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, 2003.
( ) 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 (P 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. ( )
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, 2003 (the last business day of the registrant's most recently
completed second fiscal quarter), 76,397,939 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 $2,236,624,074 computed at the
closing price on that date.
Portions of the Company's Proxy Statement for its 2004 Annual Meeting of
Shareholders are incorporated by reference into Part III.
Exhibit Index located at Page 35
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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 technology,
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,
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.
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 its 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.
The Company shipped approximately 5,000,000 interior auto-dimming
mirrors in 2001, approximately 6,305,000 in 2002, and approximately 7,132,000 in
2003.
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.
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During 2003, the growth in total mirror unit shipments resulted from
increased penetration of light vehicles manufactured worldwide including the
Audi A3 and A4; Acura TSX sports sedan; Honda Inspire; Infiniti M45, G35 and FX
35/45; Lexus GX470; Mazda 3, Mazda 6, Tribute and RX8; Nissan 350Z, Murano,
Quest, Maxima, Titan and Pathfinder Armada; Volvo S40 sedan, and Toyota RAV4 and
Prius. The Company's interior auto-dimming mirrors are standard equipment or
factory- or distributor/dealer-installed options on certain trim levels of the
following 2004 and 2004-1/2 vehicle models:
TABLE 1. INTERIOR AUTO-DIMMING MIRROR AVAILABILITY BY VEHICLE LINE (NORTH
AMERICAN MANUFACTURERS)
GM/Cadillac Deville / DTS Mazda 6
Seville 3
CTS Tribute
Escalade RX8
SRX Mitsubishi / Chrysler Sebring
GM/Buick LeSabre Mitsubishi / Dodge Stratus Coupe
Park Avenue Nissan Altima
GM/Hummer H2 Maxima
GM/Pontiac Bonneville Pathfinder Armada
GM/Chevrolet Blazer Quest
Corvette Titan
Malibu Toyota Avalon
SSR Camry Solara
Express Camry
Silverado Corolla
Suburban Matrix
Avalanche Sequoia
Tahoe Sienna
GM/GMC Savana Toyota/Lexus RX330
Sierra GX470
Yukon Volkswagen Beetle
Ford Crown Victoria Jetta
Taurus Southeast Toyota / 4-Runner
Expedition Gulf State Toyota / Avalon
F Series Toyota Motor Sales Camry
Ford/Lincoln LS Camry Solara
Aviator Celica
Navigator Tundra
Town Car RAV4
Ford/Mercury Grand Marquis Sienna
Sable Prius
DaimlerChrysler Pacifica Harrier
/ Chrysler Sebring Highlander
Town & Country Sequoia
DaimlerChrysler / Dakota Corolla
Dodge Durango Matrix
Caravan Scion
Ram Pickup Subaru / Forester
DaimlerChrysler / Grand Cherokee New England Dist. Impreza
Jeep Liberty Legacy
Wrangler Outback
DaimlerChrysler/ M Class Mazda Accessory 3
Mercedes-Benz 6
BMW X5 Tribute
Isuzu Axiom Nissan Accessory 350Z
Quest
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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 Mazda Mazda 6
BMW 7 Series DaimlerChrysler / A Class
5 Series Mercedes-Benz C Class
3 Series CLK
Daewoo/Ssangyong Chairman E Class
Korando G Wagen
Musso S Class
Rexton SL Class
Istana SLK
DaimlerChrysler / Chrysler Voyager Mitsubishi Montero Sport
DaimlerChrysler / Jeep Grand Cherokee Magna Verada
Fiat / Alfa Romeo 166 NQZ
Fiat / Lancia Thesis Outlander
Lybra Nissan 350Z
Fiat (Brazil) Marea Cima
Stilo Gloria
Palio Maxima
Ford (Europe) Mondeo Murano
Ford (Taiwan) Mondeo Porsche Cayenne
Ford / Jaguar XK Samsung SM520 / 525
XJ Toyota / Lexus IS300
S-Type ES330
Ford / Land Rover Discovery GS300
Range Rover GS430
Ford / Volvo S40 LS430
GM (Brazil) Vectra RX330
Astra SC300
GM / Opel Corsa SC430
Meriva GX470
Astra LX470
Zafira RX-8
Vectra Toyota Land Cruiser
Signum Camry
Honda / Acura TSX Cygnus
Honda Inspire Celsior
Hyundai Dynasty Prius
Grandeur RAV4
Sonata Windom
Santa Fe Century
Starex 4-Runner
Avante Toyota (Europe) Avensis
Equus / Centennial Toyota (Taiwan) Camry
Tuscani Volkswagen Polo
Terracan Golf
Nissan / Infiniti Q45 Passat
FX35 / FX45 Phaeton
I35 Taxi
G35 Touareg
M45 Touran
Kia Motors Corp. Enterprise Volkswagen / Audi A3
Sorento A4
Optima A6
Carens A8
Opirus Taxi
Serato
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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 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 2,181,000 exterior auto-dimming
mirror sub-assemblies during 2001, approximately 2,500,000 in 2002, and
approximately 3,128,000 in 2003. During 2003, unit shipment growth primarily
resulted from the increased penetration of light vehicles in North America and
Europe.
The exterior auto-dimming mirror is standard equipment or a factory- or
distributor/dealer-installed option on certain trim levels of the following 2004
and 2004-1/2 vehicle models:
TABLE 2. EXTERIOR AUTO-DIMMING MIRROR AVAILABILITY BY VEHICLE LINE
GM/Cadillac Deville / DTS Bentley Arnage
Escalade Continental
Seville DaimlerChrysler / C Class
SRX Mercedes- Benz CLK
XLR E Class
GM / Buick LeSabre G Wagen
Park Avenue M Class
GM / Chevrolet Blazer S Class
Corvette SL Class
Silverado SLK Class
SSR Fiat / Lancia Thesis
Suburban Ford / Jaguar XJ
Tahoe XK
Avalanche S-Type
GM / GMC Sierra Ford / Land Rover Range Rover
Yukon GM / Opel Vectra
GM / Hummer H2 Nissan / Infiniti Q45
Ford/Lincoln Town Car M45
DaimlerChrysler/ Town & Country Limited Toyota / Lexus RX330
Chrysler Pacifica Mitsubishi Magna / Verada
DaimlerChrysler/Dodge Durango Nissan Cima
Caravan Rolls Royce Phantom
DaimlerChrysler/Jeep Grand Cherokee Camry Solara
Volkswagen / Audi A6 Daewoo / Ssangyong Chairman
A8 Toyota Avalon
BMW 7 Series Camry Solara
5 Series Sienna
X5 Volkswagen Sharan
Toyota Motor Sales Sequoia
Sienna
Tundra
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
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telematics mirrors and the auto-dimming HomeLink(R) Mirror. During 2001, the
Company announced a revolutionary new technology, called SmartBeam(TM), that
uses a custom, active-pixel, CMOS (complementary metal oxide semiconductor)
sensor, that maximizes a driver's forward vision by significantly improving
utilization of the vehicle's highbeam headlamps during nighttime driving. The
Company has received product planning commitments from two North American
automotive OEM customers for three 2005 model year vehicles. 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 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 Orca(TM) LEDs for
the Chrysler Sebring Coupe. Strategic discussions with potential alliance
partners in the automotive lighting industry, LED component industry and LED
chip industry are continuing although discussions are taking longer than
anticipated, primarily due to changing business conditions in the LED industry.
