Gentex Corp (GNTX) 2011 Q2 法說會逐字稿

Good morning, ladies and gentlemen. Welcome to the Gentex announces second-quarter 2011 financial results conference call. Today's call is being recorded.

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. Good morning, everyone. Thanks for joining us on our second-quarter conference call. On the call with me today are Enoch Jen, Gentex's Senior Vice President, and Steve Dykman, our Chief Financial Officer.

This call is being broadcast live on the Internet via Gentex Corporation's website, and the audio playback for the conference call is also available on the website and will remain there. I am going to go through our routine statements with respect to Safe Harbor, and then I will turn the call over to Enoch, who will go through the quarter and then open it up to Q&A.

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 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 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.

Safe Harbor statement. This presentation includes forward-looking statements 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 net sales growth, the ability to control ER&D and SG&A expenses, gross margins, and the Company itself. Words like anticipates, believes, confident, estimates, expects, forecasts, hopes, likely, plans, projects, optimistic, and should, and variations of such words and similar expressions identify forward-looking statements.

These statements do not guarantee future performance and involve certain risk, 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, and he will go through his remarks with respect to the quarter. And then we will open it up to Q&A.

Good morning, everyone. Thanks for taking the time to join this quarterly conference call. We are pleased to report a record second-quarter financial result.

Our record second-quarter net sales were $243 million, a 21% increase compared with net sales of $201.6 million in the second quarter of 2010. We reported record net sales of $493.9 million for the first 6 months of 2011, a 28% increase compared with net sales of $387.3 million in the first 6 months of 2010.

Record second-quarter operating income was $53.2 million, a 9% increase compared with operating income of $48.8 million in the second quarter of 2010. Record operating income of $113.3 million for the first 6 months of 2011, a 21% increase compared with operating income of $93.4 million in the first 6 months of 2010.

Record second-quarter net income of $38.5 million, a 13% increase compared with net income of $34.1 million in the second quarter of 2010. Record net income of $80.8 million for the first 6 months of 2011, a 21% increase compared with net income of $66.5 million in the first 6 months of 2010.

Earnings per diluted share were $0.27 in the second quarter of 2011 compared with $0.24 per share in the second quarter of 2010. Earnings per diluted share were $0.56 for the first 6 months of 2011 compared with $0.47 per share in the first 6 months of 2010.

Next we will look at automotive net sales and automatic-dimming mirror unit shipments. For the second quarter ended June 30, 2011, total auto-dimming mirror unit shipments increased by 22% in the second quarter of 2011 compared with the second quarter last year. Automotive net sales increased by 21% from $196.4 million in the second quarter of 2010 to $238.2 million in the second quarter of 2011.

Auto-dimming mirror unit shipments increased by 21% in North America in the second quarter of 2011, primarily as a result of increased mirror unit shipments to domestic automakers. North American light vehicle production increased by 1% in the second quarter of 2011, compared with the same prior-year quarter.

Auto-dimming mirror unit shipments to offshore customers increased by 22% in the second quarter of 2011 compared with the same quarter last year. The increase in unit shipments was primarily due to increased mirror unit shipments of certain European and Korean automakers. Light vehicle production in Europe increased by 4% in the second quarter of 2011 and decreased by 22% in Japan and Korea in the second quarter of 2011 compared with the same quarter last year.

For the first 6 months ended June 30, 2011, total auto-dimming mirror unit shipments increased by 28% compared with the first 6 months last year. Automotive net sales increased by 28% from $377.9 million in the first 6 months of 2010 to $484.5 million in the first 6 months of 2011.

Auto-dimming mirror unit shipments increased by 31% in North America in the first 6 months of 2011 compared with the first 6 months of 2010, primarily as a result of increased mirror unit shipments to the domestic automakers. North American light vehicle production increased by 8% in the first 6 months of 2011 compared with the same prior-year period.

Auto-dimming mirror unit shipments to offshore customers increased by 26% in the first 6 months of 2011 compared with the same period last year. The increase in unit shipments was primarily due to increased mirror unit shipments to certain European automakers. Light vehicle production in Europe increased by 8% in the first 6 months of 2011 and decreased by 19% in Japan and Korea in the first 6 months of 2011 compared with the same period last year.

