1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR FISCAL YEAR ENDED DECEMBER 31, 1997.
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from ________________ to ______________.
Commission File No.: 0-10235
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GENTEX CORPORATION
(Exact name of registrant as specified in its charter)
MICHIGAN 38-2030505
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
600 N. CENTENNIAL STREET, ZEELAND, MICHIGAN 49464
(Address of principal executive offices) (Zip Code)
(616) 772-1800
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each Class Name of each exchange on which registered
NONE --------------------------------------------
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $.06 PER SHARE
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No:
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. ( )
As of March 1, 1998, 35,650,765 shares of the registrant's common stock, par
value $.06 per share, were outstanding. The aggregate market value of the
common stock held by non-affiliates of the registrant (i.e., excluding shares
held by executive officers, directors, and control persons as defined in Rule
405, 17 CFR 203.405) on that date was $1,075,252,410 computed at the closing
price on that date.
Portions of the Company's Proxy Statement for its 1998 Annual Meeting of
Shareholders are incorporated by reference into Part III.
Exhibit Index located at Page 31
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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, 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. These
products consist primarily of two product lines: automatic-dimming rearview
mirrors and fire protection products.
The Company was organized in 1974 to manufacture residential smoke
detectors, a product line that has since evolved into a more sophisticated
group of fire protection products for commercial applications. In 1982, the
Company introduced an automatic interior rearview mirror that was the first
commercially successful glare-control product offered as an alternative to the
conventional, manual day/night mirror. In 1987, the Company introduced its
interior Night Vision Safety(TM) (NVS(R)) Mirror, an electrochromic
automatic-dimming interior rearview mirror, providing the first successful
commercial application of electrochromic technology in the automotive industry
and world. Through the use of electrochromic technology, this mirror is
continually variable and automatically darkens to the degree required to
eliminate rearview headlight glare. In 1991, the Company introduced its
exterior Night Vision Safety(TM) Mirror Sub-Assembly, which works as a complete
glare-control system with the interior NVS(R) Mirror. In 1997, the Company
began making volume shipments of three new exterior mirror sub-assembly
products - thin glass flat, convex and aspheric.
(B) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS.
See Note (9) to the Consolidated Financial Statements filed with this
report.
(C) NARRATIVE DESCRIPTION OF BUSINESS
The Company currently manufactures two electro-optic product lines:
automatic-dimming rearview mirrors for the automotive industry and fire
protection products for the commercial building industry.
AUTOMATIC REARVIEW MIRRORS.
Interior NVS(R) Mirrors. In 1987, the Company achieved a significant
technological breakthrough by applying electrochromic technology to the
glare-sensing capabilities of its Motorized Mirror. Through the use of this
technology, the mirror gradually darkens to the degree necessary to eliminate
rearview glare from following vehicle headlights. The NVS(R) Mirror offers all
of the continuous reflectance levels between its approximate 75%
full-reflectance state and its 7% least-reflectance state, taking just a few
seconds to span the entire range. Special electro-optic sensors in the mirror
detect glare and electronic circuitry supplies electricity to darken the mirror
to only the precise level required to eliminate glare, allowing the driver to
maintain maximum vision. This is accomplished by the utilization of two layers
of precision glass with special conductive coatings that are separated by the
Company's proprietary electrochromic materials. When the appropriate light
differential is detected, an electric current causes the electrochromic
material to darken, decreasing the mirror's reflectance, thereby eliminating
glare.
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During 1991, the Company began shipping the first advanced-feature
interior NVS(R) Mirror, the NVS(R) Headlamp Control Mirror, an
automatic-dimming mirror that automatically turns car head- and taillamps "on"
and "off" in response to the level of light observed. During 1992, the Company
began shipping its NVS(R) Lighted Mirror, with map/reading lights, and during
1993, the Company began shipping its NVS(R) Compass Mirror, with an electronic
compass that automatically compensates for changes in the earth's magnetic
field. During 1997, the Company began shipping a third-generation NVS(R)
Headlamp Control Mirror, a second-generation NVS(R) Compass Mirror, and a new
interior NVS(R) Mirror that digitally displays either a compass or outside
temperature reading. The compass and outside temperature display technology
was developed and patented by Prince, a Johnson Controls Company.
The Company sold approximately 1,811,000 interior NVS(R) Mirrors in 1995,
approximately 2,423,000 in 1996, and approximately 2,799,000 in 1997.
During 1997, the unit growth primarily continued as a result of increased
penetration of a number of high-volume light vehicles manufactured in North
America, including pickup trucks and sport/utility vehicles from the Big Three
auto manufacturers, as well as increased penetration of light vehicle models
manufactured outside North America, including new, higher-volume vehicles in
Europe. The Company's interior NVS(R) Mirrors are standard equipment or
factory or distributor/dealer-installed options on the following 1998 and 1998-
1/2 vehicle models:
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TABLE 1. INTERIOR NVS(R) MIRROR AVAILABILITY BY VEHICLE LINE
GM/Cadillac Deville S*
D'Elegance S*
Catera S
Concours S*
Eldorado S*
Eldorado Touring Coupe S*
Seville S*
Seville STS S*
GM/Buick LeSabre Limited S*
Park Avenue (ECC) S
Park Avenue-Ultra (ECC) S
Riviera O*
GM/Oldsmobile 88 Regency (ECC) S
88 LSS (ECC) S
Aurora (ECC) S
Bravada S
GM/Pontiac Bonneville SSE O
GM/Chevrolet Blazer O
C/K Pickup (ECC) O
Suburban (ECC/T) O
GM/GMC C/K Pickup (ECC) O
C/K Crew Cab Pickup (ECC) O
Jimmy O
Yukon (2-Door) (ECC/T) O
Yukon (4-Door) (ECC/T) S
Suburban (ECC/T) O
Ford/Lincoln Town Car Cartier S
Town Car Executive O
Town Car Signature S
Mark VIII S
Navigator O
Ford Crown Victoria (ECC) O
Explorer Limited (EH) S
Explorer (Sport, EB, XLT) (EH) O
Windstar (EH) O
Ford/Mercury Grand Marquis (ECC) O
Mountaineer O
Chrysler LHS S
Concorde O
Town & Country LXi S
Dodge Intrepid O
Grand Caravan ES S
Ram Pickup O
Dakota Pickup O
Durango O
Jeep Grand Cherokee Limited S
Grand Cherokee Laredo O
Audi A8 O
Bentley (RKE) S
BMW 800 Series S
700 Series O
500 Series O
300 Series O
Daewoo Arcadia S
Brougham O
Fiat Lancia Kappa O
Alfa Romeo 164 O
Fiat/Brazil Tempra O
Honda Inspire (5 Cyl.) O
Inspire (6 Cyl.) S
Sabre (5 Cyl.) O
Sabre (6 Cyl.) S
Hyundai Grandeur O
Marcia O
Infiniti Q45 S
J30 S
I30 O
KIA Motors Corp. Potentia (3.0 L) S
(Korea) Potentia (2.2 L) O
Credos O
Lexus GS300 O
GS400 S
LS400 S
RX300 S
SC300 S
SC400 S
Mercedes-Benz S Class Coupe S
S Class Sedans O
SL Roadster O
E Class Convertible O
E Class Sedan O
C Class Sedan O
CLK Coupe O
Mitsubishi Diamante O
Nissan Cima O
Cedric O
Gloria O
Leopard O
Laurel O
Opel Omega O
Porsche 911 O
Rolls Royce (RKE) S
Toyota 4-Runner** O
Avalon XL** (ECC/T) O
Avalon XLS** (ECC) O
Camry** (ECC/T) O
Land Cruiser** O
T-100** O
KEY: S = Standard equipment
O = Optional equipment
EH = NVS(R) Mirror with Automatic Headlamp Control
EL = NVS(R) Mirror with Map Lights
ECC = NVS(R) Mirror with Electronic Compass Display
ECC/T = NVS(R) Mirror w/Electronic Compass and Temperature Display
RKE = NVS(R) Mirror with Remote Keyless Entry
* ECC offered as upgrade option
** NVS(R) Mirrors are offered as optional equipment
through Southeast Toyota Distributors in the
states of FL, GA, NC, SC and AL, and Gulf States
Toyota in the states of TX, MS, AR, LA and OK.
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Exterior NVS(R) Mirror Sub-Assemblies. The Company has devoted
substantial research and development efforts to the development of its
electrochromic technology to permit its use in exterior rearview mirrors.
Exterior NVS(R) mirrors are controlled by the sensors and electronic circuitry
in the interior NVS(R) Mirror, and both the interior and exterior mirrors dim
simultaneously. During 1991, the Company's efforts culminated in a design that
is intended to provide acceptable long-term performance in all environments
likely to be encountered. In 1994, the Company began shipments of its complete
three-mirror system, including the convex (curved glass) wide-angle NVS(R)
Mirror to BMW. During 1997, the Company began making volume shipments of three
new exterior mirror products - - thin glass flat, convex and aspheric. The
Company currently sells its exterior NVS(R) Mirror Sub-Assemblies to eight
exterior mirror suppliers to General Motors, Chrysler, Ford, BMW and
Mercedes-Benz, who assemble the exterior NVS(R) Mirror Sub-Assemblies into full
mirror units for subsequent resale to the automakers.
