GENTEX CORP - Annual Report: 2008 (Form 10-K)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
þ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For fiscal year ended December 31, 2008.
o | 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 (State or other jurisdiction of incorporation or organization) |
38-2030505 (I.R.S. Employer Identification No.) |
|
600 N. Centennial Street, Zeeland, Michigan (Address of principal executive offices) |
49464 (Zip Code) |
(616) 772-1800
(Registrants telephone number, including area code)
(Registrants telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each Class | Name of each exchange on which registered | |
Common Stock, par value $.06 per share | Nasdaq Global Select Market |
Securities registered pursuant to Section 12(g) of the Act:
None
(Title of Class)
(Title of Class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of
the Securities Act.
Yes: þ No: o
Yes: þ No: o
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or
Section 15(d) of the Act.
Yes: o No: þ
Yes: o No: þ
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: þ No: o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K
(229.405 of this chapter) is not contained herein, and will not be contained, to the best of
registrants knowledge, in definitive proxy or information statements incorporated by reference in
Part III of this Form 10-K or any amendment to this Form 10-K. o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act:
Large Accelerated Filer þ | Accelerated Filer o | Non-Accelerated Filer o | Smaller Reporting Company o | |||
(do not check if a smaller reporting company) |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes: o No: þ
As of June 30, 2008 (the last business day of the registrants most recently completed second
fiscal quarter), 135,608,920 shares of the registrants common stock, par value $.06 per share,
were outstanding. The aggregate market value of the common stock held by non-affiliates of the
registrant (i.e., excluding shares held by executive officers, directors, and control persons as
defined in Rule 405 (17 CFR 203.405) on that date was $1,958,192,805 computed at the closing price
on that date.
As of February 10, 2009, 137,631,052 shares of the registrants common stock, par value $.06 per
share, were outstanding.
Portions of the Companys Proxy Statement for its 2009 Annual Meeting of Shareholders are
incorporated by reference into Part III.
Exhibit Index
located at Page 52
PART I
Item 1. Business.
(a) General Development of Business
Gentex Corporation (the Company) designs, develops, manufactures and markets proprietary
products employing electro-optic technology: automatic-dimming rearview automotive mirrors and
fire protection products. The Company also developed and manufactures variable dimmable windows
for the aircraft industry and non-automatic-dimming rearview automotive mirrors with electronic
features.
The Company was organized as a Michigan company in 1974 to manufacture residential smoke
detectors, a product line that has since evolved into a more sophisticated group of fire protection
products primarily for the commercial building industry. In 1982, the Company introduced an
automatic interior rearview mirror that was the first commercially successful glare-control product
offered as an alternative to the conventional, manual day/night mirror. In 1987, the Company
introduced its interior electrochromic (auto-dimming) mirror, providing the first successful
commercial application of electrochromic (EC) technology in the automotive industry and world.
Through the use of electrochromic technology, this mirror is continually variable and automatically
darkens to the degree required to eliminate rearview mirror headlight glare. In 1991, the Company
introduced its exterior electrochromic sub-assembly, which works as a complete glare-control system
with the interior auto-dimming mirror. In 1997, the Company began making volume shipments of three
new exterior mirror sub-assembly products: thin glass flat, convex and aspheric.
During 2001, the Company announced a revolutionary new proprietary technology, called
SmartBeam®, that uses a custom, active-pixel, CMOS (complementary metal oxide semiconductor)
sensor, and maximizes a drivers forward vision by significantly improving utilization of the
vehicles highbeam headlamps during nighttime driving. During 2004, the Company began shipping
auto-dimming mirrors with SmartBeam®. During 2008, the Company began shipping auto-dimming mirrors
with SmartBeam® on seven additional models for Audi, Opel, Chrysler, Bavarian Motor Works, A.G.
(BMW) and Toyota.
During 2006, the Company announced development programs with several automakers for its Rear
Camera Display (RCD) Mirror that shows the vehicle operator a panoramic video view of objects
directly behind the vehicle in real time. During 2007, the Company announced a number of OEM
(Original Equipment Manufacturer) programs and dealer or port-installed programs for its RCD
Mirror. During 2008, the Company announced that its RCD Mirror is available on 16 additional
models for Hyundai/Kia, General Motors, Toyota and Ford. The Company also announced in 2008 that
its RCD Mirror is now available through MITO Corporation, a distributor of high-quality aftermarket
electronic products and accessories.
During 2005, the Company reached an agreement with PPG Aerospace to work together to provide
the variably dimmable windows for the passenger compartment on the new Boeing 787 Dreamliner series
of aircraft. The Company shipped the first set of variably dimmable aircraft windows for test
planes in mid 2007. Boeing, based on the latest available information, now expects the first
delivery of the 787 Dreamliner series of aircraft to occur in early 2010. The Company anticipates
that it will begin to deliver windows to the production line in 2009. During 2008, the Company and
PPG Aerospace announced that they will work together to supply dimmable windows to Hawker
Beechcraft Corporation for passenger-cabin windows on the 2010 Beechcraft King Air 350i airplane.
During 2006, the Company has developed its own compass technology called Z-Nav®, which can be
sold as a system with the compass heading displayed in the interior auto-dimming mirror or it can
be mounted on any fixed or pivotal location in the vehicle.
During 2007, the Company began shipping non automatic-dimming exterior mirrors with electronic
features in low volume.
(b) Financial Information About Segments
See Note 8 to the Consolidated Financial Statements filed with this report.
- 2 -
(c) Narrative Description of Business
The Company currently manufactures electro-optic products, including automatic-dimming
rearview mirrors for the automotive industry and fire protection products primarily for the
commercial building industry. The Company also manufactures
variable dimmable windows for the aircraft industry and non automatic-dimming rearview automotive
mirrors with electronic features for the automotive industry.
Automotive Mirrors
Automatic-Dimming Rearview Mirrors
Interior Auto-Dimming Mirrors. In 1987, the Company achieved a significant
technological breakthrough by applying electrochromic technology to the glare-sensing capabilities
of its Motorized Mirror. Through the use of this technology, the mirror gradually darkens to the
degree necessary to eliminate rearview glare from following vehicle headlights. The auto-dimming
mirror offers all of the continuous reflectance levels between its approximate 87% full-reflectance
state and its 7% least-reflectance state, taking just a few seconds to span the entire range.
Special electro-optic sensors in the mirror detect glare and electronic circuitry supplies
electricity to darken the mirror to only the precise level required to eliminate glare, allowing
the driver to maintain maximum vision. This is accomplished by the utilization of two layers of
precision glass with special conductive coatings that are separated by the Companys proprietary
electrochromic materials. When the appropriate light differential is detected by the sensors, an
electric current causes the electrochromic material to darken, decreasing the mirrors reflectance,
thereby eliminating glare.
During 1991, the Company began shipping the first advanced-feature interior auto-dimming
mirror, the auto-dimming headlamp control mirror, an automatic-dimming mirror that automatically
turns car head- and taillamps on and off at dusk and dawn in response to the level of light
observed. During 1993, the Company began shipping an auto-dimming compass mirror, with an
electronic compass that automatically compensates for changes in the earths magnetic field.
During 1997, the Company began shipping a new interior auto-dimming mirror that digitally displays
either a compass or outside temperature reading. During 1998, the Company began shipping new
compass mirrors with light-emitting diode (LED) map lamps, a major improvement over mirrors with
standard incandescent map lamps, including extremely long life, low heat generation, lower current
draw, more resistance to shock, and lower total cost of ownership. In 2000, the Company began
shipping to General Motors interior auto-dimming mirrors that serve as the driver interface for the
OnStar® System, an in-vehicle safety, security and information service using Global Positioning
System (GPS) satellite technology. OnStar is a registered trademark of OnStar Corporation.
During 2001 and 2002, the Company began making shipments of its auto-dimming mirrors for a
number of small/mid-sized, medium-priced vehicles, including the Toyota Camry, Matrix and Corolla;
Ford Taurus and Mercury Sable; Volkswagen Passat, Jetta, Golf GTI and Beetle; Nissan Altima; Opel
cross car line; Chrysler Sebring Coupe; Hyundai Santa Fe and Sonata; and Kia Optima and Sorento.
The Company continues to expand its shipments of auto-dimming mirrors for small/mid-sized,
medium-priced vehicles, including the new 2008 Honda Civic and Accord; and the popular Ford Focus
and Fiesta in Europe. The Company also continued to expand its shipments of auto-dimming mirrors
with features during 2008 for crossover vehicles including the Nissan Rogue, Kia Soul and the
Toyota Venza.
During 2003, the Company began making shipments of its auto-dimming mirrors to two new
automotive OEM customers, Honda and Volvo, and began volume shipments of its microphone as part of
DaimlerChryslers U-Connect® telematics system. During 2007, the Company began making shipments
of its microphone mirrors as part of Fords Sync® telematics system.
During 2004 and 2005, the Company began shipping auto-dimming mirrors with SmartBeam®, its
proprietary intelligent high-beam headlamp control feature, for the Cadillac STS, Jeep Grand
Cherokee, Cadillac DTS, the Jeep Commander, and BMW 5, 6 and 7 Series models in Europe and other
select markets. During 2006, the Company began shipping auto-dimming mirrors with SmartBeam® for
the BMW 3 Series, Cadillac Escalade and the Chrysler 300C. During 2007, the Company began shipping
auto-dimming mirrors with SmartBeam® for the BMW 5 and 6 Series in North America and the BMW X5
model in Europe and other select markets. During 2008, the Company began shipping auto-dimming
mirrors with SmartBeam® for the Audi A4, A5 and Q7 in Europe, the Opel Insignia in Europe, the
Chrysler Town & Country minivan, the BMW X6 and the Toyota Venza crossover sedan. The Company is
currently shipping auto-dimming mirrors with SmartBeam® for 20 models.
- 3 -
During 2006, the Company announced development programs with several automakers for its Rear
Camera Display (RCD) Mirror that shows a panoramic video view of objects directly behind the
vehicle in real time. During 2007, the Company began shipping auto-dimming mirrors with RCD for
the Ford Expedition, Ford F150, Lincoln Navigator, Lincoln Mark LT and the Kia Mohave in the Korean
market. The Company also began shipping auto-dimming mirrors with RCD for the Mazda CX-9 as a
dealer or port-installed program. In addition, the Company began shipping auto-dimming mirrors
with RCD for the Toyota Camry as a dealer or port-installed option through Gulf States Toyota, one
of two independent Toyota distributorships that covers dealers in the states of Arkansas,
Louisiana, Mississippi, Oklahoma and Texas. During 2008, the Company began shipping auto-dimming
mirrors with RCD for the Hyundai Grandeur and the Kia Soul in the Korean market, Toyota Tacoma, FJ
Cruiser and RAV4, Ford E-Series passenger van and the General Motors GMT 900 and Lambda platforms.
The Company also announced that its RCD Mirror is available through MITO Corporation, a distributor
of high-quality aftermarket electronic products and accessories. The Company is currently shipping
auto-dimming mirrors with RCD for 26 models.
On February 28, 2008, the President signed into law the Kids Transportation Safety Act of
2007. The National Highway Traffic Safety Administration (NHTSA) has one year to initiate
rulemaking to revise the federal standard to expand the field of view so that drivers can detect
objects directly behind vehicles. NHTSA then has three years to determine how automakers must meet
the rules, which may include the use of additional mirrors, sensors, rear back-up cameras (which
could be in a mirror, navigation system or other LCD display). Once NHTSA publishes the new rules,
automakers will have 48 months to comply with those rules for vehicles in the United States. The
Companys RCD Mirror is a cost competitive product that is relatively easy to implement and may be
among the technologies that NHTSA will include as a means to meet the requirements of the
legislation.
The Company shipped approximately 9,426,000 interior auto-dimming mirrors in 2006,
approximately 11,001,000 in 2007, and 10,505,000 in 2008.
- 4 -
During 2008, interior total mirror unit shipments decreased primarily due to decreased
shipments to the traditional Big Three automakers, partially offset by increased shipments at
certain European and Asian automakers. The Companys interior auto-dimming mirrors are standard
equipment or factory-installed options on certain trim levels of the following 2009 vehicle models:
Table 1. Interior Auto-Dimming Mirror Availability by Vehicle Line (North American
Manufacturers)
GM/Cadillac
|
DTS | Chrysler/Dodge | Avenger | |||
STS | Caliber | |||||
CTS | Caravan | |||||
Escalade | Challenger | |||||
SRX | Charger | |||||
GM/Buick
|
Enclave | Dakota | ||||
LaCrosse | Durango | |||||
Lucerne | Journey | |||||
GM/Hummer
|
H2 | Magnum | ||||
H3 | Nitro | |||||
GM/Pontiac
|
G6 | PT Cruiser | ||||
Torrent | Ram Pickup | |||||
GM/Chevrolet
|
Avalanche | Chrysler/Jeep | Commander | |||
Colorado | Compass | |||||
Equinox | Grand Cherokee | |||||
HHR | Liberty | |||||
Impala | Patriot | |||||
Malibu | Daimler/Mercedes Benz | GL Class | ||||
Silverado | M Class | |||||
Suburban | R Class | |||||
Tahoe | BMW | X5 | ||||
Trailblazer | X6 | |||||
Traverse | Honda | Accord | ||||
GM/GMC
|
Acadia | Pilot | ||||
Canyon | Honda/Acura | MDX | ||||
Envoy | RDX | |||||
Sierra | TL | |||||
Yukon | Hyundai | Santa Fe | ||||
GM/Saab
|
9-7x | Sonata | ||||
GM/Saturn
|
Aura | Mazda | 6 | |||
Outlook | Mitsubishi | Galant | ||||
Vue | Raider | |||||
Ford
|
Crown Victoria | Nissan | Altima | |||
E Series | Armada | |||||
Edge | Frontier | |||||
Expedition | Maxima | |||||
Flex | Pathfinder | |||||
Taurus | Quest | |||||
Taurus X | Titan | |||||
Fusion | Nissan/Infiniti | QX56 | ||||
F Series | Toyota | Avalon | ||||
Mustang | Camry | |||||
Ford/Lincoln
|
MKS | Camry Solara | ||||
MKX | Corolla | |||||
MKZ | Matrix | |||||
Mark LT | Rav 4 | |||||
Navigator | Sequoia | |||||
Town Car | Sienna | |||||
Ford/Mercury
|
Grand Marquis | Tacoma | ||||
Milan | Tundra | |||||
Sable | Venza | |||||
Chrysler
|
300 | Toyota/Lexus | RX | |||
Aspen | Volkswagen | Beetle | ||||
Sebring | Jetta | |||||
Town & Country |
- 5 -
Table 1. Interior Auto-Dimming Mirror Availability by Vehicle Line Continued (Manufacturers
Outside of North America)
Bentley
|
Arnage | Hyundai (contd) | Santa Fe | Toyota | Aurion | ||||
Azure | Starex | Auris | |||||||
Continental | Tuscani | Avensis | |||||||
GTC | Tucson | Blade | |||||||
BMW
|
7 Series | Veracruz | Camry | ||||||
6 Series | Hyundai/Kia | Amanti | Corolla | ||||||
5 Series | Carnival | Crown Royal | |||||||
3 Series | Carens | FJ Cruiser | |||||||
1 Series | Ceed | Highlander | |||||||
X3 | Cerato | Hilux Surf | |||||||
Daewoo
|
Antara | Lotze | iQ | ||||||
Lacetti | Mohave | Ist | |||||||
Winstorm | Borrego | Land Cruiser | |||||||
Daewoo/Ssangyong
|
Actyon | Opirus | Mark X | ||||||
Chairman | Optima | Prius | |||||||
Kyron | Sedona | RAV4 | |||||||
Rexton | Sorento | Reiz | |||||||
Rodius | Soul | Verso | |||||||
Chrysler
|
300 | Spectra | Yaris | ||||||
Sebring | Sportage | 4-Runner | |||||||
Chrysler/Jeep
|
Commander | Jaguar | XF | Zi0 | |||||
Grand Cherokee | XK | Volkswagen | EOS | ||||||
Fiat
|
Idea | XJ | Golf | ||||||
500 | Land Rover | Defender | Jetta | ||||||
Palio | Discovery | Lavida | |||||||
Punto | Range Rover | Model X | |||||||
Stilo | Maserati | Quattroporte | Passat | ||||||
Fiat/Alfa Romero
|
147 | GT Coupe | Phaeton | ||||||
Fiat/Lancia
|
Thesis | Mazda | CX-7 | Polo | |||||
Ford
|
C-Max | CX-9 | Sagitar | ||||||
Fiesta | RX-8 | Scirocco | |||||||
Falcon | Daimler | C Class | Sharan | ||||||
Focus | /Mercedes Benz | CL Class | Tiguan | ||||||
Galaxy | CLC | Touareg | |||||||
Kuga | CLK | Touran | |||||||
Mondeo | CLS | Volkswagen/Audi | A3 | ||||||
Territory | E Class | A4 | |||||||
S-Max | G Wagen | A5 | |||||||
Ford/Volvo
|
C70 | S Class | A6 | ||||||
C30 | SL Class | A8 | |||||||
S40 | SLK | Cabrio | |||||||
V50 | Viano | Allroad | |||||||
XC60 | Mitsubishi | 380 | Q5 | ||||||
GM/Buick
|
LaCrosse | Pajero | Q7 | ||||||
Regal | Nissan | 370Z | R8 | ||||||
GM/Cadillac
|
STS | GT-R | TT | ||||||
GM/Opel
|
Astra | Murano | Volkswagen/SEAT | Altea | |||||
Captiva | Navara | Cordoba | |||||||
Corsa | Pathfinder | Exeo | |||||||
Insignia | Rogue | Ibiza | |||||||
Meriva | Skyline | Leon | |||||||
Signum | Nissan/Infiniti | EX | Toledo | ||||||
Tigra | FX35/FX45 | Volkswagen/Skoda | Octavia | ||||||
Vectra | G35/G37 | Superb | |||||||
Zafira | M35/M45 | ||||||||
Honda/Acura
|
TSX | PSA/Citroen | C6 | ||||||
Honda
|
Accord | PSA/Peugeot | 207 | ||||||
Civic | 407 | ||||||||
Inspire | Porsche | Cayenne | |||||||
Hongqi
|
Benteng | SAIC | Roewe 550 | ||||||
Hyundai
|
Avante | Roewe 750 | |||||||
Azera | Toyota/Lexus | ES | |||||||
Elantra | GX | ||||||||
Equus | LX | ||||||||
Genesis | RX | ||||||||
Grandeur | |||||||||
I30 | |||||||||
Sonata |
- 6 -
Exterior Auto-Dimming Mirror Sub-Assemblies. The Company has devoted substantial
research and development efforts to the development of its electrochromic technology to permit its
use in exterior rearview mirrors. Exterior auto-dimming mirrors are controlled by the sensors and
electronic circuitry in the interior auto-dimming mirror, and both the interior and exterior
mirrors dim simultaneously. During 1991, the Companys efforts culminated in a design that is
intended to provide acceptable long-term performance in all automotive environments likely to be
encountered. In 1994, the Company began shipments of its complete three-mirror system, including
the convex (curved glass) wide-angle auto-dimming mirror to BMW. During 1997, the Company began
making volume shipments of additional new exterior mirror products: thin glass flat and aspheric
mirrors. During 2001 and 2002, the Company began making shipments of the worlds first exterior
automatic-dimming mirrors with built-in turn-signal indicators to Southeast Toyota and General
Motors. The Company currently offers its exterior auto-dimming mirrors with turn-signal
indicators and side blind zone features. The Company currently sells its exterior auto-dimming
mirror sub-assemblies to exterior mirror suppliers of the automakers who assemble the exterior
auto-dimming mirror sub-assemblies into full mirror units for subsequent resale to the automakers.
