UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR FISCAL YEAR ENDED DECEMBER 31, 2007.
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from _______________ to _______________.
Commission File No.: 0-10235
GENTEX CORPORATION
(Exact name of registrant as specified in its charter)
MICHIGAN 38-2030505
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
600 N. CENTENNIAL STREET, ZEELAND, MICHIGAN 49464
(Address of principal executive offices) (Zip Code)
(616) 772-1800
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Name of each
Title of each Class exchange on which registered
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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)
Indicate by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act.
Yes: X No:
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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: No: X
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes: X No:
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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 registrant's 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. [ ]
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. (Check One):
Large Accelerated Filer [X] Accelerated Filer [ ]
Non-Accelerated Filer [ ] Smaller Reporting Company [ ]
(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).
Yes: No: X
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As of June 30, 2007 (the last business day of the registrant's most recently
completed second fiscal quarter), 137,616,177 shares of the registrant's 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 $2,709,662,525 computed at the
closing price on that date.
As of February 12, 2008, 144,033,281 shares of the registrant's common stock,
par value $.06 per share, were outstanding.
Portions of the Company's Proxy Statement for its 2008 Annual Meeting of
Shareholders are incorporated by reference into Part III.
Exhibit Index located at Page 48
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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 for commercial applications. 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(R), that uses a custom, active-pixel, CMOS
(complementary metal oxide semiconductor) sensor, and maximizes a driver's
forward vision by significantly improving utilization of the vehicle's highbeam
headlamps during nighttime driving. During 2004, the Company began shipping
auto-dimming mirrors with SmartBeam(R). During 2007, the Company began shipping
auto-dimming mirrors with SmartBeam(R) for the BMW 5 and 6 Series in North
America and the BMW X5 model in Europe and other select markets.
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 announced a number of OEM programs with Ford Motor Company as well as
the Kia Mohave for the Korean market to supply its RCD Mirror. The Company also
announced that the RCD Mirror is available as a dealer or port-installed option
on the Toyota Camry through Gulf States Toyota. In addition, the Company
announced a dealer or port-installed program with Mazda to supply its RCD
Mirror.
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.
During 2006, the Company has developed its own compass technology called
Z-Nav(R), 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.
The Company's 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
Company's 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.
(B) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
See Note 9 to the Consolidated Financial Statements filed with this report.
(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
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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 85%
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
Company's proprietary electrochromic materials. When the appropriate light
differential is detected, an electric current causes the electrochromic material
to darken, decreasing the mirror's 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 earth's
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(R)
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 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 mid-sized, medium-priced vehicles, including the new 2008 Honda Accord.
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 DaimlerChrysler's "U-Connect(R)" telematics system.
During 2007, the Company began making shipments of its microphone mirrors as
part of Ford's "Sync(R)" telematics system.
During 2004 and 2005, the Company began shipping auto-dimming mirrors with
SmartBeam(R), 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(R) for the BMW 3
Series, Cadillac Escalade and the Chrysler 300C. During 2007, the Company began
shipping auto-dimming mirrors with SmartBeam(R) for the BMW 5 and 6 Series in
North America and the BMW X5 model in Europe and other select markets.
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 and the Lincoln Mark LT. 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
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States Toyota, one of two remaining independent Toyota distributorships that
covers dealers in the states of Arkansas, Louisiana, Mississippi, Oklahoma and
Texas. The Company also announced that its RCD Mirror is available in the Korean
market on the Kia Mohave.
In December 2007, the United States House of Representatives passed the
"Kids Transportation Safety Act of 2007" which was introduced into the Senate on
December 19, 2007, and in January 2008 it was referred to the Committee on
Commerce, Science and Transportation. The bill orders the Secretary of
Transportation at the National Highway Traffic Safety Administration (NHTSA) to
initiate rulemaking to revise the federal standard to expand the field of view
so that drivers can detect objects directly behind vehicles. While the bill does
not state how visibility can be enhanced, the Company's RCD Mirror is a cost
competitive product that is relatively easy to implement. The Senate unanimously
passed the bill on February 14, 2008 and is awaiting the President's approval
signing it into law.
The Company shipped approximately 8,924,000 interior auto-dimming mirrors
in 2005, approximately 9,426,000 in 2006, and 11,001,000 in 2007.
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During 2007, the growth in interior total mirror unit shipments increased
primarily due to increased shipments to certain traditional Big Three automakers
as well as European and Asian customers. The Company's interior auto-dimming
mirrors are standard equipment or factory-installed options on certain trim
levels of the following 2008 vehicle models:
TABLE 1. INTERIOR AUTO-DIMMING MIRROR AVAILABILITY BY VEHICLE LINE (NORTH
AMERICAN MANUFACTURERS)
GM/Cadillac DTS Chrysler 300
STS Aspen
CTS Sebring
Escalade Town & Country
SRX Chrysler/Dodge Avenger
GM/Buick Enclave Caliber
LaCrosse Caravan
Lucerne Charger
Rainier Dakota
GM/Hummer H2 Durango
H3 Nitro
GM/Pontiac G6 Ram Pickup
Torrent Chrysler/Jeep Commander
GM/Chevrolet Avalanche Compass
Colorado Grand Cherokee
Express Liberty
Equinox Patriot
HHR Daimler/Mercedes-Benz GL Class
Impala M Class
Malibu R Class
Silverado BMW X5
Suburban Honda Accord
Tahoe Honda/Acura MDX
Trailblazer RDX
GM/GMC Acadia Hyundai Sante Fe
Canyon Sonata
Envoy Mazda 6
Savana Mitsubishi Galant
Sierra Raider
Yukon Nissan Altima
GM/Saturn Aura Armada
ION Frontier
Outlook Maxima
Vue Pathfinder
Ford Crown Victoria Quest
Edge Titan
Expedition Nissan/Infiniti QX56
Taurus Toyota Avalon
Fairlane Camry
Freestyle Camry Solara
Fusion Corolla
F Series Matrix
Mustang Sequoia
Ford/Lincoln MKX Sienna
MKZ Tacoma
Mark LT Tundra
Navigator Toyota/Lexus RX330/350
Town Car Volkswagen Beetle
Ford/Mercury Grand Marquis Jetta
Milan
Sable
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TABLE 1. INTERIOR AUTO-DIMMING MIRROR AVAILABILITY BY VEHICLE LINE - CONTINUED
(MANUFACTURERS OUTSIDE OF NORTH AMERICA)
Bentley Arnage Hyundai (cont'd) Veracruz Toyota (cont'd) 4-Runner
Azure Hyundai/Kia Amanti Zi0
Continental Carnival Volkswagen EOS
GTC Carens Caddy Van
BMW 7 Series C'eed Golf
6 Series Cerato Jetta
5 Series Lotze Passat
3 Series Mohave Phaeton
1 Series Borrego Polo
X3 S&P 210Z Sharan
Daewoo Antara Opirus Touareg
Winstorm Optima Touran
Daewoo/Ssangyong Actyon Sedona Transporter
Chairman Sorento Volkswagen/Audi A3
Kyron Spectra A4
Rexton Sportage A6
Rodius Maserati Quattroporte A8
Chrysler 300 GT Coupe Cabrio
Voyager Mazda RX-8 Allroad
Chrysler/Jeep Commander Daimler C Class Q7
Grand Cherokee /Mercedes Benz CL Class R8
Fiat Idea CLK TT
500 CLS Volkswagen/SEAT Altea
Fiat/Alfa Romero 147 E Class Cordoba
Fiat/Lancia Thesis G Wagen Ibiza
Ford Falcon S Class Leon
Focus SL Class Toledo
Galaxy SLK Volkswagen/Skoda Octavia
Mondeo Mitsubishi 380 Superb
Territory Magna
S-Max Pajero
Ford/Jaguar S-Type Nissan 350Z
XK Cedric
XJ Frontier
Ford/Land Rover LR3 Murano
Range Rover Navara
Ford/Volvo C70 Pathfinder
C30 Rogue
S40 Skyline
V50 Nissan/Infiniti FX35/FX45
GM/Buick Regal G35/G37
GM/Opel Astra M35/M45
Captiva Q45
Corsa PSA/Citroen C6
Meriva PSA/Peugeot 207
Signum 407
Tigra Porsche Cayenne
Vectra SAIC Roewe 750
Zafira Skoda Octavia
GM/Saab 9-7X Suzuki XL-7
Honda/Acura TSX Toyota/Lexus ES330
Honda Accord GX470
Hongqi Benteng LX
Hyundai Avante RX330
Azera Toyota Auris
Elantra Avensis
Equus Blade
Grandeur Camry
I30 Corolla
Sonata Highlander
Santa Fe Land Cruiser
Starex Mark X
Tuscani Prius
Trajet RAV4
Tucson Verso
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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 Company's 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 world's 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 3,646,000 exterior auto-dimming mirror
sub-assemblies during 2005, approximately 4,001,000 in 2006, and approximately
4,220,000 in 2007. During 2007, unit shipment growth primarily resulted from the
increased penetration of light vehicles at certain Asian and European
automakers.
The exterior auto-dimming mirror is standard equipment or a
factory-installed option on certain trim levels of the following 2008 vehicle
models:
TABLE 2. EXTERIOR AUTO-DIMMING MIRROR AVAILABILITY BY VEHICLE LINE
GM/Cadillac DTS Bentley Arnage Hyundai/Kia Amanti
Escalade Azure Opirus
XLR Continental Nissan/Infiniti Q45
Enclave GTC QX56
GM/Buick Lucerne Daimler C Class Toyota/Lexus GS
GM/Chevrolet Avalanche /Mercedes Benz CL Class LS
Silverado CLK LX
Suburban CLS RX330/350
Tahoe E Class Toyota Avalon
GM/GMC Acadia G Wagen Camry Solara
Sierra GL Class Land Cruiser
Yukon M Class Sequoia
GM/Hummer H2 R Class Sienna
GM/Saturn Outlook S Class Tundra
Ford/Lincoln MKZ SL Class Nissan Armada
Town Car SLK Cima
Chrysler 300 Ford/Jaguar S-Type Maxima
Aspen XJ Titan
Town & Country XK Rolls Royce Phantom
Chrysler/Dodge Caravan Ford/Land Rover Range Rover Daewoo Antara
Durango GM/Opel Vectra Daewoo Chairman
Chrysler/Jeep Commander Maserati Quattroporte /Ssangyong
Grand Cherokee GT Coupe
Volkswagen/Audi A3 Mitsubishi Magna
A4 PSA/Citroen C6
A6 VW/Skoda Octavia
A8 Volkswagen EOS
Cabrio Golf
Q7 Passat
R8 Sharan
TT Touran
BMW 7 Series Touareg
6 Series Honda/Acura Accord
5 Series RL
3 Series Hyundai Equus
1 Series Grandeur
X3 Veracruz
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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.
