Document/Exhibit Description Pages Size
1: 10-K Annual Report for the Fiscal Year Ended December 47 285K
31, 2006
2: EX-21 List of Company Subsidiaries 1 6K
3: EX-23.(A) Consent of Independent Registered Public 1 7K
Accounting Firm
4: EX-31.1 Certification of Chief Executive Officer Pursuant 2± 11K
to Section 302
5: EX-31.2 Certification of Chief Financial Officer Pursuant 2± 11K
to Section 302
6: EX-32 Certification of Chief Executive Officer and Chief 1 7K
Financial Officer Pursuant to Rule 906
10-K — Annual Report for the Fiscal Year Ended December 31, 2006
Document Table of Contents
UNITED STATES
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, 2006.
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from ________________ to ________________.
Commission File No.: 0-10235
GENTEX CORPORATION
(Exact name of registrant as specified in its charter)
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MICHIGAN 38-2030505
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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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:
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Name of each exchange
Title of each Class on which registered
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COMMON STOCK, PAR VALUE $.06 PER SHARE Nasdaq Global Select Market
Securities registered pursuant to Section 12(g) of the Act:
NONE
(Title of Class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act.
Yes: X No:
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Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act.
Yes: No: X
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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:
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (229.405 of this chapter) is not contained herein, and will
not be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [X]
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer" in Rule 12b-2 of the Exchange Act. (Check One):
Large Accelerated Filer Yes: X Accelerated Filer Yes:
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Non-Accelerated Filer Yes:
---
Indicate by check mark whether the registrant is a shell company as (defined in
Rule 12b-2).
Yes: No: X
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As of June 30, 2006 (the last business day of the registrant's most recently
completed second fiscal quarter), 140,124,796 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 $1,961,747,144 computed at the
closing price on that date.
As of February 12, 2007, 142,910,536 shares of the registrant's common stock,
par value $.06 per share, were outstanding.
Portions of the Company's Proxy Statement for its 2007 Annual Meeting of
Shareholders are incorporated by reference into Part III.
Exhibit Index located at Page 46
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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:
automatic-dimming rearview automotive mirrors and fire protection products.
The Company was organized in 1974 to manufacture residential smoke
detectors, a product line that has since evolved into a more sophisticated group
of fire protection products for commercial applications. In 1982, the Company
introduced an automatic interior rearview mirror that was the first commercially
successful glare-control product offered as an alternative to the conventional,
manual day/night mirror. In 1987, the Company introduced its interior
electrochromic (auto-dimming) mirror, providing the first successful commercial
application of electrochromic (EC) technology in the automotive industry and
world. Through the use of electrochromic technology, this mirror is continually
variable and automatically darkens to the degree required to eliminate rearview
headlight glare. In 1991, the Company introduced its exterior electrochromic
sub-assembly, which works as a complete glare-control system with the interior
auto-dimming mirror. In 1997, the Company began making volume shipments of three
new exterior mirror sub-assembly products: thin glass flat, convex and aspheric.
During 2004 and 2005, the Company began shipping auto-dimming mirrors with
SmartBeam(R), its proprietary intelligent high-beam headlamp control feature,
for the Cadillac STS, Jeep Grand Cherokee, Cadillac DTS, Jeep Commander and BMW
5, 6 and 7 Series models. Also during December 2005, the Company reached an
agreement with PPG Aerospace to work together to provide the variably dimmable
windows for the passenger compartment on the new Boeing 787 Dreamliner series of
aircraft.
During 2006, the Company began shipping auto-dimming mirrors with SmartBeam
for the BMW 3 Series, Cadillac Escalade and the Chrysler 300C. Also during 2006,
the Company announced development programs with several automakers for its Rear
Camera Display Mirror that shows a panoramic video view of objects behind the
vehicle in real time. In addition, the Company has developed its own unique
compass technology called Z-Nav(R), which can be sold as a system with the
compass heading displayed in the interior auto-dimming mirror.
The Company's annual report on Form 10-K, quarterly reports on Form 10-Q,
current reports on Form 8-K, and all amendments to those reports, will be made
available free of charge through the Investor Information section of the
Company's Internet website (http://www.gentex.com) as soon as practicable after
such material is electronically filed with or furnished to the Securities and
Exchange Commission.
(B) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
See Note 9 to the Consolidated Financial Statements filed with this report.
(C) NARRATIVE DESCRIPTION OF BUSINESS
The Company currently manufactures electro-optic products, including
automatic-dimming rearview mirrors for the automotive industry and fire
protection products primarily for the commercial building industry.
AUTOMATIC-DIMMING REARVIEW MIRRORS
Interior Auto-Dimming Mirrors. In 1987, the Company achieved a significant
technological breakthrough by applying electrochromic technology to the
glare-sensing capabilities of its Motorized Mirror. Through the use of this
technology, the mirror gradually darkens to the degree necessary to eliminate
rearview glare from following vehicle headlights. The auto-dimming mirror offers
all of the continuous reflectance levels between its approximate 85%
full-reflectance state and its 7% least-reflectance state, taking just a few
seconds to span the entire range. Special electro-optic sensors in the mirror
detect glare and electronic circuitry supplies electricity to darken the mirror
to only the precise level required to eliminate glare, allowing the driver to
maintain maximum 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
auto-dimming mirror, the auto-dimming headlamp control mirror, an
automatic-dimming mirror that automatically turns car head- and taillamps "on"
and "off" at dusk and dawn in response to the level of light observed. During
1993, the Company began shipping an auto-dimming compass mirror, with an
electronic compass that automatically compensates for changes in the earth's
magnetic field. During 1997, the Company began shipping a new interior
auto-dimming mirror that digitally displays either a compass or outside
temperature reading. During 1998, the Company began shipping new compass mirrors
with light-emitting diode (LED) map lamps, a major improvement over mirrors with
standard incandescent map lamps, including extremely long life, low heat
generation, lower current draw, more resistance to shock, and lower total cost
of ownership. In 2000, the Company began shipping to General Motors interior
auto-dimming mirrors that serve as the driver interface for the OnStar(R)
System, an in-vehicle safety, security and information service using Global
Positioning System (GPS) satellite technology. OnStar is a registered trademark
of OnStar Corporation.
During 2001 and 2002, the Company began making shipments of its
auto-dimming mirrors for a number of mid-sized, medium-priced vehicles,
including the Toyota Camry, Matrix and Corolla; Ford Taurus and Mercury Sable;
Volkswagen Passat, Jetta, Golf GTI and Beetle; Nissan Altima; Opel cross car
line; Chrysler Sebring Coupe; Hyundai Santa Fe and Sonata; and Kia Optima and
Sorento.
During 2003, the Company began making shipments of its auto-dimming mirrors
to two new automotive OEM customers, Honda and Volvo, and began volume shipments
of its microphone as part of DaimlerChrysler's "U-Connect(R)" telematics system.
During 2004 and 2005, the Company began shipping auto-dimming mirrors with
SmartBeam, its proprietary intelligent high-beam headlamp control feature, for
the Cadillac STS, Jeep Grand Cherokee, Cadillac DTS, the Jeep Commander, and BMW
5, 6 and 7 Series models. Also during 2005, the Company began making shipments
of its auto-dimming mirror to a new automotive OEM customer, PSA/Citroen and
PSA/Peugeot. During 2006, the Company began shipping auto-dimming mirrors with
SmartBeam for the BMW 3 Series, Cadillac Escalade and the Chrysler 300C.
The Company shipped approximately 8,363,000 interior auto-dimming mirrors
in 2004, approximately 8,924,000 in 2005, and 9,426,000 in 2006.
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During 2006, the growth in interior total mirror unit shipments increased
primarily due to increased shipments to Europe and Asian customers. The
Company's interior auto-dimming mirrors are standard equipment or
factory-installed options on certain trim levels of the following 2007 vehicle
models:
TABLE 1. INTERIOR AUTO-DIMMING MIRROR AVAILABILITY BY VEHICLE LINE (NORTH
AMERICAN MANUFACTURERS)
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GM/Cadillac DTS DaimlerChrysler 300
STS /Chrysler Aspen
CTS Pacifica
Escalade PT Cruiser
SRX Sebring
GM/Buick LaCrosse Town & Country
Lucerne DaimlerChrysler Caliber
Rainier /Dodge Caravan
GM/Hummer H2 Charger
H3 Dakota
GM/Pontiac G6 Durango
Torrent Magnum
GM/Chevrolet Avalanche Nitro
Express Ram Pickup
Equinox DaimlerChrysler Commander
HHR /Jeep Compass
Impala Grand Cherokee
Malibu Liberty
Monte Carlo DaimlerChrysler GL Class
Silverado /Mercedes-Benz M Class
Suburban R Class
Tahoe BMW X5
Trailblazer Honda/Acura MDX
GM/GMC Acadia Hyundai Santa Fe
Envoy Sonata
Savana Mazda 6
Sierra Mitsubishi Galant
Yukon Raider
GM/Saturn Aura Nissan Altima
ION Armada
Outlook Frontier
Vue Maxima
Ford Crown Victoria Pathfinder
Edge Quest
Expedition Titan
Five Hundred Nissan/Infiniti QX56
Freestar Toyota Avalon
Freestyle Camry
Fusion Camry Solara
F Series Sequoia
Mustang Sienna
Ford/Lincoln MKX Tacoma
MKZ Tundra
Mark LT Toyota/Lexus RX330
Navigator Volkswagen Beetle
Town Car Jetta
Ford/Mercury Grand Marquis
Milan
Montego
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TABLE 1. INTERIOR AUTO-DIMMING MIRROR AVAILABILITY BY VEHICLE LINE - CONTINUED
(MANUFACTURERS OUTSIDE OF NORTH AMERICA)
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Bentley Arnage Hyundai/Kia Motors Amanti Volkswagen Audi A3
Continental Carnival A4
GTC Carens A6
BMW 7 Series C'eed A8
6 Series Cerato Cabrio
5 Series Lotze Q6
3 Series Opirus TT
X3 Optima Volkswagen/SEAT Altea
Daewoo/Ssangyong Actyon Sedona Cordoba
Chairman Sorento Ibeza
Kyron Spectra Leon
Rexton Sportage Toledo
Rodius Maserati Quattroporte Volkswagen/Skoda Octavia
DaimlerChrysler 300 Mazda RX-8 Superb
/Chrysler Voyager DaimlerChrysler C Class
DaimlerChrysler Commander /Mercedes-Benz CL Class
/Jeep Grand Cherokee CLK
Fiat Idea CLS
Fiat/Alfa Romero 147 E Class
156 G Wagen
166 S Class
Fiat/Lancia Lybra SL Class
Thesis SLK
Ford Falcon Viano
Focus Mitsubishi 380
Galaxy Magna
Mondeo Pajero
Territory Nissan 350Z
Ford/Jaguar S-Type Cedric
XK Cima
XJ Frontier
Ford/Land Rover LR3 Murano
Range Rover Navara
Ford/Volvo C70 Pathfinder
S40 Nissan/Infiniti FX35/FX45
V50 G35
PSA/Citroen M45
C6 Q45
GM/Buick Regal PSA/Peugeot 207
GM/Opel Astra 407
Corsa Porsche Cayenne
Meriva Suzuki XL-7
Signum Toyota/Lexus ES330
Tigra GX470
Vectra RX330
Zafira Toyota Avensis
GM/Saab 9-7X Blade
Honda/Acura TSX Camry
Honda Accord Corolla
Inspire Verso
Hongqi Benteng Highlander
Hyundai Avante Mark X
Azera Prius
Volkswagen RAV4
Bora 4-Runner
Elantra EOS
Equus Golf
Grandeur Jetta
Sonata Passat
Santa Fe Phaeton
Starex Polo
Tuscani Sharan
Trajet Touareg
Tucson Touran
Transporter
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Exterior Auto-Dimming Mirror Sub-Assemblies. The Company has devoted substantial
research and development efforts to the development of its electrochromic
technology to permit its use in exterior rearview mirrors. Exterior auto-dimming
mirrors are controlled by the sensors and electronic circuitry in the interior
auto-dimming mirror, and both the interior and exterior mirrors dim
simultaneously. During 1991, the Company's efforts culminated in a design that
is intended to provide acceptable long-term performance in all automotive
environments likely to be encountered. In 1994, the Company began shipments of
its complete three-mirror system, including the convex (curved glass) wide-angle
auto-dimming mirror to BMW. During 1997, the Company began making volume
shipments of additional new exterior mirror products - thin glass flat and
aspheric. During 2001 and 2002, the Company began making shipments of the
world's first exterior automatic-dimming mirrors with built-in turn-signal
indicators to Southeast Toyota and General Motors. The Company currently sells
its exterior auto-dimming mirror sub-assemblies to exterior mirror suppliers of
the automakers who assemble the exterior auto-dimming mirror sub-assemblies into
full mirror units for subsequent resale to the automakers.
The Company shipped approximately 3,277,000 exterior auto-dimming mirror
sub-assemblies during 2004, approximately 3,646,000 in 2005, and approximately
4,001,000 in 2006. During 2006, unit shipment growth primarily resulted from the
increased penetration of light vehicles in Europe.
The exterior auto-dimming mirror is standard equipment or a
factory-installed option on certain trim levels of the following 2007 vehicle
models:
TABLE 2. EXTERIOR AUTO-DIMMING MIRROR AVAILABILITY BY VEHICLE LINE
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Daewoo Antara DaimlerChrysler GL Class
GM/Cadillac DTS /Mercedes-Benz M Class
Escalade R Class
GM/Buick Lucerne S Class
GM/Chevrolet Avalanche SL Class
Silverado SLK
Suburban Ford/Jaguar S-Type
Tahoe XJ
GM/GMC Acadia XK
Sierra Ford/Land Rover Range Rover
Yukon GM/Opel Vectra
GM/Hummer H2 Maserati Quattroporte
GM/Saturn Outlook Mitsubishi Magna
Ford/Lincoln MKZ PSA/Citroen C6
Town Car Skoda Octavia
DaimlerChrysler 300 Volkswagen EOS
/Chrysler Aspen Golf
Pacifica Passat
Town & Country Sharan
DaimlerChrysler Caravan Touareg
/Dodge Durango Honda/Acura RL
DaimlerChrysler Commander Hyundai Equus
/Jeep Grand Cherokee Grandeur
Volkswagen/Audi A3 Veracruz
A4 Hyundai/Kia Amanti
A6 Opirus
A8 Nissan/Infiniti Q45
Cabrio QX56
Q7 Toyota/Lexus LS430
TT LS460
BMW 7 Series RX330
6 Series Nissan Armada
5 Series Cima
3 Series Maxima
X3 Titan
Bentley Continental Rolls Royce Phantom
GTC Daewoo/Ssangyong Chairman
DaimlerChrysler C Class Toyota Avalon
/Mercedes-Benz CL Class Camry Solara
CLK Sienna
CLS Tundra
E Class
G Wagen
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Product Development. The Company plans to continue introducing additional
advanced-feature auto-dimming mirrors. Advanced-feature auto-dimming mirrors
currently being offered by the Company include the auto-dimming headlamp control
mirror, the auto-dimming lighted mirror with LED map lamps, the auto-dimming
compass mirror, the auto-dimming mirror with remote keyless entry, the
auto-dimming compass/temperature mirror, the auto-dimming dual display
compass/temperature mirror, auto-dimming telematics mirrors and the auto-dimming
HomeLink(R) mirror. During 2001, the Company announced a revolutionary new
proprietary technology, called SmartBeam(R), that uses a custom, active-pixel,
CMOS (complementary metal oxide semiconductor) sensor, and maximizes a driver's
forward vision by significantly improving utilization of the vehicle's highbeam
headlamps during nighttime driving. During 2004, the Company began shipping
auto-dimming mirrors with SmartBeam, its proprietary intelligent high-beam
headlamp control feature, on the Cadillac STS and Jeep Grand Cherokee. During
2005, the Company began shipping auto-dimming mirrors with SmartBeam for the
Cadillac DTS, the Jeep Commander, and BMW 5, 6 and 7 Series models. During 2006,
the Company began shipping auto-dimming mirrors with SmartBeam for the BMW 3
Series, Cadillac Escalade and the Chrysler 300C.