The Company shipped approximately 4,001,000 exterior auto-dimming mirror sub-assemblies during
2006, approximately 4,220,000 in 2007, and approximately 3,884,000 in 2008. During 2008, total
exterior unit shipments decreased primarily due to decreased shipments in North America, partially
offset by increased shipments at certain European and Asian automakers.
The exterior auto-dimming mirror is standard equipment or a factory-installed option on
certain trim levels of the following 2009 vehicle models:
Table 2. Exterior Auto-Dimming Mirror Availability by Vehicle Line
GM/Cadillac
|
DTS | BMW (contd) | 3 Series | Honda/Acura | RL | |||||
Escalade | 1 Series | Hyundai | Equus | |||||||
XLR | X3 | Genesis | ||||||||
GM/Buick
|
Enclave | Bentley | Arnage | Grandeur | ||||||
Lucerne | Azure | Veracruz | ||||||||
GM/Chevrolet
|
Avalanche | Continental | Hyundai/Kia | Amanti | ||||||
Silverado | GTC | Opirus | ||||||||
Suburban | Daimler | C Class | Nissan/Infiniti | QX56 | ||||||
Tahoe | /Mercedes Benz | CL Class | Toyota/Lexus | GS | ||||||
GM/GMC
|
Acadia | CLC | LS | |||||||
Sierra | CLK | LX | ||||||||
Yukon | CLS | RX | ||||||||
GM/Hummer
|
H2 | E Class | SC | |||||||
GM/Saturn
|
Outlook | GLK | Toyota | Avalon | ||||||
Ford/Lincoln
|
MKZ | G Wagen | Camry Solara | |||||||
Town Car | GL Class | Land Cruiser | ||||||||
Chrysler
|
300 | M Class | Sequoia | |||||||
Aspen | R Class | Sienna | ||||||||
Town & Country | S Class | Tundra | ||||||||
Chrysler/Dodge
|
Caravan | SL Class | Nissan | Armada | ||||||
Durango | SLK | Cima | ||||||||
Chrysler/Jeep
|
Commander | Jaguar | XF | Maxima | ||||||
Grand Cherokee | XJ | Titan | ||||||||
Volkswagen/Audi
|
A3 | XK | Rolls Royce | Drophead Coupe | ||||||
A4 | Land Rover | Range Rover | Phantom | |||||||
A5 | Maserati | Quattroporte | Daewoo | Antara | ||||||
A6 | GT Coupe | Daewoo | Chairman | |||||||
A8 | PSA/Citroen | C5 | /Ssangyong | |||||||
Allroad | C6 | |||||||||
Cabrio | VW/Skoda | Octavia | ||||||||
Q5 | Superb | |||||||||
Q7 | Volkswagen | EOS | ||||||||
R8 | Golf | |||||||||
TT | Passat | |||||||||
BMW
|
7 Series | Sharan | ||||||||
6 Series | Touran | |||||||||
5 Series | Touareg | |||||||||
Honda | Accord |
- 7 -
Non-Automatic-Dimming Rearview Mirrors. In 2007, the Company began shipping
non-auto-dimming exterior mirrors with electronic features (i.e. side blind zone indicators) in low
volume. During 2008, unit shipments for non-auto-dimming exterior mirrors with electronic features
continued in low volume.
Product Development. The Company plans to continue introducing additional
advanced-feature auto-dimming mirrors. Advanced-feature auto-dimming mirrors currently being
offered by the Company include the auto-dimming headlamp control mirror, the auto-dimming lighted
mirror with LED map lamps, the auto-dimming compass mirror, the auto-dimming mirror with remote
keyless entry, the auto-dimming compass/temperature mirror, the auto-dimming dual display
compass/temperature mirror, auto-dimming telematics mirrors and the auto-dimming HomeLink® mirror.
During 2001, the Company announced a revolutionary new proprietary technology, called SmartBeam®,
that uses a custom, active-pixel, CMOS (complementary metal oxide semiconductor) sensor, and
maximizes a drivers forward vision by significantly improving utilization of the vehicles
highbeam headlamps during nighttime driving. During 2004, the Company began shipping auto-dimming
mirrors with SmartBeam®, its proprietary intelligent high-beam headlamp control feature. The
Company is currently shipping auto-dimming mirrors with SmartBeam® to General Motors, Chrysler,
BMW, Audi, Opel/Vauxhall and Toyota for 20 models.
During 2006, the Company announced development programs with several automakers for its RCD
Mirror that consists of a proprietary liquid crystal display (LCD) device that shows a panoramic
video view of objects behind the vehicle in real time. When the vehicle is put in reverse, the
display illuminates and automatically appears through the rearview mirrors reflective surface to
give a high resolution, bright colored image. The image is generated by a camera or cameras placed
in a protected area at the rear of the vehicle. When the vehicle is put in drive, the display in
the mirror automatically disappears. The ability to automatically have the display appear through
the auto-dimming mirrors surface is made possible by utilizing proprietary transflective
coatings developed the Company.
In addition, the Company has developed its own compass technology, which can be sold as a
system with the compass heading displayed in the interior auto-dimming mirror. The Gentex compass
technology is called Z-Nav®, as it features a proprietary, digital, tri-axis sensor (transducer)
and software. The tri-axis design is similar to compasses used in highly scientific apparatus such
as aerospace applications, and can be mounted on any fixed or pivotal location in the vehicle,
including inside the mirror housing.
The Company also developed an ALS (Active Light Sensor) technology as a cost-effective,
improved-performance, intelligent CMOS light sensor to control the dimming of its rearview mirrors,
and the Company began making volume shipments of mirrors incorporating ALS in 2002.
During 2001, the Company developed a new microphone designed specifically for use in the
automotive environment for telematics applications. The first volume Gentex microphone application
was part of DaimlerChryslers U-Connect® telematics system, beginning in 2003. During
2006, the Companys proprietary integrated hands-free microphone was available as part of an
optional navigation package at Ford. Also, the Company is separately shipping its proprietary
microphone units that are being incorporated into prismatic interior mirrors at a customers
request.
Of particular importance to the Company has been the development of its electrochromic
technology for use in complete three-mirror systems. In these systems, both the driver- and
passenger-side exterior auto-dimming mirrors are controlled by the sensors and electronic circuitry
in the interior rearview mirror, and the interior and both exterior mirrors dim simultaneously.
The Companys engineering, research, and development expenses are set forth as a separate line item
in the Consolidated Statement of Income of the Companys Consolidated Financial Statements filed in
this report.
- 8 -
Markets and Marketing. In North America, the Company markets its products primarily
through a direct sales force. The Company generally supplies auto-dimming mirrors to its customers
worldwide under annual blanket purchase orders. The Company currently supplies auto-dimming
mirrors to General Motors Corporation, Daimler AG (formerly DaimlerChrysler AG) and Chrysler LLC
under long-term agreements, entered into in the ordinary course of business. During 2005, the
Company negotiated an extension to its long-term agreement for inside mirrors with General Motors
in the ordinary course of the Companys business. Under the
extension, Gentex was sourced virtually all of the interior auto-dimming rearview mirror
programs for GM and its worldwide affiliates through August 2009, except for two low-volume models
that had previously been awarded to a Gentex competitor under a lifetime contract. The new
business included the GMT360 program (which is the mid-size truck/SUV platform that previously did
not offer auto-dimming mirrors). During 2008, the Company negotiated another extension to the
existing agreement, through August 1, 2012, in the ordinary course of the Companys business. The
Company also negotiated a price reduction for the GM OnStar® feature in its auto-dimming mirrors,
effective January 1, 2005, in connection with GMs stated plan to make their OnStar system standard
across their vehicle models over the next several years.
The Company has a long-term agreement with Daimler AG (formerly DaimlerChrysler AG) entered
into in the ordinary course of the Companys business. Under the agreement, the Company will be
sourced virtually all interior and exterior auto-dimming mirror business at Mercedes and Chrysler
through December 2009. The Companys exterior auto-dimming mirror sub-assemblies are supplied by
means of sales to exterior mirror suppliers. During 2007, the Company negotiated an extension to
its global supply agreement with Chrysler LLC in the ordinary course of the Companys business.
Under the extension, the Company will be sourced virtually all Chrysler interior auto-dimming
rearview mirrors through 2015. From publicly available information, the Company does not believe
that the Daimler sale of the Chrysler unit will significantly impact the Companys current business
with Chrysler or Mercedes in the near term, but there may be other information of which the Company
is not aware.
The Company previously negotiated a multi-sourcing agreement with Ford Motor Company in the
ordinary course of the Companys business. Under the agreement, the Company was sourced all
existing interior auto-dimming rearview mirror programs as well as a number of new interior
auto-dimming rearview mirror programs during the agreement term which ended on December 31, 2008.
During 1993, the Company established a sales and engineering office in Germany and the
following year, the Company formed a German limited liability company, Gentex GmbH, to expand its
sales and engineering support activities in Europe. During 1999, the Company established Gentex
Mirrors, Ltd., as a sales and engineering office in the United Kingdom. During 2000, the Company
established Gentex France, SAS, as a sales and engineering office in France. During 2003, the
Company established a satellite office in Munich, Germany, and during 2005, the Company established
a satellite office in Sweden. The Companys marketing efforts in Europe are conducted through
Gentex GmbH, Gentex Mirrors, Ltd., and Gentex France SAS. The Company is currently supplying
mirrors for Audi, BMW, Bentley, Citroen, Fiat, Ford of Europe, Jaguar, Land Rover, Mercedes-Benz,
Opel, Maserati, Peugeot, Porsche, Rolls Royce, SEAT, Skoda, Volkswagen and Volvo in Europe.
In 1991, the Company began shipping electrochromic mirror assemblies for Nissan Motor Co.,
Ltd. under a reciprocal distribution agreement with Ichikoh Industries, Ltd. (Ichikoh), a major
Japanese supplier of automotive products. Under this agreement, Ichikoh marketed the Companys
automatic mirrors to certain Japanese automakers and their subsidiaries with manufacturing
facilities in Asia. The arrangement involved very limited technology transfer by the Company and
did not include the Companys proprietary electrochromic gel formulation. The agreement was
terminated by mutual agreement in 2001.
During 1993, the Company hired a sales agent to market auto-dimming mirrors to other Japanese
automakers beyond Nissan. Subsequently in 1998, the Company established Gentex Japan, Inc., as a
sales and engineering office in Nagoya, Japan, to expand its sales and engineering support in
Japan. In 2000, the Company signed an agreement with Murakami Corporation, a major Japanese mirror
manufacturer, to cooperate in expanding sales of automatic-dimming mirrors using the Gentex
electrochromic technology. During 2006, the agreement with Murakami Corporation was terminated
and replaced with a Memorandum of Understanding. During 2007, the Company signed a new supplier
agreement with Murakami Corporation in the ordinary course of the Companys business. During
2002, the Company established Gentex Technologies Korea Co., Ltd. as a sales and engineering office
in Seoul, Korea. During 2004, the Company established a satellite office in Yokohama, Japan.
During 2005, the Company opened a sales and engineering office near Shanghai, China. The Company
is currently supplying mirrors for Daewoo/Ssangyong, Chrysler, Ford, GM, Honda, Hyundai, Infiniti,
Kia Motors, Lexus, Mazda, Mitsubishi, Nissan, Toyota and Volkswagen/Audi in Asia.
- 9 -
The Companys auto-dimming mirror unit shipment mix by region has significantly changed over
the past nine years. The following is a breakdown of unit shipment mix by region in 2008 vs. 1999
calendar years:
2008 | 1999 | |||||||
Domestic |
24 | % | 69 | % | ||||
Transplants |
14 | % | 1 | % | ||||
North America |
38 | % | 70 | % | ||||
Europe |
45 | % | 23 | % | ||||
Asia-Pacific |
17 | % | 7 | % | ||||
100 | % | 100 | % | |||||
Revenues by geographic area are disclosed in footnote 8 of the Consolidated Financial
Statements.
Historically, new safety and comfort options have entered the original equipment automotive
market at relatively low rates on top of the line or luxury model automobiles. As the selection
rates for the options on the luxury models increase, they generally become available on more models
throughout the product line and may become standard equipment. The recent trend of domestic and
foreign automakers is to offer several options as a package. As consumer demand increases for a
particular option, the mirror tends to be offered on more vehicles and in higher option rate
packages. The Company anticipates that its auto-dimming mirrors will be offered as standard
equipment, in higher option rate packages, and on more models as consumer awareness of the safety
and comfort feature becomes more well-known and acceptance grows.
Since 1998, Gentex Corporation has contracted with MITO Corporation to sell several of its
most popular automatic-dimming mirrors directly to consumers in the automotive aftermarket; in
addition, the Company currently sells some auto-dimming mirrors to automotive distributors. In
2008, the Company announced that its RCD Mirror is available through MITO Corporation as well. It
is managements belief that these sales have limited potential until the Company achieves a
significantly higher penetration of the original equipment manufacturing market.
Competition. Gentex is the leading producer of auto-dimming rearview mirrors in the
world and currently is the dominant supplier to the automotive industry with an approximate 83%
market share worldwide in 2008 and 2007. While the Company believes it will retain a dominant
position, one other U.S. manufacturer (Magna Mirrors) is competing for sales to domestic and
foreign vehicle manufacturers and is supplying a number of domestic and foreign vehicle models with
its hybrid or solid polymer matrix versions of electrochromic mirrors. In addition, two Japanese
manufacturers are currently supplying a few vehicle models in Japan with solid-state electrochromic
mirrors.
On October 1, 2002, Magna International acquired Donnelly Corporation, which was the Companys
major competitor for sales of automatic-dimming rearview mirrors to domestic and foreign vehicle
manufacturers and their mirror suppliers. The Company also sells certain automatic-dimming
rearview mirror sub-assemblies to Magna.
The Company believes its electrochromic automatic mirrors offer significant performance
advantages over competing products. However, Gentex recognizes that Magna Mirrors, a competitor
and wholly-owned subsidiary of Magna International, is considerably larger than the Company and may
present a more formidable competitive threat in the future. To date, the Company is not aware of
any significant impact of Magnas acquisition of Donnelly upon the Company; however, any ultimate
significant impact has not yet been determined.
There are numerous other companies in the world conducting research on various technologies,
including electrochromics, for controlling light transmission and reflection. Gentex believes that
the electrochromic materials and manufacturing process it uses for automotive mirrors remains the
most efficient and cost-effective way to produce such products. While automatic-dimming mirrors
using other technologies may eliminate glare, the Company believes that each of these technologies
have inherent cost or performance limitations.
- 10 -
Fire Protection Products
The Company manufactures approximately 60 different models of smoke alarms and smoke
detectors, combined with over 150 different models of signaling appliances. All of the smoke
detectors/alarms operate on a photoelectric principle to detect smoke. While the use of
photoelectric technology entails greater manufacturing costs, the Company believes that these
detectors/alarms are superior in performance to competitive devices that operate through an
ionization process, and are preferred in most commercial residential occupancies. Photoelectric
detectors/alarms feature low light-level detection, while ionization detectors utilize an ionized
atmosphere, the electrical conductivity of which varies with changes in the composition of the
atmosphere. Photoelectric detectors/alarms are widely recognized to respond more quickly to slow,
smoldering fires, a common form of dwelling unit fire and a frequent cause of fire-related deaths.
In addition, photoelectric detectors are less prone to nuisance alarms and do not require the use
of radioactive materials necessary for ionization detectors. Photoelectric smoke detectors/alarms
are now being required by over a dozen major cities, over a dozen states, as well as regional and
national building and fire alarm codes.
The Companys fire protection products provide the flexibility to be wired as part of
multiple-function systems and consequently are generally used in fire detection systems common to
large office buildings, hotels, motels, military bases, college dormitories and other commercial
establishments. However, the Company also offers single-station alarms for both commercial and
residential applications. While the Company does not emphasize the residential market, some of its
fire protection products are used in single-family residences that utilize fire protection and
security systems. The Companys detectors emit audible and/or visual signals in the immediate
location of the device, and certain models are able to communicate with monitored remote stations.
In 2005, the Company received Underwriters Laboratory (UL) listing on a new series of
commercial residential smoke alarms. The Company feels this new product will fit well into new
markets and customers. This series of smoke alarms consists of four models and will be
electrically powered or electrically powered with battery back-up.
Also in 2005, the Company received UL listing for a new line of speaker strobes for commercial
occupancies. This speaker series will meet the requirements found on the national codes.
Markets and Marketing. The Companys fire protection products are sold directly to
fire protection and security product distributors under the Companys brand name, to electrical
wholesale houses, and to original equipment manufacturers of fire protection systems under both the
Companys brand name and private labels. The fire protection and security industries have
experienced a significant number of mergers and consolidations during the past few years. The
Company markets its fire protection products globally through regional sales managers and
manufacturer representative organizations.
Competition. The fire protection products industry is highly competitive in terms of
both the smoke detectors and signaling appliance markets. The Company estimates that it competes
principally with eleven manufacturers of smoke detection products for commercial use and
approximately four manufacturers within the residential market, three of which produce
photoelectric smoke detectors. In the signaling appliance markets, the Company estimates it
competes with approximately eight manufacturers. While the Company faces significant competition
in the sale of smoke detectors and signaling appliances, it believes that the introduction of new
products, improvements to its existing products, its diversified product line, and the availability
of special features will permit the Company to maintain its competitive position.
Dimmable Aircraft Windows
During 2005, the Company reached an agreement with PPG Aerospace to work together to provide
variably dimmable windows for the passenger compartment on the new Boeing 787 Dreamliner series of
aircraft. Gentex will ship about 100 windows for the passenger compartment of each 787. The
Company believes that the commercially viable market for variably dimmable windows is currently
limited to the aerospace industry. The Company began shipping parts for test planes in mid 2007.
Boeing, based on the latest information available, now expects the first delivery of the 787
Dreamliner Series of aircraft to occur in early 2010. Delays were due to the impact of the
machinists strike and fastener replacement work. The Company anticipates that it will begin to
deliver our
windows to the production line in 2009. During 2008, the Company and PPG Aerospace announced
that they will work together to supply dimmable windows to Hawker Beechcraft Corporation for the
passenger cabin windows of the 2010 Beechcraft King Air 350i airplane.
- 11 -
The Companys success with electrochromic technology provides potential opportunities for
other commercial applications, which the Company expects to explore in the future when and as the
Company feels it is in its best interests to do so. Examples of possible applications of
electrochromic technology include windows for the automotive, architectural and aerospace markets.
