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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR FISCAL YEAR ENDED DECEMBER 31, 2002.
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the transition period from to .
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Commission File No.: 0-10235
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GENTEX CORPORATION
(Exact name of registrant as specified in its charter)
MICHIGAN 38-2030505
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
600 N. CENTENNIAL STREET, ZEELAND, MICHIGAN 49464
(Address of principal executive offices) (Zip Code)
(616) 772-1800
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each Class Name of each exchange on which registered
NONE ---------------------------------------------
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $.06 PER SHARE
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No:
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (Paragraph 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. (X)
Indicate by check mark whether the registrant is an accelerated filer as defined
in Rule 12b-2 of the Act.
Yes X No:
----- -----
As of June 30, 2002 (the last business day of the registrant's most recently
completed second fiscal quarter), 75,818,503 shares of the registrant's common
stock, par value $.06 per share, were outstanding. The aggregate market value of
the common stock held by non-affiliates of the registrant (i.e., excluding
shares held by executive officers, directors, and control persons as defined in
Rule 405, 17 CFR 203.405) on that date was $1,968,286,758 computed at the
closing price on that date.
Portions of the Company's Proxy Statement for its 2003 Annual Meeting of
Shareholders are incorporated by reference into Part III.
Exhibit Index located at Page 35
-1-
Statements in this Annual Report on Form 10-K which express "belief",
"anticipation" or "expectation" as well as other statements which are not
historical fact, such as availability and the impact of new technology,
penetration of the automotive market, and foreign exchange rates, are
forward-looking statements and involve risks and uncertainties described below
under the headings "Business" and "Management's Discussion and Analysis of
Results of Operations and Financial Condition" that could cause actual results
to differ materially from those projected. All forward-looking statements in
this Annual Report are based on information available to the Company on the date
hereof, and the Company assumes no obligation to update any such forward-looking
statements.
PART I
ITEM 1. BUSINESS
(a) GENERAL DEVELOPMENT OF BUSINESS
Gentex Corporation (the "Company") designs, develops, manufactures and
markets proprietary products employing electro-optic technology:
automatic-dimming rearview mirrors and fire protection products.
The Company was organized in 1974 to manufacture residential smoke
detectors, a product line that has since evolved into a more sophisticated group
of fire protection products for commercial applications. In 1982, the Company
introduced an automatic interior rearview mirror that was the first commercially
successful glare-control product offered as an alternative to the conventional,
manual day/night mirror. In 1987, the Company introduced its interior Night
Vision Safety(TM) (NVS(R)) Mirror, an electrochromic (EC) automatic-dimming
interior rearview mirror, providing the first successful commercial application
of electrochromic technology in the automotive industry and world. Through the
use of electrochromic technology, this mirror is continually variable and
automatically darkens to the degree required to eliminate rearview headlight
glare. In 1991, the Company introduced its exterior Night Vision Safety Mirror
Sub-Assembly, which works as a complete glare-control system with the interior
NVS Mirror. In 1997, the Company began making volume shipments of three new
exterior mirror sub-assembly products: thin glass flat, convex and aspheric.
During 2001 and 2002, the Company began making shipments of its NVS
mirrors for a number of mid-sized, medium-priced vehicles, including the Toyota
Camry, Matrix and Corolla; Ford Taurus and Mercury Sable; Volkswagen Passat,
Jetta, Golf GTI and Beetle; Nissan Altima; Opel Cross Car Line; Chrysler Sebring
Coupe; Hyundai Santa Fe and Sonata; and Kia Optima and Sorento.
The Company's annual report on Form 10-K, quarterly reports on Form
10-Q, current reports on Form 8-K, and all amendments to those reports will be
made available free of charge through the Investor Information section of the
Company's Internet website (http://www.gentex.com) as soon as practicable after
such material is electronically filed with or furnished to the Securities and
Exchange Commission.
(b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
See Note 8 to the Consolidated Financial Statements filed with this
report.
(c) NARRATIVE DESCRIPTION OF BUSINESS
The Company currently manufactures electro-optic products, including
automatic-dimming rearview mirrors for the automotive industry and fire
protection products primarily for the commercial building industry.
AUTOMATIC-DIMMING REARVIEW MIRRORS
Interior NVS Mirrors. In 1987, the Company achieved a significant
technological breakthrough by applying electrochromic technology to the
glare-sensing capabilities of its Motorized Mirror. Through the use of this
technology, the mirror gradually darkens to the degree necessary to eliminate
rearview glare from following vehicle headlights. The NVS Mirror offers all of
the continuous reflectance levels between its approximate 85% full-reflectance
state and its 7% least-reflectance state, taking just a few seconds to span the
entire range. Special electro-optic sensors in the mirror detect glare and
electronic circuitry supplies electricity to darken the mirror to only the
precise level required to eliminate glare, allowing the driver to maintain
maximum vision. This is accomplished by the utilization of two layers of
precision glass with special conductive coatings that are separated by the
Company's proprietary electrochromic materials. When the appropriate light
differential is detected, an electric current causes the electrochromic material
to darken, decreasing the mirror's reflectance, thereby eliminating glare.
-2-
During 1991, the Company began shipping the first advanced-feature
interior NVS Mirror, the NVS Headlamp Control Mirror, an automatic-dimming
mirror that automatically turns car head- and taillamps "on" and "off" at dusk
and dawn in response to the level of light observed. During 1993, the Company
began shipping its NVS Compass Mirror, with an electronic compass that
automatically compensates for changes in the earth's magnetic field. During
1997, the Company began shipping a new interior NVS Mirror that digitally
displays either a compass or outside temperature reading. During 1998, the
Company began shipping new compass mirrors with its proprietary light-emitting
diode (LED) map lamps, a major improvement over mirrors with standard
incandescent map lamps. At the beginning of 2000, the Company began shipping to
General Motors interior NVS Mirrors that serve as the driver interface for the
OnStar(R) System, an in-vehicle safety, security and information service using
Global Positioning System (GPS) satellite technology.
The Company shipped approximately 4,609,000 interior NVS Mirrors in
2000, approximately 5,000,000 in 2001, and approximately 6,305,000 in 2002.
During 2001 and 2002, the Company began making shipments of its NVS
Mirrors for a number of mid-sized, medium-priced vehicles, including the Toyota
Camry, Matrix and Corolla; Ford Taurus and Mercury Sable; Volkswagen Passat,
Jetta, Golf GTI and Beetle; Nissan Altima; Opel Cross Car Line; Chrysler Sebring
Coupe; Hyundai Santa Fe and Sonata; and Kia Optima and Sorento.
During 2002, the growth in unit shipments resulted from increased
penetration of light vehicles manufactured worldwide. The Company's interior
NVS(R) Mirrors are standard equipment or factory-or distributor/dealer-installed
options on certain trim levels of the following 2003 and 2003-1/2 vehicle
models:
TABLE 1. INTERIOR NVS(R) MIRROR AVAILABILITY BY VEHICLE LINE (NORTH AMERICAN
MANUFACTURERS)
GM/Cadillac Deville DaimlerChrysler / Dakota Pickup
Seville Dodge Durango
CTS Grand Caravan
Escalade Intrepid
GM/Buick LeSabre Custom Ram Pickup
Park Avenue DaimlerChrysler / Grand Cherokee
GM/Hummer H2 Jeep Liberty
GM/Oldsmobile Aurora Wrangler
GM/Pontiac Bonneville DaimlerChrysler/ M Class
GM/Chevrolet Blazer Mercedes-Benz
Corvette BMW X5
Express Van Volkswagen Beetle
Silverado Pickup Nissan Altima
Suburban Maxima
Avalanche Toyota Avalon
Tahoe Camry Solara
GM/GMC Jimmy Camry
Savana Van Corolla / Matrix
Sierra Pickup Sequoia
Yukon Sienna
Ford Crown Victoria Volkswagen Jetta
Taurus Southeast Toyota / 4-Runner Limited / SR5
Expedition Gulf State Toyota / Avalon
Explorer Sport Trac Toyota Motor Sales Camry
F150 Pickup Celica
Windstar Tundra
Ford/Lincoln LS RAV4
Navigator Sienna
Town Car Solara
Ford/Mercury Grand Marquis Highlander
Marauder Sequoia
Sable Corolla / Matrix
DaimlerChrysler 300M Subaru / Forester
/ Chrysler Concorde New England Dist. Impreza
Sebring Convertible Legacy
Town & Country Limited Outback
-3-
TABLE 1. INTERIOR NVS(R)MIRROR AVAILABILITY BY VEHICLE LINE - CONTINUED
(MANUFACTURERS OUTSIDE OF NORTH AMERICA)
Audi A4 Lexus IS300
A6 ES300
A8 GS300
S8 GS430
Bentley Bentley LS430
Continental RX330
BMW 700 Series SC300
500 Series SC430
300 Series GX470
Daewoo/Ssangyong Chairman LX470
Korando MG Rover 75R40
Musso Mazda Mazda 6
Rexton Daimler/Chrysler / A Class
Istana Mercedes-Benz C Class
Fiat Alfa Romeo CL Class
Lancia Thesis CLK Class
Lancia Lybra E Class
Fiat (Brazil) Marea S Class
Ford (Europe) Mondeo SL Class
Ford (Taiwan) Mondeo SLK Class
Ford / Jaguar XK Mitsubishi Montero Sport
XJ Magna Verada
S-Type Outlander
Ford / Land Rover Discovery Nissan Cedric
Range Rover Cima
GM (Brazil) Vectra Gloria
Astra Opel Corsa
Hyundai Dynasty Meriva
Grandeur XG Astra
EF Sonata Zafira
Santa Fe Vectra
Avante XD Omega
Equus Rolls Royce Arnage
Tuscani Samsung SM5
Terracan Toyota Land Cruiser
Starex Camry
Infiniti Q45 Cynus
I35 Celsior
G35 Windom
M45 Century
Isuzu Axiom 4-Runner
Kia Motors Corp. Enterprise Toyota (Europe) Avensis
Sorento Toyota (Taiwan) Camry
Optima Volkswagen Polo
Carens Golf
Passat
-4-
Exterior NVS(R) Mirror Sub-Assemblies. The Company has devoted
substantial research and development efforts to the development of its
electrochromic technology to permit its use in exterior rearview mirrors.
Exterior NVS(R) mirrors are controlled by the sensors and electronic circuitry
in the interior NVS(R) Mirror, and both the interior and exterior mirrors dim
simultaneously. During 1991, the Company's efforts culminated in a design that
is intended to provide acceptable long-term performance in all environments
likely to be encountered. In 1994, the Company began shipments of its complete
three-mirror system, including the convex (curved glass) wide-angle NVS(R)
Mirror to BMW. During 1997, the Company began making volume shipments of three
new exterior mirror products - - thin glass flat, convex and aspheric. During
2001 and 2002, the Company began making shipments of the world's first exterior
automatic-dimming mirrors with built-in turn-signal indicators to Southeast
Toyota and General Motors. The Company currently sells its exterior NVS(R)
Mirror Sub-Assemblies to exterior mirror suppliers of General Motors,
DaimlerChrysler, Ford, Audi, BMW, Bentley, Fiat, Jaguar, Land Rover, Opel, Rolls
Royce, Infiniti, Mitsubishi, Nissan and Toyota, who assemble the exterior NVS
Mirror Sub-Assemblies into full mirror units for subsequent resale to the
automakers.
