Gentex Corp (GNTX) 2008 Q1 法說會逐字稿

Good morning, ladies and gentlemen. Welcome to the Gentex Corporation 2008 first-quarter earnings conference call. I would now like to turn the meeting over to Miss Connie Hamblin, Vice President of Investor Relations and Corporate Communication. Please go ahead, Miss Hamblin.

Thank you. Good morning, everyone. This is Connie Hamblin. With me on the call today is Enoch Jen, our Senior Vice President, and Steve Dykman, our Chief Financial Officer. This call is being recorded by Gentex, and it is being broadcast live on the Internet on our website at www.gentex.com. And there's also an auto playback available there.

Before I proceed with reading through our Safe Harbor statement and other comments, I want to take this opportunity to remind everyone that Gentex has a quiet period every quarter that encompasses the last 10 business days of the quarter and lasts through the date of our quarterly earnings release and conference call.

We have recently received a number of phone calls asking for additional information that the caller believes is outside the scope of additional quarterly or forward-looking guidance. But the majority of the calls in question -- such as updates on rear camera display volumes, further clarifications on specific products, or contracts, et cetera -- are items that we believe do fall within the scope of incremental, nonpublic information.

Therefore, we are not and will not be willing to discuss or take calls on items like this in the future. This quiet period policy was put in place a number of years ago to ensure proper, timely, and fair disclosure of incremental information and make it available to everyone at the same time. We do appreciate your understanding and adherence to this policy.

This call is being recorded by Gentex Corporation. All contents of Gentex Corporation's conference calls are the property of Gentex. No such content may be copied, published, reproduced, rebroadcast, retransmitted, or otherwise redistributed without the express written consent of Gentex Corporation. Gentex alone holds such rights.

While we understand that there may be companies that transcribe and redistribute our conference calls notwithstanding this warning, Gentex Corporation provides no authorization to do so and expressively disclaims any responsibility for any unauthorized use of the content. We advise that you should not rely on the content of any unauthorized transcripts, as Gentex Corporation will not be held liable for the content of any such transcript.

Gentex Corporation will hold responsible and liable any party for any damages incurred by Gentex with respect to any such unauthorized use. Your participation implies consent to our taping and to the foregoing terms. Please drop off the line if you do not agree to these terms.

Our Safe Harbor statement. The following presentation may include forward-looking statements that are based on management's beliefs, assumptions, current expectations, estimates, and projections about top-line growth and the global automotive industry; the economy; the impact of stock option expenses on earnings; the ability to leverage fixed manufacturing overhead costs; unit shipment growth rates; and the Company itself.

Words like anticipates, beliefs, confidence, estimates, expects, forecasts, likely, plans, projects, and should, and variations of such words and similar expressions identify forward-looking statements. These statements do not guarantee future performance and involve certain risks and uncertainties and assumptions that are difficult to predict with regard to timing, expense, likelihood, and degree of occurrence, and actual results may differ materially from those in the forward-looking statements.

The Company undertakes no obligation to update, amend, or clarify forward-looking statements whether as a result of new information, future events, or otherwise. We urge you to review the full Safe Harbor statement that is contained in the news release that is posted on our website.

At this point, I will turn the call over to Enoch Jen. And then after Enoch makes his remarks with respect to the quarter, the call will be opened up for Q&A.

We do, as always, ask that you ask one question at a time so that other individuals have an opportunity to participate. And we do appreciate your cooperation. Thank you.

Good morning. Thank you for taking the time to join us for this conference call. Despite a challenging environment, we're pleased to report strong operating results for the first quarter. For the first quarter, we reported record revenues of $178 million, a 13% increase over the $157.2 million reported in the first quarter of 2007.

Our operating income for the first quarter was $40 million, an 18% increase over the $33.9 million reported in the first quarter of 2007. We also reported record first-quarter net income of $30.4 million, a 3% increase over the $29.5 million reported in the first quarter of 2007. Our diluted earnings per share for the first quarter was $0.21, which was the same as what was reported in the first quarter of 2007.

Looking at automotive revenues and auto-dimming mirror unit shipments, our automotive revenues increased by 14% from $151.1 million in the first quarter of 2007 to $172.1 million in the first quarter of 2008. The UAW strike negatively impacted first-quarter automotive revenues by approximately $2.5 million. Total auto-dimming mirror unit shipments increased by about 10% in the first quarter of 2008 compared with the first quarter last year.

