1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998, OR
[ ] 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 Identification No.)
incorporation or organization)
600 N. CENTENNIAL, ZEELAND, MICHIGAN 49464
(Address of principal executive offices) (Zip Code)
(616) 772-1800
(Registrant's telephone number, including area code)
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes x No
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APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes No
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APPLICABLE ONLY TO CORPORATE USERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Shares Outstanding
Class at April 16, 1998
----- -----------------
Common Stock, $0.06 Par Value 35,718,114
Exhibit Index located at page 10
Page 1 of 11
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PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
GENTEX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
AT MARCH 31, 1998 AND DECEMBER 31, 1997
ASSETS
March 31, 1998 December 31, 1997
-------------- -----------------
CURRENT ASSETS
Cash and cash equivalents $37,091,553 $26,768,647
Short term investments 17,372,305 14,362,736
Accounts receivable, net 27,507,613 24,515,525
Inventories 8,470,962 8,787,689
Prepaid expenses and other 1,502,320 1,484,839
------------ ------------
Total current assets 91,944,753 75,919,436
PLANT AND EQUIPMENT - NET 52,188,748 42,238,885
OTHER ASSETS
Long-term investments 72,448,922 70,291,142
Patents and other assets, net 1,375,154 1,333,384
------------ ------------
Total other assets 73,824,076 71,624,526
------------ ------------
Total assets $217,957,577 $189,782,847
============ ============
LIABILITIES AND SHAREHOLDERS' INVESTMENT
CURRENT LIABILITIES
Accounts payable $11,500,572 $8,760,256
Accrued liabilities 11,109,537 5,830,968
------------ ------------
Total current liabilities 22,610,109 14,591,224
DEFERRED INCOME TAXES 2,912,347 1,986,446
SHAREHOLDERS' INVESTMENT
Common stock 2,337,337 2,123,949
Additional paid-in capital 58,953,085 53,654,663
Other shareholders' equity 131,144,699 117,426,565
------------ ------------
Total shareholders' investment 192,435,121 173,205,177
------------ ------------
Total liabilities and
shareholders' investment $217,957,577 $189,782,847
============ ============
See accompanying notes to condensed consolidated financial statements.
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GENTEX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
1998 1997
----------- -----------
NET SALES $56,979,402 $41,902,122
COST OF GOODS SOLD 34,340,509 27,169,956
----------- -----------
Gross profit 22,638,893 14,732,166
OPERATING EXPENSES:
Research and development 2,579,229 2,077,268
Selling, general
& administrative 3,036,013 2,690,391
----------- -----------
Total operating expenses 5,615,242 4,767,659
----------- -----------
Income from operations 17,023,651 9,964,507
OTHER INCOME
Interest and dividend income 1,246,187 951,649
Other, net 305,445 23,122
----------- -----------
Total other income 1,551,632 974,771
----------- -----------
Income before provision
for federal income taxes 18,575,283 10,939,278
PROVISION FOR FEDERAL INCOME TAXES 6,074,000 3,555,000
----------- -----------
NET INCOME $12,501,283 $7,384,278
=========== ===========
Earnings Per Share
Basic $0.35 $0.21
Diluted $0.34 $0.21
Weighted Average Shares:
Basic 35,562,598 34,818,212
Diluted 36,678,188 35,745,958
See accompanying notes to condensed consolidated financial statements.
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GENTEX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
1998 1997
------------ -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $12,501,283 $7,384,278
Adjustments to reconcile net income to net
cash provided by operating activities-
Depreciation and amortization 2,145,732 1,519,844
Loss on disposal of equipment 30,395 5,319
Deferred income taxes (120,968) 44,130
Amortization of deferred compensation 123,638 154,424
Change in assets and liabilities:
Accounts receivable, net (2,992,088) (3,231,461)
Inventories 316,727 (1,673,419)
Prepaid expenses and other 237,269 (152,932)
Accounts payable 2,740,316 3,173,662
Accrued liabilities 5,278,569 1,438,910
------------ -----------
Net cash provided by
operating activities 20,260,873 8,662,755
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease (increase) in short-term investments (3,009,569) 9,604,573
Plant and equipment additions (11,949,293) (3,056,724)
Proceeds from sale of plant and equipment 0 1,500
Decrease (increase) in long-term investments 105,417 (22,134,246)
Increase in other assets (220,064) (77,167)
------------ -----------
Net cash used for
investing activities (15,073,509) (15,662,064)
------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock and tax benefit of
stock plan transactions 5,135,542 2,357,763
------------ -----------
Net cash provided by
financing activities 5,135,542 2,357,763
------------ -----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 10,322,906 (4,641,546)
CASH AND CASH EQUIVALENTS,
beginning of period 26,768,647 16,730,356
------------ -----------
CASH AND CASH EQUIVALENTS,
end of period $37,091,553 $12,088,810
============ ===========
See accompanying notes to condensed consolidated financial statements
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GENTEX CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(1) The condensed consolidated financial statements included herein have been
prepared by the Registrant, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations, although the Registrant believes that the disclosures are
adequate to make the information presented not misleading. It is
suggested that these condensed consolidated financial statements be read
in conjunction with the financial statements and notes thereto included in
the Registrant's 1997 annual report on Form 10-K.