Also during 2006, the Company announced development programs with several
automakers for its Rear Camera Display Mirror that consists of a proprietary
liquid crystal display (LCD) device that shows a panoramic video view of objects
behind the vehicle in real time. When the vehicle is put in "reverse," the
display illuminates and automatically appears through the rearview mirror's
reflective surface to give a high resolution, bright colored image. The image is
generated by a camera or cameras placed in a protected area at the rear of the
vehicle. When the vehicle is put in "drive," the display in the mirror
automatically disappears. The ability to automatically have the display appear
through the auto-dimming mirror's surface is made possible by utilizing
proprietary "transflective" coatings developed the Company. In addition, the
Company has developed its own unique compass technology, which can be sold as a
system with the compass heading displayed in the interior auto-dimming mirror.
The Gentex compass technology is called Z-Nav(R), as it features a proprietary,
digital, tri-axis sensor (transducer) and software. The tri-axis design is
similar to compasses used in highly scientific apparatus such as aerospace
applications, and can be mounted on any fixed or pivotal location in the
vehicle, including inside the mirror housing.
In 1999, the Company announced the development of its LED technology, which
represented the first time that white light for illumination purposes could be
achieved using high intensity Orca power LEDs on a cost-effective basis. LEDs as
illuminators have many advantages over incandescent lamps, including extremely
long life, low heat generation, lower current draw, more resistance to shock,
and lower total cost of ownership. The Company continually evaluates LEDs that
are offered in the market place and is currently working with suppliers that can
provide high quality LEDs in a more cost effective manner.
The Company also developed an ALS (Active Light Sensor) technology as a
cost-effective, improved-performance, intelligent CMOS light sensor to control
the dimming of its rearview mirrors, and the Company began making volume
shipments of mirrors incorporating ALS in 2002.
During 2001, the Company developed a new microphone designed specifically
for use in the automotive environment for telematics applications. The first
volume Gentex microphone application was part of DaimlerChrysler's
"U-Connect(R)" telematics system, beginning in 2003. During 2006, our
proprietary integrated hands-free microphone was available as part of an
optional navigation package at Ford.
Of particular importance to the Company has been the development of its
electrochromic technology for use in complete three-mirror systems. In these
systems, both the driver- and passenger-side exterior auto-dimming mirrors are
controlled by the sensors and electronic circuitry in the interior rearview
mirror, and the interior and both exterior mirrors dim simultaneously.
The Company's success with electrochromic technology provides potential
opportunities for other commercial applications, which the Company expects to
explore in the future when and as the Company feels it is in its best interests
to do so. Examples of possible applications of electrochromic technology include
windows for both the automotive, architectural and aerospace markets, sunroofs
and sunglasses. Progress in adapting electrochromic technology to the
specialized requirements of the window market continued in 2006. In December
2005, the Company reached an agreement with PPG Aerospace to work together to
provide the
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variably dimmable windows for the passenger compartment on the new Boeing 787
Dreamliner series of aircraft. Gentex will ship about 100 windows for the
passenger compartment of each 787. The Company believes that the commercially
viable market is currently limited to aerospace. Based on Boeing's production
schedule, the value of this initial contract is worth approximately $50 million
over the first five years once volume production begins, with the majority of
that revenue attributable to Gentex under the Company's agreement with PPG
Aerospace. The Company will begin shipping production parts for test planes at
mid-year, and volume production is expected to begin in late 2007. However, we
believe that a commercial architectural window product will still require
several years of additional engineering and intellectual property development
work.
Markets and Marketing. In North America, the Company markets its products
primarily through a direct sales force. The Company generally supplies
auto-dimming mirrors to its customers worldwide under annual blanket purchase
orders. The Company currently supplies auto-dimming mirrors to General Motors
Corporation and DaimlerChrysler AG under long-term agreements. During 2005, the
Company negotiated an extension to its long-term agreement for inside mirrors
with General Motors in the ordinary course of the Company's business. Under the
extension, Gentex was sourced virtually all of the interior auto-dimming
rearview mirror programs for GM and its worldwide affiliates through August
2009, except for two low-volume models that had previously been awarded to a
Gentex competitor under a lifetime contract. The new business includes the
GMT360 program (which is the mid-size truck/SUV platform that previously did not
offer auto-dimming mirrors). We have estimated that this new business
represented incremental auto-dimming mirror units in the range of 500,000 on an
annualized basis at that time. The Company also negotiated a price reduction for
the GM OnStar(R) feature in its auto-dimming mirrors, effective January 1, 2005,
in connection with GM's stated plan to make their OnStar system standard across
their vehicle models over the next several years.
Also during 2005, the Company negotiated a three-year extension to its
long-term agreement with DaimlerChrysler AG in the ordinary course of the
Company's business. Under the extension, the Company will be sourced virtually
all interior and exterior auto-dimming mirror business at Mercedes and Chrysler
through December 2009. The Company's exterior auto-dimming mirror sub-assemblies
are supplied by means of sales to exterior mirror suppliers.
During 1993, the Company established a sales and engineering office in
Germany and the following year, the Company formed a German limited liability
company, Gentex GmbH, to expand its sales and engineering support activities in
Europe. During 1999, the Company established Gentex Mirrors, Ltd., as a sales
and engineering office in the United Kingdom. During 2000, the Company
established Gentex France, SAS, as a sales and engineering office in France.
During 2003, the Company established a satellite office in Munich, Germany, and
during 2005, the Company established a satellite office in Sweden. The Company's
marketing efforts in Europe are conducted through Gentex GmbH, Gentex Mirrors,
Ltd., and Gentex France SAS, with limited assistance from independent
manufacturers' representatives. The Company is currently supplying mirrors for
Audi, Bavarian Motor Works, A.G. (BMW), Bentley, Citroen, Fiat, Jaguar, Land
Rover, Mercedes-Benz, Opel, Peugeot, Porsche, Rolls Royce, SEAT, Skoda,
Volkswagen and Volvo in Europe.
In 1991, the Company began shipping electrochromic mirror assemblies for
Nissan Motor Co., Ltd. under a reciprocal distribution agreement with Ichikoh
Industries, Ltd. (Ichikoh), a major Japanese supplier of automotive products.
Under this agreement, Ichikoh marketed the Company's automatic mirrors to
certain Japanese automakers and their subsidiaries with manufacturing facilities
in Asia. The arrangement involved very limited technology transfer by the
Company and did not include the Company's proprietary electrochromic gel
formulation. The agreement was terminated by mutual agreement in 2001.
During 1993, the Company hired a sales agent to market auto-dimming mirrors
to other Japanese automakers beyond Nissan. Subsequently in 1998, the Company
established Gentex Japan, Inc., as a sales and engineering office in Nagoya,
Japan to expand its sales and engineering support in Japan. In 2000, the Company
signed an agreement with Murakami Corporation, a major Japanese mirror
manufacturer, to cooperate in expanding sales of automatic-dimming mirrors using
the Gentex electrochromic technology. During 2006, the agreement with Murakami
Corporation was terminated and replaced with a Memorandum of Understanding.
During 2002, the Company established Gentex Technologies Korea Co., Ltd. as a
sales and engineering office in Seoul, Korea. During
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2004, the Company established a satellite office in Yokohama, Japan. During
2005, the Company opened a sales and engineering office near Shanghai, China.
The Company is currently supplying mirrors for Daewoo/Ssangyong, Ford, GM,
Honda, Hyundai, Infiniti, Kia Motors, Lexus, Mazda, Mitsubishi, Nissan, Toyota
and Volkswagen/Audi in Asia.
The Company's auto-dimming mirror unit shipment mix by region has
significantly changed over the past seven years. The following is a breakdown of
unit shipment mix by region in 2006 vs. 1999 calendar years:
[Download Table]
2006 1999
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DOMESTIC 32% 69%
TRANSPLANTS 13% 1%
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NORTH AMERICA 45% 70%
EUROPE 40% 23%
ASIA-PACIFIC 15% 7%
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100% 100%
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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
auto-dimming mirrors will be offered as standard equipment, in higher option
rate packages, and on more models as consumer awareness of the safety and
comfort feature becomes more well-known and acceptance grows.
Since 1998, Gentex Corporation has contracted with MITO Corporation to sell
several of its most popular automatic-dimming mirrors directly to consumers in
the automotive aftermarket; in addition, the Company currently sells some
auto-dimming mirrors to automotive distributors. It is management's belief that
these sales have limited potential until the Company achieves a significantly
higher penetration of the original equipment manufacturing market.
Competition. Gentex is the leading producer of auto-dimming rearview
mirrors in the world and currently is the dominant supplier to the automotive
industry with an approximate 81% market share worldwide in 2006, as compared to
an approximately 80% in 2005. While the Company believes it will retain a
dominant position, one other U.S. manufacturer (Magna Donnelly) is competing for
sales to domestic and foreign vehicle manufacturers and is supplying a number of
domestic and foreign vehicle models with its hybrid or solid polymer matrix
versions of electrochromic mirrors. In addition, two Japanese manufacturers are
currently supplying a few vehicle models in Japan with solid-state
electrochromic mirrors.
On October 1, 2002, Magna International acquired Donnelly Corporation,
which was the Company's major competitor for sales of automatic-dimming rearview
mirrors to domestic and foreign vehicle manufacturers and their mirror
suppliers. The Company also sells certain automatic-dimming rearview mirror
sub-assemblies to Magna Donnelly.
The Company believes its electrochromic automatic mirrors offer significant
performance advantages over competing products. However, Gentex recognizes that
Magna Donnelly, a competitor and wholly-owned subsidiary of Magna International,
is considerably larger than the Company and may present a more formidable
competitive threat in the future. To date, the Company is not aware of any
significant impact of Magna's acquisition of Donnelly upon the Company; however,
any ultimate significant impact has not yet been determined.
There are numerous other companies in the world conducting research on
various technologies, including electrochromics, for controlling light
transmission and reflection. Gentex believes that the electrochromic materials
and manufacturing process it uses for automotive mirrors remains the most
efficient and cost-effective way to produce such products. While
automatic-dimming mirrors using other technologies may eliminate glare, each of
these technologies have inherent cost or performance limitations.
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FIRE PROTECTION PRODUCTS
The Company manufactures approximately 60 different models of smoke alarms
and smoke detectors, combined with over 160 different models of signaling
appliances. All of the smoke detectors/alarms operate on a photoelectric
principle to detect smoke. While the use of photoelectric technology entails
greater manufacturing costs, the Company believes that these detectors/alarms
are superior in performance to competitive devices that operate through an
ionization process, and are preferred in most commercial residential
occupancies. Photoelectric detectors/alarms feature low light-level detection,
while ionization detectors utilize an ionized atmosphere, the electrical
conductivity of which varies with changes in the composition of the atmosphere.
Photoelectric detectors/alarms are widely recognized to respond more quickly to
slow, smoldering fires, a common form of dwelling unit fire and a frequent cause
of fire-related deaths. In addition, photoelectric detectors are less prone to
nuisance alarms and do not require the use of radioactive materials necessary
for ionization detectors. Photoelectric smoke detectors/alarms are now being
required by over a dozen major cities, over a dozen states, as well as regional
and national building and fire alarm codes.
The Company's fire protection products provide the flexibility to be wired
as part of multiple-function systems and consequently are generally used in fire
detection systems common to large office buildings, hotels, motels, military
bases, college dormitories and other commercial establishments. However, the
Company also offers single-station alarms for both commercial and residential
applications. While the Company does not emphasize the residential market, some
of its fire protection products are used in single-family residences that
utilize fire protection and security systems. The Company's detectors emit
audible and/or visual signals in the immediate location of the device, and
certain models are able to communicate with monitored remote stations.
In 2005, the Company received Underwriters Laboratory (UL) listing on a new
series of commercial residential smoke alarms. The Company feels this new
product will fit well into new markets and customers. The new series of smoke
alarms consists of four models and will be electrically powered or electrically
powered with battery back-up.
Also in 2005, the Company received UL listing for a new line of speaker
strobes for commercial occupancies. The new speaker series will meet the
requirements found on the national codes.
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, to electrical wholesale houses, and to original equipment
manufacturers of fire protection systems under both the Company's brand name and
private labels. The fire protection and security industries have experienced a
significant number of mergers and consolidations during the past few years. The
Company markets its fire protection products throughout the United States
through regional sales managers and manufacturer representative organizations.
Competition. The fire protection products industry is highly competitive in
terms of both the smoke detectors and signaling appliance markets. The Company
estimates that it competes principally with eleven manufacturers of smoke
detection products for commercial use and approximately four manufacturers
within the residential market, three of which produce photoelectric smoke
detectors. In the signaling appliance markets, the Company estimates it competes
with approximately eight manufacturers. While the Company faces significant
competition in the sale of smoke detectors and signaling appliances, it believes
that the recent introduction of new products, improvements to its existing
products, its diversified product line, and the availability of special features
will permit the Company to maintain its competitive position.
TRADEMARKS AND PATENTS
The Company owns 16 U.S. trademarks and 280 U.S. patents, 271 of which
relate to electrochromic technology, automotive rearview mirrors, microphones,
displays and/or sensor technology. These patents expire between 2007 and 2024.
The Company believes that these patents provide the Company a significant
competitive advantage in the automotive rearview mirror market; however, none of
these patents individually is required for the success of the Company's
products.
The Company also owns 27 foreign trademarks and 96 foreign patents, 94 of
which relate to electrochromic technology, automotive rearview mirrors,
microphones, displays and /or sensor technology. These patents expire at various
times between 2007
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and 2022. The Company believes that the competitive advantage derived in the
relevant foreign markets for these patents is comparable to that experienced in
the U.S. market.
