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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, 2003, 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
---------------- ---------------
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
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 17, 2003
----- -------------------
Common Stock, $0.06 Par Value 76,714,360
Exhibit Index located at page 13
Page 1 of 17
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
GENTEX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
September 30, 2003 December 31, 2002
------------------ -----------------
(Unaudited) (Audited)
----------- ---------
CURRENT ASSETS
Cash and cash equivalents $311,652,759 $168,834,111
Short-term investments 74,073,554 46,816,690
Accounts receivable, net 63,336,025 35,890,380
Inventories 20,341,487 17,742,009
Prepaid expenses and other 9,738,953 7,515,219
---------------- -------------------
Total current assets 479,142,778 276,798,409
PLANT AND EQUIPMENT - NET 124,947,036 124,982,665
OTHER ASSETS
Long-term investments 114,481,305 203,358,933
Patents and other assets, net 4,612,960 4,032,660
---------------- -------------------
Total other assets 119,094,265 207,391,593
---------------- -------------------
Total assets $723,184,079 $609,172,667
================ ===================
LIABILITIES AND SHAREHOLDERS' INVESTMENT
CURRENT LIABILITIES
Accounts payable $17,099,346 $11,793,726
Accrued liabilities 30,308,589 17,266,309
---------------- -------------------
Total current liabilities 47,407,935 29,060,035
DEFERRED INCOME TAXES 13,972,998 6,472,270
SHAREHOLDERS' INVESTMENT
Common stock 4,602,862 4,573,282
Additional paid-in capital 144,313,912 123,923,391
Other shareholders' investment 512,886,372 445,143,689
---------------- -------------------
Total shareholders' investment 661,803,146 573,640,362
---------------- -------------------
Total liabilities and
shareholders' investment $723,184,079 $609,172,667
================ ===================
See accompanying notes to condensed consolidated financial statements.
- 2 -
GENTEX CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended Nine Months Ended
September 30 September 30
-------------------------------- ------------------------------
2003 2002 2003 2002
---- ---- ---- ----
NET SALES $112,878,954 $101,516,275 $345,104,850 $287,911,087
COST OF GOODS SOLD 65,793,563 60,820,878 201,621,876 172,959,610
-------------------------------- ------------------------------
Gross profit 47,085,391 40,695,397 143,482,974 114,951,477
OPERATING EXPENSES:
Engineering, research and development 6,944,138 5,974,215 19,462,760 17,183,818
Selling, general
& administrative 5,693,743 5,142,636 17,310,739 15,426,934
-------------------------------- ------------------------------
Total operating expenses 12,637,881 11,116,851 36,773,499 32,610,752
-------------------------------- ------------------------------
Income from operations 34,447,510 29,578,546 106,709,475 82,340,725
OTHER INCOME (EXPENSE)
Interest, net 2,372,517 2,996,813 7,796,492 8,673,118
Other 1,225,098 (832,098 574,035 382,911
-------------------------------- ------------------------------
Total other income 3,597,615 2,164,715 8,370,527 9,056,029
-------------------------------- ------------------------------
Income before provision
for income taxes 38,045,125 31,743,261 115,080,002 91,396,754
PROVISION FOR INCOME TAXES 12,364,000 10,316,000 37,400,000 29,705,500
-------------------------------- ------------------------------
NET INCOME $25,681,125 $21,427,261 $77,680,002 $61,691,254
================================ ==============================
Earnings Per Share:
Basic $0.34 $0.28 $1.02 $0.82
Diluted $0.33 $0.28 $1.01 $0.81
Cash Dividend Declared Per Share $0.15 $0.00 $0.15 $0.00
See accompanying notes to condensed consolidated financial statements.