Auto-dimming mirror unit shipments in North America increased by 2% in the first quarter of 2008 compared with the same period in 2007 despite the UAW strike that has shut down many GM plants for a number of weeks. The increase in unit shipments in North America during the first quarter was primarily due to increased interior auto-dimming mirror unit shipments for certain Asian transplant automakers.

North American light vehicle production decreased by 8% in the first quarter of 2008 compared with the same prior-year period. GMT900 light vehicle production was down 32% in the first quarter of 2008 compared to the same period in 2007.

Auto-dimming mirror unit shipments to offshore customers increased by 17% in the first quarter of 2008 compared with the same period last year. The increase to unit shipments was primarily due to higher penetration of interior and exterior auto-dimming mirrors at certain European and Asian customers. Light vehicle production in Europe increased by 0.5% in the first quarter and increased by 6% in Japan and Korea in the first quarter of 2008 compared with the same period last year.

Looking next at average selling price. The average selling price for auto-dimming mirrors was $40.94 in the first quarter of 2008. The ASP decreased from $42.47 in the fourth quarter of 2007 to $40.94 in the first quarter of 2008, primarily due to product mix and annual customer price reductions. Based on our current forecast, we would expect the ASP in the second quarter and for calendar year 2008 to be in the range of $41 to $42, depending on product mix.

The ASP increased on a year-over-year basis from the first quarter of 2007, when it was $40, to the $40.94 in the first quarter of 2008 primarily due to the higher contented interior mirrors partially offset by annual customer price reductions. First-quarter 2008 and calendar-year 2008 ASPs exclude non-auto-dimming mirrors and microphone units. This is how we will be reporting ASPs going forward.

Fire protection revenues decreased by 3% to $5.9 million for the first quarter of 2008 compared with the same period last year.

Looking at our gross profit margin, the gross profit margin of 35.2% in the first quarter 2008 was higher than the fourth quarter of 2007 gross margin of 34.2%, primarily due to purchasing cost reductions, product mix, and foreign exchange rates, partially offset by annual customer price reductions.

We expect our gross margin in the second quarter and calendar year 2008 to be in the range of the margin of 35.2% reported in the first quarter of 2008, depending upon top-line growth, purchasing cost reductions, the depth and duration of the UAW strikes, and the offsets provided by shipments of our new featured mirror products as well as shipments to automakers based outside North America.

The gross profit margin will continue to be impacted by annual customer price reductions, uncertain automotive industry production levels, our ability to leverage our fixed overhead costs, purchasing cost reductions and VAVE initiatives, and manufacturing yields.

Looking next at engineering, research, and development expense. ER&D expense increased by 4% in the fourth quarter of 2008 compared with the same 2007 period. The increased expense was primarily due to additional staffing and engineering for new product development in new vehicle programs, such as RCD and SmartBeam, partially offset by decreased patent litigation expenses.

Expense related to the Muth litigation was $104,000 in the first quarter of 2008 compared with $1.4 million in the first quarter of 2007. Excluding the Muth litigation expense and the litigation judgment accrual reversal of $335,000 in the quarter, ER&D expense would have increased by approximately 19% in the first quarter of 2008 compared with the same prior-year period.

Expense related to the Muth litigation was in connection with lawsuits between the Company and K.W. Muth and Muth Mirror Systems, LLC, collectively referred to as Muth, related to exterior mirrors with turn signal indicators. The litigation did not involve core Gentex electrochromic technology and was settled on February 15, 2008.

In the settlement and release agreement and covenants not to sue, the parties agree to settle the court's judgment against Gentex for damages related to breach of contract at a reduced amount of $2.550 million compared with the original $2.885 million judgment originally entered by the court. In addition, under the agreement the parties agree to grant the other party a 10-year covenant not to sue for each company's core business, to release each other from all claims that occurred in the past, and to not appeal the court's rulings.

The $335,000 adjustment to the original judgment amount for damages is reflected in the Company's financial results for the first quarter of 2008. ER&D expense is currently expected to increase by approximately 5% to 10% for the second quarter and calendar year 2008. Excluding the Muth litigation expense, ER&D expense is expected to increase by 15% to 20%.

