Gentex Reports First Quarter Results
ZEELAND, Mich., April 20 -- Gentex Corporation, the Zeeland, Michigan-based manufacturer of automatic-dimming rearview mirrors and commercial fire protection products, today reported financial results for the first quarter ended March 31, 2006. The Company also announced that it repurchased approximately 2.8 million shares during the first quarter of 2006 under a previously authorized share repurchase plan.
The Company's net sales increased by nine percent from $127.6 million in the first quarter of 2005 to a record $139.0 million in the first quarter of 2006. First quarter net income increased by two percent to $26.4 million compared with $25.9 million in the first quarter last year. Earnings per diluted share were 17 cents in the first quarter of 2006 compared with 17 cents in the first quarter of 2005.
"We are pleased to report solid financial results in what continues to be a very challenging automotive industry environment," said Gentex Chairman of the Board and Chief Executive Officer Fred Bauer.
For the first quarter of 2006, the Company's Statements of Income reflected stock option expense for the first time. Excluding the impact of stock option expensing, the Company's net income would have increased by five percent to $27.3 million, and earnings per diluted share would have been 18 cents, for the first quarter of 2006. Stock option expense had previously not impacted the Company's income statement but had been disclosed in a footnote to the financial statements.
"Stock option expensing negatively impacted our earnings per share by about one cent during the first quarter of 2006, and our expectation is that it will have a similar effect in each quarter for the rest of this calendar year," said Gentex Senior Vice President and Chief Financial Officer Enoch Jen.
Jen said that the Company chose to include non-GAAP (generally accepted accounting principles) earnings in an effort to provide clearer information to investors who will compare certain 2006 first quarter line items including stock option expenses to those same line items in 2005, when stock option expense was not reflected in the Company's financial statements. He said that providing the non-GAAP information should present a clearer picture of the Company's operating performance on a comparative year-over-year basis.
The Company also reported that it repurchased approximately 2,804,000 shares during the first quarter of 2006 at a cost of approximately $47.1 million. The Company has a share repurchase plan in place with authorization to repurchase up to 8 million shares of the Company's stock. To date, including the prior share repurchases in 2003 and 2005, the Company has repurchased approximately 5,130,000 shares, leaving approximately 2,870,000 shares authorized to be repurchased under the plan.
"While our unit shipment growth was higher than we had forecasted for the quarter, the average selling price of our auto-dimming mirrors was lower than expected due to product mix," said Jen. "We shipped more base feature mirrors to certain European and Asian customers during the quarter than we had forecasted. In addition, a high-volume, advanced-feature mirror program for a number of models at a European customer has been delayed until the third quarter, and we will continue to ship base mirror sub-assemblies for those models until the new contented mirror programs begin to ramp up."
During the first quarter ended March 31, 2006, the Company's gross margin declined on both a year-over-year and sequential basis, primarily due to customer price reductions and higher fixed overhead expense.
"In summary, with the lower sales dollars associated with mirror unit shipments, we were not able to spread our fixed overhead costs over a higher revenue base," said Jen. "We continue to hope that we'll be able to leverage our fixed manufacturing overhead costs beginning in the second half of this year. We currently expect unit shipment growth in the second quarter of approximately ten percent compared to the second quarter of 2005, and a similar rate of growth for all of calendar year 2006."
Jen said that there continues to be a great deal of uncertainty in the automotive industry, making it more difficult for companies to accurately make unit sales forecasts. In addition, higher interest rates and oil prices are impacting the sales of vehicles, especially in the large truck/SUV segment, which is a vehicle segment for which the Company has historically shipped highly contented interior mirrors in relatively high volumes.
The unit shipment estimates provided by the Company for the 2006 second quarter and calendar year are based on the flat to slightly increased light vehicle production forecasts of CSM Worldwide for North America, Europe, Japan and Korea.
Automotive revenues increased by nine percent to $133.2 million in the first quarter of 2006 compared with the same period last year. Fire Protection revenues increased two percent to $5.8 million for the first quarter of 2006 compared with the first quarter of 2005.
Total auto-dimming mirror unit shipments in the first quarter were approximately 3.4 million, a 12 percent increase over the same period last year.
Auto-dimming mirror unit shipments to customers in North America increased by seven percent to approximately 1.6 million in the first quarter of 2006 compared with the same quarter last year. North American light vehicle production increased by five percent in the first quarter of 2006 compared with the same period in 2005.
Unit shipments to offshore customers increased by 16 percent to approximately 1.8 million in the first quarter of 2006 compared with the same period in 2005. The growth in offshore unit shipments is primarily attributable to increased vehicle penetration in Europe. Light vehicle production in Europe increased by three percent in the first quarter of 2006 and by four percent for Japan and Korea in that same period, compared with the same prior year periods.
Non-GAAP Financial Measure
The financial information provided, including earnings, is in accordance with GAAP. Still, the Company believes it is useful to provide non-GAAP earnings to exclude the effect of FAS 123(R). This non-GAAP financial measure allows investors to evaluate current performance in relation to historic performance without considering this non-cash charge.
The Company's management uses this non-GAAP information internally to help assess performance in the current period versus prior periods. Disclosure of non-GAAP earnings to exclude the effect of FAS 123(R) has economic substance because the excluded expenses do not represent current or future cash expenditures.
