Gentex Corporation
Q1 2009 Earnings Call Transcript

Published: 22 Apr 2009

[Operator:]

Good morning, ladies and gentlemen. Welcome to the Gentex First Quarter 2009 Earnings Conference Call. 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.

[Connie Hamblin:]

Thank you. Good morning, everyone. This is Gentex Corporation's first quarter conference call. On the call with me today is Enoch Jen, our Senior Vice President; and Steve Dykman, our Chief Financial Officer. This call has been broadcast live on the internet on Gentex's website at www.gentex.com. There will be an auto playback of the conference call available at website as well. I'm going to go through a few routine remarks. And then I will turn it over to Enoch Jen who will go through the quarter. This call is being recorded by Gentex Corporation. All contents of Gentex's corporation's conference calls are the property of Gentex. No such content may be copied, published, reproduced, rebroadcast, retransmitted or otherwise redistributed without the expense written consent of Gentex Corporation. Gentex Corporation alone holds such rights. While we understand that there maybe 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 or 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 of these terms. This 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 anticipate, believes, confident, 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, 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. 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. He will make his remarks with respect to the quarter. And then we will open the call up to Q&A. We would ask that you ask one question at a time, so that everyone has the opportunity to participate. Thank you.

[Enoch Jen:]

Good morning, everyone. Thank you for joining our conference call. Our revenues for the first quarter were $93.8 million, down 47% compared to $178 million in the first quarter of 2008. Our operating income for the first quarter, 2009 was $2.2 million, down 95%, compared to $40 million in the first quarter of 2008. For the first quarter of 2009, we reported a net loss of $1.6 million. This compares to net income of $30.5 million in the first quarter of 2008. In the first quarter of 2009, we reported a loss of $0.01 per share, compared to earnings of $0.21 per share in the first quarter of 2008. Excluding realized losses of $3.9 million and the impairment loss on available for sales securities of $1.3 million, earnings per share in the first quarter of 2009 would have been approximately $0.01. Next, we'll look at automotive revenues and auto-dimming mirror unit shipments. In the first quarter of 2009, total auto-dimming mirror unit shipments decreased by 50%, compared with the first quarter of last year. Automotive revenues decreased by 48% from a $172.1 million in the first quarter of 2008 to $89 million in the first quarter of 2009. Auto-dimming mirror unit shipments in North America decreased by 56% in the first quarter of 2009, compared with the same period in 2008, primarily as a result of significant lower light vehicle production. North American light vehicle production declined by 52% in the first quarter of 2009, compared with the same prior year period. GMT 900 light vehicle production was down 31% in the first quarter of 2009, compared with the same period in 2008. And those vehicles utilize an interior and exterior mirror on each vehicle. In addition, other automakers announced extended pick-up and SUV plant closings during the quarter, resulting in total truck SUV production in North America being down by 52% in the first quarter of 2009, compared with the first quarter of 2008. Auto-dimming mirror unit shipments offshore customers decreased by 46% in the first quarter of 2009, compared with the same period last year. The decrease in unit shipments was primarily due to lower light vehicle production in Asia and Europe. Light vehicle production in Europe decreased by 42% in the first quarter and decreased by 43% in Japan and Korea in the first quarter of 2009, compared with the same period last year. Looking at our average selling price per auto-dimming mirror unit, the ASP was $41.82 in the first quarter of 2009. This ASP was down sequentially per our prior guidance at 41.82 in the first quarter of 2009, primarily due to mix. The ASP was up on a year-over-year basis, compared with the first quarter of 2008, primarily due to a mix of higher featured mirrors, partially offset by annual customer price reductions. Based on CSMs, end of March light vehicle production forecasts, we continued to expect ASPs to increase over the balance of calendar year 2009, as we begin shipping for additional RCD and SmartBeam programs. First quarter of 2009 and calendar year 2009, ASPs exclude non auto-dimming mirrors as well as microphone units. This is how we will be reporting ASPs going forward. Fire protection revenues decreased by 17% to $4.9 million for the first quarter of 2009, compared with the same period last year, primarily due to the weak commercial construction market. Looking at our gross profit margins, the gross profit margin of 23.8% in the first quarter of 2009 declined sequentially from 28.4% in the fourth quarter of 2008. Approximately three quarters of the decline was due to the company's inability to leverage fixed overhead costs due to the 23% sequential decline in revenues. The balance of the decline was due to annual customer price reductions. The gross profit margin declined on a year-over-year basis from 35.2% in the first quarter of 2008, to 23.8% in the first quarter of 2009. Approximately, three quarters of the decline was due to the 47% year-over-year decline in revenues resulting in the company's inability to leverage the fixed overhead costs. The balance of the decline was due to annual customer price reductions and foreign exchange rates, partially offset by purchasing cost reductions. Based on the company's expected revenues for the second quarter of 2009 which we will discuss later in our comments, we would expect the company's gross margin to improve on a sequential basis. 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 cost reductions, VAVE initiatives and manufacturing yields. Looking at engineering, research and development expense, our ER&D expense decreased by 11% in the first quarter of 2009, compared with the same 2008 period primarily due to reduced employee compensation expense. ER&D expense is currently expected to be down approximately 10% for the second quarter of 2009, compared with the second quarter of 2008, primarily due to reduced employee compensation expense. Next, selling, general and administrative expense, SG&A expense decreased by 12% in the first quarter of 2009, compared with the same prior year period. Approximately, two-thirds of the decline was due to reduced employee compensation expense and the balance was due to foreign exchange rates. SG&A expense is currently expected to be down approximately 10% for the second quarter of 2009, compared with the second quarter of 2008, primarily due to reduced employee compensation expense and foreign exchange rates. Looking at our allowance or doubtful accounts and our customer credit exposure, the company increased its allowance for doubtful accounts by $3.8 million in the fourth quarter of 2008, related to financially distressed Tier 1 automotive customers. While the company is making progress and collecting a portion of the significantly passed to account balances from certain Tier 1 customers, the overall allowance for doubtful accounts related to all financially discussed Tier 1 automotive customers remains unchanged. The company's total credit exposure for the Detroit 3 automakers was approximately $13 million as of March 31, 2009. Each automaker's credit exposure approximately represented their respective percentage of total company revenues during the quarter. The company does not have any specific allowance for doubtful accounts established for the Detroit 3 automakers as of March 31, 2009. The company is currently evaluating the government support program terms and effective dates, which currently appear to be after March 31, 2009, for General Motors and Chrysler. To-date, the company have now entered into the government supplier support programs. Expense management activities, the company continues to work to reduce expenses in a number of different areas. The primary items that we are working on include continued purchasing cost reductions and VAVE efforts, continued slowdown in hiring, reduced incentive employee compensation, reduced travel supplies, healthcare and freight expenses, and a significant reduction in capital expenditures resulting in slower growth of deprecation expense. Looking at our other income expense line item, the breakdown for the first quarter of 2009 was as follows