- 3 -
GENTEX CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30,
-------------------------------
2003 2002
----------------- -----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $77,680,002 $61,691,254
Adjustments to reconcile net income to net
cash provided by operating activities-
Depreciation and amortization 15,977,561 14,329,578
Loss on disposal of asset 75,626 11,180
(Gain) loss on sale of investments 872,848 443,899
Deferred income taxes 490,376 2,497,161
Amortization of deferred compensation 844,226 854,654
Change in operating assets and liabilities:
Accounts receivable, net (27,445,645) (8,781,020)
Inventories (2,599,478) (3,243,821)
Prepaid expenses and other (1,376,344) 1,684,689
Accounts payable 5,305,620 4,715,864
Accrued liabilities 1,535,126 6,218,602
Tax benefit of stock plan transactions 5,993,320 4,573,608
---------------- ----------------
Net cash provided by
operating activities 77,353,238 84,995,648
---------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Plant and equipment additions (15,982,008) (25,534,851)
Proceeds from sale of plant and equipment 72,000 189,926
(Increase) decrease in investments 78,356,378 (56,873,394)
Increase in other assets (552,725) (849,620)
---------------- ----------------
Net cash provided by (used for)
investing activities 61,893,645 (83,067,939)
---------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock from
stock plan transactions 13,818,575 9,849,502
Repurchases of common stock (10,246,810) 0
---------------- ----------------
Net cash provided by (used for)
financing activities 3,571,765 9,849,502
---------------- ----------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 142,818,648 11,777,211
CASH AND CASH EQUIVALENTS,
beginning of period 168,834,111 139,784,721
---------------- ----------------
CASH AND CASH EQUIVALENTS,
end of period $311,652,759 $151,561,932
================ ================
See accompanying notes to condensed consolidated financial statements.
- 4 -
GENTEX CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED 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 accounting principles generally accepted in the United
States 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 2002 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, 2003, 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:
September 30, 2003 December 31, 2002
------------------ -----------------
Raw materials $11,549,405 $ 9,911,022
Work-in-process 1,914,729 1,744,372
Finished goods 6,877,353 6,086,615
----------- -----------
$20,341,487 $17,742,009
=========== ===========
(4) The following table reconciles the numerators and denominators used in the
calculation of basic and diluted earnings per share (EPS):
Quarter Ended September 30, Nine Months Ended September 30,
--------------------------- -------------------------------
2003 2002 2003 2002
---- ---- ---- ----
Numerators:
Numerator for both basic and
diluted EPS, net income $25,681,125 $21,427,261 $77,680,002 $61,691,254
Denominators:
Denominator for basic EPS,
weighted-average shares
outstanding 76,348,527 75,688,349 76,106,950 75,379,342
Potentially dilutive shares
resulting from stock plans 1,220,334 896,892 960,198 1,142,173
---------- ---------- ---------- ----------
Denominator for diluted EPS 77,568,861 76,585,241 77,067,148 76,521,515
========== ========== ========== ==========
Shares related to stock plans
not included in diluted average
common shares outstanding
because their effect would be
antidilutive 223,383 838,681 674,884 616,265
(5) At September 30, 2003, the Company had two stock option plans and an
employee stock purchase plan. The Company accounts for these plans under
the recognition and measurement principles of APB Opinion No. 25
(Accounting for Stock Issued to Employees) and related interpretations. No
stock-based employee compensation cost is reflected in net income, as all
options granted under these plans have an exercise price equal to the
market value of the underlying common stock on the date of grant. The
following table illustrates the effect on net income and earnings per share
if the Company had applied the fair value recognition provisions of
Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for
Stock-Based Compensation," to stock-based employee compensation.
-5-
GENTEX CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
Quarter Ended September 30, Nine Months Ended September 30,
--------------------------- -------------------------------
2003 2002 2003 2002
---- ---- ---- ----
Net income, as reported $25,681,125 $21,427,261 $77,680,002 $61,691,254
Deduct: Total stock-based employee
compensation expense determined
under fair-value-based method of all
awards, net of tax effects (2,717,304) (2,185,168) (7,731,314) (5,887,502)
----------- ----------- ------------ -----------
Pro forma net income $22,963,821 $19,242,093 $69,948,688 $55,803,752
=========== =========== =========== ===========
Earnings per share:
Basic -- as reported $ .34 $ .28 $ 1.02 $ .82
Basic -- pro forma .30 .25 .92 .74
Diluted -- as reported .33 .28 1.01 .81
Diluted -- pro forma .30 .25 .91 .73
(6) 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:
September 30, 2003 September 30, 2002
------------------ ------------------
Quarter Ended $27,635,064 $14,516,584
Nine Months Ended 89,260,627 47,347,162
(7) The increase in common stock during the quarter ended September 30, 2003,
is attributable to the issuance of 316,721 shares of the Company's common
stock under its stock-based compensation plans. The increase in common
stock during the nine months ended September 30, 2003, is attributable to
the issuance of 907,990 shares of the Company's common stock under its
stock-based compensation plans, partially offset by the repurchase of
415,000 shares. The Company has recorded a $0.15 per share cash dividend
declared on August 18, 2003, totaling approximately $11,506,000.