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(R) mirror. During 2001, the Company announced a revolutionary new
proprietary technology, called SmartBeam(R), that uses a custom, active-pixel,
CMOS (complementary metal oxide semiconductor) sensor, and maximizes a driver's
forward vision by significantly improving utilization of the vehicle's highbeam
headlamps during nighttime driving. During 2004, the Company began shipping
auto-dimming mirrors with SmartBeam, its proprietary intelligent high-beam
headlamp control feature, on the Cadillac STS and Jeep Grand Cherokee. During
2005, the Company began shipping auto-dimming mirrors with SmartBeam for the
Cadillac DTS, the Jeep Commander, and BMW 5, 6 and 7 Series models in Europe and
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(R)
for the BMW 5 and 6 Series in North America and the BMW X5 model in Europe and
other select markets.
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 mirror's 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 mirror's 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(R), 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 DaimlerChrysler's
"U-Connect(R)" telematics system, beginning in 2003. During 2006, the Company's
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 customer's 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
Company's engineering, research, and development expenses are set forth as a
separate line item in the Consolidated Statement of Income of the Company's
Consolidated Financial Statements filed in this report.
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), Chrysler LLC
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and Ford Motor Company under long-term agreements. During 2005, the Company
negotiated an extension to its long-term agreement for inside mirrors with
General Motors in the ordinary course of the Company's 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 includes the
GMT360 program (which is the mid-size truck/SUV platform that previously did not
offer auto-dimming mirrors). The Company also negotiated a price reduction for
the GM OnStar(R) feature in its auto-dimming mirrors, effective January 1, 2005,
in connection with GM's stated plan to make their OnStar system standard across
their vehicle models over the next several years.
The Company has a long-term agreement with Daimler AG (formerly
DaimlerChrysler AG) entered into in the ordinary course of the Company's
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 Company's 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 Company's 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
Company's 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 Company's 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 ends 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 Company's
marketing efforts in Europe are conducted through Gentex GmbH, Gentex Mirrors,
Ltd., and Gentex France SAS. The Company is currently supplying mirrors for
Audi, Bavarian Motor Works, A.G. (BMW), Bentley, Citroen, Fiat, Jaguar, Land
Rover, Mercedes-Benz, Opel, 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 Company's 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 Company's 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 Company's 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.
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The Company's auto-dimming mirror unit shipment mix by region has
significantly changed over the past eight years. The following is a breakdown of
unit shipment mix by region in 2007 vs. 1999 calendar years:
2007 1999
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DOMESTIC 31% 69%
TRANSPLANTS 13% 1%
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NORTH AMERICA 44% 70%
EUROPE 40% 23%
ASIA-PACIFIC 16% 7%
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100% 100%
=== ===
Revenues by geographic area are disclosed in footnote 9 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. It is management's 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 2007, as compared to
an approximately 81% in 2006. While the Company believes it will retain a
dominant position, one other U.S. manufacturer (Magna Donnelly) 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 Company's 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 Donnelly.
The Company believes its electrochromic automatic mirrors offer significant
performance advantages over competing products. However, Gentex recognizes that
Magna Donnelly, 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 Magna's 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, 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 160 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 Company's 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 Company's 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. The new 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. The new speaker series will meet the
requirements found on the national codes.
Markets and Marketing. The Company's fire protection products are sold
directly to fire protection and security product distributors under the
Company's brand name, to electrical wholesale houses, and to original equipment
manufacturers of fire protection systems under both the Company's 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 throughout the United States
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 recent 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 the 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 is currently limited to aerospace. Based on Boeing's
production schedule at the time of the announcement, the value of this initial
contract was worth approximately $50 million over the first five years once
volume production begins, with the majority of that revenue attributable to
Gentex under the Company's agreement with PPG Aerospace. The Company shipped the
first prototype set of variably dimmable aircraft windows for
-11-
test planes in mid 2007. The Company expects production shipments to begin in
early 2008, despite Boeing's announced six month delay.
The Company's 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 both the automotive, architectural and aerospace markets, sunroofs
and sunglasses. Progress in adapting electrochromic technology to the
specialized requirements of the window market continued in 2007. 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 Company's 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 16 U.S. trademarks and 278 U.S. patents, 276 of which
relate to electrochromic technology, automotive rearview mirrors, microphones,
displays and/or sensor technology. These patents expire between 2009 and 2026.
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 Company's
products.
The Company also owns 36 foreign trademarks and 129 foreign patents, 128 of
which relate to electrochromic technology, automotive rearview mirrors,
microphones, displays and /or sensor technology. These patents expire at various
times between 2008 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 10 U.S. patents and 2 foreign patents that relate to the
Company's fire protection products, and the Company believes that the
competitive advantage provided by these patents is relatively small.
Company's remaining 12 U.S. patents relate to the Company's 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 143 U.S. patent applications, 310 foreign
patent applications, and 20 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, four of
which each account for 10% or more of the Company's annual sales (including
sales to their Tier 1 suppliers): General Motors Corporation, Daimler AG, Toyota
Motor Corporation, and BMW. The loss of any of these customers could have a
material adverse effect on the Company. The Company's backlog of unshipped
orders was $174,523,802 and $151,167,000 at February 1, 2008, and 2007,
respectively.
At February 1, 2008, the Company had 2,718 full-time employees. None of the
Company's employees are represented by a labor union or other collective
bargaining representative. The Company believes that its relations with its
employees are good.
-12-
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 management's belief, assumptions, current
expectations, estimates and projections about the global automotive industry,
the economy, the impact of stock option expense, the ability to leverage fixed
manufacturing overhead costs, unit shipment and revenue growth rates, gross
margins and the Company itself. Words like "anticipates," "believes,"
"confident," "estimates," "expects," "forecast," "likely," "plans," "projects,"
and "should," and variations of such words and similar expressions identify
forward-looking statements. These statements do not guarantee future performance
and involve certain risks, uncertainties, and assumptions that are difficult to
predict with regard to timing, expense, likelihood and degree of occurrence.
These risks include, without limitation, employment and general economic
conditions, the pace of automotive production worldwide, the maintenance of the
Company's market share, competitive pricing pressures, currency fluctuations,
the financial strength of the Company's customers, supply chain disruptions,
potential sale of OEM business segments or suppliers, the mix of products
purchased by customers, the ability to continue to make product innovations, the
success of certain newer products (e.g. SmartBeam(R), Z-NAV(R) and Rear Camera
Display Mirror), and other risks identified in the Company's 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. Supplying products to the automotive industry involves
increasing financial and production stresses due to continuing pricing
pressures, lower domestic production levels, overcapacity, customer and supplier
bankruptcies, and commodity material cost increases. If the Company's automotive
customers (including their Tier 1 suppliers) experience work stoppages, strikes,
etc., it could disrupt our shipments to these customers, which could adversely
affect the Company's sales, margins, profitability and, as a result, its share
price. Automakers have been experiencing increased volatility and uncertainty in
executing planned new programs which have, in some cases, resulted in
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 and effectively utilize
capital, engineering, research and development, and human resource investments.
Key Customers. We have a few large customers, including four customers
which each account for 10% or more of our annual net sales (including sales to
their Tier 1 suppliers): General Motors Corporation, Daimler AG, Toyota Motor
Corporation and BMW. The loss of all or a substantial portion of the sales to
any of these 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, our largest customer, 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, etc.
Pricing Pressures. In addition to price reductions over the life of our
long-term agreements, we continue to experience 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,
which has been a challenge. In addition, profit pressures at certain automakers
are resulting in increased cost reduction efforts by them, including requests
for additional price reductions, decontenting certain features from vehicles,
and warranty cost-sharing programs, any of which could adversely impact our
sales growth, margins, profitability and, as a result, our share price.
Credit Risk. In light of the financial stresses within the worldwide
automotive industry, certain automakers and tier one mirror customers are
considering the sale of business segments or may be considering bankruptcy.
Should one or more of our larger
-13-
customers (including their Tier 1 suppliers) sell their business or declare
bankruptcy, it could adversely affect our sales, margins, profitability and, as
a result, the Company's share price.
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 Donnelly, 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.
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 long-term operating results.
Other. Other issues and uncertainties which could adversely impact our
sales, margins, profitability and, as a result, our share price include:
- Changes in worldwide economic conditions, currency exchange rates, war
or significant terrorist acts, which could 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.
- 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
-14-
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 $22.60 and $14.86 for 2007. 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;
- 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
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 Company's 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 Company's 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
-15-
capacity on an annual basis and adds equipment as needed. In 2007, the Company
shipped approximately 11,001,000 interior auto-dimming mirrors.
The Company's 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 2007, the Company
shipped approximately 4,220,000 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.
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
Company's 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 65 Chief Executive Officer May 1986
Enoch Jen 56 Senior Vice President January 2007
Dennis Alexejun 56 Vice President, North American Automotive Marketing September 1998
Mark Newton 48 Vice President, Purchasing and Advanced Technology July 2007
Steve Dykman 42 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.
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.
Mark Newton had previously served 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.
-16-
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES.
(a) The Company's common stock trades on The Nasdaq Global Select Market(R). As
of February 12, 2008, there were 2,530 record-holders of the Company's common
stock. Ranges of high and low sale prices of the Company's common stock reported
through The Nasdaq Global Select Market for the past two fiscal years appear in
the following table.
YEAR QUARTER HIGH LOW
- ---- ------- ------ ------
2006 First $21.00 $15.71
Second 17.47 13.65
Third 15.34 12.74
Fourth 17.46 13.89
2007 First $17.92 $14.86
Second 21.12 16.23
Third 22.37 18.78
Fourth 22.60 16.99
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 Company's 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 2002, and reinvestment of dividends in all
cases.
