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, 2005.
[ ] 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:
Title of each Class Name of each exchange on which registered
NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $.06 PER SHARE
(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:[ ]
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]
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes:[X] No:[ ]
Indicate by check mark 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. [X]
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer" in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer Yes:[X] Accelerated Filer Yes:[ ] Non-Accelerated
Filer Yes:[ ]
Indicate by check mark whether the registrant is a shell company as defined in
Rule 12b-2.
Yes:[ ] No:[X]
As of June 30, 2005 (the last business day of the registrant's most recently
completed second fiscal quarter), 156,469,171 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 $2,724,013,128 computed at the
closing price on that date.
As of February 9, 2006, 154,533,984 shares of the registrant's common stock, par
value $.06 per share, were outstanding.
Portions of the Company's Proxy Statement for its 2006 Annual Meeting of
Shareholders are incorporated by reference into Part III.
Exhibit Index located at Page 39
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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 mirrors and fire protection products.
The Company was organized 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
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 2004, the Company began shipping auto-dimming mirrors with
SmartBeam, its proprietary intelligent high-beam headlamp control feature, for
the Cadillac STS and Jeep Grand Cherokee. Also during 2004, the Company began
making shipments of its auto-dimming mirrors to Peugeot, the Company's first
automotive OEM customer in France.
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.
In December 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'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.
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
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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 its proprietary
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.
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 2004, the Company began shipping auto-dimming mirrors with
SmartBeam, its proprietary intelligent high-beam headlamp control feature, for
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.
The Company shipped approximately 7,132,000 interior auto-dimming mirrors
in 2003, approximately 8,363,000 in 2004, and 8,924,000 in 2005.
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During 2005, the growth in interior total mirror unit shipments resulted
from increased penetration of light vehicles manufactured worldwide, including
Europe and Asian transplants in North America. The Company's interior
auto-dimming mirrors are standard equipment or factory-installed options on
certain trim levels of the following 2006 vehicle models:
TABLE 1. INTERIOR AUTO-DIMMING MIRROR AVAILABILITY BY VEHICLE LINE (NORTH
AMERICAN MANUFACTURERS)
GM/Cadillac DTS DaimlerChrysler 300
STS / Chrysler Pacifica
CTS PT Cruiser
Escalade Sebring
SRX Town & Country
GM/Buick LaCrosse DaimlerChrysler / Caravan
Lucerne Dodge Charger
Rainier Dakota
GM/Hummer H2 Durango
H3 Magnum
GM/Pontiac Torrent Ram Pickup
GM/Chevrolet Avalanche DaimlerChrysler / Commander
Express Jeep Grand Cherokee
Equinox Liberty
Malibu Wrangler
Silverado DaimlerChrysler/ GL Class
SSR Mercedes-Benz M Class
Suburban R Class
Tahoe BMW X5
Trailblazer Hyundai Sonata
GM/GMC Envoy Mazda 6
Savana Mitsubishi Raider
Sierra Nissan Altima
Yukon Armada
GM/Saturn ION Frontier
Vue Maxima
Ford Crown Victoria Pathfinder
Expedition Quest
Five Hundred Titan
Freestar Nissan / Infiniti QX56
Freestyle Toyota Avalon
Fusion Camry
F Series Camry Solara
Taurus Sequoia
Ford/Lincoln LS Sienna
Mark LT Tacoma
Navigator Toyota/Lexus RX330
Town Car Volkswagen Beetle
Zephyr Jetta
Ford/Mercury Grand Marquis
Milan
Montego
Monterey
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TABLE 1. INTERIOR AUTO-DIMMING MIRROR AVAILABILITY BY VEHICLE LINE - CONTINUED
(MANUFACTURERS OUTSIDE OF NORTH AMERICA)
Bentley Arnage Maserati Quattroporte
Continental Mazda RX-8
BMW 7 Series DaimlerChrysler/ C Class
5 Series Mercedes-Benz CL Class
6 Series CLK
3 Series CLS
X3 E Class
Daewoo/Ssangyong Chairman G Wagen
Korando S Class
Kyron SL Class
Musso SLK
Rexton Mitsubishi 380
Rodius NQZ Outlander
DaimlerChrysler / Chrysler 300 Nissan 350Z
Voyager Cima
DaimlerChrysler / Jeep Grand Cherokee Murano
Fiat Idea Navara
Marea Pathfinder
Palio Nissan / Infiniti FX35 / FX45
Stilo G35
Fiat / Alfa Romeo 147 M45
156 Q45
166 PSA/Citroen C6
Fiat / Lancia Lybra PSA/Peugeot 407
Thesis Porsche Cayenne
Ford Falcon Toyota / Lexus ES330
Focus GX470
Mondeo LS430
Territory LX470
Ford / Jaguar S-Type RX330
XK SC300
XJ SC430
Ford / Land Rover LR3 Toyota Avensis
Range Rover Camry
Ford / Volvo C70 Corolla
S40 Celsior
V50 Century
GM / Opel Astra Cygnus
Corsa Highlander
Meriva Land Cruiser
Signum Mark X
Vectra Prius
Zafira RAV4
GM/Saab 9-7X Windom
Honda / Acura TSX 4-Runner
Honda Accord Volkswagen Bora
Inspire Golf
Hyundai Avante Jetta
Azera Passat
Equus Phaeton
Grandeur Polo
Sonata Touareg
Santa Fe Touran
Starex Transporter
Tuscani Volkswagen / Audi A3
Terracan A4
Trajet A6
Tucson A8
Hyundai / Kia Motors Amanti Cabrio Q7
Carnival Volkswagen / SEAT Altea
Carens Cordoba
Cerato Ibiza
Lotze Leon
Opirus Toledo
Sedona Volkswagen / Skoda Octavia
Sorento Superb
Spectra
Sportage
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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 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. 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 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 3,128,000 exterior auto-dimming mirror
sub-assemblies during 2003, approximately 3,277,000 in 2004, and approximately
3,646,000 in 2005. During 2005, unit shipment growth primarily resulted from the
increased penetration of light vehicles in Europe.
The exterior auto-dimming mirror is standard equipment or a
factory-installed option on certain trim levels of the following 2006 vehicle
models:
TABLE 2. EXTERIOR AUTO-DIMMING MIRROR AVAILABILITY BY VEHICLE LINE
GM/Cadillac DTS DaimlerChrysler / GL Class
Escalade Mercedes- Benz M Class
XLR R Class
GM / Buick Lucerne S Class
GM / Chevrolet Avalanche SL Class
Silverado SLK
SSR Ford / Jaguar S-Type
Suburban XJ
Tahoe XK
GM / GMC Sierra Ford / Land Rover Range Rover
Yukon GM / Opel Vectra
GM / Hummer H2 Maserati Quattroporte
Ford/Lincoln Town Car PSA/Citroen C6
Zephyr Skoda Octavia
DaimlerChrysler/ 300 Volkswagen Cabrio
Chrysler Pacifica Golf
Town & Country Jetta
DaimlerChrysler/Dodge Caravan Passat
Durango Sharan
DaimlerChrysler/Jeep Commander Touareg
Grand Cherokee Honda/Acura RL
Volkswagen / Audi A4 Hyundai Grandeur
A6 Hyundai/Kia Opirus
A8 Nissan / Infiniti Q45
Cabrio Q7 QX56
BMW 7 Series Toyota / Lexus RX330
6 Series Nissan Armada
5 Series Cima
3 Series Maxima
X3 Titan
X5 Rolls Royce Phantom
Bentley Continental Daewoo / Ssangyong Chairman
DaimlerChrysler / C Class Toyota Avalon
Mercedes- Benz CL Class Camry Solara
CLK Sienna
CLS
E Class
G Wagen
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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(((TM))), 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 on the Cadillac DTS, the Jeep Commander, and BMW 5, 6 and 7
Series models.
The Company has also developed a new 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.
Also 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.
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 success with electrochromic technology provides an
opportunity for other potential 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 2005. In
December 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 variable market is currently limited to aerospace. Based on
Boeing's production schedule, the value of this initial contract is 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 began shipping prototypes
early in 2006, and volume production is expected to begin during the second half
of 2007. However, we believe that a commercial architectural window product will
require several years of additional engineering and intellectual property
development work.