(2) In the opinion of management, the accompanying unaudited condensed
consolidated financial statements contain all adjustments, consisting of
only a normal and recurring nature, necessary to present fairly the
financial position of the Registrant as of March 31, 1998, and December
31, 1997, and the results of operations and cash flows for the interim
periods presented.
(3) Inventories consisted of the following at the respective quarter ends:
March 31, 1998 December 31, 1997
-------------- -----------------
Raw materials $4,837,372 $4,931,434
Work-in-process 600,298 600,298
Finished goods 3,033,292 3,255,957
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$8,470,962 $8,787,689
========== ==========
(4) Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130: "Reporting Comprehensive Income". This
statement establishes standards for reporting and display of comprehensive
income and its components. 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 Gentex,
comprehensive income represents net income adjusted for items such as
unrealized gains and losses on certain investments and foreign currency
translation adjustments. Comprehensive income was approximately
$13,971,000 and $7,216,000 for the quarters ended March 31, 1998 and 1997,
respectively.
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GENTEX CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
RESULTS OF OPERATIONS:
FIRST QUARTER 1998 VERSUS FIRST QUARTER 1997
Net Sales. Net sales for the first quarter of 1998 increased by
approximately $15,077,000, or 36%, when compared with the first quarter
last year. Net sales of the Company's automotive mirrors increased by
42% as automatic mirror unit shipments increased by 47% from
approximately 863,000 in the first quarter of 1997 to 1,268,000 in the
current quarter. This increase reflected increased penetration on
domestic and foreign 1998 model year vehicles for interior and exterior
electrochromic Night Vision Safety(TM) (NVS(R)) Mirrors. Mirror unit
shipments to automotive customers outside North America increased by
43% compared with the first quarter in 1997, primarily due to increased
aspheric exterior mirror sub-assembly shipments for Mercedes-Benz.
Shipments to customers in North America increased by 49%, despite
nearly flat North American light vehicle production, primarily due to
increased mirror shipments for light trucks and sport/utility vehicles.
Net sales of the Company's fire protection products decreased 5%,
primarily due to lower than expected sales of certain of the Company's
audible and visual signals, and generally light industry sales.
Cost of Goods Sold. As a percentage of net sales, cost of goods sold
decreased from 65% in the first quarter of 1997 to 60% for the
comparable period in 1998. This decreased percentage primarily
reflected improved yields on the Company's new aspheric, convex and
thin flat exterior mirrors and increased sales volume spread over fixed
overhead expenses.
Operating Expenses. Research and development expenses increased
approximately $502,000, but remained at 5% of net sales, when compared
with the same quarter last year, primarily reflecting additional
staffing for new product development, including mirrors with additional
electronic features. Selling, general and administrative expenses
increased approximately $346,000, but decreased from 6% to 5% of net
sales, when compared with the first quarter of 1997. This increased
expense primarily reflected increased selling expenses associated with
the higher sales level, including opening a sales and engineering
office in Japan.
Other Income - Net. Other income increased by approximately $577,000
when compared with the first quarter of 1997, primarily due to higher
investable fund balances and realized gains on the sale of equity
investments.
FINANCIAL CONDITION:
Management considers the Company's working capital and long-term
investments totaling approximately $141,784,000 at March 31, 1998,
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 foreseeable future.
TRENDS AND DEVELOPMENTS:
In addition to price reductions over the life of its long-term
agreements, the Company continues to experience pricing pressures from
its automotive customers, which have affected, and which will continue
to affect, its margins to the extent that the Company is unable to
offset the price reductions with productivity improvements, engineering
and purchasing cost reductions, and increases in unit sales volume. In
addition, the Company continues to experience some pressure for raw
material cost increases.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION (CONT.)
TRENDS AND DEVELOPMENTS (CONT.):
The Company currently supplies NVS(R) Mirrors to BMW, Chrysler
Corporation, Ford Motor Company and General Motors Corporation under
long-term agreements. The BMW long-term contract is through March 31,
1999, and the long-term supply agreement with Chrysler Corporation runs
through the 2003 Model Year. The term of the Ford contract is through
December 1999, while the GM contract runs through the 1998 Model Year
for exterior mirrors and through the 2002 Model Year for interior
mirrors.