The Company's remaining 9 U.S. patents and 2 foreign 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 has in process 130 U.S. patent applications, 309 foreign
patent applications, and 18 trademark applications. The Company continuously
seeks to improve its core technologies and apply those technologies to new and
existing products. As those efforts produce patentable inventions, the Company
expects to file appropriate patent applications.
MISCELLANEOUS
The Company considers itself to be engaged in the manufacture and sale of
automatic rearview mirrors for the automotive industry and fire protection
products for the commercial building industry. The Company has several important
customers within the automotive industry, four of which each account for 10% or
more of the Company's annual sales (including sales to their Tier 1 suppliers):
General Motors Corporation, DaimlerChrysler AG, Toyota Motor Corporation, and
BMW. The loss of any of these customers could have a material adverse effect on
the Company. The Company's backlog of unshipped orders was $151,167,000 and
$151,334,000 at February 1, 2007, and 2006, respectively.
At February 1, 2007, the Company had 2,393 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 1A. RISK FACTORS
Safe Harbor for Forward-Looking Statements. This Annual Report on Form 10-K
contains forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act, as amended, that are based on management's belief, assumptions, current
expectations, estimates and projections about the global automotive industry,
the economy, the impact of stock option expense, the ability to leverage fixed
manufacturing overhead costs, unit shipment and revenue growth rates and the
Company itself. Words like "anticipates," "believes," "confident," "estimates,"
"expects," "forecast," "likely," "plans," "projects," and "should," and
variations of such words and similar expressions identify forward-looking
statements. These statements do not guarantee future performance and involve
certain risks, uncertainties, and assumptions that are difficult to predict with
regard to timing, expense, likelihood and degree of occurrence. These risks
include, without limitation, employment and general economic conditions, the
pace of economic growth in the U.S. and in international markets, the pace of
automotive production worldwide, the maintenance of the Company's market share,
the types of products purchased by customers, competitive pricing pressures,
currency fluctuations, the financial strength of the Company's customers, the
mix of products purchased by customers, the ability to continue to make product
innovations, the success of newly introduced products (e.g. SmartBeam(R), Z-NAV
and Rear Camera Display Mirror), and other risks identified in the Company's
filings with the Securities and Exchange Commission. Therefore actual results
and outcomes may materially differ from what is expressed or forecasted.
Furthermore, the Company undertakes no obligation to update, amend, or clarify
forward-looking statements, whether as a result of new information, future
events, or otherwise.
The following risk factors, together with all other information provided in
this Annual Report on Form 10-K, should be carefully considered.
Automotive Industry. 96% of our net sales are to customers within the
automotive industry. Supplying products to the automotive industry involves
increasing financial and production stresses due to continuing pricing
pressures, lower domestic production levels, overcapacity, customer and supplier
bankruptcies, and commodity material cost increases. Automakers are experiencing
increased volatility and uncertainty in executing planned new programs which
have, in some cases, resulted in cancellation or delays of new vehicle
platforms, package reconfigurations and inaccurate volume forecasts. This
increased volatility and uncertainty has made it more difficult for us to
forecast future sales and effectively utilize capital, engineering, research and
development, and human resource investments.
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Key Customers. We have a few large customers, including four customers
which each account for 10% or more of our annual net sales (including sales to
their Tier 1 suppliers) - General Motors Corporation, DaimlerChrysler AG, Toyota
Motor Corporation and BMW. The loss of all or a substantial portion of the sales
to any of these customers would have a material adverse effect on our sales,
margins, profitability and, as a result, our share price. Effective October 1,
2003, General Motors Corporation, our largest customer, began including a 30-day
escape clause into its contracts in the event its suppliers are not competitive
on pricing. Effective January 1, 2004, Ford Motor Company began imposing new
contract terms, including the right to terminate a supplier contract for any or
no reason, etc.
Pricing Pressures. In addition to price reductions over the life of our
long-term agreements, we continue to experience pricing pressures from our
automotive customers and competitors, which have affected, and which will
continue to affect our margins to the extent that we are unable to offset the
price reductions with productivity and manufacturing yield improvements,
engineering and purchasing cost reductions, and increases in unit sales volume,
which has been a challenge. In addition, profit pressures at certain automakers
are resulting in increased cost reduction efforts by them, including requests
for additional price reductions, decontenting certain features from vehicles,
and warranty cost-sharing programs, any of which could adversely impact our
sales growth, margins, profitability and, as a result, our share price.
Credit Risk. In light of the financial stresses within the worldwide
automotive industry, certain automakers and tier one mirror customers have
already declared bankruptcy or may be considering bankruptcy. Should one or more
of our larger customers declare bankruptcy, it could adversely impact the
collectibility of our accounts receivable, bad debt expense and net income.
Supply Chain Disruptions. Due to the just-in-time supply chains within the
automotive industry, a disruption in a supply chain caused by an unrelated
supplier due to bankruptcy, work stoppages, strikes, etc. could disrupt our
shipments to one or more automaker customers, which could adversely affect our
sales, margins, profitability and, as a result, our share price.
Competition. We recognize that Magna Donnelly, our main competitor and a
wholly-owned subsidiary of Magna International, is considerably larger than our
Company and may present a more formidable competitive threat in the future. Our
future growth and success will depend on the ability to compete in our highly
competitive markets.
New Technology and Product Development. We continue to invest a significant
portion of our annual sales in engineering, research and development projects.
Should these efforts ultimately prove unsuccessful, our sales, net income and,
as a result, our share price will be adversely affected.
Intellectual Property. We believe that our patents and trade secrets
provide us with a significant competitive advantage in automotive rearview
mirrors. The loss of any significant combination of patents and trade secrets
could adversely affect our sales, margins, profitability and, as a result, share
price.
Intellectual Property Litigation and Infringement Claims. A successful
claim of patent or other intellectual property infringement against us could
affect our profitability and growth. If someone claims that our products
infringed their intellectual property rights, any resulting litigation could be
costly and time consuming and would divert the attention of management and key
personnel from other business issues. The complexity of the technology involved
and the uncertainty of intellectual property litigation increases these risks.
Any of these adverse consequences could potentially have an effect on Gentex's
business, financial condition and results of operations.
Business Disruptions. Manufacturing of our proprietary products employing
electro-optic technology are performed at the Company's five manufacturing
facilities in Zeeland, Michigan. Should a catastrophic event occur, our ability
to manufacture product, complete existing orders and provide other services
would be severely impacted for an undetermined period of time. We have purchased
business interruption insurance to address these potential costs. Our inability
to conduct normal business operations for a period of time may have an adverse
impact on long-term operating results.
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Other. Other issues and uncertainties which could adversely impact our
sales, margins, profitability and, as a result, our share price include:
- Changes in worldwide economic conditions, currency exchange rates, war
or significant terrorist acts, which could affect worldwide automotive
sales and production levels.
- Changes in the commodity prices of the materials used in our products.
We continue to experience some pressure for select raw material cost
increases.
- Manufacturing yield issues may negatively impact our margins and
profitability. We continue to experience some manufacturing yield
issues on certain lines.
- Our ability to attract or retain key employees to operate our
manufacturing facilities and corporate office. We are dependent on the
services of our management team. Losing one or more key members of our
management team could adversely affect our operations. We do not
maintain key man life insurance on any of our officers or directors.
- Our ability to successfully design and execute strategic and operating
plans, including continuing to obtain new business.
Antitakeover Provisions. Our articles of incorporation and bylaws, the laws
of Michigan, and our Shareholder Protection Rights Plan include provisions which
are designed to provide our board of directors with time to consider whether a
hostile takeover offer is in our best interest and the best interests of our
shareholders. These provisions, however, could discourage potential acquisition
proposals and could delay or prevent a change in control. The provisions also
could diminish the opportunities for a holder of our common stock to participate
in tender offers, including tender offers at a price above the then current
price for our common stock. These provisions could also prevent transactions in
which our shareholders might otherwise receive a premium for their shares over
then current market prices, and may limit the ability of our shareholders to
approve transactions that they may deem to be in their best interests.
All of these provisions may have the effect of delaying or preventing a
change in control at the company level without action by our shareholders, and
therefore, could adversely affect the price of our common stock.
Fluctuations in Market Price. The market price for our common stock has
fluctuated, ranging between $12.74 and $21.00 for 2006. The overall market and
the price of our common stock may continue to fluctuate. There may be a
significant impact on the market price for our common stock due to, among other
things:
- variations in our anticipated or actual operating results or the
results of our competitors;
- changes in investors' or analysts' perceptions of the risks and
conditions of our business;
- the size of the public float of our common stock;
- market conditions, including the industry in which we operate, and
- general economic conditions.
ITEM 1B. UNRESOLVED STAFF COMMENTS.
None
ITEM 2. PROPERTIES.
The Company operates out of five office/manufacturing facilities in
Zeeland, Michigan, approximately 25 miles southwest of Grand Rapids, in addition
to overseas offices discussed elsewhere herein (see Part 1, Item 1). The office
and production facility for the Fire Protection Products Group is a
25,000-square-foot, one-story building leased by the Company since 1978 from
related parties (see Part III, Item 13, of this report).
The corporate office and production facility for the Company's Automotive
Products Group is a modern, two-story, 150,000-square-foot building of steel and
masonry construction situated on a 40-acre site in a well-kept industrial park.
A second 128,000-square-foot office/manufacturing facility on this site was
opened during 1996. The Company expanded its automotive production facilities by
constructing a third 170,000 square-foot facility on its current site which
opened in the second quarter of 2000.
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In November 2002, the Company announced plans to expand its manufacturing
operations in Zeeland, Michigan, with the construction of a fourth
150,000-square foot automotive mirror manufacturing facility. During 2003, the
Company also announced plans for a new 200,000-square foot technical office
facility linking the fourth manufacturing facility with its existing corporate
office and production facility. The Company completed the construction of its
fourth automotive manufacturing facility and the new technical center in 2006.
The Company has invested approximately $38 million for the new facilities during
2004 - 2006, which was funded from its cash and cash equivalents on hand.
The Company also constructed a 40,000 square-foot office, distribution and
light manufacturing facility in Erlenbach, Germany, at a cost of approximately
$5 million, which was completed at the end of 2003.
During 2006, the Company purchased a 25,000 square foot office,
distribution and light manufacturing facility near Shanghai, China, at a cost of
approximately $750,000.
In January 2007, the Company announced plans to expand its automotive
exterior mirror manufacturing facility in Zeeland, Michigan, with an approximate
cost of $6 million, which is expected to be funded from cash and/or cash
equivalents. In 2006, the Company shipped approximately 4,001,000 exterior
auto-dimming mirror sub-assemblies.
The Company's three automotive interior mirror manufacturing facilities
currently have an estimated building capacity to manufacture approximately 20
million mirror units annually, based on the current product mix. In 2006, the
Company shipped approximately 9,426,000 interior auto-dimming mirrors.
ITEM 3. LEGAL PROCEEDINGS
The Company is periodically involved in legal proceedings, legal actions
and claims arising in the normal course of business, including proceedings
relating to product liability, intellectual property, safety and health,
employment and other matters. Such matters are subject to many uncertainties,
and outcomes are not predictable. The Company does not believe however, that at
the current time any of these matters constitute material pending legal
proceedings that will have a material adverse effect on the financial position
or future results of operations of the Company.
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.
[Enlarge/Download Table]
NAME AGE POSITION POSITION HELD SINCE
--------------- --- --------------------------------------------------- -------------------
Fred Bauer 64 Chief Executive Officer May 1986
Enoch Jen 55 Senior Vice President January 2007
Dennis Alexejun 55 Vice President, North American Automotive Marketing September 1998
John Carter 59 Vice President, Mechanical Engineering June 1997
Steve Dykman 41 Vice President, Finance and Treasurer January 2007
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There are no family relationships among the officers listed in the
preceding table.
Except for the executive officers discussed below, all other executive
officers have held their current position with the Company for more than five
years.
Enoch Jen has served as Senior Vice President and Chief Financial Officer
since April 2006 and as Vice President, Finance of the Company since February
1991.
Steve Dykman has served as Treasurer and Director of Accounting and Finance
of the Company since November 2002, as Controller of the Company since April
1995 and joined the Company as Finance and Tax Manager in November 1993.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES.
(a) The Company's common stock trades on The Nasdaq Global Select Market(R). As
of February 1, 2007, there were 2,340 record-holders of the Company's common
stock. Ranges of high and low sale prices (adjusted for 2-for-1 stock split in
May 2005) of the Company's common stock reported through The Nasdaq Global
Select Market for the past two fiscal years appear in the following table.
[Download Table]
YEAR QUARTER HIGH LOW
---- ------- ------ ------
2005 First $18.25 $15.73
Second 19.45 15.53
Third 20.32 16.23
Fourth 19.99 15.38
2006 First $21.00 $15.71
Second 17.47 13.65
Third 15.34 12.74
Fourth 17.46 13.89
The information contained under "Stock Performance Summary" from the
Company's Annual Report to Shareholders is hereby incorporated by reference,
including such material not being deemed soliciting material and not being
deemed filed.
(b) Not applicable
(c) In August 2003, the Company announced a change in the Company's cash
dividend policy and declared an initial quarterly cash dividend of $0.075 per
share payable in October 2003. In August 2004, the Company's Board of Directors
approved an increase on the quarterly dividend rate of $0.085 per share. In
August 2005, the Company's Board of Directors approved a continuing resolution
to pay a quarterly dividend of $0.09 per share until the Board takes other
action with respect to the payment of dividends. In August 2006, the Company's
Board of Directors approved a continuing resolution to pay a quarterly dividend
at an increased rate of $0.095 per share until the Board takes other action with
respect to the payment of dividends. Based on current U.S. income tax laws, the
Company intends to continue to pay a quarterly cash dividend at its current
level and will consider future dividend increases based on the Company's
profitability, cash flow and other business factors.
On April 1, 2005, 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 6, 2005. The stock split increased the number of
shares of common stock then outstanding from 78,020,342 to 156,040,684. Earnings
per share and all share data have been restated in all prior periods to reflect
these stock splits.
On October 8, 2002, the Company announced a share repurchase plan,
under which it may purchase up to 8,000,000 shares (post-split) based on a
number of factors, including market conditions, the market price of the
Company's common stock, anti-dilutive effect on earnings, available cash and
other factors that the Company deems appropriate. This share repurchase plan
does not have an expiration date. During the quarter ended March 31, 2003, the
Company repurchased 830,000 shares (post-split) at a cost of approximately
$10,247,000. On July 20, 2005, the Company announced that it had raised the
price at which the Company may repurchase shares under the existing plan. During
the quarter ended September 30, 2005, the Company repurchased approximately
1,496,000 shares at a cost of approximately $25,215,000. On May 16, 2006, the
Company announced that the Company's Board of Directors had authorized the
repurchase of an additional 8,000,000 shares under the plan. On August
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14, 2006, the Company announced that the Company's Board of Directors had
authorized the repurchase of an additional 8,000,000 shares under the plan.