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 and DaimlerChrysler AG 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 will be 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). All but the two previously mentioned GM programs
will be transferred to Gentex expeditiously but no later than the 2007 model
year. At the time of the agreement, this new business was estimated to represent
incremental auto-dimming mirror units in the range of 500,000 on an annualized
basis. The Company also negotiated a price reduction for the GM OnStar(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.
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Also during 2005, the Company negotiated a three-year extension to its
long-term agreement with DaimlerChrysler AG in the ordinary course of the
Company's business. Under the extension, 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 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, with limited assistance from independent
manufacturers' representatives. The Company is currently supplying mirrors for
Audi, Bavarian Motor Works, A.G. (BMW), Bentley, Citroen, Fiat, Jaguar, Land
Rover, MG Rover, Mercedes-Benz, Opel, Peugeot, 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 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 began opening a sales and engineering office
near Shanghai, China. The Company is currently supplying mirrors for
Daewoo/Ssangyong, Ford, GM, Honda, Hyundai, Infiniti, Kia Motors, Lexus, Mazda,
Mitsubishi, Nissan, Samsung and Toyota in Asia.
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 80% market share worldwide in 2005, as compared to
an approximately 78% in 2004. While the Company believes it will retain a
dominant position, one other U.S. manufacturer (Magna Donnelly Mirror Systems)
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.
-8-
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.
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, 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
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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.
TRADEMARKS AND PATENTS
The Company owns 11 U.S. trademarks and 250 U.S. patents, 241 of which
relate to electrochromic technology, automotive rearview mirrors and/or
sensor/LED technology. These patents expire between 2007 and 2024. 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 13 foreign trademarks and 69 foreign patents, 68 of
which relate to automotive rearview mirrors. These patents expire at various
times between 2007 and 2021. 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's remaining 9 U.S. patents and 1 foreign patent relate to the
Company's fire protection products, and the Company believes that the
competitive advantage provided by these patents is relatively small.
The Company also has in process 132 U.S. patent applications, 310 foreign
patent applications, and 19 trademark applications. The Company continuously
seeks to improve its core technologies and apply those technologies to new and
existing products. As those efforts produce patentable inventions, the Company
expects to file appropriate patent applications.
MISCELLANEOUS
The Company considers itself to be engaged in the manufacture and sale of
automatic rearview mirrors for the automotive industry and fire protection
products for the commercial building 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: General Motors Corporation, Toyota Motor
Corporation, DaimlerChrysler AG, 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 $151,334,000 and $132,966,000 at February 1, 2006, and
2005, respectively.
At February 1, 2006, the Company had 2,264 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.
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 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 (e.g. unit shipment growth estimates and
maintenance of the Company's market share). These statements do not guarantee
future performance and involve certain risks, uncertainties, and assumptions
that are difficult to predict with regard to timing, expense, likelihood and
degree of occurrence. These risks include, without limitation, employment and
general economic conditions, the pace of economic recovery in the U.S. and in
international markets, the pace of automotive production worldwide, the types of
products purchased by customers, competitive pricing pressures, currency
fluctuations, the financial strength of the Company's customers, the mix of
products purchased by customers, the ability to continue to make product
innovations, the success of certain products, and other risks and uncertainties
described herein. 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.
-10-
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, supplier
bankruptcies, and commodity material cost increases. Automakers are 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 - General Motors
Corporation, Toyota Motor Corporation, DaimlerChrysler AG 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 its
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 sales volume. In
addition, profit pressures at certain automakers are resulting in increased cost
reduction efforts by them, including requests for additional price reductions,
decontenting certain features from vehicles, and warranty cost-sharing programs,
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 have
already declared bankruptcy or may be considering bankruptcy. Should one or more
of our larger customers declare bankruptcy, it could adversely impact the
collectibility of our accounts receivable, bad debt expense and net income.
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
wholly-owned subsidiary of Magna International, is considerably larger than the
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. 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.
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.
-11-
- Our ability to attract or retain key employees to operate our
manufacturing facilities and corporate office. We are dependent on the
services of our management team. Losing one or more 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.
- Success of the Company's strategic and operating plans to properly
direct the Company, including continuing to obtain new business.
Antitakeover Provisions. Our articles of incorporation and bylaws, the
laws of Michigan, and our Shareholder Protection Rights Plan include provisions
which are designed to provide our board of directors with time to consider
whether a hostile takeover offer is in our best interest and the best interests
of our shareholders. These provisions, however, could discourage potential
acquisition proposals and could delay or prevent a change in control. The
provisions also could diminish the opportunities for a holder of our common
stock to participate in tender offers, including tender offers at a price above
the then current price for our common stock. These provisions could also prevent
transactions in which our shareholders might otherwise receive a premium for
their shares over then current market prices, and may limit the ability of our
shareholders to approve transactions that they may deem to be in their best
interests.
All of these provisions may have the effect of delaying or preventing a
change in control at the company level without action by our shareholders, and
therefore, could adversely affect the price of our common stock.
Fluctuations in Market Price. The market price for our common stock has
fluctuated, ranging between $15.38 and $20.32 for 2005. 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, and
- general economic conditions.
ITEM 1B. UNRESOLVED STAFF COMMENTS.
None
ITEM 2. PROPERTIES.
The Company operates out of four office/manufacturing facilities in
Zeeland, Michigan, approximately 25 miles southwest of Grand Rapids. 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
120,000-square foot automotive mirror manufacturing facility which is currently
scheduled to be completed in spring 2006. 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 plans to invest approximately $35 - 40 million
for the new facilities, primarily during 2005 and 2006, financed from existing
cash revenues.
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.
The Company's three automotive mirror manufacturing facilities currently
have an estimated building capacity to manufacture approximately 14-16 million
mirror units annually, based on the current product mix. The Company's fourth
automotive mirror
-12-
manufacturing facility under construction will have the potential to increase
building manufacturing capacity by 8-10 million mirror units annually.
ITEM 3. LEGAL PROCEEDINGS
None that are material (other than ordinary routine litigation incidental
to the business 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 elected at the first meeting of the
Board of Directors following the annual meeting of shareholders.
NAME AGE POSITION POSITION HELD SINCE
- -------------------------------------------------------------------------------------------------------
Fred Bauer 63 Chief Executive Officer May 1986
Garth Deur 49 Executive Vice President September 2002
Dennis Alexejun 54 Vice President, North American Automotive Marketing September 1998
John Carter 58 Vice President, Mechanical Engineering June 1997
Enoch Jen 54 Vice President, Finance February 1991
- -------------------------------------------------------------------------------------------------------
There are no fa mily relationships among the officers listed in the
preceding table.
Except for the executive officer listed below, all other executive
officers have held their current position with the Company for more than five
years.
Garth Deur has served as Executive Vice President of the Company since
September 2002, as Senior Vice President of the Company since May 2001, and
joined the Company as Vice President - Business Development and Planning in
November 2000. Prior to joining the Company, Mr. Deur served as a Principal of
Landmark Group, an investment management company, from March 1999 through
November 2000. Prior to that time, Mr. Deur served as Vice President, Chrysler
Business Operations, from March 1995 through March 1999, at the Automotive
Interiors division of Johnson Controls, Inc. (formerly Prince Corporation, which
was acquired by Johnson Controls in 1996).
-13-
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES.
The Company's common stock trades on The Nasdaq Stock Market(R). As of
February 1, 2006, there were 2,522 record-holders of the Company's common stock.
Ranges of high and low sale prices (adjusted for 2-for-1 stock split in May
2005) of the Company's common stock reported through The Nasdaq Stock Market for
the past two fiscal years appear in the following table.
YEAR QUARTER HIGH LOW
- --------------------------------------------------
2004 First $ 23.54 $ 19.68
Second 23.46 17.17
Third 19.90 16.00
Fourth 18.93 15.10
2005 First $ 18.25 $ 15.73
Second 19.45 15.53
Third 20.32 16.23
Fourth 19.99 15.38
- --------------------------------------------------
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 $0.08. 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. 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.
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.
