Gentex(GNTX) - 2023 Q4 - Annual Report

PART I Item 1. Business Gentex specializes in digital vision, connected car, dimmable glass, and fire protection technologies, with automotive products accounting for 98% of 2023 revenue - Gentex Corporation was incorporated in 1974 and designs, develops, manufactures, markets, and supplies digital vision, connected car, dimmable glass, and fire protection technologies[6] - Automotive revenues represented approximately 98% of the Company's total revenue in 2023, primarily from interior and exterior electrochromic automatic-dimming rearview mirrors and automotive electronics[18][22] - The Company holds 50 U.S. Registered Trademarks and 772 U.S. Patents, with a significant portion related to electrochromic technology, automotive mirrors, and HomeLink products, providing a competitive advantage[44] - As of February 1, 2024, Gentex had 6,245 full-time employees and fosters a collaborative culture with competitive compensation, wellness programs, and strong Diversity, Equity & Inclusion (DE&I) initiatives[48][49][50][52] - The Company has committed to significant carbon reduction goals: 15% below 2020 levels by 2026, 40% by 2031, 70% by 2041, and carbon neutrality by 2049[65][66] General Development of Business This section outlines Gentex's product evolution and strategic developments over several decades - Gentex's product evolution includes: interior electromechanical automatic-dimming rearview mirror (early 1980s), electrochromic automatic-dimming mirrors (late 1980s/early 1990s), dimmable aircraft windows (2010), HomeLink acquisition (2013), Full Display Mirror (FDM) and Integrated Toll Module (ITM) (2015)[7] - Recent strategic developments include: exclusive aftermarket distribution of FDM (2017), biometric iris scanning technology (2017/2018), dimmable aircraft windows for Boeing 777X (2019) and Airbus (2021), intelligent medical lighting (2020), Vaporsens acquisition for nanofiber chemical sensing (2020), Simplenight partnership for connected vehicle services (2021), Guardian Optical Technologies acquisition for driver/cabin monitoring (2021), equity share in GreenMarbles (2022), partnership and equity share in Adasky for thermal sensing (2023), eSight technology acquisition for low-vision smart glasses (2023), partnership and equity share in Solace Power for wireless power (2024), and introduction of PLACE smart home safety products (2024)[7][9][10][11][12][13][14][15][16][17] Description of Business This section details Gentex's core product lines across automotive, aviation, fire protection, nanofiber, and medical sectors - Automotive Products: Largest segment, primarily interior and exterior electrochromic automatic-dimming rearview mirrors and electronics (e.g., HomeLink, FDM, ITM, driver/cabin monitoring systems). Gentex is the leading manufacturer globally with approximately 89% market share in 2023 for automatic-dimming mirrors[19][20][21][22][27] - Dimmable Aircraft Windows: Manufactures and sells variable dimmable windows for Boeing 787 Dreamliner and 777X, and Airbus aircraft. This is the first commercialized product of its kind for OEM installation in the aircraft industry[31][33][34] - Fire Protection Technologies: Manufactures photoelectric smoke detectors, visual signaling alarms, carbon monoxide alarms, and recently introduced 'PLACE' smart home safety products with room-specific functionality[36][37] - Nanofiber Products and Development: Acquired Vaporsens in 2020, specializing in nanofiber chemical sensing R&D with potential applications across automotive, aerospace, agriculture, military, and medical markets[39][40] - Medical Products and Development: Co-developed an intelligent lighting system for surgical environments with Mayo Clinic (2020) and acquired eSight technology for low-vision smart glasses (2023), with deliveries of eSightGo expected in 2024[10][14][15][41][42] Item 1A. Risk Factors Gentex faces significant risks from its 98% dependence on the cyclical automotive industry, supply chain disruptions, pricing pressures, competition, and cybersecurity threats - The automotive industry comprises approximately 98% of Gentex's net sales, making it highly susceptible to economic cycles, volatile production, supply chain constraints, and shifts in consumer preferences[76] - Key customers, including Volkswagen Group, Toyota Motor Company, and General Motors, each accounted for 10% or more of annual net sales in 2023, posing a risk if sales to these customers decrease significantly[77][403] - Ongoing pricing pressures from automotive customers and competitors, coupled with increasing raw material, energy, and labor costs, continue to impact profit margins[78][79][80] - Competition is formidable, particularly from Magna Mirrors, and the evolving landscape of camera monitoring systems (CMS) as alternatives to traditional mirrors presents a future competitive threat[81][82][83] - Supply chain disruptions (parts, labor shortages) and workforce disruptions (tight labor market, illness) continue to affect operations, leading to potential inventory obsolescence and adverse impacts on financial results[84][85] - Risks associated with business combinations include difficulty identifying targets, securing financing, successful integration, and achieving projected synergies[87] - Intellectual property protection, especially in countries like China, and