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 JUNE 30, 1997, 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
------ ------
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
---- ----
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 July 14, 1997
----- ------------------
Common Stock, $0.06 Par Value 35,028,985
Exhibit Index located at page 10
Page 1 of 11
2
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
GENTEX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
AT JUNE 30, 1997 AND DECEMBER 31, 1996
ASSETS
------
June 30, 1997 December 31, 1996
------------- -----------------
CURRENT ASSETS
Cash and cash equivalents $ 11,666,591 $ 16,730,356
Short term investments 15,465,427 31,803,621
Accounts receivable, net 21,484,437 17,015,174
Inventories 9,402,711 6,180,422
Prepaid expenses and other 1,366,519 966,287
------------ ------------
Total current assets 59,385,685 72,695,860
PLANT AND EQUIPMENT - NET 37,220,133 31,574,547
OTHER ASSETS
Long-term investments 66,876,110 33,945,446
Patents and other assets, net 2,224,608 2,162,567
------------ ------------
Total other assets 69,100,718 36,108,013
------------ ------------
Total assets $165,706,536 $140,378,420
============ ============
LIABILITIES AND SHAREHOLDERS' INVESTMENT
CURRENT LIABILITIES
Accounts payable $ 10,182,021 $ 5,794,832
Accrued liabilities 6,485,314 5,566,085
------------ ------------
Total current liabilities 16,667,335 11,360,917
DEFERRED INCOME TAXES 1,695,540 1,213,862
SHAREHOLDERS' INVESTMENT
Common stock 2,101,739 2,084,957
Additional paid-in capital 48,480,837 44,963,895
Other shareholders' equity 96,761,085 80,754,789
------------ ------------
Total shareholders' investment 147,343,661 127,803,641
------------ ------------
Total liabilities and
shareholders' investment $165,706,536 $140,378,420
============ ============
See accompanying notes to condensed consolidated financial statements.
- 2 -
3
GENTEX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended Six Months Ended
June 30 June 30
------------------------------ ---------------------------------
1997 1996 1997 1996
NET SALES $44,873,334 $38,672,711 $86,775,456 $74,580,794
COST OF GOODS SOLD 29,068,728 24,181,145 56,238,684 46,559,097
------------------------------ ---------------------------------
Gross profit 15,804,606 14,491,566 30,536,772 28,021,697
OPERATING EXPENSES:
Research and development 2,406,945 1,907,698 4,484,212 3,634,932
Selling, general
& administrative 2,779,137 2,728,007 5,469,528 6,370,011
Patent settlement 0 0 0 4,000,000
------------------------------ ---------------------------------
Total operating expenses 5,186,082 4,635,705 9,953,740 14,004,943
------------------------------ ---------------------------------
Income from operations 10,618,524 9,855,861 20,583,032 14,016,754
OTHER INCOME (EXPENSE)
Interest and dividend income 1,020,651 768,705 1,972,300 1,583,980
Other, net 213,671 (282) 236,793 17,199
------------------------------ ---------------------------------
Total other income 1,234,322 768,423 2,209,093 1,601,179
------------------------------ ---------------------------------
Income before provision
for federal income taxes 11,852,846 10,624,284 22,792,125 15,617,933
PROVISION FOR FEDERAL INCOME TAXES 3,852,000 3,400,000 7,407,000 5,048,000
------------------------------ ---------------------------------
NET INCOME $8,000,846 $7,224,284 $15,385,125 $10,569,933
============================== =================================
EARNINGS PER SHARE $0.22 $0.20 $0.43 $0.30
WEIGHTED DAILY AVERAGE OF
COMMON STOCK OUTSTANDING 35,812,342 35,606,575 35,785,633 35,214,307
See accompanying notes to condensed consolidated financial statements.