The Company shipped approximately 2,148,000 exterior NVS Mirror
Sub-Assemblies during 2000, approximately 2,181,000 in 2001, and approximately
2,500,000 in 2002. During 2002, unit shipment growth primarily resulted from the
increased penetration of light vehicles in North America and Europe.
The exterior NVS Mirror is standard equipment or a factory- or
distributor/dealer-installed option on certain trim levels of the following 2003
and 2003-1/2 vehicle models:
TABLE 2. EXTERIOR NVS(R)MIRROR AVAILABILITY BY VEHICLE LINE
GM/Cadillac Deville Bentley Bentley
Escalade Continental
Seville DaimlerChrysler /
GM / Buick Century Limited Mercedes- Benz C Class
Regal CL Class
LeSabre CLK Class
Park Avenue E Class
GM / Chevrolet Blazer ML Class
Corvette S Class
Silverado SL Class
Suburban SLK Class
Tahoe Fiat Lancia Thesis
Avalanche Ford / Jaguar XJ
GM / GMC Sierra XK
Yukon S Type
GM / Hummer H2 Ford / Land Rover Range Rover
Ford/Lincoln Town Car Infiniti Q45
DaimlerChrysler/ Town & Country Limited M45
Chrysler 300 M Lexus RX330
DaimlerChrysler/Dodge Durango Mitsubishi Magna Verada
Grand Caravan Nissan Cima
DaimlerChrysler/Jeep Grand Cherokee Opel Vectra
Liberty Rolls Royce Arnage
Audi A6 Toyota Avalon
A8 Sienna
S8 Toyota Motor Sales Sequoia
BMW 700 Series
500 Series
X5
Product Development. The Company plans to continue introducing
additional advanced-feature NVS(R) Mirrors. Advanced-feature NVS(R) Mirrors
currently being offered by the Company include the NVS Headlamp Control Mirror,
the NVS(R) Lighted Mirror with LED map lamps, the NVS Compass Mirror, the NVS
Mirror with Remote Keyless Entry, the NVS Compass/Temperature Mirror, the NVS
Dual Display Compass/Temperature Mirror, the NVS telematics mirrors and the NVS
HomeLink(R) Mirror. During 2001, the Company announced a revolutionary new
technology, called SmartBeam, that uses a custom, active-pixel, CMOS
(complementary
-5-
metal oxide semiconductor) sensor, that maximizes a driver's forward vision by
significantly improving utilization of the vehicle's highbeam headlamps during
nighttime driving. The Company has received product planning commitments from
two major automotive OEM customers for certain 2005 model year vehicles. In
addition, the Company announced a new ALS (Active Light Sensor) technology as a
cost-effective, improved-performance, intelligent CMOS light sensor to control
the dimming of its rearview mirrors, and the Company began making volume
shipments of mirrors incorporating ALS in 2002.
Also during 2001, the Company developed a new microphone designed
specifically for use in the automotive environment for telematics applications.
The first volume Gentex microphone application will be part of DaimlerChrysler's
"U-Connect(R)" telematics system, beginning in 2003.
Of particular importance to the Company has been the development of its
electrochromic technology for use in complete 3-mirror systems. In these
systems, both the driver- and passenger-side exterior NVS(R) Mirrors are
controlled by the sensors and electronic circuitry in the interior rearview
mirror, and the interior and both exterior mirrors dim simultaneously.
In 1999, the Company announced the development of the second generation
of its LED technology, which represents the first time that white light for
illumination purposes can be achieved using high intensity Orca power LEDs on a
cost-effective basis. LEDs as illuminators could have significant automotive and
non-automotive lighting applications as they have many advantages over
incandescent lamps, including extremely long life, low heat generation, lower
current draw, more resistance to shock, and lower total cost of ownership. In
the fourth quarter of 2001, the Company installed a new prototype
microelectronics line to produce pilot production LED samples, as well as
limited production quantities of Orca LED's, and SmartBeam(TM) sensors. During
2002, the Company announced a high-feature EC mirror including BCW Orca(TM)
LED's for the Chrysler Sebring Coupe. Strategic discussions with potential
alliance partners in the lighting industry, LED component industry and LED chip
industry are continuing although discussions are taking longer than anticipated,
primarily due to changing business conditions in the LED industry.
The Company's success with electrochromic technology provides an
opportunity for other potential commercial applications, which the Company
expects to explore in the future as resources permit. Examples of possible
applications of electrochromic technology include windows for both the
automotive and architectural markets, sunroofs and sunglasses. Progress in
adapting electrochromic technology to the specialized requirements of the window
market continued in 2002. However, we believe that a commercial product will
require several years of additional engineering and intellectual property
development work.
Markets and Marketing. The Company markets its automatic rearview
mirrors to domestic and foreign automotive manufacturers under the trademarks
"Night Vision Safety" or NVS Mirrors. In North America, the Company markets
these products primarily through a direct sales force. The Company generally
supplies NVS Mirrors to its customers worldwide under annual blanket purchase
orders. The Company currently supplies NVS Mirrors to General Motors Corporation
and DaimlerChrysler AG (North America) under long-term agreements. During 2000,
the Company negotiated a contract extension for inside mirrors with General
Motors through the 2004 model year. The long-term supply agreement with
DaimlerChrysler AG extends through the 2003 model year. The Company's exterior
NVS Mirror Sub-Assemblies are supplied to General Motors, Ford and
DaimlerChrysler AG by means of sales to exterior mirror suppliers.
During 1993, the Company established a sales and engineering office in
Germany and the following year, the Company formed a German limited liability
company, Gentex GmbH, to expand its sales and engineering support activities in
Europe. During 1999, the Company established Gentex Mirrors, Ltd., as a sales
and engineering office in the United Kingdom. During 2000, the Company
established Gentex France, SAS, as a sales and engineering office in France. The
Company's marketing efforts in Europe are conducted through Gentex GmbH, Gentex
Mirrors, Ltd., and Gentex France SAS, with limited assistance from independent
manufacturers' representatives. The Company is currently supplying mirrors for
Audi, Bavarian Motor Works, A.G. (BMW), Bentley, Fiat, Jaguar, Land Rover, MG
Rover, Mercedes-Benz, Opel, Rolls Royce, and Volkswagen.
-6-
Since 1991, the Company has been shipping electrochromic mirror
assemblies for Nissan Motor Co., Ltd. under a reciprocal distribution agreement
with Ichikoh Industries, Ltd. (Ichikoh), a major Japanese supplier of automotive
products. Under this agreement, Ichikoh markets the Company's automatic mirrors
to certain Japanese automakers and their subsidiaries with manufacturing
facilities in Asia. The arrangement involves very limited technology transfer by
the Company and does not include the Company's proprietary electrochromic gel
formulation.
During 1993, the Company hired a sales agent to market NVS Mirrors to
other Japanese automakers beyond Nissan. Subsequently in 1998, the Company
established Gentex Japan, Inc., as a sales and engineering office to expand its
sales and engineering support in Japan. During 1999, the Company signed an
agreement with Murakami Corporation, a major Japanese mirror manufacturer, to
cooperate in expanding sales of automatic-dimming mirrors using the Gentex
electrochromic technology. During 2002, the Company established Gentex
Technologies Korea Co., Ltd. as a sales and engineering office in Seoul, Korea.
The Company is currently supplying mirrors for Daewoo/Ssangyong, Ford (Taiwan),
GM (China), Hyundai, Infiniti, Kia Motors, Lexus, Mazda, Mitsubishi, Nissan,
Samsung, and Toyota.
Historically, new safety and comfort options have entered the original
equipment automotive market at relatively low rates on "top of the line" or
luxury model automobiles. As the selection rates for the options on the luxury
models increase, they generally become available on more models throughout the
product line and may become standard equipment. The recent trend of domestic and
foreign automakers is to offer several options as a package. As consumer demand
increases for a particular option, the mirror tends to be offered on more
vehicles and in higher option rate packages. The Company anticipates that its
NVS Mirrors will be offered as standard equipment, in higher option rate
packages, and on more models as consumer awareness of the safety and comfort
features becomes more well-known and acceptance grows.
Since 1998, Gentex Corporation has contracted with MITO Corporation to
sell several of its most popular automatic-dimming mirrors directly to consumers
in the automotive aftermarket; in addition, the Company currently sells some NVS
Mirrors to automotive distributors. It is management's belief that these sales
have limited potential until the Company achieves a significantly higher
penetration of the original equipment manufacturing market.
Competition. Gentex is the leading producer of automatic rearview
mirrors in the world and currently is the dominant supplier to the automotive
industry with an approximate 78% market share worldwide. While the Company
believes it will retain a dominant position, one other U.S. manufacturer (Magna
Donnelly) is competing for sales to domestic and foreign vehicle manufacturers
and is supplying a number of domestic and foreign vehicle models with its hybrid
or solid polymer matrix versions of electrochromic mirrors. In addition, two
Japanese manufacturers are currently supplying a number of vehicle models in
Japan with solid-state electrochromic mirrors.
On October 1, 2002, Magna International acquired Donnelly Corporation
which is the Company's major competitor for sales of automatic-dimming rearview
mirrors to domestic and foreign vehicle manufacturers and their mirror
suppliers. The Company also sells certain automatic-dimming rearview mirror
sub-assemblies to Magna Donnelly.
The Company believes its electrochromic automatic mirrors offer
significant performance advantages over competing products. However, Gentex
recognizes that Magna Donnelly, a competitor and wholly-owned subsidiary of
Magna International, is considerably larger than the Company and presents a more
formidable competitive threat after the acquisition.
There are numerous other companies in the world conducting research on
various technologies, including electrochromics, for controlling light
transmission and reflection. Gentex believes that the electrochromic materials
and manufacturing process it uses for automotive mirrors remains the most
efficient and cost-effective way to produce such products. While
automatic-dimming mirrors using other technologies may eliminate glare, each of
these technologies have inherent cost or performance limitations.
-7-
FIRE PROTECTION PRODUCTS
The Company manufactures approximately 60 different models of smoke
alarms and smoke detectors, combined with over 160 different models of signaling
appliances. All of the smoke detectors/alarms operate on a photoelectric
principle to detect smoke. While the use of photoelectric technology entails
greater manufacturing costs, the Company believes that these detectors/alarms
are superior in performance to competitive devices that operate through an
ionization process, and are preferred in most commercial residential
occupancies. Photoelectric detectors/alarms feature low light-level detection,
while ionization detectors utilize an ionized atmosphere, the electrical
conductivity of which varies with changes in the composition of the atmosphere.
Photoelectric detectors/alarms are widely recognized to respond more quickly to
slow, smoldering fires, a common form of dwelling unit fire and a frequent cause
of fire-related deaths. In addition, photoelectric detectors are less prone to
nuisance alarms and do not require the use of radioactive materials necessary
for ionization detectors. Photoelectric smoke detectors/alarms are now being
required by an increasing number of city and state laws, and national codes.