(8) 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:
Quarter Ended September 30, Nine Months Ended September 30,
--------------------------------- ---------------------------------
Revenue: 2003 2002 2003 2002
---- ---- ---- ----
Automotive Products $107,020,164 $95,993,245 $328,091,167 $271,453,080
Fire Protection Products 5,858,790 5,523,030 17,013,683 16,458,007
------------ ------------- ------------ ------------
Total $112,878,954 $101,516,275 $345,104,850 $287,911,087
============ ============ ============ ============
Operating Income:
Automotive Products $33,184,710 $28,642,341 $103,318,451 $ 79,334,411
Fire Protection Products 1,262,800 936,205 3,391,024 3,006,314
----------- -------------- ------------ -------------
Total $34,447,510 $29,578,546 $106,709,475 $ 82,340,725
=========== =========== ============ =============
-6-
GENTEX CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
(9) In order to avoid the registration requirements of the Investment
Company Act of 1940, the Company changed its intent to hold certain of its
held-to-maturity investments and therefore reclassified investments in debt
securities with a net carrying value of $202 million from held-to-maturity
to available-for-sale during the second quarter of 2003. The unrealized
gain on these securities, net of income taxes, was approximately $1 million
at the time of the reclassification and was recorded in accumulated other
comprehensive income within shareholders' investment at June 30, 2003.
(10) New Accounting Pronouncements -- Financial Accounting Standards Board
(FASB) Interpretation No. 45, "Guarantor's Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness
of Others," changes current practice in accounting for, and disclosure of,
guarantees. Interpretation No. 45 will require certain guarantees to be
recorded as liabilities at fair value on the Company's balance sheet.
Current practice requires liabilities related to guarantees to be recorded
only when a loss is probable and reasonably estimable, as those terms are
defined in SFAS No. 5, "Accounting for Contingencies." Interpretation No.
45 also requires a guarantor to make significant new disclosures, even when
the likelihood of making any payments under the guarantee is remote, which
is another change from current practice. The disclosure requirements of
Interpretation No. 45 were effective as of December 31, 2002; however the
Company currently does not have significant third-party guarantees or
warranty liabilities that would require disclosure under the
interpretation. The initial recognition and measurement provisions are
applicable on a prospective basis to guarantees issued or modified after
December 31, 2002. The recognition and measurement provisions were adopted,
prospectively, as of January 1, 2003, and did not have a significant effect
on the Company's consolidated financial position or results of operations.
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation -- Transition and Disclosure -- an amendment of FASB Statement
No. 123." SFAS No. 148 amends SFAS No. 123, "Accounting for Stock-Based
Compensation," to provide alternative methods of transition for a voluntary
change to the fair-value-based method of accounting for stock-based
employee compensation. In addition, SFAS No. 148 amends the disclosure
requirements of SFAS No. 123 to require disclosure in interim financial
statements regarding the method used on reported results. The Company does
not intend to adopt a fair-value-based method of accounting for stock-based
employee compensation until a final standard is issued by the FASB that
requires this accounting. Pro forma disclosures of quarterly earnings using
the fair-value method are included in Note 5 of this Form 10-Q.
