Back to GetFilings.com
1
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, 1998.
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
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 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. ( )
As of March 1, 1999, 72,477,316 shares of the registrant's common stock, par
value $.06 per share, were outstanding. The aggregate market value of the common
stock held by non-affiliates of the registrant (i.e., excluding shares held by
executive officers, directors, and control persons as defined in Rule 405, 17
CFR 203.405) on that date was $1,479,504,480 computed at the closing price on
that date.
Portions of the Company's Proxy Statement for its 1999 Annual Meeting of
Shareholders are incorporated by reference into Part III.
Exhibit Index located at Page 31
Page 1 of 34
2
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, are forward-looking statements and involve risks and
uncertainties described below under the headings "Business" and "Management's
Discussion and Analysis of Results of Operations and Financial Condition" that
could cause actual results to differ materially from those projected. All
forward-looking statements in this Annual Report are based on information
available to the Company on the date hereof, and the Company assumes no
obligation to update any such forward-looking statements.
PART I
ITEM 1. BUSINESS
(a) GENERAL DEVELOPMENT OF BUSINESS
Gentex Corporation (the "Company") designs, develops, manufactures and
markets proprietary products employing electro-optic technology:
automatic-dimming rearview mirrors and fire protection products.
The Company was organized in 1974 to manufacture residential smoke
detectors, a product line that has since evolved into a more sophisticated group
of fire protection products for commercial applications. In 1982, the Company
introduced an automatic interior rearview mirror that was the first commercially
successful glare-control product offered as an alternative to the conventional,
manual day/night mirror. In 1987, the Company introduced its interior Night
Vision Safety(TM) (NVS(R)) Mirror, an electrochromic automatic-dimming interior
rearview mirror, providing the first successful commercial application of
electrochromic technology in the automotive industry and world. Through the use
of electrochromic technology, this mirror is continually variable and
automatically darkens to the degree required to eliminate rearview headlight
glare. In 1991, the Company introduced its exterior Night Vision Safety(TM)
Mirror Sub-Assembly, which works as a complete glare-control system with the
interior NVS(R) Mirror. In 1997, the Company began making volume shipments of
three new exterior mirror sub-assembly products: thin glass flat, convex and
aspheric.
(b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
See Note (9) 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 for the commercial building industry.
AUTOMATIC REARVIEW MIRRORS
Interior NVS(R) Mirrors. In 1987, the Company achieved a significant
technological breakthrough by applying electrochromic technology to the
glare-sensing capabilities of its Motorized Mirror. Through the use of this
technology, the mirror gradually darkens to the degree necessary to eliminate
rearview glare from following vehicle headlights. The NVS(R) Mirror offers all
of the continuous reflectance levels between its approximate 75%
full-reflectance state and its 7% least-reflectance state, taking just a few
seconds to span the entire range. Special electro-optic sensors in the mirror
detect glare and electronic circuitry supplies electricity to darken the mirror
to only the precise level required to eliminate glare, allowing the driver to
maintain maximum vision. This is accomplished by the utilization of two layers
of precision glass with special conductive coatings that are separated by the
Company's proprietary electrochromic materials. When the appropriate light
differential is detected, an electric current causes the electrochromic material
to darken, decreasing the mirror's reflectance, thereby eliminating glare.
-2-
3
During 1991, the Company began shipping the first advanced-feature
interior NVS(R) Mirror, the NVS(R) Headlamp Control Mirror, an automatic-dimming
mirror that automatically turns car head- and taillamps "on" and "off" in
response to the level of light observed. During 1992, the Company began shipping
its NVS(R) Lighted Mirror, with map/reading lights, and during 1993, the Company
began shipping its NVS(R) Compass Mirror, with an electronic compass that
automatically compensates for changes in the earth's magnetic field. During
1997, the Company began shipping a third-generation NVS(R) Headlamp Control
Mirror, a second-generation NVS(R) Compass Mirror, and a new interior NVS(R)
Mirror that digitally displays either a compass or outside temperature reading.
The compass and outside temperature display technology was developed and
patented by Johnson Controls, Inc. During 1998, the Company began shipping new
compass mirrors with integral LED map lamps, a major improvement over mirrors
with standard incandescent map lamps.
The Company sold approximately 2,423,000 interior NVS(R) Mirrors in
1996, approximately 2,799,000 in 1997, and approximately 3,320,000 in 1998.
During 1998, the unit growth primarily continued as a result of
increased penetration of a number of high-volume light vehicles manufactured in
North America, including pickup trucks and sport/utility vehicles from the Big
Three auto manufacturers, as well as increased penetration of light vehicle
models manufactured outside North America, including new, higher-volume vehicles
in Europe. The Company's interior NVS(R) Mirrors are standard equipment or
factory or distributor/dealer-installed options on the following 1999 and
1999-1/2 vehicle models:
-3-
4
TABLE 1. INTERIOR NVS(R) MIRROR AVAILABILITY BY VEHICLE LINE
GM/Cadillac Deville (ECC) S Audi A8 S
D'Elegance (ECC) S Bentley (RKE) S
Catera S BMW 800 Series S
Concours (ECC) S 700 Series S
Eldorado (ECC) S 500 Series O
Eldorado Touring Coupe (ECC) S 300 Series O
Escalade (EH/ECC/T) S Daewoo Brougham O
Seville S* Chairman S
Seville STS S* Musso SUV S
GM/Buick LeSabre Limited O* Fiat Lancia Dedra O
Park Avenue (ECC) O Lancia Kappa O
Park Avenue-Ultra (ECC) S* Alfa Romeo 166 O
Riviera S* Hyundai/Hyundai
Precision Dynasty S
GM/Oldsmobile 88 Anniversary Edition (ECC) S Grandeur S
88 LSS (ECC) S Sonata S
Aurora (ECC) S Marcia S
Bravada S Tiburon O
Intrigue GLS (ECC/LED) S Infiniti Q45 S
GM/Pontiac Bonneville SSE S I30 O
GM/Chevrolet Blazer O KIA Motors Corp. Potentia (3.0 L) S
Silverado Pickup (ECC)O (Korea) Potentia (2.2 L) O
Silverado Crew Cab Pickup (ECC) O Credos S
Suburban (ECC/T) S Enterprise O
Tahoe (2-Door) (ECC/T) O Lexus GS300 O
Tahoe (4-Door) (ECC/T) S GS400 S
GM/GMC Sierra Pickup (ECC) O LS400 S
Sierra Crew Cab Pickup (ECC) O RX300 O
Denali (EH/ECC/T) S SC300 S
Jimmy O LX470 S
Suburban (ECC/T) S SC400 S
Yukon (2-Door) (ECC/T) O DaimlerChrysler/ S Class Coupe S
Yukon (4-Door) (ECC/T) S Mercedes-Benz S Class Sedan S
Ford/Lincoln Town Car Cartier S SL Roadster O
Town Car Executive O E Class Sedan O
Town Car Signature S C Class Sedan O
Navigator S CLK Coupe O
Ford Crown Victoria (ECC) O CLK Convertible O
Explorer (Limited, EB) (EH) S Nissan Cima O
Explorer (Sport, XLT) (EH) O Cedric O
Windstar SEL S Cefiro O
Windstar SE O Gloria O
Ford/Mercury Grand Marquis (ECC) O Leopard O
Mountaineer (EH) O Laurel O
DaimlerChrysler/ LHS S Opel Omega O
Chrysler Concorde O Porsche 911 O
300 S Boxster O
Town & Country Limited (EH) S Rolls Royce (RKE) S
DaimlerChrysler/ Intrepid O Samsung SM5 0
Dodge Grand Caravan ES (EH) S Toyota 4-Runner** O
Ram Pickup O Avalon XL** (ECC/T) O
Dakota Pickup O Avalon XLS** (ECC) O
Durango O Camry** (ECC/T) O
DaimlerChrysler/ Grand Cherokee Limited S Land Cruiser** O
Jeep Grand Cherokee Laredo O Solara O
T-100** O
KEY: S = Standard equipment
O = Optional equipment
* ECC offered as upgrade option
** NVS(R) Mirrors are offered as optional equipment through Southeast Toyota
Distributors in the states of FL, GA, NC, SC and AL, and Gulf States Toyota
in the states of TX, MS, AR, LA and OK.
