Summary of Significant Accounting and Reporting Policies (Policies)

12 Months Ended

Dec. 31, 2013

The consolidated financial statements include the accounts of Gentex Corporation and all of its wholly-owned subsidiaries (together the “Company”). All significant 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 bases its allowances for doubtful accounts related to receivables on historical credit and collections experience, and the specific identification of other potential problems, including the economic climate. Actual collections can differ, requiring adjustments to the allowances. Individual accounts receivable balances are evaluated on a monthly basis, and those balances considered uncollectible are charged to the allowance. Collections of amounts previously written off are recorded as an increase to the allowance.

The following table presents the activity in the Company’s allowance for doubtful accounts:



	Beginning Balance		Net Additions/ (Reductions) to Costs and Expenses			Deductions and Other Adjustments			Ending Balance
Year Ended December 31, 2013:
Allowance for Doubtful Accounts	$	3,400,000	$	—		$	197,612		$	3,202,388
Year Ended December 31, 2012:
Allowance for Doubtful Accounts	$	3,400,000	$	(577	)	577*			$	3,400,000
Year Ended December 31, 2011:
Allowance for Doubtful Accounts	$	4,300,000	$	(802,929	)	$	(97,071	)*	$	3,400,000

*Represents excess recoveries and other adjustments over accounts written off.

The Company’s overall allowance for doubtful accounts primarily relates to financially distressed Tier 1 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 measure on earnings. The cost of securities sold is based on the specific identification method.

The Company’s investment securities (common stocks and mutual funds) are classified as available for sale and are stated at fair value based on quoted market prices, and as such are classified as Level 1 assets. The Company determines the fair value of its U.S. Treasury Notes, Government Securities and Corporate Bonds by utilizing monthly valuation statements that are provided by its broker, and the Company utilizes third party pricing sources to validate such statements. The broker determines the investment valuation by utilizing the bid price in the market. As such, these investments are classified as Level 2 assets.

Assets or liabilities that have recurring fair value measurements are shown below as of December 31, 2013 and December 31, 2012:



			Fair Value Measurements at Reporting Date Using
	Total as of		Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
Description	December 31, 2013		(Level I)		(Level 2)		(Level 3)
Cash & Cash Equivalents	$	309,591,724	$	309,591,724	$	—	$	—
Long-Term Investments:
Common Stocks	33,282,439		33,282,439		—		—
Mutual Funds – Equity	73,723,083		73,723,083		—		—
Total	$	416,597,246	$	416,597,246	$	—	$	—



			Fair Value Measurements at Reporting Date Using
	Total as of		Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
Description	December 31, 2012		(Level I)		(Level 2)		(Level 3)
Cash & Cash Equivalents	$	389,678,664	$	389,678,664	$	—	$	—
Short-Term Investments:
Certificate of Deposit	510,881		—		510,881		—
Government Securities	38,522,471		—		38,522,471		—
U.S. Treasury Notes	15,020,350		—		15,020,350		—
Corporate Bonds	6,563,228		—		6,563,228		—
Other	185,926		185,926		—		—
Long-Term Investments:
Corporate Bonds	2,180,780		—		2,180,780		—
Common Stocks	53,283,201		53,283,201		—		—
Mutual Funds – Equity	86,109,053		86,109,053		—		—
Other – Equity	261,000		261,000		—		—
Total	$	592,315,554	$	529,517,844	$	62,797,710	$	—

The amortized cost, unrealized gains and losses, and market value of investment securities are shown as of December 31, 2013 and 2012:



	Unrealized
2013	Cost		Gains			Losses				Market Value
Long-Term Investments:
Common Stocks	22,799,035		10,532,007			(48,603		)		33,282,439
Mutual Funds-Equity	54,256,577		19,466,506			—				73,723,083
Total	$	77,055,612	$	29,998,513	—	$	(48,603	)	—	$	107,005,522



	Unrealized
2012	Cost		Gains		Losses			Market Value
Short-Term Investments:
Certificate of Deposit	$	510,881	$	—	$	—		$	510,881
Government Securities	$	38,514,411	$	9,004	$	(944	)	$	38,522,471
U.S. Treasury Notes	15,018,810		2,602		(1,062		)	15,020,350
Corporate Bonds	6,529,758		33,470		—			6,563,228
Other	185,926		—		—			185,926
Long-Term Investments:
Corporate Bonds	2,174,948		5,832		—			2,180,780
Common Stocks	40,893,121		12,781,501		(391,421		)	53,283,201
Mutual Funds-Equity	75,321,640		11,082,714		(295,301		)	86,109,053
Other-Equity	238,506		22,494		—			261,000
Total	$	179,388,001	$	23,937,617	(688,728		)	$	202,636,890

Unrealized losses on investments as of December 31, 2013 are as follows:



	Aggregate Unrealized Losses		Aggregate Fair Value
Less than one year	$	48,603	$	1,886,080

Unrealized losses on investments as of December 31, 2012 are as follows:



	Aggregate Unrealized Losses		Aggregate Fair Value
Less than one year	$	688,728	$	22,887,686

ASC 320, “Accounting for Certain Investments in Debt and Equity Securities,” as amended and interpreted, provides guidance on determining when an investment is other-than-temporarily impaired. The Company reviews its fixed income and equity investment portfolio for any unrealized losses that would be deemed other-than-temporary and require the recognition of an impairment loss in income. If the cost of an investment exceeds its fair value, the Company evaluates, among other factors, general market conditions, the duration and extent to which the fair value is less than cost, and the Company’s intent and ability to hold the investments. Management also considers the type of security, related-industry and sector performance, as well as published investments ratings and analyst reports, to evaluate its portfolio. Once a decline in fair value is determined to be other-than-temporary, an impairment charge is recorded and new cost basis in the investment is established. If market, industry, and/or investee conditions deteriorate, the Company may incur future impairments. No investments were considered to be other-than-temporary impaired in 2013 and 2012.

