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, 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
---------- ----------
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 15, 1998
Common Stock, $0.06 Par Value 71,799,423
Exhibit Index located at page 10
Page 1 of 17
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PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
GENTEX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
At June 30, 1998 and December 31, 1997
ASSETS
------
June 30, 1998 December 31, 1997
------------- -----------------
CURRENT ASSETS
Cash and cash equivalents $36,700,194 $26,768,647
Short term investments 22,637,138 14,362,736
Accounts receivable, net 21,323,947 24,515,525
Inventories 8,384,563 8,787,689
Prepaid expenses and other 2,060,883 1,484,839
---------------- ----------------
Total current assets 91,106,725 75,919,436
PLANT AND EQUIPMENT - NET 57,391,333 42,238,885
OTHER ASSETS
Long-term investments 74,405,173 70,291,142
Patents and other assets, net 1,255,858 1,333,384
---------------- ----------------
Total other assets 75,661,031 71,624,526
---------------- ----------------
Total assets $224,159,089 $189,782,847
================ ================
LIABILITIES AND SHAREHOLDERS' INVESTMENT
----------------------------------------
CURRENT LIABILITIES
Accounts payable $9,366,910 $8,760,256
Accrued liabilities 5,931,365 5,830,968
---------------- ----------------
Total current liabilities 15,298,275 14,591,224
DEFERRED INCOME TAXES 2,875,735 1,986,446
SHAREHOLDERS' INVESTMENT
Common stock 4,307,965 2,123,949
Additional paid-in capital 60,029,670 53,654,663
Other shareholders' equity 141,647,444 117,426,565
---------------- ----------------
Total shareholders' investment 205,985,079 173,205,177
---------------- ----------------
Total liabilities and
shareholders' investment $224,159,089 $189,782,847
================ ================
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
------------------------------ ------------------------------------
1998 1997 1998 1997
---- ---- ---- ----
NET SALES $51,371,749 $44,873,334 $108,351,151 $86,775,456
COST OF GOODS SOLD 31,569,068 29,068,728 65,909,577 56,238,684
------------------------------ ------------------------------------
Gross profit 19,802,681 15,804,606 42,441,574 30,536,772
OPERATING EXPENSES:
Research and development 2,711,514 2,406,945 5,290,743 4,484,212
Selling, general
& administrative 3,055,195 2,779,137 6,091,208 5,469,528
------------------------------ ------------------------------------
Total operating expenses 5,766,709 5,186,082 11,381,951 9,953,740
------------------------------ ------------------------------------
Income from operations 14,035,972 10,618,524 31,059,623 20,583,032
OTHER INCOME (EXPENSE)
Interest and dividend income 1,355,061 1,020,651 2,601,248 1,972,300
Other, net 616,485 213,671 921,930 236,793
------------------------------ ------------------------------------
Total other income 1,971,546 1,234,322 3,523,178 2,209,093
------------------------------ ------------------------------------
Income before provision
for federal income taxes 16,007,518 11,852,846 34,582,801 22,792,125
------------------------------ ------------------------------------
PROVISION FOR FEDERAL INCOME TAXES 5,243,000 3,852,000 11,317,000 7,407,000
------------------------------ ------------------------------------
NET INCOME $10,764,518 $8,000,846 $23,265,801 $15,385,125
============================== ====================================
Earnings Per Share
Basic $0.15 $0.11 $0.33 $0.22
Diluted $0.15 $0.11 $0.32 $0.21
Weighted Average Shares:
Basic 71,560,230 69,900,136 71,332,350 69,869,560
Diluted 73,807,749 71,624,684 73,584,918 71,571,266
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, 1998 AND 1997
1998 1997
-------------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $23,265,801 $15,385,125
Adjustments to reconcile net income to net
cash provided by operating activities-
Depreciation and amortization 4,147,632 3,037,338
Loss on disposal of equipment 30,162 5,319
Deferred income taxes (220,748) (149,458)
Amortization of deferred compensation 266,089 284,510
Change in assets and liabilities:
Accounts receivable, net 3,191,578 (4,469,263)
Inventories 403,126 (3,222,289)
Prepaid expenses and other (101,005) (115,172)
Accounts payable 606,654 4,387,189
Accrued liabilities 100,397 919,229
-------------- ------------
Net cash provided by
operating activities 31,689,686 16,062,528
-------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease (increase) in short-term investments (8,274,402) 16,338,194
Plant and equipment additions (19,144,246) (8,593,511)
Proceeds from sale of plant and equipment 550 1,500
Increase in long-term investments (2,299,752) (31,941,877)
Increase in other assets (106,307) (172,511)
-------------- ------------
Net cash used for
investing activities (29,824,157) (24,368,205)
-------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock and tax benefit of
stock plan transactions 8,066,018 3,241,912
-------------- ------------
Net cash provided by
financing activities 8,066,018 3,241,912
-------------- ------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 9,931,547 (5,063,765)
CASH AND CASH EQUIVALENTS,
beginning of period 26,768,647 16,730,356
-------------- ------------
CASH AND CASH EQUIVALENTS,
end of period $36,700,194 $11,666,591
============== ============
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 June 30, 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:
June 30, 1998 December 31, 1997
------------- -----------------
Raw materials $4,375,141 $4,931,434
Work-in-process 600,298 600,298
Finished goods 3,409,124 3,255,957
---------- ----------
$8,384,563 $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 as follows:
June 30, 1998 June 30, 1997
------------- -------------
Quarter Ended $10,477,000 $ 8,798,000
Six Months Ended 24,448,000 16,014,000
(5) 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 19, 1998.
