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, 2006, 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) <TABLE> <S> <C> MICHIGAN 38-2030505 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) </TABLE> <TABLE> <S> <C> 600 N. CENTENNIAL, ZEELAND, MICHIGAN 49464 (Address of principal executive offices) (Zip Code) </TABLE> (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, or a non-accelerated filer. See definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act (check one): Large Accelerated Filer x Accelerated Filer Non-accelerated Filer --- --- --- 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. <TABLE> <CAPTION> Shares Outstanding Class at October 20, 2006 ----- ------------------- <S> <C> Common Stock, $0.06 Par Value 143,238,050 </TABLE> Exhibit Index located at page 17 Page 1 of 21
PART I. FINANCIAL INFORMATION ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS GENTEX CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS <TABLE> <CAPTION> September December 30, 2006 31, 2005 ------------ ------------ (Unaudited) (Audited) <S> <C> <C> ASSETS CURRENT ASSETS Cash and cash equivalents $251,224,408 $439,681,693 Short-term investments 81,842,157 67,331,928 Accounts receivable, net 71,098,343 60,924,437 Inventories 44,353,691 39,836,822 Prepaid expenses and other 11,463,484 11,212,647 ------------ ------------ Total current assets 459,982,083 618,987,527 PLANT AND EQUIPMENT - NET 183,664,510 164,030,341 OTHER ASSETS Long-term investments 135,523,153 132,524,966 Patents and other assets, net 7,551,255 7,102,968 ------------ ------------ Total other assets 143,074,408 139,627,934 ------------ ------------ Total assets $786,721,001 $922,645,802 ============ ============ LIABILITIES AND SHAREHOLDERS' INVESTMENT CURRENT LIABILITIES Accounts payable $ 32,575,153 $ 23,607,927 Accrued liabilities 37,873,457 34,480,332 ------------ ------------ Total current liabilities 70,448,610 58,088,259 DEFERRED INCOME TAXES 22,888,034 22,962,168 SHAREHOLDERS' INVESTMENT Common stock 8,594,283 9,362,639 Additional paid-in capital 195,700,888 194,476,306 Retained earnings 472,630,956 623,301,775 Other shareholders' investment 16,458,230 14,454,655 ------------ ------------ Total shareholders' investment 693,384,357 841,595,375 ------------ ------------ Total liabilities and shareholders' investment $786,721,001 $922,645,802 ============ ============ </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 Nine Months Ended September 30 September 30 --------------------------- --------------------------- 2006 2005 2006 2005 ------------ ------------ ------------ ------------ <S> <C> <C> <C> <C> NET SALES $141,265,647 $138,114,897 $422,677,471 $398,141,062 COST OF GOODS SOLD 93,387,125 86,918,447 275,669,763 249,326,226 ------------ ------------ ------------ ------------ Gross profit 47,878,522 51,196,450 147,007,708 148,814,836 OPERATING EXPENSES: Engineering, research and development 10,536,334 9,140,231 30,658,131 25,916,046 Selling, general & administrative 7,737,384 6,762,837 23,041,411 20,613,966 ------------ ------------ ------------ ------------ Total operating expenses 18,273,718 15,903,068 53,699,542 46,530,012 ------------ ------------ ------------ ------------ Income from operations 29,604,804 35,293,382 93,308,166 102,284,824 OTHER INCOME (EXPENSE) Interest and dividend income 4,794,928 4,456,050 15,181,565 11,578,709 Other, net 1,308,341 1,033,387 5,588,374 2,794,306 ------------ ------------ ------------ ------------ Total other income 6,103,269 5,489,437 20,769,939 14,373,015 ------------ ------------ ------------ ------------ Income before provision for income taxes 35,708,073 40,782,819 114,078,105 116,657,839 PROVISION FOR INCOME TAXES 11,370,152 12,847,000 36,133,077 36,748,000 ------------ ------------ ------------ ------------ NET INCOME $ 24,337,921 $ 27,935,819 $ 77,945,028 $ 79,909,839 ============ ============ ============ ============ EARNINGS PER SHARE: Basic $ 0.17 $ 0.18 $ 0.52 $ 0.51 Diluted $ 0.17 $ 0.18 $ 0.52 $ 0.51 Cash Dividends Declared per Share $ 0.095 $ 0.09 $ 0.275 $ 0.26 </TABLE> See accompanying notes to condensed consolidated financial statements. -3-