[Connie Hamblin:]

As a quick reminder, all listeners should note that this call is being recorded by Gentex Corporations. All contents of Gentex's conference call is a property of Gentex Corporation. No such content maybe copied, published, reproduced, rebroadcast, retransmitted or otherwise redistributed without the expressed written consent of Gentex Corporation. Gentex Corporation alone holds such right. While we understand that there maybe 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 or 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 of these terms. At this point, we will open it up for Q&A. Again, we would ask that you try to ask one question at a time to allow others to participate. Operator?

[Operator:]

Thank you. The question-and-answer session will be conducted electronically. (Operator Instructions). And we'll take our first question from John Murphy with Merrill Lynch.

[John Murphy:]

Good morning. I'll try to keep this to one. It copies a lot of questions out there. But, I guess just focusing on gross margin, I mean it was significantly weaker than we were expecting in the first quarter. And I'm just trying to understand that as volumes potentially stabilize and recover in the future, hopefully they will. It will see a real recovery in the gross margin. And if you can kind of explain the components of the pressure on gross margins, really I mean in certain major buckets in sort of negative operating leverage pricing pressure, maybe negative mixed-shift, and just kind of give us an idea of what major leverage were there, and if it was 90%, operating the leverage and that will just comeback over time. It's surely trying to understand what's going on with the gross margin.