(PERFORMANCE GRAPH)
PERIOD GENTEX CORPORATION NASDAQ COMPOSITE DOW JONES US AUTO PARTS
- ------ ------------------ ---------------- -----------------------
12/02 100.00 100.00 100.00
1/03 93.08 98.57 101.12
2/03 84.96 99.46 94.81
3/03 80.44 99.35 89.35
4/03 95.29 108.29 102.91
5/03 98.42 118.05 104.94
6/03 96.87 120.21 109.08
7/03 112.33 129.26 116.81
8/03 118.52 135.40 122.41
9/03 110.08 133.69 118.69
10/03 123.91 144.35 127.06
11/03 133.40 146.36 130.52
12/03 140.16 149.75 142.21
1/04 139.01 154.67 145.46
2/04 129.87 152.69 143.37
3/04 138.12 150.16 140.79
4/04 125.81 144.93 139.84
5/04 121.59 149.54 138.17
6/04 126.80 154.24 142.54
7/04 114.86 142.81 138.97
8/04 110.17 139.41 136.39
9/04 112.71 144.26 135.66
10/04 106.42 149.70 133.23
11/04 104.20 159.23 143.23
12/04 119.35 164.64 150.00
1/05 109.60 156.16 137.26
2/05 109.86 155.75 134.63
3/05 103.34 151.53 123.25
4/05 105.72 145.69 113.31
5/05 116.46 156.27 124.20
6/05 118.55 155.46 125.57
7/05 116.59 165.21 135.55
8/05 112.01 163.11 135.00
9/05 113.84 164.16 125.91
10/05 123.67 161.34 124.41
11/05 124.00 169.68 123.67
12/05 128.27 168.60 126.40
1/06 110.36 176.76 118.20
2/06 110.09 174.64 117.44
3/06 115.38 179.97 120.34
4/06 97.41 179.25 125.19
5/06 96.28 167.95 128.39
6/06 93.02 167.47 125.03
7/06 89.23 161.67 119.61
8/06 96.86 169.19 115.65
9/06 95.05 174.65 116.89
10/06 107.14 183.14 128.88
11/06 111.51 188.43 131.35
12/06 104.78 187.83 135.37
1/07 118.49 191.26 144.85
2/07 113.21 187.54 148.54
3/07 110.09 188.40 150.06
4/07 121.29 195.54 158.56
5/07 120.95 201.99 165.90
6/07 134.17 201.89 171.10
7/07 135.16 197.51 164.93
8/07 137.21 200.81 163.27
9/07 146.80 210.35 170.39
10/07 142.97 222.16 182.09
11/07 136.37 206.38 162.84
12/07 122.26 205.22 155.51
-17-
In August 2003, the Company announced a change in the Company's cash
dividend policy and declared an initial quarterly cash dividend of $0.075 per
share payable in October 2003. In August 2004, the Company's Board of Directors
approved an increase on the quarterly dividend rate of $0.085 per share. In
August 2005, the Company's 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 Company's
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 Company's 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. Based on current U.S. income tax laws, the
Company intends to continue to pay a quarterly cash dividend at its current
level and will consider future dividend increases based on the Company's
profitability, cash flow and other business factors.
On April 1, 2005, the Company's Board of Directors declared a two-for-one
stock split effected in the form of a 100% common stock dividend to shareholders
of record on May 6, 2005. The stock split increased the number of shares of
common stock then outstanding from 78,020,342 to 156,040,684. Earnings per share
and all share data have been restated in all prior periods to reflect these
stock splits.
(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 conditions, the market price of the Company's common
stock, anti-dilutive effect on earnings, available cash and other factors that
the Company deems appropriate. This share repurchase plan does not have an
expiration date. 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 Company's Board of Directors had authorized the repurchase of an
additional 8,000,000 shares under the plan. On August 14, 2006, the Company
announced that the Company's Board of Directors had authorized the repurchase of
an additional 8,000,000 shares under the plan. 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. Approximately 6,021,000 shares remain
authorized to be repurchased 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
---------- ------------
Total 17,979,453 $269,640,651
========== ============
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ITEM 6. SELECTED FINANCIAL DATA
(in thousands, except per share data)
2007 2006 2005 2004 2003
-------- -------- -------- -------- --------
Net Sales $653,933 $572,267 $536,484 $505,666 $469,019
Net Income 122,130 108,761 109,528 112,657 106,761
-------- -------- -------- -------- --------
Earnings Per Share* $ 0.85 $ 0.73 $ 0.70 $ 0.72 $ 0.69
-------- -------- -------- -------- --------
Cash Dividends Declared
per Common Share* $ 0.40 $ 0.37 $ 0.35 $ 0.32 $ 0.15
-------- -------- -------- -------- --------
Total Assets $898,023 $785,028 $922,646 $856,859 $762,530
-------- -------- -------- -------- --------
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. MANAGEMENT'S 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 Company's 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
Year Ended ------------
December 31, 2007 2006
--------------------- to to
2007 2006 2005 2006 2005
----- ----- ----- ----- ----
Net Sales 100.0% 100.0% 100.0% 14.3% 6.7%
Cost of Goods Sold 65.2 65.2 63.0 14.2 10.5
----- ----- ----- ----- ----
Gross Profit 34.8 34.8 37.0 14.4 0.2
Operating Expenses:
Engineering, Research and Development 7.8 7.3 6.5 21.4 19.2
Selling, General and Administrative 5.4 5.4 5.1 14.2 13.2
Litigation Judgment 0.4 -- -- 100.0 --
----- ----- ----- ----- ----
Total Operating Expenses 13.6 12.7 11.6 22.3 16.5
----- ----- ----- ----- ----
Operating Income 21.2 22.1 25.4 9.8 (7.2)
Other Income 6.3 5.7 4.4 25.8 37.8
----- ----- ----- ----- ----
Income Before Provision for Income Taxes 27.5 27.8 29.8 13.1 (0.6)
Provision for Income Taxes 8.8 8.8 9.4 14.7 (0.3)
----- ----- ----- ----- ----
Net Income 18.7% 19.0% 20.4% 12.3% (0.7)%
===== ===== ===== ===== ====
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
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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 Company's 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%.
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 Company's overseas sales
offices to support the Company's 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
Company's 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 Muth's U.S.
patent No. 6,005,724 is invalid and unenforceable, and that Gentex's Razor Turn
Signal Mirror does not infringe that patent. The Court also denied all but one
of Muth's other motions with prejudice, including its motion for an injunction,
and its claims for tortuous interference with its business relationships. The
sole point of liability for Gentex was that the Court found that Gentex breached
one provision of the alliance agreement it has with Muth, and entered a judgment
against Gentex, on January 24, 2008, granting Muth damages in the amount of
$2,885,000.
On February 15, 2008, the Company entered into a Settlement And Release And
Covenants Not To Sue ("Agreement") with Muth whereby the parties agreed to
settle the Court's judgment against Gentex for damages at a reduced amount of
$2,550,000. In addition, under the Agreement the parties each agreed to: grant
the other party a ten-year covenant not to sue for each Company's core business,
to release each other from all claims that occurred in the past, and not appeal
the Court's rulings. 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.
RESULTS OF OPERATIONS: 2006 TO 2005
Net Sales. Company net sales increased by $35,783,000, or 7% compared to
the prior year. Automotive net sales increased by 7% on a 7% increase in mirror
shipments, from 12,570,000 to 13,427,000 units, primarily reflecting increased
penetration of interior and exterior auto-dimming mirrors on European and Asian
vehicles. North American mirror unit shipments increased by 1%, primarily due to
takeover business from Magna Donnelly at General Motors partially offset by
lower customer production volumes on light trucks and sport utility vehicles in
North America. Overseas unit shipments increased by 12% during 2006 due to
increased penetration at certain European and Asian automakers. Net sales of the
Company's fire protection products increased 1%, primarily due to stronger sales
of certain signal products.
-20-
Cost of Goods Sold. As a percentage of net sales, cost of goods sold
increased from 63% to 65% primarily reflecting the impact of automotive customer
price reductions. For the year ended December 31, 2006, stock option expense
impacted cost of goods sold by $2,266,000. Effective January 1, 2006, the
Company adopted SFAS 123(R).
Operating Expenses. Engineering, research and development expenses
increased approximately $6,714,000, but remained at 7% of net sales. Excluding
stock option expense of $2,503,000, E,R & D expenses increased by 12%, primarily
due to additional staffing for new electronic product development, including
SmartBeam and telematics and new vehicle programs. Selling, general and
administrative expenses increased approximately $3,596,000, but remained at 5%
of net sales. Excluding stock option expense of $2,290,000, S, G & A expenses
increased by 5%, primarily reflecting the continued expansion of the Company's
overseas sales offices to support the Company's current and future overseas
sales growth, partially offset by a reduction in non-income based state taxes.
Other Income - Net. Investment income increased $3,715,000 in 2006,
primarily due to increased interest income due to higher interest rates,
partially offset by lower investable funds. Other income increased $5,212,000 in
2006, primarily due to realized gains on the sale of equity investments.
Taxes. The provision for federal income taxes varied from the statutory
rate in 2006 primarily due to Extra Territorial Income (ETI) Exclusion Act
exempted taxable income from increased foreign sales and the domestic
manufacturing deduction.
Net Income. Net income decreased by $767,000, or 1%. Excluding stock option
expense of $4,555,000, the Company's net income increased by 3% primarily
reflecting the increase in other income, partially offset by decreased gross
margin primarily due to the impact of automotive customer price reductions.
LIQUIDITY AND CAPITAL RESOURCES
The Company's financial condition throughout the periods presented has
remained very strong.
The Company's current ratio decreased from 7.8 as of December 31,
2006, to 7.7 as of December 31, 2007, primarily as a result of the increase in
accounts payable and accrued liabilities mostly offset by an increase in cash
and cash equivalents primarily from operations.
Cash flow from operating activities for the year ended December 31,
2007, increased $17,280,000 to $148,721,000, compared to $131,440,000 for the
same period last year, primarily due to increased net income. Capital
expenditures for the year ended December 31, 2007, increased to $54,524,000,
compared to $48,193,000 for the same period last year, primarily due to the
building expansion to its automotive exterior mirror manufacturing facility. The
Company currently anticipates capital expenditures of approximately $45-50
million for equipment during 2008, to be financed from existing cash and/or cash
equivalents on hand.