potential litigation for infringement claims, remain ongoing risks[88][90][91] - Failures in IT infrastructure or cybersecurity incidents could lead to significant financial or information losses and reputational harm[95][96] Item 1B. Unresolved Staff Comments There are no unresolved staff comments to report - No unresolved staff comments[105] Item 1C. Cybersecurity Gentex implements a multi-layered cybersecurity program with Board oversight, and reported no material threats in 2023 - Gentex employs multiple layers of physical, administrative, and technical security processes to protect manufacturing facilities, critical systems, and data from cybersecurity incidents[106] - The cybersecurity strategy includes formal risk assessments, threat analysis, security tools, regular tabletop and phishing exercises, and frequent security awareness training[106] - The Audit Committee of the Board oversees cybersecurity risk management, receiving regular reports from the VP of Information Technology and Information Security Officer[110] - For the year ended December 31, 2023, there were no cybersecurity threats that materially affected the company's business strategy, results of operations, or financial condition[110] Item 2. Properties Gentex operates manufacturing and office facilities primarily in Michigan, with ongoing expansions and significant production capacity Owned Facilities (as of December 31, 2023) | Location | Square Footage | Use | | :--------- | :------------- | :-------------------------- | | Zeeland, MI | 26,600 | Warehouse, Office | | Zeeland, MI | 197,200 | Manufacturing, Office | | Zeeland, MI | 70,000 | Manufacturing | | Zeeland, MI | 70,000 | Office | | Zeeland, MI | 359,100 | Manufacturing | | Zeeland, MI | 168,900 | Manufacturing | | Zeeland, MI | 334,000 | Manufacturing, Office | | Zeeland, MI | 100,000 | Manufacturing, Warehouse | | Zeeland, MI | 31,800 | Office | | Zeeland, MI | 349,600 | Manufacturing, Warehouse | | Zeeland, MI | 258,400 | Warehouse | | Zeeland, MI | 345,000 | Manufacturing, Warehouse | | Holland, MI | 242,300 | Manufacturing, Warehouse | | Holland, MI | 29,900 | Office | | Erlenbach, Germany | 90,000 | Office | | Shanghai, China | 25,000 | Office, Warehouse | | Shanghai, China | 85,000 | Office, Warehouse, Light Assembly | - In 2023, Gentex completed construction of a 345,000 square-foot manufacturing facility in Zeeland, Michigan, at a cost of approximately $85 million[115] - Ongoing expansions include a 300,000 sq ft distribution center ($40-$45 million) and a 60,000 sq ft manufacturing facility ($20-$30 million), both expected to be operational in 2024[116][117] - Estimated annual manufacturing capacity: 34-37 million interior automatic-dimming mirror units and 19-22 million exterior automatic-dimming mirror units[121][122] Item 3. Legal Proceedings Gentex is involved in routine legal proceedings but anticipates no material adverse effects on its financial position or operations - The Company is periodically involved in legal proceedings, but does not believe any current matters constitute material pending legal proceedings that will have a material adverse effect on its financial position, future results of operations, or cash flows[123] Item 4. Mine Safety Disclosures This item is not applicable to Gentex Corporation - Not applicable[124] PART II Item 5. Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Gentex common stock trades on Nasdaq, maintains a quarterly dividend, and actively repurchased shares in 2023 - Gentex common stock trades on The Nasdaq Global Select Market under the symbol GNTX, with 5,005 record-holders as of February 1, 2024[125] - The Board approved a quarterly dividend of $0.120 per share in February 2022, with intentions to continue quarterly cash dividends and consider future adjustments[127] Issuer Purchase of Equity Securities (2023) | 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 2023 | — | — | — | 20,783,165 | | February 2023 | 46,835 | 28.58 | 46,835 | 20,736,330 | | March 2023 | 1,000,091 | 27.12 | 1,000,091 | 19,736,239 | | April 2023 | — | — | — | 19,736,239 | | May 2023 | 400,062 | 26.78 | 400,062 | 19,336,177 | | June 2023 | 520,312 | 27.64 | 520,312 | 18,815,865 | | July 2023 | — | — | — | 18,815,865 | | August 2023 | 210,525 | 32.51 | 210,525 | 18,605,340 | | September 2023 | 565,963 | 32.38 | 565,963 | 18,039,377 | | October 2023 | 150,127 | 28.76 | 150,127 | 17,889,250 | | November 2023 | 1,296,575 | 30.45 | 1,296,575 | 16,592,675 | | December 2023 | 741,496 | 31.70 | 741,496 | 15,851,179 | | Total | 4,931,986 | | 4,931,986 | | Item 6. Reserved This item is reserved and contains no information - Item 6 is reserved[130] Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Gentex achieved record net sales and strong net income growth in 2023, maintaining robust liquidity and providing optimistic revenue guidance Consolidated Statements of Income (Percentage of Net Sales & Change) | | Percentage of Net Sales | | Percentage Change | | :----------------------------------- | :------ | :------ | :------ | :------ | | | 2023 | 2022 | 2023 Vs 2022 | 2022 Vs 2021 | | Net Sales | 100.0 % | 100.0 % | 19.8 % | 10.8 % | | Cost of Goods Sold | 66.8 | 68.2 | 17.4 | 17.8 | | Gross Margin | 33.2 | 31.8 | 25.1 | (1.6) | | Operating Expenses: | | | | | | Engineering, Research and Development | 6.7 | 6.9 | 15.8 | 13.2 | | Selling, General