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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, 2004.
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the transition period from__________________ to ______________________
Commission File No.: 0-10235
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 (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, 2004 (the last business day of the registrant's most recently
completed second fiscal quarter), 77,454,000 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 $2,937,580,554 computed at the
closing price on that date.
As of February 9, 2005, 77,880,036 shares of the registrant's common stock, par
value $.06 per share, were outstanding.
Portions of the Company's Proxy Statement for its 2005 Annual Meeting of
Shareholders are incorporated by reference into Part III.
Exhibit Index located at Page 36
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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 products and
technology (i.g., SmartBeam and LEDs) penetration of the automotive market,
competition 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
electrochromic (auto-dimming) mirror, providing the first successful commercial
application of electrochromic (EC) 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 electrochromic
sub-assembly, which works as a complete glare-control system with the interior
auto-dimming 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
auto-dimming mirrors for a number of mid-sized, medium-priced vehicles. During
2003, the Company began making shipments of its auto-dimming mirrors to two new
automotive OEM (original equipment manufacturer) customers, Honda and Volvo, and
began volume shipments of its proprietary microphone as part of
DaimlerChrysler's "U-Connect(R)" telematics system.
During 2004, the Company began shipping auto-dimming mirrors with
SmartBeam, its proprietary intelligent high-beam headlamp control feature, on
the Cadillac STS and Jeep Grand Cherokee. Also during 2004, the Company began
making shipments of its auto-dimming mirrors to Peugeot, the Company's first
automotive OEM customer in France.
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 Auto-Dimming 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 auto-dimming 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
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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.
During 1991, the Company began shipping the first advanced-feature
interior auto-dimming mirror, the auto-dimming 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 an auto-dimming 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
auto-dimming 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, including extremely long
life, low heat generation, lower current draw, more resistance to shock, and
lower total cost of ownership. In 2000, the Company began shipping to General
Motors interior auto-dimming 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. OnStar is a registered
trademark of OnStar Corporation.
The Company shipped approximately 6,305,000 interior auto-dimming mirrors
in 2002, approximately 7,132,000 in 2003, and approximately 8,363,000 in 2004.
During 2001 and 2002, the Company began making shipments of its
auto-dimming 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 2003, the Company began making shipments of its auto-dimming
mirrors to two new automotive OEM customers, Honda and Volvo, and began volume
shipments of its microphone as part of DaimlerChrysler's "U-Connect(R)"
telematics system.
During 2004, the Company began shipping auto-dimming mirrors with
SmartBeam, its proprietary intelligent high-beam headlamp control feature, on
the Cadillac STS and Jeep Grand Cherokee.
- 3 -
During 2004, the growth in total mirror unit shipments resulted from increased
penetration of light vehicles manufactured worldwide including the Ford Five
Hundred, Freestar and Freestyle; Mercury Montego and Monterey; Chrysler 300 and
PT Cruiser; Dodge Magnum, Infiniti QX56; Toyota Tacoma; BMW 6 Series and X3;
Volvo V50; Hyundai Trajet and Tucson; Kia Carnival and Cerato; Peugeot 407;
Toyota Century and Mark II; and various SEAT and Skoda vehicles. The Company's
interior auto-dimming mirrors are standard equipment or factory-installed
options on certain trim levels of the following 2005 vehicle models:
TABLE 1. INTERIOR AUTO-DIMMING MIRROR AVAILABILITY BY VEHICLE LINE (NORTH
AMERICAN MANUFACTURERS)
GM/Cadillac Deville / DTS DaimlerChrysler 300
STS / Chrysler Pacifica
CTS PT Cruiser
Escalade Sebring
SRX Town & Country
GM/Buick LeSabre DaimlerChrysler / Dakota
GM/Hummer H2 Dodge Durango
GM/Pontiac Bonneville Caravan
GM/Chevrolet Blazer Magnum
Malibu Ram Pickup
SSR DaimlerChrysler / Grand Cherokee
Express Jeep Liberty
Silverado Wrangler
Suburban DaimlerChrysler/ M Class
Avalanche Mercedes-Benz
Tahoe BMW X5
GM/GMC Savana Mazda 6
Sierra Mitsubishi / Chrysler Sebring
Yukon Mitsubishi / Dodge Stratus Coupe
Ford Crown Victoria Nissan Altima
Expedition Armada
Five Hundred Maxima
Freestar Quest
Freestyle Titan
F Series Nissan / Infiniti QX56
Taurus Toyota Avalon
Ford/Lincoln LS Camry Solara
Aviator Camry
Navigator Corolla
Town Car Matrix
Ford/Mercury Grand Marquis Sequoia
Montego Sienna
Monterey Tacoma
Sable Toyota/Lexus RX330
Volkswagen Beetle
Jetta
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TABLE 1. INTERIOR AUTO-DIMMING MIRROR AVAILABILITY BY VEHICLE LINE - CONTINUED
(MANUFACTURERS OUTSIDE OF NORTH AMERICA)
Bentley Arnage MG Rover 75
Continental GT Mazda RX-8
BMW 7 Series DaimlerChrysler / C Class
5 Series Mercedes-Benz CLK
6 Series CLS
3 Series E Class
X3 G Wagen
Daewoo/Ssangyong Chairman S Class
Korando SL Class
Musso SLK
Musso Sports Mitsubishi Magna Verada
Rodius NQZ Outlander
Istana Nissan 350Z
DaimlerChrysler / Chrysler Voyager Cima
DaimlerChrysler / Jeep Grand Cherokee Gloria
Fiat / Alfa Romeo 147 Maxima
156 Murano
166 Peugeot 407
Fiat / Lancia Thesis Porsche Cayenne
Lybra Samsung SM5
Fiat (Brazil) Marea Toyota / Lexus IS300
Stilo ES330
Palio GS300
Ford Focus C-Max GS430
Mondeo LS430
Ford / Jaguar XK RX330
XJ SC300
S-Type SC430
Ford / Land Rover LR3 GX470
Range Rover LX470
Ford / Volvo S40 Toyota Land Cruiser
V50 Camry
GM / Opel Corsa Cygnus
Meriva Celsior
Astra Century
Zafira Mark II
Vectra Prius
Signum RAV4
Honda / Acura TSX Windom
Honda Inspire Highlander
Hyundai Dynasty 4-Runner
Grandeur Avensis
Sonata Corolla
Santa Fe Corolla Verso
Starex Volkswagen Polo
Avante Golf
Equus Passat
Tuscani Phaeton
Terracan Jetta
Trajet Touareg
Tucson Touran
Hyundai / Kia Motors Carnival Transporter
Cerato Volkswagen / Audi A3
Sorento A4
Optima A6
Carens A8
Opirus Volkswagen / SEAT Altea
Sportage Cordoba
Nissan / Infiniti Q45 Ibiza
FX35 / FX45 Leon
G35 Toledo
M45 Volkswagen / Skoda Octavia
Superb
Exterior Auto-Dimming 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 auto-dimming mirrors are controlled by the sensors and electronic
circuitry in the interior auto-dimming mirror, and both the interior and
exterior mirrors dim
- 5 -
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 auto-dimming
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 auto-dimming
mirror sub-assemblies to exterior mirror suppliers of General Motors,
DaimlerChrysler, Ford, Audi, BMW, Bentley, Fiat, Jaguar, Land Rover, Opel, Rolls
Royce, Volkswagen, Infiniti, Mitsubishi, Nissan, Toyota, and Ssangyong who
assemble the exterior auto-dimming mirror sub-assemblies into full mirror units
for subsequent resale to the automakers.
The Company shipped approximately 2,500,000 exterior auto-dimming mirror
sub-assemblies during 2002, approximately 3,128,000 in 2003, and approximately
3,277,000 in 2004. During 2004, unit shipment growth primarily resulted from the
increased penetration of light vehicles in Europe.
