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 March 31, 2008, 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 a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of "large accelerated filer", "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer x Accelerated filer
--- ---
Non-accelerated filer Smaller reporting company
--- ---
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
PROCEEDING 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 ISSURERS:
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 April 23, 2008
----- ------------------
Common Stock, $0.06 Par Value 142,803,907
Exhibit Index located at page 16
Page 1 of 20
GENTEX CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2008 AND 2007
2008 2007
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 30,448,135 $ 29,497,709
Adjustments to reconcile net income to net
cash provided by operating activities-
Depreciation and amortization 8,743,570 7,886,801
(Gain) loss on disposal of assets 13,226 (69,859)
(Gain) loss on sale of investments (402,317) (4,421,296)
Deferred income taxes (144,963) (743,702)
Stock-based compensation expense related to employee
stock options, employee stock purchases and restricted stock 2,521,418 2,218,600
Excess tax benefits from stock-based compensation (45,679) (11,567)
Change in operating assets and liabilities:
Accounts receivable, net (5,726,667) (13,097,198)
Inventories 1,012,116 4,453,154
Prepaid expenses and other (207,616) (1,481,965)
Accounts payable 3,868,729 3,767,687
Accrued liabilities, excluding dividends declared 15,586,018 18,050,795
------------ ------------
Net cash provided by (used for) operating activities 55,665,970 46,049,159
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Plant and equipment additions (14,108,212) (7,927,054)
Proceeds from sale of plant and equipment 0 342,500
(Increase) decrease in investments 16,757,001 10,156,234
(Increase) decrease in other assets 311,324 (139,682)
------------ ------------
Net cash provided by (used for) investing activities 2,960,113 2,431,998
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock from stock plan transactions 3,207,764 9,214,518
Cash dividends paid (15,199,204) (13,535,239)
Repurchases of common stock (34,619,490) (7,328,015)
Excess tax benefits from stock-based compensation 45,679 11,567
------------ ------------
Net cash provided by (used for) financing activities (46,565,251) (11,637,169)
------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 12,060,832 36,843,988
CASH AND CASH EQUIVALENTS,
beginning of period 317,717,093 245,499,783
------------ ------------
CASH AND CASH EQUIVALENTS,
end of period $329,777,925 $282,343,771
============ ============
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
GENTEX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, 2008 December 31, 2007
-------------- -----------------
(Unaudited) (Audited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $329,777,925 $317,717,093
Short-term investments 70,602,024 80,271,688
Accounts receivable, net 69,908,178 64,181,511
Inventories 47,037,443 48,049,560
Prepaid expenses and other 18,835,469 18,274,096
------------ ------------
Total current assets 536,161,039 528,493,948
PLANT AND EQUIPMENT - NET 211,058,529 205,609,671
OTHER ASSETS
Long-term investments 131,469,282 155,384,009
Patents and other assets, net 8,682,372 8,535,052
------------ ------------
Total other assets 140,151,654 163,919,061
------------ ------------
Total assets $887,371,222 $898,022,680
============ ============
LIABILITIES AND SHAREHOLDERS' INVESTMENT
CURRENT LIABILITIES
Accounts payable $ 34,400,378 $ 30,531,649
Accrued liabilities 53,152,248 37,831,056
------------ ------------
Total current liabilities 87,552,626 68,362,705
DEFERRED INCOME TAXES 17,026,174 22,847,779
SHAREHOLDERS' INVESTMENT
Common stock 8,568,234 8,685,257
Additional paid-in capital 247,585,878 245,502,960
Retained earnings 514,947,834 530,290,281
Other shareholders' investment 11,690,476 22,333,698
------------ ------------
Total shareholders' investment 782,792,422 806,812,196
------------ ------------
Total liabilities and shareholders'
investment $887,371,222 $898,022,680
============ ============
See accompanying notes to condensed consolidated financial statements.