The following is a summary of share repurchase activity during 2005:
Total Number of Maximum Number
Total Number Average Price Shares Purchased As of Shares That May Yet
Of Shares Paid Per Part of a Publicly Be Purchased Under
Period Purchased Share Announced Plan* the Plan*
- ---------------------------------------------------------------------------------------------------
August 2005 123,768 $17.02 123,768 7,046,232
September 2005 1,372,291 $16.84 1,372,291 5,673,941
--------- ---------
Total 1,496,059 1,496,059
* See above paragraph for data on which plan was announced, the total number of
shares approved for repurchase under the plan, and the expiration date (if any)
of the plan.
-14-
ITEM 6. SELECTED FINANCIAL DATA
(in thousands, except per share data)
- -----------------------------------------------------------------------------------------
2005 2004 2003 2002 2001
- -----------------------------------------------------------------------------------------
Net Sales $ 536,484 $ 505,666 $ 469,019 $ 395,258 $ 310,305
Net Income 109,528 112,657 106,761 85,771 65,217
- -----------------------------------------------------------------------------------------
Earnings Per Share* $ 0.70 $ 0.72 $ 0.69 $ 0.56 $ 0.43
Cash Dividends Declared
per Common Share* $ 0.35 $ 0.32 $ 0.15 $ - $ -
- -----------------------------------------------------------------------------------------
Total Assets $ 922,646 $ 856,859 $ 762,530 $ 609,173 $ 506,823
- -----------------------------------------------------------------------------------------
Long-Term Debt
Outstanding at
Year End $ - $ - $ - $ - $ -
- -----------------------------------------------------------------------------------------
*Adjusted for 2-for-1 stock split in May 2005.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION. 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
------------------------------- -------------------
2004 2003
Year Ended December 31, to to
-------------------------------
2005 2004 2003 2005 2004
------ ------ ------ ------ ------
Net Sales 100.0% 100.0% 100.0% 6.1% 7.8%
Cost of Goods Sold 63.0 58.9 58.1 13.4 9.3
------ ------ ------ ------ ------
Gross Profit 37.0 41.1 41.9 (4.4) 5.7
Operating Expenses:
Engineering, Research and Development 6.5 6.1 5.7 13.7 15.9
Selling, General and Administrative 5.1 5.3 5.0 1.6 15.2
------ ------ ------ ------ ------
Total Operating Expenses 11.6 11.4 10.7 8.1 15.5
------ ------ ------ ------ ------
Operating Income 25.4 29.7 31.2 (9.2) 2.4
Other Income 4.4 3.1 2.5 50.6 35.2
------ ------ ------ ------ ------
Income Before Provision for Income Taxes 29.8 32.8 33.7 (3.5) 4.8
Provision for Income Taxes 9.4 10.5 10.9 (5.1) 3.3
------ ------ ------ ------ ------
Net Income 20.4% 22.3% 22.8% (2.8)% 5.5%
====== ====== ====== ====== ======
RESULTS OF OPERATIONS: 2005 TO 2004
Net Sales. Automotive net sales increased by 6% on an 8% increase in
mirror shipments, from 11,640,000 to 12,570,000 units, primarily reflecting
increased penetration of interior and exterior auto-dimming mirrors on European
vehicles. North American mirror unit shipments increased by 4%, as growth in
Asian transplant vehicle penetration was partially offset by reduced shipments
to domestic automakers due to their lower production volumes, while overseas
unit shipments increased by 12% during 2005. Net sales of the Company's fire
protection products increased 5%, primarily due to stronger sales of certain
fire alarm and signal products.
Cost of Goods Sold. As a percentage of net sales, cost of goods sold
increased from 59% to 63% primarily reflecting annual and other automotive
customer price reductions, product mix, higher fixed overhead expenses, and
yield issues on certain new exterior mirror production lines and in the
microelectronics manufacturing area. Each factor is estimated to have impacted
cost of goods sold by approximately 1-2%.
Operating Expenses. Engineering, research and development expenses
increased approximately $4,226,000, and increased from 6% to 7% of net sales,
primarily due to additional staffing for new electronic product development,
including SmartBeam and telematics, and new
-15-
vehicle programs. Selling, general and administrative expenses increased
approximately $441,000, but remained at 5% of net sales, 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 state taxes.
Other Income - Net. Investment income increased $9,648,000 in 2005,
primarily due to increased year-end mutual fund distribution income and
increased interest income due to higher interest rates. Other income decreased
$1,714,000 in 2005, primarily due to decreased realized gains on the sale of
equity investments.
Taxes. The provision for federal income taxes varied from the statutory
rate in 2005 primarily due to Extra Territorial Income Exclusion Act exempted
taxable income from increased foreign sales.
Net Income. Net income decreased by 3%, primarily reflecting the decreased
gross margin partially offset by increased other income in 2005.
RESULTS OF OPERATIONS: 2004 TO 2003
Net Sales. Automotive net sales increased by 8% on a 13% increase in
mirror shipments, from 10,260,000 to 11,640,000 units, primarily reflecting
increased penetration on European vehicles for base interior auto-dimming
mirrors. North American unit shipments increased by 3%, as growth in Asian
transplant vehicle penetration was mostly offset by reduced shipments to General
Motors, the Company's largest customer, as North American light vehicle
production declined by 1% in 2004 compared to 2003. Overseas unit shipments
increased by 26% during 2004 due to increased penetration, despite a 1% decline
in Western Europe light vehicle production. During 2004, approximately 10% of
the Company's net sales were invoiced and paid in European euros. Net sales of
the Company's fire protection products decreased 1%, primarily due to the
continuing weak commercial construction market in the United States.
Cost of Goods Sold. As a percentage of net sales, cost of goods sold
increased from 58% to 59%, primarily reflecting annual automotive customer price
reductions and product mix, partially offset by improved productivity. Each
factor is estimated to have impacted cost of goods sold by approximately 1-2%.
Operating Expenses. Engineering, research and development expenses
increased approximately $4,220,000, but remained at 6% of net sales, primarily
due to additional staffing for new electronic product development, including
SmartBeam and telematics. Selling, general and administrative expenses increased
approximately $3,534,000, but remained at 5% of net sales, primarily reflecting
the continued expansion of the Company's overseas sales offices to support the
Company's current and future overseas sales growth, as well as the stronger euro
exchange rate.
Other Income - Net. Investment income increased $401,000 in 2004,
primarily due to increased mutual fund distribution income, partially offset by
lower interest rates due to shorter average maturities. Other income increased
$3,677,000 in 2004, primarily due to realized gains on the sale of equity
investments.
Taxes. The provision for federal income taxes varied from the statutory
rate in 2004 primarily due to Extra Territorial Income (ETI) Exclusion Act
exempted taxable income from increased foreign sales. The effective income tax
rate decreased from 32.5% in the first half of 2004 to 31.5% in the second half
of 2004, primarily due to the ETI tax benefit from increased foreign sales.
Net Income. Net income increased by 6%, primarily reflecting the increased
gross margin due to higher sales as well as the increase in other income in
2004.
-16-
LIQUIDITY AND CAPITAL RESOURCES
The Company's financial condition throughout the periods presented has
remained very strong.
The Company's current ratio decreased from 11.7 as of December 31, 2004,
to 10.7 as of December 31, 2005, primarily as a result of the increase in
accounts payable, primarily due to construction of its new facility.
Cash flow from operating activities for the year ended December 31, 2005,
decreased $5,124,000 to $126,244,000, compared to $131,368,000 for the same
period last year, primarily due to decreased net income. Capital expenditures
for the year ended December 31, 2005, increased to $53,533,000, compared to
$30,535,000 for the same period last year, primarily due to construction of the
new facilities. The Company currently anticipates capital expenditures of
approximately $40-45 million for new facilities and equipment during 2006,
financed from existing cash reserves.
Cash and cash equivalents as of December 31, 2005, increased approximately
$44,143,000 compared to December 31, 2004, primarily due to maturities of
short-term investments.
Inventories as of December 31, 2005, increased approximately $9,236,000
compared to December 31, 2004. The increase was primarily due to higher sales
and production levels, increased purchases of overseas glass and electronic
parts, and increased shipments through its distribution facility in Germany.
The increase in plant and equipment as of December 31, 2005, compared to
December 31, 2004, is primarily due to the construction of the new facilities
and new manufacturing equipment.
Management considers the Company's working capital of approximately
$560,899,000 and long-term investments of approximately $132,525,000 at December
31, 2005, together with internally generated cash flow and an unsecured
$5,000,000 line of credit from a bank, to be sufficient to cover anticipated
cash needs for the next year and for the foreseeable future.