EH = NVS(R) Mirror with Automatic Headlamp Control
EL = NVS(R)Mirror with Map Lights
ECC = NVS(R) Mirror with Electronic Compass Display
ECC/T = NVS(R) Mirror w/Electronic Compass and Temperature Display
RKE = NVS(R)Mirror with Remote Keyless Entry
LED = LED Map Lights
-4-
5
Exterior NVS(R) Mirror Sub-Assemblies. The Company has devoted
substantial research and development efforts to the development of its
electrochromic technology to permit its use in exterior rearview mirrors.
Exterior NVS(R) mirrors are controlled by the sensors and electronic circuitry
in the interior NVS(R) Mirror, and both the interior and exterior mirrors dim
simultaneously. During 1991, the Company's efforts culminated in a design that
is intended to provide acceptable long-term performance in all environments
likely to be encountered. In 1994, the Company began shipments of its complete
three-mirror system, including the convex (curved glass) wide-angle NVS(R)
Mirror to BMW. During 1997, the Company began making volume shipments of three
new exterior mirror products - - thin glass flat, convex and aspheric. The
Company currently sells its exterior NVS(R) Mirror Sub-Assemblies to eight
exterior mirror suppliers to General Motors, Chrysler, Ford, BMW and
Mercedes-Benz, who assemble the exterior NVS(R) Mirror Sub-Assemblies into full
mirror units for subsequent resale to the automakers.
The Company sold approximately 656,000 exterior NVS(R) Mirror
Sub-Assemblies during 1996, approximately 1,079,000 in 1997, and approximately
1,582,000 in 1998. During 1998, unit growth continued primarily as a result of
the Company's three newer exterior mirror products.
The exterior NVS(R) Mirror is standard equipment or a factory-installed
option on the following 1999 and 1999-1/2 vehicle models.
TABLE 2. EXTERIOR NVS(R) MIRROR AVAILABILITY BY VEHICLE LINE
GM/Cadillac Concours S Audi A4 (F/C/A) O
D'Elegance S A6 (F/C/A) O
Deville S A8 (F/C/A) O
Eldorado S BMW 500 Series (F & C) O
Eldorado Touring Coupe S 700 Series (F & C) O
Escalade S DaimlerChrysler/ CLK Coupe (F/A) O
Seville S Mercedes-Benz CLK Convertible O
Seville STS S E Class (F/A) O
GM/Buick Century O S Class Coupe (F/A) S
LeSabre Limited O S Class Sedan (F/A) S
Park Avenue O SL Roadster (F/A) O
Park Avenue Ultra S
Regal O
Riviera S KEY: S = Standard Equipment
GM/Chevrolet Blazer O O = Optional Equipment
Suburban (F & C) O
Tahoe (2-Door) (F & C) O F = Flat Glass
Tahoe (4-Door) (F & C) O C = Convex Glass
GM/GMC Denali (F & C) S A = Aspheric Glass
Jimmy O
Suburban (F & C) O
Yukon (2-Door) (F & C) O
Yukon (4-Door) (F & C) O
GM/Oldsmobile 88 Anniversary Edition S
Bravada O
Ford/Lincoln Continental O
Town Car Cartier S
Town Car Executive O
Town Car Signature S
DaimlerChrysler/Chrysler Town & Country Limited S
DaimlerChrysler/Dodge Grand Caravan ES S
DaimlerChrysler/Jeep Grand Cherokee Ltd. S
Product Development. The Company plans to continue introducing
additional advanced-feature NVS(R) Mirrors. These models currently include the
third-generation NVS(R) Headlamp Control Mirror, the NVS(R) Lighted Mirror with
incandescent and LED map lamps, the third-generation NVS(R) Compass Mirror, the
NVS(R) Mirror with Remote Keyless Entry, and the NVS(R) Compass/Temperature
Mirror. Also in 1993, the Company introduced an NVS(R) Base Feature Mirror to
target the high-volume,
-5-
6
mid-priced vehicle segments, and larger-size interior and exterior NVS(R)
Mirrors for use on vans and light trucks. A second-generation Base Feature
Mirror was introduced in 1996. In 1996, Gentex introduced the first
automatic-dimming "aspheric" exterior mirror. Aspheric mirrors are wide-angle
exterior mirrors that virtually eliminate the "blind spot." During 1997, the
Company introduced thin glass flat and convex exterior mirrors.
Of particular importance to the Company has been the development of its
electrochromic technology for use in complete 3-mirror systems. In these
systems, both the driver and passenger-side exterior NVS(R) Mirrors are
controlled by the sensors and electronic circuitry in the interior rearview
mirror, and the interior and both exterior mirrors dim simultaneously. The sale
of complete mirror systems will increase the size of the available worldwide
market, and the Company has been devoting substantial research and development
efforts to this project, which resulted in its first shipments, including NVS(R)
convex exterior mirrors, to BMW in 1994, and volume shipments, including thin
flat and convex, to GM in 1997. At the end of 1996, the Company began shipping
NVS(R) aspheric exterior mirrors to Mercedes-Benz, followed by volume shipments
during 1997.
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 1998. However, achieving the rigorous performance standards
needed for launching a commercial product still could require several years of
additional work.
Markets and Marketing. The Company markets its automatic rearview
mirrors to domestic and foreign automotive manufacturers under the trade name
"Night Vision Safety(TM)" or NVS(R) Mirrors. In North America, the Company
markets these products primarily through a direct sales force of seven persons.
The Company currently supplies NVS(R) Mirrors to Ford Motor Company, General
Motors Corporation and DaimlerChrysler AG (North America) under long-term
agreements. During 1997, the Company negotiated a new five-year, lifetime
contract for inside mirrors with General Motors through the 2002 model year. The
term of the Ford contract is through December 1999, and the long-term supply
agreement with DaimlerChrysler AG has been extended through the 2003 model year.
The Company's exterior NVS(R) Mirror Sub-Assemblies are supplied to General
Motors, Ford and DaimlerChrysler AG by means of sales to six exterior mirror
suppliers.
During 1993, the Company established a sales and engineering office in
Germany and hired its first employee in Europe. During 1994, the Company formed
a German limited liability company, Gentex GmbH, to expand its sales and
engineering support activities. The Company's marketing efforts in Europe are
conducted through Gentex GmbH with the assistance of independent manufacturers'
representatives. The Company is currently supplying mirrors to Audi, Bavarian
Motor Works, A.G. (BMW), Fiat, Mercedes-Benz, Opel, Porsche and Rolls Royce.
During 1992, the Company negotiated a replacement reciprocal
distribution agreement with Ichikoh Industries, Ltd. (Ichikoh), a major Japanese
supplier of automotive products. Under this agreement, Ichikoh markets the
Company's automatic mirrors to certain Japanese automakers and their
subsidiaries with manufacturing facilities in Asia. The arrangement involves
very limited technology transfer by the Company and does not include the
Company's proprietary electrochromic gel formulation. The Company has been
shipping electrochromic mirror assemblies under the original agreement since
1991 for Nissan Motor Co., Ltd.
During 1993, the Company hired sales agent Continental Far East to
market NVS(R) Mirrors to other Japanese automakers beyond Nissan. During 1994
and 1995, the Company began making mirror shipments to Tokai Rika Co., Ltd. for
Toyota Lexus vehicle models. The Company began making direct mirror shipments to
Honda and Mitsubishi, in 1995 and 1996, respectively. During 1998, the Company
established a sales and engineering office and hired its first employees in
Japan.
-6-
7
Historically, new safety and comfort options have entered the original
equipment automotive market at relatively low rates on "top of the line" or
luxury model automobiles. As the selection rates for the options on the luxury
models increase, they generally become available on more models throughout the
product line and may become standard equipment. The recent trend of domestic and
foreign automakers is to offer several options as a package. As consumer demand
increases for a particular option, the mirror tends to be offered on more
vehicles and in higher option rate packages. The Company anticipates that its
NVS(R) Mirrors will be offered as standard equipment, in higher option rate
packages and on more models as consumer awareness of the safety and comfort
features becomes more well-known and acceptance grows.
In 1998, Gentex Corporation contracted with MITO Corporation to sell
several of its most popular automatic-dimming mirrors directly to consumers in
the automotive aftermarket; however, currently the Company directs no other
efforts to the sale of NVS(R) mirrors to the automotive aftermarket. It is
management's belief that such efforts are of limited value until the Company
achieves a significantly higher penetration of the original equipment
manufacturing market.