-2-
GENTEX CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 2008 AND 2007
2008 2007
------------ ------------
NET SALES $177,970,279 $157,205,982
COST OF GOODS SOLD 115,323,288 102,627,220
------------ ------------
Gross profit 62,646,991 54,578,762
OPERATING EXPENSES:
Engineering, research and development 12,736,287 12,275,662
Selling, general & administrative 9,923,536 8,366,571
------------ ------------
Total operating expenses 22,659,823 20,642,233
------------ ------------
Operating income 39,987,168 33,936,529
OTHER INCOME:
Interest and dividend income 4,060,344 4,570,445
Other, net 1,415,125 4,963,578
------------ ------------
Total other income 5,475,469 9,534,023
------------ ------------
Income before provision for income
taxes 45,462,637 43,470,552
PROVISION FOR INCOME TAXES 15,014,502 13,972,843
------------ ------------
NET INCOME $ 30,448,135 $ 29,497,709
============ ============
EARNINGS PER SHARE:
Basic $ 0.21 $ 0.21
Diluted $ 0.21 $ 0.21
Cash Dividends Declared per Share $ 0.105 $ 0.095
See accompanying notes to condensed consolidated financial statements.
-3-
GENTEX CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(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 2007 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 March 31, 2008, and the results
of operations and cash flows for the interim periods presented.
(3) Adoption of New Accounting Standards
In September 2006, the Financial Accounting Standards Board (FASB) issued
SFAS No. 157, "Fair Value Measurements" ("SFAS No. 157"). This statement
establishes a framework for measuring the fair value of assets and
liabilities. This framework is intended to provide increased consistency in
how fair value determinations are made under various existing accounting
standards that permit, or in some cases require, estimates of fair market
value. SFAS No. 157 also expands financial statement disclosure
requirements about a company's use of fair value measurements, including
the effect of such measure on earnings. SFAS No. 157 is effective for
fiscal years beginning after November 15, 2007.
The Company adopted the provisions of SFAS No. 157 related to its financial
assets and liabilities in the first quarter of 2008, which did not have a
material impact on the Company's consolidated financial position, results
of operations or cash flows. The Company's investment securities are
classified as available for sale and are stated at fair value based on
quoted market prices. Assets or liabilities that have recurring
measurements are shown below as of March 31, 2008:
Fair Value Measurements at
Reporting Date Using
---------------------------------------------
Quoted Prices in Significant
Active Markets Other Significant
for Identical Observable Unobservable
Total as of Assets Inputs Inputs
Description March 31, 2008 (Level 1) (Level 2) (Level 3)
----------- -------------- ---------------- ----------- ------------
Cash & Cash Equivalents $329,777,925 $329,777,925 $ -- $--
Short-Term Investments 70,602,024 14,602,024 56,000,000 --
Long-Term Investments 131,469,282 131,469,282 -- --
------------ ------------ ----------- ---
Net $531,849,231 $475,849,231 $56,000,000 $--
The Company's short-term investments primarily consist of Government
Securities (Level 1) and Certificate of Deposits (Level 2). Long-term
investments primarily consist of marketable equity securities.
(4) Inventories consisted of the following at the respective balance sheet
dates:
March 31, 2008 December 31, 2007
-------------- -----------------
Raw materials $31,275,904 $31,098,379
Work-in-process 4,418,693 4,555,058
Finished goods 11,342,846 12,396,123
----------- -----------
$47,037,443 $48,049,560
=========== ===========
-5-
GENTEX CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(UNAUDITED)
(5) The following table reconciles the numerators and denominators used in the
calculation of basic and diluted earnings per share (EPS):
Quarter Ended March 31,
---------------------------
2008 2007
------------ ------------
Numerators:
Numerator for both basic and
diluted EPS, net income $ 30,448,135 $ 29,497,709
Denominators:
Denominator for basic EPS,
weighted-average shares
outstanding 143,286,480 142,166,241
Potentially dilutive shares
resulting from stock plans 279,529 557,376
------------ ------------
Denominator for diluted EPS 143,566,009 142,723,617
============ ============
Shares related to stock plans not
included in diluted average common
shares outstanding because their
effect would be antidilutive 6,674,633 5,249,844
(6) Stock-Based Compensation Plans
At March 31, 2008, the Company had two stock option plans, a restricted
stock plan and an employee stock purchase plan. Effective January 1, 2006,
the Company adopted Statement of Financial Accounting Standards No. 123
(revised), "Share-Based Payment" [SFAS 123(R)] utilizing the modified
prospective approach. Prior to the adoption of SFAS 123(R) the Company
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. Readers should refer to Note
6 of our consolidated financial statements in our Annual Report on Form
10-K for the calendar year ended December 31, 2007, for additional
information related to these stock-based compensation plans.
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 the first
quarter of 2008 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.