The Company's success with electrochromic technology provides an
opportunity for other potential commercial applications, which the Company
expects to explore in the future as resources permit. Examples of possible
applications of electrochromic technology include windows for both the
automotive and architectural markets, sunroofs and sunglasses. Progress in
adapting electrochromic technology to the specialized requirements of the window
market continued in 2003. 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
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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, Rolls Royce, Volkswagen and Volvo in Europe.
Since 1991, the Company has been shipping electrochromic mirror
assemblies for Nissan Motor Co., Ltd. under a reciprocal distribution agreement
with Ichikoh Industries, Ltd. (Ichikoh), a major Japanese supplier of automotive
products. Under this agreement, Ichikoh markets the Company's automatic mirrors
to certain Japanese automakers and their subsidiaries with manufacturing
facilities in Asia. The arrangement involves very limited technology transfer by
the Company and does not include the Company's proprietary electrochromic gel
formulation.
During 1993, the Company hired a sales agent to market auto-dimming
mirrors to other Japanese automakers beyond Nissan. Subsequently in 1998, the
Company established Gentex Japan, Inc., as a sales and engineering office to
expand its sales and engineering support in Japan. During 1999, the Company
signed an agreement with Murakami Corporation, a major Japanese mirror
manufacturer, to cooperate in expanding sales of automatic-dimming mirrors using
the Gentex electrochromic technology. During 2002, the Company established
Gentex Technologies Korea Co., Ltd. as a sales and engineering office in Seoul,
Korea. The Company is currently supplying mirrors for Daewoo/Ssangyong, Ford
(Taiwan), GM (China), Hyundai, Infiniti, Kia Motors, Lexus, Mazda, Mitsubishi,
Nissan, Samsung, and Toyota.
Historically, new safety and comfort options have entered the original
equipment automotive market at relatively low rates on "top of the line" or
luxury model automobiles. As the selection rates for the options on the luxury
models increase, they generally become available on more models throughout the
product line and may become standard equipment. The recent trend of domestic and
foreign automakers is to offer several options as a package. As consumer demand
increases for a particular option, the mirror tends to be offered on more
vehicles and in higher option rate packages. The Company anticipates that its
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 features becomes more well-known and acceptance grows.
Since 1998, Gentex Corporation has contracted with MITO Corporation to
sell several of its most popular automatic-dimming mirrors directly to consumers
in the automotive aftermarket; in addition, the Company currently sells some
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 77% market share worldwide. While the Company
believes it will retain a dominant position, one other U.S. manufacturer (Magna
Donnelly) is competing for sales to domestic and foreign vehicle manufacturers
and is supplying a number of domestic and foreign vehicle models with its hybrid
or solid polymer matrix versions of electrochromic mirrors. In addition, two
Japanese manufacturers are currently supplying a number of vehicle models in
Japan with solid-state electrochromic mirrors.
On October 1, 2002, Magna International acquired Donnelly Corporation
which is the Company's major competitor for sales of automatic-dimming rearview
mirrors to domestic and foreign vehicle manufacturers and their mirror
suppliers. The Company also sells certain automatic-dimming rearview mirror
sub-assemblies to Magna Donnelly.
The Company believes its electrochromic automatic mirrors offer
significant performance advantages over competing products. However, Gentex
recognizes that Magna Donnelly, a competitor and wholly-owned subsidiary of
Magna International, is considerably larger than the Company and may present a
more formidable competitive threat in the future. To date, the Company is not
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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.
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
tremendous number of mergers and consolidations during the past few years. The
Company markets its fire protection products throughout the United States
through regional sales managers and manufacturer representative organizations.
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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.
TRADEMARKS AND PATENTS
The Company owns 8 U.S. trademarks and 196 U.S. patents, 189 of which
relate to electrochromic technology and/or automotive rearview mirrors. These
patents expire between 2007 and 2022. The Company believes that these patents
provide the Company a significant competitive advantage in the automotive
rearview mirror market; however, none of these patents is required for the
success of any of the Company's products.
The Company also owns 1 foreign trademark and 44 foreign patents, 43 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 remaining 7 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 134 U.S. patent applications, 204
foreign patent applications, and 10 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 $126,980,000 and $110,359,000 at February 1, 2004, and 2003,
respectively.
At February 1, 2004, the Company had 1,973 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 scheduled to open in 2005.
During 2003, the Company also
-10-
announced plans for a new corporate office facility linking the fourth
manufacturing facility with its existing corporate office and production
facility. The Company plans to invest approximately $40-45 million for the new
facilities during 2004 and 2005.
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.
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 61 Chief Executive Officer May 1986
Garth Deur 47 Executive Vice President May 2001
Dennis Alexejun 52 Vice President, North American Automotive Marketing September 1998
John Carter 56 Vice President, Mechanical Engineering June 1997
Enoch Jen 52 Vice President, Finance February 1991
There are no family relationships among the officers listed in the
preceding table.
Except for the executive officers 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).
Dennis Alexejun has served as Vice President, North American Automotive
Marketing, of the Company since September 1998. Prior to that time, Mr. Alexejun
served as Vice President, General Motors Business Operations, from February 1995
through September 1998 at the Automotive Interiors division of Johnson Controls,
Inc. (formerly Prince Corporation, which was acquired by Johnson Controls in
1996).
-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, 2004, there were 2,375 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
- -----------------------------------------------------
2002 First $ 32.83 $ 26.31
Second 33.50 25.15
Third 32.02 23.65
Fourth 32.90 23.52
2003 First 32.68 23.90
Second 33.50 25.03
Third 39.44 29.83
Fourth 44.98 34.46
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. In November 2003, the Company's Board of Directors approved a
continuing resolution to pay a quarterly dividend of $0.15 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 pay a quarterly cash
dividend at its current level.
ITEM 6. SELECTED FINANCIAL DATA
(in thousands, except per share data)
2003 2002 2001 2000 1999
------------ ----------- ------------ ------------- ---------
Net Sales $ 469,019 $395,258 $ 310,305 $ 297,421 $ 262,155
Net Income 106,761 85,771 65,217 70,544 64,864
Earnings Per Share 1.37 1.12 0.86 0.93 0.86
Cash Dividends Declared
per Common Share $ 0.30 $ - $ - $ - $ -
Total Assets $ 762,530 $609,173 $ 506,823 $ 428,129 $ 337,673
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 2002 2001
--------------------------------- to to
2003 2002 2001 2003 2002
------ ------ ----- ------ ------
Net Sales 100.0% 100.0% 100.0% 18.7% 27.4%
Cost of Goods Sold 58.1 59.6 60.7 15.7 25.1
------ ------ ----- ------ ------
Gross Profit 41.9 40.4 39.3 23.1 30.9
Operating Expenses:
Engineering, Research and Development 5.7 5.8 6.7 15.8 11.1
Selling, General and Administrative 5.0 5.5 6.2 8.6 11.5
------ ------ ----- ------ ------
Total Operating Expenses 10.7 11.3 12.9 12.3 11.3
------ ------ ----- ------ ------
Operating Income 31.2 29.1 26.4 27.2 40.4
Other Income 2.5 3.0 4.7 (2.4) (18.4)
------ ------ ----- ------- ------
Income Before Provision for Income Taxes 33.7 32.1 31.1 24.5 31.5
Provision for Income Taxes 10.9 10.4 10.1 24.5 31.5
------ ------ ----- ------ ------
Net Income 22.8% 21.7% 21.0% 24.5% 31.5%
====== ====== ===== ====== ======
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 electrochromic
(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.
