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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (FEE REQUIRED) FOR FISCAL YEAR ENDED DECEMBER 31, 1995.
( ) 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 .
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Commission File No.: 0-10235
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GENTEX CORPORATION
(Exact name of registrant as specified in its charter)
MICHIGAN 38-2030505
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
600 N. CENTENNIAL STREET, ZEELAND, MICHIGAN 49464
(Address of principal executive offices) (Zip Code)
(616) 772-1800
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each Class Name of each exchange on which registered
NONE
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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. [X]
As of March 1, 1996, 17,016,549 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 230.405) on that date was $383,456,412 computed at the closing
price on that date.
Portions of the Company's Proxy Statement for its 1996 Annual Meeting of
Shareholders are incorporated by reference into Part III.
Exhibit Index located at Page 32
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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 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 1994, the Company
began making shipments of its complete three-mirror system to its first
customer.
(B) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS.
See Note (9) to the Consolidated Financial Statements located on Page
31.
(C) NARRATIVE DESCRIPTION OF BUSINESS
The Company currently manufactures two electro-optic product lines:
automatic 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 position and its 7% least-reflectance position, taking
approximately 10 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 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 NVS(R) Mirror, the NVS(R) Headlamp Control Mirror, an
automatic-dimming mirror that automatically turns car headlights "on" and "off"
in response to the level of light observed. During 1992, the Company began
shipping its second advanced-feature interior NVS(R) Mirror, the NVS(R) Lighted
Mirror, with map/reading lights. During 1993, the Company began shipping
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its third advanced-feature interior NVS(R) Mirror, the NVS(R) Compass Mirror,
with an electronic compass that automatically compensates for changes in the
earth's magnetic field.
The Company sold approximately 958,000 interior NVS(R) Mirrors in
1993, approximately 1,395,000 in 1994, and approximately 1,811,000 in 1995.
During 1995, the unit growth primarily resulted from increased
penetration of a number of high-volume vehicles manufactured in North America,
including light pickup trucks and sport/utility vehicles from each of the Big
Three auto manufacturers, as well as increased penetration of vehicle models
manufactured outside North America, including new, higher-volume vehicles in
Europe. The Company's interior NVS(R) Mirrors are now standard equipment or
factory-installed options on the following 1996 and 1996-1/2 vehicle models:
TABLE 1. INTERIOR NVS(R) MIRROR AVAILABILITY BY VEHICLE LINE
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
GM/Cadillac Fleetwood Brougham (EL) S Bentley S
Deville S* BMW 800 Series S
Concours S* 700 Series O
Eldorado S* 500 Series O
Eldorado Touring Coupe S* 300 Series O
Seville S* Daewoo Arcadia S
Seville STS S* Brougham S
GM/Buick LeSabre Limited S Fiat Lancia Kappa O
Park Avenue O* Fiat/Brazil Tempra O
Park Avenue-Ultra S* GM/Brazil Monza O
Riviera O Omega Gold O
Roadmaster Ltd. Sedan (EL) S Honda Inspire (5 Cyl.) O
Roadmaster Sedan (EL) O Inspire (6 Cyl.) S
Roadmaster Estate Wagon (EL) O Sabre (5 Cyl.) O
GM Oldsmobile 98 Regency Elite (ECC) O Sabre (6 Cyl.) S
88 LSS (ECC) S Hyundai Grandeur O
Aurora S Marcia S
GM/Pontiac Bonneville SSE O KIA Motors Corp. Potentia (3.0 L) S
GM/Chevrolet Caprice Classic (EL) O (Korea) Potentia (2.2 L) S
Caprice Classic Wagon (EL) O Credos O
Impala SS (EL) S Mercedes-Benz S Class Coupe S
C/K Pickup (ECC) O S Class Sedans O
C/K Crew Cab Pickup (ECC) O SL Roadster O
Tahoe (2 Door) (ECC) O E Class Convertible O
Tahoe (4-Door) (ECC) S E Class Sedan O
Suburban (ECC) O C Class Sedan O
GM/GMC C/K Pickup (ECC) O Nissan Cima O
C/K Crew Cab Pickup (ECC) O Cedric O
Yukon (2 Door) (ECC) O Gloria O
Yukon (4 Door) (ECC) S Leopard O
Suburban (ECC) O Laurel O
Ford/Lincoln Town Car O Q45 Infiniti S
Mark VIII O J30 Infiniti S
Ford Crown Victoria O I30 Infiniti O
Explorer Limited (EH) S Opel OmegaO
Explorer (Sport, EB, XLT) (EH) O Rolls Royce S
Bronco O Toyota Lexus LS 400 S
Windstar (EH) O Lexus SC 400 S
Ford/Mercury Grand Marquis O Lexus SC 300 O
Chrysler LHS S Camry** O
New Yorker (LH) S Avalon** (ECC) O
Concorde O KEY: S = standard equipment
Town & Country LXi S O = optional equipment
Dodge Intrepid O
Caravan O EH = NVS(R) Mirror with Automatic Headlamp Control
Ram Pickup O EL = NVS(R) Mirror with Map Lights
Dakota Pickup O ECC = NVS(R) Mirror with Electronic Compass
Eagle Vision O
Jeep Grand Cherokee Limited S * ECC offered as upgrade option
Grand Cherokee Laredo O ** NVS(R) Mirrors are offered as optional equipment
through Southeast Toyota Distributors in the
states of FL, GA, NC, SC and AL.
</TABLE>
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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 outside rearview mirrors.
Exterior NVS(R) Mirrors can be 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. During 1994, the Company began
shipments of its complete three-mirror system, including the convex (curved
glass) wide-angle NVS(R) Mirror to BMW. The Company currently sells its
exterior NVS(R) Mirror Sub-Assemblies to seven 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 driver's-side exterior NVS(R) Mirror is a factory-installed option
on eleven 1996 car models; Lincoln Continental, Town Car and Mark VIII;
Cadillac Deville, Eldorado and Seville; Buick LeSabre, Park Avenue, Park Avenue
Ultra and Riviera; and Oldsmobile 98 Regency Elite. The driver's-side mirror
is also installed as standard equipment on four 1996 car models: Cadillac
Concours, Eldorado Touring Coupe, Seville STS and Grand Cherokee Ltd. In
addition, flat and convex exterior mirrors are a factory-installed option on
the BMW 700 and 500 Series. The Company sold approximately 191,000 exterior
NVS(R) Mirror Sub-Assemblies during 1993, approximately 365,000 in 1994, and
approximately 417,000 in 1995.
Product Development. The Company plans to continue introducing
additional advanced-feature NVS(R) Mirrors. The first three of these models
were the Company's NVS(R) Headlamp Control Mirror introduced during 1991, the
NVS(R) Lighted Mirror with map/reading lights introduced in 1992, and the
NVS(R) Compass Mirror introduced during 1993. 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.