Other net sales decreased by 7% to $4.8 million for the second quarter of 2011 compared with the same quarter last year, due to a 37% decrease in dimmable aircraft window net sales, partially offset by a 2% increase in fire protection net sales. Other net sales increased by 1% to $9.5 million for the first 6 months of 2011 compared with the same period last year, due to a 3% increase in fire protection net sales, mostly offset by a 9% decrease in dimmable aircraft window net sales.

The increase in fire protection net sales for both the second quarter and the first 6 months of 2011 was primarily due to the continued slight improvement in the commercial construction market. The decrease in dimmable aircraft window net sales for both the second quarter and the first 6 months of 2011 was primarily due to the continued delays affecting the production and delivery of the Boeing 787 Dreamliner series of aircraft.

Next, we will review the impact of the Japan earthquake and tsunami on net sales and supply chain constraints. The total impact on net sales of the March 11, 2011, earthquake and tsunami in Japan on the first 6 months of 2011 was approximately $20 million, including $17 million in the second quarter of 2011. Based on IHS Automotive's July 2011 forecast for automotive light vehicle production and our customers' releases, we do not currently expect that there will be any continuing negative impact on the Company's net sales due to the March 11 earthquake and tsunami in Japan.

Due in part to the fast ramp-up in automotive light vehicle production in the second half of 2010 and the continuation into the first-half 2011, the Company continued to experience increased costs associated with supply chain constraints on certain automotive-grade electronic components. Although availability of certain automotive-grade components remained tight, the Company did experience continued sequential improvement in this area during both the first and second quarters of 2011.

Unfortunately, the March 11, 2011, earthquake and tsunami in Japan resulted in the Company experiencing additional increased costs associated with supply chain constraints on certain automotive-grade electronic components during the second quarter of 2011. While the Company was successful in securing additional quantities of constrained parts during the second quarter to meet anticipated customer demand, the additional secured parts purchased during the second quarter did come at a higher cost due to changes in purchasing channels.

The Company currently believes that it will experience some sequential reduction in the supply chain-related costs during the third quarter of 2011. However, the current environment is constantly changing, and it is not known what the ultimate effect will be on the supply chain, global light vehicle production, the automotive industry, or the Company in the second half of the 2011 calendar year. Based on the IHS July 2011 forecast for light vehicle production levels and the Company's anticipated product mix, we currently believe that the Company has secured an adequate supply of parts for the third quarter of 2011.

All projections made on this call or base upon the following IHS assumptions regarding Japan. First, virtually all OEMs are now back to running full production volumes, with certain Japanese automakers still lagging in some regions. Second, total lost industry production volume was approximately 2.7 million vehicle units through the end of June.

Third, the build back of lost production volume will begin early summer 2011 and extend into 2012, with varying levels of replacement, depending on the OEM. The current assumption is that 20% of the lost volume will be recovered in 2011, with the remainder of the lost volume that will be recovered to occur in 2012. It is also assumed that 23% of the Japanese automakers' lost volume will not be recovered.

The average selling price per auto-dimming mirror unit was $46.03 during the second quarter of 2011. The ASP of auto-dimming rearview mirrors was up sequentially to $46.03 in the second quarter of 2011 compared with $44.83 in the first quarter of 2011, primarily due to a higher product mix of mirrors with advanced electronic features that more than offset annual customer price reductions. The ASP slightly decreased on a year-over-year basis to $46.03 compared with $46.40 in the second quarter of 2010, primarily due to a higher product mix of base mirrors and annual customer price reductions.

Based on IHS's July 2011 light vehicle production forecast, we expect the third-quarter 2011 ASP to slightly increase, 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 IHS production and sales forecast, customer orders, and new product introductions.

Next, we will look at the gross profit margin. The gross profit margin decreased on a sequential basis from 36% in the first quarter of 2011 to 35.2% in the second quarter of 2011, primarily due to supply chain-related costs as a result of the earthquake and tsunami in Japan on March 11, 2011.