The Company's fire protection products provide the flexibility to be
wired as part of multiple-function systems and consequently are generally used
in fire detection systems common to large office buildings, hotels, motels,
military bases, college dormitories and other commercial establishments.
However, the Company also offers single-station alarms for both commercial and
residential applications. While the Company does not emphasize the residential
market, some of its fire protection products are used in single-family
residences that utilize fire protection and security systems. The Company's
detectors emit audible and/or visual signals in the immediate location of the
device, and certain models are able to communicate with monitored remote
stations.
In recent years, the Company introduced seven new signaling products.
These new product series contain over 68 variations of signals.
In 2002, the Company introduced the new "selectable" candela
audible/visual evacuation signal. This new signal is the only one in the fire
alarm industry which will notify the control panel if its light intensity is
being changed without authorization.
Also in 2002, due to changes in government regulations, the Company
introduced a new "selectable" ceiling horn/strobe and strobe product. This new
product offering gives the Company both wall- and ceiling-mounted product
offerings.
In 2001, the Company introduced a new, high efficiency speaker and
speaker/strobe series. Voice intelligibility is critical in life safety
applications, and certain distributors throughout the United States prefer the
quality of the Company's new speaker series.
To meet new international requirements for visual signals, the Company
developed a red-lens for the popular general evacuation signals. The new markets
are all in Asia and the Company has actively pursued these new markets.
Also, to meet the industry requirements for audible and visual
synchronization in 2001, the Company introduced a new line of remote signals to
be used in any occupancy that requires individual or supplemental notification.
Markets and Marketing. The Company's fire protection products are sold
directly to fire protection and security product distributors under the
Company's brand name, electrical wholesale houses, and to original equipment
manufacturers of fire protection systems under both the Company's brand name and
private labels. The fire protection and security industries have experienced a
tremendous number of mergers and consolidations during the past few years. The
Company markets its fire protection products throughout the United States
through regional sales managers and manufacturer representative organizations.
Competition. The fire protection products industry is highly
competitive in terms of both the smoke detectors and signaling appliance
markets. The Company estimates that it competes principally with eleven
manufacturers of smoke detection products for commercial use and approximately
four manufacturers within the residential market, three of which produce
photoelectric smoke detectors. In the signaling appliance markets, the Company
estimates it competes with approximately eight manufacturers. While the Company
faces significant competition in the sale of smoke detectors and signaling
appliances, it believes that the recent introduction
-8-
of new products, improvements to its existing products, its diversified product
line, and the availability of special features will permit the Company to
maintain its competitive position.
TRADEMARKS AND PATENTS
The Company owns 6 U.S. trademarks and 151 U.S. patents, 145 of which
relate to electrochromic technology and/or automotive rearview mirrors. These
patents expire between 2003 and 2021. The Company believes that these patents
provide the Company a significant competitive advantage in the automotive
rearview mirror market; however, none of these patents is required for the
success of any of the Company's products.
The Company also owns 1 foreign trademark and 34 foreign patents, 33 of
which relate to automotive rearview mirrors. These patents expire at various
times between 2003 and 2018. The Company believes that the competitive advantage
derived in the relevant foreign markets for these patents is comparable to that
experienced in the U.S. market.
The remaining 6 U.S. patents and 1 foreign patent relate to the
Company's fire protection products, and the Company believes that the
competitive advantage provided by these patents is relatively small.
The Company also has in process 141 U.S. patent applications, 208
foreign patent applications, and 7 trademark applications. The Company
continuously seeks to improve its core technologies and apply those technologies
to new and existing products. As those efforts produce patentable inventions,
the Company expects to file appropriate patent applications.
MISCELLANEOUS
The Company considers itself to be engaged in the manufacture and sale
of automatic rearview mirrors for the automotive industry and fire protection
products for the commercial building industry. The Company has several important
customers within the automotive industry, three of which each account for 10% or
more of the Company's annual sales: General Motors Corporation, DaimlerChrysler
AG, and Toyota Motor Corporation. The loss of any of these customers could have
a material adverse effect on the Company. The Company's backlog of unshipped
orders was $110,359,000 and $83,856,000 at February 1, 2003, and March 1, 2002,
respectively.
At February 1, 2003, the Company had 1,897 full-time employees. None of
the Company's employees are represented by a labor union or other collective
bargaining representative. The Company believes that its relations with its
employees are good.
ITEM 2. PROPERTIES.
The Company operates out of four office/manufacturing facilities in
Zeeland, Michigan, approximately 25 miles southwest of Grand Rapids. The office
and production facility for the Fire Protection Products Group is a
25,000-square-foot, one-story building leased by the Company since 1978 from
related parties (see Part III, Item 13, of this report).
The corporate office and production facility for the Company's
Automotive Products Group is a modern, two-story, 150,000-square-foot building
of steel and masonry construction situated on a 40-acre site in a well-kept
industrial park. An additional 128,000-square-foot office/manufacturing facility
on this site was opened during 1996. The Company expanded its automotive
production facilities by constructing a third 170,000 square-foot facility on
its current site which opened in the second quarter of 2000.
In November 2002, the Company announced plans to expand its
manufacturing operations in Zeeland, Michigan, with the construction of another
automotive mirror manufacturing facility which is scheduled to open in 2005. The
Company plans to invest approximately $100 million over a 5-year period for
land, the facility and manufacturing equipment to meet the Company's future
automotive production needs.
The Company also plans to construct a 40,000 square-foot office,
distribution and light manufacturing facility near Neckarsulm, Germany, at a
cost of approximately $4-5 million, which is scheduled to be completed by the
end of 2003.
ITEM 3. LEGAL PROCEEDINGS
None that are significant.
-9-
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
EXECUTIVE OFFICERS OF THE REGISTRANT.
The following table lists the names, ages, and positions of all of the
Company's executive officers. Officers are elected at the first meeting of the
Board of Directors following the annual meeting of shareholders.
NAME AGE POSITION POSITION HELD SINCE
- -----------------------------------------------------------------------------------------------------------------------
Fred Bauer 60 Chief Executive Officer May 1986
Kenneth La Grand 62 Executive Vice President September 1987
Garth Deur 46 Executive Vice President May 2001
Dennis Alexejun 51 Vice President, North American Automotive Marketing September 1998
John Carter 55 Vice President, Mechanical Engineering June 1997
Enoch Jen 51 Vice President-Finance February 1991
- -------------------------------------------------------------------------------------------------------------------
There are no family relationships among the officers listed in the
preceding table.
Kenneth La Grand retired from the Company, effective January 6, 2003.
Garth Deur has served as Executive Vice President of the Company since
September 2002, as Senior Vice President of the Company since May 2001, and
joined the Company as Vice President - Business Development and Planning in
November 2000. Prior to joining the Company, Mr. Deur served as a Principal of
Landmark Group, an investment management company, from March 1999 through
November 2000. Prior to that time, Mr. Deur served as Vice President, Chrysler
Business Operations, from March 1995 through March 1999 at the Automotive
Interiors division of Johnson Controls, Inc. (formerly Prince Corporation, which
was acquired by Johnson Controls in 1996).
Dennis Alexejun has served as Vice President, North American Automotive
Marketing, of the Company since September 1998. Prior to that time, Mr. Alexejun
served as Vice President, General Motors Business Operations, from February 1995
through September 1998 at the Automotive Interiors division of Johnson Controls,
Inc. (formerly Prince Corporation, which was acquired by Johnson Controls in
1996).
-10-
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
The Company's common stock trades on The Nasdaq Stock Market(R). As of
February 1, 2003, there were 2,390 recordholders of the Company's common stock.
Ranges of high and low sale prices of the Company's common stock reported
through The Nasdaq Stock Market for the past two fiscal years appear in the
following table.
YEAR QUARTER HIGH LOW
--------------------------------------------------------------------
2001 First $27.94 $18.44
Second 31.84 21.56
Third 34.23 20.00
Fourth 28.18 21.75
2002 First 32.83 26.31
Second 33.50 25.15
Third 32.02 23.65
Fourth 32.90 23.52
The Company has never paid any cash dividends on its common stock, and
management does not anticipate paying any cash dividends in the foreseeable
future under current U.S. income tax laws.
ITEM 6. SELECTED FINANCIAL DATA.
(in thousands except per share data)
- -------------------------------------------------------------------------------------------------------------------
2002 2001 2000 1999 1998
- -------------------------------------------------------------------------------------------------------------------
Net Sales $395,258 $310,305 $297,421 $262,155 $222,292
Net Income 85,771 65,217 70,544 64,864 50,307
- -------------------------------------------------------------------------------------------------------------------
Earnings Per Share* 1.12 0.86 0.93 0.86 0.68
- -------------------------------------------------------------------------------------------------------------------
Dividends Declared per
Common Share $ - $ - $ - $ - $ -
- -------------------------------------------------------------------------------------------------------------------
Total Assets $609,173 $506,823 $428,129 $337,673 $254,890
- -------------------------------------------------------------------------------------------------------------------
Long-Term Debt
Outstanding at
Year End $ - $ - $ - $ - $ -
- -------------------------------------------------------------------------------------------------------------------
*Diluted; adjusted for 2-for-1 stock split in June 1998.
-11-
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION.
CRITICAL ACCOUNTING POLICIES.
The Company's significant accounting policies are described in Note 1
to the consolidated financial statements. The policies described below represent
those that are broadly applicable to its operations and involve additional
management judgment due to the sensitivity of the methods, assumptions and
estimates necessary in determining the related amounts.
Revenue Recognition. The Company recognizes revenue in accordance with
SEC Staff Accounting Bulletin No. 101, Revenue Recognition in Financial
Statements, as amended. Accordingly, revenue is recognized based on the terms of
the customer purchase order that indicates title to the product and risk of
ownership passes to the customer upon shipment. Sales are shown net of returns,
which have not historically been significant. The Company does not generate
sales from sale arrangements with multiple deliverables.
Inventories. Estimated inventory allowances for slow-moving and
obsolete inventories are based on current assessments of future demands, market
conditions and related management initiatives. If market conditions or customer
requirements change and are less favorable than those projected by management,
inventory allowances are adjusted accordingly.
Investments. The Company's investment committee regularly 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. Management uses criteria such as the period of time
that securities have been in an unrealized loss position, types of securities
and their related industries, as well as published investment ratings and
analyst reports to evaluate their portfolio. Management considers the unrealized
losses at December 31, 2002, to be temporary in nature.
Self Insurance. The Company is self-insured for health and workers'
compensation benefits up to certain stop-loss limits. Such costs are accrued
based on known claims and an estimate of incurred, but not reported (IBNR)
claims. IBNR claims are estimated using historical lag information and other
data provided by claims administrators. This estimation process is subjective,
and to the extent that future actual results differ from original estimates,
adjustments to recorded accruals may be necessary.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated certain items
from the Company's Consolidated Statements of Income expressed as a percentage
of net sales and the percentage change in the dollar amount of each such item
from that in the indicated previous year.
