Gentex Corp (GNTX) 2009 Q4 法說會逐字稿

Good morning, ladies and gentlemen. Welcome to the Gentex earnings conference call. Today's call is being recorded.

This conference call contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 as amended, and Section 21E of the Securities Exchange Act as amended, that are based on management's beliefs, assumptions, current expectations, estimates and projections about the global automotive industry, the economy, the ability to control and leverage fixed manufacturing overhead costs, unit shipment, and revenue growth rates; the ability to control ER&D and SG&A expenses, gross margins and the Company itself.

Words like anticipates, believes, confident, estimates, expects, forecast, hopes, likely, plans, projects, optimistic, and should, are variations of such words and similar expressions identifying forward-looking statements. These statements do not guarantee future performance, and involve certain risks, uncertainties and assumptions that are difficult to predict with regard to timing, expense, likelihood, and degree of occurrence.

These risks include, without limitation, employment and general economic conditions; worldwide automotive production; the maintenance of the Company's market share; the ability to achieve equity prices; the financial strength and stability of the Company's customers, including their Tier 1 suppliers' supply chain disruptions, potential sale of OEM business segments or suppliers; potential customer, including their Tier 1 suppliers; bankruptcies; the mix of products purchased by customers; the ability to continue to make product innovations and success of certain products: example, SmartBeam and Rear Camera Display mirror, and other risks identified in the Company's other filings with the Securities and Exchange Commission.

Therefore, actual results and outcomes may materially differ from what is expressed or forecasted. Furthermore, the Company undertakes no obligation to update, amend or clarify forward-looking statements, whether as a result of new information, future events, or otherwise.

I would now like to turn the meeting over to Ms. Connie Hamblin, Vice President of Investor Relations and Corporate Communications. Please go ahead, Ms. Hamblin.

Thank you very much. I'd like to welcome you to this fourth-quarter conference call. On the call with me are Enoch Jen, our Senior Vice President; as well as Steve Dykman, our Chief Financial Officer.

I should tell you that this call is being recorded, and if you do not want to be recorded, you should drop off the line. We also do not allow any transcriptions of our conference calls. All of our conference calls and contents are owned by Gentex Corporation. No content can be copied, published, reproduced, rebroadcast, retransmitted or otherwise redistributed without the express written consent of Gentex. 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 contents of any such transcript. Gentex Corporation will hold responsible and reliable 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 with these terms. I would urge you, with respect to the Safe Harbor statement, to look at the one that is in our news release or in the 10-K. If you would like to re-listen to this call, it will be available on www.Gentex.com.

At this time, I will return the conference call over to Enoch. He will make his comments about the quarter, and we will open it up to Q&A. And when we get to Q&A, as usual, we do request that you ask one question at a time, single-part questions. And let's go from there. Thank you, Enoch.

Good morning. Thank you for joining our conference call. We are pleased to report a strong fourth quarter, as we continue the business rebound from a year ago. For the fourth quarter, revenues were $177.6 million, a 45% increase compared with revenues of $122.3 million in the fourth quarter of 2008. For the 2009 calendar year, revenues were $544.5 million, a 13% decrease compared with revenues of $623.8 million for calendar year 2008.

Operating income in the fourth quarter of 2009 was $43.2 million, a 343% increase compared with operating income of $9.8 million in the fourth quarter of 2008. Operating income for the 2009 calendar year was $94.6 million, a 13% decrease compared with operating income of $108.8 million in calendar year 2008. Net income increased to $30 million in the fourth quarter of 2009 compared with a net loss of $10.4 million in the fourth quarter of 2008. Net income increased by 4% to $64.6 million in the 2009 calendar year compared with net income of $62.1 million in calendar year 2008.

Earnings per diluted share were $0.22 in the fourth quarter of 2009 compared with a loss of $0.08 per share in the fourth quarter of 2008. Earnings per diluted share were $0.47 in the 2009 calendar year compared with earnings per share of $0.44 in calendar year 2008.

