Gentex Corporation — FY2011 Form 10-K
Business context and period. Fiscal year ended December 31, 2011; the filing was signed February 22, 2012. Gentex designs and manufactures automotive auto-dimming mirrors and camera-based features, with smaller fire-protection and dimmable-aircraft-window businesses. Automotive sales represented approximately 98% of net sales. The filing also reports fourth-quarter results separately.
Financial performance and position
| Metric | FY2011 | FY2010 |
|---|---|---|
| Net sales | $1,023.8 million | $816.3 million |
| Gross profit / margin | $361.6 million / 35.3% | $295.7 million / 36.2% |
| Operating income / margin | $231.4 million / 22.6% | $191.0 million / 23.4% |
| Net income / net margin | $164.7 million / 16.1% | $137.7 million / 16.9% |
| Diluted EPS | $1.14 | $0.98 |
| Operating cash flow | $141.7 million | $128.1 million |
| Capital expenditures | $120.2 million | $46.9 million |
- Fourth-quarter 2011 sales were $260.3 million, versus $222.1 million; net income was $40.5 million, versus $36.9 million; diluted EPS was $0.28, versus $0.26.
- Sales rose 25.4% year over year, primarily with a 26% increase in automotive auto-dimming mirror shipments, to 21.477 million units. Management cited stronger vehicle production in North America and Europe and higher penetration of mirrors with electronic features.
- Gross margin fell 0.9 percentage points, reflecting annual customer price reductions and supply-related costs, partly offset by improved fixed-cost absorption. Thailand-related supply disruption reduced fourth-quarter gross margin by approximately 0.25 percentage points.
- At year-end, cash and cash equivalents were $358.0 million, short-term investments $60.8 million, working capital approximately $651.6 million, and current ratio 7.5 (down from 9.1). Total assets were $1.176 billion. The company had no debt outstanding and an unused $5 million unsecured demand line.
- Inventory increased $88.0 million to $188.8 million, largely for higher production, longer component lead times, and supply-chain safety stock. Accounts receivable rose $14.7 million with higher sales.
- The board raised the quarterly dividend to $0.13 per share in February 2012; the 2011 declared dividend was $0.48 per share. No shares were repurchased in 2011.
Material changes, outlook, and risks
- FY2011 net income increased 19.6%; operating income increased 21.2%. Automotive revenue growth was the primary driver. The smaller “Other” businesses recorded $20.6 million in revenue and $0.3 million in operating income.
- Management estimated first-quarter 2012 revenue growth of 15–20% year over year, based on vehicle-production forecasts and expected product mix. It did not provide revenue guidance beyond the quarter because of uncertainty in vehicle production and supply.
- Management projected 2012 SmartBeam shipments to rise 40–45% from 2011. It estimated first-quarter RCD Mirror shipments would rise 10–15%, but gave no annual RCD guidance while automakers awaited final U.S. backup-camera rules and made sourcing decisions.
- First-quarter 2012 engineering, research and development expense was expected to increase 20–25% year over year and selling, general and administrative expense 15–20%. Estimated 2012 capital expenditures were $130–$140 million, principally for equipment and capacity expansion; management expected to fund these from cash on hand.
- Supply-chain constraints, including disruption associated with the Japan earthquake and Thailand flooding, raised costs but had not interrupted customer deliveries. Management expected related costs to improve through the first half of 2012, absent another natural disaster; this outlook remains exposed to shortages and disruptions.
- Principal risks include automotive cyclicality (98% of sales), dependence on five customers each representing at least 10% of sales, customer and supplier financial distress, pricing pressure, supply interruptions, competition, foreign-exchange and investment risk, and the uncertain adoption and display location of rear-camera systems. The proposed U.S. backup-camera rule remained pending at the filing date.
- The company reported no material pending legal proceeding expected to materially harm its financial position or future results. Ernst & Young issued unqualified opinions on the financial statements and internal control over financial reporting; management also concluded disclosure controls were effective.
Most important facts for investors to verify
- Whether sales and margins sustain growth as vehicle production, customer pricing, product mix, and supply costs change.
- Whether inventory growth converts into shipments and cash flow, and whether component availability and safety-stock levels normalize.
- Actual 2012 capital spending, completion and utilization of planned capacity expansions, and returns on that investment.
- Automaker sourcing decisions and the final U.S. backup-camera rule, including whether the rearview mirror wins display share against in-dash systems and other competitors.
- Exposure to the five major automotive customers and the financial condition of customers and Tier 1 suppliers.
- Performance of the investment portfolio and any material change in liquidity, dividend policy, or the reported no-debt position.