In January 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities." This standard clarifies the application of
Accounting Research Bulletin No. 51, "Consolidated Financial Statement,"
and addresses consolidation by business enterprises of variable interest
entities. Interpretation No. 46 requires existing unconsolidated variable
interest entities to be consolidated by their primary beneficiaries if the
entities do not effectively disperse risk among the parties involved.
Interpretation No. 46 also enhances the disclosure requirements related to
variable interest entities. This interpretation is effective immediately
for variable interest entities created or in which an enterprise obtains an
interest after January 31, 2003. Interpretation No. 46 will be effective
for the Company beginning October 1, 2003, for all interest in variable
interest entities acquired before February 1, 2003. The adoption of
Interpretation No. 46 is not expected to have a significant effect on the
Company's consolidated financial position or results of operations.
-7-
GENTEX CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
RESULTS OF OPERATIONS:
THIRD QUARTER 2003 VERSUS THIRD QUARTER 2002
Net Sales. Net sales for the third quarter of 2003 increased by
approximately $11,363,000, or 11%, when compared with the third quarter
last year. Net sales of the Company's automotive mirrors increased by
$11,027,000, or 11%, as electrochromic (automatic-dimming) mirror unit
shipments increased by 12% from approximately 2,206,000 in the third
quarter of 2002 to 2,475,000 in the current quarter. These increases
reflected the increased penetration of interior and exterior
automatic-dimming Night Vision Safety(TM) (NVS(R)) Mirrors on 2003 and
2004 model year vehicles plus additional electronic feature content.
Unit shipments to customers in North America for the third quarter of
2003 increased by 7% compared to the same period in the prior year,
primarily due to increased penetration, despite a 5% decline in North
American automotive light vehicle production levels. Mirror unit
shipments to automotive customers outside North America increased by
19% for the third quarter of 2003 compared with the third quarter in
2002, primarily due to increased interior and exterior mirror
sub-assembly shipments to European and Asian-Pacific automakers. Net
sales of the Company's fire protection products increased 6% for the
third quarter of 2003, 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
decreased from 60% in the third quarter of 2002 to 58% in the third
quarter of 2003. This decreased percentage primarily reflected the
higher sales level leveraged over the fixed overhead costs and product
mix, partially offset by annual customer price reductions. Each factor
is estimated to have impacted cost of goods sold as a percentage of net
sales by approximately 1-2%.
Operating Expenses. Engineering, research and development expenses for
the quarter increased approximately $970,000, but remained at 6% of net
sales, primarily reflecting additional staffing, engineering and
testing for new product development, including mirrors with additional
electronic features. Selling, general and administrative expenses
increased approximately $551,000 for the quarter, but remained at 5% of
net sales, when compared with the third quarter of 2002. This increased
expense primarily reflected the continued expansion of the Company's
overseas sales and engineering offices.
Other Income - Net. Other income increased by approximately $1,433,000
for the quarter when compared with the third quarter of 2002, primarily
due to realized gains on the sale of fixed-income investments during
the third quarter of 2003 compared to realized losses on the sale of
equity investments during the third quarter of 2002.
NINE MONTHS ENDED SEPTEMBER 30, 2003, VERSUS NINE MONTHS ENDED
SEPTEMBER 30, 2002
Net Sales. Net sales for the nine months ended September 30, 2003,
increased by approximately $57,194,000, or 20%, when compared with the
same period last year. Automatic-dimming mirror unit shipments
increased by 15% from approximately 6,540,000 in the first nine months
of 2002 to 7,544,000 in the first nine months of 2003. This increase
reflected the increased penetration on 2003 and 2004 model year
vehicles for interior and exterior automatic-dimming mirrors. Unit
shipments to customers in North America increased by 10% for the first
nine months of 2003, primarily due to increased penetration, despite a
4% decline in North American automotive light vehicle production
levels. Mirror unit shipments to automotive customers outside North
America increased by 23% for the first nine months of 2003 compared
with the first nine months in 2002, primarily due to increased interior
and exterior mirror sub-assembly shipments to European and
Asian-Pacific automakers. Net sales of the Company's fire protection
products increased 3% for the first nine months of 2003, primarily due
to higher sales of certain of the Company's signaling products.