Next, we'll review automotive revenues and auto-dimming mirror unit shipments. Total auto-dimming mirror unit shipments increased by 35% in the fourth quarter of 2009 compared with the fourth quarter last year. Automotive revenues increased by 48% from a $117.3 million in the fourth quarter of 2008 to $173.4 million in the fourth quarter of 2009. The automotive industry continued to build inventory during the fourth quarter of 2009, and the Company's December sales ended significantly stronger than they have historically.

In the fourth quarter of 2009, we did not have as many customer holiday plant shutdowns that have been typical during that period. Total auto-dimming mirror unit shipments decreased by 19% from 2009 calendar year compared with calendar year 2008. Automotive revenues decreased by 13% from $601.5 million in calendar year 2008 to $525.6 million for the 2009 calendar year.

Auto-dimming mirror unit shipments increased by 21% in North America, primarily as a result of improved vehicle mix weighted toward light trucks and to new programs. North American light vehicle production was flat in the fourth quarter of 2009 compared with the same prior-year period. Auto-dimming mirror unit shipments in North America decreased by 27% for the 2009 calendar year compared with the calendar year 2008, primarily as a result of significantly lower light vehicle production. North American light vehicle production declined by 32% for the 2009 calendar year compared with the calendar year 2008.

Auto-dimming mirror unit shipments to offshore customers increased by 45% in the fourth quarter of 2009 compared with the same period last year. The increase in unit shipments was primarily due to improved vehicle mix, new programs, and increased take rates. Light vehicle production in Europe increased by 12% in the fourth quarter of 2009, and decreased by 2% in Japan and Korea in the fourth quarter of 2009 compared with the same period last year.

Auto-dimming mirror unit shipments to offshore customers decreased by 14% for the 2009 calendar year compared with the same period last year. The decrease in unit shipments was primarily due to lower light vehicle production in Europe and Asia. Light vehicle production in Europe decreased by 21% in the 2009 calendar year and decreased by 25% in Japan and Korea combined in the 2009 calendar year compared with last year.

Next, we'll look at ASPs. The Average Selling Price per auto-dimming mirror unit was $46.52 in the fourth quarter of 2009. The ASP was up sequentially in the fourth quarter of 2009 compared with $45.22 in the third quarter of 2009, primarily due to a higher mix of featured mirrors, including RCD and SmartBeam. The ASP also was up on a year-over-year basis from $42.53 in the fourth quarter of 2008, primarily due to increased sales of RCD and SmartBeam mirrors, partially offset by annual customer price reductions.

Based on CSM's end-of-December light vehicle production forecast, we currently expect ASPs to be in the mid-40s in the first quarter of 2010, based on the anticipated product mix of base and featured mirrors in that forecast and annual customer price reductions. As usual, there are uncertainties with the CSM production and sales forecast, customer orders, and new product introductions.

Fire protection revenues decreased by 25% to $3.7 million for the fourth quarter of 2009 compared with the same period last year, and declined by 18% for the 2009 calendar year to $18.2 million compared with the same prior-year period. The decline in revenues in both periods was primarily due to the weak commercial construction market.

Next, we'll look at the gross profit margin. The gross profit margin increased sequentially to 36.7% in the fourth quarter of 2009 compared with 34.9% in the third quarter of 2009. The increase in the sequential gross margin was primarily due to the Company's ability to leverage fixed overhead costs, due to the 14% sequential increase in revenues, and certain year-end adjustments, partially offset by annual customer price reductions.

The gross profit margin also increased on a year-over-year basis from 28.4% in the fourth quarter of 2008 to 36.7% in the fourth quarter of 2009, primarily due to the Company's ability to leverage its fixed overhead cost, due to the 45% year-over-year increase in revenues. The gross profit margin of 32.6% for the 2009 calendar year was flat compared with the 2008 calendar year, primarily due to annual customer price reductions, offset by purchasing and VAVE cost reductions.

Based on the Company's expected revenues for the first quarter of 2010, which will be discussed later in these comments, we would expect the Company's first-quarter gross profit margin to be in approximately the same range as it was in the fourth quarter of 2009. Gross profit margin will continue to be impacted by annual customer price reductions, uncertain global automotive production levels, our ability to leverage our fixed overhead costs, purchasing cost reductions, VAVE initiatives, and manufacturing yields.