The Company recognized compensation expense for share-based payments of
$2,020,492 for the first quarter ended March 31, 2008. Compensation cost
capitalized as part of inventory as of March 31, 2008, was $89,090.
-6-
GENTEX CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(UNAUDITED)
(6) Stock-Based Compensation Plans (continued)
Employee Stock Option Plan
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:
Three Months Ended
March 31,
------------------
2008 2007
------ ------
Dividend yield 2.04% 1.99%
Expected volatility 30.41% 28.90%
Risk-free interest rate 2.51% 4.54%
Expected term of options (in years) 4.31 4.35
Weighted-average grant-date fair value $ 3.98 $ 4.18
The Company determined that all employee groups exhibit similar exercise
and post-vesting termination behavior to determine the expected term. 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.
As of March 31, 2008, there was $11,184,977 of unrecognized compensation
cost related to share-based payments which is expected to be recognized
over the vesting period with a weighted-average period of 4.2 years.
Non-employee Director Stock Option Plan
As of March 31, 2008, there was no unrecognized compensation cost under
this plan related to share-based payments. 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.
Employee Stock Purchase Plan
In 2003, a new Employee Stock Purchase Plan covering 1,200,000 shares was
approved by the shareholders, replacing a prior plan. Under the plan, the
Company sells shares at 85% of the stock's market price at date of
purchase. Under SFAS 123(R), the 15% discounted value is recognized as
compensation expense.
Restricted Stock Plan
The Company has a Restricted Stock Plan covering 1,000,000 shares of common
stock that was approved by the shareholders in 2001, 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 the Compensation Committee, appointed
by the Board of Directors, but may not exceed ten years. As of March 31,
2008, the Company had unearned stock-based compensation of $5,120,629
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 expense from
restricted stock grants in the first quarter of 2008 was $500,926.
-7-
GENTEX CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(UNAUDITED)
(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:
March 31, 2008 March 31, 2007
-------------- --------------
Quarter Ended $19,804,913 $28,504,290
(8) The decrease in common stock during the three months ended March 31, 2008,
was primarily due to the repurchase of 2,200,752 shares pursuant to the
Company's previously announced share repurchase plan for approximately
$34,619,000, partially offset by the issuance of 250,371 shares of the
Company's common stock under its stock-based compensation plans. The
Company has also recorded a $0.105 per share cash dividend in the first
quarter. The first quarter dividend of approximately $14,994,000, was
declared on February 26, 2008, and was paid on April 18, 2008.
(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. The Company also
developed and manufactures variable dimmable windows for the aircraft
industry and non-auto dimming rearview automotive mirrors with electronic
features:
Quarter Ended March 31,
---------------------------
2008 2007
------------ ------------
Revenue:
Automotive Products $172,058,890 $151,115,835
Other 5,911,389 6,090,147
------------ ------------
Total $177,970,279 $157,205,982
============ ============
Operating Income:
Automotive Products $ 40,017,297 $ 32,779,120
Other (30,129) 1,157,409
------------ ------------
Total $ 39,987,168 $ 33,936,529
============ ============
Other includes Fire Protection Products and Dimmable Aircraft Windows. The
Dimmable Aircraft Windows segment did not have sales during the first
quarter of 2008, which resulted in reduced income from operations for the
"Other" category.
-8-
GENTEX CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
RESULTS OF OPERATIONS:
FIRST QUARTER 2008 VERSUS FIRST QUARTER 2007
Net Sales. Net sales for the first quarter of 2008 increased by
approximately $20,764,000, or 13%, when compared with the first quarter
last year. Net sales of the Company's automotive mirrors increased by
approximately $20,943,000, or 14%, in the first quarter of 2008, when
compared with the first quarter last year, primarily due to a 10% increase
in auto-dimming mirror unit shipments from approximately 3,778,000 in the
first quarter 2007 to 4,167,000 in the current quarter. This unit increase
primarily reflected the increased penetration of interior and exterior
auto-dimming mirrors with overseas customers. The UAW strike negatively
impacted first quarter automotive revenues by approximately $2.5 million.
Unit shipments to customers in North America for the current quarter
increased by 2% compared with the first quarter of the prior year, despite
a 8% decline in North American automotive industry production levels,
primarily due to increased interior mirror unit shipments for certain Asian
transplant automakers. Mirror unit shipments for the current quarter to
automotive customers outside North America increased by 17% compared with
the first quarter in 2007, primarily due to increased penetration at
certain Asian and European automakers. Net sales of the Company's fire
protection products decreased 3% for the current quarter versus the same
quarter of last year.