Cash and cash equivalents as of December 31, 2007, increased
approximately $72,217,000 compared to December 31, 2006, primarily due to cash
flow from operations, partially offset by cash dividends paid.
Accounts payable as of December 31, 2007, increased approximately
$6,650,000 compared to December 31, 2006, primarily due to increased production
levels and capital spending.
Accrued liabilities as of December 31, 2007, increased approximately
$4,350,000, primarily due to an accrued liability for litigation judgement (see
discussion under "Results of Operations - 2007 to 2006").
The increase in plant and equipment as of December 31, 2007, compared
to December 31, 2006, is primarily due to new manufacturing equipment and the
building expansion construction to its automotive exterior mirror manufacturing
facility.
Management considers the Company's working capital of approximately
$460,131,000 and long-term investments of approximately $155,384,000 at December
31, 2007, together with internally generated cash flow and an unsecured
$5,000,000 line of credit from a bank, to be sufficient to cover anticipated
cash needs for the next year and for the foreseeable future.
On October 8, 2002, the Company announced a share repurchase plan,
under which it may purchase up to 8,000,000 shares (post-split) based on a
number of factors, including market conditions, the market price of the
Company's common stock, anti-dilutive effect on earnings, available cash and
other factors that the Company deems appropriate. On July 20, 2005, the Company
announced
-21-
that it had raised the price at which the Company may repurchase shares under
the existing plan. On May 16, 2006, the Company announced that the Company's
Board of Directors had authorized the repurchase of an additional 8,000,000
shares under the plan. On August 14, 2006, the Company announced that the
Company's Board of Directors had authorized the repurchase of an additional
8,000,000 shares under the plan.
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
---------- ------------
Total 17,979,453 $269,640,651
========== ============
6,020,547 shares remain authorized to be repurchased under the plan.
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 Company's 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.
The Company also negotiated a price reduction for the GM OnStar(R) feature in
its auto-dimming mirrors, effective January 1, 2005, in connection with GM's
stated plan to make their OnStar system standard across their vehicle models
over the next several years.
The Company has a long-term agreement with Daimler AG (formerly
DaimlerChrysler AG) in the ordinary course of the Company's 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
Company's 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 Company's 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 Company's
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 Company's 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 ends December 31, 2008.
The Company currently estimates that top line revenue growth will be
approximately 10% higher in calendar 2008 compared with calendar 2007 based on
our current forecast of 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
-22-
anticipated product mix. Uncertainties, including vehicle production and sales
rates at the traditional Big Three automakers in North America, make it
difficult to forecast in the short-term. The Company also estimates that
engineering, research and development expenses, excluding Muth litigation costs,
are currently expected to increase approximately 15% in calendar year 2008
compared to calendar year 2007.
The Company utilizes the light vehicle production forecasting services
of CSM Worldwide, and CSM's current forecasts for light vehicle production for
calendar 2008 are approximately 14.4 million units for North America, 21.9
million for Europe and 14.9 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 Company's non-U.S. sales are invoiced and paid in U.S.
dollars; during 2007, approximately 15% of the Company's net sales were invoiced
and paid in European euros. The Company currently expects that approximately 16%
of the Company's net sales in 2008 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 Company's fixed-income investments' maturities at
fair value (000,000), and average interest rates are as follows:
Total Balance
as of
December 31,
-------------
2008 2009 2010 2011 2007 2006
----- ---- ---- ---- ----- -----
U.S. Government
Amount -- -- -- -- -- --
Average Interest Rate -- -- -- --
Government Agency
Amount $29.0 -- -- -- $29.0 $ 9.0
Average Interest Rate 5% -- 5% 5%
Municipal
Amount -- -- -- -- -- --
Average Interest Rate* -- -- -- --
Certificates of Deposit
Amount $49.0 -- -- -- $49.0 $71.2
Average Interest Rate 5% -- -- -- 5% 5%
Corporate
Amount $ 0.3 -- -- -- $ 0.3 $ 0.3
Average Interest Rate 7% -- -- 7% 7%
Other
Amount $ 2.0 -- -- -- $ 2.0 $ 2.5
Average Interest Rate 5% -- -- -- 5% 5%
* After-tax
Most of the Company's 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.
-23-
CONTRACTUAL OBLIGATIONS AND OTHER COMMITMENTS
The Company has the following contractual obligations and other
commitments (000,000) as of December 31, 2007:
Total Less than 1 Year 1-3 Years After 3 Years
----- ---------------- --------- -------------
Long-term debt $ -- $ -- $ -- $ --
Operating leases 1.0 .6 .3 .1
Purchase obligations* 50.8 50.8 -- --
Dividends payable 15.2 15.2 -- --
----- ----- ---- ----
$67.0 $66.6 $0.3 $0.1
===== ===== ==== ====
* Primarily for inventory parts and capital equipment.
CRITICAL ACCOUNTING POLICIES.
The Company's 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.
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 Company's 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. Management uses criteria such as the period of time
that securities have been in an unrealized loss position, types of securities
and their related industries, as well as published investment ratings and
analyst reports to evaluate their portfolio. Management considers the unrealized
losses at December 31, 2007, to be temporary in nature.
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.
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 Company's common stock price over the expected term, (c) the
number of options that will ultimately not complete their vesting requirements
("forfeitures") and (d) expected dividends. Changes in the subjective
assumptions can materially affect the estimate of fair value of stock-based
compensation and consequently, the related amounts recognized on the
consolidated condensed statements of operations.
ITEM 7. A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
See "Market Risk Disclosure" in Management's Discussion and Analysis
(Item 7).
-24-
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 30 through
47 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, 2007 and 2006
Consolidated Statements of Income for the years ended December 31,
2007, 2006 and 2005
Consolidated Statements of Shareholders' Investment for the years
ended December 31, 2007, 2006 and 2005
Consolidated Statements of Cash Flows for the years ended December 31,
2007, 2006 and 2005
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
------------------- ------------------- ------------------- -------------------
2007 2006 2007 2006 2007 2006 2007 2006
-------- -------- -------- -------- -------- -------- -------- --------
Net Sales $157,206 $139,021 $163,480 $142,391 $162,525 $141,266 $170,723 $149,590
Gross Profit 54,579 48,233 57,697 50,896 57,002 47,879 58,420 52,096
Operating Income 33,937 30,282 36,518 33,421 34,637 29,605 33,724 33,139
Net Income 29,498 26,371 30,956 27,236 29,826 24,338 31,850 30,816
Earnings Per Share* $ .21 $ .17 $ .22 $ .18 $ .21 $ .17 $ .22 $ .22
* Diluted
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
ITEM 9A. CONTROLS AND PROCEDURES.
DISCLOSURE CONTROLS AND PROCEDURES.
As of December 31, 2007, an evaluation was performed under the
supervision and with the participation of the Company's management, including
the CEO and CFO, of the effectiveness of the design and operation of the
Company's disclosure controls and procedures [(as defined in Exchange Act Rules
13a - 15(e) and 15d - 15(e)]. Based on that evaluation, the Company's
management, including the CEO and CFO, concluded that the Company's disclosure
controls and procedures were adequate and effective as of December 31, 2007, 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 Company's internal controls over financial
reporting that have materially affected or are likely to materially affect the
Company's internal controls over financial reporting. There have been no
significant changes in the Company's internal controls or in other factors that
could significantly affect internal controls subsequent to December 31, 2007.
MANAGEMENT'S 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
-25-
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, 2007. The
effectiveness of the Company's internal control over financial reporting as of
December 31, 2007, has been audited by Ernst & Young LLP, an independent
registered public accounting firm, as stated in their report, which is included
on page 31 hereof.
ITEM 9B. OTHER INFORMATION.
Not applicable.
-26-
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 2008 Annual
Meeting of Shareholders and filed with the Commission within 120 days after the
Company's fiscal year end, December 31, 2007 (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 Company's Audit
Committee 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 Company's 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 EQUITY COMPENSATION
PLAN INFORMATION.
The information contained under the captions "Securities 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 Company's independent auditors set forth under the
caption "Corporate Governance - Audit Committee" in the definitive Proxy
Statement is hereby incorporated by reference.
-27-
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 48.
(b) See (a) above.
(c) See (a) above.
-28-
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 21, 2008 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 21st day of February, 2008, 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
- -------------------------------------
Fred Bauer
/s/ Gary Goode Director
- -------------------------------------
Gary Goode
/s/ Kenneth La Grand Director
- -------------------------------------
Kenneth La Grand
/s/ Arlyn Lanting Director
- -------------------------------------
Arlyn Lanting
/s/ John Mulder Director
- -------------------------------------
John Mulder
/s/ Rande Somma Director
- -------------------------------------
Rande Somma
/s/ Fred Sotok Director
- -------------------------------------
Fred Sotok
/s/ Wallace Tsuha Director
- -------------------------------------
Wallace Tsuha
/s/ James Wallace Director
- -------------------------------------
James Wallace
-29-
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, 2007 and 2006, and the related
consolidated statements of income, shareholders' investment and cash flows for
each of the three years in the period ended December 31, 2007. These financial
statements are the responsibility of the Company's 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, 2007 and 2006, and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended December 31, 2007, in conformity with U.S. generally accepted accounting
principles.
As discussed in Note 1 to the consolidated financial statements, in 2006 the
Company changed its method of accounting for share-based payments in connection
with the required adoption of Statement of Financial Accounting Standards No.
123(R).
We also have audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), Gentex Corporation's internal
control over financial reporting as of December 31, 2007, based on criteria
established in Internal Control--Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission and our report dated
February 8, 2008 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Grand Rapids, Michigan
February 8, 2008
-30-
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The Board of Directors and Shareholders of Gentex Corporation:
We have audited Gentex Corporation's internal control over financial reporting
as of December 31, 2007, based on criteria established in Internal Control -
Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (the COSO criteria). Gentex Corporation's 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 Management's Report on Internal Control
over Financial Reporting. Our responsibility is to express an opinion on the
Company's 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 company's 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 company's 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 company's
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, 2007,
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, 2007 and 2006, and the related
consolidated statements of income, shareholders' investment, and cash flows for
each of the three years in the period ended December 31, 2007 of Gentex
Corporation and our report dated February 8, 2008 expressed an unqualified
opinion thereon.
