UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2005, OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM __________ TO ________
COMMISSION FILE NO. 0-10235
GENTEX CORPORATION
(Exact name of registrant as specified in its charter)
MICHIGAN 38-2030505
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
600 N. CENTENNIAL, ZEELAND, MICHIGAN 49464
(Address of principal executive offices) (Zip Code)
(616) 772-1800
(Registrant's telephone number, including area code)
________________________________________________________________________________
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes [X] No [ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Shares Outstanding
Class at July 21, 2005
----------------------------- ------------------
Common Stock, $0.06 Par Value 156,509,639
Exhibit Index located at page 14
Page 1 of 20
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
GENTEX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, 2005 December 31, 2004
(Unaudited) (Audited)
------------- -----------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $412,292,208 $395,538,719
Short-term investments 99,519,867 99,341,541
Accounts receivable, net 61,980,173 56,092,330
Inventories 34,502,225 30,600,789
Prepaid expenses and other 10,740,635 11,035,715
------------ ------------
Total current assets 619,035,108 592,609,094
PLANT AND EQUIPMENT - NET 152,505,201 135,649,119
OTHER ASSETS
Long-term investments 128,190,785 122,174,030
Patents and other assets, net 6,550,092 6,427,185
------------ ------------
Total other assets 134,740,877 128,601,215
------------ ------------
Total assets $906,281,186 $856,859,428
============ ============
LIABILITIES AND SHAREHOLDERS' INVESTMENT
CURRENT LIABILITIES
Accounts payable $ 31,524,221 $ 19,849,569
Accrued liabilities 36,578,353 31,006,689
------------ ------------
Total current liabilities 68,102,574 50,856,258
DEFERRED INCOME TAXES 21,020,714 22,723,198
SHAREHOLDERS' INVESTMENT
Common stock 9,390,578 4,672,005
Additional paid-in capital 180,709,966 175,266,114
Retained earnings 617,052,803 591,546,326
Other shareholders' investment 10,004,551 11,795,527
------------ ------------
Total shareholders' investment 817,157,898 783,279,972
------------ ------------
Total liabilities and shareholders' investment $906,281,186 $856,859,428
============ ============
See accompanying notes to condensed consolidated financial statements.
-2-
GENTEX CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended Six Months Ended
June 30, June 30,
----------------------------- -----------------------------
2005 2004 2005 2004
------------ ------------ ------------ ------------
NET SALES $132,384,445 $129,646,277 $260,026,165 $258,973,825
COST OF GOODS SOLD 82,818,876 75,190,805 162,407,779 149,634,081
------------ ------------ ------------ ------------
Gross profit 49,565,569 54,455,472 97,618,386 109,339,744
OPERATING EXPENSES:
Engineering, research and development 8,798,430 7,546,085 16,775,815 14,989,373
Selling, general & administrative 7,011,298 6,880,091 13,851,129 13,625,212
------------ ------------ ------------ ------------
Total operating expenses 15,809,728 14,426,176 30,626,944 28,614,585
------------ ------------ ------------ ------------
Income from operations 33,755,841 40,029,296 66,991,442 80,725,159
OTHER INCOME:
Interest and dividend income 4,038,564 2,090,881 7,122,659 4,243,840
Other, net 221,645 819,615 1,760,919 2,141,268
------------ ------------ ------------ ------------
Total other income 4,260,209 2,910,496 8,883,578 6,385,108
------------ ------------ ------------ ------------
Income before provision for income
taxes 38,016,050 42,939,792 75,875,020 87,110,267
PROVISION FOR INCOME TAXES 11,975,000 13,955,000 23,901,000 28,310,000
------------ ------------ ------------ ------------
NET INCOME $ 26,041,050 $ 28,984,792 $ 51,974,020 $ 58,800,267
============ ============ ============ ============
EARNINGS PER SHARE:
Basic $ 0.17 $ 0.19 $ 0.33 $ 0.38
Diluted $ 0.17 $ 0.18 $ 0.33 $ 0.37
Cash Dividends Declared per Share $ 0.085 $ 0.075 $ 0.17 $ 0.15
See accompanying notes to condensed consolidated financial statements.