-13-
RESULTS OF OPERATIONS: 2002 TO 2001
Net Sales. Automotive net sales increased by 29% on a 23% increase in
mirror shipments, from 7,180,000 to 8,806,000 units, primarily reflecting
increased penetration on 2002 and 2003 model year vehicles for interior
auto-dimming mirrors and higher dollar content on certain 2003 model year
vehicles. North American unit shipments increased by 19%, while overseas unit
shipments increased by 28% during 2002. Net sales of the Company's fire
protection products increased 1%, as shipments continued to be impacted by the
reduced demand in the hotel construction industry after the September 11, 2001,
terrorist attacks.
Cost of Goods Sold. As a percentage of net sales, cost of goods sold
decreased from 61% to 60%, primarily reflecting fixed manufacturing overhead
expenses being spread over increased sales volume, product mix, and purchasing
cost reductions, partially offset by automotive customer price reductions.
Operating Expenses. Engineering, research and development expenses
increased approximately $2,288,000, but decreased from 7% to 6% of net sales,
primarily due to additional staffing for new electronic product development,
including SmartBeam and telematics. Selling, general and administrative expenses
increased approximately $2,215,000, but decreased from 6% to 5% of net sales,
primarily reflecting the expansion of the Company's overseas sales offices to
support the Company's current and future overseas sales growth.
Other Income - Net. Investment income decreased $1,527,0000 in 2002,
primarily due to significantly lower interest rates. Other income decreased
$1,159,000 in 2002, primarily due to realized equity investment losses in 2002
compared to realized equity investment gains in 2001.
Taxes. The provision for federal income taxes varied from the statutory
rate in 2002 primarily due to exempted taxable income under the Extraterritorial
Income Exclusion Act from increased foreign sales, and tax-exempt interest
income.
Net Income. Net income increased by 32%, primarily reflecting the
higher sales volume and improved gross margin, partially offset by higher
operating expenses, in 2002 as compared to 2001.
LIQUIDITY AND CAPITAL RESOURCES
The Company's financial condition throughout the periods presented has
remained very strong.
The Company's current ratio increased from 9.5 in 2002, to 9.6 in 2003,
primarily as a result of the increase in cash and cash equivalents mostly offset
by an increase in accrued liabilities.
Cash flow from operating activities for the year ended December 31,
2003, decreased $2,528,000 to $116,583,000, compared to $119,111,000 for the
same period last year, primarily due to increased accounts receivable, partially
offset by increased net income. Capital expenditures for the year ended December
31, 2003, were $22,248,000, compared to $32,561,000 for the same period last
year, primarily due to the purchase of a company airplane in 2002. The Company
currently anticipates capital expenditures of approximately $45 - 50 million for
new facilities and equipment during 2004.
Cash and cash equivalents as of December 31, 2003, increased
approximately $153,829,000 compared to December 31, 2002. The increase was
primarily due to the sale of approximately $100 million of fixed-income
investments, as well as cash flow from operations.
Accounts receivable as of December 31, 2003, increased approximately
$23,065,000 compared to December 31, 2002. The increase was primarily due to
increased sales and to a change in its supplier payment terms by the Company's
largest customer, which formerly paid for each month's shipments by the end of
the following month and, effective with the 2004 model year, now pays for each
month's shipments by the beginning of the second month following the month of
shipment.
Accrued liabilities as of December 31, 2003, increased approximately
$14,955,000 compared to December 31, 2002, primarily due to the declaration of a
quarterly cash dividend of $0.15. On August 18, 2003, the Company announced a
change in the Company's cash dividend policy and the initiation of a quarterly
dividend at the rate of $0.15 per share. The increase in deferred taxes as of
-14-
December 31, 2003, compared to December 31, 2002, is primarily due to a change
from an unrealized loss on investments as of December 31, 2002, to an unrealized
gain on investments as of December 31, 2003.
Management considers the Company's working capital of approximately
$434,869,000 and long-term investments of approximately $145,616,000 at December
31, 2003, 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-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.
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 for 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 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.
Nearly all of the Company's non-U.S. sales are invoiced and paid in
U.S. dollars; during 2003, approximately 6% of the Company's net sales were
invoiced and paid in European euros. The Company currently expects that
approximately 9-10% of the
-15-
Company's net sales in 2004 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
2007 - as of December 31,
2004 2005 2006 2008 2003 2002
------ ------ ------ ------ ------ ------
U.S. Government
Amount $ 36.2 $ 28.7 - - $ 64.9 $ 37.8
Average Interest Rate 2% 1% 2% 4%
Municipal
Amount - $ 4.0 - - $ 4.0 $ 34.1
Average Interest Rate* 2% 2% 3%
Certificates of Deposit
Amount $ 15.8 $ 5.6 $ 6.2 - $ 27.6 $ 64.0
Average Interest Rate 4% 5% 3% 4% 5%
Corporate
Amount $ 17.5 $ 3.3 - $ 0.3 $ 21.1 $ 38.2
Average Interest Rate 5% 7% 7% 6% 6%
Other
Amount $ 1.5 - - - $ 1.5 $ 2.1
Average Interest Rate 3% 3% 4%
*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, 2003:
Total Less than 1 Year 1-3 Years After 3 Years
----- ---------------- --------- -------------
Long-term debt $ - $ - $ - $ -
Operating leases 0.8 0.4 0.3 0.1
Purchase obligations* 30.6 28.6 2.0 -
Dividends payable 11.6 11.6 - -
----- ----- ----- -----
$43.0 $40.6 $ 2.3 $ 0.1
===== ===== ===== =====
*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. 101, Revenue Recognition in Financial
Statements, as amended. Accordingly, revenue is recognized based on the terms of
the customer purchase order that indicates title to the product and risk of
ownership passes to the customer upon shipment. Sales are shown net of returns,
which have not historically been significant. The Company does not generate
sales from sale arrangements with multiple deliverables.
-16-
Inventories. Estimated inventory allowances for slow-moving and
obsolete inventories are based on current assessments of future demands, market
conditions and related management initiatives. If market conditions or customer
requirements change and are less favorable than those projected by management,
inventory allowances are adjusted accordingly.
Investments. The Company's investment committee regularly reviews its
fixed income and equity investment portfolio for any unrealized losses that
would be deemed other-than-temporary and require the recognition of an
impairment loss in income. Management uses criteria such as the period of time
that securities have been in an unrealized loss position, types of securities
and their related industries, as well as published investment ratings and
analyst reports to evaluate their portfolio. Management considers the unrealized
losses at December 31, 2003, 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 auditors
are filed with this report as pages 21 through 34 following the signature page:
Report of Independent Auditors
Consolidated Balance Sheets as of December 31, 2003 and 2002
Consolidated Statements of Income for the years ended December 31,
2003, 2002 and 2001
Consolidated Statements of Shareholders' Investment for the years ended
December 31, 2003, 2002 and 2001
Consolidated Statements of Cash Flows for the years ended December 31,
2003, 2002 and 2001
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
2003 2002 2003 2002 2003 2002 2003 2002
--------- -------- ----------- -------- ---------- --------- --------- ---------
Net Sales $ 115,309 $ 89,048 $ 116,917 $ 97,346 $ 112,879 $ 101,516 $ 123,915 $ 107,347
Gross Profit 48,116 35,191 48,282 39,065 47,085 40,695 53,018 44,696
Operating Income 36,382 24,565 35,880 28,198 34,448 29,579 39,866 32,859
Net Income 25,909 18,953 26,090 21,311 25,681 21,427 29,081 24,080
Earnings Per Share* $ .34 $ .25 $ .34 $ .28 $ .33 $ .28 $ .37 $ .31
*Diluted
-17-
ITEM 9. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.
