What changed in this filing

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Item 1A. Risk Factors

2022-02-23 compared with 2021-02-22 · 45 added, 39 removed, 203 unchanged (29% of the section changed)

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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,” “future,” “goal,” “guidance,” “hope,” “intend,” “may,” “plan,” “poised,” “predict,” “project,” “should,” “strategy,” “target,” “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 forward-looking statements generally can be identified by the use of words such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “forecast,” “future,” “goal,” “guidance,” “hope,” “intend,” “may,” “opinion,” “optimistic,” “plan,” “poised,” “predict,” “project,” “should,” “strategy,” “target,” “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:

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raw material and other supply shortages;

supply chain disruptions;

our dependence on key management;

labor shortages, supply chain constraints and disruptions;

our dependence on information systems;

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negative impact of any governmental investigations and associated litigation including securities litigation relating to the conduct of our business;

the length and severity of the COVID-19 (coronavirus) pandemic, including its impact across our business on demand, operations, and the global supply chain.

the length and severity of the COVID-19 (coronavirus) pandemic, including its impact across our business on demand, operations, and the global supply chain, and the Occupational Safety and Health Administration’s (OSHA) vaccine mandate, currently in the rule making process, that would require employees to be either vaccinated or tested weekly if the employee is unvaccinated.

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.

Accordingly, any forward-looking statement should be read in conjunction with the additional information about risks and uncertainties identified under the heading “Risk Factors” in the Company’s latest Form 10-K and Form 10-Q filed with the SEC, which risks and uncertainties now include the impacts of COVID-19 (coronavirus) pandemic that has affected, and will continue to affect, general economic and industry conditions, customers, suppliers, and the regulatory environment in which the Company operates.

Accordingly, any forward-looking statement should be read in conjunction with the additional information about risks and uncertainties identified under the heading “Risk Factors” in the Company’s latest Form 10-K and Form 10-Q filed with the SEC, which risks and uncertainties now include the impacts of COVID-19 (coronavirus) pandemic and supply chain constraints that have affected, are affecting, and will continue to affect,

general economic and industry conditions, customers, suppliers, and the regulatory environment in which the Company operates.

Includes content supplied by IHS Markit Light Vehicle Production Forecast of January 17, 2022 (http://www.gentex.com/forecast-disclaimer).

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The automotive industry has always been cyclical and highly impacted by levels of economic activity.

The current economic environment continues to be uncertain, 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 COVID-19 pandemic.

If automotive customers (including their Tier 1 suppliers) and suppliers experience plant shutdowns, work stoppages, strikes, part shortages, etc., it could disrupt our shipments to these customers, which could adversely affect our business, financial condition, and/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.

The current economic environment continues to be uncertain, and continues to cause increased financial and production stresses evidenced by volatile automotive production levels, volatility with customer orders, supplier part and material shortages (especially electronics components), automotive and Tier 1 supplier plant shutdowns, customer and supplier financial issues, commodity raw material cost increases, supply constraints, tariffs, consumer vehicle preference shifts (where we have a lower penetration rate and lower content per vehicle), and supply chain stresses, all of which have been exacerbated by the COVID-19 pandemic and the fallout therefrom.

If automotive customers (including their Tier 1 suppliers) and suppliers experience additional plant shutdowns, work stoppages, strikes, part shortages, etc., it will further disrupt our shipments to these customers, which could continue to adversely affect our business, financial condition, and/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 and supply chain constraints.

This has increased the risk of 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.

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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.

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.

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 continue to adversely impact our business, financial condition, and/or results of operations.

The geopolitical 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.

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and other governments, and any further changes in U.S.

or international trade policy could have an adverse impact on our business.

or international trade policy could have a further adverse impact on our business.

We recognize that Magna Mirrors, our main competitor, may have considerably more resources available to it, and may present a formidable competitive threat.

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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 eight

automaker customers, which are General Motors, Subaru, Toyota, Nissan, Jaguar Land Rover, Mitsubishi, Aston Martin, and FCA.

The Company has been in production with the Company's Full Display Mirror ® since 2015 and has, in the ordinary course of business, been awarded programs with fourteen (14) OEM customers.

The Company is currently shipping production Full Display Mirrors ® to eleven automaker customers.

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.

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The Company acknowledges that as such technology evolves over time, such as cameras replacing mirrors and/or autonomous driving, there could be increased competition.

Supply Chain Disruptions.

As a result of just-in-time supply chains within our business and the automotive industry, disruptions in our supply chain have occurred, are occurring, and are expected to continue to occur due to the COVID-19 pandemic, industry-wide parts shortages, labor shortages, and other global supply chain constraints.

Disruptions can also occur due to natural disasters, other pandemics, work stoppages, strikes, bankruptcy, etc.

Such circumstances have disrupted, are disrupting, and will continue to disrupt our shipments to automakers and Tier 1 customers, which adversely affects our business, financial condition, and/or results of operations.

Workforce Disruptions.

We are also experiencing and expect to continue to experience increased disruptions to our workforce as a result of employee illness, quarantines, absenteeism, and restrictions on certain of our employee's ability to work as a result of the COVID-19 pandemic.

The impacts of continued disruptions to our workforce have affected, are affecting, and are expected to continue to affect our business, financial condition, and/or results of operations.

We sell products that have varying profit margins.

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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.