Percentage of Net Sales Percentage Change
------------------------ -----------------
Year Ended December 31 2001 2001
------------------------ to to
2002 2001 2000 2002 2000
---- ---- ---- ---- ----
Net Sales 100.0% 100.0% 100.0% 27.4% 4.3%
Cost of Goods Sold 59.6 60.7 58.0 25.1 9.2
----- ----- ----- ----- -----
Gross Profit 40.4 39.3 42.0 30.9 (2.4)
Operating Expenses:
Engineering, Research and Development 5.8 6.7 5.7 11.1 22.4
Selling, General and Administrative 5.5 6.2 5.9 11.5 9.2
----- ----- ----- ----- -----
Total Operating Expenses 11.3 12.9 11.6 11.3 15.6
----- ----- ----- ----- -----
Operating Income 29.1 26.4 30.4 40.4 (9.2)
Other Income 3.0 4.7 4.7 (18.4) 3.2
----- ----- ----- ----- -----
Income Before Provision for Income Taxes 32.1 31.1 35.1 31.5 (7.6)
Provision for Income Taxes 10.4 10.1 11.4 31.5 (7.6)
----- ----- ----- ----- -----
Net Income 21.7% 21.0% 23.7% 31.5% (7.6)%
===== ===== ===== ===== =====
-12-
RESULTS OF OPERATIONS: 2002 TO 2001
Net Sales. Automotive net sales increased by 29% on a 23% increase in
mirror shipments, from 7,180,000 to 8,806,000 units, primarily reflecting
increased penetration on 2002 and 2003 model year vehicles for interior
electrochromic Night Vision Safety Mirrors and higher dollar content on certain
2003 model year vehicles. North American unit shipments increased by 19%, while
overseas unit shipments increased by 28% during 2002. Net sales of the Company's
fire protection products increased 1%, as shipments continued to be impacted by
the reduced demand in the hotel construction industry after the September 11,
2001, terrorist attacks.
Cost of Goods Sold. As a percentage of net sales, cost of goods sold
decreased from 61% to 60%, primarily reflecting fixed manufacturing overhead
expenses being spread over increased sales volume, product mix, and purchasing
cost reductions, partially offset by automotive customer price reductions.
Operating Expenses. Engineering, research and development expenses
increased approximately $2,288,000, but decreased from 7% to 6% of net sales,
primarily due to additional staffing for new electronic product development,
including SmartBeam and telematics. Selling, general and administrative expenses
increased approximately $2,215,000, but decreased from 6% to 5% of net sales,
primarily reflecting the expansion of the Company's overseas sales offices to
support the Company's current and future overseas sales growth.
Other Income - Net. Investment income decreased $1,527,000 in 2002,
primarily due to significantly lower interest rates. Other income decreased
$1,159,000 in 2002, primarily due to realized equity investment losses in 2002
compared to realized equity investment gains in 2001.
Taxes. The provision for federal income taxes varied from the statutory
rate in 2002 primarily due to exempted taxable income under the Extraterritorial
Income Exclusion Act from increased foreign sales, and tax-exempt interest
income.
Net Income. Net income increased by 32%, primarily reflecting the
higher sales volume and improved gross margin, partially offset by higher
operating expenses, in 2002 as compared to 2001.
RESULTS OF OPERATIONS: 2001 TO 2000
Net Sales. Automotive net sales increased by 5% and mirror shipments
increased by 6%, from 6,757,000 to 7,180,000 units, primarily reflecting
increased penetration on foreign 2001 and 2002 model year vehicles for interior
electrochromic NVS Mirrors. North American unit shipments decreased by 2%,
primarily due to the 10% decline in light vehicle industry production levels,
while overseas unit shipments increased by 21% during 2001. Net sales of the
Company's fire protection products decreased 3%, primarily due to the
construction industry slowdown after the September 11, 2001, terrorist attacks.
Cost of Goods Sold. As a percentage of net sales, cost of goods sold
increased from 58% to 61%, primarily reflecting automotive customer price
reductions, product mix, and the temporary excess plant capacity primarily
associated with the Company's third automotive mirror manufacturing facility
expansion in 2000, partially offset by engineering and purchasing cost
reductions.
Operating Expenses. Engineering, research and development expenses
increased approximately $3,784,000, and increased from 6% to 7% of net sales,
primarily due to additional staffing for new electronic product development,
including telematics and SmartBeam. Selling, general and administrative expenses
increased approximately $1,618,000, but remained unchanged at 6% of net sales,
primarily reflecting the expansion of the Company's overseas sales offices to
support the Company's current and future overseas sales growth.
Other Income - Net. Investment income decreased $75,000 in 2001,
primarily due to significantly lower interest rates, mostly offset by higher
investable balances. Other income increased $521,000 in 2001, primarily due to
realized equity gains in 2001 compared to realized equity losses in 2000.
-13-
Taxes. The provision for federal income taxes varied from the statutory
rate in 2001 primarily due to Foreign Sales Corporation exempted taxable income
from increased foreign sales, and tax-exempt interest income.
Net Income. Net income decreased by 8%, primarily reflecting the
reduced gross margin and increased research and development expenses in 2001.
LIQUIDITY AND CAPITAL RESOURCES
The Company's financial condition throughout the periods presented has
remained very strong.
The Company's current ratio decreased from 12.4 in 2001, to 9.5 in
2002, primarily as a result of the increase in accrued liabilities.
Cash flow from operating activities for the year ended December 31,
2002, increased $33,758,000 to $119,111,000, compared to $85,353,000 for the
same period last year, primarily due to increased net income. Capital
expenditures for the year ended December 31, 2002, were $32,561,000, compared to
$45,298,000 for the same period last year.
Management considers the Company's working capital of approximately
$247,738,000 and long-term investments of approximately $203,359,000 at December
31, 2002, together with internally generated cash flow and an unsecured
$5,000,000 line of credit from a bank, to be sufficient to cover anticipated
cash needs for the foreseeable future.
On October 8, 2002, the Company announced a share repurchase plan,
under which the Company may purchase up to 4,000,000 shares based on a number of
factors, including market conditions, the market price of the Company's common
stock, anti-dilutive effect on earnings, available cash and other factors as the
Company deems appropriate. As of December 31, 2002, the Company had not
purchased any shares.
INFLATION, CHANGING PRICES AND OTHER
In addition to price reductions over the life of its long-term
agreements, the Company continues to experience pricing pressures from its
automotive customers, which have affected, and which will continue to affect,
its margins to the extent that the Company is unable to offset the price
reductions with productivity and yield improvements, engineering and purchasing
cost reductions, and increases in sales volume. In addition, profit pressures at
certain automakers are resulting in increased cost reduction efforts by them,
including requests for additional price reductions, decontenting certain
features from vehicles, and warranty cost-sharing programs, which could
adversely impact the Company's sales growth and margins. The Company also
continues to experience some pressure for raw material cost increases.
The Company generally supplies NVS(R) Mirrors to its customers
worldwide under annual blanket purchase orders. The Company currently supplies
NVS(R) Mirrors to DaimlerChrysler AG (North America) and General Motors
Corporation under long-term agreements. The long-term supply agreement with
DaimlerChrysler AG runs through the 2003 Model Year, and the GM contract runs
through the 2004 Model Year for inside mirrors.
Automakers have been experiencing increased volatility and uncertainty
in executing planned new programs which have, in some cases, resulted in
cancellations or delays of new vehicle platforms, package reconfigurations and
inaccurate volume forecasts. This increased volatility and uncertainty has made
it more difficult for the Company to forecast future sales and effectively
utilize capital, engineering, research and development, and human resource
investments.
The Company does not have any significant off-balance sheet
arrangements or commitments that have not been recorded in its consolidated
financial statements.
-14-
MARKET RISK DISCLOSURE
The Company is subject to market risk exposures of varying correlations
and volatilities, including foreign exchange rate risk, interest rate risk and
equity price risk.
The Company has some assets, liabilities and operations outside the
United States, which currently are not significant. Because the Company sells
its automotive mirrors throughout the world, it could be significantly affected
by weak economic conditions in foreign markets that could reduce demand for its
products.
Nearly all of the Company's non-U.S. sales are invoiced and paid in
U.S. dollars; during 2002, approximately 3% of the Company's net sales were
invoiced and paid in European euros. The Company currently expects that
approximately 5% of the Company's net sales in 2003 will be invoiced and paid in
European euros. The Company does not currently engage in hedging activities.
The Company manages interest rate risk and default risk in its
fixed-income investment portfolio by investing in shorter-term maturities and
investment grade issues. The Company's fixed-income investments' maturities at
carrying value ($000,000), which closely approximates fair value, and average
interest rates are as follows:
Total Balance
2007 - as of December 31,
2003 2004 2005 2006 2008 2002 2001
------------------------------------------------------ ----------------------------
U.S. Treasuries
Amount $22.5 $15.3 - - - $37.8 $72.2
Average Interest Rate 6% 3% 4% 6%
Municipal
Amount $5.7 $18.9 $9.0 $0.5 - $34.1 $27.0
Average Interest Rate* 3% 2% 3% 4% 3% 3%
Certificates of Deposit
Amount $11.1 $20.3 $5.3 $27.3 - $64.0 $20.5
Average Interest Rate 6% 4% 5% 4% 5% 6%
Corporate
Amount $5.4 $27.4 $5.1 - $0.3 $38.2 $11.8
Average Interest Rate 7% 5% 7% 7% 6% 7%
Other
Amount $2.1 - - - - $2.1 $2.1
Average Interest Rate 4% 4% 6%
*After-tax
Most of the Company's equity investments are managed by a number of
outside equity fund managers who invest primarily in large capitalization
companies trading on the U.S. stock markets.
ITEM 7. A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
See "Market Risk Disclosure" in Management's Discussion and Analysis
(Item 7).
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The following financial statements and reports of independent auditors
are filed with this report as pages 21 through 34 following the signature page:
Report of Independent Auditors
Consolidated Balance Sheets as of December 31, 2002 and 2001
Consolidated Statements of Income for the years ended
December 31, 2002, 2001 and 2000
Consolidated Statements of Shareholders' Investment for the years
ended December 31, 2002, 2001 and 2000
Consolidated Statements of Cash Flows for the years ended
December 31, 2002, 2001 and 2000
Notes to Consolidated Financial Statements
-15-
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - CONTINUED.
Selected quarterly financial data for the past two years appears in the
following table:
Quarterly Results of Operations
(in thousands except per share data)
- -------------------------------------------------------------------------------------------------------------------------------
First Second Third Fourth
2002 2001 2002 2001 2002 2001 2002 2001
- -------------------------------------------------------------------------------------------------------------------------------
Net Sales $89,048 $79,397 $97,346 $77,075 $101,516 $74,116 $107,347 $79,717
Gross Profit 35,191 31,726 39,065 30,364 40,695 28,430 44,696 31,484
Operating Income 24,565 21,901 28,198 20,258 29,579 18,654 32,859 21,246
Net Income 18,953 17,253 21,311 16,196 21,427 14,928 24,080 16,839
Earnings Per Share* $ .25 $ .23 $ .28 $ .21 $ .28 $ .20 $ .31 $ .22
- -------------------------------------------------------------------------------------------------------------------------------
*Diluted
ITEM 9. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information relating to executive officers is included in this report
in the last section of Part I under the caption "Executive Officers of the
Registrant". Information relating to directors appearing under the caption
"Election of Directors" in the definitive Proxy Statement for the 2003 Annual
Meeting of Shareholders and filed with the Commission is hereby incorporated
herein by reference. Information concerning compliance with Section 16(a) of the
Securities and Exchange Act of 1934 appearing under the caption "Section 16(A)
Beneficial Ownership Reporting Compliance" in the definitive Proxy Statement for
the 2003 Annual Meeting of Shareholders and filed with the Commission is hereby
incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
The information contained under the caption "Executive Compensation"
contained in the definitive Proxy Statement for the 2003 Annual Meeting of
Shareholders and filed with the Commission is hereby incorporated herein by
reference. Such incorporation by reference shall not be deemed to specifically
incorporate by reference information referred to in Item 402(a)(8) of Regulation
S-K.