During 2006, the Company repurchased approximately 15,206,000 shares at a cost
of approximately $226,851,000 (see below). Approximately 6,468,000 shares remain
authorized to be repurchased under the plan.
The following is a summary of share repurchase activity during 2006:
[Enlarge/Download Table]
Total Number Average Total Number of Shares Maximum Number of Shares
Of Shares Price Paid Purchased As Part of a That May Yet Be Purchased
Period Purchased Per Share Publicly Announced Plan* Under the Plan*
------ ------------ ---------- ------------------------ -------------------------
January 2006 475,952 $16.85 475,952 5,197,989
February 2006 1,630,596 16.88 1,630,596 3,567,393
March 2006 697,000 16.64 697,000 2,870,393
April 2006 750,006 14.74 750,006 2,120,387
May 2006 3,300,319 14.82 3,300,319 6,820,068
June 2006 3,150,756 14.16 3,150,756 3,669,312
July 2006 630,297 13.34 630,297 3,039,015
August 2006 1,763,771 13.97 1,763,771 9,275,244
September 2006 1,574,103 14.33 1,574,103 7,701,141
October 2006 525, 679 15.51 525,679 7,175,462
November 2006 255,836 16.02 255,836 6,919,626
December 2006 451,369 16.03 451,369 6,468,257
---------- ------ ----------
Total 15,205,684 $14.92 15,205,684
========== ====== ==========
* See above paragraph for data on which plan was announced, the total number
of shares approved for repurchase under the plan, and the expiration date
(if any) of the plan.
The following is a summary of quarterly share repurchase activity
under the plan to date:
[Download Table]
Total Number of
Shares Purchased Cost of
Quarter Ended (Post-Split) Shares Purchased
------------- ---------------- ----------------
March 31, 2003 830,000 $ 10,246,810
September 30, 2005 1,496,059 25,214,573
March 31, 2006 2,803,548 47,145,310
June 30, 2006 7,201,081 104,604,414
September 30, 2006 3,968,171 55,614,102
December 31, 2006 1,232,884 19,487,427
---------- ------------
Total 17,531,743 $262,312,636
========== ============
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ITEM 6. SELECTED FINANCIAL DATA
[Download Table]
(in thousands, except per share data)
----------------------------------------------------
2006 2005 2004 2003 2002
-------- -------- -------- -------- --------
Net Sales $572,267 $536,484 $505,666 $469,019 $395,258
Net Income 108,761 109,528 112,657 106,761 85,771
Earnings Per Share* $ 0.73 $ 0.70 $ 0.72 $ 0.69 $ 0.56
Cash Dividends Declared
per Common Share* $ 0.37 $ 0.35 $ 0.32 $ 0.15 $ --
Total Assets $785,028 $922,646 $856,859 $762,530 $609,173
Long-Term Debt Outstanding
at Year End $ -- $ -- $ -- $ -- $ --
* Adjusted for 2-for-1 stock split in May 2005.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
RESULTS OF OPERATIONS.
The following table sets forth for the periods indicated certain items
from the Company's Consolidated Statements of Income expressed as a percentage
of net sales and the percentage change in the dollar amount of each such item
from that in the indicated previous year.
[Enlarge/Download Table]
Percentage of Net Sales
----------------------- Percentage Change
Year Ended December 31, -----------------
----------------------- 2006 2005
2006 2005 2004 to 2005 to 2004
----- ----- ----- ------- -------
Net Sales 100.0% 100.0% 100.0% 6.7% 6.1%
Cost of Goods Sold 65.2 63.0 58.9 10.5 13.4
----- ----- ----- ----- -----
Gross Profit 34.8 37.0 41.1 0.2 (4.4)
Operating Expenses:
Engineering, Research and Development 7.3 6.5 6.1 19.2 13.7
Selling, General and Administrative 5.4 5.1 5.3 13.2 1.6
----- ----- ----- ----- -----
Total Operating Expenses 12.7 11.6 11.4 16.5 8.1
----- ----- ----- ----- -----
Operating Income 22.1 25.4 29.7 (7.2) (9.2)
Other Income 5.7 4.4 3.1 37.8 50.6
----- ----- ----- ----- -----
Income Before Provision for Income Taxes 27.8 29.8 32.8 (0.6) (3.5)
Provision for Income Taxes 8.8 9.4 10.5 (0.3) (5.1)
----- ----- ----- ----- -----
Net Income 19.0% 20.4% 22.3% (0.7)% (2.8)%
===== ===== ===== ===== =====
RESULTS OF OPERATIONS: 2006 TO 2005
Net Sales. Company net sales increased by $35,783,000, or 7% compared to
the prior year. Automotive net sales increased by 7% on a 7% increase in mirror
shipments, from 12,570,000 to 13,427,000 units, primarily reflecting increased
penetration of interior and exterior auto-dimming mirrors on European and Asian
vehicles. North American mirror unit shipments increased by 1%, primarily due to
takeover business from Magna Donnelly at General Motors partially offset by
lower customer production volumes on light trucks and sport utility vehicles in
North America. Overseas unit shipments increased by 12% during 2006 due to
increased penetration at certain European and Asian automakers. Net sales of the
Company's fire protection products increased 1%, primarily due to stronger sales
of certain signal products.
Cost of Goods Sold. As a percentage of net sales, cost of goods sold
increased from 63% to 65% primarily reflecting the impact of automotive customer
price reductions. For the year ended December 31, 2006, stock option expense
impacted cost of goods sold by $2,266,000. Effective January 1, 2006, the
Company adopted SFAS 123(R).
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Operating Expenses. Engineering, research and development expenses
increased approximately $6,714,000, but remained at 7% of net sales. Excluding
stock option expense of $2,503,000, E,R & D expenses increased by 12%, primarily
due to additional staffing for new electronic product development, including
SmartBeam and telematics and new vehicle programs. Selling, general and
administrative expenses increased approximately $3,596,000, but remained at 5%
of net sales. Excluding stock option expense of $2,290,000, S, G & A expenses
increased by 5%, primarily reflecting the continued expansion of the Company's
overseas sales offices to support the Company's current and future overseas
sales growth, partially offset by a reduction in non-income based state taxes.
Other Income - Net. Investment income increased $3,715,000 in 2006,
primarily due to increased interest income due to higher interest rates,
partially offset by lower investable funds. Other income increased $5,212,000 in
2006, primarily due to realized gains on the sale of equity investments.
Taxes. The provision for federal income taxes varied from the statutory
rate in 2006 primarily due to Extra Territorial Income (ETI) Exclusion Act
exempted taxable income from increased foreign sales and the domestic
manufacturing deduction.
Net Income. Net income decreased by $767,000, or 1%. Excluding stock option
expense of $4,555,000, the Company's net income increased by 3% primarily
reflecting the increase in other income, partially offset by decreased gross
margin primarily due to the impact of automotive customer price reductions.
RESULTS OF OPERATIONS: 2005 TO 2004
Net Sales. Automotive net sales increased by 6% on an 8% increase in mirror
shipments, from 11,640,000 to 12,570,000 units, primarily reflecting increased
penetration of interior and exterior auto-dimming mirrors on European vehicles.
North American mirror unit shipments increased by 4%, as growth in Asian
transplant vehicle penetration was partially offset by reduced shipments to
domestic automakers due to their lower production volumes, while overseas unit
shipments increased by 12% during 2005. Net sales of the Company's fire
protection products increased 5%, primarily due to stronger sales of certain
fire alarm and signal products.
Cost of Goods Sold. As a percentage of net sales, cost of goods sold
increased from 59% to 63% primarily reflecting annual and other automotive
customer price reductions, product mix, higher fixed overhead expenses, and
yield issues on certain new exterior mirror production lines and in the
microelectronics manufacturing area. Each factor is estimated to have impacted
cost of goods sold by approximately 1-2%.
Operating Expenses. Engineering, research and development expenses
increased approximately $4,226,000, and increased from 6% to 7% of net sales,
primarily due to additional staffing for new electronic product development,
including SmartBeam and telematics, and new vehicle programs. Selling, general
and administrative expenses increased approximately $441,000, but remained at 5%
of net sales, primarily reflecting the continued expansion of the Company's
overseas sales offices to support the Company's current and future overseas
sales growth, partially offset by a reduction in state taxes.
Other Income - Net. Investment income increased $9,648,000 in 2005,
primarily due to increased year-end mutual fund distribution income and
increased interest income due to higher interest rates. Other income decreased
$1,714,000 in 2005, primarily due to decreased realized gains on the sale of
equity investments.
Taxes. The provision for federal income taxes varied from the statutory
rate in 2005 primarily due to Extra Territorial Income Exclusion Act exempted
taxable income from increased foreign sales.
Net Income. Net income decreased by 3%, primarily reflecting the decreased
gross margin partially offset by increased other income in 2005.
LIQUIDITY AND CAPITAL RESOURCES
The Company's financial condition throughout the periods presented has
remained very strong.
The Company's current ratio decreased from 10.7 as of December 31,
2005, to 7.8 as of December 31, 2006, primarily as a result of the decrease in
cash and cash equivalents due to share repurchases during the year.
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Cash flow from operating activities for the year ended December 31,
2006, increased $5,196,000 to $131,440,000, compared to $126,244,000 for the
same period last year, primarily due to a decrease in accounts receivable.
Capital expenditures for the year ended December 31, 2006, decreased to
$48,193,000, compared to $53,533,000 for the same period last year, primarily
due to the completion of the new facilities in mid 2006. The Company currently
anticipates capital expenditures of approximately $40-45 million for equipment
and an addition to its exterior automotive mirror manufacturing plant during
2007, financed from existing cash and/or cash equivalents on hand.
Cash and cash equivalents as of December 31, 2006, decreased
approximately $194,182,000 compared to December 31, 2005, primarily due to share
repurchases.
Inventories as of December 31, 2006, increased approximately
$8,969,000 compared to December 31, 2005. The increase was primarily due to
longer lead times on certain electronic components, smoothing out holiday
schedules, and building up parts in anticipation of manufacturing line moves.
The increase in plant and equipment as of December 31, 2006, compared
to December 31, 2005, is primarily due to new manufacturing equipment and the
completion of the new facilities.
Management considers the Company's working capital of approximately
$389,515,000 and long-term investments of approximately $146,216,000 at December
31, 2006, together with internally generated cash flow and an unsecured
$5,000,000 line of credit from a bank, to be sufficient to cover anticipated
cash needs for the next year and for the foreseeable future.
On October 8, 2002, the Company announced a share repurchase plan,
under which it may purchase up to 8,000,000 shares (post-split) based on a
number of factors, including market conditions, the market price of the
Company's common stock, anti-dilutive effect on earnings, available cash and
other factors that the Company deems appropriate. On July 20, 2005, the Company
announced that it had raised the price at which the Company may repurchase
shares under the existing plan. On May 16, 2006, the Company announced that the
Company's Board of Directors had authorized the repurchase of an additional
8,000,000 shares under the plan. On August 14, 2006, the Company announced that
the Company's Board of Directors had authorized the repurchase of an additional
8,000,000 shares under the plan.
The following is a summary of quarterly share repurchase activity
under the plan to date:
[Download Table]
Total Number of
Shares Purchased Cost of
Quarter Ended (Post-Split) Shares Purchased
------------- ---------------- ----------------
March 31, 2003 830,000 $10,246,810
September 30, 2005 1,496,059 25,214,573
March 31, 2006 2,803,548 47,145,310
June 30, 2006 7,201,081 104,604,414
September 30, 2006 3,968,171 55,614,102
December 31, 2006 1,232,884 19,487,427
---------- ------------
Total 17,531,743 $262,312,636
6,468,257 shares remain authorized to be repurchased under the plan.
INFLATION, CHANGING PRICES AND OTHER
The Company generally supplies auto-dimming mirrors to its customers
worldwide under annual blanket purchase orders. During 2005, the Company
negotiated an extension to its long-term agreement with General Motors (GM) in
the ordinary course of the Company's business. Under the extension, the Company
was sourced virtually all the interior auto-dimming rearview mirrors programs
for GM and its worldwide affiliates through August 2009, except for two
low-volume models that had previously been awarded to a competitor under a
lifetime contract. The new business also included the GMT360 program, which is
the mid-size
-20-
truck/SUV platform that previously did not offer auto-dimming mirrors. The GM
programs were transferred to the Company by the 2007 model year. At that time we
estimated that this new business represented incremental auto-dimming mirror
units in the range of 500,000 on an annualized basis. The Company also
negotiated a price reduction for the GM OnStar(R) feature in its auto-dimming
mirrors, effective January 1, 2005, in connection with GM's stated plan to make
their OnStar system standard across their vehicle models over the next several
years.
During 2005, the Company negotiated an extension to its long-term
agreement with DaimlerChrysler in the ordinary course of the Company's business.
Under the extension, the Company will be sourced virtually all Mercedes and
Chrysler interior and exterior auto-dimming rearview mirrors through December
2009. The Company's exterior auto-dimming mirror sub-assemblies are supplied by
means of sales to exterior mirror suppliers.
The Company currently expects that auto-dimming mirror unit shipments
will be approximately 5-10% percent higher and revenue growth will be toward the
high end of this range in calendar 2007 compared with calendar 2006 due to the
current forecast of product mix. These estimates are based on light vehicle
production forecasts in the regions to which the Company ships product, as well
as the estimated option rates for its mirrors on prospective vehicle models and
anticipated product mix.
The Company utilizes the light vehicle production forecasting services
of CSM Worldwide, and CSM's current forecasts for light vehicle production for
calendar 2007 are approximately 15.3 million units for North America, 20.8
million for Europe and 14.5 million for Japan and Korea.
The Company does not have any significant off-balance sheet
arrangements or commitments that have not been recorded in its consolidated
financial statements.
-21-
MARKET RISK DISCLOSURE
The Company is subject to market risk exposures of varying
correlations and volatilities, including foreign exchange rate risk, interest
rate risk and equity price risk.
The Company has some assets, liabilities and operations outside the
United States, including a Euro denominated account, which currently are not
significant. Because the Company sells its automotive mirrors throughout the
world, it could be significantly affected by weak economic conditions in foreign
markets that could reduce demand for its products.
Most of the Company's non-U.S. sales are invoiced and paid in U.S.
dollars; during 2006, approximately 13% of the Company's net sales were invoiced
and paid in European euros. The Company currently expects that approximately 13%
of the Company's net sales in 2007 will be invoiced and paid in European euros.
The Company does not currently engage in hedging activities.