The Company sold approximately 417,000 exterior NVS(R) Mirror
Sub-Assemblies during 1995, approximately 656,000 in 1996, and approximately
1,079,000 in 1997. During 1997, unit growth accelerated primarily as a result
of the Company's three new exterior mirror products.
The exterior NVS(R) Mirror is standard equipment or a factory-installed
option on the following 1998 and 1998- 1/2 vehicle models.
TABLE 2. EXTERIOR NVS(R) MIRROR AVAILABILITY BY VEHICLE LINE.
GM/Cadillac Concours S Audi A6 (F/C/A) O
D'Elegance S BMW 500 Series (F & C) O
Deville O 700 Series (F & C) O
Eldorado O Mercedes-Benz CLK Coupe (F/A) O
Eldorado Touring Coupe O E Class Convertible (F/A) O
Seville O E Class Sedan (F/A) O
Seville STS S S Class Coupe (F/A) O
GM/Buick LeSabre Limited O S Class Sedan (F/A) O
Park Avenue O SL Roadster (F/A) O
Park Avenue Ultra S
Riviera O KEY: S = Standard Equipment
GM/Chevrolet Suburban (F & C) O O = Optional Equipment
Tahoe (2-Door) (F & C) O
Tahoe (4-Door) (F & C) O F = Flat Glass
GM/GMC Suburban (F & C) O C = Convex Glass
Yukon (2-Door) (F & C) O A = Aspheric Glass
Yukon (4-Door) (F & C) O
GM/Oldsmobile 88 Regency O
Ford/Lincoln Continental O
Town Car Cartier S
Town Car Executive O
Town Car Signature S
Chrysler Town & Country LXi S
Dodge Grand Caravan ES S
Jeep Grand Cherokee Ltd. S
Product Development. The Company plans to continue introducing
additional advanced-feature NVS(R) Mirrors. These models currently include the
third-generation NVS(R) Headlamp Control Mirror, the NVS(R) Lighted Mirror with
incandescent and LED map lamps, the second-generation NVS(R) Compass Mirror,
the NVS(R) Mirror with Remote Keyless Entry, and the NVS(R) Compass/Temperature
Mirror. Also in 1993, the Company introduced an NVS(R) Base Feature Mirror to
target the high-volume, mid-priced vehicle segments, and larger-size interior
and exterior NVS(R) Mirrors for use on vans and light trucks. A
second-generation Base Feature Mirror was introduced in 1996. In 1996, Gentex
introduced the first automatic-dimming "aspheric" exterior mirror. Aspheric
mirrors are wide-angle exterior mirrors that virtually eliminate the "blind
spot." During 1997, the Company introduced thin glass flat and convex exterior
mirrors, and recently announced an NVS(R) Mirror incorporating Prince/Johnson
Controls' new "AutoLink(TM)" intelligent automotive communications system for
the aftermarket.
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Of particular importance to the Company has been the development of its
electrochromic technology for use in complete 3-mirror systems. In these
systems, both the driver and passenger-side exterior NVS(R) Mirrors are
controlled by the sensors and electronic circuitry in the interior rearview
mirror, and the interior and both exterior mirrors dim simultaneously. The
sale of complete mirror systems will increase the size of the available
worldwide market, and the Company has been devoting substantial research and
development efforts to this project, which resulted in its first shipments,
including NVS(R) convex exterior mirrors, to BMW in 1994, and volume shipments,
including thin flat and convex, to GM in 1997. At the end of 1996, the Company
began shipping NVS(R) aspheric exterior mirrors to Mercedes-Benz, followed by
volume shipments during 1997.
The Company's success with electrochromic technology provides an
opportunity for other potential commercial applications, which the Company
expects to explore in the future as resources permit. Examples of possible
applications of electrochromic technology include windows for both the
automotive and architectural markets, sunroofs and sunglasses. Progress in
adapting electrochromic technology to the specialized requirements of the
window market continued in 1997. However, achieving the rigorous performance
standards needed for launching a commercial product still could require several
years of additional work.
Markets and Marketing. The Company markets its automatic rearview
mirrors to domestic and foreign automotive manufacturers under the trade name
"Night Vision Safety(TM)" or NVS(R) Mirrors. In North America, the Company
markets these products primarily through a direct sales force of six persons.
The Company currently supplies NVS(R) Mirrors to Ford Motor Company, General
Motors Corporation and Chrysler Motors Corporation under long-term agreements.
During 1997, the Company negotiated a new five-year, lifetime contract for
inside mirrors with General Motors through the 2002 model year, while a
three-year long-term contract for outside mirrors runs through the 1998 model
year. The term of the Ford contract is through December 1999, and the
long-term supply agreement with Chrysler Corporation was recently extended
through the 2003 model year. The Company's exterior NVS(R) Mirror
Sub-Assemblies are supplied to General Motors, Ford and Chrysler by means of
sales to four exterior mirror suppliers.
During 1993, the Company established a sales and engineering office in
Germany and hired its first employee in Europe. During 1994, the Company
formed a German limited liability company, Gentex GmbH, to expand its sales and
engineering support activities. The Company's marketing efforts in Europe are
conducted through Gentex GmbH with the assistance of independent manufacturers'
representatives. The Company is currently supplying mirrors to Audi, Bavarian
Motor Works, A.G. (BMW), Fiat, Mercedes-Benz, Opel, Porsche and Rolls Royce.
The Company has a long-term contract with BMW through March 31, 1999.
During 1992, the Company negotiated a replacement reciprocal distribution
agreement with Ichikoh Industries, Ltd. (Ichikoh), a major Japanese supplier of
automotive products. Under this agreement, Ichikoh markets the Company's
automatic mirrors to certain Japanese automakers and their subsidiaries with
manufacturing facilities in Asia. The arrangement involves very limited
technology transfer by the Company and does not include the Company's
proprietary electrochromic gel formulation. The Company has been shipping
electrochromic mirror assemblies under the original agreement since 1991 for
Nissan Motor Co., Ltd.
During 1993, the Company hired sales agent Continental Far East to market
NVS(R) Mirrors to other Japanese automakers beyond Nissan. During 1994 and
1995, the Company began making mirror shipments to Tokai Rika Co., Ltd. for
Toyota Lexus vehicle models. The Company began making direct mirror shipments
to Honda and Mitsubishi, in 1995 and 1996, respectively. The Company plans to
establish a sales and engineering office in Japan sometime during 1998.
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Historically, new safety and comfort options have entered the original
equipment automotive market at relatively low rates on "top of the line" or
luxury model automobiles. As the selection rates for the options on the luxury
models increase, they generally become available on more models throughout the
product line and may become standard equipment. The recent trend of domestic
and foreign automakers is to offer several options as a package. As consumer
demand increases for a particular option, the mirror tends to be offered on
more vehicles and in higher option rate packages. The Company anticipates that
its NVS(R) Mirrors will be offered as standard equipment, in higher option rate
packages and on more models as consumer awareness of the safety and comfort
features becomes more well-known and acceptance grows.
The Company recently announced that it will build an NVS(R) Mirror
incorporating Prince/Johnson Controls' new "AutoLink(TM)" intelligent
automotive communications system for the aftermarket. Future derivatives of
this product may have OEM sales potential in future years. The AutoLink(TM)
Mirror will be marketed by Prince/Johnson Controls Inc. Currently, the Company
directs no significant efforts to the sale of NVS(R) mirrors to the automotive
aftermarket. It is management's belief that such efforts are of limited value
until the Company achieves a significantly higher penetration of the original
equipment manufacturing market.
Competition. Gentex is the leading producer of automatic rearview
mirrors in the world and currently is the dominant supplier to the automotive
industry with an approximate 90% market share worldwide. While the Company
believes it will retain a dominant position, one other U.S. manufacturer
(Donnelly Corporation) is offering for sale to domestic and foreign vehicle
manufacturers and is supplying a number of domestic and foreign vehicle models
with its hybrid version of electrochromic mirrors. In addition, three Japanese
manufacturers are supplying a number of vehicle models in Japan with
solid-state electrochromic mirrors.
The Company believes its electrochromic automatic mirrors offer
significant performance advantages, and that Donnelly shipped approximately
300,000 of its electrochromic mirrors to automotive customers in 1997.
However, Gentex recognizes that Donnelly Corporation is considerably larger
than the Company and presents a significant competitive threat by using pricing
as its primary means to attempt to gain additional electrochromic mirror
business. Gentex has been involved in patent litigation with Donnelly
Corporation (see discussion under the caption "Legal Proceedings").