The gross profit margin decreased on a year-over-year basis from 36.7% in the second quarter of 2010 to 35.2% in the second quarter of 2011, primarily due to annual customer price reductions and costs associated with supply chain constraints on certain automotive-grade electronic components. The gross profit margin decreased to 35.6% for the first 6 months of 2011 compared with 36.8% for the first 6 months of 2010, primarily due to the impact of annual automotive customer price reductions and costs associated with supply chain constraints on certain automotive-grade electronic components, partially offset by the Company's ability to leverage fixed overhead costs.

The Company currently expects that its gross margin in the third quarter of 2011 will slightly increase sequentially due to some anticipated reductions in supply chain-related costs, partially offset by annual customer price reductions. The 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 and VAVE cost reductions, supply chain constraints, and manufacturing yields.

Next, we will look at engineering, research, and development expense. ER&D expense increased by 33% in the second quarter of 2011 compared with the same 2010 period, primarily due to additional hiring of employees and outside contract engineering and development services to support new product development projects and new program awards.

ER&D expense increased by 32% for the first 6 months of 2011 compared with the same 2010 period, again primarily due to additional hiring of employee and outside contract engineer and development services to support new product development projects and new program awards. ER&D expense is expected to increase by approximately 25% to 30% for the third quarter of 2011 compared with the third quarter of 2010, primarily due to additional hiring of employee and outside contract engineering and development services.

Next, we will look at selling, general, and administrative expense. SG&A expense increased by 23% in the second quarter of 2011 compared with the same prior-year period, primarily due to continued overseas office hiring to support our overseas growth, as well as foreign exchange rates. SG&A expense increased by 20% for the first 6 months of 2011 compared with the same 2010 period, again primarily due to the Company's overseas office expenses and foreign exchange rates. SG&A expense is currently expected to increase by approximately 15% to 20% for the third quarter of 2011 compared with the third quarter of 2010, primarily due to overseas office expenses.

A few numbers from our total other income. For the second quarter of 2011 investment income was $598,000, and other net was $3,903,000 for a total of $4,501,000. For the first 6 months of 2011, investment income was $1,098,000; other net was $6,768,000, for a total of $7,866,000.

Total other income increased in the second quarter of 2011 compared with the second quarter of 2010, primarily due to realized gains on the sale of equity investments and changes in the foreign currency rate related to the Company's euro-denominated account. Total other income increased in the first 6 months of 2011 compared with the first 6 months of 2010, primarily due to changes in the foreign currency rate related to the Company's euro-denominated account.

Next, we will look at a few balance sheet accounts. At June 30, 2011, accounts receivable were $111.9 million; inventories were $119.5 million; patents and other assets were $13 million; accounts payable were $63.3 million; and accrued liabilities were $40.5 million.

The effective tax rate of 33% during the second quarter of 2011 varied from the statutory rate of 35%, primarily due to the domestic manufacturing deduction. We currently expect that the tax rate for 2011 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 $104.6 million. Our capital expenditures for the second quarter of 2011 was $29.6 million, and our depreciation expense for the second quarter of 2011 was $10.7 million.

The Company has historically expanded its plant capacity on a step-function basis every 5 to 6 years. In light of strong customer demand for our auto-dimming mirrors and a more complex product mix, we have been increasing our production line and facility capacity. Production lines for auto-dimming mirrors with advanced electronic features such as Rear Camera Display and SmartBeam are more complex and require additional equipment.

For calendar 2011, we now estimate that our 2011 capital expenditures will be approximately $100 million to $115 million, primarily due to increased production line equipment purchases of approximately $70 million to $80 million and new facility costs of approximately $30 million to $35 million to increase production plant capacity.

Depreciation expense for 2011 is now estimated at $41 million to $44 million. The new facility costs are intended to increase plant capacity and electronic assembly, final assembly, Rear Camera Display, and exterior mirror manufacturing areas.

Next, looking at our cash dividends. Tomorrow, on July 22, the Company will pay a quarterly cash dividend of $0.12 per share to shareholders of record of the common stock at the close of business on July 8. The Company's cash dividend policy was established based on a number of criteria including current US income tax laws, that the dividend rate be meaningful and sustainable, and that the dividend rate would increase generally in line with the Company's earnings and operating cash flow over time.