On October 8, 2002, the Company announced a share repurchase plan, under
which it may purchase up to 8,000,000 shares (post-split) based on a number of
factors, including market conditions, the market price of the Company's common
stock, anti-dilutive effect on earnings, available cash and other factors that
the Company deems appropriate. On July 20, 2005, the Company announced that it
had raised the price at which the Company may repurchase shares under the
existing plan. During the quarter ended March 31, 2003, the Company repurchased
830,000 shares (post-split) at a cost of approximately $10,247,000. During the
quarter ended September 30, 2005, the Company repurchased approximately
1,496,000 shares at a cost of approximately $25,215,000. Approximately 5,674,000
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
will be 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 includes the GMT360 program, which is
the mid-size truck/SUV platform that previously did not offer auto-dimming
mirrors. The GM programs will be transferred to the Company by no later than the
2007 model year. We currently estimate that this new business represents
incremental auto-dimming mirror units in the range of 500,000 on an annualized
basis. The Company also negotiated a price reduction for the GM OnStar(R)
feature in its auto-dimming mirrors, effective January 1, 2005, in connection
with GM's stated plan to make their OnStar system standard across their vehicle
models over the next several years.
During 2005, the Company negotiated an extension to its long-term
agreement with DaimlerChrysler in the ordinary course of the Company's business.
Under the extension, the Company will be sourced virtually all Mercedes and
Chrysler interior and exterior auto-dimming rearview mirrors through December
2009. The Company's exterior auto-dimming mirror sub-assemblies are supplied by
means of sales to exterior mirror suppliers.
-17-
The Company currently expects that auto-dimming mirror unit shipments will
be approximately 10% percent higher in calendar 2006 compared with calendar
2005. These estimates are based on light vehicle production forecasts in the
regions to which the Company ships product, as well as the estimated option
rates for its mirrors on prospective vehicle models.
The Company utilizes the light vehicle production forecasting services of
CSM Worldwide, and CSM's current forecasts for light vehicle production for
calendar 2006 are approximately 15.7 million units for North America, 20.2
million for Europe and 14.1 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, 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 2005, approximately 9% of the Company's net sales were invoiced
and paid in European euros. The Company currently expects that approximately 12%
of the Company's net sales in 2006 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
2009- as of December 31,
2006 2007 2008 2010 2005 2004
--------------------------------- ------------------
U.S. Government
Amount $ 23.0 - - - $ 23.0 $ 65.2
Average Interest Rate 4% - 4% 2%
Municipal
Amount - - - - - $ 4.0
Average Interest Rate* - - - 2%
Certificates of Deposit
Amount $ 26.2 - - - $ 26.2 $ 32.0
Average Interest Rate 4% - - 4% 3%
Corporate
Amount $ 16.9 - - $ 0.3 $ 17.2 $ 3.5
Average Interest Rate 6% - 8% 7% 7%
Other
Amount $ 1.2 - - - $ 1.2 $ 1.1
Average Interest Rate 3% 3% 3%
*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.
-18-
CONTRACTUAL OBLIGATIONS AND OTHER COMMITMENTS
The Company has the following contractual obligations and other
commitments (000,000) as of December 31, 2005:
Total Less than 1 Year 1-3 Years After 3 Years
------ ---------------- --------- -------------
Long-term debt $ - $ - $ - $ -
Operating leases 1.1 0.6 0.4 0.1
Purchase obligations* 43.5 43.5 - -
Dividends payable 14.0 14.0 - -
------ ---------------- --------- -------------
$ 58.6 $ 58.1 $ 0.4 $ 0.1
====== ================ ========= =============
*Primarily for inventory parts, capital equipment and new facilities.
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, 2005, 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.
ITEM 7. A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
See "Market Risk Disclosure" in Management's Discussion and Analysis (Item
7).
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The following financial statements and reports of independent registered
public accounting firm are filed with this report as pages 24 through 38
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, 2005 and 2004
Consolidated Statements of Income for the years ended December 31, 2005,
2004 and 2003
Consolidated Statements of Shareholders' Investment for the years ended
December 31, 2005, 2004 and 2003
Consolidated Statements of Cash Flows for the years ended December 31,
2005, 2004 and 2003
Notes to Consolidated Financial Statements
-19-
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
2005 2004 2005 2004 2005 2004 2005 2004
- --------------------------------------------------------------------------------------------------------------------
Net Sales $ 127,642 $ 129,328 $ 132,384 $ 129,646 $ 138,115 $ 120,457 $ 138,343 $ 126,236
Gross Profit 48,053 54,884 49,566 54,455 51,196 47,702 49,826 50,704
Operating Income 33,236 40,696 33,756 40,029 35,293 33,393 34,009 35,948
Net Income 25,933 29,815 26,041 28,985 27,936 25,225 29,618 28,631
Earnings Per Share* $ .17 $ .19 $ .17 $ .18 $ .18 $ .16 $ .19 $ .18
- --------------------------------------------------------------------------------------------------------------------
*Diluted; adjusted for 2-for-1 stock split in May 2005.
ITEM 9. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.
Not applicable.
ITEM 9A. CONTROLS AND PROCEDURES.
DISCLOSURE CONTROLS AND PROCEDURES.
As of December 31, 2005, an evaluation was performed under the supervision
and with the participation of the Company's management, including the CEO and
CFO, of the effectiveness of the design and operation of the Company's
disclosure controls and procedures [(as defined in Exchange Act Rules 13a -
15(e) and 15d - 15(e)]. Based on that evaluation, the Company's management,
including the CEO and CFO, concluded that the Company's disclosure controls and
procedures were adequate and effective as of December 31, 2005, to ensure that
material information relating to the Company would be made known to them by
others within the Company, particularly during the period in which this Form
10-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, 2005.
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 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, 2005. Our management's assessment of the effectiveness of our internal
control over financial reporting as of December 31, 2005, has been audited by
Ernst & Young LLP, an independent registered public accounting firm, as stated
in its attestation report on management's assessment, which is included on page
25 hereof.
ITEM 9B. OTHER INFORMATION.
Not applicable.
-20-
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
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 2006 Annual
Meeting of Shareholders and filed with the Commission within 120 days after the
Company's fiscal year end, December 31, 2005 (the "Proxy Statement"), is hereby
incorporated herein by reference. 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 Board of Directors determinations concerning whether at least one member
of the Audit Committee is an "audit committee financial expert" as that term is
defined under Item 401 (h) 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 and senior financial officers. 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 "Executive Compensation"
contained in the definitive Proxy Statement is hereby incorporated herein by
reference. Such incorporation by reference shall not be deemed to specifically
incorporate by reference information referred to in Item 402(a)(8) of Regulation
S-K.
ITEM 12. SECURITY OWNERSHIP OF MANAGEMENT AND EQUITY COMPENSATION PLAN
INFORMATION.
The information contained under the captions "Securities Ownership of
Management" and "Equity Compensation Plan Information" contained in the
definitive Proxy Statement is hereby incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information contained under the caption "Certain Transactions"
contained in the definitive Proxy Statement is hereby incorporated herein by
reference.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.
Information regarding principal accounting fees and services is 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.
-21-
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 38.
(b) See (a) above.
(c) See (a) above.
-22-
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 16, 2006 GENTEX CORPORATION
By: /s/ Fred Bauer
--------------------------------------
Fred Bauer, Chairman and Principal
Executive Officer
and
/s/ Enoch Jen
--------------------------------------
Enoch Jen, 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 16th day of February, 2006, 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 Garth Deur, 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/ Leo Weber Director
- -----------------------------------
Leo Weber
-23-
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, 2005 and 2004, and the related
consolidated statements of income, shareholders' investment and cash flows for
each of the three years in the period ended December 31, 2005. 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, 2005 and 2004, and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended December 31, 2005, in conformity with U.S. generally accepted accounting
principles.
