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 SEPTEMBER 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
----- -----
Indicate by a check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Exchange Act).
Yes No x
----- -----
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 October 21, 2005
----- -------------------
Common Stock, $0.06 Par Value 155,376,711
Exhibit Index located at page 14
Page 1 of 21
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
GENTEX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, 2005 December 31, 2004
------------------ -----------------
(Unaudited) (Audited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $399,172,878 $395,538,719
Short-term investments 82,069,959 99,341,541
Accounts receivable, net 76,451,242 56,092,330
Inventories 36,914,716 30,600,789
Prepaid expenses and other 11,870,001 11,035,715
------------ ------------
Total current assets 606,478,796 592,609,094
PLANT AND EQUIPMENT - NET 158,926,604 135,649,119
OTHER ASSETS
Long-term investments 132,867,231 122,174,030
Patents and other assets, net 6,735,352 6,427,185
------------ ------------
Total other assets 139,602,583 128,601,215
------------ ------------
Total assets $905,007,983 $856,859,428
============ ============
LIABILITIES AND SHAREHOLDERS' INVESTMENT
CURRENT LIABILITIES
Accounts payable $ 27,518,376 $ 19,849,569
Accrued liabilities 39,882,630 31,006,689
------------ ------------
Total current liabilities 67,401,006 50,856,258
DEFERRED INCOME TAXES 22,298,802 22,723,198
SHAREHOLDERS' INVESTMENT
Common stock 9,322,603 4,672,005
Additional paid-in capital 184,140,059 175,266,114
Retained earnings 607,682,037 591,546,326
Other shareholders' investment 14,163,476 11,795,527
------------ ------------
Total shareholders' investment 815,308,175 783,279,972
------------ ------------
Total liabilities and shareholders'
investment $905,007,983 $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 Nine Months Ended
September 30 September 30
--------------------------- ---------------------------
2005 2004 2005 2004
------------ ------------ ------------ ------------
NET SALES $138,114,897 $120,456,707 $398,141,062 $379,430,532
COST OF GOODS SOLD 86,918,447 72,754,752 249,326,226 222,388,833
------------ ------------ ------------ ------------
Gross profit 51,196,450 47,701,955 148,814,836 157,041,699
OPERATING EXPENSES:
Engineering, research and development 9,140,231 7,758,575 25,916,046 22,747,948
Selling, general & administrative 6,762,837 6,550,287 20,613,966 20,175,499
------------ ------------ ------------ ------------
Total operating expenses 15,903,068 14,308,862 46,530,012 42,923,447
------------ ------------ ------------ ------------
Income from operations 35,293,382 33,393,093 102,284,824 114,118,252
OTHER INCOME (EXPENSE)
Interest and dividend income 4,456,050 2,263,373 11,578,709 6,507,213
Other, net 1,033,387 1,168,367 2,794,306 3,309,635
------------ ------------ ------------ ------------
Total other income 5,489,437 3,431,740 14,373,015 9,816,848
------------ ------------ ------------ ------------
Income before provision for income
taxes 40,782,819 36,824,833 116,657,839 123,935,100
PROVISION FOR INCOME TAXES 12,847,000 11,600,000 36,748,000 39,910,000
------------ ------------ ------------ ------------
NET INCOME $ 27,935,819 $ 25,224,833 $ 79,909,839 $ 84,025,100
============ ============ ============ ============
EARNINGS PER SHARE:
Basic $ 0.18 $ 0.16 $ 0.51 $ 0.55
Diluted $ 0.18 $ 0.16 $ 0.51 $ 0.54
Cash Dividends Declared per Share $ 0.09 $ 0.085 $ 0.26 $ 0.235
See accompanying notes to condensed consolidated financial statements.