Cost of Goods Sold. As a percentage of net sales, cost of goods sold
decreased from 60% in the first nine months of 2002 to 58% in the first
nine months of 2003. This decreased percentage primarily reflected the
higher sales
-8-
NINE MONTHS ENDED SEPTEMBER 30, 2003, VERSUS NINE MONTHS ENDED
SEPTEMBER 30, 2002 - (CONT.):
level leveraged over the fixed overhead costs and product mix,
partially offset by annual customer price reductions. Each factor is
estimated to have impacted cost of goods sold as a percentage of net
sales by approximately 1-2%.
Operating Expenses. For the nine months ended September 30, 2003,
engineering, research and development expenses increased approximately
$2,279,000, but remained at 6% 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 $1,884,000 for the first nine months of 2003, but
remained at 5% of net sales, when compared to the first nine months of
2002. This increased expense primarily reflected the continued
expansion of the Company's overseas sales and engineering offices.
Other Income -- Net. Other income for the nine months ended September
30, 2003, decreased by approximately $686,000 when compared with the
first nine months of 2002, primarily due to decreased investment income
as a result of declining interest rates.
FINANCIAL CONDITION:
Cash flow from operating activities for the nine months ended September
30, 2003, decreased $7,642,000 to $77,353,000, compared to $84,996,000
for the same period last year, primarily due to increased accounts
receivable, partially offset by increased net income. Capital
expenditures for the nine months ended September 30, 2003, were
$15,982,000, compared to $25,535,000 for the same period last year,
primarily due to the purchase of a company airplane in 2002.
Cash and cash equivalents as of September 30, 2003, increased
approximately $142,819,000 compared to December 31, 2002. The increase
was primarily due to the sale of approximately $100 million of
fixed-income investments during the quarter ended September 30, 2003,
as well as cash flow from operations.
Accounts receivable as of September 30, 2003, increased approximately
$27,446,000 compared to December 31, 2002. The increase was primarily
due approximately equally to increased sales and to a change in payment
terms by the Company's largest customer, which formerly paid for each
month's shipments by the end of the following month and, effective with
the 2004 model year, now pays for each month's shipments by the
beginning of the second month following the month of shipment.
Accrued liabilities as of September 30, 2003, increased approximately
$13,042,000 compared to December 31, 2002, primarily due to the
declaration of a cash dividend. On August 18, 2003, the Company
announced a change in the Company's cash dividend policy and declared
an initial quarterly dividend of $0.15, payable on October 17, 2003.
The increase in deferred taxes as of September 30, 2003, compared to
December 31, 2002, is primarily due to a change from an unrealized loss
on investments as of December 31, 2002, to an unrealized gain on
investments as of September 30, 2003.
Management considers the Company's working capital and long-term
investments totaling approximately $557,723,000 at September 30, 2003,
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 next year and for the foreseeable
future.
On October 8, 2002, the Company announced a share repurchase plan,
under which the Company may purchase up to 4,000,000 shares based on a
number of factors, including market conditions, the market price of the
Company's common stock, anti-dilutive effect on earnings, available
cash and other factors as the Company deems appropriate. During the
quarter ended March 31, 2003, the Company repurchased 415,000 shares at
a cost of approximately $10,247,000. No shares were repurchased during
the quarters ended June 30 and September 30, 2003.
-9-
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. During the quarter ended September 30,
2003, there were no significant changes in the market risks reported in
the Company's 2002 Form 10-K report.
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 worldwide markets
that could reduce demand for its products. The Company utilizes the
forecasting services of J.D. Power and Associates, and its current
forecasts for light vehicle production are approximately 16.0 million
units in North America, 16.0 million units in Western Europe and 20.3
million units in the Asia-Pacific region for calendar 2003.
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, profit pressures at certain automakers are resulting in
increased cost reduction efforts by them, including requests for
additional price reductions, decontenting certain features from
vehicles, and warranty cost-sharing programs, which could adversely
impact the Company's sales growth and margins. The Company also
continues to experience from time to time some pressure for select raw
material cost increases.