Engineering, Research and Development expense decreased by 1% in the fourth quarter of 2009 compared with the same 2008 period, primarily due to reduced employee headcount, mostly offset by increased variable employee compensation expense. ER&D expense decreased by 9% for the 2009 calendar year compared with the same 2008 period, primarily due to reduced employee headcount and reduced variable employee compensation expense. ER&D expense is currently expected to increase by approximately 15% for the first quarter of 2010 compared with the first quarter of 2009, primarily due to increased variable employee compensation expense and some hiring.

Selling, General and Administrative expense decreased by 24% in the fourth quarter of 2009 compared with the same prior-year period, primarily due to the increase in the allowance for doubtful accounts in 2008. Excluding the increase in the allowance for doubtful accounts in 2008, SG&A expense would've increased by 9%, primarily due to increased variable employee compensation expense and foreign exchange rates.

SG&A expense decreased by 16% for the 2009 calendar year compared with the same period in 2008, primarily due to the increase in the allowance for doubtful accounts in 2008. Excluding the increase in the allowance for doubtful accounts in 2008, SG&A expense would've decreased by 7%, primarily due to reduced variable employee compensation expense and foreign exchange rates. SG&A expense is currently expected to increase by approximately 10% to 15% for the first quarter of 2010 compared with the first quarter of 2009, primarily due to increased variable employee compensation expense, foreign exchange rates, and some hiring.

A brief hiring update. As the automotive market improved in the second half of 2009 and our production requirements increased, we hired approximately 250 employees, bringing our employee headcount to approximately 2550, including both contract employees as well as our overseas offices. Virtually all of our production workers are initially hired as temporary workers, and we use that as a buffer as customer orders fluctuate. In response to the continued improving automotive market, we have been working to recruit approximately 100 additional production workers and 50 technical employees. including a number of software engineers.

ERP update. Effective July 1, 2009, the Company implemented the first phase of a new enterprise resource planning system, which covered key core business areas at the Zeeland, Michigan locations. To date, the Company has not experienced any significant issues during the implementation process. In addition, effective December 1, 2009, the Company implemented its new ERP system for one of its overseas offices. To date, the Company has not experienced any significant issues during that implementation process. The implementation of additional lean manufacturing, production line scheduling, and business reporting capabilities, are still in process.

Next, we'll look at Total Other Income and Expense. For the fourth quarter of 2009, investment income was $694,000. There was no impairment loss recorded. And Other Income was $922,000 or Total Other Income of $1,615,000. For the calendar year 2009, investment income was $3,321,000. There was an impairment loss recorded of $1,291,000; Other Expense of $298,000 for a Total Other Income of $1,733,000.

Investment income decreased in the fourth quarter of 2009 compared with the fourth quarter last year, due to lower interest rates and decreased year-end mutual fund distribution income. Lower year-end mutual fund distribution income accounted for approximately one-third of the year-over-year decrease.

Other Income increased in the fourth quarter of 2009 compared with the fourth-quarter expense last year, primarily due to realized gains on the sale of equity investments compared with realized losses in the same prior-year period. Investment income decreased for calendar year 2009, primarily due to lower interest rates. Non-cash charges for Other Than Temporary Impairment Losses on available-for-sale equity securities decreased from $17.9 million in 2008 to $1.3 million in 2009. other Expense decreased for calendar year 2009, primarily due to reduced realized losses on the sale of equity investments.

A few balance sheet items as of December 31, 2009. Accounts Receivable were $71.2 million. Inventories were $53.6 million. Patents and other assets were $10.5 million. Accounts payable were $27.5 million, and accrued liabilities were $31.2 million.

The effective tax rate of 33% varied from the statutory rate of 35%, primarily due to the domestic manufacturing deduction. Excluding stock option expensing, we currently expect that the tax rate for 2010 will be approximately 33%, based on current tax laws, primarily due to the domestic manufacturing deduction.

Our year-to-date cash flow from operations was $110.7 million. Our capital expenditures for the fourth quarter of 2009 was $4.6 million. Our capital expenditures for the 2009 calendar year was $21.1 million. Our depreciation expense for the fourth quarter of 2009 was $9.5 million. Our depreciation expense for the 2009 calendar year was $38.4 million. For calendar year 2010, our estimate for capital expenditures is currently approximately $40 million to $45 million. Depreciation expense for 2010 is currently estimated at $38 million to $40 million.

