| Summary of Significant Accounting and Reporting Policies | SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES The Company Gentex Corporation, including its wholly-owned subsidiaries (the "Company"), is a leading supplier of digital vision, connected car, dimmable glass, and fire protection products. The Company’s largest business segment involves designing, developing, manufacturing, marketing, and supplying automatic-dimming rearview and non-dimming mirrors and various electronic modules for the automotive industry. The Company ships its product to all of the major automotive producing regions worldwide, which it supports with numerous sales, engineering and distribution locations worldwide. A substantial portion of the Company’s net sales and accounts receivable result from transactions with domestic and foreign automotive manufacturers and Tier 1 suppliers. The Company also designs, develops, manufactures, markets, and supplies dimmable aircraft windows for the aviation industry and commercial smoke alarms and signaling devices for the fire protection products industry. The Company does not require collateral or other security for trade accounts receivable. Significant accounting policies of the Company not described elsewhere are as follows: Consolidation The consolidated financial statements include the accounts of Gentex Corporation and all of its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated. Cash Equivalents Cash equivalents consist of funds invested in bank accounts and money market funds that have daily liquidity. Allowance For Doubtful Accounts The Company reviews a monthly aging report of all accounts receivable balances starting with invoices outstanding over sixty days. In addition, the Company monitors information about its customers through a variety of sources including the media, and information obtained through on-going interaction between Company personnel and the customer. Based on the evaluation of the above information, the Company estimates its allowances related to customer receivables on historical credit and collections experience, customers current financial condition and the specific identification of other potential problems, including the economic climate and impact the COVID-19 pandemic and supply chain constraints has had on specific customers. Actual collections can differ, requiring adjustments to the allowances, but historically such adjustments have not been material. The following table presents the activity in the Company’s allowance for doubtful accounts: Beginning Net Net Additions/Deductions Ending Year Ended December 31, 2021: Allowance for Doubtful Accounts $ 3,464,747 $ — $ (288,542) $ 3,176,205 Year Ended December 31, 2020: Allowance for Doubtful Accounts $ 2,451,293 $ 1,000,000 $ 13,454 $ 3,464,747 Year Ended December 31, 2019: Allowance for Doubtful Accounts $ 2,746,647 $ — $ (295,354) $ 2,451,293 The Company’s allowance for doubtful accounts primarily relates to financially distressed automotive customers. The Company continues to work with these financially distressed customers in collecting past due balances. Investments The Company follows the provisions of ASC 820, Fair Value Measurements and Disclosures, for its financial assets and liabilities, and for its non-financial assets and liabilities subject to fair value measurements. ASC 820 provides a framework for measuring the fair value of assets and liabilities. This framework is intended to provide increased consistency in how fair value determinations are made under various existing accounting standards that permit, or in some cases, require estimates of fair-market value. This standard also expanded financial statement disclosure requirements about a company’s use of fair-value measurements, including the effect of such measurement on earnings. The cost of securities sold is based on the specific identification method. The Company determines the fair value of its government securities, asset-backed securities, corporate bonds, and certain municipal bonds by utilizing monthly valuation statements that are provided by its broker. The broker determines the investment valuation by utilizing the bid price in the market and also refers to third party sources to validate valuations, and as such are classified as Level 2 assets. The Company's certificates of deposit are classified as available for sale, and are considered as Level 1 assets. These investments are carried at amortized cost, which approximates fair value. The Company will also periodically make technology investments in certain non-consolidated third-parties. These equity investments are accounted for in accordance with ASC 321, Investments - Equity Securities . Equity investments that do not have readily determinable fair values, and where the Company has not identified any observable events that would cause adjustment of the valuation to date, are held at cost. These technology investments totaled $16.8 