Not applicable.
ITEM 9A. CONTROLS AND PROCEDURES.
As of December 31, 2003, 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, 2003, 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, 2003.
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 2004 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 2004 Annual Meeting of Shareholders and filed with the Commission 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 for the 2004 Annual Meeting of
Shareholders and filed with the Commission 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 Senior Financial 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 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 for the 2004 Annual Meeting of
Shareholders and filed with the Commission is hereby incorporated herein by
reference. Such incorporation by reference shall not be deemed to specifically
incorporate by reference information referred to in Item 402(a)(8) of Regulation
S-K.
ITEM 12. SECURITY OWNERSHIP OF MANAGEMENT AND EQUITY COMPENSATION PLAN
INFORMATION.
-18-
The information contained under the captions "Securities Ownership of
Management" and "Equity Compensation Plan Information" contained in the
definitive Proxy Statement for the 2004 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 "Certain Transactions"
contained in the definitive Proxy Statement for the 2004 Annual Meeting of
Shareholders and filed with the Commission 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 for
the 2004 Annual Meeting of Stockholders and filed with the Commission 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 for
the 2004 Annual Meeting of Shareholders and filed with the Commission 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 35.
(b) During the three months ended December 31, 2003, one report on
Form 8-K was filed on October 15, 2003, to disclose the
Company's financial results for the third quarter ended
September 30, 2003.
-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 26, 2004 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 26th day of February, 2004, 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
- ----------------------------------------------------- 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
/s/ Ted Thompson
- ----------------------------------------------------- Director
Ted Thompson
/s/ Wallace Tsuha
- ----------------------------------------------------- Director
Wallace Tsuha
/s/ Leo Weber
- ----------------------------------------------------- Director
Leo Weber
-20-
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders of Gentex Corporation:
We have audited the accompanying consolidated balance sheets of Gentex
Corporation and subsidiaries as of December 31, 2003 and 2002, and the related
consolidated statements of income, shareholders' investment and cash flows for
each of the three years in the period ended December 31, 2003. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Gentex
Corporation and subsidiaries at December 31, 2003 and 2002, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 2003, in conformity with accounting principles
generally accepted in the United States.
/s/ Ernst & Young LLP
Grand Rapids, Michigan
January 23, 2004
-21-
GENTEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2003 AND 2002
ASSETS
2003 2002
---- ----
CURRENT ASSETS:
Cash and cash equivalents $322,662,971 $168,834,111
Short-term investments 70,943,685 46,816,690
Accounts receivable 58,955,823 35,890,380
Inventories 20,938,696 17,742,009
Prepaid expenses and other 11,848,156 7,515,219
------------ ------------
Total current assets 485,349,331 276,798,409
PLANT AND EQUIPMENT:
Land, buildings and improvements 49,232,072 47,399,803
Machinery and equipment 159,289,298 142,684,762
Construction-in-process 14,151,833 11,740,511
------------ ------------
222,673,203 201,825,076
Less-Accumulated depreciation
and amortization (95,866,321) (76,842,411)
------------ ------------
126,806,882 124,982,665
OTHER ASSETS:
Long-term investments 145,615,934 203,358,933
Patents and other assets, net 4,757,619 4,032,660
------------ ------------
150,373,553 207,391,593
------------ ------------
$762,529,766 $609,172,667
============ ============
LIABILITIES AND SHAREHOLDERS' INVESTMENT
2003 2002
---- ----
CURRENT LIABILITIES:
Accounts payable $ 18,259,111 $ 11,793,726
Accrued liabilities:
Salaries, wages and vacation 3,657,546 2,765,682
Income taxes 1,161,865 3,391,214
Royalties 6,651,645 6,587,477
Dividends payable 11,556,122 -
Other 9,194,191 4,521,936
------------ ------------
Total current liabilities 50,480,480 29,060,035
DEFERRED INCOME TAXES 18,405,955 6,472,270
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 4,622,449 4,573,282
Additional paid-in capital 152,874,325 123,923,391
Retained earnings 528,358,825 454,201,443
Deferred compensation (4,658,450) (3,042,935)
Accumulated other comprehensive income (loss):
Unrealized gain (loss) on investments 11,661,722 (6,091,452)
Cumulative translation adjustment 784,460 76,633
------------ ------------
Total shareholders' investment 693,643,331 573,640,362
------------ ------------
$762,529,766 $609,172,667
============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
-22-
GENTEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
2003 2002 2001
---- ---- ----
NET SALES $469,019,365 $395,258,436 $310,304,996
COST OF GOODS SOLD 272,518,466 235,611,182 188,301,693
------------ ------------ ------------
Gross profit 196,500,899 159,647,254 122,003,303
OPERATING EXPENSES:
Engineering, research and development 26,613,770 22,973,027 20,684,996
Selling, general and administrative 23,311,853 21,474,066 19,259,065
------------ ------------ ------------
Total operating expenses 49,925,623 44,447,093 39,944,061
------------ ------------ ------------
Income from operations 146,575,276 115,200,161 82,059,242
OTHER INCOME:
Interest and dividend income 10,241,276 11,756,849 13,283,546
Other, net 1,347,643 115,781 1,274,712
------------ ------------ ------------
Total other income 11,588,919 11,872,630 14,558,258
------------ ------------ ------------
Income before provision
for income taxes 158,164,195 127,072,791 96,617,500
PROVISION FOR INCOME TAXES 51,403,000 41,301,500 31,401,000
------------ ------------ ------------
NET INCOME $106,761,195 $ 85,771,291 $ 65,216,500
============ ============ ============
EARNINGS PER SHARE:
Basic $ 1.39 $ 1.14 $ 0.87
============ ============ ============
Diluted $ 1.37 $ 1.12 $ 0.86
============ ============ ============
Cash Dividends Declared per Share $ 0.30 $ 0.00 $ 0.00
The accompanying notes are an integral part of these consolidated financial
statements.