/s/ Ernst & Young LLP
Grand Rapids, Michigan
February 8, 2008
-31-
GENTEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2007 AND 2006
2007 2006
------------- -------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 317,717,093 $ 245,499,783
Short-term investments 80,271,688 82,727,927
Accounts receivable 64,181,511 58,337,396
Inventories 48,049,560 48,805,398
Prepaid expenses and other 18,274,096 11,507,590
------------- -------------
Total current assets 528,493,948 446,878,094
PLANT AND EQUIPMENT:
Land, buildings and improvements 101,215,484 95,998,488
Machinery and equipment 260,619,845 231,526,281
Construction-in-process 26,331,641 12,393,019
------------- -------------
388,166,970 339,917,788
Less-Accumulated depreciation
and amortization (182,557,299) (155,783,415)
------------- -------------
205,609,671 184,134,373
OTHER ASSETS:
Long-term investments 155,384,009 146,215,929
Patents and other assets, net 8,535,052 7,800,004
------------- -------------
163,919,061 154,015,933
------------- -------------
$ 898,022,680 $ 785,028,400
============= =============
2007 2006
------------ ------------
LIABILITIES AND SHAREHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Accounts payable $ 30,531,649 $ 23,881,973
Accrued liabilities:
Salaries, wages and vacation 5,149,599 4,288,825
Income taxes 3,671,258 4,744,765
Royalties 5,685,468 5,091,886
Dividends declared 15,199,200 13,535,237
Other 8,125,531 5,820,292
------------ ------------
Total current liabilities 68,362,705 57,362,978
DEFERRED INCOME TAXES 22,847,779 24,971,133
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;
144,754,288 shares issued and outstanding
in 2007 and 142,476,181 shares issued and
outstanding in 2006 8,685,257 8,548,571
Additional paid-in capital 245,502,960 196,901,488
Retained earnings 530,290,281 472,192,400
Accumulated other comprehensive income:
Unrealized gain on investments 19,527,380 23,246,788
Cumulative translation adjustment 2,806,318 1,805,042
------------ ------------
Total shareholders' investment 806,812,196 702,694,289
------------ ------------
$898,022,680 $785,028,400
============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
-32-
GENTEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005
2007 2006 2005
------------ ------------ ------------
NET SALES $653,933,236 $572,267,073 $536,483,974
COST OF GOODS SOLD 426,236,241 373,163,484 337,843,632
------------ ------------ ------------
Gross profit 227,696,995 199,103,589 198,640,342
OPERATING EXPENSES:
Engineering, research and development 50,715,057 41,773,792 35,059,401
Selling, general and administrative 35,280,846 30,882,821 27,286,404
Litigation judgment 2,885,329 0 0
------------ ------------ ------------
Total operating expenses 88,881,232 72,656,613 62,345,805
------------ ------------ ------------
Income from operations 138,815,763 126,446,976 136,294,537
OTHER INCOME:
Interest and dividend income 25,777,667 24,004,833 20,289,908
Other, net 15,145,338 8,521,789 3,310,066
------------ ------------ ------------
Total other income 40,923,005 32,526,622 23,599,974
------------ ------------ ------------
Income before provision for income taxes 179,738,768 158,973,598 159,894,511
PROVISION FOR INCOME TAXES 57,608,747 50,212,596 50,367,000
------------ ------------ ------------
NET INCOME $122,130,021 $108,761,002 $109,527,511
============ ============ ============
EARNINGS PER SHARE:
Basic $ 0.85 $ 0.74 $ 0.70
============ ============ ============
Diluted $ 0.85 $ 0.73 $ 0.70
============ ============ ============
Cash Dividends Declared per Share $ 0.40 $ 0.37 $ 0.35
The accompanying notes are an integral part of these consolidated financial
statements.
-33-
GENTEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' INVESTMENT
FOR THE YEARS ENDED DECEMBER 31, 2007, 2006 and 2005
Common Common Additional Comprehensive
Stock Stock Paid-In Income
Shares Amount Capital (Loss)
----------- ---------- ------------ -------------
BALANCE AS OF DECEMBER 31, 2004 77,866,751 $4,672,005 $175,266,114
Issuance of common stock and the tax
benefit of stock plan transactions 1,652,948 99,177 25,641,802
2 for 1 Common Stock Split 78,020,342 4,681,221 (4,681,221)
Repurchases of common stock (1,496,059) (89,764) (1,750,389)
Dividends declared ($.35 per share) -- -- --
Amortization of deferred compensation -- -- --
Comprehensive income:
Net income -- -- -- $109,527,511
Other comprehensive income (loss):
Foreign currency translation adjustment -- -- -- (1,138,244)
Unrealized gain on investments, net
of tax of $1,743,097 -- -- -- 3,237,180
------------
Other comprehensive income -- -- -- 2,098,936
------------
Comprehensive income -- -- -- $111,626,447
----------- ---------- ------------ ============
BALANCE AS OF DECEMBER 31, 2005 156,043,982 9,362,639 194,476,306
Reclassification of Deferred Compensation
upon adopting [SFAS123(R)] -- -- (4,847,659)
Issuance of common stock and the tax benefit
of stock plan transactions 1,637,883 98,273 18,854,905
Stock-based compensation expense related to
stock options, employee stock purchases
and restricted stock -- -- 8,481,871
Repurchases of common stock (15,205,684) (912,341) (20,063,935)
Dividends declared ($.37 per share) -- -- --
Comprehensive income:
Net income -- -- -- $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
------------
Comprehensive income -- -- -- $114,510,518
----------- ---------- ------------ ============
BALANCE AS OF DECEMBER 31, 2006 142,476,181 8,548,571 196,901,488
Issuance of common stock and the tax benefit
of stock plan transactions 2,725,817 163,549 39,925,919
Stock-based compensation expense related to
stock options, employee stock purchases
and restricted stock -- -- 9,293,394
Repurchases of common stock (447,710) (26,863) (617,841)
Dividends declared ($.40 per share) -- -- --
Comprehensive income:
Net income -- -- -- $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)
------------
Comprehensive income -- -- -- $119,411,889
----------- ---------- ------------ ============
BALANCE AS OF DECEMBER 31, 2007 144,754,288 $8,685,257 $245,502,960
=========== ========== ============
Accumulated
Other Total
Retained Deferred Comprehensive Shareholders'
Earnings Compensation Income (Loss) Investment
------------ ------------ ------------- -------------
BALANCE AS OF DECEMBER 31, 2004 $591,546,326 ($5,407,851) $17,203,378 $ 783,279,972
Issuance of common stock and the tax
benefit of stock plan transactions -- (1,069,507) -- 24,671,472
2 for 1 Common Stock Split -- -- -- --
Repurchases of common stock (23,374,420) -- -- (25,214,573)
Dividends declared ($.35 per share) (54,397,642) -- -- (54,397,642)
Amortization of deferred compensation -- 1,629,699 -- 1,629,699
Comprehensive income:
Net income 109,527,511 -- -- 109,527,511
Other comprehensive income (loss):
Foreign currency translation adjustment -- -- -- --
Unrealized gain on investments, net
of tax of $1,743,097 -- -- -- --
Other comprehensive income -- -- 2,098,936 2,098,936
Comprehensive income -- -- -- --
------------ ----------- ----------- -------------
BALANCE AS OF DECEMBER 31, 2005 623,301,775 (4,847,659) 19,302,314 841,595,375
Reclassification of Deferred Compensation
upon adopting [SFAS123(R)] -- 4,847,659 -- --
Issuance of common stock and the tax benefit
of stock plan transactions -- -- -- 18,953,178
Stock-based compensation expense related to
stock options, employee stock purchases
and restricted stock -- -- -- 8,481,871
Repurchases of common stock (205,874,977) -- -- (226,851,253)
Dividends declared ($.37 per share) (53,995,400) -- -- (53,995,400)
Comprehensive income:
Net income 108,761,002 -- -- 108,761,002
Other comprehensive income (loss):
Foreign currency translation adjustment -- -- -- --
Unrealized gain on investments, net
of tax of $2,396,923 -- -- -- --
Other comprehensive income -- -- 5,749,516 5,749,516
Comprehensive income -- -- -- --
------------ ----------- ----------- -------------
BALANCE AS OF DECEMBER 31, 2006 472,192,400 -- 25,051,830 702,694,289
Issuance of common stock and the tax benefit
of stock plan transactions -- -- -- 40,089,468
Stock-based compensation expense related to
stock options, employee stock purchases
and restricted stock -- -- -- 9,293,394
Repurchases of common stock (6,683,311) -- -- (7,328,015)
Dividends declared ($.40 per share) (57,348,829) -- -- (57,348,829)
Comprehensive income:
Net income 122,130,021 -- -- 122,130,021
Other comprehensive income (loss):
Foreign currency translation adjustment -- -- -- --
Unrealized gain (loss) on investments,
net of tax of ($2,002,756) -- -- -- --
Other comprehensive income (loss) -- -- (2,718,132) (2,718,132)
Comprehensive income -- -- -- --
------------ ----------- ----------- -------------
BALANCE AS OF DECEMBER 31, 2007 $530,290,281 -- $22,333,698 $ 806,812,196
============ =========== =========== =============
The accompanying notes are an integral part of these consolidated financial
statements.