Competition. Gentex is the leading producer of automatic rearview
mirrors in the world and currently is the dominant supplier to the automotive
industry with an approximate 87% market share worldwide. While the Company
believes it will retain a dominant position, one other U.S. manufacturer
(Donnelly Corporation) is offering for sale to domestic and foreign vehicle
manufacturers and is supplying a number of domestic and foreign vehicle models
with its hybrid version of electrochromic mirrors. In addition, two Japanese
manufacturers are currently supplying a number of vehicle models in Japan with
solid-state electrochromic mirrors.
The Company believes its electrochromic automatic mirrors offer
significant performance advantages. The Company also believes that Donnelly
shipped approximately 400,000 of its electrochromic mirrors to automotive
customers in 1998. However, Gentex recognizes that Donnelly Corporation is
considerably larger than the Company and presents a significant competitive
threat by using pricing as its primary means to attempt to gain additional
electrochromic mirror business. In the past, Gentex has been involved in patent
litigation with Donnelly Corporation (see Note 8 to the Consolidated Financial
Statements filed with this report).
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 solid-state or hybrid electrochromics and liquid
crystal displays may eliminate glare, each of these technologies have inherent
cost or performance limitations.
FIRE PROTECTION PRODUCTS
The Company manufactures over 60 different models of smoke detectors
and over 160 different models of signaling appliances. All of the smoke
detectors operate on a photoelectric principle to detect smoke. While the use of
photoelectric technology entails greater manufacturing costs, the Company
believes that these detectors are superior in performance to competitive devices
that operate through an ionization process, and are preferred in most commercial
residential occupancies. Photoelectric detectors 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 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 are
now being required by an increasing number of city and state laws.
-7-
8
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 detectors 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/or communicate with monitored remote stations.
In recent years, the Company introduced further improvements to its
line of smoke detectors, including submersibility to enhance maintenance, and a
new design feature that permits greater ease in sensitivity testing. The Company
offers the only detection device that may be completely submersed in water for
cleaning purposes. This feature permits more effective and convenient cleaning
of the product, thereby enhancing reliability. In addition, the patented
sensitivity test feature permits the user to check the calibration of the least
and most sensitive detection levels of the detector with the simple turn of a
knob. In 1995, the National Fire Protection Association changed their code to
require that all single station smoke alarms installed in dwellings larger than
1-2 family must annually conduct this sensitivity test.
During 1996, the Company made numerous revisions to its products to
include weather-proofing the mechanical horn and strobe for outdoor use,
increasing the power taps on their speaker series, adding three new candela
ratings to their visual signals (strobe warning lights), and adding terminal
blocks to the remote signaling appliances to meet new code requirements.
During 1997, the Company introduced a new visual and audible signaling
line. The visual (strobe) was designed to meet the Underwriters Laboratories
standard without any loss of efficiency. This product draws one of the lowest
amount of current consumption in the industry. It is also available with the
largest array of visual intensities offered to meet virtually all room sizes and
configurations.
Also, during 1997, the Company became one of the first companies in the
fire alarm market to implement the temporal code 3 pattern on the smoke
detection products.
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 Company markets its fire protection products throughout the
United States through four 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 device 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 device markets, the Company estimates it competes
with approximately eight manufacturers. While the Company faces significant
competition in the sale of smoke detectors and signaling devices, 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.
-8-
9
TRADEMARKS AND PATENTS
The Company owns 3 trademarks and 35 U.S. patents, 33 of which relate
to electrochromic technology and/or automotive rearview mirrors. These patents
expire between 2002 and 2017. 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 remaining two U.S. patents 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 owns 26 foreign patents, which relate to automotive
rearview mirrors. These patents expire at various times between 1999 and 2018.
The Company believes that the competitive advantage derived in the relevant
foreign markets for these patents is comparable to that experienced in the U.S.
market.
The Company also has in process 66 U.S. patent applications, 42 foreign
patent applications, and 2 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.
During 1998, the Company settled all patent litigation with respect to
its rearview mirrors (see Note 8 to the Consolidated Financial Statements filed
with this report).
"Night Vision Safety(TM)" and "A Smarter Vision(TM)" are trademarks of
Gentex Corporation and "NVS(R)" is a registered trademark of Gentex Corporation.
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 three important
customers within the automotive industry, each of which accounts for
approximately 10% or more of the Company's annual sales: General Motors
Corporation, DaimlerChrysler AG and Ford Motor Company. The loss of any of these
customers could have a material adverse effect on the Company. The Company's
backlog of unshipped orders was $63,735,000 and $52,881,000 at March 1, 1999 and
1998, respectively.
At March 1, 1999, the Company had 1,342 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 three 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, 130,000-square-foot building
of steel and masonry construction situated on a 40-acre site in a well-kept
industrial park, providing ample opportunity for expansion. An additional
128,000-square-foot office/manufacturing facility on this site was opened during
1996, to meet the Company's current and near term future automotive production
needs. The Company will be expanding its automotive production facilities and
has begun construction of a third 170,000 square-foot facility at a cost of
approximately $12,000,000 on its current site which is currently scheduled for
completion by spring 2000.
-9-
10
ITEM 3. LEGAL PROCEEDINGS
None that are material.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
-10-
11
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 56 Chief Executive Officer May 1986
Kenneth La Grand 58 Executive Vice President September 1987
John Mulder 62 Senior Vice President, Automotive Marketing September 1998
Enoch Jen 47 Vice President-Finance, Treasurer February 1991
- ---------------------------------------------------------------------------------------------------------------------------
There are no family relationships among the officers listed in the
preceding table.
John Mulder has served as Senior Vice President, Automotive Marketing
of the Company since September 1998. Prior to that time, Mr. Mulder served as
Vice President, Automotive Marketing, of the Company since July 1988.
-11-
12
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS.
The Company's common stock trades on the National Market tier of The
Nasdaq Stock MarketSM. As of March 1, 1999, there were 2,273 record holders of
the Company's common stock. Ranges of high and low sale prices of the Company's
common stock (adjusted for the 2-for-1 stock split in June 1998) reported
through The Nasdaq Stock Market for the past two fiscal years appear in the
following table.
YEAR QUARTER HIGH LOW
--------------------------------------------------------------------------
1997 First 10 13/16 8 3/4
Second 11 1/16 8 1/8
Third 13 9 5/16
Fourth 14 1/8 10 3/8
1998 First 17 1/16 12 29/32
Second 19 1/2 15 1/2
Third 18 3/4 10 3/4
Fourth 22 11 1/2
--------------------------------------------------------------------------
The Company has never paid any cash dividends on its common stock, and
management does not anticipate paying any cash dividends in the foreseeable
future.
ITEM 6. SELECTED FINANCIAL DATA
(in thousands except per share data)
- ---------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------
Net Sales $222,292 $186,328 $148,708 $111,566 $89,762
Net Income 50,307 35,230 23,963 18,895 16,466
- ---------------------------------------------------------------------------------------------------------------------------
Earnings
Per Share* 0.68 0.49 0.34 0.28 0.24
- ---------------------------------------------------------------------------------------------------------------------------
Total Assets $254,890 $189,783 $140,378 $109,244 $80,739
- ---------------------------------------------------------------------------------------------------------------------------
Long-Term Debt
Outstanding at
Year End $ - $ - $ - $ - $ -
- ---------------------------------------------------------------------------------------------------------------------------
*Diluted; adjusted for 2-for-1 stock splits in June 1998 and 1996.
-12-
13
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 of each such item from that in the
indicated previous year.
Percentage of Net Sales Percentage Change
----------------------- -----------------
Year Ended December 31 1998 1997
--------------------------------- to to
1998 1997 1996 1997 1996
---- ---- ---- ---- ----
Net Sales 100.0% 100.0% 100.0% 19.3% 25.3%
Cost of Goods Sold 59.3 63.8 62.9 10.9 27.1
----- ----- ----- ---- ------
Gross Profit 40.7 36.2 37.1 34.1 22.2
Operating Expenses:
Research and Development 5.0 4.9 5.1 21.0 20.5
Selling, General and Administrative 5.4 5.8 7.9 11.5 (7.9)
Patent Settlement -- -- 2.7 N/A (100.0)
----- ----- ----- ---- ------
Total Operating Expenses 10.4 10.7 15.7 15.8 14.5
----- ----- ----- ---- ------
Operating Income 30.3 25.5 21.4 41.8 49.1
Other Income 3.3 2.5 2.5 55.5 29.2
----- ----- ----- ---- ------
Income Before Federal Income Taxes 33.6 28.0 23.9 43.1 47.1
Provision for Federal Income Taxes 11.0 9.1 7.8 43.6 47.2
----- ----- ----- ---- ------
Net Income 22.6% 18.9% 16.1% 42.8% 47.0%
===== ===== ===== ==== ======
RESULTS OF OPERATIONS: 1998 TO 1997
Net Sales. Automotive net sales increased by 22% and mirror shipments
increased by 26%, from 3,878,000 to 4,902,000 units, primarily reflecting new
thin glass flat, convex and aspheric exterior mirrors, as well as increased
penetration on domestic and foreign 1998 and 1999 model year vehicles for
interior and exterior electrochromic Night Vision Safety(TM) (NVS(R)) Mirrors.