There are numerous other companies in the world conducting research on
various technologies, including electrochromics, for controlling light
transmission and reflection. Gentex believes that the electrochromic materials
and manufacturing process it uses for automotive mirrors remains the most
efficient and cost-effective way to produce such products. While
automatic-dimming mirrors using solid-state or hybrid electrochromics and
liquid crystal displays may eliminate glare, each of these technologies have
inherent cost or performance limitations.
FIRE PROTECTION PRODUCTS
The Company manufactures over 60 different models of smoke detectors and
over 160 different models of signaling appliances. All of the smoke detectors
operate on a photoelectric principle to detect smoke. While the use of
photoelectric technology entails greater manufacturing costs, the Company
believes that these detectors are superior in performance to competitive
devices that operate through an ionization process, and are preferred in most
commercial residential occupancies. Photoelectric detectors feature low
light-level detection, while ionization detectors utilize an ionized
atmosphere, the electrical conductivity of which varies with changes in the
composition of the atmosphere. Photoelectric detectors are widely recognized
to respond more quickly to slow, smoldering fires, a common form of dwelling
unit fire and a frequent cause of fire-related deaths. In addition,
photoelectric detectors are less prone to nuisance alarms and do not require
the use of radioactive materials necessary for ionization detectors.
Photoelectric smoke detectors are now being required by an increasing number of
city and state laws.
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The Company's fire protection products provide the flexibility to be wired
as part of multiple-function systems and consequently are generally used in
fire detection systems common to large office buildings, hotels, motels,
military bases, college dormitories and other commercial establishments.
However, the Company also offers single-station detectors for both commercial
and residential applications. While the Company does not emphasize the
residential market, some of its fire protection products are used in
single-family residences that utilize fire protection and security systems.
The Company's detectors emit audible and/or visual signals in the immediate
location of the device and/or communicate with monitored remote stations.
In recent years, the Company introduced further improvements to its line
of smoke detectors, including submersibility to enhance maintenance, and a new
design feature that permits greater ease in sensitivity testing. The Company
offers the only detection device that may be completely submersed in water for
cleaning purposes. This feature permits more effective and convenient cleaning
of the product, thereby enhancing reliability. In addition, the patented
sensitivity test feature permits the user to check the calibration of the least
and most sensitive detection levels of the detector with the simple turn of a
knob. In 1995, a National Fire Protection Association code for the eastern
United States changed to require that all dwellings larger than 1-2 family must
annually conduct this sensitivity test.
During 1993, the Company introduced a 120 VAC photoelectric smoke detector
with a 9-volt battery backup for use in the commercial residential markets and
public-use facilities, as well as other facilities specified in regional or
national building codes. In 1997, this product series added a temporal code 3
sounding element to meet the new code requirements. This new tone generated by
the smoke detector is for alerting the occupants to evacuate the premises.
The Company has also developed a new, high-intensity strobe warning light
to meet the new, stricter Underwriters Laboratories standard for visual
signaling for the hearing impaired. This new standard replaces the previous
standard where light dispersion was only measured from directly in front of the
unit. The new standard requires light to be dispersed at several critical
angles to provide notification, regardless of the individual's position in the
room of coverage, and also the light intensity is to be sized to the room.
The new product series is used in conjunction with other Gentex products
such as the remote signaling electronic horn, primary evacuation speaker, and
smoke detection products.
The Company currently is producing the only photoelectric smoke detector
with battery back-up that offers a supplemental visual alarm.
During 1995, the Company introduced a multi-tone audible signaling
appliance to meet new building code requirements. This new multi-tone product
line has eight different tones and a high/low decibel level selection. The
multi-tone series also will be used in conjunction with the Company's visual
signals.
During 1996, the Company made numerous revisions to its products to
include weather-proofing the mechanical horn and strobe for outdoor use,
increasing the power taps on their speaker series, adding three new candela
ratings to their visual signals (strobe warning lights), and adding terminal
blocks to the remote signaling appliances to meet new code requirements.
During 1997, the Company introduced a new visual and audible signaling
line. The visual (strobe) was designed to meet the Underwriters Laboratories
standard without any loss of efficiency. This product draws the lowest amount
of current consumption in the industry. It is also available with the largest
array of visual intensities offered to meet virtually all room sizes and
configurations.
Also, during 1997, the Company became one of the first companies in the
fire alarm market to implement the temporal code 3 pattern on the smoke
detection products.
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Markets and Marketing. The Company's fire protection products are sold
directly to fire protection and security product distributors under the
Company's brand name, electrical wholesale houses, and to original equipment
manufacturers of fire protection systems under both the Company's brand name
and private labels. The Company markets its fire protection products
throughout the United States through five regional sales managers.
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 27 U.S. patents, 25 of which relate to electrochromic
technology and/or automotive rearview mirrors. These patents expire between
2002 and 2015. The Company believes that these patents provide the Company a
significant competitive advantage in the automotive rearview mirror market;
however, none of these patents is required for the success of any of the
Company's products. The remaining two U.S. patents relate to the Company's
fire protection products, and the Company believes that the competitive
advantage provided by these patents is relatively small.
The Company also owns 21 foreign patents, which relate to automotive
rearview mirrors. These patents expire at various times between 1999 and 2015.
The Company believes that the competitive advantage derived in the relevant
foreign markets for these patents is comparable to that experienced in the U.S.
market.
The Company also has in process 47 U.S. patent applications and 38 foreign
patent applications. The Company continuously seeks to improve its core
technologies and apply those technologies to new and existing products. As
those efforts produce patentable inventions, the Company expects to file
appropriate patent applications.
During 1996, the Company settled virtually all patent litigation with
respect to its rearview mirrors (see discussion under the caption, "Legal
Proceedings").
"Night Vision Safety(TM)" and "A Smarter Vision(TM)" are trademarks of
Gentex Corporation and "NVS(R)" is a registered trademark of Gentex
Corporation.
MISCELLANEOUS
The Company considers itself to be engaged in business in two industry
segments: the manufacture and sale of automatic rearview mirrors for the
automotive industry and fire protection products for the commercial building
industry. The Company has four important customers within the automotive
industry segment, each of which accounts for approximately 10% or more of the
Company's annual sales: General Motors Corporation, Mercedes-Benz, Chrysler
Corporation and Ford Motor Company. The loss of any of these customers could
have a material adverse effect on the Company. The Company's backlog of
unshipped orders was $52,881,000 and $39,782,000 at March 1, 1998 and 1997,
respectively.
At March 1, 1998, the Company had 1,250 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.
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ITEM 2. PROPERTIES.
The Company operates out of three office/manufacturing facilities in
Zeeland, Michigan, approximately 25 miles southwest of Grand Rapids. The
office and production facility for the Fire Protection Products Group is a
25,000-square-foot, one-story building leased by the Company since 1978 from
related parties (see Part III, Item 13, of this report).
The corporate office and production facility for the Company's Automotive
Products Group is a modern, two-story, 130,000-square-foot building of steel
and masonry construction situated on a 40-acre site in a well-kept industrial
park, providing ample opportunity for expansion. An additional
128,000-square-foot office/manufacturing facility on this site was constructed
during 1996, to meet the Company's current and near term future automotive
production needs. The Company currently anticipates expanding its automotive
production facilities by constructing a third facility on its current site
sometime within the next twelve to twenty-four months.
ITEM 3. LEGAL PROCEEDINGS
None that are material.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
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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 55 Chief Executive Officer May 1986
Kenneth La Grand 57 Executive Vice President September 1987
John Mulder 61 Vice President, Automotive Marketing July 1988
Enoch Jen 46 Vice President-Finance, Treasurer February 1991
There are no family relationships among the officers listed in the
preceding table.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS.
The Company's common stock trades on the National Market tier of The
Nasdaq Stock Market. As of March 2, 1998, there were 1,959 record holders of
the Company's common stock. Ranges of high and low sale prices of the
Company's common stock (adjusted for the 2-for-1 stock split in June 1996)
reported through The Nasdaq Stock Market for the past two fiscal years appear
in the following table.
YEAR QUARTER HIGH LOW
-------------------------------
1996 First 15 7/16 10 1/2
Second 23 1/2 14 3/4
Third 26 3/4 16
Fourth 26 1/4 17 1/2
1997 First 21 5/8 17 1/2
Second 22 1/8 16 1/4
Third 26 18 5/8
Fourth 28 1/4 20 3/4
-------------------------------
The Company has never paid any cash dividends on its common stock, and
management does not anticipate paying any cash dividends in the foreseeable
future.
ITEM 6. SELECTED FINANCIAL DATA
(in thousands except per share data)
- --------------------------------------------------------------------------------
1997 1996 1995 1994 1993
- --------------------------------------------------------------------------------
Net Sales $186,328 $148,708 $111,566 $89,762 $63,664
Net Income 35,230 23,963 18,895 16,466 9,845
- --------------------------------------------------------------------------------
Earnings
Per Share* 0.98 0.67 0.55 0.48 0.29
- --------------------------------------------------------------------------------
Total Assets $189,783 $140,378 $109,244 $80,739 $55,191
- --------------------------------------------------------------------------------
Long-Term Debt
Outstanding at
Year End $ - $ - $ - $ - $ -
- --------------------------------------------------------------------------------
*Diluted; adjusted for 2-for-1 stock splits in June 1996 and 1993.