-34-
GENTEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005
2007 2006 2005
------------- ------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 122,130,021 $ 108,761,002 $ 109,527,511
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 32,435,258 27,762,710 23,823,327
Loss on disposal of assets 598,902 117,872 420,522
Gain on sale of investments (17,126,885) (11,041,851) (5,710,679)
Loss on sale of investments 4,130,927 4,674,676 2,511,060
Deferred income taxes (2,926,921) (1,754,219) (2,172,589)
Stock based compensation expense related
to employee stock options,employee stock
purchases and restricted stock 9,293,394 8,481,871 1,629,699
Tax benefit of stock plan transactions 0 0 3,180,230
Excess tax benefits from stock based compensation (338,648) (235,410) 0
Change in operating assets and liabilities:
Accounts receivable (5,844,115) 2,587,041 (4,832,107)
Inventories 755,838 (8,968,576) (9,236,033)
Prepaid expenses and other (3,960,185) 1,071,317 491,532
Accounts payable 6,649,676 274,046 3,758,358
Accrued liabilities 2,923,367 (290,328) 2,853,627
------------- ------------- -------------
Net cash provided by
operating activities 148,720,629 131,440,151 126,244,458
------------- ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Activity in available-for-sale securities:
Sales proceeds 67,900,543 60,550,849 30,057,962
Maturities and calls 88,200,000 64,240,000 101,159,061
Purchases (155,538,587) (140,662,282) (101,378,452)
Plant and equipment additions (54,524,322) (48,193,083) (53,533,235)
Proceeds from sale of plant and equipment 368,005 500,665 1,141,013
Decrease (increase) in other assets (86,912) 308,855 (2,046,876)
------------- ------------- -------------
Net cash provided by (used for)
investing activities (53,681,273) (63,254,996) (24,600,527)
------------- ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock from
stock plan transactions 40,089,468 18,953,178 21,491,243
Cash dividends paid (55,922,147) (54,704,400) (53,777,627)
Repurchases of common stock (7,328,015) (226,851,253) (25,214,573)
Excess tax benefits from stock based compensation 338,648 235,410 0
------------- ------------- -------------
Net cash provided by (used for)
financing activities (22,822,046) (262,367,065) (57,500,957)
------------- ------------- -------------
NET INCREASE(DECREASE) IN CASH AND
CASH EQUIVALENTS 72,217,310 (194,181,910) 44,142,974
CASH AND CASH EQUIVALENTS,
Beginning of year 245,499,783 439,681,693 395,538,719
------------- ------------- -------------
CASH AND CASH EQUIVALENTS,
End of year $ 317,717,093 $ 245,499,783 $ 439,681,693
============= ============= =============
The accompanying notes are an integral part of these consolidated financial
statements.
-35-
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 Company's net sales and
accounts receivable result from transactions with domestic and foreign
automotive manufacturers and tier one suppliers. The Company's 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.
Investments
At December 31, 2007, investment securities are 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.
The amortized cost, unrealized gains and losses, and market value of
investment securities are shown as of December 31, 2007 and 2006:
Unrealized
-------------------------
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
============ =========== =========== ============
2006 Cost Gains Losses Market Value
- ---- ------------ ----------- --------- ------------
Government Agency $ 8,992,336 $ -- $ (3,796) $ 8,988,540
Certificates of Deposit 71,200,000 -- -- 71,200,000
Corporate Bonds 297,579 -- (4,926) 292,653
Other Fixed Income 2,539,387 -- -- 2,539,387
Equity 110,150,262 36,173,199 (400,185) 145,923,276
------------ ----------- --------- ------------
$193,179,564 $36,173,199 $(408,907) $228,943,856
============ =========== ========= ============
Unrealized losses on investments as of December 31, 2007, are as follows:
Aggregate Unrealized Losses Aggregate Fair Value
--------------------------- --------------------
Less than one year $2,962,198 $22,976,043
Greater than one year -- --
-36-
GENTEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES, continued
Management has reviewed the unrealized losses in the Company's fixed-income
and equity securities as of December 31, 2007, and has determined that they
are temporary in nature; accordingly, no losses have been recognized in
income as of December 31, 2007.
Fixed income securities as of December 31, 2007, have contractual
maturities as follows:
Due within one year $80,254,770
Due between one and five years --
Due over five years --
-----------
$80,254,770
===========
Fair Value of Financial Instruments
The Company's financial instruments consist of cash and cash equivalents,
investments, accounts receivable and accounts payable. The Company's
estimate of the fair values of these financial instruments approximates
their carrying amounts at December 31, 2007 and 2006.
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, 2007 and 2006:
2007 2006
----------- -----------
Raw materials $31,098,379 $31,727,666
Work-in-process 4,555,058 4,681,714
Finished goods 12,396,123 12,396,018
----------- -----------
$48,049,560 $48,805,398
=========== ===========
Allowances for slow-moving and obsolete inventories were not significant as
of December 31, 2007 and 2006.
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.
Patents
The Company's 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 $3,714,000 and $3,510,000 at December 31, 2007 and 2006,
respectively. At December 31, 2007, patents had a weighted average
amortization life of 12 years. Patent amortization expense was
approximately $353,000, $292,000, and $233,000 in 2007, 2006 and 2005,
respectively. For each of the next five years, patent amortization expense
will approximate $405,000 annually.
Revenue Recognition
The Company's 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.
-37-
GENTEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES, continued
Advertising and Promotional Materials
All advertising and promotional costs are expensed as incurred and amounted
to approximately $1,407,000, $1,250,000 and $1,458,000, in 2007, 2006 and
2005, 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 $7,701,000, $6,727,000 and $5,770,000, in 2007, 2006 and
2005, 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 Company's 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, 2007 and 2006. 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:
2007 2006 2005
------------ ------------ ------------
Numerators:
Numerator for both basic and diluted EPS, net income $122,130,021 $108,761,002 $109,527,511
Denominators:
Denominator for basic EPS,
weighted-average common shares outstanding 143,056,704 147,950,666 155,438,834
Potentially dilutive shares resulting from stock option plans 1,013,593 543,697 1,591,790
------------ ------------ ------------
Denominator for diluted EPS 144,070,297 148,494,363 157,030,624
============ ============ ============
For the years ended December 31, 2007, 2006 and 2005, 2,369,271, 6,564,622
and 3,517,373 shares, respectively, related to stock option plans were not
included in diluted average common shares outstanding because their effect
would be antidilutive.
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 Company's 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.
-38-
GENTEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES, continued
Stock-Based Compensation Plans
At December 31, 2007, 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 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.
The Company's income before taxes, net income and basic and diluted
earnings per share for the year ended December 31, 2007, were $7,501,492,
$3,306,239 and $0.02 lower, respectively, than if we had continued to
account for stock-based compensation under APB Opinion No. 25 for our stock
option grants. For the year ended December 31, 2006, the Company's income
before taxes, net income and basic and diluted earnings per share was
$7,058,135, $4,554,731 and $.03 lower, respectively, than if we had
continued to account for stock-based compensation under APB Opinion No. 25
for our stock option grants. Compensation cost capitalized as part of
inventory was $95,712 and $95,111 in 2007 and 2006, respectively. The
cumulative effect of the change in accounting for forfeitures was not
material.
The Company receives a tax deduction for certain stock option exercises
during the period the options are exercised, generally for the excess of
the price at which the options are sold over the exercise price of the
options. Prior to the adoption of SFAS 123(R), we reported all tax benefits
resulting from the exercise of stock options as operating cash flows in our
consolidated statement of cash flows. Upon adoption of SFAS 123(R) any
excess benefits are required to be shown in our consolidated statement of
cash flows as financing cash flows. Excess tax benefits from the exercise
of stock options and vested restricted stock were $338,648 and $235,410,
respectively, for 2007 and 2006 and were reported as financing cash flows
rather than operating cash flows.
Net cash proceeds from the exercise of stock options and employee stock
purchases were $40,089,468 and $18,953,178, respectively for 2007 and 2006.
The actual income tax benefit realized from stock option exercises and
vested restricted stock were $3,838,597 and $1,608,341, respectively for
2007 and 2006.
The following table illustrates the effect on net income and earnings per
share if the Company had applied the fair value recognition provisions of
Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for
Stock-Based Compensation," to stock-based employee compensation:
2005
------------
Net Income, as reported $109,527,511
Deduct: Total stock-based employee compensation
expense determined under fair value-based method
of all awards, net of tax effects (19,982,017)
------------
Pro forma net income $ 89,545,494
============
Earnings per share:
Basic - as reported $ .70
Basic - pro forma $ .58
Diluted - as reported $ .70
Diluted - pro forma $ .57
On March 30, 2005, in response to the required implementation of SFAS No.
123(R), the Company accelerated the vesting of current "under water" stock
options. As a result of the vesting acceleration, approximately 2.3 million
shares became immediately exercisable and an additional approximate $13.6
million of proforma stock-based employee compensation expense was
recognized in the first quarter 2005, that otherwise would have been
recognized as follows: $6.1 million in 2005;
-39-
GENTEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES, continued
Stock-Based Compensation Plans, continued
$4.5 million in 2006; $2.2 million in 2007 and $0.8 million in 2008-2009.
The objective of this Company action was primarily to avoid recognizing
compensation expense associated with these options in future financial
statements, upon the Company's adoption of SFAS 123(R), effective January
1, 2006. In addition, the Company also received shareholder approval of an
amendment to its Employee Stock Option Plan to allow the grant of
non-qualified stock options.
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 September 2006, the Financial Accounting Standards Board (FASB) issued
SFAS No. 157, "Fair Value Measurements" ("SFAS No. 157"). This statement
establishes a framework for measuring the fair value of assets and
liabilities. This framework is intended to provide increased consistency in
how fair value determinations are made under various existing accounting
standards that permit, or in some cases require, estimates of fair market
value. SFAS No. 157 also expands financial statement disclosure
requirements about a company's use of fair value measurements, including
the effect of such measure on earnings. SFAS No. 157 is effective for
fiscal years beginning after November 15, 2007. The adoption is not
expected to have any significant effect on the Company's consolidated
financial position or results of operations.
In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for
Financial Assets and Financial Liabilities" ("SFAS No. 159"). This
statement provides a fair value option election that allows companies to
irrevocably elect fair value as the initial and subsequent measurement
attribute for certain financial assets and liabilities, with changes in
fair value recognized in earnings as they occur. SFAS No. 159 permits the
fair value option election on an instrument by instrument basis at initial
recognition of an asset or liability or upon an event that gives rise to a
new basis of accounting for that instrument. SFAS No. 159 is effective as
of the beginning of an entity's first fiscal year that begins on or after
November 15, 2007. Early adoption is permitted as of the beginning of a
fiscal year that begins on or after November 15, 2007, provided that the
entity makes that choice in the first 120 days of that fiscal year; has not
yet issued financial statements for any interim period of the fiscal year
of adoption; and also elects to apply the provisions of SFAS No. 157. The
Company is not planning to adopt the provisions of SFAS No. 159.