Progress in adapting electrochromic technology to the specialized requirements of the window market
continued in 2008. However, we believe that a commercial architectural window product will still
require several years of additional engineering and intellectual property development work.
Markets and Marketing. The Company jointly markets and sells its variable dimmable
windows to aircraft manufacturers with PPG Aerospace.
Competition. The Companys variable dimmable aircraft windows are the first
commercialized product for original equipment installation in the aircraft industry. Other
manufacturers are attempting to develop competing products utilizing other technology in the
aircraft industry for aftermarket or original equipment installation.
Trademarks and Patents
The Company owns 19 U.S. trademarks and 306 U.S. patents, 303 of which relate to
electrochromic technology, automotive rearview mirrors, microphones, displays and/or sensor
technology. These patents expire between 2009 and 2027. The Company believes that these patents
provide the Company a significant competitive advantage in the automotive rearview mirror market;
however, none of these patents individually is required for the success of the Companys products.
The Company also owns 44 foreign trademarks and 171 foreign patents, 166 of which relate to
electrochromic technology, automotive rearview mirrors, microphones, displays and /or sensor
technology. These patents expire at various times between 2009 and 2026. The Company believes
that the competitive advantage derived in the relevant foreign markets for these patents is
comparable to that experienced in the U.S. market.
The Company owns 11 U.S. patents and 2 foreign patents that relate to the Companys fire
protection products, and the Company believes that the competitive advantage provided by these
patents is relatively small.
The Companys remaining 13 U.S. patents owned by the Company relate to the Companys variable
dimmable windows product, and the Company believes that the competitive advantage provided by these
patents is relatively small.
The Company also has in process 141 U.S. patent applications, 325 foreign patent applications,
and 19 trademark applications. The Company continuously seeks to improve its core technologies and
apply those technologies to new and existing products. As those efforts produce patentable
inventions, the Company expects to file appropriate patent applications.
Miscellaneous
The Company considers itself to be engaged in the manufacture and sale of automatic-dimming
rearview mirrors and non automatic-dimming rearview mirrors for the automotive industry, fire
protection products for the commercial building industry and variable dimmable windows for the
aircraft industry. The Company has several important customers within the automotive industry,
five of which each account for 10% or more of the Companys annual sales (includes direct sales to
OEM customer and sales through their Tier 1 suppliers): Daimler AG, General Motors Corporation,
Toyota Motor Corporation, Volkswagen, and BMW. The loss of any of these customers could have a
material adverse effect on the Company. The Companys backlog of unshipped orders was $114,086,978
and $174,523,802 at February 1, 2009, and 2008, respectively.
At February 1, 2009, the Company had 2,279 full-time employees. None of the Companys
employees are represented by a labor union or other collective bargaining representative. The
Company believes that its relations with its employees are good.
- 12 -
(d) Financial Information About Geographic Areas.
See Markets and Marketing in Narrative Description of Business (Item 1(c)) and footnote 8 to
the Consolidated Financial Statements for certain information regarding geographic areas.
(e) Available Information.
The Companys annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on
Form 8-K, and all amendments to those reports, will be made available, free of charge, through the
Investor Information section of the Companys Internet website
(http://www.gentex.com) as soon as
practicable after such material is electronically filed with or furnished to the Securities and
Exchange Commission. The SEC maintains an internet website
(http://www.sec.gov) that contains
reports, proxy and information statements, and other information regarding issues that a company
files electronically with the SEC.
Item 1A. Risk Factors
Safe Harbor for Forward-Looking Statements. This Annual Report on Form 10-K contains
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 managements
belief, assumptions, current expectations, estimates and projections about the global automotive
industry, the economy, the impact of stock option expense, the ability to control and leverage
fixed manufacturing overhead costs, unit shipment and revenue growth rates, the ability to control
E,R&D and S,G&A expenses, gross margins and the Company itself. Words like anticipates,
believes, confident, estimates, expects, forecast, hopes, 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, worldwide automotive production, the maintenance of the Companys
market share, the ability to achieve purchasing cost reductions, competitive pricing pressures,
currency fluctuations, interest rates, equity prices, the financial strength/stability of the
Companys customers (including their Tier 1 suppliers), supply chain disruptions, potential sale of
OEM business segments or suppliers, potential customer (including their Tier 1 suppliers)
bankruptcies, the mix of products purchased by customers, the ability to continue to make product
innovations, the success of certain newer products (e.g. SmartBeam® and Rear Camera Display
Mirror), and other risks identified in the Companys other 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.
The following risk factors, together with all other information provided in this Annual Report
on Form 10-K, should be carefully considered.
Automotive Industry. 96% of our net sales are to customers within the automotive
industry. The current state of the automotive industry has been well publicized, including the
federal governments loans to certain OEMs (which require certain conditions be met). While the
auto industry has always been cyclical and highly impacted by levels of economic activity, the
current environment (global recession, credit crisis, decline in consumer confidence) is
unprecedented and is causing increased financial and production stresses evidenced by continuing
pricing pressures, lower production levels, consumer preference shift to smaller vehicles due to
fuel costs where we have a lower penetration rate and lower content per vehicle, overcapacity,
customer and supplier bankruptcies, and commodity material cost increases. If our automotive
customers (including their Tier 1 suppliers) experience bankruptcies, work stoppages, strikes,
etc., it could disrupt our shipments to these customers, which could adversely affect our sales,
margins, profitability and, as a result, our share price. More than ever before, automakers have
been experiencing increased volatility and uncertainty in executing planned new programs which
have, in some cases, resulted in cancellation or delays of new vehicle platforms, package
reconfigurations and inaccurate volume forecasts. This increased volatility and uncertainty has
made it more
difficult for us to forecast future sales, effectively manage costs and utilize capital,
engineering, research and development, and human resource investments.
- 13 -
Key Customers. We have several large customers, including five customers which each
account for 10% or more of our annual net sales (includes direct sales to OEM customers and sales
through their Tier 1 suppliers): Daimler AG, General Motors Corporation, Toyota Motor Corporation,
Volkswagen/Audi and BMW. The loss of all or a substantial portion of the sales to, or decreases in
production by, any of these customers (or certain other significant customers) would have a
material adverse effect on our sales, margins, profitability and, as a result, our share price.
Effective October 1, 2003, General Motors Corporation began including a 30-day escape clause into
its contracts in the event its suppliers are not competitive on pricing. Effective January 1,
2004, Ford Motor Company began imposing new contract terms, including the right to terminate a
supplier contract for any or no reason.
Pricing Pressures. In addition to price reductions over the life of our long-term
agreements, we continue to experience significant pricing pressures from our automotive customers
and competitors, which have affected, and which will continue to affect our margins to the extent
that we are unable to offset the price reductions with productivity and manufacturing yield
improvements, engineering and purchasing cost reductions, and increases in unit sales volume, all
of which continue to be a challenge in the current automotive production environment. In addition,
financial pressures at certain automakers are resulting in increased cost reduction efforts by
them, including requests for additional price reductions, decontenting certain features from
vehicles, customer market testing of future business, dual sourcing initiatives and warranty
cost-sharing programs, any of which could adversely impact our sales growth, margins, profitability
and, as a result, our share price.
Credit Risk. In light of the well publicized financial stresses within the worldwide
automotive industry, certain automakers and tier one mirror customers are considering bankruptcy
and/or the sale of business segments. Should one or more of our larger customers (including sales
through their Tier 1 suppliers) sell their business or declare bankruptcy, it could adversely
affect the collection of receivables, our sales, margins, profitability and, as a result, our share
price. The current uncertain economic environment continues to cause increased financial pressures
and production stresses on our customers, which could impact timely customer payments and
ultimately the collectibility of receivables.
Supply Chain Disruptions. Due to the just-in-time supply chains within the automotive
industry, a disruption in a supply chain caused by an unrelated supplier due to bankruptcy, work
stoppages, strikes, etc. could disrupt our shipments to one or more automaker customers, which
could adversely affect our sales, margins, profitability and, as a result, our share price.
Competition. We recognize that Magna Mirrors, our main competitor and a wholly-owned
subsidiary of Magna International, is considerably larger than our Company and may present a more
formidable competitive threat in the future. Our future growth and success will depend on the
ability to compete in our highly competitive markets.
New Technology and Product Development. We continue to invest a significant portion
of our annual sales in engineering, research and development projects as set forth in our
Consolidated Statement of Income of our Consolidated Financial Statements filed with this report.
Should these efforts ultimately prove unsuccessful, our sales, net income and, as a result, our
share price will be adversely affected.
Intellectual Property. We believe that our patents and trade secrets provide us with
a significant competitive advantage in automotive rearview mirrors. The loss of any significant
combination of patents and trade secrets could adversely affect our sales, margins, profitability
and, as a result, share price.
Intellectual Property Litigation and Infringement Claims. A successful claim of
patent or other intellectual property infringement against us could affect our profitability and
growth. If someone claims that our products infringed their intellectual property rights, any
resulting litigation could be costly and time consuming and would divert the attention of
management and key personnel from other business issues. The complexity of the technology involved
in our business and the uncertainty of intellectual property litigation increases these risks. Any
of these adverse consequences could potentially have an effect on our business, financial condition
and results of operations.
- 14 -
Business Disruptions. Manufacturing of our proprietary products employing
electro-optic technology are performed at our five manufacturing facilities in Zeeland, Michigan.
Should a catastrophic event occur, our ability to manufacture product, complete existing orders and
provide other services would be severely impacted for an undetermined period of time. We have
purchased business interruption insurance to address some of these potential costs. Our inability
to conduct normal business operations for a period of time may have an adverse impact on our
business, financial condition, and results of operations.
Other. Other issues and uncertainties which could adversely impact our sales,
margins, profitability and, as a result, our share price include:
| The Company has evaluated and is planning to implement a new Enterprise Resource Planning (ERP) System in 2009. While we believe that all necessary system development processes, testing procedures and user training that is planned will be adequate and completed prior to final implementation, there is no guarantee that all system components will function as intended at the date of implementation/conversion. Unanticipated failure(s) could cause delays in our ability to produce or ship its products, process transactions, or otherwise conduct business in its markets, resulting in material financial risk. | ||
| Economic conditions have deteriorated in many of the regions in which we do business. Continued adverse worldwide economic conditions, currency exchange rates, war or significant terrorist acts, could each affect worldwide automotive sales and production levels. | ||
| Changes in the commodity prices of the materials used in our products. We continue to experience some pressure for select raw material cost increases. | ||
| Manufacturing yield issues may negatively impact our margins and profitability. | ||
| Our ability to attract or retain key employees to operate our manufacturing facilities and to staff our corporate office. We are dependent on the services of our management team. Losing key members of our management team could adversely affect our operations. We do not maintain key man life insurance on any of our officers or directors. | ||
| Uncertain equity markets could negatively impact our financial performance due to an increase in realized losses on the sale of equity investments and/or recognized losses due to an other-thantemporary impairment adjustment on available-for-sale securities (mark to market adjustment). | ||
| Our ability to successfully design and execute strategic and operating plans, including continuing to obtain new business. |
Antitakeover Provisions. Our articles of incorporation and bylaws, the laws of
Michigan, and our Shareholder Protection Rights Plan include provisions which are designed to
provide our board of directors with time to consider whether a hostile takeover offer is in our
best interest and the best interests of our shareholders. These provisions, however, could
discourage potential acquisition proposals and could delay or prevent a change in control. The
provisions also could diminish the opportunities for a holder of our common stock to participate in
tender offers, including tender offers at a price above the then current price for our common
stock. These provisions could also prevent transactions in which our shareholders might otherwise
receive a premium for their shares over then current market prices, and may limit the ability of
our shareholders to approve transactions that they may deem to be in their best interests.
All of these provisions may have the effect of delaying or preventing a change in control at
the company level without action by our shareholders, and therefore, could adversely affect the
price of our common stock.
Fluctuations in Market Price. The market price for our common stock has fluctuated,
ranging between $19.47 and $6.50 during 2008. The overall market and the price of our common stock
may continue to fluctuate. There may be a significant impact on the market price for our common
stock due to, among other things:
| variations in our anticipated or actual operating results or the results of our competitors; | ||
| changes in investors or analysts perceptions of the risks and conditions of our business and in particular our primary industry; | ||
| the size of the public float of our common stock; | ||
| market conditions, including the industry in which we operate, and | ||
| general economic conditions. |
Item 1B. Unresolved Staff Comments.
None.
- 15 -
Item 2. Properties.
The Company operates out of five office/manufacturing facilities in Zeeland, Michigan,
approximately 25 miles southwest of Grand Rapids, in addition to overseas offices discussed
elsewhere herein (see Part 1, Item 1). The office and production facility for the Fire Protection
Products Group is a 25,000-square-foot, one-story building leased by the Company since 1978 from
related parties (see Part III, Item 13, of this report).
The corporate office and production facility for the Companys Automotive Products Group is a
modern, two-story, 150,000-square-foot building of steel and masonry construction situated on a
40-acre site in a well-kept industrial park. A second
128,000-square-foot office/manufacturing facility on this site was opened during 1996. The Company
expanded its automotive production facilities by constructing a third 170,000 square-foot facility
on its current site which opened in the second quarter of 2000.
In November 2002, the Company announced plans to expand its manufacturing operations in
Zeeland, Michigan, with the construction of a fourth 150,000-square foot automotive mirror
manufacturing facility. During 2003, the Company also announced plans for a new 200,000-square
foot technical office facility linking the fourth manufacturing facility with its existing
corporate office and production facility. The Company completed the construction of its fourth
automotive manufacturing facility and the new technical center in 2006 at a total cost of
approximately $38 million, which was funded from its cash and cash equivalents on hand during
2004-2006.
The Company also constructed a 40,000 square-foot office, distribution and light manufacturing
facility in Erlenbach, Germany, at a cost of approximately $5 million, which was completed at the
end of 2003.
During 2006, the Company purchased a 25,000 square foot office, distribution and light
manufacturing facility near Shanghai, China, at a cost of approximately $750,000.
In January 2007, the Company announced plans to expand its automotive exterior mirror
manufacturing facility in Zeeland, Michigan, with the construction of a 60,000 square-foot building
addition. The Company completed the building addition to its automotive exterior mirror
manufacturing facility in January 2008 at a cost of approximately $6 million, which was funded from
cash and cash equivalents on hand.
The Companys three automotive interior mirror manufacturing facilities currently have an
estimated building capacity to manufacture approximately 20 million mirror units annually, based on
the current product mix. The Company evaluates equipment capacity on an annual basis and adds
equipment as needed. In 2008, the Company shipped approximately 10,505,000 interior auto-dimming
mirrors.
The Companys expanded automotive exterior mirror manufacturing facility has an estimated
building capacity to manufacture approximately 9 million units annually, based on the current
product mix. The Company evaluates equipment capacity on an annual basis and adds equipment as
needed. In 2008, the Company shipped approximately 3,884,000 exterior auto-dimming mirrors.
Item 3. Legal Proceedings.
The Company is periodically involved in legal proceedings, legal actions and claims arising in
the normal course of business, including proceedings relating to product liability, intellectual
property, safety and health, employment and other matters. Such matters are subject to many
uncertainties, and outcomes are not predictable. The Company does not believe however, that at the
current time any of these matters constitute material pending legal proceedings that will have a
material adverse effect on the financial position or future results of operations of the Company.
- 16 -
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Executive Officers of the Registrant.
The following table lists the names, ages, and positions of all of the Companys executive
officers. Officers are generally elected at the first meeting of the Board of Directors following
the annual meeting of shareholders.
NAME | AGE | POSITION | POSITION HELD SINCE | |||||
Fred Bauer
|
66 | Chief Executive Officer | May 1986 | |||||
Enoch Jen
|
57 | Senior Vice President | January 2007 | |||||
Mark Newton
|
49 | Senior Vice President, Electrical Engineering & Purchasing | June 2008 | |||||
Dennis Alexejun
|
57 | Vice President, North American Automotive Marketing | September 1998 | |||||
Steve Dykman
|
43 | Vice President, Finance and Treasurer | January 2007 |
There are no family relationships among the officers listed in the preceding table.
Except for the executive officers discussed below, all other executive officers have held
their current position with the Company for more than five years.
Enoch Jen had previously served as Senior Vice President and Chief Financial Officer since
April 2006 and as Vice President, Finance of the Company since February 1991.
Mark Newton had previously served as Vice President, Purchasing and Advanced Technology since
July 2007, as Vice President Purchasing and Photonics since July 2006, as Photonics Engineering
Manager since July 2005 and joined the Company as Advanced Lighting Developer in August 2004.
Prior to that time, Mr. Newton served as Vice President of Unity Microelectronics, Inc. since 2000.
Mr. Newton became an executive officer of the Company on January 1, 2008.
Steve Dykman had previously served as Treasurer and Director of Accounting and Finance of the
Company since November 2002, as Controller of the Company since April 1995 and joined the Company
as Finance and Tax Manager in November 1993.
- 17 -
PART II
Item 5. Market for the Registrants Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities.
(a) The Companys common stock trades on The Nasdaq Global Select Market®. As of
February 10, 2009, there were 2,439 record-holders of the Companys common stock. Ranges of high
and low sale prices of the Companys common stock reported through The Nasdaq Global Select Market
for the past two fiscal years appear in the following table.
YEAR | QUARTER | HIGH | LOW | |||||||
2007 | First |
$ | 17.92 | $ | 14.86 | |||||
Second |
21.12 | 16.23 | ||||||||
Third |
22.37 | 18.78 | ||||||||
Fourth |
22.60 | 16.99 | ||||||||
2008 | First |
$ | 18.05 | $ | 13.46 | |||||
Second |
19.47 | 14.40 | ||||||||
Third |
17.76 | 13.27 | ||||||||
Fourth |
14.07 | 6.50 |
See item 13 of Part III with respect to Equity Compensation Plan Summary.
Stock Performance Graph: The following graph depicts the cumulative total return on the
Companys common stock compared to the cumulative total return on the Nasdaq Composite Index (all
U.S. companies) and the Dow Jones U.S. Auto Parts Index (excluding tire and rubber makers). The
graph assumes an investment of $100 on the last trading day of 2003, and reinvestment of dividends
in all cases.
- 18 -
![(GRAPH)](https://www.sec.gov/Archives/edgar/data/0000355811/000136231009002680/c81473c8147301.gif)
In August 2003, the Company announced a change in the Companys cash dividend policy and
declared an initial quarterly cash dividend of $0.075 per share payable in October 2003. In August
2004, the Companys Board of Directors approved an increase on the quarterly dividend rate of
$0.085 per share. In August 2005, the Companys Board of Directors approved a continuing
resolution to pay a quarterly dividend of $0.09 per share until the Board takes other action with
respect to the payment of dividends. In August 2006, the Companys Board of Directors approved a
continuing resolution to pay a quarterly dividend at an increased rate of $0.095 per share until
the Board takes other action with respect to the payment of dividends. In August 2007, the
Companys Board of Directors approved a continuing resolution to pay a quarterly dividend at an
increased rate of $0.105 per share until the Board takes other action with respect to the payment
of dividends. In August 2008, the Companys Board of Directors approved a continuing resolution to
pay a quarterly dividend at an increased rate of $0.11 per share until the Board takes other action
with respect to the payment of dividends. Based on current U.S. income tax laws, the Company
intends to continue to pay a quarterly cash dividend and will consider future dividend rate
adjustments based on the Companys profitability, cash flow, liquidity and other business factors.