GENTEX CORPORATION AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS <TABLE> <CAPTION> For nine months ended September 30, ---------------------------- 2006 2005 ------------- ------------ <S> <C> <C> CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 77,945,028 $ 79,909,839 Adjustments to reconcile net income to net cash provided by operating activities- Depreciation and amortization 20,613,394 18,123,855 (Gain) loss on disposal of assets 74,784 440,254 (Gain) loss on sale of investments (4,620,523) (3,012,538) Deferred income taxes (1,664,489) (1,856,619) Amortization of deferred compensation 1,277,801 1,303,406 Stock based compensation expense related to employee stock options and employee stock purchases 5,276,900 0 Tax benefit of stock plan transactions 0 1,777,169 Excess tax benefits from stock based compensation (214,212) 0 Change in operating assets and liabilities: Accounts receivable, net (10,173,906) (20,358,912) Inventories (4,516,869) (6,313,927) Prepaid expenses and other 576,552 (771,654) Accounts payable 8,967,226 7,668,807 Accrued liabilities, excluding dividends declared 3,975,320 8,269,956 ------------- ------------ Net cash provided by operating activities 97,517,006 85,179,636 ------------- ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Plant and equipment additions (40,406,163) (41,775,680) Proceeds from sale of plant and equipment 294,361 40,753 (Increase) decrease in investments (10,707,990) 13,504,039 Increase in other assets 259,826 (1,102,532) ------------- ------------ Net cash provided by (used for) investing activities (50,559,966) (29,333,420) ------------- ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Issuance of common stock from stock plan transactions 12,832,072 12,796,239 Cash dividends paid (41,096,783) (39,793,723) Repurchases of common stock (207,363,826) (25,214,573) Excess tax benefits from stock based compensation 214,212 0 ------------- ------------ Net cash provided by (used for) financing activities (235,414,325) (52,212,057) ------------- ------------ NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (188,457,285) 3,634,159 CASH AND CASH EQUIVALENTS, beginning of period 439,681,693 395,538,719 ------------- ------------ CASH AND CASH EQUIVALENTS, end of period $ 251,224,408 $399,172,878 ============= ============ </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 2005 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, 2006, 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> September 30, 2006 December 31, 2005 ------------------ ----------------- <S> <C> <C> Raw materials $27,856,244 $24,628,200 Work-in-process 4,141,178 3,739,394 Finished goods 12,356,269 11,469,228 ----------- ----------- $44,353,691 $39,836,822 =========== =========== </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> Nine Months Ended Quarter Ended September 30, September 30, --------------------------- --------------------------- 2006 2005 2006 2005 ------------ ------------ ------------ ------------ <S> <C> <C> <C> <C> Numerators: Numerator for both basic and diluted EPS, net income $ 24,337,921 $ 27,935,819 $ 77,945,028 $ 79,909,839 Denominators: Denominator for basic EPS, weighted-average shares outstanding 144,879,673 155,817,978 149,871,596 155,545,871 Potentially dilutive shares resulting from stock plans 212,411 1,640,438 569,929 1,591,194 ------------ ------------ ------------ ------------ Denominator for diluted EPS 145,092,084 157,458,416 150,441,525 157,137,065 ============ ============ ============ ============ Shares related to stock plans not included in diluted average common shares outstanding because their effect would be antidilutive 9,045,847 3,104,212 6,770,393 4,430,072 </TABLE> (6) Stock-Based Compensation Plans At September 30, 2006, the Company had two stock option plans, a restricted plan and an employee stock purchase plan, which are described more fully below. Effective January 1, 2006, the Company adopted Statement of Financial Accounting Standards No. 123 (revised), "Shares-Based Payment" [SFAS 123(R)] utilizing the modified prospective approach. Prior to the adoption of SFAS 123(R) we accounted for stock option grants under the recognition and meas-urement 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 -5-
GENTEX CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONT.) (6) Stock-Based Compensation Plans (continued) of our consolidated financial statements in our Annual Report on Form 10-K for the calendar year ended December 31, 2005, 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 third quarter of 2006 includes compensation cost for all share-based payments granted prior to, but not yet vested as of December 31, 2005, based on the grant-date fair value estimated in accordance with the original provisions of SFAS 123, and compensation cost for all share-based payments granted subsequent to December 31, 2005, based on the grant-date fair value estimated in accordance with the