million and $4.0 million as of December 31, 2021 and December 31, 2020, respectively. These investments are classified within Long-Term Investments in the consolidated balance sheet and are not included within the tables below. The $12.8 million increase in the balance of these technology investments are a result of additional investments with third-parties for potential automotive and medical devices use-cases. Assets or liabilities that have recurring fair value measurements are shown below as of December 31, 2021 and December 31, 2020: Fair Value Measurements at Reporting Date Using Total as of Quoted Prices in Significant Other Significant Description December 31, 2021 (Level I) (Level 2) (Level 3) Cash & Cash Equivalents $ 262,311,670 $ 262,311,670 $ — $ — Short-Term Investments: Certificate of Deposit 1,507,770 1,507,770 — — Corporate Bonds 2,018,440 — 2,018,440 — Other 1,897,402 1,897,402 — — Long-Term Investments: Asset-backed Securities 25,799,513 — 25,799,513 — Certificate of Deposit 2,056,710 2,056,710 — Corporate Bonds 40,354,929 — 40,354,929 — Government Securities 47,944,036 — 47,944,036 — Municipal Bonds 74,720,480 — 74,720,480 — Total $ 458,610,950 $ 267,773,552 $ 190,837,398 $ — Fair Value Measurements at Reporting Date Using Total as of Quoted Prices in Significant Other Significant Description December 31, 2020 (Level I) (Level 2) (Level 3) Cash & Cash Equivalents 423,371,036 $ 423,371,036 $ — $ — Short-Term Investments: Certificate of Deposit 1,516,693 1,516,693 — — Corporate Bonds 7,155,600 — 7,155,600 — Government Securities 6,678,450 — 6,678,450 — Municipal Bonds 10,284,765 — 10,284,765 — Other 1,528,861 1,528,861 — — Long-Term Investments: Asset-backed Securities 37,924,537 — 37,924,537 — Certificate of Deposit 3,645,520 3,645,520 — — Corporate Bonds 9,024,035 — 9,024,035 — Municipal Bonds 107,407,831 — 107,407,831 — Total $ 608,537,328 $ 430,062,110 $ 178,475,218 $ — The amortized cost, unrealized gains and losses, and market value of investment securities are shown as of December 31, 2021 and 2020: Unrealized 2021 Cost Gains Losses Market Value Short-Term Investments: Certificate of Deposit $ 1,500,543 $ 7,227 $ — $ 1,507,770 Corporate Bonds 1,994,639 23,801 — 2,018,440 Other 1,897,402 — — 1,897,402 Long-Term Investments: Asset-backed Securities 26,352,630 34,771 (587,888) 25,799,513 Certificate of Deposit 2,001,714 54,996 — 2,056,710 Corporate Bonds 40,716,866 168,416 (530,353) 40,354,929 Government Securities 48,385,672 55,939 (497,575) 47,944,036 Municipal Bonds 72,175,568 2,747,964 (203,052) 74,720,480 Total $ 195,025,034 $ 3,093,114 $ (1,818,868) $ 196,299,280 Unrealized 2020 Cost Gains Losses Market Value Short-Term Investments: Certificate of Deposit $ 1,502,187 $ 14,506 $ — $ 1,516,693 Corporate Bonds 7,084,638 70,962 — 7,155,600 Governmental Securities 6,635,132 43,318 — 6,678,450 Municipal Bonds 10,160,376 124,389 — 10,284,765 Other 1,528,861 — — 1,528,861 Long-Term Investments: Asset-backed Securities 37,681,113 800,802 (557,378) 37,924,537 Certificate of Deposit 3,503,898 141,622 — 3,645,520 Corporate Bonds 8,595,020 429,015 — 9,024,035 Municipal Bonds 100,776,325 6,635,428 (3,922) 107,407,831 Total $ 177,467,550 $ 8,260,042 $ (561,300) $ 185,166,292 Unrealized losses on investments as of December 31, 2021 are as follows: Aggregate Unrealized Losses Aggregate Fair Value Less than one year $ 1,244,053 $ 94,417,123 Greater than one year 574,815 6,875,230 Total $ 1,818,868 $ 101,292,353 Unrealized losses on investments as of December 31, 2020 are as follows: Aggregate Unrealized Losses Aggregate Fair Value Less than one year $ 561,300 $ 12,317,187 Greater than one year — — Total $ 561,300 $ 12,317,187 Effective January 1, 2020, the Company adopted Accounting Standards Update ("ASU") 2016-13, Financial Instruments - Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments . The guidance modifies the impairment model for available-for-sale debt securities and provides a simplified accounting model for purchased financial assets with credit deterioration since their origination. The Company utilized the guidance provided by ASC 326 to determine whether any of the available-for-sale debt securities held by the Company were impaired. No investments were considered to be impaired during the years presented. The Company has the intention and current ability to hold its debt investments until the amortized cost basis has been recovered. If market, industry, and/or investee conditions deteriorate, the Company may incur future impairments. No investments were considered to be other-than-temporarily impaired in 2021 and 2020. Fixed income securities as of December 31, 2021, have contractual maturities as follows: Due within one year $ 3,526,210 Due between one and five years 112,784,662 Due over five years 78,091,006 $ 194,401,878 Fair Value of Financial Instruments The Company’s financial instruments consist of cash and cash equivalents, investments, accounts