(b) Not applicable.
(c) 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 and
business conditions, the market price of the Companys common stock, anti-dilutive effect on
earnings, available cash and other factors that the Company deems appropriate. This share
repurchase plan does not have an expiration date. During the quarter ended March 31, 2003, the
Company repurchased 830,000 shares (post-split) at a cost of approximately $10,247,000. 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 September 30, 2005, the
Company repurchased approximately 1,496,000 shares at a cost of approximately $25,215,000. On
May 16, 2006, the Company announced that the Companys Board of Directors had authorized the
repurchase of an additional 8,000,000 shares under the plan. On August 14, 2006, the Company
announced that the Companys Board of Directors had authorized the repurchase of an additional
8,000,000 shares under the plan. During 2006, the Company repurchased approximately 15,206,000
shares at a cost of approximately $226,851,000. During 2007, the Company repurchased
approximately 448,000 shares at a cost of approximately $7,328,000. On February 22, 2008, the
Company announced that the Companys Board of Directors had authorized the repurchase of an
additional 4,000,000 shares under the plan. During 2008, the Company repurchased approximately
8,049,000 shares at a cost of approximately $111,260,000. Approximately 1,972,000 shares
remain authorized to be repurchased under the plan.
- 19 -
The following is a summary of share repurchase activity during 2008:
Total Number of | Maximum Number | |||||||||||||||
Total Number | Average Price | Shares Purchased As of | Shares That May Yet | |||||||||||||
Of Shares | Paid Per | Part of a Publicly | Be Purchased Under | |||||||||||||
Period | Purchased | Share | Announced Plan * | the Plan * | ||||||||||||
January 2008 |
84,700 | $ | 15.69 | 84,700 | 5,935,847 | |||||||||||
February 2008 |
1,326,313 | 15.62 | 1,326,313 | 8,609,534 | ||||||||||||
March 2008 |
789,739 | 15.92 | 789,739 | 7,819,795 | ||||||||||||
April 2008 |
| | | 7,819,795 | ||||||||||||
May 2008 |
| | | 7,819,795 | ||||||||||||
June 2008 |
1,203,560 | 15.82 | 1,203,560 | 6,616,235 | ||||||||||||
July 2008 |
550,015 | 15.44 | 550,015 | 6,066,220 | ||||||||||||
August 2008 |
1,481,346 | 15.71 | 1,481,346 | 4,584,874 | ||||||||||||
September 2008 |
487,792 | 16.26 | 487,792 | 4,097,082 | ||||||||||||
October 2008 |
675,021 | 8.75 | 675,021 | 3,422,061 | ||||||||||||
November 2008 |
1,450,232 | 8.28 | 1,450,232 | 1,971,829 | ||||||||||||
December 2008 |
| | | 1,971,829 | ||||||||||||
Total |
8,048,718 | $ | 13.82 | 8,048,718 |
* | See above paragraph for data on which plan was announced, the total number of shares approved for repurchase under the plan, and the expiration date (if any) of the plan. |
The following is a summary of quarterly share repurchase activity under the plan to date:
Total Number of | ||||||||
Shares Purchased | Cost of | |||||||
Quarter Ended | (Post-Split) | Shares Purchased | ||||||
March 31, 2003 |
830,000 | $ | 10,246,810 | |||||
September 30, 2005 |
1,496,059 | 25,214,573 | ||||||
March 31, 2006 |
2,803,548 | 47,145,310 | ||||||
June 30, 2006 |
7,201,081 | 104,604,414 | ||||||
September 30, 2006 |
3,968,171 | 55,614,102 | ||||||
December 31, 2006 |
1,232,884 | 19,487,427 | ||||||
March 31, 2007 |
447,710 | 7,328,015 | ||||||
March 31, 2008 |
2,200,752 | 34,619,490 | ||||||
June 30, 2008 |
1,203,560 | 19,043,775 | ||||||
September 30, 2008 |
2,519,153 | 39,689,410 | ||||||
December 31, 2008 |
2,125,253 | 17,907,128 | ||||||
Total |
26,028,171 | $ | 380,900,454 |
- 20 -
Item 6. Selected Financial Data
(in thousands, except per share data) | ||||||||||||||||||||
2008 | 2007 | 2006 | 2005 | 2004 | ||||||||||||||||
Net Sales |
$ | 623,800 | $ | 653,933 | $ | 572,267 | $ | 536,484 | $ | 505,666 | ||||||||||
Net Income |
62,088 | 122,130 | 108,761 | 109,528 | 112,657 | |||||||||||||||
Earnings Per Share* |
$ | 0.44 | $ | 0.85 | $ | 0.73 | $ | 0.70 | $ | 0.72 | ||||||||||
Cash Dividends Declared
per Common Share* |
$ | 0.43 | $ | 0.40 | $ | 0.37 | $ | 0.35 | $ | 0.32 | ||||||||||
Total Assets |
$ | 763,103 | $ | 898,023 | $ | 785,028 | $ | 922,646 | $ | 856,859 | ||||||||||
Long-Term Debt
Outstanding at
Year End |
$ | | $ | | $ | | $ | | $ | | ||||||||||
* | Adjusted for 2-for-1 stock split in May 2005. |
Effective January 1, 2006, the Company adopted Statement of Financial Accounting Standards No.
123 (revised), Share-Based Payment [SFAS 123(R)] utilizing the modified prospective approach.
Prior to the adoption of SFAS 123(R), we accounted for stock option grants under the recognition
and measurement principles of APB Opinion No. 25 (Accounting for Stock Issued to Employees) and
related interpretations, and accordingly, recognized no compensation expense for stock option
grants in net income. Therefore, net income and earnings per share amounts reflect the impact of
stock option compensation expense beginning in 2006.
Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations.
Results of Operations.
The following table sets forth for the periods indicated certain items from the Companys
Consolidated Statements of Income expressed as a percentage of net sales and the percentage change
in the dollar amount of each such item from that in the indicated previous year.
Percentage of Net Sales | Percentage Change | |||||||||||||||||||
2008 | 2007 | |||||||||||||||||||
Year Ended December 31, | to | to | ||||||||||||||||||
2008 | 2007 | 2006 | 2007 | 2006 | ||||||||||||||||
Net Sales |
100.0 | % | 100.0 | % | 100.0 | % | (4.6 | %) | 14.3 | % | ||||||||||
Cost of Goods Sold |
67.4 | 65.2 | 65.2 | (1.3 | ) | 14.2 | ||||||||||||||
Gross Profit |
32.6 | 34.8 | 34.8 | (10.8 | ) | 14.4 | ||||||||||||||
Operating Expenses: |
||||||||||||||||||||
Engineering, Research and Development |
8.3 | 7.8 | 7.3 | 2.3 | 21.4 | |||||||||||||||
Selling, General and Administrative |
6.8 | 5.4 | 5.4 | 20.2 | 14.2 | |||||||||||||||
Litigation Judgment |
| 0.4 | | (100.0 | ) | 100.0 | ||||||||||||||
Total Operating Expenses |
15.1 | 13.6 | 12.7 | 6.1 | 22.3 | |||||||||||||||
Operating Income |
17.5 | 21.2 | 22.1 | (21.6 | ) | 9.8 | ||||||||||||||
Other Income/(Expense) |
(2.7 | ) | 6.3 | 5.7 | (140.6 | ) | 25.8 | |||||||||||||
Income Before Provision for Income Taxes |
14.8 | 27.5 | 27.8 | (48.7 | ) | 13.1 | ||||||||||||||
Provision for Income Taxes |
4.8 | 8.8 | 8.8 | (47.7 | ) | 14.7 | ||||||||||||||
Net Income |
10.0 | % | 18.7 | % | 19.0 | % | (49.2 | %) | 12.3 | % | ||||||||||
Results of Operations: 2008 to 2007
Net Sales. Company net sales decreased by $30,133,000, or 5% compared to the prior
year. Automotive net sales decreased by 5% on a 5% decrease in auto-dimming mirror shipments, from
15,221,000 to 14,389,000 units, primarily reflecting decreased unit shipments of auto-dimming
mirrors to the traditional Big Three automakers, partially offset by increased unit shipments to
European and Asian automakers. North American auto-dimming unit shipments decreased by 19%,
primarily as a result of significantly lower light vehicle production at the traditional Big Three
automakers. Overseas mirror unit shipments increased by 5% during 2008 due to increased
penetration of interior and exterior auto-dimming mirrors at certain European and Asian automakers.
Net sales of the Companys fire protection products decreased 7%, primarily due to a weak
commercial construction market.
- 21 -
Cost of Goods Sold. As a percentage of net sales, cost of goods sold increased from
65% to 67%, primarily reflecting the impact of annual automotive customer price reductions and the
inability to leverage the Companys fixed overhead costs, partially offset by purchasing cost
reductions and foreign exchange rates. Each factor is estimated to have impacted cost of goods
sold by approximately 1-2%.
Operating Expenses. Engineering, research and development expenses increased
approximately $1,174,000, but remained at 8% of net sales. Excluding litigation expenses of
$104,000 and the litigation judgment accrual reversal of approximately $335,000 in 2008, and
excluding litigation expenses of approximately $4,788,000 in 2007, E, R & D expenses increased 13%
year over year, primarily due to additional staffing for new electronic product development,
including SmartBeam, Rear Camera Display and telematics, and new vehicle programs.
Selling, general and administrative expenses increased 20% and approximately $7,144,000, and
increased from 5% to 7% of net sales. Excluding an increase in the allowance for doubtful accounts
of $3,800,000 in the fourth quarter of 2008, S, G & A expenses increased by 10% year over year,
primarily reflecting the continued expansion of the Companys overseas sales offices to support the
Companys current and future overseas sales growth. The increase in the allowance for doubtful
accounts related to certain financially distressed Tier 1 automotive customers with balances
considered uncollectible as of December 31, 2008.
Litigation judgment expense of $2,885,000 during 2007 related to the Companys litigation with
K.W. Muth and Muth Mirror Systems LLC (Muth) relating to exterior mirrors with turn signal
indicators. On February 15, 2008, the Company entered into a
Settlement And Release And Covenants Not To Sue (Agreement) with Muth whereby the parties agreed
to settle the Courts judgment against Gentex for damages at a reduced amount of $2,550,000. The
adjustment to the original judgment for damages was reflected in our financial results as an
adjustment to E, R & D expense in 2008 (see above for more details).
Other Income/(Expense). Investment income decreased $12,177,000 in 2008, primarily
due to lower interest rates and decreased year-end mutual fund distribution income. Lower year-end
mutual fund distribution income accounted for approximately $5.4 million of the year-over-year
decrease.
A non-cash charge for other-than-temporary impairment losses on available-for-sale securities
of $17,910,000 was recognized in 2008 due to unrealized losses on equity investments (refer to
investment footnote for additional details).
Other-net decreased $27,454,000 in 2008, primarily due to realized losses on the sale of
equity investments in 2008 compared to realized gains on the sale of equity investments in 2007.
Taxes. The provision for federal income taxes varied from the statutory rate in 2008
primarily due to the domestic manufacturing deduction and tax exempt interest income.
Net Income. Net income decreased by $60,042,000, or 49% year over year, primarily due
to the decrease in total other income (expense) and the reduced operating margin.
Results of Operations: 2007 to 2006
Net Sales. Company net sales increased by $81,666,000, or 14% compared to the prior
year. Automotive net sales increased by 15% on a 13% increase in auto-dimming mirror shipments,
from 13,427,000 to 15,221,000 units, primarily reflecting increased penetration of interior
auto-dimming mirrors with additional electronic content. North American mirror unit shipments
increased by 10%, despite a 2% decline in North American automotive industry production levels,
primarily due to increased penetration of interior auto-dimming mirrors for certain Big Three
automakers as well as Asian transplant automakers. Overseas mirror unit shipments increased by
16% during 2007 due to increased penetration of interior and exterior auto-dimming mirrors at
certain European and Asian automakers. Net sales of the Companys fire protection products were
flat.
Cost of Goods Sold. As a percentage of net sales, cost of goods sold remained at
65.2% primarily reflecting purchasing cost reductions, the higher sales level leveraged over the
fixed overhead costs and improved manufacturing yields, offset by annual and other automotive
customer price reductions. Each factor is estimated to have impacted cost of goods sold by
approximately 1-2%.
- 22 -
Operating Expenses. Engineering, research and development expenses increased
approximately $8,941,000, and increased from 7% to 8% of net sales. Excluding Muth litigation
expense of $4,788,000 and $1,008,000 in 2007 and 2006, respectively, E, R & D expenses increased
13% year over year, primarily due to additional staffing for new electronic product development,
including SmartBeam, Rear Camera Display and telematics, and new vehicle programs.
Selling, general and administrative expenses increased approximately $4,398,000, but remained
at 5% of net sales. S, G & A expenses increased by 14%, primarily reflecting the continued
expansion of the Companys overseas sales offices to support the Companys current and future
overseas sales growth, partially offset by a reduction in non-income based state taxes.
Litigation judgment expense of $2,885,000 during 2007 related to the Companys litigation with
K.W. Muth and Muth Mirror Systems LLC (Muth) relating to exterior mirrors with turn signal
indicators. The turn signal feature in exterior mirrors currently represents approximately one
percent of our revenues, and the litigation does not involve core Gentex technology. The trial in
Wisconsin related to this case occurred during July 2007 and the Court issued its written ruling in
December 2007. The Court found that Muths U.S. patent No. 6,005,724 is invalid and unenforceable,
and that Gentexs Razor Turn Signal Mirror does not infringe that patent. The Court also denied
all but one of Muths other motions with prejudice, including its motion for an injunction, and its
claims for tortuous interference with its business relationships. The sole point of liability for
Gentex was that the Court found that Gentex breached one provision of the alliance agreement it has
with Muth, and entered a judgment against Gentex, on January 24, 2008, granting Muth damages in the
amount of $2,885,000.
On February 15, 2008, the Company entered into a Settlement And Release And Covenants Not To
Sue (Agreement) with Muth whereby the parties agreed to settle the Courts judgment against
Gentex for damages at a reduced amount of $2,550,000. In addition, under the Agreement the parties
each agreed to: grant the other party a ten-year covenant not to sue for each Companys core
business, to release each other from all claims that occurred in the past, and not appeal the
Courts rulings. This Agreement is subject to Bankruptcy Court approval. The adjustment to the
original judgment for damages (the amount of which is set forth in the preceding paragraph) will be
reflected in our financial results after the Court approves the Agreement. Due to the immaterial
nature of the reduced judgment for damages, the financial statement footnotes do not address this
change.
Other Income Net. Investment income increased $1,773,000 in 2007, primarily due to
increased year-end mutual fund distribution income. Other income increased $6,624,000 in 2007,
primarily due to realized gains on the sale of equity investments.
Taxes. The provision for federal income taxes varied from the statutory rate in 2007
primarily due to the domestic manufacturing deduction and stock option expense tax benefit.
Net Income. Net income increased by $13,369,000, or 12% year over year, primarily due
to increased sales and an increase in other income.
Liquidity and Capital Resources
The Companys financial condition throughout the periods presented has remained very strong,
in spite of deteriorating general economic conditions and conditions in our primary industry.
The Companys current ratio increased from 7.7 as of December 31, 2007, to 9.2 as of December
31, 2008, primarily as a result of the decrease in accounts payable and accrued liabilities.
Cash flow from operating activities for the year ended December 31, 2008, decreased
$28,088,000 to $120,632,000, compared to $148,721,000 for the same period last year, primarily due
to decreased net income, accounts payable and accrued liabilities, partially offset by a decrease
in accounts receivable and changes in non-cash items. Capital expenditures for the year ended
December 31, 2008, decreased to $45,524,000, compared to $54,524,000 for the same period last year,
primarily due to the completion of the new building expansion to its automotive exterior mirror
manufacturing facility in January 2008 and reduced production equipment purchases during 2008 given
current market conditions. The Company currently anticipates capital expenditures of approximately
$30-35 million for equipment during 2009, to be financed from existing cash and/or cash equivalents
on hand.
- 23 -
Cash and cash equivalents as of December 31, 2008, decreased approximately $23,411,000
compared to December 31, 2007, primarily due to share repurchases and cash dividends paid,
partially offset by cash flow from operations.
Accounts receivable as of December 31, 2008, decreased approximately $19,653,000 compared to
December 31, 2007, primarily due to lower sales levels. The current uncertain economic environment
continues to cause increased financial pressures and production stresses on our customers, which
could impact timely customer payments and ultimately the collectibility of receivables.
Inventories as of December 31, 2008, increased approximately $6,944,000 compared to December
31, 2007. The increase was primarily due to longer lead times on certain electronic components in
conjunction with last-minute order release reductions by our customers.
Prepaid expenses and other current assets as of December 31, 2008, increased approximately
$15,871,000 compared to December 31, 2007, primarily due to an increase in refundable income taxes.
The increase in refundable income taxes was primarily due to the computation method for estimated
federal income tax payments and refundable income taxes relating to capital loss carry backs on
equity investment realized losses.
Long-term investments as of December 31, 2008, decreased approximately $74,035,000 compared to
December 31, 2007. The decrease was primarily due to a decrease in unrealized gains in equity
investments and impairment losses on available-for-sale securities given current market conditions.
Accounts payable as of December 31, 2008, decreased approximately $10,825,000 compared to
December 31, 2007, primarily due to decreased production levels and capital spending.
Accrued liabilities as of December 31, 2008, decreased approximately $8,065,000 compared to
December 31, 2007. The decrease was primarily due a decrease in accrued royalties, accrued income
taxes (see prepaid expenses and other current assets above for additional details), and an
accrued liability for litigation judgment in calendar year 2007 (see discussion under Results of
Operations 2007 to 2006).
The increase in plant and equipment as of December 31, 2008, compared to December 31, 2007, is
primarily due to new manufacturing equipment.
Management considers the Companys working capital of approximately $407,680,000 and long-term
investments of approximately $81,349,000 at December 31, 2008, together with internally generated
cash flow and an unsecured $5,000,000 line of credit from a bank, to be sufficient to cover
anticipated cash needs for the next year and for the foreseeable future.
On October 8, 2002, the Company announced a share repurchase plan, under which it may purchase
up to 8,000,000 shares (post-split) based on a number of factors, including market and business
conditions, the market price of the Companys 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 Companys Board of Directors had
authorized the repurchase of an additional 8,000,000 shares under the plan. On August 14, 2006,
the Company announced that the Companys Board of Directors had authorized the repurchase of an
additional 8,000,000 shares under the plan. On February 22, 2008, the Company announced that the
Companys Board of Directors had authorized the repurchase of an additional 4,000,000 shares under
the plan.