provisions of SFAS 123 (R). Prior periods were not restated to reflect the impact of adopting the new standard. As a result of adopting SFAS 123(R) on January 1, 2006, the Company's income before taxes, net income and basic and diluted earnings per share for the third quarter and nine months ended September 30, 2006, were $1,807,010, $1,266,162, and $.01 per share lower, and $5,276,900, $3,513,977 and $.02 per share lower, respectively, than if we had continued to account for stock-based compensation under APB Opinion No. 25 for our stock option grants. Compensation cost capitalized as part of inventory as of September 30, 2006, was $91,852. The cumulative effect of the change in accounting for forfeitures was not material. We receive a tax deduction for certain stock option exercises during the period the options are exercised, generally for the excess of the price at which the options are sold over the exercise price of the options. Prior to the adoption of SFAS 123(R), we reported all tax benefits resulting from the exercise of stock options as operating cash flows in our consolidated statement of cash flows. In accordance with SFAS 123(R), for the nine months ended September 30, 2006, we revised our consolidated statement of cash flows presentation to report the tax benefits from the exercise of stock options as financing cash flows. For the nine months ended September 30, 2006, $214,212 of tax benefits from the exercise of stock options and vested restricted stock were reported as financing cash flows rather than operating cash flows. Net cash proceeds from the exercise of stock options and employee stock purchases were $4,089,009 and $12,927,745, respectively, for the third quarter and nine months ended September 30, 2006. The actual income tax benefit realized from stock option exercises and vested restricted stock are $319,057 and $1,223,936, respectively, for the same periods. 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 for the third quarter and nine months ended September 30, 2005: <TABLE> <CAPTION> Three Months Ended Nine Months Ended September 30, 2005 September 30, 2005 ------------------ ------------------ <S> <C> <C> Net Income, as reported $27,935,819 $ 79,909,839 Deduct: Total stock-based employee compensation expense determined under fair value-based method of all awards, net of tax effects (1,332,871) (19,349,947) ----------- ------------ Pro forma net income $26,602,948 $ 60,559,892 =========== ============ Earnings per share: Basic - as reported $ .18 $ .51 Basic - pro forma $ .17 $ .39 Diluted - as reported $ .18 $ .51 Diluted - pro forma $ .17 $ .39 </TABLE> On March 30, 2005, in response to the required implementation of SFAS No. 123(R), the Company accelerated the vesting of current "under water" stock options. As a result of the vesting acceleration, approximately 2.3 million shares became immediately exercisable and an additional approximate $13.6 million of proforma stock-based employee compensation -6-
GENTEX CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONT.) (6) Stock-Based Compensation Plans (continued) expense was recognized in the first quarter 2005, that otherwise would have been recognized as follows: $6.1 million in 2005; $4.5 million in 2006; $2.2 million in 2007 and $0.8 million in 2008-2009. The objective of this Company action was primarily to avoid recognizing compensation expense associated with these options in future financial statements, upon the Company's adoption of SFAS 123(R), effective January 1, 2006. In addition, the Company also received shareholder approval of an amendment to its Employee Stock Option Plan to allow the grant of non-qualified stock options. Employee Stock Option Plan In 2004, a new Employee Stock Option Plan was approved, replacing the prior plan. The Company may grant options for up to 18,000,000 shares under its new Employee Stock Option Plan. The Company has granted options on 5,378,608 shares (net of shares from canceled options) under the new plan through September 30, 2006. Under the plans, the option exercise price equals the stock's market price on date of grant. The options vest after one to five years, and expire after three to seven years. The fair value of each option grant in the Employee Stock Option Plan was estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions for the indicated periods: <TABLE> <CAPTION> Three Months Ended Nine Months Ended September 30, September 30, ------------------ ----------------- 2006 2005 2006 2005 ------ ------ ------ ------ <S> <C> <C> <C> <C> Dividend yield 