The Company manages interest rate risk and default risk in its
fixed-income investment portfolio by investing in shorter-term maturities and
investment grade issues. The Company's fixed-income investments' maturities at
fair value (000,000), and average interest rates are as follows:
[Download Table]
Total Balance
as of December 31,
------------------
2007 2008 2009 2010 2006 2005
----- ----- ---- ---- ----- ------
U.S. Government
Amount -- -- -- -- -- $ 5.0
Average Interest Rate -- -- -- 4%
Government Agency
Amount $ 9.0 -- -- -- $ 9.0 $18.0
Average Interest Rate 5% -- 5% 3%
Municipal
Amount -- -- -- -- -- --
Average Interest Rate* -- -- -- --
Certificates of Deposit
Amount $71.2 -- -- -- $71.2 $26.2
Average Interest Rate 5% -- -- -- 5% 4%
Corporate
Amount -- $ 0.3 -- -- $ 0.3 $17.2
Average Interest Rate -- 7% -- 7% 7%
Other
Amount $ 2.5 -- -- -- $ 2.5 $ 1.2
Average Interest Rate 5% -- -- -- 5% 3%
* After-tax
Most of the Company's equity investments are managed by a number of
outside equity fund managers who invest primarily in large capitalization
companies trading on the U.S. stock markets.
CONTRACTUAL OBLIGATIONS AND OTHER COMMITMENTS
The Company has the following contractual obligations and other
commitments (000,000) as of December 31, 2006:
[Download Table]
Less than After
Total 1 Year 1-3 Years 3 Years
----- --------- --------- -------
Long-term debt $ -- $ -- $ -- $ --
Operating leases 1.0 .5 .4 .1
Purchase obligations* 42.9 42.9 -- --
Dividends payable 13.5 13.5 -- --
----- ----- ----- -----
$57.4 $56.9 $ 0.4 $ 0.1
===== ===== ===== =====
* Primarily for inventory parts and capital equipment.
-22-
CRITICAL ACCOUNTING POLICIES.
The Company's significant accounting policies are described in Note 1
to the consolidated financial statements. The policies described below represent
those that are broadly applicable to its operations and involve additional
management judgment due to the sensitivity of the methods, assumptions and
estimates necessary in determining the related amounts.
Revenue Recognition. The Company recognizes revenue in accordance with
SEC Staff Accounting Bulletin No. 104, Revenue Recognition in Financial
Statements, as amended. Accordingly, revenue is recognized based on the terms of
the customer purchase order that indicates title to the product and risk of
ownership passes to the customer upon shipment. Sales are shown net of returns,
which have not historically been significant. The Company does not generate
sales from sale arrangements with multiple deliverables.
Inventories. Estimated inventory allowances for slow-moving and
obsolete inventories are based on current assessments of future demands, market
conditions and related management initiatives. If market conditions or customer
requirements change and are less favorable than those projected by management,
inventory allowances are adjusted accordingly.
Investments. The Company's investment committee regularly reviews its
fixed income and equity investment portfolio for any unrealized losses that
would be deemed other-than-temporary and require the recognition of an
impairment loss in income. Management uses criteria such as the period of time
that securities have been in an unrealized loss position, types of securities
and their related industries, as well as published investment ratings and
analyst reports to evaluate their portfolio. Management considers the unrealized
losses at December 31, 2006, to be temporary in nature.
Self Insurance. The Company is self-insured for health and workers'
compensation benefits up to certain stop-loss limits. Such costs are accrued
based on known claims and an estimate of incurred, but not reported (IBNR)
claims. IBNR claims are estimated using historical lag information and other
data provided by claims administrators. This estimation process is subjective,
and to the extent that future actual results differ from original estimates,
adjustments to recorded accruals may be necessary.
Stock-Based Compensation. Effective January 1, 2006, the Company
accounts for stock-based compensation in accordance with the fair value
recognition provisions of SFAS No. 123(R). The Company utilizes the
Black-Scholes model, which requires the input of subjective assumptions. These
assumptions include estimating (a) the length of time employees will retain
their vested stock options before exercising them ("expected term"), (b) the
volatility of the Company's common stock price over the expected term, (c) the
number of options that will ultimately not complete their vesting requirements
("forfeitures") and (d) expected dividends. Changes in the subjective
assumptions can materially affect the estimate of fair value of stock-based
compensation and consequently, the related amounts recognized on the
consolidated condensed statements of operations.
ITEM 7. A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
See "Market Risk Disclosure" in Management's Discussion and Analysis
(Item 7).
-23-
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The following financial statements and reports of independent
registered public accounting firm are filed with this report as pages 29 through
45 following the signature page:
Report of Independent Registered Public Accounting Firm
Report of Independent Registered Public Accounting Firm on Internal
Control Over Financial Reporting
Consolidated Balance Sheets as of December 31, 2006 and 2005
Consolidated Statements of Income for the years ended December 31,
2006, 2005 and 2004
Consolidated Statements of Shareholders' Investment for the years
ended December 31, 2006, 2005 and 2004
Consolidated Statements of Cash Flows for the years ended December 31,
2006, 2005 and 2004
Notes to Consolidated Financial Statements
Selected quarterly financial data for the past two years appears in the
following table:
[Enlarge/Download Table]
Quarterly Results of Operations
(in thousands, except per share data)
-------------------------------------------------------------------------------------
First Second Third Fourth
------------------- ------------------- ------------------- -------------------
2006 2005 2006 2005 2006 2005 2006 2005
-------- -------- -------- -------- -------- -------- -------- --------
Net Sales $139,021 $127,642 $142,391 $132,384 $141,266 $138,115 $149,590 $138,343
Gross Profit 48,233 48,053 50,896 49,566 47,879 51,196 52,096 49,826
Operating Income 30,282 33,236 33,421 33,756 29,605 35,293 33,139 34,009
Net Income 26,371 25,933 27,236 26,041 24,338 27,936 30,816 29,618
Earnings Per Share* $ .17 $ .17 $ .18 $ .17 $ .17 $ .18 $ .22 $ .19
* Diluted; adjusted for 2-for-1 stock split in May 2005.
ITEM 9. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.
Not applicable.
ITEM 9A. CONTROLS AND PROCEDURES.
DISCLOSURE CONTROLS AND PROCEDURES.
As of December 31, 2006, an evaluation was performed under the
supervision and with the participation of the Company's management, including
the CEO and CFO, of the effectiveness of the design and operation of the
Company's disclosure controls and procedures [(as defined in Exchange Act Rules
13a - 15(e) and 15d - 15(e)]. Based on that evaluation, the Company's
management, including the CEO and CFO, concluded that the Company's disclosure
controls and procedures were adequate and effective as of December 31, 2006, to
ensure that material information relating to the Company would be made known to
them by others within the Company, particularly during the period in which this
Form 10-K was being prepared. During the period covered by this annual report,
there have been no changes in the Company's internal controls over financial
reporting that have materially affected or are likely to materially affect the
Company's internal controls over financial reporting. There have been no
significant changes in the Company's internal controls or in other factors that
could significantly affect internal controls subsequent to December 31, 2006.
MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING.
Our management is responsible for establishing and maintaining
adequate internal control over financial reporting, as such term is defined in
Exchange Act Rules 13a-15(f) and 15d-15(f). Under the supervision and with the
participation of our management, including our principal executive officer and
principal financial officer, we conducted an evaluation of the effectiveness of
our internal control over financial reporting based on the framework in Internal
Control -
-24-
Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission. Based on our evaluation under the framework in Internal
Control - Integrated Framework our management concluded that our internal
control over financial reporting was effective as of December 31, 2006. Our
management's assessment of the effectiveness of our internal control over
financial reporting as of December 31, 2006, has been audited by Ernst & Young
LLP, an independent registered public accounting firm, as stated in its
attestation report on management's assessment, which is included on page 30
hereof.
ITEM 9B. OTHER INFORMATION.
Not applicable.
-25-
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 2007 Annual
Meeting of Shareholders and filed with the Commission within 120 days after the
Company's fiscal year end, December 31, 2006 (the "Proxy Statement"), is hereby
incorporated herein by reference. Information concerning compliance with Section
16(a) of the Securities and Exchange Act of 1934 appearing under the caption
"Section 16(A) Beneficial Ownership Reporting Compliance" in the definitive
Proxy Statement is hereby incorporated herein by reference. Information relating
to the Company's Audit Committee and Board of Directors concerning whether at
least one member of the Audit Committee is an "audit committee financial expert"
as that term is defined under Item 401 (h) of Regulation S-K appearing under the
caption "Corporate Governance - Audit Committee" in the definitive Proxy
Statement is hereby incorporated by reference.
The Company has adopted a Code of Ethics that applies to its principal
executive officer, principal financial officer, and principal accounting
officer. A copy of the Code of Ethics for Certain Senior Officers is available
without charge, upon written request, from the Corporate Secretary of the
Company, 600 N. Centennial Street, Zeeland, Michigan 49464. The Company intends
to satisfy the disclosure requirement under Item 5.05 of Form 8-K regarding an
amendment to, or waiver from, a provision of this Code of Ethics by posting such
information on its website. Information contained in the Company's website,
whether currently posted or posted in the future, is not part of this document
or the documents incorporated by reference in this document.
ITEM 11. EXECUTIVE COMPENSATION.
The information contained under the caption "Compensation Committee
Report", "Compensation Discussion and Analysis," "Executive Compensation" and
"Compensation Committee Interlocks and Insider Participation" contained in the
definitive Proxy Statement is hereby incorporated herein by reference. The
"Compensation Committee Report" shall not be deemed to be soliciting material or
to be filed with the commission.
ITEM 12. SECURITY OWNERSHIP OF MANAGEMENT AND EQUITY COMPENSATION PLAN
INFORMATION.
The information contained under the captions "Securities Ownership of
Management" and "Equity Compensation Plan Information" contained in the
definitive Proxy Statement is hereby incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS, RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE.
The information contained under the caption "Certain Transactions"
contained in the definitive Proxy Statement is hereby incorporated herein by
reference. The information contained under the caption "Election of Directors"
contained in the definitive proxy statement is hereby incorporated by reference.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.
Information regarding principal accounting fees and services set forth
under the caption "Ratification of Appointment of Independent Auditors -
Principal Accounting Fees and Services" in the definitive Proxy Statement is
hereby incorporated herein by reference. Information concerning the policy
adopted by the Audit Committee regarding the pre-approval of audit and non-audit
services provided by the Company's independent auditors set forth under the
caption "Corporate Governance - Audit Committee" in the definitive Proxy
Statement is hereby incorporated by reference.
-26-
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) 1. Financial Statements. See Item 8.
2. Financial Statements Schedules. None required or not
applicable.
3. Exhibits. See Exhibit Index located on page 46.
(b) See (a) above.
(c) See (a) above.
-27-
SIGNATURES
Pursuant to the requirements of Section 13 of 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Dated: February 22, 2007 GENTEX CORPORATION
By: /s/ Fred Bauer
------------------------------------
Fred Bauer, Chairman and Principal
Executive Officer
and
/s/ Steven Dykman
-------------------------------------
Steven Dykman, 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 22nd day of February, 2007, 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 Steve Dykman, each of them individually, as his
attorney-in-fact to sign in his name and on his behalf, and to file with the
Commission any and all amendments to this report on Form 10-K to the same extent
and with the same effect as if done personally.
/s/ Fred Bauer Director
-------------------------------------
Fred Bauer
/s/ Gary Goode Director
-------------------------------------
Gary Goode
/s/ Kenneth La Grand Director
-------------------------------------
Kenneth La Grand
/s/ Arlyn Lanting Director
-------------------------------------
Arlyn Lanting
/s/ John Mulder Director
-------------------------------------
John Mulder
/s/ Rande Somma Director
-------------------------------------
Rande Somma
/s/ Fred Sotok Director
-------------------------------------
Fred Sotok
/s/ Wallace Tsuha Director
-------------------------------------
Wallace Tsuha
-28-
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders of Gentex Corporation:
We have audited the accompanying consolidated balance sheets of Gentex
Corporation and subsidiaries as of December 31, 2006 and 2005, and the related
consolidated statements of income, shareholders' investment and cash flows for
each of the three years in the period ended December 31, 2006. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Gentex Corporation
and subsidiaries at December 31, 2006 and 2005, and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended December 31, 2006, in conformity with U.S. generally accepted accounting
principles.
As discussed in Note 1 to the consolidated financial statements, in 2006 the
Company changed its method of accounting for share-based payments in connection
with the required adoption of Statement of Financial Accounting Standards No.
123(R).
We also have audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the effectiveness of Gentex
Corporation's internal control over financial reporting as of December 31, 2006,
based on criteria established in Internal Control--Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway Commission and our
report dated February 9, 2007 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Grand Rapids, Michigan
February 9, 2007
-29-
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The Board of Directors and Shareholders of Gentex Corporation:
We have audited management's assessment, included in the accompanying
Management's Report on Internal Control Over Financial Reporting, that Gentex
Corporation maintained effective internal control over financial reporting as of
December 31, 2006, based on criteria established in Internal Control--Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (the COSO criteria). Gentex Corporation's management is responsible
for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting.
Our responsibility is to express an opinion on management's assessment and an
opinion on the effectiveness of the company's internal control over financial
reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over
financial reporting, evaluating management's assessment, testing and evaluating
the design and operating effectiveness of internal control, and performing such
other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.
A company's internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company's internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company's
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
In our opinion, management's assessment that Gentex Corporation maintained
effective internal control over financial reporting as of December 31, 2006, is
fairly stated, in all material respects, based on the COSO criteria. Also, in
our opinion, Gentex Corporation maintained, in all material respects, effective
internal control over financial reporting as of December 31, 2006, based on the
COSO criteria.
We also have audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the 2006 consolidated financial
statements of Gentex Corporation and subsidiaries and our report dated February
9, 2007 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Grand Rapids, Michigan
February 9, 2007
-30-
GENTEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2006 AND 2005
[Download Table]
2006 2005
------------- -------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 245,499,783 $ 439,681,693
Short-term investments 82,727,927 67,331,928
Accounts receivable 58,337,396 60,924,437
Inventories 48,805,398 39,836,822
Prepaid expenses and other 11,507,590 11,212,647
------------- -------------
Total current assets 446,878,094 618,987,527
PLANT AND EQUIPMENT:
Land, buildings and improvements 95,998,488 57,544,173
Machinery and equipment 231,526,281 196,878,770
Construction-in-process 12,393,019 40,858,633
------------- -------------
339,917,788 295,281,576
Less-Accumulated depreciation
and amortization (155,783,415) (131,251,235)
------------- -------------
184,134,373 164,030,341
OTHER ASSETS:
Long-term investments 146,215,929 132,524,966
Patents and other assets, net 7,800,004 7,102,968
------------- -------------
154,015,933 139,627,934
------------- -------------
$ 785,028,400 $ 922,645,802
============= =============
LIABILITIES AND SHAREHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Accounts payable $ 23,881,973 $ 23,607,927
Accrued liabilities:
Salaries, wages and vacation 4,288,825 3,798,648
Income taxes 4,744,765 2,739,364
Royalties 5,091,886 7,467,491
Dividends declared 13,535,237 14,043,959
Other 5,820,292 6,430,870
------------- -------------
Total current liabilities 57,362,978 58,088,259
DEFERRED INCOME TAXES 24,971,133 22,962,168
SHAREHOLDERS' INVESTMENT:
Preferred stock, no par value,
5,000,000 shares authorized; none
issued or outstanding -- --
Common stock, par value $.06 per share;
200,000,000 shares authorized 8,548,571 9,362,639
Additional paid-in capital 196,901,488 194,476,306
Retained earnings 472,192,400 623,301,775
Deferred compensation -- (4,847,659)
Accumulated other comprehensive income:
Unrealized gain on investments 23,246,788 18,795,360
Cumulative translation adjustment 1,805,042 506,954
------------- -------------
Total shareholders' investment 702,694,289 841,595,375
------------- -------------
$ 785,028,400 $ 922,645,802
============= =============
The accompanying notes are an integral part of these consolidated financial
statements.