Selling, general, and administrative expense increased by 19% in the first quarter of 2008 compared with the same prior-year period. The increase was primarily due to the continued expansion of the Company's overseas sales offices, as well as foreign exchange rates. We now believe that SG&A expense will increase in the second quarter and calendar year 2008 by approximately 15% to 20%. This increase is primarily due to continued expansion of our overseas offices and foreign exchange rates.

Looking next at other income. Total other income decreased by 43% in the first quarter of 2008 compared with the same prior-year period, primarily due to lower realized gains on the sale of equity investments. The breakdown of total other income for the first quarter 2008 is as follows: investment income, $4.050 million; other, net, $1.415 million. In light of the current stock market environment, we currently expect realized gains on the sale of equity investments for the balance of the year to be similar to the first quarter of 2008.

A few balance sheet items. As of March 31, 2008, accounts receivable was $59.9 million; inventories were $47 million; patents and other assets were $8.7 million; accounts payable were $34.4 million; and accrued liabilities were $53.2 million. Our tax rate was 33% in the first quarter of 2008 as compared with the statutory rate of 35%, primarily due to the domestic manufacturing reductions.

Tax benefits pertaining to stock option expense can significantly vary from quarter to quarter and year to year due to incentive stock option disqualifying disposition activity. The tax benefit pertaining to stock option expense was 38% in the first quarter of 2008 compared with 54% in the first quarter of 2007. Excluding stock option expensing, we currently expect that the tax rate for 2008 will be approximately 33.25%, based on current tax laws.

Our cash flow from operations for the quarter ended March 31, 2008, was $55.7 million. Our capital expenditures in the first quarter of 2008 was $14.1 million. Our depreciation expense for the first quarter of 2008 was $8.7 million. For calendar year 2008, our estimate for capital expenditures is approximately $45 million to $50 million. Our depreciation and amortization expense for 2008 is estimated at $34 million to $37 million.

An update on our share repurchase plan. During the first quarter 2008, the Company repurchased 2.2 million shares at a cost of approximately $34.6 million. The Company has a share repurchase plan in place with authorization to repurchase up to 28 million shares of Company stock. To date, including the prior share repurchases, the Company has repurchased approximately 20.2 million shares, leaving approximately 7.8 million shares authorized to be repurchased under the plan.

Cash dividends. On April 18, 2008, the Company paid a quarterly cash dividend of $0.105 per share to shareholders of record of the common stock at the close of business on April 7. The ex-dividend date was April 3.

Looking next at an update on SmartBeam. We continue to be pleased with progress we're making in the market acceptance for SmartBeam, the high-beam headlamp assist product that we introduced in the 2005 model year. We currently are shipping SmartBeam for 15 2008 vehicle programs. During 2008, we expect to announce and start shipping SmartBeam mirrors to the second and third European customers and our first Asian customer.

There are a number of follow-on programs for existing and new customers scheduled for the 2009 model year. Based on our existing forecasts, volumes and incremental sales dollars for SmartBeam will become more meaningful in the 2009 calendar year.

For the 2007 calendar year, we shipped approximately 305,000 SmartBeam units. Option rates have remained strong at 25% to 30% on average. For the 2008 calendar year, we currently expect to ship approximately 350,000 to 400,000 SmartBeam units.

Next, an update on our rear camera display, or RCD. In late 2006, we announced that we had developed a new product called the rear camera display, or RCD Mirror. The product is currently offered as original equipment on the Ford F-150 and Expedition and the Lincoln Navigator and Mark LT, as well as on the Kia Mohave and Hyundai Grandeur for the domestic Korean market.

We have found that there is significant interest in this feature for vehicles in the domestic Korean market despite the fact that there is no rear backup legislation there. We previously had announced that the RCD Mirror is available as a port- or dealer-installed option on the Mazda CX-9. The Company also previously announced that that RCD Mirror is available as a dealer- or port-installed option on the Toyota Camry through Gulf States Toyota.