When actual results vary from this projected geographic and product mix of sales, our business, financial condition, and/or results of operations are impacted.

Business Combinations.

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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.

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.

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Refer to Note 1 of the Consolidated Financial Statements for additional details regarding our allowance for doubtful accounts.

Supply Chain Disruptions.

As a result of just-in-time supply chains within our business and the automotive industry, disruptions in our supply chain are occurring due to the COVID-19 pandemic and can also occur due to natural disasters, other pandemics, work stoppages, strikes, bankruptcy, etc.

Such circumstances are disrupting, and may further disrupt, our shipments to one or more automakers or Tier 1 customers, which adversely affects our business, financial condition, and/or results of operations.

Business Disruptions.

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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 .

IT Infrastructure and Cybersecurity .

A failure of our information technology ("IT") infrastructure could adversely impact our business, financial condition, and/or results of operations.

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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 face certain security threats, including threats to the confidentiality, availability and integrity of our data and systems.

We maintain an extensive network of technical security controls, policy enforcement mechanisms, monitoring systems and management oversight in order to address these threats.

While these measures are designed to prevent, detect and respond to unauthorized activity in, or otherwise compromise of, our systems, certain types of attacks, including cyber-attacks, could result in significant financial or information losses and/or reputational harm.

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.

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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.

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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, 2019, and 2020, and the Company has disclosed its findings annually to the SEC on Form SD around May 30 each year.

These requirements necessitate due diligence efforts, and the Company has disclosed its findings annually to the SEC on Form SD around May 30 each year since 2012.

As there may be only a limited number of suppliers offering "conflict free" minerals necessary for our products, 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.

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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.

As noted, 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 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.

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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 February 1, 2022, NHTSA signed a Final Rule to allow for adaptive driving beam headlights, and the Final Rule is awaiting publication in the Federal Registrar.

The Company believes its adaptive SmartBeam ® (dynamic lighting system), which has been manufactured and sold for many years in jurisdictions outside the United States, will be permitted under the NHTSA Final Rule.

Antitakeover Provisions.

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COVID-19 Pandemic.

The COVID-19 pandemic has already significantly impacted worldwide economic and industry conditions and has had and may continue to have a material adverse effect on our business, financial

condition, and/or results of operations.

The COVID-19 pandemic has already significantly impacted worldwide economic and industry conditions and has had, is having, and is expected to continue to have a material adverse effect on our business, financial condition, and/or results of operations.

The COVID-19 pandemic began to materially impact the Company's operations late in the first quarter of 2020 and continues to affect our business, financial condition, and/or results of operations, by virtue of governmental authorities imposing mandatory closures, work-from-home orders, and social distancing protocols, as well as voluntary closures and other restrictions.

Even as restrictions have eased and production has resumed by our customers in large part, production volumes have been, and are expected to continue to be, volatile.

The full extent of the effect of the COVID-19 pandemic on the Company, our customers, our supply chain, and our industries still depends on future developments, which remain highly uncertain, including the duration and severity of the current outbreak, subsequent outbreaks, and resulting actions taken by the Company or the various governments to contain or mitigate the spread of the coronavirus.

The COVID-19 pandemic has impacted supply chains, including industry wide part shortages and created labor shortages as discussed.

of the current outbreak, subsequent outbreaks, and resulting actions taken by the Company or the various governments to contain or mitigate the spread of the coronavirus.

These actions have already included, and could include more, work stoppages, quarantines, shutdowns, shelter-in-place orders or other limitations, which already have and could continue to:

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Additionally, if the negative global economic effects caused by the COVID-19 pandemic continue, overall customer demand may decrease, which could continue to have a material and adverse effect on the Company's business, financial condition, and/or results of operations.

While we cannot predict the duration and scope of the COVID-19 pandemic, the overall negative financial impact to the Company's business, financial condition, and/or results of operations has been material, is not fully known, and is expected to last for an extended period of time.

While we cannot predict the duration and scope of the COVID-19 pandemic and its fallout, the overall negative financial impact to the Company's business, financial condition, and/or results of operations has been material, is not fully known, and is expected to continue for an extended period of time.

Income Taxes.

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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 can cause, increased turnover.

In addition, any unplanned turnover, inability to attract and retain key employees, including managers, or government mandated remote work could have a negative effect on our business, financial condition and/or results of operations.

Organizational and reporting changes within management could result in, and low unemployment has contributed to, increased turnover.

The Company experienced higher than traditional absenteeism rates in 2021 and the beginning of calendar year 2022 as a result of the COVID-19 pandemic, including the more contagious omicron variant.

Turnover, inability to attract and retain key employees, including managers, or government mandated remote work has had, is having, and is expected to continue to have a negative effect on our business, financial condition and/or results of operations.

International Operations.

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• 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 COVID-19 pandemic), which have caused and will likely continue to cause downtime and closures at both supplier and customer facilities;

• Natural disasters, political crises, and public health crises (such as the COVID-19 pandemic), which have caused, are causing, and will likely continue to cause downtime and closures at both supplier and customer facilities;

• Brexit, and its impact;

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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 a corresponding impairment adjustment on investment securities;

• Volatility in commodity prices adversely affects our business, financial condition and/or results of operations.

When commodity prices rise and we are unable to recover such cost increases from our customers, those increases have an adverse effect on our business, financial condition and/or results of operations;

• 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.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1A. Risk Factors