1.94% 2.05% 1.97% 2.05% Expected volatility 29.80% 26.04% 30.18% 38.12% Risk-free interest rate 4.69% 4.13% 4.89% 4.00% Expected term of options (in years) 4.93 4.39 4.57 4.37 Weighted-average grant-date fair value $ 3.97 $ 3.99 $ 4.15 $ 5.21 </TABLE> The Company determined that all employee groups exhibit similar exercise and post-vesting termination behavior to determine the expected term. As of September 30, 2006, there was $9,579,726 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 4.4 years. A summary of the status of the Company's employee stock option plan for the third quarter and nine months ended September 30, 2006, and changes during the same periods, are presented in the table and narrative below: <TABLE> <CAPTION> Three Months Ended September 30, 2006 Nine Months Ended September 30, 2006 ------------------------------------------ ------------------------------------------ Wtd. Avg. Aggregate Wtd. Avg. Aggregate Remaining Intrinsic Remaining Intrinsic Shares Wtd. Avg. Contract Value Shares Wtd. Avg. Contract Value (000) Ex. Price Life (000) (000) Ex. Price Life (000) ------ --------- --------- --------- ------ --------- --------- --------- <S> <C> <C> <C> <C> <C> <C> <C> <C> Outstanding at Beginning of Period 10,646 $17 10,510 $17 Granted 466 14 1,322 15 Exercised (300) 12 $ 725 (914) 12 $3,105 Forfeited (89) 17 (195) 18 ------ --- ------ --- Outstanding at End of Period 10,723 17 3.0 Yrs $1,923 10,723 17 3.0 Yrs $1,923 ------ --- ------- ------ ------ --- ------- ------ Exercisable at End of Period 7,434 $17 2.3 Yrs $1,502 7,434 $17 2.3 Yrs $1,502 </TABLE> A summary of the status of the Company's non-vested employee stock option activity for the third quarter and nine months ended September 30, 2006, are presented in the table and narrative below: -7-
GENTEX CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONT.) (6) Stock-Based Compensation Plans (cont.) <TABLE> <CAPTION> Three Months Ended Nine Months Ended September 30, 2006 September 30, 2006 ------------------- ------------------- Wtd. Avg. Wtd. Avg. Shares Grant Date Shares Grant Date (000) Fair Value (000) Fair Value ------ ---------- ------ ---------- <S> <C> <C> <C> <C> Non-vested stock options at beginning of period 3,113 $5.13 3,069 $5.65 Granted 466 3.97 1,322 4.15 Vested (270) 7.03 (1,041) 7.03 Forfeited (20) 5.05 (61) 5.51 ----- ----- ------ ----- Non-vested stock options at end of period 3,289 $4.91 3,289 $4.91 </TABLE> Non-employee Director Stock Option Plan The Company has a Non-employee Director Stock Option Plan covering 1,000,000 shares that was approved, replacing a prior plan. The Company has granted options on 315,240 shares (net of shares from canceled options) under the current plan through September 30, 2006. Under the plan, the option exercise price equals the stock's market price on date of grant. The options vest after six months, and expire after ten years. As of September 30, 2006, there was $61,173 of unrecognized compensation cost related to share-based payments which is expected to be recognized over the balance of the 2006 calendar year. A summary of the status of the Company's Non-employee Director Stock Option Plan for the third quarter and nine months ended September 30, 2006, and changes during the third quarter and nine months ended September 30, 2006, are presented in the table and narrative below: <TABLE> <CAPTION> Three Months Ended September 30, 2006 Nine Months Ended September 30, 2006 ------------------------------------------ ------------------------------------------ Wtd. Avg. Aggregate Wtd. Avg. Aggregate Remaining Intrinsic Remaining Intrinsic Shares Wtd. Avg. Contract Value Shares Wtd. Avg. Contract Value (000) Ex. Price Life (000) (000) Ex. Price Life (000) ------ --------- --------- --------- ------ --------- --------- --------- <S> <C> <C> <C> <C> <C> <C> <C> <C> Outstanding at Beginning of Period 453 $15 445 $14 Granted 0 0 48 15 Exercised (40) 7 $267 (80) 6 $662 Forfeited (72) 16 (72) 16 --- --- --- --- Outstanding at End of Period 341 15 6.5 Yrs $311 341 15 6.5 Yrs $311 --- --- ------- ---- --- --- ------- ---- Exercisable at End of Period 293 $15 6.0 Yrs $311 293 $15 6.0 Yrs $311 </TABLE> A summary of the status of the Company's non-vested non-employee director stock option plan activity for the third quarter and nine months ended September 30, 2006, are presented in the table and narrative below: <TABLE> <CAPTION> Three Months Ended Nine Months Ended September 30, 2006 September 30, 2006 ------------------- ------------------- Wtd. Avg. Wtd. Avg. Shares Grant Date Shares Grant Date (000) Fair Value (000) Fair Value ------ ---------- ------ ---------- <S> <C> <C> <C> <C> Non-vested stock options at beginning of period 48 $5.61 0 $ 0 Granted 0 0 48 5.61 Vested 0 0 0 0 Forfeited 0 0 0 0 --- ----- --- ----- Non-vested stock options at end of period 48 $5.61 48 $5.61 </TABLE> Employee Stock Purchase Plan In 2003, a new Employee Stock Purchase Plan covering 1,200,000 shares was approved, replacing a prior plan. The Company has sold a total of 412,502 shares under the new plan through September 30, 2006. The Company sells shares at -8-
