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, 2000, 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 - -------------------------------------------------------------------------------- (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 Section 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 18, 2000 ----- ------------------- Common Stock, $0.06 Par Value 74,180,584 Exhibit Index located at page 10 Page 1 of 21
2 PART I. FINANCIAL INFORMATION ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS GENTEX CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS At September 30, 2000 and December 31, 1999 <TABLE> <CAPTION> ASSETS ------ September 30, 2000 December 31, 1999 ------------------ ----------------- CURRENT ASSETS <S> <C> <C> Cash and cash equivalents $100,860,953 $69,227,972 Short term investments 29,812,360 25,505,657 Accounts receivable, net 39,851,075 30,633,501 Inventories 11,444,679 9,975,178 Prepaid expenses and other 3,031,072 2,873,276 ----------------- -------------------- Total current assets 185,000,139 138,215,584 PLANT AND EQUIPMENT - NET 81,443,748 71,338,053 OTHER ASSETS Long-term investments 141,581,565 125,816,629 Patents and other assets, net 2,535,858 2,302,504 ----------------- -------------------- Total other assets 144,117,423 128,119,133 ----------------- -------------------- Total assets $410,561,310 $337,672,770 ================= ==================== LIABILITIES AND SHAREHOLDERS' INVESTMENT ---------------------------------------- CURRENT LIABILITIES Accounts payable $10,637,705 $8,288,327 Accrued liabilities 10,570,773 8,181,884 ----------------- -------------------- Total current liabilities 21,208,478 16,470,211 DEFERRED INCOME TAXES 6,200,442 4,151,143 SHAREHOLDERS' INVESTMENT Common stock 4,450,835 4,404,739 Additional paid-in capital 90,612,138 79,670,301 Other shareholders' equity 288,089,417 232,976,376 ----------------- -------------------- Total shareholders' investment 383,152,390 317,051,416 ----------------- -------------------- Total liabilities and shareholders' investment $410,561,310 $337,672,770 ================= ==================== </TABLE> See accompanying notes to condensed consolidated financial statements. -2-
3 GENTEX CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME <TABLE> <CAPTION> Three Months Ended Nine Months Ended September 30 September 30 ----------------------------- ------------------------------ 2000 1999 2000 1999 ---- ---- ---- ---- <S> <C> <C> <C> <C> NET SALES $71,934,236 $64,146,371 $222,566,697 $196,653,710 COST OF GOODS SOLD 43,384,580 38,351,928 129,389,887 112,529,258 ----------------------------- ------------------------------ Gross profit 28,549,656 25,794,443 93,176,810 84,124,452 OPERATING EXPENSES: Research and development 4,261,318 3,444,350 12,391,317 10,278,835 Selling, general & administrative 4,303,737 3,606,106 12,944,372 10,654,637 ----------------------------- ------------------------------ Total operating expenses 8,565,055 7,050,456 25,335,689 20,933,472 ----------------------------- ------------------------------ Income from operations 19,984,601 18,743,987 67,841,121 63,190,980 OTHER INCOME (EXPENSE) Interest, net 3,451,845 2,150,815 9,136,141 5,620,356 Other 53,517 568,786 1,203,921 2,059,668 ----------------------------- ------------------------------ Total other income 3,505,362 2,719,601 10,340,062 7,680,024 ----------------------------- ------------------------------ Income before provision for federal income taxes 23,489,963 21,463,588 78,181,183 70,871,004 PROVISION FOR FEDERAL INCOME TAXES 7,636,000 7,020,000 25,417,000 23,181,000 ----------------------------- ------------------------------ NET INCOME $15,853,963 $14,443,588 $52,764,183 $47,690,004 ============================= ============================== Earnings Per Share Basic $0.21 $0.20 $0.71 $0.65 Diluted $0.21 $0.19 $0.70 $0.64 Weighted Average Shares: Basic 74,059,344 73,232,990 73,837,033 72,880,739 Diluted 75,442,982 75,036,282 75,602,926 75,032,658 </TABLE> See accompanying notes to condensed consolidated financial statements. -3-
4 GENTEX CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS For the 9 Months Ended September 30, 2000 and 1999 <TABLE> <CAPTION> 2000 1999 ----------------- ----------------- <S> <C> <C> CASH FLOWS FROM OPERATING ACTIVITIES: Net income $52,764,183 $47,690,004 Adjustments to reconcile net income to net cash provided by operating activities- Depreciation and amortization 8,397,042 7,121,458 (Gain) Loss on disposal of equipment 5,028 113,209 Deferred income taxes 290,881 493,834 Amortization of deferred compensation 598,116 552,555 Change in assets and liabilities: Accounts receivable, net (9,217,574) (7,053,819) Inventories (1,469,501) 74,311 Prepaid expenses and other 84,717 (1,140,442) Accounts payable 2,349,378 5,883,908 Accrued liabilities 2,388,889 3,489,235 ----------------- ----------------- Net cash provided by operating activities 56,191,159 57,224,253 ----------------- ----------------- CASH FLOWS FROM INVESTING ACTIVITIES: (Increase) Decrease in short-term investments (4,306,703) 1,934,862 Plant and equipment additions (18,601,679) (18,059,821) Proceeds from sale of plant and equipment 169,138 232,380 (Increase) Decrease in long-term investments (11,433,779) (45,164,997) (Increase) Decrease in other assets (390,005) (700,688) ----------------- ----------------- Net cash used for investing activities (34,563,028) (61,758,264) ----------------- ----------------- CASH FLOWS FROM FINANCING ACTIVITIES: Issuance of common stock and tax benefit of stock plan transactions 10,004,850 12,257,001 ----------------- ----------------- Net cash provided by financing activities 10,004,850 12,257,001 ----------------- ----------------- NET INCREASE IN CASH AND CASH EQUIVALENTS 31,632,981 7,722,990 CASH AND CASH EQUIVALENTS, beginning of period 69,227,972 50,027,747 ----------------- ----------------- CASH AND CASH EQUIVALENTS, end of period $100,860,953 $57,750,737 ================= ================= </TABLE> -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 1999 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, 2000, and December 31, 1999, and the results of operations and cash flows for the interim periods presented. (3) Inventories consisted of the following at the respective balance sheet dates: <TABLE> <CAPTION> September 30, 2000 December 31, 1999 ------------------ ----------------- <S> <C> <C> Raw materials $ 6,566,891 $ 4,910,081 Work-in-process 1,377,105 1,194,632 Finished goods 3,500,683 3,870,465 ------------- ----------- $ 11,444,679 $ 9,975,178 ============= =========== </TABLE> (4) 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 the Company, 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 as follows: <TABLE> <CAPTION> September 30, 2000 September 30, 1999 ------------------ ------------------ <S> <C> <C> Quarter Ended $17,821,122 $12,141,729 Nine Months Ended 55,498,007 46,259,567 </TABLE> (5) The increase in common stock and additional paid-in capital during the quarter and nine months ended September 30, 2000, is attributable to the issuance of 171,631 and 768,268 shares, respectively, of the Company's common stock under its stock-based compensation plans. (6) The Company currently manufactures electro-optic products, including automatic-dimming rearview mirrors for the automotive industry and fire protection products for the commercial building industry: <TABLE> <CAPTION> Quarter Ended September 30, Nine Months Ended September 30, ---------------------------------- --------------------------------- 2000 1999 2000 1999 ---- ---- ---- ---- <S> <C> <C> <C> <C> Revenue: Automotive Products $66,211,955 $58,456,906 $206,036,240 $180,662,109 Fire Protection Products 5,722,281 5,689,465 16,530,457 15,991,601 ----------- ----------- ------------ ------------ Total $71,934,236 $64,146,371 $222,566,697 $196,653,710 =========== =========== ============ ============ Operating Income: Automotive Products $18,833,792 $17,715,158 $64,695,351 $60,486,874 Fire Protection Products 1,150,809 1,028,829 3,145,770 2,704,106 ----------- ----------- ------------ ----------- Total $19,984,601 $18,743,987 $67,841,121 $63,190,980 =========== =========== =========== =========== </TABLE> -5-
6 GENTEX CORPORATION AND SUBSIDIARIES ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION RESULTS OF OPERATIONS: THIRD QUARTER 2000 VERSUS THIRD QUARTER 1999 Net Sales. Net sales for the third quarter of 2000 increased by approximately $7,788,000, or 12%, when compared with the third quarter last year. Net sales of the Company's automotive mirrors increased by 13% as automatic mirror unit shipments increased by 14% from approximately 1,430,000 in the third quarter of 1999 to 1,632,000 in the current quarter. This increase reflected increased penetration on 2000 and 2001 model year vehicles for interior and exterior electrochromic Night Vision Safety(TM) (NVS(R)) Mirrors. Shipments to customers in North America increased by 7%, primarily due to new exterior mirror and transplant interior mirror business. Mirror unit shipments to automotive customers outside North America increased by 29% compared with the third quarter in 1999, primarily due to increased interior and exterior mirror sub-assembly shipments to European and Japanese automakers. Net sales of the Company's fire protection products increased 1%, primarily due to higher sales of certain of the Company's smoke detectors and signaling products. Cost of Goods Sold. As a percentage of net sales, cost of goods sold remained unchanged at 60% in the third quarter of 2000, and for the comparable period in 1999. This unchanged percentage primarily reflected customer price reductions and the ramp-up of the Company's third automotive manufacturing facility, offset by increased sales spread over fixed overhead expenses and improved glass yields. Operating Expenses. Research and development expenses increased approximately $817,000, and increased from 5% to 6% of net sales, when compared with the same quarter last year, primarily reflecting additional staffing, engineering and testing for new product development, including mirrors with additional electronic features. Selling, general and administrative expenses increased approximately $698,000, but remained unchanged at 6% of net sales, when compared with the third quarter of 1999. This increased expense primarily reflected the start-up and expansion of the Company's overseas sales and engineering offices. Other Income - Net. Other income increased by approximately $786,000 when compared with the third quarter of 1999, primarily due to higher interest rates and investable fund balances, partially offset by lower realized gains on the sale of equity investments. NINE MONTHS ENDED SEPTEMBER 30, 2000 VERSUS NINE MONTHS ENDED SEPTEMBER 30, 1999 Net Sales. Net sales for the nine months ended September 30, 2000, increased by approximately $25,913,000, or 13%, when compared with the same period last year. Automatic mirror unit shipments increased from approximately 4,413,000 in the first nine months of 1999 to 5,063,000 in the first nine months of 2000. This increase primarily reflected increased penetration on 2000 and 2001 model year vehicles for interior and exterior electrochromic Night Vision Safety(TM) (NVS(R)) Mirrors. Shipments to customers in North America increased by 4%, primarily due to higher industry production levels, partially