North American unit shipments increased by 30%, despite the impact of the
General Motors' strikes, while overseas unit shipments increased by 18% during
1998. Net sales of the Company's fire protection products were basically flat,
as increased sales of its AC/DC smoke detectors offset a decrease in sales of
certain strobe related products.
Cost of Goods Sold. As a percentage of net sales, cost of goods sold
decreased from 64% to 59%, primarily reflecting improved glass yields and
product cost reductions in connection with the production ramp-up of the new
exterior mirror products and the Company's new in-house glass coating equipment,
and increased sales volume spread over fixed overhead expenses, partially offset
by automotive customer price reductions.
Operating Expenses. Research and development expenses increased
approximately $1,904,000, but remained at 5% of net sales, primarily due to
additional staffing for new product development. Selling, general and
administrative expenses increased approximately $1,240,000, but decreased from
6% to 5% of net sales, primarily reflecting the establishment of an European
warehouse operation, the opening of a sales office in Japan and a $200,000
patent settlement payment.
Other Income - Net. Investment income increased $1,485,000 in 1998,
primarily due to higher investable fund balances, and other income increased
$1,128,000 in 1998, primarily due to realized gains on the sale of equity
investments.
Taxes. The provision for federal income taxes varied from the statutory
rate in 1998, primarily due to Foreign Sales Corporation exempted taxable income
from increased foreign sales, as well as tax-exempt interest income.
Net Income. Net income increased by 43%, primarily reflecting the
increased sales level and improved gross margin in 1998.
-13-
14
RESULTS OF OPERATIONS: 1997 TO 1996
Net Sales. Automotive net sales increased by 28% and mirror shipments
increased by 26%, from 3,079,000 to 3,878,000 units, primarily reflecting new
thin glass flat, convex and aspheric exterior mirrors, as well as increased
penetration on domestic and foreign 1997 and 1998 model year vehicles for
interior and exterior electrochromic Night Vision Safety(TM) (NVS(R)) Mirrors.
North American unit shipments increased by 17%, while overseas unit shipments
increased by 50% during 1997. Net sales of the Company's fire protection
products increased 6%, primarily due to increased sales of its AC/DC smoke
detectors and certain strobe related products.
Cost of Goods Sold. As a percentage of net sales, cost of goods sold
increased from 63% to 64%, primarily reflecting automotive customer price
reductions, lower glass yields in connection with the production ramp-up of the
new exterior mirror products, and temporary capacity under-utilization at the
new mirror manufacturing facility, partially offset by product cost reductions
and increased sales volume spread over fixed overhead expenses.
Operating Expenses. Research and development expenses increased
approximately $1,542,000, but remained at 5% of net sales, primarily due to
additional staffing for new product development. Selling, general and
administrative expenses decreased approximately $923,000, and decreased from 8%
to 6% of net sales, primarily reflecting a reduction in patent litigation
expense of $1,440,000, as a result of the patent litigation settlement at the
end of the first quarter 1996.
Other Income - Net. Investment income increased $968,000 in 1997,
primarily due to higher investable fund balances and higher average interest
rates.
Taxes. The provision for federal income taxes varied from the statutory
rates in 1997, primarily due to Foreign Sales Corporation exempted taxable
income from increased foreign sales, as well as tax-exempt interest income.
Net Income. Net income increased by 47%, primarily reflecting the
increased sales level in 1997, and the patent litigation settlement in 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company's financial condition throughout the periods presented has
remained very strong.
The Company's current ratio increased from 5.2 to 7.8, primarily as a
result of increased cash and short-term investments.
Management considers the Company's working capital of approximately
$100,511,000 and long-term investments of approximately $78,744,000 at December
31, 1998, together with internally generated cash flow and an unsecured
$5,000,000 line of credit from a bank, to be sufficient to cover anticipated
cash needs for the foreseeable future.
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, the Company
continues to experience some pressure for raw material cost increases.
-14-
15
The Company currently supplies NVS(R) Mirrors to DaimlerChrysler AG
(North America), Ford Motor Company and General Motors Corporation under
long-term agreements. The long-term supply agreement with DaimlerChrysler AG
runs through the 2003 Model Year. The term of the Ford contract is through
December 1999, while the GM contract runs through the 2002 Model Year for inside
mirrors.
YEAR 2000 READINESS DISCLOSURE
The Company has developed a plan to address its computer systems'
compliance with the Year 2000. All internal remediation activities have been
completed, and the Company expects that all internal acceptance testing will be
completed by mid-1999. The Company is in the process of ascertaining the status
of its suppliers' Year 2000 compliance efforts, and plans to develop contingency
plans by mid-1999 for any key suppliers that will not be compliant on a timely
basis. The Company currently believes that the cost of addressing the Year 2000
issue will not be material to the Company's business, operations or financial
condition.
While the Company believes all necessary work will be completed, there
can be no guarantee that all systems will be in compliance by the year 2000 or
that the systems of other companies on which the Company relies will be
converted in a timely manner. Such failure to complete the necessary work by the
year 2000 could cause delays in the Company's ability to produce or ship its
products, process transactions, or otherwise conduct business in its markets,
resulting in material financial risk.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The following financial statements are filed with this report as pages
18 through 30 following the signature page:
Report of Independent Public Accountants
Consolidated Balance Sheets as of December 31, 1998 and 1997
Consolidated Statements of Income for the years ended December 31,
1998, 1997 and 1996
Consolidated Statements of Shareholders' Investment for the years ended
December 31, 1998, 1997 and 1996
Consolidated Statements of Cash Flows for the years ended December 31,
1998, 1997 and 1996
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
1998 1997 1998 1997 1998 1997 1998 1997
- ------------------------------------------------------------------------------------------------------------------
Net Sales $56,979 $41,902 $51,372 $44,873 $49,596 $46,968 $64,345 $52,584
Gross Profit 22,639 14,732 19,803 15,805 19,184 16,703 28,766 20,147
Operating Income 17,024 9,965 14,036 10,619 13,277 11,710 23,005 15,189
Net Income 12,501 7,384 10,765 8,001 9,901 8,667 17,140 11,178
Earnings Per Share*$ .17 $ .10 $ .15 $ .11 $ .13 $ .12 $ .23 $ .15
- ------------------------------------------------------------------------------------------------------------------
*Diluted; adjusted for 2-for-1 stock split in June 1998.
ITEM 9. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.
Not applicable.
-15-
16
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 1999 Annual
Meeting of Shareholders and filed with the Commission is hereby incorporated
herein by reference. Information concerning compliance with Section 16(a) of the
Securities and Exchange Act of 1934 appearing under the caption "Section 16(A)
Beneficial Ownership Reporting Compliance" in the definitive Proxy Statement for
the 1999 Annual Meeting of Shareholders and filed with the Commission is hereby
incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
The information contained under the caption "Executive Compensation"
contained in the definitive Proxy Statement for the 1999 Annual Meeting of
Shareholders and filed with the Commission is hereby incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information contained under the captions "Securities Ownership of
Management" and "Securities Ownership of Certain Beneficial Owners" contained in
the definitive Proxy Statement for the 1999 Annual Meeting of Shareholders and
filed with the Commission is hereby incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information contained under the caption "Transactions with
Management" contained in the definitive Proxy Statement for the 1999 Annual
Meeting of Shareholders and filed with the Commission is hereby incorporated
herein by reference.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) 1. Financial Statements. See Item 8.
2. Financial Statements Schedules. Not applicable.
3. Exhibits. See Exhibit Index located on page 31.
(b) No reports on Form 8-K were filed for the three-month period ended
December 31, 1998.
-16-
17
SIGNATURES
Pursuant to the requirements of Section 13 of 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
this behalf by the undersigned thereunto duly authorized.