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 is currently offered on 60 vehicle models at 13 OEM customers including Audi, BMW, Chrysler, GM, Honda, Opel Vauxhall, Peugeot Citroen, Saab, Fiat, Tata Motors, Land Rover, Toyota Lexus, Rolls-Royce, and Volkswagen.

For the 2010 calendar year, we shipped approximately 630,000 SmartBeam units. Based on the IHS July 2011 forecast, we currently expect that SmartBeam units will now increase by approximately 60% to 70% in calendar-year 2011.

Next, an update on Rear Camera Display. To date, our RCD mirrors are offered on 63 vehicle models with nine automakers as original equipment, including Daihatsu, Ford, General Motors, Honda Acura, Hyundai, Kia, Mitsubishi, Nissan, Subaru, and Toyota Lexus. RCD mirrors are also currently offered as a dealer-installed option or an aftermarket product on over 20 additional vehicle models.

The Company shipped approximately 1.25 million RCD mirrors in calendar-year 2010.

Regarding legislation, in early July 2011 the Department of Transportation, or DoT, posted an update on its website related to the timing of certain events associated with the Kids Transportation Safety Act and the pending requirement that all vehicles in the United States will be required to be equipped with cameras and rear camera displays by September 2014, based on the December 3, 2010, Notice of Proposed Rulemaking issued by the National Highway Traffic Safety Administration. The DoT stated that the final rule related to the legislation is scheduled to go to the Office of the Secretary of Transportation by August 8, 2011, and to the Office of Management and Budget by September 24. They further stated that the rule will receive clearance from the OMB by December 23 and that the publication date of the final rule will be by December 31, 2011.

We continue to believe that RCD mirrors will likely be implemented in three overlapping phases. First, the market-driven phase, which covers the time period prior to any legislation through NHTSA's NPRM on December 7, 2010. Second, the wait-and-see phase, the period of time from when the legislation was signed into law on February 28, 2008, until the final rule is issued, which is currently expected by December 31, 2011. And third, the implementation phase from the time the final rule is issued until September 2014, when 100% of all vehicles in the US under 10,000 pounds will be required to be equipped with rear cameras and displays based on the December 7, 2010, NPRM issued by NHTSA.

We still believe that the market for camera displays in vehicles will be divided into two primary market segments. The top 15% to 20% of vehicle model will primarily offer the display or a rear camera in the navigation system, with the option of purchasing an RCD mirror. The rest 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 in a number of different locations including the radio, instrument panel, console, etc. This is a segment of the market with the greatest volume potential but also has the greatest in increasing competition.

We are in the early stages of implementation phase of this regulation, and many automakers are revisiting any decisions that may have been made prior to the December 7 NPRM. There continue to be many uncertainties surrounding the prospects for RCD mirror unit shipments. With that said, based on IHS Automotive's July 2011 forecast, we now expect that RCD mirror unit shipments will increase by approximately 40% for calendar-year 2011 compared with calendar-year 2010.

Next -- well, there is one more comment on the RCD. Based on NHTSA'S December 7, 2010, NPRM, our customers continue to visibly work to determine and define how they will meet NHTSA's phase-in schedule, and there are many decisions yet to be made. We believe that this wait-and-see phase may cause a brief slowdown in the ramp-up of RCD mirror unit shipments until customers determine how they are going to meet the requirements of this new regulation across all their vehicle lines and then implement those plans.

Next, an update on the dimmable aircraft window programs. We currently are shipping dimmable windows for the 787 Dreamliner, and each passenger aircraft has approximately 100 windows.

Boeing has also expressed interest in utilizing dimmable windows for other of their aircraft. Our best information today is that the first shipment of the Boeing 787 Dreamliner aircraft is expected later this year.

Gentex is also shipping dimmable aircraft windows for use on the passenger cabin windows of the 2010 Beechcraft King Air 350i, the first aircraft in general and business aviation with dimmable windows. Each King Air 350i has 15 windows. Other aircraft manufacturers continue to express interest in this technology, and we are working on these potential programs with PPG Aerospace.