receivable, accounts payable, and short and long-term debt. The Company’s estimate of the fair values of these financial instruments approximates their carrying amounts at December 31, 2021 and 2020. Inventories Inventories include material, direct labor and manufacturing overhead and are valued at the lower of first-in, first-out (FIFO) cost or net realizable value. Inventories consisted of the following as of December 31, 2021 and 2020: 2021 2020 Raw materials $ 235,014,277 $ 151,688,455 Work-in-process 34,032,164 32,791,675 Finished goods 47,221,001 41,811,713 Total Inventory $ 316,267,442 $ 226,291,843 Estimated inventory allowances for slow-moving and obsolete inventories are based on current assessments of future demands, market conditions, evaluation of longer lead times for certain electronic components and related management initiatives. If market conditions or customer requirements change and are less favorable than those projected by management, inventory allowances are adjusted accordingly. Allowances for slow-moving and obsolete inventories (which are included, net, in the above inventory values) were $10.9 million and $10.4 million at December 31, 2021 and 2020, respectively. Plant and Equipment Plant and equipment is stated at cost. Depreciation and amortization are computed for financial reporting purposes using the straight-line method, with estimated useful lives of 7 to 30 years for buildings and improvements, and 3 to 10 years for machinery and equipment. Depreciation expense was approximately $76.8 million, $82.4 million and $82.3 million in 2021, 2020 and 2019, respectively. As of December 31, 2021, 2020 and 2019, capital expenditures recorded in accounts payable totaled $9.8 million, $4.8 million and $3.8 million, respectively. Impairment or Disposal of Long-Lived Assets The Company reviews long-lived assets, including property, plant and equipment and other intangible assets with definite lives, for impairment whenever events or changes in circumstances indicate that the asset’s carrying amount may not be recoverable. The Company conducts its long-lived asset impairment analysis in accordance with ASC 360-10-15, Impairment or Disposal of Long-Lived Assets . ASC 360-10-15 requires the Company to group assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities and evaluate the asset group against the sum of the undiscounted future cash flows. If the undiscounted cash flows do not indicate the carrying amount of the asset is recoverable, an impairment charge is measured as the amount by which the carrying amount of the asset group exceeds its fair value based on discounted cash flow analysis or appraisals. Patents The Company’s policy is to capitalize costs incurred to obtain patents. The cost of patents is amortized over their useful lives. The cost of patents in process is not amortized until issuance. The Company periodically obtains intellectual property rights, in the ordinary course of business, and the cost of the rights are amortized over their useful lives. Goodwill and Intangible Assets Goodwill reflects the cost of an acquisition in excess of the fair values assigned to identifiable net assets acquired. The Company reviews goodwill for impairment during the fourth quarter on an annual basis or more frequently if events or changes in circumstances indicate that goodwill might be impaired. The Company performs an impairment review for its automotive reporting unit, which has been determined to be one of the Company’s reportable segments, using either a qualitative approach or quantitative approach which utilizes a fair value method that incorporates certain assumptions and judgments. The fair value of a reporting unit refers to the price that would be received to sell the unit as a whole in an orderly transaction between market participants at the measurement date. The Company performs a qualitative assessment (step 0) to determine whether it is more likely than not that a reporting unit's fair value is less than its carrying amount. If not, no further goodwill impairment testing is performed. If so, the Company performs a step 1 test to determine the fair value of the reporting unit using an income approach to estimate the fair value of each of its reporting units and a market valuation approach to further support this analysis. If the fair value of the reporting unit is greater than its carrying amount, goodwill is not considered to be impaired. However, if the fair value of the reporting unit is less than its carrying amount, an impairment change is recorded as the excess of the reporting unit's carrying value over its fair value. The assumptions included in the impairment tests require judgment and changes to these inputs could impact the results of the calculations which could result in an impairment charge in future periods if the carrying amount of the reporting unit exceeds its calculated fair value. For the qualitative assessment performed, management