained in the definitive Proxy Statement is hereby incorporated herein by reference. The information contained under the caption “Election of Directors” contained in the definitive Proxy Statement is hereby incorporated herein by reference.
 



Item 14.    Principal Accounting Fee and Services.
Information regarding principal accounting fees and services set forth under the caption “Ratification of Appointment of Independent Auditors – Principal Accounting Fees and Services” in the definitive Proxy Statement is hereby incorporated herein by reference. Information concerning the policy adopted by the Audit Committee regarding the pre-approval of audit and non-audit services provided by the Company’s independent auditors set forth under the caption “Corporate Governance – Audit Committee” in the definitive Proxy Statement is hereby incorporated herein by reference.
 

31




PART IV

Item 15.
Exhibits, Financial Statement Schedules.
 
(a)
2. Financial Statements Schedules. None required or not applicable.
 3. Exhibits. See Exhibit Index on Page 64.

(b)
See (a) above.
(c)
See (a) above.


Item 16.    Form 10-K Summary.
None.


32



SIGNATURES
Pursuant to the requirements of Section 13 of 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 
GENTEX CORPORATION
 
 
 
 
By:
/s/ Steven R. Downing
 
 
Steven R. Downing, President and Chief Executive Officer
 
Date:
February 26, 2020
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on this 26th day of February, 2020, by the following persons on behalf of the registrant and in the capacities indicated.

 
By:
/s/ Steven R. Downing
 
 
Steven R. Downing, President and Chief Executive Officer
 
 
(Principal Executive Officer) on behalf of Gentex Corporation
 
By:
/s/ Kevin C. Nash
 
 
Kevin C. Nash, Vice President, Finance, Chief Financial Officer and Treasurer
 
 
(Principal Financial Officer and Principal Accounting Officer) on behalf of Gentex Corporation

33




Each Director of the registrant whose signature appears below hereby appoints Steve Downing or Kevin Nash, as his or her attorney-in-fact to sign in his or her name and on his or her behalf, and to file with the Commission any and all amendments to this report on Form 10-K to the same extent and with the same effect as if done personally.
/s/ Leslie Brown
  
Director
Leslie Brown
  
 
 
 
 
/s/ Gary Goode
  
Director
Gary Goode
  
 
 
 
/s/ James Hollars
  
Director
James Hollars
  
 
 
 
/s/ John Mulder
  
Director
John Mulder
  
 
 
 
/s/ Richard Schaum
  
Director
Richard Schaum
  
 
 
 
/s/ Fred Sotok
  
Director
Fred Sotok
  
 
 
 
 
/s/ Kathleen Starkoff
  
Director
Kathleen Starkoff
  
 
 
 
 
/s/ Brian Walker
  
Director
Brian Walker
  
 
 
 
/s/ James Wallace
  
Director
James Wallace
  
 

34




Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors of Gentex Corporation

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Gentex Corporation and subsidiaries (the Company) as of December 31, 2019 and 2018, the related consolidated statements of income, comprehensive income, shareholders' investment and cash flows for each of the three years in the period ended December 31, 2019, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 26, 2020 expressed an unqualified opinion thereon.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.


35



 
 
Revenue - Estimate of Variable Consideration
Description of the Matter
 
As discussed in Notes 1 and 11 to the Company’s consolidated financial statements, the Company occasionally enters into sales contracts with its customers that provide for annual price reductions over the production life of a particular part. Prices may also be adjusted on an ongoing basis to reflect changes in product content, product cost and other commercial factors.

Auditing the accounting for and the completeness of the amount of revenue that the Company expects to be entitled to in exchange for its products (for arrangements containing annual price reductions) is judgmental due to the unique facts and circumstances involved with each revenue arrangement, as well as on-going commercial negotiations with customers.
How We Addressed the Matter in Our Audit
 
We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over annual price reductions. This included testing controls over the Company’s process to identify and evaluate customer contracts that contain matters that impact revenue recognition, as well as testing controls relating to the completeness and measurement of revenue related to those sales contracts.

