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, 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 April 16, 1996
----- ------------------
Common Stock, $0.06 Par Value 17,082,982
Exhibit Index located at page 9
Page 1 of 10
2
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
GENTEX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
At March 31, 1996 and December 31, 1995
ASSETS
March 31, 1996 December 31, 1995
-------------- -----------------
CURRENT ASSETS
Cash and cash equivalents $13,676,787 $14,115,041
Short term investments 22,894,463 20,162,189
Accounts receivable, net 16,432,759 14,706,156
Inventories 6,350,404 5,735,519
Prepaid expenses and other 621,891 1,342,640
------------- -------------
Total current assets 59,976,304 56,061,545
PLANT AND EQUIPMENT - NET 22,363,104 18,942,115
OTHER ASSETS
Long-term investments 35,076,554 32,146,422
Patents and other assets, net 2,161,078 2,093,439
------------- -------------
Total other assets 37,237,632 34,239,861
------------- -------------
Total assets $119,577,040 $109,243,521
============= =============
LIABILITIES AND SHAREHOLDERS' INVESTMENT
CURRENT LIABILITIES
Accounts payable $7,216,185 $5,422,658
Accrued liabilities 10,717,496 8,627,409
------------- -------------
Total current liabilities 17,933,681 14,050,067
DEFERRED INCOME TAXES 1,097,140 521,674
SHAREHOLDERS' INVESTMENT
Common stock 1,024,979 1,013,752
Additional paid-in capital 39,456,190 37,128,320
Other shareholder's equity 60,065,050 56,529,708
------------- -------------
Total shareholders' investment 100,546,219 94,671,780
------------- -------------
Total liabilities and
shareholders' investment $119,577,040 $109,243,521
============= =============
See accompanying notes to condensed consolidated financial statements.
- 2 -
3
GENTEX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
For the Three Months Ended March 31, 1996 and 1995
1996 1995
----------- -----------
NET SALES $35,908,083 $26,042,968
COST OF GOODS SOLD 22,377,952 15,426,405
----------- -----------
Gross profit 13,530,131 10,616,563
OPERATING EXPENSES:
Research and development 1,727,234 1,388,550
Selling, general
& administrative 3,642,004 3,068,884
Patent settlement 4,000,000 0
----------- -----------
Total operating expenses 9,369,238 4,457,434
----------- -----------
Income from operations 4,160,893 6,159,129
OTHER INCOME
Interest and dividend income 815,275 627,217
Other, net 17,481 61,836
----------- -----------
Total other income 832,756 689,053
----------- -----------
Income before provision
for federal income taxes 4,993,649 6,848,182
PROVISION FOR FEDERAL INCOME TAXES 1,648,000 2,261,000
----------- -----------
NET INCOME $3,345,649 $4,587,182
=========== ===========
EARNINGS PER SHARE $0.19 $0.27
WEIGHTED DAILY AVERAGE OF
COMMON STOCK OUTSTANDING 17,380,981 17,057,610
See accompanying notes to condensed consolidated financial statements.
