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 SEPTEMBER 30, 1996,
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 October 15, 1996
----------------------------- -------------------
Common Stock, $0.06 Par Value 34,657,453
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 September 30, 1996 and December 31, 1995
ASSETS
September 30, 1996 December 31, 1995
------------------ -----------------
CURRENT ASSETS
Cash and cash equivalents $ 21,845,661 $ 14,115,041
Short term investments 15,742,822 20,162,189
Accounts receivable, net 18,616,203 14,706,156
Inventories 6,449,417 5,735,519
Prepaid expenses and other 497,127 1,342,640
------------ ------------
Total current assets 63,151,230 56,061,545
PLANT AND EQUIPMENT - NET 29,112,913 18,942,115
OTHER ASSETS
Long-term investments 39,235,585 32,146,422
Patents and other assets, net 2,172,311 2,093,439
------------ ------------
Total other assets 41,407,896 34,239,861
------------ ------------
Total assets $133,672,039 $109,243,521
============ ============
LIABILITIES AND SHAREHOLDERS' INVESTMENT
CURRENT LIABILITIES
Accounts payable $ 7,753,777 $ 5,422,658
------------ ------------
Accrued liabilities 5,254,849 8,627,409
Total current liabilities 13,008,626 14,050,067
DEFERRED INCOME TAXES 1,086,252 521,674
SHAREHOLDERS' INVESTMENT
Common stock 2,079,447 1,013,752
Additional paid-in capital 44,212,969 37,128,320
Other shareholders' equity 73,284,745 56,529,708
------------ ------------
Total shareholders' investment 119,577,161 94,671,780
------------ ------------
Total liabilities and
shareholders' investment $133,672,039 $109,243,521
============ ============
See accompanying notes to condensed consolidated financial statements.
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GENTEX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended Nine Months Ended
September 30 September 30
-------------------------- ---------------------------
1996 1995 1996 1995
----------- ----------- ------------ ------------
NET SALES $36,797,757 $26,800,804 $111,378,551 $78,864,491
COST OF GOODS SOLD 23,748,882 16,381,157 70,307,979 47,754,591
----------- ----------- ------------ -----------
Gross profit 13,048,875 10,419,647 41,070,572 31,109,900
OPERATING EXPENSES:
Research and development 1,941,823 1,433,673 5,576,755 4,353,045
Selling, general
& administrative 2,655,266 2,998,945 9,025,277 9,412,245
Patent Settlement 0 0 4,000,000 0
----------- ----------- ------------ -----------
Total operating expenses 4,597,089 4,432,618 18,602,032 13,765,290
----------- ----------- ------------ -----------
Income from operations 8,451,786 5,987,029 22,468,540 17,344,610
OTHER INCOME (EXPENSE)
Interest, net 855,951 743,323 2,439,932 2,057,260
Other 73,432 8,309 90,631 60,410
----------- ----------- ------------ -----------
Total other income 929,383 751,632 2,530,563 2,117,670
----------- ----------- ------------ -----------
Income before provision
for federal income taxes 9,381,169 6,738,661 24,999,103 19,462,280
PROVISION FOR FEDERAL INCOME TAXES 3,048,000 2,161,000 8,096,000 6,301,000
----------- ----------- ------------ -----------
NET INCOME $ 6,333,169 $ 4,577,661 $ 16,903,103 $13,161,280
=========== =========== ============ ===========
EARNINGS PER SHARE $0.18 $0.13 $0.48 $0.38
WEIGHTED DAILY AVERAGE OF
COMMON STOCK OUTSTANDING 35,772,083 34,418,368 35,425,510 34,225,748
See accompanying notes to condensed consolidated financial statements.