We also have audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the effectiveness of Gentex
Corporation's internal control over financial reporting as of December 31, 2005,
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, 2006 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Grand Rapids, Michigan
February 8, 2006
-24-
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 management's assessment, included in the accompanying
Management's Report on Internal Control Over Financial Reporting, that Gentex
Corporation maintained effective internal control over financial reporting as of
December 31, 2005, 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. Our responsibility is to express an opinion on management's
assessment and an opinion on the effectiveness of 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, evaluating management's assessment, testing and evaluating
the design and operating effectiveness of internal control, 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, management's assessment that Gentex Corporation maintained
effective internal control over financial reporting as of December 31, 2005, is
fairly stated, in all material respects, based on the COSO criteria. Also, in
our opinion, Gentex Corporation maintained, in all material respects, effective
internal control over financial reporting as of December 31, 2005, based on the
COSO criteria.
We also have audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the 2005 consolidated financial
statements of Gentex Corporation and subsidiaries and our report dated February
8, 2006 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Grand Rapids, Michigan
February 8, 2006
-25-
GENTEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2005 AND 2004
ASSETS
2005 2004
------------- -------------
CURRENT ASSETS:
Cash and cash equivalents $ 439,681,693 $ 395,538,719
Short-term investments 67,331,928 99,341,541
Accounts receivable 60,924,437 56,092,330
Inventories 39,836,822 30,600,789
Prepaid expenses and other 11,212,647 11,035,715
------------- -------------
Total current assets 618,987,527 592,609,094
PLANT AND EQUIPMENT:
Land, buildings and improvements 57,544,173 56,434,237
Machinery and equipment 196,878,770 176,798,924
Construction-in-process 40,858,633 14,485,664
------------- -------------
295,281,576 247,718,825
Less-Accumulated depreciation
and amortization (131,251,235) (112,069,706)
------------- -------------
164,030,341 135,649,119
OTHER ASSETS:
Long-term investments 132,524,966 122,174,030
Patents and other assets, net 7,102,968 6,427,185
------------- -------------
139,627,934 128,601,215
------------- -------------
$ 922,645,802 $ 856,859,428
============= =============
LIABILITIES AND SHAREHOLDERS' INVESTMENT
2005 2004
------------- -------------
CURRENT LIABILITIES:
Accounts payable $ 23,607,927 $ 19,849,569
Accrued liabilities:
Salaries, wages and vacation 3,798,648 3,433,657
Income taxes 2,739,364 548,579
Royalties 7,467,491 6,689,723
Dividends declared 14,043,959 13,237,348
Other 6,430,870 7,097,382
------------- -------------
Total current liabilities 58,088,259 50,856,258
DEFERRED INCOME TAXES 22,962,168 22,723,198
SHAREHOLDERS' INVESTMENT:
Preferred stock, no par value,
5,000,000 shares authorized; none
issued or outstanding - -
Common stock, par value $.06 per share;
400,000,000 shares authorized 9,362,639 4,672,005
Additional paid-in capital 194,476,306 175,266,114
Retained earnings 623,301,775 591,546,326
Deferred compensation (4,847,659) (5,407,851)
Accumulated other comprehensive income:
Unrealized gain on investments 18,795,360 15,558,180
Cumulative translation adjustment 506,954 1,645,198
------------- -------------
Total shareholders' investment 841,595,375 783,279,972
------------- -------------
$ 922,645,802 $ 856,859,428
============= =============
The accompanying notes are an integral part of these consolidated financial
statements.
-26-
GENTEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003
2005 2004 2003
------------- ------------- -------------
NET SALES $ 536,483,974 $ 505,666,335 $ 469,019,365
COST OF GOODS SOLD 337,843,632 297,920,747 272,518,466
------------- ------------- -------------
Gross profit 198,640,342 207,745,588 196,500,899
OPERATING EXPENSES:
Engineering, research and development 35,059,401 30,833,627 26,613,770
Selling, general and administrative 27,286,404 26,845,748 23,311,853
------------- ------------- -------------
Total operating expenses 62,345,805 57,679,375 49,925,623
------------- ------------- -------------
Income from operations 136,294,537 150,066,213 146,575,276
OTHER INCOME:
Interest and dividend income 20,289,908 10,642,129 10,241,276
Other, net 3,310,066 5,024,176 1,347,643
------------- ------------- -------------
Total other income 23,599,974 15,666,305 11,588,919
------------- ------------- -------------
Income before provision
for income taxes 159,894,511 165,732,518 158,164,195
PROVISION FOR INCOME TAXES 50,367,000 53,076,000 51,403,000
------------- ------------- -------------
NET INCOME $ 109,527,511 $ 112,656,518 $ 106,761,195
============= ============= =============
EARNINGS PER SHARE:
Basic $ 0.70 $ 0.73 $ 0.70
============= ============= =============
Diluted $ 0.70 $ 0.72 $ 0.69
============= ============= =============
Cash Dividends Declared per Share $ 0.35 $ 0.32 $ 0.15
The accompanying notes are an integral part of these consolidated
financial statements.
-27-
GENTEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS INVESTMENT
FOR THE YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003
Common Stock Common Stock Additional Paid-In
Shares Amount Capital
- --------------------------------------------------------------------------- ---------------------------------------------------
BALANCE AS OF DECEMBER 31, 2002 76,221,370 $ 4,573,282 $123,923,391
Issuance of common stock and the tax benefit of stock plan transactions 1,234,446 74,067 29,631,534
Repurchases of common stock (415,000) (24,900) (680,600)
Dividends declared ($.15 per share) - - -
Amortization of deferred compensation - - -
Comprehensive income:
Net income - - -
Other comprehensive income (loss):
Foreign currency translation adjustment - - -
Unrealized gain on investments, net of tax of $9,559,401 - - -
Other comprehensive income - - -
Comprehensive income - - -
---------------------------------------------------
BALANCE AS OF DECEMBER 31, 2003 77,040,816 4,622,449 152,874,325
Issuance of common stock and the tax benefit of stock plan transactions 825,935 49,556 22,391,789
Dividends declared ($.32 per share) - - -
Amortization of deferred compensation - - -
Comprehensive income:
Net income - - -
Other comprehensive income (loss):
Foreign currency translation adjustment - - -
Unrealized gain on investments, net of tax of $2,098,093 - - -
Other comprehensive income - - -
Comprehensive income - - -
---------------------------------------------------
BALANCE AS OF DECEMBER 31, 2004 77,866,751 4,672,005 175,266,114
Issuance of common stock and the tax benefit of stock plan transactions 1,652,948 99,177 25,641,802
2 for 1 Common Stock Split 78,020,342 4,681,221 (4,681,221)
Repurchases of common stock (1,496,059) (89,764) (1,750,389)
Dividends declared ($.35 per share) - - -
Amortization of deferred compensation - - -
Comprehensive income:
Net income - - -
Other comprehensive income (loss):
Foreign currency translation adjustment - - -
Unrealized gain on investments, net of tax of $1,743,097 - - -
Other comprehensive income - - -
Comprehensive income - - -
---------------------------------------------------
BALANCE AS OF DECEMBER 31, 2005 156,043,982 $9,362,639 $194,476,306
===================================================
Accumulated Other Total
Comprehensive Retained Deferred Comprehensive Shareholders'
Income (Loss) Earnings Compensation Income (Loss) Investment
- -------------------------------------------- -------------------------------------------------------------------------------------
BALANCE AS OF DECEMBER 31, 2002 $ 454,201,443 ($3,042,935) ($6,014,819) $ 573,640,362
Issuance of common stock and the tax
benefit of stock plan transactions - (2,733,723) - 26,971,878
Repurchases of common stock (9,541,310) - - (10,246,810)
Dividends declared ($.15 per share) (23,062,503) - - (23,062,503)
Amortization of deferred compensation 1,118,208 - 1,118,208
Comprehensive income:
Net income $ 106,761,195 106,761,195 - - 106,761,195
Other comprehensive income (loss):
Foreign currency translation adjustment 707,827 - - -
Unrealized gain on investments, net of
tax of $9,559,401 17,753,174 - - - -
Other comprehensive income -------------
Comprehensive income 18,461,001 - 18,461,001 18,461,001
-------------
$ 125,222,196 - - - -
BALANCE AS OF DECEMBER 31, 2003 -------------------------------------------------------------------------------------
528,358,825 (4,658,450) 12,446,182 693,643,331
Issuance of common stock and the tax
benefit of stock plan transactions
Dividends declared ($.32 per share) - (2,323,123) - 20,118,222
Amortization of deferred compensation (49,469,017) - - (49,469,017)
Comprehensive income: - 1,573,722 - 1,573,722
Net income
Other comprehensive income (loss): $ 112,656,518 112,656,518 - - 112,656,518
Foreign currency translation adjustment
Unrealized gain on investments, net
of tax of $2,098,093 860,738 - - - -
Other comprehensive income 3,896,458 - - - -
Comprehensive income -------------
4,757,196 - - 4,757,196 4,757,196
-------------
BALANCE AS OF DECEMBER 31, 2004 $ 117,413,714 - - - -
-------------------------------------------------------------------------------------
Issuance of common stock and the tax
benefit of stock plan transactions
2 for 1 Common Stock Split 591,546,326 (5,407,851) 17,203,378 783,279,972
Repurchases of common stock
Dividends declared ($.35 per share) - (1,069,507) - 24,671,472
Amortization of deferred compensation -
Comprehensive income: (23,374,420) - - (25,214,573)
Net income (54,397,642) - - (54,397,642)
Other comprehensive income (loss): - 1,629,699 - 1,629,699
Foreign currency translation adjustment
Unrealized gain on investments,
net of tax of $1,743,097 $ 109,527,511 109,527,511 - - 109,527,511
Other comprehensive income
Comprehensive income (1,138,244) - - - -
3,237,180 - - - -
-------------
BALANCE AS OF DECEMBER 31, 2005 2,098,936 - - 2,098,936 2,098,936
-------------
$ 111,626,447 - - - -
-------------------------------------------------------------------------------------
$ 623,301,775 ($4,847,659) $ 19,302,314 $ 841,595,375
===================================================================
The accompanying notes are an integral part of these consolidated financial
statements.