considers factors such as macro-economic conditions, industry and market considerations, overall financial performance, and other company-specific events, amongst other factors, in making the determination as to whether it is more likely than not that a reporting unit's fair value is less than its carrying amount. Other than management's internal projections of future cash flows, the primary assumptions used in the step 1 impairment test is the weighted-average cost of capital and long-term growth rates. Although the Company's cash flow forecasts are based on assumptions that are considered reasonable by management and consistent with the plans and estimates management is using to operate the underlying business, there are significant judgments in determining the expected future cash flows attributable to a reporting unit. There have been no impairment charges recorded currently or in prior periods in which goodwill existed. Indefinite lived intangible assets are also subject to annual impairment testing or more frequently if indicators of impairment are identified. Management's judgment and assumptions are required in determining the underlying fair value of the indefinite lived intangible assets. While the Company believes the judgments and assumptions used in determining fair value are reasonable, different assumptions could change the estimated fair values and, therefore, impairment charges could be required, which could be material to the consolidated financial statements. The indefinite lived intangible assets were not impaired as a result of the annual test prepared by management for either period presented. As part of recent acquisitions, the Company acquired Indefinite lived in-process research and development ("IPR&D") intangible assets. These IPR&D assets are not amortized, but are tested for impairment annually, or more frequently when indicators of potential impairment exist, until the completion or abandonment of the associated research and development efforts. Upon completion of the projects, the assets will be amortized over the expected economic life of the asset, which will be determined on that date. Should the project be determined to be abandoned, and if the asset developed has no alternative use, the full value of the asset will be charged to expense. Refer to Note 10, "Goodwill and Intangible Assets" for information regarding the impairment testing performed in calendar year 2021. 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 subject to estimate and are 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. Refer to Note 11, "Revenue" , for further information. Advertising and Promotional Materials All advertising and promotional costs are expensed as incurred and amounted to approximately $1.8 million, $2.0 million and $3.0 million, in 2021, 2020 and 2019, respectively. Repairs and Maintenance Major renewals and improvements of property and equipment are capitalized, and repairs and maintenance are expensed as incurred. The Company incurred expenses relating to the repair and maintenance of plant and equipment of approximately $24.2 million, $22.6 million and $28.9 million, in 2021, 2020 and 2019, respectively. Self-Insurance The Company is self-insured for a portion of its risk on workers’ compensation and employee medical costs. The arrangements provide for stop loss insurance to manage the Company’s risk. Such costs are accrued based on known claims and an estimate of incurred, but not reported (IBNR) claims. IBNR claims are estimated using historical lag information and other data provided by claims administrators. This estimation process is subjective, and to the extent that future results differ from original estimates, adjustments to recorded accruals may be necessary. Product Warranty The Company periodically incurs product warranty costs. Any liabilities associated with product warranty are estimated based on known facts and circumstances and are not significant at December 31, 2021, 2020 and 2019. The Company does not offer extended warranties on its products. Income Taxes The provision for income taxes is based on the earnings reported in the consolidated financial statements. Deferred income tax assets and liabilities are computed for differences between the financial statement and tax basis of assets and liabilities that will result in deductible or taxable amounts in the future. Such deferred income tax asset and liability computations are based on enacted tax laws and rates. The Company applies the provisions of ASC 740, Income Taxes , as it relates to uncertainty in income taxes recognized in the Company’s consolidated financial statements. A threshold of more likely than not to be sustained upon examination is applied to uncertain tax positions. The Company deems the estimates related to this provision to be reasonable, however, no assurance can be given that the final outcome of these matters will not vary from what is reflected in the