Of particular importance to the Company has been the development of
its electrochromic technology for use in complete 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 in
1994.
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. Significant
progress in adapting electrochromic technology to the specialized requirements
of the window market continued in 1995. 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 automobile manufacturers. 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 contracts. During 1995, the Company negotiated a
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three-year long-term contract extension with General Motors through the 1998
model year. The term of the Ford contract is through December 1999, and the
long-term contract with Chrysler Corporation runs through the 1999 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 Bavarian Motor
Works, A.G. (BMW), Fiat, Mercedes-Benz, Opel and Rolls Royce. During 1995, the
Company negotiated 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
the first quarter of 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, and began
shipping some mirrors to Southeast Toyota, the largest independent Toyota
distributor in the United States, for port-of-entry installation on the Toyota
Camry for dealers in five southeastern states. During 1994, the Company began
making mirror shipments to Tokai Rika Co., Ltd. for the Toyota Lexus LS 400 and
to Southeast Toyota for installation on the Toyota Avalon. During 1995, the
Company began making mirror shipments to Tokai Rika for the Toyota Lexus SC 400
and SC 300, as well as direct mirror shipments to Honda. Shipments to
automakers in Brazil and Korea also continue to increase.
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.
Currently, the Company directs no significant efforts to the sale of
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
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for sale to domestic vehicle manufacturers and is supplying one domestic
vehicle model and a limited number of foreign vehicle models with its hybrid
version of electrochromic mirrors. In addition, three Japanese manufacturers
are supplying a limited number of Japanese vehicle models with solid-state
electrochromic mirrors.
The Company believes its electrochromic automatic mirrors offer
considerable performance advantages, and that Donnelly shipped approximately
70,000 electrochromic mirrors to customers in 1995, primarily for Ford, Range
Rover and Jaguar. However, Gentex recognizes that Donnelly Corporation is
considerably larger than the Company, continues to introduce "new"
electrochromic mirrors and presents a significant competitive threat. Gentex
is 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 electrochromics and hybrids or
liquid crystal displays may eliminate glare, each of these technologies have
inherent cost or performance limitations.
FIRE PROTECTION PRODUCTS
The Company manufactures over 40 different models of smoke detectors
and 61 different models of signaling appliances. All of the smoke detectors
operate on a photo-electric principle to detect smoke. While the use of
photo-electric 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 resident occupancies. Photo-electric 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. Photo-electric 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, photo-electric detectors
are less prone to nuisance alarms and do not require the use of radioactive
materials necessary for ionization detectors.
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 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 December 1995, a National Fire Protection
Association code changed to require that all dwellings larger than 1-2 family
must annually conduct this sensitivity test. Previous models and competing
products require the availability of specialized test equipment.
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During 1991, the Company developed two new signaling devices, a
four-inch electronic primary evacuation horn and a high intensity, high-candela
output strobe warning light. (Candela is a unit of measurement for
illumination.) The new products were developed to broaden the sales base of
the Fire Protection Group and to meet the requirements of the Americans with
Disabilities Act (ADA) which became effective in January 1992, for all retrofit
projects in public-use buildings and January 1993, for all new public use
building construction.
During 1992, the Company introduced a primary evacuation voice/tone
speaker series for use in commercial high-rise buildings. The new speaker
series, when used with the strobe warning lights, meets the requirements of the
ADA and other national and local building standards.
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.
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 has replaced the strobe warning light developed
in 1991 and is used in conjunction with other Gentex products such as the
remote signaling electronic horn, primary evacuation speaker, and smoke
detection products.
The Company, with the new products, is producing the only
photoelectric smoke detector with battery back-up that offers a supplemental
visual alarm.
During 1994, the Company introduced a mechanical evacuation
horn/strobe combination. The product will be used wherever a loud penetrating
tone is required, such as schools or other facilities where doors are usually
closed.
During 1995, the Company introduced a multi-tone audible signaling
appliance to meet new building code requirements for 1996 and beyond. This new
multi-tone product line has eight different tones and a decibel level
selection. The multi-tone series also will be used in conjunction with the
Company's visual signals.
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 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
photo-electric 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.
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OTHER
The Company also has manufactured certain precision glass components
primarily for the office machinery and electronic test equipment industries.
The Company phased out this product line effective June 30, 1994, which did not
have a material effect on operations.
TRADEMARKS AND PATENTS
The Company owns 19 U.S. patents, 18 of which relate to electrochromic
technology and/or automotive rearview mirrors. These patents expire between
2001 and 2013. 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 necessary for the success of any of the
Company's products. The remaining one U.S. patent relates to the Company's
fire protection products, and the Company believes that the competitive
advantage provided by this patent is relatively small.
The Company also owns fourteen foreign patents, which relate to
automotive rearview mirrors. These patents expire at various times between
1999 and 2009. 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. markets.
The Company also has in process 22 U.S. patent applications and 25
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 innovations, the Company expects to file
appropriate patent applications.
During 1995, the Company became involved in additional patent
litigation with respect to its rearview mirrors (see discussion under the
caption "Legal Proceedings").
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 three important customers within the automotive
industry segment, each of which accounts for more than 10% of the Company's
annual sales: General Motors Corporation, 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
$33,882,000 and $26,354,000 at March 1, 1996 and 1995, respectively.
At March 1, 1996, the Company had 831 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 two 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 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
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park, providing ample opportunity for expansion. Construction has begun for an
additional manufacturing facility on this site to meet the Company's future
automotive production needs and completion is scheduled for mid-1996. As of
December 31, 1995, the estimated cost to be incurred in 1996 for the new
facility is approximately $6.6 million. A laboratory and office expansion may
also be required at the existing automotive facility by the end of 1996.
ITEM 3. LEGAL PROCEEDINGS.
The Company owns four U.S. Patents for automatic mirrors and
electrochromic devices that were the subject of patent infringement claims
asserted against Donnelly Corporation ("Donnelly") during 1990 to 1993. All of
those claims have either been adjudicated or were resolved in a settlement in
May 1993. Gentex received $3.6 million in damages and settlement fees.
The Company's patent infringement claim against the Donnelly
"Polychromic" mirror (Gentex Corporation vs. Donnelly Corporation, No. 1:93 CV
430, U.S. District Court for the Western District of Michigan, Southern
Division) was adjudicated in proceedings in 1994 and 1995. As a result of
those proceedings, including an appeal to the Court of Appeals for the Federal
Circuit, the Courts ruled that the Donnelly "Polychromic" rearview mirror does
not infringe Gentex's U.S. Patent No. 5,128,799. Donnelly no longer is
offering "Polychromic" rearview mirrors for sale.
Despite the May 1993 settlement agreement, in November 1993, Donnelly
requested that the U.S. Patent and Trademark Office (USPTO) re-examine certain
claims it had granted to Gentex in the Company's U.S. Patent No. 5,128,799.