The following is a summary of quarterly share repurchase activity under the plan to date:
Total Number of | ||||||||
Shares Purchased | Cost of | |||||||
Quarter Ended | (Post-Split) | Shares Purchased | ||||||
March 31, 2003 |
830,000 | $ | 10,246,810 | |||||
September 30, 2005 |
1,496,059 | 25,214,573 | ||||||
March 31, 2006 |
2,803,548 | 47,145,310 | ||||||
June 30, 2006 |
7,201,081 | 104,604,414 | ||||||
September 30, 2006 |
3,968,171 | 55,614,102 | ||||||
December 31, 2006 |
1,232,884 | 19,487,427 | ||||||
March 31, 2007 |
447,710 | 7,328,015 | ||||||
March 31, 2008 |
2,200,752 | 34,619,490 | ||||||
June 30, 2008 |
1,203,560 | 19,043,775 | ||||||
September 30, 2008 |
2,519,153 | 39,689,410 | ||||||
December 31, 2008 |
2,125,253 | 17,907,128 | ||||||
Total |
26,028,171 | $ | 380,900,454 | |||||
1,971,829 shares remain authorized to be repurchased under the plan as of December 31, 2008.
- 24 -
Inflation, Changing Prices and Other
The Company generally supplies auto-dimming mirrors to its customers worldwide under annual
blanket purchase orders. During 2005, the Company negotiated an extension to its long-term
agreement with General Motors (GM) in the ordinary course of the Companys business. Under the
extension, the Company was sourced virtually all the interior auto-dimming rearview mirrors
programs for GM and its worldwide affiliates through August 2009, except for two low-volume models
that had previously been awarded to a competitor under a lifetime contract. The new business also
included the GMT360 program, which is the mid-size truck/SUV platform that previously did not offer
auto-dimming mirrors. The GM programs were transferred to the Company by the 2007 model year.
During 2008, the Company negotiated another extension to the existing agreement, through August 1,
2012, in the ordinary course of the Companys business.
The Company has a long-term agreement with Daimler AG (formerly DaimlerChrysler AG) in the
ordinary course of the Companys business. Under the agreement, the Company will be sourced
virtually all interior and exterior auto-dimming mirror business at Mercedes and Chrysler through
December 2009. The Companys exterior auto-dimming mirror sub-assemblies are supplied by means of
sales to exterior mirror suppliers. During 2007, the Company negotiated an extension to its global
supply agreement with Chrysler LLC in the ordinary course of the Companys business. Under the
extension, the Company will be sourced virtually all Chrysler interior auto-dimming rearview
mirrors through 2015. From publicly available information, the Company does not believe that the
Daimler sale of the Chrysler unit will significantly impact the Companys current business with
Chrysler or Mercedes in the near term, but there may be other information of which the Company is
not aware.
The Company negotiated a multi-sourcing agreement with Ford Motor Company in the ordinary
course of the Companys business. Under the agreement, the Company was sourced all existing
interior auto-dimming rearview mirror programs as well as a number of new interior auto-dimming
rearview mirror programs during the agreement term which ended on December 31, 2008.
In response to the weakness in the automotive market, the Company eliminated its entire
contract workforce, which was followed by the elimination of a third shift near the end of the
third quarter of 2008. In addition, the Company offered voluntary layoffs, had a partial plant
shutdown the week of the Thanksgiving holiday and had extended plant shutdowns over the Christmas
and New Year holidays in response to similar plant shutdowns by its automotive customers.
As automotive production schedules continued to decline, the Company permanently laid off
approximately 290 hourly and 70 salaried workers in December 2008, which reduced overhead and
operating expenses, bringing them to a level that is more in line with currently expected
sales/production levels in the automotive and fire protection industries. The salaried workforce
reductions will reduce overhead and operating expenses by approximately $5.5 6 million on an
annualized basis. Approximately half of the expense reductions will impact the Companys overhead
expenses, and the other half will impact the Companys operating expenses, primarily in the
engineering, research & development areas.
- 25 -
The Company currently estimates that top line revenue will decline approximately 40% in the
first quarter of 2009 compared with the same period in 2008 based on our current forecast for light
vehicle production levels and product mix. 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 and anticipated product mix. Uncertainties,
including vehicle production levels, extended automotive plant shutdowns, sales rates in North
America, Europe and Asia, and the impact of potential automotive customer (including their Tier 1
suppliers) bankruptcies, work stoppages, strikes, etc., which could disrupt our shipments to these
customers making forecasting difficult. Due to significant uncertainties with global vehicle
production volumes, it is an extremely difficult environment to forecast, and as a result, the
Company is not providing revenue estimates beyond the first quarter of 2009 at this time. The
Company also estimates that engineering, research and development expenses are currently expected
to be slightly down for the first quarter of 2009 compared with the same period in 2008. In
addition, the Company estimates that selling, general and administrative expenses are currently
expected to be flat for the first quarter of 2009 compared with the same period in 2008.
The Company utilizes the light vehicle production forecasting services of CSM Worldwide, and
CSMs current forecasts for light vehicle production for the first quarter of 2009 are
approximately 2.0 million units for North America, 3.8 million for Europe and 2.8 million for Japan
and Korea. Current forecasts for light vehicle production for calendar 2009 are approximately 10.0
million units for North America, 17.4 million for Europe and 12.0 million for Japan and Korea.
The Company does not have any significant off-balance sheet arrangements or commitments that
have not been recorded in its consolidated financial statements.
Market Risk Disclosure
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.
The Company has some assets, liabilities and operations outside the United States, including a
Euro denominated account, 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 foreign markets that could reduce demand for its products.
Most of the Companys non-U.S. sales are invoiced and paid in U.S. dollars; during 2008,
approximately 13% of the Companys net sales were invoiced and paid in European euros (compared to
15% for 2007). The Company currently expects that approximately 9% of the Companys net sales in
2009 will be invoiced and paid in European euros. The Company does not currently engage in hedging
activities.
The Company manages interest rate risk and default risk in its fixed-income investment
portfolio by investing in shorter-term maturities and investment grade issues. The Companys
fixed-income investments maturities at fair value (000,000), and average interest rates are as
follows:
Total Balance | ||||||||||||||||||||||||
as of December 31, | ||||||||||||||||||||||||
2009 | 2010 | 2011 | 2012 | 2008 | 2007 | |||||||||||||||||||
U.S. Government |
||||||||||||||||||||||||
Amount |
| | | | | | ||||||||||||||||||
Average Interest Rate |
| | | | ||||||||||||||||||||
Government Agency |
||||||||||||||||||||||||
Amount |
$ | 21.5 | | | | $ | 21.5 | $ | 29.0 | |||||||||||||||
Average Interest Rate |
3 | % | | 3 | % | 5 | % | |||||||||||||||||
Municipal |
||||||||||||||||||||||||
Amount |
| | | | | | ||||||||||||||||||
Average Interest Rate* |
| | | | ||||||||||||||||||||
Certificates of Deposit |
||||||||||||||||||||||||
Amount |
$ | 7.0 | | | | $ | 7.0 | $ | 49.0 | |||||||||||||||
Average Interest Rate |
4 | % | | | | 4 | % | 5 | % | |||||||||||||||
Corporate |
||||||||||||||||||||||||
Amount |
| | | | | $ | 0.3 | |||||||||||||||||
Average Interest Rate |
| | | | 7 | % | ||||||||||||||||||
Other |
||||||||||||||||||||||||
Amount |
$ | 0.7 | | | | $ | 0.7 | $ | 2.0 | |||||||||||||||
Average Interest Rate |
3 | % | | | | 3 | % | 5 | % |
* | After-tax |
- 26 -
Most of the Companys equity investments are managed by a number of outside equity fund
managers who invest primarily in large capitalization companies trading on the U.S. stock markets.
Contractual Obligations and Other Commitments
The Company had the following contractual obligations and other commitments (000,000) as of
December 31, 2008:
Total | Less than 1 Year | 1-3 Years | After 3 Years | |||||||||||||
Long-term debt |
$ | | $ | | $ | | $ | | ||||||||
Operating leases |
.8 | .6 | .2 | | ||||||||||||
Purchase obligations* |
37.5 | 37.4 | .1 | | ||||||||||||
Dividends payable |
15.1 | 15.1 | | | ||||||||||||
$ | 53.4 | $ | 53.1 | $ | 0.3 | $ | | |||||||||
* | Primarily for inventory parts and capital equipment. |
Critical Accounting Policies.
The Companys significant accounting policies are described in Note 1 to the consolidated
financial statements. The policies described below represent those that are broadly applicable to
its operations and involve additional management judgment due to the sensitivity of the methods,
assumptions and estimates necessary in determining the related amounts.
Revenue Recognition. The Company recognizes revenue in accordance with SEC Staff
Accounting Bulletin No. 104, Revenue Recognition in Financial Statements, as amended. Accordingly,
revenue is recognized based on the terms of the customer purchase order that indicates title to the
product and risk of ownership passes to the customer upon shipment. Sales are shown net of
returns, which have not historically been significant. The Company does not generate sales from
sale arrangements with multiple deliverables.
Accounts Receivable. The Company estimates its allowances related to receivables on
historical credit and collections experience, and the specific identification of other potential
problems, including the economic climate. Actual collections can differ, requiring adjustments to
the allowances.
Inventories. Estimated inventory allowances for slow-moving and obsolete inventories
are based on current assessments of future demands, market conditions and related management
initiatives. If market conditions or customer requirements change and are less favorable than
those projected by management, inventory allowances are adjusted accordingly.
Investments. The Companys investment committee regularly reviews its fixed income
and equity investment portfolio for any unrealized losses that would be deemed other-than-temporary
and require the recognition of an impairment loss in income. If the cost of an investment exceeds
its fair value, the Company evaluates, among other factors, general market conditions, the duration
and extent to which the fair value is less than cost, and our intent and ability to hold the
investment. Management also considers the type of security, related industry, sector performance,
as well as published investment ratings and analyst reports to evaluate its portfolio. Once a
decline in fair value is determined to be other-than-temporary, an impairment charge is recorded
and a new cost basis in the investment is established. If market, industry, and/or investee
conditions continue to deteriorate, the Company may incur future impairments.
Self Insurance. The Company is self-insured for health and workers compensation
benefits up to certain stop-loss limits. Such costs are accrued based on known claims and an
estimate of incurred, but not reported (IBNR) claims. IBNR claims are estimated using historical
lag information and other data provided by claims administrators. This estimation process is
subjective, and to the extent that future actual results differ from original estimates,
adjustments to recorded accruals may be necessary.
- 27 -
Stock-Based Compensation. Effective January 1, 2006, 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
Companys 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.
Item 7. A. Quantitative and Qualitative Disclosures About Market Risk.
See Market Risk Disclosure in Managements Discussion and Analysis (Item 7).
Item 8. Financial Statements and Supplementary Data.
The following financial statements and reports of independent registered public accounting
firm are filed with this report as pages 33 through 51 following the signature page:
Report of Independent Registered Public Accounting Firm
Report of Independent Registered Public Accounting Firm on Internal Control Over Financial
Reporting
Consolidated
Balance Sheets as of December 31, 2008 and 2007
Consolidated Statements of Income for the years ended December 31, 2008, 2007 and 2006
Consolidated Statements of Shareholders Investment for the years ended December 31, 2008,
2007 and 2006
Consolidated Statements of Cash Flows for the years ended December 31, 2008, 2007 and 2006
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
Selected quarterly financial data for the past two years appears in the following table:
Quarterly Results of Operations | ||||||||||||||||||||||||||||||||
(in thousands, except per share data) | ||||||||||||||||||||||||||||||||
First | Second | Third | Fourth | |||||||||||||||||||||||||||||
2008 | 2007 | 2008 | 2007 | 2008 | 2007 | 2008 | 2007 | |||||||||||||||||||||||||
Net Sales |
$ | 177,970 | $ | 157,206 | $ | 170,492 | $ | 163,480 | $ | 153,057 | $ | 162,525 | $ | 122,281 | $ | 170,723 | ||||||||||||||||
Gross Profit |
62,647 | 54,579 | 59,080 | 57,697 | 46,697 | 57,002 | 34,703 | 58,420 | ||||||||||||||||||||||||
Operating Income |
39,987 | 33,937 | 35,790 | 36,518 | 23,271 | 34,637 | 9,765 | 33,724 | ||||||||||||||||||||||||
Net Income |
30,448 | 29,498 | 26,858 | 30,956 | 15,147 | 29,826 | (10,365 | ) | 31,850 | |||||||||||||||||||||||
Earnings Per Share* |
$ | .21 | $ | .21 | $ | .19 | $ | .22 | $ | .11 | $ | .21 | $ | (.08 | ) | $ | .22 |
* | Diluted |
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
Not applicable.
- 28 -
Item 9A. Controls and Procedures.
Disclosure Controls and Procedures.
As of December 31, 2008, an evaluation was performed under the supervision and with the
participation of the Companys management, including the CEO and CFO, of the effectiveness of the
design and operation of the Companys disclosure controls and
procedures [(as defined in Exchange Act Rules 13a 15(e) and 15d 15(e)]. Based on that
evaluation, the Companys management, including the CEO and CFO, concluded that the Companys
disclosure controls and procedures were adequate and effective as of December 31, 2008, 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-K was being prepared. During the
period covered by this annual report, there have been no changes in the Companys internal controls
over financial reporting that have materially affected or are likely to materially affect the
Companys internal controls over financial reporting. There have been no significant changes in
the Companys internal controls or in other factors that could significantly affect internal
controls subsequent to December 31, 2008.
Managements Report on Internal Control Over Financial Reporting.
Our management is responsible for establishing and maintaining adequate internal control over
financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Under
the supervision and with the participation of our management, including our principal executive
officer and principal financial officer, we conducted an evaluation of the effectiveness of our
internal control over financial reporting based on the framework in Internal Control Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on
our evaluation under the framework in Internal Control Integrated Framework our management
concluded that our internal control over financial reporting was effective as of December 31, 2008.
The effectiveness of the Companys internal control over financial reporting as of December 31,
2008, has been audited by Ernst & Young LLP, an independent registered public accounting firm, as
stated in their report, which is included on page 34 hereof.
Item 9B. Other Information.
Not applicable.
- 29 -
PART III
Item 10. Directors, Executive Officers and Corporate Governance.
Information relating to executive officers is included in this report in the last section of
Part I under the caption Executive Officers of the Registrant. Information relating to directors
appearing under the caption Election of Directors in the definitive Proxy Statement for the 2009
Annual Meeting of Shareholders and filed with the Commission within 120 days after the Companys
fiscal year end, December 31, 2008 (the Proxy Statement), is hereby incorporated herein by
reference. No changes were made to the procedures by which shareholders may recommend nominees for
the Board of Directors. Information concerning compliance with Section 16(a) of the Securities and
Exchange Act of 1934 appearing under the caption Section 16(A) Beneficial Ownership Reporting
Compliance in the definitive Proxy Statement is hereby incorporated herein by reference.
Information relating to the Companys Audit Committee and concerning whether at least one member of
the Audit Committee is an audit committee financial expert as that term is defined under Item 407
(d)(5) of Regulation S-K appearing under the caption Corporate Governance Audit Committee in
the definitive Proxy Statement is hereby incorporated by reference.
The Company has adopted a Code of Ethics that applies to its principal executive officer,
principal financial officer, and principal accounting officer. A copy of the Code of Ethics for
Certain Senior Officers is available without charge, upon written request, from the Corporate
Secretary of the Company, 600 N. Centennial Street, Zeeland, Michigan 49464. The Company intends
to satisfy the disclosure requirement under Item 5.05 of Form 8-K regarding an amendment to, or
waiver from, a provision of this Code of Ethics by posting such information on its website.
Information contained in the Companys website, whether currently posted or posted in the future,
is not part of this document or the documents incorporated by reference in this document.
Item 11. Executive Compensation.
The information contained under the caption Compensation Committee Report, Compensation
Discussion and Analysis, Executive Compensation and Compensation Committee Interlocks and
Insider Participation contained in the definitive Proxy Statement is hereby incorporated herein by
reference. The Compensation Committee Report shall not be deemed to be soliciting material or to
be filed with the commission.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters.
The information contained under the captions Common Stock Ownership of Management, Common
Stock Ownership of Certain Beneficial Owners, and Equity Compensation Plan Summary contained in
the definitive Proxy Statement is hereby incorporated herein by reference. There are no
arrangements known to the registrant, the operation of which may at a subsequent date result in a
change in control.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
The information contained under the caption Certain Transactions contained in the definitive
Proxy Statement is hereby incorporated herein by reference. The information contained under the
caption Election of Directors contained in the definitive proxy statement is hereby incorporated
by reference.
Item 14. Principal Accounting Fees and Services.
Information regarding principal accounting fees and services set forth under the caption
Ratification of Appointment of Independent Auditors Principal Accounting Fees and Services in
the definitive Proxy Statement is hereby incorporated herein by reference. Information concerning
the policy adopted by the Audit Committee regarding the pre-approval of audit and non-audit
services provided by the Companys independent auditors set forth under the caption Corporate
Governance Audit Committee in the definitive Proxy Statement is hereby incorporated by
reference.
- 30 -
Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) | 1. Financial Statements. See Item 8. |
2. | Financial Statements Schedules. None required or not applicable. | ||
3. | Exhibits. See Exhibit Index located on page 52. |
(b) | See (a) above. | ||
(c) | See (a) above. |
- 31 -
SIGNATURES
Pursuant to the requirements of Section 13 of 15(d) 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.
Dated: February 19, 2009 | GENTEX CORPORATION |
|||
By: | /s/ Fred Bauer | |||
Fred Bauer, Chairman and Principal Executive Officer |
||||
and |
||||
/s/ Steven Dykman | ||||
Steven Dykman, Vice President-Finance and | ||||
Principal Financial and Accounting Officer | ||||
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been
signed below on this 19th day of February, 2009, by the following persons on behalf of the
registrant and in the capacities indicated.
Each Director of the registrant whose signature appears below hereby appoints Enoch Jen and
Steve Dykman, each of them individually, as his attorney-in-fact to sign in his name and on his
behalf, and to file with the Commission any and all amendments to this report on Form 10-K to the
same extent and with the same effect as if done personally.
/s/ Fred Bauer
|
Director | |
/s/ Gary Goode
|
Director | |
/s/ Kenneth La Grand
|
Director | |
/s/ Arlyn Lanting
|
Director | |
/s/ John Mulder
|
Director | |
/s/ Rande Somma
|
Director | |
/s/ Fred Sotok
|
Director | |
/s/ Wallace Tsuha
|
Director | |
/s/ James Wallace
|
Director |
- 32 -
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders of Gentex Corporation:
We have audited the accompanying consolidated balance sheets of Gentex Corporation and subsidiaries
as of December 31, 2008 and 2007, and the related consolidated statements of income, shareholders
investment and cash flows for each of the three years in the period ended December 31, 2008. These
financial statements are the responsibility of the Companys management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material
respects, the consolidated financial position of Gentex Corporation and subsidiaries at December
31, 2008 and 2007, and the consolidated results of their operations and their cash flows for each
of the three years in the period ended December 31, 2008, in conformity with U.S. generally
accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), Gentex Corporations internal control over financial reporting as of
December 31, 2008, based on criteria established in Internal ControlIntegrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated
February 18, 2009 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Grand Rapids, Michigan
February 18, 2009
February 18, 2009
- 33 -
Report of Independent Registered Public Accounting Firm
On Internal Control Over Financial Reporting
On Internal Control Over Financial Reporting
The Board of Directors and Shareholders of Gentex Corporation:
We have audited Gentex Corporations internal control over financial reporting as of December 31,
2008, based on criteria established in Internal Control Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Gentex
Corporations management is responsible for maintaining effective internal control over financial
reporting, and for its assessment of the effectiveness of internal control over financial reporting
included in the accompanying Managements Report on Internal Control over Financial Reporting. Our
responsibility is to express an opinion on the Companys internal control over financial reporting
based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness exists, testing and
evaluating the design and operating effectiveness of internal control based on the assessed risk,
and performing such other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles. A
companys internal control over financial reporting includes those policies and procedures that (1)
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of management and directors of the company;
and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.