-3-
GENTEX CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For six months ended June 30,
--------------------------------
2005 2004
-------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 51,974,020 $ 58,800,267
Adjustments to reconcile net income to net
cash provided by operating activities-
Depreciation and amortization 11,803,513 10,779,518
(Gain) loss on disposal of assets 154,501 976
(Gain) loss on sale of investments (2,084,277) (1,615,437)
Deferred income taxes (767,301) 361,486
Amortization of deferred compensation 876,714 751,363
Tax benefit of stock plan transactions 1,142,827 1,979,177
Change in operating assets and liabilities:
Accounts receivable, net (5,887,843) (2,248,880)
Inventories (3,901,436) (3,471,301)
Prepaid expenses and other 96,934 (62,744)
Accounts payable 11,674,652 2,864,467
Accrued liabilities, excluding dividends declared 5,597,963 3,458,824
------------- -------------
Net cash provided by operating activities 70,680,267 71,597,716
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Plant and equipment additions (28,728,691) (14,174,704)
Proceeds from sale of plant and equipment 24,400 4,500
(Increase) decrease in investments (6,216,622) 24,389,331
Increase in other assets (915,916) (466,870)
------------- -------------
Net cash provided by (used for) investing
activities (35,836,829) 9,752,257
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock from
stock plan transactions 8,403,893 8,996,964
Cash dividends paid (26,493,842) (23,142,801)
Repurchases of common stock 0 0
------------- -------------
Net cash provided by (used for) financing
activities (18,089,949) (14,145,837)
------------- -------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 16,753,489 67,204,136
CASH AND CASH EQUIVALENTS,
beginning of period 395,538,719 322,662,971
------------- -------------
CASH AND CASH EQUIVALENTS,
end of period $ 412,292,208 $ 389,867,107
============= =============
See accompanying notes to condensed consolidated financial statements.
-4-
GENTEX CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(1) The unaudited condensed consolidated financial statements included herein
have been prepared by the Registrant, without audit, pursuant to the rules
and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with accounting principles generally
accepted in the United States have been condensed or omitted pursuant to
such rules and regulations, although the Registrant believes that the
disclosures are adequate to make the information presented not misleading.
It is suggested that these unaudited condensed consolidated financial
statements be read in conjunction with the financial statements and notes
thereto included in the Registrant's 2004 annual report on Form 10-K.
(2) In the opinion of management, the accompanying unaudited condensed
consolidated financial statements contain all adjustments, consisting of
only a normal and recurring nature, necessary to present fairly the
financial position of the Registrant as of June 30, 2005, and the results
of operations and cash flows for the interim periods presented.
(3) Inventories consisted of the following at the respective balance sheet
dates:
June 30, 2005 December 31, 2004
------------- -----------------
Raw materials $20,140,128 $18,102,873
Work-in-process 4,501,907 3,894,864
Finished goods 9,860,190 8,603,052
----------- -----------
$34,502,225 $30,600,789
=========== ===========
(4) All earnings per share amounts, weighted daily average of shares of common
stock outstanding, common stock, and additional paid-in capital have been
restated, to reflect the Company's announcement on April 1, 2005, of a
two-for-one stock split effected in the form of a 100 percent common stock
dividend for each outstanding share, issued to shareholders on May 6,
2005. The ex-dividend date was May 9, 2005.
(5) The following table reconciles the numerators and denominators used in the
calculation of basic and diluted earnings per share (EPS):
Quarter Ended June 30, Six Months Ended June 30,
----------------------------- -----------------------------
2005 2004 2005 2004
------------ ------------ ------------ ------------
Numerators:
Numerator for both basic and
diluted EPS, net income $ 26,041,050 $ 28,984,792 $ 51,974,020 $ 58,800,267
Denominators:
Denominator for basic EPS,
weighted-average shares
outstanding 155,568,960 154,123,884 155,396,365 153,921,294
Potentially dilutive shares
resulting from stock plans 1,640,842 2,707,974 1,566,070 2,942,802
------------ ------------ ------------ ------------
Denominator for diluted EPS 157,209,802 156,831,858 156,962,435 156,864,096
============ ============ ============ ============
Shares related to stock plans not
included in diluted average common
shares outstanding because their
effect would be antidilutive 3,357,767 1,374,792 4,132,273 1,041,316
(6) At June 30, 2005, the Company had two stock option plans and an employee
stock purchase plan. The Company accounts for these plans under the
recognition and measurement principles of APB Opinion No. 25 (Accounting
for Stock Issued to Employees) and related interpretations. No stock-based
employee compensation cost due to these plans is reflected in net income,
since options granted under these plans have an exercise price equal to
the market value of the underlying common stock on the date of grant. The
following table illustrates the effect on net income and earnings per
share if the Company had applied the fair value recognition provisions of
Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting
for Stock-Based Compensation," to stock-based employee compensation.