GENTEX CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONT.) (6) Stock-Based Compensation Plans (cont.) 85% of the stock's market price at date of purchase. The weighted average fair value of shares sold in 2006 was approximately $13.03. Restricted Stock Plan The Company has a Restricted Stock Plan covering 1,000,000 shares of common stock that was approved, the purpose of which is to permit grants of shares, subject to restrictions, to key employees of the Company as a means of retaining and rewarding them for long-term performance and to increase their ownership in the Company. Shares awarded under the plan entitle the shareholder to all rights of common stock ownership except that the shares may not be sold, transferred, pledged, exchanged or otherwise disposed of during the restriction period. The restriction period is determined by a committee, appointed by the Board of Directors, but may not exceed ten years. The Company has 549,790 shares outstanding as of September 30, 2006, and 131,410 shares were granted with a restriction period of five years at market prices ranging from $14.00 to $17.09 year to date. As of September 30, 2006, the Company has unearned stock-based compensation of $5,179,679 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. (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> September 30, 2006 September 30, 2005 ------------------ ------------------ <S> <C> <C> Quarter Ended $26,549,014 $31,843,635 Nine Months Ended $80,280,623 $81,765,670 </TABLE> (8) The decrease in common stock during the nine months ended September 30, 2006, was primarily due the repurchase of 13,972,800 shares for approximately $207,364,000, partially offset by the issuance of 1,166,868 shares, respectively, of the Company's common stock under its stock-based compensation plans. The Company has also recorded a $0.09 per share cash dividend in the first and second quarters and a $0.095 per share cash dividend in the third quarter. The third quarter dividend of approximately $13,608,000, was declared on August 14, 2006, and was paid on October 20, 2006. (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 September 30, Nine Months Ended September 30, --------------------------- ------------------------------- 2006 2005 2006 2005 ------------ ------------ ------------ ------------ <S> <C> <C> <C> <C> Revenue: Automotive Products $135,100,675 $131,696,221 $404,380,294 $379,781,156 Fire Protection Products 6,164,972 6,418,676 18,297,177 18,359,906 ------------ ------------ ------------ ------------ Total $141,265,647 $138,114,897 $422,677,471 $398,141,062 ============ ============ ============ ============ Operating Income: Automotive Products $ 28,304,238 $ 33,810,716 $ 89,549,115 $ 98,146,950 Fire Protection Products 1,300,566 1,482,666 3,759,051 4,137,874 ------------ ------------ ------------ ------------ Total $ 29,604,804 $ 35,293,382 $ 93,308,166 $102,284,824 ============ ============ ============ ============ </TABLE> (10) In July 2006, the Financial Accounting Standards Board (FASB) issued Interpretation No. 48, "Accounting for Uncertainty in Income Taxes." This interpretation clarifies the accounting for uncertainty in income taxes recognized in an enterprise's financial statements in accordance with FASB statement No. 109, "Accounting for Income Taxes." Interpretation No. 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. This Interpretation also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. This Interpretation is effective for fiscal years beginning after December 15, 2006. The adoption of Interpretation No. 48 is not expected to have any significant effect on the Company's consolidated financial position or results of operations. -9-