An update on our share repurchase plan. The Company did not repurchase any shares during the fourth quarter of 2009. The Company has a share repurchase plan in place with authorization to repurchase up to 28 million shares of the Company's stock. To date, including the prior share repurchases, the Company has repurchased approximately 26 million shares, leaving approximately 2 million shares authorized to be repurchased under the plan.

The Company's current share repurchase plan was originally announced in 2002. The goal of the plan was to have it be opportunistic, and was based on a number of factors, including market conditions; the market price of the Company's common stock; the anti-dilutive effect on earnings, available cash, and other factors that the Company deems appropriate. Given the current market conditions, including market volatility, uncertain production of sales levels, potential customer bankruptcies and liquidity needs, you should expect that that factor is playing a more important role in the decisions that are being made as to the number of shares being repurchased and at what prices they are repurchased.

Next, we'll look at cash dividends. On January 20, 2010, the Company paid a quarterly cash dividend of $0.11 per share to shareholders of record of the common stock at the close of business on January 7, 2010. The ex-dividend date was January 5, 2010. The Company's cash dividend policy was established based on a number of criteria, including current US income tax laws, that it be meaningful, sustainable, and that the dividend rate would increase generally in line with the Company's earnings and operating cash flow over time. The cash dividend rate is an agenda item at every Board of Directors meeting.

Next, an update on SmartBeam. We continue to make progress with automakers as they more broadly offer SmartBeam across their product lines. SmartBeam is the intelligent highbeam headlamp assist product that we introduced in the 2005 model year. And it currently is offered on 33 vehicle models at eight OEM customers, including Audi, BMW, Cadillac, Chrysler, Lexus, Toyota, Opel/Vauxhall, Tata Motors, Land Rover, and Rolls-Royce.

We expect to announce a number of additional vehicle models for existing and new customers during the 2010 calendar year. For the 2009 calendar year, we shipped approximately 437,000 SmartBeam units, compared with approximately 295,000 SmartBeam units in 2008. Based on the CSM end-of-December forecast, we currently expect the SmartBeam units will increase by approximately 30% to 40% in calendar year 2010.

Next, an update on Rear Camera Display, or RCD. To date, our RCD mirrors are now offered on 38 vehicle models with seven automakers as original equipment, including Acura, General Motors, Daihatsu, Ford, Hyundai/Kia, Mitsubishi and Lexus Toyota. RCD mirrors are also currently offered as a dealer installed option or an aftermarket product on 18 additional models with six automakers, including Kia, Mazda, Mitsubishi, Nissan, Subaru, and Toyota.

A comment regarding legislation. The automakers currently offering a Rear Camera Display product are doing this absent any legislation, and made the decision before any was pending. In 2008, the Kids Transportation Safety Act of 2007 was signed into law, and orders the Secretary of Transportation at the National Highway Traffic Safety Administration, or NHTSA, to revise the federal standard to expand the field of view so that drivers can detect objects directly behind their vehicles. The phase-in period during which automakers will need to meet the requirements set by NHTSA is expected to be between now and 2015.

Our RCD mirror is an optimum, ergonomic, easily-adaptable method to display the output of a rear camera for increased safety. Ultrasonic sensors cost less but may be less effective. Any color display in a vehicle is relatively costly. When a color display is required for other features such as navigation, radio, or other vehicle functions, then it may be less costly on a per-feature basis to display the output of the backup camera in that in-dash display.

We currently believe that the market for camera displays in vehicles will be divided into three primary market segments. The top 15% to 20% of the vehicle market will primarily offer the display for a rear camera in the navigation system, with the possible option of purchasing an RCD mirror. The middle 60% to 70% of the market is the most likely market area to offer the camera display in the mirror or in other multipurpose displays in the vehicle, including the radio. This is the segment of the market with the greatest volume potential but also has more competition.