-12-
13
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION.
RESULTS OF OPERATIONS.
The following table sets forth for the periods indicated certain items
from the Company's Consolidated Statements of Income expressed as a percentage
of net sales and the percentage change of each such item from that in the
indicated previous year.
Percentage of Net Sales Percentage Change
---------------------------- --------------------
1997 1996
Year Ended December 31 to to
1997 1996 1995 1996 1995
-------- -------- -------- --------- ---------
Net Sales 100.0% 100.0% 100.0% 25.3% 33.3%
Cost of Goods Sold 63.8 62.9 60.7 27.1 38.1
------ ------ ------ ------ ------
Gross Profit 36.2 37.1 39.3 22.2 25.9
Operating Expenses:
Research and Development 4.9 5.1 5.3 20.5 26.5
Selling, General and Administrative 5.8 7.9 11.6 (7.9) (8.8)
Patent Settlement - 2.7 - (100.0) N/A
------ ------ ------ ------ ------
Total Operating Expenses 10.7 15.7 16.9 (14.5) 23.6
------ ------ ------ ------ ------
Operating Income 25.5 21.4 22.4 49.1 27.6
Other Income 2.5 2.5 2.6 29.2 22.7
------ ------ ------ ------ ------
Income Before Federal Income Taxes 28.0 23.9 25.0 47.1 27.0
Provision for Federal Income Taxes 9.1 7.8 8.1 47.2 27.5
------ ------ ------ ------ ------
Net Income 18.9% 16.1% 16.9% 47.0% 26.8%
====== ====== ====== ====== ======
RESULTS OF OPERATIONS: 1997 TO 1996
Net Sales. Automotive net sales increased by 28% and mirror shipments
increased by 26%, from 3,079,000 to 3,878,000 units, primarily reflecting new
thin glass flat, convex and aspheric exterior mirrors, as well as increased
penetration on domestic and foreign 1997 and 1998 model year vehicles for
interior and exterior electrochromic Night Vision Safety(TM) (NVS(R)) Mirrors.
North American unit shipments increased by 17%, while overseas unit shipments
increased by 50% during 1997. Net sales of the Company's fire protection
products increased 6%, primarily due to increased sales of its AC/DC smoke
detectors and certain strobe related products.
Cost of Goods Sold. As a percentage of net sales, cost of goods sold
increased from 63% to 64%, primarily reflecting automotive customer price
reductions, lower glass yields in connection with the production ramp-up of the
new exterior mirror products, and temporary capacity under-utilization at the
new mirror manufacturing facility, partially offset by product cost reductions
and increased sales volume spread over fixed overhead expenses.
Operating Expenses. Research and development expenses increased
approximately $1,542,000, but remained at 5% of net sales, primarily due to
additional staffing for new product development. Selling, general and
administrative expenses decreased approximately $923,000, and decreased from 8%
to 6% of net sales, primarily reflecting a reduction in patent litigation
expense of $1,440,000, as a result of the patent litigation settlement at the
end of the first quarter 1996.
Other Income - Net. Investment income increased $968,000 in 1997,
primarily due to higher investable fund balances and higher average interest
rates.
Taxes. The provision for federal income taxes varied from the statutory
rates in 1997, primarily due to Foreign Sales Corporation exempted taxable
income from increased foreign sales, as well as tax-exempt interest income.
Net Income. Net income increased by 47%, primarily reflecting the
increased sales level in 1997, and the patent litigation settlement in 1996.
-13-
14
RESULTS OF OPERATIONS: 1996 TO 1995
Net Sales. Automotive net sales increased by 37% and mirror shipments
increased by 38%, from 2,228,000 to 3,079,000 units, primarily reflecting
increased penetration on domestic and foreign 1996 and 1997 model year vehicles
for interior and exterior electrochromic NVS(R) Mirrors. Net sales of the
Company's fire protection products increased 11% primarily due to increased
sales of its AC/DC smoke detectors and strobe related products.
Cost of Goods Sold. As a percentage of net sales, cost of goods sold
increased from 61% to 63%, primarily reflecting automotive customer price
reductions; a shift in the Company's automotive mirror shipment product mix to
NVS(R) Compass Mirrors, which has a lower margin percentage due to the higher
amount of purchased components; and start-up costs associated with a new mirror
manufacturing facility and installation of new manufacturing lines for a
second-generation interior compass mirror product and exterior aspheric mirror
products, partially offset by the higher sales level covering fixed overhead
costs and increased manufacturing efficiencies.
Operating Expenses. Research and development expenses increased
approximately $1,580,000, but remained at 5% of net sales, primarily due to
additional staffing for new product development. Selling, general and
administrative expenses decreased approximately $1,131,000, and decreased from
12% to 8% of net sales, primarily reflecting lower patent litigation expense of
$1,560,000, compared to $4,110,000, as a result of the patent litigation
settlement at the end of the first quarter, partially offset by higher selling
expenses associated with the sales growth. The Company recorded a one-time
charge of $4,000,000 ($6,000,000 payment, net of accrued reserves) in
connection with the patent litigation settlement (see footnote (8) to the
Consolidated Financial Statements, filed as a part of this report).
Other Income. Investment income increased $573,000 in 1996, primarily
due to higher investable fund balances and higher average interest rate.
Taxes. The provision for federal income taxes varied from the statutory
rates in 1996, primarily due to Foreign Sales Corporation exempted taxable
income from increased foreign sales, as well as tax-exempt interest income.
Net Income. Net income increased by 27%, primarily reflecting the
increased sales level, partially offset by decreased margins.
LIQUIDITY AND CAPITAL RESOURCES
The Company's financial condition throughout the periods presented has
remained very strong.
The Company's current ratio decreased from 6.4 to 5.2, primarily as a
result of increased accounts payable, due to higher production levels.
Management considers the Company's working capital of approximately
$61,328,000 and long-term investments of approximately $70,291,000 at December
31, 1997, together with internally generated cash flow and an unsecured
$5,000,000 line of credit from a bank, to be sufficient to cover anticipated
cash needs for the foreseeable future.
INFLATION, CHANGING PRICES AND OTHER
In addition to price reductions over the life of its long-term agreements,
the Company continues to experience pricing pressures from its automotive
customers, which have affected, and which will continue to affect, its margins
to the extent that the Company is unable to offset the price reductions with
productivity and yield improvements, engineering and purchasing cost
reductions, and increases in sales volume. In addition, the Company continues
to experience some pressure for raw material cost increases.
-14-
15
The Company currently supplies NVS(R) Mirrors to BMW, Chrysler
Corporation, Ford Motor Company and General Motors Corporation under long-term
agreements. The BMW long-term contract is through March 31, 1999, and the
long-term supply agreement with Chrysler Corporation runs through the 2003
Model Year. The term of the Ford contract is through December 1999, while the
GM contract runs through the 1998 Model Year for exterior mirrors and through
the 2002 Model Year for inside mirrors.
The Company has developed a plan to ensure that its computer systems will
be compliant by mid 1999 with the Year 2000. The Company currently believes
that the cost of addressing the Year 2000 issue will not be material to the
Company's business, operations or financial condition.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The following financial statements are filed with this report as pages 18
through 30 following the signature page:
Report of Independent Public Accountants
Consolidated Balance Sheets as of December 31, 1997 and 1996
Consolidated Statements of Income for the years ended December 31, 1997,
1996 and 1995
Consolidated Statements of Shareholders' Investment for the years ended
December 31, 1997, 1996 and 1995
Consolidated Statements of Cash Flows for the years ended December 31,
1997, 1996 and 1995
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
1997 1996 1997 1996 1997 1996 1997 1996
- ------------------------------------------------------------------------------------------------------------
Net Sales $41,902 $35,908 $44,873 $38,673 $46,968 $36,798 $52,584 $37,330
Gross Profit 14,732 13,530 15,805 14,492 16,703 13,049 20,147 14,055
Operating Income 9,965 4,161 10,619 9,856 11,710 8,452 15,189 9,371
Net Income 7,384 3,346 8,001 7,224 8,667 6,333 11,178 7,060
Earnings Per Share* $ .21 $ .10 $ .22 $ .20 $ .24 $ .18 $.31 $.20
- ------------------------------------------------------------------------------------------------------------
*Diluted; adjusted for 2-for-1 stock split in June 1996.