-28-
GENTEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003
2005 2004 2003
------------- ------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 109,527,511 $ 112,656,518 $ 106,761,195
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 23,823,327 21,740,832 20,426,207
Loss on disposal of assets 420,522 88,679 75,626
Gain on sale of investments (5,710,679) (5,655,756) (5,181,804)
Loss on sale of investments 2,511,060 2,351,347 6,228,566
Deferred income taxes (2,172,589) 2,403,593 1,951,787
Amortization of deferred compensation 1,629,699 1,573,722 1,118,208
Tax benefit of stock plan transactions 3,180,230 3,511,622 5,511,458
Change in operating assets and liabilities:
Accounts receivable (4,832,107) 2,863,493 (23,065,443)
Inventories (9,236,033) (9,662,093) (3,196,687)
Prepaid expenses and other 491,532 627,997 (3,910,441)
Accounts payable 3,758,358 1,590,458 6,465,385
Accrued liabilities 2,853,627 (2,721,956) 3,398,938
------------- ------------- -------------
Net cash provided by
operating activities 126,244,458 131,368,456 116,582,995
------------- ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Activity in held-to-maturity securities:
Sales proceeds - - -
Maturities and calls - - 57,571,539
Purchases - - (122,262,019)
Activity in available-for-sale securities:
Sales proceeds 30,057,962 31,101,380 120,578,082
Maturities and calls 101,159,061 78,792,849 91,489,195
Purchases (101,378,452) (105,551,220) (87,494,979)
Plant and equipment additions (53,533,235) (30,535,174) (22,248,009)
Proceeds from sale of plant and equipment 1,141,013 56,500 72,000
Increase in other assets (2,046,876) (1,001,902) (167,174)
------------- ------------- -------------
Net cash provided by (used for)
investing activities (24,600,527) (27,137,567) 37,538,635
------------- ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock from stock plan transactions 21,491,243 16,606,601 21,460,422
Cash dividends paid (53,777,627) (47,961,742) (11,506,382)
Repurchases of common stock (25,214,573) 0 (10,246,810)
------------- ------------- -------------
Net cash provided by (used for)
financing activities (57,500,957) (31,355,141) (292,770)
------------- ------------- -------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 44,142,974 72,875,748 153,828,860
CASH AND CASH EQUIVALENTS,
Beginning of year 395,538,719 322,662,971 168,834,111
-------------- ------------- -------------
CASH AND CASH EQUIVALENTS,
End of year $ 439,681,693 $ 395,538,719 $ 322,662,971
============= ============= =============
The accompanying notes are an integral part of these consolidated
financial statements.
-29-
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 that have daily
liquidity.
Investments
At December 31, 2005, 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, 2005 and 2004:
Unrealized
-----------------------------
2005 Cost Gains Losses Market Value
- --------------------------------------------------------------------------------------------
U.S. Government $ 23,024,332 $ - $ (33,462) $ 22,990,870
Certificates of Deposit 26,200,000 - - 26,200,000
Corporate Bonds 17,288,250 - (93,899) 17,194,351
Other Fixed Income 1,215,708 - - 1,215,708
Equity 103,212,665 30,802,826 (1,759,526) 132,255,965
------------- ------------ ------------- -------------
$ 170,940,955 $ 30,802,826 $ (1,886,887) $ 199,856,894
============= ============ ============ =============
2004 Cost Gains Losses Market Value
- --------------------------------------------------------------------------------------------
U.S. Government $ 65,426,060 $ - $ (188,580) $ 65,237,480
Municipal Bonds 4,039,922 65 (1,663) 4,038,324
Certificates of Deposit 32,034,061 - - 32,034,061
Corporate Bonds 3,403,497 80,466 - 3,483,963
Other Fixed Income 1,054,716 - - 1,054,716
Equity 91,621,653 24,934,095 (888,721) 115,667,027
------------- ------------ ------------ ------------
$ 197,579,909 $ 25,014,626 $ (1,078,964) $ 221,515,571
============= ============ ============ =============
Unrealized losses on investments as of December 31, 2005, are as follows:
Aggregate Unrealized Losses Aggregate Fair Value
--------------------------- --------------------
Less than one year $ 1,271,885 $ 50,872,689
Greater than one year 615,002 1,967,136
-30-
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, 2005, and has determined that
they are temporary in nature; accordingly, no losses have been recognized
in income as of December 31, 2005.
Fixed income securities as of December 31, 2005, have contractual maturities
as follows:
Due within one year $ 67,432,022
Due between one and five years 296,268
Due over five years -
------------
$ 67,728,290
============
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, 2005 and 2004.
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, 2005 and 2004:
2005 2004
--------------- -------------
Raw materials $ 24,628,200 $ 18,102,873
Work-in-process 3,739,394 3,894,864
Finished goods 11,469,228 8,603,052
------------- ------------
$ 39,836,822 $ 30,600,789
============= ============
Allowances for slow-moving and obsolete inventories were not significant as
of December 31, 2005 and 2004.
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 $3,218,000 and $3,069,000 at December 31, 2005 and 2004,
respectively. At December 31, 2005, patents had a weighted average
amortization life of 13 years. Patent amortization expense was
approximately $233,000, $193,000 and $150,000, in 2005, 2004 and 2003,
respectively. For each of the next five years, patent amortization expense
will approximate $238,000 annually.
-31-
GENTEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES, continued
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.
Advertising and Promotional Materials
All advertising and promotional costs are expensed as incurred and amounted
to approximately $1,458,000, $1,314,000 and $886,000, in 2005, 2004 and
2003, 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 $5,770,000, $5,171,000 and $4,169,000, in 2005, 2004 and
2003, 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, 2005 and 2004. 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:
2005 2004 2003
------------- ------------- -------------
Numerators:
Numerator for both basic and diluted EPS, net income $ 109,527,511 $ 112,656,518 $ 106,761,195
Denominators:
Denominator for basic EPS,
weighted-average common shares outstanding 155,438,834 154,321,342 153,169,752
Potentially dilutive shares resulting from stock option plans 1,591,790 2,399,890 2,199,228
------------- ------------- -------------
Denominator for diluted EPS 157,030,624 156,721,232 155,368,980
============= ============= =============
For the years ended December 31, 2005, 2004 and 2003, 3,517,373, 1,512,782
and 537,988 shares, respectively, related to stock option plans were not
included in diluted average common shares outstanding because their effect
would be antidilutive.
-32-
GENTEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES, continued
Other Comprehensive Income (Loss)
Comprehensive income reflects the change in equity of a business enterprise
during a period from transactions and other events and circumstances from
non-owner sources. For the Company, comprehensive income represents net
income adjusted for unrealized gains and losses on certain investments and
foreign currency translation adjustments.