The USPTO agreed to do so, which is not unusual. In November 1995, the USPTO
confirmed the patentability of a number of the claims, including some of the
claims that Donnelly had been found to infringe in the 1992 suit. That
re-examination is proceeding as to the other claims.
The Company also is involved in other litigation which Donnelly initiated
in July 1993 with respect to four Donnelly patents (Donnelly Corporation vs.
Gentex Corporation, No. 1:93 CV 530, U.S. District Court for the Western
District of Michigan, Southern Division). Three of those patents are directed
to lights in rearview mirrors ("lighted mirror patents"), and the fourth patent
is directed to a rearview mirror with a "dark or color-matched seal" ("dark
seal patent"). Two of the three lighted mirror patents were found to be
invalid by the Court when it granted the Company's motion for summary judgment
on those patents, which Donnelly has appealed. The third lighted mirror patent
was dismissed without prejudice. The Company's renewed motion for summary
judgment of invalidity on the dark seal patent was denied on February 9, 1996.
This case is scheduled for a jury trial beginning April 1, 1996.
Donnelly also initiated another suit against the Company in October 1994
(Donnelly Corporation vs. Gentex Corporation, No. 1:94 CV 695, U.S. District
Court for the Western District of Michigan, Southern Division) for alleged
infringement of two Donnelly patents directed to electrochromic solutions and
electrochromic rearview mirrors that contain a certain ultraviolet light
stabilizer. Donnelly subsequently alleged infringement of a third patent
directed broadly to an electrochromic device with ultraviolet light
stabilizers. The Company answered both complaints, denying infringement of all
three Donnelly patents, and asserting that each patent is invalid and
unenforceable. This case is in the early stages of discovery, and no trial
date has been set.
The Company filed a complaint against Donnelly in June 1995 (Gentex
Corporation vs. Donnelly Corporation, No. 4:95 CV 120, U.S. District Court for
the Western District of Michigan, Southern Division), seeking a declaratory
judgment that three Donnelly patents are invalid and not infringed by the
Company. Two of those patents are
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directed to electrochromic rearview mirrors having an optical display, such as
a compass readout, and the third is directed to electrochromic mirrors made
from a certain type of float glass with an "anti-iridescence" coating.
Donnelly answered the complaint, denying its patents are invalid,
counterclaiming for infringement of one compass patent and the float glass
patent, and asserting that the Court does not have jurisdiction over the second
compass patent, because there is no case or controversy over that patent.
In October 1995, the Court ordered that all discovery related to this
case shall concentrate on the issue of the invalidity of the patents in suit
and on the issue of the Court's jurisdiction. In October 1995, the Company
made a motion for summary judgment of invalidity of Donnelly's two compass
mirror patents, and in December 1995, the Company made a motion for summary
judgment of invalidity of Donnelly's float glass patent. An oral argument on
those motions is scheduled for April 24, 1996. This suit is still in the
discovery stage, and no trial date has been scheduled.
As described above, certain of these litigation matters (in particular,
the dark seal patent jury trial) may be resolved or adjudicated, subject to
appeal, within the next year. While management has accrued an estimate of the
legal costs it expects to incur in its defense against the Donnelly patents in
the reasonably foreseeable future, at this time it is unable to estimate a
reasonable range of loss in the event of an unfavorable decision.
Management believes that it has meritorious defenses to Donnelly's claims
for infringement of all of these patents. However, as with most litigation, it
is difficult to predict with any degree of certainty whether those defenses
will or will not prevail. In any event, management believes that the outcome
will not have a material adverse effect on the Company's financial statements.
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.
<TABLE>
<CAPTION>
NAME AGE POSITION POSITION HELD SINCE
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fred Bauer 53 Chief Executive Officer May 1986
Kenneth La Grand 55 Executive Vice President September 1987
John Mulder 59 Vice President, Automotive Marketing July 1988
Enoch Jen 44 Vice President-Finance, Treasurer February 1991
Harlan Byker 41 Vice President, Electrochemical Research August 1993
- -------------------------------------------------------------------------------------------------------------
</TABLE>
There are no family relationships among the officers listed in the preceding
table.
-10-
<PAGE> 11
Fred Bauer has held various executive offices since joining the
Company in 1980. Prior to his employment with the Company, Mr. Bauer was the
President and General Manager of Integrity Design Company, the research and
development partnership that invented, designed and developed the technology
for the Motorized Mirror, the rights to which were subsequently acquired by the
Company. For approximately seven years before organizing Integrity Design
Company, Mr. Bauer was the General Manager of Robertshaw Controls Company's
Simicon Division, a business founded by Mr. Bauer and sold to Robertshaw
Controls, which manufactures electronic controls for appliances. In the last
three years of his tenure at Robertshaw Controls, Mr. Bauer also served as a
Corporate Vice President.
Kenneth La Grand has been the Executive Vice President of the Company
since September 1987. Prior to joining the Company, he was Vice President of
Robertshaw Controls Company and the General Manager of its Simicon Division
since 1979.
John Mulder has served as Vice President-Automotive Marketing of the
Company since July 1988. Prior to that time Mr. Mulder served as Executive
Vice President for Harman Automotive, a division of Harvard Industries, Inc.,
where he was responsible for managing the marketing and engineering activities
of that exterior mirror company's Southfield office for more than five years.
Enoch Jen has served as Vice President-Finance and Treasurer of the
Company since February 1991. He joined the Company as Controller in January
1990. Prior to that time, Mr. Jen served as Chief Financial Officer of Hope
Rehabilitation Network, Inc. since 1985.
Harlan Byker has served as Vice President of Electrochemical Research
of the Company since August 1993, and as Director of Electrochemical
Development since 1985. Prior to that time, Dr. Byker served as a research
scientist at Battelle Columbus Laboratories.
-11-
<PAGE> 12
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS.
The Company's common stock trades on the Nasdaq National Market tier
of The Nasdaq Stock Market. As of March 1, 1996, there were 1,809 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.
<TABLE>
<CAPTION>
YEAR QUARTER HIGH LOW
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
1994 First 35 1/4 22
Second 29 3/4 21
Third 26 18
Fourth 25 1/4 19 3/4
1995 First 27 1/2 20
Second 21 1/4 15 3/4
Third 25 3/4 19 1/2
Fourth 25 21
- ---------------------------------------------------------------------------------
</TABLE>
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.
<TABLE>
<CAPTION>
(in thousands except per share data)
- ---------------------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Sales $111,566 $89,762 $63,664 $45,106 $26,893
Net Income 18,895 16,466 9,845 5,066 1,645**
- ---------------------------------------------------------------------------------------------------------------------
Earnings
Per Share * 1.10 .97 .59 .31 .11**
- ---------------------------------------------------------------------------------------------------------------------
Total Assets $109,244 $80,739 $55,191 $40,256 $37,231
- ---------------------------------------------------------------------------------------------------------------------
Long-Term Debt
Outstanding at
Year End $ - $ - $ - $ - $ 75
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
* Adjusted for 2-for-1 stock split in June 1993.