ITEM 9. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
-15-
16
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information relating to executive officers is included in this report in
the last section of Part I under the caption "Executive Officers of the
Registrant". Information relating to directors appearing under the caption
"Election of Directors" in the definitive Proxy Statement for the 1998 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 1998 Annual Meeting of Shareholders and filed with the
Commission is hereby incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
The information contained under the caption "Executive Compensation"
contained in the definitive Proxy Statement for the 1998 Annual Meeting of
Shareholders and filed with the Commission is hereby incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information contained under the captions "Securities Ownership of
Management" and "Securities Ownership of Certain Beneficial Owners" contained
in the definitive Proxy Statement for the 1998 Annual Meeting of Shareholders
and filed with the Commission is hereby incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information contained under the caption "Transactions with Management"
contained in the definitive Proxy Statement for the 1998 Annual Meeting of
Shareholders and filed with the Commission is hereby incorporated herein by
reference.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) 1. Financial Statements. See Item 8.
2. Financial Statements Schedules. Not applicable.
3. Exhibits. See Exhibit Index located on page 31.
(b) No reports on Form 8-K were filed for the three-month period
ended December 31, 1997.
-16-
17
SIGNATURES
Pursuant to the requirements of Section 13 of 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on this behalf by the undersigned thereunto duly authorized.
Dated: March 6, 1998 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 6th day of March, 1998, by the following
persons on behalf of the Registrant and in the capacities indicated.
Each Director of the Registrant whose signature appears below hereby
appoints Enoch Jen and Kenneth La Grand, each of them individually, as his
attorney-in-fact to sign in his name and on his behalf, and to file with the
Commission any and all amendments to this report on Form 10-K to the same
extent and with the same effect as if done personally.
/s/ Fred Bauer Director
- ---------------------
Fred Bauer
/s/ Mickey E. Fouts Director
- ---------------------
Mickey E. Fouts
/s/ Kenneth La Grand Director
- ---------------------
Kenneth La Grand
/s/ Arlyn Lanting Director
- ---------------------
Arlyn Lanting
/s/ John Mulder Director
- ---------------------
John Mulder
Director
- ---------------------
Ted Thompson
/s/ Leo Weber Director
- ---------------------
Leo Weber
-17-
18
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of Gentex Corporation:
We have audited the accompanying consolidated balance sheets of
GENTEX CORPORATION (a Michigan corporation) and subsidiaries as of
December 31, 1997 and 1996, and the related consolidated statements
on income, shareholders' investment and cash flows for each of the
three years in the period ended December 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position of
Gentex Corporation and subsidiaries as of December 31, 1997 and 1996,
and the results of their operations and their cash flows for each of
the three years in the period ended December 31, 1997, in conformity
with generally accepted accounting principles.
/s/ Arthur Andersen LLP
Grand Rapids, Michigan
January 22, 1998
-18-
19
GENTEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1997 AND 1996
ASSETS
- ------ 1997 1996
---- ----
CURRENT ASSETS:
Cash and cash equivalents $ 26,768,647 $ 16,730,356
Short-term investments 14,362,736 31,803,621
Accounts receivable, less allowances
of $225,000 and $200,000 in 1997 & 1996 24,515,525 17,015,174
Inventories 8,787,689 6,180,422
Prepaid expenses and other 1,484,839 966,287
------------ ------------
Total current assets 75,919,436 72,695,860
PLANT AND EQUIPMENT:
Land, building and improvements 19,689,743 15,335,447
Machinery and equipment 37,158,968 27,155,406
Construction-in-process 6,166,893 4,729,615
------------ ------------
63,015,604 47,220,468
Less-Accumulated depreciation
and amortization (20,776,719) (15,645,921)
------------ ------------
42,238,885 31,574,547
OTHER ASSETS:
Long-term investments 70,291,142 33,945,446
Patents and other assets, net 1,333,384 2,162,567
------------ ------------
71,624,526 36,108,013
------------ ------------
$189,782,847 $140,378,420
============ ============
LIABILITIES AND SHAREHOLDERS' INVESTMENT
- ----------------------------------------
1997 1996
---- ----
CURRENT LIABILITIES:
Accounts payable $ 8,760,256 $ 5,794,832
Accrued liabilities:
Salaries, wages and vacation 1,567,395 1,240,834
Taxes 2,347,284 2,686,815
Other 1,916,289 1,638,436
------------ ------------
Total current liabilities 14,591,224 11,360,917
DEFERRED INCOME TAXES 1,986,446 1,213,862
CONTINGENCIES (Note 8)
SHAREHOLDERS' INVESTMENT:
Preferred stock, no par value,
5,000,000 shares authorized; none
issued or outstanding - -
Common stock, par value $.06 per share;
50,000,000 shares authorized 2,123,949 2,084,957
Additional paid-in capital 53,654,663 44,963,895
Retained earnings 117,498,700 82,268,476
Deferred compensation (1,635,623) (1,804,104)
Unrealized gain on investments 1,584,368 290,887
Cumulative translation adjustment (20,880) (470)
------------ ------------
Total shareholders' investment 173,205,177 127,803,641
------------ ------------
$189,782,847 $140,378,420
============ ============
The accompanying notes are an integral part of these consolidated balance
sheets.
-19-
20
GENTEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
1997 1996 1995
---- ---- ----
NET SALES $186,327,877 $148,708,218 $111,566,225
COST OF GOODS SOLD 118,941,030 93,582,756 67,767,347
------------ ------------ ------------
Gross profit 67,386,847 55,125,462 43,798,878
OPERATING EXPENSES:
Research and development 9,079,472 7,537,933 5,957,966
Selling, general and administrative 10,825,389 11,747,961 12,878,790
Patent settlement - 4,000,000 -
------------ ------------ ------------
Total operating expenses 19,904,861 23,285,894 18,836,756
------------ ------------ ------------
Operating income 47,481,986 31,839,568 24,962,122
OTHER INCOME:
Interest and dividend income 4,405,565 3,437,040 2,863,730
Other, net 301,673 205,787 105,291
------------ ------------ ------------
Total other income 4,707,238 3,642,827 2,969,021
------------ ------------ ------------
Income before provision
for federal income taxes 52,189,224 35,482,395 27,931,143
PROVISION FOR FEDERAL INCOME TAXES 16,959,000 11,519,000 9,036,000
------------ ------------ ------------
NET INCOME $35,230,224 $ 23,963,395 $ 18,895,143
=========== ============ ============
EARNINGS PER SHARE:
Basic $ 1.01 $ 0.70 $ 0.57
=========== ============ ============
Diluted $ 0.98 $ 0.67 $ 0.55
=========== ============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
-20-
21
GENTEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' INVESTMENT
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
Additional
Common Stock Paid-In Retained
Shares Amount Capital Earnings
------ ------ ------- --------
BALANCE AS OF DECEMBER 31, 1994 16,509,476 $ 990,569 $ 31,875,455 $ 39,409,938
Issuance of common stock and the tax benefit
of stock plan transactions 386,383 23,183 5,252,865 --
Amortization of deferred compensation -- -- -- --
Current year translation adjustment -- -- -- --
Unrealized loss on investments -- -- -- --
Net income -- -- -- 18,895,143
----------- ------------- ------------- -------------
BALANCE AS OF DECEMBER 31, 1995 16,895,859 1,013,752 37,128,320 58,305,081
Issuance of common stock and the tax benefit
of stock plan transactions 633,754 38,025 8,868,755 --
Amortization of deferred compensation -- -- -- --
Stock split 17,219,669 1,033,180 (1,033,180) --
Current year translation adjustment -- -- -- --
Unrealized gain on investments -- -- -- --
Net income -- -- -- 23,963,395
----------- ------------- ------------- -------------
BALANCE AS OF DECEMBER 31, 1996 34,749,282 2,084,957 44,963,895 82,268,476
Issuance of common stock and the tax benefit
of stock plan transactions 649,865 38,992 8,690,768 --
Amortization of deferred compensation -- -- -- --
Current year translation adjustment -- -- -- --
Unrealized gain on investments -- -- -- --
Net income -- -- -- 35,230,224
----------- ------------- ------------- -------------
BALANCE AS OF DECEMBER 31, 1997 35,399,147 $ 2,123,949 $ 53,654,663 $ 117,498,700
=========== ============= ============= =============
Unrealized Cumulative Total
Deferred Gain (Loss) on Translation Shareholders'
Compensation Investments Adjustment Investment
------------ ----------- ---------- ----------
BALANCE AS OF DECEMBER 31, 1994 $ (899,136) $ -- $ (1,365) $ 71,375,461
Issuance of common stock and the tax benefit
of stock plan transactions (1,159,975) -- -- 4,116,073
Amortization of deferred compensation 337,427 -- -- 337,427
Current year translation adjustment -- -- (7,839) (7,839)
Unrealized loss on investments -- (44,485) -- (44,485)
Net income -- -- -- 18,895,143
----------- ----------- ------------- -------------
BALANCE AS OF DECEMBER 31, 1995 (1,721,684) (44,485) (9,204) 94,671,780
Issuance of common stock and the tax benefit
of stock plan transactions (630,241) -- -- 8,276,539
Amortization of deferred compensation 547,821 -- -- 547,821
Stock split -- -- -- --
Current year translation adjustment -- -- 8,734 8,734
Unrealized gain on investments -- 335,372 -- 335,372
Net income -- -- -- 23,963,395
----------- ----------- ------------- -------------
BALANCE AS OF DECEMBER 31, 1996 (1,804,104) 290,887 (470) 127,803,641
Issuance of common stock and the tax benefit
of stock plan transactions (421,579) -- -- 8,308,181
Amortization of deferred compensation 590,060 -- -- 590,060
Current year translation adjustment -- -- (20,410) (20,410)
Unrealized gain on investments -- 1,293,481 -- 1,293,481
Net income -- -- -- 35,230,224
----------- ----------- ------------- -------------
BALANCE AS OF DECEMBER 31, 1997 $(1,635,623) $ 1,584,368 $ (20,880) $ 173,205,177
=========== =========== ============= =============
The accompanying notes are an integral part of these consolidated financial
statements.