In June 2007, the FASB ratified the consensus on Emerging Issues Task Force
(EITF) Issue No. 06-11, "Accounting for Income Tax Benefits of Dividends on
Share-Based Payment Awards" ("EITF 06-11"). EITF 06-11 requires companies
to recognize the income tax benefit realized from dividends or dividend
equivalents that are charged to retained earnings and paid to employees for
non-vested equity-classified employee share-based payment awards as an
increase to additional paid-in capital. EITF 06-11 is effective for fiscal
years beginning after September 15, 2007. The adoption is not expected to
have any significant effect on the Company's 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 bank's prime rate or
1.5% above the LIBOR rate. No borrowings were outstanding under this line
in 2007 or 2006. No compensating balances are required under this line.
(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 Company's financial
position or results of operations. A reconciliation of the beginning and
ending amount of unrecognized tax benefits is as follows:
-40-
GENTEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(3) INCOME TAXES, continued
Balance at January 1, 2007 $2,113,000
Additions based on tax positions related to the current year 350,000
Additions for tax positions in prior years 96,000
Reductions for tax positions in prior years (57,000)
Reductions as a result of a lapse of the applicable statute of limitations (518,000)
----------
Balance at December 31, 2007 $1,984,000
==========
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 $226,000 for interest as of December 31, 2007. Interest
recorded during 2007 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 Company's
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 2004.
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:
2007 2006 2005
----------- ----------- -----------
Currently payable:
Federal $59,555,747 $51,411,596 $52,375,000
State 309,000 144,000 (246,000)
Foreign 671,000 411,000 411,000
----------- ----------- -----------
Total 60,535,747 51,966,596 52,540,000
----------- ----------- -----------
Net deferred:
Primarily federal (2,927,000) (1,754,000) (2,173,000)
----------- ----------- -----------
Provision for income taxes $57,608,747 $50,212,596 $50,367,000
=========== =========== ===========
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
$3,839,000, $1,608,000 and $3,180,000 in 2007, 2006 and 2005, respectively,
and were recognized as an adjustment of additional paid-in capital.
The effective income tax rates are different from the statutory federal
income tax rates for the following reasons:
2007 2006 2005
---- ---- ----
Statutory federal income tax rate 35.0% 35.0% 35.0%
State income taxes, net of federal income tax benefit 0.1 0.1 (0.1)
Foreign source exempted income -- (2.0) (2.4)
Domestic production exclusion (1.9) (1.0) (0.9)
Tax-exempt investment income (0.4) (0.5) (0.6)
Other (0.7) -- 0.5
---- ---- ----
Effective income tax rate 32.1% 31.6% 31.5%
==== ==== ====
The tax effect of temporary differences which give rise to deferred income
tax assets and liabilities at December 31, 2007 and 2006, are as follows:
-41-
GENTEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(3) INCOME TAXES (continued)
2007 2006
------------------------- -------------------------
Current Non-Current Current Non-Current
---------- ------------ ---------- ------------
Assets:
Accruals not currently deductible $3,834,105 $ 164,603 $2,676,168 $ 164,603
Stock based compensation 3,503,165 1,669,586 1,530,018 1,405,334
Other 1,889,468 6,760 2,038,409 14,147
---------- ------------ ---------- ------------
Total deferred income tax assets 9,226,738 1,840,949 6,244,595 1,584,084
Liabilities:
Excess tax over book depreciation -- (12,702,369) -- (12,759,431)
Patent costs -- (1,471,614) -- (1,278,283)
Unrealized gain on investments -- (10,514,745) -- (12,517,503)
Other (955,820) -- (779,998) --
---------- ------------ ---------- ------------
Net deferred incomes taxes $8,270,918 $(22,847,779) $5,464,597 $(24,971,133)
========== ============ ========== ============
Income taxes paid in cash were approximately $59,162,000, $49,061,000 and
$47,582,000, in 2007, 2006 and 2005, respectively.
In July 2007, the State of Michigan enacted a new business tax that will be
effective January 1, 2008. The Company completed its evaluation of the new
business tax provisions and it is not expected to have a significant impact on
the Company's consolidated financial position or results of operations.
(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 employee's contributions at a rate
determined by the Company's Board of Directors. In 2007, 2006 and 2005, the
Company's contributions were approximately $1,849,000, $1,715,000 and
$1,601,000, 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 Company's 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 Company's 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 Company's common stock, or their transferees, automatically become
void.
(6) STOCK-BASED COMPENSATION PLANS
Employee Stock Option Plan
In 2004, a new Employee Stock Option Plan was shareholder approved,
replacing the prior plan. The Company may grant options for up to
18,000,000 shares under its new Employee Stock Option Plan. The Company has
granted options on 6,934,380 shares (net of shares from canceled options)
under the new plan through December 31, 2007. Under the plans, the option
exercise price equals the stock's market price on date of grant. The
options vest after one to five years, and expire after five to seven years.
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:
-42-
GENTEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(6) STOCK-BASED COMPENSATION PLANS, continued
2007 2006 2005
----- ----- -----
Dividend yield 2.0% 2.0% 2.0%
Expected volatility 29.5% 30.0% 36.3%
Risk-free interest rate 4.4% 4.8% 4.1%
Expected term of options (in years) 4.5 4.5 4.4
Weighted-average grant-date fair value $ 5 $ 4 $ 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, 2007, there was $11,210,575 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 4.2 years.
A summary of the status of the Company's employee stock option plan at
December 31, 2007, 2006 and 2005, and changes during the same periods are
presented in the tables and narrative below:
2007
----------------------------------------------------
Wtd. Avg. Aggregate
Shares Wtd. Avg. Remaining 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
2006
----------------------------------------------------
Wtd. Avg. Aggregate
Shares Wtd. Avg. Remaining 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
2005
----------------------------------------------------
Wtd. Avg. Aggregate
Shares Wtd. Avg. Remaining Intrinsic Value
000 Ex. Price Contract Life $000
------ --------- ------------- ---------------
Outstanding at Beginning of Year 10,586 $16
Granted 1,931 17
Exercised (1,580) 12 $ 9,152
Forfeited (427) 18
------
Outstanding at End of Year 10,510 17 3.2 Yrs $33,881
Exercisable at End of Year 7,440 $17 2.8 Yrs $23,525
-43-
GENTEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(6) STOCK-BASED COMPENSATION PLANS, continued
A summary of the status of the Company's non-vested employee stock option
activity for the years ended December 31, 2007, 2006, and 2005, are
presented in the table and narrative below:
2007 2006 2005
------------------- ------------------- -------------------
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 3,496 $5 3,069 $6 6,598 $7
Granted 1,838 5 1,691 4 1,931 4
Vested (1,200) 5 (1,124) 6 (5,345) 7
Forfeited (103) 5 (140) 5 (115) 6
------ --- ------ --- ------ ---
Nonvested stock options at End of Year 4,031 $5 3,496 $5 3,069 $6
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 363,240 shares (net of shares from canceled
options) under the current plan through December 31, 2007. Under the plan,
the option exercise price equals the stock's market price on date of grant.
The options vest after six months, and expire after ten years.
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:
2007 2006 2005
----- ----- -----
Dividend yield 2.0% 1.8% 1.9%
Expected volatility 29.4% 30.7% 42.3%
Risk-free interest rate 4.6% 5.0% 4.1%
Expected term of options (in years) 8.3 8.9 8.6
Weighted-average grant-date fair value $ 6 $ 6 $ 8
As of December 31, 2007, there was no unrecognized compensation cost
related to share-based payments under this plan
A summary of the status of the Company's Non-employee Director Stock Option
Plan at December 31, 2007, 2006, and 2005, and changes during the same
periods are presented in the tables and narrative below:
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
-44-
GENTEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(6) STOCK-BASED COMPENSATION PLANS, continued
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
2005
----------------------------------------------------------
Aggregate
Shares Wtd. Avg. Wtd. Avg. Remaining Intrinsic Value
000 Ex. Price Contract Life $000
------ --------- ------------------- ---------------
Outstanding at Beginning of Year 510 $13
Granted 48 18
Exercised (101) 10 $ 756
Forfeited (12) 18
----
Outstanding at End of Year 445 14 5.6 Yrs $2,617
Exercisable at End of Year 445 $14 5.6 Yrs $2,617
A summary of the status of the Company's non-vested non-employee director
stock option plan activity for the years ended December 31, 2007, 2006, and
2005, are presented in the table and narrative below:
2007 2006 2005
------------------- ------------------- -------------------
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 8
Vested (48) 6 (48) 6 (48) 8
Forfeited 0 0 0 0 0 0
--- --- --- --- --- ---
Nonvested stock options at End of Year 0 $0 0 $0 0 $0
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 111,558 shares, 130,876 shares and 135,409 shares under the
new plan in 2007, 2006, and 2005, respectively, and has sold a total of
552,685 shares under the new plan through December 31, 2007. The Company
sells shares at 85% of the stock's market price at date of purchase. The
weighted average fair value of shares sold in 2007 was approximately
$15.79.
-45-
GENTEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(6) STOCK-BASED COMPENSATION PLANS
Restricted Stock Plan
The Company has a Restricted Stock Plan covering 1,000,000 shares of common
stock that was shareholder approved, the purpose of which is to permit
grants of shares, subject to restrictions, to key employees of the Company
as a means of retaining and rewarding them for long-term performance and to
increase their ownership in the Company. Shares awarded under the plan
entitle the shareholder to all rights of common stock ownership except that
the shares may not be sold, transferred, pledged, exchanged or otherwise
disposed of during the restriction period. The restriction period is
determined by a committee, appointed by the Board of Directors, but may not
exceed ten years. The Company has 590,710 shares outstanding as of December
31, 2007. During 2007, 2006, and 2005, 107,200, 182,530 and 80,700 shares,
respectively, were granted with a restriction period of five years at
market prices ranging from $16.25 to $19.69 in 2007, $14.00 to $17.09 in
2006, and $15.93 to $19.50 in 2005 and has unearned stock-based
compensation of $5,316,486 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 2007 was $1,791,902.
(7) STOCK SPLIT
On April 1, 2005, the Company's Board of Directors declared a two-for-one
stock split effected in the form of a 100% common stock dividend to
shareholders of record on May 6, 2005. The stock split increased the number
of shares of common stock then outstanding from 78,020,342 to 156,040,684.
Earnings per share and all share data have been restated in all prior
periods to reflect this stock split.