A reconciliation of non-GAAP earnings, to exclude the effect of FAS 123(R), to GAAP earnings can be found in the attached financial table. The use of non-GAAP earnings is intended to supplement, not to replace, presentation of GAAP earnings. Like all non-GAAP financial measures, non-GAAP earnings are subject to inherent limitations because all of the expenses required by GAAP are not included. The limitations are compensated by the fact that non-GAAP earnings are not relied on exclusively, but are used to simply supplement GAAP earnings.
About the Company
Founded in 1974, Gentex Corporation is an international company that provides high-quality products to the worldwide automotive industry and North American fire protection market. Based in Zeeland, Michigan, the Company develops, manufactures and markets interior and exterior automatic-dimming automotive rearview mirrors that utilize proprietary electrochromic technology to dim in proportion to the amount of headlight glare from trailing vehicle headlamps. Many of the mirrors are sold with advanced electronic features, and approximately 96 percent of the Company's revenues are derived from the sales of auto-dimming mirrors to nearly every major automaker in the world.
GENTEX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
Three Months Ended
March 31,
2006 2005 % Change
Net Sales $139,020,593 $127,641,720 8.9%
Costs and Expenses
Cost of Goods Sold 90,787,885 79,588,903 14.1%
Engineering, Research & Development 10,159,168 7,977,385 27.3%
Selling, General & Administrative 7,791,068 6,839,831 13.9%
Other Expense (Income) (7,988,411) (4,623,369) 72.8%
Total Costs and Expenses 100,749,710 89,782,750 12.2%
Income Before Provision
for Income Taxes 38,270,883 37,858,970 1.1%
Provision for Income Taxes 11,899,826 11,926,000 -0.2%
Net Income $26,371,057 $25,932,970 1.7%
Earnings Per Share
Basic $0.17 $0.17
Diluted $0.17 $0.17
Weighted Average Shares:
Basic 154,223,254 155,215,506
Diluted 155,751,925 156,713,620
Cash Dividends Declared per Share $0.09 $0.085
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
March 31, Dec 31,
2006 2005
ASSETS
Cash and Short-Term Investments $479,354,703 $507,013,621
Other Current Assets 120,816,161 111,973,906
Total Current Assets 600,170,864 618,987,527
Plant and Equipment - Net 170,335,847 164,030,341
Long-Term Investments and Other
Assets 144,502,381 139,627,934
Total Assets $915,009,092 $922,645,802
LIABILITIES AND SHAREHOLDERS' INVESTMENT
Current Liabilities $72,988,314 $58,088,259
Long-Term Debt 0 0
Deferred Income Taxes 23,855,817 22,962,168
Shareholders' Investment 818,164,961 841,595,375
Total Liabilities & Shareholders'
Investment $915,009,092 $922,645,802
GENTEX CORPORATION
STATEMENTS OF INCOME RECONCILIATION
NON-GAAP MEASUREMENT TO GAAP
(unaudited)
Three Months Ended March 31, 2006
(Non-GAAP
Stock Option Excluding Stock
GAAP Expense Option Expense)
Net sales $139,020,593 $0 $139,020,593
Costs and Expenses
Costs of Goods Sold 90,787,885 (542,254) 90,245,631
Engineering, Research &
Development 10,159,168 (657,710) 9,501,458
Selling, General &
Administrative 7,791,068 (520,131) 7,270,937
Other Expense (Income) (7,988,411) 0 (7,988,411)
Total Costs and Expenses 100,749,710 (1,720,095) 99,029,615
Income Before Provision for
Income Taxes 38,270,883 1,720,095 39,990,978
Provision for Income Taxes 11,899,826 797,174 12,697,000
Net Income $26,371,057 $922,921 $27,293,978
Earnings Per Share:
Basic $0.17 $0.01 $0.18
Diluted $0.17 $0.01 $0.18
Weighted Average Shares:
Basic 154,223,254 154,223,254 154,223,254
Diluted 155,751,925 155,751,925 155,751,925
(unaudited) GAAP 2006 Non-GAAP 2006
Quarter Ended vs. 2005 vs. 2005
3/31/2005 % Change % Change
Net sales $127,641,720 8.9% 8.9%
Costs and Expenses
Costs of Goods Sold 79,588,903 14.1% 13.4%
Engineering, Research &
Development 7,977,385 27.3% 19.1%
Selling, General &
Administrative 6,839,831 13.9% 6.3%
Other Expense (Income) (4,623,369) 72.8% 72.8%
Total Costs and Expenses 89,782,750 12.2% 10.3%
Income Before Provision for
Income Taxes 37,858,970 1.1% 5.6%
Provision for Income Taxes 11,926,000 -0.2% 6.5%
Net Income $25,932,970 1.7% 5.2%
Earnings Per Share:
Basic $0.17
Diluted $0.17
Weighted Average Shares:
Basic 155,215,506
Diluted 156,713,620
GENTEX
CORPORATION
AUTO-DIMMING MIRROR UNIT SHIPMENTS
(Thousands)
First Quarter
Ended March 31,
2006 2005 % Change
Domestic Interior 1,106 1,041 6%
Domestic Exterior 478 434 10%
Total Domestic Units 1,583 1,474 7%
Foreign Interior 1,266 1,140 11%
Foreign Exterior 543 416 30%
Total Foreign Units 1,809 1,556 16%
Total Interior Mirrors 2,372 2,180 9%
Total Exterior Mirrors 1,020 850 20%
Total Mirror Units 3,392 3,030 12%
Note: Certain prior year amounts have been reclassified to conform with the current year presentation. Amounts may not total due to rounding.