The exterior auto-dimming mirror is standard equipment or a
factory-installed option on certain trim levels of the following 2005 vehicle
models:
TABLE 2. EXTERIOR AUTO-DIMMING MIRROR AVAILABILITY BY VEHICLE LINE
GM/Cadillac Deville / DTS DaimlerChrysler / C Class
Escalade Mercedes- Benz CLK
SRX CLS
XLR E Class
GM / Buick LeSabre G Wagen
GM / Chevrolet Avalanche M Class
Blazer S Class
Corvette SL Class
Silverado SLK
SSR Ford / Jaguar XJ
Suburban XK
Tahoe S-Type
GM / GMC Sierra Ford / Land Rover Range Rover
Yukon GM / Opel Vectra
GM / Hummer H2 Maserati Quattroporte
Ford/Lincoln Town Car Skoda Superb
DaimlerChrysler/ Pacifica Volkswagen Golf
Chrysler 300 Sharan
Town & Country Nissan / Infiniti Q45
DaimlerChrysler/Dodge Caravan M45
Durango Toyota / Lexus RX330
DaimlerChrysler/Jeep Grand Cherokee Mitsubishi Magna / Verada
Volkswagen / Audi A4 Nissan Cima
A6 Maxima
A8 Rolls Royce Phantom
BMW 7 Series Daewoo / Ssangyong Chairman
6 Series Toyota Avalon
5 Series Camry Solara
X5 Sienna
Bentley Continental GT
Product Development. The Company plans to continue introducing additional
advanced-feature auto-dimming mirrors. Advanced-feature auto-dimming mirrors
currently being offered by the Company include the auto-dimming headlamp control
mirror, the auto-dimming lighted mirror with LED map lamps, the auto-dimming
compass mirror, the auto-dimming mirror with remote keyless entry, the
auto-dimming compass/temperature mirror, the auto-dimming dual display
compass/temperature mirror, auto-dimming telematics mirrors and the auto-dimming
HomeLink(R) mirror. During 2001, the Company announced a revolutionary new
proprietary technology, called SmartBeam(TM), that uses a custom,
active-pixel, CMOS (complementary metal oxide semiconductor) sensor, and
maximizes a driver's forward vision by significantly improving utilization of
the vehicle's highbeam headlamps during nighttime
- 6 -
driving. During 2004, the Company began shipping auto-dimming mirrors with
SmartBeam, its proprietary intelligent high-beam headlamp control feature, on
the Cadillac STS and Jeep Grand Cherokee. The Company has also received a
purchase order from a European automaker for the 2006 calendar year. The Company
has also developed 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 was 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 three-mirror systems. In these
systems, both the driver- and passenger-side exterior auto-dimming 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(R) 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 LEDs, and SmartBeam sensors. During 2002,
the Company announced a high-feature EC mirror including BCW (binary,
complementary white) Orca LEDs for the Chrysler Sebring Coupe.
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 2004. However, we believe that a commercial product will
require several years of additional engineering and intellectual property
development work.
Markets and Marketing. In North America, the Company markets its products
primarily through a direct sales force. The Company generally supplies
auto-dimming mirrors to its customers worldwide under annual blanket purchase
orders. The Company currently supplies auto-dimming mirrors to General Motors
Corporation and DaimlerChrysler AG under long-term agreements. During 2003, the
Company negotiated an agreement for inside mirrors with General Motors and an
agreement with DaimlerChrysler AG that extend through the 2006 model year. The
Company previously had long-term agreements with both General Motors and
DaimlerChrysler. The Company's exterior auto-dimming mirror sub-assemblies are
supplied by means of sales to exterior mirror suppliers. Effective October 1,
2003, General Motors Corporation, the Company's largest customer, began
including a 30-day escape clause into its contracts in the event its suppliers
are not competitive on pricing. Effective January 1, 2004, Ford Motor Company
began imposing new contract terms, including the right to terminate a supplier
contract at any time for any or no reason, etc. The Company has taken written
exception to these new contract clauses and terms by General Motors and Ford.
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.
During 2003, the Company established a satellite office in Munich, Germany. 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, Peugeot, Rolls Royce, SEAT, Skoda, Volkswagen and
Volvo in Europe.
- 7 -
In 1991, the Company began 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 marketed the Company's automatic mirrors to
certain Japanese automakers and their subsidiaries with manufacturing facilities
in Asia. The arrangement involved very limited technology transfer by the
Company and did not include the Company's proprietary electrochromic gel
formulation. The agreement was terminated by mutual agreement in 2001.
During 1993, the Company hired a sales agent to market auto-dimming
mirrors to other Japanese automakers beyond Nissan. Subsequently in 1998, the
Company established Gentex Japan, Inc., as a sales and engineering office in
Nagoya, Japan to expand its sales and engineering support in Japan. In 2000, 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. During 2004, the Company established a satellite office in Yokohama,
Japan. The Company is currently supplying mirrors for Daewoo/Ssangyong, Ford,
GM, Honda, Hyundai, Infiniti, Kia Motors, Lexus, Mazda, Mitsubishi, Nissan,
Samsung and Toyota in Asia.
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
auto-dimming mirrors will be offered as standard equipment, in higher option
rate packages, and on more models as consumer awareness of the safety and
comfort feature 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
auto-dimming 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 auto-dimming rearview
mirrors in the world and currently is the dominant supplier to the automotive
industry with an approximate 78% market share worldwide in 2004, which
represents approximately a 1% increase compared to 2003. While the Company
believes it will retain a dominant position, one other U.S. manufacturer (Magna
Donnelly Mirror Systems) 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 few vehicle
models in Japan with solid-state electrochromic mirrors.
On October 1, 2002, Magna International acquired Donnelly Corporation,
which was 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 may present a
more formidable competitive threat in the future. To date, the Company is not
aware of any significant impact of Magna's acquisition of Donnelly upon the
Company; however, any ultimate significant impact has not yet been determined.
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.
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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 over a dozen major cities, over a dozen states, as well as regional
and national building and fire alarm 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
significant 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 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.
- 9 -
TRADEMARKS AND PATENTS
The Company owns 9 U.S. trademarks and 224 U.S. patents, 216 of which
relate to electrochromic technology, automotive rearview mirrors and/or LED
technology. These patents expire between 2007 and 2023. 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 2 foreign trademarks and 56 foreign patents, 55 of
which relate to automotive rearview mirrors. These patents expire at various
times between 2005 and 2020. 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 Company's remaining 8 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 118 U.S. patent applications, 259 foreign
patent applications, and 16 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 $132,966,000 and $126,980,000 at February 1, 2005, and 2004,
respectively.
At February 1, 2005, the Company had 2,047 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.
A second 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 a fourth automotive
mirror manufacturing facility which is currently scheduled to be completed in
spring 2006. During 2003, the Company also announced plans for a new technical
office facility linking the fourth manufacturing facility with its existing
corporate office and production facility. The Company plans to invest
approximately $35 - 40 million for the new facilities, primarily during 2005 and
2006.
The Company also constructed a 40,000 square-foot office, distribution and
light manufacturing facility near Neckarsulm, Germany, at a cost of
approximately $5 million, which was completed at the end of 2003.
The Company's three automotive mirror manufacturing facilities currently
have an estimated building capacity to manufacture approximately 12 million
mirror units annually, based on the current product mix. The Company's fourth
automotive mirror manufacturing facility under construction will have the
potential to increase building manufacturing capacity by 7-8 million mirror
units annually.
-10-
ITEM 3. LEGAL PROCEEDINGS
None that are significant.
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 62 Chief Executive Officer May 1986
Garth Deur 48 Executive Vice President September 2002
Dennis Alexejun 53 Vice President, North American Automotive Marketing September 1998
John Carter 57 Vice President, Mechanical Engineering June 1997
Enoch Jen 53 Vice President, Finance February 1991
There are no family relationships among the officers listed in the
preceding table.
Except for the executive officer listed below, all other executive
officers have held their current position with the Company for more than five
years.
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).
-11-
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, 2005, there were 2,421 record-holders 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
- ---- ------- ------- -------
2003 First $ 32.68 $ 23.90
Second 33.50 25.03
Third 39.44 29.83
Fourth 44.98 34.46
2004 First 47.08 39.36
Second 46.91 34.33
Third 39.80 32.00
Fourth 37.86 30.19
In August 2003, the Company announced a change in the Company's cash
dividend policy and declared an initial cash dividend of $0.15 per share payable
in October 2003. In August 2004, the Company's Board of Directors approved a
continuing resolution to pay a quarterly dividend of $0.17 per share until the
Board takes other action with respect to the payment of dividends. Based on
current U.S. income tax laws, the Company intends to continue to pay a quarterly
cash dividend at its current level.