-23-
GENTEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' INVESTMENT
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002, AND 2001
Common Stock Additional
------------ Paid-In Comprehensive
Shares Amount Capital Income (Loss)
------ ------ ------- -------------
BALANCE AS OF DECEMBER 31, 2000 74,291,082 $ 4,457,465 $ 92,132,617
Issuance of common stock and the tax benefit
of stock plan transactions 880,869 52,852 13,195,354
Amortization of deferred compensation - - -
Comprehensive income:
Net income - - - $ 65,216,500
Other comprehensive income (loss):
Foreign currency translation adjustment, net of tax - - - (21,631)
Unrealized loss on investments, net of tax - - - (1,042,854)
-------------
Other comprehensive loss - - - (1,064,485)
-------------
Comprehensive income - - - $ 64,152,015
----------- ------------- ------------- =============
BALANCE AS OF DECEMBER 31, 2001 75,171,951 4,510,317 105,327,971
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
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
=========== ============= =============
Accumulated
Other Total
Retained Deferred Comprehensive Shareholders'
Earnings Compensation Income (Loss) Investment
-------- ------------ ------------- ----------
BALANCE AS OF DECEMBER 31, 2000 $ 303,213,652 $ (2,532,327) $ 4,832,154 $ 402,103,561
Issuance of common stock and the tax benefit
of stock plan transactions - (1,444,019) - 11,804,187
Amortization of deferred compensation - 940,766 - 940,766
Comprehensive income:
Net income 65,216,500 - - 65,216,500
Other comprehensive income (loss):
Foreign currency translation adjustment, net of tax - - - -
Unrealized loss on investments, net of tax - - - -
Other comprehensive loss - - (1,064,485) (1,064,485)
Comprehensive income - - - -
------------- ------------- ------------- -------------
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 (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
============= ============= ============= =============
The accompanying notes are an integral part of these consolidated financial
statements.
-24-
GENTEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002, AND 2001
2003 2002 2001
------------- ------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 106,761,195 $ 85,771,291 $ 65,216,500
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 20,426,207 18,631,600 15,192,818
Loss on disposal of assets 75,626 11,180 152,757
Gain on sale of investments (5,181,804) (2,961,036) (1,595,634)
Loss on sale of investments 6,228,566 5,361,194 1,259,381
Deferred income taxes 1,951,787 3,701,475 1,035,648
Amortization of deferred compensation 1,118,208 1,082,867 940,766
Tax benefit of stock plan transactions 5,511,458 5,093,396 3,928,984
Change in operating assets and liabilities:
Accounts receivable (23,065,443) (3,895,441) 3,619,730
Inventories (3,196,687) (3,336,659) (2,317,837)
Prepaid expenses and other (3,910,441) 1,576,617 (3,374,477)
Accounts payable 6,465,385 2,414,789 50,782
Accrued liabilities 3,398,938 5,659,842 1,243,370
------------- ------------- -------------
Net cash provided by
operating activities 116,582,995 119,111,115 85,352,788
------------- ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Activity in held-to-maturity securities:
Sales proceeds - - -
Maturities and calls 57,571,539 64,322,716 25,658,600
Purchases (122,262,019) (93,072,612) (28,828,709)
Activity in available-for-sale securities:
Sales proceeds 120,578,082 15,137,464 9,697,480
Maturities and calls 91,489,195 - -
Purchases (87,494,979) (55,600,063) (25,162,596)
Plant and equipment additions (22,248,009) (32,560,646) (45,298,429)
Proceeds from sale of plant and equipment 72,000 189,926 1,248,287
Increase in other assets (167,174) (953,277) (953,486)
------------- ------------- -------------
Net cash provided by (used for)
investing activities 37,538,635 (102,536,492) (63,638,853)
------------- ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock from
stock plan transactions 21,460,422 12,474,767 7,875,203
Cash dividend paid (11,506,382) - -
Repurchases of common stock (10,246,810) - -
------------- ------------- -------------
Net cash provided by (used for)
financing activities (292,770) 12,474,767 7,875,203
------------- ------------- -------------
NET INCREASE IN CASH AND
CASH EQUIVALENTS 153,828,860 29,049,390 29,589,138
CASH AND CASH EQUIVALENTS,
Beginning of year 168,834,111 139,784,721 110,195,583
------------- ------------- -------------
CASH AND CASH EQUIVALENTS,
End of year $ 322,662,971 $ 168,834,111 $ 139,784,721
============= ============= =============
-25-
GENTEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES
The Company
Gentex Corporation designs, develops, manufactures and markets
proprietary electro-optical products: automatic-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, 2003, 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, 2003 and
2002:
Unrealized
------------------------------
Cost Gains Losses Market Value
- ---------------------------------------------------------------------------------------------
2003
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
============= ============= ============= =============
2002
U.S. Government $ 36,886,208 $ 951,293 - $ 37,837,501
Municipal Bonds 34,083,850 627,632 (6,596) 34,704,886
Certificates of Deposit 64,035,770 - - 64,035,770
Corporate Bonds 38,216,594 862,248 (36,613) 39,042,229
Other Fixed Income 2,050,126 - - 2,050,126
Equity 84,274,542 1,738,031 (12,060,791) 73,951,782
------------- ------------- ------------- -------------
$ 259,547,090 $ 4,179,204 $ (12,104,000) $ 251,622,294
============= ============= ============= =============
Unrealized losses on investments as of December 31, 2003, are as
follows:
Aggregate Unrealized Losses Aggregate Fair Value
--------------------------- --------------------
Less than one year $ 591,585 $11,096,058
Greater than one year 410,324 2,357,655
-26-
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, 2003,
and has determined that they are temporary in nature;
accordingly, no losses have been recognized in income as of
December 31, 2003.
Fixed income securities as of December 31, 2003, have contractual
maturities as follows:
Due within one year $ 70,637,070
Due between one and five years 47,558,593
Due over five years 293,642
------------
$118,489,305
============
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, 2003 and 2002.
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, 2003 and 2002:
2003 2002
---- ----
Raw materials $11,041,622 $ 9,911,022
Work-in-process 2,401,500 1,744,372
Finished goods 7,495,574 6,086,615
----------- -----------
$20,938,696 $17,742,009
=========== ===========
Allowances for slow-moving and obsolete inventories were not
significant as of December 31, 2003 and 2002.
Plant and Equipment
Plant and equipment are stated at cost. Depreciation and amortization
are computed for financial reporting purposes using the
straight-line method, with estimated useful lives of 7 to 40
years for buildings and improvements, and 3 to 10 years for
machinery and equipment.
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 $2,876,000 and
$2,726,000 at December 31, 2003 and 2002, respectively. At
December 31, 2003, patents have a weighted average
amortization life of 12 years. Patent amortization expense was
approximately $150,000, $393,000 and $238,000, in 2003, 2002
and 2001, respectively. For each of the next five years,
patent amortization expense will approximate $180,000
annually.
-27-
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.
Advertising and Promotional Materials
All advertising and promotional costs are expensed as incurred and amounted to
approximately $886,000, $904,000 and $653,000, in 2003, 2002 and 2001,
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 $4,169,000, $3,761,000 and $3,780,000, in 2003, 2002
and 2001, respectively.
Self-Insurance
The Company is self-insured for a portion of its risk on workers' compensation
and employee medical costs. The arrangements provide for stop loss
insurance to manage the Company's risk. Operations are charged with the
cost of claims reported and an estimate of claims incurred but not
reported.
Product Warranty
The Company periodically incurs product warranty costs. Any liabilities
associated with product warranty are estimated based on known facts and
circumstances and are not significant at December 31, 2003 and 2002.