[Steve Dykman:]

Okay. If you look at our margin, both on a sequential basis and on a year-over-year basis, the primary driver is our inability to leverage our fixed overhead costs. And with the significant declines, we're experiencing in revenues that obviously has put some downward pressure on our margins. So, as that stabilizes, we anticipate that the margin will improve over time and obviously our objective is to get back to historical average of the 35%. And that we were at prior to the third and fourth quarter drop-in vehicle production levels.

[John Murphy:]

So there is nothing exchanged that would make you believe that that 35% is not achievable if files recover?

[Steve Dykman:]

No. So, if you think about it sequentially and year-over-year about three quarters of the margin drop was solely due to our inability to leverage fixed overhead costs.

[John Murphy:]

And there is nothing that you would do to cause in the interim to... would you do anything with cutting cost in the interim to get closer to that margin or are you're kind of comfortable with the restructuring actions you've taken to-date and maybe some variable costs around the fringes over the next couple of quarters and it's kind of a waiting game for this volume to stabilize and recover?

[Steve Dykman:]

Yeah, I think we're making progress on the cost side of things. And we continue to look at cost reductions. However, from the fixed overhead cost standpoint that takes a little bit more time and you can't react quite as quickly. And with the significant revenue declines, it's real difficult.

[John Murphy:]

Okay. Thank you very much.

[Operator:]

And Rich Kwas with Wachovia has our next question.

[Richard Kwas:]

Hi, everyone.

[Enoch Jen:]

Good morning.

[Richard Kwas:]

Following up on John's question on the margin, if... you mentioned the sequential decline in revenue. It looks like North American production is going to be up somewhere in the neighborhood 4, 500,000 units sequentially. Should we think about the margin improvement in Q2 kind of corresponding to that increase in production here North America? Is that the way to think about in terms of the magnitude of potential improvement?

[Steve Dykman:]

Yeah. It's one way to look at that if you're going to calculate an estimate for margin in Q2 is if you look at our guidance for revenue declines of approximately 30%, and what we said in the past is that our fixed overhead costs run about 10 to 15 percentage points of revenues. So, you can do the math and see that there is going to... we're anticipating some sequential improvement in our margins in the second quarter.

[Richard Kwas:]

Okay. So the contribution margin should get a little bit better or detrimental margin should get a little bit better sequentially?

[Steve Dykman:]

Yes.

[Richard Kwas:]

Okay, perfect. Okay. And then, for the other expense line at 8 million negative, how do we think about that? Is that kind of a run rate to use or is that going to come down over the next few quarters?

[Steve Dykman:]

Well, I think when you look at the investment income, that's dropping significantly on a year-over-year basis primarily due to lower interest rates. So that's were inline should be similar going forward with the exception of the fourth quarter, where we historically had some year-end mutual fund distributions. And as Enoch mentioned, $1.3 million related to an impairment loss due to the accounting rules, so that's going to be largely dependant on the future performance of the equity markets. And then, I think as far as realized gains or losses in Q2 that also will be largely dependant on the general equity market performance. So we're not anticipating any significant shifts to the recent trend lines.

[Richard Kwas:]

Okay. Last question. I know this is a third one. But just the... just going back to the margin longer term, is there kind of a... to get that back to 35% level, is there a production level that you're benchmarking for North America and Europe to get to that level? Some other suppliers have talked about getting to a certain production level to achieve breakeven and some have gotten to levels that are going to probably be realized this year in terms of getting to a breakeven point. So, I mean just trying to think about getting back that 35% level, I assume that production that would be much higher than it has than it is right now. But I just wanted to get your thoughts on where that would be?

[Steve Dykman:]

Well, I think Rich first off; I think we tend to look at global production levels just because our customer base is more diversified and more concentrated overseas. And I think in the past what we said is in order for us to achieve the 35% gross margin that we would need a flat global production environment. And obviously we've had a significant decline over the past six to nine months. So we are going to have to get back to significantly higher global production levels, which we think could take a few years. And I think CSM is thus beginning to agree with that outlook.

[Richard Kwas:]

Okay. Okay, that's helpful. Thank you.

[Operator:]

And we'll take our next question from Himanshu Patel with JPMorgan.