Dated: March 12, 1999 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 12th day of March, 1999, 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 Kenneth La Grand, each of them individually, as his
attorney-in-fact to sign in his name and on his behalf, and to file with the
Commission any and all amendments to this report on Form 10-K to the same extent
and with the same effect as if done personally.
/s/ Fred Bauer Director
- ------------------------------
Fred Bauer
/s/ Mickey E. Fouts Director
- ------------------------------
Mickey E. Fouts
/s/ Kenneth La Grand Director
- ------------------------------
Kenneth La Grand
/s/ Arlyn Lanting Director
- ------------------------------
Arlyn Lanting
/s/ John Mulder Director
- ------------------------------
John Mulder
Director
- ------------------------------
Ted Thompson
/s/ Leo Weber Director
- ------------------------------
Leo Weber
-17-
18
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of Gentex Corporation:
We have audited the accompanying consolidated balance sheets of GENTEX
CORPORATION (a Michigan corporation) and subsidiaries as of December 31,
1998 and 1997, and the related consolidated statements on income,
shareholders' investment and cash flows for each of the three years in
the period ended December 31, 1998. 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 generally accepted auditing
standards. 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 financial position of Gentex
Corporation and subsidiaries as of December 31, 1998 and 1997, and the
results of their operations and their cash flows for each of the three
years in the period ended December 31, 1998, in conformity with generally
accepted accounting principles.
/s/ Arthur Andersen LLP
Grand Rapids, Michigan
January 21, 1999
-18-
19
GENTEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1998 AND 1997
ASSETS
1998 1997
---- ----
CURRENT ASSETS:
Cash and cash equivalents $ 50,027,747 $ 26,768,647
Short-term investments 24,034,876 14,362,736
Accounts receivable, less allowances
of $275,000 and $225,000 in 1998 & 1997 30,256,795 24,515,525
Inventories 8,726,420 8,787,689
Prepaid expenses and other 2,311,581 1,484,839
------------ ------------
Total current assets 115,357,419 75,919,436
PLANT AND EQUIPMENT:
Land, building and improvements 24,004,557 19,689,743
Machinery and equipment 58,255,550 37,158,968
Construction-in-process 4,974,025 6,166,893
------------ ------------
87,234,132 63,015,604
Less-Accumulated depreciation
and amortization (27,874,247) (20,776,719)
------------ ------------
59,359,885 42,238,885
OTHER ASSETS:
Long-term investments 78,744,138 70,291,142
Patents and other assets, net 1,428,116 1,333,384
------------ ------------
80,172,254 71,624,526
------------ ------------
$254,889,558 $189,782,847
============ ============
LIABILITIES AND SHAREHOLDERS' INVESTMENT
1998 1997
---- ----
Accounts payable $ 7,602,933 $ 8,760,256
Accrued liabilities:
Salaries, wages and vacation 1,349,182 1,567,395
Taxes 3,339,052 2,347,284
Other 2,555,723 1,916,289
------------ ------------
Total current liabilities 14,846,890 14,591,224
DEFERRED INCOME TAXES 3,034,450 1,986,446
SHAREHOLDERS' INVESTMENT:
Preferred stock, no par value,
5,000,000 shares authorized; none
issued or outstanding -- --
Common stock, par value $.06 per share;
100,000,000 shares authorized 4,335,535 2,123,949
Additional paid-in capital 64,876,098 53,654,663
Retained earnings 167,805,830 117,498,700
Deferred compensation (2,054,110) (1,635,623)
Unrealized gain on investments 2,007,568 1,584,368
Cumulative translation adjustment 37,297 (20,880)
------------ ------------
Total shareholders' investment 237,008,218 173,205,177
------------ ------------
$254,889,558 $189,782,847
============ ============
The accompanying notes are an integral part of these consolidated balance
sheets.
20
GENTEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
1998 1997 1996
---- ---- ----
NET SALES $222,292,053 $186,327,877 $148,708,218
COST OF GOODS SOLD 131,900,585 118,941,030 93,582,756
------------ ------------ ------------
Gross profit 90,391,468 67,386,847 55,125,462
OPERATING EXPENSES:
Research and development 10,983,514 9,079,472 7,537,933
Selling, general and administrative 12,065,141 10,825,389 11,747,961
Patent settlement -- -- 4,000,000
------------ ------------ ------------
Total operating expenses 23,048,655 19,904,861 23,285,894
------------ ------------ ------------
Operating income 67,342,813 47,481,986 31,839,568
OTHER INCOME:
Interest and dividend income 5,890,612 4,405,565 3,437,040
Other, net 1,429,705 301,673 205,787
------------ ------------ ------------
Total other income 7,320,317 4,707,238 3,642,827
------------ ------------ ------------
Income before provision
for federal income taxes 74,663,130 52,189,224 35,482,395
PROVISION FOR FEDERAL INCOME TAXES 24,356,000 16,959,000 11,519,000
------------ ------------ ------------
NET INCOME $ 50,307,130 $ 35,230,224 $ 23,963,395
============ ============ ============
EARNINGS PER SHARE:
Basic $ 0.70 $ 0.51 $ 0.35
============ ============ ============
Diluted $ 0.68 $ 0.49 $ 0.34
============ ============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
-20-
21
GENTEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' INVESTMENT
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
Common Stock Additional
----------- Paid-In Comprehensive Retained
Shares Amount Capital Income Earnings
------ ------ ------- ------ --------
BALANCE AS OF DECEMBER 31, 1995 16,895,859 $1,013,752 $37,128,320 -- $58,305,081
Issuance of common stock and the tax benefit
of stock plan transactions 633,754 38,025 8,868,755 -- --
Amortization of deferred compensation -- -- -- -- --
Stock split 17,219,669 1,033,180 (1,033,180) -- --
Comprehensive Income:
Net income -- -- -- $23,963,395 23,963,395
Other comprehensive income:
Foreign currency translation adjustment -- -- -- 8,734 --
Unrealized gain on investments -- -- -- 335,372 --
-----------
Other comprehensive income 344,106 --
-----------
Comprehensive income -- -- -- $24,307,501 --
---------- ---------- ----------- =========== -----------
BALANCE AS OF DECEMBER 31, 1996 34,749,282 2,084,957 44,963,895 82,268,476
Issuance of common stock and the tax benefit
of stock plan transactions 649,865 38,992 8,690,768 -- --
Amortization of deferred compensation -- -- -- -- --
Comprehensive Income:
Net income -- -- -- $35,230,224 35,230,224
Other comprehensive income:
Foreign currency translation adjustment -- -- -- (20,410) --
Unrealized gain on investments -- -- -- 1,293,481 --
-----------
Other comprehensive income -- -- -- 1,273,071 --
-----------
Comprehensive income -- -- -- $36,503,295 --
---------- ---------- ----------- =========== ------------
BALANCE AS OF DECEMBER 31, 1997 35,399,147 2,123,949 53,654,663 117,498,700
Issuance of common stock and the tax benefit
of stock plan transactions 1,023,593 61,416 13,371,605 -- --
Amortization of deferred compensation -- -- -- -- --
Stock split 35,836,177 2,150,170 (2,150,170) -- --
Comprehensive Income:
Net income -- -- -- $50,307,130 50,307,130
Other comprehensive income:
Foreign currency translation adjustment -- -- -- 58,177 --
Unrealized gain on investments -- -- -- 423,200 --
-----------
Other comprehensive income -- -- -- 481,377 --
-----------
Comprehensive income -- -- -- $50,788,507 --
---------- ---------- ----------- =========== ------------
BALANCE AS OF DECEMBER 31, 1998 72,258,917 $4,335,535 $64,876,098 $167,805,830
========== ========== =========== ============
Accumulated
Other Total
Deferred Comprehensive Shareholders'
Compensation Income (Loss) Investment
------------ ------------- ----------
BALANCE AS OF DECEMBER 31, 1995 ($1,721,684) ($53,689) $ 94,671,780
Issuance of common stock and the tax benefit
of stock plan transactions (630,241) -- 8,276,539
Amortization of deferred compensation 547,821 -- 547,821
Stock split -- -- --
Comprehensive Income:
Net income -- -- 23,963,395
Other comprehensive income:
Foreign currency translation adjustment -- -- --
Unrealized gain on investments -- -- --
Other comprehensive income -- 344,106 344,106
Comprehensive income -- -- --
----------- ---------- ------------
BALANCE AS OF DECEMBER 31, 1996 (1,804,104) 290,417 127,803,641
Issuance of common stock and the tax benefit
of stock plan transactions (421,579) -- 8,308,181
Amortization of deferred compensation 590,060 -- 590,060
Comprehensive Income:
Net income -- -- 35,230,224
Other comprehensive income:
Foreign currency translation adjustment -- -- --
Unrealized gain on investments -- -- --