In our opinion, Gentex Corporation maintained, in all material respects, effective internal control
over financial reporting as of December 31, 2008, based on the COSO criteria.
We also have audited, in accordance with standards of the Public Company Accounting Oversight Board
(United States), the consolidated balance sheets of Gentex Corporation as of December 31, 2008 and
2007, and the related consolidated statements of income, shareholders investment, and cash flows
for each of the three years in the period ended December 31, 2008 of Gentex Corporation and our
report dated February 18, 2009 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Grand Rapids, Michigan
February 18, 2009
February 18, 2009
- 34 -
GENTEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2008 AND 2007
2008 | 2007 | |||||||
ASSETS |
||||||||
CURRENT ASSETS: |
||||||||
Cash and cash equivalents |
$ | 294,306,512 | $ | 317,717,093 | ||||
Short-term investments |
29,177,273 | 80,271,688 | ||||||
Accounts receivable |
44,528,810 | 64,181,511 | ||||||
Inventories |
54,993,855 | 48,049,560 | ||||||
Prepaid expenses and other |
34,145,509 | 18,274,096 | ||||||
Total current assets |
457,151,959 | 528,493,948 | ||||||
PLANT AND EQUIPMENT: |
||||||||
Land, buildings and improvements |
111,240,060 | 101,215,484 | ||||||
Machinery and equipment |
306,301,187 | 260,619,845 | ||||||
Construction-in-process |
12,807,041 | 26,331,641 | ||||||
430,348,288 | 388,166,970 | |||||||
Less-Accumulated depreciation
and amortization |
(215,396,569 | ) | (182,557,299 | ) | ||||
214,951,719 | 205,609,671 | |||||||
OTHER ASSETS: |
||||||||
Long-term investments |
81,348,942 | 155,384,009 | ||||||
Patents and other assets, net |
9,650,760 | 8,535,052 | ||||||
90,999,702 | 163,919,061 | |||||||
$ | 763,103,380 | $ | 898,022,680 | |||||
LIABILITIES AND SHAREHOLDERS INVESTMENT |
||||||||
CURRENT LIABILITIES: |
||||||||
Accounts payable |
$ | 19,706,159 | $ | 30,531,649 | ||||
Accrued liabilities: |
||||||||
Salaries, wages and vacation |
5,001,952 | 5,149,599 | ||||||
Income taxes |
0 | 3,671,258 | ||||||
Royalties |
1,722,138 | 5,685,468 | ||||||
Dividends declared |
15,139,685 | 15,199,200 | ||||||
Other |
7,902,504 | 8,125,531 | ||||||
Total current liabilities |
49,472,438 | 68,362,705 | ||||||
DEFERRED INCOME TAXES |
15,034,620 | 22,847,779 | ||||||
SHAREHOLDERS INVESTMENT: |
||||||||
Preferred stock, no par value,
5,000,000 shares authorized; none
issued or outstanding |
| | ||||||
Common stock, par value $.06 per share;
200,000,000 shares authorized;
137,633,502 shares issued and outstanding
in 2008 and 144,754,288 shares issued and
outstanding in 2007 |
8,258,010 | 8,685,257 | ||||||
Additional paid-in capital |
253,821,363 | 245,502,960 | ||||||
Retained earnings |
434,975,514 | 530,290,281 | ||||||
Accumulated other comprehensive income: |
||||||||
Unrealized gain on investments |
383,426 | 19,527,380 | ||||||
Cumulative translation adjustment |
1,158,009 | 2,806,318 | ||||||
Total shareholders investment |
698,596,322 | 806,812,196 | ||||||
$ | 763,103,380 | $ | 898,022,680 | |||||
The accompanying notes are an integral part of these consolidated financial statements.
- 35 -
GENTEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 2008, 2007 AND 2006
2008 | 2007 | 2006 | ||||||||||
NET SALES |
$ | 623,799,822 | $ | 653,933,236 | $ | 572,267,073 | ||||||
COST OF GOODS SOLD |
420,672,934 | 426,236,241 | 373,163,484 | |||||||||
Gross profit |
203,126,888 | 227,696,995 | 199,103,589 | |||||||||
OPERATING EXPENSES: |
||||||||||||
Engineering, research and development |
51,888,922 | 50,715,057 | 41,773,792 | |||||||||
Selling, general and administrative |
42,425,050 | 35,280,846 | 30,882,821 | |||||||||
Litigation judgment |
0 | 2,885,329 | 0 | |||||||||
Total operating expenses |
94,313,972 | 88,881,232 | 72,656,613 | |||||||||
Income from operations |
108,812,916 | 138,815,763 | 126,446,976 | |||||||||
OTHER INCOME (EXPENSE): |
||||||||||||
Interest and dividend income |
13,600,326 | 25,777,667 | 24,004,833 | |||||||||
Impairment loss on available-for-sale securities |
(17,909,901 | ) | 0 | 0 | ||||||||
Other, net |
(12,308,480 | ) | 15,145,338 | 8,521,789 | ||||||||
Total other income (expense) |
(16,618,055 | ) | 40,923,005 | 32,526,622 | ||||||||
Income before provision
for income taxes |
92,194,861 | 179,738,768 | 158,973,598 | |||||||||
PROVISION FOR INCOME TAXES |
30,106,914 | 57,608,747 | 50,212,596 | |||||||||
NET INCOME |
$ | 62,087,947 | $ | 122,130,021 | $ | 108,761,002 | ||||||
EARNINGS PER SHARE: |
||||||||||||
Basic |
$ | 0.44 | $ | 0.85 | $ | 0.74 | ||||||
Diluted |
$ | 0.44 | $ | 0.85 | $ | 0.73 | ||||||
Cash Dividends Declared per Share |
$ | 0.43 | $ | 0.40 | $ | 0.37 |
The accompanying notes are an integral part of these consolidated financial statements.
- 36 -
GENTEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS INVESTMENT
FOR THE YEARS ENDED DECEMBER 31, 2008, 2007 and 2006
Accumulated Other | Total | |||||||||||||||||||||||||||||||
Common Stock | Common Stock | Additional Paid-In | Comprehensive | Retained | Deferred | Comprehensive | Shareholders | |||||||||||||||||||||||||
Shares | Amount | Capital | Income (Loss) | Earnings | Compensation | Income (Loss) | Investment | |||||||||||||||||||||||||
BALANCE AS OF DECEMBER 31, 2005 |
156,043,982 | $ | 9,362,639 | $ | 194,476,306 | $ | 623,301,775 | $ | (4,847,659 | ) | $ | 19,302,314 | $ | 841,595,375 | ||||||||||||||||||
Reclassification of Deferred Compensation upon adopting [SFAS123(R)] |
| | (4,847,659 | ) | | 4,847,659 | | | ||||||||||||||||||||||||
Issuance of common stock and the tax benefit of stock plan transactions |
1,637,883 | 98,273 | 18,854,905 | | | | 18,953,178 | |||||||||||||||||||||||||
Stock-based compensation expense related to stock options, employee
stock purchases and restricted stock |
| | 8,481,871 | | | | 8,481,871 | |||||||||||||||||||||||||
Repurchases of common stock |
(15,205,684 | ) | (912,341 | ) | (20,063,935 | ) | (205,874,977 | ) | | | (226,851,253 | ) | ||||||||||||||||||||
Dividends declared ($.37 per share) |
| | | (53,995,400 | ) | | | (53,995,400 | ) | |||||||||||||||||||||||
Comprehensive income: |
||||||||||||||||||||||||||||||||
Net income |
| | | $ | 108,761,002 | 108,761,002 | | | 108,761,002 | |||||||||||||||||||||||
Other comprehensive income (loss): |
||||||||||||||||||||||||||||||||
Foreign currency translation adjustment |
| | | 1,298,088 | | | | | ||||||||||||||||||||||||
Unrealized gain on investments, net of tax of $2,396,923 |
| | | 4,451,428 | | | | | ||||||||||||||||||||||||
Other comprehensive income |
| | | 5,749,516 | | | 5,749,516 | 5,749,516 | ||||||||||||||||||||||||
Comprehensive income |
| | | $ | 114,510,518 | | | | | |||||||||||||||||||||||
BALANCE AS OF DECEMBER 31, 2006 |
142,476,181 | 8,548,571 | 196,901,488 | 472,192,400 | | 25,051,830 | 702,694,289 | |||||||||||||||||||||||||
Issuance of common stock and the tax benefit of stock plan transactions |
2,725,817 | 163,549 | 39,925,919 | | | | 40,089,468 | |||||||||||||||||||||||||
Stock-based compensation expense related to stock options, employee
stock purchases and restricted stock |
| | 9,293,394 | | | | 9,293,394 | |||||||||||||||||||||||||
Repurchases of common stock |
(447,710 | ) | (26,863 | ) | (617,841 | ) | (6,683,311 | ) | | | (7,328,015 | ) | ||||||||||||||||||||
Dividends declared ($.40 per share) |
| | | (57,348,829 | ) | | | (57,348,829 | ) | |||||||||||||||||||||||
Comprehensive income: |
||||||||||||||||||||||||||||||||
Net income |
| | | $ | 122,130,021 | 122,130,021 | | | 122,130,021 | |||||||||||||||||||||||
Other comprehensive income (loss): |
||||||||||||||||||||||||||||||||
Foreign currency translation adjustment |
| | | 1,001,276 | | | | | ||||||||||||||||||||||||
Unrealized gain (loss) on investments, net of tax of ($2,002,756) |
| | | (3,719,408 | ) | | | | | |||||||||||||||||||||||
Other comprehensive income (loss) |
| | | (2,718,132 | ) | | | (2,718,132 | ) | (2,718,132 | ) | |||||||||||||||||||||
Comprehensive income |
| | | $ | 119,411,889 | | | | | |||||||||||||||||||||||
BALANCE AS OF DECEMBER 31, 2007 |
144,754,288 | 8,685,257 | 245,502,960 | 530,290,281 | | 22,333,698 | 806,812,196 | |||||||||||||||||||||||||
Issuance of common stock and the tax benefit of stock plan transactions |
927,932 | 55,676 | 11,759,832 | | | | 11,815,508 | |||||||||||||||||||||||||
Stock-based compensation expense related to stock options, employee
stock purchases and restricted stock |
| | 10,217,484 | | | | 10,217,484 | |||||||||||||||||||||||||
Repurchases of common stock |
(8,048,718 | ) | (482,923 | ) | (13,658,913 | ) | (97,117,967 | ) | | | (111,259,803 | ) | ||||||||||||||||||||
Dividends declared ($.43 per share) |
| | | (60,284,747 | ) | | | (60,284,747 | ) | |||||||||||||||||||||||
Comprehensive income: |
||||||||||||||||||||||||||||||||
Net income |
| | | $ | 62,087,947 | 62,087,947 | | | 62,087,947 | |||||||||||||||||||||||
Other comprehensive income (loss): |
||||||||||||||||||||||||||||||||
Foreign currency translation adjustment |
| | | (1,648,309 | ) | | | | | |||||||||||||||||||||||
Unrealized gain (loss) on investments, net of tax of ($10,308,288) |
| | | (19,143,954 | ) | | | | | |||||||||||||||||||||||
Other comprehensive income (loss) |
| | | (20,792,263 | ) | | | (20,792,263 | ) | (20,792,263 | ) | |||||||||||||||||||||
Comprehensive income |
| | | $ | 41,295,684 | | | | | |||||||||||||||||||||||
BALANCE AS OF DECEMBER 31, 2008 |
137,633,502 | $ | 8,258,010 | $ | 253,821,363 | $ | 434,975,514 | | $ | 1,541,435 | $ | 698,596,322 | ||||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
- 37 -
GENTEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2008, 2007 AND 2006
2008 | 2007 | 2006 | ||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: |
||||||||||||
Net income |
$ | 62,087,947 | $ | 122,130,021 | $ | 108,761,002 | ||||||
Adjustments to reconcile net income to net
cash provided by operating activities: |
||||||||||||
Depreciation and amortization |
35,891,067 | 32,435,258 | 27,762,710 | |||||||||
Loss on disposal of assets |
700,102 | 598,902 | 117,872 | |||||||||
Gain on sale of investments |
(12,730,583 | ) | (17,126,885 | ) | (11,041,851 | ) | ||||||
Loss on sale of investments |
25,998,726 | 4,130,927 | 4,674,676 | |||||||||
Impairment loss on available-for-sale securities |
17,909,901 | 0 | 0 | |||||||||
Deferred income taxes |
(842,961 | ) | (2,926,921 | ) | (1,754,219 | ) | ||||||
Stock based compensation expense related to
employee stock options,employee stock purchases
and restricted stock |
10,217,484 | 9,293,394 | 8,481,871 | |||||||||
Excess tax benefits from stock based compensation |
(62,647 | ) | (338,648 | ) | (235,410 | ) | ||||||
Change in operating assets and liabilities: |
||||||||||||
Accounts receivable |
19,652,701 | (5,844,115 | ) | 2,587,041 | ||||||||
Inventories |
(6,944,295 | ) | 755,838 | (8,968,576 | ) | |||||||
Prepaid expenses and other |
(12,533,323 | ) | (3,960,185 | ) | 1,071,317 | |||||||
Accounts payable |
(10,825,490 | ) | 6,649,676 | 274,046 | ||||||||
Accrued liabilities |
(7,886,409 | ) | 2,923,367 | (290,328 | ) | |||||||
Net cash provided by
operating activities |
120,632,220 | 148,720,629 | 131,440,151 | |||||||||
CASH FLOWS FROM INVESTING ACTIVITIES: |
||||||||||||
Activity in available-for-sale securities: |
||||||||||||
Sales proceeds |
107,959,123 | 67,900,543 | 60,550,849 | |||||||||
Maturities and calls |
108,810,000 | 88,200,000 | 64,240,000 | |||||||||
Purchases |
(152,269,927 | ) | (155,538,587 | ) | (140,662,282 | ) | ||||||
Plant and equipment additions |
(45,524,466 | ) | (54,524,322 | ) | (48,193,083 | ) | ||||||
Proceeds from sale of plant and equipment |
11,002 | 368,005 | 500,665 | |||||||||
Decrease (increase) in other assets |
(3,183,770 | ) | (86,912 | ) | 308,855 | |||||||
Net cash provided by (used for)
investing activities |
15,801,962 | (53,681,273 | ) | (63,254,996 | ) | |||||||
CASH FLOWS FROM FINANCING ACTIVITIES: |
||||||||||||
Issuance of common stock from
stock plan transactions |
11,815,508 | 40,089,468 | 18,953,178 | |||||||||
Cash dividends paid |
(60,463,115 | ) | (55,922,147 | ) | (54,704,400 | ) | ||||||
Repurchases of common stock |
(111,259,803 | ) | (7,328,015 | ) | (226,851,253 | ) | ||||||
Excess tax benefits from stock based compensation |
62,647 | 338,648 | 235,410 | |||||||||
Net cash provided by (used for)
financing activities |
(159,844,763 | ) | (22,822,046 | ) | (262,367,065 | ) | ||||||
NET INCREASE(DECREASE) IN CASH AND
CASH EQUIVALENTS |
(23,410,581 | ) | 72,217,310 | (194,181,910 | ) | |||||||
CASH AND CASH EQUIVALENTS,
Beginning of year |
317,717,093 | 245,499,783 | 439,681,693 | |||||||||
CASH AND CASH EQUIVALENTS,
End of year |
$ | 294,306,512 | $ | 317,717,093 | $ | 245,499,783 | ||||||
- 38 -
GENTEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES |
The Company
Gentex Corporation designs, develops, manufactures and markets proprietary electro-optical
products: automatic-dimming rearview mirrors for the automotive industry and fire
protection products for the commercial building industry. A substantial portion of the
Companys net sales and accounts receivable result from transactions with domestic and
foreign automotive manufacturers and tier one suppliers. The Companys fire protection
products are primarily sold to domestic distributors and original equipment manufacturers
of fire and security systems. The Company does not require collateral or other security
for trade accounts receivable.
Significant accounting policies of the Company not described elsewhere are as follows:
Consolidation
The consolidated financial statements include the accounts of Gentex Corporation and all of
its wholly-owned subsidiaries (together the Company). All significant intercompany
accounts and transactions have been eliminated.
Cash Equivalents
Cash equivalents consist of funds invested in bank accounts and money market funds that have daily liquidity. |
Allowance For Doubtful Accounts
The Company bases its allowances related to receivables on historical credit and
collections experience, and the specific identification of other potential problems,
including the economic climate. Actual collections can differ, requiring adjustments to
the allowances. Individual accounts receivable balances are evaluated on a monthly basis,
and those balances considered uncollectible are charged to the allowance. Collections of
amounts previously written off are recorded as an increase to the allowance.
The following table presents the activity in the Companys allowance for doubtful accounts:
Additions | ||||||||||||||||
Charged to | Deductions* | |||||||||||||||
Beginning | Costs and | and Other | Ending | |||||||||||||
Balance | Expenses | Adjustments | Balance | |||||||||||||
Year Ended December 31, 2008: |
||||||||||||||||
Allowance for doubtful accounts |
$ | 1,650,000 | $ | 4,058,722 | ($8,722 | ) | $ | 5,700,000 |
* | Represents excess of accounts written off over recoveries and other adjustments. |
Investments
In September 2006, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards (SFAS) No. 157, Fair Value Measurements (SFAS No. 157).
This statement establishes a framework for measuring the fair value of assets and
liabilities. This framework is intended to provide increased consistency in how fair value
determinations are made under various existing accounting standards that permit, or in some
cases require, estimates of fair market value. SFAS No. 157 also expands financial
statement disclosure requirements about a companys use of fair value measurements,
including the effect of such measure on earnings. SFAS No. 157 was effective for fiscal
years beginning after November 15, 2007.