ITEM 12. SECURITY OWNERSHIP OF MANAGEMENT AND EQUITY COMPENSATION PLAN
INFORMATION.
The information contained under the captions "Securities Ownership of
Management" and "Equity Compensation Plan Information" contained in the
definitive Proxy Statement for the 2003 Annual Meeting of Shareholders and filed
with the Commission is hereby incorporated herein by reference.
-16-
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information contained under the caption "Transactions with
Management" contained in the definitive Proxy Statement for the 2003 Annual
Meeting of Shareholders and filed with the Commission is hereby incorporated
herein by reference.
ITEM 14. CONTROLS AND PROCEDURES.
As of December 31, 2002, an evaluation was performed under the
supervision and with the participation of the Company's management, including
the CEO and CFO, of the effectiveness of the design and operation of the
Company's disclosure controls and procedures. Based on that evaluation, the
Company's management, including the CEO and CFO, concluded that the Company's
disclosure controls and procedures were effective as of December 31, 2002. There
have been no significant changes in the Company's internal controls or in other
factors that could significantly affect internal controls subsequent to December
31, 2002.
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) 1. Financial Statements. See Item 8.
2. Financial Statements Schedules. None required or not applicable.
3. Exhibits. See Exhibit Index located on page 35.
(b) No reports on Form 8-K were filed during the three-month period
ended December 31, 2002.
-17-
SIGNATURES
Pursuant to the requirements of Section 13 of 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Dated: February 27, 2003 GENTEX CORPORATION
--------------------------
By: /s/ Fred Bauer
-------------------------------------
Fred Bauer, Chairman and Principal
Executive Officer
and
/s/ Enoch Jen
-------------------------------------
Enoch Jen, Vice President-Finance and
Principal Financial and Accounting
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below on this 27th day of February, 2003, by the
following persons on behalf of the Registrant and in the capacities indicated.
Each Director of the Registrant whose signature appears below hereby
appoints Enoch Jen and Garth Deur, each of them individually, as his
attorney-in-fact to sign in his name and on his behalf, and to file with the
Commission any and all amendments to this report on Form 10-K to the same extent
and with the same effect as if done personally.
/s/ Fred Bauer Director
- -----------------------------------------------------
Fred Bauer
/s/ Mickey E. Fouts Director
- -----------------------------------------------------
Mickey E. Fouts
Director
- -----------------------------------------------------
Gary Goode
/s/ Kenneth La Grand Director
- -----------------------------------------------------
Kenneth La Grand
/s/ Arlyn Lanting Director
- -----------------------------------------------------
Arlyn Lanting
/s/ John Mulder Director
- -----------------------------------------------------
John Mulder
/s/ Fred Sotok Director
- -----------------------------------------------------
Fred Sotok
/s/ Ted Thompson Director
- -----------------------------------------------------
Ted Thompson
/s/ Leo Weber Director
- -----------------------------------------------------
Leo Weber
-18-
CERTIFICATIONS
I, Fred T. Bauer, certify that:
1. I have reviewed this annual report on Form 10-K of Gentex
Corporation;
2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light
of the circumstances under which such statements were made,
not misleading with respect to the period covered by this
annual report;
3. Based on my knowledge, the financial statements, and other
financial information included in this annual report, fairly
present in all material respects the financial condition,
results of operations and cash flows of the registrant as of,
and for, the periods, presented in this annual report;
4. The registrant's other certifying officer and I are
responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules
13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and
procedures to ensure that material
information relating to the registrant,
including its consolidated subsidiaries, is
made known to us by others within those
entities, particularly during the period in
which this annual report is being prepared;
b) evaluated the effectiveness of the
registrant's disclosure controls and
procedures as of a date within 90 days prior
to the filing date of this annual report
(the "Evaluation Date"); and
c) presented in this annual report our
conclusions about the effectiveness of the
disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have
disclosed, based on our most recent evaluation, to the
registrant's auditors and the audit committee of the
registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design
or operation of internal controls which
could adversely affect the registrant's
ability to record, process, summarize and
report financial data and have identified
for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that
involves management or other employees who
have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officer and I have indicated
in this annual report whether there were significant changes
in internal controls or in other factors that could
significantly affect internal controls subsequent to the date
of our most recent evaluation including any corrective actions
with regard to significant deficiencies and material
weaknesses.
Date: February 27, 2003
/s/ Fred T. Bauer
-----------------------------------
Chief Executive Officer
-19-
I, Enoch C. Jen, certify that:
1. I have reviewed this annual report on Form 10-K of Gentex
Corporation;
2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light
of the circumstances under which such statements were made,
not misleading with respect to the period covered by this
annual report;
3. Based on my knowledge, the financial statements, and other
financial information included in this annual report, fairly
present in all material respects the financial condition,
results of operations and cash flows of the registrant as of,
and for, the periods, presented in this annual report;
4. The registrant's other certifying officer and I are
responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules
13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and
procedures to ensure that material
information relating to the registrant,
including its consolidated subsidiaries, is
made known to us by others within those
entities, particularly during the period in
which this annual report is being prepared;
b) evaluated the effectiveness of the
registrant's disclosure controls and
procedures as of a date within 90 days prior
to the filing date of this annual report
(the "Evaluation Date"); and
c) presented in this annual report our
conclusions about the effectiveness of the
disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have
disclosed, based on our most recent evaluation, to the
registrant's auditors and the audit committee of the
registrant's board of directors (or persons performing the
equivalent functions):
d) all significant deficiencies in the design
or operation of internal controls which
could adversely affect the registrant's
ability to record, process, summarize and
report financial data and have identified
for the registrant's auditors any material
weaknesses in internal controls; and
e) any fraud, whether or not material, that
involves management or other employees who
have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officer and I have indicated
in this annual report whether there were significant changes
in internal controls or in other factors that could
significantly affect internal controls subsequent to the date
of our most recent evaluation including any corrective actions
with regard to significant deficiencies and material
weaknesses.
Date: February 27, 2003
/s/ Enoch C. Jen
-------------------------------------
Vice President, Finance
-20-
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders of Gentex Corporation:
We have audited the accompanying consolidated balance sheets of Gentex
Corporation and subsidiaries as of December 31, 2002 and 2001, and the
related consolidated statements of income, shareholders' investment and
cash flows for each of the three years in the period ended December 31,
2002. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing
the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Gentex Corporation and subsidiaries at December 31, 2002 and 2001, and
the consolidated results of their operations and their cash flows for
each of the three years in the period ended December 31, 2002, in
conformity with accounting principles generally accepted in the United
States.
/s/ Ernst & Young LLP
Grand Rapids, Michigan
January 22, 2003
-21-
GENTEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2002 AND 2001
ASSETS
- ------
2002 2001
---- ----
CURRENT ASSETS:
Cash and cash equivalents $ 168,834,111 $ 139,784,721
Short-term investments 46,816,690 65,859,016
Accounts receivable 35,890,380 31,994,939
Inventories 17,742,009 14,405,350
Prepaid expenses and other 7,515,219 7,814,468
------------- -------------
Total current assets 276,798,409 259,858,494
PLANT AND EQUIPMENT:
Land, buildings and improvements 47,399,803 45,923,054
Machinery and equipment 142,684,762 118,809,575
Construction-in-process 11,740,511 6,446,221
------------- -------------
201,825,076 171,178,850
Less-Accumulated depreciation
and amortization (76,842,411) (60,316,540)
------------- -------------
124,982,665 110,862,310
OTHER ASSETS:
Long-term investments 203,358,933 132,771,234
Patents and other assets, net 4,032,660 3,330,760
------------- -------------
207,391,593 136,101,994
------------- -------------
$ 609,172,667 $ 506,822,798
============= =============
LIABILITIES AND SHAREHOLDERS' INVESTMENT
- ----------------------------------------
2002 2001
---- ----
CURRENT LIABILITIES:
Accounts payable $ 11,793,726 $ 9,378,937
Accrued liabilities:
Salaries, wages and vacation 2,765,682 2,219,079
Income taxes 3,391,214 1,947,404
Royalties 6,587,477 4,165,428
Other 4,521,936 3,274,556
------------- -------------
Total current liabilities 29,060,035 20,985,404
DEFERRED INCOME TAXES 6,472,270 6,836,865
SHAREHOLDERS' INVESTMENT:
Preferred stock, no par value,
5,000,000 shares authorized; none
issued or outstanding - -
Common stock, par value $.06 per share;
100,000,000 shares authorized 4,573,282 4,510,317
Additional paid-in capital 123,923,391 105,327,971
Retained earnings 454,201,443 368,430,152
Deferred compensation (3,042,935) (3,035,580)
Accumulated other comprehensive income (loss):
Unrealized gain (loss) on investments (6,091,452) 3,832,074
Cumulative Translation Adjustment 76,633 (64,405)
------------- -------------
Total shareholders' investment 573,640,362 479,000,529
------------- -------------
$ 609,172,667 $ 506,822,798
============= =============
The accompanying notes are an integral part of these consolidated
financial statements.
-22-
GENTEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
2002 2001 2000
---- ---- ----
NET SALES $395,258,436 $310,304,996 $297,420,802
COST OF GOODS SOLD 235,611,182 188,301,693 172,467,846
------------ ------------ ------------
Gross profit 159,647,254 122,003,303 124,952,956
OPERATING EXPENSES:
Engineering, research and development 22,973,027 20,684,996 16,900,659
Selling, general and administrative 21,474,066 19,259,065 17,641,306
------------ ------------ ------------
Total operating expenses 44,447,093 39,944,061 34,541,965
------------ ------------ ------------
Income from operations 115,200,161 82,059,242 90,410,991
OTHER INCOME:
Interest and dividend income 11,756,849 13,283,546 13,358,636
Other, net 115,781 1,274,712 753,439
------------ ------------ ------------
Total other income 11,872,630 14,558,258 14,112,075
------------ ------------ ------------
Income before provision
for income taxes 127,072,791 96,617,500 104,523,066
PROVISION FOR INCOME TAXES 41,301,500 31,401,000 33,979,000
------------ ------------ ------------
NET INCOME $ 85,771,291 $ 65,216,500 $ 70,544,066
============ ============ ============
EARNINGS PER SHARE:
Basic $ 1.14 $ 0.87 $ 0.95
============ ============ ============
Diluted $ 1.12 $ 0.86 $ 0.93
============ ============ ============
The accompanying notes are an integral part of these consolidated
financial statements.