GENTEX CORPORATION AND SUBSIDIARIES ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS: THIRD QUARTER 2006 VERSUS THIRD QUARTER 2005 Net Sales. Net sales for the third quarter of 2006 increased by approximately $3,151,000, or 2%, when compared with the third quarter last year. Net sales of the Company's automotive auto-dimming mirrors increased by approximately $3,404,000, or 3%, in the third quarter of 2006, when compared with the third quarter last year, primarily due to improved product mix with additional electronic content in mirrors and an increase in auto-dimming mirror unit shipments from approximately 3,198,000 in the third quarter of 2005 to 3,210,000 in the current quarter. Unit shipments to customers in North America for the current quarter decreased by 8% compared with the third quarter of the prior year, primarily due to lower production levels at the traditional Big Three. Mirror unit shipments for the current quarter to automotive customers outside North America increased by 8% compared with the third quarter in 2005, primarily due to increased penetration at certain European and Asian automakers. Net sales of the Company's fire protection products decreased 4% 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 increased from 63% in the third quarter of 2005 to 66% in the third quarter of 2006, when comparing the current quarter to the same quarter last year, primarily reflecting the impact of automotive customer price reductions. Stock option expense impacted cost of goods sold by $566,000. Operating Expenses. Engineering, research and development expenses for the current quarter increased 15% and approximately $1,396,000, when compared with the same quarter last year. Excluding stock option expense of $605,000, E, R & D expenses increased by 9% when comparing the current quarter to 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 14% and approximately $975,000, for the current quarter, when compared with the third quarter of 2005. Excluding stock option expense of $637,000, S, G & A expenses increased by 5%, when comparing the current quarter to the same quarter 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 current quarter increased by approximately $614,000 when compared with the third quarter of 2005, primarily due to increased interest income due to higher interest rates partially offset by lower investable funds, and 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 Extra Territorial Income Exclusion Act exempted taxable income, domestic manufacturing deduction, tax-exempt investment income and stock option expense. Net Income. The Company's net income for the current quarter decreased by $3,598,000, or 13%, when compared with the same quarter last year. Excluding stock option expense of $1,266,000, the Company's net income decreased 8%. NINE MONTHS ENDED SEPTEMBER 30, 2006, VERSUS NINE MONTHS ENDED SEPTEMBER 30, 2005 Net Sales. Net sales for the nine months ended September 30, 2006, increased by $24,536,000, or 6%, when compared with the same period last year. Net sales of the Company's automotive auto-dimming mirrors increased by $24,599,000, or 6%, as auto-dimming mirror unit shipments increased by 7% from approximately 9,323,000 in the first nine months of 2005 to 10,010,000 units in the first nine months of 2006. This increase primarily reflected the increased penetration of interior and exterior auto-dimming mirrors on 2006 and 2007 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 11%, primarily due to increased penetration at certain European and Asian automakers. Net sales of the Company's fire protection products were flat. -10-
Cost of Goods Sold. As a percentage of net sales, cost of goods sold increased from 63% in the nine months ended September 30, 2005, to 65% in the nine months ended September 30, 2006, when compared to the same period last year, primarily reflecting the impact of automotive customer price reductions. Stock option expense impacted cost of goods sold by $1,683,000. Operating Expenses. For the nine months ended September 30, 2006, engineering, research and development expenses increased approximately $4,742,000, but remained at 7% of net sales, when compared to the same period last year. Excluding stock option expense of $1,881,000, E, R & D expenses increased by 11% for the current period versus 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 $2,427,000 for the nine months ended September 30, 2006, but remained at 5% of net sales, when compared to the same period last year. Excluding stock option expense of $1,712,000, S, G & A expense increased by 3% versus the same period in the prior year, primarily reflecting the continued expansion of the Company's overseas sales offices. Total Other Income. Total other income for the nine months ended September 30, 