Gentex Reports Second Quarter Results
ZEELAND, Mich., July 20 -- Gentex Corporation , the Zeeland, Michigan-based manufacturer of automatic-dimming rearview mirrors and commercial fire protection products, today reported financial results for the second quarter ended June 30, 2006. The Company also announced that it repurchased approximately 7.2 million shares during the second quarter of 2006 under a previously authorized share repurchase plan.
The Company's net sales increased by eight percent from $132.4 million in the second quarter of 2005 to a record $142.4 million in the second quarter of 2006. Second quarter net income increased by five percent to $27.2 million compared with $26.0 million in the second quarter last year. Earnings per diluted share were 18 cents in the second quarter of 2006 compared with 17 cents in the second quarter of 2005.
For the first six months of 2006, net sales increased by eight percent to $281.4 million compared with $260.0 million in the first six months of 2005. Net income for the first six months of 2006 increased by three percent to $53.6 million compared with $52.0 million in the first six months of 2005.
Excluding the impact of stock option expensing, the Company's net income would have increased by ten percent to $28.6 million in the second quarter of 2006, and earnings per diluted share would have been 19 cents. Net income, excluding the impact of stock option expensing, would have increased by seven percent for the first six months of 2006 to $55.9 million, and earnings per diluted share would have been 36 cents. Stock option expensing did not impact the Company's income statement for the second quarter and first six months of 2005, but was disclosed in a footnote to the financial statements.
"We are pleased to report improved performance in the second quarter," said Gentex Chairman and Chief Executive Officer Fred Bauer. "However, the automotive industry continues to be very challenging, and it is a difficult area to predict future sales and unit shipment volumes, particularly given the current macroeconomic environment."
Bauer also said that the Company recently moved into its newly completed Technology Center and Manufacturing Facility that is attached to its world headquarters facility in Zeeland, Michigan.
"We believe that this new facility will meet our needs for auto-dimming mirror building production capacity and engineering and R&D space due to the continued growth of our business for the next five to eight years," said Bauer.
The Company also reported that it repurchased approximately 7,201,000 shares during the second quarter of 2006 at a cost of approximately $104.6 million. The Company has a share repurchase plan in place with authorization to repurchase up to 16 million shares of the Company's stock (including the May 2006 Board of Directors' authorization to repurchase an additional eight million shares). To date, including the prior share repurchases in 2003, 2005 and 2006, the Company has repurchased approximately 12,331,000 shares, leaving approximately 3,669,000 shares authorized to be repurchased under the plan.
"We were pleased to see an improvement in our manufacturing yields, and hope that we'll be able to make further improvements in the second half of this year," said Enoch Jen, the Company's Senior Vice President and Chief Financial Officer. "We currently expect unit shipment growth in the third quarter to be approximately flat to up five percent compared with the third quarter of 2005, and expect approximately five to ten percent unit shipment growth for all of calendar year 2006."
Jen said that oil prices and higher interest rates continue to impact the sales of vehicles, making it considerably more difficult to forecast, especially in the mid- and full-sized truck/SUV segments, which are vehicle segments for which the Company has historically shipped highly contented interior mirrors in relatively high volumes. He said that the third quarter is always the most difficult for forecasting unit shipments, due to the uncertainty associated with customer changeover plant shutdowns and new vehicle and/or product launches. The balance of calendar year 2006 will be impacted by annual customer price reductions, the new facility, and automotive manufacturer plans for lower vehicle production in the mid- and full-sized truck/SUV segments.
The unit shipment estimates provided by the Company for the 2006 third quarter and calendar year are based on a slight decline in light vehicle production forecasts of CSM Worldwide for North America, and slight increases in those forecasts for Europe, Japan and Korea.
Automotive revenues increased by eight percent to $136.0 million in the second quarter of 2006 compared with the same period last year, and increased by nine percent to $269.3 million for the first six months of 2006. Fire Protection revenues increased by one percent to $6.3 million for the second quarter of 2006 compared with the second quarter of 2005, and by two percent to $12.1 million for the first six months of 2006, compared with the same period in 2005.
Total auto-dimming mirror unit shipments in the second quarter were approximately 3.4 million, a ten percent increase over the same period last year. Auto-dimming mirror unit shipments increased by 11 percent to 6.8 million for the first six months of 2006.