Other comprehensive income -- 1,273,071 1,273,071
Comprehensive income -- -- --
----------- ---------- ------------
BALANCE AS OF DECEMBER 31, 1997 (1,635,623) 1,563,488 173,205,177
Issuance of common stock and the tax benefit
of stock plan transactions (990,218) -- 12,442,803
Amortization of deferred compensation 571,731 571,731
Stock split -- -- --
Comprehensive Income:
Net income -- -- 50,307,130
Other comprehensive income:
Foreign currency translation adjustment -- -- --
Unrealized gain on investments -- -- --
Other comprehensive income -- 481,377 481,377
Comprehensive income -- -- --
----------- ---------- ------------
BALANCE AS OF DECEMBER 31, 1998 ($2,054,110) $2,044,865 $237,008,218
=========== ========== ============
The accompanying notes are an intregal part of these consolidated financial
statements
-21-
22
GENTEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
1998 1997 1996
------------ ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $50,307,130 $35,230,224 $23,963,395
Adjustments to reconcile net income to net
cash provided by operating activities-
Depreciation and amortization 7,522,521 6,418,312 3,918,515
Loss on disposal of equipment 111,218 82,862 47,949
Loss (gain) on sale of investments (937,360) (8,102) 39,295
Deferred income taxes 456,474 (289,734) 1,072,582
Amortization of deferred compensation 571,731 590,060 547,821
Change in assets and liabilities:
Accounts receivable, net (5,741,270) (7,500,351) (2,309,018)
Inventories 61,269 (2,607,267) (444,903)
Prepaid expenses and other (463,089) (152,724) (184,625)
Accounts payable (1,157,323) 2,965,424 372,174
Accrued liabilities 1,412,989 264,883 (3,061,324)
----------- ----------- -----------
Net cash provided by
operating activities 52,144,290 34,993,587 23,961,861
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Activity in Held-To-Maturity Securities
Maturities and Calls 12,366,000 24,765,464 28,840,879
Purchases (8,333,178) (28,324,553) (34,915,969)
Activity in Available-For-Sale Securities
Sales Proceeds 5,028,187 12,475,160 1,123,053
Purchases (25,597,708) (25,822,809) (8,011,758)
Plant and equipment additions (24,596,224) (16,383,089) (16,424,358)
Proceeds from sale of plant and equipment 52,615 316,270 11,943
Increase in other assets (247,685) (289,920) (246,875)
----------- ----------- -----------
Net cash used for
investing activities (41,327,993) (33,263,477) (29,623,085)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock and tax benefit of
stock plan transactions 12,442,803 8,308,181 8,276,539
----------- ----------- -----------
Net cash provided by
financing activities 12,442,803 8,308,181 8,276,539
----------- ----------- -----------
NET INCREASE IN CASH AND
CASH EQUIVALENTS 23,259,100 10,038,291 2,615,315
CASH AND CASH EQUIVALENTS,
beginning of year 26,768,647 16,730,356 14,115,041
----------- ----------- -----------
CASH AND CASH EQUIVALENTS,
end of year $50,027,747 $26,768,647 $16,730,356
=========== =========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
-22-
23
GENTEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES
The Company
Gentex Corporation designs, develops, manufactures and markets proprietary
electro-optical products: automatic rearview mirrors for the automotive
industry and fire protection products for the commercial building
industry. A substantial portion of the Company's net sales and accounts
receivable result from transactions with domestic and foreign automotive
manufacturers and tier one suppliers. The Company's fire protection
products are primarily sold to domestic distributors and original
equipment manufacturers of fire and security systems.
Significant accounting policies of the Company not described elsewhere are
as follows:
Consolidation
Theconsolidated financial statements include the accounts of Gentex
Corporation and all of its wholly-owned subsidiaries (together the
"Company"). All significant intercompany accounts and transactions have
been eliminated.
Cash Equivalents
Cash equivalents consist of funds invested in money market accounts.
Investments
The amortized cost, unrealized gains and losses, and market value of
securities held to maturity and available for sale are shown as of
December 31, 1998 and 1997:
1998 Cost Gains Losses Market Value
---- ---- ----- ------ ------------
U.S. Treasuries $24,729,622 $ 613,450 $ -- $ 25,343,072
Municipal 41,168,482 510,201 (989) 41,677,694
Other Fixed 5,149,333 2,614 -- 5,151,947
Equity 28,643,012 3,611,957 (1,136,842) 31,118,127
----------- ----------- ----------- -------------
$99,690,449 $ 4,738,222 $(1,137,831) $ 103,290,840
=========== =========== =========== =============
1997
----
U.S. Treasuries $15,255,587 $ 344,430 $ -- $ 15,600,017
Municipal 43,874,376 350,279 (2,641) 44,222,014
Other Fixed 6,476,132 8,518 -- 6,484,650
Equity 16,610,295 2,172,023 (78,965) 18,703,353
----------- ----------- ----------- -------------
$82,216,390 $ 2,875,250 $ (81,606) $ 85,010,034
=========== =========== =========== =============
Fixed income securities, excluding U.S. Treasuries, are considered held to
maturity, and equity securities and U.S. Treasuries are available for
sale. Held to maturity securities as of December 31, 1998, have
maturities as follows:
Due within one year $15,559,418
Due between one and five years 30,758,397
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, 1998 and 1997:
1998 1997
---- ----
Raw materials $4,301,060 $ 4,931,434
Work-in-process 926,466 600,298
Finished goods 3,498,894 3,255,957
---------- -----------
$8,726,420 $ 8,787,689
========== ===========
-23-
24
GENTEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES, continued
Plant and Equipment
Plant and equipment are stated at cost. Depreciation and amortization are
computed for financial reporting purposes using the straight-line
method, with estimated useful lives of 5 to 40 years for building and
improvements, and 3 to 10 years for machinery and equipment.
The Company is constructing a new facility scheduled to be completed in
2000. The estimated cost to be incurred in 1999 and 2000 for the
facility is approximately $12 million.
Patents
The Company's policy is to capitalize costs incurred to obtain and defend
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 $4,890,000 and $4,679,000 at December 31,
1998 and 1997, respectively. Patent amortization expense was
approximately $211,000, $1,099,000, and $186,000 in 1998, 1997 and 1996,
respectively.
Revenue Recognition
The Company's revenue primarily is generated from sales of its products.
Sales are recognized upon the shipment of product to customers.
Advertising and Promotional Materials
All advertising and promotional costs are expensed as incurred and amounted
to approximately $640,000, $671,000, and $780,000 in 1998, 1997 and
1996, respectively.
Repairs and Maintenance
Major renewals and improvements of property and equipment are capitalized,
and repairs and maintenance are expensed as incurred. The Company
incurred expenses relating to the repair and maintenance of plant and
equipment of approximately $2,165,000, $2,028,000, and $1,338,000 in
1998, 1997 and 1996, 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.
Earnings Per Share
The following table reconciles the numerators and denominators used in the
calculations of basic and diluted earnings per share for each of the
last three years:
1998 1997 1996
---- ---- ----
Numerators:
Numerator for both basic and diluted EPS, net income $50,307,130 $35,230,224 $23,963,395
Denominators:
Denominator for basic EPS,
weighted-average common shares outstanding 71,611,401 69,629,824 68,186,438
Potentially dilutive shares resulting from stock option plans 2,005,319 2,331,708 2,838,134
----------- ----------- -----------
Denominator for diluted EPS 73,616,720 71,961,532 71,024,572
=========== =========== ===========
-24-
25
GENTEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES, continued
Other Comprehensive Income
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130: "Reporting Comprehensive Income." This
statement establishes standards for reporting and display of
comprehensive income and its components. 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 Gentex, comprehensive income represents net income adjusted for
items such as 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,
--------------------------------------------------------------------------------------------
1998 1997 1996
--------------------------- -------------------------- ----------------------
Pre-Tax Pre-Tax Tax Exp. Pre-Tax
Amount Tax Exp. Amount (Credit) Amount Tax Exp.