-21-
22
GENTEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
1997 1996 1995
---------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $35,230,224 $23,963,395 $18,895,143
Adjustments to reconcile net income to net
cash provided by operating activities-
Depreciation and amortization 6,418,312 3,918,515 3,201,847
Loss on disposal of equipment 82,862 47,949 11,937
Loss (gain) on sale of investments (8,102) 39,295 -
Deferred income taxes (289,734) 1,072,582 (142,930)
Amortization of deferred compensation 590,060 547,821 337,427
Change in assets and liabilities:
Accounts receivable, net (7,500,351) (2,309,018) (3,619,176)
Inventories (2,607,267) (444,903) (431,967)
Prepaid expenses and other (152,724) (184,625) (91,962)
Accounts payable 2,965,424 372,174 1,307,267
Accrued liabilities 264,883 (3,061,324) 3,757,174
----------- ----------- -----------
Net cash provided by
operating activities 34,993,587 23,961,861 23,224,760
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Activity in Held-To-Maturity Securities
Maturities and Calls 24,765,464 28,840,879 12,696,750
Purchases (28,324,553) (34,915,969) (30,170,062)
Activity in Available-For-Sale Securities
Sales Proceeds 12,475,160 1,123,053 -
Purchases (25,822,809) (8,011,758) (450,735)
Plant and equipment additions (16,383,089) (16,424,358) (4,861,930)
Proceeds from sale of plant and equipment 316,270 11,943 7,450
Increase in other assets (289,920) (246,875) (1,631,256)
----------- ----------- -----------
Net cash used for
investing activities (33,263,477) (29,623,085) (24,409,783)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock and tax benefit of
stock plan transactions 8,308,181 8,276,539 4,116,073
----------- ----------- -----------
Net cash provided by
financing activities 8,308,181 8,276,539 4,116,073
----------- ----------- -----------
NET INCREASE IN CASH AND
CASH EQUIVALENTS 10,038,291 2,615,315 2,931,050
CASH AND CASH EQUIVALENTS,
beginning of year 16,730,356 14,115,041 11,183,991
----------- ----------- -----------
CASH AND CASH EQUIVALENTS,
end of year $26,768,647 $16,730,356 $14,115,041
=========== =========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
-22-
23
GENTEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES
The Company
Gentex Corporation designs, develops, manufactures and markets two
proprietary electro-optical product lines: automatic rearview mirrors
for the automotive industry and fire protection products for the
commercial building industry. A substantial portion of the Company's
net sales and accounts receivable result from transactions with domestic
and foreign automotive manufacturers and tier one suppliers. The
Company's fire protection products are primarily sold to domestic
distributors and original equipment manufacturers of fire and security
systems.
Significant accounting policies of the Company not described elsewhere are
as follows:
Consolidation
The consolidated financial statements include the accounts of Gentex
Corporation and all of its wholly-owned subsidiaries (together the
"Company"). All significant intercompany accounts and transactions have
been eliminated.
Cash Equivalents
Cash equivalents consist of funds invested in money market accounts.
Investments
The amortized cost, unrealized gains and losses, and market value of
securities held to maturity and available for sale are shown as of
December 31, 1997 and 1996:
1997 Cost Gains Losses Market Value
---- ---- ----- ------ ------------
U.S. Treasuries $15,255,587 $ 344,430 $ - $ 15,600,017
Municipal 43,874,376 350,279 (2,641) 44,222,014
Other Fixed 6,476,132 8,518 - 6,484,650
Equity 16,610,295 2,172,023 (78,965) 18,703,353
----------- ---------- --------- ------------
$82,216,390 $2,875,250 $ (81,606) $ 85,010,034
=========== ========== ========== ============
1996
----
U.S. Treasuries $11,164,723 $ 35,299 $ - $ 11,200,022
Municipal 34,758,226 84,197 (12,222) 34,830,201
Other Fixed 12,054,500 15,751 - 12,070,251
Equity 7,324,101 787,123 (339,606) 7,771,618
----------- ---------- ---------- ------------
$65,301,550 $ 922,370 $(351,828) $ 65,872,092
=========== ========== ========== ============
Fixed income securities, excluding U.S. Treasuries in 1997, are considered
held to maturity, and equity securities and U.S. Treasuries are
available for sale. Held to maturity securities as of December 31,
1997, have maturities as follows:
Due within one year $14,362,737
Due between one and five years 35,987,771
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, 1997 and 1996:
1997 1996
---- ----
Raw materials $4,931,434 $3,860,534
Work-in-process 600,298 348,336
Finished goods 3,255,957 1,971,552
---------- ----------
$8,787,689 $6,180,422
========== ==========
-23-
24
GENTEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES, continued
Plant and Equipment
Plant and equipment are stated at cost. Depreciation and amortization are
computed for financial reporting purposes using the straight-line
method, with estimated useful lives of 5 to 40 years for building and
improvements, and 3 to 10 years for machinery and equipment.
Patents
The Company's policy is to capitalize costs incurred to obtain and defend
patents. The cost of patents is amortized over their useful lives. The
cost of patents in process is not amortized until issuance. Accumulated
amortization was approximately $4,679,000 and $3,580,000 at December 31,
1997 and 1996, respectively. Patent amortization expense was
approximately $1,099,000, $186,000, and $129,000 in 1997, 1996 and 1995,
respectively.
Revenue Recognition
The Company's revenue primarily is generated from sales of its products.
Sales are recognized upon the shipment of product to customers.
Advertising and Promotional Materials
All advertising and promotional costs are expensed as incurred and
amounted to approximately $671,000, $780,000, and $608,000 in 1997, 1996
and 1995, respectively.
Repairs and Maintenance
Major renewals and improvements of property and equipment are capitalized,
and repairs and maintenance are expensed as incurred. The Company
incurred expenses relating to the repair and maintenance of plant and
equipment of approximately $2,028,000, $1,338,000, and $1,041,000 in
1997, 1996 and 1995, respectively.
Self-Insurance
The Company is self-insured for a portion of its risk on workers'
compensation and employee medical costs. The arrangements provide for
stop loss insurance to manage the Company's risk. Operations are
charged with the cost of claims reported and an estimate of claims
incurred but not reported.
Earnings Per Share
Effective December 31, 1997, the Company implemented Statement of Financial
Accounting Standards No. 128: "Earnings Per Share". This statement
establishes standards for computing and presenting earnings per share.
Under the new method, basic earnings per share excludes dilution and is
computed by dividing income available to common stockholders by the
weighted-average number of common shares outstanding for the period.
The weighted average number of shares outstanding was approximately
34,815,000, 34,093,000, and 33,180,000 in 1997, 1996 and 1995,
respectively. Diluted earnings per share reflects the potential
dilution that could occur if securities or other contracts to issue
common stock were exercised or converted into common stock or resulted
in the issuance of common stock that then shared in the earnings of the
entity, which primarily includes stock options and restricted stock
grants at Gentex. The weighted average number of shares outstanding,
including the potential dilution, was approximately 35,981,000,
35,512,000 and 34,255,000 in 1997, 1996 and 1995, respectively. All
prior-period earnings per share data presented reflect the methodology
described under this statement.
-24-
25
GENTEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES, continued
Foreign Currency Translation
The financial position and results of operations of the Company's foreign
subsidiary are measured using the local currency as the functional
currency. Assets and liabilities are translated at the exchange rate in
effect at year-end. Income statement accounts are translated at the
average rate of exchange in effect during the year. The resulting
translation adjustment is recorded as a separate component of
shareholders' investment.
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
(2) LINE OF CREDIT
The Company has available an unsecured $5,000,000 line of credit from a
bank at the lower of the bank's prime rate or 1.5% above the LIBOR rate.
No borrowings were outstanding under this line in 1997 or 1996. No
compensating balances are required under this line.
(3) FEDERAL INCOME TAXES
The Company recognizes deferred tax liabilities and assets for the
expected future tax consequences of events that have been included in
the consolidated financial statements or tax returns. Under this
method, deferred tax liabilities and assets are determined based on the
difference between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse.