-3-
GENTEX CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For nine months ended September 30,
-----------------------------------
2005 2004
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 79,909,839 $ 84,025,100
Adjustments to reconcile net income to net
cash provided by operating activities-
Depreciation and amortization 18,123,855 16,976,090
(Gain) loss on disposal of assets 440,254 (863)
(Gain) loss on sale of investments (3,012,538) (2,367,909)
Deferred income taxes (1,856,619) 621,584
Amortization of deferred compensation 1,303,406 1,149,778
Tax benefit of stock plan transactions 1,777,169 2,693,941
Change in operating assets and liabilities:
Accounts receivable, net (20,358,912) (4,653,136)
Inventories (6,313,927) (7,112,650)
Prepaid expenses and other (771,654) 411,208
Accounts payable 7,668,807 3,932,843
Accrued liabilities, excluding dividends declared 8,269,956 (983,396)
------------ ------------
Net cash provided by operating activities 85,179,636 94,692,590
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Plant and equipment additions (41,775,680) (20,705,920)
Proceeds from sale of plant and equipment 40,753 44,500
(Increase) decrease in investments 13,504,039 34,461,644
Increase in other assets (1,102,532) (809,321)
------------ ------------
Net cash provided by (used for) investing activities (29,333,420) 12,990,903
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock from stock plan transactions 12,796,239 12,332,859
Cash dividends paid (39,793,723) (34,760,901)
Repurchases of common stock (25,214,573) 0
------------ ------------
Net cash provided by (used for) financing activities (52,212,057) (22,428,042)
------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 3,634,159 85,255,451
CASH AND CASH EQUIVALENTS, beginning of period 395,538,719 322,662,971
------------ ------------
AND CASH EQUIVALENTS, end of period $399,172,878 $407,918,422
============ ============
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 September 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:
September 30, 2005 December 31, 2004
------------------ -----------------
Raw materials $22,647,131 $18,102,873
Work-in-process 4,465,383 3,894,864
Finished goods 9,802,202 8,603,052
----------- -----------
$36,914,716 $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 September 30, Nine Months Ended September 30,
--------------------------- -------------------------------
2005 2004 2005 2004
------------ ------------ ------------ ------------
Numerators:
Numerator for both basic and
diluted EPS, net income $ 27,935,819 $ 25,224,833 $ 79,909,839 $ 84,025,100
Denominators:
Denominator for basic EPS,
weighted-average shares outstanding 155,817,978 154,487,100 155,545,871 154,118,332
Potentially dilutive shares
resulting from stock plans 1,640,438 1,948,822 1,591,194 2,628,690
------------ ------------ ------------ ------------
Denominator for diluted EPS 157,458,416 156,435,922 157,137,065 156,747,022
============ ============ ============ ============
Shares related to stock plans not
included in diluted average common
shares outstanding because their
effect would be antidilutive 3,104,212 2,973,662 4,430,072 1,366,922
(6) At September 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 September 30, Nine Months Ended September30,
--------------------------- ------------------------------
2005 2004 2005 2004
----------- ----------- ------------ ------------
Net income, as reported $27,935,819 $25,224,833 $ 79,909,839 $ 84,025,100
Deduct: Total stock-based employee
compensation expense determined
under fair value-based method of all
awards, net of tax effects (1,332,871) (4,058,943) (19,349,947) (10,676,152)
----------- ----------- ------------ ------------
Pro forma net income $26,602,948 $21,165,890 $ 60,559,892 $ 73,348,948
=========== =========== ============ ============
Earnings per share:
Basic - as reported $ .18 $ .16 $ .51 $ .55
Basic - pro forma .17 .14 .39 .48
Diluted - as reported .18 16 .51 .54
Diluted - pro forma .17 .14 .39 .47
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:
September 30, 2005 September 30, 2004
------------------ ------------------
Quarter Ended $31,843,635 $23,098,757
Nine Months Ended $81,765,670 $82,850,918
(8) The increase in common stock during the nine months ended September 30,
2005, was primarily due to a two-for-one stock split effected in the form
of a 100 percent common stock dividend, as disclosed in Note 4 of this
quarterly statement. The other common stock activity during the quarter and
nine months ended September 30, 2005, was attributable to the repurchase of
1,496,059 shares for approximately $25,215,000, partially offset by the
issuance of 363,131 and 1,139,268 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
and a $0.09 per share cash dividend in the third quarter. The third quarter
dividend of approximately $13,984,000, was declared on August 18, 2005, and
was paid on October 21, 2005.