Our audit procedures included, among others, testing the completeness and valuation of the Company’s price reductions, including interviews of executive and commercial management personnel responsible for negotiations with customers, inspecting communications between the Company and its customers related to the price reductions, and testing manual price reduction entries recorded using lower materiality thresholds for our testing purposes.




/s/ Ernst & Young LLP

We have served as the Company’s auditor since 1999.
Grand Rapids, Michigan
February 26,2020

36



Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors of Gentex Corporation
Opinion on Internal Control over Financial Reporting
We have audited Gentex Corporation and subsidiaries’ internal control over financial reporting as of December 31, 2019 based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Gentex Corporation and subsidiaries (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of Gentex Corporation and subsidiaries as of December 31, 2019 and 2018, the related consolidated statements of income, comprehensive income, shareholders' investment and cash flows for each of the three years in the period ended December 31, 2019, and the related notes and our report dated February 26, 2020 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.


/s/ Ernst & Young LLP

Grand Rapids, Michigan

February 26, 2020

37




GENTEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2019 AND 2018
 
2019
 
2018
ASSETS
 
 
 
CURRENT ASSETS:
 
 
 
Cash and cash equivalents
$
296,321,622

 
$
217,025,278

Short-term investments
140,384,053

 
169,412,999

Accounts receivable, net
235,410,326

 
213,537,799

Inventories, net
248,941,855

 
225,281,599

Prepaid expenses and other
29,319,036

 
25,672,579

Total current assets
950,376,892

 
850,930,254

PLANT AND EQUIPMENT:
 
 
 
Land, buildings and improvements
344,231,180

 
340,910,332

Machinery and equipment
843,439,691

 
838,887,032

Construction-in-process
39,456,490

 
18,156,423

Total Plant and Equipment
1,227,127,361

 
1,197,953,787

Less- Accumulated depreciation
(728,811,261
)
 
(699,480,021
)
Net Plant and Equipment
498,316,100

 
498,473,766

OTHER ASSETS:
 
 
 
Goodwill
307,365,845

 
307,365,845

Long-term investments
139,909,323

 
137,979,082

Intangible assets, net
250,375,000

 
269,675,000

Patents and other assets, net
22,460,033

 
21,010,121

Total Other Assets
720,110,201

 
736,030,048

TOTAL ASSETS
$
2,168,803,193

 
$
2,085,434,068

LIABILITIES AND SHAREHOLDERS’ INVESTMENT
 
 
 
CURRENT LIABILITIES:
 
 
 
Accounts payable
$
97,553,917

 
$
92,810,316

Accrued liabilities:
 
 
 
Salaries, wages and vacation
16,385,833

 
15,860,073

Income taxes
24,952

 
4,293,608

Royalties
17,371,829

 
16,174,041

Dividends payable
28,896,914

 
28,526,147

Other
11,613,355

 
11,496,734

Total current liabilities
171,846,800

 
169,160,919

 
 
 
 
OTHER NON-CURRENT LIABILITIES
7,414,424

 

 
 
 
 
DEFERRED INCOME TAXES
51,454,149

 
54,521,489

 
 
 
 
TOTAL LIABILITIES
230,715,373


223,682,408

 
 
 
 
SHAREHOLDERS’ INVESTMENT:
 
 
 
Common stock, par value $.06 per share; 400,000,000 shares authorized; 251,277,515 and 259,328,613 shares issued and outstanding in 2019 and 2018 respectively.
15,076,651

 
15,559,717

Additional paid-in capital
807,928,139

 
745,324,144

Retained earnings
1,116,372,133

 
1,102,468,137

Accumulated other comprehensive income:
 
 
 
Unrealized gain on investments
1,095,486

 
74,549

Cumulative translation adjustment
(2,384,589
)
 
(1,674,887
)
Total shareholders’ investment
1,938,087,820

 
1,861,751,660

TOTAL LIABILITES AND SHAREHOLDERS' INVESTMENT
$
2,168,803,193

 
$
2,085,434,068

The accompanying notes are an integral part of these consolidated financial statements.