Unrealized Gain
on Securities: $651,075 $227,875 $1,989,971 $696,490 $515,957 $180,585
Foreign Currency
Translation Adjustments: 89,503 31,326 (31,400) (10,990) 13,437 4,703
-------- -------- ---------- -------- -------- --------
Other Comprehensive
Income $740,578 $259,201 $1,958,571 $685,500 $529,394 $185,288
======== ======== ========== ======== ======== ========
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.
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles 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.
(2) LINE OF CREDIT
The Company has available an unsecured $5,000,000 line of credit from a
bank at the lower of the bank's prime rate or 1.5% above the LIBOR rate.
No borrowings were outstanding under this line in 1998 or 1997. No
compensating balances are required under this line.
(3) FEDERAL INCOME TAXES
The Company recognizes deferred 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 tax liabilities and assets are determined based on the
difference between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse.
-25-
26
GENTEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(3) FEDERAL INCOME TAXES, continued
The components of the provision for federal income taxes are as follows:
1998 1997 1996
----------- ----------- -----------
Currently payable $23,900,000 $17,249,000 $10,446,000
Net Deferred 456,000 (290,000) 1,073,000
----------- ----------- -----------
$24,356,000 $16,959,000 $11,519,000
=========== =========== ===========
The currently payable provision is further reduced by the tax benefits
associated with the exercise, vesting or disposition of stock under the
stock plans described in Note 6. These reductions totaled approximately
$4,227,000, $3,571,000, and $3,284,000 in the respective years.
The effective income tax rates are different from the statutory federal
income tax rates for the following reasons:
1998 1997 1996
---- ---- ----
Statutory federal income tax rate 35.0% 35.0% 35.0%
Foreign Sales Corporation exempted income (1.3) (1.4) (1.5)
Tax-exempt investment income (0.8) (1.2) (1.2)
Other (0.3) 0.1 0.2
---- ---- ----
Effective Income tax rate 32.6% 32.5% 32.5%
==== ==== ====
The tax effect of temporary differences which give rise to deferred tax
assets and liabilities at December 31, 1998 and 1997, are as follows:
1998 1997
---------------------------- ----------------------------
Current Non-Current Current Non-Current
---------- ------------ ---------- -----------
Assets:
Accruals not currently deductible $ 724,379 $ 112,700 $ 500,052 $ 100,100
Deferred compensation -- 490,400 -- 407,379
Other 736,645 29,174 564,325 44,241
---------- ------------ ---------- -----------
Total deferred tax assets 1,461,024 632,274 1,064,377 551,720
Liabilities:
Excess tax over book depreciation -- (2,379,382) -- (1,486,411)
Patent costs -- (206,343) -- (198,633)
Other (113,750) (1,080,999) (80,756) (853,122)
---------- ------------ ---------- -----------
Net deferred taxes $1,347,274 $ (3,034,450) $ 983,621 $(1,986,446)
========== ============ ========== ===========
Income taxes paid in cash were approximately $18,815,000, $14,012,000,
and $6,930,000 in 1998, 1997 and 1996, 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 1998, 1997 and 1996,
the Company's contributions were approximately $378,000, $293,000, and
$208,000, respectively.
The Company does not provide health care benefits to retired employees.
-26-
27
GENTEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(5) SHAREHOLDER PROTECTION RIGHTS PLAN
In August 1991, the Company's Board of Directors adopted 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 $27, 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 $.00125 per Right
and, unless earlier redeemed, will expire on August 26, 2001. Rights
beneficially owned by holders of 15 percent or more of the Company's
common stock, or their transferees, automatically become void.
(6) STOCK-BASED COMPENSATION PLANS
The Company has three stock option plans, including two employee stock
option plans ("Employee Plans") and a non-employee directors stock
option plan ("Director Plan"), and an employee stock purchase plan. The
Company accounts for these plans under APB Opinion No. 25, under which
no compensation cost has been recognized. Had compensation cost for
these plans been determined consistent with FASB Statement No. 123, the
Company's net income and earnings per share would have been reduced to
the following pro-forma amounts:
1998 1997 1996
---- ---- ----
Net Income: As Reported $50,307,130 $35,230,224 $23,963,395
Pro Forma 46,098,379 32,986,461 21,863,375
EPS (diluted): As Reported $ 0.68 $ 0.49 $ 0.34
Pro Forma 0.63 0.46 0.31
Because the Statement 123 method of accounting has not been applied to
options granted prior to January 1, 1995, the resulting pro forma
compensation cost may not be representative of that to be expected in
future years.
The Company may sell up to 1,600,000 shares of stock to its employees under
the Employee Stock Purchase Plan. The Company has sold to employees
61,748 shares, 70,204 shares, and 63,786 shares in 1998, 1997 and 1996,
respectively, and has sold a total of 374,142 shares through December
31, 1998. 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
1998 was approximately $14.
The Company may grant options for up to 9,000,000 shares under the Employee
Plans. The Company has granted options on 3,809,540 shares through
December 31, 1998. Under the Plans, the option exercise price equals
the stock's market price on date of grant. The Employee Plan options
vest after one to five years, and expire after five to seven years.
A summary of the status of the Company's two employee stock option plans
at December 31, 1998, 1997 and 1996, and changes during the years then
ended is presented in the table and narrative below:
1998 1997 1996
------------------- ------------------- -------------------
Shares Wtd. Avg. Shares Wtd. Avg. Shares Wtd. Avg.
(000) Ex price (000) Ex price (000) Ex price
----- -------- ----- -------- ----- --------
Outstanding at Beginning of Year 4,706 $ 7 5,058 $ 6 5,798 $ 4
Granted 761 17 982 12 1,030 9
Exercised (1,267) 6 (1,186) 3 (1,756) 3
Forfeited (55) 10 (148) 9 (14) 7
Expired -- -- -- -- -- --
------ ---- ------ ------
Outstanding at End of Year 4,145 10 4,706 7 5,058 6
------ ---- ------ ------
Exercisable at End of Year 1,782 7 2,063 6 2,020 4
Weighted Avg. Fair Value
of Options Granted $ 8 $ 6 $ 5
-27-
28
GENTEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(6) STOCK-BASED COMPENSATION PLANS, continued
Options Outstanding and Exercisable by Price Range As of December 31, 1998
Options Exercisable
--------------------------------
Options Shares Outstanding Shares Weighted-Average
Range of Outstanding Remaining Weighted-Average Exercisable Exercise
Exercise Prices (000) Contractual Life Exercise Price (000) Price
--------------- ----------- ---------------- -------------- ----------- -----
$1 - $11 2,842 2 $7 1,656 $6
$11 - $22 1,303 5 $15 126 $13
----- -----
Total 4,145 3 $10 1,782 $7
===== =====
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following
weighted-average assumptions used for grants in 1998, 1997 and 1996,
respectively: risk-free interest rates of 5.1, 6.2 and 6.4 percent;
expected dividend yields of 0.0, 0.0 and 0.0 percent; expected lives
ranging from 5 to 7 years, 5 to 7 years and 5 to 7 years; expected
volatility of 43, 46 and 47 percent.
The Company may grant options for up to 2,000,000 shares under the Director
Plan. The Company has granted options on 1,056,000 shares through
December 31, 1998. Under the plan 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 Plan at December 31, 1998, 1997
and 1996, and changes during the years then ended is presented in the
table and narrative below:
1998 1997 1996
------------------- ------------------- -------------------
Shares Wtd. Avg. Shares Wtd. Avg. Shares Wtd. Avg.
(000) Ex price (000) Ex price (000) Ex price
----- -------- ----- -------- ----- --------
Outstanding at Beginning of Year 548 $ 5 568 $ 4 528 $ 4
Granted 40 17 40 10 80 9
Exercised (76) 2 (60) 7 (40) 5
--- --- ---
Outstanding at End of Year 512 6 548 5 568 4
--- --- ---
Exercisable at End of Year 512 6 548 5 568 4
Weighted Avg. Fair Value
of Options Granted $ 11 $ 6 $ 7
Options Outstanding and Exercisable by Price Range As Of December 31, 1998
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 - $18 512 5 $6 512 $6
=== ===
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following
weighted-average assumptions used for grants in 1998, 1997 and 1996,
respectively: risk-free interest rates of 5.7, 6.7 and 6.8 percent;
expected dividend yields of 0.0, 0.0 and 0.0 percent; expected lives of
5, 5 and 10 years; expected volatility of 43, 46 and 47 percent.