We continue to work with a number of other customers on original equipment development programs for this product. This is not a long lead-time product, so upon receiving a production order from a customer we could be in volume production for other programs within nine to 12 months. The Company shipped approximately 65,000 RCD Mirrors in calendar year 2007, and we now estimate that we will ship between 350,000 and 400,000 units in calendar year 2008, approximately 100,000 units more than our previous forecast due to increased estimated take rates.

Based on this updated forecast, the Company continues to believe that RCD Mirror shipments will more than double in calendar year 2009 compared with calendar year 2008. The automakers currently offering a rear camera display product are doing this prior to any legislation and made their decision before any was pending.

As most of you have likely heard, the legislation called the Kids Transportation Safety Act of 2007 was signed into law by President Bush on February 28, 2008. The bill orders the Secretary of Transportation at the National Highway Traffic Safety Administration, or NHTSA, to initiate rulemaking to revise the federal standard to expand the field of view so that drivers can detect objects directly behind vehicles.

The requirements may be met by the use of additional mirrors, sensors, cameras, or other technology to increase the driver's field of view, which is the decision that NHTSA needs to make. NHTSA has done some independent studies already and appears to be leaning toward camera-based systems. With respect to timing, our understanding is that the clock started ticking on February 28, 2008, and NHTSA has 12 months to initiate rulemaking, 36 months to publish final standards, and then automakers will need to become fully compliant with the final standards within 48 months.

So in general, automakers will have approximately seven years to comply with the rule that NHTSA initiates. However, we expect early adoption by many automakers, and we are already seeing that with Ford and Hyundai Kia for the US and Korean markets.

An update on microphone units. At a customer's request, we are shipping Gentex's proprietary microphone units that are being incorporated in a prismatic interior mirror. At this time, we do not expect these revenues to be significant in 2008. However, the state of California recently enacted legislation making hands-free cell phone use while driving mandatory as of July 1, 2008. This new legislation should accelerate the use of microphones with voice recognition capabilities in vehicles and cold provide upward pressure on the sale of those units for auto-dimming and prismatic interior mirrors, since automakers are unlikely to build vehicles specifically for California and New York. At this time, we do not expect to provide guidance on unit shipments, incremental sales dollars, or average selling prices on microphones.

Next, an update on the Boeing 787 Dreamliner dimmable window program. We began shipping parts for the first test planes for the Boeing 787 Dreamliner series of aircraft at mid-year 2007. Boeing has now announced three delays for the final deliveries of aircraft to customers. The latest information is that the first planes will go into service in late 2009. Boeing has yet to inform suppliers as to what type of further delays to expect, and we anticipate that we would hear something from them in the next few months.

However, Boeing has stated publicly that it is studying ways to increase production rates to avoid late delivery penalties, and we currently believe that suppliers will still ship some product in calendar year 2008. However, we do not expect revenues from this program to be significant in calendar year 2008.

Other aircraft manufacturers have expressed interest in this technology, and we continue to work on those potential programs with PPG Aerospace.

Next, looking at top-line growth estimates. The following projections for top-line growth are based on CSM's preliminary mid-April light vehicle production forecast. Our estimate for top-line growth for the second quarter of 2008 is approximately 10% compared with the same period in 2007, based on the current forecasts for product mix, light vehicle production levels, and take rates. The duration and depth of the UAW and other potential strikes continue to be the wild cards in forecasting for the second quarter and the remainder of calendar year 2008.

Our estimate for top-line growth for calendar year 2008 is approximately 10% compared with calendar year 2007, based on the current forecasts for product mix, light vehicle production levels, and take rates.

The CSM light vehicle production forecast for the second quarter of 2008 is as follows: 3.9 million units for North America, which is a 5% decrease compared to the second quarter of 2007; 5.9 million vehicle units for Europe, which is a 5% increase compared to the second quarter of 2007; and 3.6 million units for Japan and Korea, which is a 1% increase compared to the second quarter of 2007.

The CSM light vehicle production forecast for calendar year 2008 is as follows: 14.3 million vehicles for North America, a 5% decrease over 2007; 22.4 million vehicles for Europe, a 3% increase compared to the prior year; and 15 million vehicle units for Japan and Korea, a 1% increase over the prior year.

At this time, I will turn the conference call back over to Connie.

