What changed in this filing

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Item 1A. Risk Factors

2023-02-22 compared with 2022-02-23 · 57 added, 51 removed, 197 unchanged (35% 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,” “opinion,” “optimistic,” “plan,” “poised,” “predict,” “project,” “should,” “strategy,” “target,” “will,” and variations of such words and similar expressions.

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,” "work to," and variations of such words and similar expressions.

Such statements are subject to risks and uncertainties that are often difficult to predict and beyond the Company’s control, and could cause the Company’s results to differ materially from those described.

These risks and uncertainties include, without limitation:

changes in general industry or regional market conditions;

changes in general industry or regional market conditions, including the impact of inflation;

changes in consumer and customer preferences for our products (such as cameras replacing mirrors and/or autonomous driving);

our ability to be awarded new business;

continued uncertainty in pricing negotiations with customers;

continued uncertainty in pricing negotiations with customers and suppliers;

loss of business from increased competition;

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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, 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.

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

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 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).

The following risk factors, together with all other information provided in this Annual Report on Form 10-K should be carefully considered.

Includes content supplied by S&P Global Mobility / IHS Markit Light Vehicle Production Forecast (http://www.gentex.com/forecast-disclaimer).

T he following risk factors, together with all other information provided in this Annual Report on Form 10-K should be carefully considered.

Automotive Industry.

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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, 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.

The current economic environment, including inflation, continues to be uncertain, and continues to cause 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 significant plant shutdowns, work stoppages, strikes, part shortages, etc., it will further 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 and supply chain constraints.

This has increased the risk of delays or cancellations of new vehicle platforms, package configurations, and inaccurate volume forecasts.

This brings increased 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 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.

Such tariffs have increased the Company's input costs, and have the potential to challenge the Company's competitive position in foreign markets.

We continue to experience ongoing 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 pricing pressures with price adjustments, 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 ongoing challenges, which could continue to adversely impact our business, financial condition, and/or results of operations.

Raw Materials and Other Product Component Costs.

Increasing costs in raw materials, energy, commodities, labor, and other product component costs adversely affects our business, financial condition and/or results of operations.

These costs have generally increased as a result of supply chain disruptions, constrained labor availability, global economic factors, as well as inflationary impacts.

When these 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;

The geopolitical environment between the Unites States and other jurisdictions, most significantly China, continues to cause uncertainty on tariffs and trade.

Previously enacted tariffs have increased the Company's input costs, and have the potential to challenge the Company's competitive position in foreign markets.

The continuance of these tariffs and/or escalation of disputes in the geopolitical environment could continue to interfere with automotive supply chains and may have a continued negative impact on the Company’s business, financial condition, and/or results of operations, especially since the Company primarily manufactures and ships from one location.

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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 October 18, 2019, a petition for temporary exemption from FMVSS No.

111 submitted by Audi of America was published requesting NHTSA to grant a two-year exemption to sell up to 2,500 vehicles for each twelve month period (up to 5,000 vehicles) that are equipped with camera monitoring systems and do not include FMVSS No.

111 compliant outside mirrors.

In November 2022, NHTSA conducted a public meeting and discussed the on-going research of this technology.

In July 2016, a revision to UN-ECE Regulation 46 was published with an effective date of June 18, 2016, which allows for camera monitor systems to replace mirrors within Japan and European countries.

Since January 2017, camera monitoring systems are also permitted as an alternative to replace mirrors in the Korean market.

China has now released an updated version of its GB15084, which will be effective later in 2023, and allows for camera

monitoring systems, frameless mirrors and aspheric (free-form) glass surfaces.

Notwithstanding the foregoing, the Company continues to believe rearview mirrors provide a robust, simple and cost effective means to view the surrounding areas of a vehicle and remain the primary safety function for rear vision today.

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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 is currently shipping production Full Display Mirrors ® to all fourteen of these customers.

In 2022, the Company began shipping Full Display Mirror ® on 18 new nameplates and are currently shipping Full Display Mirror ® on 86 nameplates.

The Company's CMS solution uses three cameras to provide a comprehensive view of the sides and rear of the vehicle while still providing the traditional safety of interior and exterior mirrors, that still function when cameras are obstructed, or not functioning.

The Company announced the CMS development program with Aston Martin.

The Company has also previously announced that the Company continues to develop in the areas of imager performance, camera dynamic range, lens design, image processing from the camera to the display, and camera lens cleaning.

The Company has previously announced that the Company continues to develop in the areas of imager performance, camera dynamic range, lens design, image processing from the camera to the display, and camera lens cleaning.

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

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.

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 industry-wide parts shortages, labor shortages, and other global supply chain constraints.

We have and continue to take a number of steps to mitigate the current supply chain challenges, which include strategies involving the additional procurement of available raw materials to prepare for assembling finished goods more quickly when supply constraints ease for certain common components.

These inventory strategies further introduce obsolescence risk that impacts our business, financial conditions, and/or results of operations.

As our customers' forecasted demand changes, inventory becomes obsolete and write-offs or write-downs of our inventory are exacerbated.

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

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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.

We have experienced, and may continue to experience in the future, disruptions to our workforce as a result of a tight labor market, 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.

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When our customers are adversely affected by these factors, we may be similarly affected to the extent that our customers reduce the volume of orders for our products.

As a result of such changes and circumstances impacting our customers, sales mix can shift which may have either favorable or unfavorable impact on revenue and would include shifts in regional growth, in OEM sales demand, as well as in consumer demand related to vehicle segment purchases and content penetration.

As a result of such changes and circumstances impacting our customers, our sales mix can shift, which may have either favorable or unfavorable impact on revenue and would include shifts in regional growth, in OEM sales demand, as well as in consumer demand related to vehicle segment purchases, and content penetration.