historical income tax provisions and accruals. Leases The Company has operating leases for corporate offices, warehouses, vehicles, and other equipment, which are included within "Plant and Equipment" section of the Consolidated Balance Sheets. The leases have remaining lease terms of 1 year to 5 years. The weighted average remaining lease term for operating leases as of December 31, 2021 was 2 years, with a weighted average discount rate of 1.5%. Future minimum lease payments for operating leases as of December 31, 2021 were as follows: Year ending December 31, 2022 $ 1,352,855 2023 872,772 2024 166,652 2025 7,408 Thereafter 457 Total future minimum lease payments $ 2,400,144 Less imputed interest (17,638) Total $ 2,382,506 Earnings Per Share The Company has unvested share-based payment awards with a right to receive non-forfeitable dividends, which are considered participating securities under ASC 260, Earnings Per Share . The Company allocates earnings to participating securities and computes earnings per share using the two-class method. Under the two-class method, net income per share is computed by dividing net income allocated to common shareholders by the weighted average number of common shares outstanding for the period. In applying the two-class method, net income is allocated to both common shares and participating securities based on their respective weighted average shares outstanding for the period. The following table sets forth the computation of basic and diluted net income per common share under the two-class method for each of the last three years: 2021 2020 2019 Basic Earnings Per Share Net Income $ 360,797,232 $ 347,563,621 $ 424,683,939 Less: Allocated to participating securities 5,591,992 4,964,928 5,028,813 Net Income available to common shareholders $ 355,205,240 $ 342,598,693 $ 419,655,126 Basic weighted average shares outstanding 235,526,911 242,599,923 251,766,382 Net Income per share - Basic $ 1.51 $ 1.41 $ 1.67 Diluted Earnings Per Share Allocation of Net Income used in basic computation $ 355,205,240 $ 342,598,693 $ 419,655,126 Reallocation of undistributed earnings 17,014 14,232 21,104 Net Income available to common shareholders — Diluted $ 355,222,254 $ 342,612,925 $ 419,676,230 Number of shares used in basic computation 235,526,911 242,599,923 251,766,382 Additional weighted average dilutive common stock equivalents 1,077,103 1,082,069 1,506,608 Diluted weighted average shares outstanding 236,604,014 243,681,992 253,272,990 Net income per share — Diluted $ 1.50 $ 1.41 $ 1.66 For the years ended December 31, 2021, 2020 and 2019, 200,037 shares, 403,071 shares, and 247,855 shares, respectively, related to stock option plans were not included in diluted average common shares outstanding because they were anti-dilutive. Comprehensive Income (Loss) Comprehensive income (loss) reflects the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources. For the Company, comprehensive income represents net income adjusted for unrealized gains and losses on certain investments and foreign currency translation adjustments that are further detailed in Note 9 to the Consolidated Financial Statements. Foreign Currency Translation The financial position and results of operations of the Company’s foreign subsidiaries are measured using the local currency as the functional currency. Assets and liabilities are translated at the exchange rate in effect at year-end. Income statement accounts are translated at the average rate of exchange in effect during the year. The resulting translation adjustment is recorded as a separate component of shareholders’ investment. Gains and losses arising from re-measuring foreign currency transactions into the appropriate currency are included in the determination of net income. Stock-Based Compensation Plans The Company accounts for stock-based compensation using the fair value recognition provisions of ASC 718, Compensation - Stock Compensation . As described more fully in Note 5 to the Consolidated Financial Statements, the Company provides, or has provided, compensation benefits under an omnibus incentive plan, two other stock option plans, another restricted stock plan, and an employee stock purchase plan. The Company utilizes the Black-Scholes model to estimate the value of the stock options, which requires the input of assumptions. These assumptions include estimating (a) the length of time employees will retain their vested stock options before exercising them (“expected term”), (b) the volatility of the Company’s common stock price over the expected term, (c) the number of options that will ultimately not complete their vesting requirements (“forfeitures”) and (d) expected dividends. Changes in the assumptions can materially affect the estimate of fair value of stock-based compensation and consequently, the related amounts recognized on the consolidated statements of operations. Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. |