-5-
GENTEX CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
Quarter Ended June 30, Six Months Ended June 30,
---------------------------------- ----------------------------------
2005 2004 2005 2004
--------------- --------------- --------------- ---------------
Net income, as reported $ 26,041,050 $ 28,984,792 $ 51,974,020 $ 58,800,267
Deduct: Total stock-based employee
compensation expense determined
under fair value-based method of all
awards, net of tax effects (913,649) (3,651,668) (18,017,075) (6,658,147)
-------------- -------------- -------------- --------------
Pro forma net income $ 25,127,401 $ 25,333,124 $ 33,956,945 $ 52,142,120
============== ============== ============== ==============
Earnings per share:
Basic - as reported $ .17 $ .19 $ .33 $ .38
Basic - pro forma .16 .16 .22 .34
Diluted - as reported .17 18 .33 .37
Diluted - pro forma .16 .16 .22 .33
On March 30, 2005, in response to the required implementation of SFAS No.
123(R) as disclosed in Note 10, 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. The objective of this Company action is primarily to avoid
recognizing compensation expense associated with these options in future
financial statements, upon the Company's adoption of SFAS No. 123(R). In
addition, the Company has also received shareholder approval of an
amendment to its Employee Stock Option Plan to allow the grant of
non-qualified stock options.
(7) 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 items such as unrealized gains
and losses on investments and foreign currency translation adjustments.
Comprehensive income was as follows:
June 30, 2005 June 30, 2004
------------- -------------
Quarter Ended $26,133,449 $28,354,898
Six Months Ended $49,922,035 $59,752,161
(8) The increase in common stock during the quarter and six months ended June
30, 2005, was attributable to the issuance of 550,891 and 776,137 shares,
respectively, of the Company's common stock under its stock-based
compensation plans. The Company has also recorded a $0.085 per share cash
dividend in the first and second quarters. The second quarter dividend of
approximately $13,303,000, was declared on May 17, 2005, and was paid on
July 22, 2005.
(9) The Company currently manufactures electro-optic products, including
automatic-dimming rearview mirrors for the automotive industry, and fire
protection products for the commercial building industry:
Quarter Ended June 30, Six Months Ended June 30,
----------------------------- -----------------------------
2005 2004 2005 2004
------------ ------------ ------------ ------------
Revenue:
Automotive Products $126,124,967 $123,833,183 $248,084,935 $247,564,876
Fire Protection Products 6,259,478 5,813,094 11,941,230 11,408,949
------------ ------------ ------------ ------------
Total $132,384,445 $129,646,277 $260,026,165 $258,973,825
============ ============ ============ ============
Operating Income:
Automotive Products $ 32,359,395 $ 38,903,960 $ 64,336,234 $ 78,491,452
Fire Protection Products 1,396,446 1,125,336 2,655,208 2,233,707
------------ ------------ ------------ ------------
Total $ 33,755,841 $ 40,029,296 $ 66,991,442 $ 80,725,159
============ ============ ============ ============
-6-
GENTEX CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
(10) On December 16, 2004, the Financial Accounting Standards Board (FASB)
issued SFAS Statement No. 123(R), "Share-Based Payment," which required
all share-based payments to employees, including grants of employee stock
options, to be recognized in the income statement based on their fair
values, and was effective for public companies for interim or annual
periods beginning after June 15, 2005. On April 14, 2005, the U.S.
Securities and Exchange Commission announced that companies will be
allowed to implement SFAS No. 123(R) at the beginning of their next fiscal
year after June 15, 2005. The Company does not intend to adopt a
fair-value based method of accounting for stock-based employee
compensation until required (January 1, 2006). Proforma quarterly earnings
and certain Company actions taken in response to SFAS No. 123(R) are
disclosed in Note 5 of this quarterly statement.