ITEM 6. SELECTED FINANCIAL DATA
(in thousands, except per share data)
------------------------------------------------------
2004 2003 2002 2001 2000
-------- -------- ---------- -------- --------
Net Sales $505,666 $469,019 $ 395,258 $310,305 $297,421
Net Income 112,657 106,761 85,771 65,217 70,544
-------- -------- ---------- -------- --------
Earnings Per Share 1.44 1.37 1.12 0.86 0.93
-------- -------- ---------- -------- --------
Cash Dividends Declared
per Common Share $ 0.64 $ 0.30 $ - $ - $ -
-------- -------- ---------- -------- --------
Total Assets $856,859 $762,530 $ 609,173 $506,823 $428,129
-------- -------- ---------- -------- --------
Long-Term Debt
Outstanding at
Year End $ - $ - $ - $ - $ -
-------- -------- ---------- -------- --------
-12-
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION. 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, 2003 2002
----------------------- to to
2004 2003 2002 2004 2003
----- ----- ----- ----- ----
Net Sales 100.0% 100.0% 100.0% 7.8% 18.7%
Cost of Goods Sold 58.9 58.1 59.6 9.3 15.7
----- ----- ----- ----- ----
Gross Profit 41.1 41.9 40.4 5.7 23.1
Operating Expenses:
Engineering, Research and Development 6.1 5.7 5.8 15.9 15.8
Selling, General and Administrative 5.3 5.0 5.5 15.2 8.6
----- ----- ----- ----- ----
Total Operating Expenses 11.4 10.7 11.3 15.5 12.3
----- ----- ----- ----- ----
Operating Income 29.7 31.2 29.1 2.4 27.2
Other Income 3.1 2.5 3.0 35.2 (2.4)
----- ----- ----- ----- ----
Income Before Provision for Income Taxes 32.8 33.7 32.1 4.8 24.5
Provision for Income Taxes 10.5 10.9 10.4 3.3 24.5
----- ----- ----- ----- ----
Net Income 22.3% 22.8% 21.7% 5.5% 24.5%
===== ===== ===== ===== ====
RESULTS OF OPERATIONS: 2004 TO 2003
Net Sales. Automotive net sales increased by 8% on a 13% increase in
mirror shipments, from 10,260,000 to 11,640,000 units, primarily reflecting
increased penetration on European vehicles for base interior auto-dimming
mirrors. North American unit shipments increased by 3%, as growth in Asian
transplant vehicle penetration was mostly offset by reduced shipments to General
Motors, the Company's largest customer, as North American light vehicle
production declined by 1% in 2004 compared to 2003. Overseas unit shipments
increased by 26% during 2004 due to increased penetration, despite a 1% decline
in Western Europe light vehicle production. During 2004, approximately 10% of
the Company's net sales were invoiced and paid in European euros. Net sales of
the Company's fire protection products decreased 1%, primarily due to the
continuing weak commercial construction market in the United States.
Cost of Goods Sold. As a percentage of net sales, cost of goods sold
increased from 58% to 59%, primarily reflecting annual automotive customer price
reductions and product mix, partially offset by improved productivity. Each
factor is estimated to have impacted cost of goods sold by approximately 1-2%.
Operating Expenses. Engineering, research and development expenses
increased approximately $4,220,000, but remained at 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 $3,534,000, but remained at 5% of net sales, primarily reflecting
the continued expansion of the Company's overseas sales offices to support the
Company's current and future overseas sales growth, as well as the stronger euro
exchange rate.
Other Income - Net. Investment income increased $401,000 in 2004,
primarily due to increased mutual fund distribution income, partially offset by
lower interest rates due to shorter average maturities. Other income increased
$3,677,000 in 2004, primarily due to realized gains on the sale of equity
investments and customer-reimbursable projects.
Taxes. The provision for federal income taxes varied from the statutory
rate in 2004 primarily due to Extra Territorial Income (ETI) Exclusion Act
exempted taxable income from increased foreign sales. The effective income tax
rate decreased from 32.5% in the first half of 2004 to 31.5% in the second half
of 2004, primarily due to the ETI tax benefit from increased foreign sales.
Net Income. Net income increased by 6%, primarily reflecting the increased
gross margin due to higher sales as well as the increase in other income in
2004.
-13-
RESULTS OF OPERATIONS: 2003 TO 2002
Net Sales. Automotive net sales increased by 19% on a 17% increase in
mirror shipments, from 8,806,000 to 10,260,000 units, primarily reflecting
increased penetration on 2003 and 2004 model year vehicles for auto-dimming
mirrors plus additional electronic content. North American unit shipments
increased by 11%, while overseas unit shipments increased by 24% during 2003.
Net sales of the Company's fire protection products increased 8%, primarily due
to higher sales of the Company's signaling products.
Cost of Goods Sold. As a percentage of net sales, cost of goods sold
decreased from 60% to 58%, primarily reflecting product mix, improved
productivity, and purchasing cost reductions, partially offset by automotive
customer price reductions. Each factor is estimated to have impacted cost of
goods sold by approximately 1-2%.
Operating Expenses. Engineering, research and development expenses
increased approximately $3,641,000, but remained at 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 $1,838,000, but remained at 5% of net sales, primarily reflecting
the continued 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 $1,516,000 in 2003,
primarily due to lower interest rates and shorter average maturities. Other
income increased $1,232,000 in 2003, primarily due to realized gains on the sale
of investments and customer-reimbursable projects.
Taxes. The provision for federal income taxes varied from the statutory
rate in 2003 primarily due to Extra Territorial Income Exclusion Act exempted
taxable income from increased foreign sales.
Net Income. Net income increased by 24%, primarily reflecting the
increased gross margin and increased sales volume spread over fixed operating
expenses in 2003.
LIQUIDITY AND CAPITAL RESOURCES
The Company's financial condition throughout the periods presented has
remained very strong.
The Company's current ratio increased from 9.6 as of December 31, 2003, to
11.7 as of December 31, 2004, primarily as a result of the increase in cash and
cash equivalents.
Cash flow from operating activities for the year ended December 31, 2004,
increased $14,785,000 to $131,368,000, compared to $116,583,000 for the same
period last year, primarily due to increased net income. Capital expenditures
for the year ended December 31, 2004, were $30,535,000, compared to $22,248,000
for the same period last year, primarily due to increased purchase of
manufacturing equipment. The Company currently anticipates capital expenditures
of approximately $45 - 50 million for new facilities and equipment during 2005,
financed from existing cash reserves.
Cash and cash equivalents as of December 31, 2004, increased approximately
$72,875,748 compared to December 31, 2003. The increase was primarily due to
cash flow from operations, partially offset by cash dividends paid.
Inventories as of December 31, 2004, increased approximately $9,662,000
compared to December 31, 2003. The increase was primarily due to higher sales
and production levels, increased purchase of overseas glass and electronic
parts, and increased shipments through its distribution facility in Germany.
The increase in deferred taxes as of December 31, 2004, compared to
December 31, 2003, is primarily due to an increase in the unrealized gain on
investments as of December 31, 2004 .
Management considers the Company's working capital of approximately
$541,753,000 and long-term investments of approximately $122,174,000 at December
31, 2004, 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 next year and 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-
-14-
dilutive effect on earnings, available cash and other factors as the Company
deems appropriate. During the first quarter of the year ended December 31, 2003,
the Company repurchased 415,000 shares at a cost of approximately $10,247,000.
There were no shares repurchased during 2004.
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. Effective October 1, 2003, General Motors
Corporation, the Company's largest customer, began including a 30-day escape
clause into its contracts in the event its suppliers are not competitive on
pricing. Effective January 1, 2004, Ford Motor Company began imposing new
contract terms, including the right to terminate a supplier contract at any time
for any or no reason, etc. The Company has taken written exception to these new
contract clauses and terms by General Motors and Ford. The Company also
continues to experience some pressure from raw material cost increases.