[Himanshu Patel:]

Hi. Enoch, you had mentioned earlier that Gentex was assessing whether or not it was going to participate in the supplier receivable backstopping program from U.S. Treasury. Can you just tell us what considerations are going into your assessment there?

[Enoch Jen:]

Okay. Well, like many other suppliers, I think we're trying to make sure that we understand all of the terms and conditions of the program. And I think there is a certain group of suppliers that have such a large percentage of their business with Kia and or Chrysler, and also their financial fortunes are very closely tied to those two automakers that regardless of the terms and conditions, those suppliers needed to sign up for the program regardless. And I think what's our situation where GM and Chrysler represents a smaller percentage of our total business and that's our current understating that only a percentage of our business with GM and Chrysler would be covered under the program. We want to make sure that we understand what we're signing up for on a financial condition or balance sheet basis, obviously we could absorb the loss. As business people with the increasing likelihood that one or both automakers will need to declare bankruptcy. Obviously, we are looking to minimize any potential of bad debt losses.

[Himanshu Patel:]

Is this a discussion that involves some sort of situation where you may order to participate, you're being asked to get back more on pricing?

[Enoch Jen:]

Well, I think to-date, GM has not indicated that there are many additional terms and conditions. Chrysler has verbally indicated that there are some additional terms and conditions. And we just want to make sure that we understand what we would be signing up for before we commit ourselves. And certainly, I think Chrysler is for those who will follow the industry in this situation, there are some indications that Chrysler is talking about price reductions as well as extended payment terms.

[Himanshu Patel:]

Okay. The European scrappage program, that's been launched and clearly volumes are being helped but there has been an adverse shift on mix. I'm just wondering, what do you guys seeing in your forward production schedules for April, May and June? Are the platforms that Gentex is exposed to in Europe or are they actually seeing any improvement in productions schedules or is that not the case?

[Enoch Jen:]

Well, like you indicated the short-term results of the government scrappage programs in Europe have primarily resulted in significantly increased sales of very small vehicles. And so, as we look out there has not been much noticeable impact on our European customer base, which is primarily focused on luxury... near luxury and mid-size vehicle segments. So, we are not seeing any change in production levels for the vast majority of the vehicles that we shift to based on the scrappage program.

[Himanshu Patel:]

Okay. And then, just one last question on the gross margins. I haven't got a chance to go through the maths. But just... you guided the 30% dime on revenue. That's about a 120 million of revenue for Q2. That's basically what your Q4 revenues were. Is it a reason to think your gross margins would be that much different than what you just posted in Q4?

[Steve Dykman:]

No.

[Himanshu Patel:]

Okay. Thank you.

[Steve Dykman:]

Yeah.

[Operator:]

And our next question comes from Brett Hoselton with KeyBanc.

[Brett Hoselton:]

Good morning.

[Enoch Jen:]

Good morning Brett.

[Steve Dykman:]

Good morning.

[Brett Hoselton:]

Looking at your mirror shipments, just comparing them to production. It looks like your mirror shipments were a little bit worse than production in the first quarter. And you're expecting them to be a little bit better than production in the second quarter. And my question is, is that simply a mix issue?

[Enoch Jen:]

Yes. It's primarily a mix issue. I mean we were impacted in the first quarter by a number of the vehicles that we ship to which would include the light truck segment in North America and the Luxury Passenger Car segment in Europe that on average tended to offer two or three mirror systems.

[Brett Hoselton:]

And, as you think about that 25% of the gross margin decline that you attribute to price reductions versus, and FX versus cost reductions. If I would have strip out the FX portion, are you able to reduce your costs as quickly as you're able, or as quickly as your price reductions are occurring?

[Steve Dykman:]

That has been our objectives. And that is close to offsetting the annual customer price reduction.

[Brett Hoselton:]

Okay. Very good. Thank you.

[Operator:]

And David Leiker with Robert W. Baird has our next question.

[David Leiker:]

Hi. Good morning.

[Enoch Jen:]

Good morning David.

[Steve Dykman:]

Hi.

[David Leiker:]

I missed a bit of your initial call, has done something else. But if you look at second quarter production, and I'm sure you talked about this. But, we're hearing from a couple of different places that there are some scheduled productions, plant closings here in May and June that some folks are saying could end up in Q2 building flat but Q1 build. I was curious if you're seeing that in any of your releases as you look out over the next several weeks?

