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, 1996, OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO
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--------------
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 16, 1996
----------------------------- ------------------
Common Stock, $0.06 Par Value 34,498,244
Exhibit Index located at page 10
Page 1 of 12
2
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
GENTEX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
At June 30, 1996 and December 31, 1995
ASSETS
June 30, 1996 December 31, 1995
------------- -----------------
CURRENT ASSETS
Cash and cash equivalents $ 20,205,685 $ 14,115,041
Short term investments 18,143,041 20,162,189
Accounts receivable, net 17,592,916 14,706,156
Inventories 6,577,947 5,735,519
Prepaid expenses and other 684,038 1,342,640
------------ ------------
Total current assets 63,203,627 56,061,545
PLANT AND EQUIPMENT - NET 26,509,856 18,942,115
OTHER ASSETS
Long-term investments 36,063,852 32,146,422
Patents and other assets, net 2,148,366 2,093,439
------------ ------------
Total other assets 38,212,218 34,239,861
------------ ------------
Total assets $127,925,701 $109,243,521
============ ============
LIABILITIES AND SHAREHOLDERS' INVESTMENT
CURRENT LIABILITIES
Accounts payable $ 10,172,189 $ 5,422,658
Accrued liabilities 5,718,662 8,627,409
------------ ------------
Total current liabilities 15,890,851 14,050,067
DEFERRED INCOME TAXES 1,057,493 521,674
SHAREHOLDERS' INVESTMENT
Common stock 2,069,895 1,013,752
Additional paid-in capital 42,021,136 37,128,320
Other shareholder's equity 66,886,326 56,529,708
------------ ------------
Total shareholders' investment 110,977,357 94,671,780
------------ ------------
Total liabilities and
shareholders' investment $127,925,701 $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 Six Months Ended
June 30 June 30
-------------------------- ---------------------------
1996 1995 1996 1995
----------- ----------- ----------- -----------
NET SALES $38,672,711 $26,020,719 $74,580,794 $52,063,687
COST OF GOODS SOLD 24,181,145 15,947,030 46,559,097 31,373,435
-------------------------- ---------------------------
Gross profit 14,491,566 10,073,689 28,021,697 20,690,252
OPERATING EXPENSES:
Research and development 1,907,698 1,530,822 3,634,932 2,919,372
Selling, general
& administrative 2,728,007 3,344,416 6,370,011 6,413,300
Patent settlement 0 0 4,000,000 0
-------------------------- ---------------------------
Total operating expenses 4,635,705 4,875,238 14,004,943 9,332,672
-------------------------- ---------------------------
Income from operations 9,855,861 5,198,451 14,016,754 11,357,580
OTHER INCOME (EXPENSE)
Interest and dividend income 768,705 686,720 1,583,980 1,313,937
Other, net (282) (9,735) 17,199 52,101
-------------------------- ---------------------------
Total other income 768,423 676,985 1,601,179 1,366,038
-------------------------- ---------------------------
Income before provision
for federal income taxes 10,624,284 5,875,436 15,617,933 12,723,618
PROVISION FOR FEDERAL INCOME TAXES 3,400,000 1,879,000 5,048,000 4,140,000
-------------------------- ---------------------------
NET INCOME $ 7,224,284 $ 3,996,436 $10,569,933 $ 8,583,618
========================== ===========================
EARNINGS PER SHARE $0.20 $0.12 $0.30 $0.25
WEIGHTED DAILY AVERAGE OF
COMMON STOCK OUTSTANDING 35,606,575 34,164,904 35,214,307 34,149,390
See accompanying notes to condensed consolidated financial statements.
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GENTEX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30, 1996 and 1995
1996 1995
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $10,569,933 $ 8,583,618
Adjustments to reconcile net income to net
cash provided by operating activities-
Depreciation and amortization 1,990,480 1,588,834
Gain on disposal of equipment (81) (9,040)
Deferred income taxes 1,372,259 655,379
Amortization of deferred compensation 235,200 147,299
Change in assets and liabilities:
Accounts receivable, net (2,886,760) (1,096,358)
Inventories (842,428) (21,646)
Prepaid expenses and other (177,838) (124,168)
Accounts payable 4,749,531 1,804,420
Accrued liabilities (2,908,747) 211,388
----------- -----------
Net cash provided by
operating activities 12,101,549 11,739,726
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease (Increase) in short-term investments 2,019,148 (7,536,507)
Plant and equipment additions (9,465,242) (2,279,044)
Proceeds from sale of plant and equipment 627 5,000
Decrease (Increase) in long-term investments (3,817,935) 2,212,415
Increase in other assets (136,024) (1,548,403)
----------- -----------
Net cash used for
investing activities (11,399,426) (9,146,539)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock and tax benefit of
stock plan transactions 5,388,521 2,521,511
----------- -----------
Net cash provided by
financing activities 5,388,521 2,521,511
----------- -----------
NET INCREASE IN CASH AND
CASH EQUIVALENTS 6,090,644 5,114,698
CASH AND CASH EQUIVALENTS,
beginning of period 14,115,041 11,183,991
----------- -----------
CASH AND CASH EQUIVALENTS,
end of period $20,205,685 $16,298,689
=========== ===========
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 June 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 end:
June 30, 1996 December 31, 1995
------------- -----------------
Raw materials $3,503,079 $3,294,254
Work-in-process 362,985 358,206
Finished goods 2,711,883 2,083,059
---------- ----------
$6,577,947 $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:
SECOND QUARTER 1996 VERSUS SECOND QUARTER 1995
Net Sales. Net sales for the second quarter of 1996 increased by
approximately $12,652,000, or 49%, when compared with the second
quarter last year. Net sales of the Company's automotive mirrors
increased by 56% as automatic mirror unit shipments increased from
approximately 506,000 in the second quarter of 1995 to 811,000 in the
current quarter. This increase primarily reflected increased
penetration on domestic and foreign 1996 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 quarter of 1995 to 63% for the
comparable period in 1996. This increased percentage primarily
reflects automotive customer price reductions for the 1996 model year,
as well as changes in the Company's product mix of automotive mirror
shipments.