Auto-dimming mirror unit shipments to customers in North America increased by ten percent to approximately 1.6 million in the second quarter of 2006 compared with the same quarter last year. North American light vehicle production was flat in the second quarter of 2006 compared with the same period in 2005. For the first six months of 2006, auto-dimming mirror unit shipments to customers in North America increased by nine percent to approximately 3.2 million compared with the same period last year. North American light vehicle production increased by two percent for the first six months of 2006 compared with the same period in 2005.
Unit shipments to offshore customers increased by ten percent to approximately 1.8 million in the second quarter of 2006 compared with the same period in 2005. Light vehicle production in Europe decreased by two percent in the second quarter of 2006 and increased by five percent for Japan and Korea in that same period, compared with the same prior year periods. For the first six months of 2006, unit shipments to offshore customers increased by 13 percent to approximately 3.6 million, compared with the same period in 2005. Light vehicle production in Europe increased by two percent in the first six months of 2006 and increased by five 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.
Safe Harbor Statement
This news release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act, as amended, that are based on management's belief, assumptions, current expectations, estimates and projections about the global automotive industry, the economy, the impact of stock option expenses on earnings, the ability to leverage fixed manufacturing overhead costs, unit shipment growth rates and the Company itself. Words like "anticipates," "believes," "confident," "estimates," "expects," "forecast," "likely," "plans," "projects," and "should," and variations of such words and similar expressions identify forward-looking statements. These statements do not guarantee future performance and involve certain risks, uncertainties, and assumptions that are difficult to predict with regard to timing, expense, likelihood and degree of occurrence. These risks include, without limitation, employment and general economic conditions, the pace of economic recovery in the U.S. and in international markets, the pace of automotive production worldwide, the types of products purchased by customers, competitive pricing pressures, currency fluctuations, the financial strength of the Company's customers, the mix of products purchased by customers, the ability to continue to make product innovations, the success of newly introduced products (e.g. SmartBeam), and other risks identified in the Company's filings with the Securities and Exchange Commission. Therefore actual results and outcomes may materially differ from what is expressed or forecasted. Furthermore, the Company undertakes no obligation to update, amend, or clarify forward-looking statements, whether as a result of new information, future events, or otherwise.
Second Quarter Conference Call
A conference call related to this news release will be simulcast live on the Internet beginning at 10 a.m. Eastern Daylight Saving Time today. To access that call, go to http://www.gentex.com/ and select the "Audio Webcast" icon in the lower right-hand corner of the page. Other conference calls hosted by the Company will also be available at that site in the future.
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 Six Months Ended
June 30, June 30,
2006 2005 2006 2005
Net Sales $142,391,231 $132,384,445 $281,411,824 $260,026,165
Costs and
Expenses
Cost of Goods
Sold 91,494,753 82,818,876 182,282,638 162,407,779
Engineering,
Research
& Development 9,962,629 8,798,430 20,121,797 16,775,815
Selling, General
& Administrative 7,512,959 7,011,298 15,304,027 13,851,129
Other Expense
(Income) (6,678,259) (4,260,209) (14,666,670) (8,883,578)
Total Costs and
Expenses 102,292,082 94,368,395 203,041,792 184,151,145
Income Before
Provision for
Income Taxes 40,099,149 38,016,050 78,370,032 75,875,020
Provision for
Income Taxes 12,863,099 11,975,000 24,762,925 23,901,000
Net Income $27,236,050 $26,041,050 $53,607,107 $51,974,020
Earnings Per Share
Basic $0.18 $0.17 $0.35 $0.33
Diluted $0.18 $0.17 $0.35 $0.33
Weighted Average
Shares:
Basic 150,592,680 155,568,960 152,402,407 155,396,365
Diluted 151,044,639 157,209,802 153,176,602 156,962,435
Cash Dividends
Declared per
Share $0.090 $0.085 $0.18 $0.17
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
June 30, Dec 31,
2006 2005
ASSETS
Cash and Short-Term Investments $382,529,607 $507,013,621
Other Current Assets 123,368,187 111,973,906
Total Current Assets 505,897,794 618,987,527
Plant and Equipment - Net 180,695,166 164,030,341
Long-Term Investments and Other Assets 137,900,694 139,627,934
Total Assets $824,493,654 $922,645,802
LIABILITIES AND SHAREHOLDERS' INVESTMENT
Current Liabilities $72,813,036 $58,088,259
Long-Term Debt 0 0
Deferred Income Taxes 21,898,366 22,962,168
Shareholders' Investment 729,782,252 841,595,375
Total Liabilities & Shareholders'
Investment $824,493,654 $922,645,802
GENTEX CORPORATION AND SUBSIDIARIES
STATEMENTS OF INCOME RECONCILIATION
NON-GAAP MEASUREMENT TO GAAP
(unaudited) (unaudited)
Three Months Ended June 30, 2006
Non-
(Non-GAAP GAAP GAAP
Excluding 2006 2006
Stock Stock Quarter vs. vs.