2006, increased $6,397,000 when compared to the same period last year, primarily due to increased interest income due to higher interest rates and realized gains on the sale of equity investments. Taxes. The provision for income taxes varied from the statutory rate during the nine months ended September 30, 2006, primarily due to Extra Territorial Income Exclusion Act exempted taxable income, domestic manufacturing deduction, tax-exempt investment income and stock option expense. Net Income. The Company's net income for the nine months ended September 30, 2006, decreased $1,965,000, or 2%, when compared to the same period last year, primarily due to stock option expense and automotive customer price reductions. Excluding stock option expense of $3,514,000, the Company's net income increased by 2%. FINANCIAL CONDITION: Cash flow from operating activities for the nine months ended September 30, 2006, increased to $97,517,000, compared to $85,180,000, for the same period last year, primarily due to slower growth in accounts receivable. Capital expenditures for the nine months ended September 30, 2006, increased to $40,406,000, compared to $41,776,000 for the same period last year, primarily due to increased purchase of manufacturing equipment. The Company has completed the construction of its fourth automotive manufacturing facility and a new technical center. The Company has invested approximately $38 million for the new facilities during 2004-2006, which was funded from its cash and cash equivalents on hand. Accounts receivable as of September 30, 2006, increased approximately $10,174,000 compared to December 31, 2005. 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 $525,057,000 as of September 30, 2006, together with internally generated cash flow and an unsecured $5,000,000 line of credit from a bank, to be sufficient to cover anticipated cash needs for the next year and for the foreseeable future. On October 8, 2002, the Company announced a share repurchase plan, under which it may purchase up to 8,000,000 shares (post-split) based on a number of factors, including market conditions, the market price of the Company's common stock, anti-dilutive effect on earnings, available cash and other factors that the Company deems appropriate. On July 20, 2005, the Company announced that it had raised the price at which the Company may repurchase shares under the existing plan. On May 16, 2006, the Company announced that the Company's Board of Directors had authorized the repurchase of an additional eight million 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 eight million shares under the 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. During the -11-
quarter ended March 31, 2006, the Company repurchased approximately 2,804,000 shares at a cost of approximately $47,145,000. During the quarter ended June 30, 2006, the Company repurchased approximately 7,201,000 shares at a cost of approximately $104,604,000. During the quarter ended September 30, 2006, the Company repurchased approximately 3,968,000 shares at a cost of approximately $55,614,000. Approximately 7,701,000 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, 2005. Management believes there have been no changes in those critical accounting policies, except as noted below. STOCK-BASED COMPENSATION The Company accounts for stock-based compensation in accordance with the fair value recognition provisions of SFAS No. 123(R). The Company utilizes the Black-Scholes model, which requires the input of subjective assumptions. These assumptions include estimating (a) the length of time employees will retain their vested stock options before exercising them ("expected term"), (b) the volatility of the Company's common stock price over the expected term, (c) the number of options that will ultimately not complete their vesting requirements ("forfeitures") and (d) expected dividends. Changes in the subjective assumptions can materially affect the estimate of fair value of stock-based compensation and consequently, the related amounts recognized on the consolidated condensed statements of operations. 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 Company by no later than the 2007 model year. We have estimated that this new business represented incremental auto-dimming mirror units in the range of 500,000 on an annualized basis at that time. The Company also negotiated a price reduction for the GM OnStar(R) feature in its auto-dimming mirrors, effective January 1, 2005, in connection with GM's stated plan to make their OnStar system standard across their vehicle models over the next several years. 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 5% higher in the fourth quarter of calendar year 2006, compared with the fourth quarter of 2005. 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. -12-