Next we will look at our net sales estimates. The following projection for net sales in the third quarter of 2011 is based on IHS's July 2011 light vehicle production forecast. Please note that any forward-looking information discussed on this call is predicated on IHS's assumptions for Japan that were stated earlier in this call and also are referenced in our news release.

Our estimate for net sales for the third quarter of 2011 is an increase of approximately 25% to 30% compared with the same quarter in 2010, based on IHS's July 2011 forecast for light vehicle production levels. For the third quarter of 2011, light vehicle production, per IHS, is: 3.2 million vehicle units for North America, a 6% increase compared to the third quarter of 2010; 4.4 million vehicle units for Europe, a 4% increase compared to the third quarter of 2010; and 3.2 million vehicle units for Japan and Korea, a 2% decrease compared to the third quarter of 2010.

For the calendar-year 2011, the light vehicle production forecast, per IHS, is: 13 million vehicle units for North America, a 9% increase compared to calendar-year 2010; 20 million vehicle units for Europe, a 6% increase compared to calendar-year 2010; and 11.9 million vehicle units for Japan and Korea, a 9% decrease compared to calendar-year 2010. At this time, 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 Corporation. All contents of Gentex Corporations' conference calls are the property of Gentex Corp. No such content 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 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 transcripts. Gentex Corporation will hold responsible and liable 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.

At this point we are going to open it up to Q&A; and as usual we do request that you ask single-part questions and one at a time. Operator?

(Operator Instructions) Steve Dyer, Craig-Hallum.

Thank you. Good morning, everybody. A couple quick things. I missed, Enoch, your guidance for ER&D increase in Q3. Could you go over that again?

An increase of 25% to 30%.

Okay; got you. Is that the level you would expect going forward, of an increase?

No. We previously have talked that we expect ER&D expenses will grow at a little higher rate than the historical trend of the 10% to 15%, primarily due to the increased program development projects that we have going on. So, on a sequential basis, based on that guidance, the expenses would be up approximately 5% from the second quarter.

Okay. Then CapEx, I mean, a pretty material jump. Were you guys caught off guard with that? Or is it just demand for some of the new features is just that good? It just seemed like a big jump quarter over quarter.

Well, there continues to be increased demand. But one thing to keep in mind; the new piece in the CapEx guidance would be anticipated new facility plant capacity expansions. So we currently are in our evaluation process of that, and expect to finalize that by the end of the third quarter, and get started after that.

Okay. Then real quickly, I am already two over -- or one over my limit. But just with gas prices increasing as they are, do you see a shift from trucks to cars, and at least smaller cars anyway? Does that impact you in any meaningful way? How do you look at that? Or is it pretty much a wash?

I think for us it's pretty much a wash. I think overall light truck sales have been fairly strong. I think there has been some discussion about some weakness in the GM pickup sales.

However, when we look at the alternative vehicles that consumers typically buy instead of light trucks, it tends to be near-luxury and midsize passenger cars. And we tend to offer a very similar proportion of auto-dimming mirrors and features on those vehicles also. So we don't expect any significant impact on us.

Okay. Thanks a lot. Back in the queue.

John Murphy, Bank of America Merrill Lynch.

Good morning, guys. Just wanted to follow up on the CapEx here, because it's a pretty sizable number relative to what you'd been talking about before and versus our expectations. It almost looks like, looking back at some of your past expansion, this is the equivalent of almost two plants.

I am just trying to understand how much capacity you are really adding. That would be -- it looks like it's a very big add.

Secondly on that, there has typically been some pressure on margins when you add capacity, because the cap ute takes time to ramp -- capacity utilization takes time to ramp up. I was just wondering how we should be thinking about margin progression as you are adding this capacity.

So the increase in the CapEx due to anticipated new facility costs really would be the equivalent of one new facility, if you look back to the 2006 facility we added. I think back when we added in the facility in 2006, we had talked about initially that would have a negative impact on margins of roughly 0.05%; so it's not that significant. But we also are working off a larger base when you look at the CapEx numbers as well.