- 3 -
4
GENTEX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
1997 1996
--------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 15,385,125 $ 10,569,933
Adjustments to reconcile net income to net
cash provided by operating activities-
Depreciation and amortization 3,037,338 1,990,480
Loss (Gain) on disposal of equipment 5,319 (81)
Deferred income taxes (149,458) 1,372,259
Amortization of deferred compensation 284,510 235,200
Change in assets and liabilities:
Accounts receivable, net (4,469,263) (2,886,760)
Inventories (3,222,289) (842,428)
Prepaid expenses and other (115,172) (177,838)
Accounts payable 4,387,189 4,749,531
Accrued liabilities 919,229 (2,908,747)
------------ ------------
Net cash provided by
operating activities 16,062,528 12,101,549
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease in short-term investments 16,338,194 2,019,148
Plant and equipment additions (8,593,511) (9,465,242)
Proceeds from sale of plant and equipment 1,500 627
Increase in long-term investments (31,941,877) (3,817,935)
Increase in other assets (172,511) (136,024)
------------ ------------
Net cash used for
investing activities (24,368,205) (11,399,426)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock and tax benefit of
stock plan transactions 3,241,912 5,388,521
------------ ------------
Net cash provided by
financing activities 3,241,912 5,388,521
------------ ------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (5,063,765) 6,090,644
CASH AND CASH EQUIVALENTS,
beginning of period 16,730,356 14,115,041
------------ ------------
CASH AND CASH EQUIVALENTS,
end of period $ 11,666,591 $ 20,205,685
============ ============
See accompanying notes to condensed consolidated financial statements
- 4 -
5
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 1996 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 June 30, 1997, and December 31,
1996, and the results of operations and cash flows for the interim periods
presented.
(3) Inventories consisted of the following at the respective quarter ends:
June 30, 1997 December 31, 1996
------------- -----------------
Raw materials $5,915,205 $3,860,534
Work-in-process 348,336 348,336
Finished goods 3,139,170 1,971,552
---------- ----------
$9,402,711 $6,180,422
========== ==========
-5-
6
GENTEX CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
RESULTS OF OPERATIONS:
SECOND QUARTER 1997 VERSUS SECOND QUARTER 1996
Net Sales. Net sales for the second quarter of 1997 increased by
approximately $6,201,000, or 16%, when compared with the second quarter
last year. Net sales of the Company's automotive mirrors increased by
17% as automatic mirror unit shipments increased by 11% from
approximately 811,000 in the second quarter of 1996 to 897,000 in the
current quarter. This increase reflected increased penetration on
foreign 1997 and 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
82% compared with the second quarter in 1996, primarily due to
increased shipments of exterior aspheric mirrors for Mercedes-Benz and
new interior mirror programs. Shipments to customers in North America
decreased by 13%, compared with an approximate 2% decline in North
American light vehicle production, primarily due to strikes at two
major customers. Net sales of the Company's fire protection products
increased 7%, primarily due to increased sales of the Company's audible
signals, strobes and AC/DC smoke detectors.
Cost of Goods Sold. As a percentage of net sales, cost of goods sold
increased from 63% in the second quarter of 1996 to 65% for the
comparable period in 1997. This increased percentage primarily
reflected automotive customer price reductions not fully offset by
productivity improvements, relatively low yields on the Company's new
aspheric and "thin glass" exterior mirrors as shipments increased
during the quarter, production support start-up expenses for the new
1998 model year mirror programs, and temporary under-utilization of the
Company's State Street automotive products manufacturing facility.
Operating Expenses. Research and development expenses increased
approximately $499,000, but remained at approximately 5% of net sales,
when compared with the same quarter last year, primarily reflecting
additional staffing for new product development, including aspheric
exterior mirrors, thin glass exterior mirrors, and mirrors with other
electronic features. Selling, general and administrative expenses
increased approximately $51,000, but decreased from 7% to 6% of net
sales, when compared with the second quarter of 1996. This increased
expense primarily reflected increased sales expense in Europe to
support higher sales and increased Michigan Single Business Tax expense
due to increased profitability, offset by lower patent litigation legal
expense accruals of $30,000, compared to $300,000 last year.
Other Income - Net. Investment income increased by approximately
$252,000 when compared with the second quarter of 1996, primarily due
to the higher investable fund balances and higher interest rates.
Other income in the second quarter primarily reflected net realized
gains on the sale of equity investments of $168,000.
SIX MONTHS ENDED JUNE 30, 1997 VERSUS SIX MONTHS ENDED JUNE 30, 1996
Net Sales. Net sales for the six months ended June 30, 1997, increased
by approximately $12,195,000, or 16%, when compared with the same
period last year. Automatic mirror unit shipments increased from
approximately 1,531,000 in the first six months of 1996 to 1,760,000 in
the first six months of 1997. This increase reflected increased
penetration on foreign 1997 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 65% compared with the first six months of 1996, primarily
due to increased shipments of exterior aspheric mirrors for
Mercedes-Benz and new interior mirror programs. Shipments to customers
in North America decreased by 2%, primarily due to strikes at two major
customers. Net sales of the Company's fire protection products
increased 9%, primarily due to increased sales of the Company's audible
signals, strobes and AC/DC smoke detectors.