-23-
GENTEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' INVESTMENT
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
Common Stock Additional
------------ Paid-In Comprehensive Retained
Shares Amount Capital Income (Loss) Earnings
------ ------ ------- ------------- --------
BALANCE AS OF DECEMBER 31, 1999 73,412,316 $ 4,404,739 $ 79,670,301 $ 232,669,586
Issuance of common stock and the tax benefit
of stock plan transactions 878,766 52,726 12,462,316 -
Amortization of deferred compensation - - - -
Comprehensive income:
Net income - - - $ 70,544,066 70,544,066
Other comprehensive income (loss):
Foreign currency translation adjustment - - - (53,566) -
Unrealized gain on investments, net of tax - - - 2,508,291 -
-------------
Other comprehensive income - - - 2,454,725 -
-------------
Comprehensive income - - - $ 72,998,791 -
----------- ----------- ------------- ============= -------------
BALANCE AS OF DECEMBER 31, 2000 74,291,082 4,457,465 92,132,617 303,213,652
Issuance of common stock and the tax benefit
of stock plan transactions 880,869 52,852 13,195,354 -
Amortization of deferred compensation - - - -
Comprehensive income:
Net income - - - $ 65,216,500 65,216,500
Other comprehensive income (loss):
Foreign currency translation adjustment - - - (21,631) -
Unrealized loss on investments, net of tax - - - (1,042,854) -
-------------
Other comprehensive loss - - - (1,064,485) -
-------------
Comprehensive income - - - $ 64,152,015 -
----------- ----------- ------------- ============= -------------
BALANCE AS OF DECEMBER 31, 2001 75,171,951 4,510,317 105,327,971 368,430,152
Issuance of common stock and the tax benefit
of stock plan transactions 1,049,419 62,965 18,595,420 -
Amortization of deferred compensation - - - -
Comprehensive income:
Net income - - - $ 85,771,291 85,771,291
Other comprehensive income (loss):
Foreign currency translation adjustment - - - 141,038 -
Unrealized loss on investments, net of tax - - - (9,923,526) -
-------------
Other comprehensive loss - - - (9,782,488) -
-------------
Comprehensive income - - - $ 75,988,803 -
----------- ----------- ------------- ============= -------------
BALANCE AS OF DECEMBER 31, 2002 76,221,370 $ 4,573,282 $ 123,923,391 $ 454,201,443
=========== =========== ============= =============
Accumulated
Other Total
Deferred Comprehensive Shareholders'
Compensation Income (Loss) Investment
------------ ------------- ----------
BALANCE AS OF DECEMBER 31, 1999 $ (2,070,639) $ 2,377,429 $ 317,051,416
Issuance of common stock and the tax benefit
of stock plan transactions (1,269,959) - 11,245,083
Amortization of deferred compensation 808,271 - 808,271
Comprehensive income:
Net income - - 70,544,066
Other comprehensive income (loss):
Foreign currency translation adjustment - - -
Unrealized gain on investments, net of tax - - -
Other comprehensive income - 2,454,725 2,454,725
Comprehensive income - - -
------------- ------------- -------------
BALANCE AS OF DECEMBER 31, 2000 (2,532,327) 4,832,154 402,103,561
Issuance of common stock and the tax benefit
of stock plan transactions (1,444,019) - 11,804,187
Amortization of deferred compensation 940,766 - 940,766
Comprehensive income:
Net income - - 65,216,500
Other comprehensive income (loss):
Foreign currency translation adjustment - - -
Unrealized loss on investments, net of tax - - -
Other comprehensive loss - (1,064,485) (1,064,485)
Comprehensive income - - -
------------- ------------- -------------
BALANCE AS OF DECEMBER 31, 2001 (3,035,580) 3,767,669 479,000,529
Issuance of common stock and the tax benefit
of stock plan transactions (1,090,222) - 17,568,163
Amortization of deferred compensation 1,082,867 - 1,082,867
Comprehensive income:
Net income - - 85,771,291
Other comprehensive income (loss):
Foreign currency translation adjustment - - -
Unrealized loss on investments, net of tax - - -
Other comprehensive loss - (9,782,488) (9,782,488)
Comprehensive income - - -
------------- ------------- -------------
BALANCE AS OF DECEMBER 31, 2002 $ (3,042,935) $ (6,014,819) $ 573,640,362
============= ============= =============
The accompanying notes are an integral part of these consolidated
financial statements.
-24-
GENTEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
2002 2001 2000
----------------- ---------------- ----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 85,771,291 $ 65,216,500 $ 70,544,066
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 18,631,600 15,192,818 11,334,104
Loss on disposal of assets 11,180 152,757 5,026
Gain on sale of investments (2,961,036) (1,595,634) (1,443,772)
Loss on sale of investments 5,361,194 1,259,381 2,068,229
Deferred income taxes 3,701,475 1,035,648 497,162
Amortization of deferred compensation 1,082,867 940,766 808,271
Tax benefit of stock plan transactions 5,093,396 3,928,984 4,877,889
Change in operating assets and liabilities:
Accounts receivable (3,895,441) 3,619,730 (4,981,168)
Inventories (3,336,659) (2,317,837) (2,112,335)
Prepaid expenses and other 1,576,617 (3,374,477) (1,202,885)
Accounts payable 2,414,789 50,782 1,039,828
Accrued liabilities 5,659,842 1,243,370 2,181,213
----------------- ---------------- ----------------
Net cash provided by
operating activities 119,111,115 85,352,788 83,615,628
----------------- ---------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Activity in held-to-maturity securities:
Sales proceeds - - 952,230
Maturities and calls 64,322,716 25,658,600 23,160,550
Purchases (93,072,612) (28,828,709) (23,558,062)
Activity in available-for-sale securities:
Sales proceeds 15,137,464 9,697,480 7,023,476
Purchases (55,600,063) (25,162,596) (34,284,618)
Plant and equipment additions (32,560,646) (45,298,429) (21,617,088)
Proceeds from sale of plant and equipment 189,926 1,248,287 51,200
Increase in other assets (953,277) (953,486) (742,899)
----------------- ---------------- ----------------
Net cash used for
investing activities (102,536,492) (63,638,853) (49,015,211)
----------------- ---------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock from
stock plan transactions 12,474,767 7,875,203 6,367,194
----------------- ---------------- ----------------
Net cash provided by
financing activities 12,474,767 7,875,203 6,367,194
----------------- ---------------- ----------------
NET INCREASE IN CASH AND
CASH EQUIVALENTS 29,049,390 29,589,138 40,967,611
CASH AND CASH EQUIVALENTS,
Beginning of year 139,784,721 110,195,583 69,227,972
----------------- ---------------- ----------------
CASH AND CASH EQUIVALENTS,
End of year $ 168,834,111 $ 139,784,721 $ 110,195,583
================= ================ ================
The accompanying notes are an integral part of these consolidated
financial statements.
-25-
GENTEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES
The Company
Gentex Corporation designs, develops, manufactures and markets proprietary
electro-optical products: automatic rearview mirrors for the automotive
industry and fire protection products for the commercial building
industry. A substantial portion of the Company's net sales and accounts
receivable result from transactions with domestic and foreign automotive
manufacturers and tier one suppliers. The Company's fire protection
products are primarily sold to domestic distributors and original
equipment manufacturers of fire and security systems. The Company does
not require collateral or other security in trade accounts receivable.
Significant accounting policies of the Company not described elsewhere are
as follows:
Consolidation
The consolidated financial statements include the accounts of Gentex
Corporation and all of its wholly-owned subsidiaries (together the
"Company"). All significant intercompany accounts and transactions have
been eliminated.
Cash Equivalents
Cash equivalents consist of funds invested in money market accounts.
Investments
Equity securities and U.S. Treasuries are available for sale and are stated
at fair value based on quoted market prices. Adjustments to the fair
value of available for sale investments are recorded as increases or
decreases, net of income taxes, within accumulated other comprehensive
income (loss) in shareholders' investment. Fixed income securities,
excluding U.S. Treasuries, are considered held to maturity and,
accordingly, are carried at amortized cost.
The amortized cost, unrealized gains and losses, and market value of
securities held to maturity and available for sale are shown as of
December 31, 2002 and 2001:
Unrealized
-----------------------------------
2002 Cost Gains Losses Market Value
---------------------------------------------------------------------------------------------------------
U.S. Treasuries $ 36,886,208 $ 951,293 - $ 37,837,501
Municipal Bonds 34,083,850 627,632 (6,596) 34,704,886
Certificates of Deposit 64,035,770 - - 64,035,770
Corporate Bonds 38,216,594 862,248 (36,613) 39,042,229
Other Fixed Income 2,050,126 - - 2,050,126
Equity 84,274,542 1,738,031 (12,060,791) 73,951,782
---------- --------- ------------ ----------
$259,547,090 $4,179,204 $(12,104,000) $251,622,294
============ ========== ============= ============
2001
U.S. Treasuries $ 69,991,935 $2,172,456 $ - $ 72,164,391
Municipal Bonds 27,008,487 227,952 (42,554) 27,193,885
Certificates of Deposit 20,491,262 - - 20,491,262
Corporate Bonds 11,837,566 506,260 (7,375) 12,336,451
Other Fixed Income 2,099,158 - - 2,099,158
Equity 61,306,343 5,345,938 (1,622,895) 65,029,386
------------- ----------- ----------- -------------
$192,734,751 $8,252,606 $ (1,672,824) $199,314,533
============ ========== ============ ============
Fixed income securities as of December 31, 2002, have contractual
maturities as follows:
Held to Maturity U.S. Treasuries
---------------- ---------------
Due within one year $ 24,266,690 $21,905,421
Due between one and five years 113,827,320 14,980,787
Due over five years 292,330 -
------------ -----------
$138,386,340 $36,886,208
============ ===========
During 2000, the Company sold approximately $947,000 of securities
classified as held to maturity for $952,000. The decision to sell these
securities was based on deterioration in the credit worthiness of the
issuer.
-26-
GENTEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES, continued
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, 2002 and 2001:
2002 2001
---- ----
Raw materials $ 9,911,022 $ 8,376,321
Work-in-process 1,744,372 1,649,389
Finished goods 6,086,615 4,379,640
----------- -----------
$17,742,009 $14,405,350
=========== ===========
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.
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. Accumulated
amortization was approximately $2,726,000 and $2,333,000 at December 31,
2002 and 2001, respectively. At December 31, 2002, patents have a
weighted average amortization life of 12 years. Patent amortization
expense was approximately $393,000, $238,000 and $355,000, in 2002,
2001, and 2000, respectively. For each of the next five years, patent
amortization expense will approximate $150,000 annually.
Revenue Recognition
The Company's revenue is generated primarily from sales of its products.
Sales are recognized when the product is shipped and legal title has
passed to the customer.
Advertising and Promotional Materials
All advertising and promotional costs are expensed as incurred and amounted
to approximately $904,000, $653,000 and $932,000, in 2002, 2001, and
2000, 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 $3,761,000, $3,780,000, and $3,182,000, in
2002, 2001, and 2000, 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.