And I think the one other thing, John, is the additional facility CapEx that we're expecting for this year will be expected to be spread over a number of projects. So we are not constructing one single large facility, as we did previously. So we would expect less of a negative impact on our gross margins.

And I think that it's important to look at the comps. Last quarter when we gave our guidance for CapEx, it was $60 million to $70 million, and that was primarily for the production line equipment purchases. Now that has moved to $70 million to $80 million, so that moved up by $10 million, approximately. And then you've got the new facility component that wasn't in the other.

So it's about $40 million for the new facility add, roughly?

$30 million to $35 million.

$30 million to $35 million.

$30 million to $35 million? Okay, got you.

Then just one follow-up question -- I apologize -- on the gross margin here. Also just trying to understand the components. I understand the supply chain disruption and some lack of or shortages, say, of electronic parts, and the volume hits, and stuff like that.

But just really trying to understand as we go forward and RCDs become a bigger component in the revenue stream and SmartBeam does as well, how we should think about the margins on those products versus the mirrors. Are they coming in at lower margins?

Well, what we've said with respect to Rear Camera Display and SmartBeam to date, their margins are slightly above the corporate average. So as that becomes a bigger piece that should help margins incrementally. But we do have annual customer price reductions as well.

Okay, great. Thank you very much.

Adam Brooks, Sidoti & Company.

Yes, good morning. Just a few quick questions. One, on SG&A it seems you've had a few quarters in a row now where you've run ahead of the high end of expectations. Can you maybe give a little bit of color as to what's been driving that?

Yes. One thing in the second quarter to keep in mind is, of the 23% increase on a year-over-year basis, approximately 5 percentage points of that increase related to foreign exchange rates. So absent foreign exchange it's been somewhat in line over the last few quarters when you look at increases year-over-year.

The driving factors within that increase, like Enoch had mentioned earlier, is our overseas office expenses. And that is primarily driven by hiring and travel-related expenses as we continue to add resources with those offices in regions where our business is really growing.

Sure. One more quick one, if I may sneak in here. As far as driver-assist features, maybe can you provide us an update with maybe when you would announce the first platform, and maybe any increased competition you are seeing, and what your thoughts are over the next 12 to 24 months as far as driver-assist programs?

We are basically still on the same track for announcing somewhere in the next 12 to 15, 18 months, we would expect to announce the new feature as well as programs with a customer that we're shipping for.

In terms of competition, the competition continues to be what it was. We don't see anything increasing; but there certainly is more competition in that area of our business.

All right, thank you.

Himanshu Patel, JPMorgan.

Good morning, guys. A couple questions. Connie, just on the driver-assist features, are you guys -- I think there's one of these pretty complex collision-avoidance systems on one of the Volvos. Are you guys like a Tier 2 supplier on any of these feature systems? Or would you be kind of the Tier 1 on that?

We would be the Tier 1 in providing the camera-based system.

Okay. Then if I could go back to RCD, at least externally we've been hearing more about competitors in the reconfigurable instrument panel display area talk about that product being more readily available and potentially a competitor to you guys on the RCD. First of all, have you guys sensed that there has been any increase in the number of participants in the reconfigurable IP space?

Number two, specifically, does that product face the same response-time disadvantages relative to your RCD product that I believe you guys had mentioned infotainment systems did?

Yes, most anything that is located in the dash, there is a lag time just because they have to boot up. The systems have to boot up.

We haven't seen anything new or any new entrants in that area. Again, that is a competitive area of our business as well, but we haven't seen anything new in that area.

Okay. Then lastly, can you just remind us approximately the T900 revenue mix for Gentex, where that stands today?

It's significantly lower than what it used to be given that the number of vehicles that they are producing are significantly lower. I don't know that we have actually calculated what the mix is recently.

No. I think several years ago, at one time the T900 was clearly the dominant portion of our business with GM. And as Connie has pointed out, that has significantly decreased with their reduced production as well as our increased take rates with other GM vehicles, as well as with the RCD mirrors.