- 31 -
GENTEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004
[Download Table]
2006 2005 2004
------------ ------------ ------------
NET SALES $572,267,073 $536,483,974 $505,666,335
COST OF GOODS SOLD 373,163,484 337,843,632 297,920,747
------------ ------------ ------------
Gross profit 199,103,589 198,640,342 207,745,588
OPERATING EXPENSES:
Engineering, research and development 41,773,792 35,059,401 30,833,627
Selling, general and administrative 30,882,821 27,286,404 26,845,748
------------ ------------ ------------
Total operating expenses 72,656,613 62,345,805 57,679,375
------------ ------------ ------------
Income from operations 126,446,976 136,294,537 150,066,213
OTHER INCOME:
Interest and dividend income 24,004,833 20,289,908 10,642,129
Other, net 8,521,789 3,310,066 5,024,176
------------ ------------ ------------
Total other income 32,526,622 23,599,974 15,666,305
------------ ------------ ------------
Income before provision
for income taxes 158,973,598 159,894,511 165,732,518
PROVISION FOR INCOME TAXES 50,212,596 50,367,000 53,076,000
------------ ------------ ------------
NET INCOME $108,761,002 $109,527,511 $112,656,518
============ ============ ============
EARNINGS PER SHARE:
Basic $ 0.74 $ 0.70 $ 0.73
============ ============ ============
Diluted $ 0.73 $ 0.70 $ 0.72
============ ============ ============
Cash Dividends Declared per Share $ 0.37 $ 0.35 $ 0.32
The accompanying notes are an integral part of these consolidated financial
statements.
- 32 -
GENTEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' INVESTMENT
FOR THE YEARS ENDED DECEMBER 31, 2006, 2005 and 2004
[Enlarge/Download Table]
Common Stock Common Stock Additional Paid-In Comprehensive
Shares Amount Capital Income (Loss)
----------------------------------------------------------------------------------------------
BALANCE AS OF DECEMBER 31, 2003 77,040,816 $4,622,449 $152,874,325
Issuance of common stock and
the tax benefit of stock plan
transactions 825,935 49,556 22,391,789
Dividends declared ($.32 per
share) - - -
Amortization of deferred
compensation - - -
Comprehensive income:
Net income - - - $112,656,518
Other comprehensive income
(loss):
Foreign currency translation
adjustment - - - 860,738
Unrealized gain on
investments, net of tax of
$2,098,093 - - - 3,896,458
------------
Other comprehensive income - - - 4,757,196
------------
Comprehensive income - - - $117,413,714
-------------------------------------------------============
BALANCE AS OF DECEMBER 31, 2004 77,866,751 4,672,005 175,266,114
Issuance of common stock and
the tax benefit of stock plan
transactions 1,652,948 99,177 25,641,802
2 for 1 Common Stock Split 78,020,342 4,681,221 (4,681,221)
Repurchases of common stock (1,496,059) (89,764) (1,750,389)
Dividends declared ($.35 per
share) - - -
Amortization of deferred
compensation - - -
Comprehensive income:
Net income - - - $109,527,511
Other comprehensive income
(loss):
Foreign currency translation
adjustment - - - (1,138,244)
Unrealized gain on
investments, net of tax
of $1,743,097 - - - 3,237,180
------------
Other comprehensive income - - - 2,098,936
------------
Comprehensive income - - - $111,626,447
-------------------------------------------------============
BALANCE AS OF DECEMBER 31, 2005 156,043,982 9,362,639 194,476,306
Reclassification of Deferred
Compensation upon adopting
[SFAS123(R)] - - (4,847,659)
Issuance of common stock and
the tax benefit of stock plan
transactions 1,637,883 98,273 18,854,905
Stock-based compensation
expense related to stock
options, employee stock
purchases and restricted stock 8,481,871
Repurchases of common stock (15,205,684) (912,341) (20,063,935)
Dividends declared ($.37 per
share) - - -
Comprehensive income:
Net income - - - $108,761,002
Other comprehensive income
(loss):
Foreign currency translation
adjustment - - - 1,298,088
Unrealized gain on
investments, net of tax
of $2,396,923 - - - 4,451,428
------------
Other comprehensive income - - - 5,749,516
------------
Comprehensive income - - - $114,510,518
-------------------------------------------------============
BALANCE AS OF DECEMBER 31, 2006 142,476,181 $8,548,571 $196,901,488
=================================================
[Enlarge/Download Table]
Accumulated Other
Deferred Comprehensive Total Shareholders'
Retained Earnings Compensation Income (Loss) Investment
--------------------------------------------------------------------------------------------------------
BALANCE AS OF DECEMBER 31, 2003 $528,358,825 ($4,658,450) $12,446,182 $693,643,331
Issuance of common stock and
the tax benefit of stock plan
transactions - (2,323,123) - 20,118,222
Dividends declared ($.32 per
share) (49,469,017) - - (49,469,017)
Amortization of deferred
compensation - 1,573,722 - 1,573,722
Comprehensive income:
Net income 112,656,518 - - 112,656,518
Other comprehensive income
(loss):
Foreign currency translation
adjustment - - - -
Unrealized gain on
investments, net of tax of
$2,098,093 - - - -
Other comprehensive income - - 4,757,196 4,757,196
Comprehensive income - - - -
----------------------------------------------------------------------
BALANCE AS OF DECEMBER 31, 2004 591,546,326 (5,407,851) 17,203,378 783,279,972
Issuance of common stock and
the tax benefit of stock plan
transactions - (1,069,507) - 24,671,472
2 for 1 Common Stock Split -
Repurchases of common stock (23,374,420) - - (25,214,573)
Dividends declared ($.35 per
share) (54,397,642) - - (54,397,642)
Amortization of deferred
compensation - 1,629,699 - 1,629,699
Comprehensive income:
Net income 109,527,511 - - 109,527,511
Other comprehensive income
(loss):
Foreign currency translation
adjustment - - - -
Unrealized gain on
investments, net of tax
of $1,743,097 - - - -
Other comprehensive income - - 2,098,936 2,098,936
Comprehensive income - - - -
----------------------------------------------------------------------
BALANCE AS OF DECEMBER 31, 2005 623,301,775 (4,847,659) 19,302,314 841,595,375
Reclassification of Deferred
Compensation upon adopting
[SFAS123(R)] - 4,847,659 - -
Issuance of common stock and
the tax benefit of stock plan
transactions - - - 18,953,178
Stock-based compensation
expense related to stock
options, employee stock
purchases and restricted stock 8,481,871
Repurchases of common stock (205,874,977) - - (226,851,253)
Dividends declared ($.37 per
share) (53,995,400) - - (53,995,400)
Comprehensive income:
Net income 108,761,002 - - 108,761,002
Other comprehensive income
(loss):
Foreign currency translation
adjustment - - - -
Unrealized gain on
investments, net of tax
of $2,396,923 - - - -
Other comprehensive income - - 5,749,516 5,749,516
Comprehensive income - - - -
----------------------------------------------------------------------
BALANCE AS OF DECEMBER 31, 2006 $472,192,400 $ - $25,051,830 $702,694,289
======================================================================
The accompanying notes are an integral part of these consolidated financial
statements.
-33-
GENTEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004
[Enlarge/Download Table]
2006 2005 2004
-------------- ------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 108,761,002 $ 109,527,511 $ 112,656,518
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 27,762,710 23,823,327 21,740,832
Loss on disposal of assets 117,872 420,522 88,679
Gain on sale of investments (11,041,851) (5,710,679) (5,655,756)
Loss on sale of investments 4,674,676 2,511,060 2,351,347
Deferred income taxes (1,754,219) (2,172,589) 2,403,593
Stock based compensation expense related to
employee stock options,employee stock purchases and
restricted stock 8,481,871 1,629,699 1,573,722
Tax benefit of stock plan transactions 0 3,180,230 3,511,622
Excess tax benefits from stock based
compensation (235,410) 0 0
Change in operating assets and liabilities:
Accounts receivable 2,587,041 (4,832,107) 2,863,493
Inventories (8,968,576) (9,236,033) (9,662,093)
Prepaid expenses and other 1,071,317 491,532 627,997
Accounts payable 274,046 3,758,358 1,590,458
Accrued liabilities (290,328) 2,853,627 (2,721,956)
------------- ------------- -------------
Net cash provided by
operating activities 131,440,151 126,244,458 131,368,456
------------- ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Activity in available-for-sale securities:
Sales proceeds 60,550,849 30,057,962 31,101,380
Maturities and calls 64,240,000 101,159,061 78,792,849
Purchases (140,662,282) (101,378,452) (105,551,220)
Plant and equipment additions (48,193,083) (53,533,235) (30,535,174)
Proceeds from sale of plant and equipment 500,665 1,141,013 56,500
Decrease (increase) in other assets 308,855 (2,046,876) (1,001,902)
------------- ------------- -------------
Net cash provided by (used for)
investing activities (63,254,996) (24,600,527) (27,137,567)
------------- ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock from
stock plan transactions 18,953,178 21,491,243 16,606,601
Cash dividends paid (54,704,400) (53,777,627) (47,961,742)
Repurchases of common stock (226,851,253) (25,214,573) 0
Excess tax benefits from stock based compensation 235,410 0 0
------------- ------------- -------------
Net cash provided by (used for)
financing activities (262,367,065) (57,500,957) (31,355,141)
------------- ------------- -------------
NET INCREASE(DECREASE) IN CASH AND
CASH EQUIVALENTS (194,181,910) 44,142,974 72,875,748
CASH AND CASH EQUIVALENTS,
Beginning of year 439,681,693 395,538,719 322,662,971
------------- ------------- -------------
CASH AND CASH EQUIVALENTS,
End of year $ 245,499,783 $ 439,681,693 $ 395,538,719
============= ============= =============
The accompanying notes are an integral part of these
consolidated financial statements.
- 34 -
GENTEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES
The Company
Gentex Corporation designs, develops, manufactures and markets proprietary
electro-optical products: automatic-dimming rearview mirrors for the
automotive industry and fire protection products for the commercial
building industry. A substantial portion of the Company's net sales and
accounts receivable result from transactions with domestic and foreign
automotive manufacturers and tier one suppliers. The Company's fire
protection products are primarily sold to domestic distributors and
original equipment manufacturers of fire and security systems. The Company
does not require collateral or other security for trade accounts
receivable.
Significant accounting policies of the Company not described elsewhere are
as follows:
Consolidation
The consolidated financial statements include the accounts of Gentex
Corporation and all of its wholly-owned subsidiaries (together the
"Company"). All significant intercompany accounts and transactions have
been eliminated.
Cash Equivalents
Cash equivalents consist of funds invested in bank accounts and money
market funds that have daily liquidity.
Investments
At December 31, 2006, investment securities are available for sale and are
stated at fair value based on quoted market prices. Adjustments to the fair
value of investments are recorded as increases or decreases, net of income
taxes, within accumulated other comprehensive income (loss) in
shareholders' investment.
The amortized cost, unrealized gains and losses, and market value of
investment securities are shown as of December 31, 2006 and 2005:
[Download Table]
Unrealized
-----------------------
2006 Cost Gains Losses Market Value
----------------------- ------------ ----------- --------- ------------
Government Agency $ 8,992,336 $ -- $ (3,796) $ 8,988,540
Certificates of Deposit 71,200,000 -- -- 71,200,000
Corporate Bonds 297,579 -- (4,926) 292,653
Other Fixed Income 2,539,387 -- -- 2,539,387
Equity 110,150,262 36,173,199 (400,185) 145,923,276
------------ ----------- --------- ------------
$193,179,564 $36,173,199 $(408,907) $228,943,856
============ =========== ========= ============
[Download Table]
2005 Cost Gains Losses Market Value
----------------------- ------------ ----------- ----------- ------------
U.S. Government $ 5,000,000 $ -- $ -- $ 5,000,000
Government Agency 18,024,332 -- (33,462) 17,990,870
Certificates of Deposit 26,200,000 -- -- 26,200,000
Corporate Bonds 17,288,250 -- (93,899) 17,194,351
Other Fixed Income 1,215,708 -- -- 1,215,708
Equity 103,212,665 30,802,826 (1,759,526) 132,255,965
------------ ----------- ----------- ------------
$170,940,955 $30,802,826 $(1,886,887) $199,856,894
============ =========== =========== ============
Unrealized losses on investments as of December 31, 2006, are as follows:
[Download Table]
Aggregate Unrealized Losses Aggregate Fair Value
--------------------------- --------------------
Less than one year $351,434 $ 7,451,508
Greater than one year 57,473 10,210,915
-35-
GENTEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES, continued
Management has reviewed the unrealized losses in the Company's fixed-income
and equity securities as of December 31, 2006, and has determined that they
are temporary in nature; accordingly, no losses have been recognized in
income as of December 31, 2006.
Fixed income securities as of December 31, 2006, have contractual
maturities as follows:
[Download Table]
Due within one year $82,731,723
Due between one and five years 297,579
Due over five years --
-----------
$83,029,302
===========
Fair Value of Financial Instruments
The Company's financial instruments consist of cash and cash equivalents,
investments, accounts receivable and accounts payable. The Company's
estimate of the fair values of these financial instruments approximates
their carrying amounts at December 31, 2006 and 2005.
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, 2006 and 2005:
[Download Table]
2006 2005
----------- -----------
Raw materials $31,727,666 $24,628,200
Work-in-process 4,681,714 3,739,394
Finished goods 12,396,018 11,469,228
----------- -----------
$48,805,398 $39,836,822
=========== ===========
Allowances for slow-moving and obsolete inventories were not significant as
of December 31, 2006 and 2005.
Plant and Equipment
Plant and equipment are stated at cost. Depreciation and amortization are
computed for financial reporting purposes using the straight-line method,
with estimated useful lives of 7 to 40 years for buildings and
improvements, and 3 to 10 years for machinery and equipment.
Impairment or Disposal of Long-Lived Assets
The Company reviews long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may
not be recoverable. If such assets are determined to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceeds the fair value of the assets.