Gentex's goal is to secure our approximately 80% of the mirror portion of this market segment. Provided that NHTSA allows sensor-based technologies to be used, the bottom 15% to 20% of the market will primarily offer a radar or sonar-based display -- radar or sonar-based system, possibly with camera display as an upgrade option.

The Company shipped approximately 573,000 RCD mirror units in calendar year 2009, compared with approximately 270,000 units in calendar year 2008. Based on our current forecast, we expect that RCD mirror units will increase by approximately 60% to 75% in calendar year 2010 compared with calendar year 2009.

Regarding RCD take rates, we now believe that there are sufficient number of original equipment RCD mirror programs for us to provide you with some data on where take rates are on our RCD mirror products. In calendar year 2009, the average take rate on RCD mirrors was approximately 15%.

Next, an update on the dimmable aircraft window programs. Boeing now expects the first 787 Dreamliner aircraft to go into service in late 2010. Due to the Boeing production delays, we currently anticipate that we will begin to deliver our windows to the aircraft production line in the first half of 2010. Boeing has also expressed interest in utilizing dimmable windows for other aircraft.

Gentex recently began shipping dimmable aircraft windows for use on the passenger cabin windows of the 2010 Beechcraft King Air 350i aircraft. This was the first aircraft in general and business aviation with dimmable windows. Each King Air 350i will have 15 windows. Other aircraft manufacturers continue to have interest in this technology, and we are working on those potential programs with PPG Aerospace.

Next, we'll look at revenue estimates. The following projections for revenues in the first quarter of 2010 is based on CSM's end-of-December light vehicle production forecast. Our estimate for revenues for the first quarter of 2010 is an increase of approximately 80% to 90% compared with the same period in 2009, based on CSM's end-of-December forecast for light vehicle production levels. CSM's forecast -- end-of-December forecast for the first quarter of 2010 is 2.6 million vehicle units for North America, a 56% increase compared with the first quarter of 2009; 4.2 million vehicle units for Europe, a 23% increase compared to the first quarter of 2009; and 3.1 million vehicle units for Japan and Korea, a 38% increase compared with the first quarter of 2009.

CSM currently is forecasting relatively flat sequential vehicle production for all four quarters of 2010 in North America, Europe, and Japan and Korea combined. Due to continued automotive market uncertainties, we do not plan to provide full-year revenue guidance at this time. For the calendar year 2010, the end-of-December CSM production forecast is as follows: 10.6 million units for North America, 24% increase compared with calendar year 2009; [15.2 million] units for Europe, a 1% decrease compared to calendar year 2009; and 12.2 million vehicle units for Japan and Korea combined, a 12% increase compared to calendar year 2009.

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

As a reminder, all listeners should note that this call is being recorded by Gentex. All context of Gentex Corporation's conference calls are the property of Gentex. No such contents may be copied, published, reproduced, rebroadcast, retransmitted, or otherwise redistributed without the express written consent of Gentex Corporation. Gentex Corporation 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 such authorization to do so, and expressly disclaims any responsibility for any unauthorized use of 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 transcripts. Gentex Corporation will hold responsible or liable any parties 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 with these terms.

As a quick reminder, please ask only one question, and a single-part question, if you possibly will. At this point, we will turn this over to the operator for questions.

(Operator Instructions). David Leiker, Robert Baird.

It's Keith Schicker on the line for David. First question here to start off. Last couple of quarters, you've had revenue and shipment growth that's been well in excess of light vehicle production growth. Really want to try and get a handle on how sustainable this trend is going forward? Is this a new level or growth rate for your Company? Or does this simply reflect a surge in new business wins?

Well, Keith, I think, certainly, a part of it is a significant number of new programs. And also, over the past two quarters, the entire industry has been going over a inventory rebuilding process. So, I would say we would expect that our revenues to be able to increase faster than the production levels, but it probably would be closer to the rate -- the annual rate rather than the rate over the past one or two quarters.

Okay. That's great. And then if you could just touch briefly on -- the contribution margin continues to be above the -- sort of the historical level. What's driving this? And what is the pattern for that look like going forward?