** After extraordinary charge of $221 and $.01 per share.
-12-
<PAGE> 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.
<TABLE>
<CAPTION>
Percentage of Net Sales Percentage Change
----------------------- -----------------
Year Ended December 31 1995 1994
-------------------------------- to to
1995 1994 1993 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Sales 100.0% 100.0% 100 .0% 24.3% 41.0%
Cost of Goods Sold 60.7 57.2 60.4 32.1 33.5
------ ------ ------ ------ ------
Gross Profit 39.3 42.8 39.6 13.9 52.5
Operating Expenses:
Research and Development 5.3 5.4 6.6 21.5 17.4
Selling, General and Administrative 11.6 11.8 11.3 21.9 47.1
------ ------ ------ ------ ------
Total Operating Expenses 16.9 17.2 17.9 21.8 36.2
------ ------ ------ ------ ------
Operating Income 22.4 25.6 21.7 8.7 65.8
Other Income - Net 2.6 1.9 1 .5 74.9 90.5
------ ------ ------ ------ ------
Income Before Federal Income Taxes 25.0 27.5 23.2 13.2 67.3
Provision for Federal Income Taxes 8.1 9.1 7.7 10.1 67.4
------ ------ ------ ------ ------
Net Income 16.9% 18.4% 15.5% 14.8% 67.3%
====== ====== ====== ====== ======
</TABLE>
RESULTS OF OPERATIONS: 1995 TO 1994
Net Sales. Automotive net sales increased by 33% and mirror
shipments increased by 27%, from 1,760,000 to 2,228,000 units, primarily
reflecting increased penetration on domestic and foreign vehicles for interior
and exterior electrochromic NVS(R) Mirrors. Net sales of the Company's fire
protection products decreased 7%, as reduced strobe shipments to a major
customer that has developed its own strobe product more than offset a 12% sales
increase to other customers.
Cost of Goods Sold. As a percentage of net sales, cost of goods
sold increased from 57% to 61%, primarily reflecting automotive customer price
reductions and changes to the Company's mix of automotive mirror shipments.
Operating Expenses. Research and development expenses increased
approximately $1,054,000, primarily due to additional staffing for the
development of interior NVS(R) Mirrors with additional features, complete
mirror systems, and other potential electrochromic products. Selling, general
and administrative expenses increased approximately $2,311,000, primarily as a
result of higher patent litigation expenses of $4,110,000 compared with
$2,600,000 in 1994. Despite the increased patent litigation costs, operating
expenses decreased slightly as a percentage of net sales as the increased sales
continued to outpace the increase in operating expenses.
Other Income - Net. Other income increased $1,271,000 in 1995,
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 1995, 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 15%, primarily reflecting the
increased sales level, partially offset by decreased margins.
-13-
<PAGE> 14
RESULTS OF OPERATIONS: 1994 TO 1993
Net Sales. Automotive net sales increased by 55% and mirror
shipments increased by 53%, from 1,150,000 in 1993, to 1,760,000 units in 1994,
primarily reflecting increased penetration on domestic and foreign vehicles for
interior and exterior electrochromic NVS(R) Mirrors. Unit shipments of the
Company's fire protection products increased 5% and net sales increased 8%,
despite the reduction in strobe shipments to a large customer who is developing
its own strobe product.
Cost of Goods Sold. As a percentage of net sales, cost of goods sold
decreased from 60% to 57%, primarily reflecting the higher sales level covering
fixed overhead costs in 1994 and the amortization of capitalized patent
litigation costs in 1993.
Operating Expenses. Research and development expenses increased
approximately $728,000, primarily due to the development of interior NVS(R)
Mirrors with additional features, complete mirror systems, and other potential
electrochromic products. Selling, general and administrative expenses
increased approximately $3,385,000, primarily as a result of sharply higher
legal expenses related to ongoing patent litigation suits. Despite the
increased patent litigation costs, operating expenses decreased from
approximately 18% to 17% as a percentage of net sales as the increased sales
outpaced the necessary increase in operating expenses.
Other Income - Net. Other income increased $806,000 in 1994,
primarily due to rising interest rates and higher investable fund balances.
Taxes. The provision for federal income taxes varied from the
statutory rates in 1994, 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 67%, primarily reflecting the
increased sales level and resulting improved margins.
LIQUIDITY AND CAPITAL RESOURCES
The Company's financial condition throughout the periods presented has
remained strong. The Company's current ratio decreased from 4.2 to 4.0,
primarily as a result of the increases in Accounts Payable and Accrued
Professional Fees and Income Taxes.
The increases in Accounts Receivable and Accounts Payable as of
December 31, 1995, reflects the higher sales and production levels during 1995.
Management considers the Company's working capital of approximately
$42,011,000 and long-term investments of approximately $32,146,000 at December
31, 1995, 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
The Company has agreed to price reductions over the life of its
long-term contracts and 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 improvements, engineering cost reductions and
increases in unit sales volume. In addition, the Company continues to
experience some pressure for raw material cost increases.
-14-
<PAGE> 15
The Company currently supplies NVS(R) Mirrors to BMW, Chrysler
Corporation, Ford Motor Company and General Motors Corporation under long-term
contracts. The BMW long-term contract is through March 31, 1999, and the
long-term contract with Chrysler Corporation runs through the 1999 Model Year.
The term of the Ford contract is through December 1999, while the GM contract
runs through the 1998 Model Year.
The total costs to defend the Company in the July 1993, October 1994,
and June 1995 suits involving certain patents owned by Donnelly Corporation,
will be affected by the duration and activity level, and are not determinable
at this time. However, if the current activity level continues, management
currently believes that patent litigation expenses will be incurred at the
ongoing level of approximately $1,000,000 per quarter. Certain of these suits
may be resolved or adjudicated, subject to appeal, within the next year. While
management has accrued an estimate of the legal costs it expects to incur in
its defense against the Donnelly patents in the reasonably foreseeable future,
at this time it is unable to estimate a reasonable range of loss in the event
of an unfavorable decision.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The following financial statements are filed with this report as pages
18 through 31 following the signature page:
Report of Independent Public Accountants
Consolidated Balance Sheets as of December 31, 1995 and 1994
Consolidated Statements of Income for the years ended December 31,
1995, 1994 and 1993
Consolidated Statements of Shareholders' Investment for the years
ended December 31, 1995, 1994, and 1993
Consolidated Statements of Cash Flows for the years ended December
31, 1995, 1994 and 1993
Notes to Consolidated Financial Statements
The selected quarterly financial data for the past two years appears in the
following table.