- 39 -
GENTEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(Continued)
(1) | SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES, continued |
Investments, continued
The Company adopted the provisions of SFAS No. 157 related to its financial assets and
liabilities in 2008, which did not have a material impact on the Companys consolidated
financial position, results of operations or cash flows. The Companys investment
securities are classified as available for sale and are stated at fair value based on
quoted market prices. Adjustments to the fair value of investments are recorded as
increases or decreases, net of income taxes, within accumulated other comprehensive income
(loss) in shareholders investment (excluding other-than-temporary impairments). Assets or
liabilities that have recurring measurements are shown below as of December 31, 2008:
Fair Value Measurements at Reporting Date Using | ||||||||||||||||
Quoted Prices in | ||||||||||||||||
Active Markets | Significant | Significant | ||||||||||||||
for Identical | Other Observable | Unobservable | ||||||||||||||
Total as of | Assets | Inputs | Inputs | |||||||||||||
Description | December 31, 2008 | (Level 1) | (Level 2) | (Level 3) | ||||||||||||
Cash & Cash Equivalents |
$ | 294,306,512 | $ | 294,306,512 | $ | | $ | | ||||||||
Short-Term Investments |
29,177,273 | 22,177,273 | 7,000,000 | | ||||||||||||
Long-Term Investments |
81,348,942 | 81,348,942 | | | ||||||||||||
Total |
$ | 404,832,727 | $ | 397,832,727 | $ | 7,000,000 | $ | |
The Companys short-term investments primarily consist of Government Securities (Level 1)
and Certificate of Deposits (Level 2). Long-term investments primarily consist of
marketable equity securities and equity mutual funds.
The amortized cost, unrealized gains and losses, and market value of investment securities
are shown as of December 31, 2008 and 2007:
Unrealized | ||||||||||||||||
2008 | Cost | Gains | Losses | Market Value | ||||||||||||
Government Agency |
$ | 21,238,329 | $ | 280,618 | $ | | $ | 21,518,947 | ||||||||
Certificates of Deposit |
7,000,000 | | | 7,000,000 | ||||||||||||
Corporate Bonds |
| | | | ||||||||||||
Other Fixed Income |
658,326 | | | 658,326 | ||||||||||||
Equity |
81,039,674 | 4,605,386 | (4,296,118 | ) | 81,348,942 | |||||||||||
$ | 109,936,329 | $ | 4,886,004 | $ | (4,296,118 | ) | $ | 110,526,215 | ||||||||
2007 | Cost | Gains | Losses | Market Value | ||||||||||||
Government Agency |
$ | 28,973,865 | $ | 20,401 | $ | | $ | 28,994,266 | ||||||||
Certificates of Deposit |
49,000,000 | | | 49,000,000 | ||||||||||||
Corporate Bonds |
298,890 | | (3,483 | ) | 295,407 | |||||||||||
Other Fixed Income |
1,982,015 | | | 1,982,015 | ||||||||||||
Equity |
125,358,799 | 32,983,925 | (2,958,715 | ) | 155,384,009 | |||||||||||
$ | 205,613,569 | $ | 33,004,326 | $ | (2,962,198 | ) | $ | 235,655,697 | ||||||||
Unrealized losses on investments as of December 31, 2008 (excluding other-than-temporary
impairments), are as follows:
Aggregate Unrealized Losses | Aggregate Fair Value | |||||||
Less than one year |
$ | 4,296,118 | $ | 30,101,557 | ||||
Greater than one year |
| |
- 40 -
GENTEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(Continued)
(1) | SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES, continued |
Investments, continued
SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities, as amended
and interpreted, provides guidance on determining when an investment is
other-than-temporarily impaired. The Company reviews its fixed income and equity
investment portfolio for any unrealized losses that would be deemed other-than-temporary
and require the recognition of an impairment loss in income. If the cost of an investment
exceeds its fair value, the Company evaluates, among other factors,
general market conditions, the duration and extent to which the fair value is less than cost,
and our intent and ability to hold the investments. Management also considers the type of
security, related industry, sector performance, as well as published investment ratings and
analyst reports to evaluate its portfolio. Once a decline in fair value is determined to be
other-than-
temporary, an impairment charge is recorded and a new cost basis in the investment is
established. If market, industry, and/or investee conditions deteriorate, the Company may
incur future impairments. Management considered equity investment losses of $17,909,901 to be
other-than-temporary at December 31, 2008; accordingly, the losses have been recognized in the
consolidated statement of income for the year ended December 31, 2008.
The following table details the pro-forma effect on pre-tax net income of equity investment
losses that were considered other-than-temporary at December 31, 2008:
Incurred | Unrealized | |||||||||||||||
Historical Cost | Adjusted Cost | Recognized Loss | Gain/(Loss) | |||||||||||||
Other-Than-Temporary Equity Investment Losses |
$ | 42,386,788 | $ | 24,476,887 | ($17,909,901 | ) | $ | 0 |
Fixed income securities as of December 31, 2008, have contractual maturities as follows:
Due within one year |
$ | 29,177,273 | ||
Due between one and five years |
| |||
Due over five years |
| |||
$ | 29,177,273 | |||
Fair Value of Financial Instruments
The Companys financial instruments consist of cash and cash equivalents, investments,
accounts receivable and accounts payable. The Companys estimate of the fair values of
these financial instruments approximates their carrying amounts at December 31, 2008 and
2007.
Inventories
Inventories include material, direct labor and manufacturing overhead and are valued at the
lower of first-in, first-out (FIFO) cost or market. Inventories consisted of the following
as of December 31, 2008 and 2007:
2008 | 2007 | |||||||
Raw materials |
$ | 36,164,930 | $ | 31,098,379 | ||||
Work-in-process |
6,787,891 | 4,555,058 | ||||||
Finished goods |
12,041,034 | 12,396,123 | ||||||
$ | 54,993,855 | $ | 48,049,560 | |||||
Allowances for slow-moving and obsolete inventories were not significant as of December 31, 2008
and 2007.
Plant and Equipment
Plant and equipment are stated at cost. Depreciation and amortization are computed for
financial reporting purposes using the straight-line method, with estimated useful lives of
7 to 40 years for buildings and improvements, and 3 to 10 years for machinery and
equipment.
Impairment or Disposal of Long-Lived Assets
The Company reviews long-lived assets for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be recoverable. If
such assets are determined to be impaired, the impairment to be recognized is measured by
the amount by which the carrying amount of the assets exceeds the fair value of the assets.
- 41 -
GENTEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(Continued)
(1) | SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES, continued |
Patents
The Companys policy is to capitalize costs incurred to obtain patents. The cost of
patents is amortized over their useful lives. The cost of patents in process is not
amortized until issuance. Accumulated amortization was approximately $4,134,000 and
$3,714,000 at December 31, 2008 and 2007, respectively. At December 31, 2008, patents had
a weighted average amortization life of 11 years. Patent amortization expense was
approximately $420,000, $353,000, and $292,000 in 2008, 2007 and 2006, respectively. For
each of the next five years, patent amortization expense will approximate $435,000
annually.
Revenue Recognition
The Companys revenue is generated from sales of its products. Sales are recognized when
the product is shipped and legal title has passed to the customer. The Company does not
generate sales from arrangements with multiple deliverables.
Advertising and Promotional Materials
All advertising and promotional costs are expensed as incurred and amounted to
approximately $1,543,000, $1,407,000 and $1,250,000, in 2008, 2007 and 2006, respectively.
Repairs and Maintenance
Major renewals and improvements of property and equipment are capitalized, and repairs and
maintenance are expensed as incurred. The Company incurred expenses relating to the repair
and maintenance of plant and equipment of approximately $8,097,000, $7,701,000 and
$6,727,000, in 2008, 2007 and 2006, respectively.
Self-Insurance
The Company is self-insured for a portion of its risk on workers compensation and employee
medical costs. The arrangements provide for stop loss insurance to manage the Companys
risk. Operations are charged with the cost of claims reported and an estimate of claims
incurred but not reported based upon historical claims lag information and other data.
Product Warranty
The Company periodically incurs product warranty costs. Any liabilities associated with
product warranty are estimated based on known facts and circumstances and are not
significant at December 31, 2008 and 2007. The Company does not offer extended warranties
on its products.
Earnings Per Share
The following table reconciles the numerators and denominators used in the calculations of
basic and diluted earnings per share (EPS) for each of the last three years:
2008 | 2007 | 2006 | ||||||||||
Numerators: |
||||||||||||
Numerator for both basic and diluted EPS, net income |
$ | 62,087,947 | $ | 122,130,021 | $ | 108,761,002 | ||||||
Denominators: |
||||||||||||
Denominator for basic EPS,
weighted-average common shares outstanding |
140,902,304 | 143,056,704 | 147,950,666 | |||||||||
Potentially dilutive shares resulting from stock
option plans |
102,632 | 1,013,593 | 543,697 | |||||||||
Denominator for diluted EPS |
141,004,936 | 144,070,297 | 148,494,363 | |||||||||
For the years ended December 31, 2008, 2007 and 2006, 7,185,887, 2,369,271 and 6,564,622
shares, respectively, related to stock option plans were not included in diluted average
common shares outstanding because their effect would be antidilutive.
- 42 -
GENTEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(Continued)
(1) | SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES, continued |
Other Comprehensive Income (Loss)
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 unrealized gains and losses on
certain investments and foreign currency translation adjustments.
Foreign Currency Translation
The financial position and results of operations of the Companys foreign subsidiaries are
measured using the local currency as the functional currency. Assets and liabilities are
translated at the exchange rate in effect at year-end. Income statement accounts are
translated at the average rate of exchange in effect during the year. The resulting
translation adjustment is recorded as a separate component of shareholders investment.
Gains and losses arising from re-measuring foreign currency transactions into the
appropriate currency are included in the determination of net income.
Stock-Based Compensation Plans
At December 31, 2008, the Company had two stock option plans, a restricted plan and an
employee stock purchase plan, which are described more fully in Note 6. Effective January
1, 2006, the Company adopted Statement of Financial Accounting Standards No. 123 (revised),
Share-Based Payment [SFAS 123(R)] utilizing the modified prospective approach. Prior to
the adoption of SFAS 123(R), the Company accounted for stock option grants under the
recognition and measurement principles of APB Opinion No. 25 (Accounting for Stock Issued
to Employees) and related interpretations, and accordingly, recognized no compensation
expense for stock option grants in net income.
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 2008, 2007 and 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.
Estimates
The preparation of financial statements in conformity with accounting principles generally
accepted in the United States requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ from those
estimates.
New Accounting Standards
In June 2008, the Financial Accounting Standards Board (FASB) issued FSP No. EITF 03-6-1,
Determining Whether Instruments Granted in Share-Based Payment Transactions Are
Participating Securities, (FSP EITF 03-6-1). FSP EITF 03-6-1 states that unvested
share-based payment awards that contain nonforfeitable rights to dividends or dividend
equivalents (whether paid or unpaid) are participating securities and shall be included in
the computation of earnings per share pursuant to the two class method. FSP EITF 03-6-1
becomes effective on January 1, 2009. The Company has concluded that the adoption of FAS
EITF 03-6-1 will not have a material impact on its consolidated financial position or
results of operations.
(2) | LINE OF CREDIT |
The Company has available an unsecured $5,000,000 line of credit from a bank at an interest
rate equal to the lower of the banks prime rate or 1.5% above the LIBOR rate. No
borrowings were outstanding under this line in 2008 or 2007. No compensating balances are
required under this line.
- 43 -
GENTEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(Continued)
(3) | INCOME TAXES |
Effective January 1, 2007, the Company adopted the provisions of the Financial Accounting
Standards Board (FASB) Interpretation No. 48 (FIN 48), Accounting for Uncertainty in
Income Taxes. The implementation of FIN 48 did not have a significant impact on the
Companys financial position or results of operations. A reconciliation of the beginning
and ending amount of unrecognized tax benefits is as follows:
Balance at January 1, 2008 |
$ | 1,984,000 | ||
Additions based on tax positions related to the current year |
448,000 | |||
Additions for tax positions in prior years |
260,000 | |||
Reductions for tax positions in prior years |
(0 | ) | ||
Reductions
as a result of a lapse of the applicable statute of limitations |
(257,000 | ) | ||
Balance at December 31, 2008 |
$ | 2,435,000 | ||
If recognized, unrecognized tax benefits would affect the effective tax rate.
The Company recognizes interest and penalties related to unrecognized tax benefits through
the provision for income taxes. The Company has accrued approximately $318,000 for
interest as of December 31, 2008. Interest recorded during 2008 was not considered
significant.
The Company is subject to periodic and routine audits in both domestic and foreign tax
jurisdictions. It is reasonably possible that the amounts of unrecognized tax benefits
could change as a result of an audit. Based on the current audits in process, the payment
of taxes as a result of audit settlements are not expected to have a significant impact on
the Companys financial position or results of operations.
For the majority of tax jurisdictions, the Company is no longer subject to U.S. Federal,
state and local, or non-U.S. income tax examinations by tax authorities for years before
2005.
The provision for income taxes is based on the earnings reported in the accompanying
consolidated financial statements. The Company recognizes deferred income tax liabilities
and assets for the expected future tax consequences of events that have been included in
the consolidated financial statements or tax returns. Under this method, deferred income
tax liabilities and assets are determined based on the cumulative temporary differences
between the financial statement and tax bases of assets and liabilities using enacted tax
rates. Deferred income tax expense is measured by the net change in deferred income tax
assets and liabilities during the year.
The components of the provision for income taxes are as follows:
2008 | 2007 | 2006 | ||||||||||
Currently payable: |
||||||||||||
Federal |
$ | 29,343,914 | $ | 59,555,747 | $ | 51,411,596 | ||||||
State |
1,178,000 | 309,000 | 144,000 | |||||||||
Foreign |
428,000 | 671,000 | 411,000 | |||||||||
Total |
30,949,914 | 60,535,747 | 51,966,596 | |||||||||
Net deferred: |
||||||||||||
Primarily federal |
(843,000 | ) | (2,927,000 | ) | (1,754,000 | ) | ||||||
Provision for income taxes |
$ | 30,106,914 | $ | 57,608,747 | $ | 50,212,596 | ||||||
In July 2007, the State of Michigan enacted a new business tax that was effective January
1, 2008. The increase in the state income tax provision in 2008 compared to 2007 was
primarily the result of the new Michigan Business Tax.
The currently payable provision is further reduced by the tax benefits associated with the
exercise, vesting or disposition of stock under the stock plans described in Note 6. These
reductions totaled approximately $473,000, $3,839,000 and $1,608,000 in 2008, 2007 and
2006, respectively, and were recognized as an adjustment of additional paid-in capital.
- 44 -
GENTEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(Continued)
(3) | INCOME TAXES, continued |
The effective income tax rates are different from the statutory federal income tax rates
for the following reasons:
2008 | 2007 | 2006 | ||||||||||
Statutory federal income tax rate |
35.0 | % | 35.0 | % | 35.0 | % | ||||||
State income taxes, net of federal income tax benefit |
0.4 | 0.1 | 0.1 | |||||||||
Foreign source exempted income |
| | (2.0 | ) | ||||||||
Domestic production exclusion |
(1.8 | ) | (1.9 | ) | (1.0 | ) | ||||||
Tax-exempt investment income |
(0.6 | ) | (0.4 | ) | (0.5 | ) | ||||||
Other |
(0.3 | ) | (0.7 | ) | | |||||||
Effective income tax rate |
32.7 | % | 32.1 | % | 31.6 | % | ||||||
The tax effect of temporary differences which give rise to deferred income tax assets and
liabilities at December 31, 2008 and 2007, are as follows:
2008 | 2007 | |||||||||||||||
Current | Non-Current | Current | Non-Current | |||||||||||||
Assets: |
||||||||||||||||
Accruals not currently deductible |
$ | 2,888,504 | $ | 232,153 | $ | 3,834,105 | $ | 164,603 | ||||||||
Stock based compensation |
5,973,807 | 1,540,419 | 3,503,165 | 1,669,586 | ||||||||||||
Impairment loss on available-for-sale
securities |
| 6,268,465 | | | ||||||||||||
Other |
3,448,900 | | 1,889,468 | 6,760 | ||||||||||||
Total deferred income tax assets |
12,311,211 | 8,041,037 | 9,226,738 | 1,840,949 | ||||||||||||
Liabilities: |
||||||||||||||||
Excess tax over book depreciation |
| (21,189,323 | ) | | (12,702,369 | ) | ||||||||||
Patent costs |
| (1,679,367 | ) | | (1,471,614 | ) | ||||||||||
Unrealized gain on investments |
| (206,460 | ) | | (10,514,745 | ) | ||||||||||
Other |
(702,203 | ) | (507 | ) | (955,820 | ) | | |||||||||
Net deferred incomes taxes |
$ | 11,609,008 | $ | (15,034,620 | ) | $ | 8,270,918 | $ | (22,847,779 | ) | ||||||
Income taxes paid in cash were approximately $43,765,000, $59,162,000 and $49,061,000 in 2008,
2007 and 2006, respectively.
(4) EMPLOYEE BENEFIT PLAN
The Company has a 401(k) retirement savings plan in which substantially all of its
employees may participate. The plan includes a provision for the Company to match a
percentage of the employees contributions at a rate determined by the Companys Board of
Directors. In 2008, 2007 and 2006, the Companys contributions were approximately
$1,839,000, $1,849,000 and $1,715,000, respectively.
The Company does not provide health care benefits to retired employees.
(5) | SHAREHOLDER PROTECTION RIGHTS PLAN |
The Company has a Shareholder Protection Rights Plan (the Plan). The Plan is designed to
protect shareholders against unsolicited attempts to acquire control of the Company in a
manner that does not offer a fair price to all shareholders.
Under the Plan, one purchase Right automatically trades with each share of the Companys
common stock. Each Right entitles a shareholder to purchase 1/100 of a share of junior
participating preferred stock at a price of $55, if any person or group attempts certain
hostile takeover tactics toward the Company. Under certain hostile takeover circumstances,
each Right may entitle the holder to purchase the Companys common stock at one-half its
market value or to purchase the securities of any acquiring entity at one-half their market
value. Rights are subject to redemption by the Company at $.0025 per Right and, unless
earlier redeemed, will expire on March 29, 2011. Rights beneficially owned by holders of
15 percent or more of the Companys common stock, or their transferees, automatically
become void.
- 45 -
GENTEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(Continued)
(6) | STOCK-BASED COMPENSATION PLANS |
Employee Stock Option Plan
In 2004, a new Employee Stock Option Plan was approved by shareholders, 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 7,715,292 shares (net of
shares from canceled/expired options) under the new plan through December 31, 2008. Under
the plans, the option exercise price equals the stocks market price on date of grant. The
options vest after one to five years, and expire after five 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:
2008 | 2007 | 2006 | ||||||||||
Dividend yield |
2.1 | % | 2.0 | % | 2.0 | % | ||||||
Expected volatility |
31.9 | % | 29.5 | % | 30.0 | % | ||||||
Risk-free interest rate |
2.7 | % | 4.4 | % | 4.8 | % | ||||||
Expected term of options (in years) |
4.5 | 4.5 | 4.5 | |||||||||
Weighted-average grant-date fair value |
$ | 3 | $ | 5 | $ | 4 |
The Company determined that all employee groups exhibit similar exercise and post-vesting
termination behavior to determine the expected term.
As of December 31, 2008, there was $10,231,977 of unrecognized compensation cost related
to share-based payments which is expected to be recognized over the remaining vesting
periods, with a weighted-average period of 4.0 years.