I think what we've talked about is that our normalized incremental margin would be -- we expect would be in the 40% to 45% range; over the last couple of quarters, we've exceeded that. I think, in the second quarter, that sequential incremental margin was in the mid-50s. Sequentially, the incremental margin in the fourth quarter was just under 50%. So, we expect that to normalize and maybe be on the higher end of this 40% to 45% normalized trend going forward.

Okay, that's great. Thank you.

Rich Kwas, Wells Fargo Securities.

A couple of questions just to follow-up on the margin. I think you mentioned your certain year-end adjustments that helped the margin this quarter. What were those exactly?

Well, if you look at the year-end adjustments, as we prepare to close our year out, there's always a number of accounts we adjust to actuals. So there were a number of those adjustments. None of them were material on an individual basis. But in total, that did help the margin in the fourth quarter by just under a percentage point.

Okay. And then on Toyota, with the news here over the last couple of days, 2008, it was 14% of your revenue but that's a global number. How should we think about, in terms of the models that where there's been -- of which the ones that have, at least, been stopped right now in terms of sales, how should we think about as a percentage of revenue for you right now?

Well, I think we've pulled some numbers last night. And based on the vehicle models and the plants that have been announced to date, it looks like, to us, it will impact our unit shipments by approximately 10,000 units per week. So, depending on the duration of the production stoppage, will obviously affect whether this becomes a significant impact on the first quarter. There has also been some comments that some of this production stoppage potentially may be made up later in the first quarter or the second quarter. So, at this point, it doesn't appear that material to Gentex, but obviously, we will all have to monitor the situation.

Okay. And then, Enoch, just to follow-up in terms of the content on those models, are they above the corporate average? Below? Or about in line?

Right now it looks like it's slightly above the average.

Okay. And then one clarification. Did you say 573,000 shipments for RCD for all of 2009?

Let me -- yes. 573,000. Yes.

Great, great, Thanks so much.

You bet.

Adam Brooks, Sidoti & Company.

I guess kind of quick question. As far as RCD looking at the take rates being around the 15% range, I mean, do you see room -- I know you said with that 60% to 70% -- I mean, where can you see that, I guess, normalizing going forward? I know it's predicated on kind of who adopted. But I mean, are you going to see that regardless of major changes maybe hop up to 20% in 2010?

Well, I think, first off, there is a range of take rates. The 15% is an average. We are not expecting it on any particular vehicle model to change significantly from year-to-year, since most typically, the decisions on option take rates and option packages are made either at the beginning of a vehicle life cycle, which is typically every six years, or at the midpoint, which is every three years. We do believe that over the next three to five years, take rates on vehicles will gradually increase as we move closer to the deadline set by the Kids Transportation Safety Act.

Okay. And maybe could you talk a little about maybe any new products in the pipeline that could, I guess, fuel growth going forward over the next three to five years?

Well, I think if you refer to one of the slides in our Investor Relations presentation, we have a fairly comprehensive list of features, and they are categorized into two areas. The first is features that we currently are already offering in the marketplace. And the second are features that we are working on, either at the request of one or more automakers or because we feel that it's a potential feature that would be a value add to our mirrors. And I think if you look at those potential features, they generally fall into the image-based sensor systems and different types of driver-assist features.

Thank you.

You're welcome.

Brett Hoselton, KeyBanc.

Enoch, Steve, Connie, how are you?

We're all good except for the weather, Brett. But I'm sure you have similar weather, so, we won't commiserate.

Yes, they get Leiker in line. He keeps sending us the cold stuff. I'm sending it to you first and then over to us, so. Average for your selling prices, I don't know, up about $1.50-ish, something along those lines sequentially from the third to the fourth quarter. What would you characterize as the key drivers for that?

Is that -- I mean, obviously, it's increased content, but is it significantly attributable to SmartBeam? Is it significantly attributable to RCD? A split of both of those? Is it mix? Any sense of the breakdown of what that increase?

Okay. Now you didn't say an increase of $5.50 sequentially?

No. That would be a really big increase. I was thinking -- I calculated about $1.40.

Okay. Just wanted to make sure we were talking about the same increase. I think it's really a combination of -- Brett, the first is, we have discussed that we have had a significant number of new RCD and SmartBeam programs. And, you know, you can probably track those, because most of those have been announced in news releases.