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:
2003 2002 2001
---- ---- ----
Numerators:
Numerator for both basic and diluted EPS, net income $106,761,195 $85,771,291 $65,216,500
Denominators:
Denominator for basic EPS,
weighted-average common shares outstanding 76,584,876 75,515,271 74,778,518
Potentially dilutive shares resulting from stock option plans 1,099,614 1,087,131 1,093,268
------------ ----------- -----------
Denominator for diluted EPS 77,684,490 76,602,402 75,871,786
============ =========== ===========
For the years ended December 31, 2003, 2002 and 2001, 268,994, 645,859 and
490,508 shares related to stock option plans were not included in
diluted average common shares outstanding because their effect would be
antidilutive.
-28-
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,
------------------------------------------------------------------------------------------
2003 2002 2001
--------------------------- ---------------------------- ----------------------------
Pre-Tax Tax Exp. Pre-Tax Tax Exp. Pre-Tax Tax Exp.
Amount (Credit) Amount (Credit) Amount (Credit)
------------ ------------ ------------ ------------ ------------ ------------
Unrealized Gain (Loss)
on Securities $ 27,312,575 $ 9,559,401 $(15,266,964) $ (5,343,438) $ (1,604,391) $ (561,537)
Foreign Currency
Translation Adjustments 1,088,965 381,138 216,982 75,944 (33,278) (11,647)
------------ ------------ ------------ ------------ ------------ ------------
Other Comprehensive
Income (Loss) $ 28,401,540 $ 9,940,539 $(15,049,982) $ (5,267,494) $ (1,637,669) $ (573,184)
============ ============ ============ ============ ============ ============
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, 2003, 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.
2003 2002 2001
---- ---- ----
Net income, as reported $ 106,761,195 $ 85,771,291 $ 65,216,500
Deduct: total stock-based employee
compensation expense determined
under fair value based method for
all awards, net of tax effects (10,505,316) (8,084,607) (7,003,826)
-------------- -------------- --------------
Pro forma net income $ 96,255,879 $ 77,686,684 $ 58,212,674
============== ============== ==============
Earnings per share:
Basic - as reported $ 1.39 $ 1.14 $ 0.87
Basic - pro forma 1.26 1.03 0.78
Diluted - as reported $ 1.37 $ 1.12 $ 0.86
Diluted - pro forma 1.25 1.01 0.77
-29-
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 2003, 2002 and 2001,
respectively: risk-free interest rates of 2.9, 2.9 and 4.4
percent; expected dividend yields, where applicable of 1.6,
0.0 and 0.0 percent; expected lives of 4, 4 and 5 years;
expected volatility of 52, 53 and 54 percent.
The fair value of each option grant in the Nonemployee Director Stock
Option Plans was estimated on the date of grant using the
Black-Scholes option pricing model with the following
weighted-average assumptions used for grants in 2003, 2002 and
2001, respectively: risk-free interest rates of 4.0, 4.0 and
5.1 percent; expected dividend yields, where applicable of
1.5, 0.0 and 0.0 percent; expected lives of 9, 9 and 9 years;
expected volatility of 52, 53 and 54 percent.
Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from
those estimates.
New Accounting Standards
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
Statement," 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 is 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 is not expected to
have any significant effect on the Company's consolidated
financial position or results of operations.
(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 2003 or 2002. 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.
The components of the provision for income taxes are as follows:
2003 2002 2001
------------ ------------ ------------
Currently payable:
Federal $ 48,976,000 $ 37,188,500 $ 30,084,000
State 501,000 321,000 104,000
Foreign (26,000) 91,000 177,000
------------ ------------ ------------
Total 49,451,000 37,600,500 30,365,000
------------ ------------ ------------
Net deferred:
Primarily federal 1,952,000 3,701,000 1,036,000
------------ ------------ ------------
Provision for income taxes $ 51,403,000 $ 41,301,500 $ 31,401,000
============ ============ ============
-30-
GENTEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(3) INCOME TAXES, continued
The currently payable provision is further reduced by the tax benefits
associated with the exercise, vesting or disposition of stock
under the stock plans described in Note 6. These reductions
totaled approximately $5,511,000, $5,093,000 and $3,929,000,
in 2003, 2002 and 2001, 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:
2003 2002 2001
---- ---- ----
Statutory federal income tax rate 35.0% 35.0% 35.0%
State income taxes, net of federal income tax benefit 0.3 0.2 0.1
Foreign source exempted income (2.5) (2.4) (2.2)
Tax-exempt investment income (0.2) (0.2) (0.3)
Other (0.1) (0.1) (0.1)
---- ---- ----
Effective income tax rate 32.5% 32.5% 32.5%
==== ==== ====
The tax effect of temporary differences which give rise to deferred
income tax assets and liabilities at December 31, 2003 and
2002, are as follows:
2003 2002
---------------------------- ----------------------------
Current Non-Current Current Non-Current
------------ ------------ ------------ ------------
Assets:
Accruals not currently deductible $ 2,276,831 $ 287,403 $ 1,462,530 $ 274,803
Deferred compensation - 908,863 - 842,053
Unrealized loss on investments - - - 3,280,013
Other 1,952,073 5,410 2,152,859 5,960
------------ ------------ ------------ ------------
Total deferred income tax assets 4,228,904 1,201,676 3,615,389 4,402,829
Liabilities:
Excess tax over book depreciation - (12,572,140) - (10,317,831)
Patent costs - (756,102) - (557,268)
Unrealized gain on investments - (6,279,389) - -
Other (614,587) - (423,568) -
------------ ------------ ------------ ------------
Net deferred incomes taxes $ 3,614,317 $(18,405,955) $ 3,191,821 $ (6,472,270)
============ ============ ============ ============
Income taxes paid in cash were approximately $46,243,000, $30,828,000,
and $26,546,000, in 2003, 2002, and 2001, 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 2003, 2002 and 2001, the Company's
contributions were approximately $1,110,000, $955,000 and
$718,000, respectively.
The Company does not provide health care benefits to retired employees.
-31-
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
47,905 shares, 44,009 shares and 45,463 shares under the old
plan in 2003, 2002 and 2001, respectively, and has sold a
total of 31,517 shares under the new plan through December 31,
2003. 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 2003, 2002 and 2001, was approximately $27.92,
$24.86 and $20.75, respectively.
The Company may grant options for up to 9,000,000 shares under its
Employee Stock Option Plan. The Company has granted options on
8,483,176 shares (net of shares from canceled options) through
December 31, 2003. Under the Plan, the option exercise price
equals the stock's market price on date of grant. The options
vest after one to five years, and expire after two to seven
years.
A summary of the status of the Company's employee stock option plan at
December 31, 2003, 2002 and 2001, and changes during the years
then ended is presented in the table and narrative below:
2003 2002 2001
------------------- ------------------- -------------------
Shares Wtd. Avg. Shares Wtd. Avg. Shares Wtd. Avg.