So it still is a meaningful portion, but not near as dominant a share as it formerly was.

Okay. Last and somewhat related question, inside of your North American unit volume number, can you help us break down domestic versus transplant mix?

Yes, I think what we said was that the primary driver of our growth in unit shipments in North America are the domestics. Certainly some of the transplants, particular the Japanese ones, were hampered by some of the March 11 events.

But just (multiple speakers)

You're talking about on an ongoing basis?

Yes. Is it sort of a 50-50?

We typically only do that calculation once a year in terms of determine -- we do it at the end of the year in terms of determining the amount that transplants.

Just to give you an idea, Himanshu, transplants for the calendar-year 2010 were about 15%.

Of global revenues?

Of the auto-dimming unit shipments.

Understood. Thank you.

Peter Nesvold, Jefferies & Company.

Good morning. A question, admittedly a little bit backward looking, but I guess I'm just curious on the Japan supply-chain items. I think the universal view coming out on the one -- first-quarter earnings reports from all the public companies was that everyone will be able to scale down very quickly without any friction costs related to Japan, and then scale back up. And now it seems -- I guess we've had three reports in the last 2 days where the revenue hit wasn't as big as anticipated, but perhaps some of the supply chain-related costs were greater than anticipated.

I'm just curious if you could add any kind of perspective about what led to perhaps costs being a little bit more elevated to accommodate the Japanese situation.

Well, if you look at the anticipated impact on revenues and costs, our actual results were pretty much in line with what we had provided guidance for an April. So there may have certainly been other suppliers who had estimated something different, but ours were pretty much in line.

I think our supply chain-related costs were slightly higher or at the higher end of the range that we provided because we did have some opportunity to secure access to some critical automotive-grade electronic parts that were already constrained, and we decided to take advantage of that opportunity to ensure that we could meet all of our customer orders.

Okay, great. That's all I have. Thank you.

David Lim, Wells Fargo Securities.

Hi, good morning, guys. The question that I have is: is there any way that you could box the gross profit or gross margin impact related to the Japanese OEMs?

We really don't look at it that way. I mean, we did indicate that the lost revenues associated with the Japan earthquake and tsunami was about $17 million in the second quarter, which were primarily due to the Japanese automakers.

Got you. Then I guess my follow-up question is again related to the CapEx. Obviously, it looks like you're spending money for another plant.

Can we get an idea on the volume or the capacity that is going to go into that particular plant? Is it going to be so much of your -- the current plants that you have?

Well, I think, one, it's not going to be one new facility. It will be a number of different projects.

And since we are in our evaluation phase, those plans have not been totally finalized. So specific capacity numbers, we haven't finalized.

Okay, great. Thank you.

David Leiker, Robert W. Baird.

Good morning, all. So if we look at -- just to follow up on the Japan item. I mean, $17 million, is it fair to just take a contribution margin and flow that through? Or are there any tweaks or adjustments we should do that would reflect the actions you might have taken to reduce the impact from that perspective?

That would give you the ballpark impact.

So if I did my math right, it's right around $0.03 a share, or so?

We will trust you on your math, David.

Okay. Then a different item on RCD. Previously you gave guidance for the first half of up 50%, and now for the first time you are giving full-year guidance of 40%.

Two pieces of that. One, was your first-half performance -- and I know you don't like to talk this way, but I think it's important in this context. Did your first-half come in above or below that 50%?

I think it was in line with our expectations and forecasts.

Then secondly, as we look at the full-year guidance of 40% shipments, is it as simple as saying 50% in the first half, 30% in the second half gets 40% for the full year? Or are there some adjustments or other items we should be aware of in there?

No, I think that is the ballpark. And again, I think this is in line with our discussion over the past number of quarters regarding the three phases.

Right.

And that we are seeing the end of the market-driven phase. And because of the delay in the NHTSA ruling, many automakers have delayed their decisions since the legislation was signed into law at the beginning of 2008.

Okay. Thank you very much.

Greg Halter, Great Lakes Review.

Good morning. I wondered if you could delineate the foreign exchange impact to sales and your operating income in the quarter.