(8) CONTINGENCIES
The Company is 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
does 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 Muth's
U.S. Patent No. 6,005,724 is invalid and unenforceable, and that Gentex's
Razor(TM) Turn Signal Mirror does not infringe that patent. The Court also
denied all but one of Muth's other motions with prejudice, including its
motion for an injunction, and its claims for tortuous interference with its
business relationships. The sole point of liability for Gentex was that the
Court found that Gentex breached one provision of the alliance agreement it
has with Muth, and entered a judgment against Gentex, on January 24, 2008,
granting Muth damages in the amount of $2,885,329. This amount is accrued
as an other accrued liability as of December 31, 2007.
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.
-46-
GENTEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(9) 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.
2007 2006 2005
------------ ------------ ------------
Revenue:
Automotive Products
United States $254,455,151 $230,152,102 $236,708,606
Germany 162,465,135 127,531,636 99,339,847
Japan 59,747,941 56,547,995 52,215,691
Other 153,430,864 134,172,464 124,532,388
Other 23,834,145 23,862,876 23,687,442
------------ ------------ ------------
Total $653,933,236 $572,267,073 $536,483,974
============ ============ ============
Income from Operations:
Automotive Products $136,741,562 $121,766,143 $131,165,600
Other 2,074,201 4,680,833 5,128,937
------------ ------------ ------------
Total $138,815,763 $126,446,976 $136,294,537
============ ============ ============
Assets:
Automotive Products $305,519,359 $275,022,400 $248,568,391
Other 4,182,161 5,090,934 4,334,747
Corporate 588,321,160 504,915,066 669,742,664
------------ ------------ ------------
Total $898,022,680 $785,028,400 $922,645,802
============ ============ ============
Depreciation & Amortization:
Automotive Products $ 29,796,901 $ 25,218,267 $ 21,407,276
Other 235,582 253,879 207,336
Corporate 2,402,775 2,290,564 2,208,715
------------ ------------ ------------
Total $ 32,435,258 $ 27,762,710 $ 23,823,327
============ ============ ============
Capital Expenditures:
Automotive Products $ 52,378,659 $ 45,846,127 $ 52,966,667
Other 192,339 868,296 131,821
Corporate 1,953,324 1,478,660 434,747
------------ ------------ ------------
Total $ 54,524,322 $ 48,193,083 $ 53,533,235
============ ============ ============
Other includes Fire Protection Products and Dimmable Aircraft Windows. The
Dimmable Aircraft Windows segment began during 2007 with no sales, 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 Company's non-U.S. sales
are invoiced and paid in U.S. dollars. During 2007, approximately 15% of
the Company's net sales were invoiced and paid in European euros.
During the years presented, the Company had four automotive customers,
which individually accounted for 10% or more of net sales as follows:
Customer
-----------------------------------------
General Toyota Motor
Motors Daimler AG Corporation BMW
------- ---------- ------------ ---
2007 19% *15% 13% 12%
2006 22% 15% 13% 12%
2005 24% 12% 14% 11%
* Includes Chrysler through the date of sale.
-47-
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION PAGE
- ----------- ------------------------------------------------------- --------
3(a)(1) Registrant's Restated Articles of Incorporation,
adopted on August 20, 2004, were filed as Exhibit 3(a)
to Registrant's Report on Form 10-Q dated November 2,
2004, and the same is hereby incorporated herein by
reference.
3(b)(1) Registrant's Bylaws as amended and restated February
27, 2003, was filed as Exhibit 3(b)(1) to Registrant's
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 Registrant's
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
Registrant's 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 Registrant's Report on Form
10-K dated March 18, 1986, and the same is hereby
incorporated herein by reference.
*10(b)(1) Gentex Corporation Qualified Stock Option Plan (as
amended and restated, effective February 26, 2004) was
included in Registrant's Proxy Statement dated April 6,
2004, filed with the Commission on April 6, 2004, 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 Registrant's 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
Registrant's 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 Registrant's Report on
Form 10-Q dated April 27, 2001, and the same is hereby
incorporated herein by reference.
*10(b)(4) 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 Registrant's Report on Form 10-Q
dated November 2, 2004, and the same is hereby
incorporated herein by reference.
*10(b)(5) Gentex Corporation 2002 Nonemployee Director Stock
Option Plan (adopted March 6, 2002) was filed as
Exhibit 10(b)(4) to Registrant's Report on Form 10-Q
dated April 30, 2002, and the same is hereby
incorporated herein by reference.
*10(b)(6) 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 Registrant's
Report on Form 10-Q dated November 2, 2004, and the
same is hereby incorporated herein by reference.
10(e) The form of Indemnity Agreement between Registrant and
each of the Registrant's directors and certain officers
was filed as Exhibit 10(e) to Registrant's Report on
Form 10-Q dated October 31, 2002, and the same is
hereby incorporated herein by reference.
21 List of Company Subsidiaries 50
23(a) Consent of Independent Registered Public Accounting
Firm 51
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). 52
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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). 53
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. Section 1350). 54
* Indicates a compensatory plan or arrangement.
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Exhibit 21
LIST OF GENTEX CORPORATION SUBSIDIARIES
1. E.C. Aviation Services, Inc., a Michigan corporation, is a wholly-owned
subsidiary of Gentex Corporation.
2. Gentex Holdings, Inc., a Michigan corporation, is a wholly-owned subsidiary
of Gentex Corporation.
3. Gentex GmbH, a German limited liability company, is a subsidiary 50% owned
by Gentex Corporation and 50% owned by Gentex Holdings, Inc.
4. Gentex Japan, Inc., a Japanese corporation, is a wholly-owned subsidiary of
Gentex Corporation.
5. Gentex Mirrors Ltd., a United Kingdom limited liability company, is a
wholly-owned subsidiary of Gentex Corporation.
6. Gentex France, SAS, a French simplified liability corporation, is a
wholly-owned subsidiary of Gentex Corporation.
7. Gentex Technologies Korea Co., Ltd., a Korean limited stock company, is a
wholly-owned subsidiary of Gentex Corporation.
8. Gentex (Shanghai) Electronic Technology Co., Inc., a Chinese limited
liability company, is a wholly-owned subsidiary of Gentex Corporation.
-50-
Exhibit 23(a)
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in the Registration Statements
(Form S-8 Nos. 333-101642, 33-65321, 333-04661, 333-105858 and 333-118213)
pertaining to various stock option and incentive plans of Gentex Corporation of
our reports dated February 8, 2008, with respect to the consolidated financial
statements of Gentex Corporation and subsidiaries, and the effectiveness of
internal control over financial reporting of Gentex Corporation, included in
this Annual Report (Form 10-K) for the year ended December 31, 2007.
/s/ Ernst & Young LLP
Grand Rapids, Michigan
February 22, 2008
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EXHIBIT 31.1
CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER OF GENTEX COPORATION
I, Fred T. Bauer, certify that:
1. I have reviewed this annual report on Form 10-K of Gentex Corporation;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this annual report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures [as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)] and internal
control over financial reporting [as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)] for the registrant and have:
a) designed such disclosure controls and procedures, or caused
such disclosure controls and procedures to be designed under
our supervision, to ensure that material information
relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those
entities, particularly during the period in which this
annual report is being prepared;
b) designed such internal controls over financial reporting, or
caused such internal control over financial reporting to be
designed under our supervision, 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;
c) evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this annual report
our conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered
by this annual report based on such evaluation; and
d) disclosed in this annual report any change in the
registrant's internal control over financial reporting that
occurred during the registrant's most recent fiscal quarter
(the registrant's fourth fiscal quarter in the case of an
annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant's
internal control over financial reporting; and;
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of the
registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies and material weaknesses in the
design or operation of internal control over financial
reporting which are reasonably likely to adversely affect
the registrant's ability to record, process, summarize and
report financial information; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal control over financial reporting;
Date: February 22, 2008
/s/ Fred T. Bauer
----------------------------------------
Fred T. Bauer
Chief Executive Officer
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EXHIBIT 31.2
CERTIFICATION OF THE CHIEF FINANCIAL OFFICER OF GENTEX COPORATION
I, Steven A. Dykman, certify that:
1. I have reviewed this annual report on Form 10-K of Gentex Corporation;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this annual report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures [as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)] and internal
control over financial reporting [as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)] for the registrant and have:
a) designed such disclosure controls and procedures, or caused
such disclosure controls and procedures to be designed under
our supervision, to ensure that material information
relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those
entities, particularly during the period in which this
annual report is being prepared;
b) designed such internal controls over financial reporting, or
caused such internal control over financial reporting to be
designed under our supervision, 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;
c) evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this annual report
our conclusions about the effectiveness of the disclosure
controls and procedures, as of end of the period covered by
this annual report based on such evaluation; and
d) disclosed in this annual report any change in the
registrant's internal control over financial reporting that
occurred during the registrant's most recent fiscal quarter
(the registrant's fourth fiscal quarter in the case of an
annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant's
internal control over financial reporting; and;
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of the
registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies and material weaknesses in the
design or operation of internal control over financial
reporting which are reasonably likely to adversely affect
the registrant's ability to record, process, summarize and
report financial information; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal control over financial reporting;
Date: February 22, 2008
/s/ Steven A. Dykman
----------------------------------------
Steven A. Dykman
Vice President, Finance
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EXHIBIT 32
CERTIFICATE PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY
ACT OF 2002 (18-U.S.C. SECTION 1350)
Each, Fred T. Bauer, Chief Executive Officer of Gentex Corporation, and Steven
A. Dykman, Chief Financial Officer of Gentex Corporation, certify to the best of
their knowledge and belief, pursuant to Section 906 of the Sarbanes-Oxley Act of
2002 (18 U.S.C. Section 1350), that:
(1) The annual report on Form 10-K for the year ended December 31, 2007,
which this statement accompanies, fully complies with the requirements
of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in this annual report on Form 10-K of the
year ended December 31, 2007, fairly presents, in all material
respects, the financial condition and results of operations of Gentex
Corporation.
Dated: February 22, 2008 GENTEX CORPORATION
By /s/ Fred T. Bauer
-------------------------------------
Fred T. Bauer
Its Chief Executive Officer
By /s/ Steven A. Dykman
-------------------------------------
Steven A. Dykman
Its Vice President-Finance/Chief
Financial Officer
A signed original of this written statement has been provided to Gentex
Corporation and will be retained by Gentex Corporation and furnished to the
Securities and Exchange Commission or its staff upon request.
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