<TABLE>
<CAPTION>
Quarterly Results of Operations
(in thousands except per share data)
- ------------------------------------------------------------------------------------------------------------------------
First Second Third Fourth
1995 1994 1995 1994 1995 1994 1995 1994
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Sales $26,043 $21,159 $26,021 $20,709 $26,801 $23,093 $32,702 $24,802
Gross Profit 10,617 9,235 10,074 9,056 10,420 9,441 12,689 10,712
Operating Income 6,159 5,831 5,198 5,580 5,987 5,524 7,618 6,037
Net Income 4,587 4,102 3,996 3,990 4,578 3,977 5,734 4,397
Earnings per Share $ .27 $ .24 $ .23 $ .23 $ .27 $ .23 $ .33 $ .26
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
ITEM 9. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.
Not applicable.
-15-
<PAGE> 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 1996 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 "Compliance
with Reporting Requirements" in the definitive Proxy Statement for the 1996
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 1996 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 1996 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 1996 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 Statement Schedules. Not applicable.
3. Exhibits. See Exhibit Index located on page 32.
(b) No reports on Form 8-K were filed for the three-month period
ended December 31, 1995.
-16-
<PAGE> 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 8, 1996 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 8th day of March, 1996, 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/ Harlan Byker Director
- -----------------------
Harlan Byker
/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-
<PAGE> 18
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Gentex Corporation:
We have audited the accompanying consolidated balance sheets of GENTEX
CORPORATION (a Michigan corporation) and subsidiaries as of December 31, 1995
and 1994, and the related consolidated statements of income, shareholders'
investment and cash flows for each of the three years in the period ended
December 31, 1995. 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, 1995 and 1994, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1995, in conformity with generally accepted accounting principles.
/s/ Arthur Andersen LLP
Grand Rapids, Michigan
January 24, 1996
-18-
<PAGE> 19
GENTEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
ASSETS
1995 1994
---- ----
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $14,115,041 $11,183,991
Short-term investments 20,162,189 8,146,964
Accounts receivable, less allowance
of $175,000 for 1995 and 1994 14,706,156 11,086,980
Inventories 5,735,519 5,303,552
Prepaid expenses and other 1,342,640 963,765
------------- -------------
Total current assets 56,061,545 36,685,252
PLANT AND EQUIPMENT:
Land, building and improvements 8,975,233 8,236,978
Machinery and equipment 20,233,537 16,073,195
Construction-in-process 2,008,235 2,134,168
------------- -------------
31,217,005 26,444,341
Less-Accumulated depreciation
and amortization (12,274,890) (9,271,818)
------------- -------------
18,942,115 17,172,523
OTHER ASSETS:
Long-term investments 32,146,422 26,282,085
Patents and other assets, net 2,093,439 598,918
------------- -------------
34,239,861 26,881,003
------------- -------------
$109,243,521 $80,738,778
============= =============
LIABILITIES AND SHAREHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Accounts payable $5,422,658 $4,115,391
Accrued liabilities:
Salaries, wages and vacation 894,125 755,383
Professional fees 3,985,761 3,094,823
Taxes 3,009,121 421,413
Other 738,402 598,616
------------- -------------
Total current liabilities 14,050,067 8,985,626
DEFERRED INCOME TAXES 521,674 377,691
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;
25,000,000 shares authorized 1,013,752 990,569
Additional paid-in capital 37,128,320 31,875,455
Retained earnings 58,305,081 39,409,938
Deferred compensation (1,721,684) (899,136)
Unrealized loss on investments (44,485) -
Cumulative translation adjustment (9,204) (1,365)
------------- -------------
Total shareholders' investment 94,671,780 71,375,461
------------- -------------
$109,243,521 $80,738,778
============= =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-19-
<PAGE> 20
GENTEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
NET SALES $111,566,225 $89,762,349 $63,663,956
COST OF GOODS SOLD 67,767,347 51,318,972 38,451,614
-------------- ------------- -------------
Gross profit 43,798,878 38,443,377 25,212,342
OPERATING EXPENSES:
Research and development 5,957,966 4,903,887 4,175,903
Selling, general and administrative 12,878,790 10,567,292 7,182,000
-------------- ------------- -------------
Total operating expenses 18,836,756 15,471,179 11,357,903
-------------- ------------- -------------
Operating income 24,962,122 22,972,198 13,854,439
OTHER INCOME
Interest and dividend income 2,863,730 1,612,354 886,967
Other, net 105,291 85,465 4,354
-------------- ------------- -------------
Total other income 2,969,021 1,697,819 891,321
-------------- ------------- -------------
Income before provision
for federal income taxes 27,931,143 24,670,017 14,745,760
PROVISION FOR FEDERAL INCOME TAXES 9,036,000 8,204,000 4,901,000
-------------- ------------- -------------
NET INCOME $18,895,143 $16,466,017 $9,844,760
============== ============= =============
EARNINGS PER SHARE $1.10 $0.97 $0.59
============== ============= =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-20-
<PAGE> 21
GENTEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' INVESTMENT
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
Common Stock Additional
-------------------------- Paid-In Retained
Shares Amount Capital Earnings
----------- ---------- ----------- ------------
<S> <C> <C> <C> <C>
BALANCE AS OF DECEMBER 31, 1992 7,938,683 $476,321 $23,034,663 $13,099,161
Issuance of common stock and the tax benefit
of stock plan transactions 239,219 14,353 3,712,668 -
Amortization of deferred compensation - - - -
Stock split 8,033,889 482,033 (482,033) -
Net income - - - 9,844,760
---------- ---------- ----------- ------------
BALANCE AS OF DECEMBER 31, 1993 16,211,791 972,707 26,265,298 22,943,921
Issuance of common stock and the tax benefit
of stock plan transactions 297,685 17,862 5,610,157 -
Amortization of deferred compensation - - - -
Current year translation adjustment - - - -
Net income - - - 16,466,017
---------- ---------- ----------- ------------
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
============ ========== =========== ============
<CAPTION>
Unrealized Cumulative Total
Deferred Loss on Translation Shareholders'
Compensation Ivestments Adjustment Investment
------------ ----------- ----------- -------------
<S> <C> <C> <C> <C>
BALANCE AS OF DECEMBER 31, 1992 $ (1,160,472) $- $- $35,449,673
Issuance of common stock and the tax benefit
of stock plan transactions - - - 3,727,021
Amortization of deferred compensation 525,590 - - 525,590
Stock split - - - -
Net income - - - 9,844,760
------------ ---------- ----------- ------------
BALANCE AS OF DECEMBER 31, 1993 (634,882) - - 49,547,044
Issuance of common stock and the tax benefit
of stock plan transactions (605,250) - - 5,022,769
Amortization of deferred compensation 340,996 - - 340,996
Current year translation adjustment - - (1,365) (1,365)
Net income - - - 16,466,017
------------ ---------- ----------- ------------
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
============ ========== =========== ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-21-
<PAGE> 22
GENTEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $18,895,143 $16,466,017 $9,844,760
Adjustments to reconcile net income to net
cash provided by operating activities-