Just as a quick reminder, all listeners should note that this call is being recorded by Gentex Corporation. All contents in Gentex Corporation's conference calls are the property of Gentex. No such content may be copied, published, reproduced, rebroadcast, retransmitted, or otherwise redistributed without the express written consent of Gentex Corporation.

Gentex alone holds such rights. While we understand that there may be companies that transcribe and redistribute our conference calls notwithstanding this warning, Gentex Corporation provides no authorization to do so and expressly disclaims any responsibility for any unauthorized use of the content.

We advise that you should not rely on the content of any unauthorized transcripts, as Gentex Corporation will not be held liable for the content of any such transcript. Gentex will hold responsible and liable to any party for any damages incurred by Gentex Corporation with respect to any such unauthorized use. Your participation implies consent to our taping and to the foregoing terms. Please drop off the line if you do not agree to these terms.

Right now, I guess that we will turn it over to Q&A, back to the operator, and then following that we will answer your questions.

(Operator Instructions). John Murphy, Merrill Lynch.

Just on the strike impact here, you guys are talking about $2.5 million of lost revenue as a result of the strike, and Good morning is talking about 100,000 units of lost GMT900 production. That would equate to $25 in content per truck included. That's way too low for the GMT900 for you. I'm just wondering if there might have been a delay in the decline in shipments or the shipments to GM for those trucks, or if the impact might be slightly greater in the second quarter.

Well, I think, John, one, we're not standard on the GMT900. Second, I think you are correct that there probably was some slight delay in production and plant shutdowns as they ran with the inventory they had on hand. From our perspective, the $2.5 million represented reduced shipments -- or limited shipments beginning in the last week in February.

So depending on the duration and depth of the UAW strike at American Axle, as well as some of the pending or threatened UAW strikes at local GM plants, we expect that the impact on the second quarter will be greater.

And if we just think about the contribution margin on that lost revenue, clearly it was very low in the first quarter because there was de minimis impact. What should we think about that contribution margin being going forward if we get a big hit from volume here?

Well, I think what we said previously, John, is that if our fully absorbed gross margin is approximately 35%, that our incremental or variable margin on average for our auto-dimming mirrors is approximately 10 percentage points higher.

Okay. And then just one second question on ForEx. You're in a very unique position in producing almost everything, all your mirrors, here and shipping overseas. I was just wondering how big a benefit that was in the first quarter on, not just the revenue line, but on the net line. And if that's something you are looking at potentially changing or even leveraging further going forward.

With our FX impact in the first quarter on the revenue side of things, it was between 1 and 2 percentage points. The gross margin impact is somewhat lower due to the fact that there's certain material purchases that we have in euros. And on the selling, general, and administrative expense line of that 19% year-over-year increase, about 4 percentage points of that increase pertain to foreign exchange rates.

And then just last, can you just remind us what's in your investment portfolio, roughly?

Within the long-term investments, it's primarily equity investments. Those funds are invested with over 15 managers of varying styles.

Okay, great. Thank you very much.

Rich Kwas, Wachovia.

Enoch or Steve, on the increase in gross margin, you just talked about FX benefit. When you look at the product mix and purchasing cost reductions, how would you bucket that out?

If you look at the three positive factors that occurred that helped the margin improvement in the first quarter, each of those factors were pretty equal contributors to the margin.

Okay. And then as you look forward for the rest of the year, do you expect that the benefits from each of those are going to change materially in terms of their contribution potentially? Or is there one that's going to be weighted a little bit more? Or how are you thinking about that?

Yes, I think that the potential for the purchasing cost reductions could be the number one item for improvement. And as we said in our last conference call that we felt on a year-over-year basis for calendar year 2008 that we can improve the margin as 25 to 50 basis points over the 2007 calendar year.

Okay. And then finally for revenue here as you're looking out, 10% is the guidance. But you had a nice bump up here in the first quarter above expectations. With mix seemingly getting better, shipments -- even with the strikes going on, the shipments seem to be stable for the most part and growing with your overseas business. It seems a little conservative to me. Is there anything else to read into that?

Well, I think when we look at the first quarter, our North American shipments were below expectations primarily due to the impact of the UAW strikes on the GM plants. However, there was a much stronger actual shipment into Europe and specifically Germany than what we had forecasted at the beginning of the quarter. So I think, going into the second quarter and the balance of the year, we're in the same position that we were at the beginning of this year, which is cautiously optimistic.