A decrease in consumer demand for specific types of vehicles where we have traditionally provided higher value content could have a significant effect on our business, financial condition, and/or results of operations.

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The loss of any significant combination of patents and trade secrets regarding our products could adversely affect our business, financial condition, and/or results of operations.

Lack of intellectual property protection in a number of countries, including China, represents a current and on-going risk for the Company.

Lack of intellectual property protection in a number of countries, including China, represents a current and ongoing risk for the Company.

New Technology and Product Development.

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If a person or company claims that our products infringed their intellectual property rights, any resulting litigation could be costly, time consuming, and would divert the attention of management and key personnel from other business issues.

The complexity of the technology involved in our business and the uncertainty of intellectual property litigation significantly increases these risks and makes such risk part of our on-going business.

The complexity of the technology involved in our business and the uncertainty of intellectual property litigation significantly increases these risks and makes such risk part of our ongoing business.

To that end, we periodically obtain intellectual property rights, in the ordinary course of business, to strengthen our intellectual property portfolio and minimize potential risks of infringement.

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We continue to work with these financially distressed customers in collecting past due balances.

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

Refer to Note 1 of the Consolidated Financial Statements .

Business Disruptions.

Manufacturing of our proprietary products employing electro-optic technology is performed at our manufacturing facilities in Zeeland and Holland, Michigan.

One of our manufacturing facilities is located in Holland, Michigan, which is approximately three miles from our other manufacturing facilities in Zeeland, Michigan.

Manufacturing of our proprietary products employing electro-optic technology is performed primarily at our manufacturing facilities in Zeeland and Holland, Michigan.

One of our manufacturing facilities is located in Holland, Michigan, which is approximately three miles from our other primary manufacturing facilities in Zeeland, Michigan.

Should a catastrophic event occur, our ability to manufacture product, complete existing orders and provide other services could be severely impacted for an undetermined period of time.

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We rely upon the capacity, reliability and security of our information technology infrastructure and our ability to expand and continually update this infrastructure in response to the changing needs of our business.

For example, we have implemented enterprise resource planning and other IT systems in certain aspects of our businesses over a period of several years and continue to update and further implement new systems going forward.

These systems may not perform as expected.

For example, we have implemented enterprise resource planning and other IT systems in certain aspects of our business over a period of several years and continue to update and further implement new systems going forward.

Like many systems, these systems may not always perform as expected.

We also face the challenge of supporting our older systems and implementing necessary upgrades.

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We, and certain of our third-party vendors, receive and store personal information in connection with our human resources operations and other aspects of our business.

Despite our implementation of security measures, our IT systems, like all IT systems, are vulnerable to damages from computer viruses, natural disasters, unauthorized access, cyber-attack and other similar disruptions.

Despite our implementation of security measures, our IT systems, like all IT systems, are vulnerable to damages from computer viruses, natural disasters,

unauthorized access, cyber-attack and other similar disruptions.

Any system failure, accident or security breach could result in disruptions to our operations.

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In November 2022, NHTSA conducted a public meeting and discussed the ongoing research of this technology.

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.

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• Changes in investors’ or analysts’ perceptions of the risks and conditions of our business and in particular our primary industry;

• Intellectual property litigation and infringement claims;

• Intellectual property litigation and infringement claims or other litigation;

• The size of the public float of our common stock;

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

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.

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:

materially adversely affect the Company's ability to adequately staff and maintain our operations;

impair our ability to sustain existing levels of financial liquidity;

and impact the Company's business, financial condition, and/or results of operations.

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 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.

The extent and duration of such possible impacts will depend on numerous factors, including:

• Duration and severity of any outbreaks and resulting actions taken by the Company or the various governments to contain or mitigate the spread of the coronavirus;

• Global governmental, business and individual actions taken in response to COVID-19, such as work stoppages, quarantines, shutdowns, shelter-in-place orders or other limitations, as well as voluntary shutdowns and other restrictions;

• The effect on our suppliers and companies throughout our supply chain, including industry wide part shortages and created labor shortages;

• Our ability to fulfill existing and future sales order backlog;

• Reductions or volatility in demand for our products or services;

• Increasing logistics costs and transportation challenges;

• Costs of any additional preparedness plans or actions to help ensure the health and safety of our employees and continued operations;

• Availability of employees to staff our operations and those of companies in our supply chain;

• Our ability to establish and maintain appropriate estimates and assumptions used to prepare the Consolidated Financial Statements;

• The financial and credit markets and economic activity generally, all of which have harmed and could continue to harm our business, financial condition, and/or results of operations, including impacting the ability to access capital and comply with any financial covenants.

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 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.

Organizational and reporting changes within management could result in, and low

unemployment has contributed to, increased turnover.

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.

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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 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;

• Rising commodity prices and inflation generally, where we are unable to recover such increases from customers;

• 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 and can impact customer demand as well;

• General economic conditions continue to be of concern in many of the regions in which we do business, given that our primary industry is greatly impacted by overall general economic conditions.

Any continued adverse worldwide economic conditions, currency exchange rates, trade war, war or significant terrorist acts, could each affect worldwide automotive sales and production levels;

• Manufacturing yield issues may negatively impact our business, financial condition and/or results of operations;

• Obligations and costs associated with addressing quality issues or warranty claims may adversely affect our business, financial condition and/or results of operations.

Any continued adverse worldwide economic conditions, currency exchange rates, trade war, war or significant terrorist acts, could each affect worldwide automotive sales and production levels, thereby impacting the Company;

• Manufacturing yield issues;

• Obligations and costs associated with addressing quality issues or warranty claims.

Unresolved Staff Comments.

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