Yes. It wasn't that significant. In the second quarter, the impact on revenues was just under 1%.

Anything on operating profits?

Well, like I mentioned earlier on SG&A expenses, foreign exchange rates accounted for about 5 percentage points of that 23% year-over-year increase.

As we talked about before, some of our purchased parts are tied to foreign currencies also. So we have somewhat of a natural offset with some of our cost of goods sold as well as some of the SG&A expenses.

Okay. Is there any way to gauge the customer price reductions, if you will, specifically for SmartBeam and RCD? Or is that all-in for a mirror product?

Yes, that is part of the overall annual price reductions. And what we have said is for our expectations for 2011 and the actual for 2010, we are in the range of 2% to 4%.

Okay. One last one. I know you have that facility that you bought I think 3 miles down the road or up the road or across the road. Just wondering how that is performing, if that is up to speed at this point. Or just give us a status update.

Yes, we were running production in that facility in the middle of the first quarter. So we have moved production lines and people into that facility, and that facility is expected to be full and operational by the end of the summer.

Any kind of issues at this point?

No.

All right, great. Thank you.

Brett Hoselton, KeyBanc.

Good morning, Enoch, Steve, Connie. RCD, I was hoping that you could talk a little bit about the automakers and their perception towards the adoption of your product versus some of your competitors' products. What are they thinking today versus what you saw, let's say 6 months ago or a year ago?

Are they, in your opinion, more or less favorable towards the adoption of one product versus another? And why?

Well, I think a number of the automakers had established a preliminary strategy involving the location within the vehicle and the direction they wanted. With the NHTSA ruling last December, some of them had to reevaluate their strategy. I think especially with the response-time requirement and the brightness requirement, some of the locations are challenged to determine how to meet those requirements without significant additional costs.

But I think the overriding objective for most automakers is to meet the new safety standard at the least cost to them. Because they expect that everyone will be required to provide it; but there is not an incentive to do anything other than the least cost for the base solution.

As you think about -- well, obviously, that appears to be more favorable for your product. So as you think about this, let's say, slowdown in terms of shipments into the back half of the year, how do you think we ought to think about 2012, 2013, in terms those shipments?

Would you expect them to reaccelerate back into the first half of 2012? Or is there going to be maybe a further push-out into the back half of 2012 or even into 2013?

It's really going to be affected by several factors that are not within our control. The first is the timing of the final NHTSA ruling. The second is their decision whether they are going to hold to the September 2014 due date or whether they will allow an extension.

The third will be exactly -- whether they make any changes to the response time and brightness requirements. And the fourth is with these, if they don't change these requirements, will they allow any relaxation on an interim basis?

So there's probably three or four factors that really we and you will have to monitor, because those will drive the automakers' decision and the speed in which they make those decisions.

Does that suggest that we're going to have to wait until that December time frame before the automakers can make a final decision? And then they pick up their phone and call you and say: Hey, let's do something on this. Or is there something that just develops over the next 6 months?

They are going to wait to see what the final rule is. I mean, we continue to have conversations with all of our customers, and they are really starting to take deep dives into this to look at how this impacts all of their vehicles and even if they -- like for instance, even if they have nav systems in some of their vehicles, they still may need something to satisfy certain requirements on certain different trim levels or --.

I mean, so it's a very complex situation for all of our customers and they're going to wait until this ruling comes out, the final rule, to see what, based on all of those different things that Enoch just talked about. There are a lot of different factors that could swing this one way or the other.

Yes. So at least in my mind it sounds like on the margin it may be a little bit more positive for you longer-term. But in the short term, over the next 6 months to a year we could see maybe a little bit more of a lull than might have been originally expected.

Yes, I mean I think that we have continued to talk about the same thing, that there would be this kind of wait-and-see period. And I think that we continue to be in it.

Very good. Thank you very much, Connie.

At this time there are no further questions. I would like to turn the call back over to our speakers for any closing or final remarks.

Okay. Thanks, everyone, for participating in our second-quarter conference call. Follow up with us if you have additional questions. Thank you.

This does conclude today's conference call. Thank you for your participation. You may now disconnect.