Operating Expenses. Research and development expenses increased
approximately $377,000, but decreased from 6% to 5% of net sales, when
compared with the same quarter last year, primarily reflecting
additional staffing. Selling, general and administrative expenses
decreased approximately $616,000, and decreased from 13% to 7% of net
sales, when compared with the second quarter of 1995. This decreased
expense primarily reflected lower patent litigation legal expense
accruals of $300,000, compared to $1,200,000 last year.
Other Income - Net. Investment income increased by approximately
$82,000 when compared with the second quarter of 1995, primarily due to
the higher investable fund balances and higher interest rates.
SIX MONTHS ENDED JUNE 30, 1996 VERSUS SIX MONTHS ENDED JUNE 30, 1995
Net Sales. Net sales for the six months ended June 30, 1996, increased
by approximately $22,517,000, or 43%, when compared with the same
period last year. Automatic mirror unit shipments increased from
approximately 1,025,000 in the first six months of 1995 to 1,531,000 in
first six months of 1996. This increase primarily reflected increased
penetration on domestic and foreign 1996 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
13%, as increased sales to other customers offset reduced shipments of
its strobe warning light to a major customer that has developed its own
strobe product.
Cost of Goods Sold. As a percentage of net sales, cost of goods sold
increased from 60% in the first six months of 1995 to 62% for the
comparable period in 1996. This increased percentage primarily
reflects automotive customer price reductions for the 1996 model year
and changes to the Company's product mix of automotive mirror
shipments.
Operating Expenses. For the six months ended June 30, 1996, research
and development expenses increased approximately $716,000, but
decreased from 6% to 5% of net sales, when compared with the same
period last year, primarily reflecting additional staffing. Selling,
general and administrative expenses decreased approximately $43,000,
and decreased from 12% to 9% of net sales, when compared with the first
six months of 1995. This decreased expense primarily reflected higher
selling expenses associated with the sales growth, offset by lower
patent litigation accruals of $1,500,000, compared to $2,100,000 last
year, as a result of the patent litigation settlement at the end of the
first quarter.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION (CONT.)
SIX MONTHS ENDED JUNE 30, 1996 VERSUS SIX MONTHS ENDED JUNE 30, 1995
(CONT.)
Other Income - Net. Other income for the six months ended June 30,
1996, increased by approximately $270,000 as compared to the first six
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 $83,377,000 at June 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 through the 1998
model year, and the contracts with BMW are 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.
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PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The annual meeting of the shareholders of the Company was held
on May 9, 1996, at which:
(i) The following nominees were elected to serve three-year
terms on the Company's Board of Directors by the
following votes:
Arlyn Lanting Kenneth La Grand Ted Thompson
For 14,369,343 14,370,543 14,371,518
Against - - -
Withheld 500,694 499,494 498,519
Broker Non-Votes - - -
The terms of office for incumbent Directors Fred Bauer,
Harlan Byker, Mickey E Fouts, John Mulder and Leo Weber,
continued after the meeting.
(ii) A proposal to amend the Articles of Incorporation to
increase the authorized shares of common stock was
approved by the following vote:
For 13,489,554
Against 1,329,350
Abstain 51,133
Broker Non-Votes -
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
June 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 07/31/96 /s/ Fred T. Bauer
---------------- ------------------------------------
Fred T. Bauer
Chairman and Chief
Executive Officer
Date 07/31/96 /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. 12
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 incororated 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.
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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.
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EXHIBIT 3(a)(2)
ARTICLE III
The total number of shares of all classes of stock which the
Corporation shall have the authority to issue is 55,000,000 shares, consisting
of 50,000,000 shares of Common Stock, par value $.06 per share and 5,000,000
shares of Preferred Stock, no par value.
The authorized shares of Common Stock of the par value of $.06 per
share are all of one class with equal voting power, and each such share shall
be equal to every other such share.
The shares of Preferred Stock may be divided into and issued in one or
more series. The Board of Directors is hereby authorized to cause the
Preferred Stock to be issued from time to time in one or more series with such
designations and such relative voting, dividend, liquidation and other rights,
preferences and limitations as shall be stated and expressed in the resolution
providing for the issue of such Preferred Stock adopted by the Board of
Directors. The Board of Directors by vote of a majority of the whole Board is
expressly authorized to adopt such resolution or resolutions and issue such
stock from time to time as it may deem desirable.
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1
6-MOS
DEC-31-1996
JUN-30-1996
20,205,685
18,143,041
17,592,916
0
6,577,947
63,203,627
40,670,332
(14,160,476)
127,925,701
15,890,851
0
0
0
2,069,895
108,907,462
127,925,701
74,580,794
74,580,794
46,559,097
46,559,097
(1,601,179)
0
0
15,617,933
5,048,000
10,569,933
0
0
0
10,569,933
0.30
0.30