The Company generally supplies auto-dimming mirrors to its customers
worldwide under annual blanket purchase orders. The Company currently supplies
auto-dimming mirrors to DaimlerChrysler AG and interior auto-dimming mirrors to
General Motors Corporation under long-term agreements. The long-term supply
agreements with DaimlerChrysler AG and General Motors run through the 2006 model
year.
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 currently expects that auto-dimming mirror unit shipments will
be flat to five percent higher in the first quarter of 2005 compared with the
first quarter of 2004, and that mirror unit shipments will increase
approximately ten percent for calendar 2005 compared with calendar 2004. These
estimates are based on light vehicle production forecasts in the regions to
which the Company ships product, as well as the estimated option rates for its
mirrors on prospective vehicle models.
The Company has begun utilizing the light vehicle production forecasting
services of CSM Worldwide, and CSM's current forecasts for light vehicle
production for calendar 2005 are approximately 15.9 million units for North
America, 20.5 million for Europe and 13.1 million for Japan and Korea. For the
first quarter of 2005, CSM is forecasting light vehicle production of 4.0
million units in North America, 5.2 million units in Europe and 3.5 million
units in Japan and Korea. There is no significant difference in the overall
production numbers when comparing CSM's estimates to those of the Company's
previous vendor for the service.
The Company does not have any significant off-balance sheet arrangements
or commitments that have not been recorded in its consolidated financial
statements.
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.
Most of the Company's non-U.S. sales are invoiced and paid in U.S.
dollars; during 2004, approximately 10% of the Company's net sales were invoiced
and paid in European euros. The Company currently expects that approximately
13-14% of the
-15-
Company's net sales in 2005 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
fair value (000,000), and average interest rates are as follows:
Total Balance
2008- as of December 31,
2005 2006 2007 2009 2004 2003
----- ---- ---- ----- ----- -----
U.S. Government
Amount $65.2 - - - $65.2 $64.9
Average Interest Rate 2% - - 2% 2%
Municipal
Amount $ 4.0 - - - $ 4.0 $ 4.0
Average Interest Rate* 2% - - 2% 2%
Certificates of Deposit
Amount $25.8 $6.2 - - $32.0 $27.6
Average Interest Rate 3% 3% - - 3% 4%
Corporate
Amount $ 3.2 - - $0.3 $ 3.5 $21.1
Average Interest Rate 7% - 7% 7% 6%
Other
Amount $ 1.1 - - - $ 1.1 $ 1.5
Average Interest Rate 3% 3% 3%
*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.
CONTRACTUAL OBLIGATIONS AND OTHER COMMITMENTS
The Company has the following contractual obligations and other
commitments (000,000) as of December 31, 2004:
Total Less than 1 Year 1-3 Years After 3 Years
----- ---------------- --------- -------------
Long-term debt $ - $ - $ - $ -
Operating leases 1.4 0.7 0.5 0.2
Purchase obligations* 37.4 36.3 1.1 -
Dividends payable 13.2 13.2 - -
----- ----- ----- -----
$52.0 $50.2 $ 1.6 $ 0.2
===== ===== ===== =====
*Primarily for inventory parts and capital equipment.
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. 104, 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.
-16-
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, 2004, 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.
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 registered
public accounting firm are filed with this report as pages 21 through 35
following the signature page:
Report of Independent Registered Public Accounting Firm
Report of Independent Registered Public Accounting Firm on Internal
Control Over Financial Reporting
Consolidated Balance Sheets as of December 31, 2004 and 2003
Consolidated Statements of Income for the years ended December 31, 2004,
2003 and 2002
Consolidated Statements of Shareholders' Investment for the years ended
December 31, 2004, 2003 and 2002
Consolidated Statements of Cash Flows for the years ended December 31,
2004, 2003 and 2002
Notes to Consolidated Financial Statements
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
2004 2003 2004 2003 2004 2003 2004 2003
-------- -------- -------- -------- -------- -------- -------- --------
Net Sales $129,328 $115,309 $129,646 $116,917 $120,457 $112,879 $126,236 $123,915
Gross Profit 54,884 48,116 54,455 48,282 47,702 47,085 50,704 53,018
Operating Income 40,696 36,382 40,029 35,880 33,393 34,448 35,948 39,866
Net Income 29,815 25,909 28,985 26,090 25,225 25,681 28,631 29,081
Earnings Per Share* $ .38 $ .34 $ .37 $ .34 $ .32 $ .33 $ .37 $ .37
*Diluted
-17-
ITEM 9. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.
Not applicable.
ITEM 9A. CONTROLS AND PROCEDURES.
DISCLOSURE CONTROLS AND PROCEDURES.
As of December 31, 2004, 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 [(as defined in Exchange Act Rules 13a -
15(e) and 15d - 15(e)]. Based on that evaluation, the Company's management,
including the CEO and CFO, concluded that the Company's disclosure controls and
procedures were adequate and effective as of December 31, 2004, to ensure that
material information relating to the Company would be made known to them by
others within the Company, particularly during the period in which this Form
10-K was being prepared. During the period covered by this annual report, there
have been no changes in the Company's internal controls over financial reporting
that have materially affected or are likely to materially affect the Company's
internal controls over financial reporting. 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, 2004.
MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING.
Our management is responsible for establishing and maintaining adequate
internal control over financial reporting, as such term is defined in Exchange
Act Rules 13a-15(f). Under the supervision and with the participation of our
management, including our principal executive officer and principal financial
officer, we conducted an evaluation of the effectiveness of our internal control
over financial reporting based on the framework in Internal Control - Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission. Based on our evaluation under the framework in Internal Control -
Integrated Framework our management concluded that our internal control over
financial reporting was effective as of December 31, 2004. Our management's
assessment of the effectiveness of our internal control over financial reporting
as of December 31, 2004, has been audited by Ernst & Young LLP, an independent
registered public accounting firm, as stated in its report, which is included
herein.
ITEM 9B. OTHER INFORMATION.
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 2005 Annual
Meeting of Shareholders and filed with the Commission within 120 days after the
Company's fiscal year end, December 31, 2004 (the "Proxy Statement"), 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 is hereby incorporated herein by reference. Information relating
to the Board of Directors determinations concerning whether at least one member
of the Audit Committee is an "audit committee financial expert" as that term is
defined under Item 401 (h) of Regulation S-K appearing under the caption
"Corporate Governance - Audit Committee" in the definitive Proxy Statement is
hereby incorporated by reference.
The Company has adopted a code of ethics that applies to its principal
executive officer and senior financial officers. A copy of the Code of Ethics
for Certain Senior Officers is available without charge, upon written request,
from the Corporate Secretary of the Company, 600 N. Centennial Street, Zeeland,
Michigan 49464. The Company intends to satisfy the disclosure requirement under
Item
-18-
10 of Form 8-K regarding an amendment to, or waiver from, a provision of this
Code of Ethics by posting such information on its website. Information contained
in the Company's website, whether currently posted or posted in the future, is
not part of this document or the documents incorporated by reference in this
document.
ITEM 11. EXECUTIVE COMPENSATION.
The information contained under the caption "Executive Compensation"
contained in the definitive Proxy Statement 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 is hereby incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information contained under the caption "Certain Transactions"
contained in the definitive Proxy Statement is hereby incorporated herein by
reference.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.
Information regarding principal accounting fees and services is set forth
under the caption "Ratification of Appointment of Independent Auditors -
Principal Accounting Fees and Services" in the definitive Proxy Statement is
hereby incorporated herein by reference. Information concerning the policy
adopted by the Audit Committee regarding the pre-approval of audit and non-audit
services provided by the Company's independent auditors set forth under the
caption "Corporate Governance - Audit Committee" in the definitive Proxy
Statement is hereby incorporated by reference.
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 36.
(b) During the three months ended December 31, 2004, one report on Form
8-K was filed on October 19, 2004, to disclose the Company's
financial results for the third quarter ended September 30, 2004.
-19-
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 18, 2005 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 18th day of February, 2005, 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/ Gary Goode 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
Director
Ted Thompson
/s/ Wallace Tsuha Director
- --------------------------
Wallace Tsuha
/s/ Leo Weber Director
- --------------------------
Leo Weber
-20-
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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, 2004 and 2003, and the related
consolidated statements of income, shareholders' investment and cash flows for
each of the three years in the period ended December 31, 2004. 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 the standards of the Public Company
Accounting Oversight Board (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, 2004 and 2003, and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended December 31, 2004, in conformity with U.S. generally accepted accounting
principles.