I think for those of you who follow the European sales, those sales levels did overall drop off in the month of March. So I think, as well as North America, there is some question as to the impact of some of the financial crises upon the overseas markets also.

But you're benchmarking your forecast against CSM's forecast for Europe, right?

That is correct. Yes.

Okay. Thank you.

Brett Hoselton, KeyBanc Capital.

Yes, just a reiteration of Richard's question. You've got better-than-expected performance in the first quarter. Second quarter, around 10% expectations. And when we look at CSM, we see generally improving expectations production-wise moving into the back half of the year. That kind of suggests that you just have some conservatism built into your forecast for the back half of the year. And that's what I hear you saying. Am I hearing that correctly?

Yes, I think that's fairly accurate that there just is a lot of uncertainty. Certainly in the second quarter, CSM does not have a lengthy, continued, extended UAW strike impact in their forecast. And so that makes us more cautious there. And, like we said in response to Richard's question, there is a lot of uncertainty not only in North America but also overseas when we look out for the second half of the year.

As you look at your forecast for RCD Mirrors in 2008 and then in 2009, obviously a pretty hefty increase in 2008. I understand based on increased penetration rates, but as you look at 2009 you're still looking at the potential for a double. What is the driver in 2009? Is it just a continuation of higher penetration rates, or is there some incremental customers there as well?

I think it's a combination of both. And the 100,000 units, the incremental 100,000 units, basically is increased rates in our forecast -- estimated take rates in our forecast on business that you don't even know about yet that we have not been able to announce.

Okay. So, some of the new customers that you talked about here today?

Yes.

Okay. As you think about the order of magnitude in terms of maybe the number of customers that you are working with, can you characterize for us what kind of order of magnitude? Obviously, you are working with three customers right now: Ford, Hyundai Kia, and then also Toyota on a port-installed basis. But in terms of order of magnitude, what can we look at going forward?

Well, I think in the -- when we initially announced RCD Mirrors, we had talked about three OEMs that we were working with. And at that time the three OEMs -- there was obviously some speculation that Toyota was one of those three because they had demonstrated the feature on one of their vehicles at the SEMA Show. Hyundai Kia was actually not one of the three. And then Ford -- with the Ford announcement, clearly Ford was the second. So I think it's safe to say that we still have the third OEM that we have not yet announced, like Connie indicated. And we have a significant amount of interest from other automakers also.

Okay. Well, thank you very much.

Alexander Paris, Barrington Research.

Talking about the new products, the SmartBeam and the RCD, those are all -- they are not part of option packages? They are standalone packages, correct?

SmartBeam is packaged typically with xenon, but the RCD is standalone for the most part.

Initially for Ford.

Initially, yes.

But we expect future RCD programs will more likely be included in packages.

So your assumptions that you have there, your volume assumptions, is that assuming that they will be in option packages? Or would that be a net plus if that did go into packages?

No, it largely is based on the expectation that most of them will be in packages, with the exception of the Ford programs.

Okay. Thanks a lot.

Mark Johnson, Principal Global Investments.

Enoch, just a point of clarification. In your prepared comments, you talked about NHTSA and you said they, and I quote, they appear to be leaning toward a camera-based system. Are you -- I'm just kind of interested what's behind that statement. Are you inferring, just based on maybe some things and opinions that NHTSA has published in the past? Or is there something else behind that statement, maybe conversations you're having with customers or perhaps maybe consulting with NHTSA themselves? I'm just wondering what's behind that statement.

Mark, this is Connie, obviously. I do not have the documents right here in front of me, but NHTSA has done some studies. And they have been quoted as basically saying that the camera-based systems appear to be the better option in terms of increased -- obviously in terms of increasing your field of view. Which is what the legislation talks about is increasing the field of view.

Right, okay.

That being said, I think that you also have to keep in mind that NHTSA does have some leeway in terms of their interpretation of the language. And it's not certain that they are going to specify a rear camera display. But it does specifically talk about field of view.

Okay.

I think at this time we expect that, more likely than not, NHTSA will allow several different types of technology or applications. We do feel that a camera-based system will be a preferred application.