-6-
GENTEX CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
(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 September 30, Nine Months Ended September 30,
--------------------------- -------------------------------
2005 2004 2005 2004
------------ ------------ ------------ ------------
Revenue:
Automotive Products $131,696,221 $114,546,283 $379,781,156 $362,111,159
Fire Protection Products 6,418,676 5,910,424 18,359,906 17,319,373
------------ ------------ ------------ ------------
Total $138,114,897 $120,456,707 $398,141,062 $379,430,532
============ ============ ============ ============
Operating Income:
Automotive Products $ 33,810,716 $ 32,160,066 $ 98,146,950 $110,651,518
Fire Protection Products 1,482,666 1,233,027 4,137,874 3,466,734
------------ ------------ ------------ ------------
Total $ 35,293,382 $ 33,393,093 $102,284,824 $114,118,252
============ ============ ============ ============
(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 6 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:
THIRD QUARTER 2005 VERSUS THIRD QUARTER 2004
Net Sales. Net sales for the third quarter of 2005 increased by
approximately $17,658,000, or 15%, when compared with the third quarter
last year. Net sales of the Company's automotive auto-dimming mirrors
increased by approximately $17,150,000, or 15%, in the third quarter of
2005, when compared with the third quarter last year, primarily due to a
16% increase in auto-dimming mirror unit shipments from approximately
2,756,000 in the third quarter of 2004 to 3,198,000 in the current quarter.
This unit increase primarily reflected the increased penetration of
interior and exterior auto-dimming mirrors on 2006 model year vehicles
during the third quarter of 2005. Unit shipments to customers in North
America for the current quarter increased by 14% compared with the third
quarter of the prior year, primarily due to higher unit shipments to
transplants. Mirror unit shipments for the current quarter to automotive
customers outside North America increased by 18% compared with the third
quarter in 2004, primarily due to higher unit shipments to certain European
automakers. Net sales of the Company's fire protection products increased
9% for the current quarter versus the same quarter of last year, primarily
due to stronger sales of certain fire alarm products.
Cost of Goods Sold. As a percentage of net sales, cost of goods sold
increased from 60% in the third quarter of 2004 to 63% in the third quarter
of 2005. This percentage increase primarily reflected the impact of
automotive customer price reductions, as well as 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 1 - 2 percentage points.
Operating Expenses. Engineering, research and development expenses for the
current quarter increased approximately $1,382,000, 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 $213,000, for the current
quarter, but remained at 5% of net sales, when compared with the third
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 $2,058,000 when compared with the third quarter of 2004,
primarily due to increased interest income due to higher interest rates.
NINE MONTHS ENDED SEPTEMBER 30, 2005, VERSUS NINE MONTHS ENDED SEPTEMBER
30, 2004
Net Sales. Net sales for the nine months ended September 30, 2005,
increased by $18,711,000, or 5%, when compared with the same period last
year. Net sales of the Company's automotive auto-dimming mirrors increased
by $17,670,000, or 5%, as auto-dimming mirror unit shipments increased by
7% from approximately 8,739,000 in the first nine months of 2004 to
9,327,000 units in the first nine months of 2005. This increase primarily
reflected the increased penetration of interior and exterior auto-dimming
mirrors on 2005 and 2006 model year vehicles. Unit shipments to customers
in North America increased by 3%, as a result of increased unit shipments
to transplants, partially offset by reduced shipments to domestic
automakers due to their lower production levels. Mirror shipments to
automotive customers outside North America increased by 10%, primarily due
to increased penetration of auto-dimming mirrors. Net sales of the
Company's fire protection products increased 6% in the first nine months of
2005 versus the first nine months of 2004, 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% in the nine months ended September 30, 2004, to 63% in
the nine months ended September 30, 2005, primarily reflecting the impact
of automotive customer price reductions, higher fixed overhead expenses and
lower mirror shipment growth resulting
-8-
in lower capacity utilization, as well as 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 1 - 2
percentage points.