[Steve Dykman:]

We are starting to see some of the final assembly plans and noun shutdowns longer than the historical two week shutdowns around the 4th of July. And, our expectation is that we'll see an increased number of these extended plant shutdowns. We're... at this time we're not expecting the shutdowns to be so great as to bring second quarter production levels down to first quarter production levels. From our standpoint, quite a few customer assembly plans extended their Christmas shutdowns into January and even into February. And certainly, there is some downside risk in June as we approach the end of the model year and excess vehicle inventories if they continue to remain high. And then, I think a number of the extended plant shutdowns more likely will occur in the third quarter into second half of July and possibly into August.

[David Leiker:]

Do you think what you have seeing out in that June time period is captured in the CSM numbers already or not?

[Steve Dykman:]

We're not thinking it's fully captured in the CSM numbers.

[David Leiker:]

Okay. And then just one other item here on a different topic, just kind of take rates or penetration rates on particular vehicles. And, yeah I know it's difficult to cross the entire universe to do it. But if you look at particular plans, you'll take a Camry plan, you know how many mirrors you shipped them and you know how many Camries they make. Have you seen any change in the penetration rates when you look, but not necessary Camry, but when you look at specifically plants and your shipments relative to that?

[Steve Dykman:]

We have not seen any significant changes in any take rates across the vehicles that we shipped to.

[David Leiker:]

Okay, great. Thank you very much.

[Steve Dykman:]

Welcome.

[Operator:]

(Operators Instructions). And our next question comes from Jason Rogers with Great Lakes Review.

[Jason Rogers:]

Hi. Can you give the figure for the ASP in the quarter? I missed the year ago figure though.

[Enoch Jen:]

Okay. I think probably we didn't give it Jason. So you didn't miss anything.

[Jason Rogers:]

Okay.

[Enoch Jen:]

The year ago figure, so this would be for the first quarter of 2008 was $40.94.

[Jason Rogers:]

Okay. And looking at your balance sheet, could you break out the dollar figure as far as cash and investments, what's in equities, what's in money markets and what's in short-term governments and CDs?

[Enoch Jen:]

Sure. As of March 31, we had cash and cash equivalents of just under 309 million. Short-term investments were just under 25 million, that's primarily in government securities, and long-term investments were just over 59 million. And the primary drivers of the drop and the value from December 31 were there were some equity investments that were sold during the quarter and that reinvested back into the market as of March 31.

[Jason Rogers:]

Okay. And just finally, looking at your guidance based on the CSM numbers, you're looking for roughly 25 or 30% sequential improvement in sales. And that... is that based just totally on the CSM forecast? It just seems fairly aggressive given what's happened with the economy and talking about extended plant shutdowns. I'm just trying to get a better feel for maybe this sequential optimism you are looking for?

[Enoch Jen:]

That is based on the CSM and the March forecast. As the taker option rates have not changed significantly. So, I think as a couple of things, one is that we said that I think there is some downside to the CSM forecast as we approach the end of the another year.

[Jason Rogers:]

Okay. Thanks.

[Operator:]

And we have a follow-up question from Brett Hoselton with KeyBanc.

[Brett Hoselton:]

Hello again.

[Connie Hamblin:]

Hello.

[Brett Hoselton:]

The mixed investments that you just mentioned the long-term 59 million, does that include equity?

[Steve Dykman:]

That is primarily all equities.

[Brett Hoselton:]

Okay. And then as you think about the percentage of euro denominated contracts as a percentage of revenue, where that stand at this point in time?

[Steve Dykman:]

For calendar year 2009, it's approximately 12%.

[Brett Hoselton:]

Okay. And as we think about maybe let's say the mismatch between the cost, your cost and the revenue side of that very, very roughly the percentage of your cost that are euro denominated?

[Steve Dykman:]

Well, what we've said is that we're about 50% naturally hedged. And if you think as in the first quarter, just under one percentage point of our revenue decline related to foreign exchange rates, and then there would be roughly half of that offset through material and SG&A costs, so it's not that significant.