We also have audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the effectiveness of Gentex
Corporation's internal control over financial reporting as of December 31, 2004,
based on criteria established in Internal Control -- Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway Commission and our
report dated February 9, 2005 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Grand Rapids, Michigan
February 9, 2005
-21-
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The Board of Directors and Shareholders of Gentex Corporation:
We have audited management's assessment, included in the accompanying
Management's Report on Internal Control Over Financial Reporting, that Gentex
Corporation maintained effective internal control over financial reporting as of
December 31, 2004, based on criteria established in Internal Control --
Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (the COSO criteria). Gentex Corporation's management is
responsible for maintaining effective internal control over financial reporting
and for its assessment of the effectiveness of internal control over financial
reporting. Our responsibility is to express an opinion on management's
assessment and an opinion on the effectiveness of the company's internal control
over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over
financial reporting, evaluating management's assessment, testing and evaluating
the design and operating effectiveness of internal control, and performing such
other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.
A company's internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company's internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company's
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
In our opinion, management's assessment that Gentex Corporation maintained
effective internal control over financial reporting as of December 31, 2004, is
fairly stated, in all material respects, based on the COSO criteria. Also, in
our opinion, Gentex Corporation maintained, in all material respects, effective
internal control over financial reporting as of December 31, 2004, based on the
COSO criteria.
We also have audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the 2004 consolidated financial
statements of Gentex Corporation and subsidiaries and our report dated February
9, 2005 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Grand Rapids, Michigan
February 9, 2005
-22-
GENTEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2004 AND 2003
2004 2003
---- ----
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 395,538,719 $ 322,662,971
Short-term investments 99,341,541 70,943,685
Accounts receivable 56,092,330 58,955,823
Inventories 30,600,789 20,938,696
Prepaid expenses and other 11,035,715 11,848,156
--------------- ---------------
Total current assets 592,609,094 485,349,331
PLANT AND EQUIPMENT:
Land, buildings and improvements 56,434,237 49,232,072
Machinery and equipment 176,798,924 159,289,298
Construction-in-process 14,485,664 14,151,833
--------------- ---------------
247,718,825 222,673,203
Less-Accumulated depreciation
and amortization (112,069,706) (95,866,321)
--------------- ---------------
135,649,119 126,806,882
OTHER ASSETS:
Long-term investments 122,174,030 145,615,934
Patents and other assets, net 6,427,185 4,757,619
--------------- ---------------
128,601,215 150,373,553
--------------- ---------------
$ 856,859,428 $ 762,529,766
=============== ===============
2004 2003
---- ----
LIABILITIES AND SHAREHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Accounts payable $ 19,849,569 $ 18,259,111
Accrued liabilities:
Salaries, wages and vacation 3,433,657 3,657,546
Income taxes 548,579 1,161,865
Royalties 6,689,723 6,651,645
Dividends declared 13,237,348 11,556,122
Other 7,097,382 9,194,191
--------------- ---------------
Total current liabilities 50,856,258 50,480,480
DEFERRED INCOME TAXES 22,723,198 18,405,955
SHAREHOLDERS' INVESTMENT:
Preferred stock, no par value,
5,000,000 shares authorized; none
issued or outstanding - -
Common stock, par value $.06 per share;
200,000,000 shares authorized 4,672,005 4,622,449
Additional paid-in capital 175,266,114 152,874,325
Retained earnings 591,546,326 528,358,825
Deferred compensation (5,407,851) (4,658,450)
Accumulated other comprehensive income:
Unrealized gain on investments 15,558,180 11,661,722
Cumulative translation adjustment 1,645,198 784,460
--------------- ---------------
Total shareholders' investment 783,279,972 693,643,331
--------------- ---------------
$ 856,859,428 $ 762,529,766
=============== ===============
The accompanying notes are an integral part of these consolidated financial
statements.
-23-
GENTEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002
2004 2003 2002
---- ---- ----
NET SALES $ 505,666,335 $ 469,019,365 $ 395,258,436
COST OF GOODS SOLD 297,920,747 272,518,466 235,611,182
--------------- --------------- ---------------
Gross profit 207,745,588 196,500,899 159,647,254
OPERATING EXPENSES:
Engineering, research and development 30,833,627 26,613,770 22,973,027
Selling, general and administrative 26,845,748 23,311,853 21,474,066
--------------- --------------- ---------------
Total operating expenses 57,679,375 49,925,623 44,447,093
--------------- --------------- ---------------
Income from operations 150,066,213 146,575,276 115,200,161
OTHER INCOME:
Interest and dividend income 10,642,129 10,241,276 11,756,849
Other, net 5,024,176 1,347,643 115,781
--------------- --------------- ---------------
Total other income 15,666,305 11,588,919 11,872,630
--------------- --------------- ---------------
Income before provision
for income taxes 165,732,518 158,164,195 127,072,791
PROVISION FOR INCOME TAXES 53,076,000 51,403,000 41,301,500
--------------- --------------- ---------------
NET INCOME $ 112,656,518 $ 106,761,195 $ 85,771,291
=============== =============== ===============
EARNINGS PER SHARE:
Basic $ 1.46 $ 1.39 $ 1.14
=============== =============== ===============
Diluted $ 1.44 $ 1.37 $ 1.12
=============== =============== ===============
Cash Dividends Declared per Share $ 0.64 $ 0.30 $ 0.00
The accompanying notes are an integral part of these consolidated financial
statements.
-24-
GETEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' INVESTMENT
FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 and 2002
Common Stock Common Stock Additional Paid-In Comprehensive
Shares Amount Capital Income (Loss)
----------------- ------------- ------------------ -------------
BALANCE AS OF DECEMBER 31, 2001 75,171,951 $ 4,510,317 $ 105,327,971
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
Other comprehensive income (loss):
Foreign currency translation adjustment, net of tax - - - 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
Issuance of common stock and the tax benefit of stock
plan transactions 1,234,446 74,067 29,631,534
Repurchases of common stock (415,000) (24,900) (680,600)
Dividends declared ($.30 per share) - - -
Amortization of deferred compensation - - -
Comprehensive income:
Net income - - - $ 106,761,195
Other comprehensive income (loss):
Foreign currency translation adjustment, net of tax - - - 707,827
Unrealized gain on investments, net of tax - - - 17,753,174
-------------
Other comprehensive income - - - 18,461,001
-------------
Comprehensive income - - - $ 125,222,196
----------------- ------------- ----------------- -------------
BALANCE AS OF DECEMBER 31, 2003 77,040,816 4,622,449 152,874,325
Issuance of common stock and the tax benefit of stock
plan transactions 825,935 49,556 22,391,789
Dividends declared ($.64 per share) - - -
Amortization of deferred compensation - - -
Comprehensive income:
Net income - - - $ 112,656,518
Other comprehensive income (loss):
Foreign currency translation adjustment, net of tax - - - 860,738
Unrealized gain on investments, net of tax - - - 3,896,458
-------------
Other comprehensive income - - - 4,757,196
-------------
Comprehensive income - - - $ 117,413,714
----------------- ------------- ----------------- -------------
BALANCE AS OF DECEMBER 31, 2004 77,866,751 $ 4,672,005 $ 175,266,114
================= ============= ================= =============
Accumulated Other Total
Deferred Comprehensive Shareholders'
Retained Earnings Compensation Income (Loss) Investment
----------------- ------------- ----------------- -------------
BALANCE AS OF DECEMBER 31, 2001 $ 368,430,152 ($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 - - 85,771,291
Other comprehensive income (loss):
Foreign currency translation adjustment, net of tax - - - -
Unrealized loss on investments, net of tax - - - -
Other comprehensive loss - - (9,782,488) (9,782,488)
Comprehensive income - - - -
----------------- ------------- ----------------- -------------
BALANCE AS OF DECEMBER 31, 2002 454,201,443 (3,042,935) (6,014,819) 573,640,362
Issuance of common stock and the tax benefit of stock
plan transactions - (2,733,723) - 26,971,878
Repurchases of common stock (9,541,310) - - (10,246,810)
Dividends declared ($.30 per share) (23,062,503) - - (23,062,503)
Amortization of deferred compensation 1,118,208 - 1,118,208
Comprehensive income:
Net income 106,761,195 - - 106,761,195
Other comprehensive income (loss):
Foreign currency translation adjustment, net of tax - - -
Unrealized gain on investments, net of tax - - - -
Other comprehensive income - 18,461,001 18,461,001
Comprehensive income - - - -
----------------- ------------- ----------------- -------------
BALANCE AS OF DECEMBER 31, 2003 528,358,825 (4,658,450) 12,446,182 693,643,331
Issuance of common stock and the tax benefit of stock
plan transactions - (2,323,123) - 20,118,222
Dividends declared ($.64 per share) (49,469,017) - - (49,469,017)
Amortization of deferred compensation - 1,573,722 - 1,573,722
Comprehensive income:
Net income 112,656,518 - - 112,656,518
Other comprehensive income (loss):
Foreign currency translation adjustment, net of tax - - - -
Unrealized gain on investments, net of tax - - - -
Other comprehensive income - - 4,757,196 4,757,196
Comprehensive income - - - -
----------------- ------------- ----------------- -------------
BALANCE AS OF DECEMBER 31, 2004 $591,546,326 ($5,407,851) $ 17,203,378 $ 783,279,972
================= ============= ================= =============
The accompanying notes are an integral part of these consolidated financial
statements.