and Administrative | 4.9 | 5.5 | 5.7 | 15.6 | | Total Operating Expenses: | 11.6 | 12.5 | 11.3 | 14.2 | | Income From Operations | 21.6 | 19.3 | 34.0 | (9.7) | | Other (Loss)/Income | 0.4 | — | 3,368.0 | (104.3) | | Income Before Provision for Income Taxes | 22.0 | 19.3 | 36.6 | (11.2) | | Provision for Income Taxes | 3.3 | 2.7 | 50.3 | (8.3) | | Net Income | 18.6 % | 16.6 % | 34.4 % | (11.7)% | - Net sales increased by $380.3 million (20%) in 2023, reaching the highest annual sales in company history, outperforming the underlying light vehicle market by 8%. This was driven by a 15% YoY increase in automatic-dimming mirror shipments (50.6 million units in 2023)[134] - Gross margin improved from 31.8% in 2022 to 33.2% in 2023, primarily due to improved overhead leverage, lower freight costs, pricing increases, and product mix, partially offset by increased raw material costs and annual customer price reductions[133][136] - Net income increased by $109.6 million (34%) in 2023 compared to 2022, primarily due to improvements in gross margin and operating profits[141] Cash Flow from Operating Activities | Year | Cash Flow from Operating Activities | | :--- | :---------------------------------- | | 2023 | $537.2 million | | 2022 | $338.2 million | | 2021 | $362.2 million | - Cash flow from operating activities increased by $199.0 million in 2023, driven by higher net income and changes in working capital[152] Capital Expenditures | Year | Capital Expenditures | | :--- | :------------------- | | 2023 | $183.7 million | | 2022 | $146.4 million | | 2021 | $68.8 million | - Capital expenditures increased by $37.2 million in 2023, primarily due to building and facility construction projects. Anticipated 2024 capital expenditures are between $225 million and $250 million, mainly for production equipment[154][168] Revenue Outlook | Year | Estimated Revenue Range | | :--- | :---------------------- | | 2024 | $2.45 - $2.55 billion | | 2025 | $2.65 - $2.75 billion | - Gross margin is estimated to be between 34% and 35% for 2024, with operating expenses projected between $295 million and $305 million due to continued investments in growth and new product development[165][166] Results of Operations: 2023 to 2022 Net sales and net income saw significant growth in 2023, driven by increased mirror shipments and improved gross margin - Net sales increased by 20% in 2023, reaching a company record, driven by a 15% increase in automatic-dimming mirror shipments and product mix[134] - Gross margin improved from 31.8% to 33.2% due to improved overhead leverage, lower freight costs, and pricing adjustments, partially offset by increased raw material costs and customer price reductions[133][136] - Engineering, research and development (E, R & D) expenses increased by 16% to $154.4 million, remaining at 7% of net sales, due to additional staffing and professional fees for new product launches and cost optimization[137][273] - Net income increased by 34% in 2023, reaching $428.4 million, primarily due to improved gross margin and operating profits[141][273] Results of Operations: 2022 to 2021 Net sales increased in 2022, but gross margin and net income declined due to rising costs and price reductions - Net sales increased by 11% in 2022, outperforming the underlying light vehicle market by 8%, driven by a 6% increase in automatic-dimming mirror shipments[142] - Gross margin decreased from 35.8% in 2021 to 31.8% in 2022, primarily due to increased raw material costs, manufacturing costs, higher freight, and annual customer price reductions[133][144] - Net income decreased by 12% in 2022, to $318.8 million, mainly due to the decline in gross margin and operating profits[150][273] Liquidity and Capital Resources Gentex maintains strong liquidity with increased operating cash flow in 2023, despite higher investing activities Cash and Cash Equivalents (Year-End) | Year | Amount (Millions) | | :--- | :---------------- | | 2023 | $226.4 | | 2022 | $214.8 | | 2021 | $262.3 | - Cash flow from operating activities increased by $199.0 million in 2023, reaching $537.2 million, driven by higher net income and changes in working capital[152] - Cash flow used for investing activities increased by $126.7 million to $299.4 million in 2023, primarily due to increased technology investment purchases and capital expenditures[153] - Working capital increased to $726.1 million in 2023 from $698.1 million in 2022, mainly due to increases in cash and accounts receivable, partially offset by higher accounts payable[161] Outlook Gentex forecasts continued revenue growth for 2024 and 2025, with stable gross margins and increased capital expenditures 2024 Light Vehicle Production Forecast (S&P Global Mobility, Mid-Jan 2024) | Region | Units (Millions) | | :----- | :--------------- | | North America | 15.8 | | Europe | 17.4 | | Japan & Korea | 12.2 | | China | 28.9 | - Estimated top-line revenue for 2024 is between $2.45 billion and $2.55 billion, and for 2025, between $2.65 billion and $2.75 billion[164][171] - Gross margin is estimated to be between 34% and 35% for 2024, with operating expenses between $295 million and $305 million[165][166] - Anticipated 2024 capital expenditures are between $225 million and $250 million, primarily for production equipment, to be financed from cash on hand and operating cash flows[168] Item 7A. Quantitative and Qualitative