Foreign Currency Translation
The financial position and results of operations of the 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.
Stock-Based Compensation Plans
At December 31, 2005, the Company had two stock option plans and an employee
stock purchase plan, which are described more fully in Note 6. The Company
accounts for these plans under the recognition and measurement principles
of APB Opinion No. 25, "Accounting for Stock Issued to Employees," and
related interpretations. No stock-based employee compensation cost is
reflected in net income for these plans, as all options granted under
these plans have an exercise price equal to the market value of the
underlying common stock on the date of grant. The following table
illustrates the effect on net income and earnings per share if the Company
had applied the fair value recognition provisions of Statement of
Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based
Compensation," to stock-based employee compensation.
2005 2004 2003
------------- ------------- -------------
Net income, as reported $ 109,527,511 $ 112,656,518 $ 106,761,195
Deduct: total stock-based employee compensation
expense determined under fair value-based method for
all awards, net of tax effects (19,982,017) (14,541,115) (10,505,316)
------------- ------------- -------------
Pro forma net income $ 89,545,494 $ 98,115,403 $ 96,255,879
============= ============= =============
Earnings per share:
Basic - as reported $ 0.70 $ 0.73 $ 0.70
Basic - pro forma $ 0.58 $ 0.64 $ 0.63
Diluted - as reported $ 0.70 $ 0.72 $ 0.69
Diluted - pro forma $ 0.57 $ 0.63 $ 0.62
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, that otherwise would have
been recognized as follows: $6.1 million in 2005; $4.5 million in 2006;
$2.2 million in 2007 and $0.8 million in 2008-09. 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 No. 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.
-33-
GENTEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES, continued
Stock-Based Compensation Plans, continued
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 used for grants in
2005, 2004 and 2003, respectively: risk-free interest rates of 4.1, 3.4
and 2.9 percent; expected dividend yields of 2.0,1.8 and 1.6 percent;
expected lives of 4, 4 and 4 years; expected volatility of 36, 49 and 52
percent.
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 used for
grants in 2005, 2004 and 2003, respectively: risk-free interest rates of
4.1, 4.9 and 4.0 percent; expected dividend yields of 1.9, 1.7 and 1.5
percent; expected lives of 9, 9 and 9 years; expected volatility of 42, 49
and 52 percent.
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
On December 16, 2004, the Financial Accounting Standards Board (FASB) issued
SFAS Statement No. 123(R), "Share-Based Payment," which required all
share-based payments to employees, including grants of employee stock
options, to be recognized in the income statement based on their fair
values, and was effective for public companies for interim or annual
periods beginning after June 15, 2005. On April 14, 2005, the U.S.
Securities and Exchange Commission announced that companies will be
allowed to implement SFAS No. 123(R) at the beginning of their next fiscal
year after June 15, 2005. The Company adopted a fair-value based method of
accounting for stock-based employee compensation effective January 1,
2006. Proforma quarterly earnings and certain Company actions taken in
response to SFAS No. 123(R) are disclosed in Note 1.
The impact of adoption of Statement 123(R) cannot be predicted at this time
because it will depend on levels of share-based payments granted in the
future. However, had we adopted Statement 123(R) in prior periods, the
impact of that standard would have approximated the pro forma impact of
Statement 123 as previously disclosed with the exception of the
accelerated vesting of certain stock options. Statement 123(R) also
requires the benefits of tax deductions in excess of recognized
compensation cost to be reported as a financing cash flow, rather than as
an operating cash flow as required under current literature.
(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
2005 or 2004. No compensating balances are required under this line.
(3) INCOME TAXES
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.
-34-
GENTEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(3) INCOME TAXES, continued
The components of the provision for income taxes are as follows:
2005 2004 2003
------------ ------------ -------------
Currently payable:
Federal $ 52,375,000 $ 50,497,000 $ 48,976,000
State (246,000) 167,000 501,000
Foreign 411,000 8,000 (26,000)
------------ ------------ -------------
Total 52,540,000 50,672,000 49,451,000
------------ ------------ -------------
Net deferred:
Primarily federal (2,173,000) 2,404,000 1,952,000
------------ ------------ -------------
Provision for income taxes $ 50,367,000 $ 53,076,000 $ 51,403,000
============ ============ =============
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
$3,180,000, $3,512,000 and $5,511,000, in 2005, 2004 and 2003,
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:
2005 2004 2003
---- ----- -----
Statutory federal income tax rate 35.0% 35.0% 35.0%
State income taxes, net of federal income tax benefit (0.1) 0.1 0.3
Foreign source exempted income (2.4) (2.8) (2.5)
Domestic production exclusion (0.9) - -
Tax-exempt investment income (0.6) (0.2) (0.2)
Other 0.5 (0.1) (0.1)
---- ----- -----
Effective income tax rate 31.5% 32.0% 32.5%
==== ===== =====
The tax effect of temporary differences which give rise to deferred income
tax assets and liabilities at December 31, 2005 and 2004, are as follows:
2005 2004
------------------------------ -----------------------------
Current Non-Current Current Non-Current
------------ ------------- ----------- -------------
Assets:
Accruals not currently deductible $ 2,755,501 $ 164,603 $ 2,669,471 $ 182,403
Deferred compensation - 1,294,506 - 1,268,652
Other 2,056,759 5,010 1,414,883 5,209
------------ ------------- ----------- -------------
Total deferred income tax assets 4,812,260 1,464,119 4,084,354 1,456,264
Liabilities:
Excess tax over book depreciation - (13,286,196) - (14,947,063)
Patent costs - (1,019,513) - (854,916)
Unrealized gain on investments - (10,120,578) - (8,377,483)
Other (713,923) - (654,481) -
------------ ------------- ----------- -------------
Net deferred incomes taxes $ 4,098,337 $ (22,962,168) $ 3,429,873 $ (22,723,198)
============ ============= =========== =============
Income taxes paid in cash were approximately $47,582,000, $48,556,000 and
$46,243,000, in 2005, 2004 and 2003, respectively.
(4) EMPLOYEE BENEFIT PLAN
The Company has a 401(k) retirement savings plan in which substantially all
of its employees may participate. The plan includes a provision for the
Company to match a percentage of the employee's contributions at a rate
determined by the Company's Board of Directors. In 2005, 2004 and 2003,
the Company's contributions were approximately $1,601,000, $1,306,000 and
$1,110,000, respectively.
The Company does not provide health care benefits to retired employees.
-35-
GENTEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(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
In 2003, a new Employee Stock Purchase Plan covering 1,200,000 shares was
approved, replacing a prior plan. The Company has sold to employees
135,409 shares, 111,808 shares and 95,810 shares under the plans in 2005,
2004 and 2003, respectively, and has sold a total of 310,251 shares under
the new plan through December 31, 2005. 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 2005, 2004 and 2003, was approximately $14.97,
$16.28 and $13.96, respectively.
In 2004, a new Employee Stock Option Plan was approved, replacing the prior
plan. The Company may grant options for up to 18,000,000 shares under its
new Employee Stock Option Plan. The Company has granted options on
4,250,733 shares (net of shares from canceled options) under the new plan
through December 31, 2005. Under the plans, the option exercise price
equals the stock's market price on date of grant. The options vest after
one to five years, and expire after three to seven years.
A summary of the status of the Company's employee stock option plan at
December 31, 2005, 2004 and 2003, and changes during the years then ended
is presented in the table and narrative below:
2005 2004 2003
-------------------- --------------------- ---------------------
Shares Wtd. Avg. Shares Wtd. Avg. Shares Wtd. Avg.