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, 2002 and 2001. The
Company does not offer extended warranties on its products.
-27-
GENTEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES, continued
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:
2002 2001 2000
---- ---- ----
Numerators:
Numerator for both basic and diluted EPS, net income $85,771,291 $65,216,500 $70,544,066
Denominators:
Denominator for basic EPS,
weighted-average common shares outstanding 75,515,271 74,778,518 73,941,256
Potentially dilutive shares resulting from stock option plans 1,087,131 1,093,268 1,576,877
----------- ----------- -----------
Denominator for diluted EPS 76,602,402 75,871,786 75,518,133
=========== =========== ===========
For the years ended December 31, 2002, 2001, and 2000, 645,859, 490,508,
and 373,865 shares related to stock option plans were not included in
diluted average common shares outstanding because their effect would be
antidilutive.
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. The changes in
the components of other comprehensive income (loss) are as follows:
Years Ended December 31,
--------------------------------------------------------------------------------------------
2002 2001 2000
--------------------------- -------------------------- ----------------------
Pre-Tax Tax Exp. Pre-Tax Tax Exp. Pre-Tax Tax Exp.
Amount (Credit) Amount (Credit) Amount (Credit)
------ --------- ------ -------- ------ -------
Unrealized Gain (Loss)
on Securities $(15,266,964) $(5,343,438) $(1,604,391) $(561,537) $3,858,909 $1,350,618
Foreign Currency
Translation Adjustments 216,982 75,944 (33,278) (11,647) (82,409) (28,843)
------------- ------------ ------------ ---------- ---------- ----------
Other Comprehensive
Income (Loss) $(15,049,982) $(5,267,494) $(1,637,669) $(573,184) $3,776,500 $1,321,775
============= ============ ============ ========== ========== ==========
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
At December 31, 2002, the Company has two stock option plans and an
employee stock purchase plan, which are described more fully in Note 6.
The Company accounts for these plans under the recognition and
measurement principles of APB Opinion No. 25, "Accounting for Stock
Issued to Employees," and related interpretations. No stock-based
employee compensation cost is reflected in net income for these plans,
as all options granted under these plans have an exercise price equal to
the market value of the underlying common stock on the date of grant.
The following table illustrates the effect on net income and earnings
per share if the Company had applied the fair value recognition
provisions of Statement of Financial Accounting Standards (SFAS) No.
123, "Accounting for Stock-Based Compensation," to stock-based employee
compensation.
-28-
GENTEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES, continued
2002 2001 2000
---- ---- ----
Net income, as reported $85,771,291 $65,216,500 $70,544,066
Deduct: total stock-based employee
compensation expense determined
under fair value based method for
all awards, net of tax effects (8,084,607) (7,003,826) (6,043,691)
----------- ----------- ------------
Pro forma net income $77,686,684 $58,212,674 $ 64,500,375
=========== =========== ============
Earnings per share:
Basic - as reported $1.14 $0.87 $0.95
Basic - pro forma 1.03 0.78 0.87
Diluted - as reported 1.12 0.86 0.93
Diluted - pro forma 1.01 0.77 0.85
The fair value of each option grant in the Employee Stock Option Plan was
estimated on the date of grant using the Black-Scholes option pricing
model with the following weighted-average assumptions used for grants in
2002, 2001, and 2000, respectively: risk-free interest rates of 2.9,
4.4, and 4.8 percent; expected dividend yields of 0.0, 0.0, and 0.0
percent; expected lives of 4, 5, and 5 years; expected volatility of 53,
54, and 54 percent.
The fair value of each option grant in the Nonemployee Director Stock
Option Plans was estimated on the date of grant using the Black-Scholes
option pricing model with the following weighted-average assumptions
used for grants in 2002, 2001, and 2000, respectively: risk-free
interest rates of 4.0, 5.1, and 5.0 percent; expected dividend yields
of 0.0, 0.0, and 0.0 percent; expected lives of 9, 9, and 9 years;
expected volatility of 53, 54, and 54 percent.
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.
Reclassification
Certain prior year amounts have been reclassified to conform with the
current year presentation.
New Accounting Standards
In December 2002, the Financial Accounting Standards Board (FASB) issued
SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and
Disclosure - an amendment of FASB Statement No. 123," which amends SFAS
No. 123 to provide alternative methods of transition for a voluntary
change to the fair-value based method of accounting for stock-based
employee compensation. In addition, SFAS No. 148 amends the disclosure
requirements of SFAS No. 123 to require disclosure in interim financial
statements about the method of accounting for stock-based employee
compensation and the effect of the method used on reported results. The
Company does not intend to adopt a fair-value based method of accounting
for stock-based employee compensation until a final standard is issued
by the FASB that addresses industry concerns related to applicability of
current option pricing models to non-exchange traded employee option
plans.
In November 2002, the FASB issued Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others." Interpretation No. 45
changes current practice in accounting for and disclosure of guarantees
and will require certain guarantees to be recorded as liabilities at
fair value on the balance sheet. Current practice requires that
liabilities related to guarantees be recorded only when a loss is
probable and reasonably estimable, as those terms are defined in SFAS
No. 5, "Accounting for Contingencies." Interpretation No. 45 also
requires a guarantor to make significant new disclosures, even when the
likelihood of making any payments under the guarantee is remote. The
disclosure requirements of Interpretation No. 45 are effective
immediately. The initial recognition and measurement provisions are
applicable on a prospective basis to guarantees issued or modified after
December 31, 2002. The Company is not aware of any significant
guarantees that would require current disclosure or further recognition
under Interpretation No. 45.
-29-
GENTEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(2) LINE OF CREDIT
The Company has available an unsecured $5,000,000 line of credit from a
bank at an interest rate equal to the lower of the bank's prime rate or
1.5% above the LIBOR rate. No borrowings were outstanding under this
line in 2002 or 2001. No compensating balances are required under this
line.
(3) INCOME TAXES
The provision for income taxes is based on the earnings reported in the
accompanying consolidated financial statements. The Company recognizes
deferred income tax liabilities and assets for the expected future tax
consequences of events that have been included in the consolidated
financial statements or tax returns. Under this method, deferred income
tax liabilities and assets are determined based on the cumulative
temporary differences between the financial statement and tax bases of
assets and liabilities using enacted tax rates in effect for the year in
which the differences are expected to reverse. Deferred income tax
expense is measured by the net change in deferred income tax assets and
liabilities during the year.
The components of the provision for income taxes are as follows:
2002 2001 2000
----------- ----------- -----------
Currently payable:
Federal $37,188,500 $30,084,000 $33,417,000
State 321,000 104,000 65,000
Foreign 91,000 177,000 -
----------- ----------- -----------
Total 37,600,500 30,365,000 33,482,000
----------- ----------- -----------
Net deferred:
Primarily federal 3,701,000 1,036,000 497,000
----------- ----------- -----------
Provision for income taxes $41,301,500 $31,401,000 $33,979,000
=========== =========== ===========
The currently payable provision is further reduced by the tax benefits
associated with the exercise, vesting or disposition of stock under the
stock plans described in Note 6. These reductions totaled approximately
$5,093,000, $3,929,000, and $4,878,000, in 2002, 2001, and 2000,
respectively, and were recognized as an adjustment of additional paid-in
capital.
The effective income tax rates are different from the statutory federal
income tax rates for the following reasons:
2002 2001 2000
---- ---- ----
Statutory federal income tax rate 35.0% 35.0% 35.0%
State income taxes, net of federal income tax benefit 0.2 0.1 0.1
Foreign source exempted income (2.4) (2.2) (2.0)
Tax-exempt investment income (0.2) (0.3) (0.4)
Other (0.1) (0.1) (0.2)
---- ---- ----
Effective income tax rate 32.5% 32.5% 32.5%
==== ==== ====
The tax effect of temporary differences which give rise to deferred income
tax assets and liabilities at December 31, 2002 and 2001, are as
follows:
2002 2001
----------------------------- -------------------------------
Current Non-Current Current Non-Current
Assets:
Accruals not currently deductible $1,462,530 $ 274,803 $ 1,073,408 $ 274,803
Deferred compensation - 842,053 - 817,110
Unrealized loss on investments - 3,280,013 - -
Other 2,152,859 5,960 1,098,961 7,920
---------- ----------- ----------- -----------
Total deferred income tax assets 3,615,389 4,402,829 2,172,369 1,099,833
Liabilities:
Excess tax over book depreciation - (10,317,831) - (5,418,282)
Patent costs - (557,268) - (454,992)
Unrealized gain on investments - - - (2,063,424)
Other (423,568) - (257,916) -
---------- ----------- ----------- -----------
Net deferred incomes taxes $3,191,821 $(6,472,270) $ 1,914,453 $(6,836,865)
========== =========== =========== ===========
Income taxes paid in cash were approximately $30,828,000, $26,546,000,
and $28,302,000, in 2002, 2001, and 2000, respectively.
-30-
GENTEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(4) EMPLOYEE BENEFIT PLAN
The Company has a 401(k) retirement savings plan in which substantially all
of its employees may participate. The plan includes a provision for the
Company to match a percentage of the employee's contributions at a rate
determined by the Company's Board of Directors. In 2002, 2001, and
2000, the Company's contributions were approximately $955,000,
$718,000, and $620,000, respectively.
The Company does not provide health care benefits to retired employees.
(5) SHAREHOLDER PROTECTION RIGHTS PLAN
The Company has a Shareholder Protection Rights Plan (the Plan). The Plan
is designed to protect shareholders against unsolicited attempts to
acquire control of the Company in a manner that does not offer a fair
price to all shareholders.
Under the Plan, one purchase Right automatically trades with each share of
the Company's common stock. Each Right entitles a shareholder to
purchase 1/100 of a share of junior participating preferred stock at a
price of $110, if any person or group attempts certain hostile takeover
tactics toward the Company. Under certain hostile takeover
circumstances, each Right may entitle the holder to purchase the
Company's common stock at one-half its market value or to purchase the
securities of any acquiring entity at one-half their market value.
Rights are subject to redemption by the Company at $.005 per Right and,
unless earlier redeemed, will expire on March 29, 2011. Rights
beneficially owned by holders of 15 percent or more of the Company's
common stock, or their transferees, automatically become void.
(6) STOCK-BASED COMPENSATION PLANS
The Company may sell up to 1,600,000 shares of stock to its employees under
its Employee Stock Purchase Plan. The Company has sold to employees
44,009 shares, 45,463 shares, and 47,023 shares in 2002, 2001, and 2000,
respectively, and has sold a total of 561,187 shares through December
31, 2002. The Company sells shares at 85% of the stock's market price at
date of purchase. The weighted average fair value of shares sold in
2002, 2001, and 2000, was approximately $24.86, $20.75, and $22.00,
respectively.
The Company may grant options for up to 9,000,000 shares under its Employee
Stock Option Plan. The Company has granted options on 7,618,898 shares
through December 31, 2002. Under the Plan, the option exercise price
equals the stock's market price on date of grant. The options vest after
one to five years, and expire after two to seven years.