Patents
The Company's policy is to capitalize costs incurred to obtain patents. The
cost of patents is amortized over their useful lives. The cost of patents
in process is not amortized until issuance. Accumulated amortization was
approximately $3,510,000 and $3,218,000 at December 31, 2006 and 2005,
respectively. At December 31, 2006, patents had a weighted average
amortization life of 13 years. Patent amortization expense was
approximately $292,000, $233,000, and $193,000 in 2006, 2005 and 2004,
respectively. For each of the next five years, patent amortization expense
will approximate $362,000 annually.
Revenue Recognition
The Company's revenue is generated from sales of its products. Sales are
recognized when the product is shipped and legal title has passed to the
customer. The Company does not generate sales from arrangements with
multiple deliverables.
-36-
GENTEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES, continued
Advertising and Promotional Materials
All advertising and promotional costs are expensed as incurred and amounted
to approximately $1,250,000, $1,458,000 and $1,314,000, in 2006, 2005 and
2004, 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 $6,727,000, $5,770,000 and $5,171,000, in 2006, 2005 and
2004, respectively.
Self-Insurance
The Company is self-insured for a portion of its risk on workers'
compensation and employee medical costs. The arrangements provide for stop
loss insurance to manage the Company's risk. Operations are charged with
the cost of claims reported and an estimate of claims incurred but not
reported based upon historical claims lag information and other data.
Product Warranty
The Company periodically incurs product warranty costs. Any liabilities
associated with product warranty are estimated based on known facts and
circumstances and are not significant at December 31, 2006 and 2005. The
Company does not offer extended warranties on its products.
Earnings Per Share
The following table reconciles the numerators and denominators used in the
calculations of basic and diluted earnings per share (EPS) for each of the
last three years:
[Download Table]
2006 2005 2004
------------ ------------ ------------
Numerators:
Numerator for both basic and diluted
EPS, net income $108,761,002 $109,527,511 $112,656,518
Denominators:
Denominator for basic EPS,
weighted-average common shares
outstanding 147,950,666 155,438,834 154,321,342
Potentially dilutive shares
resulting from stock option plans 543,697 1,591,790 2,399,890
------------ ------------ ------------
Denominator for diluted EPS 148,494,363 157,030,624 156,721,232
============ ============ ============
For the years ended December 31, 2006, 2005 and 2004, 6,564,622, 3,517,373
and 1,512,782 shares, respectively, related to stock option plans were not
included in diluted average common shares outstanding because their effect
would be antidilutive.
Other Comprehensive Income (Loss)
Comprehensive income reflects the change in equity of a business enterprise
during a period from transactions and other events and circumstances from
non-owner sources. For the Company, comprehensive income represents net
income adjusted for unrealized gains and losses on certain investments and
foreign currency translation adjustments.
Foreign Currency Translation
The financial position and results of operations of the Company's foreign
subsidiaries are measured using the local currency as the functional
currency. Assets and liabilities are translated at the exchange rate in
effect at year-end. Income statement accounts are translated at the average
rate of exchange in effect during the year. The resulting translation
adjustment is recorded as a separate component of shareholders' investment.
Gains and losses arising from re-measuring foreign currency transactions
into the appropriate currency are included in the determination of net
income.
-37-
GENTEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES, continued
Stock-Based Compensation Plans
At December 31, 2006, the Company had two stock option plans, a restricted
plan and an employee stock purchase plan, which are described more fully in
Note 6. Effective January 1, 2006, the Company adopted Statement of
Financial Accounting Standards No. 123 (revised), "Shares-Based Payment"
[SFAS 123(R)] utilizing the modified prospective approach. Prior to the
adoption of SFAS 123(R) we accounted for stock option grants under the
recognition and measurement principles of APB Opinion No. 25 (Accounting
for Stock Issued to Employees) and related interpretations, and
accordingly, recognized no compensation expense for stock option grants in
net income.
Under the modified prospective approach, SFAS 123(R) applies to new awards
and to awards that were outstanding on December 31, 2005. Under the
modified prospective approach, compensation cost recognized in 2006
includes compensation cost for all share-based payments granted prior to,
but not yet vested as of December 31, 2005, based on the grant-date fair
value estimated in accordance with the original provisions of SFAS 123, and
compensation cost for all share-based payments granted subsequent to
December 31, 2005, based on the grant-date fair value estimated in
accordance with the provisions of SFAS 123 (R). Prior periods were not
restated to reflect the impact of adopting the new standard.
As a result of adopting SFAS 123(R) on January 1, 2006, the Company's
income before taxes, net income and basic and diluted earnings per share
for the year ended December 31, 2006, were $7,058,135, $4,554,731 and $.03
lower, respectively, than if we had continued to account for stock-based
compensation under APB Opinion No. 25 for our stock option grants.
Compensation cost capitalized as part of inventory as of December 31, 2006,
was $95,111. The cumulative effect of the change in accounting for
forfeitures was not material.
We receive a tax deduction for certain stock option exercises during the
period the options are exercised, generally for the excess of the price at
which the options are sold over the exercise price of the options. Prior to
the adoption of SFAS 123(R), we reported all tax benefits resulting from
the exercise of stock options as operating cash flows in our consolidated
statement of cash flows. In accordance with SFAS 123(R), for the twelve
months ended December 31, 2006, we revised our consolidated statement of
cash flows presentation to report the tax benefits from the exercise of
stock options as financing cash flows. For the twelve months ended December
31, 2006, $235,410 of tax benefits from the exercise of stock options and
vested restricted stock were reported as financing cash flows rather than
operating cash flows.
Net cash proceeds from the exercise of stock options and employee stock
purchases were $18,953,178, for the year ended December 31, 2006. The
actual income tax benefit realized from stock option exercises and vested
restricted stock were $1,608,341 for the year.
The following table illustrates the effect on net income and earnings per
share if the Company had applied the fair value recognition provisions of
Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for
Stock-Based Compensation," to stock-based employee compensation:
[Download Table]
2005 2004
------------ ------------
Net Income, as reported $109,527,511 $112,656,518
Deduct: Total stock-based employee
compensation expense determined
under fair value-based method of all
awards, net of tax effects (19,982,017) (14,541,115)
------------ ------------
Pro forma net income $ 89,545,494 $ 98,115,403
============ ============
Earnings per share:
Basic - as reported $ .70 $ .73
Basic - pro forma $ .58 $ .64
Diluted - as reported $ .70 $ .72
Diluted - pro forma $ .57 $ .63
On March 30, 2005, in response to the required implementation of SFAS No.
123(R), the Company accelerated the vesting of current "under water" stock
options. As a result of the vesting acceleration, approximately 2.3 million
shares became immediately exercisable and an additional approximate $13.6
million of proforma stock-based employee compensation expense was
recognized in the first quarter 2005, that otherwise would have been
recognized as follows: $6.1 million in 2005;
-38-
GENTEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES, continued
Stock-Based Compensation Plans, continued
$4.5 million in 2006; $2.2 million in 2007 and $0.8 million in
2008-2009. The objective of this Company action was primarily to avoid
recognizing compensation expense associated with these options in
future financial statements, upon the Company's adoption of SFAS
123(R), effective January 1, 2006. In addition, the Company also
received shareholder approval of an amendment to its Employee Stock
Option Plan to allow the grant of non-qualified stock options.
Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management
to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
New Accounting Standards
In July 2006, the Financial Accounting Standards Board (FASB) issued
Interpretation No. 48, "Accounting for Uncertainty in Income Taxes." This
interpretation clarifies the accounting for uncertainty in income taxes
recognized in an enterprise's financial statements in accordance with FASB
statement No. 109, "Accounting for Income Taxes." Interpretation No. 48
prescribes a recognition threshold and measurement attribute for the
financial statement recognition and measurement of a tax position taken or
expected to be taken in a tax return. This Interpretation also provides
guidance on derecognition, classification, interest and penalties,
accounting in interim periods, disclosure and transition. This
Interpretation is effective for fiscal years beginning after December 15,
2006. The adoption of Interpretation No. 48 is not expected to have any
significant effect on the Company's consolidated financial position or
results of operations.
(2) LINE OF CREDIT
The Company has available an unsecured $5,000,000 line of credit from a
bank at an interest rate equal to the lower of the bank's prime rate or
1.5% above the LIBOR rate. No borrowings were outstanding under this line
in 2006 or 2005. No compensating balances are required under this line.
(3) INCOME TAXES
The provision for income taxes is based on the earnings reported in the
accompanying consolidated financial statements. The Company recognizes
deferred income tax liabilities and assets for the expected future tax
consequences of events that have been included in the consolidated
financial statements or tax returns. Under this method, deferred income tax
liabilities and assets are determined based on the cumulative temporary
differences between the financial statement and tax bases of assets and
liabilities using enacted tax rates. Deferred income tax expense is
measured by the net change in deferred income tax assets and liabilities
during the year.
The components of the provision for income taxes are as follows:
[Download Table]
2006 2005 2004
----------- ----------- -----------
Currently payable:
Federal $51,411,596 $52,375,000 $50,497,000
State 144,000 (246,000) 167,000
Foreign 411,000 411,000 8,000
----------- ----------- -----------
Total 51,966,596 52,540,000 50,672,000
----------- ----------- -----------
Net deferred:
Primarily federal (1,754,000) (2,173,000) 2,404,000
----------- ----------- -----------
Provision for income taxes $50,212,596 $50,367,000 $53,076,000
=========== =========== ===========
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
$1,608,000, $3,180,000 and $3,512,000 in 2006, 2005 and 2004, respectively,
and were recognized as an adjustment of additional paid-in capital.
-39-
GENTEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(3) INCOME TAXES (continued)
The effective income tax rates are different from the statutory federal
income tax rates for the following reasons:
[Download Table]
2006 2005 2004
---- ---- ----
Statutory federal income tax rate 35.0% 35.0% 35.0%
State income taxes, net of federal
income tax benefit 0.1 (0.1) 0.1
Foreign source exempted income (2.0) (2.4) (2.8)
Domestic production exclusion (1.0) (0.9) --
Tax-exempt investment income (0.5) (0.6) (0.2)
Other -- 0.5 (0.1)
---- ---- ----
Effective income tax rate 31.6% 31.5% 32.0%
==== ==== ====
The tax effect of temporary differences which give rise to deferred income
tax assets and liabilities at December 31, 2006 and 2005, are as follows:
[Enlarge/Download Table]
2006 2005
------------------------- -------------------------
Current Non-Current Current Non-Current
---------- ------------ ---------- ------------
Assets:
Accruals not currently deductible $2,676,168 $ 164,603 $2,755,501 $ 164,603
Stock based compensation 1,530,018 1,405,334 -- 1,294,506
Other 2,038,409 14,147 2,056,759 5,010
---------- ------------ ---------- ------------
Total deferred income tax assets 6,244,595 1,584,084 4,812,260 1,464,119
Liabilities:
Excess tax over book depreciation -- (12,759,431) -- (13,286,196)
Patent costs -- (1,278,283) -- (1,019,513)
Unrealized gain on investments -- (12,517,503) -- (10,120,578)
Other (779,998) -- (713,923) --
---------- ------------ ---------- ------------
Net deferred incomes taxes $5,464,597 $(24,971,133) $4,098,337 $(22,962,168)
========== ============ ========== ============
Income taxes paid in cash were approximately $49,061,000, $47,582,000 and
$48,556,000, in 2006, 2005 and 2004, 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 2006, 2005 and 2004, the
Company's contributions were approximately $1,715,000, $1,601,000 and
$1,306,000, respectively.
The Company does not provide health care benefits to retired employees.
(5) SHAREHOLDER PROTECTION RIGHTS PLAN
The Company has a Shareholder Protection Rights Plan (the Plan). The Plan
is designed to protect shareholders against unsolicited attempts to acquire
control of the Company in a manner that does not offer a fair price to all
shareholders.
Under the Plan, one purchase Right automatically trades with each share of
the Company's common stock. Each Right entitles a shareholder to purchase
1/100 of a share of junior participating preferred stock at a price of $55,
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
March 29, 2011. Rights beneficially owned by holders of 15 percent or more
of the Company's common stock, or their transferees, automatically become
void.
-40-
GENTEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(6) STOCK-BASED COMPENSATION PLANS
Employee Stock Option Plan
In 2004, a new Employee Stock Option Plan was approved, replacing the prior
plan. The Company may grant options for up to 18,000,000 shares under its
new Employee Stock Option Plan. The Company has granted options on
5,460,775 shares (net of shares from canceled options) under the new plan
through December 31, 2006. Under the plans, the option exercise price
equals the stock's market price on date of grant. The options vest after
one to five years, and expire after five to seven years.
The fair value of each option grant in the Employee Stock Option Plan was
estimated on the date of grant using the Black-Scholes option pricing model
with the following weighted-average assumptions for the indicated periods:
[Download Table]
2006 2005 2004
----- ----- -----
Dividend yield 2.0% 2.0% 1.8%
Expected volatility 30.0% 36.3% 48.5%
Risk-free interest rate 4.8% 4.1% 3.4%
Expected term of options (in years) 4.5 4.4 4.4
Weighted-average grant-date fair value $ 4 $ 4 $ 7
The Company determined that all employee groups exhibit similar exercise
and post-vesting termination behavior to determine the expected term.
As of December 31, 2006, there was $9,401,859 of unrecognized compensation
cost related to share-based payments which is expected to be recognized
over the remaining vesting periods, with a weighted-average period of 4.2
years.
A summary of the status of the Company's employee stock option plan at
December 31, 2006, 2005, and 2004, and changes during the same periods are
presented in the tables and narrative below:
[Enlarge/Download Table]
2006
----------------------------------------------------------
Aggregate
Shares Wtd. Avg. Wtd. Avg. Remaining Intrinsic Value
000 Ex. Price Contract Life $000
------ --------- ------------------- ---------------
Outstanding at Beginning of Year 10,510 $17
Granted 1,691 15
Exercised (1,320) 13 $4,205
Forfeited (481) 18
------ ---
Outstanding at End of Year 10,400 17 2.9 Yrs $5,614
------ --- ------- ------
Exercisable at End of Year 6,904 $17 2.2 Yrs $3,690
[Enlarge/Download Table]
2005
----------------------------------------------------------
Aggregate
Shares Wtd. Avg. Wtd. Avg. Remaining Intrinsic Value
000 Ex. Price Contract Life $000
------ --------- ------------------- ---------------
Outstanding at Beginning of Year 10,586 $16
Granted 1,931 17
Exercised (1,580) 12 $ 9,152
Forfeited (427) 18
------ ---
Outstanding at End of Year 10,510 17 3.2 Yrs $33,881
------ --- ------- -------
Exercisable at End of Year 7,440 $17 2.8 Yrs $23,525
-41-
GENTEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(6) STOCK-BASED COMPENSATION PLANS, continued
[Enlarge/Download Table]
2004
----------------------------------------------------------
Aggregate
Shares Wtd. Avg. Wtd. Avg. Remaining Intrinsic Value
000 Ex. Price Contract Life $000
------ --------- ------------------- ---------------
Outstanding at Beginning of Year 9,102 $14
Granted 2,864 19
Exercised (1,258) 12 $ 8,865
Forfeited (122) 16
------ ---
Outstanding at End of Year 10,586 16 3.4 Yrs $33,116
------ --- ------- -------
Exercisable at End of Year 3,988 $14 2.2 Yrs $19,107
A summary of the status of the Company's non-vested employee stock option
activity for the years ended December 31, 2006, 2005, and 2004, are
presented in the table and narrative below:
[Enlarge/Download Table]
2006 2005 2004
------------------- ------------------- -------------------
Wtd. Avg Wtd. Avg Wtd. Avg
Shares Grant Date Shares Grant Date Shares Grant Date
000 Fair Value 000 Fair Value 000 Fair Value
------ ---------- ------ ---------- ------ ----------
Nonvested stock options at
Beginning of Year 3,069 $6 6,598 $7 5,911 $7
Granted 1,691 4 1,931 4 2,864 7
Vested (1,124) 6 (5,345) 7 (2,063) 7
Forfeited (140) 5 (115) 6 (114) 7
------ --- ------ --- ------ ---
Nonvested stock options at End
of Year 3,496 $5 3,069 $6 6,598 $7
Non-employee Director Stock Option Plan
The Company has a Non-employee Director Stock Option Plan covering
1,000,000 shares that was approved, replacing a prior plan. The Company has
granted options on 315,240 shares (net of shares from canceled options)
under the current plan through December 31, 2006. Under the plan, the
option exercise price equals the stock's market price on date of grant. The
options vest after six months, and expire after ten years.