-7-
GENTEX CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
RESULTS OF OPERATIONS:
SECOND QUARTER 2005 VERSUS SECOND QUARTER 2004
Net Sales. Net sales for the second quarter of 2005 increased by
approximately $2,738,000, or 2%, when compared with the second quarter
last year. Net sales of the Company's automotive auto-dimming mirrors
increased by approximately $2,292,000, or 2%, in the second quarter of
2005, when compared with the second quarter last year, primarily due to
a 3% increase in auto-dimming mirror unit shipments from approximately
3,001,000 in the second quarter of 2004 to 3,095,000 in the current
quarter. This unit increase primarily reflected the increased
penetration of interior auto-dimming mirrors on 2005 model year vehicles
during the second quarter of 2005. Unit shipments to customers in North
America for the current quarter increased by 1% compared with the second
quarter of the prior year, primarily due to higher unit shipments to
transplants, partially offset by lower light vehicle production levels
at certain North-American-based automakers. Mirror unit shipments for
the current quarter to automotive customers outside North America
increased by 5% compared with the second quarter in 2004, primarily due
to increased penetration. Net sales of the Company's fire protection
products increased 8% for the current quarter, primarily due to stronger
sales of certain fire alarms and signal products.
Cost of Goods Sold. As a percentage of net sales, cost of goods sold
increased from 58% in the second quarter of 2004 to 63% in the second
quarter of 2005. This percentage increase primarily reflected automotive
customer price reductions, higher fixed overhead expenses and lower
mirror unit shipment growth resulting in reduced capacity utilization.
Each factor is estimated to have impacted cost of goods sold as a
percentage of net sales by approximately 1-2 percentage points.
Operating Expenses. Engineering, research and development expenses for
the current quarter increased approximately $1,252,000, from 6% to 7% of
net sales, when compared with the same quarter last year, primarily
reflecting additional staffing, engineering and testing for new product
development, including mirrors with additional electronic features.
Selling, general and administrative expenses increased approximately
$131,000, for the current quarter, but remained at 5% of net sales, when
compared with the second quarter of 2004. This increased expense
primarily reflected the continued expansion of the Company's overseas
sales offices, partially offset by a reduction in state taxes.
Total Other Income. Total other income for the current quarter increased
by approximately $1,350,000 when compared with the second quarter of
2004, primarily due to increased interest income due to higher interest
rates, partially offset by lower miscellaneous other income.
Income Taxes. The Company's effective income tax rate decreased from
32.5% in the second quarter of 2004 to 31.5% in the second quarter of
2005, primarily due to increased tax-exempt investment income.
SIX MONTHS ENDED JUNE 30, 2005, VERSUS SIX MONTHS ENDED JUNE 30, 2004
Net Sales. Net sales for the six months ended June 30, 2005,
increased by $1,052,000, or 0.4%, when compared with the same period
last year. Net sales of the Company's automotive auto-dimming mirrors
increased by $520,000, or 0.2%, as auto-dimming mirror unit shipments
increased by 2% from approximately 5,983,000 in the first six months of
2004 to 6,125,000 units in the first six months of 2005. This increase
primarily reflected the increased penetration of interior auto-dimming
mirrors on 2005 model year vehicles. Unit shipments to customers in
North America decreased by 2%, as a result of reduced shipments to
domestic automakers due to their lower production levels that were
partially offset by increased unit shipments to transplants. Mirror
shipments to automotive customers outside North America increased by 6%,
primarily due to increased penetration of auto-dimming mirrors on 2005
model year vehicles. Net sales of the Company's fire protection products
increased 5% in the first six months of 2005 versus the first six months
of 2004, primarily due to stronger sales of certain fire alarm and
signal products.
-8-
Cost of Goods Sold. As a percentage of net sales, cost of goods sold
increased from 58% in the six months ended June 30, 2004, to 62% in the
six months ended June 30, 2005, primarily reflecting automotive customer
price reductions, higher fixed overhead expenses, and lower mirror unit
shipment growth resulting in reduced capacity utilization. Each factor
is estimated to have impacted cost of goods sold by approximately 1-2
percentage points.
Operating Expenses. For the six months ended June 30, 2005,
engineering, research and development expenses increased approximately
$1,786,000, but remained at 6% of net sales, when compared to the same
period last year, primarily due to additional staffing, engineering and
testing for new product development, including mirrors with additional
electronic features. Selling, general and administrative expenses
increased approximately $226,000 for the six months ended June 30, 2005,
but remained at 5% of net sales, when compared to the same period last
year, primarily reflecting the continued expansion of the Company's
overseas sales offices, partially offset by a reduction in state taxes.
Other Income - Net. Other income for the six months ended June 30,
2005, increased $2,498,000 when compared to the same period last year,
primarily due to increased interest income, partially offset by lower
miscellaneous other income.
Taxes. The Company's effective income tax rate decreased from 32.5%
in the six months ended June 30, 2004, to 31.5% in the six months ended
June 30, 2005, primarily due to increased tax-exempt investment income.