Cost of Goods Sold. As a percentage of net sales, cost of goods sold
decreased from 65.3% in the first quarter of 2007 to 64.8% in the first
quarter of 2008. This percentage decrease primarily reflected the impact of
purchasing cost reductions, positive product mix and foreign exchange
rates, partially offset by annual automotive customer price reductions.
Each positive factor is estimated to have approximately equally impacted
cost of goods sold as a percentage of net sales.
Operating Expenses. Engineering, research and development expenses for the
current quarter increased 4% and approximately $461,000 when compared with
the same quarter last year. Excluding Muth litigation expense of $104,000
in the first quarter of 2008 and $1,424,000 in the first quarter of 2007,
and the litigation judgment accrual reversal of $335,000 during the first
quarter of 2008 (see discussion under "Trends and Developments"), E, R & D
expenses increased by 19% when compared with the same quarter last year,
primarily reflecting additional staffing, engineering and testing for new
product development, including mirrors with additional features, such as
SmartBeam and Rear Camera Display. Selling, general and administrative
expenses increased 19% and approximately $1,557,000, for the current
quarter, when compared with the first quarter of 2007, primarily due to the
continued expansion of the Company's overseas offices and foreign exchange
rates. Foreign exchange rates accounted for approximately four percentage
points of the increase.
Total Other Income. Total other income for the current quarter decreased by
approximately $4,059,000 when compared with the first quarter of 2007,
primarily due to lower realized gains on the sale of equity investments.
Taxes. The provision for income taxes varied from the statutory rate during
the current quarter, primarily due to the domestic manufacturing deduction.
Net Income. Net income increased by $950,000, or 3%, when compared with the
same quarter last year, primarily due to increased sales and gross margin,
partially offset by a decrease in other income.
FINANCIAL CONDITION:
Cash flow from operating activities for the three months ended March 31,
2008, increased $9,617,000 to $55,666,000, compared to $46,049,000, for the
same period last year, primarily due to slower growth in accounts
receivable. Capital expenditures for the three months ended March 31, 2008,
were $14,108,000, compared to $7,927,000 for the same period last year; the
increase was primarily due to the purchase of additional production
equipment.
-9-
Long term investments as of March 31, 2008, decreased approximately
$23,915,000 compared to December 31, 2007. The decrease was primarily due
to a decrease in unrealized gains in equity investments.
Accrued liabilities as of March 31, 2008, increased $15,321,000, compared
to December 31, 2007. The increase was primarily due to the timing of
estimated federal income tax payments.
Management considers the Company's working capital and long-term
investments totaling approximately $580,078,000 as of March 31, 2008,
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. And, on
February 26, 2008, the Company announced that the Company's Board of
Directors had authorized the repurchase of an additional 4,000,000 shares
under the plan.
The following is a summary of quarterly share repurchase activity under the
plan to date:
Total Number of Cost of
Shares Purchased Shares
Quarter Ended (Post-Split) 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
March 31, 2007 447,710 7,328,015
March 31, 2008 2,200,752 34,619,490
---------- ------------
Total 20,180,205 $304,260,141
7,819,795 shares remain authorized to be repurchased under the plan.
CRITICAL ACCOUNTING POLICIES:
The preparation of the Company's consolidated condensed financial
statements contained in this report, which have been prepared in accordance
with accounting principles generally accepted in the Unites States,
requires management to make estimates and assumptions that affect the
amounts reported in the financial statements and accompanying notes. On an
ongoing basis, management evaluates these estimates. Estimates are based on
historical experience and on various other assumptions that are believed to
be reasonable under the circumstances, the results of which form the basis
for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Historically, actual
results have not been materially different from the Company's estimates.
However, actual results may differ from these estimates under different
assumptions or conditions.
The Company has identified the critical accounting policies used in
determining estimates and assumptions in the amounts reported in its
Management's Discussion and Analysis of Financial Condition and Results of
Operations in its Annual Report on Form 10-K for the fiscal year ended
December 31, 2007. Management believes there have been no significant
changes in those critical accounting policies.