Depreciation and amortization 3,201,847 2,984,124 4,041,160
Loss (gain) on disposal of equipment 11,937 (19,770) 68,397
Deferred income taxes (142,930) 294,892 (1,230,015)
Amortization of deferred compensation 337,427 340,996 525,590
Change in assets and liabilities:
Accounts receivable, net (3,619,176) (2,160,573) (3,418,966)
Inventories (431,967) (1,349,411) 81,609
Prepaid expenses and other (91,962) (115,948) 219,995
Accounts payable 1,307,267 1,880,630 80,627
Accrued liabilities 3,757,174 1,575,304 205,274
------------- ------------- -------------
Net cash provided by
operating activities 23,224,760 19,896,261 10,418,431
------------- ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Activity in Held-To-Maturity Securities
Sales Proceeds - 242,856 -
Maturities and Calls 12,696,750 8,799,355 7,304,595
Purchases (30,170,062) (23,827,197) (17,680,175)
Activity in Available-For-Sale Securities
Sales Proceeds - 1,295,615 114,170
Purchases (450,735) - -
Plant and equipment additions (4,861,930) (6,160,481) (3,393,383)
Proceeds from sale of plant and equipment 7,450 42,270 6,000
Settlement of litigation - - 3,600,000
Increase in other assets (1,631,256) (106,987) (2,170,846)
------------- ------------- -------------
Net cash used for
investing activities (24,409,783) (19,714,569) (12,219,639)
------------- ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock and tax benefit of
stock plan transactions 4,116,073 5,022,769 3,727,021
------------- ------------- -------------
Net cash provided by
financing activities 4,116,073 5,022,769 3,727,021
------------- ------------- -------------
NET INCREASE IN CASH AND
CASH EQUIVALENTS 2,931,050 5,204,461 1,925,813
CASH AND CASH EQUIVALENTS,
beginning of year 11,183,991 5,979,530 4,053,717
------------- ------------- -------------
CASH AND CASH EQUIVALENTS,
end of year $14,115,041 $11,183,991 $5,979,530
============= ============= =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-22-
<PAGE> 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. 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
Effective January 1, 1994, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 115, "Accounting for
Certain Investments in Debt and Equity Securities," which requires
changes in the accounting and disclosure of certain investments.
Virtually all of the Company's short-term and long-term investments
are classified as "held to maturity" and are reported at amortized
cost. The adoption of this statement did not have a material impact
on the Company's financial statements.
Long-term investments which mature within the next year but are
intended to be reinvested in another long-term security are
classified as long-term in the accompanying consolidated balance
sheets.
The amortized cost, unrealized gains and losses and market value of
securities held to maturity and available for sale are shown below
by their expected maturity:
<TABLE>
<CAPTION>
Municipal
U.S. Government Government Other
Debt Securities Debt Securities Investments
--------------- --------------- -----------
<S> <C> <C> <C>
Held to Maturity:
-----------------
Due in one year or less:
Amortized cost $11,387,800 $17,528,869 $3,994,553
Unrealized gain 39,136 11,198 4,135
Unrealized loss (2,065) (14,318) (1,309)
Market value $11,424,871 $17,525,749 $3,997,379
Due after 1 year through 4 years:
Amortized cost $5,213,878 $12,527,864 $1,249,397
Unrealized gain 51,965 36,012 -
Unrealized loss - (17,781) (522)
Market value $5,265,843 $12,546,095 $1,248,875
Available For Sale:
-------------------
Amortized cost $474,688
Unrealized gain -
Unrealized loss (68,438)
Market value $406,250
</TABLE>
-23-
<PAGE> 24
GENTEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES, continued
As reflected in the consolidated statements of cash flows, during 1994,
the Company sold approximately $243,000 of securities held to
maturity. The decision to sell these securities was based on
deterioration in the credit worthiness of the issuer.
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 at the respective
year-ends:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Raw materials $ 3,294,254 $ 3,568,074
Work-in-process 358,206 275,183
Finished goods 2,083,059 1,460,295
----------- -----------
$ 5,735,519 $ 5,303,552
=========== ===========
</TABLE>
Plant and Equipment
Plant and equipment are stated at cost. Depreciation and amortization
are computed for financial reporting purposes using the straight-line
method, with estimated useful lives of 5 to 40 years for building and
improvements, and 3 to 10 years for machinery and equipment.
The Company is constructing a new facility scheduled to be completed in
1996. The estimated cost to be incurred in 1996 for the facility is
approximately $6.6 million at December 31, 1995.
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 $3,394,000 and
$3,265,000 at December 31, 1995 and 1994, respectively. Patent
amortization expense was approximately $129,000, $17,000, and
$1,618,000 in 1995, 1994 and 1993, respectively.
During 1993, the Company received $3,600,000 from a patent litigation
settlement which was used to recover the remaining balance of
capitalized patent defense costs and accrue for future litigation
costs.
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 $608,000, $593,000 and $422,000 in 1995,
1994 and 1993, respectively.
-24-
<PAGE> 25
GENTEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES, continued
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 $1,041,000, $853,000 and
$672,000 in 1995, 1994 and 1993, respectively.
Self-Insurance
The Company is self-insured for a portion of its risk on workers'
compensation and employee medical costs. The arrangements provide
for stop loss insurance to manage the Company's risk. Operations
are charged with the cost of claims reported and an estimate of
claims incurred but not reported.
Earnings Per Share
The earnings per share are computed based on the weighted average
number of shares of common stock outstanding and, to the extent
dilutive, common stock equivalents outstanding during the year. The
weighted average number of shares outstanding was approximately
17,128,000 in 1995, 16,994,000 in 1994, and 16,744,000 in 1993.
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.
Reclassification
Certain prior year amounts have been reclassified to conform with the
current year presentation.
(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 1995 or
1994. No compensating balances are required under this line.
(3) FEDERAL INCOME TAXES
The Company recognizes deferred tax liabilities and assets for the
expected future tax consequences of events that have been included
in the consolidated financial statements or tax returns. Under this
method, deferred tax liabilities and assets are determined based on
the difference between the financial statement and tax bases of
assets and liabilities using enacted tax rates in effect for the
year in which the differences are expected to reverse.
-25-
<PAGE> 26
GENTEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(3) FEDERAL INCOME TAXES, continued
The components of the provision for federal income taxes are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
-------------- --------------- --------------
<S> <C> <C> <C>
Currently payable $9,179,000 $7,909,000 $6,131,000
Tax over book depreciation 194,000 51,000 183,000
Deferred compensation (46,000) 232,000 (157,000)
Patent costs (196,000) 60,000 (1,268,000)
Other (95,000) (48,000) 12,000
---------- ---------- ----------
Net Deferred (143,000) 295,000 (1,230,000)
---------- ---------- ----------
$9,036,000 $8,204,000 $4,901,000
========== ========== ==========
</TABLE>
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
$1,876,000, $3,340,000 and $2,060,000 in the respective years.