FINANCIAL CONDITION:
Cash flow from operating activities for the six months ended June 30,
2005, decreased to $70,680,000, compared to $71,598,000, for the same
period last year, primarily due to lower net income. Capital
expenditures for the six months ended June 30, 2005, increased to
$28,729,000, compared to $14,175,000 for the same period last year,
primarily due to new facility construction.
The Company currently expects that the construction of its fourth
automotive manufacturing facility and a new technical center will be
completed in the spring of 2006. The Company plans to invest
approximately $35-40 million for the new facilities during 2004-2006,
which will be funded from its cash and cash equivalents on hand.
Cash and cash equivalents as of June 30, 2005, increased approximately
$16,753,000 compared to December 31, 2004. The increase was primarily
due to cash flow from operations, less dividends paid.
Accounts payable as of June 30, 2005, increased $11,675,000, compared to
December 31, 2004. The increase was primarily due to increased capital
spending and the timing of weekly payments.
Management considers the Company's working capital and long-term
investments totaling approximately $679,123,000 as of June 30, 2005,
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. During the quarter ended
March 31, 2003, the Company repurchased 830,000 shares (post-split) at a
cost of approximately $10,247,000. No shares have been repurchased
subsequently by the Company.
TRENDS AND DEVELOPMENTS:
During the first quarter of 2005, the Company negotiated an extension to
its long-term agreement with General Motors in the ordinary course of
the Company's business. Under the extension, Gentex will be sourced all
of the interior auto-dimming rearview mirrors programs for GM and its
worldwide affiliates through August 2009, and includes all but two
low-volume models that had previously been awarded to a Gentex
competitor under a lifetime contract. The new business also includes the
GMT360 program, which is the mid-size truck/SUV platform that currently
does not offer auto-dimming mirrors. The new GM programs will be
transferred to Gentex by no later
-9-
than the 2007 model year. We currently estimate that this new business
represents 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 feature in its auto-dimming mirrors, effective January
1, 2005, in connection with GM's plan to make their OnStar system
standard across their vehicle models over the next several years.
The Company currently expects that auto-dimming mirror unit shipments
will be 5-10% higher in the third quarter of 2005 compared with the
third quarter of 2004, and 10-15% higher in the fourth quarter of 2005
compared with the fourth quarter of 2004. 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.
The Company utilizes the light vehicle production forecasting services
of CSM Worldwide, and CSM's current forecasts for light vehicle
production for calendar 2005 are approximately 15.7 million units for
North America, 20.5 million for Europe and 13.1 million for Japan and
Korea.
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. During the quarter ended June 30, 2005,
there were no significant changes in the market risks reported in the
Company's 2004 Form 10-K report.
The Company has some assets, liabilities and operations outside the
United States, which currently are not significant. Because the Company
sells its automotive mirrors throughout the world, it could be
significantly affected by weak economic conditions in worldwide markets
that could reduce demand for its products.
The Company continues to experience pricing pressures from its
automotive customers, which have affected, and which will continue to
affect, its margins to the extent that the Company is unable to offset
the price reductions with productivity improvements, engineering and
purchasing cost reductions, and increases in unit sales volume. In
addition, profit pressures at certain automakers are resulting in
increased cost reduction efforts by them, including requests for
additional price reductions, decontenting certain features from
vehicles, and warranty cost-sharing programs, which could adversely
impact the Company's sales growth and margins. The Company also
continues to experience some pressure for select raw material cost
increases. The automotive industry is experiencing increasing financial
stresses due to continuing pricing pressures, lower domestic production
levels, and commodity material cost increases.
Automakers have been experiencing increased volatility and uncertainty
in executing planned new programs which have, in some cases, resulted in
cancellations or delays of new vehicle platforms, package
reconfigurations and inaccurate volume forecasts. This increased
volatility and uncertainty has made it more difficult for the Company to
forecast future sales and effectively utilize capital, engineering,
research and development, and human resource investments.
The Company does not have any significant off-balance sheet arrangements
or commitments that have not been recorded in its consolidated financial
statements.
On March 30, 2005, in response to the required implementation of SFAS
No. 123(R) as disclosed in Note 10, 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. The objective of this Company action is primarily to avoid
recognizing compensation expense associated with these options in future
financial statements, upon the Company's adoption of SFAS No. 123(R). In
addition, the Company has also received shareholder approval of an
amendment to its Employee Stock Option Plan to allow the grant of
non-qualified stock options.