(000) Ex. Price (000) Ex. Price (000) Ex. Price
------ --------- ------ --------- ------ ---------
Outstanding at Beginning of Year 4,270 $ 25 4,144 $ 21 3,901 $ 18
Granted 1,299 34 1,132 29 1,017 26
Exercised (982) 20 (914) 13 (754) 9
Forfeited (36) 28 (92) 26 (20) 24
----- ------ ----- ------ ----- ------
Outstanding at End of Year 4,551 29 4,270 25 4,144 21
----- ------ ----- ------ ----- ------
Exercisable at End of Year 1,595 25 1,682 22 1,792 16
Weighted Avg. Fair Value
of Options Granted $ 14 $ 14 $ 13
Options Outstanding and Exercisable by Price Range As of December 31,
2003:
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 - $25 960 2 $21 644 $19
$26 - $30 2,065 3 27 675 27
$31 - $43 1,526 4 36 276 35
----- --- --- ----- ---
Total 4,551 3 29 1,595 25
-32-
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 88,620 shares (net of shares from canceled options)
under the new Director Plan through December 31, 2003. 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, 2003,
2002 and 2001, and changes during the years then ended is
presented in the table and narrative below:
2003 2002 2001
------------------ ----------------- ------------------
Shares Wtd. Avg. Shares Wtd. Avg. Shares Wtd. Avg.
(000) Ex. Price (000) Ex. Price (000) Ex. Price
------ --------- ------ --------- ------ ---------
Outstanding at Beginning of Year 424 $ 13 469 $ 10 476 $ 9
Granted 53 32 35 32 25 27
Exercised (164) 10 (80) 3 (32) 1
Expired - - - - - -
--- ----- --- ----- --- -----
Outstanding at End of Year 313 18 424 13 469 10
--- ----- --- ----- --- -----
Exercisable at End of Year 310 18 424 13 469 10
Weighted Avg. Fair Value
of Options Granted $ 21 $ 21 $ 20
Options Outstanding and Exercisable by Price Range As Of December 31,
2003:
Options Exercisable
Options Outstanding --------------------------------
- ------------------------------------------------------------------------------- Shares Weighted Average
Range of Shares Outstanding Remaining Weighted Average Exercisable Exercise
Exercise Prices (000) Contractual Life Exercise Price (000) Price
- --------------- ------------------ ---------------- ---------------- ----------- ----------------
$ 1 - $20 180 2 $ 9 180 $ 9
$21 - $41 133 8 31 130 31
--- --- --- --- ---
313 5 18 310 18
In 2001, a restricted stock plan covering 1,600,000 shares expired, and
a new restricted stock plan covering 500,000 shares of common
stock was approved, the purpose of which is to permit grants
of shares, subject to restrictions, to key employees of the
Company as a means of retaining and rewarding them for
long-term performance and to increase their ownership in the
Company. Shares awarded under the plans entitle the
shareholder to all rights of common stock ownership except
that the shares may not be sold, transferred, pledged,
exchanged or otherwise disposed of during the restriction
period. The restriction period is determined by a committee,
appointed by the Board of Directors, but may not exceed ten
years. During 2003, 2002 and 2001, 78,100, 37,900 and 57,800,
shares, respectively, were granted with a restriction period
of five years at market prices ranging from $25.64 to $43.00
in 2003, $27.47 to $32.30 in 2002 and $23.59 to $26.97 in
2001. 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.
-33-
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.
2003 2002 2001
------------ ------------ ------------
Revenue:
Automotive Products
U.S $238,608,596 $203,691,964 $153,685,309
Germany 69,787,290 70,710,037 63,245,473
Japan 53,004,947 44,797,340 23,823,498
Other 84,913,322 55,050,622 48,669,920
Fire Protection Products 22,705,210 21,008,473 20,880,796
------------ ------------ ------------
Total $469,019,365 $395,258,436 $310,304,996
============ ============ ============
Income from Operations:
Automotive Products $142,001,646 $111,448,849 $ 78,041,939
Fire Protection Products 4,573,630 3,751,312 4,017,303
------------ ------------ ------------
Total $146,575,276 $115,200,161 $ 82,059,242
============ ============ ============
Assets:
Automotive Products $184,208,278 $154,685,204 $144,204,490
Fire Protection Products 4,768,620 4,035,944 3,779,501
Other 573,552,868 450,451,519 358,838,807
------------ ------------ ------------
Total $762,529,766 $609,172,667 $506,822,798
============ ============ ============
Depreciation & Amortization:
Automotive Products $ 18,275,655 $ 16,930,161 $ 13,699,709
Fire Protection Products 255,301 260,823 294,956
Other 1,895,251 1,440,616 1,198,153
------------ ------------ ------------
Total $ 20,426,207 $ 18,631,600 $ 15,192,818
============ ============ ============
Capital Expenditures:
Automotive Products $ 22,126,904 $ 19,236,000 $ 39,383,150
Fire Protection Products 98,705 442,593 280,251
Other 22,400 12,882,053 5,635,028
------------ ------------ ------------
Total $ 22,248,009 $ 32,560,646 $ 45,298,429
============ ============ ============
Other assets are principally cash, investments, deferred income taxes,
and corporate fixed assets. Substantially all long-lived
assets are located in the U.S.
Automotive Products revenues in the "Other" category are sales to U.S.
automotive manufacturing plants in Canada, Mexico and other
foreign automotive customers. Nearly all non-U.S. sales are
invoiced and paid in U.S. dollars. During 2003, approximately
6% 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
---- ---- ----
2003 38% 13% 12%
2002 39% 15% 10%
2001 38% 18% *
* Less than 10%
-34-
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION PAGE
- ----------- ----------- ----
3(a)(1) Registrant's Articles of Incorporation were filed in 1981 as
Exhibit 2(a) to a Registration Statement on Form S-18
(Registration No. 2-74226C), an Amendment to those Articles was
filed as Exhibit 3 to Registrant's Report on Form 10-Q in August
of 1985, an additional Amendment to those Articles was filed as
Exhibit 3(a)(1) to Registrant's Report on Form 10-Q in August of
1987, and an additional Amendment to those Articles was filed as
Exhibit 3(a)(2) to Registrant's Report on Form 10-K dated March
10, 1992, and an additional Amendment to those Articles was
filed as Exhibit 3(a)(2) to Registrant's Report on Form 10-Q
dated July 31, 1996, all of which are hereby incorporated herein
by reference.
3(a)(2) Amendment to Articles of Incorporation, adopted on May 21, 1998,
was filed as Exhibit 3(a)(2) to Registrant's Report on Form 10-Q
dated July 30, 1998, and the same is hereby incorporated herein
by reference.
3(b)(1) Registrant's Bylaws as amended and restated 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 August 25, 1997) was filed as Exhibit
10(b)(1) to Registrant's Report on Form 10-Q dated July 30,
1998, and the same is hereby incorporated herein by reference.
*10(b)(2) Gentex Corporation Second Restricted Stock Plan was filed as
Exhibit 10(b)(2) to Registrant's Report on Form 10-Q dated April
27, 2001, and the same is hereby incorporated herein by
reference.
*10(b)(3) Gentex Corporation 2002 Nonemployee Director Stock Option Plan
(adopted March 6, 2002) was filed as Exhibit 10(b)(4) to
Registrant's Report on Form 10-Q dated April 30, 2002, and the
same is hereby incorporated herein by reference.
10(e) The form of Indemnity Agreement between Registrant and each of
the Registrant's directors and certain offices was filed as
Exhibit 10(c) to Registrant's Report on Form 10-Q dated October
31, 2002, and the same is hereby incorporated herein by
reference.
21 List of Company Subsidiaries 36
23(a) Consent of Independent Auditors 37
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). 38
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). 39
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). 40
*Indicates a compensatory plan or arrangement.
-35-
Exhibit 21
LIST OF GENTEX CORPORATION SUBSIDIARIES
1. E.C. Aviation Services, Inc., a Michigan corporation, is a wholly-owned
subsidiary of Gentex Corporation.