Fair Value of Financial Instruments

The Company’s financial instruments consist of cash and cash equivalents, investments, accounts receivable accounts payable, short and long term debt. The Company’s estimate of the fair values of these financial instruments approximates their carrying amounts at December 31, 2013 and 2012.

Inventories

Inventories include material, direct labor and manufacturing overhead and are valued at the lower of first-in, first-out (FIFO) cost or market. Inventories consisted of the following as of December 31, 2013 and 2012.



	2013		2012
Raw materials	$	75,081,810	$	114,750,525
Work-in-process	21,409,976		24,588,734
Finished goods	23,582,378		20,591,007
Total Inventory	$	120,074,164	$	159,930,266

Allowances for slow-moving and obsolete inventories were $6.9 million and $7.8 million at December 31, 2013 and 2012. The year-over-year decrease in the allowance was primarily the result of reductions in raw materials inventory.

Plant and Equipment

Plant and equipment are stated at cost. Depreciation and amortization are computed for financial reporting purposes using the straight-line method, with estimated useful lives of 7 to 40 years for buildings and improvements, and 3 to 10 years for machinery and equipment. Depreciation expense was approximately $55.0 million, $48.5 million and $41.6 million in 2013, 2012 and 2011, respectively.

Impairment of 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 of an asset 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 Other Intangible Assets

Goodwill and Intangible Assets

Goodwill represents the excess of fair value of assets acquired and liabilities assumed as of the acquisition date. In accordance with accounting guidance related to goodwill and other intangible assets, the Company will test for impairment of goodwill and indefinite-lived intangible assets annually in the fourth quarter and in certain situations between those annual dates, if interim indicators of impairment arise. Indefinite-lived intangible assets will be tested for impairment annually in the fourth quarter, by comparing the estimated fair value of the indefinite-lived intangible asset to the carrying value using a discounted cash flow approach. Intangible assets with a definite life are amortized over their useful life, which is the period over which the asset is expected to contribute directly or indirectly to future cash flows. Management will periodically assess the amortization period of intangible assets with definite lives based upon estimated future cash flows from related operations and tests for impairment when indicators arise.

Given the timing of the acquisition, no impairment indicators arose during the year ended ended December 31, 2013 which would give reason for an interim test to be performed on goodwill or intangible assets.

Revenue Recognition

The Company’s revenue is generated from sales of its products. Sales are recognized when the product is shipped and legal title has passed to the customer. The Company does not generate sales from arrangements with multiple deliverables.

Advertising and Promotional Materials

All advertising and promotional costs are expensed as incurred and amounted to approximately $0.4 million, $1.0 million and $1.2 million, in 2013, 2012 and 2011, 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 $14.9 million, $13.8 million and $11.5 million, in 2013, 2012 and 2011, 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. Operations are charged with the cost of claims reported and an estimate of claims incurred but not reported based upon historical claims lag information and other data.

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, 2013, 2012 and 2011. 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 taxable or deductible amounts in the future. Such deferred income tax asset and liability computations are based on enacted tax laws and rates.

Earnings Per Share

The following table reconciles the numerators and denominators used in the calculations of basic and diluted earnings per share (EPS) for each of the last three years:



	2013		2012		2011
Numerators:
Numerator for both basic and diluted EPS, net income	$	222,929,949	$	168,586,840	$	164,668,228
Denominators:
Denominator for basic EPS, weighted-average common shares outstanding	143,460,018		143,097,530		142,492,699
Potentially dilutive shares resulting from stock option plans	814,153		870,501		1,784,109
Denominator for diluted EPS	144,274,171		143,968,031		144,276,808

For the years ended December 31, 2013, 2012 and 2011, 3,377,311, 3,332,719 and 1,253,824 shares, respectively, related to stock option plans were not included in diluted average common shares outstanding because their effect would be anti-dilutive.

Other Comprehensive Income (Loss)

Comprehensive income reflects the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources. For the Company, comprehensive income represents net income adjusted for unrealized gains and losses on certain investments and foreign currency translation adjustments and is 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, “Share-Based Payment.” As described more fully in Note 5, the Company provides compensation benefits under two stock option plans, a restricted stock plan and an employee stock purchase plan.

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.

New Accounting Standards

In February 2013, FASB issued Accounting Standards Update No. 2013-02, “Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income” (“ASU 2013-12”). ASU 2013-02 requires an entity to report the effect of significant reclassifications out of accumulated other comprehensive income. The amended guidance does not change the current requirements for reporting net income or other comprehensive income in financial statements. However, the amended guidance requires an entity to provide information regarding the amounts reclassified out of accumulated other comprehensive income by component, either on the face of the statement where net income is presented or in the notes to the condensed consolidated financial statements. The amended guidance was effective for financial periods beginning after December 15, 2012. ASU 2013-02 did not have a material effect on the Company's consolidated financial position or results of operations. Refer to Note 9, "Comprehensive Income," of the notes to consolidated financial statements for disclosures regarding other comprehensive income.