A summary of the status of the Companys employee stock option plan at December 31, 2008,
2007 and 2006, and changes during the same periods are presented in the tables and
narrative below:
2008 | ||||||||||||||||
Aggregate | ||||||||||||||||
Shares | Wtd. Avg. | Wtd. Avg. Remaining | Intrinsic Value | |||||||||||||
000 | Ex. Price | Contract Life | $000 | |||||||||||||
Outstanding at Beginning of Year |
9,300 | $ | 18 | |||||||||||||
Granted |
1,966 | 14 | ||||||||||||||
Exercised |
(689 | ) | 15 | $ | 1,777 | |||||||||||
Forfeited/Expired |
(1,185 | ) | 19 | |||||||||||||
Outstanding at End of Year |
9,392 | 17 | 2.9 Yrs | $ | 216 | |||||||||||
Exercisable at End of Year |
4,769 | $ | 18 | 1.7 Yrs | $ | 0 |
2007 | ||||||||||||||||
Shares | Wtd. Avg. | Wtd. Avg. Remaining | Aggregate Intrinsic Value |
|||||||||||||
000 | Ex. Price | Contract Life | $000 | |||||||||||||
Outstanding at Beginning of Year |
10,400 | $ | 17 | |||||||||||||
Granted |
1,838 | 19 | ||||||||||||||
Exercised |
(2,574 | ) | 15 | $ | 11,217 | |||||||||||
Forfeited |
(364 | ) | 18 | |||||||||||||
Outstanding at End of Year |
9,300 | 18 | 2.9 Yrs | $ | 9,777 | |||||||||||
Exercisable at End of Year |
5,269 | $ | 18 | 1.9 Yrs | $ | 4,926 |
- 46 -
GENTEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(Continued)
(6) | STOCK-BASED COMPENSATION PLANS, continued |
2006 | ||||||||||||||||
Shares | Wtd. Avg. | Wtd. Avg. Remaining | Aggregate Intrinsic Value |
|||||||||||||
000 | Ex. Price | Contract Life | $000 | |||||||||||||
Outstanding at Beginning of Year |
10,510 | $ | 17 | |||||||||||||
Granted |
1,691 | 15 | ||||||||||||||
Exercised |
(1,320 | ) | 13 | $ | 4,205 | |||||||||||
Forfeited |
(481 | ) | 18 | |||||||||||||
Outstanding at End of Year |
10,400 | 17 | 2.9 Yrs | $ | 5,614 | |||||||||||
Exercisable at End of Year |
6,904 | $ | 17 | 2.2 Yrs | $ | 3,690 |
A summary of the status of the Companys non-vested employee stock option activity for
the years ended December 31, 2008, 2007, and 2006, are presented in the table and narrative
below:
2008 | 2007 | 2006 | ||||||||||||||||||||||
Wtd. Avg | Wtd. Avg | Wtd. Avg | ||||||||||||||||||||||
Shares | Grant Date | Shares | Grant Date | Shares | Grant Date | |||||||||||||||||||
000 | Fair Value | 000 | Fair Value | 000 | Fair Value | |||||||||||||||||||
Nonvested
stock options at Beginning of Year |
4,031 | $ | 5 | 3,496 | $ | 5 | 3,069 | $ | 6 | |||||||||||||||
Granted |
1,966 | 3 | 1,838 | 5 | 1,691 | 4 | ||||||||||||||||||
Vested |
(1,192 | ) | 5 | (1,200 | ) | 5 | (1,124 | ) | 6 | |||||||||||||||
Forfeited |
(183 | ) | 5 | (103 | ) | 5 | (140 | ) | 5 | |||||||||||||||
Nonvested stock options at End of Year |
4,622 | $ | 4 | 4,031 | $ | 5 | 3,496 | $ | 5 |
Non-employee Director Stock Option Plan
The Company has a Non-employee Director Stock Option Plan covering 1,000,000 shares that
was shareholder approved, replacing a prior plan. The Company has granted options on
411,240 shares (net of shares from canceled options) under the current plan through
December 31, 2008. Under the plan, the option exercise price equals the stocks market
price on date of grant. The options vest after six months, and expire after ten years.
The fair value of each option grant in the Nonemployee Director Stock Option Plans was
estimated on the date of grant using the Black-Scholes option pricing model with the
following weighted-average assumptions for the indicated periods:
2008 | 2007 | 2006 | ||||||||||
Dividend yield |
2.1 | % | 2.0 | % | 1.8 | % | ||||||
Expected volatility |
30.6 | % | 29.4 | % | 30.7 | % | ||||||
Risk-free interest rate |
3.6 | % | 4.6 | % | 5.0 | % | ||||||
Expected term of options (in years) |
8.5 | 8.3 | 8.9 | |||||||||
Weighted-average grant-date fair value |
$ | 6 | $ | 6 | $ | 6 |
As of December 31, 2008, there was no unrecognized compensation cost related to
share-based payments under this plan.
- 47 -
GENTEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(Continued)
A summary of the status of the Companys Non-employee Director Stock Option Plan at
December 31, 2008, 2007, and 2006, and changes during the same periods are presented in the
tables and narrative below:
(6) | STOCK-BASED COMPENSATION PLANS, continued |
2008 | ||||||||||||||||
Aggregate | ||||||||||||||||
Shares | Wtd. Avg. | Wtd. Avg. Remaining | Intrinsic Value | |||||||||||||
000 | Ex. Price | Contract Life | $000 | |||||||||||||
Outstanding at Beginning of Year |
363 | $ | 16 | |||||||||||||
Granted |
48 | 19 | ||||||||||||||
Exercised |
(20 | ) | 9 | $ | 194 | |||||||||||
Forfeited |
(- | ) | (- | ) | ||||||||||||
Outstanding at End of Year |
391 | 17 | 5.8 Yrs | $ | 0 | |||||||||||
Exercisable at End of Year |
391 | $ | 17 | 5.8 Yrs | $ | 0 |
2007 | ||||||||||||||||
Aggregate | ||||||||||||||||
Shares | Wtd. Avg. | Wtd. Avg. Remaining | Intrinsic Value | |||||||||||||
000 | Ex. Price | Contract Life | $000 | |||||||||||||
Outstanding at Beginning of Year |
341 | $ | 15 | |||||||||||||
Granted |
48 | 18 | ||||||||||||||
Exercised |
(26 | ) | 7 | $ | 304 | |||||||||||
Forfeited |
(- | ) | (- | ) | ||||||||||||
Outstanding at End of Year |
363 | 16 | 6.0 Yrs | $ | 631 | |||||||||||
Exercisable at End of Year |
363 | $ | 16 | 6.0 Yrs | $ | 631 |
2006 | ||||||||||||||||
Aggregate | ||||||||||||||||
Shares | Wtd. Avg. | Wtd. Avg. Remaining | Intrinsic Value | |||||||||||||
000 | Ex. Price | Contract Life | $000 | |||||||||||||
Outstanding at Beginning of Year |
445 | $ | 14 | |||||||||||||
Granted |
48 | 15 | ||||||||||||||
Exercised |
(80 | ) | 6 | $ | 662 | |||||||||||
Forfeited |
(72 | ) | 16 | |||||||||||||
Outstanding at End of Year |
341 | 15 | 6.1 Yrs | $ | 450 | |||||||||||
Exercisable at End of Year |
341 | $ | 15 | 6.1 Yrs | $ | 450 |
A summary of the status of the Companys non-vested non-employee director stock option
plan activity for the years ended December 31, 2008, 2007, and 2006, are presented in the
table and narrative below:
2008 | 2007 | 2006 | ||||||||||||||||||||||
Wtd. Avg | Wtd. Avg | Wtd. Avg | ||||||||||||||||||||||
Shares | Grant Date | Shares | Grant Date | Shares | Grant Date | |||||||||||||||||||
000 | Fair Value | 000 | Fair Value | 000 | Fair Value | |||||||||||||||||||
Nonvested stock options at Beginning of Year |
0 | $ | 0 | 0 | $ | 0 | 0 | $ | 0 | |||||||||||||||
Granted |
48 | 6 | 48 | 6 | 48 | 6 | ||||||||||||||||||
Vested |
(48 | ) | 6 | (48 | ) | 6 | (48 | ) | 6 | |||||||||||||||
Forfeited |
0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
Nonvested stock options at End of Year |
0 | $ | 0 | 0 | $ | 0 | 0 | $ | 0 |
- 48 -
GENTEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(Continued)
(6) | STOCK-BASED COMPENSATION PLANS, continued |
Employee Stock Purchase Plan
In 2003, a new Employee Stock Purchase Plan covering 1,200,000 shares was approved by the
shareholders, replacing a prior plan. The Company has sold to employees 141,018 shares,
111,558 shares and 130,876 shares under the new plan in 2008, 2007, and 2006, respectively,
and has sold a total of 693,703 shares under the new plan through December 31, 2008. The
Company sells shares at 85% of the stocks market price at date of purchase. The weighted
average fair value of shares sold in 2008 was approximately $11.56.
Restricted Stock Plan
In 2008, an amendment to the Companys Second Restricted Stock Plan was approved by
shareholders. The plan amendment increased the maximum number of shares that may be
subject to awards to 2,000,000 shares and to extend the Plans termination date to February
21, 2018. 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 544,880 shares
outstanding as of December 31, 2008. During 2008, 2007, and 2006, 99,290, 107,200 and
182,530 shares, respectively, were granted with a restriction period of five years at
market prices ranging from $8.30 to $17.00 in 2008, $16.25 to $19.69 in 2007, and $14.00 to
$17.09 in 2006, and has unearned stock-based compensation of $4,517,282 associated with
these restricted stock grants. The unearned stock-based compensation related to these
grants is being amortized to compensation expense over the applicable restriction periods.
Amortization of restricted stock for 2008 was $1,926,350.
(7) | CONTINGENCIES |
The Company was involved in litigation with K.W. Muth and Muth Mirror Systems LLC (Muth)
relating to exterior mirrors with turn signal indicators. The turn signal feature in
exterior mirrors currently represents approximately one percent of our revenues, and the
litigation did not involve core Gentex electrochromic technology. The trial in Wisconsin
related to this case occurred during July 2007 and the court issued its written ruling in
December 2007. The Court found that Muths U.S. Patent No. 6,005,724 is invalid and
unenforceable, and that Gentexs Razor Turn Signal Mirror does not infringe that patent.
The Court also denied all but one of Muths other motions with prejudice, including its
motion for an injunction, and its claims for tortuous interference with its business
relationships. The sole point of liability for Gentex was that the Court found that Gentex
breached one provision of the alliance agreement it had with Muth, and entered a judgment
against Gentex, on January 24, 2008, granting Muth damages in the amount of $2,885,329,
which was accrued by the Company as of December 31, 2007. On February 15, 2008, the
Company entered into a Settlement And Release And Covenants Not To Sue (Agreement) with
Muth whereby the parties agreed to settle the Courts judgment against the Company for
damages at a reduced amount of $2,550,000. In addition, under the Agreement the parties
each agreed to: grant the other party a ten-year covenant not to sue for each Companys
core business, to release each other from all claims that occurred in the past, and not
appeal the Courts rulings. The Agreement was approved by the Bankruptcy Court on February
29, 2008. The adjustment to the original judgment for damages is reflected in our 2008
financial results as a reduction to engineering, research and development expenses.
In addition, the Company is periodically involved in legal proceedings, legal actions and
claims arising in the normal course of business, including proceedings relating to product
liability, intellectual property, safety and health, employment and other matters. Such
matters are subject to many uncertainties and outcomes are not predictable. The Company
does not believe however, that at the current time any of these matters constitute material
pending legal proceedings that will have a material adverse effect on the financial
position or future results of operations of the Company.
- 49 -
GENTEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(Continued)
(8) | SEGMENT REPORTING |
SFAS No. 131, Disclosures About Segments of an Enterprise and Related Information,
requires that a public enterprise report financial and descriptive information about its
reportable operating segments subject to certain aggregation criteria and quantitative
thresholds. Operating segments are defined by SFAS No. 131 as components of an enterprise
about which separate financial information is available that is evaluated regularly by the
chief operating decision-makers in deciding how to allocate resources and in assessing
performance.
2008 | 2007 | 2006 | ||||||||||
Revenue: |
||||||||||||
Automotive Products |
||||||||||||
United States |
$ | 205,032,708 | $ | 254,455,151 | $ | 230,152,102 | ||||||
Germany |
179,207,637 | 162,465,135 | 127,531,636 | |||||||||
Japan |
60,518,677 | 59,747,941 | 56,547,995 | |||||||||
Other |
156,704,358 | 153,430,864 | 134,172,464 | |||||||||
Other |
22,336,442 | 23,834,145 | 23,862,876 | |||||||||
Total |
$ | 623,799,822 | $ | 653,933,236 | $ | 572,267,073 | ||||||
Income from Operations: |
||||||||||||
Automotive Products |
$ | 109,236,877 | $ | 136,741,562 | $ | 121,766,143 | ||||||
Other |
(759,290 | ) | 2,074,201 | 4,680,833 | ||||||||
Total |
$ | 108,477,587 | $ | 138,815,763 | $ | 126,446,976 | ||||||
Assets: |
||||||||||||
Automotive Products |
$ | 306,064,439 | $ | 305,519,359 | $ | 275,022,400 | ||||||
Other |
5,212,254 | 4,182,161 | 5,090,934 | |||||||||
Corporate |
451,826,687 | 588,321,160 | 504,915,066 | |||||||||
Total |
$ | 763,103,380 | $ | 898,022,680 | $ | 785,028,400 | ||||||
Depreciation &
Amortization: |
||||||||||||
Automotive Products |
$ | 33,204,201 | $ | 29,796,901 | $ | 25,218,267 | ||||||
Other |
245,336 | 235,582 | 253,879 | |||||||||
Corporate |
2,441,530 | 2,402,775 | 2,290,564 | |||||||||
Total |
$ | 35,891,067 | $ | 32,435,258 | $ | 27,762,710 | ||||||
Capital Expenditures: |
||||||||||||
Automotive Products |
$ | 44,939,925 | $ | 52,378,659 | $ | 45,846,127 | ||||||
Other |
584,541 | 192,339 | 868,296 | |||||||||
Corporate |
0 | 1,953,324 | 1,478,660 | |||||||||
Total |
$ | 45,524,466 | $ | 54,524,322 | $ | 48,193,083 | ||||||
Other includes Fire Protection Products and Dimmable Aircraft Windows. The Dimmable
Aircraft Windows segment began during 2007. There were no Dimmable Aircraft Window sales
in 2007 and sales were immaterial during 2008, which resulted in lower income from
operations for the Other category.
Corporate assets are principally cash and cash equivalents, investments, deferred income taxes
and corporate fixed assets. Substantially all long-lived assets are located in the U.S.
Automotive Products revenues in the Other category are sales to automotive manufacturing
plants in Canada, Mexico and Korea, as well as other foreign automotive customers. Most of
the Companys non-U.S. sales are invoiced and paid in U.S. dollars. During 2008,
approximately 13% of the Companys net sales were invoiced and paid in European euros.
- 50 -
GENTEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(Continued)
(8) | SEGMENT REPORTING, continued |
During the years presented, the Company had five automotive customers (includes direct sales to
OEM customers and sales through their Tier 1 suppliers), which individually accounted for
10% or more of net sales as follows:
Customer | ||||||||||||||||||||
Daimler AG |
General Motors |
Toyota
Motor Corporation |
VW/Audi | BMW | ||||||||||||||||
2008 |
14 | % | 14 | % | 14 | % | 13 | % | 11 | % | ||||||||||
2007 |
*15 | % | 19 | % | 13 | % | # | 12 | % | |||||||||||
2006 |
15 | % | 22 | % | 13 | % | # | 12 | % |
* | Includes Chrysler through the date of sale. | |
# | Less than 10%. |
- 51 -
EXHIBIT INDEX
EXHIBIT NO. | DESCRIPTION | PAGE | ||||||
3 | (a)(1) | Registrants Restated Articles of Incorporation, adopted on August 20, 2004, were
filed as Exhibit 3(a) to Registrants Report on Form 10-Q dated November 2, 2004,
and the same is hereby incorporated herein by reference.
|
||||||
3 | (b)(1) | Registrants Bylaws as amended and restated February 27, 2003, was filed as Exhibit 3(b)(1) to
Registrants report on Form 10-Q dated May 5, 2003, and the same is hereby incorporated herein
by reference. |
||||||
4 | (a) | A specimen form of certificate for the Registrants common stock, par value $.06
per share, was filed as part of a Registration Statement (Registration Number
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 Registrants Report on Form 10-Q on 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
(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
Registrants 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
Registrants Proxy Statement dated April 6, 2004, filed with the
Commission on April 6, 2004, and the same is hereby incorporated
herein by reference, and the same became the Gentex Corporation
Employee Stock Option Plan and was amended as of March 4, 2005
by the First Amendment to the Gentex Corporation Qualified Stock
Option Plan, which amendment was included in the Registrants
Proxy Statement dated April 1, 2005, filed with the Commission
on April 1, 2005, and the same is incorporated herein by
reference. |
||||||
*10 | (b)(2) | Specimen form of Grant Agreement for the Gentex Corporation
Qualified Stock Option Plan (as amended and restated, effective
February 26, 2004 and as amended March 4, 2005), was filed as
Exhibit 10(b)(3) to Registrants Report on Form 10-Q dated
November 1, 2005, and the same is hereby incorporated herein by
reference. |
||||||
*10 | (b)(3) | Gentex Corporation Second Restricted Stock Plan was filed as
Exhibit 10(b)(2) to Registrants Report on Form 10-Q dated April
27, 2001, and the same is hereby incorporated herein by
reference. |
||||||
*10 | (b)(4) | First Amendment to the Gentex Corporation Second Restricted
Stock Plan was filed as Exhibit 10(b)(5) to the Registrants
Report on Form 10-Q dated August 4, 2008, and the same is hereby
incorporated herein by reference. |
||||||
*10 | (b)(5) | Specimen form of Grant Agreement for the Gentex Corporation
Restricted Stock Plan (as amended and restated, effective
February 26, 2004), was filed as Exhibit 10(b)(4) to
Registrants Report on Form 10-Q dated November 2, 2004, and the
same is hereby incorporated herein by reference. |
||||||
*10 | (b)(6) | Gentex Corporation 2002 Nonemployee Director Stock Option Plan
(adopted March 6, 2002) was filed as Exhibit 10(b)(4) to
Registrants Report on Form 10-Q dated April 30, 2002, and the
same is hereby incorporated herein by reference. |
||||||
*10 | (b)(7) | Specimen form of Grant Agreement for the Gentex Corporation 2002
Non-Employee Director Stock Option Plan (as amended and
restated, effective February 26, 2004), was filed as Exhibit
10(b)(6) to Registrants 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 Registrants
directors and certain officers was filed as Exhibit 10(e) to Registrants Report on
Form 10-Q dated October 31, 2002, and the same is hereby incorporated herein by
reference. |
||||||
21 | List of Company Subsidiaries
|
53 | ||||||
23 | (a) | Consent of Independent Registered Public Accounting Firm
|
54 | |||||
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).
|
55 | ||||||
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).
|
56 | ||||||
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).
|
57 | ||||||
* | Indicates a compensatory plan or arrangement. |
- 52 -