2. Gentex International Corporation, a Foreign Sales Corporation
incorporated in Barbados, is a wholly-owned subsidiary of Gentex
Corporation.
3. Gentex Holdings, Inc., a Michigan corporation, is a wholly-owned
subsidiary of Gentex Corporation.
4. Gentex GmbH, a German limited liability company, is a subsidiary 50%
owned by Gentex Corporation and 50% owned by Gentex Holdings, Inc.
5. Gentex Japan, Inc., a Japanese corporation, is a wholly-owned
subsidiary of Gentex Corporation.
6. Gentex Mirrors Ltd., a United Kingdom limited liability company, is a
wholly-owned subsidiary of Gentex Corporation.
7. Gentex France, SAS, a French simplified liability corporation, is a
wholly-owned subsidiary of Gentex Corporation.
8. Gentex Technologies Korea Co., Ltd., a Korean limited stock company, is
a wholly-owned subsidiary of Gentex Corporation.
-36-
Exhibit 23(a)
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(Form S-8 Nos. 333-101642, 33-64504, 33-65321, 333-04661, and 333-105858)
pertaining to various stock option and incentive plans of Gentex Corporation of
our report dated January 23, 2004, with respect to the consolidated financial
statements of Gentex Corporation and subsidiaries included in the Annual Report
(Form 10-K) for the year ended December 31, 2003.
/s/ Ernst & Young LLP
Grand Rapids, Michigan
March 1, 2004
-37-
EXHIBIT 31.1
CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER OF GENTEX CORPORATION
I, Fred T. Bauer, certify that:
1. I have reviewed this annual report on Form 10-K of Gentex
Corporation;
2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light
of the circumstances under which such statements were made,
not misleading with respect to the period covered by this
annual report;
3. Based on my knowledge, the financial statements, and other
financial information included in this annual report, fairly
present in all material respects the financial condition,
results of operations and cash flows of the registrant as of,
and for, the periods, presented in this annual report;
4. The registrant's other certifying officer and I are
responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules
13a-15(e) and 15d-15(e)) for the registrant and have:
a) designed such disclosure controls and
procedures, or caused such disclosure
controls and procedures to be designed under
our supervision, to ensure that material
information relating to the registrant,
including its consolidated subsidiaries, is
made known to us by others within those
entities, particularly during the period in
which this annual report is being prepared;
b) evaluated the effectiveness of the
registrant's disclosure controls and
procedures and presented in this annual
report our conclusions about the
effectiveness of the disclosure controls and
procedures, as of the period covered by this
annual report based on such evaluation; and
c) disclosed in this annual report any change
in the registrant's internal control over
financial reporting that occurred during the
registrant's most recent fiscal quarter (the
registrant's fourth fiscal quarter in the
case of an annual report) that has
materially affected, or is reasonably likely
to materially affect, the registrant's
internal control over financial reporting;
and;
5. The registrant's other certifying officer and I have
disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant's auditors
and the audit committee of the registrant's board of directors
(or persons performing the equivalent functions):
a) all significant deficiencies and material
weaknesses in the design or operation of
internal control over financial reporting
which are reasonably likely to adversely
affect the registrant's ability to record,
process, summarize and report financial
information; and
b) any fraud, whether or not material, that
involves management or other employees who
have a significant role in the registrant's
internal control over financial reporting;
6. The registrant's other certifying officer and I have indicated
in this annual report whether there were significant changes
in internal controls or in other factors that could
significantly affect internal controls subsequent to the date
of our most recent evaluation including any corrective actions
with regard to significant deficiencies and material
weaknesses.
Date: February 26, 2004
/s/ Fred T. Bauer
------------------------
Fred T. Bauer
Chief Executive Officer
-38-
EXHIBIT 31.2
CERTIFICATION OF THE CHIEF FINANCIAL OFFICER OF GENTEX CORPORATION
I, Enoch C. Jen, certify that:
1. I have reviewed this annual report on Form 10-K of Gentex
Corporation;
2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light
of the circumstances under which such statements were made,
not misleading with respect to the period covered by this
annual report;
3. Based on my knowledge, the financial statements, and other
financial information included in this annual report, fairly
present in all material respects the financial condition,
results of operations and cash flows of the registrant as of,
and for, the periods, presented in this annual report;
4. The registrant's other certifying officer and I are
responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules
13a-15(e) and 15d-15(e)) for the registrant and have:
a) designed such disclosure controls and
procedures, or caused such disclosure
controls and procedures to be designed under
our supervision, to ensure that material
information relating to the registrant,
including its consolidated subsidiaries, is
made known to us by others within those
entities, particularly during the period in
which this annual report is being prepared;
b) evaluated the effectiveness of the
registrant's disclosure controls and
procedures and presented in this annual
report our conclusions about the
effectiveness of the disclosure controls and
procedures, as of the period covered by this
annual report based on such evaluation; and
c) disclosed in this annual report any change
in the registrant's internal control over
financial reporting that occurred during the
registrant's most recent fiscal quarter (the
registrant's fourth fiscal quarter in the
case of an annual report) that has
materially affected, or is reasonably likely
to materially affect, the registrant's
internal control over financial reporting;
and;
5. The registrant's other certifying officer and I have
disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant's auditors
and the audit committee of the registrant's board of directors
(or persons performing the equivalent functions):
a) all significant deficiencies and material
weaknesses in the design or operation of
internal control over financial reporting
which are reasonably likely to adversely
affect the registrant's ability to record,
process, summarize and report financial
information; and
b) any fraud, whether or not material, that
involves management or other employees who
have a significant role in the registrant's
internal control over financial reporting;
6. The registrant's other certifying officer and I have indicated
in this annual report whether there were significant changes
in internal controls or in other factors that could
significantly affect internal controls subsequent to the date
of our most recent evaluation including any corrective actions
with regard to significant deficiencies and material
weaknesses.
Date: February 26, 2004
/s/ Enoch C. Jen
------------------------
Enoch C. Jen
Vice President, Finance
-39-
EXHIBIT 32
CERTIFICATE PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY
ACT OF 2002 (18-U.S.C. SECTION 1350)
Each, Fred T. Bauer, Chief Executive Officer of Gentex Corporation, and Enoch C.
Jen, Chief Financial Officer of Gentex Corporation, certify to the best of their
knowledge and belief, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(18 U.S.C. Section 1350), that:
(1) The annual report on Form 10-K for the year ended December 31,
2003, which this statement accompanies, fully complies with
the requirements of Section 13(a) or 15(d) of the Securities
Exchange Act of 1934; and
(2) The information contained in this annual report on Form 10-K
of the year ended December 31, 2003, fairly presents, in all
material respects, the financial condition and results of
operations of Gentex Corporation.
Dated: February 26, 2004 GENTEX CORPORATION
By /s/ Fred T. Bauer
--------------------------------
Fred T. Bauer
Its Chief Executive Officer
By /s/ Enoch C. Jen
--------------------------------
Enoch C. Jen
Its Vice President-Finance/Chief
Financial Officer
A signed original of this written statement has been provided to Gentex
Corporation and will be retained by Gentex Corporation and furnished to the
Securities and Exchange Commission or its staff upon request.
-40-