The fair value of each option grant in the Nonemployee Director Stock
Option Plans was estimated on the date of grant using the Black-Scholes
option pricing model with the following weighted-average assumptions for
the indicated periods:
[Download Table]
2006 2005 2004
----- ----- ------
Dividend yield 1.8% 1.9% 1.7%
Expected volatility 30.7% 42.3% 49.2%
Risk-free interest rate 5.0% 4.1% 4.9%
Expected term of options (in years) 8.9 8.6 8.5
Weighted-average grant-date fair value $ 6 $ 8 $ 9
As of December 31, 2006, there was no unrecognized compensation cost
related to share-based payments under this plan.
-42-
GENTEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(6) STOCK-BASED COMPENSATION PLANS, continued
A summary of the status of the Company's Non-employee Director Stock Option
Plan at December 31, 2006, 2005, and 2004, and changes during the same
periods are presented in the tables and narrative below:
[Enlarge/Download Table]
2006
----------------------------------------------------------
Aggregate
Shares Wtd. Avg. Wtd. Avg. Remaining Intrinsic Value
000 Ex. Price Contract Life $000
------ --------- ------------------- ---------------
Outstanding at Beginning of Year 445 $14
Granted 48 15
Exercised (80) 6 $662
Forfeited (72) 16
--- ---
Outstanding at End of Year 341 15 6.1 Yrs $450
--- --- ------- ----
Exercisable at End of Year 341 $15 6.1 Yrs $450
[Enlarge/Download Table]
2005
----------------------------------------------------------
Aggregate
Shares Wtd. Avg. Wtd. Avg. Remaining Intrinsic Value
000 Ex. Price Contract Life $000
------ --------- ------------------- ---------------
Outstanding at Beginning of Year 510 $13
Granted 48 18
Exercised (101) 10 $ 756
Forfeited (12) 18
---- ---
Outstanding at End of Year 445 14 5.6 Yrs $2,617
---- --- ------- ------
Exercisable at End of Year 445 $14 5.6 Yrs $2,617
[Enlarge/Download Table]
2004
----------------------------------------------------------
Aggregate
Shares Wtd. Avg. Wtd. Avg. Remaining Intrinsic Value
000 Ex. Price Contract Life $000
------ --------- ------------------- ---------------
Outstanding at Beginning of Year 626 $9
Granted 96 18
Exercised (212) 5 $2,940
Forfeited 0 0
---- ---
Outstanding at End of Year 510 13 5.8 Yrs $2,992
---- --- ------- ------
Exercisable at End of Year 510 $13 5.8 Yrs $2,992
A summary of the status of the Company's non-vested non-employee director
stock option plan activity for the years ended December 31, 2006, 2005, and
2004, are presented in the table and narrative below:
[Enlarge/Download Table]
2006 2005 2004
------------------- ------------------- -------------------
Wtd. Avg Wtd. Avg Wtd. Avg
Shares Grant Date Shares Grant Date Shares Grant Date
000 Fair Value 000 Fair Value 000 Fair Value
------ ---------- ------ ---------- ------ ----------
Nonvested stock options at
Beginning of Year 0 $0 0 $0 6 $11
Granted 48 6 48 8 96 9
Vested (48) 6 (48) 8 (102) 9
Forfeited 0 0 0 0 0 0
--- --- --- --- ---- ---
Nonvested stock options at End
of Year 0 $0 0 $0 0 $ 0
-43-
GENTEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(6) STOCK-BASED COMPENSATION PLANS
Employee Stock Purchase Plan
In 2003, a new Employee Stock Purchase Plan covering 1,200,000 shares was
approved, replacing a prior plan. The Company has sold to employees 130,876
shares, 135,409 shares and 111,808 shares under the new plan in 2006, 2005,
and 2004, respectively, and has sold a total of 441,127 shares under the
new plan through December 31, 2006. 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 2006 was approximately $13.08.
Restricted Stock Plan
The Company has a Restricted Stock Plan covering 1,000,000 shares of common
stock that was approved, the purpose of which is to permit grants of
shares, subject to restrictions, to key employees of the Company as a means
of retaining and rewarding them for long-term performance and to increase
their ownership in the Company. Shares awarded under the plan entitle the
shareholder to all rights of common stock ownership except that the shares
may not be sold, transferred, pledged, exchanged or otherwise disposed of
during the restriction period. The restriction period is determined by a
committee, appointed by the Board of Directors, but may not exceed ten
years. The Company has 572,910 shares outstanding as of December 31, 2006.
During 2006, 2005, and 2004, 182,530, 80,700, and 122,520 shares,
respectively, were granted with a restriction period of five years at
market prices ranging from $14.00 to $17.09 in 2006, $15.93 to $19.50 in
2005, and $17.37 to $21.10 in 2004 and has unearned stock-based
compensation of $5,495,816 associated with these restricted stock grants.
The unearned stock-based compensation related to these grants is being
amortized to compensation expense over the applicable restriction periods.
Amortization of restricted stock for 2006 was $1,423,736.
(7) STOCK SPLIT
On April 1, 2005, 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 6, 2005. The stock split increased the number
of shares of common stock then outstanding from 78,020,342 to 156,040,684.
Earnings per share and all share data have been restated in all prior
periods to reflect these stock splits.
(8) CONTINGENCIES
The Company is periodically involved in legal proceedings, legal actions
and claims arising in the normal course of business, including proceedings
relating to product liability, intellectual property, safety and health,
employment and other matters. Such matters are subject to many
uncertainties and outcomes are not predictable. The Company does not
believe however, that at the current time any of these matters constitute
material pending legal proceedings that will have a material adverse effect
on the financial position or future results of operations of the Company.
-44-
GENTEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(9) SEGMENT REPORTING
SFAS No. 131, "Disclosures About Segments of an Enterprise and Related
Information," requires that a public enterprise report financial and
descriptive information about its reportable operating segments subject to
certain aggregation criteria and quantitative thresholds. Operating
segments are defined by SFAS No. 131 as components of an enterprise about
which separate financial information is available that is evaluated
regularly by the chief operating decision-makers in deciding how to
allocate resources and in assessing performance.
[Download Table]
2006 2005 2004
------------ ------------ ------------
Revenue:
Automotive Products
United States $230,152,102 $236,708,606 $230,075,562
Germany 127,531,636 99,339,847 86,432,114
Japan 56,547,995 52,215,691 54,336,447
Other 134,172,464 124,532,388 112,306,599
Fire Protection Products 23,862,876 23,687,442 22,515,613
------------ ------------ ------------
Total $572,267,073 $536,483,974 $505,666,335
============ ============ ============
Income from Operations:
Automotive Products $121,766,143 $131,165,600 $145,622,021
Fire Protection Products 4,680,833 5,128,937 4,444,192
------------ ------------ ------------
Total $126,446,976 $136,294,537 $150,066,213
============ ============ ============
Assets:
Automotive Products $275,022,400 $248,568,391 $202,052,906
Fire Protection Products 5,090,934 4,334,747 4,252,818
Other 504,915,066 669,742,664 650,553,704
------------ ------------ ------------
Total $785,028,400 $922,645,802 $856,859,428
============ ============ ============
Depreciation & Amortization:
Automotive Products $ 25,218,267 $ 21,407,276 $ 19,323,047
Fire Protection Products 253,879 207,336 228,844
Other 2,290,564 2,208,715 2,188,941
------------ ------------ ------------
Total $ 27,762,710 $ 23,823,327 $ 21,740,832
============ ============ ============
Capital Expenditures:
Automotive Products $ 45,846,127 $ 52,966,667 $ 29,233,220
Fire Protection Products 868,296 131,821 251,492
Other 1,478,660 434,747 1,050,462
------------ ------------ ------------
Total $ 48,193,083 $ 53,533,235 $ 30,535,174
============ ============ ============
Other assets are principally cash and cash equivalents, investments, deferred
income taxes and corporate fixed assets. Substantially all long-lived assets are
located in the U.S.
Automotive Products revenues in the "Other" category are sales to automotive
manufacturing plants in Canada, Mexico and Korea, as well as other foreign
automotive customers. Most of the Company's non-U.S. sales are invoiced and paid
in U.S. dollars. During 2006, approximately 13% of the Company's net sales were
invoiced and paid in European euros.
During the years presented, the Company had four automotive customers, which
individually accounted for 10% or more of net sales as follows:
[Download Table]
Customer
----------------------------
#1 #2 #3 #4
--- --- --- ---
2006 22% 15% 13% 12%
2005 24% 12% 14% 11%
2004 31% 13% 13% *
* less than 10%
-45-
EXHIBIT INDEX
[Download Table]
EXHIBIT NO. DESCRIPTION PAGE
----------- ----------- ----
3(a)(1) Registrant's Restated Articles of Incorporation, adopted on
August 20, 2004, were filed as Exhibit 3(a) to Registrant's
Report on Form 10-Q dated November 2, 2004, and the same is
hereby incorporated herein by reference.
3(b)(1) Registrant's Bylaws as amended and restated February 27,
2003, was filed as Exhibit 3(b)(1) to Registrant's report
on Form 10-Q dated May 5, 2003, and the same is hereby
incorporated herein by reference.
4(a) A specimen form of certificate for the Registrant's common
stock, par value $.06 per share, was filed as part of a
Registration Statement (Registration Number 2-74226C) as
Exhibit 3(a), as amended by Amendment No. 3 to such
Registration Statement, and the same is hereby incorporated
herein by reference.
4(b) Amended and Restated Shareholder Protection Rights
Agreement, dated as of March 29, 2001, including as Exhibit
A the form of Certificate of Adoption of Resolution
Establishing Series of Shares of Junior Participating
Preferred Stock of the Company, and as Exhibit B the form
of Rights Certificate and of Election to Exercise, was
filed as Exhibit 4(b) to Registrant's Report on Form 10-Q
on April 27, 2001, and the same is hereby incorporated
herein by reference.
10(a)(1) A Lease, dated August 15, 1981, was filed as part of a
Registration Statement (Registration Number 2-74226C) as
Exhibit 9(a)(1), and the same is hereby incorporated herein
by reference.
10(a)(2) A First Amendment to Lease, dated June 28, 1985, was filed
as Exhibit 10(m) to Registrant's Report on Form 10-K dated
March 18, 1986, and the same is hereby incorporated herein
by reference.
*10(b)(1) Gentex Corporation Qualified Stock Option Plan (as amended
and restated, effective February 26, 2004) was included in
Registrant's Proxy Statement dated April 6, 2004, filed
with the Commission on April 6, 2004, and the same is
hereby incorporated herein by reference, and the same
became the Gentex Corporation Employee Stock Option Plan
and was amended as of March 4, 2005 by the First Amendment
to the Gentex Corporation Qualified Stock Option Plan,
which amendment was included in the Registrant's Proxy
Statement dated April 1, 2005, filed with the Commission on
April 1, 2005, and the same is incorporated herein by
reference.
*10(b)(2) Specimen form of Grant Agreement for the Gentex Corporation
Qualified Stock Option Plan (as amended and restated,
effective February 26, 2004 and as amended March 4, 2005),
was filed as Exhibit 10(b)(3) to Registrant's Report on
Form 10-Q dated November 1, 2005, and the same is hereby
incorporated herein by reference.
*10(b)(3) Gentex Corporation Second Restricted Stock Plan was filed
as Exhibit 10(b)(2) to Registrant's Report on Form 10-Q
dated April 27, 2001, and the same is hereby incorporated
herein by reference.
*10(b)(4) Specimen form of Grant Agreement for the Gentex Corporation
Restricted Stock Plan (as amended and restated, effective
February 26, 2004), was filed as Exhibit 10(b)(4) to
Registrant's Report on Form 10-Q dated November 2, 2004,
and the same is hereby incorporated herein by reference.
*10(b)(5) Gentex Corporation 2002 Nonemployee Director Stock Option
Plan (adopted March 6, 2002) was filed as Exhibit 10(b)(4)
to Registrant's Report on Form 10-Q dated April 30, 2002,
and the same is hereby incorporated herein by reference.
*10(b)(6) Specimen form of Grant Agreement for the Gentex Corporation
2002 Non-Employee Director Stock Option Plan (as amended
and restated, effective February 26, 2004), was filed as
Exhibit 10(b)(6) to Registrant's Report on Form 10-Q dated
November 2, 2004, and the same is hereby incorporated
herein by reference.
*10(b)(7) Confidential Severance Agreement and Release between Gentex
Corporation and Garth Deur was filed as Exhibit 10(b)(8) to
Registrant's Report on Form 10-Q dated August 1, 2006, and
the same is incorporated herein by reference.
10(e) The form of Indemnity Agreement between Registrant and each
of the Registrant's directors and certain officers was
filed as Exhibit 10(e) to Registrant's Report on Form 10-Q
dated October 31, 2002, and the same is hereby incorporated
herein by reference.
21 List of Company Subsidiaries 48
23(a) Consent of Independent Registered Public Accounting Firm 49
31.1 Certificate of the Chief Executive Officer of Gentex
Corporation pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002 (18 U.S.C. 1350). 50
-46-
[Download Table]
31.2 Certificate of the Chief Financial Officer of Gentex
Corporation pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002 (18 U.S.C. 1350). 51
32 Certificate of the Chief Executive Officer and Chief
Financial Officer of Gentex Corporation pursuant to Section
906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section
1350). 52
* Indicates a compensatory plan or arrangement.
-47-
Dates Referenced Herein and Documents Incorporated by Reference
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