The effective income tax rates are different from the statutory federal
income tax rates for the following reasons:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Statutory federal income tax rate 35.0% 35.0% 35.0%
Foreign Sales Corporation exempted income (1.7) (1.2) (0.9)
Tax-exempt investment income (1.1) (1.0) (0.6)
Other 0.2 0.5 (0.3)
----- ----- -----
Effective income tax rate 32.4% 33.3% 33.2%
===== ===== =====
</TABLE>
The tax effect of temporary differences which give rise to deferred tax
assets and liabilities at December 31, 1995 and 1994, are as follows:
<TABLE>
<CAPTION>
1995 1994
------------------------ -------------------------
Current Non-Current Current Non-Current
------- ----------- ------- -----------
<S> <C> <C> <C> <C>
Assets:
Accruals not currently deductible $ 984,030 $ 87,500 $755,464 $ 58,100
Deferred compensation - 260,286 - 214,164
Other 238,198 18,867 169,350 12,158
Valuation allowance - - - -
---------- ---------- -------- ----------
Total deferred tax assets 1,222,228 366,653 924,814 284,422
Liabilities:
Excess tax over book depreciation - (780,846) - (583,048)
Patent costs - (107,481) - (79,065)
Other (43,457) - (32,956) -
---------- ---------- -------- ----------
Net deferred taxes $1,178,771 $ (521,674) $891,858 $ (377,691)
========== ========== ======== ==========
</TABLE>
Income taxes paid in cash were approximately $4,926,000, $4,343,000 and
$4,286,000 in 1995, 1994 and 1993, respectively.
-26-
<PAGE> 27
GENTEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(4) EMPLOYEE BENEFIT PLAN
The Company has a 401(k) retirement savings plan in which
substantially all of its employees may participate. The plan
includes a provision for the Company to match a percentage of the
employee's contributions at a rate determined by the Company's
Board of Directors. In 1995, 1994 and 1993, the Company's
contributions were approximately $151,000, $134,000 and $94,000,
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 $65.00, 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 August 26, 2001. Rights beneficially owned by holders of
15 percent or more of the Company's common stock, or their
transferees, automatically become void.
(6) STOCK BENEFIT PLANS
The Company maintains an Employee Stock Purchase Plan that provides a
means for employees to purchase shares of the Company's common
stock, through payroll deductions or lump sum contributions, at 85%
of the market price. No amounts are charged to operations related
to this plan. During 1995, 1994 and 1993, employees purchased
18,066, 16,875 and 13,815 shares, respectively, at average prices of
$17.98, $20.09 and $20.06 per share, respectively. At December 31,
1995, a total of 355,399 shares were available for future purchase.
As of December 31, 1995, 483 of the Company's 791 employees were
eligible to participate and 194 were participating.
The Company has incentive stock option plans covering 4,854,000 shares
of common stock under which options may be granted to key employees.
Options are granted at market price on the date of grant, and are
exercisable within limits specified at the time of grant, but no
option is exercisable more than ten years from the date of grant.
No charges to operations are recorded with respect to the
authorization, grant or exercise of these options.
-27-
<PAGE> 28
GENTEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(6) STOCK BENEFIT PLANS (continued)
A summary of incentive stock option plan information, as restated for
the stock split discussed in Note 7, is as follows:
<TABLE>
<CAPTION>
Shares Available
Options Price Range For Granting
------- ----------- ------------
<S> <C> <C> <C>
Outstanding at December 31, 1992 1,386,790 $ 1.78 - $11.13 314,600
Authorized - - - 1,000,000
Granted 323,050 13.13 - 33.00 (323,050)
Exercised (310,610) 1.78 - 6.44 -
--------- ------------------- ---------
Outstanding at December 31, 1993 1,399,230 1.78 - 33.00 991,550
Granted 274,850 21.00 - 25.50 (274,850)
Exercised (218,810) 2.14 - 11.13 -
Cancelled (500) 22.75 - 22.75 500
--------- ------------------- ---------
Outstanding at December 31, 1994 1,454,770 1.78 - 33.00 717,200
Authorized - - - 1,604,000
Granted 321,050 19.25 - 24.25 (321,050)
Exercised (317,530) 1.78 - 22.75 -
Cancelled (9,000) 10.31 - 26.88 9,000
--------- ------------------- ---------
Outstanding at December 31, 1995 1,449,290 $2.53 - $33.00 2,009,150
========= =================== =========
</TABLE>
At December 31, 1995, options covering 602,145 shares were
exercisable.
The Company has a restricted stock plan covering 400,000 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 1995 and 1994, 50,800 shares and 24,000 shares, respectively,
were granted with restriction periods of four to six years at market
prices ranging from $19.50 to $23.88 in 1995, and $22.38 to $25.63
in 1994. During 1993, no shares were granted under this plan. The
related expense is reflected as deferred compensation in the
accompanying consolidated financial statements and is being
amortized over the applicable restriction periods.
The Company has a non-employee directors stock option plan covering
500,000 shares of common stock for the purpose of attracting and
retaining qualified outside directors. Under this plan, directors
who are not employees of the Company are granted options to acquire
5,000 shares of the Company's common stock at the time of their
election to the Board and an additional option of 5,000 shares on
each anniversary date of their election. Options are granted at the
market price at the time of grant and are exercisable for ten years
from the date of grant. No charges to operations are recorded with
respect to authorization, grant or exercise of these options.
During 1995, 1994 and 1993, options for 20,000, 20,000 and 40,000
shares were granted at the then market prices of $19.75, $27.00 and
$17.63, respectively. At December 31, 1995, options for 132,000
shares were exercisable and 276,000 shares were available for future
granting.
-28-
<PAGE> 29
GENTEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(7) STOCK SPLIT
On May 13, 1993, the Company's Board of Directors declared a
two-for-one stock split effected in the form of a 100% stock
dividend to shareholders of record on May 28, 1993. The stock split
increased the number of shares of common stock then outstanding from
8,033,889 to 16,067,778. Earnings per share and all share data have
been restated in all prior periods to reflect this stock split.
(8) CONTINGENCIES
The Company owns four U.S. Patents for automatic mirrors and
electrochromic devices that were the subject of patent infringement
claims asserted against Donnelly Corporation ("Donnelly") during
1990 to 1993. All of those claims have either been adjudicated or
were resolved in a settlement in May 1993. Gentex received $3.6
million in damages and settlement fees.
Despite the May 1993 settlement agreement, in November 1993, Donnelly
requested that the U.S. Patent and Trademark Office (USPTO)
re-examine certain claims it had granted to Gentex in the Company's
U.S. Patent No. 5,128,799. The USPTO agreed to do so, which is not
unusual. In November 1995, the USPTO confirmed the patentability of
a number of the claims, including some of the claims that Donnelly
had been found to infringe in the 1992 suit. That re-examination is
proceeding as to the other claims.