-10-
TRENDS AND DEVELOPMENTS:
The Company previously announced certain development programs with several
automakers for its Rear Camera Display (RCD) Mirror that consists of a
proprietary liquid display (LCD) device that shows a panoramic video of
objects behind the vehicle in real time. In addition, the Company
previously announced a number of OEM and dealer or port-installed programs
for its RCD Mirror. The Company recently announced that its RCD Mirror is
now available in the Korean market on the all-new Hyundai Grandeur luxury
sedan.
On February 14, 2008, the President signed into law the "Kids
Transportation Safety Act of 2007". The bill orders the Secretary of
Transportation at the National Highway Traffic Safety Administration
(NHTSA) to initiate rulemaking to revise the federal standard to expand the
field of view so that drivers can detect objects directly behind vehicles.
While the bill does not state how visibility can be enhanced, the Company's
RCD Mirror is a cost competitive product that is relatively easy to
implement.
During 2005, the Company reached an agreement with PPG Aerospace to work
together to provide the variable 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 for variable dimmable
windows is currently limited to the aerospace industry. The Company began
shipping parts for test planes in mid-2007. Boeing has now announced three
delays in expected aircraft deliveries to customers. Boeing has yet to
inform suppliers as to what specific type of delays to expect, but we
currently anticipate that suppliers will still be required to ship some
product in calendar year 2008. However, we do not at this time expect
revenues from this program to be significant in calendar year 2008.
The Company currently expects that top line revenue growth for the second
quarter and the calendar year of 2008 will be approximately 10% higher,
compared with the same periods in 2007. 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. Uncertainties, including vehicle production and
sales rates at the traditional Big Three automakers in North America and
the impact of ongoing UAW strikes and contract negotiations, make it
difficult to forecast. The Company also estimates that engineering,
research and development expenses, excluding Muth litigation costs, are
currently expected to increase approximately 15-20% in calendar year 2008
compared to calendar year 2007. Selling, general and administrative
expenses are currently expected to increase approximately 15-20% in
calendar year 2008 compared to calendar year 2007. In addition, the Company
expects the gross profit margin for calendar year 2008 to be in the range
of the gross profit margin reported in the first quarter of 2008, depending
upon top line growth (which can be impacted by vehicle production including
the depth and duration of UAW strikes among other factors, and offsets
provided by shipments of our new featured mirror products and shipments to
automakers based outside North America) and purchasing cost reductions.
The Company utilizes the light vehicle production forecasting services of
CSM Worldwide, and CSM's current forecasts for light vehicle production for
calendar year 2008 are approximately 14.3 million units for North America,
22.4 million for Europe and 15.0 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 March 31, 2008, there were no
material changes in the risk factors previously disclosed in the Company's
report on Form 10-K for the fiscal year ended December 31, 2007.
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, the Company 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, which
continues to be a challenge. In addition, profit pressures at certain
automakers are resulting in
-11-
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, margins, profitability and, as a result, its share price. 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. If the Company's automotive
customers (including their Tier 1 suppliers) experience work stoppages,
strikes, etc. due to their union contracts or other negotiations, it could
disrupt our shipments to these customers, which could adversely affect the
Company's sales, margins, profitability and, as a result, its share price.
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.
In light of the financial stresses within the worldwide automotive
industry, certain automakers and tier one mirror customers are considering
the sale of business segments or may be considering bankruptcy. Should one
or more of the Company's larger customers (including their tier 1
suppliers) sell their business or declare bankruptcy, it could adversely
affect our sales, margins, profitability and, as a result, the Company's
share price.
The Company does not have any significant off-balance sheet arrangements or
commitments that have not been recorded in its consolidated financial
statements.
The Company was involved in litigation with K. W. Muth and Muth Mirror
Systems LLC relating to exterior mirrors with turn signal indicators. The
turn signal feature in exterior mirrors represented approximately one
percent of our revenues, and the litigation did not involve core Gentex
electrochromic technology. The trial in Wisconsin related to this case
occurred in July 2007 and the Court issued its written ruling in December
2007. The Court found that Muth's U.S. patent No. 6,005,724 was invalid and
unenforceable, and that Gentex's Razor Turn Signal Mirror did not infringe
that patent. The Court also denied all but one of Muth's other motions with
prejudice, including its motion for an injunction, and its claims for
tortuous interference with its business relationships. The sole point of
liability for Gentex was that the Court found that Gentex breached one
provision of the alliance agreement it has with Muth, and entered a
judgment against Gentex, on January 24, 2008, granting Muth damages in the
amount of $2,885,000, which was accrued as of December 31, 2007. On
February 15, 2008, the Company entered into a Settlement And Release And
Covenants Not To Sue ("Agreement") with Muth whereby the parties agreed to
settle the Court's judgment against Gentex for damages at a reduced amount
of $2,550,000. In addition, under the Agreement the parties each agreed to:
grant the other party a ten-year covenant not to sue for each Company's
core business, to release each other from all claims that occurred in the
past, and not appeal the Court's rulings. The Agreement was approved by the
Bankrupcty Court on February 29, 2008. The adjustment to the original
judgment for damages is reflected in our first quarter financial results as
a reduction to engineering, research and development expenses.