[Enoch Jen:]

And probably with the greater decline in revenues, our natural cost hedges probably a higher percentage than it has been historically.

[Brett Hoselton:]

Okay. And then while I was typing as fast I could, you went to the other expense and income lines. So, I may have gotten this wrong, but the $1.2 million in investment income, that's basically your interest rate yielding items, correct?

[Steve Dykman:]

Correct.

[Brett Hoselton:]

Okay. The 1.2 million impairment change reduced basically mark-to-market your equity portfolio?

[Steve Dykman:]

Correct.

[Brett Hoselton:]

Okay. 3.9 million realized losses is entirely just your realized equity losses, right?

[Steve Dykman:]

Correct.

[Brett Hoselton:]

Okay. Now, I've got a... now the 4.5 million other?

[Steve Dykman:]

Yeah.

[Brett Hoselton:]

And what is that?

[Steve Dykman:]

Well, 3.9 of that, 4.5 million relates to the realized losses on the sale of equity investments, that's the majority of it.

[Brett Hoselton:]

Okay. So basically, the remainder of it is just miscellaneous stuff?

[Steve Dykman:]

Correct.

[Brett Hoselton:]

Okay, perfect. Thank you very, very much.

[Operator:]

And we have a follow-up question from John Murphy with Merrill Lynch.

[John Murphy:]

Well, the one question that has been busted wide open. I'll fall for sort of a two part here. There is two areas where you guys appeared to be drifting cash. First, in share repurchase and second, sort of in the combination of R&D and CapEx pullback. I was just wondering, with the shares where they are and your cap is somewhere it is, why you haven't been more aggressive on shared buybacks because you certainly, you don't have any debt, you have a lot of cash, that sort of a first part of the question.

[Steve Dykman:]

Well, I think John in today's environment, we are more concerned about the potential downside. And with not being sure during the first quarter of exactly where production levels were going to bottom out or in fact whether they are going to. And with the increasing risk of customer bankruptcies, which could disrupt the entire automotive supply chain because many suppliers supply most of the OEM globally. We felt it was important to be more cautious. And in looking at the cash dividend versus share repurchases, the Board at our most recent meeting felt that until they had a better handle on the magnitude and duration of the recession, that's they preferred to elect to maintain the cash dividend and be more cautious on share repurchases.

[John Murphy:]

Okay. And then if you think about the R&D and CapEx, I mean clearly I guess the same thought process goes, this is far as conserving cash. But what kind of an impact might that have on the business going forward. Is this all real variable stuff that you are able to just sort of knock-out of the cost and CapEx equations? Or is there anything in the future as far as product launched delays or anything like that that are working into the equation here and will have any impact in the business in the next couple of years?

[Steve Dykman:]

Yeah. I think on the R&D and CapEx, the focus is not so much at conserving cash. But on the capital expenditures, we've always said that it's been a combination of increasing our capacity and maintenance, or improving our processes, replacing other equipment. And so, with the decline in global production levels and therefore a decline in our production, we have not needed most of the capital expenditures that historically has been dedicated to increasing our production capacity. And ER&D, and we talked about a couple of things. One is we've just... we said that we are taking a closer look at all of our ER&D programs and making sure that there is a tangible payoff in a shorter time period than maybe we will willing to accept previously on all new programs. So this is business that we have been awarded to begin production and shipments in the next two to three years. We are funding all of those programs and ensuring that they do meet the customer milestones. There have been a few customer programs that have been delayed or cancelled, so that to have some impact on the historical increase in the ER&D expenses also.

[John Murphy:]

Okay. And then just lastly is, the exposure of the Chrysler that you are at right now, what's the level... I think it's been 13 to 14% at the end of last year, what's... what was the level on the first quarter?

[Steve Dykman:]

What we have said is that as a percentage of revenues, they account for mid-single digits.

[John Murphy:]

Okay, great. Thank you very much.

[Operator:]

And there are no further questions at this time. Ms. Hamblin, I'd like to turn the conference back over to for any additional or closing remarks.

[Connie Hamblin:]

I'd like to thank everybody for participating in the conference call. And we will be here if you have additional questions. Thank you. Have a good day.

[Operator:]

Thank you for joining this Gentex conference call. That does conclude our presentation. Have a nice day.