Operating Expenses. For the nine months ended September 30, 2005,
engineering, research and development expenses increased approximately
$3,168,000, from 6% to 7% 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 $438,000 for the nine months ended September 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.
Total Other Income. Total other income for the nine months ended
September 30, 2005, increased $4,556,000 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 32.2% in
the nine months ended September 30, 2004, to 31.5% in the nine months ended
September 30, 2005, primarily due to increased tax-exempt investment
income.
FINANCIAL CONDITION:
Cash flow from operating activities for the nine months ended September 30,
2005, decreased to $85,180,000, compared to $94,693,000, for the same
period last year, primarily due to an increase in accounts receivable.
Capital expenditures for the nine months ended September 30, 2005,
increased to $41,776,000, compared to $20,706,000 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.
Accounts receivable as of September 30, 2005, increased approximately
$20,359,000 compared to December 31, 2004. The increase was primarily due
to the higher sales level, as well as monthly sales within each quarter.
Management considers the Company's working capital and long-term
investments totaling approximately $671,945,000 as of September 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. During the quarter ended September 30, 2005, the
Company repurchased approximately 1,496,000 shares at a cost of
approximately $25,215,000. Approximately 5,674,000 shares remain authorized
to be repurchased under the plan.
TRENDS AND DEVELOPMENTS:
During the first quarter of 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 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 competitor under a
lifetime contract. The new business also includes the GMT360 program, which
is the mid-size truck/SUV platform that previously did not offer
auto-dimming mirrors. The new GM programs will be transferred to the
-9-
Company by no later 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(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 the quarter ended September 30, 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 currently expects that auto-dimming mirror unit shipments will
be 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, 20.1
million for Europe and 13.7 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 September 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 or yield 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
manufacturing yield issues and pressure for select raw material cost
increases. The automotive industry is experiencing increasing financial and
production stresses due to continuing pricing pressures, lower domestic
production levels, supplier bankruptcies, 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.
-10-
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.
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.
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 September 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 September 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 (e.g. unit shipment growth estimates) 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 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
(c) Issuer Purchases of Equity Securities
The following is a summary of share repurchase activity during the
third quarter ended September 30, 2005:
Total Number of Maximum Number
Total Number Average Price Shares Purchased As of Shares That May Yet
Of Shares Paid Per Part of a Publicly Be Purchased Under
Period Purchased Share Announced Plan the Plan
------ ------------ ------------- ------------------- ---------------------
July 2005 -- -- -- 7,170,000
August 2005 123,768 $17.02 123,768 7,046,232
September 2005 1,372,291 $16.84 1,372,291 5,673,941
--------- ---------
Total 1,496,059 1,496,059
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.
ITEM 6. EXHIBITS
(a) See Exhibit Index on Page 14.
-12-
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: November 1, 2005 /s/ Fred T. Bauer
----------------------------------------
Fred T. Bauer
Chairman and Chief
Executive Officer
Date: November 1, 2005 /s/ Enoch C. Jen
----------------------------------------
Enoch C. Jen
Vice President - Finance,
Principal Financial and
Accounting Officer
-13-
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) 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) was filed as Exhibit
10(b)(2) to Registrant's Report on Form 10-Q dated August 2, 2005,
and the same is hereby incorporated herein by reference.
*10(b)(3) Specimen form of Grant Agreement for the Gentex Corporation
Qualified Stock Option Plan (as amended and restated, effective
February 26, 2004). 16
*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-
*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). 19
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). 20
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) 21
- ----------
* Indicates a compensatory plan or arrangement.