The Company utilizes the light vehicle production forecasting services of CSM Worldwide, and CSM's current forecasts for light vehicle production for calendar 2006 are approximately 15.3 million units for North America, 20.3 million for Europe and 14.2 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, 2006, 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, 2005. 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 6, 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. 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. -13-
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 The management, with the participation of its principal executive officer and principal financial officer, has evaluated the effectiveness, as of September 30, 2006, 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 procedures, as of September 30, 2006, were effective to provide reasonable assurance that 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 to provide reasonable assurance that 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 September 30, 2006, 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 expenses on earnings, the ability to leverage fixed manufacturing overhead costs, unit shipment growth rates and the Company itself. Words like "anticipates," "believes," "confident," "estimates," "expects," "forecast," "likely," "plans," "projects," and "should," and variations of such words and similar expressions identify forward-looking statements. These statements do not guarantee future performance and involve certain risks, uncertainties, and assumptions that are difficult to predict with regard to timing, expense, likelihood and degree of occurrence. These risks include, without limitation, employment and general economic conditions, the pace of economic recovery in the U.S. and in international markets, the pace of automotive production 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. -14-
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, 2005. There have been no material changes from the risk factors previously disclosed in the Company's report form on Form 10-K. 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, 2006: <TABLE> <CAPTION> 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 ------ ------------ ------------- ------------------- ---------------------- <S> <C> <C> <C> <C> July 2006 630,297 $13.34 630,297 3,039,015 August 2006 1,763,771 $13.97 1,763,771 9,275,244 September 2006 1,574,103 $14.33 1,574,103 7,701,141 --------- --------- Total 3,968,171 3,968,171 </TABLE> 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. During the quarter ended March 31, 2006, the Company repurchased approximately 2,804,000 shares at a cost of approximately $47,145,000. During the quarter ended June 30, 2006, the Company repurchased approximately 7,201,000 shares at a cost of approximately $104,604,000. On May 16, 2006, the Company announced that the Company's Board of Directors had authorized the repurchase of an additional eight million 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 eight million shares under the plan. ITEM 6. EXHIBITS (a) See Exhibit Index on Page 17. -15-
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: October 31, 2006 /s/ Fred T. Bauer ---------------------------------------- Fred T. Bauer Chairman and Chief Executive Officer Date: October 31, 2006 /s/ Enoch C. Jen ---------------------------------------- Enoch C. Jen Senior Vice President & Chief Financial Officer, Principal Financial and Accounting Officer -16-
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) 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. </TABLE> -17-
<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(b)(8) Confidential Severance Agreement and Release between Gentex Corporation and Garth Deur was filed as Exhibit 10(b)(8) to Registrant's Report on Form 10-Q dated August 1, 2006, and the same is incorporated herein by reference. 10(e) The form of Indemnity Agreement between Registrant and each of the Registrant's directors and certain officers was filed as Exhibit 10 (e) to Registrant's Report on Form 10-Q dated October 31, 2002, and the same is 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 </TABLE> - ---------- * Indicates a compensatory plan or arrangement. -18-