And then second, what we've talked about for many years is, any particular quarter, it's really a vehicle mix issue between featured and base mirrors. And that's really dependent on specific customer orders over which we don't have any control in the short-term.

Do you have any sense as to how much is one versus the other, by chance?

No, we don't. Because we don't track it. Like we've discussed before, to us, it's an interesting amount that we calculate after-the-fact. And certainly, it is meaningful in terms of a longer-term expectations for a trend.

Okay. Well, you know, I'm going to -- I'll circle back. Thank you.

(Operator Instructions) Jason Rodgers, Great Lakes Review.

I was wondering if you could talk a little bit about any change in competition? Specifically looking at SmartBeam, if you're seeing any additional competition there? Or do you feel you're pretty much holding your share?

Okay. Well, I think we've talked about that there is significant competition from two aspects. The first is direct competition with SmartBeam mirrors. And that continues to be Magnum Mirror Systems. So we continue to compete for new business with them globally.

The second type of competition that we are facing is with multifunction driver-assist systems. And these are primarily sold by major electronics suppliers, primarily in Europe. Currently, they are on approximately the top 5% to 10% of many of the luxury vehicles in Europe.

So, when we look at the competition for SmartBeam, it's really coming from two directions. And, on the head-to-head, we continue to feel like we have a lead in terms of performance and value. And on the multifunction systems, if you look at our list of features that we are looking at, we are looking at the potential value of adding other features to the SmartBeam feature.

And is Magna shipping any of your product currently?

They said they are shipping a Ford product, but I'm not certain of that.

Okay. And then, finally, just wondering on China, if you're seeing any additional headway there, given the strength of the market?

Well, we are continuing to see a growth in our shipments to China. As we've discussed previously, we can't always tell, because a number of our shipments get there indirectly. But we look at the China market in terms -- as basically categorized into three segments.

The top luxury segment is primarily dominated by joint ventures between global OEMs and their local Chinese partners. And we've been shipping into that segment for six, seven or more years. And that continues to grow.

The second segment is dominated by four or five large national Chinese automakers. That's a segment that we are now devoting time to sales and marketing. And these are the automakers that I think it's pretty clear that the Chinese government has mandated or directed them to look at ways for them to become global competitors.

And then finally, the third segment is primarily focused on smaller vehicles in the domestic market. A large number of smaller domestic Chinese automakers in that segment probably is not quite ready for our type of product.

Okay. Thank you.

You're welcome.

Steve Dyer, Craig-Hallum.

Nice quarter.

Morning, Steve. Thanks.

Just a couple of quick things. Most of mine have been asked and answered. Steve, I missed the accounts receivable and inventory in the quarter. Could you run through that again?

Okay. Accounts receivable as of the end of the year was $71.1 million. Inventories were $53.6 million.

Okay, thanks. And then I guess I'll go off the beaten path here and ask about the aircraft programs. You said you start shipping to Boeing in the first half of the year. What do you expect or what have they told you, sort of, about the cadence of that program over the next, I don't know, year or two?

Well, I think timely information has been a little difficult to obtain, and some of it probably because they are continually revising their schedule. Probably the best way to look at that would be to go on the Boeing website. And they have a schedule -- a current schedule of their production plans. And then if you allow enough lead-time for us to ship our product, you'll have some idea about the cadence.

And then, obviously, the wild card is that they are working on building a second facility in South Carolina, I believe. And so that will affect their production schedule out a few years also.

Okay. And then the aircraft-related shipments this quarter, was it a meaningful part of revenue?

No. But obviously, once you guys slice and dice the figures, you can tell that since the fire protection and dimmable aircraft windows are grouped together under Other, and we provided the fire protection revenues, you can back into the dimmable aircraft windows' amount.

Okay, great. Thank you.

And also, the link to that website and where they track that is in our IR presentation on the slide about Boeing. So you don't have to look all over the place.

Okay. Thanks, Connie.

And next, we'll take a follow-up question from Rich Kwas with Wells Fargo Securities.

A quick follow-up regarding the take rate regarding RCD. With regards to the growth for 2010, the 60% to 75% number, is there an embedded take rate for that number -- for that growth number?