Disclosures About Market Risk Gentex is exposed to foreign exchange and interest rate risks, but these are not currently considered material, and no hedging is employed - Gentex is subject to market risks from foreign exchange rates and interest rates, but these are not currently deemed material[172] - Approximately 8% of net sales in 2023 were invoiced and paid in foreign currencies (7% in 2022, 8% in 2021), with an expectation of 8-9% in 2024. The company does not currently engage in foreign currency hedging[174] - The Company does not have any significant off-balance sheet arrangements or commitments[175] Item 8. Financial Statements and Supplementary Data This section provides an index to the company's audited consolidated financial statements and accompanying notes - The section includes the Report of Independent Registered Public Accounting Firm, Consolidated Balance Sheets, Consolidated Statements of Income, Consolidated Statements of Comprehensive Income, Consolidated Statements of Shareholders' Investment, Consolidated Statements of Cash Flows, and Notes to Consolidated Financial Statements[185] Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure There were no changes in or disagreements with accountants on accounting and financial disclosure for the period - No changes in, or disagreements with, accountants on accounting and financial disclosure during the 24-month period ended December 31, 2023[186] Item 9A. Controls and Procedures Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2023 - The Company's disclosure controls and procedures were evaluated and deemed adequate and effective as of December 31, 2023[187] - Management asserted the effectiveness of internal control over financial reporting as of December 31, 2023, based on the COSO criteria, which was audited by Ernst & Young LLP with an unqualified opinion[188][190] - No material changes in internal controls over financial reporting occurred during the period covered by the annual report[191] Item 9B. Other Information This item reports that there is no other information to disclose - None[192] Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This item reports no disclosures regarding foreign jurisdictions that prevent inspections - None[193] PART III Item 10. Directors, Executive Officers and Corporate Governance This section details Gentex's executive officers and references director information and the Code of Ethics from the Proxy Statement Executive Officers | NAME | AGE | POSITION | CURRENT POSITION HELD SINCE | | :----------- | :-- | :------------------------------------------- | :-------------------------- | | Steve Downing | 46 | President and Chief Executive Officer | January 2018 | | Neil Boehm | 52 | Chief Technology Officer and Vice President, Engineering | February 2018 | | Kevin Nash | 49 | Vice President, Finance, Chief Financial Officer and Treasurer | February 2018 | | Matthew Chiodo | 59 | Chief Sales Officer and Senior Vice President, Sales | January 2022 | | Scott Ryan | 43 | Vice President, General Counsel and Corporate Secretary | August 2018 | - The Company has adopted a Code of Ethics for Certain Senior Officers, applicable to its principal executive, financial, and accounting officers, with disclosures available on its website[205] Item 11. Executive Compensation Gentex's executive compensation combines base salaries with performance-based annual cash bonuses and long-term equity incentives tied to key financial metrics 2024 Executive Officer Base Salaries | Executive Officer | Position | 2024 Base Salary | 2023 Base Salary | | :---------------- | :--------------------------------------- | :--------------- | :--------------- | | Steve Downing | President and CEO | $850,000 | $850,000 | | Neil Boehm | VP, Engineering and CTO | $575,000 | $515,000 | | Kevin Nash | VP, Finance, CFO and Treasurer | $555,000 | $515,000 | | Matt Chiodo | Senior VP, Sales and CSO | $480,000 | $455,000 | | Scott Ryan | VP, General Counsel and Corporate Secretary | $440,000 | $415,000 | - The Annual Incentive Performance-Based Bonus Plan for officers is based on Revenue (33.33%), Operating Income (33.33%), and Earnings per Diluted Share (33.33%). For 2024, the CEO's target opportunity increased to 110% of base salary, while other named executive officers can earn up to 150% of their base salaries[210][211][212][213][214] 2023 Annual Plan Performance Metrics and Actual Results | Performance Metric | Weight | Threshold* | Target* | Maximum* | Actual Performance* | | :----------------------- | :----- | :--------- | :-------- | :--------- | :------------------ | | Revenue | 33.33 % | $1,511,180 | $2,014,906 | $2,518,633 | $2,299,215 | | Operating Income | 33.33 % | $287,104 | $382,805 | $478,506 | $495,731 | | Earnings per Diluted Share | 33.33 % | $1.04 | $1.39 | $1.74 | $1.84 | 2023 Annual Plan Performance Bonuses for Executive Officers | Executive Officer | 2023 Annual Plan Performance Bonus | | :---------------- | :--------------------------------- | | Steve Downing | $1,576,495 | | Neil Boehm | $716,378 | | Kevin Nash | $716,378 | | Matt Chiodo | $632,916 | | Scott Ryan | $577,275 | - The Long-Term Incentive Plan (2024-2026) delivers 70% of its value through Performance Share Awards (PSAs) tied to EBITDA and ROIC, and 30% through Restricted Stock (RS) awards, both with three-year vesting periods[223][225] 2021-2023 Long-Term