The Company has a restricted stock plan covering 1,600,000 shares of common
stock, 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 1998, 1997 and 1996, 64,200, 75,000 and
70,000 shares, respectively, were granted with restriction periods of
four to six years at market prices ranging from $14.032 to $19.813 in
1998, $10.063 to $12.938 in 1997, and $10.063 to $10.938 in 1996. The
related expense is reflected as deferred compensation in the
accompanying consolidated financial statements and is being amortized
over the applicable restriction periods.
-28-
29
GENTEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(7) STOCK SPLITS
On May 21, 1998, the Company's Board of Directors declared a two-for-one
stock split effected in the form of a 100% common stock dividend to
shareholders of record on June 5, 1998. The stock split increased the
number of shares of common stock then outstanding from 35,836,177 to
71,672,354.
On May 9, 1996, the Company's Board of Directors declared a two-for-one
stock split effected in the form of a 100% common stock dividend to
shareholders of record on May 31, 1996. The stock split increased the
number of shares of common stock then outstanding from 17,219,669 to
34,439,338.
Earnings per share and all share data have been restated in all prior
periods to reflect these stock splits.
(8) CONTINGENCIES
The Company has been involved in patent litigation with Donnelly
Corporation since 1990 concerning a number of patents relating to
electrochromic mirrors owned by the Company and Donnelly.
During 1996, the Company reached an agreement with Donnelly to resolve all
of the patent litigation between the two companies. Under the agreement:
- The companies have cross-licensed certain patents (for the life of the
patents) that each company may practice within its own "core"
electrochromic mirror technology area.
- The Company paid Donnelly $6 million in April 1996 (plus a $200,000
contingent payment if Donnelly prevailed in its lighted mirror patent
appeal) as full and complete satisfaction of all of Donnelly's patent
infringement claims.
- The companies agreed not to pursue litigation against each other on
certain other patents for a period of four years.
The Company recorded a one-time charge of $4,000,000 ($6,000,000 payment,
net of accrued reserves) in 1996, in connection with this settlement.
In 1998, Donnelly's lighted mirror patent appeal was granted by the Court
of Appeals for the Federal Circuit, and the Company paid the $200,000
contingent payment to Donnelly.
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 results of
operations of the Company.
(9) SEGMENT REPORTING
In fiscal year 1998, the Company adopted Statement of Financial Accounting
Standards No. 131: "Disclosures About Segments of an Enterprise and
Related Information" (SFAS No. 131). This statement 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.
-29-
30
GENTEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(9) SEGMENT REPORTING, continued
1998 1997 1996
------------ ------------ -----------
Revenue:
Automotive Products
U.S. $127,588,319 $ 98,229,265 $ 81,114,871
Germany 46,009,639 39,468,221 23,031,833
Other 28,518,734 28,435,911 25,467,548
Fire Protection Products 20,175,361 20,194,480 19,093,966
------------ ------------ ------------
Total $222,292,053 $186,327,877 $148,708,218
============ ============ ============
Operating Income:
Automotive Products $ 63,718,817 $ 43,390,801 $ 28,181,704
Fire Protection Products 3,623,996 4,091,185 3,657,864
------------ ------------ ------------
Total $ 67,342,813 $ 47,481,986 $ 31,839,568
============ ============ ============
Assets:
Automotive Products $ 89,252,971 $ 69,887,416 $ 50,904,641
Fire Protection Products 3,864,138 4,670,554 3,960,633
Other 161,772,449 115,224,877 85,513,146
------------ ------------ ------------
Total $254,889,558 $189,782,847 $140,378,420
============ ============ ============
Depreciation & Amortization:
Automotive Products $ 6,658,551 $ 5,811,705 $ 3,399,922
Fire Protection Products 314,522 296,601 261,529
Other 549,448 310,006 257,064
------------ ------------ ------------
Total $ 7,522,521 $ 6,418,312 $ 3,918,515
============ ============ ============
Capital Expenditures:
Automotive Products $ 19,595,844 $ 15,419,468 $ 16,060,728
Fire Protection Products 209,867 443,354 308,964
Other 4,790,513 520,267 54,666
------------- ------------- -------------
Total $ 24,596,224 $ 16,383,089 $ 16,424,358
============= ============= =============
Other assets are principally cash, investments, deferred income taxes, and
corporate fixed assets.
Automotive Products revenues in the "Other" category are sales to U.S.
automotive manufacturing plants in Canada, Mexico and other foreign
automotive customers. All non-U.S. sales are invoiced and paid in U.S.
dollars.
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
-- -- --
1998 43% 25% 11%
1997 43% 25% *
1996 43% 23% *
*Less than 10%
-30-
31
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION PAGE
- ----------- ----------- ----
3(a)(1) Registrant's Articles of Incorporation were filed in 1981 as
Exhibit 2(a) to a Registration Statement on Form S-18
(Registration No. 2-74226C), an Amendment to those Articles was
filed as Exhibit 3 to Registrant's Report on Form 10-Q in August
of 1985, an additional Amendment to those Articles was filed as
Exhibit 3(a)(i) to Registrant's Report on Form 10-Q in August of
1987, and an additional Amendment to those Articles was filed as
Exhibit 3(a)(2) to Registrant's Report on Form 10-K dated March
10, 1992, and an additional Amendment to those Articles was
filed as Exhibit 3(a)(2) to Registrant's Report on Form 10-Q
dated July 31, 1996, all of which are hereby incorporated herein
by reference.
3(a)(2) Amendment to Articles of Incorporation, adopted on May 21, 1998,
was filed as Exhibit 3(a)(2) to Registrant's Report on Form 10-Q
dated July 30, 1998, and the same is hereby incorporated herein
by reference.
3(b)(1) Registrant's Bylaws as amended and restated August 18, 1995,
were filed as Exhibit 3(b) to Registrant's Report on Form 10-Q
dated November 1, 1995, and the same is hereby incorporated
herein by reference.
3(b)(2) First Amendment to Bylaws, adopted on August 25, 1997, was filed
as Exhibit 3(c) to Registrant's Report on Form 10-Q dated
October 31, 1997, 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) Shareholder Protection Rights Agreement, dated as of August 26,
1991, 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 8-K on
August 1991, and the same is hereby incorporated herein by
reference.
4(b)(1) First Amendment to Shareholder Protection Rights Agreement,
effective April 1, 1994, was filed as Exhibit 4(b)(1) to
Registrant's Report on Form 10-Q dated April 29, 1994, and the
same is hereby incorporated herein by reference.
4(b)(2) Second Amendment to Shareholder Protection Rights Agreement,
effective November 8, 1996, was filed as Exhibit 4(b)(2) to
Registrant's Report on Form 10-K dated March 7, 1997, and the
same is hereby incorporated herein by reference.
10(a)(1) A Lease, dated August 15, 1981, was filed as part of a
Registration Statement (Registration Number 2-74226C) as Exhibit
9(a)(1), and the same is hereby incorporated herein by
reference.
10(a)(2) A First Amendment to Lease, dated June 28, 1985, was filed as
Exhibit 10(m) to Registrant's Report on Form 10-K dated March
18, 1986, and the same is hereby incorporated herein by
reference.
*10(b)(1) Gentex Corporation Qualified Stock Option Plan (as amended and
restated, effective August 25, 1997) was filed as Exhibit
10(b)(1) to Registrant's Report on Form 10-Q dated July 30,
1998, and the same is hereby incorporated herein by reference.
*10(b)(2) Gentex Corporation 1987 Incentive Stock Option Plan (as amended
through May 24, 1989), was filed as Exhibit 10(g)(3) to
Registrant's Report on Form 10-K dated March 1, 1990, and the
same is hereby incorporated herein by reference.
-31-
32
EXHIBIT NO. DESCRIPTION PAGE
- ----------- ----------- ----
*10(b)(3) Gentex Corporation Restricted Stock Plan was filed as Exhibit
10(b)(3) to Registrant's Report on Form 10-K dated March 10,
1992, and the same is hereby incorporated herein by reference.
*10(b)(4) Gentex Corporation Non-Employee Director Stock Option Plan (as
amended and restated, effective March 7, 1997) was filed as
Exhibit 10(b)(4) to Registrant's Report on Form 10-K dated March
7, 1997, 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 was filed as a part of a Registration
Statement on Form S-2 (Registration No. 33-30353) as Exhibit
10(k) and the same is hereby incorporated herein by reference.
21 List of Company Subsidiaries 33
23 Consent of Independent Public Accountants 34
27 Financial Data Schedule
*Indicates a compensatory plan or arrangement.
-32-