-25-
GENTEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002
2004 2003 2002
------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $112,656,518 $106,761,195 $ 85,771,291
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 21,740,832 20,426,207 18,631,600
Loss on disposal of assets 88,679 75,626 11,180
Gain on sale of investments (5,655,756) (5,181,804) (2,961,036)
Loss on sale of investments 2,351,347 6,228,566 5,361,194
Deferred income taxes 2,403,593 1,951,787 3,701,475
Amortization of deferred compensation 1,573,722 1,118,208 1,082,867
Tax benefit of stock plan transactions 3,511,622 5,511,458 5,093,396
Change in operating assets and liabilities:
Accounts receivable 2,863,493 (23,065,443) (3,895,441)
Inventories (9,662,093) (3,196,687) (3,336,659)
Prepaid expenses and other 627,997 (3,910,441) 1,576,617
Accounts payable 1,590,458 6,465,385 2,414,789
Accrued liabilities (2,721,956) 3,398,938 5,659,842
------------ ------------ ------------
Net cash provided by
operating activities 131,368,456 116,582,995 119,111,115
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Activity in held-to-maturity securities:
Sales proceeds - - -
Maturities and calls - 57,571,539 64,322,716
Purchases - (122,262,019) (93,072,612)
Activity in available-for-sale securities:
Sales proceeds 31,101,380 120,578,082 15,137,464
Maturities and calls 78,792,849 91,489,195 -
Purchases (105,551,220) (87,494,979) (55,600,063)
Plant and equipment additions (30,535,174) (22,248,009) (32,560,646)
Proceeds from sale of plant and equipment 56,500 72,000 189,926
Increase in other assets (1,001,902) (167,174) (953,277)
------------ ------------ ------------
Net cash provided by (used for)
investing activities (27,137,567) 37,538,635 (102,536,492)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock from
stock plan transactions 16,606,601 21,460,422 12,474,767
Cash dividends paid (47,961,742) (11,506,382) -
Repurchases of common stock 0 (10,246,810) -
------------ ------------ ------------
Net cash provided by (used for)
financing activities (31,355,141) (292,770) 12,474,767
------------ ------------ ------------
NET INCREASE IN CASH AND
CASH EQUIVALENTS 72,875,748 153,828,860 29,049,390
CASH AND CASH EQUIVALENTS,
Beginning of year 322,662,971 168,834,111 139,784,721
------------ ------------ ------------
CASH AND CASH EQUIVALENTS,
End of year $395,538,719 $322,662,971 $168,834,111
============ ============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
-26-
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-dimming 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 for 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 bank accounts that have daily
liquidity.
Investments
At December 31, 2004, investment securities are available for sale and are
stated at fair value based on quoted market prices. Adjustments to the
fair value of investments are recorded as increases or decreases, net of
income taxes, within accumulated other comprehensive income (loss) in
shareholders' investment. During 2003, in order to avoid the
registration requirements of the Investment Company Act of 1940, the
Company changed its intent to hold certain of its held-to-maturity
investments and therefore reclassified investments in debt securities
with a net carrying value of approximately $202,000,000 to
available-for-sale. The unrealized gain on these securities, net of
income taxes, was approximately $1,000,000 at the time of the
reclassification and was recorded in accumulated other comprehensive
income within shareholders' investment. Prior to 2003, these debt
securities were carried at amortized cost.
The amortized cost, unrealized gains and losses, and market value of
investment securities are shown as of December 31, 2004 and 2003:
Unrealized
---------------------------------
2004 Cost Gains Losses Market Value
- ----------------------- ------------- ------------- ------------- -------------
U.S. Government $ 65,426,060 $ - $ (188,580) $ 65,237,480
Municipal Bonds 4,039,922 65 (1,663) 4,038,324
Certificates of Deposit 32,034,061 - - 32,034,061
Corporate Bonds 3,403,497 80,466 - 3,483,963
Other Fixed Income 1,054,716 - - 1,054,716
Equity 91,621,653 24,934,095 (888,721) 115,667,027
------------- ------------- ------------- -------------
$ 197,579,909 $ 25,014,626 $ (1,078,964) $ 221,515,571
============= ============= ============= =============
2003 Cost Gains Losses Market Value
- ----------------------- ------------- ------------- ------------- -------------
U.S. Government $ 64,781,167 $ 110,504 $ (651) $ 64,891,020
Municipal Bonds 4,005,355 16,096 - 4,021,451
Certificates of Deposit 27,565,196 - - 27,565,196
Corporate Bonds 20,628,265 454,547 - 21,082,812
Other Fixed Income 1,509,322 - - 1,509,322
Equity 80,129,204 18,361,872 (1,001,258) 97,489,818
------------- ------------- ------------- -------------
$ 198,618,509 $ 18,943,019 $ (1,001,909) $ 216,559,619
============= ============= ============= =============
Unrealized losses on investments as of December 31, 2004, are as follows:
Aggregate Unrealized Losses Aggregate Fair Value
Less than one year $ 789,814 $75,270,467
Greater than one year 289,150 2,196,218
-27-
GENTEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES, continued
Management has reviewed the unrealized losses in the Company's fixed-income
and equity securities as of December 31, 2004, and has determined that
they are temporary in nature; accordingly, no losses have been
recognized in income as of December 31, 2004.
Fixedincome securities as of December 31, 2004, have contractual maturities
as follows:
Due within one year $ 99,463,300
Due between one and five years 6,494,956
Due over five years -
-------------
$ 105,958,256
Fair Value of Financial Instruments
The Company's financial instruments consist of cash and cash equivalents,
investments, accounts receivable and accounts payable. The Company's
estimate of the fair values of these financial instruments
approximates their carrying amounts at December 31, 2004 and 2003.
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, 2004 and
2003:
2004 2003
------------- -------------
Raw materials $ 18,102,873 $ 11,041,622
Work-in-process 3,894,864 2,401,500
Finished goods 8,603,052 7,495,574
------------- -------------
$ 30,600,789 $ 20,938,696
============= =============
Allowances for slow-moving and obsolete inventories were not significant as
of December 31, 2004 and 2003.
Plant and Equipment
Plantand 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.
Impairment or Disposal of Long-Lived Assets
The Company reviews long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. If such assets are determined to be impaired,
the impairment to be recognized is measured by the amount by which the
carrying amount of the assets exceeds the fair value of the assets.
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 $3,069,000 and $2,876,000 at December
31, 2004 and 2003, respectively. At December 31, 2004, patents have a
weighted average amortization life of 12 years. Patent amortization
expense was approximately $193,000, $150,000 and $393,000, in 2004,
2003 and 2002, respectively. For each of the next five years, patent
amortization expense will approximate $208,000 annually.