The Company has developed a plan to ensure that its computer systems
will be compliant by mid 1999 with the Year 2000. The Company
currently believes that the cost of addressing the Year 2000 issue will
not be material to the Company's business, operations or financial
condition.
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PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) See Exhibit Index on Page 10.
(b) No reports on Form 8-K were filed during the three months
ended March 31, 1998.
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SIGNATURES
Pursuant to the requirements 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.
GENTEX CORPORATION
Date 04/30/98 /s/ Fred T. Bauer
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Fred T. Bauer
Chairman and Chief
Executive Officer
Date 04/30/98 /s/ Enoch C. Jen
----------- -----------------------
Enoch C. Jen
Vice President-Finance,
Principal Financial and
Accounting Officer
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EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION PAGE
3(a)(1) Registrant's Articles of Incorporation were filed in 1981 as
Exhibit 2(a) to a Registration Statement on Form S-18
(Registration No. 2-74226C), an Amendment to those Articles was
filed as Exhibit 3 to Registrant's Report on Form 10-Q in August
of 1985, an additional Amendment to those Articles was filed as
Exhibit 3(a)(i) to Registrant's Report on Form 10-Q in August of
1987, and an additional Amendment to those Articles was filed as
Exhibit 3(a)(2) to Registrant's Report on Form 10-K dated March
10, 1992, all of which are hereby incorporated herein by
reference.
3(a)(2) Amendment to Articles of Incorporation, adopted on May 9,
1996, was filed as Exhibit 3(a)(2) to Registrant's Report on
Form 10-Q dated July 31, 1996, and the same is incorporated
herein by reference.
3(b)(1) Registrant's Bylaws as amended and restated August 18, 1995
were filed as Exhibit 3(b) to Registrant's Report on Form 10-Q
dated November 1, 1995, and the same is incorporated herein by
reference.
3(b)(2) First Amendment to Bylaws, adopted on August 25, 1997, was filed
as Exhibit 3(c) to Registrant's Report on Form 10-Q dated October
31, 1997, 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 on Form S-18 (Registration No. 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) Shareholder Protection Rights Agreement, dated as of August 26,
1991, 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 8-K on
August 20, 1991, and the same is hereby incorporated herein by
reference.
4(b)(1) First Amendment to Shareholder Protection Rights Agreement,
effective April 1, 1994, was filed as Exhibit 4(b)(1) to
Registrant's report on Form 10-Q on April 29, 1994, and the
same is hereby incorporated herein by reference.
4(b)(2) Second Amendment to Shareholder Protection Rights Agreement,
effective November 8, 1996, was filed as Exhibit 4(b)(2) to
Registrant's Report on Form 10-K, dated March 7, 1997, 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.
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EXHIBIT NO. DESCRIPTION PAGE
*10(b)(1) Gentex Corporation Qualified Stock Option Plan (as amended
and restated, effective March 7, 1997), was filed as Exhibit
10(b)(1) to Registrant's Report on Form 10-K dated March 7,
1997, and the same is hereby incorporated herein by reference.
*10(b)(2) Gentex Corporation 1987 Incentive Stock Option Plan (as
amended through May 24, 1989), was filed as Exhibit 10(g)(3)
to Registrant's Report on Form 10-K dated March 1, 1990, and
the same is hereby incorporated herein by reference.
*10(b)(3) Gentex Corporation Restricted Stock Plan was filed as Exhibit
10(b)(3) to Registrant's Report on Form 10-K dated March
10, 1992, and the same is hereby incorporated herein by
reference.
*10(b)(4) Gentex Corporation Non-Employee Director Stock Option Plan (as
amended and restated, effective March 7, 1997) was filed
as Exhibit 10(b)(4) to Registrant's Report on Form 10-K dated
March 7, 1997, and the same is incorporated herein in
reference.
10(e) The form of Indemnity Agreement between Registrant and each of
the Registrant's directors was filed as a part of a
Registration Statement on Form S-2 (Registration No. 33-30353)
as Exhibit 10(k) and the same is hereby incorporated herein
by reference.
27 Financial Data Schedule
-------------------------------
* Indicates a compensatory plan or arrangement.
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3-MOS
DEC-31-1998
MAR-31-1998
37,091,553
17,372,305
27,507,613
0
8,470,962
91,944,753
74,788,598
(22,599,850)
217,957,577
22,610,109
0
0
0
2,337,337
190,097,784
217,957,577
56,979,402
56,979,402
34,340,509
34,340,509
(1,551,632)
0
0
18,575,283
6,074,000
12,501,283
0
0
0
12,501,283
0.35
0.34