The components of the provision for federal income taxes are as follows:
1997 1996 1995
----------- ----------- ----------
Currently payable $17,249,000 $10,446,000 $9,179,000
Net Deferred (290,000) 1,073,000 (143,000)
----------- ----------- ----------
$16,959,000 $11,519,000 $9,036,000
=========== =========== ==========
The currently payable provision is further reduced by the tax benefits
associated with the exercise, vesting or disposition of stock under the
stock plans described in Note 6. These reductions totaled approximately
$3,571,000, $3,284,000, and $1,876,000 in the respective years.
The effective income tax rates are different from the statutory federal
income tax rates for the following reasons:
-25-
26
GENTEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(3) FEDERAL INCOME TAXES, continued
1997 1996 1995
---- ---- ----
Statutory federal income tax rate 35.0% 35.0% 35.0%
Foreign Sales Corporation exempted income (1.4) (1.5) (1.7)
Tax-exempt investment income (1.2) (1.2) (1.1)
Other 0.1 0.2 0.2
----- ----- -----
Effective Income tax rate 32.5% 32.5% 32.4%
===== ===== =====
The tax effect of temporary differences which give rise to deferred tax
assets and liabilities at December 31, 1997 and 1996, are as follows:
1997 1996
---------------------- ----------------------
Current Non-Current Current Non-Current
------- ----------- ------- -----------
Assets:
Accruals not currently deductible $ 500,052 $ 100,100 $412,785 $ 52,500
Deferred compensation - 407,379 - 452,023
Other 564,325 44,241 261,413 17,340
---------- ----------- -------- ----------
Total deferred tax assets 1,064,377 551,720 674,198 521,863
Liabilities:
Excess tax over book depreciation - (1,486,411) - (1,046,618)
Patent costs - (198,633) - (532,476)
Other (80,756) (853,122) (56,405) (156,631)
---------- ----------- --------- ------------
Net deferred taxes $ 983,621 $(1,986,446) $ 617,793 $ (1,213,862)
========== =========== ========= ============
Income taxes paid in cash were approximately $14,012,000, $6,930,000, and
$4,926,000 in 1997, 1996 and 1995, 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 1997, 1996 and
1995, the Company's contributions were approximately $293,000, $208,000,
and $151,000, respectively.
The Company does not provide health care benefits to retired employees.
(5) SHAREHOLDER PROTECTION RIGHTS PLAN
In August 1991, the Company's Board of Directors adopted a Shareholder
Protection Rights Plan (the Plan). The Plan is designed to protect
shareholders against unsolicited attempts to acquire control of the
Company in a manner that does not offer a fair price to all
shareholders.
Under the Plan, one purchase Right automatically trades with each share of
the Company's common stock. Each Right entitles a shareholder to
purchase 1/100 of a share of junior participating preferred stock at a
price of $54, 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 $.0025 per Right and,
unless earlier redeemed, will expire on August 26, 2001. Rights
beneficially owned by holders of 15 percent or more of the Company's
common stock, or their transferees, automatically become void.
-26-
27
GENTEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(6) STOCK BASED COMPENSATION PLANS
The Company has three stock option plans, including two employee stock
option plans ("Employee Plans") and a non-employee directors stock
option plan ("Director Plan"), and an employee stock purchase plan. The
Company accounts for these plans under APB Opinion No. 25, under which
no compensation cost has been recognized. Had compensation cost for
these plans been determined consistent with FASB Statement No. 123, the
Company's net income and earnings per share would have been reduced to
the follow pro-forma amounts:
1997 1996 1995
---- ---- ----
Net Income: As reported $35,230,000 $23,963,000 $18,895,000
Pro Forma 32,535,000 21,863,000 18,237,000
EPS (diluted): As Reported $ 0.98 $ 0.67 $ 0.55
Pro Forma 0.90 0.62 0.53
Because the Statement 123 method of accounting has not been applied to
options granted prior to January 1, 1995, the resulting pro forma
compensation cost may not be representative of that to be expected in
future years.
The Company may sell up to 800,000 shares of stock to its employees under
the Employee Stock Purchase Plan. The Company has sold to employees
35,102 shares, 31,893 shares, and 36,132 shares in 1997, 1996 and 1995,
respectively, and has sold a total of 156,197 shares through December
31, 1997. 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
1997 was approximately $22.
The Company may grant options for up to 9,708,000 shares under the
Employee Plans. The Company has granted options on 6,864,500 shares
through December 31, 1997. Under the Plans, the option exercise price
equals the stock's market price on date of grant. The Employee Plan
options vest after one to five years, and expire after five to seven
years.
A summary of the status of the Company's two employee stock option
plans at December 31, 1997, 1996 and 1995, and changes during the years
then ended is presented in the table and narrative below:
1997 1996 1995
----------------- ----------------- -----------------
Shares Wtd. Avg. Shares Wtd. Avg. Shares Wtd. Avg.
(000) Ex price (000) Ex price (000) Ex price
------ --------- ------ --------- ------ ---------
Outstanding at Beginning of Year 2,529 $11 2,899 $ 8 2,910 $ 6
Granted 491 23 515 18 642 11
Exercised (593) 7 (878) 5 (635) 3
Forfeited (74) 18 (7) 14 (18) 9
Expired - - - - - -
------ ------ ------
Outstanding at End of Year 2,353 15 2,529 11 2,899 8
------ ------ ------
Exercisable at End of Year 1,032 11 1,010 8 1,204 6
Weighted Avg. Fair Value
of Options Granted $20 $ 9 $ 6
1,362 of the 2,353 options outstanding at December 31, 1997, have exercise
prices between $1 and $14, with a weighted average exercise price of $11
and a weighted average remaining contractual life of 2 years. 871 of
these options are exercisable; their weighted average exercise price is
$10. The remaining 991 options have exercise prices between $15 and
$26, with a weighted average exercise price of $20 and a weighted
average remaining contractual life of 4 years. 161 of these options are
exercisable; their weighted average exercise price is $18.
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option pricing model with the following
weighted-average assumptions used for grants in 1997, 1996 and 1995,
respectively: risk-free interest rates of 6.2, 6.4 and 6.2 percent;
expected dividend yields of 0.0, 0.0 and 0.0 percent; expected lives
ranging from 5 to 7 years, 5 to 7 years and 4 to 7 years; expected
volatility of 118, 47 and 54 percent.
-27-
28
GENTEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(6) STOCK BASED COMPENSATION PLANS
The Company may grant options for up to 1,000,000 shares under the
Director Plan. The Company has granted options on 508,000 shares
through December 31, 1997. Under the plan the option exercise price
equals the stock's market price on date of grant. The Director Plan
options vest after six months, and all expire after ten years.
A summary of the status of the Director Plan at December 31, 1997, 1996
and 1995, and changes during the years then ended is presented in the
table and narrative below:
1997 1996 1995
----------------- ----------------- -----------------
Shares Wtd. Avg. Shares Wtd. Avg. Shares Wtd. Avg.
(000) Ex price (000) Ex price (000) Ex price
------ --------- ------ --------- ------ ---------
Outstanding at Beginning of Year 284 $ 8 264 $ 7 224 $ 6
Granted 20 19 40 18 40 10
Exercised (30) 14 (20) 9 - -
------ ---- ----
Outstanding at End of Year 274 9 284 8 264 7
------ ---- ----
Exercisable at End of Year 274 9 284 8 264 7
Weighted Avg. Fair Value
of Options Granted $18 $13 $ 7
The 274 options outstanding at December 31, 1997, have exercise prices
between $1 and $19 with a weighted average exercise price of $9 and a
weighted average remaining contractual life of 5 years. All of these
options are exercisable.
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option pricing model with the following
weighted-average assumptions used for grants in 1997, 1996 and 1995,
respectively: risk-free interest rates of 6.7, 6.8 and 6.7 percent;
expected dividend yields of 0.0, 0.0 and 0.0 percent; expected lives of
5, 10 and 10 years; expected volatility of 118, 47 and 54 percent.
The Company has a restricted stock plan covering 800,000 shares of common
stock, the purpose of which is to permit grants of shares, subject to
restrictions, to key employees of the Company as a means of retaining
and rewarding them for long-term performance and to increase their
ownership in the Company. Shares awarded under the 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 1997, 1996 and 1995, 37,500, 35,000 and
101,600 shares, respectively, were granted with restriction periods of
four to six years at market prices ranging from $20.125 to $25.875 in
1997, $20.125 to $21.875 in 1996, and $9.75 to $11.94 in 1995. The
related expense is reflected as deferred compensation in the
accompanying consolidated financial statements and is being amortized
over the applicable restriction periods.
(7) STOCK SPLIT
On May 9, 1996, the Company's Board of Directors declared a two-for-one
stock split effected in the form of a 100% common stock dividend to
shareholders of record on May 31, 1996. The stock split increased the
number of shares of common stock then outstanding from 17,219,669 to
34,439,338. Earnings per share and all share data have been restated in
all prior periods to reflect this stock split.
(8) CONTINGENCIES
The Company has been involved in patent litigation with Donnelly
Corporation since 1990 concerning a number of patents relating to
electrochromic mirrors owned by the Company and Donnelly.