offset by exterior mirror package changes on certain General Motors sport/utility vehicles. Mirror unit shipments to automotive customers outside North America increased by 43% compared with the first nine months in 1999, primarily due to increased interior and exterior mirror sub-assembly shipments to European and Japanese automakers. Net sales of the Company's fire protection products increased 3%, primarily due to higher sales of certain of the Company's smoke detectors and signaling products. Cost of Goods Sold. As a percentage of net sales, cost of goods sold increased from 57% in the first nine months of 1999, to 58% for the comparable period in 2000. This increased percentage primarily reflected customer price reductions and the start-up of the Company's third automotive manufacturing facility, partially offset by increased sales spread over fixed overhead expenses and improved glass yields. -6-
7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION - CONTINUED RESULTS OF OPERATIONS - CONTINUED: NINE MONTHS ENDED SEPTEMBER 30, 2000 VERSUS NINE MONTHS ENDED SEPTEMBER 30, 1999 (CONT.) Operating Expenses. For the nine months ended September 30, 2000, research and development expenses increased approximately $2,112,000, and increased from 5% to 6% of net sales, when compared with the same period last year, primarily reflecting additional staffing, engineering and testing for new product development, including mirrors with additional electronic features. Selling, general and administrative expenses increased approximately $2,290,000, and increased from 5% to 6% of net sales, when compared with the first nine months of 1999. This increased expense primarily reflected the start-up and expansion of the Company's overseas sales and engineering offices. Other Income - Net. Other income for the nine months ended September 30, 2000, increased by approximately $2,660,000 when compared with the first nine months of 1999, primarily due to higher interest rates and investable fund balances, partially offset by lower realized gains on the sale of equity investments. FINANCIAL CONDITION: Management considers the Company's working capital and long-term investments totaling approximately $305,373,000 at September 30, 2000, 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 is subject to market risk exposures of varying correlations and volatilities, including foreign exchange rate risk, interest rate risk and equity price risk. The Company has some assets, liabilities and operations outside the United States, which currently are not significant. Because the Company sells its automotive mirrors throughout the world, it could be significantly affected by weak economic conditions in foreign markets that could reduce demand for its products. 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 currently supplies NVS(R) Mirrors to DaimlerChrysler AG and General Motors Corporation under long-term agreements. The long-term supply agreement with DaimlerChrysler AG runs through the 2003 Model Year, while the GM contract was extended through the 2004 Model Year for inside mirrors. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The information called for by this item is provided under the caption "Trends and Developments" under Item 2 - Management's Discussion and Analysis of Results of Operations and Financial Condition. Statements in this Quarterly Report on Form 10-Q which express "belief", "anticipation" or "expectation" as well as other statements which are not historical fact, are forward-looking statements and involve risks and uncertainties described under the headings "Management's Discussion and Analysis of Results of Operations and Financial Condition" and "Trends and Developments" that could cause actual results to differ materially from those projected. All forward-looking statements in this Report are based on information available to the Company on the date hereof, and the Company assumes no obligation to update any such forward-looking statements. -7-
8 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, 2000. -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: 10/27/00 /s/ Fred T. Bauer ------------------------------ -------------------------------- Fred T. Bauer Chairman and Chief Executive Officer Date: 10/27/00 /s/ Enoch C. Jen ------------------------------- -------------------------------- Enoch C. Jen Vice President - Finance, Principal Financial and Accounting Officer -9-
10 EXHIBIT INDEX <TABLE> <CAPTION> EXHIBIT NO. DESCRIPTION PAGE - ----------- ----------- ---- <S> <C> <C> 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, 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, and an Amendment to Articles of Incorporation, adopted on May 21, 1998, was filed as Exhibit 3(a)(2) to Registrant's Report on Form 10-Q dated July 30, 1998, all of which are hereby incorporated herein be reference. 3(b)(1) Registrant's Bylaws as amended and restated August 18, 2000. 12 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. 4(b)(3) Third Amendment to Shareholder Protection Rights Agreement, effective March 12, 1999, was filed as Exhibit 4(b)(3) to Registrant's Report on Form 10-Q on April 30, 1999, 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. </TABLE> -10-
11 <TABLE> <CAPTION> EXHIBIT NO. DESCRIPTION PAGE - ----------- ----------- ---- <S> <C> <C> 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 August 25, 1997) was filed as Exhibit 10(b)(1) to Registrant's Report on Form 10-Q, 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. *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 by 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 </TABLE> *Indicates a compensatory plan or arrangement. -11-