Plan Performance Share Awards Payout | Executive Officer | Number of PSAs Awarded in 2021 (Target) for 2021-2023 | 2021-2023 PSAs Payout | | :---------------- | :---------------------------------------------------- | :-------------------- | | Steve Downing | 42,762 | 25,203 | | Neil Boehm | 14,081 | 8,879 | | Kevin Nash | 12,916 | 8,726 | | Matt Chiodo | 11,394 | 8,291 | | Scott Ryan | 10,091 | 7,636 | - The annual retainer for non-employee directors increased by $10,000, from $80,000 to $90,000[235] Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters This section references common stock ownership and equity compensation plan information from the Proxy Statement, with no known change of control arrangements - Information on common stock ownership of management, beneficial owners, and equity compensation plans is incorporated by reference from the Proxy Statement[236] - No known arrangements exist that could result in a change in control[236] Item 13. Certain Relationships and Related Transactions, and Director Independence This section references information on related transactions and director independence from the definitive Proxy Statement - Information regarding certain relationships, related transactions, and director independence is incorporated by reference from the Proxy Statement[238] Item 14. Principal Accounting Fees and Services This section references principal accounting fees and services, and Audit Committee pre-approval policy from the Proxy Statement - Information on principal accounting fees and services, and the Audit Committee's policy on pre-approval of audit and non-audit services, is incorporated by reference from the Proxy Statement[239] PART IV Item 15. Exhibits, Financial Statement Schedules This section lists the financial statements, schedules, and exhibits filed as part of the 10-K report - This item refers to the financial statements in Part II, Item 8, and provides an index of exhibits[242] Item 16. Form 10-K Summary This item indicates that no Form 10-K Summary is provided - None[243] Signatures This section contains the required signatures for the Form 10-K report from executive officers and directors - The report is signed by Steven R. Downing (President and CEO) and Kevin C. Nash (VP, Finance, CFO and Treasurer) on February 22, 2024[247][248] - Each Director of the registrant also appoints Steve Downing or Kevin Nash as their attorney-in-fact to sign and file amendments to the report[249] Report of Independent Registered Public Accounting Firm Ernst & Young LLP issued an unqualified opinion on Gentex's 2023 consolidated financial statements and internal control over financial reporting - Ernst & Young LLP issued an unqualified opinion on the consolidated financial statements for the period ended December 31, 2023, stating they present fairly the financial position and results of operations in conformity with U.S. GAAP[252] - An unqualified opinion was also expressed on the effectiveness of the Company's internal control over financial reporting as of December 31, 2023[253] - A critical audit matter identified was the 'Revenue - Estimate of Variable Consideration' due to the judgmental nature of accounting for annual price reductions and ongoing commercial negotiations with customers[256][258] Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting Ernst & Young LLP provided an unqualified opinion on Gentex Corporation's internal control over financial reporting as of December 31, 2023 - Ernst & Young LLP issued an unqualified opinion on Gentex Corporation's internal control over financial reporting as of December 31, 2023, confirming its effectiveness based on COSO criteria[261] Consolidated Balance Sheets The balance sheets show increased total assets and shareholders' investment in 2023, driven by plant, equipment, and long-term investments Consolidated Balance Sheet Highlights | Item | 2023 (Millions) | 2022 (Millions) | Change (Millions) | | :-------------------------- | :-------------- | :-------------- | :---------------- | | Total Current Assets | $997.7 | $948.7 | +$49.0 | | Net Plant and Equipment | $652.9 | $550.0 | +$102.9 | | Goodwill | $340.1 | $313.8 | +$26.3 | | Long-term Investments | $299.1 | $202.3 | +$96.8 | | Total Assets | $2,611.4 | $2,327.2 | +$284.2 | | Total Current Liabilities | $271.6 | $250.6 | +$21.0 | | Total Liabilities | $298.9 | $261.4 | +$37.5 | | Total Shareholders' Investment | $2,312.5 | $2,065.8 | +$246.7 | Consolidated Statements of Income Net sales and net income significantly increased in 2023, with diluted EPS rising to $1.84, reflecting strong financial performance Consolidated Statements of Income Highlights | Item | 2023 (Millions) | 2022 (Millions) | 2021 (Millions) | | :-------------------------- | :-------------- | :-------------- | :-------------- | | Net Sales | $2,299.2 | $1,919.0 | $1,731.2 | | Gross profit | $762.6 | $609.8 | $619.7 | | Income from operations | $495.7 | $370.0 | $409.8 | | Net Income | $428.4 | $318.8 | $360.8 | | Basic EPS | $1.84 | $1.36 | $1.51 | | Diluted EPS | $1.84 | $1.36 | $1.50 | - Net sales increased by 19.8% in 2023, while net income grew by 34.4%. Diluted EPS increased from $1.36 in 2022 to $1.84 in 2023[133][273] Consolidated Statements of Comprehensive Income Comprehensive income reached $436.0 million in 2023, reflecting net income and positive other comprehensive income from