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 <TABLE> <CAPTION> June 30, 2005 December 31, 2004 (Unaudited) (Audited) ------------- ----------------- <S> <C> <C> 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 ============ ============ </TABLE> See accompanying notes to condensed consolidated financial statements. -2-
GENTEX CORPORATION AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME <TABLE> <CAPTION> Three Months Ended Six Months Ended June 30, June 30, ----------------------------- ----------------------------- 2005 2004 2005 2004 ------------ ------------ ------------ ------------ <S> <C> <C> <C> <C> 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 </TABLE> See accompanying notes to condensed consolidated financial statements. -3-
GENTEX CORPORATION AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS <TABLE> <CAPTION> For six months ended June 30, -------------------------------- 2005 2004 -------------- -------------- <S> <C> <C> 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 ============= ============= </TABLE> 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: <TABLE> <CAPTION> June 30, 2005 December 31, 2004 ------------- ----------------- <S> <C> <C> 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 =========== =========== </TABLE> (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): <TABLE> <CAPTION> Quarter Ended June 30, Six Months Ended June 30, ----------------------------- ----------------------------- 2005 2004 2005 2004 ------------ ------------ ------------ ------------ <S> <C> <C> <C> <C> 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 </TABLE> (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.) <TABLE> <CAPTION> Quarter Ended June 30, Six Months Ended June 30, ---------------------------------- ---------------------------------- 2005 2004 2005 2004 --------------- --------------- --------------- --------------- <S> <C> <C> <C> <C> 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 </TABLE> 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: <TABLE> <CAPTION> June 30, 2005 June 30, 2004 ------------- ------------- <S> <C> <C> Quarter Ended $26,133,449 $28,354,898 Six Months Ended $49,922,035 $59,752,161 </TABLE> (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: <TABLE> <CAPTION> Quarter Ended June 30, Six Months Ended June 30, ----------------------------- ----------------------------- 2005 2004 2005 2004 ------------ ------------ ------------ ------------ <S> <C> <C> <C> <C> 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 ============ ============ ============ ============ </TABLE> -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. <TABLE> <CAPTION> Arlyn Lanting Ken La Grand Rande Somma ------------- ------------ ----------- <S> <C> <C> <C> For 71,274,974 71,304,598 72,695,847 Against - - - Withheld 2,265,356 2,235,732 844,483 Broker Non-Votes - - - </TABLE> 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: <TABLE> <S> <C> For 60,547,013 Against 1,697,661 Abstain 400,137 Broker Non-Votes 11,110,968 </TABLE> 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: <TABLE> <S> <C> For 73,085,812 Against 575,203 Abstain 94,764 Broker Non-Votes - </TABLE> See Part II, Item 4 (b), with respect to the election of directors. 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: 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 -13-
EXHIBIT INDEX <TABLE> <CAPTION> EXHIBIT NO. DESCRIPTION PAGE - ----------- -------------------------------------------------------------------------------------------------- ---- <S> <C> <C> 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. </TABLE> -14-
<TABLE> <CAPTION> EXHIBIT NO. DESCRIPTION PAGE - ----------- -------------------------------------------------------------------------------------------------- ---- <S> <C> <C> *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 </TABLE> - ------------------- *Indicates a compensatory plan or arrangement. -15-