-28-
GENTEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES, continued
Revenue Recognition
The Company's revenue is generated from sales of its products. Sales are
recognized when the product is shipped and legal title has passed to the
customer. The Company does not generate sales from arrangements with
multiple deliverables.
Advertising and Promotional Materials
All advertising and promotional costs are expensed as incurred and amounted to
approximately $1,314,000, $886,000 and $904,000, in 2004, 2003 and 2002,
respectively.
Repairs and Maintenance
Majorrenewals 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 $5,171,000, $4,169,000 and $3,761,000, in 2004, 2003 and
2002, respectively.
Self-Insurance
The Company is self-insured for a portion of its risk on workers' compensation
and employee medical costs. The arrangements provide for stop loss
insurance to manage the Company's risk. Operations are charged with the
cost of claims reported and an estimate of claims incurred but not reported
based upon historical claims lag information and other data.
Product Warranty
The Company periodically incurs product warranty costs. Any liabilities
associated with product warranty are estimated based on known facts and
circumstances and are not significant at December 31, 2004 and 2003. The
Company does not offer extended warranties on its products.
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:
2004 2003 2002
------------- ------------- ------------
Numerators:
Numerator for both basic and diluted EPS, net income $ 112,656,518 $ 106,761,195 $ 85,771,291
Denominators:
Denominator for basic EPS,
weighted-average common shares outstanding 77,160,671 76,584,876 75,515,271
Potentially dilutive shares resulting from stock option plans 1,199,945 1,099,614 1,087,131
------------- ------------- ------------
Denominator for diluted EPS 78,360,616 77,684,490 76,602,402
============= ============= ============
For the years ended December 31, 2004, 2003 and 2002, 756,391, 268,994 and
645,859 shares, respectively, related to stock option plans were not
included in diluted average common shares outstanding because their effect
would be antidilutive.
-29-
GENTEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES, continued
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,
-------------------------------------------------------------------------------------------
2004 2003 2002
-------------------------- --------------------------- ----------------------------
Pre-Tax Tax Exp. Pre-Tax Tax Exp. Pre-Tax Tax Exp.
Amount (Credit) Amount (Credit) Amount (Credit)
----------- ----------- ------------ ----------- ------------- ------------
Unrealized Gain (Loss)
on Securities $ 5,994,551 $ 2,098,093 $ 27,312,575 $ 9,559,401 $ (15,266,964) $ (5,343,438)
Foreign Currency
Translation Adjustments 1,324,212 463,474 1,088,965 381,138 216,982 75,944
----------- ----------- ------------ ----------- ------------- ------------
Other Comprehensive
Income (Loss) $ 7,318,763 $ 2,561,567 $ 28,401,540 $ 9,940,539 $ (15,049,982) $ (5,267,494)
=========== =========== ============ =========== ============= ============
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, 2004, 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.
2004 2003 2002
------------- ------------- ------------
Net income, as reported $ 112,656,518 $ 106,761,195 $ 85,771,291
Deduct: total stock-based employee
compensation expense determined
under fair value-based method for
all awards, net of tax effects (14,541,115) (10,505,316) (8,084,607)
------------- ------------- ------------
Pro forma net income $ 98,115,403 $ 96,255,879 $77,686,684
============= ============= ============
Earnings per share:
Basic - as reported $ 1.46 $ 1.39 $ 1.14
Basic - pro forma 1.27 1.26 1.03
Diluted - as reported $ 1.44 $ 1.37 $ 1.12
Diluted - pro forma 1.25 1.25 1.01
-30-
GENTEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES, continued
Stock-Based Compensation Plans, continued
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 2004, 2003 and 2002, respectively: risk-free interest rates
of 3.4, 2.9 and 2.9 percent; expected dividend yields, where applicable
of 1.8, 1.6 and 0.0 percent; expected lives of 4, 4 and 4 years;
expected volatility of 49, 52 and 53 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 2004, 2003 and 2002, respectively: risk-free
interest rates of 4.9, 4.0 and 4.0 percent; expected dividend yields,
where applicable of 1.7, 1.5 and 0.0 percent; expected lives of 9, 9
and 9 years; expected volatility of 49, 52 and 53 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.
New Accounting Standards
On December 16, 2004, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards (SFAS) No. 123(R),
"Share-Based Payment," which would require all share-based payments to
employees, including grants of employee stock options, to be recognized
in the income statement based on their fair values, effective for
public companies for interim or periods beginning after June 15, 2005.
The Company intends to adopt FASB Statement No. 123(R) effective July
1, 2005. Statement 123(R) permits public companies to adopt its
requirements using either the modified prospective or retrospective
method. The Company is currently evaluating the alternative methods of
adoption.
The impact of adoption of Statement 123(R) cannot be predicted at this
time because it will depend on levels of share-based payments granted
in the future. However, had we adopted Statement 123(R) in prior
periods, the impact of that standard would have approximated the pro
forma impact of Statement 123 as disclosed above. Statement 123(R) also
requires the benefits of tax deductions in excess of recognized
compensation cost to be reported as a financing cash flow, rather than
as an operating cash flow as required under current literature.
In January 2003, the Financial Accounting Standards Board (FASB) issued
Interpretation No. 46, "Consolidation of Variable Interest Entities."
This standard clarifies the application of Accounting Research Bulletin
No. 51, "Consolidated Financial Statements," and addresses
consolidation by business enterprise of variable interest entities.
Interpretation No. 46 requires existing unconsolidated variable
interest entities to be consolidated by their primary beneficiaries if
the entities do not effectively disperse risk among the parties
involved. Interpretation No. 46 also enhances the disclosure
requirements related to variable interest entities. This interpretation
was effective for any variable interest entered into by the Company as
of the end of the first quarter of 2004. The adoption of Interpretation
No. 46 did not have any significant effect on the Company's
consolidated financial statements.
(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 2004 or 2003. 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. Deferred income tax
expense is measured by the net change in deferred income tax assets and
liabilities during the year.
-31-
GENTEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(3) INCOME TAXES, continued
The components of the provision for income taxes are as follows:
2004 2003 2002
----------- ----------- -----------
Currently payable:
Federal $50,497,000 $48,976,000 $37,188,500
State 167,000 501,000 321,000
Foreign 8,000 (26,000) 91,000
----------- ----------- -----------
Total 50,672,000 49,451,000 37,600,500
----------- ----------- -----------
Net deferred:
Primarily federal 2,404,000 1,952,000 3,701,000
----------- ----------- -----------
Provision for income taxes $53,076,000 $51,403,000 $41,301,500
=========== =========== ===========
Thecurrently 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
$3,512,000, $5,511,000 and $5,093,000, in 2004, 2003 and 2002,
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:
2004 2003 2002
---- ---- ----
Statutory federal income tax rate 35.0% 35.0% 35.0%
State income taxes, net of federal income tax benefit 0.1 0.3 0.2
Foreign source exempted income (2.8) (2.5) (2.4)
Tax-exempt investment income (0.2) (0.2) (0.2)
Other (0.1) (0.1) (0.1)
---- ---- ----
Effective income tax rate 32.0% 32.5% 32.5%
==== ==== ====
Thetax effect of temporary differences which give rise to deferred income
tax assets and liabilities at December 31, 2004 and 2003, are as
follows:
2004 2003
------------------------- --------------------------
Current Non-Current Current Non-Current
---------- ------------ ---------- -------------
Assets:
Accruals not currently deductible $2,669,471 $ 182,403 $2,276,831 $ 287,403
Deferred compensation - 1,268,652 - 908,863
Other 1,414,883 5,209 1,952,073 5,410
---------- ------------ ---------- -------------
Total deferred income tax assets 4,084,354 1,456,264 4,228,904 1,201,676
Liabilities:
Excess tax over book depreciation - (14,947,063) - (12,572,140)
Patent costs - (854,916) - (756,102)
Unrealized gain on investments - (8,377,483) - (6,279,389)
Other (654,481) - (614,587) -
---------- ------------ ---------- -------------
Net deferred incomes taxes $3,429,873 $(22,723,198) $3,614,317 $ (18,405,955)
========== ============ ========== =============
Income taxes paid in cash were approximately $48,556,000, $46,243,000 and
$30,828,000, in 2004, 2003 and 2002, respectively.