unrealized gains Consolidated Statements of Comprehensive Income Highlights | Item | 2023 (Millions) | 2022 (Millions) | 2021 (Millions) | | :------------------------------------ | :-------------- | :-------------- | :-------------- | | Net income | $428.4 | $318.8 | $360.8 | | Other comprehensive income (loss), net of tax | $7.6 | $(16.1) | $(4.9) | | Comprehensive income | $436.0 | $302.7 | $355.9 | - In 2023, other comprehensive income, net of tax, was $7.6 million, a significant improvement from losses in 2022 and 2021, primarily due to unrealized gains on available-for-sale securities[276] Consolidated Statements of Shareholders' Investment Total shareholders' investment grew to $2.31 billion in 2023, driven by net income and stock plan transactions, despite share repurchases and dividends Consolidated Statements of Shareholders' Investment Highlights | Item | 2023 (Millions) | 2022 (Millions) | 2021 (Millions) | | :------------------------------------ | :-------------- | :-------------- | :-------------- | | Total Shareholders' Investment (End of Year) | $2,312.5 | $2,065.8 | $1,938.0 | | Net income | $428.4 | $318.8 | $360.8 | | Repurchases of common stock | $(146.0) | $(113.9) | $(324.6) | | Dividends declared | $(111.8) | $(112.8) | $(114.4) | - Total shareholders' investment increased by $246.7 million in 2023, primarily due to net income of $428.4 million and $39.2 million in stock-based compensation expense, partially offset by $146.0 million in share repurchases and $111.8 million in dividends[279] Consolidated Statements of Cash Flows Operating cash flow significantly increased in 2023, while investing and financing activities used more cash for growth and shareholder returns Consolidated Statements of Cash Flows Highlights | Item | 2023 (Millions) | 2022 (Millions) | 2021 (Millions) | | :------------------------------------ | :-------------- | :-------------- | :-------------- | | Net cash flows from operating activities | $537.2 | $338.2 | $362.2 | | Net cash used for investing activities | $(299.4) | $(172.7) | $(113.1) | | Net cash used for financing activities | $(230.2) | $(209.0) | $(410.1) | | Net increase (decrease) in cash, cash equivalents, and restricted cash | $7.7 | $(43.6) | $(161.1) | - Cash flow from operating activities increased by $199.0 million in 2023, primarily due to higher net income and changes in working capital[152][282] - Cash used for investing activities increased by $126.7 million in 2023, driven by $71.1 million in technology investment purchases and $183.7 million in plant and equipment additions[153][154][282] - Cash used for financing activities increased by $21.1 million in 2023, mainly due to an increase in common stock repurchases to $147.4 million (from $112.5 million in 2022)[155][282] Notes to Consolidated Financial Statements The notes detail Gentex's accounting policies, debt, taxes, employee benefits, stock compensation, commitments, segments, and recent acquisitions - Gentex's significant accounting policies include revenue recognition (ASC 606), investments (ASC 820, 321, 323), inventories (lower of cost or net realizable value, FIFO), and plant and equipment (straight-line depreciation)[294][299][314][315][326] - Technology investments totaled approximately $128.0 million at December 31, 2023, including significant stakes in Adasky (27%), GreenMarbles (20%), and Simplenight (30%)[298][302][303][304] - The effective income tax rate was 15.2% in 2023, compared to 13.8% in 2022, primarily influenced by the Foreign Derived Intangible Income Deduction and equity compensation deductions[140][357] - Goodwill increased to $340.1 million in 2023, primarily due to the $26.7 million acquisition of eSight technology assets. No impairment charges were recorded for goodwill or indefinite-lived intangible assets[411][412] - The Company acquired certain technology assets from eSight on November 2, 2023, for approximately $18.9 million in cash, plus assumption of a $9.4 million promissory note and an earn-out provision up to $70 million[435] Revenue by Segment and Major Source (2023) | Segment/Source | 2023 Revenue (Millions) | | :-------------------------- | :---------------------- | | Automotive Mirrors & Electronics | $2,128.5 | | HomeLink Modules* | $126.2 | | Total Automotive Products | $2,254.7 | | Fire Protection Products | $25.9 | | Windows Products | $18.6 | | Nanofiber Products | $0.0 | | Medical | $0.0 | | Total Other Products | $44.6 | | Total Revenue | $2,299.2 | Excludes HomeLink revenue integrated into automotive mirrors. SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES This section details Gentex's key accounting policies for allowances, investments, inventories, goodwill, and revenue recognition - The Company's allowance for doubtful accounts primarily relates to financially distressed automotive customers, with balances of $2.67 million in 2023 and $2.97 million in 2022[290][293] - Technology investments totaled approximately $128.0 million at December 31, 2023, and $65.5 million at December 31, 2022, accounted for primarily under ASC 321 or ASC 323[298] - Inventories are valued at the lower of cost or net realizable value using the FIFO method, with allowances for slow-moving and obsolete inventories of $10.3 million in 2023 and $10.0 million in 2022[314] - Goodwill and indefinite-lived intangible assets are tested for impairment