- 3 -
4
GENTEX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended March 31, 1996 and 1995
1996 1995
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $3,345,649 $4,587,182
Adjustments to reconcile net income to net
cash provided by operating activities-
Depreciation and amortization 989,598 764,609
Gain on disposal of equipment 0 (5,000)
Deferred income taxes 1,362,768 78,160
Amortization of deferred compensation 115,510 74,477
Change in assets and liabilities:
Accounts receivable, net (1,726,603) 91,069
Inventories (614,885) 171,487
Prepaid expenses and other (66,553) 148,656
Accounts payable 1,793,527 25,577
Accrued liabilities 2,090,087 2,146,234
------------ ------------
Net cash provided by
operating activities 7,289,098 8,082,451
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in short-term investments (2,732,274) (4,187,898)
Plant and equipment additions (4,363,901) (1,012,232)
Proceeds from sale of plant and equipment 0 5,000
Decrease (Increase) in long-term investments (2,954,245) 1,477,025
Increase in other assets (99,591) (23,669)
------------ ------------
Net cash used for
investing activities (10,150,011) (3,741,774)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock and tax benefit of
stock plan transactions 2,422,659 1,445,095
------------ ------------
Net cash provided by
financing activities 2,422,659 1,445,095
------------ ------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (438,254) 5,785,772
CASH AND CASH EQUIVALENTS,
beginning of period 14,115,041 11,183,991
------------ ------------
CASH AND CASH EQUIVALENTS,
end of period $13,676,787 $16,969,763
============ ============
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 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 March 31, 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:
March 31, 1996 December 31, 1995
-------------- -----------------
Raw materials $4,111,638 $3,294,254
Work-in-process 358,206 358,206
Finished goods 1,880,560 2,083,059
---------- ----------
$6,350,404 $5,735,519
========== ==========
(4) 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 quarter, the Company reached a settlement agreement with
Donnelly to resolve the patent litigation pending 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 will pay Donnelly $6 million (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) in connection with the settlement of its patent
litigation with Donnelly.
- 5 -
6
GENTEX CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
RESULTS OF OPERATIONS:
FIRST QUARTER 1996 VERSUS FIRST QUARTER 1995
Net Sales. Net sales for the first quarter of 1996 increased by
approximately $9,865,000, or 38%, when compared with the first quarter
last year. Net sales of the Company's automotive mirrors increased by
43% as automatic mirror unit shipments increased from approximately
518,000 in the first quarter of 1995 to 720,000 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 11%, as shipments 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 59% in the first quarter of 1995 to 62% 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 $339,000, but remained at 5% of net sales, when compared
with the same quarter last year, primarily reflecting additional
staffing and contractual services. Selling, general and administrative
expenses increased approximately $573,000, but decreased from 12% to
10% of net sales, when compared with the first quarter of 1995. This
increased expense primarily reflected higher patent litigation legal
expense accruals of $1,200,000, compared to $900,000 last year. During
the first quarter of 1996, the Company recorded a one-time charge of
$4,000,000 ($6,000,000 payment, net of accrued reserves) in connection
with the settlement of its patent litigation with Donnelly Corporation.
Other Income - Net. Investment income increased by approximately
$188,000 when compared with the first quarter 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 $77,119,000 at March 31, 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, including the
payment of $6,000,000 in April 1996 to settle all outstanding patent
litigation with Donnelly Corporation.
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.
- 6 -
7
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
During the quarter, the Company reached a settlement agreement
with Donnelly Corporation to resolve all patent litigation
pending between the two companies. See footnote (4) to the
Condensed Consolidated Financial Statements on Page 5 of this
report.
Item 6. Exhibits and Reports on Form 8-K
(a) See Exhibit Index on Page 9.
(b) No reports on Form 8-K were filed during the three months ended
March 31, 1996.
- 7 -
8
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 04/30/96 /s/ Fred T. Bauer
----------- -----------------------------------
Fred T. Bauer
Chairman and Chief
Executive Officer
Date 04/30/96 /s/ Enoch C. Jen
----------- -----------------------------------
Enoch C. Jen
Vice President-Finance,
Principal Financial and
Accounting Officer
- 8 -
9
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 12,
1994, was filed as Exhibit 3(a)(2) to Registrant's Report on
Form 10-Q dated April 28, 1995, and the same is hereby
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 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.
- 9 -
10
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.
- 10 -
5
1
3-MOS
DEC-31-1996
MAR-31-1996
13,676,787
22,894,463
16,622,293
(189,534)
6,350,404
59,976,304
35,535,574
(13,172,470)
119,577,040
17,933,681
0
0
0
1,024,979
99,521,240
119,577,040
35,908,083
35,908,083
22,377,952
31,747,190
(832,756)
15,000
0
4,993,649
1,648,000
3,345,649
0
0
0
3,345,649
0.19
0.19