Well, that estimated growth number is really based on a bottoms-up computation, Rich, in terms of ongoing as well as new programs.

Okay. So that -- okay. So, there is no -- on the existing stuff, though, should we assume that you're assuming just a flat take rate on the stuff you are already on?

I think that would be a generally accurate assumption. Obviously, when we look at specific vehicle models, we are looking at specific take rates by vehicle.

Right. Okay. Okay, great. Thanks.

Welcome.

And we'll take a follow-up question from Brett Hoselton with KeyBanc.

I missed SG&A year-over-year increase in the first quarter?

10% to 15%.

10% to 15%. Okay. And then, Steve, mix of investments? You know, cash, et cetera, et cetera?

Yes. So if you look as of the end of the year, cash was $336.1 million; short-term investments, which were primarily government securities, $17.1 million; and long-term investments, primarily equity investments, of $109.1 million.

Okay. And then, let's see here. In thinking about the SmartBeam and the RCD, as you think about the growth of these two products, I know SmartBeam, you have a little bit more lead-time, a little bit more visibility. So, as you think about SmartBeam, how would you think about the ramp-up of that product over the next three, four years?

Is it -- are you seeing anything out there that suggests that you're going to see a hockey stick adjustment or change or increase in the shipments there? Or is it going to be more steady-state over the next three, four years or so?

I think right now, it probably will be closer to a steady-state, where we'll continue to see growth due to new programs. We do have a little more visibility in terms of development programs that we are working on, and new programs that we've been awarded. What we don't have very good visibility on are the take rates by vehicle and the exact timing of the introduction of the feature. Because we've had enough history with SmartBeam to see that that timing can change, depending on factors not within our control.

Okay. And then thinking about the RCD side of the equation, obviously, with the legislation continuing to process here, what are your expectations with the RCD? What are you seeing with the automakers? Are we seeing a significant ramp-up in activity there that could drive, again, a continued significant increase in the RCD? Or do you see it as kind of steadying out as we go forward? I mean, 60% to 70% is a pretty big number. Are we going to continue to see a 50%-plus number for several years to come?

I think if you look at it from quarter to quarter and year-to-year, I think you may see some volatility in the growth rate. And if you look at the RCD feature, we go back to when we first introduced it, that demand and those decisions were all market-driven.

And so, if you think about it generally, there's really three phases. The first phase was completely market-driven. The intermediate phase is partially market-driven; partially the automakers are waiting to see what NHTSA's final rules are, on how they are going to interpret the legislation. And a part of it will be legislation-driven. And then the third phase will be primarily legislation-driven.

Okay. So it sounds like the automakers in Phase II are kind of thinking we are working on it but we are kind of in a little bit of a wait-and-see mode to see exactly what NHTSA is going to do. Is that kind of a fair characterization?

Yes. And I think the other thing, because they know there's this pending legislation and deadline, they are also not only evaluating the RCD mirror, but also looking at other locations within the vehicle.

Okay. Now, as we think about the scalability of this product in terms of your engineering resources and your production resources, is there any particular bottleneck that you look at and you go, boy, we are going to have to kind of limit our growth in this? Or do you feel pretty comfortable that, look, we can accommodate whatever growth kind of comes our way?

Hey, we are hoping that we will not have to self-limit our growth. I think as we've talked about the SmartBeam development programs, that those tend to take more engineering resources because they have to be adapted to each vehicle's electrical system. The RCD feature is a little more blackbox-generic, like our other features. It does take engineering resources for the new programs, but not nearly as much on a program-by-program comparison.

And I think the other thing is, is, you know, you can -- we cannot always predict how different the engineering departments at different automakers want their products to be. So certainly, for the best value to the consumer, we are trying to make products as similar as possible and yet still meet our customers' specifications.

Thank you very much, Enoch, Steve. Thank you, Connie. Have a great day.

You're welcome, Brett.

And that is all the questions we have at this time. I will turn the call back to Ms. Hamblin for closing or additional remarks.

Thank you. I'd like to thank everyone for participating in this call. If you do have follow-up questions, please feel free to call us. Thank you.

Ladies and gentlemen, that does conclude our conference for today. We thank you for your participation.