Okay. Yes, that's what I thought, okay. And then just secondly on your comment about SmartBeam. You are going to be shipping into the first and second European customer and the first Asian customer. Is that in the second and third customer of this year, did you say?

Yes, we said --

It will be over the balance of this year, and Connie will be making those announcements as soon as we're allowed to by the automaker.

Okay. Thank you very much.

Greg Halter, Great Lakes Review.

Looking at your investment portfolio, and this may have been asked previously, but wondering if you have any -- not adjustable rate, but ARS securities or any of these other, more funky securities that are out there causing problems for some companies?

No, we do not have any auction rate securities. If you look at our investment portfolio, our long-term investments are primarily equity investments that are -- those funds are invested with a number of managers. Our short-term investments are primary government securities and CDs, and then our cash and cash equivalents are primarily money market accounts.

Okay. And one last one. On the last call you had mentioned about, I think, a 100,000-mirror unit shipment that was canceled or postponed. Did anything develop with that in the current quarter?

You're talking about exterior mirrors (multiple speakers). Or the exterior mirrors with -- no. Basically it was exterior mirrors with Tier 1 mirror suppliers that we think that they were basically shoring up their inventories.

Okay. Thank you.

Brett Hoselton, KeyBanc Capital.

A follow-on question, great. Two questions for you. When you are thinking about the RCD product, is that in a product that you expect to sell exclusively in combination with an electrochromic mirror? Or is there a possibility that you might carve that out and somehow sell that separately?

It is possible but not real likely, just because the incremental dollars for auto-dimming become far less, and it really doesn't make much sense to put it -- I mean, to put a rear camera display in a non-auto-dimming mirror. The two technologies are -- they work very well together.

So, if you're an automaker, then when you're thinking about upgrading to a rear camera display and you have a prismatic mirror in your vehicle currently, what do you have to think about -- or what are you considering as you're going forward with the possibility of introducing an electrochromic mirror into your vehicle? Typically you guys have said an electrochromic mirror is going to be somewhere in that, let's say, low $20 range, whereas a prismatic mirror is like $2 or $3 or $4 or something like that. So, yes, there's a $20 difference, but you also have insulation costs. How are the automakers thinking about this?

Well, we can't say exactly how the customers are thinking about it. What we have told them is once you have to add wiring and electronics into a mirror, that that $20 versus a $3 -- so, $17 differential -- potentially could shrink to $5 to $10. And so our point to automakers are, one, they are going to certainly initially tend to add the RCD display to vehicles that already offer auto-dimming mirrors. I think the customers will have to answer your question as we get closer to the final compliance date for some type of rear backup system.

And then another question on RCD -- or not RCD, but SmartBeam. As we think about application of SmartBeam in North America, Europe, and Asia, is there anything significantly different between the engineering or algorithms or anything else between the applications in each of those different regions?

Yes, there are some significant differences in the software algorithms because of the differences in lighting and signage and the environments in Europe and Asia compared to the United States.

So as we think about your shipments to BMW, are those shipments to BMW simply coming back here to the United States, or are they also being sold elsewhere? And therefore, if they are sold elsewhere, do you have some unique product or algorithms or something along those lines for those other shipments?

Initially the SmartBeam products that were shipped to BMW were for use in Europe and other Europe-centric regions. And then subsequently we announced that they have begun offering the SmartBeam feature in North America also on some of their vehicle models.

Excellent. Thank you very much.

Rich Kwas, Wachovia.

Another follow-up. Just on the North American production, Enoch, you mentioned down -- or I think you said up 2% for the shipments, right, including the strike impact.

Correct.

If you strip out the strike impact, was it -- were shipments better than you would have expected?

I think that they would've been slightly worse than expected, excluding the shipments that were affected by the strike.

Okay. Thank you.

Thank you. There are no further questions registered at this time. I would like to turn the meeting back over to Miss Hamblin.

Okay. Thank you, everyone, for participating in this conference call. If you have follow-up questions we will all be here working and ready to answer your questions. Thank you.

And one last comment. It is Connie's birthday today.

Thanks.

So we all want to wish her a happy birthday.

Thanks a lot. Have a good day. Bye-bye.

Thank you. The conference has now ended. Please disconnect your lines at this time. And thank you for your participation.