-6-
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION (CONT.)
SIX MONTHS ENDED JUNE 30, 1997 VERSUS SIX MONTHS ENDED JUNE 30, 1996
(CONT.)
Cost of Goods Sold. As a percentage of net sales, cost of goods sold
increased from 62% in the first six months of 1996 to 65% for the
comparable period in 1997. This increased percentage primarily
reflected automotive customer price reductions not fully offset by
productivity improvements, relatively low yields on the Company's new
aspheric and "thin glass" exterior mirrors as shipments began during
the period, production support start-up expenses for the new 1998 model
year mirror programs, and temporary under-utilization of the Company's
State Street automotive products manufacturing facility.
Operating Expenses. For the six months ended June 30, 1997, research
and development expenses increased approximately $849,000, but remained
at 5% of net sales, when compared with the same period last year,
primarily reflecting additional staffing for new product development,
including aspheric exterior mirrors, thin glass exterior mirrors, and
mirrors with other electronic features. Selling, general and
administrative expenses decreased approximately $900,000, and decreased
from 9% to 6% of net sales, when compared with the first six months of
1996. This decreased expense primarily reflected lower patent
litigation accruals of $60,000, compared to $1,500,000 last year, as a
result of the patent litigation settlement in 1996, partially offset by
increased Michigan Single Business tax expense due to increased
profitability. During the first quarter in 1996, the Company recorded
a one-time charge of $4,000,000 in connection with the settlement of
its patent litigation with Donnelly Corporation.
Other Income - Net. Investment income for the six months ended June
30, 1997, increased by approximately $388,000 as compared to the first
six months of 1996, primarily due to the higher investable fund
balances and higher interest rates.
FINANCIAL CONDITION:
Management considers the Company's working capital and long-term
investments totaling approximately $109,594,000 at June 30, 1997,
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
contracts, 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. The Company began volume shipments of its new
aspheric exterior mirrors during the first quarter and began volume
shipments of its new thin glass exterior mirrors toward the end of the
second quarter; therefore, margins will be adversely affected to the
extent that the Company is unable to improve glass yields to target
levels and ramp-up production on schedule.
Due to the Company's relatively small number of large automotive
customers, the Company's quarterly operating results are affected by
the levels and timing of customer releases, which can significantly
vary due to automotive industry sales and production levels, strikes at
customer plants and plant vacation shutdowns. The Company currently
supplies NVS(R) Mirrors to BMW, Chrysler Corporation, Ford Motor
Company and General Motors Corporation under long-term contracts. The
General Motors contract is in effect through the 1998 model year, and
the contracts with BMW are in effect for the four-year period ending
March 31, 1999. The term of the Ford contract is through December
1999, and the Chrysler contract runs through the 1999 Model Year.
During February 1997, the Financial Accounting Standards Board issued
statement of Financial Accounting Standard (FAS) No. 128 "Earnings Per
Share." This standard is effective for periods ending after December
15, 1997. The Company will adopt FAS No. 128 in its fourth quarter
for the year ending December 31, 1997. The Company does not expect
the impact of FAS No. 128 to materially affect the financial statements.
-7-
8
PART II. OTHER INFORMATION
-----------------
Item 6. Exhibits and Reports on Form 8-K
-----------------------------------
(a) See Exhibit Index on Page 11.
(b) No reports on Form 8-K were filed during the three months
ended June 30, 1997.
-8-
9
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 7/30/97 /s/ Fred T. Bauer
------------------------- -----------------------
Fred T. Bauer
Chairman and Chief
Executive Officer
Date 7/30/97 /s/ Enoch C. Jen
------------------------- -----------------------
Enoch C. Jen
Vice President-Finance,
Principal Financial and
Accounting Officer
-9-
10
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION PAGE
- ----------- ----------- ----
3(a) 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. 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) 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.
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.
*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-
11
EXHIBIT NO. DESCRIPTION PAGE
- ----------- ----------- ----
*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.
-11-
5
6-MOS
DEC-31-1997
JUN-30-1997
11,666,591
15,465,427
21,484,437
0
9,402,711
59,385,685
55,789,709
(18,569,576)
165,706,536
16,667,335
0
0
0
2,101,739
145,241,922
165,706,536
86,775,456
86,775,456
56,238,684
56,238,684
(2,209,093)
0
0
22,792,125
7,407,000
15,385,125
0
0
0
15,385,125
0.43
0.43