Option Option Ended 2005 % 2005 %
GAAP Expense Expense) 6/30/05 Change Change
Net
Sales $142,391,231 $0 $142,391,231 $132,384,445 7.6% 7.6%
Costs and
Expenses
Cost of
Goods
Sold 91,494,753 (575,107) 90,919,646 82,818,876 10.5% 9.8%
Engineering,
Research &
Deve-
lopment 9,962,629 (619,071) 9,343,558 8,798,430 13.2% 6.2%
Selling,
General &
Admini-
strative 7,512,959 (555,617) 6,957,342 7,011,298 7.2% (0.8%)
Other
Expense
(Income) (6,678,259) 0 (6,678,259) (4,260,209) 56.8% 56.8%
Total Costs
and
Expenses 102,292,082 (1,749,795) 100,542,287 94,368,395 8.4% 6.5%
Income
Before
Provision
for Income
Taxes 40,099,149 1,749,795 41,848,944 38,016,050 5.5% 10.1%
Provision for
Income
Taxes 12,863,099 424,901 13,288,000 11,975,000 7.4% 11.0%
Net Income 27,236,050 1,324,894 28,560,944 26,041,050 4.6% 9.7%
Six Months Ended June 30, 2006
Non-
(Non-GAAP GAAP GAAP
Excluding 2006 2006
Stock Stock vs. vs.
Option Option YTD 2005 % 2005 %
GAAP Expense Expense) 6/30/05 Change Change
Net
Sales $281,411,824 $0 $281,411,824 $260,026,165 8.2% 8.2%
Costs and
Expenses
Cost of
Goods
Sold 182,282,638 (1,117,361) 181,165,277 162,407,779 12.2% 11.5%
Engineering,
Research &
Devel-
opment 20,121,797 (1,276,781) 18,845,016 16,775,815 19.9% 12.3%
Selling,
General &
Admini-
strative 15,304,027 (1,075,748) 14,228,279 13,851,129 10.5% 2.7%
Other
Expense
(Income) (14,666,670) 0 (14,666,670) (8,883,578) 65.1% 65.1%
Total
Costs and
Expenses 203,041,792 (3,469,890) 199,571,902 184,151,145 10.3% 8.4%
Income
Before
Provision
for Income
Taxes 78,370,032 3,469,890 81,839,922 75,875,020 3.3% 7.9%
Provision
for Income
Taxes 24,762,925 1,222,075 25,985,000 23,901,000 3.6% 8.7%
Net
Income 53,607,107 2,247,815 55,854,922 51,974,020 3.1% 7.5%
AUTO-DIMMING MIRROR UNIT SHIPMENTS
(Thousands)
Second Quarter Six Months Ended
Ended June 30, June 30,
2006 2005 %Change 2006 2005 %Change
Domestic Interior 1,124 1,038 8% 2,229 2,078 7%
Domestic Exterior 488 426 15% 966 860 12%
Total Domestic Units 1,611 1,463 10% 3,195 2,938 9%
Foreign Interior 1,293 1,190 9% 2,560 2,330 10%
Foreign Exterior 503 441 14% 1,046 857 22%
Total Foreign Units 1,796 1,631 10% 3,605 3,187 13%
Total Interior
Mirrors 2,417 2,228 9% 4,789 4,408 9%
Total Exterior
Mirrors 991 867 14% 2,011 1,717 17%
Total Mirror Units 3,408 3,095 10% 6,800 6,125 11%
Note: Certain prior year amounts have been reclassified to conform with
the current year presentation. Amounts may not total due to
rounding.