A summary of the status of the Company's employee stock option plan at
December 31, 2002, 2001, and 2000, and changes during the years then
ended is presented in the table and narrative below:
2002 2001 2000
------------------- ------------------- -------------------
Shares Wtd. Avg. Shares Wtd. Avg. Shares Wtd. Avg.
(000) Ex. Price (000) Ex. Price (000) Ex. Price
----- --------- ----- --------- ----- ---------
Outstanding at Beginning of Year 4,144 $21 3,901 $18 3,807 $13
Granted 1,132 29 1,017 26 887 27
Exercised (914) 13 (754) 9 (753) 7
Forfeited (92) 26 (20) 24 (40) 20
------ ---- ------ --- ----- ---
Outstanding at End of Year 4,270 25 4,144 21 3,901 18
------ ---- ------ --- ----- ---
Exercisable at End of Year 1,682 22 1,792 16 1,736 12
Weighted Avg. Fair Value
of Options Granted $14 $13 $13
-31-
GENTEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(6) STOCK-BASED COMPENSATION PLANS, continued
Options Outstanding and Exercisable by Price Range As of December 31, 2002:
Options Exercisable
Options Outstanding -----------------------------------
--------------------------------------------------------------------------------------- Shares Weighted Average
Range of Shares Outstanding Remaining Weighted Average Exercisable Exercise
Exercise Prices (000) Contractual Life Exercise Price (000) Price
--------------- ----- ---------------- -------------- ----- -----
$ 1 - $20 890 2 $16 751 $15
$21 - $27 1,823 3 25 711 24
$28 - $37 1,557 4 31 220 35
----- --- --- ----- ---
Total 4,270 3 25 1,682 22
In 2002, a Nonemployee Director Stock Option Plan covering 2,000,000 shares
expired, and a new Director Plan covering 500,000 shares of common stock
was approved. The Company has granted options on 35,606 shares under the
new Director Plan through December 31, 2002. Under the director plans,
the option exercise price equals the stock's market price on date of
grant. The Director Plan options vest after six months, and all expire
after ten years.
A summary of the status of the Director Plans at December 31, 2002, 2001,
and 2000, and changes during the years then ended is presented in the
table and narrative below:
2002 2001 2000
----------------- ------------------- ------------------
Shares Wtd. Avg. Shares Wtd. Avg. Shares Wtd. Avg.
(000) Ex. Price (000) Ex. Price (000) Ex. Price
----- --------- ----- --------- ----- ---------
Outstanding at Beginning of Year 469 $ 10 476 $ 9 500 $ 7
Granted 35 32 25 27 24 30
Exercised (80) 3 (32) 1 (32) 1
Expired - - - - (16) 1
--- --- ----- --- ------ ---
Outstanding at End of Year 424 13 469 10 476 9
--- --- ----- --- ------ ---
Exercisable at End of Year 424 13 469 10 472 9
Weighted Avg. Fair Value
of Options Granted $21 $20 $21
Options Outstanding and Exercisable by Price Range As Of December 31, 2002:
Options Exercisable
Options Outstanding -------------------------------------
-------------------------------------------------------------------------------------- Shares Weighted Average
Range of Shares Outstanding Remaining Weighted Average Exercisable Exercise
Exercise Prices (000) Contractual Life Exercise Price (000) Price
--------------- ----- ---------------- -------------- ----- -----
$1 - $10 280 2 $ 7 280 $ 7
$11 - $32 144 7 26 144 26
----- --- --- ----- ---
424 4 13 424 13
In 2001, a restricted stock plan covering 1,600,000 shares expired, and a
new restricted stock plan covering 500,000 shares of common stock was
approved, the purpose of which is to permit grants of shares, subject to
restrictions, to key employees of the Company as a means of retaining
and rewarding them for long-term performance and to increase their
ownership in the Company. Shares awarded under the plans entitle the
shareholder to all rights of common stock ownership except that the
shares may not be sold, transferred, pledged, exchanged or otherwise
disposed of during the restriction period. The restriction period is
determined by a committee, appointed by the Board of Directors, but may
not exceed ten years. During 2002, 2001, and 2000, 37,900, 57,800, and
47,800 shares, respectively, were granted with restriction periods of
four to six years at market prices ranging from $27.47 to $32.30 in
2002, $23.59 to $26.97 in 2001, and $18.75 to $37.625 in 2000. The
related expense is reflected as a deferred compensation component of
shareholders' investment in the accompanying consolidated financial
statements and is being amortized over the applicable restriction
periods.
-32-
GENTEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(7) CONTINGENCIES
From time to time, the Company is subject to legal proceedings and claims
which arise in the ordinary course of its business. In the opinion of
management, the amount of ultimate liability with respect to these
actions will not materially affect the financial position or future
results of operations of the Company.
(8) SEGMENT REPORTING
SFAS No. 131, "Disclosures About Segments of an Enterprise and Related
Information" requires that a public enterprise report financial and
descriptive information about its reportable operating segments subject
to certain aggregation criteria and quantitative thresholds. Operating
segments are defined by SFAS No. 131 as components of an enterprise
about which separate financial information is available that is
evaluated regularly by the chief operating decision-makers in deciding
how to allocate resources and in assessing performance.
2002 2001 2000
------------ ------------ ------------
Revenue:
Automotive Products
U.S. $203,691,964 $153,685,309 $154,972,098
Germany 70,710,037 63,245,473 60,754,241
Japan 44,797,340 23,823,498 18,545,538
Other 55,050,622 48,669,920 41,582,257
Fire Protection Products 21,008,473 20,880,796 21,566,668
------------ ------------ ------------
Total $395,258,436 $310,304,996 $297,420,802
============ ============ ============
Income from Operations:
Automotive Products $111,448,849 $ 78,041,939 $ 86,218,950
Fire Protection Products 3,751,312 4,017,303 4,192,041
------------ ------------ ------------
Total $115,200,161 $ 82,059,242 $ 90,410,991
============ ============ ============
Assets:
Automotive Products $154,685,204 $144,204,490 $119,720,400
Fire Protection Products 4,035,944 3,779,501 4,396,643
Other 450,451,519 358,838,807 304,011,650
------------ ------------ ------------
Total $609,172,667 $506,822,798 $428,128,693
============ ============ ============
Automotive Products $16,930,161 $ 13,699,709 $ 10,349,325
Fire Protection Products 260,823 294,956 315,018
Other 1,440,616 1,198,153 669,761
------------ ------------ ------------
Total $18,631,600 $ 15,192,818 $ 11,334,104
Capital Expenditures:
Automotive Products $19,236,000 $ 39,383,150 $ 21,084,629
Fire Protection Products 442,593 280,251 192,222
Other 12,882,053 5,635,028 340,237
------------ ------------ ------------
Total $32,560,646 $ 45,298,429 $ 21,617,088
============ ============ ============
-33-
GENTEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(8) SEGMENT REPORTING, continued
Other assets are principally cash, investments, deferred income taxes, and
corporate fixed assets. Substantially all long-lived assets are located
in the U.S.
Automotive Products revenues in the "Other" category are sales to U.S.
automotive manufacturing plants in Canada, Mexico and other foreign
automotive customers. Nearly all non-U.S. sales are invoiced and paid in
U.S. dollars; during 2002, approximately 3% of the Company's net sales
were invoiced and paid in European euros.
During the years presented, the Company had three automotive customers,
which individually accounted for 10% or more of net sales as follows:
Customer
-----------------------------------------
#1 #2 #3
-- -- --
2002 39% 15% 10%
2001 38% 18% *
2000 40% 20% *
*Less than 10%
-34-
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION PAGE
- ----------- ----------- ----
3(a)(1) Registrant's Articles of Incorporation were filed in 1981 as
Exhibit 2(a) to a Registration Statement on Form S-18
(Registration No. 2-74226C), an Amendment to those Articles was
filed as Exhibit 3 to Registrant's Report on Form 10-Q in August
of 1985, an additional Amendment to those Articles was filed as
Exhibit 3(a)(1) to Registrant's Report on Form 10-Q in August of
1987, and an additional Amendment to those Articles was filed as
Exhibit 3(a)(2) to Registrant's Report on Form 10-K dated March
10, 1992, and an additional Amendment to those Articles was
filed as Exhibit 3(a)(2) to Registrant's Report on Form 10-Q
dated July 31, 1996, all of which are hereby incorporated herein
by reference.
3(a)(2) Amendment to Articles of Incorporation, adopted on May 21, 1998,
was filed as Exhibit 3(a)(2) to Registrant's Report on Form 10-Q
dated July 30, 1998, and the same is hereby incorporated herein
by reference.
3(b)(1) Registrant's Bylaws as amended and restated November 12, 2002. 36
4(a) A specimen form of certificate for the Registrant's common
stock, par value $.06 per share, was filed as part of a
Registration Statement (Registration Number 2-74226C) as Exhibit
3(a), as amended by Amendment No. 3 to such Registration
Statement, and the same is hereby incorporated herein by
reference.
4(b) Amended and Restated Shareholder Protection Rights Agreement,
dated as of March 29, 2001, including as Exhibit A the form of
Certificate of Adoption of Resolution Establishing Series of
Shares of Junior Participating Preferred Stock of the Company,
and as Exhibit B the form of Rights Certificate and of Election
to Exercise, was filed as Exhibit 4(b) to Registrant's Report on
Form 10-Q on April 27, 2001, and the same is hereby incorporated
herein by reference.
10(a)(1) A Lease, dated August 15, 1981, was filed as part of a
Registration Statement (Registration Number 2-74226C) as Exhibit
9(a)(1), and the same is hereby incorporated herein by
reference.
10(a)(2) A First Amendment to Lease, dated June 28, 1985, was filed as
Exhibit 10(m) to Registrant's Report on Form 10-K dated March
18, 1986, and the same is hereby incorporated herein by
reference.
*10(b)(1) Gentex Corporation Qualified Stock Option Plan (as amended and
restated, effective August 25, 1997) was filed as Exhibit
10(b)(1) to Registrant's Report on Form 10-Q dated July 30,
1998, and the same is hereby incorporated herein by reference.
*10(b)(2) Gentex Corporation Second Restricted Stock Plan was filed as
Exhibit 10(b)(2) to Registrant's Report on Form 10-Q dated April
27, 2001, and the same is hereby incorporated herein by
reference.
*10(b)(3) Gentex Corporation 2002 Nonemployee Director Stock Option Plan
(adopted March 6, 2002) was filed as Exhibit 10(b)(4) to
Registrant's Report on Form 10-Q dated April 30, 2002, and the
same is hereby incorporated herein by reference.
10(e) The form of Indemnity Agreement between Registrant and each of
the Registrant's directors and certain offices was filed as
Exhibit 10(c) to Registrant's Report on Form 10-Q dated October
31, 2002, and the same is hereby incorporated herein by
reference.
21 List of Company Subsidiaries 42
23(a) Consent of Independent Auditors 43
99.1 Certificate of the Chief Executive Officer of Gentex Corporation
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18
U.S.C. 1350). 44
99.2 Certificate of the Chief Financial Officer of Gentex Corporation
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18
U.S.C. 1350). 45
*Indicates a compensatory plan or arrangement.
-35-