(000) Ex. Price (000) Ex. Price (000) Ex. Price
------ --------- ------ --------- ------ ---------
Outstanding at Beginning of Year 10,586 $ 16 9,102 $ 14 8,540 $ 12
Granted 1,931 17 2,864 19 2,598 17
Exercised (1,580) 12 (1,258) 12 (1,964) 10
Forfeited (427) 18 (122) 16 (72) 14
------ --------- ------ --------- ------ ---------
Outstanding at End of Year 10,510 17 10,586 16 9,102 14
------ --------- ------ --------- ------ ---------
Exercisable at End of Year 7,440 $ 17 3,988 $ 14 3,190 $ 13
Weighted Avg. Fair Value
of Options Granted $ 4 $ 7 $ 7
Options Outstanding and Exercisable by Price Range As of December 31, 2005:
Options Exercisable
Options Outstanding -----------------------------------
- ---------------------------------------------------------------------------------- Shares Weighted Average
Range of Shares Outstanding Remaining Weighted Average Exercisable Exercise
Exercise Prices (000) Contractual Life Exercise Price (000) Price
- --------------- ------------------ ---------------- ---------------- -------------- ----------------
$ 1 - $14 2,410 2 $ 13 1,905 $ 13
$15 - $17 3,014 3 15 1,613 15
$18 - $19 2,786 4 18 1,991 18
$20 - $22 2,300 4 21 1,931 21
------------------ ---------------- ---------------- -------------- ----------------
Total 10,510 3 $ 17 7,440 $ 17
-36-
GENTEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(6) STOCK-BASED COMPENSATION PLANS, continued
The Company has a Nonemployee Director Stock Option Plan covering 1,000,000
shares that was approved, replacing a prior plan. The Company has granted
options on 309,240 shares (net of shares from canceled options) under the
current plan through December 31, 2005. 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.
A summary of the status of the plan at December 31, 2005, 2004 and 2003, and
changes during the years then ended is presented in the table and
narrative below:
2005 2004 2003
------------------- --------------------- -------------------
Shares Wtd. Avg. Shares Wtd. Avg. Shares Wtd. Avg.
(000) Ex. Price (000) Ex. Price (000) Ex. Price
----- --------- ------ --------- ------ ---------
Outstanding at Beginning of Year 510 $ 13 626 $ 9 848 $ 7
Granted 48 18 96 18 106 16
Exercised (101) 10 (212) 5 (328) 5
Expired (12) 18 - - - -
----- --------- ----- --------- ----- ---------
Outstanding at End of Year 445 14 510 13 626 9
----- --------- ----- --------- ----- ---------
Exercisable at End of Year 445 $ 14 510 $ 13 620 $ 9
Weighted Avg. Fair Value
of Options Granted $ 8 $ 9 $ 10
Options Outstanding and Exercisable by Price Range As of December 31, 2005:
Options Exercisable
Options Outstanding ---------------------------------
- ------------------------------------------------------------------------------ Shares Weighted Average
Range of Shares Outstanding Remaining Weighted Average Exercisable Exercise
Exercise Prices (000) Contractual Life Exercise Price (000) Price
- ---------------- ------------------ ---------------- ---------------- ------------- ----------------
$1 - $15 170 2 $ 8 170 $ 8
$16 - $22 275 8 17 275 17
------------------ ---------------- ---------------- ------------- ----------------
Total 445 6 $ 14 445 $ 14
The Company has a Restricted Stock Plan covering 1,000,000 shares of common
stock that was approved, the purpose of which is to permit grants of
shares, subject to restrictions, to key employees of the Company as a
means of retaining and rewarding them for long-term performance and to
increase their ownership in the Company. Shares awarded under the plan
entitle the shareholder to all rights of common stock ownership except
that the shares may not be sold, transferred, pledged, exchanged or
otherwise disposed of during the restriction period. The restriction
period is determined by a committee, appointed by the Board of Directors,
but may not exceed ten years. During 2005, 2004 and 2003, 80,700, 122,520
and 156,200, shares, respectively, were granted with a restriction period
of five years at market prices ranging from $15.93 to $19.50 in 2005,
$17.37 to $21.10 in 2004 and $12.82 to $21.50 in 2003. The related expense
is reflected as a deferred compensation component of shareholders'
investment in the accompanying consolidated financial statements and is
being amortized over the applicable restriction periods.
(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 these stock splits.
(8) CONTINGENCIES
From time to time, the Company is subject to legal proceedings and claims
which arise in the ordinary course of its business. In the opinion of
management, the amount of ultimate liability with respect to these actions
will not materially affect the financial position or future results of
operations of the Company.
-37-
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.
2005 2004 2003
-------------- -------------- --------------
Revenue:
Automotive Products
United States $ 236,708,606 $ 230,075,562 $ 238,608,596
Germany 99,339,847 86,432,114 69,787,290
Japan 52,215,691 54,336,447 53,004,947
Other 124,532,388 112,306,599 84,913,322
Fire Protection Products 23,687,442 22,515,613 22,705,210
-------------- -------------- --------------
Total $ 536,483,974 $ 505,666,335 $ 469,019,365
============== ============== ==============
Income from Operations:
Automotive Products $ 131,165,600 $ 145,622,021 $ 142,001,646
Fire Protection Products 5,128,937 4,444,192 4,573,630
-------------- -------------- --------------
Total $ 136,294,537 $ 150,066,213 $ 146,575,276
============== ============== ==============
Assets:
Automotive Products $ 248,568,391 $ 202,052,906 $ 184,208,278
Fire Protection Products 4,334,747 4,252,818 4,768,620
Other 669,742,664 650,553,704 573,552,868
-------------- -------------- --------------
Total $ 922,645,802 $ 856,859,428 $ 762,529,766
============== ============== ==============
Depreciation & Amortization:
Automotive Products $ 21,407,276 $ 19,323,047 $ 18,275,655
Fire Protection Products 207,336 228,844 255,301
Other 2,208,715 2,188,941 1,895,251
-------------- -------------- --------------
Total $ 23,823,327 $ 21,740,832 $ 20,426,207
============== ============== ==============
Capital Expenditures:
Automotive Products $ 52,966,667 $ 29,233,220 $ 22,126,904
Fire Protection Products 131,821 251,492 98,705
Other 434,747 1,050,462 22,400
-------------- -------------- --------------
Total $ 53,533,235 $ 30,535,174 $ 22,248,009
============== ============== ==============
Other assets are principally cash, 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 U.S.
automotive manufacturing plants in Canada and Mexico, as well as other
foreign automotive customers. Nearly all non-U.S. sales are invoiced and
paid in U.S. dollars. During 2005, approximately 9% 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
----------------------
#1 #2 #3 #4
--- --- --- --
2005 24% 14% 12% 11%
2004 31% 13% 13% *
2003 38% 12% 13% *
* less than 10%
-38-
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)(3) 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 offices was filed as Exhibit 10(c) 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 40
23(a) Consent of Independent Registered Public Accounting Firm 41
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). 42
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). 43
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). 44
*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 International Corporation, a Foreign Sales Corporation incorporated in
Barbados, is a wholly-owned subsidiary of Gentex Corporation.
3. Gentex Holdings, Inc., a Michigan corporation, is a wholly-owned subsidiary
of Gentex Corporation.
4. Gentex GmbH, a German limited liability company, is a subsidiary 50% owned by
Gentex Corporation and 50% owned by Gentex Holdings, Inc.
5. Gentex Japan, Inc., a Japanese corporation, is a wholly-owned subsidiary of
Gentex Corporation.
6. Gentex Mirrors Ltd., a United Kingdom limited liability company, is a
wholly-owned subsidiary of Gentex Corporation.
7. Gentex France, SAS, a French simplified liability corporation, is a
wholly-owned subsidiary of Gentex Corporation.
8. Gentex Technologies Korea Co., Ltd., a Korean limited stock company, is a
wholly-owned subsidiary of Gentex Corporation.
9. Gentex (Shanghai) Electronic Technology Co., Inc., a Chinese limited
liability company, is a wholly-owned subsidiary of Gentex Corporation
-40-
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, 2006, with respect to the consolidated financial
statements of Gentex Corporation and subsidiaries, Gentex Corporation
management's assessment of the effectiveness of internal control over financial
reporting, 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, 2005.
/s/ Ernst & Young LLP
Grand Rapids, Michigan
February 17, 2006
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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 16, 2006
/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, Enoch C. Jen, 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 16, 2006
/s/ Enoch C. Jen
---------------------------------
Enoch C. Jen
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 Enoch C.
Jen, 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, 2005,
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, 2005, fairly presents, in all material
respects, the financial condition and results of operations of
Gentex Corporation.
Dated: February 16, 2006 GENTEX CORPORATION
By /s/ Fred T. Bauer
-----------------------------------
Fred T. Bauer
Its Chief Executive Officer
By /s/ Enoch C. Jen
------------------------------------
Enoch C. Jen
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.
-44-