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 Financial Condition and Results of Operations.
ITEM 4. CONTROLS AND PROCEDURES
The Company's management, with the participation of its principal executive
officer and principal financial officer, has evaluated the effectiveness,
as of March 31, 2008, of the Company's "disclosure controls and
procedures," as such term is defined in Rules 13a-15(e) and 15d-15(e) under
the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Based
upon that evaluation, the Company's management, including the principal
executive officer and principal financial officer, concluded that the
Company's disclosure controls and
-12-
procedures, as of March 31, 2008, were adequate and effective such that the
information required to be disclosed by the Company in the reports filed or
submitted by it under the Exchange Act is recorded, processed, summarized,
and reported within the time periods specified in the Securities and
Exchange Commission's rules and forms, and information required to be
disclosed by the Company in such reports is accumulated and communicated to
the Company's management, including its principal executive officer and
principal financial officer, as appropriate to allow timely decisions
regarding required disclosure.
In the ordinary course of business, the Company may routinely modify,
upgrade, and enhance its internal controls and procedures over financial
reporting. However, there was no change in the Company's "internal control
over financial reporting" (as such term is defined in Rules 13a-15(f) and
15d-15(f) under the Exchange Act) that occurred during the quarter ended
March 31, 2008, that has materially affected, or is reasonably likely to
materially affect, the Company's internal control over financial reporting.
SAFE HARBOR STATEMENT:
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,
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, the
ability to control E,R&D and S,G&A expenses, gross margins 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 automotive production worldwide, the
maintenance of the Company's market share, the ability to achieve
purchasing cost reductions, competitive pricing pressures, currency
fluctuations, the financial strength of the Company's customers, supply
chain disruptions, potential sale of OEM business segments or suppliers,
the mix of products purchased by customers, the ability to continue to make
product innovations, the success of certain newer products (e.g.
SmartBeam(R), Z-Nav(R) 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.
-13-
PART II. OTHER INFORMATION
ITEM 1A. RISK FACTORS
Information regarding risk factors appears in Management's Discussion and
Analysis of Financial Condition and Results of Operations in Part I - Item
2 of this Form 10-Q and in Part I - Item 1A - Risk Factors of the Company's
report on Form 10-K for the fiscal year ended December 31, 2007. There have
been no material changes from the risk factors previously disclosed in the
Company's report on Form 10-K for the year ended December 31, 2007.
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
first quarter ended March 31, 2008:
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
------ ------------ ------------- ------------------- ----------------------
January 2008 84,700 $15.69 84,700 5,935,847
February 2008 1,326,313 $15.62 1,326,313 8,609,534
March 2008 789,739 $15.92 789,739 7,819,795
--------- ---------
Total 2,200,752 2,200,752
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. 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. And, on February 26, 2008, the
Company announced that the Company's Board of Directors had authorized
the repurchase of an additional 4,000,000 shares under the plan.
Cumulatively, the Company has repurchased 20,180,205 shares at a cost
of $304,260,141 under the plan to date (see below). 7,819,795 shares
remain authorized to be repurchased under the plan.
Total Number of Cost of
Shares Purchased Shares
Quarter Ended (Post-Split) 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
March 31, 2007 447,710 7,328,015
March 31, 2008 2,200,752 34,619,490
---------- ------------
Total 20,180,205 $304,260,141
ITEM 6. EXHIBITS
See Exhibit Index on Page 16.
-14-
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: May 2, 2008 /s/ Fred T. Bauer
----------------------------------------
Fred T. Bauer
Chairman and Chief
Executive Officer
Date: May 2, 2008 /s/ Steven A. Dykman
----------------------------------------
Steven A. Dykman
Vice President - Finance,
Principal Financial and
Accounting Officer
-15-
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) 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)(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.
-16-
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.
-17-