(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 2004, 2003 and
2002, the Company's contributions were approximately $1,306,000,
$1,110,000 and $955,000, respectively.
The Company does not provide health care benefits to retired employees.
-32-
GENTEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(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
In 2003, an Employee Stock Purchase Plan covering 1,600,000 shares
expired, and a new Employee Stock Purchase Plan covering 600,000 shares
was approved. The Company has sold to employees 55,904 shares, 47,905
shares and 44,009 shares under the plans in 2004, 2003 and 2002,
respectively, and has sold a total of 87,421 shares under the new plan
through December 31, 2004. 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 2004, 2003 and 2002, was approximately $32.56,
$27.92 and $24.86, respectively.
In 2004, a new Employee Stock Option Plan was approved, replacing the
prior plan. The Company may grant options for up to 9,000,000 shares
under its new Employee Stock Option Plan. The Company has granted
options on 1,373,267 shares (net of shares from canceled options) under
the new Plan through December 31, 2004. Under the Plans, 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, 2004, 2003 and 2002, and changes during the years then
ended is presented in the table and narrative below:
2004 2003 2002
------------------ ----------------- ------------------
Shares Wtd. Avg. Shares Wtd. Avg. Shares Wtd. Avg.
(000) Ex. Price (000) Ex. Price (000) Ex. Price
------ --------- ------ --------- ------ ---------
Outstanding at Beginning of Year 4,551 $29 4,270 $25 4,144 $21
Granted 1,432 38 1,299 34 1,132 29
Exercised (629) 23 (982) 20 (914) 13
Forfeited (61) 33 (36) 28 (92) 26
------ --- ----- ---- ----- ----
Outstanding at End of Year 5,293 32 4,551 29 4,270 25
------ --- ----- ---- ----- ----
Exercisable at End of Year 1,994 $28 1,595 $25 1,682 $22
Weighted Avg. Fair Value
of Options Granted $14 $14 $14
Options Outstanding and Exercisable by Price Range As of December 31,
2004:
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 - $25 659 2 $22 519 $21
$26 - $30 1,800 3 27 963 27
$31 - $35 1,057 4 33 225 32
$36 - $43 1,777 4 39 287 38
------ ----- --- ------ ----
Total 5,293 3 $32 1,994 $28
-33-
GENTEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(6) STOCK-BASED COMPENSATION PLANS, continued
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 136,620 shares
under the new Director Plan through December 31, 2004. 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, 2004, 2003
and 2002, and changes during the years then ended is presented in the
table and narrative below:
2004 2003 2002
------------------- ------------------- -------------------
Shares Wtd. Avg. Shares Wtd. Avg. Shares Wtd. Avg.
(000) Ex. Price (000) Ex. Price (000) Ex. Price
------ --------- ------ --------- ------ ---------
Outstanding at Beginning of Year 313 $18 424 $13 469 $ 10
Granted 48 36 53 32 35 32
Exercised (106) 10 (164) 10 (80) 3
Expired - - - - - -
---- --- ---- --- --- ----
Outstanding at End of Year 255 25 313 18 424 13
---- --- ---- --- --- ----
Exercisable at End of Year 255 25 310 18 424 13
Weighted Avg. Fair Value
of Options Granted $18 $21 $21
Options Outstanding and Exercisable by Price Range As of December 31, 2004:
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 - $30 115 3 $16 115 $16
$31 - $41 140 8 33 140 33
--- -- --- --- ---
255 6 $25 255 $25
The Company has a Restricted Stock Plan covering 500,000 shares of common
stock that 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 plan
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 2004, 2003 and 2002, 61,260, 78,100
and 37,900, shares, respectively, were granted with a restriction period
of five years at market prices ranging from $34.74 to $42.20 in 2004,
$25.64 to $43.00 in 2003 and $27.47 to $32.30 in 2002. 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.
(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.
- 34 -
GENTEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(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.
2004 2003 2002
------------ ------------ ------------
Revenue:
Automotive Products
United States $230,075,562 $238,608,596 $203,691,964
Germany 86,432,114 69,787,290 70,710,037
Japan 54,336,447 53,004,947 44,797,340
Other 112,306,599 84,913,322 55,050,622
Fire Protection Products 22,515,613 22,705,210 21,008,473
------------ ------------ ------------
Total $505,666,335 $469,019,365 $395,258,436
============ ============ ============
Income from Operations:
Automotive Products $145,622,021 $142,001,646 $111,448,849
Fire Protection Products 4,444,192 4,573,630 3,751,312
------------ ------------ ------------
Total $150,066,213 $146,575,276 $115,200,161
============ ============ ============
Assets:
Automotive Products $202,052,906 $184,208,278 $154,685,204
Fire Protection Products 4,252,818 4,768,620 4,035,944
Other 650,553,704 573,552,868 450,451,519
------------ ------------ ------------
Total $856,859,428 $762,529,766 $609,172,667
============ ============ ============
Depreciation & Amortization:
Automotive Products $19,323,047 $18,275,655 $16,930,161
Fire Protection Products 228,844 255,301 260,823
Other 2,188,941 1,895,251 1,440,616
------------ ------------ ------------
Total $21,740,832 $20,426,207 $18,631,600
============ ============ ============
Capital Expenditures:
Automotive Products $29,233,220 $22,126,904 $19,236,000
Fire Protection Products 251,492 98,705 442,593
Other 1,050,462 22,400 12,882,053
------------ ------------ ------------
Total $30,535,174 $22,248,009 $32,560,646
============ ============ ============
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 and Mexico, as well as other
foreign automotive customers. Nearly all non-U.S. sales are invoiced and
paid in U.S. dollars. During 2004, approximately 10% 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
-- -- --
2004 31% 13% 13%
2003 38% 13% 12%
2002 39% 15% 10%
- 35 -
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION PAGE
- ----------- ----------- ----
3(a)(1) Registrant's Restated Articles of Incorporation, adopted on
August 20, 2004, were filed as Exhibit 3(a) to Registrant's
Report on Form 10-Q dated November 2, 2004, and the same is
hereby incorporated herein by reference.
3(b)(1) Registrant's Bylaws as amended and restated February 27, 2003,
was filed as Exhibit 3(b)(1) to Registrant's report on Form 10-Q
dated May 5, 2003, and the same is hereby incorporated herein by
reference.
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 February 26, 2004) was included in
Registrant's Proxy Statement dated April 6, 2004, filed with the
Commission on April 6, 2004, and the same is hereby incorporated
herein by reference.
*10(b)(2) Specimen form of Grant Agreement for the Gentex Corporation
Qualified Stock Option Plan (as amended and restated, effective
February 26, 2004), was filed as Exhibit 10(b)(2) to
Registrant's Report on Form 10-Q dated November 2, 2004, and the
same is hereby incorporated herein by reference.
*10(b)(3) Gentex Corporation Second Restricted Stock Plan was filed as
Exhibit 10(b)(3) to Registrant's Report on Form 10-Q dated April
27, 2001, and the same is hereby incorporated herein by
reference.
*10(b)(4) Specimen form of Grant Agreement for the Gentex Corporation
Restricted Stock Plan (as amended and restated, effective
February 26, 2004), was filed as Exhibit 10(b)(4) to
Registrant's Report on Form 10-Q dated November 2, 2004, and the
same is hereby incorporated herein by reference.
*10(b)(5) 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(b)(6) Specimen form of Grant Agreement for the Gentex Corporation 2002
Non-Employee Director Stock Option Plan (as amended and
restated, effective February 26, 2004), was filed as Exhibit
10(b)(6) to Registrant's Report on Form 10-Q dated November 2,
2004, 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 37
23(a) Consent of Independent Registered Public Accounting Firm 38
31.1 Certificate of the Chief Executive Officer of Gentex Corporation
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
(18 U.S.C. 1350). 39
31.2 Certificate of the Chief Financial Officer of Gentex Corporation
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
(18 U.S.C. 1350). 40
32 Certificate of the Chief Executive Officer and Chief Financial
Officer of Gentex Corporation pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350). 41
*Indicates a compensatory plan or arrangement.
- 36 -