Automakers have been experiencing increased volatility and uncertainty
in executing planned new programs which have, in some cases, resulted
in cancellations or delays of new vehicle platforms, package
reconfigurations and inaccurate volume forecasts. In addition, there
remains uncertainty associated with automotive light vehicle production
schedules for the balance of the year due to weaker automotive sales,
the economy and geopolitical factors, including the occupation in Iraq.
This increased volatility and uncertainty has made it more difficult
for the Company to forecast future sales and effectively utilize
capital, engineering, research and development, and human resource
investments.
The Company does not have any significant off-balance sheet
arrangements or commitments that have not been recorded in its
consolidated financial statements.
On October 1, 2002, Magna International acquired Donnelly Corporation.
Magna Donnelly is the Company's major competitor for sales of
automatic-dimming rearview mirrors to domestic and foreign vehicle
manufacturers and their mirror suppliers. The Company also sells
certain automatic-dimming rearview mirror sub-assemblies to Magna
Donnelly. To date, the Company is not aware of any significant impact
of Magna's acquisition of Donnelly upon the Company; however, any
ultimate significant impact has not yet been determined.
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.
ITEM 4. CONTROLS AND PROCEDURES
As of September 30, 2003, an evaluation was performed under the
supervision and with the participation of the Company's management,
including the CEO and CFO, of the effectiveness of the design and
operation of the Company's disclosure controls and procedures [(as
defined in Exchange Act Rules 13a -- 15(e) and 15d -- 15(e)]. Based on
that evaluation, the Company's management, including the CEO and CFO,
concluded that the Company's disclosure controls and procedures were
adequate and effective as of September 30, 2003, to ensure that
material information relating to the Company would be made known to
them by others within the Company, particularly during the period in
which this Form 10-Q was being prepared. During the period covered by
this quarterly report, there have been no changes in the Company's
internal controls over financial reporting that have materially
affected or are likely to materially affect the Company's internal
controls over financial reporting.
-10-
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 heading
"Management's Discussion and Analysis of Results of Operations and
Financial Condition" 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.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) See Exhibit Index on Page 13.
(b) During the three months ended September 30, 2003, two
reports on Form 8-K were filed on July 16, and August
18, 2003, to disclose the Company's financial results
for the second quarter ended June 30, 2003, and a change
in the Company's cash dividend policy, respectively.
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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: November 4, 2003 /s/ Fred T. Bauer
------------------- --------------------------------------
Fred T. Bauer
Chairman and Chief
Executive Officer
Date: November 4, 2003 /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)(1) 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 by reference.
3(b)(1) Registrant's Bylaws as amended and restated February 27, 2003,
was filed as Exhibit 3(b)(1) to Registrant's Report on Form
10-Q dated May 5, 2003, 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) Amended and Restated Shareholder Protection Rights Agreement,
dated as of March 29, 2001, 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 10-Q dated April 27, 2001, 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 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 Second Restricted Stock Plan was filed as
Exhibit 10(b)(2) to Registrant's Report on Form 10-Q dated
April 27, 2001, and the same is hereby incorporated herein by
reference.
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EXHIBIT NO. DESCRIPTION PAGE
*10(b)(3 Gentex Corporation 2002 Non-Employee Director Stock Option
Plan (adopted March 6, 2002), was filed as Exhibit 10(b)(4) to
Registrant's Report on Form 10-Q dated April 30, 2002, and the
same is incorporated herein by reference.
10(e) The form of Indemnity Agreement between Registrant and each of
the Registrant's directors and certain officers was filed as
Exhibit 10 (e) to Registrant's Report on Form 10-Q dated
October 31, 2002, and the same is incorporated herein by
reference.
31.1 Certification of the Chief Executive Officer of Gentex
Corporation pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002 (18 U.S.C. 1350). 15
31.2 Certification of the Chief Financial Officer of Gentex
Corporation pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002 (18 U.S.C. 1350). 16
32 Certificate of the Chief Executive Officer and the Chief
Financial Officer of Gentex Corporation pursuant to Section 906
of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350). 17
*Indicates a compensatory plan or arrangement.
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