annually in the fourth quarter, or more frequently if indicators arise. No impairment charges were recorded in 2023 or prior periods[319][321][412] - Revenue is recognized when control of products is transferred to customers, net of estimated annual price reductions and retroactive adjustments, which are treated as variable consideration[326][327] DEBT AND FINANCING ARRANGEMENTS Gentex has a $250 million unsecured revolving credit facility, with no outstanding balance as of December 31, 2023 - On February 21, 2023, Gentex entered into an amended and restated credit agreement, providing a three-year unsecured revolving credit facility with a borrowing capacity of up to $250 million, maturing on February 21, 2026[352] - As of December 31, 2023, there was no outstanding balance on the Revolver, and the Company was in compliance with all covenants[353][355] INCOME TAXES The provision for income taxes increased in 2023, with an effective tax rate of 15.2%, influenced by foreign derived intangible income Provision for Income Taxes | Item | 2023 (Millions) | 2022 (Millions) | 2021 (Millions) | | :-------------------------- | :-------------- | :-------------- | :-------------- | | Currently payable | $94.3 | $68.7 | $97.2 | | Deferred income tax benefit | $(17.7) | $(17.8) | $(41.7) | | Provision for income taxes | $76.6 | $51.0 | $55.6 | Effective Income Tax Rate Reconciliation | Item | 2023 | 2022 | 2021 | | :------------------------------------ | :--- | :--- | :--- | | Statutory federal income tax rate | 21.0 % | 21.0 % | 21.0 % | | Foreign derived intangible income deduction | (5.1) | (6.2) | (6.3) | | Stock compensation | (0.4) | (0.6) | (1.3) | | Effective income tax rate | 15.2 % | 13.8 % | 13.3 % | - Unrecognized tax benefits totaled $4.78 million at the end of 2023, with accrued interest of approximately $365,000[361][362] EMPLOYEE BENEFIT PLANS Company contributions to the 401(k) plan increased in 2023, and a non-qualified deferred compensation plan is maintained - Company contributions to the 401(k) retirement savings plan were approximately $13.8 million in 2023, an increase from $12.9 million in 2022, due to increased employee participation[366] - Gentex maintains a Non-Qualified Deferred Compensation Plan for select management, with deferrals held in an irrevocable rabbi trust. Total assets in the trust were $8.9 million at December 31, 2023, with an associated liability of $9.0 million[368][370] STOCK-BASED COMPENSATION PLANS Gentex's 2019 Omnibus Incentive Plan includes stock options, restricted stock, and performance share awards, with associated compensation expenses - The 2019 Omnibus Incentive Plan covers 45,000,000 shares, with 25,611,657 shares issued as of December 31, 2023, including stock options, restricted stock, and performance share awards[375][376] - Unrecognized compensation cost for stock options was $7.99 million at December 31, 2023, expected to be recognized over a weighted-average period of 2.09 years[382] - Unearned stock-based compensation for restricted stock was $45.80 million at December 31, 2023, with compensation expense of $24.81 million for the year[391] - Performance share awards are tied to EBITDA and ROIC. Unearned compensation for performance shares was $16.12 million at December 31, 2023, with expense of $5.88 million for the year[392] - Compensation expense for the employee stock purchase plans was $0.88 million in 2023, with shares sold at 85% of market price[395][396] COMMITMENTS AND CONTINGENCIES Gentex has a stock purchase agreement for VOXX International and is involved in legal proceedings not expected to be material - On October 4, 2023, Gentex entered a Stock Purchase Agreement to acquire up to 3,137,500 shares of VOXX International Corporation Class A Common Stock, with a tranche of 1,568,750 shares purchased on January 5, 2024[397] - The Company is involved in legal proceedings but does not believe any current matters will have a material adverse effect on its financial position, future results of operations, or cash flows[398] SEGMENT REPORTING Automotive products are the primary revenue driver, with key customers like Volkswagen, Toyota, and General Motors each contributing over 10% of net sales Revenue by Geographic Area (Automotive Products) | Geographic Area | 2023 (Millions) | 2022 (Millions) | 2021 (Millions) | | :---------------- | :-------------- | :-------------- | :-------------- | | United States | $688.2 | $579.5 | $542.7 | | Germany | $294.5 | $266.5 | $235.0 | | Japan | $323.9 | $234.9 | $211.4 | | Mexico | $142.1 | $121.6 | $111.8 | | Republic of Korea | $149.6 | $95.4 | $67.2 | | Other Countries | $656.5 | $576.9 | $529.1 | | Total Automotive Products | $2,254.7 | $1,874.7 | $1,697.2 | Income (Loss) from Operations by Segment | Segment | 2023 (Millions) | 2022 (Millions) | 2021 (Millions) | | :---------------- | :-------------- | :-------------- | :-------------- | | Automotive Products | $495.7 | $372.5 | $414.2 | | Other | $0.1 | $(2.5) | $(4.4) | | Total | $495.7 | $370.0 | $409.8 | - In 2023, three automotive customers (Volkswagen Group, Toyota Motor Company, and General Motors) individually accounted for 10% or more of net sales[403] QUARTERLY FINANCIAL INFORMATION (UNAUDITED) This section provides unaudited quarterly financial data for 2023 and 2022, showing trends in net sales, net income, and diluted EPS Selected Quarterly