During 1996, the Company reached an agreement with Donnelly to resolve all
of the patent litigation between the two companies. Under the agreement:
-28-
29
GENTEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(8) CONTINGENCIES, continued
- The companies have cross-licensed certain patents (for the life of
the patents) that each company may practice within its own "core"
electrochromic mirror technology area.
- The Company paid Donnelly $6 million in April 1996 (plus a $200,000
contingent payment if Donnelly prevails in its lighted mirror patent
appeal) as full and complete satisfaction of all of Donnelly's patent
infringement claims.
- The companies agreed not to pursue litigation against each other on
certain other patents for a period of four years.
The Company recorded a one-time charge of $4,000,000 ($6,000,000 payment,
net of accrued reserves) in connection with this settlement.
To date, the $200,000 contingent payment related to Donnelly's lighted
mirror patent appeal is still contingent. On January 9, 1998, oral
arguments were presented to the Court of Appeals for the Federal
Circuit.
The Company is subject to legal proceedings and claims which arise in the
ordinary course of its business. In the opinion of management, the
amount of ultimate liability with respect to these actions will not
materially affect the financial position or results of operations of the
Company.
(9) SEGMENT REPORTING
The Company operates in two reportable business segments: automatic
rearview mirrors for the automotive industry and fire protection
products for the commercial building industry. Corporate assets are
principally cash, investments, deferred income taxes, and corporate
fixed assets. Information by business segment and geographic area is as
follows:
1997 1996 1995
------------ ------------ -----------
Revenue:
Automotive Products
U.S. $ 98,229,000 $ 81,115,000 $65,853,000
Europe 41,366,000 25,434,000 14,693,000
Other 26,538,000 23,065,000 13,751,000
------------ ------------ -----------
$166,133,000 $129,614,000 $94,297,000
Fire Protection Products $ 20,195,000 $ 19,094,000 $17,269,000
Operating Income:
Automotive Products $ 43,490,000 $ 31,998,000 $21,600,000
Fire Protection Products 4,671,000 3,961,000 3,960,000
Identifiable Assets:
Automotive Products $ 71,636,000 $ 52,702,000 $37,268,000
Fire Protection Products 4,671,000 3,961,000 3,960,000
Depreciation & Amortization:
Automotive Products $ 5,867,000 $ 3,673,000 $ 2,793,000
Fire Protection Products 297,000 262,000 247,000
Capital Expenditures:
Automotive Products $ 13,974,000 $ 13,354,000 $ 4,721,000
Fire Protection Products 443,000 309,000 199,000
-29-
30
GENTEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(9) SEGMENT REPORTING, continued
In fiscal year 1998, the Company will be required to adopt Statement of
Financial Accounting Standards No. 131: "Disclosures About Segments of
an Enterprise and Related Information" (SFAS No. 131). This statement
requires that a public enterprise report financial and descriptive
information about its reportable operating segments subject to certain
aggregation criteria and quantitative thresholds. Operating segments
are defined by SFAS No. 131 as components of an enterprise about which
separate financial information is available that is evaluated regularly
by the chief operating decision-makers in deciding how to allocate
resources and in assessing performance. In addition to the Company's
current segment information, it is anticipated that upon adoption Gentex
will be required to disclose revenues, if material, attributed to
individual foreign countries.
Automotive Products revenues in the "Other" category are primarily sales to
U.S. automotive manufacturing plants in Canada and Mexico. All non-U.S.
sales are invoiced and paid in U.S. dollars.
During the years presented, the Company had four automotive customers which
individually accounted for 10% or more of net sales as follows:
Customer
--------------------
#1 #2 #3 #4
--- --- --- ---
1997 43% 15% * *
1996 43% * 15% *
1995 38% * 14% 13%
*Less than 10%
-30-
31
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION PAGE
- ----------- ----------- ----
3(a)(1) Registrant's Articles of Incorporation were filed in 1981 as
Exhibit 2(a) to a Registration Statement on Form S-18
(Registration No. 2-74226C), an Amendment to those Articles was
filed as Exhibit 3 to Registrant's Report on Form 10-Q in August
of 1985, an additional Amendment to those Articles was filed as
Exhibit 3(a)(i) to Registrant's Report on Form 10-Q in August of
1987, and an additional Amendment to those Articles was filed as
Exhibit 3(a)(2) to Registrant's Report on Form 10-K dated
March 10, 1992, all of which are hereby incorporated herein by
reference.
3(a)(2) Amendment to Articles of Incorporation, adopted on May 9, 1996,
was filed as Exhibit 3(a)(2) to Registrant's Report on Form 10-Q
dated July 31, 1996, and the same is hereby incorporated herein by
reference.
3(b)(1) Registrant's Bylaws as amended and restated August 18, 1995,
were filed as Exhibit 3(b) to Registrant's Report on Form 10-Q
dated November 1, 1995, and the same is hereby incorporated herein
by reference.
3(b)(2) First Amendment to Bylaws, adopted on August 25, 1997, was
filed as Exhibit 3(c) to Registrant's Report on Form 10-Q dated
October 31, 1997, and the same is hereby incorporated herein by
reference.
4(a) A specimen form of certificate for the Registrant's common stock,
par value $.06 per share, was filed as part of a Registration
Statement (Registration Number 2-74226C) as Exhibit 3(a), as
amended by Amendment No. 3 to such Registration Statement, and the
same is hereby incorporated herein by reference.
4(b) Shareholder Protection Rights Agreement, dated as of August 26,
1991, including as Exhibit A the form of Certificate of Adoption
of Resolution Establishing Series of Shares of Junior
Participating Preferred Stock of the Company, and as Exhibit B the
form of Rights Certificate and of Election to Exercise, was filed
as Exhibit 4(b) to Registrant's Report on Form 8-K on August 1991,
and the same is hereby incorporated herein by reference.
4(b)(1) First Amendment to Shareholder Protection Rights Agreement,
effective April 1, 1994, was filed as Exhibit 4(b)(1) to
Registrant's Report on Form 10-Q dated April 29, 1994, and the
same is hereby incorporated herein by reference.
4(b)(2) Second Amendment to Shareholder Protection Rights Agreement,
effective November 8, 1996, was filed as Exhibit 4(b)(2) to
Registrant's Report on Form 10-K dated March 7, 1997, and the same
is hereby incorporated herein by reference.
10(a)(1) A Lease, dated August 15, 1981, was filed as part of a
Registration Statement (Registration Number 2-74226C) as Exhibit
9(a)(1), and the same is hereby incorporated herein by reference.
10(a)(2) A First Amendment to Lease, dated June 28, 1985, was filed as
Exhibit 10(m) to Registrant's Report on Form 10-K dated
March 18, 1986, and the same is hereby incorporated herein by reference.
*10(b)(1) Gentex Corporation Qualified Stock Option Plan (as amended and
restated, effective March 7, 1997) was filed as Exhibit 10(b)(1) to
Registrant's Report on Form 10-K dated March 7, 1997, and the same
is hereby incorporated herein by reference.
*10(b)(2) Gentex Corporation 1987 Incentive Stock Option Plan (as amended
through May 24, 1989), was filed as Exhibit 10(g)(3) to Registrant's
Report on Form 10-K dated March 1, 1990, and the same is hereby
incorporated herein by reference.
-31-
32
EXHIBIT NO. DESCRIPTION PAGE
- ----------- ----------- ----
*10(b)(3) Gentex Corporation Restricted Stock Plan was filed as Exhibit
10(b)(3) to Registrant's Report on Form 10-K dated March 10,
1992, and the same is hereby incorporated herein by reference.
*10(b)(4) Gentex Corporation Non-Employee Director Stock Option Plan (as
amended and restated, effective March 7, 1997) was filed as
Exhibit 10(b)(4) to Registrant's Report on Form 10-K dated March
7, 1997, and the same is hereby incorporated herein by
reference.
10(e) The form of Indemnity Agreement between Registrant and each of
the Registrant's directors was filed as a part of a Registration
Statement on Form S-2 (Registration No. 33-30353) as Exhibit 10(k)
and the same is hereby incorporated herein by reference.
21 List of Company Subsidiaries 33
23 Consent of Independent Public Accountants 34
27 Financial Data Schedule
*Indicates a compensatory plan or arrangement.
-32
1
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.
-33-
1
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accounts, we hereby consent to
the incorporation of our report included in this Form
10-K, into the Company's previously filed
Registration Statement File Nos. 33-31408, 33-50396,
33-64504 and 33-65321.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Grand Rapids, Michigan
March 11, 1998
-34-
5
12-MOS
DEC-31-1997
DEC-31-1997
26,768,647
14,362,736
24,515,525
0
8,787,689
75,919,436
63,015,604
(20,776,719)
189,782,847
14,591,224
0
2,123,949
0
0
171,081,228
189,782,847
186,327,877
186,327,877
118,941,030
118,941,030
(4,707,238)
0
0
52,189,224
16,959,000
35,230,224
0
0
0
35,230,224
1.01
0.98