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GENTEX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30, 1996 and 1995
1996 1995
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $16,903,103 $13,161,280
Adjustments to reconcile net income to net
cash provided by operating activities-
Depreciation and amortization 3,071,615 2,370,799
Gain on disposal of equipment (81) (8,107)
Deferred income taxes 1,338,610 522,199
Amortization of deferred compensation 387,786 224,997
Change in assets and liabilities:
Accounts receivable, net (3,910,047) (3,107,619)
Inventories (713,898) (459,745)
Prepaid expenses and other 28,942 (52,496)
Accounts payable 2,331,119 923,107
Accrued liabilities (3,372,560) 2,150,875
----------- -----------
Net cash provided by
operating activities 16,064,589 15,725,290
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease (Increase) in short-term investments 4,419,367 (11,197,672)
Plant and equipment additions (13,103,753) (3,190,567)
Proceeds from sale of plant and equipment 627 5,000
Increase in long-term investments (6,967,622) (2,131,974)
Increase in other assets (206,870) (1,577,879)
----------- -----------
Net cash used for
investing activities (15,858,251) (18,093,092)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock and tax benefit of
stock plan transactions 7,524,282 3,640,456
----------- -----------
Net cash provided by
financing activities 7,524,282 3,640,456
----------- -----------
NET INCREASE IN CASH AND
CASH EQUIVALENTS 7,730,620 1,272,654
CASH AND CASH EQUIVALENTS,
beginning of period 14,115,041 11,183,991
----------- -----------
CASH AND CASH EQUIVALENTS,
end of period $21,845,661 $12,456,645
=========== ===========
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 1995 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 September 30, 1996, and
December 31, 1995, and the results of operations and cash flows for the
interim periods presented.
(3) Inventories consisted of the following at the respective quarter ends:
September 30, 1996 December 31, 1995
------------------ -----------------
Raw materials $4,084,460 $3,294,254
Work-in-process 362,985 358,206
Finished goods 2,001,972 2,083,059
---------- ----------
$6,449,417 $5,735,519
========== ==========
(4) All earnings per share amounts and weighted daily average of shares of
common stock outstanding have been restated, to reflect the two-for-one
stock split effected in the form of a 100 percent common stock dividend
issued to shareholders on June 24, 1996.
(5) The Company has been involved in patent litigation with Donnelly
Corporation since 1990 concerning a number of patents relating to
electrochromic mirrors owned by the Company and Donnelly.
During the first quarter, the Company reached a settlement agreement with
Donnelly to resolve all of the patent litigation between the two
companies. Under the agreement:
The companies have cross-licensed certain patents (for the life of the
patents) that each company may practice within its own "core"
electrochromic technology area.
The Company paid Donnelly $6 million in April 1996 (plus a $200,000
contingent payment if Donnelly prevails in its lighted mirror patent
appeal) as full and complete satisfaction of all of Donnelly's patent
infringement claims.
The companies agreed not to pursue litigation against each other on
certain other patents for a period of four years.
The Company recorded a one-time charge of $4,000,000 ($6,000,000 payment,
net of accrued reserves) during the first quarter in connection with the
settlement of its patent litigation with Donnelly.
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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:
THIRD QUARTER 1996 VERSUS THIRD QUARTER 1995
Net Sales. Net sales for the third quarter of 1996 increased by
approximately $9,997,000, or 37%, when compared with the third quarter
last year. Net sales of the Company's automotive mirrors increased by
41% as automatic mirror unit shipments increased from approximately
543,000 in the third quarter of 1995 to 740,000 in the current quarter.
This increase reflected increased penetration on domestic and foreign
1997 model year vehicles for interior and exterior electrochromic Night
Vision Safety(TM) (NVS(R)) Mirrors. Net sales of the Company's fire
protection products increased 18%, primarily due to increased sales of
its remote horns, remote horns with strobes, and AC/DC smoke detectors.
Cost of Goods Sold. As a percentage of net sales, cost of goods sold
increased from 61% in the third quarter of 1995 to 65% for the
comparable period in 1996. This increased percentage primarily
reflects start-up costs associated with a new mirror manufacturing
facility, installation of a highly automated manufacturing line for a
second-generation compass mirror product, reorganization of the
Company's exterior manufacturing area to accommodate a manufacturing
line for its new aspheric exterior mirror products, automotive customer
price reductions for the 1997 model year, and changes in the Company's
automotive mirror shipment product mix.