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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 1998 VERSUS SECOND QUARTER 1997
Net Sales. Net sales for the second quarter of 1998 increased by
approximately $6,498,000, or 14%, 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
25% from approximately 897,000 in the second quarter of 1997 to
1,118,000 in the current quarter. This increase reflected
increased penetration on domestic 1998 model year vehicles for
interior and exterior electrochromic Night Vision Safety(TM)
(NVS(R)) Mirrors. Shipments to customers in North America
increased by 45%, despite slightly down North American light
vehicle production, primarily due to increased mirror shipments
for light trucks and sport/utility vehicles, partially offset by
reduced shipments in June for General Motors due to two strikes
at their component plants and the subsequent shutdown of the
majority of their vehicle assembly plants. Mirror unit shipments
to automotive customers outside North America decreased by 5%
compared with the second quarter in 1997, primarily due to
reduced interior mirror sub-assembly shipments to Korean
automakers and one Japanese customer. Net sales of the Company's
fire protection products decreased 4%, 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 second quarter of 1997 to 61% 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 $305,000, 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 $276,000, but
remained at 6% of net sales, when compared with the second quarter
of 1997. This increased expense primarily reflected the
establishment of a sales and engineering office in Japan and a
warehouse distribution operation in Germany.
Other Income - Net. Other income increased by approximately
$737,000 when compared with the second quarter of 1997, primarily
due to higher investable fund balances and realized gains on the
sale of equity investments.
SIX MONTHS ENDED JUNE 30, 1998 VERSUS SIX MONTHS ENDED JUNE 30,
1997
Net Sales. Net sales for the six months ended June 30, 1998
increased by approximately $21,576,000, or 25%, when compared with
the same period last year. Automatic mirror unit shipments
increased from approximately 1,760,000 in the first six months of
1997 to 2,386,000 in the first six months of 1998. 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. Shipments to customers in
North America increased by 47%, primarily due to increased
mirror shipments for light trucks and sport/utility vehicles
partially offset by reduced shipments in June for General Motors
due to two strikes at their plants. Mirror unit shipments to
automotive customers outside North America increased by 15%
compared with the first six months of 1997, primarily due to
increased shipments of exterior aspheric mirrors for
Mercedes-Benz. Net sales of the Company's fire protection
products decreased 4%, primarily due to lower than expected sales
of certain of the Company's audible and visual signals, and
generally light industry sales.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
RESULTS OF OPERATIONS:
SIX MONTHS ENDED JUNE 30, 1998 VERSUS SIX MONTHS ENDED JUNE 30,
1997 (cont.)
Cost of Goods Sold. As a percentage of net sales, cost of goods
sold decreased from 65% in the first six months of 1997 to 61% 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. For the six months ended June 30, 1998,
research and development expenses increased approximately
$807,000, but remained at 5% of net sales, when compared with the
same period last year, primarily reflecting additional staffing
for new product development, including mirrors with additional
electronic features. Selling, general and administrative expenses
increased approximately $622,000, but remained at 6% of net sales,
when compared with the first six months of 1997. This increased
expense primarily reflected the establishment of a sales and
engineering office in Japan and a warehouse distribution operation
in Germany.
Other Income - Net. Other income for the six months ended June 30,
1998, increased by approximately $1,314,000 as compared to the
first six months 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 $150,214,000 at June 30, 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 select raw material cost
increases.
The Company's largest customer, General Motors, has shut down
virtually all of its assembly plants due to strikes at two
component plants which began in early June. After the scheduled
2-week General Motors plant shutdown at the beginning of July,
shipments for General Motors represent approximately $2 million
in sales per week. As the GM strikes have just been settled, it
is not yet determinable when or how quickly shipments for General
Motors will resume.
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 2002 Model Year.
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 4. Submission of Matters to a Vote of Security Holders
The annual meeting of the shareholders of the Company was
held on May 21, 1998, at which:
(i) The following nominees were elected to serve
three-year terms on the Company's Board of
Directors by the following votes:
John Mulder Mickey Fouts
----------- -------------
For 29,070,129 29,187,709
Against - -
Withheld 2,058,110 1,940,530
Broker Non-Votes - -
The terms of office for incumbent Directors Fred
Bauer, Arlyn Lanting, Kenneth La Grand, Ted
Thompson and Leo Weber, continued after the
meeting.
(ii) A proposal to adopt the Amended and Restated Gentex
Corporation Qualified Stock Option Plan was
approved by the following vote:
For 28,249,696
Against 3,403,480
Abstain 107,472
Broker Non-Votes -
(iii) A proposal to amend the Articles of Incorporation
to increase the authorized shares of common stock
was approved by the following vote:
For 30,369,827
Against 1,257,839
Abstain 132,982
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, 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 07/30/98 /s/ Fred T. Bauer
------------ ---------------------------
Fred T. Bauer
Chairman and Chief
Executive Officer
Date 07/30/98 /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, 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, and an 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, all of which are hereby
incorporated herein by reference. 12
3(a)(2) Amendment to Articles of Incorporation, adopted on May 21, 1998.
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.
(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 13
restated, 13 effective August 25, 1997).
*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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