On April 1, 2005, the Company announced a two-for-one stock split
effected in the form of a 100 percent common stock dividend for each
outstanding share, issued to shareholders on May 6, 2005. The
ex-dividend date was May 9, 2005.
-10-
On October 1, 2002, Magna International acquired Donnelly Corporation,
the Company's major competitor for sales of automatic-dimming rearview
mirrors to domestic and foreign vehicle manufacturers and their mirror
suppliers. The Company sells certain automatic-dimming rearview mirror
sub-assemblies to Magna Donnelly. 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information called for by this item is provided under the caption
"Trends and Developments" under Item 2 - Management's Discussion and
Analysis of Results of Operations and Financial Condition.
ITEM 4. CONTROLS AND PROCEDURES
As of June 30, 2005, 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 June 30, 2005, 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-Q was being
prepared. During the period covered by this quarterly 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.
Statements in this Quarterly Report on Form 10-Q contain 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, about the global automotive industry, the economy and the
Company itself, and involve risks and uncertainties described under the
headings "Management's Discussion and Analysis of Results of Operations
and Financial Condition" and "Trends and Developments." 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 recovery in the U.S.
and in international markets, automotive production levels worldwide,
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), 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.
-11-
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The annual meeting of the shareholders of the Company was held on
May 12, 2005.
(b) The following nominees were elected to serve three-year terms on
the Company's Board of Directors by the following votes.
Arlyn Lanting Ken La Grand Rande Somma
------------- ------------ -----------
For 71,274,974 71,304,598 72,695,847
Against - - -
Withheld 2,265,356 2,235,732 844,483
Broker Non-Votes - - -
The terms of office for incumbent Directors Fred Bauer, Gary Goode,
John Mulder, Frederick Sotok, Wallace Tsuha and Leo Weber,
continued after the meeting.
(c) A proposal to approve the First Amendment to the Gentex Corporation
Qualified Stock Option Plan was approved by the following vote:
For 60,547,013
Against 1,697,661
Abstain 400,137
Broker Non-Votes 11,110,968
A proposal to ratify the appointment of Ernst & Young LLP as the
Company's auditors for the fiscal year ended December 31, 2005, was
approved by the following vote:
For 73,085,812
Against 575,203
Abstain 94,764
Broker Non-Votes -
See Part II, Item 4 (b), with respect to the election of directors.
ITEM 6. EXHIBITS
(a) See Exhibit Index on Page 14.
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SIGNATURES
Pursuant to the requirements 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.
GENTEX CORPORATION
Date: August 2, 2005 /s/ Fred T. Bauer
--------------------------------
Fred T. Bauer
Chairman and Chief
Executive Officer
Date: August 2, 2005 /s/ Enoch C. Jen
--------------------------------
Enoch C. Jen
Vice President - Finance,
Principal Financial and
Accounting Officer
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EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION PAGE
- ----------- -------------------------------------------------------------------------------------------------- ----
3(a) 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) Registrant's Bylaws as amended and restated February 27, 2003, were filed as Exhibit 3(b)(1) to
Registrant's Report on Form 10-Q dated May 5, 2003, and the same are 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 on Form S-8 (Registration No. 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 dated 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 on Form S-1
(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, which is hereby incorporated herein by reference.
*10(b)(2) First Amendment to Gentex Corporation Stock Option Plan (as amended and restated February 26,
2004). 16
*10(b)(3) Specimen form of Grant Agreement for the Gentex Corporation Qualified Stock Option Plan (as
amended and restated, effective February 26, 2004), was filed as Exhibit 10(b)(2) to Registrant's
Report on Form 10-Q dated November 2, 2004, and the same is hereby incorporated herein by
reference.
*10(b)(4) 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)(5) Specimen form of Grant Agreement for the Gentex Corporation Restricted Stock Plan, 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.
-14-
EXHIBIT NO. DESCRIPTION PAGE
- ----------- -------------------------------------------------------------------------------------------------- ----
*10(b)(6) Gentex Corporation 2002 Non-Employee 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 incorporated herein by reference.
*10(b)(7) Specimen form of Grant Agreement for the Gentex Corporation 2002 Non-Employee Director Stock
Option Plan, 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(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 incorporated herein by reference.
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). 18
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). 19
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. 1350) 20
- -------------------
*Indicates a compensatory plan or arrangement.
-15-