Operating Expenses. Research and development expenses increased
approximately $508,000, but remained at 5% of net sales, when compared
with the same quarter last year, primarily reflecting additional
staffing for new product development, including aspheric mirrors, the
second-generation compass mirror, thin glass exterior mirrors and
mirrors with other electronic features. Selling, general and
administrative expenses decreased approximately $344,000, and decreased
from 11% to 7% of net sales, when compared with the third quarter of
1995. This decreased expense primarily reflected lower patent
litigation legal expense accruals of $30,000, compared to $950,000 last
year.
Other Income - Net. Investment income increased by approximately
$113,000 when compared with the third quarter of 1995, primarily due to
the higher investable fund balances.
NINE MONTHS ENDED SEPTEMBER 30, 1996 VERSUS NINE MONTHS ENDED
SEPTEMBER 30, 1995
Net Sales. Net sales for the nine months ended September 30, 1996,
increased by approximately $32,514,000, or 41%, when compared with the
same period last year. Net sales of the Company's automotive mirrors
increased by 47% as automatic mirror unit shipments increased from
approximately 1,568,000 in the first nine months of 1995 to 2,271,000
in the first nine months of 1996. This increase reflected increased
penetration on domestic and foreign 1996 and 1997 model year vehicles
for interior and exterior electrochromic Night Vision Safety(TM)
(NVS(R)) Mirrors. Net sales of the Company's fire protection products
increased 14%, primarily due to increased sales of its AC/DC smoke
detectors and strobe related products.
Cost of Goods Sold. As a percentage of net sales, cost of goods sold
increased from 61% in the first nine months of 1995 to 63% for the
comparable period in 1996. This increased percentage primarily
reflects automotive customer price reductions for the 1996 and 1997
model years, changes in the Company's automotive mirror shipment
product mix, and start-up costs during the third quarter (see above).
-6-
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION (CONT.)
NINE MONTHS ENDED SEPTEMBER 30, 1996 VERSUS NINE MONTHS ENDED
SEPTEMBER 30, 1995 (CONT.)
Operating Expenses. For the nine months ended September 30, 1996,
research and development expenses increased approximately $1,224,000,
but decreased from 6% to 5% of net sales, when compared with the same
period last year, primarily reflecting additional staffing for new
product development. Selling, general and administrative expenses
decreased approximately $387,000, and decreased from 12% to 8% of net
sales, when compared with the first nine months of 1995. This
decreased expense primarily reflected higher selling expenses
associated with the sales growth, offset by lower patent litigation
accruals of $1,530,000, compared to $3,050,000 last year, as a result
of the patent litigation settlement at the end of the first quarter.
Other Income - Net. Investment income for the nine months ended
September 30, 1996, increased by approximately $383,000 as compared to
the first nine months of 1995, 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 $89,378,000 at September 30, 1996,
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:
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.
The Company has agreed to price reductions over the life of its
long-term contracts and 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
cost reductions and increases in unit sales volume. In addition, the
Company continues to experience some pressure for raw material cost
increases.
-7-
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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 September 30, 1996.
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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 10/29/96 /s/ Fred T. Bauer
---------------------- -------------------------------
Fred T. Bauer
Chairman and Chief
Executive Officer
Date 10/29/96 /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) 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.
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 May 11, 1995), was filed as Exhibit 10(b)(1) to
Registrant's Report on Form 10-Q dated August 1, 1995, 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.
11
EXHIBIT NO. DESCRIPTION PAGE
- ----------- ----------- --------
*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 through March 5, 1993, was filed as Exhibit 10(b)(4) to
Registrant's Report on Form 10-K dated March 5, 1993, 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
9-MOS
DEC-31-1996
SEP-30-1996
21,845,661
15,742,822
18,616,203
0
6,449,417
63,151,230
44,348,320
(15,235,407)
133,672,039
13,008,626
0
0
0
2,079,447
117,497,714
133,672,039
111,378,551
111,378,551
70,307,978
70,307,978
(2,530,564)
0
0
24,999,103
8,096,000
16,903,103
0
0
0
16,903,103
0.48
0.48