The Company also is involved in other litigation which Donnelly
initiated in July 1993 with respect to four Donnelly patents. Three
of those patents are directed to lights in rearview mirrors
("lighted mirror patents"), and the fourth patent is directed to a
rearview mirror with a "dark or color-matched seal" ("dark seal
patent"). Two of the three lighted mirror patents were found to be
invalid by the Court when it granted the Company's motion for
summary judgment on those patents, which Donnelly has appealed. The
third lighted mirror patent was dismissed without prejudice. The
Company's renewed motion for summary judgment of invalidity on the
dark seal patent was denied on February 9, 1996. This case is
scheduled for a jury trial beginning April 1, 1996.
Donnelly also initiated another suit against the Company in October
1994 for alleged infringement of two Donnelly patents directed to
electrochromic solutions and electrochromic rearview mirrors that
contain a certain ultraviolet stabilizer. Donnelly subsequently
alleged infringement of a third patent directed broadly to an
electrochromic device with an ultraviolet stabilizer. The Company
answered both complaints, denying infringement of all three Donnelly
patents, and asserting that each patent is invalid and
unenforceable. This case is in the early stages of discovery, and
no trial date has been set.
The Company filed a complaint against Donnelly in June 1995, seeking a
declaratory judgment that three Donnelly patents are invalid and not
infringed by the Company. Two of those patents are directed to
electrochromic rearview mirrors having an optical display, such as a
compass readout, and the third is directed to electrochromic mirrors
made from a certain type of float glass with an "anti-iridescence"
coating. Donnelly answered the complaint, denying its patents are
invalid, counterclaiming for infringement of one compass patent and
the float glass patent, and asserting that the Court does not have
jurisdiction over the second compass patent, because there is no
case or controversy over that patent.
-29-
<PAGE> 30
GENTEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(8) CONTINGENCIES (continued)
In October 1995, the Court ordered that all discovery related
to this case shall concentrate on the issue of the invalidity of
the patents in suit and on the issue of the Court's jurisdiction.
In October 1995, the Company made a motion for summary judgment
of invalidity of Donnelly's two compass mirror patents, and in
December 1995, the Company made a motion for summary judgment of
invalidity of Donnelly's float glass patent. An oral argument on
those motions is scheduled for April 24, 1996. This suit is
still in the discovery stage, and no trial date has been
scheduled.
The patent infringement suit filed against the Company in
February 1994 by C-D Marketing, Ltd. was settled during 1995. As
part of the settlement, the Company purchased all of C-D
Marketing's worldwide patent rights, many of which relate to
certain types of electro-optic devices.
As described above, certain of these litigation matters (in
particular, the dark seal patent jury trial) may be resolved or
adjudicated, subject to appeal, within the next year. While
management has accrued an estimate of the legal costs it expects
to incur in its defense against the Donnelly patents in the
reasonably foreseeable future, at this time it is unable to
estimate a reasonable range of loss in the event of an
unfavorable decision.
Management believes that it has meritorious defenses to
Donnelly's claims for infringement of all of these patents.
However, as with most litigation, it is difficult to predict with
any degree of certainty whether those defenses will or will not
prevail. In any event, management believes that the outcome will
not have a material adverse effect on the Company's financial
statements.
-30-
<PAGE> 31
GENTEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(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:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Revenue:
Automotive Products
U.S. $65,853,000 $51,548,000 $35,962,000
Europe 14,693,000 8,717,000 4,731,000
Other 13,751,000 10,732,000 5,015,000
------------ ------------ ------------
$94,297,000 $70,997,000 $45,708,000
Fire Protection Products $17,269,000 $18,533,000 $17,181,000
Operating Income:
Automotive $21,600,000 $18,286,000 $8,250,000
Fire Protection Products 3,362,000 4,704,000 5,527,000
Identifiable Assets:
Automotive Products $37,268,000 $29,617,000 $22,666,000
Fire Protection Products 3,960,000 4,239,000 4,089,000
Depreciation & Amortization:
Automotive $ 2,793,000 $ 2,529,000 $ 3,795,000
Fire Protection 247,000 222,000 162,000
Capital Expenditures:
Automotive $ 4,721,000 $ 4,910,000 $ 3,205,000
Fire Protection 199,000 329,000 166,000
</TABLE>
During the years presented, the Company had three automotive
customers which individually accounted for 10% or more of net
sales as follows:
<TABLE>
<CAPTION>
Customer
-------------------------------------
#1 #2 #3
-- -- --
<S> <C> <C> <C>
1995 38% 14% 13%
1994 33% 16% 16%
1993 31% 17% 14%
</TABLE>
-31-
<PAGE> 32
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE
- ----------- ----------- ----
<S> <C> <C>
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 12, 1994, was filed as Exhibit 3(a)(2) to
Registrant's Report on Form 10-Q dated April 28, 1995, and the same is incorporated herein by reference.
3(b) 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 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 20, 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.
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 May 11, 1995) was
filed as Exhibit 10(b)(1) to Registrant's Report on Form 10-Q dated August 1, 1995, 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.
*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.
</TABLE>
-32-
<PAGE> 33
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE
- ----------- ----------- ----
<S> <C> <C>
*10(b)(4) Gentex Corporation Non-Employee Director Stock Option Plan as amended through March 5,
1993, was filed as Exhibit 10(b)(4) to Registrant's Report on Form 10-K dated March 5,
1993, and the same is incorporated herein in 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 34
23 Consent of Independent Public Accountants 35
27 Financial Data Schedule
</TABLE>
* Indicates a compensatory plan or arrangement.
-33-
<PAGE> 1
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.
Exhibit 21
-34-
<PAGE> 1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, 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. 33-65321, 33-64504, 33-31408, 33-50396 and
33-64196.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Grand Rapids, Michigan
March 13, 1996
Exhibit 23
-35-
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 14,115,041
<SECURITIES> 20,162,189
<RECEIVABLES> 14,881,156
<ALLOWANCES> (175,000)
<INVENTORY> 5,735,519
<CURRENT-ASSETS> 56,061,545
<PP&E> 31,217,005
<DEPRECIATION> (12,274,890)
<TOTAL-ASSETS> 109,243,521
<CURRENT-LIABILITIES> 14,050,067
<BONDS> 0
0
0
<COMMON> 1,013,752
<OTHER-SE> 93,658,028
<TOTAL-LIABILITY-AND-EQUITY> 109,243,521
<SALES> 111,566,225
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<TOTAL-COSTS> 86,604,103
<OTHER-EXPENSES> (2,969,021)
<LOSS-PROVISION> 83,639
<INTEREST-EXPENSE> 719
<INCOME-PRETAX> 27,931,143
<INCOME-TAX> 9,036,000
<INCOME-CONTINUING> 18,895,143
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<EXTRAORDINARY> 0
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<NET-INCOME> 18,895,143
<EPS-PRIMARY> 1.10
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</TABLE>