38



GENTEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017
 

2019

2018

2017
NET SALES
$
1,858,897,406

 
$
1,834,063,697

 
$
1,794,872,578

 
 
 
 
 
 
COST OF GOODS SOLD
1,170,589,437

 
1,143,597,005

 
1,100,344,312

 
 
 
 
 
 
Gross profit
688,307,969

 
690,466,692

 
694,528,266

 
 
 
 
 
 
OPERATING EXPENSES:
 
 
 
 
 
Engineering, research and development
114,687,309

 
107,134,862

 
99,726,438

Selling, general and administrative
85,083,056

 
75,206,283

 
71,443,476

Total operating expenses
199,770,365

 
182,341,145

 
171,169,914

 
 
 
 
 
 
Income from operations
488,537,604

 
508,125,547

 
523,358,352

 
 
 
 
 
 
OTHER INCOME:
 
 
 
 
 
Investment income
11,230,696

 
11,262,385

 
9,442,387

Other income (expense), net
647,034

 
2,659,015

 
(1,004,035
)
Total other income
11,877,730

 
13,921,400

 
8,438,352

 
 
 
 
 
 
Income before provision for income taxes
500,415,334

 
522,046,947

 
531,796,704

 
 
 
 
 
 
PROVISION FOR INCOME TAXES
75,731,395

 
84,163,850

 
125,004,782

 
 
 
 
 
 
NET INCOME
$
424,683,939

 
$
437,883,097

 
$
406,791,922

 
 
 
 
 
 
EARNINGS PER SHARE:

 

 

Basic
$
1.67

 
$
1.64

 
$
1.42

Diluted
$
1.66

 
$
1.62

 
$
1.41

 
 
 
 
 
 
Cash Dividends Declared per Share
$
0.460

 
$
0.440

 
$
0.390

The accompanying notes are an integral part of these consolidated financial statements.

39



GENTEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017
 

2019
 
2018
 
2017
Net income
$
424,683,939

 
$
437,883,097

 
$
406,791,922

 
 
 
 
 
 
Other comprehensive income (loss) before tax:
 
 
 
 
 
Foreign currency translation adjustments
(709,702
)
 
(2,319,917
)
 
3,508,029

Unrealized gains on derivatives

 
98,767

 
1,721,933

Unrealized gains on available-for-sale securities, net
1,292,325

 
115,059

 
5,903,699

 
 
 
 
 
 
Other comprehensive income (loss), before tax
582,623

 
(2,106,091
)
 
11,133,661

 
 
 
 
 
 
Expense for income taxes related to components of other comprehensive income (loss)
271,388

 
44,903

 
2,668,973

 
 
 
 
 
 
Other comprehensive income (loss), net of tax
311,235

 
(2,150,994
)
 
8,464,688

 
 
 
 
 
 
Comprehensive income
$
424,995,174

 
$
435,732,103

 
$
415,256,610


The accompanying notes are an integral part of these consolidated financial statements.


40



GENTEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ INVESTMENT
FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 and 2017
 
Common 
Stock
Shares
 
Common 
Stock
Amount
 
Additional 
Paid-In
Capital
 
Retained 
Earnings
 
Accumulated 
Other
Comprehensive
Income (Loss)
 
Total 
Shareholders’
Investment
BALANCE AS OF JANUARY 1, 2017
287,737,516

 
$
17,264,251

 
$
683,446,463

 
$
1,210,984,825

 
$
(1,271,305
)
 
$
1,910,424,234

   Issuance of common stock
4,498,729

 
269,923

 
47,500,544

 

 

 
47,770,467

   Repurchases of common stock
(11,954,924
)
 
(717,295
)
 
(25,813,300
)
 
(204,832,621
)
 

 
(231,363,216
)
   Stock-based compensation expense related to stock options, employee stock purchases and restricted stock

 

 
18,376,965

 

 

 
18,376,965

   Dividends declared ($.39 pe