Financial Information (2023 vs 2022) | Quarter | Net Sales (2023) | Net Sales (2022) | Net Income (2023) | Net Income (2022) | Diluted EPS (2023) | Diluted EPS (2022) | | :------ | :--------------- | :--------------- | :---------------- | :---------------- | :----------------- | :----------------- | | First | $583,473 | $550,761 | $109,155 | $97,578 | $0.47 | $0.42 | | Second | $589,132 | $468,251 | $116,944 | $87,529 | $0.50 | $0.37 | | Third | $575,848 | $493,637 | $104,725 | $72,656 | $0.45 | $0.31 | | Fourth | $550,762 | $493,648 | $97,579 | $86,168 | $0.42 | $0.37 | COMPREHENSIVE INCOME Accumulated other comprehensive income improved in 2023, driven by unrealized gains on available-for-sale securities Accumulated Other Comprehensive (Loss) Income | Item | 2023 (Millions) | 2022 (Millions) | 2021 (Millions) | | :------------------------------------ | :-------------- | :-------------- | :-------------- | | Foreign currency translation adjustments (end of period) | $(4.5) | $(4.0) | $0.9 | | Unrealized gains (losses) on available-for-sale securities (end of period) | $(2.0) | $(10.1) | $1.0 | | Accumulated other comprehensive (loss) income, end of period | $(6.6) | $(14.1) | $1.9 | - In 2023, the net current-period change in unrealized gains (losses) on available-for-sale securities was a gain of $8.09 million, a significant improvement from losses in prior years[408] GOODWILL AND INTANGIBLE ASSETS Goodwill increased to $340.1 million in 2023 due to the eSight acquisition, with no impairment charges recorded Goodwill Carrying Amount | Item | Amount (Millions) | | :-------------------------- | :---------------- | | Balance as of December 31, 2022 | $313.8 | | Acquisitions | $26.7 | | Other | $(0.4) | | Balance as of December 31, 2023 | $340.1 | - Goodwill increased by $26.7 million in 2023, primarily due to the acquisition of eSight. As of December 31, 2023, $30.6 million of goodwill was in the Other segment and $309.5 million in the Automotive segment[411] Other Intangible Assets (Net, as of Dec 31, 2023) | Intangible Asset | Net Value (Millions) | Assumed Useful Life | | :-------------------------- | :------------------- | :------------------ | | HomeLink Trade Names and Trademarks | $52.0 | Indefinite | | HomeLink Technology | $26.3 | 12 years | | Exclusive Licensing Agreement | $96.0 | Indefinite | | eSight Technology | $12.0 | 12 years | | eSight Trade Names and Trademarks | $0.9 | 12 years | | Vaporsens In-Process R&D | $11.0 | Indefinite | | Argil In-Process R&D | $6.3 | Indefinite | | Air-Craftglass In-Process R&D | $1.5 | Indefinite | | Guardian Trade Names | $1.3 | Indefinite | | Guardian In-Process R&D | $6.8 | Indefinite | | Total other identifiable intangible assets | $214.0 | | - Amortization expense on patents and other intangible assets was approximately $19.7 million in 2023. Anticipated amortization expense is $17 million for 2024 and $14 million for 2025[416][417] REVENUE Automotive products are the primary revenue driver, with recognition occurring upon shipment and adjusted for variable consideration Revenue by Segment and Major Source (2023) | Segment/Source | 2023 Revenue (Millions) | | :-------------------------- | :---------------------- | | Automotive Mirrors & Electronics | $2,128.5 | | HomeLink Modules | $126.2 | | Total Automotive Products | $2,254.7 | | Fire Protection Products | $25.9 | | Windows Products | $18.6 | | Nanofiber Products | $0.0 | | Medical | $0.0 | | Total Other Products | $44.6 | | Total Revenue | $2,299.2 | *Excludes HomeLink revenue integrated into automotive mirrors. - Revenue recognition generally occurs when control of products is transferred to the customer, typically upon shipment from the manufacturing facility[422][426][427][429][430] - For automotive products, revenue is recorded based on estimated retroactive price adjustments as variable consideration, adjusted as negotiations settle[426] ACQUISITIONS Gentex acquired eSight technology assets in November 2023 for cash, a promissory note, and an earn-out provision - On November 2, 2023, Gentex acquired certain technology assets from eSight for approximately $18.9 million in cash, assumed a $9.4 million promissory note, and an earn-out provision up to $70 million over ten years[435] - The eSight acquisition assets include current assets ($0.44 million), personal property ($0.08 million), right of use asset ($0.12 million), eSight Technology ($12.0 million), Trade Names and Trademarks ($0.87 million), and Goodwill ($26.7 million)[439] - Less than $0.1 million of eSight's revenue was included in Gentex's consolidated statement of income for 2023[438] Exhibit Index This section provides a comprehensive list of exhibits filed with the Form 10-K, including organizational documents and certifications - The Exhibit Index lists various documents, including the Registrant's Restated Articles of Incorporation, Bylaws, specimen common stock certificates, descriptions of securities, and numerous compensatory plans and agreements[441][443] - Key exhibits include the Amended Credit Agreement (10.14), 2019 Omnibus Incentive Plan (10.15), Long-Term Incentive Plan (10.17), and the Stock Purchase Agreement for Avalon Park International LLC and Avalon Park Group Holding AG (10.27)[443] - Certifications from the CEO and CFO pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act are also included (31.1, 31.2, 32)[443]